Wells Fargo & Company (WFC) SEC Quarterly Report (10-Q) for Q2 2018

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

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 94163

(Address of principal executive offices) (Zip Code)

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

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 ☑		No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Yes ☑		No o

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



	Large accelerated filer ☑		Accelerated filer o

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

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

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



Yes o		No ☑

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



		Shares Outstanding
		July 25, 2018
Common stock, $1-2/3 par value		4,816,137,157



FORM 10-Q
CROSS-REFERENCE INDEX
PART I	Financial Information
Item 1.	Financial Statements			Page
	Consolidated Statement of Income			65
	Consolidated Statement of Comprehensive Income			66
	Consolidated Balance Sheet			67
	Consolidated Statement of Changes in Equity			68
	Consolidated Statement of Cash Flows			70
	Notes to Financial Statements
	1	-	Summary of Significant Accounting Policies	71
	2	-	Business Combinations	74
	3	-	Cash, Loan and Dividend Restrictions	75
	4	-	Trading Activities	76
	5	-	Available-for-Sale and Held-to-Maturity Debt Securities	78
	6	-	Loans and Allowance for Credit Losses	85
	7	-	Equity Securities	102
	8	-	Other Assets	104
	9	-	Securitizations and Variable Interest Entities	105
	10	-	Mortgage Banking Activities	113
	11	-	Intangible Assets	116
	12	-	Guarantees, Pledged Assets and Collateral, and Other Commitments	118
	13	-	Legal Actions	122
	14	-	Derivatives	126
	15	-	Fair Values of Assets and Liabilities	136
	16	-	Preferred Stock	157
	17	-	Revenue from Contracts with Customers	160
	18	-	Employee Benefits	164
	19	-	Earnings Per Common Share	165
	20	-	Other Comprehensive Income	166
	21	-	Operating Segments	168
	22	-	Regulatory and Agency Capital Requirements	169
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data			2
	Overview			3
	Earnings Performance			7
	Balance Sheet Analysis			21
	Off-Balance Sheet Arrangements			24
	Risk Management			25
	Capital Management			51
	Regulatory Matters			58
	Critical Accounting Policies			60
	Current Accounting Developments			61
	Forward-Looking Statements			62
	Risk Factors			63
	Glossary of Acronyms			170
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			45
Item 4.	Controls and Procedures			64

PART II	Other Information
Item 1.	Legal Proceedings			171
Item 1A.	Risk Factors			171
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			171
Item 6.	Exhibits			172

Signature				173

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW



Summary Financial Data
						% Change
	Quarter ended					Jun 30, 2018 from				Six months ended
($ in millions, except per share amounts)	Jun 30, 2018			Mar 31, 2018	Jun 30, 2017	Mar 31, 2018		Jun 30, 2017		Jun 30, 2018			Jun 30, 2017	% Change
For the Period
Wells Fargo net income	$	5,186		5,136	5,856	1	%	(11	)	$	10,322		11,490	(10	)%
Wells Fargo net income applicable to common stock	4,792			4,733	5,450	1		(12	)	9,525			10,683	(11	)
Diluted earnings per common share	0.98			0.96	1.08	2		(9	)	1.94			2.11	(8	)
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)	1.10		%	1.09	1.22	1		(10	)	1.10		%	1.20	(8	)
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)	10.60			10.58	12.06	-		(12	)	10.59			12.01	(12	)
Return on average tangible common equity (ROTCE) (1)	12.62			12.62	14.41	-		(12	)	12.62			14.38	(12	)
Efficiency ratio (2)	64.9			68.6	60.9	(5	)	7		66.7			61.4	9
Total revenue	$	21,553		21,934	22,235	(2	)	(3	)	$	43,487		44,490	(2	)
Pre-tax pre-provision profit (PTPP) (3)	7,571			6,892	8,694	10		(13	)	14,463			17,157	(16	)
Dividends declared per common share	0.39			0.39	0.38	-		3		0.780			0.760	3
Average common shares outstanding	4,865.8			4,885.7	4,989.9	-		(2	)	4,875.7			4,999.2	(2	)
Diluted average common shares outstanding	4,899.8			4,930.7	5,037.7	(1	)	(3	)	4,916.1			5,054.8	(3	)
Average loans	$	944,079		951,024	956,879	(1	)	(1	)	$	947,532		960,243	(1	)
Average assets	1,884,884			1,915,896	1,927,021	(2	)	(2	)	1,900,304			1,929,020	(1	)
Average total deposits	1,271,339			1,297,178	1,301,195	(2	)	(2	)	1,284,187			1,300,198	(1	)
Average consumer and small business banking deposits (4)	754,047			755,483	760,149	-		(1	)	754,898			759,455	(1	)
Net interest margin	2.93		%	2.84	2.90	3		1		2.89		%	2.89	-
At Period End
Debt securities (5)	$	475,495		472,968	462,890	1		3		$	475,495		462,890	3
Loans	944,265			947,308	957,423	-		(1	)	944,265			957,423	(1	)
Allowance for loan losses	10,193			10,373	11,073	(2	)	(8	)	10,193			11,073	(8	)
Goodwill	26,429			26,445	26,573	-		(1	)	26,429			26,573	(1	)
Equity securities (5)	57,505			58,935	55,742	(2	)	3		57,505			55,742	3
Assets	1,879,700			1,915,388	1,930,792	(2	)	(3	)	1,879,700			1,930,792	(3	)
Deposits	1,268,864			1,303,689	1,305,830	(3	)	(3	)	1,268,864			1,305,830	(3	)
Common stockholders' equity	181,386			181,150	181,233	-		-		181,386			181,233	-
Wells Fargo stockholders' equity	205,188			204,952	205,034	-		-		205,188			205,034	-
Total equity	206,069			205,910	205,949	-		-		206,069			205,949	-
Tangible common equity (1)	152,580			151,878	151,868	-		-		152,580			151,868	-
Capital ratios (6):
Total equity to assets	10.96		%	10.75	10.67	2		3		10.96		%	10.67	3
Risk-based capital:
Common Equity Tier 1	11.98			11.92	11.87	1		1		11.98			11.87	1
Tier 1 capital	13.83			13.76	13.68	1		1		13.83			13.68	1
Total capital	16.98			16.92	16.91	-		-		16.98			16.91	-
Tier 1 leverage	9.51			9.32	9.28	2		2		9.51			9.28	2
Common shares outstanding	4,849.1			4,873.9	4,966.8	(1	)	(2	)	4,849.1			4,966.8	(2	)
Book value per common share (7)	$	37.41		37.17	36.49	1		3		$	37.41		36.49	3
Tangible book value per common share (1)(7)	31.47			31.16	30.58	1		3		31.47			30.58	3
Common stock price:
High	57.12			66.31	56.60	(14	)	1		66.31			59.99	11
Low	50.26			50.70	50.84	(1	)	(1	)	50.26			50.84	(1	)
Period end	55.44			52.41	55.41	6		-		55.44			55.41	-
Team members (active, full-time equivalent)	264,500			265,700	270,600	-		(2	)	264,500			270,600	(2	)

(1)

Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, and goodwill and certain identifiable intangible assets (including goodwill and intangible assets associated with certain of our nonmarketable equity securities, but excluding mortgage servicing rights), net of applicable deferred taxes. The methodology of determining tangible common equity may differ among companies. Management believes that return on average tangible common equity and tangible book value per common share, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company's use of equity. For additional information, including a corresponding reconciliation to 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)

Financial information for the prior periods of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of Accounting Standards Update (ASU) 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , which amends the presentation and accounting for certain financial instruments, including equity securities. See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report for more information.

(6)

The risk-based capital ratios were calculated under the lower of 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; however, the requirements for calculating tier 2 and total capital are still in accordance with Transition Requirements. See the "Capital Management" section and Note 22 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.


(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 the "Risk Factors" and "Regulation and Supervision" sections of our Annual Report on Form 10-K for the year ended December 31, 2017 ( 2017 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

1

Overview

Wells Fargo & Company is a diversified, community-based financial services company with $1.88 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 8,050 locations, 13,000 ATMs, digital (online, mobile and social), and contact centers (phone, email and correspondence), and we have offices in 38 countries and territories to support customers who conduct business in the global economy. With approximately 265,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 26 on Fortune's 2018 rankings of America's largest corporations. We ranked fourth in assets and third in the market value of our common stock among all U.S. banks at June 30, 2018 .

We use our Vision, Values and Goals to guide us toward growth and success. Our vision is to satisfy our customers' financial needs and help them succeed financially. We aspire to create deep and enduring relationships with our customers by providing them with an exceptional experience and by understanding their needs and delivering the most relevant products, services, advice, and guidance.

We have five primary values, which are based on our vision and guide the actions we take. First, we place customers at the center of everything we do. We want to exceed customer expectations and build relationships that last a lifetime. Second, we value and support our people as a competitive advantage and strive to attract, develop, motivate, and retain the best team members. Third, we strive for the highest ethical standards of integrity, transparency, and principled performance. Fourth, we value and promote diversity and inclusion in all aspects of business and at all levels. Fifth, we look to each of our team members to be a leader in establishing, sharing, and communicating our vision for our customers, communities, team members, and shareholders. In addition to our five primary values, one of our key day-to-day priorities is to make risk management a competitive advantage by working hard to ensure that appropriate controls are in place to reduce risks to our customers, maintain and increase our competitive market position, and protect Wells Fargo's long-term safety, soundness, and reputation.

Financial information for the prior periods of 2017 has been revised to reflect our adoption in first quarter 2018 of Accounting Standards Update (ASU) 2016-01 Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report for more information.

In keeping with our primary values and risk management priorities, we have six long-term goals for the Company, which entail becoming the financial services leader in the following areas:


•	Customer service and advice – provide exceptional service and guidance to our customers to help them succeed financially.


•	Team member engagement – be a company where people feel included, valued, and supported; everyone is respected; and we work as a team.


•	Innovation – create lasting value for our customers and increased efficiency for our operations through innovative thinking, industry-leading technology, and a willingness to test and learn.


•	Risk management – set the global standard in managing all forms of risk.


•	Corporate citizenship – make a positive contribution to communities through philanthropy, advancing diversity and inclusion, creating economic opportunity, and promoting environmental sustainability.


•	Shareholder value – deliver long-term value for shareholders.

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 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 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 third-party reviews of the enhancements and improvements provided for in the plans. Until these third-party reviews are complete and the plans are approved and implemented to the satisfaction of the FRB, the Company's total consolidated assets will be limited to the level as of December 31, 2017. Compliance with this asset cap will be measured on a two-quarter daily average basis to allow for management of temporary fluctuations. The Company has had constructive dialogue with, and has received detailed feedback from, the FRB regarding the plans. In order to have enough time to incorporate this feedback into the plans in a thoughtful manner and to complete the required third-party reviews, which were initially due September 30, 2018, the Company is planning to operate under the asset cap through the first part of 2019. A second third-party review must also be conducted to assess the efficacy and sustainability of the improvements. During second quarter 2018, our average assets were below our level of total assets as of December 31, 2017.

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

On April 20, 2018 we entered into consent orders with the CFPB and OCC to pay an aggregate of $1 billion in civil money penalties to resolve matters regarding our compliance risk management program and past practices involving certain automobile collateral protection insurance 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. The consent orders also require the Company to submit for non-objection, within 120 days of the date of the consent orders, a plan to develop and implement a remediation program that is applicable to remediation activities conducted by the Company.

Retail Sales Practices Matters

As we have previously reported, in September 2016 we announced settlements with the CFPB, the OCC, and the Office of the Los Angeles City Attorney, and entered into 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 our top priority to rebuild trust through a comprehensive action plan that includes making things right for our customers, team members, and other stakeholders, and building a better Company for the future.

Our priority of rebuilding trust has included numerous actions focused on identifying potential financial harm and customer remediation. The Board and management are conducting company-wide reviews of sales practices issues. These reviews are ongoing. In August 2017, a third-party consulting firm completed an expanded data-driven review of retail banking accounts opened from January 2009 to September 2016 to identify financial harm stemming from potentially unauthorized accounts. We have provided customer remediation based on the expanded account analysis.

For additional information regarding sales practices matters, including related legal matters, see the "Risk Factors" section in our 2017 Form 10-K and Note 13 (Legal Actions) to Financial Statements in this Report.

Additional Efforts to Rebuild Trust

Our priority of rebuilding trust has also included an effort to identify other areas or instances where customers may have experienced financial harm. We are working with our regulatory agencies in this effort. As part of this effort, we are focused on the following key areas:


•	Automobile Lending Business The Company is reviewing practices concerning the origination, servicing, and/or collection of consumer automobile loans, including matters related to certain insurance products. For example:


◦	In July 2017, the Company announced a plan to remediate customers who may have been financially harmed due to issues related to automobile collateral protection insurance (CPI) policies purchased through a third-party vendor on their behalf. The practice of

placing CPI had been previously discontinued by the Company. Commencing in August 2017, the Company began sending refund checks and/or letters to affected customers through which they may claim or otherwise receive remediation compensation for policies placed between October 15, 2005, and September 30, 2016. The Company currently estimates that it will provide approximately $212 million in cash remediation under the plan. The amount of remediation may be affected by the requirements of the consent orders entered into with the CFPB and OCC as described above.


◦	The Company has identified certain issues related to the unused portion of guaranteed automobile protection waiver or insurance agreements between the dealer and, by assignment, the lender, which will result in refunds to customers in certain states.

•

Mortgage Interest Rate Lock Extensions In October 2017, the Company announced plans to reach out to all home lending customers who paid fees for mortgage rate lock extensions requested from September 16, 2013, through February 28, 2017, and to provide refunds, with interest, to customers who believe they should not have paid those fees. The plan to issue refunds follows an internal review that determined a rate lock extension policy implemented in September 2013 was, at times, not consistently applied, resulting in some borrowers being charged fees in cases where the Company was primarily responsible for the delays that made the extensions necessary. Effective March 1, 2017, the Company changed how it manages the mortgage rate lock extension process by establishing a centralized review team that reviews all rate lock extension requests for consistent application of the policy. Although the Company believes a substantial number of the rate lock extension fees during the period in question were appropriately charged under its policy, due to our customer-oriented remediation approach, we have issued, as of July 31, 2018, over $100 million in refunds and interest to substantially all of our customers who paid rate lock extension fees during the period in question.

•

Add-on Products The Company is reviewing practices related to certain consumer "add-on" products, including identity theft and debt protection products that were subject to an OCC consent order entered into in June 2015, as well as home and automobile warranty products, and memberships in discount programs. The products were sold to customers through a number of distribution channels and, in some cases, were acquired by the Company in connection with the purchase of loans. Sales of certain of these products have been discontinued over the past few years primarily due to decisions made in the normal course of business, and by mid-2017, the Company had ceased selling any of them to consumers. The review of the Company's historical practices with respect to these products is ongoing, focusing on, among other topics, sales practices, adequacy of disclosures, customer servicing, and volume and type of customer complaints. We are providing remediation where we identify affected customers, and may also provide refunds to customers who purchased certain products.


•	Consumer Deposit Account Freezing/Closing The Company is reviewing procedures regarding the freezing (and, in many cases, closing) of consumer deposit accounts after the Company detected suspected fraudulent activity (by third-parties or account holders) that affected those accounts.

Overview (continued)

•

Review of Certain Activities Within Wealth and Investment Management A review of certain activities within Wealth and Investment Management (WIM) being conducted by the Board, in response to inquiries from federal government agencies, is assessing whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the Company's investment and fiduciary services business. The review is ongoing.

•

Fiduciary and Custody Account Fee Calculations The Company is reviewing fee calculations within certain fiduciary and custody accounts in its investment and fiduciary services business, which is part of the wealth management business within WIM. The Company has determined that there have been instances of incorrect fees being applied to certain assets and accounts, resulting in both overcharges and undercharges to customers. These issues include the incorrect set-up and maintenance in the system of record of the values associated with certain assets. Systems, operations, and account-level reviews are underway to determine the extent of any assets and accounts affected, and root cause analyses are being performed with the assistance of third parties. These reviews are ongoing and, as a result of its reviews to date, the Company has suspended the charging of fees on some assets and accounts, has notified the affected customers, and is continuing its analysis of those assets and accounts. The Company has accrued $120 million through second quarter 2018 to refund customers who may have been overcharged during the past seven years. The third-party review of customer accounts is ongoing to determine the extent of any additional necessary remediation, including with respect to additional accounts not yet reviewed, which may lead to additional accruals. As these reviews continue, the Company will consider suspending fees on additional assets and accounts, while continuing the process of analyzing those assets and accounts.

•

Foreign Exchange Business The Company has substantially completed an assessment, with the assistance of a third party, of its policies, practices, and procedures in its foreign exchange (FX) business. The business is in the process of revising and implementing new policies, practices, and procedures, including those related to pricing. The Company has accrued $171 million through second quarter 2018 for customer remediation and rebate costs. This accrual includes $31 million to remediate customers that may have received pricing inconsistent with commitments made to those customers. The Company's review of affected customers is ongoing to determine the extent of any additional remediation. In addition, this accrual includes $140 million to rebate customers over a seven-year period where historic pricing, while consistent with contracts entered into with those customers, does not conform to recently implemented standards and pricing.

•

Mortgage Loan Modifications An internal review of the Company's use of a mortgage loan modification underwriting tool identified a calculation error that affected certain accounts that were in the foreclosure process between April 13, 2010, and October 20, 2015, when the error was corrected. This error in the modification tool caused an automated miscalculation of attorneys' fees that were included for purposes of determining whether a customer qualified for a mortgage loan modification pursuant to the requirements of government-sponsored enterprises (such as

Fannie Mae and Freddie Mac) and the U.S. Department of Treasury's Home Affordable Modification Program (HAMP). Customers were not actually charged the incorrect attorneys' fees. As a result of this error, approximately 625 customers were incorrectly denied a loan modification or were not offered a modification in cases where they would have otherwise qualified. In approximately 400 of these instances, after the loan modification was denied or the customer was deemed ineligible to be offered a loan modification, a foreclosure was completed. The Company has substantially completed its internal review, subject to final validation, of mortgages where an attorney fee-related error could have occurred. In second quarter 2018, the Company accrued $8 million to remediate customers whose modification decisions may have been affected by the calculation error.

To the extent issues are identified, we will continue to assess any customer harm and provide remediation as appropriate. This effort to identify other instances in which customers may have experienced harm is ongoing, and it is possible that we may identify other areas of potential concern. For more information, including related legal and regulatory risk, see the "Risk Factors" section in our 2017 Form 10-K and Note 13 (Legal Actions) to Financial Statements in this Report.

Financial Performance

Wells Fargo net income was $5.2 billion in second quarter 2018 with diluted earnings per common share (EPS) of $ 0.98 , compared with $5.9 billion and $1.08 , respectively, a year ago. Second quarter 2018 results included $481 million of net discrete income tax expense mostly related to state income taxes driven by the recent U.S. Supreme Court decision in South Dakota v. Wayfair . Also in second quarter 2018:


•	revenue was $21.6 billion , down $682 million compared with a year ago, with net interest income up 1% and noninterest income down 8% from a year ago;


•	average loans were $944.1 billion, down $12.8 billion, or 1%, from a year ago;


•	average deposits were $1.3 trillion , down $29.9 billion , or 2% , from a year ago;


•	return on assets (ROA) of 1.10% and return on equity (ROE) of 10.60% , were down from 1.22% and 12.06% , respectively, a year ago;


•	our credit results improved with a net charge-off rate of 0.26% (annualized) of average loans in second quarter 2018, compared with 0.27% a year ago;


•	nonaccrual loans of $7.5 billion were down $1.6 billion, or 17%, from a year ago; and


•	we returned $4.0 billion to shareholders through common stock dividends and net share repurchases, which was the 12th consecutive quarter of returning more than $3 billion.

Balance Sheet and Liquidity

Despite the asset cap placed on us from the consent order with the FRB, our balance sheet remained strong during second quarter 2018 with strong credit quality and solid levels of liquidity and capital. Our total assets were $1.88 trillion at June 30, 2018 . Cash and other short-term investments decreased $52.3 billion from December 31, 2017 , reflecting lower deposit balances. Debt securities were $475.5 billion at June 30, 2018 , an increase of $2.1 billion from December 31, 2017 , driven by an increase in debt securities held for trading partially offset by runoff and sales in the available for sale portfolio. Loans were down $12.5 billion, or 1%, from December 31, 2017 , largely due to a decline in automobile and junior lien mortgage loans.

Average deposits in second quarter 2018 were $1.27 trillion , down $29.9 billion from second quarter 2017 . The decline was driven by a decrease in commercial deposits, primarily from financial institutions, which includes actions the Company has taken in response to the asset cap, partially offset by higher interest-bearing checking deposits. Our average deposit cost in second quarter 2018 was 40 basis points, up 19 basis points from a year ago, primarily driven by an increase in commercial and Wealth and Investment Management deposit rates.

Credit Quality

Solid overall credit results continued in second quarter 2018 as losses remained low and we continued to originate high quality loans, reflecting our long-term risk focus. Net charge-offs were $602 million , or 0.26% (annualized) of average loans, in second quarter 2018 , compared with $655 million a year ago ( 0.27% ). The decrease in net charge-offs in second quarter 2018 , compared with a year ago, was driven by lower losses in the commercial and industrial loan and other revolving credit and installment portfolios.

Our commercial portfolio net charge-offs were $67 million , or 5 basis points of average commercial loans, in second quarter 2018 , compared with net charge-offs of $75 million , or 6 basis points, a year ago. Net consumer credit losses decreased to 49 basis points (annualized) of average consumer loans in second quarter 2018 from 51 basis points (annualized) in second quarter 2017 . Approximately 81% of the consumer first mortgage loan portfolio outstanding at June 30, 2018 , was originated after 2008, when more stringent underwriting standards were implemented.

The allowance for credit losses as of June 30, 2018 , decreased $1.0 billion compared with a year ago and decreased $850 million from December 31, 2017. We had a $150 million release in the allowance for credit losses in second quarter 2018, compared with a $100 million release a year ago. The allowance coverage for total loans was 1.18% at June 30, 2018 , compared with 1.27% a year ago and 1.25% at December 31, 2017. The allowance covered 4.6 times annualized second quarter net charge-offs, compared with 4.6 times a year ago. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our provision for loan losses was $452 million in second quarter 2018 , down from $555 million a year ago, primarily reflecting an improvement in our outlook for 2017 hurricane-related losses, as well as continued improvement in residential real estate and lower loan balances.

Nonperforming assets decreased $305 million , or 4% , from March 31, 2018 , the ninth consecutive quarter of decreases, with improvement in the real estate 1-4 family first mortgage portfolio and lower foreclosed assets. Nonperforming assets were 0.85% of total loans, the lowest level since the merger with Wachovia in 2008. Nonaccrual loans decreased $233 million from the prior quarter predominantly due to a decrease in real estate 1-4 family first mortgage nonaccruals. In addition, foreclosed assets were down $72 million from the prior quarter.

Capital

Our financial performance in second quarter 2018 allowed us to maintain a solid capital position, with total equity of $206.1 billion at June 30, 2018 , compared with $208.1 billion at December 31, 2017. We returned $4.0 billion to shareholders in second quarter 2018 through common stock dividends and net share repurchases, an increase of 17% from a year ago. Our net payout ratio (which is the ratio of (i) common stock dividends and share repurchases less issuances and stock compensation-related items, divided by (ii) net income applicable to common stock) was 84%. We continued to reduce our common shares outstanding through the repurchase of 35.8 million common shares in the quarter. We entered into a $1 billion forward repurchase contract with an unrelated third party in April 2018, which settled in July 2018 for 18.8 million common shares. We also entered into a $1 billion forward repurchase contract with an unrelated third party in July 2018 that is expected to settle in fourth quarter 2018 for approximately 18 million common shares. We expect to reduce our common shares outstanding through share repurchases throughout the remainder of 2018 .

We believe an important measure of our capital strength is the Common Equity Tier 1 (CET1) ratio under Basel III, fully phased-in, which was 11.98 % at June 30, 2018 , flat compared with December 31, 2017, but well above our internal target of 10%. Likewise, our other regulatory capital ratios remained strong. We also received a non-objection to our 2018 Capital Plan submission from the FRB. See the "Capital Management" section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.

Earnings Performance ( continued )

Earnings Performance

Wells Fargo net income for second quarter 2018 was $5.2 billion ( $0.98 diluted earnings per common share), compared with $5.9 billion ( $1.08 diluted per share) for second quarter 2017. Net income in second quarter 2018 included net discrete income tax expense of $481 million ($0.10 diluted per share) mostly related to state income taxes driven by the recent U.S. Supreme Court decision in South Dakota v. Wayfair . Second quarter 2018 results also benefited from the lower U.S. federal statutory income tax rate. Net income for the first half of 2018 was $ 10.3 billion , compared with $11.5 billion for the same period a year ago. The decrease in net income in the first half of 2018 , compared with the same period a year ago, resulted from a $16 million decrease in net interest income, a $987 million decrease in noninterest income, and a $1.7 billion increase in noninterest expense, partially offset by a $517 million decrease in our provision for credit losses and a $1.2 billion decline in income tax expense reflecting the lower U.S. federal statutory income tax rate in 2018. In the first half of 2018 , net interest income represented 57% of revenue, compared with 56% for the same period a year ago. Noninterest income was $18.7 billion in the first half of 2018 , representing 43% of revenue, compared with $19.7 billion ( 44% ) in the first half of 2017 .

Revenue, the sum of net interest income and noninterest income, was $21.6 billion in second quarter 2018 , compared with $22.2 billion in the same period a year ago. The decrease in revenue in second quarter 2018 , compared with the same period a year ago, was due to a decline in noninterest income, partially offset by an increase in net interest income. Revenue for the first half of 2018 was $43.5 billion , compared with $44.5 billion for the first half of 2017 . The decline in revenue in the first half of 2018 , compared with the same period a year ago, was substantially due to a decline in noninterest income.

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 reflect income from taxable and tax-exempt loans and debt and equity securities based on a 21% and 35% federal statutory tax rate for the periods ended June 30, 2018 and 2017 , respectively.

Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. In addition, some variable sources of interest income, such as resolutions from purchased credit-impaired (PCI) loans, loan fees and collection of interest on nonaccrual loans, can vary from period to period.

Net interest income on a taxable-equivalent basis was $12.7 billion and $25.1 billion in the second quarter and first half of 2018 , respectively, compared with $12.8 billion and $25.4 billion for the same periods a year ago. The decrease in net interest income in the second quarter and first half of 2018 , compared with the same periods a year ago, was driven by lower loan swap income due to unwinding the receive-fixed loan swap portfolio, lower tax-equivalent net interest income from updated tax-equivalent factors reflecting new tax law, lower loan balances, unfavorable hedge ineffectiveness accounting, and higher

premium amortization, partially offset by the net repricing benefit of higher interest rates, lower long-term debt balances, growth in interest income from debt and equity securities, and higher variable income. The net interest margin was 2.93% in second quarter 2018, up from 2.90% in the same period a year ago. The increase was driven by the net repricing benefit of higher interest rates, lower long-term debt balances, and higher variable income, partially offset by lower loan swap income due to unwinding the receive-fixed loan swap portfolio, lower tax-equivalent net interest income from updated tax-equivalent factors reflecting new tax law, unfavorable hedge ineffectiveness accounting, and higher premium amortization. The net interest margin was 2.89% in both the first half of 2018 and 2017 as the net repricing benefit of higher interest rates, lower long-term debt balances, and higher variable income was offset by lower loan swap income due to unwinding the receive-fixed loan swap portfolio, lower tax-equivalent net interest income from updated tax-equivalent factors reflecting new tax law, unfavorable hedge ineffectiveness accounting, and higher premium amortization.

Average earning assets decreased $37.5 billion and $26.7 billion in the second quarter and first half of 2018 , respectively, compared with the same periods a year ago. Also, compared with the same periods a year ago:


•	average loans decreased $12.8 billion and $12.7 billion in the second quarter and first half of 2018, respectively;


•	average interest-earning deposits decreased $49.7 billion and $ 43.0 billion in the second quarter and first half of 2018, respectively;


•	average federal funds sold and securities purchased under resale agreements increased $2.9 billion and $2.9 billion in the second quarter and first half of 2018, respectively;


•	average debt securities increased $19.2 billion and $19.3 billion in the second quarter and first half of 2018, respectively;


•	average equity securities increased $726 million and $3.3 billion in the second quarter and first half of 2018, respectively; and


•	other earning assets increased $1.1 billion and $3.6 billion in the second quarter and first half of 2018, respectively.

Deposits are an important low-cost source of funding and affect both net interest income and the net interest margin. Deposits include noninterest-bearing deposits, interest-bearing checking, market rate and other savings, savings certificates, other time deposits, and deposits in foreign offices. Average deposits were $1.27 trillion and $1.28 trillion in the second quarter and first half of 2018 , respectively, compared with $1.30 trillion in both the same periods a year ago, and represented 135% of average loans in second quarter 2018 and 136% in the first half of 2018 , compared with 136% in second quarter 2017 and 135% in the first half of 2017 . Average deposits were 73% of average earning assets in both the second quarter and first half of 2018 , flat compared with the same periods a year ago. The average deposit cost for second quarter 2018 was 40 basis points, up 6 basis points from the prior quarter and 19 basis points from a year ago, primarily driven by an increase in commercial and Wealth and Investment Management deposit rates.

Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)



	Quarter ended June 30,
						2018						2017
(in millions)	Average balance			Yields/ rates		Interest income/ expense		Average balance		Yields/ rates		Interest income/ expense
Earning assets
Interest-earning deposits with banks (3)	$	154,846		1.75	%	$	676	204,541		1.03	%	$	523
Federal funds sold and securities purchased under resale agreements (3)	80,020			1.73		344		77,078		0.91		175
Debt securities (4):
Trading debt securities	80,661			3.45		695		70,411		3.24		570
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	6,425			1.66		27		18,099		1.53		69
Securities of U.S. states and political subdivisions (7)	47,388			3.91		464		53,492		3.89		521
Mortgage-backed securities:
Federal agencies	154,929			2.75		1,065		132,032		2.63		868
Residential and commercial	8,248			4.86		101		12,586		5.55		175
Total mortgage-backed securities	163,177			2.86		1,166		144,618		2.89		1,043
Other debt securities (7)	47,009			4.33		506		48,466		3.77		457
Total available-for-sale debt securities (7)	263,999			3.28		2,163		264,675		3.16		2,090
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	44,731			2.19		244		44,701		2.19		244
Securities of U.S. states and political subdivisions	6,255			4.34		68		6,270		5.29		83
Federal agency and other mortgage-backed securities	94,964			2.33		552		83,116		2.44		507
Other debt securities	584			4.66		7		2,798		2.34		16
Total held-to-maturity debt securities	146,534			2.38		871		136,885		2.49		850
Total debt securities (7)	491,194			3.04		3,729		471,971		2.98		3,510
Mortgage loans held for sale (5)(7)	18,788			4.22		198		19,758		3.87		191
Loans held for sale (5)	3,481			5.48		48		1,476		3.65		13
Commercial loans:
Commercial and industrial – U.S.	275,259			4.16		2,851		273,073		3.70		2,521
Commercial and industrial – Non U.S.	59,716			3.51		524		56,426		2.86		402
Real estate mortgage	123,982			4.27		1,319		131,293		3.68		1,206
Real estate construction	23,637			4.88		287		25,271		4.10		259
Lease financing	19,266			4.48		216		19,058		4.82		230
Total commercial loans	501,860			4.15		5,197		505,121		3.67		4,618
Consumer loans:
Real estate 1-4 family first mortgage	283,101			4.06		2,870		275,108		4.08		2,805
Real estate 1-4 family junior lien mortgage	37,249			5.32		495		43,602		4.78		521
Credit card	35,883			12.66		1,133		34,868		12.18		1,059
Automobile	48,568			5.18		628		59,112		5.43		800
Other revolving credit and installment	37,418			6.62		617		39,068		6.13		596
Total consumer loans	442,219			5.20		5,743		451,758		5.13		5,781
Total loans (5)	944,079			4.64		10,940		956,879		4.36		10,399
Equity securities	37,330			2.38		222		36,604		2.24		205
Other	5,518			1.48		21		4,400		0.70		8
Total earning assets (7)	$	1,735,256		3.73	%	$	16,178	1,772,707		3.40	%	$	15,024
Funding sources
Deposits:
Interest-bearing checking	$	80,324		0.90	%	$	181	48,465		0.41	%	$	50
Market rate and other savings	676,668			0.26		434		683,014		0.13		214
Savings certificates	20,033			0.43		21		22,599		0.30		17
Other time deposits (7)	82,061			2.26		465		57,158		1.39		197
Deposits in foreign offices	51,474			1.30		167		123,684		0.65		199
Total interest-bearing deposits (7)	910,560			0.56		1,268		934,920		0.29		677
Short-term borrowings	103,795			1.54		398		95,763		0.69		164
Long-term debt (7)	223,800			2.97		1,658		249,889		2.04		1,274
Other liabilities	28,202			2.12		150		20,981		2.05		108
Total interest-bearing liabilities (7)	1,266,357			1.10		3,474		1,301,553		0.68		2,223
Portion of noninterest-bearing funding sources (7)	468,899			-		-		471,154		-		-
Total funding sources (7)	$	1,735,256		0.80		3,474		1,772,707		0.50		2,223
Net interest margin and net interest income on a taxable-equivalent basis (6)(7)				2.93	%	$	12,704			2.90	%	$	12,801
Noninterest-earning assets
Cash and due from banks	$	18,609						18,171
Goodwill	26,444							26,664
Other (7)	104,575							109,479
Total noninterest-earning assets (7)	$	149,628						154,314
Noninterest-bearing funding sources
Deposits	$	360,779						366,275
Other liabilities (7)	51,681							53,438
Total equity (7)	206,067							205,755
Noninterest-bearing funding sources used to fund earning assets (7)	(468,899		)					(471,154	)
Net noninterest-bearing funding sources (7)	$	149,628						154,314
Total assets (7)	$	1,884,884						1,927,021


(1)	Our average prime rate was 4.80% and 4.05% for the quarters ended June 30, 2018 and 2017 , respectively and 4.66% and 3.92% , for first half of 2018 and 2017 , respectively. The average three-month London Interbank Offered Rate (LIBOR) was 2.34% and 1.21% for the quarters ended June 30, 2018 and 2017 , respectively, and 2.13% and 1.14% for the first half of 2018 and 2017 , respectively.


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

(3)

Financial information for the prior periods has been revised to reflect the impact of the adoption of Accounting Standards Update (ASU) 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash.


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



	Six months ended June 30,
						2018						2017
(in millions)	Average balance			Yields/ rates		Interest income/ expense		Average balance		Yields/ rates		Interest income/ expense
Earning assets
Interest-earning deposits with banks (3)	$	163,520		1.61	%	$	1,308	206,503		0.91	%	$	928
Federal funds sold and securities purchased under resale agreements (3)	79,083			1.57		615		76,184		0.80		302
Debt securities (4):
Trading debt securities	79,693			3.35		1,332		69,769		3.14		1,093
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	6,426			1.66		53		21,547		1.53		164
Securities of U.S. states and political subdivisions (7)	48,665			3.64		885		52,873		3.91		1,034
Mortgage-backed securities:
Federal agencies	156,690			2.73		2,141		144,257		2.61		1,879
Residential and commercial (7)	8,558			4.48		192		13,514		5.44		368
Total mortgage-backed securities (7)	165,248			2.82		2,333		157,771		2.85		2,247
Other debt securities (7)	47,549			4.02		950		49,303		3.69		904
Total available-for-sale debt securities (7)	267,888			3.16		4,221		281,494		3.09		4,349
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	44,727			2.20		487		44,697		2.20		487
Securities of U.S. states and political subdivisions	6,257			4.34		136		6,271		5.30		166
Federal agency and other mortgage-backed securities	92,888			2.35		1,093		67,538		2.46		831
Other debt securities	639			3.89		12		3,062		2.34		35
Total held-to-maturity debt securities	144,511			2.40		1,728		121,568		2.51		1,519
Total debt securities (7)	492,092			2.96		7,281		472,831		2.95		6,961
Mortgage loans held for sale (5)(7)	18,598			4.06		377		19,825		3.77		373
Loans held for sale (5)	2,750			5.28		72		1,538		3.05		23
Commercial loans:
Commercial and industrial – U.S.	273,658			4.00		5,435		273,905		3.65		4,957
Commercial and industrial – Non U.S.	59,964			3.37		1,003		55,890		2.80		775
Real estate mortgage	125,085			4.16		2,581		131,868		3.62		2,370
Real estate construction	24,041			4.70		561		24,933		3.91		484
Lease financing	19,266			4.89		471		19,064		4.88		465
Total commercial loans	502,014			4.03		10,051		505,660		3.61		9,051
Consumer loans:
Real estate 1-4 family first mortgage	283,651			4.04		5,722		275,293		4.05		5,571
Real estate 1-4 family junior lien mortgage	38,042			5.23		988		44,439		4.69		1,036
Credit card	36,174			12.71		2,280		35,151		12.07		2,105
Automobile	50,010			5.17		1,283		60,304		5.45		1,628
Other revolving credit and installment	37,641			6.54		1,221		39,396		6.07		1,186
Total consumer loans	445,518			5.18		11,494		454,583		5.09		11,526
Total loans (5)	947,532			4.57		21,545		960,243		4.31		20,577
Equity securities	38,536			2.37		455		35,272		2.18		384
Other	5,765			1.34		40		2,213		0.70		8
Total earning assets (7)	$	1,747,876		3.64	%	$	31,693	1,774,609		3.36	%	$	29,556
Funding sources
Deposits:
Interest-bearing checking	$	74,084		0.84	%	$	310	49,569		0.35	%	$	87
Market rate and other savings	677,861			0.24		802		683,591		0.11		371
Savings certificates	20,025			0.38		38		23,030		0.29		34
Other time deposits (7)	79,340			2.06		812		56,043		1.34		374
Deposits in foreign offices	73,023			1.09		396		122,946		0.57		347
Total interest-bearing deposits (7)	924,333			0.51		2,358		935,179		0.26		1,213
Short-term borrowings	102,793			1.39		710		97,149		0.58		279
Long-term debt (7)	224,924			2.88		3,234		254,981		1.90		2,421
Other liabilities	28,065			2.02		282		18,905		2.12		200
Total interest-bearing liabilities (7)	1,280,115			1.03		6,584		1,306,214		0.63		4,113
Portion of noninterest-bearing funding sources (7)	467,761					-		468,395		-		-
Total funding sources (7)	$	1,747,876		0.75		6,584		1,774,609		0.47		4,113
Net interest margin and net interest income on a taxable-equivalent basis (6)(7)				2.89	%	$	25,109			2.89	%	$	25,443
Noninterest-earning assets
Cash and due from banks	$	18,730						18,437
Goodwill	26,480							26,668
Other (7)	107,218							109,306
Total noninterest-earning assets (7)	$	152,428						154,411
Noninterest-bearing funding sources
Deposits	$	359,854						365,019
Other liabilities (7)	54,212							54,119
Total equity (7)	206,123							203,668
Noninterest-bearing funding sources used to fund earning assets (7)	(467,761		)					(468,395	)
Net noninterest-bearing funding sources (7)	$	152,428						154,411
Total assets (7)	$	1,900,304						1,929,020


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

(6)

Includes taxable-equivalent adjustments of $163 million and $330 million for the quarters ended June 30, 2018 and 2017 , respectively, and $330 million and $648 million for the first half of 2018 and 2017 , respectively, predominantly related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 21% and 35% for periods ended June 30, 2018 and 2017 , respectively.


(7)	Financial information for the prior periods has been revised to reflect the impact of the adoption in fourth quarter 2017 of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities .

Noninterest Income

Table 2: Noninterest Income



	Quarter ended June 30,			%		Six months ended June 30,			%
(in millions)	2018		2017	Change		2018		2017	Change
Service charges on deposit accounts	$	1,163	1,276	(9	)%	$	2,336	2,589	(10	)%
Trust and investment fees:
Brokerage advisory, commissions and other fees	2,354		2,329	1		4,757		4,653	2
Trust and investment management	835		837	-		1,685		1,666	1
Investment banking	486		463	5		916		880	4
Total trust and investment fees	3,675		3,629	1		7,358		7,199	2
Card fees	1,001		1,019	(2	)	1,909		1,964	(3	)
Other fees:
Charges and fees on loans	304		325	(6	)	605		632	(4	)
Cash network fees	120		134	(10	)	246		260	(5	)
Commercial real estate brokerage commissions	109		102	7		194		183	6
Letters of credit fees	72		76	(5	)	151		150	1
Wire transfer and other remittance fees	121		112	8		237		219	8
All other fees	120		153	(22	)	213		323	(34	)
Total other fees	846		902	(6	)	1,646		1,767	(7	)
Mortgage banking:
Servicing income, net	406		400	2		874		856	2
Net gains on mortgage loan origination/sales activities	364		748	(51	)	830		1,520	(45	)
Total mortgage banking	770		1,148	(33	)	1,704		2,376	(28	)
Insurance	102		280	(64	)	216		557	(61	)
Net gains from trading activities	191		151	26		434		423	3
Net gains on debt securities	41		120	(66	)	42		156	(73	)
Net gains from equity securities	295		274	8		1,078		844	28
Lease income	443		493	(10	)	898		974	(8	)
Life insurance investment income	162		145	12		326		289	13
All other	323		327	(1	)	761		557	37
Total	$	9,012	9,764	(8	)	$	18,708	19,695	(5	)

Noninterest income was $9.0 billion and $18.7 billion in the second quarter and first half of 2018 , respectively, compared with $9.8 billion and $19.7 billion for the same periods a year ago. This income represented 42% of revenue for second quarter 2018 and 43% of revenue for the first half of 2018 , compared with 44% for the same periods a year ago. The decline in noninterest income in the second quarter and first half of 2018 , compared with the same periods a year ago, was predominantly due to lower mortgage banking income, lower insurance income due to the sale of Wells Fargo Insurance Services in fourth quarter 2017, and lower service charges on deposit accounts. These decreases were partially offset by growth in trust and investment fees, and higher net gains from equity securities in the second quarter and first half of 2018 and higher all other income in the first half of 2018 . For more information on our performance obligations and the nature of services performed for certain of our revenues discussed below, see Note 17 (Revenue from Contracts with Customers) to Financial Statements in this Report.

Service charges on deposit accounts were $1.2 billion and $2.3 billion in the second quarter and first half of 2018 , respectively, compared with $1.3 billion and $2.6 billion for the same periods a year ago. The decrease in both the second quarter and first half of 2018 , compared with the same periods a year ago, was due to lower overdraft and monthly service fees driven by customer-friendly initiatives that help customers minimize monthly and overdraft fees, and the impact of a higher earnings

credit rate applied to commercial accounts due to increased interest rates.

Brokerage advisory, commissions and other fees increased to $2.4 billion and $4.8 billion in the second quarter and first half of 2018 , respectively, compared with $2.3 billion and $4.7 billion for the same periods in 2017 . The increases in both periods, compared with the same periods in 2017 , were due to higher asset-based fees, partially offset by lower transactional commission revenue. Retail brokerage client assets totaled $1.6 trillion at both June 30, 2018 and 2017 , with all retail brokerage services provided by our Wealth and Investment Management (WIM) operating segment. For additional information on retail brokerage client assets, see the discussion and Tables 4d and 4e in the "Operating Segment Results – Wealth and Investment Management – Retail Brokerage Client Assets" section in this Report.

Trust and investment management fee income is largely from client assets under management (AUM) for which fees are based on a tiered scale relative to market value of the assets, and client assets under administration (AUA), for which fees are generally based on the extent of services to administer the assets. Trust and investment management fees declined slightly to $835 million in second quarter 2018 , from $837 million in second quarter 2017 , but modestly increased to $1.69 billion in the first half of 2018 , from $1.67 billion for the same period a year ago, as growth in management fees for investment advice on

Earnings Performance ( continued )

mutual funds was partially offset by a decrease in corporate trust fees due to the sale of Wells Fargo Shareowner Services in first quarter 2018. Our AUM totaled $677.7 billion at June 30, 2018 , compared with $663.2 billion at June 30, 2017 , with substantially all of our AUM managed by our WIM operating segment. 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. Our AUA totaled $1.7 trillion at both June 30, 2018 and 2017 .

Investment banking fees increased to $486 million and $916 million in the second quarter and first half of 2018 , respectively, from $463 million and $880 million for the same periods in 2017 , reflecting the impact of the new accounting standard for revenue recognition, which increased investment banking fees and increased noninterest expense by an equal amount due to the underwriting expenses of our broker-dealer business that were previously netted against revenue are now included in noninterest expense. The increase in fees was partially offset by lower advisory fees and equity originations.

Card fees were $1.0 billion and $1.9 billion in the second quarter and first half of 2018 , respectively, compared with $1.0 billion and $2.0 billion for the same periods in 2017 , reflecting the impact of the new revenue recognition accounting standard, which reduced noninterest expense and lowered card fees by an equal amount due to the netting of card payment network charges against related interchange and network revenues in card fees.

Other fees decreased to $846 million and $1.6 billion in the second quarter and first half of 2018 , respectively, from $902 million and $1.8 billion for the same periods in 2017 , primarily driven by lower all other fees. All other fees were $120 million and $213 million in the second quarter and first half of 2018 , compared with $153 million and $323 million for the same periods in 2017 , resulting from discontinuing products.

Mortgage banking noninterest income, consisting of net servicing income and net gains on mortgage loan origination/sales activities, totaled $770 million and $1.7 billion in the second quarter and first half of 2018 , respectively, compared with $1.1 billion and $2.4 billion for the same periods a year ago.

In addition to servicing fees, net mortgage loan servicing income includes amortization of commercial mortgage servicing rights (MSRs), changes in the fair value of residential MSRs during the period, as well as changes in the value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income of $406 million for second quarter 2018 included a $26 million net MSR valuation gain ( $345 million increase in the fair value of the MSRs and a $319 million hedge loss). Net servicing income of $400 million for second quarter 2017 included a $71 million net MSR valuation gain ( $360 million decrease in the fair value of the MSRs and a $431 million hedge gain). For the first half of 2018 , net servicing income of $ 874 million included a $136 million net MSR valuation gain ( $1.7 billion increase in the fair value of the MSRs and a $1.5 billion hedge loss), and for the first half of 2017, net servicing income of $856 million included a $173 million net MSR valuation gain ( $186 million decrease in the fair value of the MSRs and a $359 million hedge gain). Net servicing income increased for the first half of 2018, compared with the same period a year ago, due to higher net servicing fees, partially offset by lower net MSR valuation gains.

Our portfolio of mortgage loans serviced for others was $1.71 trillion at June 30, 2018 , and $1.70 trillion at December 31, 2017 . At June 30, 2018 , the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.98% , compared with 0.88% at December 31, 2017 . See the "Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk" section in this Report for additional information regarding our MSRs risks and hedging approach.

Net gains on mortgage loan origination/sales activities were $364 million and $830 million in the second quarter and first half of 2018 , respectively, compared with $748 million and $1.5 billion for the same periods a year ago. The decrease in the second quarter and first half of 2018 , compared with the same periods a year ago, was primarily due to lower loan originations and production margins. Total mortgage loan originations were $50 billion and $93 billion for the second quarter and first half of 2018 , respectively, compared with $56 billion and $100 billion for the same periods a year ago. 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 2a presents the information used in determining the production margin.

Table 2a: Selected Mortgage Production Data



		Quarter ended June 30,				Six months ended June 30,
		2018			2017	2018			2017
Net gains on mortgage loan origination/sales activities (in millions):
Residential	(A)	$	281		521	$	605		1,090
Commercial		49			81	125			182
Residential pipeline and unsold/repurchased loan management (1)		34			146	100			248
Total		$	364		748	$	830		1,520
Residential real estate originations (in billions):
Held-for-sale	(B)	$	37		42	$	71		76
Held-for-investment		13			14	22			24
Total		$	50		56	$	93		100
Production margin on residential held-for-sale mortgage loan originations	(A)/(B)	0.77		%	1.24	0.86		%	1.44


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

The production margin was 0.77% and 0.86% for the second quarter and first half of 2018 , respectively, compared with 1.24% and 1.44% for the same periods in 2017. The decline in production margin in the second quarter and first half of 2018 was attributable to lower margins in both our retail and correspondent production channels and a shift to more correspondent origination volume, which has a lower production margin. Mortgage applications were $67 billion and $125 billion for the second quarter and first half of 2018 , respectively, compared with $83 billion and $142 billion for the same periods a year ago. The 1-4 family first mortgage unclosed pipeline was $26 billion at June 30, 2018 , compared with $34 billion at June 30, 2017 . 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 10 (Mortgage Banking Activities) and Note 15 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.

Net gains on mortgage loan origination/sales activities include adjustments to the mortgage repurchase liability. Mortgage loans are repurchased from third parties based on standard representations and warranties, and early payment default clauses in mortgage sale contracts. For additional information about mortgage loan repurchases, see the "Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses" section and Note 10 (Mortgage Banking Activities) to Financial Statements in this Report.

Insurance income was $102 million and $216 million in the second quarter and first half of 2018 , respectively, compared with $280 million and $557 million in the same periods a year ago. The decrease in the second quarter and first half of 2018 , compared with the same periods a year ago, was driven by the sale of Wells Fargo Insurance Services in fourth quarter 2017.

Net gains from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $191 million and $434 million in the second quarter and first half of 2018 , respectively, compared with $151 million and $423 million in the same periods a year ago. The increase in the second quarter and first half of 2018 , compared with the same periods a year ago, was due to growth in equity trading driven by favorable market volatility, partially offset by lower foreign exchange trading income. Net gains from trading activities do not include interest and dividend income and expense on trading securities. Those amounts are reported within interest income from debt and equity securities and other interest expense. For additional information about trading activities, see the "Risk Management – Asset/Liability Management – Market Risk-Trading Activities" section and Note 4 (Trading Activities) to Financial Statements in this Report.

Net gains on debt and equity securities totaled $336 million and $1.1 billion in the second quarter and first half of 2018 , respectively, compared with $394 million and $1.0 billion for the same periods in 2017 , after other-than-temporary impairment (OTTI) write-downs of $245 million and $275 million for the second quarter and first half of 2018 , respectively, compared with $73 million and $202 million for the same periods in 2017 . The decrease in net gains on debt and equity securities in second quarter 2018 , compared with the same period a year ago, was driven by lower net gains on debt securities and lower deferred compensation gains (offset in employee benefits expense), partially offset by higher net gains from nonmarketable equity securities. The increase in the first half of 2018 , compared with the same period a year ago, was predominantly driven by higher net gains from nonmarketable equity securities and $277 million of unrealized gains from the impact of the new accounting standard for financial instruments which requires any gain or loss associated with the fair value measurement of equity securities to be reflected in earnings. These increases were partially offset by lower net gains on debt securities and lower deferred compensation gains (offset in employee benefits expense). The increase in OTTI in the second quarter and first half of 2018, compared with same periods a year ago, was predominantly driven by the impairment on the announced sale of our ownership stake in RockCreek.

Lease income was $443 million and $898 million in the second quarter and first half of 2018 , respectively, compared with $493 million and $974 million for the same periods a year ago. The decreases in both periods were primarily driven by lower rail and equipment lease income. Lease income in second quarter 2018 also reflected lower gains on the sale of lease assets.

All other income was $323 million and $761 million in the second quarter and first half of 2018 , respectively, compared with $327 million and $557 million for the same periods a year ago. All other income includes hedge accounting results related to hedges of foreign currency risk, the results of certain economic hedges, losses on low income housing tax credit investments, foreign currency adjustments, and income from investments accounted for under the equity method, any of which can cause decreases and net losses in other income. The decrease in all other income in second quarter 2018 , compared with the same period a year ago, was driven by unfavorable changes in hedge ineffectiveness accounting, partially offset by higher pre-tax gains from the sales of purchased credit-impaired Pick-a-Pay loans. The increase in all other income in the first half of 2018 was predominantly driven by higher pre-tax gains from the sales of purchased credit-impaired Pick-a-Pay loans, and a $202 million pre-tax gain from the sale of Wells Fargo Shareowner Services in first quarter 2018 . These gains were partially offset by an unrealized loss of $176 million for a lower of cost or market (LOCOM) adjustment related to the previously announced sale of certain assets and liabilities of Reliable Financial Services, Inc. (a subsidiary of Wells Fargo's automobile financing business), and lower income from equity method investments.

Earnings Performance ( continued )

Noninterest Expense

Table 3: Noninterest Expense



	Quarter ended June 30,			%		Six months ended June 30,			%
(in millions)	2018		2017	Change		2018		2017	Change
Salaries	$	4,465	4,343	3	%	$	8,828	8,604	3	%
Commission and incentive compensation	2,642		2,499	6		5,410		5,224	4
Employee benefits	1,245		1,308	(5	)	2,843		2,994	(5	)
Equipment	550		529	4		1,167		1,106	6
Net occupancy	722		706	2		1,435		1,418	1
Core deposit and other intangibles	265		287	(8	)	530		576	(8	)
FDIC and other deposit assessments	297		328	(9	)	621		661	(6	)
Operating losses	619		350	77		2,087		632	230
Outside professional services	881		1,029	(14	)	1,702		1,833	(7	)
Contract services (1)	536		416	29		983		813	21
Operating leases	311		334	(7	)	631		679	(7	)
Outside data processing	164		236	(31	)	326		456	(29	)
Travel and entertainment	157		171	(8	)	309		350	(12	)
Advertising and promotion	227		150	51		380		277	37
Postage, stationery and supplies	121		134	(10	)	263		279	(6	)
Telecommunications	88		91	(3	)	180		182	(1	)
Foreclosed assets	44		52	(15	)	82		138	(41	)
Insurance	24		24	-		50		48	4
All other (1)	624		554	13		1,197		1,063	13
Total	$	13,982	13,541	3		$	29,024	27,333	6


(1)	The prior periods have been revised to conform with the current period presentation whereby temporary help is included in contract services rather than in all other noninterest expense.

Noninterest expense was $14.0 billion in second quarter 2018 , up 3% from $13.5 billion a year ago, and $29.0 billion in the first half of 2018 , up 6% from the same period a year ago. The increase in both periods was predominantly due to higher operating losses and personnel expenses.

Personnel expenses, which include salaries, commissions, incentive compensation, and employee benefits, were up $202 million , or 2% , in second quarter 2018 , compared with the same period a year ago, and up $259 million , or 2% , in the first half of 2018 , compared with the same period a year ago. The increase in both periods was due to salary increases and higher incentive compensation, partially offset by the impact of the sale of Wells Fargo Insurance Services in fourth quarter 2017, lower deferred compensation costs (offset in net gains from equity securities) and lower staffing levels.

Outside professional and contract services expense was down $28 million , or 2% , in second quarter 2018 , compared with the same period a year ago, and up $39 million , or 1% , in the first half of 2018 , compared with the same period a year ago. The decrease in second quarter 2018 reflected lower project and technology spending on regulatory and compliance related initiatives, while the increase in the first half of 2018 was due to higher project and technology spending, partially offset by lower legal expense.

Outside data processing was down $72 million in second quarter 2018 , or 31% , compared with the same period a year ago, and down $130 million , or 29% , in the first half of 2018 , compared with the same period a year ago, reflecting lower data processing expense related to the GE Capital business acquisitions and the impact of the new revenue recognition accounting standard, which reduced noninterest expense and lowered card fees by an equal amount due to the netting of card payment network charges against related interchange and network revenues in card fees.

Operating losses were up $269 million , or 77% , in second quarter 2018 , compared with the same period a year ago, and up $1.5 billion , or 230% , in the first half of 2018 , compared with the same period a year ago. The increase for both periods was driven by higher remediation accruals for previously disclosed matters, while the increase for the first half of 2018 was also driven by higher litigation and remediation accruals for previously disclosed matters.

Foreclosed assets expense was down $8 million , or 15% , in second quarter 2018 , compared with the same period a year ago, and down $56 million , or 41% , in the first half of 2018 , compared with the same period a year ago, predominantly due to lower foreclosed properties operating expenses for both periods.

Advertising and promotion expense was up $77 million , or 51% , in second quarter 2018 , compared with the same period a year ago, and up $103 million , or 37% , in the first half of 2018 , compared with the same period a year ago, in each case due to higher advertising expense, including for the "Re-Established" advertising campaign launched in second quarter 2018 .

Equipment expense was up $21 million , or 4% , in second quarter 2018 , compared with the same period a year ago, and up $61 million , or 6% , in the first half of 2018 , compared with the same period a year ago, in each case due to higher depreciation expense.

All other noninterest expense was up $70 million , or 13% , in second quarter 2018 , compared with the same period a year ago, and up $134 million , or 13% , in the first half of 2018 , compared with the same period a year ago. The increase in both periods was predominantly driven by higher donations expense.

Our efficiency ratio was 64.9% in second quarter 2018 , compared with 60.9% in second quarter 2017 .

Income Tax Expense

Our effective income tax rate was 25.9% and 27.7% for second quarter 2018 and 2017 , respectively, and was 23.6% in the first half of 2018 , down from 27.6% in the first half of 2017 . The effective income tax rate for second quarter 2018 included net discrete income tax expense of $481 million mostly related to state income taxes driven by the recent U.S. Supreme Court decision in South Dakota v. Wayfair . The effective income tax rate for the first half of 2018 reflected the reduced U.S federal tax rate as part of the Tax Cuts & Jobs Act (the Tax Act) that was enacted in 2017 , partially offset by the non-tax deductible treatment of the $800 million discrete litigation accrual in connection with entering into the consent orders with the CFPB and OCC on April 20, 2018. We expect the effective income tax rate for the remainder of 2018 to be approximately 19%, excluding the impact of future discrete items. We continue to collect and analyze data related to provisional tax estimates recorded in fourth quarter 2017 and monitor interpretations that emerge for various provisions of the Tax Act. We anticipate these items will be finalized upon completion of our U.S. tax filings in 2018 .

Operating Segment Results

We are organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and WIM. These segments are defined by product type and customer segment and their results are based on our management accounting process, for which there is no comprehensive, authoritative financial accounting guidance equivalent to generally accepted accounting principles (GAAP). Effective first quarter 2018, assets and liabilities now receive a funding charge or credit that considers interest rate risk, liquidity risk, and other product characteristics on a more granular level. This methodology change affects results across all three of our reportable operating segments and operating segment results for the prior periods of 2017 have been revised to reflect this methodology change. Our previously reported consolidated financial results were not impacted by the methodology change; however, in connection with the adoption of ASU 2016-01 in first quarter 2018, certain reclassifications have occurred within noninterest income. 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 accounting process, see Note 21 (Operating Segments) to Financial Statements in this Report.

Table 4: Operating Segment Results – Highlights



(income/expense in millions,	Community Banking			Wholesale Banking				Wealth and Investment Management			Other (1)				Consolidated Company
average balances in billions)	2018		2017	2018		2017		2018		2017	2018		2017		2018	2017
Quarter ended June 30,
Revenue	$	11,806	11,955	7,197		7,479		3,951		4,226	(1,401	)	(1,425	)	21,553	22,235
Provision (reversal of provision) for credit losses	484		623	(36	)	(65	)	(2	)	7	6		(10	)	452	555
Noninterest expense	7,290		7,266	4,219		4,036		3,361		3,071	(888	)	(832	)	13,982	13,541
Net income (loss)	2,496		2,765	2,635		2,742		445		711	(390	)	(362	)	5,186	5,856
Average loans	$	463.8	475.1	464.7		466.9		74.7		71.7	(59.1	)	(56.8	)	944.1	956.9
Average deposits	760.6		727.7	414.0		462.4		167.1		190.1	(70.4	)	(79.0	)	1,271.3	1,301.2
Six months ended June 30,
Revenue	$	23,636	23,778	14,476		15,056		8,193		8,483	(2,818	)	(2,827	)	43,487	44,490
Provision (reversal of provision) for credit losses	702		1,269	(56	)	(108	)	(8	)	3	5		(4	)	643	1,160
Noninterest expense	15,992		14,547	8,197		8,203		6,651		6,275	(1,816	)	(1,692	)	29,024	27,333
Net income (loss)	4,409		5,589	5,510		5,227		1,159		1,376	(756	)	(702	)	10,322	11,490
Average loans	$	467.1	477.9	464.9		467.6		74.3		71.2	(58.8	)	(56.5	)	947.5	960.2
Average deposits	754.1		722.8	429.9		463.8		172.5		193.8	(72.3	)	(80.2	)	1,284.2	1,300.2


(1)	Includes the elimination of certain items that are included in more than one business segment, most 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 including checking and savings accounts, credit and debit cards, and automobile, student, mortgage, home equity and small business lending, as well as referrals to Wholesale Banking and WIM business partners. The Community Banking segment also includes the results of our Corporate Treasury activities net of allocations (including funds transfer pricing, capital, liquidity and certain corporate expenses) in support of other segments and results of investments in our affiliated venture capital

partnerships. We announced on November 28, 2017, that we would exit the personal insurance business, effective February 1, 2018. Effective April 2, 2018, we sold the majority of our interests in our personal insurance business to a third party. We continue to wind down the personal insurance business and expect to substantially complete these activities in the first half of 2019. Table 4a provides additional financial information for Community Banking.

Table 4a: Community Banking



	Quarter ended June 30,							Six months ended June 30,
(in millions, except average balances which are in billions)	2018			2017		% Change		2018			2017		% Change
Net interest income	$	7,346		7,133		3	%	$	14,541		14,265		2	%
Noninterest income:
Service charges on deposit accounts	632			725		(13	)	1,271			1,467		(13	)
Trust and investment fees:
Brokerage advisory, commissions and other fees (1)	465			452		3		943			896		5
Trust and investment management (1)	220			215		2		453			433		5
Investment banking (2)	-			(20	)	100		(10		)	(47	)	79
Total trust and investment fees	685			647		6		1,386			1,282		8
Card fees	904			929		(3	)	1,725			1,794		(4	)
Other fees	348			395		(12	)	675			790		(15	)
Mortgage banking	695			1,038		(33	)	1,537			2,144		(28	)
Insurance	16			35		(54	)	44			69		(36	)
Net gains (losses) from trading activities	24			(33	)	173		23			(85	)	127
Net gains (losses) on debt securities	(2		)	184		NM		(2		)	286		NM
Net gains from equity securities (3)	409			222		84		1,093			690		58
Other income of the segment	749			680		10		1,343			1,076		25
Total noninterest income	4,460			4,822		(8	)	9,095			9,513		(4	)

Total revenue	11,806			11,955		(1	)	23,636			23,778		(1	)

Provision for credit losses	484			623		(22	)	702			1,269		(45	)
Noninterest expense:
Personnel expense	5,400			5,002		8		10,911			10,203		7
Equipment	525			507		4		1,121			1,058		6
Net occupancy	542			520		4		1,076			1,046		3
Core deposit and other intangibles	102			112		(9	)	203			224		(9	)
FDIC and other deposit assessments	155			185		(16	)	336			377		(11	)
Outside professional services	430			554		(22	)	827			903		(8	)
Operating losses	287			297		(3	)	1,727			558		209
Other expense of the segment	(151		)	89		NM		(209		)	178		NM
Total noninterest expense	7,290			7,266		-		15,992			14,547		10
Income before income tax expense and noncontrolling interests	4,032			4,066		(1	)	6,942			7,962		(13	)
Income tax expense	1,413			1,255		13		2,222			2,237		(1	)
Net income from noncontrolling interests (4)	123			46		167		311			136		129
Net income	$	2,496		2,765		(10	)	$	4,409		5,589		(21	)
Average loans	$	463.8		475.1		(2	)	$	467.1		477.9		(2	)
Average deposits	760.6			727.7		5		754.1			722.8		4

NM - Not meaningful


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


(2)	Includes syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.


(3)	Predominantly 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 $2.5 billion , down $269 million , or 10% , from second quarter 2017 , and $4.4 billion for the first half of 2018 , down $1.2 billion , or 21% , compared with the same period a year ago. Revenue of $11.8 billion decreased $149 million , or 1% , from second quarter 2017 , and was $23.6 billion for the first half of 2018 , a decrease of $142 million , or 1% , compared with the same period a year ago. The decrease in revenue from second quarter 2017 was due to lower mortgage banking income and service charges on deposit accounts, partially offset by higher net interest income and higher gains on the sales of PCI Pick-a-Pay mortgage loans . The decrease in revenue from the first half of 2017 was due to lower mortgage banking income, net gains from debt securities, and service charges on deposit accounts, partially offset by higher gains on

the sales of PCI Pick-a-Pay mortgage loans, net interest income, and net gains from equity securities. Average loans of $463.8 billion in second quarter 2018 decreased $11.3 billion , or 2% , from second quarter 2017 , and average loans of $467.1 billion in the first half of 2018 decreased $10.8 billion , or 2% , from the first half of 2017 . The decline in average loans for both periods was predominantly due to lower automobile loans and junior lien mortgages, partially offset by higher real estate 1-4 family first mortgages. Average deposits of $760.6 billion in second quarter 2018 increased $32.9 billion , or 5% , from second quarter 2017 , and increased $31.3 billion , or 4% , from the first half of 2017 . The number of primary consumer checking customers (customers who actively use their checking account with transactions such as debit card purchases, online bill

payments, and direct deposit) as of May 2018 was up 1% from May 2017. Noninterest expense was $7.3 billion in second quarter 2018, flat compared with second quarter 2017, and $16.0 billion in the first half of 2018, up $1.4 billion, or 10%, from the first half of 2017 . The increase from the first half of 2017 was predominantly due to higher operating losses and personnel expense. The provision for credit losses decreased $139 million from second quarter 2017 and $567 million from the first half of 2017 , due to continued improvement in the consumer lending portfolio compared with the same periods a year ago. Income tax expense increased $158 million from second quarter 2017 , due to a net discrete income tax expense of $481 million in second quarter 2018 mostly related to state income taxes. This increase was partially offset by the beneficial impact of the reduced U.S. federal statutory income tax rate for 2018. Income tax expense decreased $15 million from the first half of 2017 , driven by the beneficial impact of the reduced U.S. federal statutory income tax rate for 2018, partially offset by the second quarter 2018 net discrete income tax expense.

Wholesale Banking provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $5 million. Products and businesses include Business Banking, Commercial Real Estate, Corporate Banking, Financial Institutions Group, Government and Institutional Banking, Middle Market Banking, Principal Investments, Treasury Management, Wells Fargo Commercial Capital, and Wells Fargo Securities. Table 4b provides additional financial information for Wholesale Banking.

Table 4b: Wholesale Banking



	Quarter ended June 30,							Six months ended June 30,
(in millions, except average balances which are in billions)	2018			2017		% Change		2018			2017		% Change
Net interest income	$	4,693		4,809		(2	)%	$	9,225		9,490		(3	)%
Noninterest income:
Service charges on deposit accounts	530			550		(4	)	1,064			1,120		(5	)
Trust and investment fees:
Brokerage advisory, commissions and other fees	78			82		(5	)	145			166		(13	)
Trust and investment management	110			132		(17	)	223			261		(15	)
Investment banking	485			483		-		925			928		-
Total trust and investment fees	673			697		(3	)	1,293			1,355		(5	)
Card fees	96			89		8		183			169		8
Other fees	496			506		(2	)	968			974		(1	)
Mortgage banking	75			110		(32	)	168			233		(28	)
Insurance	78			236		(67	)	157			470		(67	)
Net gains from trading activities	154			168		(8	)	379			458		(17	)
Net gains (losses) on debt securities	42			(64	)	166		43			(130	)	133
Net gains from equity securities	89			16		456		182			52		250
Other income of the segment	271			362		(25	)	814			865		(6	)
Total noninterest income	2,504			2,670		(6	)	5,251			5,566		(6	)

Total revenue	7,197			7,479		(4	)	14,476			15,056		(4	)

Provision (reversal of provision) for credit losses	(36		)	(65	)	45		(56		)	(108	)	48
Noninterest expense:
Personnel expense	1,386			1,601		(13	)	2,922			3,405		(14	)
Equipment	14			14		-		26			30		(13	)
Net occupancy	100			108		(7	)	200			216		(7	)
Core deposit and other intangibles	94			103		(9	)	189			208		(9	)
FDIC and other deposit assessments	122			120		2		244			238		3
Outside professional services	255			288		(11	)	488			529		(8	)
Operating losses	208			6		NM		216			12		NM
Other expense of the segment	2,040			1,796		14		3,912			3,565		10
Total noninterest expense	4,219			4,036		5		8,197			8,203		-
Income before income tax expense and noncontrolling interests	3,014			3,508		(14	)	6,335			6,961		(9	)
Income tax expense	379			775		(51	)	827			1,748		(53	)
Net loss from noncontrolling interests	-			(9	)	100		(2		)	(14	)	86
Net income	$	2,635		2,742		(4	)	$	5,510		5,227		5
Average loans	$	464.7		466.9		-		$	464.9		467.6		(1	)
Average deposits	414.0			462.4		(10	)	429.9			463.8		(7	)

NM - Not meaningful

Wholesale Banking reported net income of $2.6 billion in second quarter 2018, down $107 million , or 4% , from second quarter 2017 . In the first half of 2018 , net income of $5.5 billion increased $283 million , or 5% , from the same period a year ago. The 2018 results benefited from the reduced U.S. federal statutory income tax rate, while second quarter 2017 included a discrete income tax benefit resulting from our agreement to sell

Wells Fargo Insurance Services USA (WFIS). Revenue decreased $282 million , or 4% , from second quarter 2017 , and $580 million , or 4% , from the first half of 2017 , primarily due to the impact of the sale of WFIS in fourth quarter 2017, as well as lower net interest income. Net interest income decreased $116 million , or 2% , from second quarter 2017 , and $265 million, or 3% , from the first half of 2017 , as lower average loan and deposit

Earnings Performance ( continued )

balances and lower income on tax advantaged products were partially offset by higher interest rates. Noninterest income decreased $166 million , or 6% , from second quarter 2017 , and decreased $315 million , or 6% , from the first half of 2017 . Noninterest income decreased for both periods as the impact of the sale of WFIS, lower operating lease income and mortgage banking fees were partially offset by higher market sensitive revenue. Average loans of $464.7 billion in second quarter 2018 decreased $2.2 billion from second quarter 2017 , and average loans of $464.9 billion in the first half of 2018 decreased $2.7 billion , or 1% , from the first half of 2017 , as growth in commercial and industrial loans was more than offset by lower commercial real estate loans. Average deposits of $414.0 billion in second quarter 2018 decreased $48.4 billion , or 10% , from second quarter 2017 , and average deposits of $429.9 billion in the first half of 2018 decreased $33.9 billion , or 7% , from the first half of 2017 . The decline in average deposits for both periods was driven by actions taken in response to the asset cap included in the FRB consent order on February 2, 2018, and declines across many businesses as commercial customers allocated more cash to alternative higher-rate liquid investments. Noninterest expense increased $183 million , or 5% , from second quarter 2017 , as higher operating losses related to the foreign exchange business and higher regulatory, risk, cyber and technology expenses were partially offset by lower personnel expense largely due to the sale

of WFIS and lower variable compensation. Noninterest expense in the first half of 2018 decreased $6 million from the first half of 2017 as lower personnel expense related to the sale of WFIS and lower variable compensation was offset by higher operating losses and increased regulatory, risk, cyber and technology expenses. The provision for credit losses increased $29 million from second quarter 2017 , and $52 million from the first half of 2017 .

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, Wells Fargo Institutional Retirement and Trust, and Wells Fargo Asset Management. We deliver financial planning, private banking, credit, investment management and fiduciary services to high-net worth and ultra-high-net worth individuals and families. We also serve clients' brokerage needs, supply retirement and trust services to institutional clients and provide investment management capabilities delivered to global institutional clients through separate accounts and the Wells Fargo Funds. Table 4c provides additional financial information for WIM.

Table 4c: Wealth and Investment Management



	Quarter ended June 30,							Six months ended June 30,
(in millions, except average balances which are in billions)	2018			2017		% Change		2018			2017		% Change
Net interest income	$	1,111		1,171		(5	)%	$	2,223		2,312		(4	)%
Noninterest income:
Service charges on deposit accounts	5			5		-		9			10		(10	)
Trust and investment fees:
Brokerage advisory, commissions and other fees	2,284			2,255		1		4,628			4,500		3
Trust and investment management	731			712		3		1,474			1,419		4
Investment banking (1)	1			-		NM		1			(1	)	200
Total trust and investment fees	3,016			2,967		2		6,103			5,918		3
Card fees	2			2		-		3			3		-
Other fees	5			4		25		9			9		-
Mortgage banking	(2		)	(2	)	-		(5		)	(4	)	(25	)
Insurance	18			22		(18	)	36			42		(14	)
Net gains from trading activities	13			16		(19	)	32			50		(36	)
Net gains on debt securities	1			-		NM		1			-		NM
Net gains (losses) from equity securities	(203		)	36		NM		(197		)	102		NM
Other income of the segment	(15		)	5		NM		(21		)	41		NM
Total noninterest income	2,840			3,055		(7	)	5,970			6,171		(3	)

Total revenue	3,951			4,226		(7	)	8,193			8,483		(3	)

Provision (reversal of provision) for credit losses	(2		)	7		NM		(8		)	3		NM
Noninterest expense:
Personnel expense	2,037			1,980		3		4,202			4,084		3
Equipment	11			9		22		21			20		5
Net occupancy	110			108		2		219			215		2
Core deposit and other intangibles	69			72		(4	)	138			144		(4	)
FDIC and other deposit assessments	34			39		(13	)	70			79		(11	)
Outside professional services	202			193		5		400			415		(4	)
Operating losses	127			49		159		149			66		126
Other expense of the segment	771			621		24		1,452			1,252		16
Total noninterest expense	3,361			3,071		9		6,651			6,275		6
Income before income tax expense and noncontrolling interests	592			1,148		(48	)	1,550			2,205		(30	)
Income tax expense	147			436		(66	)	386			822		(53	)
Net income from noncontrolling interests	-			1		(100	)	5			7		(29	)
Net income	$	445		711		(37	)	$	1,159		1,376		(16	)
Average loans	$	74.7		71.7		4		$	74.3		71.2		4
Average deposits	167.1			190.1		(12	)	172.5			193.8		(11	)

NM – Not meaningful


(1)	Includes syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.

WIM reported net income of $445 million in second quarter 2018 , down $266 million , or 37% , from second quarter 2017 . Net income for the first half of 2018 was $1.2 billion , down $217 million , or 16% , from the same period a year ago. The 2018 results benefited from the lower U.S. federal statutory income tax rate. Revenue was down $275 million , or 7%, from second quarter 2017 , and down $290 million , or 3% , from the first half of 2017 , largely due to the impairment on the announced sale of our ownership stake in RockCreek, and lower net interest income, partially offset by higher trust and investment fees. Net interest income decreased 5% from second quarter 2017 , and 4% from the first half of 2017 , primarily driven by lower deposit balances. Noninterest income decreased $215 million from second quarter 2017 , and $201 million from the first half of 2017, largely due to the impairment on the announced sale of our ownership stake in RockCreek, lower brokerage transaction revenue and deferred compensation plan investments (offset in employee benefits expense), partially offset by higher asset-based fees. Asset-based fees increased predominantly due to higher brokerage advisory account client assets driven by higher market valuations. Average loans of $74.7 billion in second quarter 2018 and $74.3 billion in the first half of 2018 increased 4% from the same periods a year ago, driven by growth in nonconforming mortgage loans. Average deposits in second quarter 2018 of $167.1 billion decreased 12% from second quarter 2017 . Average deposits in the first half of 2018 decreased 11% from the same period a year ago, as customers moved deposits into other investment alternatives. Noninterest expense was up 9% from second quarter 2017 , and up 6% from the first half of 2017 , driven by higher project and technology spending on regulatory and compliance related initiatives, higher operating losses, and higher broker commissions, partially offset by lower deferred compensation plan expense (offset in net gains from equity securities). Second quarter 2018 operating losses included $114 million of non-litigation expense related to fee calculations within certain fiduciary and custody accounts in our wealth management business. The provision for credit losses decreased $9 million from second quarter 2017 and decreased $11 million from the first half of 2017 .

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 earned from advisory accounts are asset-based and depend on changes in the value of the client's assets as well as the level of assets resulting from inflows and outflows. A majority of our brokerage advisory, commissions and other fee income is earned from advisory accounts. Table 4d shows advisory account client assets as a percentage of total retail brokerage client assets at June 30, 2018 and 2017 .

Table 4d: Retail Brokerage Client Assets



	June 30,
($ in billions)	2018			2017
Retail brokerage client assets	$	1,623.7		1,575.9
Advisory account client assets	542.6			502.5
Advisory account client assets as a percentage of total client assets	33		%	32

Earnings Performance ( continued )

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. These advisory accounts generate fees as a percentage of the market value of the assets, 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. For the second quarter of 2018 and 2017 , the average fee rate by account type ranged from 80 to 120 basis points. Table 4e presents retail brokerage advisory account client assets activity by account type for the second quarter and first half of 2018 and 2017 .

Table 4e: Retail Brokerage Advisory Account Client Assets



	Quarter ended							Six months ended
(in billions)	Balance, beginning of period		Inflows (1)	Outflows (2)		Market impact (3)	Balance, end of period	Balance, beginning of period		Inflows (1)	Outflows (2)		Market impact (3)		Balance, end of period
June 30, 2018
Client directed (4)	$	168.4	8.2	(11.1	)	2.0	167.5	$	170.9	17.6	(20.3	)	(0.7	)	167.5
Financial advisor directed (5)	148.6		7.5	(9.5	)	3.4	150.0	147.0		15.6	(16.5	)	3.9		150.0
Separate accounts (6)	146.6		5.6	(7.0	)	2.0	147.2	149.1		12.4	(14.3	)	-		147.2
Mutual fund advisory (7)	76.8		3.2	(3.3	)	1.2	77.9	75.8		7.2	(6.3	)	1.2		77.9
Total advisory client assets	$	540.4	24.5	(30.9	)	8.6	542.6	542.8		52.8	(57.4	)	4.4		542.6
June 30, 2017
Client directed (4)	$	163.3	8.3	(9.6	)	1.8	163.8	159.1		20.3	(21.2	)	5.6		163.8
Financial advisor directed (5)	126.2		6.9	(6.2	)	4.8	131.7	115.7		16.3	(12.2	)	11.9		131.7
Separate accounts (6)	133.7		6.3	(6.0	)	3.7	137.7	125.7		14.5	(12.2	)	9.7		137.7
Mutual fund advisory (7)	66.9		2.9	(2.7	)	2.2	69.3	63.3		6.7	(5.7	)	5.0		69.3
Total advisory client assets	$	490.1	24.4	(24.5	)	12.5	502.5	463.8		57.8	(51.3	)	32.2		502.5


(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.

Trust and Investment Client Assets Under Management We earn trust and investment management fees from managing and administering assets, including mutual funds, institutional separate accounts, personal trust, employee benefit trust and agency assets through our asset management, wealth and retirement businesses. Our asset management business is conducted by Wells Fargo Asset Management (WFAM), which offers Wells Fargo proprietary mutual funds and manages institutional separate accounts. Our wealth business manages assets for high net worth clients, and our retirement business

provides total retirement management, investments, and trust and custody solutions tailored to meet the needs of institutional clients. Substantially all of our trust and investment management fee income is earned from AUM where we have discretionary management authority over the investments and generate fees as a percentage of the market value of the AUM. Table 4f presents AUM activity for the second quarter and first half of 2018 and 2017 .

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



	Quarter ended							Six months ended
(in billions)	Balance, beginning of period		Inflows (1)	Outflows (2)		Market impact (3)	Balance, end of period	Balance, beginning of period		Inflows (1)	Outflows (2)		Market impact (3)		Balance, end of period
June 30, 2018
Assets managed by WFAM (4):
Money market funds (5)	$	105.0	2.7	-		-	107.7	$	108.2	-	(0.5	)	-		107.7
Other assets managed	391.8		20.9	(27.3	)	1.1	386.5	395.7		46.6	(56.5	)	0.7		386.5
Assets managed by Wealth and Retirement (6)	183.3		9.1	(10.3	)	1.1	183.2	186.2		19.5	(21.7	)	(0.8	)	183.2
Total assets under management	$	680.1	32.7	(37.6	)	2.2	677.4	690.1		66.1	(78.7	)	(0.1	)	677.4
June 30, 2017
Assets managed by WFAM (4):
Money market funds (5)	$	96.7	-	(2.0	)	-	94.7	102.6		-	(7.9	)	-		94.7
Other assets managed	384.4		34.2	(33.4	)	7.3	392.5	379.6		63.6	(67.6	)	16.9		392.5
Assets managed by Wealth and Retirement (6)	173.5		10.0	(11.0	)	3.1	175.6	168.5		19.4	(20.4	)	8.1		175.6
Total assets under management	$	654.6	44.2	(46.4	)	10.4	662.8	650.7		83.0	(95.9	)	25.0		662.8


(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 $5.2 billion and $5.7 billion as of June 30, 2018 and 2017 , respectively, of client assets invested in proprietary funds managed by WFAM.

Balance Sheet Analysis ( continued )

Balance Sheet Analysis

At June 30, 2018 , our assets totaled $1.88 trillion , down $72.1 billion from December 31, 2017 . Asset decline was driven by declines in interest-earning deposits with banks, available-for-sale debt securities, and loans, which decreased by $49.6 billion , $10.7 billion , and $12.5 billion , respectively, from December 31, 2017 . Total equity decreased by $2.0 billion from December 31, 2017 , predominantly due to a $3.3 billion decline in cumulative other comprehensive income, a $2.7 billion increase in treasury stock, and a $1.2 billion decline in additional paid-in capital,

partially offset by a $5.5 billion increase in retained earnings net of dividends paid.

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 22 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.

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

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



	June 30, 2018					December 31, 2017
(in millions)	Amortized Cost		Net unrealized gain (loss)		Fair value	Amortized Cost	Net unrealized gain (loss)		Fair value
Available-for-sale	268,055		(2,368	)	265,687	275,096	1,311		276,407
Held-to-maturity	144,206		(3,835	)	140,371	139,335	(350	)	138,985
Total (1)	$	412,261	(6,203	)	406,058	414,431	961		415,392


(1)	Available-for-sale debt securities are carried on the balance sheet at fair value. Held-to-maturity debt securities are carried on the balance sheet at amortized cost.

Table 5 presents a summary of our available-for-sale and held-to-maturity debt securities, which decreased $5.8 billion in balance sheet carrying value from December 31, 2017 , largely due to sales and paydowns of federal agency mortgage-backed securities, securities of U.S. states and political subdivisions, collateralized loan obligations and other asset-backed securities, partially offset by purchases of federal agency mortgage-backed securities.

The total net unrealized losses on available-for-sale debt securities were $2.4 billion at June 30, 2018 , down from net unrealized gains of $1.3 billion at December 31, 2017 , primarily due to higher long-term interest rates. For a discussion of our investment management objectives and practices, see the "Balance Sheet Analysis" section in our 2017 Form 10-K. Also, see the "Risk Management – Asset/Liability Management" section in this Report for information on our use of investments to manage liquidity and interest rate risk.

We analyze debt securities for other-than-temporary impairment (OTTI) quarterly or more often if a potential loss-triggering event occurs. In the first half of 2018 , we recognized $18 million of OTTI write-downs on debt securities. For a discussion of our OTTI accounting policies and underlying considerations and analysis see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 Form 10-K and Note 5 (Debt Securities) to Financial Statements in this Report.

At June 30, 2018 , debt securities included $53.9 billion of municipal bonds, of which 95.6% were rated "A-" or better based largely on external and, in some cases, internal ratings. Additionally, some of the debt securities in our total municipal bond portfolio are guaranteed against loss by bond insurers. These guaranteed bonds are predominantly investment grade and were generally underwritten in accordance with our own investment standards prior to the determination to purchase, without relying on the bond insurer's guarantee in making the investment decision. The credit quality of our municipal bond holdings are monitored as part of our ongoing impairment analysis.

The weighted-average expected maturity of debt securities available-for-sale was 6.0 years at June 30, 2018 . The expected remaining maturity is shorter than the remaining contractual maturity for the 61% of this portfolio that is 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 June 30, 2018
Actual	$	162.8	(3.6	)	6.2
Assuming a 200 basis point:
Increase in interest rates	144.6		(21.8	)	8.2
Decrease in interest rates	175.0		8.6		3.5

The weighted-average expected maturity of debt securities held-to-maturity was 6.3 years at June 30, 2018 . See Note 5 (Debt Securities) to Financial Statements in this Report for a summary of debt securities by security type.

Loan Portfolios

Table 7 provides a summary of total outstanding loans by portfolio segment. Total loans decreased $12.5 billion from December 31, 2017 , with a decline in commercial real estate loans reflecting continued credit discipline, partially offset with growth in commercial and industrial loans. The decrease in loans also reflected paydowns, sales of 1-4 family first mortgage PCI Pick-a-

Pay loans, a continued decline in junior lien mortgage loans, seasonal declines in credit card balances, reclassification of automobile loans of Reliable Financial Services, Inc. to loans held for sale, and an expected decline in automobile loans as stable originations were more than offset by paydowns.

Table 7: Loan Portfolios



(in millions)	June 30, 2018			December 31, 2017
Commercial	$	503,105		503,388
Consumer	441,160			453,382
Total loans	$	944,265		956,770
Change from prior year-end	$	(12,505	)	(10,834	)

A discussion of 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 Allowance for Credit Losses) to Financial Statements in this Report.

Table 8 shows contractual loan maturities for loan categories normally not subject to regular periodic principal reduction and the contractual distribution of loans in those categories to changes in interest rates.

Table 8: Maturities for Selected Commercial Loan Categories



	June 30, 2018					December 31, 2017
(in millions)	Within one year		After one year through five years	After five years	Total	Within one year	After one year through five years	After five years	Total
Selected loan maturities:
Commercial and industrial	$	102,291	209,501	24,798	336,590	105,327	201,530	26,268	333,125
Real estate mortgage	17,629		64,742	41,593	123,964	20,069	64,384	42,146	126,599
Real estate construction	9,050		12,606	1,281	22,937	9,555	13,276	1,448	24,279
Total selected loans	$	128,970	286,849	67,672	483,491	134,951	279,190	69,862	484,003
Distribution of loans to changes in interest rates:
Loans at fixed interest rates	$	16,404	28,228	27,852	72,484	18,587	30,049	26,748	75,384
Loans at floating/variable interest rates	112,566		258,621	39,820	411,007	116,364	249,141	43,114	408,619
Total selected loans	$	128,970	286,849	67,672	483,491	134,951	279,190	69,862	484,003

Balance Sheet Analysis ( continued )

Deposits

Deposits were $1.3 trillion at June 30, 2018 , down $67.1 billion from December 31, 2017 , due to a decrease in commercial deposits from financial institutions and consumer and small business banking deposits. The decline in commercial deposits from financial institutions was due to actions taken in response to the asset cap included in the consent order issued by the Board of Governors of the Federal Reserve System on February 2, 2018, and declines across many businesses as commercial customers

allocated more cash to alternative higher-rate liquid investments. The decline in consumer and small business banking deposits was due to seasonal outflows and market-driven changes due to movements in interest rates. Table 9 provides additional information regarding deposits. Information regarding the impact of deposits on net interest income and a comparison of average deposit balances is provided in the "Earnings Performance – Net Interest Income" section and Table 1 earlier in this Report.

Table 9: Deposits



($ in millions)	Jun 30, 2018		% of total deposits		Dec 31, 2017		% of total deposits		% Change
Noninterest-bearing	$	365,021	29	%	$	373,722	28	%	(2	)
Interest-bearing checking	52,311		4		51,928		4		1
Market rate and other savings	694,758		54		690,168		52		1
Savings certificates	20,108		2		20,415		2		(2	)
Other time deposits	85,490		7		71,715		4		19
Deposits in foreign offices (1)	51,176		4		128,043		10		(60	)
Total deposits	$	1,268,864	100	%	$	1,335,991	100	%	(5	)


(1)	Includes Eurodollar sweep balances of $24.6 billion and $80.1 billion at June 30, 2018 , and December 31, 2017 , 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 2017 Form 10-K and Note 15 (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 10 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information (collectively Level 1 and 2 measurements).

Table 10: Fair Value Level 3 Summary



	June 30, 2018				December 31, 2017
($ in billions)	Total balance			Level 3 (1)	Total balance	Level 3 (1)
Assets carried at fair value	$	410.2		27.1	416.6	24.9
As a percentage of total assets	22		%	1	21	1
Liabilities carried at fair value	$	30.3		2.1	27.3	2.0
As a percentage of total liabilities	2		%	*	2	*

* Less than 1%.


(1)	Before derivative netting adjustments.

See Note 15 (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 $206.1 billion at June 30, 2018 , compared with $208.1 billion at December 31, 2017 . The decrease was driven by a $3.3 billion decline in cumulative other comprehensive income predominantly due to fair value adjustments to available-for-sale securities caused by an increase in long-term interest rates, a $2.7 billion increase in treasury stock, and a $1.2 billion decline in additional paid-in capital, partially offset by a $5.5 billion increase in retained earnings net of dividends paid.

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.

Commitments to Lend and Purchase Debt and Equity Securities

We enter into commitments to lend funds to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we make commitments, we are exposed to credit risk. However, the maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments is expected to expire without being used by the customer. For more information on lending commitments, see Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. We also enter into commitments to purchase securities under resale agreements. For more information on commitments to purchase securities under resale agreements, see Note 12 (Guarantees, Pledged Assets and Collateral, and Other Commitments) to Financial Statements in this Report. We also may enter into commitments to purchase debt and equity securities to provide capital for customers' funding, liquidity or other future needs. For more information, see the "Off-Balance Sheet Arrangements – Contractual Cash Obligations" section in our 2017 Form 10-K and Note 12 (Guarantees, Pledged Assets and Collateral, and Other Commitments) to Financial Statements in this Report.

Transactions with Unconsolidated Entities

In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions and are considered variable interest entities (VIEs). For more information on securitizations, including sales proceeds and cash flows from securitizations, see Note 9 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.

Guarantees and Certain Contingent Arrangements

Guarantees are contracts that contingently require us to make payments to a guaranteed party based on an event or a change in an underlying asset, liability, rate or index. Guarantees are generally in the form of standby letters of credit, securities lending and other indemnifications, written put options, recourse obligations and other types of arrangements. For more information on guarantees and certain contingent arrangements, see Note 12 (Guarantees, Pledged Assets and Collateral, and Other Commitments) to Financial Statements in this Report.

Derivatives

We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. Derivatives are recorded on the balance sheet at fair value, and volume can be measured in terms of the notional amount, which is generally not exchanged but is used only as the basis on which interest and other payments are determined. The notional amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. For more information on derivatives, see Note 14 (Derivatives) to Financial Statements in this Report.

Other Commitments

We also have other off-balance sheet transactions, including obligations to make rental payments under noncancelable operating leases. Our operating lease obligations are discussed in Note 7 (Premises, Equipment, Lease Commitments and Other Assets) to Financial Statements in our 2017 Form 10-K.

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, stockholders, regulators and other stakeholders. Among the significant risks that we manage are conduct risk, operational risk, compliance risk, credit risk, and asset/liability management related risks, which include interest rate risk, market risk, liquidity risk, and funding related risks. We operate under a Board-level approved risk framework which outlines our company-wide approach to risk management and oversight, and describes the structures and practices employed to manage current and emerging risks inherent to Wells Fargo. We are currently in the process of enhancing our approach to risk management and oversight to further emphasize the role of risk management when setting corporate strategy and to further simplify and integrate certain risk management organizational, governance and reporting practices. For more information about how we manage these risks, see the "Risk Management" section in our 2017 Form 10-K. The discussion that follows provides an update regarding these risks.

Conduct Risk Management

Conduct risk is the risk resulting from behavior that does not comply with the Company's values or ethical principles.

Our Board has enhanced its oversight of conduct risk to oversee the alignment of team member conduct to the Company's risk appetite (which the Board approves annually) and culture as reflected in our Vision, Values and Goals and Code of Ethics and Business Conduct. The Board's Risk Committee has primary oversight responsibility for company-wide conduct risk, while certain other Board committees have primary oversight responsibility for specific components of conduct risk. For example, the conduct risk oversight responsibilities of the Board's Human Resources Committee include the Company's human capital management, company-wide culture, the Ethics Oversight program (including the Company's Code of Ethics and Business Conduct), and oversight of our company-wide incentive compensation risk management program.

At the management level, the Conduct Management Office has primary oversight responsibility for key elements of conduct risk, including internal investigations, sales practices oversight, complaints oversight, and ethics oversight. This office reports and is accountable to the Chief Risk Officer (CRO) and the Enterprise Risk Management Committee and also has direct escalation and informational reporting paths to the relevant Board committees.

Operational Risk Management

Operational risk is the risk resulting from inadequate or failed internal controls and processes, people and systems, or resulting from external events. Operational risk is inherent in all Wells Fargo products and services as it often arises in the presence of other risk types.

The Board's Risk Committee has primary oversight responsibility for all aspects of operational risk. In this capacity, it reviews and approves significant supporting operational risk policies and programs, including the Company's business continuity, financial crimes, information security, privacy, technology, and third-party risk management policies and programs. In addition, it periodically reviews updates from management on the overall state of operational risk, including all related programs and risk types.

At the management level, the Operational Risk Group has

primary oversight responsibility for operational risk. This group reports and is accountable to the CRO and the Enterprise Risk Management Committee, and existing management-level committees with primary oversight responsibility for key elements of operational risk report to it while maintaining relevant dual escalation and informational reporting paths to Board-level committees.

Information security is a significant operational risk for financial institutions such as Wells Fargo, and includes the risk of losses resulting from cyber attacks. Our Board is actively engaged in the oversight of our Company's information security risk management and cyber defense programs. The Board's Risk Committee has primary oversight responsibility for information security and receives regular updates and reporting from management on information and cyber security matters, including information related to any third-party assessments of the Company's cyber program. In addition, the Risk Committee annually approves the Company's information security program, which includes the cyber defense program and information security policy. In 2017, the Risk Committee also formed a Technology Subcommittee to provide focused oversight of technology, information security and cyber risks as well as data governance and management. The Technology Subcommittee reports to the Risk Committee and updates are provided by the Risk Committee to the full Board.

Wells Fargo and other financial institutions continue to be the target of various evolving and adaptive cyber attacks, including malware and denial-of-service, as part of an effort to disrupt the operations of financial institutions, potentially test their cybersecurity capabilities, commit fraud, or obtain confidential, proprietary or other information. Cyber attacks have also focused on targeting online applications and services, such as online banking, as well as cloud-based services provided by third parties, and have targeted the infrastructure of the internet causing the widespread unavailability of websites and degrading website performance. Wells Fargo has not experienced any material losses relating to these or other cyber attacks. Addressing cybersecurity risks is a priority for Wells Fargo, and we continue to develop and enhance our controls, processes and systems in order to protect our networks, computers, software and data from attack, damage or unauthorized access. We are also proactively involved in industry cybersecurity efforts and working with other parties, including our third-party service providers and governmental agencies, to continue to enhance defenses and improve resiliency to cybersecurity threats. See the "Risk Factors" section in our 2017 Form 10-K for additional information regarding the risks associated with a failure or breach of our operational or security systems or infrastructure, including as a result of cyber attacks.

Compliance Risk Management

Compliance risk is the risk resulting from the failure to comply with applicable laws, regulations, rules, or other regulatory requirements, or the failure to appropriately address and limit violations of law and any associated harm to customers. Compliance risk encompasses compliance with the applicable standards of self-regulatory organizations as well as with internal policies and procedures.

The Board's Risk Committee has primary oversight responsibility for compliance risk. In 2017, the Risk Committee also formed a Compliance Subcommittee to provide focused oversight of compliance risk. The Compliance Subcommittee

reports to the Risk Committee and updates are provided by the Risk Committee to the full Board.

At the management level, Wells Fargo Compliance has primary oversight responsibility for compliance risk. This management-level organization reports and is accountable to the CRO and the Enterprise Risk Management Committee and also has a direct escalation and information reporting path to the Board's Risk Committee. We continue to enhance our oversight of operational and compliance risk management, including as required by the FRB's February 2, 2018, and the CFPB/OCC's April 20, 2018, consent orders.

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 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 11 presents our total loans outstanding by portfolio segment and class of financing receivable.

Table 11: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable



(in millions)	Jun 30, 2018		Dec 31, 2017
Commercial:
Commercial and industrial	$	336,590	333,125
Real estate mortgage	123,964		126,599
Real estate construction	22,937		24,279
Lease financing	19,614		19,385
Total commercial	503,105		503,388
Consumer:
Real estate 1-4 family first mortgage	283,001		284,054
Real estate 1-4 family junior lien mortgage	36,542		39,713
Credit card	36,684		37,976
Automobile	47,632		53,371
Other revolving credit and installment	37,301		38,268
Total consumer	441,160		453,382
Total loans	$	944,265	956,770

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


•	Loan concentrations and related credit quality


•	Counterparty credit risk


•	Economic and market conditions


•	Legislative or regulatory mandates


•	Changes in interest rates


•	Merger and acquisition activities


•	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 Solid credit quality continued in second quarter 2018 , as our net charge-off rate remained low at 0.26% (annualized) of average total loans. We continued to benefit from improvements in the performance of our residential real estate portfolio as well as seasonally lower automobile and credit card losses. In particular:

•

Nonaccrual loans were $7.5 billion at June 30, 2018 , down from $8.0 billion at December 31, 2017 . Commercial nonaccrual loans declined to $2.5 billion at June 30, 2018 , compared with $2.6 billion at December 31, 2017 , and consumer nonaccrual loans declined to $5.0 billion at June 30, 2018 , compared with $5.4 billion at December 31, 2017 . The decline in nonaccrual loans reflected an improved housing market and improvement in commercial and industrial loans. Nonaccrual loans represented 0.79% of total loans at June 30, 2018 , compared with 0.84% at December 31, 2017 .

•

Net charge-offs (annualized) as a percentage of average total loans decreased to 0.26% and 0.29% in the second quarter and first half of 2018 , respectively, compared with 0.27% and 0.31% for the same periods a year ago. Net charge-offs (annualized) as a percentage of our average commercial and consumer portfolios were 0.05% and 0.49% in the second quarter and 0.06% and 0.54% in the first half of 2018 , respectively, compared with 0.06% and 0.51% in the second quarter and 0.09% and 0.55% in the first half of 2017 .


•	Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $49 million and $793 million in our commercial and consumer portfolios, respectively, at June 30, 2018 , compared with $49 million and $1.0 billion at December 31, 2017 .


•	Our provision for credit losses was $452 million and $643 million in the second quarter and first half of 2018 , respectively, compared with $555 million and $1.2 billion for the same periods a year ago.


•	The allowance for credit losses totaled $11.1 billion , or 1.18% of total loans, at June 30, 2018 , down from $12.0 billion , or 1.25% , at December 31, 2017 .

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

PURCHASED CREDIT-IMPAIRED (PCI) LOANS Loans acquired with evidence of credit deterioration since their origination and where it is probable that we will not collect all contractually required principal and interest payments are PCI loans. Substantially all of our PCI loans were acquired in the Wachovia acquisition on December 31, 2008. PCI loans are recorded at fair value at the date of acquisition, and the historical allowance for credit losses related to these loans is not carried over. The carrying value of PCI loans at June 30, 2018 , totaled $9.0 billion , compared with $12.8 billion at December 31, 2017 , and $58.8 billion at December 31, 2008. The decrease from December 31, 2017, was due to the sale of $1.6 billion of Pick-a-Pay PCI loans in first quarter 2018 and $1.3 billion in second quarter 2018, as well as prepayments observed in our Pick-a-Pay PCI portfolio. PCI loans are considered to be accruing due to the

existence of the accretable yield amount, which represents the cash expected to be collected in excess of their carrying value, and not based on consideration given to contractual interest payments. The accretable yield at June 30, 2018 , was $5.7 billion .

A nonaccretable difference is established for PCI loans to absorb losses expected on the contractual amounts of those loans in excess of the fair value recorded at the date of acquisition. Amounts absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses. At June 30, 2018 , $313 million in nonaccretable difference remained to absorb losses on PCI loans.

For additional information on PCI loans, see the "Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans – Pick-a-Pay Portfolio" section in this Report, Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 Form 10-K, and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Significant Loan Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, Fair Isaac Corporation (FICO) scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an appropriate allowance for credit losses. The following discussion provides additional characteristics and analysis of our significant portfolios. See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information for each of the following portfolios.

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

The commercial and industrial loans and lease financing portfolio totaled $356.2 billion , or 38% of total loans, at June 30, 2018 . The annualized net charge-off rate for this portfolio was 0.08% and 0.10% in the second quarter and first half of 2018 , respectively, compared with 0.10% and 0.15% for the same periods a year ago. At June 30, 2018 , 0.46% of this portfolio was nonaccruing, compared with 0.56% at December 31, 2017 , reflecting a decrease of $336 million in nonaccrual loans, predominantly due to improvement in the oil and gas portfolio. Also, $16.7 billion of the commercial and industrial loan and lease financing portfolio was internally classified as criticized in accordance with regulatory guidance at June 30, 2018 , compared with $17.9 billion at December 31, 2017 . The decrease in criticized loans, which also includes the decrease in nonaccrual loans, was predominantly due to improvement in the oil and gas portfolio.

Most 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 12 provides a breakout of commercial and industrial loans and lease financing by industry, and includes $62.8 billion of foreign loans at June 30, 2018 . Foreign loans totaled $20.4 billion within the investor category, $18.3 billion within the financial institutions category and $1.3 billion within the oil and gas category.

The investors category includes loans to special purpose vehicles (SPVs) formed by sponsoring entities to invest in financial assets backed predominantly by commercial and residential real estate or corporate cash flow, and are repaid from the asset cash flows or the sale of assets by the SPV. We limit loan amounts to a percentage of the value of the underlying assets, as determined by us, based on analysis of underlying credit risk and other factors such as asset duration and ongoing performance.

We provide financial institutions with a variety of relationship focused products and services, including loans supporting short-term trade finance and working capital needs. The $18.3 billion of foreign loans in the financial institutions category were mostly originated by our Financial Institutions business.

The oil and gas loan portfolio totaled $12.4 billion , or 1% of total outstanding loans, at June 30, 2018 , compared with $12.5 billion , or 1% of total outstanding loans, at December 31, 2017 . Oil and gas nonaccrual loans decreased to $687 million at June 30, 2018 , compared with $1.1 billion at December 31, 2017 , due to improved portfolio performance.

Table 12: Commercial and Industrial Loans and Lease Financing by Industry (1)



	June 30, 2018
(in millions)	Nonaccrual loans		Total portfolio	(2)	% of total loans
Investors	$	9	65,201		7	%
Financial institutions	2		39,632		4
Cyclical retailers	189		27,016		3
Food and beverage	11		17,153		2
Healthcare	45		16,702		2
Industrial equipment	94		14,742		2
Technology	21		14,672		2
Real estate lessor	7		14,080		1
Oil and gas	687		12,444		1
Business services	29		8,961		1
Transportation	115		8,906		1
Public administration	6		8,173		1
Other	424		108,522	(3)	11
Total	$	1,639	356,204		38	%


(1)	Industry categories are based on the North American Industry Classification System and the amounts reported include foreign loans. See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for a breakout of commercial foreign loans.


(2)	Includes $79 million of PCI loans, which are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.


(3)	No other single industry had total loans in excess of $6.4 billion .

COMMERCIAL REAL ESTATE (CRE) We generally subject CRE loans to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatory definitions of pass and criticized categories with criticized segmented among special mention, substandard, doubtful and loss categories. The CRE portfolio, which included $8.2 billion of foreign CRE loans, totaled $146.9 billion , or 16% of total loans, at June 30, 2018 , and consisted of $124.0 billion of mortgage loans and $22.9 billion of construction loans.

Table 13 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 28% and apartments at 16% of the portfolio. CRE nonaccrual loans totaled 0.6% of the CRE outstanding balance at June 30, 2018 , compared with 0.4% at December 31, 2017 . At June 30, 2018 , we had $4.8 billion of criticized CRE mortgage loans, compared with $4.3 billion at December 31, 2017 , and $245 million of criticized CRE construction loans, compared with $298 million at December 31, 2017 .

Table 13: CRE Loans by State and Property Type



	June 30, 2018
	Real estate mortgage			Real estate construction		Total
(in millions)	Nonaccrual loans		Total portfolio	Nonaccrual loans	Total portfolio	Nonaccrual loans	Total portfolio		% of total loans
By state:
California	$	184	35,545	15	4,279	199	39,824		4	%
New York	11		10,311	-	2,437	11	12,748		1
Florida	31		7,745	2	2,154	33	9,899		1
Texas	186		8,125	-	1,771	186	9,896		1
North Carolina	33		4,012	6	929	39	4,941		1
Arizona	26		4,430	-	408	26	4,838		1
Georgia	13		3,529	1	759	14	4,288		*
Illinois	6		3,532	-	550	6	4,082		*
Virginia	11		2,913	-	885	11	3,798		*
Washington	19		3,230	3	539	22	3,769		*
Other	245		40,592	24	8,226	269	48,818	(1)	5
Total	$	765	123,964	51	22,937	816	146,901		16	%
By property:
Office buildings	$	120	38,510	6	2,906	126	41,416		4	%
Apartments	16		15,375	-	7,508	16	22,883		2
Industrial/warehouse	140		15,053	6	1,792	146	16,845		2
Retail (excluding shopping center)	85		15,857	3	663	88	16,520		2
Shopping center	45		11,541	-	1,294	45	12,835		1
Hotel/motel	18		8,894	-	1,918	18	10,812		1
Mixed use properties (2)	197		6,398	6	205	203	6,603		1
Institutional	51		3,674	-	1,743	51	5,417		1
Agriculture	41		2,454	-	20	41	2,474		*
1-4 family structure	-		10	11	2,300	11	2,310		*
Other	52		6,198	19	2,588	71	8,786		1
Total	$	765	123,964	51	22,937	816	146,901		16	%


*	Less than 1%.

(1) Includes 40 states; no state had loans in excess of $3.4 billion .


(2)	Mixed use properties are primarily owner occupied real estate, including data centers, flexible space leased to multiple tenants, light manufacturing and other specialized use properties.

Risk Management - Credit Risk Management (continued)

FOREIGN LOANS AND COUNTRY RISK EXPOSURE We classify loans for financial statement and certain regulatory purposes as foreign primarily based on whether the borrower's primary address is outside of the United States. At June 30, 2018 , foreign loans totaled $71.4 billion , representing approximately 8% of our total consolidated loans outstanding, compared with $70.4 billion , or approximately 7% of total consolidated loans outstanding, at December 31, 2017 . Foreign loans were approximately 4% of our consolidated total assets at June 30, 2018 and at December 31, 2017 .

Our country risk monitoring process incorporates frequent dialogue with our financial institution customers, counterparties and regulatory agencies, enhanced by centralized monitoring of macroeconomic and capital markets conditions in the respective countries. We establish exposure limits for each country through a centralized oversight process based on customer needs, and in consideration of relevant economic, political, social, legal, and transfer risks. We monitor exposures closely and adjust our country limits in response to changing conditions.

We evaluate our individual country risk exposure based on our assessment of the borrower's ability to repay, which gives consideration for allowable transfers of risk such as guarantees and collateral and may be different from the reporting based on the borrower's primary address. Our largest single foreign country exposure based on our assessment of risk at June 30, 2018 , was the United Kingdom, which totaled $29.1 billion , or approximately 2% of our total assets, and included $3.0 billion of sovereign claims. Our United Kingdom sovereign claims arise predominantly from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch. The United Kingdom officially announced its intention to leave the European Union (Brexit) on March 29, 2017, starting the two-year negotiation process leading to its departure. We continue to conduct assessments and are executing our implementation plans to ensure we can continue to prudently serve our customers post-Brexit.

Table 14 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. Our exposure to Puerto Rico (considered part of U.S. exposure) is primarily through automobile lending and was not material to our consolidated country exposure. In first quarter 2018, we entered into an agreement to sell certain assets and liabilities of our automobile financing business in Puerto Rico, which is expected to close in third quarter 2018.

Table 14: Select Country Exposures



	June 30, 2018
	Lending (1)			Securities (2)				Derivatives and other (3)		Total exposure
(in millions)	Sovereign		Non- sovereign	Sovereign		Non- sovereign		Sovereign	Non- sovereign	Sovereign		Non- sovereign (4)	Total
Top 20 country exposures:
United Kingdom	$	2,950	22,208	-		1,415		3	2,492	2,953		26,115	29,068
Canada	30		16,809	28		410		-	664	58		17,883	17,941
Cayman Islands	-		7,184	-		-		-	162	-		7,346	7,346
Ireland	-		3,742	-		213		-	75	-		4,030	4,030
Germany	2,158		1,272	3		50		-	415	2,161		1,737	3,898
Bermuda	-		2,938	-		106		-	102	-		3,146	3,146
Netherlands	-		2,269	21		346		2	121	23		2,736	2,759
China	-		2,347	(3	)	105		11	25	8		2,477	2,485
Luxembourg	-		1,567	-		662		-	158	-		2,387	2,387
Guernsey	-		2,374	-		1		-	4	-		2,379	2,379
India	-		2,047	-		161		-	-	-		2,208	2,208
Brazil	-		1,844	(1	)	5		-	6	(1	)	1,855	1,854
Japan	299		1,386	4		44		-	58	303		1,488	1,791
Australia	-		1,409	-		93		-	53	-		1,555	1,555
Chile	-		1,388	-		4		-	1	-		1,393	1,393
Switzerland	-		1,159	-		(11	)	-	28	-		1,176	1,176
South Korea	-		1,087	(1	)	55		2	6	1		1,148	1,149
Virgin Islands (British)	-		1,059	-		25		-	-	-		1,084	1,084
France	-		720	-		92		-	174	-		986	986
Hong Kong	-		892	-		24		8	1	8		917	925
Total top 20 country exposures	$	5,437	75,701	51		3,800		26	4,545	5,514		84,046	89,560
Eurozone exposure:
Eurozone countries included in Top 20 above (5)	$	2,158	9,570	24		1,363		2	943	2,184		11,876	14,060
Austria	-		644	-		2		-	-	-		646	646
Spain	-		324	-		90		-	32	-		446	446
Finland	-		245	-		32		-	-	-		277	277
Other Eurozone exposure (6)	23		450	-		(39	)	-	15	23		426	449
Total Eurozone exposure	$	2,181	11,233	24		1,448		2	990	2,207		13,671	15,878


(1)	Lending exposure includes funded loans and unfunded commitments, leveraged leases, and money market placements presented on a gross basis prior to the deduction of impairment allowance and collateral received under the terms of the credit agreements. For the countries listed above, there are $570 million in defeased leases secured significantly by U.S. Treasury and government agency securities.


(2)	Represents exposure on debt and equity securities of foreign issuers. Long and short positions are netted and net short positions are reflected as negative exposure.

(3)

Represents counterparty exposure on foreign exchange and derivative contracts, and securities resale and lending agreements. This exposure is presented net of counterparty netting adjustments and reduced by the amount of cash collateral. It includes credit default swaps (CDS) predominantly used for market making activities in the U.S. and London based trading businesses, which sometimes results in selling and purchasing protection on the identical reference entities. Generally, we do not use market instruments such as CDS to hedge the credit risk of our investment or loan positions, although we do use them to manage risk in our trading businesses At June 30, 2018 , the gross notional amount of our CDS sold that reference assets in the Top 20 or Eurozone countries was $327 million , which was offset by the notional amount of CDS purchased of $267 million . We did not have any CDS purchased or sold that reference pools of assets that contain sovereign debt or where the reference asset was solely the sovereign debt of a foreign country.


(4)	For countries presented in the table, total non-sovereign exposure comprises $43.9 billion exposure to financial institutions and $41.9 billion to non-financial corporations at June 30, 2018 .


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


(6)	Includes non-sovereign exposure to Italy, Portugal, and Greece in the amount of $120 million , $11 million and $4 million , respectively. We had no sovereign debt exposure to Greece, and the sovereign exposure to Italy and Portugal was immaterial at June 30, 2018 .

Risk Management - Credit Risk Management (continued)

REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANS Our real estate 1-4 family first and junior lien mortgage loans, as presented in Table 15 , include loans we have made to customers and retained as part of our asset/liability management strategy, the Pick-a-Pay portfolio acquired from

Wachovia which is discussed later in this Report and other purchased loans, and loans included on our balance sheet as a result of consolidation of variable interest entities (VIEs).

Table 15: Real Estate 1-4 Family First and Junior Lien Mortgage Loans



	June 30, 2018				December 31, 2017
(in millions)	Balance		% of portfolio		Balance		% of portfolio
Real estate 1-4 family first mortgage	$	283,001	89	%	$	284,054	88	%
Real estate 1-4 family junior lien mortgage	36,542		11		39,713		12
Total real estate 1-4 family mortgage loans	$	319,543	100	%	$	323,767	100	%

The real estate 1-4 family mortgage loan portfolio includes some loans with adjustable-rate features and some with an interest-only feature as part of the loan terms. Interest-only loans were approximately 4% of total loans at both June 30, 2018 , and December 31, 2017 . We believe we have manageable adjustable-rate mortgage (ARM) reset risk across our owned mortgage loan portfolios. We do not offer option ARM products, nor do we offer variable-rate mortgage products with fixed payment amounts, commonly referred to within the financial services industry as negative amortizing mortgage loans. The option ARMs we do have are included in the Pick-a-Pay portfolio which was acquired from Wachovia. Since our acquisition of the Pick-a-Pay loan portfolio at the end of 2008, the option payment portion of the portfolio has reduced from 86% to 41% at June 30, 2018 , as a result of our modification and loss mitigation efforts. For more information, see the "Pick-a-Pay Portfolio" section in this Report.

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

Part of our credit monitoring includes tracking delinquency, current FICO scores and loan/combined loan to collateral values (LTV/CLTV) on the entire real estate 1-4 family mortgage loan portfolio. These credit risk indicators, which exclude government insured/guaranteed loans, continued to improve in second quarter 2018 on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at June 30, 2018 , totaled $4.3 billion , or 1% of total non-PCI mortgages, compared with $5.3 billion , or 2% , at December 31, 2017 . Loans with FICO scores lower than 640 totaled $10.3 billion , or 3% of total non-PCI mortgages at June 30, 2018 , compared with $11.7 billion , or 4% , at December 31, 2017 . Mortgages with a LTV/CLTV greater than 100% totaled $5.0 billion at June 30, 2018 , or 2% of total non-PCI mortgages, compared with $6.1 billion , or 2% , at December 31, 2017 . Information regarding credit quality indicators, including PCI credit quality indicators, can be found in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Real estate 1-4 family first and junior lien mortgage loans by state are presented in Table 16 . Our real estate 1-4 family non-PCI mortgage loans to borrowers in California represented 12% of total loans at June 30, 2018 , 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 first and junior lien mortgage portfolios as part of our credit risk management process. Our underwriting and periodic review of

loans and lines secured by residential real estate collateral includes appraisals or estimates from automated valuation models (AVMs) to support property values. Additional information about AVMs and our policy for their use can be found in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report and the "Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans" section in our 2017 Form 10-K.

Table 16: Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State



	June 30, 2018
(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 (excluding PCI):
California	$	105,078	9,774	114,852	12	%
New York	27,776		1,813	29,589	3
New Jersey	13,446		3,361	16,807	2
Florida	12,689		3,376	16,065	2
Virginia	8,057		2,167	10,224	1
Washington	9,212		792	10,004	1
Texas	8,590		675	9,265	1
North Carolina	5,943		1,712	7,655	1
Pennsylvania	5,487		2,050	7,537	1
Other (1)	64,376		10,799	75,175	8
Government insured/ guaranteed loans (2)	13,445		-	13,445	1
Real estate 1-4 family loans (excluding PCI)	274,099		36,519	310,618	33
Real estate 1-4 family PCI loans	8,902		23	8,925	1
Total	$	283,001	36,542	319,543	34	%


(1)	Consists of 41 states; no state had loans in excess of $6.7 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 increased $343 million in second quarter 2018 as growth in nonconforming mortgage loans was partially offset by paydowns, and Pick-a-Pay PCI loan sales of $1.3 billion. In the first half of 2018 , the real estate 1-4 family first lien mortgage portfolio decreased $1.1 billion as a result of paydowns and Pick-a-Pay PCI loan sales, partially offset by nonconforming mortgage loan growth. We retained $12.1 billion and $20.5 billion in nonconforming originations, consisting of loans that exceed conventional conforming loan amount limits established by federal government-sponsored entities (GSEs) in the second quarter and first half of 2018 , respectively.

The credit performance associated with our real estate 1-4 family first lien mortgage portfolio continued to improve in second quarter 2018 , as measured through net charge-offs and

nonaccrual loans. Net charge-offs (annualized) as a percentage of average real estate 1-4 family first lien mortgage loans improved to a net recovery of 0.03% for both the second quarter and first half of 2018 , compared with a net recovery of 0.02% and 0.01% for the same periods a year ago. Nonaccrual loans were $3.8 billion at June 30, 2018 , down $293 million from December 31, 2017 . Improvement in the credit performance was driven by sales and an improving housing environment. Real estate 1-4 family first lien mortgage loans originated after 2008, which generally utilized tighter underwriting standards, comprised approximately 81% of our total real estate 1-4 family first lien mortgage portfolio as of June 30, 2018 .

Table 17 shows certain delinquency and loss information for the first lien mortgage portfolio and lists the top five states by outstanding balance.

Table 17: First Lien Mortgage Portfolio Performance



	Outstanding balance			% of loans 30 days or more past due			Loss (recovery) rate (annualized) quarter ended
(in millions)	Jun 30, 2018		Dec 31, 2017	Jun 30, 2018		Dec 31, 2017	Jun 30, 2018		Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017
California	$	105,078	101,464	0.76	%	1.06	(0.07	)	(0.07	)	(0.05	)	(0.09	)	(0.08	)
New York	27,776		26,624	1.38		1.65	0.09		(0.01	)	-		0.05		0.02
New Jersey	13,446		13,212	2.21		2.74	0.02		0.08		0.09		0.15		0.17
Florida	12,689		13,083	2.87		3.95	(0.15	)	(0.14	)	(0.16	)	(0.22	)	(0.18	)
Washington	9,212		8,845	0.66		0.85	(0.06	)	(0.06	)	(0.05	)	(0.09	)	(0.10	)
Other	92,453		92,961	1.87		2.25	(0.03	)	0.01		(0.02	)	0.03		0.02
Total	260,654		256,189	1.39		1.78	(0.04	)	(0.03	)	(0.04	)	(0.03	)	(0.03	)
Government insured/guaranteed loans	13,445		15,143
PCI	8,902		12,722
Total first lien mortgages	$	283,001	284,054

Pick-a-Pay Portfolio The Pick-a-Pay portfolio was one of the consumer residential first lien mortgage portfolios we acquired from Wachovia and a majority of the portfolio was identified as PCI loans.

The Pick-a-Pay portfolio includes loans that offer payment options (Pick-a-Pay option payment loans), and also includes loans that were originated without the option payment feature, loans that no longer offer the option feature as a result of our modification efforts since the acquisition, and loans where the customer voluntarily converted to a fixed-rate product. The Pick-a-Pay portfolio is included in the consumer real estate 1-4 family first mortgage class of loans throughout this Report. Table 18 provides balances by types of loans as of June 30, 2018 . As a

result of our loan modification and loss mitigation efforts, Pick-a-Pay option payment loans have been reduced to $9.8 billion at June 30, 2018 , from $99.9 billion at acquisition. Total adjusted unpaid principal balance of Pick-a-Pay PCI loans was $11.8 billion at June 30, 2018 , compared with $61.0 billion at acquisition. Due to loan modification and loss mitigation efforts, the adjusted unpaid principal balance of option payment PCI loans has declined to 16% of the total Pick-a-Pay portfolio at June 30, 2018 , compared with 51% at acquisition. As favorable sale opportunities arise, we may sell portions of this portfolio. We expect to close on the sale of $2.5 billion of unpaid principal balance of Pick-a-Pay PCI loans in third quarter 2018.

Table 18: Pick-a-Pay Portfolio – Comparison to Acquisition Date



					December 31,
	June 30, 2018				2017				2008
(in millions)	Adjusted unpaid principal balance (1)		% of total		Adjusted unpaid principal balance (1)		% of total		Adjusted unpaid principal balance (1)		% of total
Option payment loans	$	9,825	41	%	$	10,891	36	%	$	99,937	86	%
Non-option payment adjustable-rate and fixed-rate loans	3,293		14		3,771		13		15,763		14
Full-term loan modifications	10,840		45		15,366		51		-		-
Total adjusted unpaid principal balance	$	23,958	100	%	$	30,028	100	%	$	115,700	100	%
Total carrying value	$	21,072			26,038				95,315


(1)	Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

Pick-a-Pay option payment loans may have fixed or adjustable rates with payment options that include a minimum payment, an interest-only payment or fully amortizing payment (both 15 and 30 year options).

Since December 31, 2008, we have completed over 138,000 proprietary and Home Affordability Modification Program (HAMP) Pick-a-Pay loan modifications, which have resulted in over $6.1 billion of principal forgiveness. We have also provided interest rate reductions and loan term extensions to enable sustainable homeownership for our Pick-a-Pay customers. As a result of these loss mitigation programs, approximately 65% of our Pick-a-Pay PCI adjusted unpaid principal balance as of June 30, 2018 has been modified.

The predominant portion of our PCI loans is included in the Pick-a-Pay portfolio. Our cash flows expected to be collected have been favorably affected over time by lower expected defaults and losses as a result of observed and forecasted economic strengthening, particularly in housing prices, and our loan modification efforts. Since acquisition, we have reclassified $9.3 billion from the nonaccretable difference to the accretable yield. Fluctuations in the accretable yield are driven by changes in interest rate indices for variable rate PCI loans, prepayment assumptions, and expected principal and interest payments over the estimated life of the portfolio, which will be affected by the pace and degree of improvements in the U.S. economy and housing markets and projected lifetime performance resulting from loan modification activity. Changes in the projected timing of cash flow events, including loan liquidations, prepayments, modifications and short sales, can also affect the accretable yield and the estimated weighted-average life of the portfolio.

An increase in expected prepayments and passage of time lowered our estimated weighted-average life to approximately 5.2 years at June 30, 2018 , from 6.8 years at December 31, 2017. During second quarter 2018, we sold $1.3 billion of Pick-a-Pay PCI loans that resulted in a gain of $479 million. Also, the accretable yield balance related to our Pick-a-Pay PCI loan portfolio declined $1.2 billion during second quarter 2018, driven by realized accretion of $289 million, $479 million from the gain on the loan sale, a $373 million reduction in expected interest cash flows resulting from the loan sale, and a $80 million reduction in expected interest cash flows due to higher estimated prepayments, partially offset by a $32 million reclassification from nonaccretable difference. The accretable yield percentage for Pick-a-Pay PCI loans for second quarter 2018 increased to 11.47%. Due to an increase in the amount of accretable yield relative to the shortened weighted-average life, we expect the accretable yield percentage to be approximately 12.02% for third quarter 2018.

For further information on the judgment involved in estimating expected cash flows for PCI loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 Form 10-K.

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. We have observed that the severity of loss for junior lien mortgages is high and generally not affected by whether we or a third party own or service the related first lien mortgage, but the frequency of delinquency is typically lower when we own or service the first lien mortgage. In general, we have limited information available on the delinquency status of the third party owned or serviced first lien where we also hold a junior lien. To capture this inherent loss content, our allowance process for junior lien mortgages considers the relative difference in loss experience for junior lien mortgages behind first lien mortgage loans we own or service, compared with those behind first lien mortgage loans owned or serviced by third parties. In addition, our allowance

process for junior lien mortgages that are current, but are in their revolving period, considers the inherent loss where the borrower is delinquent on the corresponding first lien mortgage loans.

Table 19 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, 2017 , predominantly reflects loan paydowns. As of June 30, 2018 , 8% 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%, 2.72% were 30 days or more past due. CLTV means the ratio of the total loan balance of first lien mortgages and junior lien mortgages (including unused line amounts for credit line products) to property collateral value. The unsecured portion (the outstanding amount that was in excess of the most recent property collateral value) of the outstanding balances of these loans totaled 3% of the junior lien mortgage portfolio at June 30, 2018 . For additional information on consumer loans by LTV/CLTV, see Table 6.12 in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 19: Junior Lien Mortgage Portfolio Performance



	Outstanding balance			% of loans 30 days or more past due			Loss (recovery) rate (annualized) quarter ended
(in millions)	Jun 30, 2018		Dec 31, 2017	Jun 30, 2018		Dec 31, 2017	Jun 30, 2018		Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017
California	$	9,774	10,599	1.82	%	2.09	(0.56	)	(0.42	)	(0.35	)	(0.46	)	(0.42	)
Florida	3,376		3,688	2.63		3.05	(0.05	)	(0.12	)	0.13		0.06		(0.10	)
New Jersey	3,361		3,606	2.59		2.86	0.28		0.44		0.47		0.58		0.44
Virginia	2,167		2,358	1.97		2.34	0.30		0.25		0.15		0.33		0.17
Pennsylvania	2,050		2,210	2.06		2.37	0.13		0.06		0.11		0.47		0.29
Other	15,791		17,225	2.11		2.33	(0.06	)	(0.05	)	(0.09	)	0.06		0.05
Total	36,519		39,686	2.11		2.38	(0.13	)	(0.09	)	(0.06	)	-		(0.03	)
PCI	23		27
Total junior lien mortgages	$	36,542	39,713

Risk Management - Credit Risk Management (continued)

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

On a monthly basis, we monitor the payment characteristics of borrowers in our first and junior lien lines of credit portfolios. In June 2018 , approximately 44% of these borrowers paid only the minimum amount due and approximately 51% 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 31% paid only the minimum amount due and approximately 64% 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 20 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. It excludes real estate 1-4 family first lien line reverse mortgages, which total $118 million , because they are predominantly insured by the FHA, and it excludes PCI loans, which total $43 million , because their losses were generally reflected in our nonaccretable difference established at the date of acquisition.

Table 20: Junior Lien Mortgage Line and Loan and First Lien Mortgage Line Portfolios Payment Schedule



					Scheduled end of draw / term
(in millions)	Outstanding balance June 30, 2018			Remainder of 2018	2019	2020	2021	2022	2023 and thereafter (1)	Amortizing
Junior lien lines and loans	$	36,519		459	579	577	1,215	4,276	17,108	12,305
First lien lines	12,462			186	203	232	549	2,015	7,222	2,055
Total (2)(3)	$	48,981		645	782	809	1,764	6,291	24,330	14,360
% of portfolios	100		%	1	2	2	4	13	50	28


(1)	Substantially all lines and loans are scheduled to convert to amortizing loans by the end of 2026, with annual scheduled amounts through that date ranging from $3.7 billion to $6.3 billion and averaging $5.1 billion per year.


(2)	Junior and first lien lines are primarily interest-only during their draw period. The unfunded credit commitments for junior and first lien lines totaled $61.2 billion at June 30, 2018 .

(3)

Includes scheduled end-of-term balloon payments for lines and loans totaling $72 million , $223 million , $252 million , $414 million , $200 million and $69 million for 2018 , 2019 , 2020 , 2021 , 2022 , and 2023 and thereafter , respectively. Amortizing lines and loans include $77 million of end-of-term balloon payments, which are past due. At June 30, 2018 , $509 million , or 4% of outstanding lines of credit that are amortizing, are 30 days or more past due compared to $558 million or 2% for lines in their draw period.

CREDIT CARDS Our credit card portfolio totaled $36.7 billion at June 30, 2018 , which represented 4% of our total outstanding loans. The net charge-off rate (annualized) for our credit card portfolio was 3.61% for second quarter 2018 , compared with 3.67% for second quarter 2017 and 3.65% and 3.61% for the first half of 2018 and 2017, respectively.

AUTOMOBILE Our automobile portfolio, predominantly composed of indirect loans, totaled $47.6 billion at June 30, 2018 . The net charge-off rate (annualized) for our automobile portfolio was 0.93% for second quarter 2018 , compared with 0.86% for second quarter 2017 and 1.30% and 0.98% for the first half of 2018 and 2017, respectively. The increase in net charge-offs in 2018, compared with 2017, was driven by higher severity.

OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans totaled $37.3 billion at June 30, 2018 , and primarily included student and securities-based loans. Our private student loan portfolio totaled $ 11.5 billion at June 30, 2018 . The net charge-off rate (annualized) for other revolving credit and installment loans was 1.44% for second quarter 2018 , compared with 1.58% for second quarter 2017 and 1.52% and 1.59% for the first half of 2018 and 2017, respectively.

NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 21 summarizes nonperforming assets (NPAs) for each of the last four quarters. Total NPAs decreased $305 million from first quarter 2018 to $8.0 billion with improvement in our consumer portfolios. Nonaccrual loans decreased $233 million from first quarter 2018 to $7.5 billion predominantly driven by lower consumer real estate nonaccruals. Foreclosed assets of $499 million were down $72 million from first quarter 2018.

We generally place loans on nonaccrual status when:


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


•	they are 90 days (120 days with respect to real estate 1-4

family first and junior lien mortgages) past due for interest or principal, unless both well-secured and in the process of collection;


•	part of the principal balance has been charged off;


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


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

Credit card loans are not placed on nonaccrual status, but are generally fully charged off when the loan reaches 180 days past due.

Table 21: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)



	June 30, 2018					March 31, 2018					December 31, 2017					September 30, 2017
($ in millions)	Balance			% of total loans		Balance			% of total loans		Balance			% of total loans		Balance			% of total loans
Nonaccrual loans:
Commercial:
Commercial and industrial	$	1,559		0.46	%	$	1,516		0.45	%	$	1,899		0.57	%	$	2,397		0.73	%
Real estate mortgage	765			0.62		755			0.60		628			0.50		593			0.46
Real estate construction	51			0.22		45			0.19		37			0.15		38			0.15
Lease financing	80			0.41		93			0.48		76			0.39		81			0.42
Total commercial	2,455			0.49		2,409			0.48		2,640			0.52		3,109			0.62
Consumer:
Real estate 1-4 family first mortgage (1)	3,829			1.35		4,053			1.43		4,122			1.45		4,213			1.50
Real estate 1-4 family junior lien mortgage	1,029			2.82		1,087			2.87		1,086			2.73		1,101			2.68
Automobile	119			0.25		117			0.24		130			0.24		137			0.25
Other revolving credit and installment	54			0.14		53			0.14		58			0.15		59			0.15
Total consumer (2)	5,031			1.14		5,310			1.20		5,396			1.19		5,510			1.22
Total nonaccrual loans (3)(4)(5)	7,486			0.79		7,719			0.81		8,036			0.84		8,619			0.91
Foreclosed assets:
Government insured/guaranteed (6)	90					103					120					137
Non-government insured/guaranteed	409					468					522					569
Total foreclosed assets	499					571					642					706
Total nonperforming assets	$	7,985		0.85	%	$	8,290		0.88	%	$	8,678		0.91	%	$	9,325		0.98	%
Change in NPAs from prior quarter	$	(305	)			(388		)			(647		)			(512		)


(1)	Includes mortgage loans held for sale (MLHFS) of $133 million , $137 million , $136 million , and $133 million at June 30 and March 31, 2018, and December 31 and September 30, 2017 , respectively.


(2)	Includes an incremental $171 million of nonaccrual loans at September 30, 2017, reflecting updated industry regulatory guidance related to loans in bankruptcy.


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


(4)	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.


(5)	See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further information on impaired loans.

(6)

Consistent with regulatory reporting requirements, foreclosed real estate resulting from government insured/guaranteed loans are classified as nonperforming. However, 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. Foreclosure of certain government guaranteed residential real estate mortgage loans that meet criteria specified by Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure , effective as of January 1, 2014, are excluded from this table and included in Accounts Receivable in Other Assets. For more information on the changes in foreclosures for government guaranteed residential real estate mortgage loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 Form 10-K.

Risk Management - Credit Risk Management (continued)

Table 22 provides an analysis of the changes in nonaccrual loans.

Table 22: Analysis of Changes in Nonaccrual Loans



	Quarter ended
(in millions)	Jun 30, 2018			Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017
Commercial nonaccrual loans
Balance, beginning of period	$	2,409		2,640		3,109		3,385		3,706
Inflows	726			605		617		627		704
Outflows:
Returned to accruing	(43		)	(113	)	(126	)	(97	)	(61	)
Foreclosures	-			-		(1	)	(3	)	(15	)
Charge-offs	(133		)	(119	)	(139	)	(173	)	(116	)
Payments, sales and other	(504		)	(604	)	(820	)	(630	)	(833	)
Total outflows	(680		)	(836	)	(1,086	)	(903	)	(1,025	)
Balance, end of period	2,455			2,409		2,640		3,109		3,385
Consumer nonaccrual loans
Balance, beginning of period	5,310			5,396		5,510		5,671		6,053
Inflows (1)	602			738		845		887		676
Outflows:
Returned to accruing	(345		)	(376	)	(345	)	(397	)	(425	)
Foreclosures	(53		)	(62	)	(72	)	(56	)	(72	)
Charge-offs	(86		)	(88	)	(94	)	(109	)	(117	)
Payments, sales and other	(397		)	(298	)	(448	)	(486	)	(444	)
Total outflows	(881		)	(824	)	(959	)	(1,048	)	(1,058	)
Balance, end of period	5,031			5,310		5,396		5,510		5,671
Total nonaccrual loans	$	7,486		7,719		8,036		8,619		9,056


(1)	Quarter ended September 30, 2017, includes an incremental $171 million of nonaccrual loans, reflecting updated industry regulatory guidance related to loans in bankruptcy.

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. Also, reductions can come from borrower repayments even if the loan remains on nonaccrual.

While nonaccrual loans are not free of loss content, we believe exposure to loss is significantly mitigated by the following factors at June 30, 2018 :


•	99% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 97% are secured by real estate and 84% have a combined LTV (CLTV) ratio of 80% or less.

•

losses of $353 million and $1.7 billion have already been recognized on 21% of commercial nonaccrual loans and 42% of consumer nonaccrual loans, respectively. Generally, when a consumer real estate loan is 120 days past due (except when required earlier by guidance issued by bank regulatory agencies), we transfer it to nonaccrual status. When the loan reaches 180 days past due, or is active or discharged in bankruptcy, it is our policy to write these loans down to net realizable value (fair value of collateral less estimated costs to sell). Thereafter, we re-evaluate each loan regularly and record additional write-downs if needed.


•	82% of commercial nonaccrual loans were current on interest, but were on nonaccrual status because the full or timely collection of interest or principal had become uncertain.


•	76% of commercial nonaccrual loans were current on both principal and interest, but will remain on nonaccrual status until the full and timely collection of principal and interest becomes certain.


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


•	of $2.2 billion of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, $1.5 billion were current.

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 both our proprietary modification programs and the Making Home Affordable (MHA) 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.

Table 23 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.

Table 23: Foreclosed Assets



(in millions)	Jun 30, 2018			Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017
Summary by loan segment
Government insured/guaranteed	$	90		103		120		137		149
PCI loans:
Commercial	42			59		57		67		79
Consumer	61			58		62		72		67
Total PCI loans	103			117		119		139		146
All other loans:
Commercial	134			162		207		226		259
Consumer	172			189		196		204		227
Total all other loans	306			351		403		430		486
Total foreclosed assets	$	499		571		642		706		781
Analysis of changes in foreclosed assets
Balance, beginning of period	$	571		642		706		781		905
Net change in government insured/guaranteed (1)	(13		)	(17	)	(17	)	(12	)	(30	)
Additions to foreclosed assets (2)	191			185		180		198		233
Reductions:
Sales	(257		)	(245	)	(231	)	(257	)	(330	)
Write-downs and gains (losses) on sales	7			6		4		(4	)	3
Total reductions	(250		)	(239	)	(227	)	(261	)	(327	)
Balance, end of period	$	499		571		642		706		781


(1)	Foreclosed government insured/guaranteed loans are temporarily transferred to and held by us as servicer, until reimbursement is received from FHA or VA. The net change in government insured/guaranteed foreclosed assets is generally made up of inflows from mortgages held for investment and MLHFS, and outflows when we are reimbursed by FHA/VA.


(2)	Includes loans moved into foreclosure from nonaccrual status, PCI loans transitioned directly to foreclosed assets and repossessed automobiles.

Foreclosed assets at June 30, 2018 , included $318 million of foreclosed residential real estate, of which 28% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining foreclosed assets balance of $181 million has been written down to estimated net realizable value. Of the $499 million in foreclosed assets at June 30, 2018 , 57% have been in the foreclosed assets portfolio one year or less.

Risk Management - Credit Risk Management (continued)

TROUBLED DEBT RESTRUCTURINGS (TDRs)

Table 24: Troubled Debt Restructurings (TDRs)



(in millions)	Jun 30, 2018		Mar 31, 2018	Dec 31, 2017	Sep 30, 2017	Jun 30, 2017
Commercial:
Commercial and industrial	$	1,792	1,703	2,096	2,424	2,629
Real estate mortgage	904		939	901	953	1,024
Real estate construction	40		45	44	48	62
Lease financing	50		53	35	39	21
Total commercial TDRs	2,786		2,740	3,076	3,464	3,736
Consumer:
Real estate 1-4 family first mortgage	11,387		11,782	12,080	12,617	13,141
Real estate 1-4 family junior lien mortgage	1,735		1,794	1,849	1,919	1,975
Credit Card	410		386	356	340	316
Automobile	81		83	87	88	85
Other revolving credit and installment	141		137	126	124	118
Trial modifications	200		198	194	183	215
Total consumer TDRs	13,954		14,380	14,692	15,271	15,850
Total TDRs	$	16,740	17,120	17,768	18,735	19,586
TDRs on nonaccrual status	$	4,454	4,428	4,801	5,218	5,637
TDRs on accrual status:
Government insured/guaranteed	1,368		1,375	1,359	1,377	1,390
Non-government insured/guaranteed	10,918		11,317	11,608	12,140	12,559
Total TDRs	$	16,740	17,120	17,768	18,735	19,586

Table 24 provides information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $1.4 billion and $1.6 billion at June 30, 2018 , and December 31, 2017 , respectively. See Note 6 (Loans and 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 to the extent not done so prior to the modification. When we delay the timing on the repayment of a portion of principal (principal forbearance), we charge off the amount of forbearance if that amount is not considered fully collectible.

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

Table 25 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 a new loan.

Table 25: Analysis of Changes in TDRs



						Quarter ended
(in millions)	Jun 30, 2018			Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017
Commercial TDRs
Balance, beginning of quarter	$	2,740		3,076		3,464		3,736		3,655
Inflows (1)	1,876			321		412		333		730
Outflows
Charge-offs	(41		)	(63	)	(65	)	(74	)	(59	)
Foreclosures	-			-		(1	)	(2	)	(12	)
Payments, sales and other (2)	(1,789		)	(594	)	(734	)	(529	)	(578	)
Balance, end of quarter	2,786			2,740		3,076		3,464		3,736
Consumer TDRs
Balance, beginning of quarter	14,380			14,692		15,271		15,850		16,463
Inflows (1)	467			487		395		461		444
Outflows
Charge-offs	(56		)	(54	)	(52	)	(51	)	(51	)
Foreclosures	(133		)	(131	)	(135	)	(146	)	(159	)
Payments, sales and other (2)	(706		)	(618	)	(798	)	(811	)	(801	)
Net change in trial modifications (3)	2			4		11		(32	)	(46	)
Balance, end of quarter	13,954			14,380		14,692		15,271		15,850
Total TDRs	$	16,740		17,120		17,768		18,735		19,586


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

(2)

Other outflows include normal amortization/accretion of loan basis adjustments and loans transferred to held-for-sale. It also includes $5 million and $6 million of loans refinanced or restructured at market terms and qualifying as new loans and removed from TDR classification for the quarters ended March 31, 2018 and September 30, 2017, respectively, while no loans were removed from TDR classification for the quarters ended June 30, 2018, and December 31 and June 30, 2017 .


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

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING

Loans 90 days or more past due as to interest or principal are still accruing if they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans are not included in past due and still accruing loans even when they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

Excluding insured/guaranteed loans, loans 90 days or more past due and still accruing at June 30, 2018 , were down $221 million , or 21% , from December 31, 2017 , due to payoffs, modifications and other loss mitigation activities and credit

stabilization. Also, fluctuations from quarter to quarter are 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 $8.6 billion at June 30, 2018 , down from $10.9 billion at December 31, 2017 , due to an improvement in delinquencies in the portfolio as well as a higher volume of loan modifications.

Table 26 reflects non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed. For additional information on delinquencies by loan class, see Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 26: Loans 90 Days or More Past Due and Still Accruing



(in millions)	Jun 30, 2018		Mar 31, 2018	Dec 31, 2017	Sep 30, 2017	Jun 30, 2017
Total (excluding PCI (1)):	$	9,464	10,753	11,997	10,227	9,716
Less: FHA insured/VA guaranteed (2)(3)	8,622		9,786	10,934	9,266	8,873
Total, not government insured/guaranteed	$	842	967	1,063	961	843
By segment and class, not government insured/guaranteed: Commercial:
Commercial and industrial	$	23	40	26	27	42
Real estate mortgage	26		23	23	11	2
Real estate construction	-		1	-	-	10
Total commercial	49		64	49	38	54
Consumer:
Real estate 1-4 family first mortgage (3)	133		164	219	190	145
Real estate 1-4 family junior lien mortgage (3)	33		48	60	49	44
Credit card	429		473	492	475	411
Automobile	105		113	143	111	91
Other revolving credit and installment	93		105	100	98	98
Total consumer	793		903	1,014	923	789
Total, not government insured/guaranteed	$	842	967	1,063	961	843


(1)	PCI loans totaled $811 million , $1.0 billion , $1.4 billion , $1.4 billion , and $1.5 billion at June 30 and March 31, 2018, and December 31, September 30 and June 30, 2017 , respectively.


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


(3)	Includes mortgage loans held for sale 90 days or more past due and still accruing.

NET CHARGE-OFFS

Table 27: Net Charge-offs



																					Quarter ended
	Jun 30, 2018					Mar 31, 2018					Dec 31, 2017					Sep 30, 2017					Jun 30, 2017
($ 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	$	58		0.07	%	$	85		0.10	%	$	118		0.14	%	$	125		0.15	%	$	78		0.10	%
Real estate mortgage	-			-		(15		)	(0.05	)	(10		)	(0.03	)	(3		)	(0.01	)	(6		)	(0.02	)
Real estate construction	(6		)	(0.09	)	(4		)	(0.07	)	(3		)	(0.05	)	(15		)	(0.24	)	(4		)	(0.05	)
Lease financing	15			0.32		12			0.25		10			0.20		6			0.12		7			0.15
Total commercial	67			0.05		78			0.06		115			0.09		113			0.09		75			0.06
Consumer:
Real estate 1-4 family first mortgage	(23		)	(0.03	)	(18		)	(0.03	)	(23		)	(0.03	)	(16		)	(0.02	)	(16		)	(0.02	)
Real estate 1-4 family junior lien mortgage	(13		)	(0.13	)	(8		)	(0.09	)	(7		)	(0.06	)	1			-		(4		)	(0.03	)
Credit card	323			3.61		332			3.69		336			3.66		277			3.08		320			3.67
Automobile	113			0.93		208			1.64		188			1.38		202			1.41		126			0.86
Other revolving credit and installment	135			1.44		149			1.60		142			1.46		140			1.44		154			1.58
Total consumer	535			0.49		663			0.60		636			0.56		604			0.53		580			0.51
Total	$	602		0.26	%	$	741		0.32	%	$	751		0.31	%	$	717		0.30	%	$	655		0.27	%


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

Table 27 presents net charge-offs for second quarter 2018 and the previous four quarters. Net charge-offs in second quarter 2018 were $602 million ( 0.26% of average total loans outstanding) compared with $655 million ( 0.27% ) in second quarter 2017 .

The decrease in commercial and industrial net charge-offs from second quarter 2017 reflected continued improvement in our oil and gas portfolio. In addition, our commercial real estate construction portfolio was in a net recovery position. Total net charge-offs decreased from the prior year across all consumer portfolios, except for the credit card portfolio, which had a slight increase.

ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments, is management's estimate of credit losses inherent in the loan portfolio and unfunded credit commitments at the balance sheet date, excluding loans carried at fair value. The detail of the changes in the allowance for credit losses by portfolio segment (including charge-offs and recoveries by loan class) is in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

We apply a disciplined process and methodology to establish our allowance for credit losses each quarter. This process takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality ratings and loan grade-specific characteristics. The process involves subjective and complex judgments. In addition, we review a variety of credit metrics and trends. These credit metrics and trends, however, do not solely determine the amount of the allowance as we use several analytical tools. Our estimation approach for the commercial portfolio reflects the estimated probability of default in accordance with the borrower's financial strength, and the severity of loss in the event of default, considering the quality of any underlying collateral. Probability of default and severity at the time of default are statistically derived through historical observations of defaults and losses after default within each credit risk rating. Our estimation approach for the consumer portfolio uses forecasted losses that represent our best estimate of inherent loss based on historical experience, quantitative and other mathematical techniques. For additional information on our allowance for credit losses, see the "Critical Accounting Policies – Allowance for Credit Losses" section in our 2017 Form 10-K and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 28 presents the allocation of the allowance for credit losses by loan segment and class for the most recent quarter end and last four year ends.

Risk Management - Credit Risk Management (continued)

Table 28: Allocation of the Allowance for Credit Losses (ACL)



	Jun 30, 2018				Dec 31, 2017				Dec 31, 2016				Dec 31, 2015				Dec 31, 2014
(in millions)	ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans
Commercial:
Commercial and industrial	$	3,813	36	%	$	3,752	35	%	$	4,560	34	%	$	4,231	33	%	$	3,506	32	%
Real estate mortgage	1,363		13		1,374		13		1,320		14		1,264		13		1,576		13
Real estate construction	1,230		2		1,238		3		1,294		2		1,210		3		1,097		2
Lease financing	305		2		268		2		220		2		167		1		198		1
Total commercial	6,711		53		6,632		53		7,394		52		6,872		50		6,377		48
Consumer:
Real estate 1-4 family first mortgage	829		30		1,085		30		1,270		29		1,895		30		2,878		31
Real estate 1-4 family junior lien mortgage	507		4		608		4		815		5		1,223		6		1,566		7
Credit card	1,924		4		1,944		4		1,605		4		1,412		4		1,271		4
Automobile	613		5		1,039		5		817		6		529		6		516		6
Other revolving credit and installment	526		4		652		4		639		4		581		4		561		4
Total consumer	4,399		47		5,328		47		5,146		48		5,640		50		6,792		52
Total	$	11,110	100	%	$	11,960	100	%	$	12,540	100	%	$	12,512	100	%	$	13,169	100	%

	Jun 30, 2018				Dec 31, 2017				Dec 31, 2016				Dec 31, 2015				Dec 31, 2014
Components:
Allowance for loan losses	$	10,193			11,004				11,419				11,545				12,319
Allowance for unfunded credit commitments	917				956				1,121				967				850
Allowance for credit losses	$	11,110			11,960				12,540				12,512				13,169
Allowance for loan losses as a percentage of total loans	1.08			%	1.15				1.18				1.26				1.43
Allowance for loan losses as a percentage of total net charge-offs (1)	422				376				324				399				418
Allowance for credit losses as a percentage of total loans	1.18				1.25				1.30				1.37				1.53
Allowance for credit losses as a percentage of total nonaccrual loans	148				149				121				110				103


(1)	Total net charge-offs are annualized for quarter ended June 30, 2018 .

In addition to the allowance for credit losses, there was $313 million at June 30, 2018 , and $474 million at December 31, 2017 of nonaccretable difference to absorb losses for PCI loans, which totaled $9.0 billion at June 30, 2018 . The allowance for credit losses is lower than otherwise would have been required without PCI loan accounting. As a result of PCI loans, certain ratios of the Company may not be directly comparable with credit-related metrics for other financial institutions. Additionally, loans purchased at fair value, including loans from the GE Capital business acquisitions in 2016, generally reflect a lifetime credit loss adjustment and therefore do not initially require additions to the allowance as is typically associated with loan growth. For additional information on PCI loans, see the "Risk Management – Credit Risk Management – Purchased Credit-Impaired Loans" section and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

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

The allowance for credit losses decreased $850 million , or 7% , from December 31, 2017 , due to an improvement in our outlook for 2017 hurricane-related losses, as well as continued improvement in residential real estate and lower loan balances. Total provision for credit losses was $452 million in second quarter 2018 , compared with $555 million in second quarter 2017 , reflecting the same changes mentioned above for the allowance for credit losses.

We believe the allowance for credit losses of $11.1 billion at June 30, 2018 , was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. The entire allowance is available to absorb credit losses inherent in the total loan portfolio. The allowance for credit losses is subject to change and reflects existing factors as of the date of determination, including economic or market conditions and ongoing internal and external examination processes. Due to the sensitivity of the allowance for credit losses to changes in the economic and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general

economic conditions. Our process for determining the allowance for credit losses is discussed in the "Critical Accounting Policies – Allowance for Credit Losses" section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 Form 10-K.

LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES

In connection with our sales and securitization of residential mortgage loans to various parties, we have established a mortgage repurchase liability, initially at fair value, related to various representations and warranties that reflect management's estimate of losses for loans for which we could have a repurchase obligation, whether or not we currently service those loans, based on a combination of factors. Our mortgage repurchase liability estimation process also incorporates a forecast of repurchase demands associated with mortgage insurance rescission activity.

Because we typically retain the servicing for the mortgage loans we sell or securitize, we believe the quality of our residential mortgage loan servicing portfolio provides helpful information in evaluating our repurchase liability. Of the $1.5 trillion in the residential mortgage loan servicing portfolio at June 30, 2018 , 96% was current and less than 1% was subprime at origination. Our combined delinquency and foreclosure rate on this portfolio was 4.06% at June 30, 2018 , compared with 5.14% at December 31, 2017 . One percent of this portfolio is private label securitizations for which we originated the loans and, therefore, have some repurchase risk.

The overall level of unresolved repurchase demands and mortgage insurance rescissions outstanding at June 30, 2018 , was $147 million , representing 734 loans, up from a year ago both in number of outstanding loans and in total dollar balances. The increase was predominantly due to private investor demands which we expect to resolve with minimal repurchase risk.

Our liability for mortgage repurchases, included in "Accrued expenses and other liabilities" in our consolidated balance sheet, represents our best estimate of the probable loss that we expect to incur for various representations and warranties in the contractual provisions of our sales of mortgage loans. The liability was $179 million at June 30, 2018 , and $181 million at December 31, 2017 . In second quarter 2018 , we recorded a provision of $2 million predominantly due to loan sales, which decreased net gains on mortgage loan origination/sales activities, compared with a release of $39 million in second quarter 2017 . We incurred net losses on repurchased loans and investor reimbursements totaling $4 million in second quarter 2018 and $5 million in second quarter 2017 .

Because of the uncertainty in the various estimates underlying the mortgage repurchase liability, there is a range of losses in excess of the recorded mortgage repurchase liability that are reasonably possible. The estimate of the range of possible loss for representations and warranties does not represent a probable loss, and is based on currently available information, significant judgment, and a number of assumptions that are subject to change. The high end of this range of reasonably possible losses exceeded our recorded liability by $165 million at June 30, 2018 , and was determined based upon modifying the assumptions (particularly to assume significant changes in investor repurchase demand practices) used in our best estimate of probable loss to reflect what we believe to be the high end of reasonably possible adverse assumptions.

For additional information on our repurchase liability, see the "Risk Management – Credit Risk Management – Liability For Mortgage Loan Repurchase Losses" section in our 2017 Form 10-K and Note 10 (Mortgage Banking Activities) to Financial Statements in this Report.

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.

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 2017 Form 10-K.

Asset/Liability Management ( continued )

Asset/Liability Management

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

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


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


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


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


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


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

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

Currently, our profile is such that we project net interest income will benefit modestly from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities.

Our most recent simulations estimate net interest income sensitivity over the next two years under a range of both lower and higher interest rates. Measured impacts from standardized ramps (gradual changes) and shocks (instantaneous changes) are summarized in Table 29 , indicating net interest income sensitivity relative to the Company's base net interest income

plan. Ramp scenarios assume interest rates move gradually in parallel across the yield curve relative to the base scenario in year one, and the full amount of the ramp is held as a constant differential to the base scenario in year two. The following describes the simulation assumptions for the scenarios presented in Table 29 :


•	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 rate scenarios, customer activity that shifts balances into higher-yielding products could reduce expected net interest income.


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

Table 29: Net Interest Income Sensitivity Over Next Two-Year Horizon Relative to Base Expectation



			Lower Rates	Higher Rates
($ in billions)	Base		100 bps Ramp Parallel Decrease	100 bps Instantaneous Parallel Increase	200 bps Ramp Parallel Increase
First Year of Forecasting Horizon
Net Interest Income Sensitivity to Base Scenario		$	(1.2) - (0.7)	1.3 - 1.8	1.3 - 1.8
Key Rates at Horizon End
Fed Funds Target	2.84	%	1.84	3.84	4.84
10-year CMT (1)	3.22		2.22	4.22	5.22
Second Year of Forecasting Horizon
Net Interest Income Sensitivity to Base Scenario		$	(2.5) - (2.0)	1.8 - 2.3	3.1 - 3.6
Key Rates at Horizon End
Fed Funds Target	3.00	%	2.00	4.00	5.00
10-year CMT (1)	3.60		2.60	4.60	5.60


(1)	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 is primarily driven by mortgage activity, and may move in the opposite direction of our net interest income. Typically, in response to higher interest rates, mortgage activity, primarily refinancing activity, generally declines. And in response to lower interest rates, mortgage activity generally increases. 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.

We use the debt securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our interest rate exposures. See the "Balance Sheet Analysis – Available-for-Sale and Held-to-Maturity Debt Securities" section in this Report for more information on the use of the available-for-sale and held-to-maturity securities portfolios. The notional or contractual amount, credit risk amount and fair value of the derivatives used to hedge our interest rate risk exposures as of

June 30, 2018 , and December 31, 2017 , are presented in Note 14 (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 2017 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 LIBOR index-based financial instruments used as economic hedges for such ARMs. Additionally, hedge-carry income on our economic hedges for the MSRs may not continue at recent levels if the spread between short-term and long-term rates decreases, the overall level of hedges changes as interest rates change, or there are other changes in the market for mortgage forwards that affect the implied carry.

The total carrying value of our residential and commercial MSRs was $ 16.8 billion at June 30, 2018 , and $ 15.0 billion at December 31, 2017 . The weighted-average note rate on our portfolio of loans serviced for others was 4.27% at June 30, 2018 , and 4.23% at December 31, 2017 . The carrying value of our total MSRs represented 0.98% of mortgage loans serviced for others at June 30, 2018 , and 0.88% of mortgage loans serviced for others at December 31, 2017 .

MARKET RISK Market risk is the risk of loss in the trading book associated with adverse changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity, and commodity prices. The Finance Committee of our Board reviews the acceptable market risk appetite for our trading activities.

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.

The Company uses value-at-risk (VaR) metrics complemented with sensitivity analysis and stress testing in measuring and monitoring market risk. VaR is a statistical risk measure used to estimate the potential loss from adverse moves in the financial markets. For more information, see the "Risk Management – Asset/Liability Management – Market Risk – Trading Activities" section in our 2017 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.

Asset/Liability Management ( continued )

Table 30 shows the Company's Trading General VaR by risk category. As presented in Table 30 , average Company Trading General VaR was $ 15 million for the quarter ended June 30, 2018 , compared with $ 17 million for the quarter ended March 31, 2018 , and $ 29 million for the quarter ended June 30, 2017. The

decrease in average Company Trading General VaR for the quarter ended June 30, 2018, was mainly driven by changes in portfolio composition.

Table 30: Trading 1-Day 99% General VaR by Risk Category



				Quarter ended
	June 30, 2018							March 31, 2018						June 30, 2017
(in millions)	Period end			Average		Low	High	Period end		Average		Low	High	Period end		Average		Low	High
Company Trading General VaR Risk Categories
Credit	$	17		18		15	20	14		14		10	18	23		29		23	36
Interest rate	18			17		11	24	15		13		7	21	10		20		10	27
Equity	8			7		5	16	14		13		10	16	10		11		9	14
Commodity	1			1		1	1	1		1		1	1	1		1		1	2
Foreign exchange	0			0		0	1	0		1		0	3	1		1		0	1
Diversification benefit (1)	(29		)	(28	)			(22	)	(25	)			(29	)	(33	)
Company Trading General VaR	$	15		15				22		17				16		29

(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 Governance, Measurement, Monitoring and Model Risk Management We employ a well-defined and structured market risk governance process and market risk measurement process, which incorporates VaR measurements combined with sensitivity analysis and stress testing to help us monitor our market risk. These monitoring measurements require the use of market risk models, which we govern by our Corporate Model Risk policies and procedures. For more information on our governance, measurement, monitoring, and model risk management practices, see the "Risk Management – Asset/Liability Management – Market Risk – Trading Activities" section in our 2017 Form 10-K.

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 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 investment 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 13 (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 7 (Equity Securities) to Financial Statements in this Report.

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

LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under periods of Wells Fargo-specific and/or market stress. To achieve this objective, the Board of Directors establishes liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. These guidelines are monitored on a monthly basis by the Corporate ALCO and on a quarterly basis by the Board of Directors. 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 In September 2014, the FRB, OCC and FDIC issued a final rule that implements 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 with total assets greater than $10 billion. In addition, the FRB finalized rules imposing enhanced liquidity management standards on large bank holding companies (BHC) such as Wells Fargo, and has finalized a rule that requires large bank holding companies to publicly disclose on a quarterly basis certain quantitative and qualitative information regarding their LCR calculations.

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

Liquidity Coverage Ratio As of June 30, 2018 , 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 31 presents the Company's quarterly average values for the daily-calculated LCR and its components calculated pursuant to the LCR rule requirements.

Table 31: Liquidity Coverage Ratio



(in millions, except ratio)	Average for Quarter ended June 30, 2018
HQLA (1)(2)	$	361,921
Projected net cash outflows	294,460
LCR	123		%

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

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

Liquidity Sources We maintain liquidity in the form of cash, cash equivalents and unencumbered high-quality, liquid debt securities. These assets make up our primary sources of liquidity which are presented in Table 32 . Our primary sources of liquidity are substantially the same in composition as HQLA under the LCR rule; however, our primary sources of liquidity will generally exceed HQLA calculated under the LCR rule due to the applicable haircuts to HQLA and the exclusion of excess HQLA at our subsidiary insured depository institutions 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 the held-to-maturity portion of our debt securities portfolio and as such are not intended for sale but may be pledged to obtain financing. Some of the legal entities within our consolidated group of companies are subject to various regulatory, tax, legal and other restrictions that can limit the transferability of their funds. We believe we maintain adequate liquidity for these entities in consideration of such funds transfer restrictions.

Table 32: Primary Sources of Liquidity



	June 30, 2018				December 31, 2017
(in millions)	Total		Encumbered	Unencumbered	Total	Encumbered	Unencumbered
Interest-earning deposits with banks	$	142,999	-	142,999	192,580	-	192,580
Debt securities of U.S. Treasury and federal agencies	50,216		804	49,412	51,125	964	50,161
Mortgage-backed securities of federal agencies (1)	244,192		33,084	211,108	246,894	46,062	200,832
Total	$	437,407	33,888	403,519	490,599	47,026	443,573


(1)	Included in encumbered debt securities at June 30, 2018 , were debt securities with a fair value of $884 million which were purchased in June 2018, but settled in July 2018.

In addition to our primary sources of liquidity shown in Table 32 , liquidity is also available through the sale or financing of other debt securities including trading and/or available-for-sale debt securities, as well as through the sale, securitization or financing of loans, to the extent such debt securities and loans are not encumbered. In addition, other debt securities in our held-to-maturity portfolio, to the extent not encumbered, may be pledged to obtain financing.

Deposits have historically provided a sizable source of relatively low-cost funds. Deposits were 134% of total loans at June 30, 2018 and 140% at December 31, 2017 .

Additional funding is provided by long-term debt and short-term borrowings. We access domestic and international capital markets for long-term funding (generally greater than one year) through issuances of registered debt securities, private placements and asset-backed secured funding.

Asset/Liability Management ( continued )

Table 33 shows selected information for short-term borrowings, which generally mature in less than 30 days.

Table 33: Short-Term Borrowings



	Quarter ended
(in millions)	Jun 30 2018		Mar 31, 2018	Dec 31, 2017	Sep 30, 2017	Jun 30, 2017
Balance, period end
Federal funds purchased and securities sold under agreements to repurchase	$	89,307	80,916	88,684	79,824	78,683
Commercial paper	-		-	-	-	11
Other short-term borrowings	15,189		16,291	14,572	13,987	16,662
Total	$	104,496	97,207	103,256	93,811	95,356
Average daily balance for period
Federal funds purchased and securities sold under agreements to repurchase	$	89,138	86,535	88,197	81,980	79,826
Commercial paper	-		-	-	4	10
Other short-term borrowings	14,657		15,244	13,945	17,209	15,927
Total	$	103,795	101,779	102,142	99,193	95,763
Maximum month-end balance for period
Federal funds purchased and securities sold under agreements to repurchase (1)	$	92,103	88,121	91,604	83,260	78,683
Commercial paper (2)	-		-	-	11	11
Other short-term borrowings (3)	15,272		16,924	14,948	18,301	18,281


(1)	Highest month-end balance in each of the last five quarters was in May and January 2018, and November, August and June 2017.


(2)	There were no month-end balances in second and first quarter 2018, and fourth quarter 2017; highest month-end balance in each of the remaining two quarters was in July and June 2017.


(3)	Highest month-end balance in each of the last five quarters was in May and January 2018, and November, July and April 2017.

Long-Term Debt We issue long-term debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. Long-term debt of $219.3 billion at June 30, 2018 , decreased $5.7 billion from December 31, 2017 . We issued $5.8 billion and $21.3 billion of

long-term debt in the second quarter and first half of 2018, respectively. Table 34 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 2018 and the following years thereafter, as of June 30, 2018 .

Table 34: Maturity of Long-Term Debt



	June 30, 2018
(in millions)	Remaining 2018		2019	2020	2021	2022	Thereafter	Total
Wells Fargo & Company (Parent Only)
Senior notes	$	1,111	6,681	13,175	17,734	17,837	51,430	107,968
Subordinated notes	588		-	-	-	-	25,162	25,750
Junior subordinated notes	-		-	-	-	-	1,589	1,589
Total long-term debt - Parent	$	1,699	6,681	13,175	17,734	17,837	78,181	135,307
Wells Fargo Bank, N.A. and other bank entities (Bank)
Senior notes	$	14,647	31,926	9,997	11,704	40	195	68,509
Subordinated notes	-		-	-	-	-	5,202	5,202
Junior subordinated notes	-		-	-	-	-	347	347
Securitizations and other bank debt	1,418		1,140	1,228	289	160	2,413	6,648
Total long-term debt - Bank	$	16,065	33,066	11,225	11,993	200	8,157	80,706
Other consolidated subsidiaries
Senior notes	$	754	1,126	-	944	-	374	3,198
Securitizations and other bank debt	73		-	-	-	-	-	73
Total long-term debt - Other consolidated subsidiaries	$	827	1,126	-	944	-	374	3,271
Total long-term debt	$	18,591	40,873	24,400	30,671	18,037	86,712	219,284

Parent In February 2017, the Parent filed a registration statement with the SEC for the issuance of senior and subordinated notes, preferred stock and other securities. The Parent's ability to issue debt and other securities under this registration statement is limited by the debt issuance authority granted by the Board. As of June 30, 2018 , the Parent

was authorized by the Board to issue up to $180 billion in outstanding long-term debt. The Parent's long-term debt issuance authority granted by the Board includes debt issued to affiliates and others. At June 30, 2018 , the Parent had available $36.7 billion in long-term debt issuance authority. During the first half of 2018, the Parent issued $405 million of senior notes,

of which $398 million were registered with the SEC. The Parent's short-term debt issuance authority granted by the Board was limited to debt issued to affiliates, and was revoked by the Board at management's request in January 2018.

The Parent's 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. Depending on market conditions, we may purchase our outstanding debt securities from time to time in privately negotiated or open market transactions, by tender offer, or otherwise.

Wells Fargo Bank, N.A. As of June 30, 2018 , Wells Fargo Bank, N.A. was authorized by its board of directors to issue $100 billion in outstanding short-term debt and $175 billion in outstanding long-term debt and had available $97.5 billion in short-term debt issuance authority and $105.2 billion in long-term debt issuance authority. In April 2018, Wells Fargo Bank, N.A. established a new $100 billion bank note program under which, subject to any other debt outstanding under the limits described above, it may issue $50 billion in outstanding short-term senior notes and $50 billion in outstanding long-term senior or subordinated notes. At June 30, 2018 , Wells Fargo Bank, N.A. had remaining issuance capacity under the new bank note program of $50 billion in short-term senior notes and $50 billion in long-term senior or subordinated notes. During the first half of 2018, Wells Fargo Bank, N.A. issued $7.3 billion of unregistered senior notes, $6.0 billion of which were issued under a prior bank note program. Furthermore, in July 2018, Wells Fargo Bank, N.A. issued $3.3 billion of unregistered senior notes under the new bank note program and executed $500 million in FHLB advances. In addition, during the first half

of 2018, Wells Fargo Bank, N.A. executed advances of $15.5 billion with the Federal Home Loan Bank of Des Moines, and as of June 30, 2018, Wells Fargo Bank, N.A. had outstanding advances of $51.1 billion across the Federal Home Loan Bank System.

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 significant actions undertaken by the rating agencies with regard to our credit ratings during second quarter 2018. Both the Parent and Wells Fargo Bank, N.A. remain among the highest-rated financial firms in the U.S.

See the "Risk Factors" section in our 2017 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 14 (Derivatives) to Financial Statements in this Report for information regarding additional collateral and funding obligations required for certain derivative instruments in the event our credit ratings were to fall below investment grade.

The credit ratings of the Parent and Wells Fargo Bank, N.A. as of June 30, 2018 , are presented in Table 35 .

Table 35: Credit Ratings as of June 30, 2018



	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	A-	A-2	A+	A-1
Fitch Ratings, Inc.	A+	F1	AA	F1+
DBRS	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 Board. 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.

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 capital needs through the retention of earnings net of both dividends and share repurchases, as well as through the issuance of preferred stock and long and short-term debt. Retained earnings increased $5.5 billion from December 31, 2017 , predominantly from Wells Fargo net income of $10.3 billion , less common and preferred stock dividends of $4.6 billion . During second quarter 2018 , we issued 11.0 million shares of common stock. During second quarter 2018 , we repurchased 35.8 million shares of common stock in open market transactions and from employee benefit plans, at a cost of $1.9 billion . We entered into a $1 billion forward repurchase contract with an unrelated third party in April 2018, which settled in July 2018 for 18.8 million common shares. We also entered into a $1 billion forward repurchase contract with an unrelated third party in July 2018 that is expected to settle in fourth quarter 2018 for approximately 18 million common shares. For additional information about our forward repurchase agreements, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

On July 24, 2018, we announced that we will redeem on September 17, 2018, all of our 8.00% Non-Cumulative Perpetual Class A Preferred Stock, Series J, at a redemption price equal to $1,000 per share, as approved by the Board. We expect the redemption of the Series J Preferred Stock to reduce our diluted earnings per common share in third quarter 2018 by approximately $0.03 per share as a result of eliminating the discount recorded on these shares at the time of our acquisition of Wachovia.

Regulatory Capital Guidelines

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

RISK-BASED CAPITAL AND RISK-WEIGHTED ASSETS The Company is subject to final and interim final rules issued by federal banking regulators to implement Basel III capital requirements for U.S. banking organizations. These rules are based on international guidelines for determining regulatory capital issued by the Basel Committee on Banking Supervision (BCBS). The federal banking regulators' capital rules, among other things, require on a fully phased-in basis:


•	a minimum Common Equity Tier 1 (CET1) ratio of 9.0%, comprised of a 4.5% minimum requirement plus a capital conservation buffer of 2.5% and for us, as a global systemically important bank (G-SIB), a capital surcharge to be calculated annually, which is 2.0% based on our year-end 2016 data;


•	a minimum tier 1 capital ratio of 10.5%, comprised of a 6.0% minimum requirement plus the capital conservation buffer of 2.5% and the G-SIB capital surcharge of 2.0%;


•	a minimum total capital ratio of 12.5%, comprised of a 8.0% minimum requirement plus the capital conservation buffer of 2.5% and the G-SIB capital surcharge of 2.0%;


•	a potential countercyclical buffer of up to 2.5% to be added to the minimum capital ratios, which is currently not in effect but could be imposed by regulators at their discretion if it is determined that a period of excessive credit growth is contributing to an increase in systemic risk;


•	a minimum tier 1 leverage ratio of 4.0%; and


•	a minimum supplementary leverage ratio (SLR) of 5.0% (comprised of a 3.0% minimum requirement plus a supplementary leverage buffer of 2.0%) for large and internationally active bank holding companies (BHCs).

We were required to comply with the final Basel III capital rules beginning January 2014, with certain provisions subject to phase-in periods. Beginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with RWAs, became fully phased-in. However, the requirements for calculating tier 2 and total capital are still in accordance with Transition Requirements. The entire Basel III capital rules 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, which replaced Basel I, and an Advanced Approach applicable to certain institutions, including Wells Fargo. Accordingly, in the assessment of our capital adequacy, we must report the lower of our CET1, tier 1 and total capital ratios calculated under the Standardized Approach and under the Advanced Approach.

On April 10, 2018, the FRB issued a proposed rule that would add a stress capital buffer and a stress leverage buffer to the minimum capital and tier 1 leverage ratio requirements. The buffers would be calculated based on the decrease in a financial institution's risk-based capital and tier 1 leverage ratios under the supervisory severely adverse scenario in CCAR, plus four quarters of planned common stock dividends. The stress capital buffer would replace the 2.5% capital conservation buffer under the Standardized Approach, whereas the stress leverage buffer would be added to the current 4% minimum tier 1 leverage ratio.

Because the Company has been designated as a G-SIB, we are also subject to the FRB's rule implementing the additional capital surcharge of between 1.0-4.5% on G-SIBs. Under the rule, we must annually calculate our surcharge under two methods and use the higher of the two surcharges. The first method (method one) considers our size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with the methodology developed by the BCBS and the Financial Stability Board (FSB). The second (method two) uses similar inputs, but replaces substitutability with use of short-term wholesale funding and will generally result in higher surcharges than the BCBS methodology. The phase-in period for the G-SIB surcharge began on January 1, 2016 and will become fully effective on January 1, 2019. Based on year-end 2016 data, our 2018 G-SIB surcharge under method two is 2.0% of the Company's RWAs, which is the higher of method one and method two. Because the G-SIB surcharge is calculated annually based on data that can differ over time, the amount of the surcharge is subject to change in future years. Under the Standardized Approach (fully phased-in), our CET1 ratio of 11.98% exceeded the minimum of 9.0% by 298 basis points at June 30, 2018 .

The tables that follow provide information about our risk- based capital and related ratios as calculated under Basel III capital guidelines. For banking industry regulatory reporting purposes, we continue to report our tier 2 and total capital in

accordance with Transition Requirements but are managing our capital based on a fully phased-in calculation. For information about our capital requirements calculated in accordance with Transition Requirements, see Note 22 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.

Table 36 summarizes our CET1, tier 1 capital, total capital,

risk-weighted assets and capital ratios on a fully phased-in basis at June 30, 2018 and December 31, 2017 . As of June 30, 2018 , our CET1, tier 1, and total capital ratios were lower using RWAs calculated under the Standardized Approach.

Table 36: Capital Components and Ratios (Fully Phased-In) (1)



		June 30, 2018					December 31, 2017
(in millions, except ratios)		Advanced Approach			Standardized Approach		Advanced Approach	Standardized Approach
Common Equity Tier 1	(A)	$	152,955		152,955		154,022	154,022
Tier 1 Capital	(B)	176,456			176,456		177,466	177,466
Total Capital	(C)	207,940			216,021		208,395	218,159
Risk-Weighted Assets	(D)	1,206,821			1,276,332		1,225,939	1,285,563
Common Equity Tier 1 Capital Ratio	(A)/(D)	12.67		%	11.98	*	12.56	11.98	*
Tier 1 Capital Ratio	(B)/(D)	14.62			13.83	*	14.48	13.80	*
Total Capital Ratio	(C)/(D)	17.23			16.93	*	17.00	16.97	*

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

(1)

Beginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with RWAs, became fully phased-in. However, the requirements for calculating tier 2 and total capital are still in accordance with Transition Requirements. Accordingly, 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 37 for information regarding the calculation and components of CET1, tier 1 capital, total capital and RWAs, as well as the corresponding reconciliation of our fully phased-in regulatory capital amounts to GAAP financial measures.

Capital Management ( continued )

Table 37 provides information regarding the calculation and composition of our risk-based capital under the Advanced and Standardized Approaches at June 30, 2018 and December 31, 2017 .

Table 37: Risk-Based Capital Calculation and Components



		June 30, 2018					December 31, 2017
(in millions)		Advanced Approach			Standardized Approach		Advanced Approach		Standardized Approach
Total equity		$	206,069		206,069		208,079		208,079
Adjustments:
Preferred stock		(25,737		)	(25,737	)	(25,358	)	(25,358	)
Additional paid-in capital on ESOP preferred stock		(116		)	(116	)	(122	)	(122	)
Unearned ESOP shares		2,051			2,051		1,678		1,678
Noncontrolling interests		(881		)	(881	)	(1,143	)	(1,143	)
Total common stockholders' equity		181,386			181,386		183,134		183,134
Adjustments:
Goodwill		(26,429		)	(26,429	)	(26,587	)	(26,587	)
Certain identifiable intangible assets (other than MSRs)		(1,091		)	(1,091	)	(1,624	)	(1,624	)
Other assets (1)		(2,160		)	(2,160	)	(2,155	)	(2,155	)
Applicable deferred taxes (2)		874			874		962		962
Investment in certain subsidiaries and other		375			375		292		292
Common Equity Tier 1 (Fully Phased-In)		152,955			152,955		154,022		154,022
Effect of Transition Requirements (3)		-			-		743		743
Common Equity Tier 1 (Transition Requirements)		$	152,955		152,955		154,765		154,765

Common Equity Tier 1 (Fully Phased-In)		$	152,955		152,955		154,022		154,022
Preferred stock		25,737			25,737		25,358		25,358
Additional paid-in capital on ESOP preferred stock		116			116		122		122
Unearned ESOP shares		(2,051		)	(2,051	)	(1,678	)	(1,678	)
Other		(301		)	(301	)	(358	)	(358	)
Total Tier 1 capital (Fully Phased-In)	(A)	176,456			176,456		177,466		177,466
Effect of Transition Requirements (3)		-			-		743		743
Total Tier 1 capital (Transition Requirements)		$	176,456		176,456		178,209		178,209

Total Tier 1 capital (Fully Phased-In)		$	176,456		176,456		177,466		177,466
Long-term debt and other instruments qualifying as Tier 2		28,607			28,607		28,994		28,994
Qualifying allowance for credit losses (4)		3,029			11,110		2,196		11,960
Other		(152		)	(152	)	(261	)	(261	)
Total Tier 2 capital (Fully Phased-In)	(B)	31,484			39,565		30,929		40,693
Effect of Transition Requirements		697			697		1,195		1,195
Total Tier 2 capital (Transition Requirements)		$	32,181		40,262		32,124		41,888

Total qualifying capital (Fully Phased-In)	(A)+(B)	$	207,940		216,021		208,395		218,159
Total Effect of Transition Requirements		697			697		1,938		1,938
Total qualifying capital (Transition Requirements)		$	208,637		216,718		210,333		220,097

Risk-Weighted Assets (RWAs) (5)(6):
Credit risk		$	832,109		1,230,895		890,171		1,249,395
Market risk		45,437			45,437		36,168		36,168
Operational risk		329,275			N/A		299,600		N/A
Total RWAs (Fully Phased-In) (3)		$	1,206,821		1,276,332		1,225,939		1,285,563


(1)	Represents goodwill and other intangibles on nonmarketable equity securities, which are included in other assets.


(2)	Applicable deferred taxes relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.


(3)	Beginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with RWAs, became fully phased-in, so the effect of the transition requirements was $0 at June 30, 2018 .

(4)

Under the Advanced Approach the allowance for credit losses that exceeds expected credit losses is eligible for inclusion in Tier 2 Capital, to the extent the excess allowance does not exceed 0.6% 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.


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

(6)

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.

Table 38 presents the changes in Common Equity Tier 1 under the Advanced Approach for the six months ended June 30, 2018 .

Table 38: Analysis of Changes in Common Equity Tier 1



(in millions)
Common Equity Tier 1 (Fully Phased-In) at December 31, 2017	$	154,022
Net income applicable to common stock	9,525
Common stock dividends	(3,811		)
Common stock issued, repurchased, and stock compensation-related items	(4,242		)
Goodwill	158
Certain identifiable intangible assets (other than MSRs)	532
Other assets (1)	(5		)
Applicable deferred taxes (2)	(88		)
Investment in certain subsidiaries and other	(3,136		)
Change in Common Equity Tier 1	(1,067		)
Common Equity Tier 1 (Fully Phased-In) at June 30, 2018	$	152,955


(1)	Represents goodwill and other intangibles on nonmarketable equity securities, which are included in other assets.


(2)	Applicable deferred taxes relate to goodwill and other intangible assets. They were 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 39 presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the six months ended June 30, 2018 .

Table 39: Analysis of Changes in RWAs



(in millions)	Advanced Approach			Standardized Approach
RWAs (Fully Phased-In) at December 31, 2017	$	1,225,939		1,285,563
Net change in credit risk RWAs	(58,062		)	(18,500	)
Net change in market risk RWAs	9,269			9,269
Net change in operational risk RWAs	29,675			N/A
Total change in RWAs	(19,118		)	(9,231	)
RWAs (Fully Phased-In) at June 30, 2018	$	1,206,821		1,276,332

Capital Management ( continued )

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


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


•	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 40 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.

Table 40: Tangible Common Equity



		Balance at period end							Average balance
		Quarter ended							Quarter ended							Six months ended
(in millions, except ratios)		Jun 30, 2018			Mar 31, 2018		Jun 30, 2017		Jun 30, 2018			Mar 31, 2018		Jun 30, 2017		Jun 30, 2018		Jun 30, 2017
Total equity		$	206,069		205,910		205,949		206,067			206,180		205,755		206,123		203,668
Adjustments:
Preferred stock		(25,737		)	(26,227	)	(25,785	)	(26,021		)	(26,157	)	(25,849	)	(26,089	)	(25,508	)
Additional paid-in capital on ESOP preferred stock		(116		)	(146	)	(136	)	(129		)	(153	)	(144	)	(141	)	(145	)
Unearned ESOP shares		2,051			2,571		2,119		2,348			2,508		2,366		2,428		2,282
Noncontrolling interests		(881		)	(958	)	(915	)	(919		)	(997	)	(910	)	(958	)	(934	)
Total common stockholders' equity	(A)	181,386			181,150		181,232		181,346			181,381		181,218		181,363		179,363
Adjustments:
Goodwill		(26,429		)	(26,445	)	(26,573	)	(26,444		)	(26,516	)	(26,664	)	(26,480	)	(26,668	)
Certain identifiable intangible assets (other than MSRs)		(1,091		)	(1,357	)	(2,147	)	(1,223		)	(1,489	)	(2,303	)	(1,355	)	(2,445	)
Other assets (1)		(2,160		)	(2,388	)	(2,268	)	(2,271		)	(2,233	)	(2,160	)	(2,252	)	(2,128	)
Applicable deferred taxes (2)		874			918		1,624		889			933		1,648		911		1,685
Tangible common equity	(B)	$	152,580		151,878		151,868		152,297			152,076		151,739		152,187		149,807
Common shares outstanding	(C)	4,849.1			4,873.9		4,966.8		N/A			N/A		N/A		N/A		N/A
Net income applicable to common stock (3)	(D)	N/A			N/A		N/A		$	4,792		4,733		5,450		9,525		10,683
Book value per common share	(A)/(C)	$	37.41		37.17		36.49		N/A			N/A		N/A		N/A		N/A
Tangible book value per common share	(B)/(C)	31.47			31.16		30.58		N/A			N/A		N/A		N/A		N/A
Return on average common stockholders' equity (ROE) (annualized)	(D)/(A)	N/A			N/A		N/A		10.60		%	10.58		12.06		10.59		12.01
Return on average tangible common equity (ROTCE) (annualized)	(D)/(B)	N/A			N/A		N/A		12.62			12.62		14.41		12.62		14.38


(1)	Represents goodwill and other intangibles on nonmarketable equity securities, which are included in other assets.


(2)	Applicable deferred taxes relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.


(3)	Quarter ended net income applicable to common stock is annualized for the respective ROE and ROTCE ratios.

SUPPLEMENTARY LEVERAGE RATIO In April 2014, federal banking regulators finalized a rule that enhances the SLR requirements for BHCs, like Wells Fargo, and their insured depository institutions. The SLR consists of Tier 1 capital divided by the Company's total leverage exposure. Total leverage exposure consists of the total average on-balance sheet assets, plus off-balance sheet exposures, such as undrawn commitments and derivative exposures, less amounts permitted to be deducted from Tier 1 capital. The rule, which became effective on January 1, 2018, requires a covered BHC to maintain a SLR of at least 5.0% (comprised of the 3.0% minimum requirement plus a supplementary leverage buffer of 2.0%) to avoid restrictions on capital distributions and discretionary bonus payments. The rule also requires that all of our insured depository institutions maintain a SLR of 6.0% under applicable regulatory capital adequacy guidelines. In April 2018, the FRB and OCC proposed rules (the "Proposed SLR Rules") that would replace the 2% supplementary leverage buffer with a buffer equal to one-half of the firm's G-SIB capital surcharge. The Proposed SLR Rules would similarly tailor the current 6% SLR requirement for our insured depository institutions. At June 30, 2018 , our SLR for the Company was 8.1% calculated under the Advanced Approach capital framework. Based on our review, our current leverage levels would exceed the applicable requirements for each of our insured depository institutions as well. See Table 41 for information regarding the calculation and components of the SLR.

Table 41: Supplementary Leverage Ratio



(in millions, except ratio)	Quarter ended June 30, 2018
Tier 1 capital	$	176,456
Total average assets	1,884,884
Less: deductions from Tier 1 capital (1)	29,226
Total adjusted average assets	1,855,658
Adjustments:
Derivative exposures (2)	69,575
Repo-style transactions (3)	3,349
Other off-balance sheet exposures (4)	254,798
Total adjustments	327,722
Total leverage exposure	$	2,183,380
Supplementary leverage ratio	8.1		%


(1)	Amounts permitted to be deducted from Tier 1 capital primarily include goodwill and other intangible assets, net of associated deferred tax liabilities.


(2)	Represents adjustments for off balance sheet derivative exposures, and derivative collateral netting as defined for supplementary leverage ratio determination purposes.


(3)	Adjustments for repo-style transactions represent counterparty credit risk for all repo-style transactions where Wells Fargo & Company is the principal (i.e., principal counterparty facing the client).


(4)	Adjustments for other off-balance sheet exposures represent the notional amounts of all off-balance sheet exposures (excluding off balance sheet exposures associated with derivative and repo-style transactions) less the adjustments for conversion to credit equivalent amounts under the regulatory capital rule.

OTHER REGULATORY CAPITAL MATTERS In December 2016, the FRB finalized rules to address the amount of equity and unsecured long-term debt a U.S. G-SIB must hold to improve its resolvability and resiliency, often referred to as Total Loss Absorbing Capacity (TLAC). Under the rules, which become effective on January 1, 2019, U.S. G-SIBs will be 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% of RWAs and (ii) 7.5% of total leverage exposure (the denominator of the SLR calculation). Additionally, U.S. G-SIBs will be required to maintain (i) a TLAC buffer equal to 2.5% of RWAs plus the firm's applicable G-SIB capital surcharge calculated under method one plus any applicable countercyclical buffer that will be added to the 18% minimum and (ii) an external TLAC leverage buffer equal to 2.0% of total leverage exposure that will be added to the 7.5% minimum, in order to avoid restrictions on capital distributions and discretionary bonus payments. The rules will also require U.S. G-SIBs to have a minimum amount of eligible unsecured long-term debt equal to the greater of (i) 6.0% of RWAs plus the firm's applicable G-SIB capital surcharge calculated under method two and (ii) 4.5% of the total leverage exposure. In addition, the rules will impose certain restrictions on the operations and liabilities of the top-tier or covered BHC in order to further facilitate an orderly resolution, including prohibitions on the issuance of short-term debt to external investors and on entering into derivatives and certain other types of financial contracts with external counterparties. While the rules permit permanent grandfathering of a significant portion of otherwise ineligible long-term debt that was issued prior to December 31, 2016, long-term debt issued after that date must be fully compliant with the eligibility requirements of the rules in order to count toward the minimum TLAC amount. As a result of the rules, we will need to issue additional long-term debt to remain compliant with the requirements. Under the Proposed SLR Rules, the 2% external TLAC leverage buffer would be replaced with a buffer equal to one-half of the firm's G-SIB capital surcharge. Additionally, the Proposed SLR Rules would modify the leverage component for calculating the minimum amount of eligible unsecured long-term debt from 4.5% of total leverage exposure to 2.5% of total leverage exposure plus one-half of the firm's G-SIB capital surcharge. As of June 30, 2018 , we estimate that our eligible external TLAC as a percentage of total risk-weighted assets was 23.61% compared with an expected January 1, 2019 required minimum of 22.0%. Similar to the risk-based capital requirements, we determine minimum required TLAC based on the greater of RWAs determined under the Standardized and Advanced approaches.

In addition, 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.

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 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%, which includes a 2% G-SIB 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.

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

Capital Management ( continued )

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 the overall financial condition, risk profile, and capital adequacy of BHCs while considering both quantitative and qualitative factors when evaluating capital plans.

Our 2018 capital plan, which was submitted on April 4, 2018, 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 2018 CCAR, the FRB also generated a supervisory stress test, which assumed a sharp decline in the economy and significant decline in asset pricing using the information provided by the Company to estimate performance. The FRB reviewed the supervisory stress results both as required under the Dodd-Frank Act using a common set of capital actions for all large BHCs and by taking into account the Company's proposed capital actions. The FRB published its supervisory stress test results as required under the Dodd-Frank Act on June 21, 2018. On June 28, 2018, the FRB notified us that it did not object to our capital plan included in the 2018 CCAR. On July 24, 2018, the Company increased its quarterly common stock dividend to $0.43 per share, as approved by the Board. The plan also includes up to $24.5 billion of gross common stock repurchases, subject to management discretion, for the four-quarter period from third quarter 2018 through second quarter 2019.

Federal banking regulators require stress tests to evaluate whether an institution has sufficient capital to continue to operate during periods of adverse economic and financial conditions. These stress testing requirements set forth the timing and type of stress test activities large BHCs and banks must undertake as well as rules governing stress testing controls, oversight and disclosure requirements. The rules also limit a large BHC's ability to make capital distributions to the extent its actual capital issuances were less than amounts indicated in its capital plan. As required under the FRB's stress testing rule, we must submit a mid-cycle stress test based on second quarter data and scenarios developed by the Company.

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 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 and timing 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.

In January 2018, the Board authorized the repurchase of 350 million shares of our common stock. At June 30, 2018 , we had remaining authority to repurchase approximately 334 million shares, subject to regulatory and legal conditions. For more information about share repurchases during second quarter 2018 , 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.

In connection with our participation in the Capital Purchase Program (CPP), a part of the Troubled Asset Relief Program (TARP), we issued to the U.S. Treasury Department warrants to purchase 110,261,688 shares of our common stock with an original exercise price of $34.01 per share expiring on October 28, 2018. The terms of the warrants require the exercise price to be adjusted under certain circumstances when the Company's quarterly common stock dividend exceeds $0.34 per share, which began occurring in second quarter 2014. Accordingly, with each quarterly common stock dividend above $0.34 per share, we must calculate whether an adjustment to the exercise price is required by the terms of the warrants, including whether certain minimum thresholds have been met to trigger an adjustment, and notify the holders of any such change. The Board authorized the repurchase by the Company of up to $1 billion of the warrants. At June 30, 2018 , there were 13,607,148 warrants outstanding, exercisable at $33.643 per share, and $452 million of unused warrant repurchase authority. Depending on market conditions, we may purchase from time to time additional warrants in privately negotiated or open market transactions, by tender offer or otherwise.

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.

The following supplements our discussion of the 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 2017 Form 10-K and the "Regulatory Matters" section in our 2018 First Quarter Report on Form 10-Q.

ENHANCED SUPERVISION AND REGULATION OF SYSTEMICALLY IMPORTANT FIRMS The Dodd-Frank Act grants broad authority to federal banking regulators to establish enhanced supervisory and regulatory requirements for systemically important firms. The FRB has finalized a number of regulations implementing enhanced prudential requirements for large bank holding companies (BHCs) like Wells Fargo regarding risk-based capital and leverage, risk and liquidity management, and imposing debt-to-equity limits on any BHC that regulators determine poses a grave threat to the financial stability of the United States. The FRB and OCC have also finalized rules implementing stress testing requirements for large BHCs and national banks. The FRB has also finalized enhanced prudential standards that implement single counterparty credit limits, and has proposed a rule to establish remediation requirements for large BHCs experiencing financial distress. Similarly, the FRB has proposed additional requirements regarding effective risk management practices at large BHCs, including its expectations for boards of directors and senior management. In addition to the authorization of enhanced supervisory and regulatory requirements for systemically important firms, the Dodd-Frank Act also established the Financial Stability Oversight Council and the Office of Financial Research, which may recommend new systemic risk management requirements and require new reporting of systemic risks. The OCC, under separate authority, has also finalized guidelines establishing heightened governance and risk management standards for large national banks such as Wells Fargo Bank, N.A. The OCC guidelines require covered banks to establish and adhere to a written risk governance framework in order to manage and control their risk-taking activities. The guidelines also formalize roles and responsibilities for risk management practices within covered banks and create certain risk oversight responsibilities for their boards of directors.

VOLCKER RULE The Volcker Rule, with limited exceptions, prohibits banking entities from engaging in proprietary trading or owning any interest in or sponsoring or having certain relationships with a hedge fund, a private equity fund or certain structured transactions that are deemed covered funds. Federal banking regulators, the SEC and CFTC (collectively, the Volcker supervisory regulators) jointly released a final rule to implement the Volcker Rule's restrictions, and the FRB has proposed further rules to streamline and modify compliance with the Volcker Rule's requirements. As a banking entity with more than $50 billion in consolidated assets, we are also subject to enhanced compliance program requirements.

"LIVING WILL" REQUIREMENTS AND RELATED MATTERS Rules adopted by the FRB and the FDIC under the Dodd-Frank Act require large financial institutions, including Wells Fargo, to prepare and periodically revise resolution plans, so-called "living-wills", that would facilitate their resolution in the event of material distress or failure. Under the rules, resolution plans are required to provide strategies for resolution under the Bankruptcy Code and other applicable insolvency regimes that can be accomplished in a reasonable period of time and in a manner that mitigates the risk that failure would have serious adverse effects on the financial stability of the United States. On December 19, 2017, the FRB and FDIC announced that Wells Fargo's 2017 resolution plan submission did not have any deficiencies; however, they identified a specific shortcoming that would need to be addressed in the Company's next submission. Our national bank subsidiary, Wells Fargo Bank, N.A., is also required to prepare a resolution plan and submitted its 2018 resolution plan to the FDIC on June 29, 2018. If the FRB or FDIC determines that our resolution plan has deficiencies, they may impose more stringent capital, leverage or liquidity requirements on us or restrict our growth, activities or operations until we adequately remedy the deficiencies. If the FRB or FDIC ultimately determines that we have been unable to remedy any deficiencies, they could require us to divest certain assets or operations.

BROKER-DEALER STANDARDS OF CONDUCT In April 2018, the SEC proposed a rule that would require broker-dealers to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities. This rule may impact the manner in which business is conducted with customers seeking investment advice and may affect certain investment product offerings.

FRB CONSENT ORDER REGARDING GOVERNANCE OVERSIGHT AND COMPLIANCE AND OPERATIONAL RISK MANAGEMENT On February 2, 2018, the Company entered into a consent order with the FRB. As required by the consent order, the 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 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 third-party reviews of the enhancements and improvements provided for in the plans. Until these third-party reviews are complete and the plans are approved and implemented to the satisfaction of the FRB, the Company's total consolidated assets will be limited to the level as of December 31, 2017. Compliance with this asset cap will be measured on a two-quarter daily average basis to allow for management of temporary fluctuations. The Company has had constructive dialogue with, and has received detailed feedback from, the FRB regarding the plans. In order to have enough time to incorporate this feedback into the plans in a thoughtful manner and to complete the required third-party reviews, which were initially due September 30, 2018, the Company is planning to operate under the asset cap through the first part of 2019. A second third-party review must also be conducted to assess the efficacy and sustainability of the improvements.

Regulatory Matters ( continued )

CONSENT ORDERS WITH THE CFPB AND OCC REGARDING COMPLIANCE RISK MANAGEMENT PROGRAM, AUTOMOBILE COLLATERAL PROTECTION INSURANCE POLICIES, AND MORTGAGE INTEREST RATE LOCK EXTENSIONS On April 20, 2018 we entered into consent orders with the CFPB and OCC to pay an aggregate of $1 billion in civil money penalties to resolve matters regarding our compliance risk management program and past practices involving certain automobile collateral protection insurance 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. The consent orders also require the Company to submit for non-objection, within 120 days of the date of the consent orders, a plan to develop and implement a remediation program that is applicable to remediation activities conducted by the Company.

Critical Accounting Policies

Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 Form 10-K) are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Five of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern:


•	the allowance for credit losses;


•	the valuation of residential MSRs;


•	the fair value of financial instruments;


•	income taxes; and


•	liability for contingent litigation losses.

Management and the Board's Audit and Examination Committee have reviewed and approved these critical accounting policies. These policies are described further in the "Financial Review – Critical Accounting Policies" section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 Form 10-K.

Current Accounting Developments ( continued )

Current Accounting Developments

Table 42 provides the significant accounting updates applicable to us that have been issued by the FASB but are not yet effective.

Table 42: Current Accounting Developments – Issued Standards



Standard	Description	Effective date and financial statement impact
Accounting Standards Update (ASU or Update) 2018-02 – Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	Currently, the effect of remeasuring deferred tax assets and liabilities due to a change in tax laws or rates must be recognized in income from continuing operations in the reporting period that includes the enactment date. That guidance is applicable even in situations in which the related income tax effects were originally recognized in other comprehensive income. The Update permits a one-time reclassification from accumulated other comprehensive income to retained earnings for these stranded tax effects resulting from the Tax Cuts and Jobs Act.	The guidance is effective on January 1, 2019. Early application is permitted in any interim period prior to the effective date. An initial estimate of the application of the new guidance is expected to result in an increase in retained earnings of approximately $400 million. We expect to finalize the remeasurement of our temporary differences in connection with our 2018 U.S. tax filing. Accordingly, we expect to adopt ASU 2018-02 in fourth quarter 2018.
ASU 2017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities	The Update changes the accounting for certain purchased callable debt securities held at a premium to shorten the amortization period for the premium to the earliest call date rather than to the maturity date. Accounting for purchased callable debt securities held at a discount does not change. The discount would continue to amortize to the maturity date.	We expect to adopt the guidance in first quarter 2019 using the modified retrospective method with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Our debt securities portfolio includes holdings of available-for-sale (AFS) and held-to-maturity (HTM) callable debt securities held at a premium, which primarily consist of obligations of U.S. states and political subdivisions. At adoption, based upon our current portfolio composition, the guidance is expected to result in a cumulative effect reduction to retained earnings estimated to range from $500 to 600 million, which will be primarily offset with a corresponding increase to other comprehensive income related to AFS securities. The impact of the Update on our consolidated financial statements will be affected by our portfolio composition at the time of adoption, which may change between the most recent balance sheet date and the adoption date, as well as the finalization of necessary system enhancements. After adoption, the guidance will reduce interest income prior to the call date because the premium will be amortized over a shorter time period.
ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The Update changes the accounting for credit losses on loans and debt securities. For loans and held-to-maturity debt securities, the Update requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. Also, the Update eliminates the existing guidance for PCI loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination. In addition, the Update modifies the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit.	The guidance is effective in first quarter 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, we do not expect to elect that option. We are evaluating the impact of the Update on our consolidated financial statements, including the development and implementation of models to estimate losses. We expect the Update will result in an increase in the allowance for credit losses with an expected increase for longer duration consumer portfolios such as real estate 1-4 family mortgage loans and an expected decrease for commercial loans given short contractual maturities with conditional renewal options. In addition, we will be required to recognize an allowance for debt securities. The amount of the expected increase will be affected by the portfolio composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.
ASU 2016-02 – Leases (Topic 842)	The Update requires lessees to recognize operating leases on the balance sheet with lease liabilities and related right-of-use assets based on the present value of future lease payments. Lessor accounting activities are largely unchanged from existing lease accounting. The Update also eliminates leveraged lease accounting but allows existing leveraged leases to continue their current accounting until maturity, termination or modification.	We expect to adopt the guidance in first quarter 2019 using an optional transition method with a cumulative effect adjustment to retained earnings without restating 2018 and 2017 financial statements for comparable amounts. The calculation of our operating lease right-of-use assets and liabilities, for approximately 7,000 leases, are expected to be $5 billion and $5.5 billion, respectively, and will continue to be refined as we complete our implementation process. We do not expect material changes to the timing of expense recognition on our operating leases or the recognition and measurement of our lessor accounting. While the increase to our consolidated total assets related to operating lease right-of-use assets will increase our risk-weighted assets and decrease our capital ratios, we do not expect these changes to be material.

In addition to the list above, the following Updates are applicable to us but are not expected to have a material impact on our consolidated financial statements:


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

Forward-Looking Statements

This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. 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 allowance levels; (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 or targets and our estimated Common Equity Tier 1 ratio under Basel III capital standards; (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) the outcome of contingencies, such as legal proceedings; and (xiii) the Company's plans, objectives and strategies.

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


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


•	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;


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


•	the amount of mortgage loan repurchase demands that we receive and our ability to satisfy any such demands without having to repurchase loans related thereto or otherwise indemnify or reimburse third parties, and the credit quality of or losses on such repurchased mortgage loans;


•	negative effects relating to our mortgage servicing and foreclosure practices, as well as changes in industry standards or practices, regulatory or judicial requirements, penalties or fines, increased servicing and other costs or obligations, including loan modification requirements, or delays or moratoriums on foreclosures;


•	our ability to realize our efficiency ratio 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 low interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage loans held for sale;


•	significant turbulence or a disruption in the capital or financial markets, which could result in, among other things, reduced investor demand for mortgage loans, a reduction in the availability of funding or increased funding costs, and declines in asset values and/or recognition of other-than-temporary impairment on 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; 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, 2017 .

Forward-Looking Statements ( continued )

In addition to the above factors, we also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements (including under Basel capital standards), common stock issuance requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by the Company's Board of Directors, 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, 2017 , 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 2017 Form 10-K.

Controls and Procedures

Disclosure Controls and Procedures

The Company's management evaluated the effectiveness, as of June 30, 2018 , of the Company's disclosure controls and procedures. The Company's chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2018 .

Internal Control Over Financial Reporting

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


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


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


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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during second quarter 2018 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.



Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income (Unaudited)
	Quarter ended June 30,			Six months ended June 30,
(in millions, except per share amounts)	2018		2017	2018		2017
Interest income
Debt securities (1)(2)	$	3,594	3,226	$	7,008	6,399
Mortgage loans held for sale (2)	198		191	377		373
Loans held for sale (1)	48		13	72		23
Loans	10,912		10,358	21,491		20,499
Equity securities (1)	221		199	452		374
Other interest income (1)	1,042		707	1,962		1,239
Total interest income (2)	16,015		14,694	31,362		28,907
Interest expense
Deposits (2)	1,268		677	2,358		1,213
Short-term borrowings	398		163	709		277
Long-term debt (2)	1,658		1,275	3,234		2,422
Other interest expense	150		108	282		200
Total interest expense (2)	3,474		2,223	6,583		4,112
Net interest income (2)	12,541		12,471	24,779		24,795
Provision for credit losses	452		555	643		1,160
Net interest income after provision for credit losses	12,089		11,916	24,136		23,635
Noninterest income
Service charges on deposit accounts	1,163		1,276	2,336		2,589
Trust and investment fees	3,675		3,629	7,358		7,199
Card fees	1,001		1,019	1,909		1,964
Other fees	846		902	1,646		1,767
Mortgage banking	770		1,148	1,704		2,376
Insurance	102		280	216		557
Net gains from trading activities (1)	191		151	434		423
Net gains on debt securities (3)	41		120	42		156
Net gains from equity securities (1)(4)	295		274	1,078		844
Lease income	443		493	898		974
Other (2)	485		472	1,087		846
Total noninterest income (2)	9,012		9,764	18,708		19,695
Noninterest expense
Salaries	4,465		4,343	8,828		8,604
Commission and incentive compensation	2,642		2,499	5,410		5,224
Employee benefits	1,245		1,308	2,843		2,994
Equipment	550		529	1,167		1,106
Net occupancy	722		706	1,435		1,418
Core deposit and other intangibles	265		287	530		576
FDIC and other deposit assessments	297		328	621		661
Other	3,796		3,541	8,190		6,750
Total noninterest expense	13,982		13,541	29,024		27,333
Income before income tax expense (2)	7,119		8,139	13,820		15,997
Income tax expense (2)	1,810		2,245	3,184		4,378
Net income before noncontrolling interests (2)	5,309		5,894	10,636		11,619
Less: Net income from noncontrolling interests	123		38	314		129
Wells Fargo net income (2)	$	5,186	5,856	$	10,322	11,490
Less: Preferred stock dividends and other	394		406	797		807
Wells Fargo net income applicable to common stock (2)	$	4,792	5,450	$	9,525	10,683
Per share information
Earnings per common share (2)	$	0.98	1.09	$	1.95	2.14
Diluted earnings per common share (2)	0.98		1.08	1.94		2.11
Dividends declared per common share	0.390		0.380	0.780		0.760
Average common shares outstanding	4,865.8		4,989.9	4,875.7		4,999.2
Diluted average common shares outstanding	4,899.8		5,037.7	4,916.1		5,054.8


(1)	Financial information for the prior periods has been revised to reflect the impact of the adoption in first quarter 2018 of Accounting Standards Update (ASU) 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . See Note 1 (Summary of Significant Accounting Policies) for more information.


(2)	Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.

(3)

Total other-than-temporary impairment (OTTI) losses (reversal of losses) were $(3) million and $6 million for second quarter 2018 and 2017 , respectively. Of total OTTI, losses of $8 million and $48 million were recognized in earnings, and losses (reversal of losses) of $(11) million and $(42) million were recognized as non-credit-related OTTI in other comprehensive income for second quarter 2018 and 2017 , respectively. Total OTTI losses were $14 million and $49 million for the first half of 2018 and 2017 , respectively. Of total OTTI, losses of $18 million and $100 million were recognized in earnings, and losses (reversal of losses) of $(4) million and $(51) million were recognized as non-credit-related OTTI in other comprehensive income for the first half of 2018 and 2017 , respectively.


(4)	Includes OTTI losses of $237 million and $25 million for second quarter 2018 and 2017 , respectively, and $257 million and $102 million for the first half of 2018 and 2017 , respectively.

The accompanying notes are an integral part of these statements.



Wells Fargo & Company and Subsidiaries
Consolidated Statement of Comprehensive Income (Unaudited)
	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Wells Fargo net income (2)	$	5,186		5,856		10,322		11,490
Other comprehensive income (loss), before tax:
Debt securities (1):
Net unrealized gains (losses) arising during the period	(617		)	1,565		(4,060	)	1,934
Reclassification of net (gains) losses to net income	49			(177	)	117		(322	)
Derivatives and hedging activities:
Net unrealized gains (losses) arising during the period (2)	(150		)	276		(392	)	(86	)
Reclassification of net (gains) losses to net income	77			(153	)	137		(355	)
Defined benefit plans adjustments:
Net actuarial and prior service gains (losses) arising during the period	-			-		6		(7	)
Amortization of net actuarial loss, settlements and other to net income	29			41		61		79
Foreign currency translation adjustments:
Net unrealized gains (losses) arising during the period	(83		)	31		(85	)	47
Other comprehensive income (loss), before tax (2)	(695		)	1,583		(4,216	)	1,290
Income tax (expense) benefit related to other comprehensive income (2)	154			(587	)	1,016		(464	)
Other comprehensive income (loss), net of tax (2)	(541		)	996		(3,200	)	826
Less: Other comprehensive income (loss) from noncontrolling interests (2)	(1		)	(9	)	(1	)	5
Wells Fargo other comprehensive income (loss), net of tax (2)	(540		)	1,005		(3,199	)	821
Wells Fargo comprehensive income (2)	4,646			6,861		7,123		12,311
Comprehensive income from noncontrolling interests	122			29		313		134
Total comprehensive income (2)	$	4,768		6,890		7,436		12,445

(1)

The quarter and six months ended June 20, 2017 includes net unrealized gains (losses) arising during the period from equity securities of $65 million and $126 million and reclassification of net (gains) losses to net income related to equity securities of $(101) million and $(217) million , respectively. With the adoption in first quarter 2018 of ASU 2016-01, the quarter and six months ended June 30, 2018 reflects net unrealized gains (losses) arising during the period and reclassification of net (gains) losses to net income from only debt securities.


(2)	Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.

The accompanying notes are an integral part of these statements.



Wells Fargo & Company and Subsidiaries
Consolidated Balance Sheet
(in millions, except shares)	Jun 30, 2018			Dec 31, 2017
Assets	(Unaudited)
Cash and due from banks	$	20,450		23,367
Interest-earning deposits with banks (1)	142,999			192,580
Total cash, cash equivalents, and restricted cash (1)	163,449			215,947
Federal funds sold and securities purchased under resale agreements (1)	80,184			80,025
Debt securities:
Trading, at fair value (2)	65,602			57,624
Available-for-sale, at fair value (2)	265,687			276,407
Held-to-maturity, at cost (fair value $140,371 and $138,985)	144,206			139,335
Mortgage loans held for sale (includes $16,586 and $16,116 carried at fair value) (3)	21,509			20,070
Loans held for sale (includes $1,350 and $1,023 carried at fair value) (2)	3,408			1,131
Loans (includes $321 and $376 carried at fair value) (3)	944,265			956,770
Allowance for loan losses	(10,193		)	(11,004	)
Net loans	934,072			945,766
Mortgage servicing rights:
Measured at fair value	15,411			13,625
Amortized	1,407			1,424
Premises and equipment, net	8,882			8,847
Goodwill	26,429			26,587
Derivative assets	11,099			12,228
Equity securities (includes $34,127 and $39,227 carried at fair value) (2)	57,505			62,497
Other assets (2)	80,850			90,244
Total assets (4)	$	1,879,700		1,951,757
Liabilities
Noninterest-bearing deposits	$	365,021		373,722
Interest-bearing deposits	903,843			962,269
Total deposits	1,268,864			1,335,991
Short-term borrowings	104,496			103,256
Derivative liabilities	8,507			8,796
Accrued expenses and other liabilities	72,480			70,615
Long-term debt	219,284			225,020
Total liabilities (5)	1,673,631			1,743,678
Equity
Wells Fargo stockholders' equity:
Preferred stock	25,737			25,358
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	59,644			60,893
Retained earnings	150,803			145,263
Cumulative other comprehensive income (loss)	(5,461		)	(2,144	)
Treasury stock – 632,743,620 shares and 590,194,846 shares	(32,620		)	(29,892	)
Unearned ESOP shares	(2,051		)	(1,678	)
Total Wells Fargo stockholders' equity	205,188			206,936
Noncontrolling interests	881			1,143
Total equity	206,069			208,079
Total liabilities and equity	$	1,879,700		1,951,757

(1)

Financial information has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash. See Note 1 (Summary of Significant Accounting Policies) for more information.


(2)	Financial information for the prior period has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . See Note 1 (Summary of Significant Accounting Policies) for more information.


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

(4)

Our consolidated assets at June 30, 2018 , and December 31, 2017 , 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, $112 million and $116 million ; Interest-earning deposits with banks, $8 million and $371 million ; Debt securities, $0 million at both period ends; Net loans, $12.6 billion and $12.5 billion ; Derivative assets, $0 million at both period ends; Equity securities, $24 million and $306 million ; Other assets, $240 million and $342 million ; and Total assets, $13.0 billion and $13.6 billion , respectively.

(5)

Our consolidated liabilities at June 30, 2018 , and December 31, 2017 , include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Derivative liabilities, $0 million and $5 million ; Accrued expenses and other liabilities, $137 million and $132 million ; Long-term debt, $911 million and $1.5 billion ; and Total liabilities, $1.0 billion and $1.6 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, 2016	11,532,712		$	24,551		5,016,109,326		$	9,136
Cumulative effect from change in hedge accounting (1)
Balance January 1, 2017	11,532,712		$	24,551		5,016,109,326		$	9,136
Net income
Other comprehensive income (loss), net of tax
Noncontrolling interests
Common stock issued						39,392,446
Common stock repurchased						(96,121,157	)
Preferred stock issued to ESOP	950,000		950
Preferred stock released by ESOP
Preferred stock converted to common shares	(406,185	)	(406		)	7,389,435
Common stock warrants repurchased/exercised
Preferred stock issued	27,600		690
Common stock dividends
Preferred stock dividends
Stock incentive compensation expense
Net change in deferred compensation and related plans
Net change	571,415		1,234			(49,339,276	)	-
Balance June 30, 2017	12,104,127		$	25,785		4,966,770,050		$	9,136
Balance December 31, 2017	11,677,235		$	25,358		4,891,616,628		$	9,136
Cumulative effect from change in accounting policies (2)
Balance January 1, 2018	11,677,235		$	25,358		4,891,616,628		$	9,136
Net income
Other comprehensive income (loss), net of tax
Noncontrolling interests
Common stock issued						30,259,788
Common stock repurchased (3)						(86,339,185	)
Preferred stock issued to ESOP	1,100,000		1,100
Preferred stock released by ESOP
Preferred stock converted to common shares	(721,251	)	(721		)	13,530,623
Common stock warrants repurchased/exercised
Preferred stock issued	-		-
Common stock dividends
Preferred stock dividends
Stock incentive compensation expense
Net change in deferred compensation and related plans
Net change	378,749		379			(42,548,774	)	-
Balance June 30, 2018	12,055,984		$	25,737		4,849,067,854		$	9,136


(1)	Effective January 1, 2017, we adopted changes in hedge accounting pursuant to ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities .

(2)

Effective January 1, 2018, we adopted ASU 2016-04 – Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products, ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , and ASU 2014-09 – Revenue from Contracts With Customers (Topic 606) and subsequent related Updates. See Note 1 (Summary of Significant Accounting Policies) in this Report for more information.


(3)	For the quarter ended June 30, 2018, includes $1.0 billion related to a private forward repurchase transaction that settled in third quarter 2018 for 18.8 million shares of common stock.

The accompanying notes are an integral part of these statements.





						Wells Fargo stockholders' equity
Additional paid-in capital		Retained earnings		Cumulative other comprehensive income		Treasury stock		Unearned ESOP shares		Total Wells Fargo stockholders' equity		Noncontrolling interests		Total equity
60,234		133,075		(3,137	)	(22,713	)	(1,565	)	199,581		916		200,497
		(381	)	168						(213	)			(213	)
60,234		132,694		(2,969	)	(22,713	)	(1,565	)	199,368		916		200,284
		11,490								11,490		129		11,619
				821						821		5		826
1										1		(135	)	(134	)
(26	)	(184	)			1,868				1,658				1,658
750						(5,212	)			(4,462	)			(4,462	)
31								(981	)	-				-
(21	)							427		406				406
41						365				-				-
(68	)									(68	)			(68	)
(13	)									677				677
25		(3,827	)							(3,802	)			(3,802	)
		(807	)							(807	)			(807	)
534										534				534
(799	)					17				(782	)			(782	)
455		6,672		821		(2,962	)	(554	)	5,666		(1	)	5,665
60,689		139,366		(2,148	)	(25,675	)	(2,119	)	205,034		915		205,949
60,893		145,263		(2,144	)	(29,892	)	(1,678	)	206,936		1,143		208,079
		94		(118	)					(24	)			(24	)
60,893		145,357		(2,262	)	(29,892	)	(1,678	)	206,912		1,143		208,055
		10,322								10,322		314		10,636
				(3,199	)					(3,199	)	(1	)	(3,200	)
7										7		(575	)	(568	)
5		(231	)			1,507				1,281				1,281
(1,000	)					(4,952	)			(5,952	)			(5,952	)
43								(1,143	)	-				-
(49	)							770		721				721
27						694				-				-
(158	)									(158	)			(158	)
-										-				-
30		(3,841	)							(3,811	)			(3,811	)
		(804	)							(804	)			(804	)
695										695				695
(849	)					23				(826	)			(826	)
(1,249	)	5,446		(3,199	)	(2,728	)	(373	)	(1,724	)	(262	)	(1,986	)
59,644		150,803		(5,461	)	(32,620	)	(2,051	)	205,188		881		206,069



Wells Fargo & Company and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
	Six months ended June 30,
(in millions)	2018			2017
Cash flows from operating activities:
Net income before noncontrolling interests (2)	$	10,636		11,619
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	643			1,160
Changes in fair value of MSRs, MLHFS and LHFS carried at fair value	(787		)	567
Depreciation, amortization and accretion	2,835			2,478
Other net (gains) losses (1)(2)	(6,285		)	66
Stock-based compensation	1,286			1,186
Originations and purchases of mortgage loans held for sale (1)	(80,948		)	(85,977	)
Proceeds from sales of and paydowns on mortgage loans held for sale (1)	60,898			53,366
Net change in:
Debt and equity securities, held for trading (1)	16,371			25,002
Loans held for sale (1)	(411		)	(403	)
Deferred income taxes	1,118			1,281
Derivative assets and liabilities (2)	958			(2,462	)
Other assets (2)	7,547			1,566
Other accrued expenses and liabilities (2)	520			(637	)
Net cash provided by operating activities	14,381			8,812
Cash flows from investing activities:
Net change in:
Federal funds sold and securities purchased under resale agreements (3)	(1,161		)	(10,103	)
Available-for-sale debt securities:
Proceeds from sales (1)	6,151			22,726
Prepayments and maturities (1)	17,377			24,354
Purchases (1)	(26,300		)	(45,637	)
Held-to-maturity debt securities:
Paydowns and maturities	5,431			4,606
Equity securities, not held for trading:
Proceeds from sales and capital returns (1)	3,337			2,989
Purchases (1)	(2,791		)	(1,651	)
Loans:
Loans originated by banking subsidiaries, net of principal collected (4)	(445		)	2,325
Proceeds from sales (including participations) of loans held for investment	7,879			6,739
Purchases (including participations) of loans	(668		)	(1,976	)
Principal collected on nonbank entities' loans (4)	3,229			4,700
Loans originated by nonbank entities (4)	(2,998		)	(3,295	)
Net cash paid for acquisitions	-			(3	)
Proceeds from sales of foreclosed assets and short sales	1,954			2,974
Other, net	(284		)	(616	)
Net cash provided by investing activities	10,711			8,132
Cash flows from financing activities:
Net change in:
Deposits	(67,101		)	(249	)
Short-term borrowings	1,240			6,114
Long-term debt:
Proceeds from issuance	21,308			27,990
Repayment	(22,305		)	(47,815	)
Preferred stock:
Proceeds from issuance	-			677
Cash dividends paid	(872		)	(807	)
Common stock:
Proceeds from issuance	446			722
Stock tendered for payment of withholding taxes	(311		)	(368	)
Repurchased	(5,952		)	(4,462	)
Cash dividends paid	(3,722		)	(3,715	)
Net change in noncontrolling interests	(232		)	(66	)
Other, net	(89		)	(60	)
Net cash used by financing activities	(77,590		)	(22,039	)
Net change in cash, cash equivalents, and restricted cash (3)	(52,498		)	(5,095	)
Cash, cash equivalents, and restricted cash at beginning of period (3)	215,947			221,043
Cash, cash equivalents, and restricted cash at end of period (3)	$	163,449		215,948
Supplemental cash flow disclosures:
Cash paid for interest	$	6,352		3,954
Cash paid for income taxes	1,679			2,794


(1)	Financial information for the prior period has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . See Note 1 (Summary of Significant Accounting Policies) for more information.


(2)	Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.

(3)


(4)	Prior periods have been revised to reflect classification changes due to entity restructuring activities.

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, 2017 ( 2017 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 Allowance for Credit Losses));


•	valuations of residential mortgage servicing rights (MSRs) (Note 9 (Securitizations and Variable Interest Entities) and Note 10 (Mortgage Banking Activities)) and financial instruments (Note 15 (Fair Values of Assets and Liabilities));


•	liabilities for contingent litigation losses (Note 13 (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 2017 Form 10-K.

Accounting Standards Adopted in 2018

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


•	Accounting Standards Update (ASU or Update) 2017-09 – Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting;


•	ASU 2017-07 – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost;


•	ASU 2017-05 – Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets;


•	ASU 2017-01 – Business Combinations (Topic 805): Clarifying the Definition of a Business;


•	ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash;


•	ASU 2016-16 – Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory;


•	ASU 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments;


•	ASU 2016-04 – Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products;


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


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

ASU 2017-09 clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the ASU, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Update is applied to awards modified on or after the adoption date and accordingly, did not have a material impact on our consolidated financial statements.

ASU 2017-07 requires that the service cost component of net benefit cost be reported in the same line item as other compensation costs arising from services rendered by employees during the period, and the other pension cost components (interest cost, expected return on plan assets and amortization of actuarial gains and losses) be presented in the income statement separate from the service cost component. The income statement line item used to present the other pension cost components must be disclosed. We adopted this change in first quarter 2018. The Update did not have a material impact on our consolidated financial statements.

ASU 2017-05 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The ASU applies to nonfinancial assets, including real estate (e.g., buildings, land, windmills, solar farms), ships and intellectual property. We adopted this change in first quarter 2018. The Update did not have a material impact on our consolidated financial statements.

ASU 2017-01 requires that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The Update is applied prospectively and accordingly, did not have a material impact on our consolidated financial statements.

ASU 2016-18 requires that restricted cash and cash equivalents are included with the total cash and cash equivalents in the consolidated statement of cash flows. In addition, the nature of any restrictions will be disclosed in the footnotes to the financial statements. We adopted this change in first quarter 2018. Our retrospective adoption includes changes to our presentation of cash and cash equivalents in our consolidated statement of cash flows to include both cash and due from banks as well as interest-earning deposits with banks. In addition, we had corresponding changes on our consolidated balance sheets.

ASU 2016-16 requires us to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. We adopted this change in first quarter 2018. The Update did not have a material impact on our consolidated financial statements.

ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for reporting in the statement of cash flows. We adopted this change in first quarter 2018. The Update did not have a material impact on our consolidated financial statements.

ASU 2016-04 modifies the accounting for certain prepaid card products to require the recognition of breakage. Breakage represents the estimated amount that will not be redeemed by the cardholder for goods or services. We adopted this change in first quarter 2018. Upon adoption, we recorded a cumulative-effect adjustment that increased retained earnings, given estimated breakage, by $20 million .

ASU 2016-01 changes the accounting for certain equity securities to record at fair value with unrealized gains or losses reflected in earnings, as well as improve the disclosures of equity securities and the fair value of financial instruments. The Update also requires that for purposes of disclosing the fair value of financial instruments recorded at amortized cost, including loans and long-term debt, the valuation methodology is based on an exit price notion.

We adopted the Update in first quarter 2018 and recorded a cumulative-effect adjustment as of January 1, 2018, that increased retained earnings by $106 million as a result of a transition adjustment to reclassify $118 million in net unrealized gains from other comprehensive income to retained earnings,

partially offset by a transition adjustment to decrease retained earnings by $12 million primarily to adjust the carrying value of our auction rate securities from cost to fair value. No transition adjustment was recorded for investments changed to the measurement alternative (described below), which was applied prospectively.

As a result of adopting this ASU, our investments in marketable equity securities, including those previously classified as available-for-sale, are accounted for at fair value with unrealized gains or losses reflected in earnings. Additionally, our share of unrealized gains or losses related to marketable equity securities held by our equity method investees are reflected in earnings. Prior to adoption, such unrealized gains and losses were reflected in other comprehensive income. Our investments in nonmarketable equity securities previously accounted for under the cost method of accounting, except for federal bank stock, are now accounted for either at fair value with unrealized gains and losses reflected in earnings or using the measurement alternative. The measurement alternative is similar to the cost method of accounting, except the carrying value is adjusted through earnings for impairment, if any, and changes in observable and orderly transactions in the same or similar investment. We account for substantially all of our private equity securities, previously using the cost method of accounting, now under the measurement alternative. Our auction rate securities portfolio is now accounted for at fair value with unrealized gains or losses reflected in earnings.

In connection with our adoption of this Update, we have modified our balance sheet and income statement presentation to report marketable and nonmarketable equity securities and their results separately from debt securities by now reporting all equity securities in a new line labeled "Equity securities" in both the balance sheet and income statement. Additionally we now report loans held for trading purposes in loans held for sale and have reclassified net gains and losses on marketable equity securities used as economic hedges of deferred compensation obligations from "Net gains for trading activities" to "Net gains from equity securities". All prior periods have been revised to conform to these changes in reporting.

Table 1.1 provides a summary of our reporting changes implemented in connection with our adoption of ASU 2016-01 in first quarter 2018.

Table 1.1: Summary of Reporting Changes



Financial instrument or transaction type	As previously reported	Revised reporting
Balance Sheet
Marketable equity securities	Trading assets and available for sale investment securities	Equity securities (new caption)
Nonmarketable equity securities	Other assets	Equity securities (new caption)
Loans held for trading	Trading assets	Loans held for sale
Debt securities held for trading	Trading assets	Debt securities (formerly "Investment securities")

Income Statement
Interest income:
Marketable equity securities	Trading assets and investment securities	Equity securities (new caption)
Nonmarketable equity securities	Other	Equity securities (new caption)
Loans held for trading	Trading assets	Loans held for sale
Debt securities held for trading	Trading assets	Debt securities (formerly "Investment securities")
Noninterest income:
Deferred compensation gains (1)	Net gains from trading activities	Net gains from equity securities


(1)	Reclassification of net gains and losses on marketable equity securities economically hedging our deferred compensation obligations.

Note 1: Summary of Significant Accounting Policies ( continued )

Table 1.2 summarizes financial assets and liabilities by form and measurement accounting model.

Table 1.2: Accounting Model for Financial Assets and Liabilities



Balance sheet caption	Measurement model(s)	Financial statement Note reference
Cash and due from banks	Cost	N/A
Interest-earning deposits with banks	Cost	N/A
Federal funds sold and securities purchased under resale agreements	Amortized cost	N/A
Debt securities:
Trading	FV-NI (1)	Note 4: Trading Activities
Available-for-sale	FV-OCI (2)	Note 5: Debt Securities Note 15: Fair Values of Assets and Liabilities
Held-to-maturity	Amortized cost	Note 5: Debt Securities Note 15: Fair Values of Assets and Liabilities
Mortgage loans held for sale	FV-NI (1) LOCOM (3)	Note 15: Fair Values of Assets and Liabilities
Loans held for sale	FV-NI (1) LOCOM (3)	Note 15: Fair Values of Assets and Liabilities
Loans	Amortized cost FV-NI (1)	Note 6: Loans and Allowance for Credit Losses Note 15: Fair Values of Assets and Liabilities
Derivative assets and liabilities	FV-NI (1) FV-OCI (2)	Note 4: Trading Activities Note 14: Derivatives
Equity securities:
Marketable	FV-NI (1)	Note 4: Trading Activities Note 7: Equity Securities Note 15: Fair Values of Assets and Liabilities
Nonmarketable	FV-NI (1) Cost method Equity method MA (4)	Note 4: Trading Activities Note 7: Equity Securities Note 15: Fair Values of Assets and Liabilities
Other assets	Amortized cost (5)	Note 8: Other Assets
Deposits	Amortized cost	N/A
Short-term borrowings	Amortized cost	N/A
Long-term debt	Amortized cost	N/A


(1)	FV-NI represents the fair value through net income accounting model.


(2)	FV-OCI represents the fair value through other comprehensive income accounting model.


(3)	LOCOM represents the lower of cost or market accounting model.


(4)	MA represents the measurement alternative accounting model.


(5)	Other assets are generally carried at amortized cost, except for bank-owned life insurance which is carried at cash surrender value.

ASU 2014-09 modifies the guidance used to recognize revenue from contracts with customers for transfers of goods or services and transfers of non-financial assets, unless those contracts are within the scope of other guidance. Upon a modified retrospective adoption, we recorded a cumulative-effect adjustment that decreased retained earnings by $32 million , due to changes in the timing of revenue for corporate trust services that are provided over the life of the associated trust. In addition, we changed the presentation of some costs such that underwriting expenses of our broker-dealer business that were previously netted against revenue are now included in noninterest expense, and card payment network charges that were previously included in noninterest expense are now netted against card fee revenue.

Private Share Repurchases

From time to time we enter into private forward repurchase transactions with unrelated third parties to complement our open-market common stock repurchase strategies, to allow us to manage our share repurchases in a manner consistent with our capital plans submitted annually under the Comprehensive Capital Analysis and Review (CCAR) and to provide an economic benefit to the Company.

Our payments to the counterparties for these contracts are recorded in permanent equity in the quarter paid and are not subject to re-measurement. The classification of the up-front payments as permanent equity assures that we have appropriate repurchase timing consistent with our capital plans, which contemplate a fixed dollar amount available per quarter for share repurchases pursuant to Federal Reserve Board (FRB) supervisory guidance. In return, the counterparty agrees to deliver a variable number of shares based on a per share discount to the volume-weighted average stock price over the contract period. There are no scenarios where the contracts would not either physically settle in shares or allow us to choose the settlement method. Our total number of outstanding shares of common stock is not reduced until settlement of the private share repurchase contract.

In second quarter 2018, we entered into a private forward repurchase contract and paid $1.0 billion to an unrelated third party. This contract settled in July 2018 for 18.8 million shares of common stock. We had no unsettled private share repurchase contracts at June 30, 2017 .

Supplemental Cash Flow Information Significant noncash activities are presented in Table 1.3.

Table 1.3: Supplemental Cash Flow Information



	Six months ended June 30,
(in millions)	2018		2017
Trading debt securities retained from securitization of MLHFS	$	17,674	34,317
Transfers from loans to MLHFS	3,053		3,215
Transfers from loans to LHFS	2,149		658
Transfers from available-for-sale debt securities to held-to-maturity debt securities	10,371		45,408

Subsequent Events

We have evaluated the effects of events that have occurred subsequent to June 30, 2018 , and there have been no material

events that would require recognition in our second quarter 2018 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.

Note 2:

Business Combinations

We regularly explore opportunities to acquire financial services companies and businesses. Generally, we do not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. For information on additional contingent consideration related to acquisitions, which is considered to be a guarantee, see Note 12 (Guarantees, Pledged Assets and Collateral, and Other Commitments).

We completed no new acquisitions during the first half of 2018 and had no business combinations pending as of June 30, 2018.

In February 2018, we completed the sale of Wells Fargo Shareowner Services. In June 2018, we announced plans to divest 52 branches in Indiana, Ohio, Michigan and part of Wisconsin. Included with the sale are approximately $2 billion of deposits as of June 30, 2018. The final amount of deposits that will be divested could differ.

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)	Jun 30, 2018		Dec 31, 2017
Average required reserve balance for FRB (1)	$	13,025	12,306
Reserve balance for non-U.S. central banks	578		617
Segregated for benefit of brokerage customers under federal and other brokerage regulations	575		666
Related to consolidated variable interest entities (VIEs) that can only be used to settle liabilities of VIEs	120		487


(1)	FRB required reserve balance represents average for the first half of 2018 and for the year ended December 31, 2017 .

We are subject to additional loan and dividend restrictions. 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 $14.8 billion at June 30, 2018 , without obtaining prior regulatory approval. 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. I n addition, under a Support Agreement dated June 28, 2017, among Wells Fargo & Company, the parent holding company (the "Parent"), WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the "IHC"), and Wells Fargo Bank, N.A., Wells Fargo Securities, LLC, and Wells Fargo Clearing Services, LLC, each an indirect subsidiary of the Parent, the IHC may be restricted from making dividend payments to the Parent if certain liquidity and/or capital metrics fall below defined triggers. Based on retained earnings at June 30, 2018 , our nonbank subsidiaries could have declared additional dividends of $25.1 billion at June 30, 2018 , without obtaining prior regulatory approval. For additional information see Note 3 ( Cash, Loan and Dividend Restrictions) in our 2017 Form 10-K.

The FRB's Capital Plan Rule (codified at 12 CFR 225.8 of Regulation Y) establishes capital planning and prior notice and approval requirements for capital distributions including dividends by certain large bank holding companies. The FRB has also published guidance regarding its supervisory expectations for capital planning, including capital policies regarding the process relating to common stock dividend and repurchase decisions in the FRB's SR Letter 15-18. The effect of this guidance is to require the approval of the FRB (or specifically under the Capital Plan Rule, a notice of non-objection) for the Company to repurchase or redeem common or perpetual preferred stock as well as to raise the per share quarterly dividend from its current level of $0.43 per share as declared by the Company's Board of Directors on July 24, 2018, payable on September 1, 2018.

Note 4:

Trading Activities

We engage in trading activities to accommodate the investment and risk management activities of our customers. These activities predominantly occur in our Wholesale Banking businesses and to a lesser extent other divisions of the Company. Assets and liabilities associated with our trading activities include debt and equity securities, derivatives, loans and short sales. Our trading

assets and liabilities are carried on the balance sheet at fair value with changes in fair value recognized in net gains from trading activities and interest income and interest expense recognized in net interest income.

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



	Jun 30,			Dec 31,
(in millions)	2018			2017
Trading assets:
Debt securities	$	65,602		57,624
Equity securities	22,978			30,004
Loans held for sale	1,350			1,023
Gross trading derivative assets	30,758			31,340
Netting (1)	(20,687		)	(19,629	)
Total trading derivative assets	10,071			11,711
Total trading assets	100,001			100,362
Trading liabilities:
Short sale	21,765			18,472
Gross trading derivative liabilities	29,847			31,386
Netting (1)	(22,311		)	(23,062	)
Total trading derivative liabilities	7,536			8,324
Total trading liabilities	$	29,301		26,796


(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.

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



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Interest income (1):
Debt securities	$	689		558		1,320		1,071
Equity securities	128			131		269		245
Loans held for sale	15			9		23		18
Total interest income	832			698		1,612		1,334
Less: Interest expense (2)	144			105		272		198
Net interest income	688			593		1,340		1,136

Net gains (losses) from trading activities:
Debt securities	(140		)	147		(639	)	296
Equity securities	(635		)	499		(1,104	)	1,426
Loans held for sale	7			12		15		36
Derivatives (3)	959			(507	)	2,162		(1,335	)
Total net gains from trading activities (4)	191			151		434		423
Total trading-related net interest and noninterest income	$	879		744		1,774		1,559


(1)	Represents interest and dividend income earned on trading securities.


(2)	Represents interest and dividend expense incurred on trading securities we have sold but have not yet purchased.


(3)	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.


(4)	Represents realized gains (losses) from our trading activities and unrealized gains (losses) due to changes in fair value of our trading positions, attributable to the type of asset or liability.

Customer accommodation trading activities include our actions as an intermediary to buy and sell financial instruments and market-making activities. We also take positions to manage our exposure to customer accommodation activities. We hold financial instruments for trading in long positions (assets), as well as short positions where we sold financial instruments we have not yet purchased (liabilities), to facilitate our trading activities. As an intermediary we interact with market buyers and sellers to facilitate the purchase and sale of financial instruments to meet the anticipated or current needs of our customers. For example, we may purchase or sell a derivative to a customer who wants to manage interest rate risk exposure. We typically enter into an offsetting derivative or security position to manage our exposure to the customer transaction. We earn income based on the transaction price difference between the customer transaction and the offsetting position, which is reflected in the fair value changes of the positions recorded in the net gains from trading activities.

Our market-making activities include taking long and short trading positions to facilitate customer order flow. These activities are typically executed on a short term basis. As a market-maker we earn income due to: (1) difference between the price paid or received for the purchase and sale of the security (bid-ask spread), (2) the net interest income of the positions, and (3) the changes in fair value of the trading positions held on our balance sheet. Additionally, we may enter into separate derivative or security positions to manage our exposure related to our long and short trading positions taken in our market-making activities. Income earned on these market-making activities are reflected in the fair value changes of these positions recorded in net gains from trading activities.

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

Table 5.1 provides the amortized cost 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. The net unrealized gains (losses) for

available-for-sale debt securities are reported on an after-tax basis as a component of cumulative OCI. Information on debt securities held for trading is included in Note 4 (Trading Activities) to Financial Statements in this Report.

Table 5.1: Amortized Cost and Fair Value



(in millions)	Amortized Cost		Gross unrealized gains	Gross unrealized losses		Fair value
June 30, 2018
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	6,422	1	(152	)	6,271
Securities of U.S. states and political subdivisions	46,772		1,101	(314	)	47,559
Mortgage-backed securities:
Federal agencies	158,474		351	(4,269	)	154,556
Residential	3,876		221	(2	)	4,095
Commercial	4,129		69	(7	)	4,191
Total mortgage-backed securities	166,479		641	(4,278	)	162,842
Corporate debt securities	6,642		253	(34	)	6,861
Collateralized loan and other debt obligations (1)	36,352		308	(12	)	36,648
Other (2)	5,388		124	(6	)	5,506
Total available-for-sale debt securities	268,055		2,428	(4,796	)	265,687
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	44,735		-	(790	)	43,945
Securities of U.S. states and political subdivisions	6,300		23	(110	)	6,213
Federal agency and other mortgage-backed securities (3)	93,016		23	(2,981	)	90,058
Collateralized loan obligations	75		-	-		75
Other (2)	80		-	-		80
Total held-to-maturity debt securities	144,206		46	(3,881	)	140,371
Total	$	412,261	2,474	(8,677	)	406,058
December 31, 2017
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	6,425	2	(108	)	6,319
Securities of U.S. states and political subdivisions	50,733		1,032	(439	)	51,326
Mortgage-backed securities:
Federal agencies	160,561		930	(1,272	)	160,219
Residential	4,356		254	(2	)	4,608
Commercial	4,487		80	(2	)	4,565
Total mortgage-backed securities	169,404		1,264	(1,276	)	169,392
Corporate debt securities	7,343		363	(40	)	7,666
Collateralized loan and other debt obligations (1)	35,675		384	(3	)	36,056
Other (2)	5,516		137	(5	)	5,648
Total available-for-sale debt securities	275,096		3,182	(1,871	)	276,407
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	44,720		189	(103	)	44,806
Securities of U.S. states and political subdivisions	6,313		84	(43	)	6,354
Federal agency and other mortgage-backed securities (3)	87,527		201	(682	)	87,046
Collateralized loan obligations	661		4	-		665
Other (2)	114		-	-		114
Total held-to-maturity debt securities	139,335		478	(828	)	138,985
Total	$	414,431	3,660	(2,699	)	415,392


(1)	Available-for-sale debt securities include collateralized debt obligations (CDOs) with a cost basis and fair value of $851 million and $1.0 billion , respectively, at June 30, 2018 , and $887 million and $1.0 billion , respectively, at December 31, 2017 .

(2)

The "Other" category of available-for-sale debt securities largely includes asset-backed securities collateralized by student loans. Included in the "Other" category of held-to-maturity debt securities are asset-backed securities collateralized by automobile leases or loans and cash with a cost basis and fair value of $80 million each at June 30, 2018 , and $114 million each at December 31, 2017 .


(3)	Predominantly consists of federal agency mortgage-backed securities at both June 30, 2018 and December 31, 2017 .

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

Gross Unrealized Losses and Fair Value

Table 5.2 shows the gross unrealized losses and fair value of available-for-sale and held-to-maturity debt securities by length of time those individual securities in each category have been in a continuous loss position. Debt securities on which we have taken credit-related OTTI write-downs 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 cost basis and not the period of time since the credit-related OTTI write-down.

Table 5.2: Gross Unrealized Losses and Fair Value



	Less than 12 months				12 months or more			Total
(in millions)	Gross unrealized losses			Fair value	Gross unrealized losses		Fair value	Gross unrealized losses		Fair value
June 30, 2018
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	(68	)	3,977	(84	)	2,256	(152	)	6,233
Securities of U.S. states and political subdivisions	(14		)	4,759	(300	)	9,305	(314	)	14,064
Mortgage-backed securities:
Federal agencies	(2,669		)	107,691	(1,600	)	32,433	(4,269	)	140,124
Residential	(1		)	268	(1	)	57	(2	)	325
Commercial	(6		)	721	(1	)	50	(7	)	771
Total mortgage-backed securities	(2,676		)	108,680	(1,602	)	32,540	(4,278	)	141,220
Corporate debt securities	(17		)	843	(17	)	272	(34	)	1,115
Collateralized loan and other debt obligations	(11		)	5,935	(1	)	75	(12	)	6,010
Other	(2		)	364	(4	)	204	(6	)	568
Total available-for-sale debt securities	(2,788		)	124,558	(2,008	)	44,652	(4,796	)	169,210
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	(729		)	42,484	(61	)	1,461	(790	)	43,945
Securities of U.S. states and political subdivisions	(40		)	3,037	(70	)	1,656	(110	)	4,693
Federal agency and other mortgage-backed securities	(1,718		)	61,926	(1,263	)	26,118	(2,981	)	88,044
Collateralized loan obligations	-			-	-		-	-		-
Other	-			-	-		-	-		-
Total held-to-maturity debt securities	(2,487		)	107,447	(1,394	)	29,235	(3,881	)	136,682
Total	$	(5,275	)	232,005	(3,402	)	73,887	(8,677	)	305,892
December 31, 2017
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	(27	)	4,065	(81	)	2,209	(108	)	6,274
Securities of U.S. states and political subdivisions	(17		)	6,179	(422	)	11,766	(439	)	17,945
Mortgage-backed securities:
Federal agencies	(243		)	52,559	(1,029	)	44,691	(1,272	)	97,250
Residential	(1		)	47	(1	)	58	(2	)	105
Commercial	(1		)	101	(1	)	133	(2	)	234
Total mortgage-backed securities	(245		)	52,707	(1,031	)	44,882	(1,276	)	97,589
Corporate debt securities	(4		)	239	(36	)	503	(40	)	742
Collateralized loan and other debt obligations	(1		)	373	(2	)	146	(3	)	519
Other	(1		)	37	(4	)	483	(5	)	520
Total available-for-sale debt securities	(295		)	63,600	(1,576	)	59,989	(1,871	)	123,589
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	(69		)	11,255	(34	)	1,490	(103	)	12,745
Securities of U.S. states and political subdivisions	(5		)	500	(38	)	1,683	(43	)	2,183
Federal agency and other mortgage-backed securities	(198		)	29,713	(484	)	28,244	(682	)	57,957
Collateralized loan obligations	-			-	-		-	-		-
Other	-			-	-		-	-		-
Total held-to-maturity debt securities	(272		)	41,468	(556	)	31,417	(828	)	72,885
Total	$	(567	)	105,068	(2,132	)	91,406	(2,699	)	196,474

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.

For descriptions of the factors we consider when analyzing debt securities for impairment, see Note 1 (Summary of Significant Accounting Policies) and Note 5 (Investment Securities) to Financial Statements in our 2017 Form 10-K. There were no material changes to our methodologies for assessing impairment in the first half of 2018 .

Table 5.3 shows the gross unrealized losses and fair value of the available-for-sale and held-to-maturity debt securities by those rated investment grade and those rated less than investment grade, according to their lowest credit rating by Standard & Poor's Rating Services (S&P) or Moody's Investors

Service (Moody's). Credit ratings express opinions about the credit quality of a debt security. Debt securities rated investment grade, that is those rated BBB- or higher by S&P or Baa3 or higher by Moody's, are generally considered by the rating agencies and market participants to be low credit risk. Conversely, debt securities rated below investment grade, labeled as "speculative grade" by the rating agencies, are considered to be distinctively higher credit risk than investment grade debt securities. We have also included debt securities not rated by S&P or Moody's in the table below based on our internal credit grade of the debt securities (used for credit risk management purposes) equivalent to the credit rating assigned by major credit agencies. The unrealized losses and fair value of unrated debt securities categorized as investment grade based on internal credit grades were $22 million and $5.1 billion , respectively, at June 30, 2018 , and $32 million and $6.9 billion , respectively, at December 31, 2017 . If an internal credit grade was not assigned, we categorized the debt security as non-investment grade.

Table 5.3: Gross Unrealized Losses and Fair Value by Investment Grade



	Investment grade				Non-investment grade
(in millions)	Gross unrealized losses			Fair value	Gross unrealized losses		Fair value
June 30, 2018
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	(152	)	6,233	-		-
Securities of U.S. states and political subdivisions	(295		)	13,785	(19	)	279
Mortgage-backed securities:
Federal agencies	(4,269		)	140,124	-		-
Residential	(1		)	246	(1	)	79
Commercial	(2		)	679	(5	)	92
Total mortgage-backed securities	(4,272		)	141,049	(6	)	171
Corporate debt securities	(9		)	333	(25	)	782
Collateralized loan and other debt obligations	(12		)	6,010	-		-
Other	(2		)	360	(4	)	208
Total available-for-sale debt securities	(4,742		)	167,770	(54	)	1,440
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	(790		)	43,945	-		-
Securities of U.S. states and political subdivisions	(110		)	4,693	-		-
Federal agency and other mortgage-backed securities	(2,970		)	87,669	(11	)	375
Collateralized loan obligations	-			-	-		-
Other	-			-	-		-
Total held-to-maturity debt securities	(3,870		)	136,307	(11	)	375
Total	$	(8,612	)	304,077	(65	)	1,815
December 31, 2017
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	(108	)	6,274	-		-
Securities of U.S. states and political subdivisions	(412		)	17,763	(27	)	182
Mortgage-backed securities:
Federal agencies	(1,272		)	97,250	-		-
Residential	(1		)	42	(1	)	63
Commercial	(1		)	183	(1	)	51
Total mortgage-backed securities	(1,274		)	97,475	(2	)	114
Corporate debt securities	(13		)	304	(27	)	438
Collateralized loan and other debt obligations	(3		)	519	-		-
Other	(2		)	469	(3	)	51
Total available-for-sale debt securities	(1,812		)	122,804	(59	)	785
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	(103		)	12,745	-		-
Securities of U.S. states and political subdivisions	(43		)	2,183	-		-
Federal agency and other mortgage-backed securities	(680		)	57,789	(2	)	168
Collateralized loan obligations	-			-	-		-
Other	-			-	-		-
Total held-to-maturity debt securities	(826		)	72,717	(2	)	168
Total	$	(2,638	)	195,521	(61	)	953

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

Contractual Maturities

Table 5.4 shows the remaining contractual maturities and contractual weighted-average yields (taxable-equivalent basis) 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 5.4: Contractual Maturities



					Remaining contractual maturity
	Total				Within one year				After one year through five years				After five years through ten years				After ten years
(in millions)	amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
June 30, 2018
Available-for-sale debt securities (1):
Fair value:
Securities of U.S. Treasury and federal agencies	$	6,271	1.59	%	$	113	1.62	%	$	6,111	1.59	%	$	47	1.90	%	$	-	-	%
Securities of U.S. states and political subdivisions	47,559		4.72		3,008		2.80		7,165		3.18		4,116		3.13		33,270		5.42
Mortgage-backed securities:
Federal agencies	154,556		3.34		2		2.34		186		3.39		4,807		2.81		149,561		3.35
Residential	4,095		3.78		-		-		21		5.72		7		2.70		4,067		3.78
Commercial	4,191		3.57		-		-		-		-		217		3.38		3,974		3.58
Total mortgage-backed securities	162,842		3.35		2		2.34		207		3.62		5,031		2.84		157,602		3.37
Corporate debt securities	6,861		5.14		340		5.55		2,652		5.40		3,114		4.80		755		5.45
Collateralized loan and other debt obligations	36,648		3.80		-		-		24		2.59		12,260		3.84		24,364		3.78
Other	5,506		3.09		40		4.77		761		3.50		1,187		2.36		3,518		3.23
Total available-for-sale debt securities at fair value	$	265,687	3.66	%	$	3,503	3.05	%	$	16,920	2.97	%	$	25,755	3.57	%	$	219,509	3.73	%
December 31, 2017
Available-for-sale debt securities (1):									`
Fair value:
Securities of U.S. Treasury and federal agencies	$	6,319	1.59	%	$	81	1.37	%	$	6,189	1.59	%	$	49	1.89	%	$	-	-	%
Securities of U.S. states and political subdivisions	51,326		5.88		2,380		3.47		9,484		3.42		2,276		4.63		37,186		6.75
Mortgage-backed securities:
Federal agencies	160,219		3.27		15		2.03		210		3.08		5,534		2.82		154,460		3.28
Residential	4,608		3.52		-		-		24		5.67		11		2.46		4,573		3.51
Commercial	4,565		3.45		-		-		-		-		166		2.69		4,399		3.48
Total mortgage-backed securities	169,392		3.28		15		2.03		234		3.35		5,711		2.82		163,432		3.30
Corporate debt securities	7,666		5.12		443		5.54		2,738		5.56		3,549		4.70		936		5.26
Collateralized loan and other debt obligations	36,056		2.98		-		-		50		1.68		15,008		2.96		20,998		3.00
Other	5,648		2.46		71		3.56		463		2.72		1,466		2.13		3,648		2.53
Total available-for-sale debt securities at fair value	$	276,407	3.72	%	$	2,990	3.70	%	$	19,158	3.11	%	$	28,059	3.24	%	$	226,200	3.83	%


(1)	Weighted-average yields displayed by maturity bucket are weighted based on fair value and predominantly represent contractual coupon rates without effect for any related hedging derivatives.

Table 5.5 shows the amortized cost and weighted-average yields of held-to-maturity debt securities by contractual maturity.

Table 5.5: Amortized Cost by Contractual Maturity



					Remaining contractual maturity
	Total				Within one year				After one year through five years				After five years through ten years				After ten years
(in millions)	amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
June 30, 2018
Held-to-maturity debt securities (1):
Amortized cost:
Securities of U.S. Treasury and federal agencies	$	44,735	2.12	%	$	-	-	%	$	32,343	2.04	%	$	12,392	2.32	%	$	-	-	%
Securities of U.S. states and political subdivisions	6,300		4.93		-		-		52		5.90		946		5.09		5,302		4.89
Federal agency and other mortgage-backed securities	93,016		3.09		-		-		15		2.70		11		2.95		92,990		3.09
Collateralized loan obligations	75		3.53		-		-		-		-		75		3.53		-		-
Other	80		1.83		-		-		80		1.83		-		-		-		-
Total held-to-maturity debt securities at amortized cost	$	144,206	2.87	%	$	-	-	%	$	32,490	2.05	%	$	13,424	2.52	%	$	98,292	3.19	%
December 31, 2017
Held-to-maturity debt securities (1):
Amortized cost:
Securities of U.S. Treasury and federal agencies	$	44,720	2.12	%	$	-	-	%	$	32,330	2.04	%	$	12,390	2.32	%	$	-	-	%
Securities of U.S. states and political subdivisions	6,313		6.02		-		-		50		7.18		695		6.31		5,568		5.98
Federal agency and other mortgage-backed securities	87,527		3.11		-		-		15		2.81		11		2.49		87,501		3.11
Collateralized loan obligations	661		2.86		-		-		-		-		661		2.86		-		-
Other	114		1.83		-		-		114		1.83		-		-		-		-
Total held-to-maturity debt securities at amortized cost	$	139,335	2.92	%	$	-	-	%	$	32,509	2.05	%	$	13,757	2.55	%	$	93,069	3.28	%


(1)	Weighted-average yields displayed by maturity bucket are weighted based on amortized cost and predominantly represent contractual coupon rates.

Table 5.6 shows the fair value of held-to-maturity debt securities by contractual maturity.

Table 5.6: Fair Value by Contractual Maturity



			Remaining contractual maturity
	Total		Within one year	After one year through five years	After five years through ten years	After ten years
(in millions)	amount		Amount	Amount	Amount	Amount
June 30, 2018
Held-to-maturity debt securities:
Fair value:
Securities of U.S. Treasury and federal agencies	$	43,945	-	31,863	12,082	-
Securities of U.S. states and political subdivisions	6,213		-	51	942	5,220
Federal agency and other mortgage-backed securities	90,058		-	15	11	90,032
Collateralized loan obligations	75		-	-	75	-
Other	80		-	80	-	-
Total held-to-maturity debt securities at fair value	$	140,371	-	32,009	13,110	95,252
December 31, 2017
Held-to-maturity debt securities:
Fair value:
Securities of U.S. Treasury and federal agencies	$	44,806	-	32,388	12,418	-
Securities of U.S. states and political subdivisions	6,354		-	49	701	5,604
Federal agency and other mortgage-backed securities	87,046		-	15	11	87,020
Collateralized loan obligations	665		-	-	665	-
Other	114		-	114	-	-
Total held-to-maturity debt securities at fair value	$	138,985	-	32,566	13,795	92,624

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

Realized Gains and Losses

Table 5.7 shows the gross realized gains and losses on sales and OTTI write-downs related to available-for-sale debt securities.

Table 5.7: Realized Gains and Losses



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Gross realized gains	$	53		216		74		340
Gross realized losses	(4		)	(48	)	(14	)	(84	)
OTTI write-downs	(8		)	(48	)	(18	)	(100	)
Net realized gains from available-for-sale debt securities	$	41		120		42		156

Other-Than-Temporarily Impaired Debt Securities

Table 5.8 shows the detail of total OTTI write-downs included in earnings for available-for-sale debt securities. There were no

OTTI write-downs on held-to-maturity debt securities during the first half of 2018 and 2017 .

Table 5.8: Detail of OTTI Write-downs



	Quarter ended June 30,			Six months ended June 30,
(in millions)	2018		2017	2018	2017
Debt securities OTTI write-downs included in earnings:
Securities of U.S. states and political subdivisions	$	-	-	2	8
Mortgage-backed securities:
Residential	1		3	2	6
Commercial	7		41	14	66
Corporate debt securities	-		4	-	20
Total debt securities OTTI write-downs included in earnings	$	8	48	18	100

Table 5.9 shows the detail of OTTI write-downs on available-for-sale debt securities included in earnings and the related changes in OCI for the same securities.

Table 5.9: OTTI Write-downs Included in Earnings and the Related Changes in OCI



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
OTTI on debt securities
Recorded as part of gross realized losses:
Credit-related OTTI	$	8		47		17		99
Intent-to-sell OTTI	-			1		1		1
Total recorded as part of gross realized losses	8			48		18		100
Changes to OCI for losses (reversal of losses) in non-credit-related OTTI (1):
Securities of U.S. states and political subdivisions	-			-		(2	)	(5	)
Residential mortgage-backed securities	-			(3	)	(1	)	-
Commercial mortgage-backed securities	(11		)	(40	)	(1	)	(47	)
Corporate debt securities	-			1		-		1
Total changes to OCI for non-credit-related OTTI	(11		)	(42	)	(4	)	(51	)
Total OTTI losses (reversal of losses) recorded on debt securities	$	(3	)	6		14		49

(1)

Represents amounts recorded to OCI for impairment of debt securities, due to factors other than credit, that have also had credit-related OTTI write-downs during the period. Increases represent initial or subsequent non-credit-related OTTI on debt securities. Decreases represent partial to full reversal of impairment due to recoveries in the fair value of debt securities due to non-credit factors.

Table 5.10 presents a rollforward of the OTTI credit loss that has been recognized in earnings as a write-down of available-for-sale debt securities we still own (referred to as "credit-impaired" debt securities) and do not intend to sell. Recognized credit loss represents the difference between the present value of expected future cash flows discounted using the security's current effective interest rate and the amortized cost basis of the security prior to considering credit loss.

Table 5.10: Rollforward of OTTI Credit Loss



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Credit loss recognized, beginning of period	$	649		1,086		742		1,043
Additions:
For securities with initial credit impairments	-			2		-		8
For securities with previous credit impairments	8			45		17		91
Total additions	8			47		17		99
Reductions:
For securities sold, matured, or intended/required to be sold	(30		)	(11	)	(131	)	(18	)
For recoveries of previous credit impairments (1)	(1		)	(2	)	(2	)	(4	)
Total reductions	(31		)	(13	)	(133	)	(22	)
Credit loss recognized, end of period	$	626		1,120		626		1,120


(1)	Recoveries of previous credit impairments result from increases in expected cash flows subsequent to credit loss recognition. Such recoveries are reflected prospectively as interest yield adjustments using the effective interest method.

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

Note 6: Loans and Allowance for Credit Losses

Table 6.1 presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net reduction of $2.7 billion and $3.9 billion at June 30, 2018 , and December 31, 2017 , respectively, for unearned income,

net deferred loan fees, and unamortized discounts and premiums, which among other things, reflect the impact of various loan sales.

Table 6.1: Loans Outstanding



(in millions)	Jun 30, 2018		Dec 31, 2017
Commercial:
Commercial and industrial	$	336,590	333,125
Real estate mortgage	123,964		126,599
Real estate construction	22,937		24,279
Lease financing	19,614		19,385
Total commercial	503,105		503,388
Consumer:
Real estate 1-4 family first mortgage	283,001		284,054
Real estate 1-4 family junior lien mortgage	36,542		39,713
Credit card	36,684		37,976
Automobile	47,632		53,371
Other revolving credit and installment	37,301		38,268
Total consumer	441,160		453,382
Total loans	$	944,265	956,770

Our foreign loans are reported by respective class of financing receivable in the table above. Substantially all of our foreign loan portfolio is commercial loans. Loans are classified as foreign primarily based on whether the borrower's primary

address is outside of the United States. Table 6.2 presents total commercial foreign loans outstanding by class of financing receivable.

Table 6.2: Commercial Foreign Loans Outstanding



(in millions)	Jun 30, 2018		Dec 31, 2017
Commercial foreign loans:
Commercial and industrial	$	61,732	60,106
Real estate mortgage	7,617		8,033
Real estate construction	542		655
Lease financing	1,097		1,126
Total commercial foreign loans	$	70,988	69,920

Loan Purchases, Sales, and Transfers

Table 6.3 summarizes the proceeds paid or received for purchases and sales of loans and transfers from loans held for investment to mortgages/loans held for sale at lower of cost or fair value. This loan activity also includes participating interests, whereby we

receive or transfer a portion of a loan. The table excludes PCI loans and loans for which we have elected the fair value option, including loans originated for sale because their loan activity normally does not impact the allowance for credit losses.

Table 6.3: Loan Purchases, Sales, and Transfers



	2018							2017
(in millions)	Commercial			Consumer (1)		Total		Commercial		Consumer (1)		Total
Quarter ended June 30,
Purchases	$	398		7		405		810		-		810
Sales	(294		)	(88	)	(382	)	(1,052	)	(84	)	(1,136	)
Transfers to MLHFS/LHFS	(100		)	(72	)	(172	)	(179	)	(1	)	(180	)
Six months ended June 30,
Purchases	$	654		7		661		1,969		2		1,971
Sales	(754		)	(88	)	(842	)	(1,339	)	(146	)	(1,485	)
Transfers to MLHFS/LHFS	(520		)	(1,625	)	(2,145	)	(658	)	(1	)	(659	)

(1)

Excludes activity in government insured/guaranteed real estate 1-4 family first mortgage loans. As servicer, we are able to buy delinquent insured/guaranteed loans out of the Government National Mortgage Association (GNMA) pools, and manage and/or resell them in accordance with applicable requirements. These loans are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Accordingly, these loans have limited impact on the allowance for loan losses.

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. These temporary advance arrangements totaled approximately $89 billion and $85 billion at June 30, 2018 and December 31, 2017 , respectively.

We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At June 30, 2018 , and December 31, 2017 , we had $1.1 billion and $982 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 12 (Guarantees, Pledged Assets and Collateral, and Other Commitments) for additional information on standby letters of credit.

When we make commitments, we are exposed to credit risk. The maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments is expected to expire without being used by the customer. In addition, we manage the potential risk in commitments to lend by limiting the total amount of commitments, both by individual customer and in total, by monitoring the size and maturity structure of these commitments and by applying the same credit standards for these commitments as for all of our credit activities.

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

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

Table 6.4: Unfunded Credit Commitments



(in millions)	Jun 30, 2018		Dec 31, 2017
Commercial:
Commercial and industrial	$	328,927	326,626
Real estate mortgage	7,175		7,485
Real estate construction	15,472		16,621
Total commercial	351,574		350,732
Consumer:
Real estate 1-4 family first mortgage	31,999		29,876
Real estate 1-4 family junior lien mortgage	38,284		38,897
Credit card	112,230		108,465
Other revolving credit and installment	27,474		27,541
Total consumer	209,987		204,779
Total unfunded credit commitments	$	561,561	555,511

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

Allowance for Credit Losses

Table 6.5 presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.

Table 6.5: Allowance for Credit Losses



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Balance, beginning of period	$	11,313		12,287		11,960		12,540
Provision for credit losses	452			555		643		1,160
Interest income on certain impaired loans (1)	(43		)	(46	)	(86	)	(94	)
Loan charge-offs:
Commercial:
Commercial and industrial	(134		)	(161	)	(298	)	(414	)
Real estate mortgage	(19		)	(8	)	(21	)	(13	)
Real estate construction	-			-		-		-
Lease financing	(20		)	(13	)	(37	)	(20	)
Total commercial	(173		)	(182	)	(356	)	(447	)
Consumer:
Real estate 1-4 family first mortgage	(55		)	(55	)	(96	)	(124	)
Real estate 1-4 family junior lien mortgage	(47		)	(62	)	(94	)	(155	)
Credit card	(404		)	(379	)	(809	)	(746	)
Automobile	(216		)	(212	)	(516	)	(467	)
Other revolving credit and installment	(164		)	(185	)	(344	)	(374	)
Total consumer	(886		)	(893	)	(1,859	)	(1,866	)
Total loan charge-offs	(1,059		)	(1,075	)	(2,215	)	(2,313	)
Loan recoveries:
Commercial:
Commercial and industrial	76			83		155		165
Real estate mortgage	19			14		36		44
Real estate construction	6			4		10		12
Lease financing	5			6		10		8
Total commercial	106			107		211		229
Consumer:
Real estate 1-4 family first mortgage	78			71		137		133
Real estate 1-4 family junior lien mortgage	60			66		115		136
Credit card	81			59		154		117
Automobile	103			86		195		174
Other revolving credit and installment	29			31		60		64
Total consumer	351			313		661		624
Total loan recoveries	457			420		872		853
Net loan charge-offs	(602		)	(655	)	(1,343	)	(1,460	)
Other	(10		)	5		(64	)	-
Balance, end of period	$	11,110		12,146		11,110		12,146
Components:
Allowance for loan losses	$	10,193		11,073		10,193		11,073
Allowance for unfunded credit commitments	917			1,073		917		1,073
Allowance for credit losses	$	11,110		12,146		11,110		12,146
Net loan charge-offs (annualized) as a percentage of average total loans	0.26		%	0.27		0.29		0.31
Allowance for loan losses as a percentage of total loans	1.08			1.16		1.08		1.16
Allowance for credit losses as a percentage of total loans	1.18			1.27		1.18		1.27


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

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

Table 6.6: Allowance Activity by Portfolio Segment



						2018						2017
(in millions)	Commercial			Consumer		Total		Commercial		Consumer		Total
Quarter ended June 30,
Balance, beginning of period	$	6,708		4,605		11,313		7,142		5,145		12,287
Provision (reversal of provision) for credit losses	89			363		452		(97	)	652		555
Interest income on certain impaired loans	(14		)	(29	)	(43	)	(14	)	(32	)	(46	)

Loan charge-offs	(173		)	(886	)	(1,059	)	(182	)	(893	)	(1,075	)
Loan recoveries	106			351		457		107		313		420
Net loan charge-offs	(67		)	(535	)	(602	)	(75	)	(580	)	(655	)
Other	(5		)	(5	)	(10	)	5		-		5
Balance, end of period	$	6,711		4,399		11,110		6,961		5,185		12,146

Six months ended June 30,
Balance, beginning of period	$	6,632		5,328		11,960		7,394		5,146		12,540
Provision (reversal of provision) for credit losses	258			385		643		(186	)	1,346		1,160
Interest income on certain impaired loans	(25		)	(61	)	(86	)	(29	)	(65	)	(94	)

Loan charge-offs	(356		)	(1,859	)	(2,215	)	(447	)	(1,866	)	(2,313	)
Loan recoveries	211			661		872		229		624		853
Net loan charge-offs	(145		)	(1,198	)	(1,343	)	(218	)	(1,242	)	(1,460	)
Other	(9		)	(55	)	(64	)	-		-		-
Balance, end of period	$	6,711		4,399		11,110		6,961		5,185		12,146

Table 6.7 disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.

Table 6.7: Allowance by Impairment Methodology



	Allowance for credit losses				Recorded investment in loans
(in millions)	Commercial		Consumer	Total	Commercial	Consumer	Total
June 30, 2018
Collectively evaluated (1)	$	6,057	3,396	9,453	499,330	418,258	917,588
Individually evaluated (2)	646		1,003	1,649	3,696	13,977	17,673
PCI (3)	8		-	8	79	8,925	9,004
Total	$	6,711	4,399	11,110	503,105	441,160	944,265
December 31, 2017
Collectively evaluated (1)	$	5,927	4,143	10,070	499,342	425,919	925,261
Individually evaluated (2)	705		1,185	1,890	3,960	14,714	18,674
PCI (3)	-		-	-	86	12,749	12,835
Total	$	6,632	5,328	11,960	503,388	453,382	956,770


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


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


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

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 March 31, 2018 . See the "Purchased Credit-Impaired Loans" section in this Note for credit quality information on our PCI portfolio.

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

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

agencies.

Table 6.8 provides a breakdown of outstanding commercial loans by risk category. Of the $15.6 billion in criticized commercial and industrial loans and $5.1 billion in criticized commercial real estate (CRE) loans at June 30, 2018 , $1.6 billion and $816 million , respectively, have been placed on nonaccrual status and written down to net realizable collateral value.

Table 6.8: Commercial Loans by Risk Category



(in millions)	Commercial and industrial		Real estate mortgage	Real estate construction	Lease financing	Total
June 30, 2018
By risk category:
Pass	$	320,894	119,144	22,692	18,570	481,300
Criticized	15,617		4,820	245	1,044	21,726
Total commercial loans (excluding PCI)	336,511		123,964	22,937	19,614	503,026
Total commercial PCI loans (carrying value)	79		-	-	-	79
Total commercial loans	$	336,590	123,964	22,937	19,614	503,105
December 31, 2017
By risk category:
Pass	$	316,431	122,312	23,981	18,162	480,886
Criticized	16,608		4,287	298	1,223	22,416
Total commercial loans (excluding PCI)	333,039		126,599	24,279	19,385	503,302
Total commercial PCI loans (carrying value)	86		-	-	-	86
Total commercial loans	$	333,125	126,599	24,279	19,385	503,388

Table 6.9 provides past due information for commercial loans, which we monitor as part of our credit risk management practices.

Table 6.9: Commercial Loans by Delinquency Status



(in millions)	Commercial and industrial		Real estate mortgage	Real estate construction	Lease financing	Total
June 30, 2018
By delinquency status:
Current-29 days past due (DPD) and still accruing	$	334,293	122,984	22,791	19,361	499,429
30-89 DPD and still accruing	636		189	95	173	1,093
90+ DPD and still accruing	23		26	-	-	49
Nonaccrual loans	1,559		765	51	80	2,455
Total commercial loans (excluding PCI)	336,511		123,964	22,937	19,614	503,026
Total commercial PCI loans (carrying value)	79		-	-	-	79
Total commercial loans	$	336,590	123,964	22,937	19,614	503,105
December 31, 2017
By delinquency status:
Current-29 DPD and still accruing	$	330,319	125,642	24,107	19,148	499,216
30-89 DPD and still accruing	795		306	135	161	1,397
90+ DPD and still accruing	26		23	-	-	49
Nonaccrual loans	1,899		628	37	76	2,640
Total commercial loans (excluding PCI)	333,039		126,599	24,279	19,385	503,302
Total commercial PCI loans (carrying value)	86		-	-	-	86
Total commercial loans	$	333,125	126,599	24,279	19,385	503,388

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

Many of our loss estimation techniques used for the allowance for credit losses rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality and the establishment of our allowance for credit losses. Table 6.10 provides the outstanding balances of our consumer portfolio by delinquency status.

Table 6.10: Consumer Loans by Delinquency Status



(in millions)	Real estate 1-4 family first mortgage		Real estate 1-4 family junior lien mortgage	Credit card	Automobile	Other revolving credit and installment	Total
June 30, 2018
By delinquency status:
Current-29 DPD	$	257,133	35,748	35,827	46,216	36,997	411,921
30-59 DPD	1,499		244	250	1,003	105	3,101
60-89 DPD	514		125	178	300	76	1,193
90-119 DPD	262		74	144	107	69	656
120-179 DPD	233		94	284	4	23	638
180+ DPD	1,013		234	1	2	31	1,281
Government insured/guaranteed loans (1)	13,445		-	-	-	-	13,445
Total consumer loans (excluding PCI)	274,099		36,519	36,684	47,632	37,301	432,235
Total consumer PCI loans (carrying value)	8,902		23	-	-	-	8,925
Total consumer loans	$	283,001	36,542	36,684	47,632	37,301	441,160
December 31, 2017
By delinquency status:
Current-29 DPD	$	251,786	38,746	36,996	51,445	37,885	416,858
30-59 DPD	1,893		336	287	1,385	155	4,056
60-89 DPD	742		163	201	392	93	1,591
90-119 DPD	369		103	192	146	80	890
120-179 DPD	308		95	298	3	30	734
180+ DPD	1,091		243	2	-	25	1,361
Government insured/guaranteed loans (1)	15,143		-	-	-	-	15,143
Total consumer loans (excluding PCI)	271,332		39,686	37,976	53,371	38,268	440,633
Total consumer PCI loans (carrying value)	12,722		27	-	-	-	12,749
Total consumer loans	$	284,054	39,713	37,976	53,371	38,268	453,382


(1)	Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA. Loans insured/guaranteed by the FHA/VA and 90+ DPD totaled $8.2 billion at June 30, 2018 , compared with $10.5 billion at December 31, 2017 .

Of the $2.6 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at June 30, 2018 , $793 million was accruing, compared with $3.0 billion past due and $1.0 billion accruing at December 31, 2017 .

Real estate 1-4 family first mortgage loans 180 days or more past due totaled $1.0 billion , or 0.4% of total first mortgages (excluding PCI), at June 30, 2018 , compared with $1.1 billion , or 0.4% , at December 31, 2017 .

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

Table 6.11 provides a breakdown of our consumer portfolio by FICO. Most 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. Substantially all loans not requiring a FICO score are securities-based loans originated through retail brokerage, and totaled $8.9 billion at June 30, 2018 , and $8.5 billion at December 31, 2017 .

Table 6.11: Consumer Loans by FICO



(in millions)	Real estate 1-4 family first mortgage (1)		Real estate 1-4 family junior lien mortgage (1)	Credit card	Automobile	Other revolving credit and installment	Total
June 30, 2018
By FICO:
< 600	$	4,510	1,528	3,304	7,653	762	17,757
600-639	3,125		1,100	2,916	4,899	805	12,845
640-679	6,061		2,081	5,357	6,649	1,803	21,951
680-719	13,879		4,204	7,374	7,776	3,291	36,524
720-759	27,266		5,651	8,026	7,074	4,823	52,840
760-799	56,360		6,676	6,312	6,012	6,017	81,377
800+	144,114		13,853	3,030	7,355	8,369	176,721
No FICO available	5,339		1,426	365	214	2,528	9,872
FICO not required	-		-	-	-	8,903	8,903
Government insured/guaranteed loans (1)	13,445		-	-	-	-	13,445
Total consumer loans (excluding PCI)	274,099		36,519	36,684	47,632	37,301	432,235
Total consumer PCI loans (carrying value)	8,902		23	-	-	-	8,925
Total consumer loans	$	283,001	36,542	36,684	47,632	37,301	441,160
December 31, 2017
By FICO:
< 600	$	5,145	1,768	3,525	8,858	863	20,159
600-639	3,487		1,253	3,101	5,615	904	14,360
640-679	6,789		2,387	5,690	7,696	1,959	24,521
680-719	14,977		4,797	7,628	8,825	3,582	39,809
720-759	27,926		6,246	8,097	7,806	5,089	55,164
760-799	55,590		7,323	6,372	6,468	6,257	82,010
800+	136,729		15,144	2,994	7,845	8,455	171,167
No FICO available	5,546		768	569	258	2,648	9,789
FICO not required	-		-	-	-	8,511	8,511
Government insured/guaranteed loans (1)	15,143		-	-	-	-	15,143
Total consumer loans (excluding PCI)	271,332		39,686	37,976	53,371	38,268	440,633
Total consumer PCI loans (carrying value)	12,722		27	-	-	-	12,749
Total consumer loans	$	284,054	39,713	37,976	53,371	38,268	453,382


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

LTV refers to the ratio comparing the loan's unpaid principal balance to the property's collateral value. 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 Loans by LTV/CLTV



	June 30, 2018				December 31, 2017
(in millions)	Real estate 1-4 family first mortgage by LTV		Real estate 1-4 family junior lien mortgage by CLTV	Total	Real estate 1-4 family first mortgage by LTV	Real estate 1-4 family junior lien mortgage by CLTV	Total
By LTV/CLTV:
0-60%	$	140,229	15,779	156,008	133,902	16,301	150,203
60.01-80%	103,523		11,753	115,276	104,639	12,918	117,557
80.01-100%	13,688		5,740	19,428	13,924	6,580	20,504
100.01-120% (1)	1,592		2,026	3,618	1,868	2,427	4,295
> 120% (1)	615		775	1,390	783	1,008	1,791
No LTV/CLTV available	1,007		446	1,453	1,073	452	1,525
Government insured/guaranteed loans (2)	13,445		-	13,445	15,143	-	15,143
Total consumer loans (excluding PCI)	274,099		36,519	310,618	271,332	39,686	311,018
Total consumer PCI loans (carrying value)	8,902		23	8,925	12,722	27	12,749
Total consumer loans	$	283,001	36,542	319,543	284,054	39,713	323,767


(1)	Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100% LTV/CLTV.


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

NONACCRUAL LOANS Table 6.13 provides loans on nonaccrual status. PCI loans are excluded from this table because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

Table 6.13: Nonaccrual Loans



(in millions)	Jun 30, 2018		Dec 31, 2017
Commercial:
Commercial and industrial	$	1,559	1,899
Real estate mortgage	765		628
Real estate construction	51		37
Lease financing	80		76
Total commercial	2,455		2,640
Consumer:
Real estate 1-4 family first mortgage (1)	3,829		4,122
Real estate 1-4 family junior lien mortgage	1,029		1,086
Automobile	119		130
Other revolving credit and installment	54		58
Total consumer	5,031		5,396
Total nonaccrual loans (excluding PCI)	$	7,486	8,036


(1)	Includes MLHFS of $133 million and $136 million at June 30, 2018 , and December 31, 2017 , respectively.

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 $5.3 billion and $6.3 billion at June 30, 2018 and December 31, 2017 , respectively, which included $3.5 billion and $4.0 billion , respectively, of loans that are government insured/guaranteed. We commence the foreclosure process on consumer real estate loans when a borrower becomes 120 days delinquent in accordance with Consumer Finance Protection Bureau Guidelines. Foreclosure procedures and timelines vary depending on whether the property address resides in a judicial or non-judicial state. Judicial states require the foreclosure to be processed through the state's courts while non-judicial states are

processed without court intervention. Foreclosure timelines vary according to state law.

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

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $811 million at June 30, 2018 , and $1.4 billion at December 31, 2017 , are not included in these past due and still accruing loans even when they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

Table 6.14 shows non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.

Table 6.14: Loans 90 Days or More Past Due and Still Accruing



(in millions)	Jun 30, 2018		Dec 31, 2017
Total (excluding PCI):	$	9,464	11,997
Less: FHA insured/guaranteed by the VA (1)(2)	8,622		10,934
Total, not government insured/guaranteed	$	842	1,063
By segment and class, not government insured/guaranteed:
Commercial:
Commercial and industrial	$	23	26
Real estate mortgage	26		23
Total commercial	49		49
Consumer:
Real estate 1-4 family first mortgage (2)	133		219
Real estate 1-4 family junior lien mortgage (2)	33		60
Credit card	429		492
Automobile	105		143
Other revolving credit and installment	93		100
Total consumer	793		1,014
Total, not government insured/guaranteed	$	842	1,063


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


(2)	Includes mortgage loans held for sale 90 days or more past due and still accruing.

IMPAIRED LOANS Table 6.15 summarizes key information for impaired loans. Our impaired loans predominantly include loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans generally have estimated losses which are included in the allowance for credit losses. We have impaired loans with no allowance for credit losses when loss content has been previously recognized through charge-offs and we do not anticipate additional charge-offs or losses, or certain

loans are currently performing in accordance with their terms and for which no loss has been estimated. Impaired loans exclude PCI loans. Table 6.15 includes trial modifications that totaled $200 million at June 30, 2018 , and $194 million at December 31, 2017 .

For additional information on our impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 2017 Form 10-K.

Table 6.15: Impaired Loans Summary



			Recorded investment
(in millions)	Unpaid principal balance (1)		Impaired loans	Impaired loans with related allowance for credit losses	Related allowance for credit losses
June 30, 2018
Commercial:
Commercial and industrial	$	3,188	2,231	1,847	409
Real estate mortgage	1,518		1,274	1,250	200
Real estate construction	105		64	49	8
Lease financing	172		127	127	29
Total commercial	4,983		3,696	3,273	646
Consumer:
Real estate 1-4 family first mortgage	13,228		11,537	4,627	589
Real estate 1-4 family junior lien mortgage	2,011		1,806	1,299	219
Credit card	411		410	410	155
Automobile	147		81	36	5
Other revolving credit and installment	151		143	129	35
Total consumer (2)	15,948		13,977	6,501	1,003
Total impaired loans (excluding PCI)	$	20,931	17,673	9,774	1,649
December 31, 2017
Commercial:
Commercial and industrial	$	3,577	2,568	2,310	462
Real estate mortgage	1,502		1,239	1,207	211
Real estate construction	95		54	45	9
Lease financing	132		99	89	23
Total commercial	5,306		3,960	3,651	705
Consumer:
Real estate 1-4 family first mortgage	14,020		12,225	6,060	770
Real estate 1-4 family junior lien mortgage	2,135		1,918	1,421	245
Credit card	356		356	356	136
Automobile	157		87	34	5
Other revolving credit and installment	136		128	117	29
Total consumer (2)	16,804		14,714	7,988	1,185
Total impaired loans (excluding PCI)	$	22,110	18,674	11,639	1,890


(1)	Excludes the unpaid principal balance for loans that have been fully charged off or otherwise have zero recorded investment.

(2)

Includes the recorded investment of $1.4 billion at both June 30, 2018 and December 31, 2017 , of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and generally do not have an allowance. Impaired loans may also have limited, if any, allowance when the recorded investment of the loan approximates estimated net realizable value as a result of charge-offs prior to a TDR modification.

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

Commitments to lend additional funds on loans whose terms have been modified in a TDR amounted to $552 million and $579 million at June 30, 2018 and December 31, 2017 , respectively.

Table 6.16 provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.

Table 6.16: Average Recorded Investment in Impaired Loans



	Quarter ended June 30,						Six months ended June 30,
	2018				2017		2018		2017
(in millions)	Average recorded investment		Recognized interest income		Average recorded investment	Recognized interest income	Average recorded investment	Recognized interest income	Average recorded investment	Recognized interest income
Commercial:
Commercial and industrial	$	2,212	43		3,390	36	2,318	79	3,457	69
Real estate mortgage	1,299		22		1,371	24	1,266	50	1,397	51
Real estate construction	62		1		66	2	60	2	75	3
Lease financing	138		1		98	-	132	1	110	-
Total commercial	3,711		67		4,925	62	3,776	132	5,039	123
Consumer:
Real estate 1-4 family first mortgage	11,772		167		13,602	185	11,921	339	13,866	375
Real estate 1-4 family junior lien mortgage	1,832		29		2,075	31	1,861	58	2,103	62
Credit card	398		12		313	9	384	22	308	17
Automobile	82		3		83	3	83	6	83	6
Other revolving credit and installment	140		3		114	2	136	5	110	4
Total consumer	14,224		214		16,187	230	14,385	430	16,470	464
Total impaired loans (excluding PCI)	$	17,935	281		21,112	292	18,161	562	21,509	587
Interest income:
Cash basis of accounting			$	84		77		165		155
Other (1)			197			215		397		432
Total interest income			$	281		292		562		587


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

TROUBLED DEBT 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 $16.7 billion and $17.8 billion at June 30, 2018 and December 31, 2017 , respectively. We do not consider loan resolutions such as foreclosure or short sale to be a TDR.

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

Table 6.17 summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that occurred during the period. Loans that both modify and pay off

within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.

Table 6.17: TDR Modifications



	Primary modification type (1)							Financial effects of modifications
(in millions)	Principal (2)		Interest rate reduction	Other concessions (3)		Total		Charge- offs (4)	Weighted average interest rate reduction		Recorded investment related to interest rate reduction (5)
Quarter ended June 30, 2018
Commercial:
Commercial and industrial	$	3	5	449		457		14	0.58	%	$	5
Real estate mortgage	-		11	121		132		-	0.67		11
Real estate construction	-		-	1		1		-	-		-
Lease financing	-		-	-		-		-	-		-
Total commercial	3		16	571		590		14	0.64		16
Consumer:
Real estate 1-4 family first mortgage	64		8	286		358		2	2.26		31
Real estate 1-4 family junior lien mortgage	2		12	30		44		2	1.66		13
Credit card	-		83	-		83		-	13.19		83
Automobile	2		4	11		17		5	6.49		4
Other revolving credit and installment	-		10	2		12		-	7.95		10
Trial modifications (6)	-		-	17		17		-	-		-
Total consumer	68		117	346		531		9	9.17		141
Total	$	71	133	917		1,121		23	8.30	%	$	157
Quarter ended June 30, 2017
Commercial:
Commercial and industrial	$	17	13	914		944		29	0.88	%	$	13
Real estate mortgage	4		25	137		166		13	1.36		25
Real estate construction	-		1	20		21		-	0.61		1
Lease financing	-		-	11		11		-	-		-
Total commercial	21		39	1,082		1,142		42	1.19		39
Consumer:
Real estate 1-4 family first mortgage	74		45	234		353		3	2.55		83
Real estate 1-4 family junior lien mortgage	7		26	21		54		3	2.88		30
Credit card	-		57	-		57		-	12.48		57
Automobile	-		4	20		24		11	5.90		4
Other revolving credit and installment	-		16	1		17		1	7.27		15
Trial modifications (6)	-		-	(27	)	(27	)	-	-		-
Total consumer	81		148	249		478		18	6.07		189
Total	$	102	187	1,331		1,620		60	5.24	%	$	228

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



	Primary modification type (1)							Financial effects of modifications
(in millions)	Principal (2)		Interest rate reduction	Other concessions (3)		Total		Charge- offs (4)	Weighted average interest rate reduction		Recorded investment related to interest rate reduction (5)
Six months ended June 30, 2018
Commercial:
Commercial and industrial	$	3	14	937		954		20	0.88	%	$	14
Real estate mortgage	-		17	219		236		-	0.89		17
Real estate construction	-		-	4		4		-	-		-
Lease financing	-		-	39		39		-	-		-
Total commercial	3		31	1,199		1,233		20	0.88		31
Consumer:
Real estate 1-4 family first mortgage	110		18	592		720		3	2.33		66
Real estate 1-4 family junior lien mortgage	3		20	58		81		3	1.89		22
Credit card	-		169	-		169		-	12.24		169
Automobile	3		8	25		36		14	6.48		8
Other revolving credit and installment	-		25	4		29		-	7.95		25
Trial modifications (6)	-		-	32		32		-	-		-
Total consumer	116		240	711		1,067		20	8.67		290
Total	$	119	271	1,910		2,300		40	7.92	%	$	321
Six months ended June 30, 2017
Commercial:
Commercial and industrial	$	17	19	1,842		1,878		94	0.86	%	$	19
Real estate mortgage	4		39	318		361		13	1.23		39
Real estate construction	-		1	23		24		-	0.69		1
Lease financing	-		-	14		14		-	-		-
Total commercial	21		59	2,197		2,277		107	1.10		59
Consumer:
Real estate 1-4 family first mortgage	148		117	525		790		12	2.58		186
Real estate 1-4 family junior lien mortgage	20		47	44		111		9	2.91		54
Credit card	-		114	-		114		-	12.35		114
Automobile	1		7	32		40		18	6.14		7
Other revolving credit and installment	-		27	4		31		1	7.28		26
Trial modifications (6)	-		-	(44	)	(44	)	-	-		-
Total consumer	169		312	561		1,042		40	5.89		387
Total	$	190	371	2,758		3,319		147	5.25	%	$	446

(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 $381 million and $602 million for the quarters ended June 30, 2018 and 2017 , and $884 million and $1.3 billion , for the first half of 2018 and 2017, respectively.


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


(3)	Other concessions include loans discharged in bankruptcy, loan renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the 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 legally forgiving principal (actual, contingent or deferred) of $14 million and $10 million for the quarters ended June 30, 2018 and 2017 , and $17 million and $19 million for the first half of 2018 and 2017, respectively.


(5)	Reflects the effect of reduced interest rates on loans with an interest rate concession as one of their concession types, which includes loans reported as a principal primary modification type that also have an interest rate concession.

(6)

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

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 June 30,			Six months ended June 30,
(in millions)	2018		2017	2018	2017
Commercial:
Commercial and industrial	$	7	30	93	92
Real estate mortgage	14		10	40	31
Real estate construction	16		-	16	-
Total commercial	37		40	149	123
Consumer:
Real estate 1-4 family first mortgage	15		26	33	51
Real estate 1-4 family junior lien mortgage	2		5	7	9
Credit card	24		17	37	32
Automobile	4		4	7	7
Other revolving credit and installment	1		1	2	2
Total consumer	46		53	86	101
Total	$	83	93	235	224

Purchased Credit-Impaired Loans

Substantially all of our PCI loans were acquired from Wachovia on December 31, 2008, at which time we acquired commercial and consumer loans with a carrying value of $18.7 billion and $40.1 billion , respectively. The unpaid principal balance on December 31, 2008 was $98.2 billion for the total of commercial and consumer PCI loans. Table 6.19 presents PCI loans net of any remaining purchase accounting adjustments. Real estate 1-4 family first mortgage PCI loans are predominantly Pick-a-Pay loans.

Table 6.19: PCI Loans



(in millions)	Jun 30, 2018		Dec 31, 2017
Total commercial	$	79	86
Consumer:
Real estate 1-4 family first mortgage	8,902		12,722
Real estate 1-4 family junior lien mortgage	23		27
Total consumer	8,925		12,749
Total PCI loans (carrying value)	$	9,004	12,835
Total PCI loans (unpaid principal balance)	$	13,060	18,975

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

ACCRETABLE YIELD The excess of cash flows expected to be collected over the carrying value of PCI loans is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the loan, or pools of loans. The accretable yield is affected by:


•	changes in interest rate indices for variable rate PCI loans – expected future cash flows are based on the variable rates in effect at the time of the regular evaluations of cash flows expected to be collected;


•	changes in prepayment assumptions – prepayments affect the estimated life of PCI loans which may change the amount of interest income, and possibly principal, expected to be collected; and


•	changes in the expected principal and interest payments over the estimated weighted-average life – updates to expected cash flows are driven by the credit outlook and actions taken with borrowers. Changes in expected future cash flows from loan modifications are included in the regular evaluations of cash flows expected to be collected.

The change in the accretable yield related to PCI loans since the merger with Wachovia is presented in Table 6.20 . Changes during second quarter 2018 reflect impacts of the sale of $1.3 billion of Pick-a-Pay PCI loans, and to a lesser extent, higher prepayment expectations of modified Pick-a-Pay PCI loans.

Table 6.20: Change in Accretable Yield



(in millions)	Quarter ended June 30, 2018			Six months ended June 30, 2018		2009-2017
Balance, beginning of period	$	6,864		8,887		10,447
Change in accretable yield due to acquisitions	-			-		161
Accretion into interest income (1)	(299		)	(613	)	(16,983	)
Accretion into noninterest income due to sales (2)	(479		)	(1,122	)	(801	)
Reclassification from nonaccretable difference for loans with improving credit-related cash flows	59			399		11,597
Changes in expected cash flows that do not affect nonaccretable difference (3)	(412		)	(1,818	)	4,466
Balance, end of period	$	5,733		5,733		8,887


(1)	Includes accretable yield released as a result of settlements with borrowers, which is included in interest income.


(2)	Includes accretable yield released as a result of sales to third parties, which is included in noninterest income.


(3)	Represents changes in cash flows expected to be collected due to the impact of modifications, changes in prepayment assumptions, changes in interest rates on variable rate PCI loans and sales to third parties.

COMMERCIAL PCI CREDIT QUALITY INDICATORS Table 6.21 provides a breakdown of commercial PCI loans by risk category.

Table 6.21: Commercial PCI Loans by Risk Category



(in millions)	Total
June 30, 2018
By risk category:
Pass	$	20
Criticized	59
Total commercial PCI loans	$	79
December 31, 2017
By risk category:
Pass	$	8
Criticized	78
Total commercial PCI loans	$	86

Table 6.22 provides past due information for commercial PCI loans.

Table 6.22: Commercial PCI Loans by Delinquency Status



(in millions)	Total
June 30, 2018
By delinquency status:
Current-29 DPD and still accruing	$	79
30-89 DPD and still accruing	-
90+ DPD and still accruing	-
Total commercial PCI loans	$	79
December 31, 2017
By delinquency status:
Current-29 DPD and still accruing	$	86
30-89 DPD and still accruing	-
90+ DPD and still accruing	-
Total commercial PCI loans	$	86

CONSUMER PCI CREDIT QUALITY INDICATORS Our consumer PCI loans were aggregated into several pools of loans at acquisition. Below, we have provided credit quality indicators based on the unpaid principal balance (adjusted for write-downs) of the individual loans included in the pool, but we have not

allocated the remaining purchase accounting adjustments, which were established at a pool level. Table 6.23 provides the delinquency status of consumer PCI loans.

Table 6.23: Consumer PCI Loans by Delinquency Status -



	June 30, 2018				December 31, 2017
(in millions)	Real estate 1-4 family first mortgage		Real estate 1-4 family junior lien mortgage	Total	Real estate 1-4 family first mortgage	Real estate 1-4 family junior lien mortgage	Total
By delinquency status:
Current-29 DPD and still accruing	$	9,464	132	9,596	13,127	138	13,265
30-59 DPD and still accruing	978		5	983	1,317	8	1,325
60-89 DPD and still accruing	420		2	422	622	3	625
90-119 DPD and still accruing	180		1	181	293	2	295
120-179 DPD and still accruing	122		2	124	219	2	221
180+ DPD and still accruing	792		3	795	1,310	4	1,314
Total consumer PCI loans (adjusted unpaid principal balance)	$	11,956	145	12,101	16,888	157	17,045
Total consumer PCI loans (carrying value)	$	8,902	23	8,925	12,722	27	12,749

100

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

Table 6.24 provides FICO scores for consumer PCI loans.

Table 6.24: Consumer PCI Loans by FICO



	June 30, 2018				December 31, 2017
(in millions)	Real estate 1-4 family first mortgage		Real estate 1-4 family junior lien mortgage	Total	Real estate 1-4 family first mortgage	Real estate 1-4 family junior lien mortgage	Total
By FICO:
< 600	$	2,744	31	2,775	4,014	37	4,051
600-639	1,456		19	1,475	2,086	20	2,106
640-679	1,642		22	1,664	2,393	24	2,417
680-719	1,581		27	1,608	2,242	29	2,271
720-759	1,298		21	1,319	1,779	23	1,802
760-799	735		11	746	933	12	945
800+	430		6	436	468	6	474
No FICO available	2,070		8	2,078	2,973	6	2,979
Total consumer PCI loans (adjusted unpaid principal balance)	$	11,956	145	12,101	16,888	157	17,045
Total consumer PCI loans (carrying value)	$	8,902	23	8,925	12,722	27	12,749

Table 6.25 shows the distribution of consumer PCI loans by LTV for real estate 1-4 family first mortgages and by CLTV for real estate 1-4 family junior lien mortgages.

Table 6.25: Consumer PCI Loans by LTV/CLTV



	June 30, 2018				December 31, 2017
(in millions)	Real estate 1-4 family first mortgage by LTV		Real estate 1-4 family junior lien mortgage by CLTV	Total	Real estate 1-4 family first mortgage by LTV	Real estate 1-4 family junior lien mortgage by CLTV	Total
By LTV/CLTV:
0-60%	$	6,390	46	6,436	8,010	45	8,055
60.01-80%	4,153		58	4,211	6,510	63	6,573
80.01-100%	1,178		29	1,207	1,975	35	2,010
100.01-120% (1)	188		9	197	319	10	329
> 120% (1)	46		2	48	73	3	76
No LTV/CLTV available	1		1	2	1	1	2
Total consumer PCI loans (adjusted unpaid principal balance)	$	11,956	145	12,101	16,888	157	17,045
Total consumer PCI loans (carrying value)	$	8,902	23	8,925	12,722	27	12,749


(1)	Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100% LTV/CLTV.

101

Note 7:

Equity Securities

Table 7.1 provides a summary of our equity securities by business purpose and accounting model, including equity securities with readily determinable fair values (marketable) and those without readily determinable fair values (nonmarketable).

Table 7.1: Equity Securities



	Jun 30,		Dec 31,
(in millions)	2018		2017
Held for trading at fair value:
Marketable equity securities	$	22,978	30,004
Not held for trading:
Fair value:
Marketable equity securities (1)	5,273		4,356
Nonmarketable equity securities (2)	5,876		4,867
Total equity securities at fair value	11,149		9,223
Equity method:
LIHTC (3)	10,361		10,269
Private equity	3,732		3,839
Tax-advantaged renewable energy	1,950		1,950
New market tax credit and other	262		294
Total equity method	16,305		16,352
Other:
Federal bank stock and other at cost (4)	5,673		5,828
Private equity (5)	1,400		1,090
Total equity securities not held for trading	34,527		32,493
Total equity securities	$	57,505	62,497


(1)	Includes $3.5 billion and $3.7 billion at June 30, 2018 , and December 31, 2017 , respectively, related to securities held as economic hedges of our deferred compensation plan obligations.


(2)	Includes $5.5 billion and $4.9 billion at June 30, 2018 , and December 31, 2017 , respectively, related to investments for which we elected the fair value option. See Note 15 (Fair Value of Assets and Liabilities) for additional information.


(3)	Represents low-income housing tax credit investments.


(4)	Includes $5.6 billion and $5.4 billion at June 30, 2018 , and December 31, 2017 , respectively, related to investments in Federal Reserve Bank and Federal Home Loan Bank stock.


(5)	Represents nonmarketable equity securities for which we have elected to account for the security 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, which are held as part of our customer accommodation trading activities, are carried at fair value with changes in fair value reflected in net gains from trading activities. More information on these activities can be found in Note 4 (Trading Activities) to Financial Statements in this Report.

Equity Securities Not Held for Trading

We also hold equity securities unrelated to trading activities. These securities include private equity and tax credit investments, securities held as economic hedges or to meet regulatory requirements (for example, Federal Reserve Bank and Federal Home Loan Bank stock). Equity securities not held for trading purposes are accounted for at either fair value, equity method, cost or the measurement alternative.

FAIR VALUE Equity securities accounted for using the fair value method are recorded at fair value with changes in fair value reflected in net gains from equity securities. Marketable equity securities held for purposes other than trading primarily 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. Nonmarketable equity securities represent securities that do not have a readily determinable fair value for which we have elected to account for using the fair value method. Substantially all of these nonmarketable equity securities are economically hedged with equity derivatives.

EQUITY METHOD Under the equity method of accounting, we carry the security at cost adjusted for our share of the investee's earnings less any impairment write-downs. Our equity method investments consist of tax credit and private equity securities, 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 is designed to promote private development of low-income housing. These investments generate a return mostly through realization of federal tax credit and other tax benefits. In the second quarter and first half of 2018 , we recognized pre-tax losses of $287 million and $567 million , respectively, related to our LIHTC investments, compared with $227 million and $457 million , respectively, for the same periods a year ago. These losses were recognized in other noninterest income. We also recognized total tax benefits of $352 million and $711 million in the second quarter and first half of 2018 , which included tax credits recorded to income taxes of $281 million and $571 million for the same periods, respectively. In the second quarter and first half of 2017 , total tax benefits were $347 million and $694 million , respectively, which included tax credits of $260 million and $521 million for the same periods, respectively. We are periodically required to provide additional financial support during the investment period. Our liability for unfunded commitments was $3.5 billion at June 30, 2018 , and $3.6 billion at December 31, 2017 . Substantially all of this liability is expected to be paid over the next three years. This liability is included in long-term debt.

OTHER The remaining portion of our nonmarketable equity securities portfolio consists of securities accounted for using the cost method or measurement alternative. Cost method securities are held at cost less impairment. If impaired, the carrying value is written down to fair value. The measurement alternative is similar to the cost method of accounting, except the carrying value is adjusted up or down to fair value through net gains from equity securities upon the occurrence of orderly observable transactions in the same or similar security of the same issuer. Impairment write-downs are recorded on these securities when the carrying value of these securities exceeds the fair value of the investment or we identify possible indicators of impairment.

102

Note 7: Equity Securities ( continued )

Realized Gains and Losses

Table 7.2 provides a summary of the net gains and losses for equity securities. Gains and losses for securities held for trading are reported in net gains from trading activities.

Table 7.2: Net Gains (Losses) from Equity Securities



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Net gains (losses) from equity securities carried at fair value:
Marketable equity securities	$	28		187		36		470
Nonmarketable equity securities	594			212		703		694
Total equity securities carried at fair value	622			399		739		1,164
Net gains (losses) from nonmarketable equity securities not carried at fair value:
Impairment write-downs	(237		)	(22	)	(257	)	(98	)
Net unrealized gains (losses) related to measurement alternative observable transactions	35			-		263		-
Net realized gains on sale	399			64		897		390
All other	16			33		34		62
Total nonmarketable equity securities not carried at fair value	213			75		937		354
Net gains (losses) from economic hedge derivatives (1)	(540		)	(200	)	(598	)	(674	)
Total net gains (losses) from equity securities	$	295		274		1,078		844


(1)	Includes net gains (losses) on derivatives not designated as hedging instruments.

Measurement Alternative

Table 7.3 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 7.2.

Table 7.3: Measurement Alternative



	Quarter ended June 30,			Six months ended June 30,
(in millions)	2018			2018
Net gains (losses) recognized in earnings during the period:
Gross unrealized gains due to observable price changes	$	43		271
Gross unrealized losses due to observable price changes	(8		)	(8	)
Impairment write-downs	(5		)	(12	)
Realized net gains (losses) from sale	16			91
Total net gains (losses) recognized during the period	$	46		342

The cumulative gross unrealized gains and losses due to observable price changes as of June 30, 2018 , were $247 million and $8 million , respectively. Cumulative impairment losses as of June 30, 2018 , were $12 million . These cumulative amounts represent carrying value adjustments to equity securities accounted for under the measurement alternative that were recognized on the balance sheet as of June 30, 2018 .

103

Note 8:

Other Assets

Table 8.1 presents the components of other assets.

Table 8.1: Other Assets



(in millions)	Jun 30, 2018		Dec 31, 2017
Corporate/bank-owned life insurance	$	19,621	19,549
Accounts receivable (1)	32,926		39,127
Interest receivable	5,910		5,688
Core deposit intangibles	384		769
Customer relationship and other amortized intangibles	693		841
Foreclosed assets:
Residential real estate:
Government insured/guaranteed (1)	90		120
Non-government insured/guaranteed	228		252
Non-residential real estate	181		270
Operating lease assets	9,385		9,666
Due from customers on acceptances	228		177
Other	11,204		13,785
Total other assets	$	80,850	90,244

(1)

Certain government-guaranteed residential real estate mortgage loans upon foreclosure are included in Accounts receivable. 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. For more information on the classification of certain government-guaranteed mortgage loans upon foreclosure, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 10-K.

104

Note 9: Securitizations and Variable Interest Entities ( continued )

Note 9: Securitizations and Variable Interest Entities

Involvement with Special Purpose Entities (SPEs)

In the normal course of business, we enter into various types of on- and off-balance sheet transactions with SPEs, which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions and are considered variable interest entities (VIEs). For further description of our involvement with SPEs, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 2017 Form 10-K.

We have segregated our involvement with VIEs between those VIEs which we consolidate, those which we do not consolidate and those for which we account for the transfers of financial assets as secured borrowings. Secured borrowings are transactions involving transfers of our financial assets to third parties that are accounted for as financings with the assets pledged as collateral. Accordingly, the transferred assets remain recognized on our balance sheet. Subsequent tables within this Note further segregate these transactions by structure type.

Table 9.1 provides the classifications of assets and liabilities in our balance sheet for our transactions with VIEs.

Table 9.1: 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
June 30, 2018
Cash	$	-	112		-	112
Interest-earning deposits with banks	-		8		-	8
Debt securities:
Trading debt securities	2,593		-		200	2,793
Available-for-sale debt securities (1)	3,049		-		341	3,390
Held-to-maturity debt securities	513		-		-	513
Loans	1,963		12,631		101	14,695
Mortgage servicing rights	15,353		-		-	15,353
Derivative assets	123		-		-	123
Equity securities	10,725		24		-	10,749
Other assets	-		240		6	246
Total assets	34,319		13,015		648	47,982
Short-term borrowings	-		-		512	512
Derivative liabilities	73		-	(2)	-	73
Accrued expenses and other liabilities	242		137	(2)	9	388
Long-term debt	3,454		911	(2)	101	4,466
Total liabilities	3,769		1,048		622	5,439
Noncontrolling interests	-		30		-	30
Net assets	$	30,550	11,937		26	42,513
December 31, 2017
Cash	$	-	116		-	116
Interest-earning deposits with banks	-		371		-	371
Debt securities:
Trading debt securities	1,305		-		201	1,506
Available-for-sale debt securities (1)	3,288		-		358	3,646
Held-to-maturity debt securities	485		-		-	485
Loans	4,274		12,482		110	16,866
Mortgage servicing rights	13,628		-		-	13,628
Derivative assets	44		-		-	44
Equity securities	10,740		306		-	11,046
Other assets	-		342		6	348
Total assets	33,764		13,617		675	48,056
Short-term borrowings	-		-		522	522
Derivative liabilities	106		5	(2)	-	111
Accrued expenses and other liabilities	244		132	(2)	10	386
Long-term debt	3,590		1,479	(2)	111	5,180
Total liabilities	3,940		1,616		643	6,199
Noncontrolling interests	-		283		-	283
Net assets	$	29,824	11,718		32	41,574


(1)	Excludes certain debt securities related to loans serviced for the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and GNMA.


(2)	There were no VIE liabilities with recourse to the general credit of Wells Fargo for the periods presented.

105

Transactions with Unconsolidated VIEs

Our transactions with unconsolidated VIEs include securitizations of residential mortgage loans, CRE loans, student loans, automobile loans and leases, certain dealer floorplan loans; investment and financing activities involving collateralized debt obligations (CDOs) backed by asset-backed and CRE securities, tax credit structures, collateralized loan obligations (CLOs) backed by corporate loans, and other types of structured financing. We have various forms of involvement with VIEs, including servicing, holding senior or subordinated interests, entering into liquidity arrangements, credit default swaps and other derivative contracts. Involvements with these unconsolidated VIEs are recorded on our balance sheet in debt and equity securities, loans, MSRs, derivative assets and liabilities, other assets, other liabilities, and long-term debt, as appropriate.

Table 9.2 provides a summary of unconsolidated VIEs with which we have significant continuing involvement, but we are not the primary beneficiary. We do not consider our continuing involvement in an unconsolidated VIE to be significant when it relates to third-party sponsored VIEs for which we were not the transferor (unless we are servicer and have other significant forms of involvement) or if we were the sponsor only or sponsor

and servicer but do not have any other forms of significant involvement.

Significant continuing involvement includes transactions where we were the sponsor or transferor and have other significant forms of involvement. Sponsorship includes transactions with unconsolidated VIEs where we solely or materially participated in the initial design or structuring of the entity or marketing of the transaction to investors. When we transfer assets to a VIE and account for the transfer as a sale, we are considered the transferor. We consider investments in securities (other than those held temporarily in trading), loans, guarantees, liquidity agreements, written options and servicing of collateral to be other forms of involvement that may be significant. We have excluded certain transactions with unconsolidated VIEs from the balances presented in the following table where we have determined that our continuing involvement is not significant due to the temporary nature and size of our variable interests, because we were not the transferor or because we were not involved in the design of the unconsolidated VIEs. We also exclude from the table secured borrowing transactions with unconsolidated VIEs (for information on these transactions, see the Transactions with Consolidated VIEs and Secured Borrowings section in this Note).

Table 9.2: Unconsolidated VIEs



			Carrying value – asset (liability)
(in millions)	Total VIE assets		Debt and equity interests (1)		Servicing assets	Derivatives		Other commitments and guarantees		Net assets
June 30, 2018
Residential mortgage loan securitizations:
Conforming (2)	$	1,167,339	3,042		14,415	-		(187	)	17,270
Other/nonconforming	12,158		525		64	-		-		589
Commercial mortgage securitizations	149,273		2,442		874	(71	)	(35	)	3,210
Collateralized debt obligations:
Debt securities	802		-		-	5		(20	)	(15	)
Loans (3)	-		-		-	-		-		-
Asset-based finance structures	2,071		946		-	-		-		946
Tax credit structures	31,397		11,341		-	-		(3,454	)	7,887
Collateralized loan obligations	7		-		-	-		-		-
Investment funds	209		49		-	-		-		49
Other (4)	1,949		498		-	116		-		614
Total	$	1,365,205	18,843		15,353	50		(3,696	)	30,550
			Maximum exposure to loss
			Debt and equity interests (1)		Servicing assets	Derivatives		Other commitments and guarantees		Total exposure
Residential mortgage loan securitizations:
Conforming			$	3,042	14,415	-		1,051		18,508
Other/nonconforming			525		64	-		-		589
Commercial mortgage securitizations			2,442		874	71		10,679		14,066
Collateralized debt obligations:
Debt securities			-		-	5		20		25
Loans (3)			-		-	-		-		-
Asset-based finance structures			946		-	-		71		1,017
Tax credit structures			11,341		-	-		1,180		12,521
Collateralized loan obligations			-		-	-		-		-
Investment funds			49		-	-		-		49
Other (4)			498		-	135		158		791
Total			$	18,843	15,353	211		13,159		47,566

(continued on following page)

106

Note 9: Securitizations and Variable Interest Entities ( continued )

(continued from previous page)



			Carrying value – asset (liability)
(in millions)	Total VIE assets		Debt and equity interests (1)		Servicing assets	Derivatives		Other commitments and guarantees		Net assets
December 31, 2017
Residential mortgage loan securitizations:
Conforming (2)	$	1,169,410	2,100		12,665	-		(190	)	14,575
Other/nonconforming	14,175		598		73	-		-		671
Commercial mortgage securitizations	144,650		2,198		890	28		(34	)	3,082
Collateralized debt obligations:
Debt securities	1,031		-		-	5		(20	)	(15	)
Loans (3)	1,481		1,443		-	-		-		1,443
Asset-based finance structures	2,333		1,867		-	-		-		1,867
Tax credit structures	31,852		11,258		-	-		(3,590	)	7,668
Collateralized loan obligations	23		1		-	-		-		1
Investment funds	225		50		-	-		-		50
Other (4)	2,257		577		-	(95	)	-		482
Total	$	1,367,437	20,092		13,628	(62	)	(3,834	)	29,824
			Maximum exposure to loss
			Debt and equity interests (1)		Servicing assets	Derivatives		Other commitments and guarantees		Total exposure
Residential mortgage loan securitizations:
Conforming			$	2,100	12,665	-		1,137		15,902
Other/nonconforming			598		73	-		-		671
Commercial mortgage securitizations			2,198		890	42		10,202		13,332
Collateralized debt obligations:
Debt securities			-		-	5		20		25
Loans (3)			1,443		-	-		-		1,443
Asset-based finance structures			1,867		-	-		71		1,938
Tax credit structures			11,258		-	-		1,175		12,433
Collateralized loan obligations			1		-	-		-		1
Investment funds			50		-	-		-		50
Other (4)			577		-	120		157		854
Total			$	20,092	13,628	167		12,762		46,649


(1)	Includes total equity interests of $10.7 billion at both June 30, 2018 , and December 31, 2017 . Also includes debt interests in the form of both loans and securities. Excludes certain debt securities held related to loans serviced for FNMA, FHLMC and GNMA.

(2)

Excludes assets and related liabilities with a recorded carrying value on our balance sheet of $812 million and $2.2 billion at June 30, 2018 , and December 31, 2017 , respectively, for certain delinquent loans that are eligible for repurchase from GNMA loan securitizations. The recorded carrying value represents the amount that would be payable if the Company was to exercise the repurchase option. The carrying amounts are excluded from the table because the loans eligible for repurchase do not represent interests in the VIEs.

(3)

Represents senior loans to trusts that are collateralized by asset-backed securities. The trusts invested in senior tranches from a diversified pool of U.S. asset securitizations, of which all were current and 100% were rated as investment grade by the primary rating agencies at December 31, 2017 . These senior loans were accounted for at amortized cost and were subject to the Company's allowance and credit charge-off policies. The securitization was terminated in first quarter 2018.


(4)	Includes structured financing and credit-linked note structures. Also contains investments in auction rate securities (ARS) issued by VIEs that we do not sponsor and, accordingly, are unable to obtain the total assets of the entity.

In Table 9.2 , "Total VIE assets" represents the remaining principal balance of assets held by unconsolidated VIEs using the most current information available. For VIEs that obtain exposure to assets synthetically through derivative instruments, the remaining notional amount of the derivative is included in the asset balance. "Carrying value" is the amount in our consolidated balance sheet related to our involvement with the unconsolidated VIEs. "Maximum exposure to loss" from our involvement with off-balance sheet entities, which is a required disclosure under GAAP, is determined as the carrying value of our involvement with off-balance sheet (unconsolidated) VIEs plus the remaining undrawn liquidity and lending commitments, the notional amount of net written derivative contracts, and generally the notional amount of, or stressed loss estimate for, other commitments and guarantees. It represents estimated loss that would be incurred under severe, hypothetical circumstances, for which we believe the possibility is extremely remote, such as where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. Accordingly, this required disclosure is not an indication of expected loss.

For complete descriptions of our types of transactions with unconsolidated VIEs with which we have a significant continuing involvement, but we are not the primary beneficiary, see Note 8

(Securitizations and Variable Interest Entities) to Financial Statements in our 2017 Form 10-K.

INVESTMENT FUNDS Subsequent to adopting ASU 2015-02 ( Amendments to the Consolidation Analysis ) in first quarter 2016, we do not consolidate these investment funds because we do not hold variable interests that are considered significant to the funds.

We voluntarily waived a portion of our management fees for certain money market funds that are exempt from the consolidation analysis to ensure the funds maintained a minimum level of daily net investment income. The amount of fees waived in the second quarter and first half of 2018 was $12 million and $25 million , respectively, compared with $13 million and $27 million , respectively, in the same periods of 2017 .

OTHER TRANSACTIONS WITH VIEs Other VIEs include certain entities that issue auction rate securities (ARS) which are debt instruments with long-term maturities, that re-price more frequently, and preferred equities with no maturity. At June 30, 2018 , we held $292 million of ARS issued by VIEs compared with $400 million at December 31, 2017 . We acquired the ARS pursuant to agreements entered into in 2008 and 2009.

107

We do not consolidate the VIEs that issued the ARS because we do not have power over the activities of the VIEs.

TRUST PREFERRED SECURITIES VIEs that we wholly own issue debt securities or preferred equity to third party investors. All of the proceeds of the issuance are invested in debt securities or preferred equity that we issue to the VIEs. The VIEs' operations and cash flows relate only to the issuance, administration and repayment of the securities held by third parties. We do not consolidate these VIEs because the sole assets of the VIEs are receivables from us, even though we own all of the voting equity shares of the VIEs, have fully guaranteed the obligations of the VIEs and may have the right to redeem the third party securities under certain circumstances. In our consolidated balance sheet at June 30, 2018 , and December 31, 2017 , we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $1.9 billion and $2.0 billion , respectively, and the preferred

equity securities issued to the VIEs as preferred stock with a carrying value of $2.5 billion at both dates. These amounts are in addition to the involvements in these VIEs included in the preceding table.

Loan Sales and Securitization Activity

We periodically transfer consumer and CRE loans and other types of financial assets in securitization and whole loan sale transactions. We typically retain the servicing rights from these sales and may continue to hold other beneficial interests in the transferred financial assets. We may also provide liquidity to investors in the beneficial interests and credit enhancements in the form of standby letters of credit. Through these transfers we may be exposed to liability under limited amounts of recourse as well as standard representations and warranties we make to purchasers and issuers. Table 9.3 presents the cash flows for our transfers accounted for as sales.

Table 9.3: Cash Flows From Sales and Securitization Activity



	2018				2017
(in millions)	Mortgage loans			Other financial assets	Mortgage loans		Other financial assets
Quarter ended June 30,
Proceeds from securitizations and whole loan sales	$	51,990		-	52,824		4
Fees from servicing rights retained	830			-	840		-
Cash flows from other interests held (1)	168			1	641		-
Repurchases of assets/loss reimbursements (2):
Non-agency securitizations and whole loan transactions	1			-	5		-
Agency securitizations (3)	19			-	23		-
Servicing advances, net of repayments	(7		)	-	(20	)	-
Six months ended June 30,
Proceeds from securitizations and whole loan sales	$	102,577		-	111,081		25
Fees from servicing rights retained	1,675			-	1,694		-
Cash flows from other interests held (1)	353			1	1,475		-
Repurchases of assets/loss reimbursements (2):
Non-agency securitizations and whole loan transactions	2			-	7		-
Agency securitizations (3)	52			-	46		-
Servicing advances, net of repayments	(43		)	-	(162	)	-


(1)	Cash flows from other interests held include principal and interest payments received on retained bonds and excess cash flows received on interest-only strips.


(2)	Consists of cash paid to repurchase loans from investors and cash paid to investors to reimburse them for losses on individual loans that are already liquidated.

(3)

Represent loans repurchased from GNMA, FNMA, and FHLMC under representation and warranty provisions included in our loan sales contracts. Second quarter and first half of 2018 exclude $1.8 billion and $ 4.7 billion , respectively, in delinquent insured/guaranteed loans that we service and have exercised our option to purchase out of GNMA pools, compared with $1.6 billion and $3.9 billion , respectively, in the same periods of 2017 . These loans are predominantly insured by the FHA or guaranteed by the VA.

In the second quarter and first half of 2018 , we recognized net gains of $532 million and $1.2 billion , respectively, from transfers accounted for as sales of financial assets, compared with $393 million and $525 million , respectively, in the same periods of 2017 . These net gains predominantly relate to whole loan sales, commercial mortgage securitizations, and residential mortgage securitizations where the loans were not already carried at fair value.

Sales with continuing involvement during the second quarter and first half of 2018 and 2017 l argely related to securitizations of residential mortgages that are sold to the government-sponsored entities (GSEs), including FNMA, FHLMC and GNMA (conforming residential mortgage securitizations). During the second quarter and first half of 2018 , we transferred $47.7 billion and $95.0 billion , respectively, in fair value of residential mortgages to unconsolidated VIEs and third-party investors and

recorded the transfers as sales, compared with $49.7 billion and $105.2 billion , respectively, in the same periods of 2017 . Substantially all of these transfers did not result in a gain or loss because the loans were already carried at fair value. In connection with all of these transfers, in the first half of 2018 , we recorded a $988 million servicing asset, measured at fair value using a Level 3 measurement technique, securities of $1.8 billion , classified as Level 2, and a $7 million liability for repurchase losses which reflects management's estimate of probable losses related to various representations and warranties for the loans transferred, initially measured at fair value. In the first half of 2017 , we recorded a $957 million servicing asset, securities of $3.5 billion , and a $14 million liability.

Table 9.4 presents the key weighted-average assumptions we used to measure residential mortgage servicing rights at the date of securitization.

108

Note 9: Securitizations and Variable Interest Entities ( continued )

Table 9.4: Residential Mortgage Servicing Rights



	Residential mortgage servicing rights
	2018			2017
Quarter ended June 30,
Prepayment speed (1)	10.7		%	12.8
Discount rate	7.4			6.9
Cost to service ($ per loan) (2)	$	146		152
Six months ended June 30,
Prepayment speed (1)	10.1		%	11.5
Discount rate	7.4			6.8
Cost to service ($ per loan) (2)	$	132		142


(1)	The prepayment speed assumption for residential mortgage servicing rights includes a blend of prepayment speeds and default rates. Prepayment speed assumptions are influenced by mortgage interest rate inputs as well as our estimation of drivers of borrower behavior.


(2)	Includes costs to service and unreimbursed foreclosure costs, which can vary period to period depending on the mix of modified government-guaranteed loans sold to GNMA.

During the second quarter and first half of 2018 , we transferred $4.4 billion and $7.5 billion , respectively, in carrying value of commercial mortgages to unconsolidated VIEs and third-party investors and recorded the transfers as sales, compared with $3.3 billion and $6.6 billion , respectively, in the same periods of 2017 . These transfers resulted in gains of $60 million and $129 million in the second quarter and first half of 2018 , respectively, because the loans were carried at lower of cost or market value (LOCOM), compared with gains of $80 million and $176 million in the same periods of 2017 . In connection with these transfers, in the first half of 2018 , we recorded a servicing asset of $73 million , initially measured at fair value using a Level 3 measurement technique, and securities of $208 million , classified as Level 2. In the first half of 2017 , we recorded a servicing asset of $82 million and securities of $65 million .

109

Retained Interests from Unconsolidated VIEs

Table 9.5 provides key economic assumptions and the sensitivity of the current fair value of residential mortgage servicing rights and other interests held to immediate adverse changes in those assumptions. "Other interests held" relate to residential and commercial mortgage loan securitizations. Residential mortgage-backed securities retained in securitizations issued through GSEs, such as FNMA, FHLMC and GNMA, are excluded from the table because these securities have a remote risk of credit loss due to

the GSE guarantee. These securities also have economic characteristics similar to GSE mortgage-backed securities that we purchase, which are not included in the table. Subordinated interests include only those bonds whose credit rating was below AAA by a major rating agency at issuance. Senior interests include only those bonds whose credit rating was AAA by a major rating agency at issuance. The information presented excludes trading positions held in inventory.

Table 9.5: Retained Interests from Unconsolidated VIEs



				Other interests held
	Residential mortgage servicing rights (1)			Interest-only strips		Commercial (2)
($ in millions, except cost to service amounts)			Subordinated bonds		Senior bonds
Fair value of interests held at June 30, 2018	$	15,411		17		632	277
Expected weighted-average life (in years)	6.9			3.7		6.6	5.4
Key economic assumptions:
Prepayment speed assumption (3)	8.9		%	17.7
Decrease in fair value from:
10% adverse change	$	533		1
25% adverse change	1,270			1
Discount rate assumption	7.3		%	15.7		4.4	3.7
Decrease in fair value from:
100 basis point increase	$	748		-		33	12
200 basis point increase	1,429			1		63	24
Cost to service assumption ($ per loan)	131
Decrease in fair value from:
10% adverse change	438
25% adverse change	1,095
Credit loss assumption						5.9	-
Decrease in fair value from:
10% higher losses						2	-
25% higher losses						5	-
Fair value of interests held at December 31, 2017	$	13,625		19		596	468
Expected weighted-average life (in years)	6.2			3.3		6.7	5.2
Key economic assumptions:
Prepayment speed assumption (3)	10.5		%	20.0
Decrease in fair value from:
10% adverse change	$	565		1
25% adverse change	1,337			2
Discount rate assumption	6.9		%	14.8		4.1	3.1
Decrease in fair value from:
100 basis point increase	$	652		-		32	20
200 basis point increase	1,246			1		61	39
Cost to service assumption ($ per loan)	143
Decrease in fair value from:
10% adverse change	467
25% adverse change	1,169
Credit loss assumption						1.8	-
Decrease in fair value from:
10% higher losses						-	-
25% higher losses						-	-


(1)	See narrative following this table for a discussion of commercial mortgage servicing rights.


(2)	Prepayment speed assumptions do not significantly impact the value of commercial mortgage securitization bonds as the underlying commercial mortgage loans experience significantly lower prepayments due to certain contractual restrictions, impacting the borrower's ability to prepay the mortgage.


(3)	The prepayment speed assumption for residential mortgage servicing rights includes a blend of prepayment speeds and default rates. Prepayment speed assumptions are influenced by mortgage interest rate inputs as well as our estimation of drivers of borrower behavior.

In addition to residential mortgage servicing rights (MSRs) included in the previous table, we have a small portfolio of commercial MSRs with a fair value of $2.3 billion and $2.0 billion at June 30, 2018 , and December 31, 2017 , respectively. The nature of our commercial MSRs, which are carried at LOCOM, is different from our residential MSRs. Prepayment activity on serviced loans does not significantly impact the value of commercial MSRs because, unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions, impacting the borrower's ability to prepay the mortgage. Additionally, for our commercial MSR portfolio, we are typically master/primary servicer, but not the special servicer, who is separately

responsible for the servicing and workout of delinquent and foreclosed loans. It is the special servicer, similar to our role as servicer of residential mortgage loans, who is affected by higher servicing and foreclosure costs due to an increase in delinquent and foreclosed loans. Accordingly, prepayment speeds and costs to service are not key assumptions for commercial MSRs as they do not significantly impact the valuation. The primary economic driver impacting the fair value of our commercial MSRs is forward interest rates, which are derived from market observable yield curves used to price capital markets instruments. Market interest rates significantly affect interest earned on custodial deposit balances. The sensitivity of the current fair value to an immediate adverse 25% change in the assumption about interest

110

Note 9: Securitizations and Variable Interest Entities ( continued )

earned on deposit balances at June 30, 2018 , and December 31, 2017 , results in a decrease in fair value of $350 million and $278 million , respectively. See Note 10 (Mortgage Banking Activities) for further information on our commercial MSRs.

We also have a loan to an unconsolidated third party VIE that we extended in fourth quarter 2014 in conjunction with our sale of government guaranteed student loans. The loan is carried at amortized cost and approximates fair value at June 30, 2018 , and December 31, 2017 . The carrying amount of the loan at June 30, 2018 , and December 31, 2017 , was $488 million and $1.3 billion , respectively. The estimated fair value of the loan is considered a Level 3 measurement that is determined using discounted cash flows that are based on changes in the discount rate due to changes in the risk premium component (credit spreads). The primary economic assumption impacting the fair value of our loan is the discount rate. Changes in the credit loss assumption are not expected to affect the estimated fair value of the loan due to the government guarantee of the underlying collateral. The sensitivity of the current fair value to an immediate adverse increase of 200 basis points in the risk premium component of the discount rate assumption is a decrease in fair value of $8 million and $25 million at June 30, 2018 , and December 31, 2017 , respectively.

The sensitivities in the preceding paragraphs and table are hypothetical and caution should be exercised when relying on

this data. Changes in value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in value may not be linear. Also, the effect of a variation in a particular assumption on the value of the other interests held is calculated independently without changing any other assumptions. In reality, changes in one factor may result in changes in others (for example, changes in prepayment speed estimates could result in changes in the credit losses), which might magnify or counteract the sensitivities.

Off-Balance Sheet Loans

Table 9.6 presents information about the principal balances of off-balance sheet loans that were sold or securitized, including residential mortgage loans sold to FNMA, FHLMC, GNMA and other investors, for which we have some form of continuing involvement (including servicer). Delinquent loans include loans 90 days or more past due and loans in bankruptcy, regardless of delinquency status. For loans sold or securitized where servicing is our only form of continuing involvement, we would only experience a loss if we were required to repurchase a delinquent loan or foreclosed asset due to a breach in representations and warranties associated with our loan sale or servicing contracts.

Table 9.6: Off-Balance Sheet Loans Sold or Securitized



						Net charge-offs
	Total loans			Delinquent loans and foreclosed assets (1)		Six months ended June 30,
(in millions)	Jun 30, 2018		Dec 31, 2017	Jun 30, 2018	Dec 31, 2017	2018	2017
Commercial:
Real estate mortgage	$	102,173	100,875	2,358	2,839	151	382
Total commercial	102,173		100,875	2,358	2,839	151	382
Consumer:
Real estate 1-4 family first mortgage	1,114,206		1,126,208	10,411	13,393	250	395
Total consumer	1,114,206		1,126,208	10,411	13,393	250	395
Total off-balance sheet sold or securitized loans (2)	$	1,216,379	1,227,083	12,769	16,232	401	777


(1)	Includes $1.2 billion of commercial foreclosed assets at both dates and $784 million and $879 million of consumer foreclosed assets at June 30, 2018 , and December 31, 2017 , respectively.

(2)

At June 30, 2018 , and December 31, 2017 , the table includes total loans of $1.1 trillion at both dates, delinquent loans of $6.9 billion and $9.1 billion , and foreclosed assets of $537 million and $619 million , respectively, for FNMA, FHLMC and GNMA. Net charge-offs exclude loans sold to FNMA, FHLMC and GNMA as we do not service or manage the underlying real estate upon foreclosure and, as such, do not have access to net charge-off information.

111

Transactions with Consolidated VIEs and Secured Borrowings

Table 9.7 presents a summary of financial assets and liabilities for asset transfers accounted for as secured borrowings and involvements with consolidated VIEs. Carrying values of "Assets" are presented using GAAP measurement methods, which may include fair value, credit impairment or other adjustments, and

therefore in some instances will differ from "Total VIE assets." For VIEs that obtain exposure synthetically through derivative instruments, the remaining notional amount of the derivative is included in "Total VIE assets." On the consolidated balance sheet, we separately disclose the consolidated assets of certain VIEs that can only be used to settle the liabilities of those VIEs.

Table 9.7: Transactions with Consolidated VIEs and Secured Borrowings



			Carrying value
(in millions)	Total VIE assets		Assets	Liabilities		Noncontrolling interests		Net assets
June 30, 2018
Secured borrowings:
Municipal tender option bond securitizations	$	647	547	(521	)	-		26
Residential mortgage securitizations	103		101	(101	)	-		-
Total secured borrowings	750		648	(622	)	-		26
Consolidated VIEs:
Commercial and industrial loans and leases	7,946		7,936	(430	)	(11	)	7,495
Nonconforming residential mortgage loan securitizations	2,248		1,978	(617	)	-		1,361
Commercial real estate loans	3,024		3,024	-		-		3,024
Structured asset finance	-		-	-		-		-
Investment funds	23		23	-		-		23
Other	58		54	(1	)	(19	)	34
Total consolidated VIEs	13,299		13,015	(1,048	)	(30	)	11,937
Total secured borrowings and consolidated VIEs	$	14,049	13,663	(1,670	)	(30	)	11,963
December 31, 2017
Secured borrowings:
Municipal tender option bond securitizations	$	658	565	(532	)	-		33
Residential mortgage securitizations	113		110	(111	)	-		(1	)
Total secured borrowings	771		675	(643	)	-		32
Consolidated VIEs:
Commercial and industrial loans and leases	9,116		8,626	(915	)	(29	)	7,682
Nonconforming residential mortgage loan securitizations	2,515		2,212	(694	)	-		1,518
Commercial real estate loans	2,378		2,378	-		-		2,378
Structured asset finance	10		6	(4	)	-		2
Investment funds	305		305	(2	)	(230	)	73
Other	100		90	(1	)	(24	)	65
Total consolidated VIEs	14,424		13,617	(1,616	)	(283	)	11,718
Total secured borrowings and consolidated VIEs	$	15,195	14,292	(2,259	)	(283	)	11,750

INVESTMENT FUNDS Subsequent to adopting ASU 2015-02 – Amendments to the Consolidation Analysis in first quarter 2016, we consolidate certain investment funds because we have both the power to manage fund assets and hold variable interests that are considered significant.

For complete descriptions of our accounting for transfers accounted for as secured borrowings and involvements with consolidated VIEs, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 2017 Form 10-K.

112

Note 10: Mortgage Banking Activities ( continued )

Note 10: Mortgage Banking Activities

Mortgage banking activities, included in the Community Banking and Wholesale Banking operating segments, consist of residential and commercial mortgage originations, sale activity and servicing.

We apply the amortization method to commercial MSRs and apply the fair value method to residential MSRs. Table 10.1 presents the changes in MSRs measured using the fair value method.

Table 10.1: Analysis of Changes in Fair Value MSRs



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Fair value, beginning of period	$	15,041		13,208		13,625		12,959
Servicing from securitizations or asset transfers (1)	486			436		1,059		1,019
Sales and other (2)	(1		)	(8	)	(5	)	(55	)
Net additions	485			428		1,054		964
Changes in fair value:
Due to changes in valuation model inputs or assumptions:
Mortgage interest rates (3)	376			(305	)	1,629		(153	)
Servicing and foreclosure costs (4)	30			(14	)	64		13
Prepayment estimates and other (5)	(61		)	(41	)	(18	)	(46	)
Net changes in valuation model inputs or assumptions	345			(360	)	1,675		(186	)
Changes due to collection/realization of expected cash flows over time	(460		)	(487	)	(943	)	(948	)
Total changes in fair value	(115		)	(847	)	732		(1,134	)
Fair value, end of period	$	15,411		12,789		15,411		12,789


(1)	Includes impacts associated with exercising our right to repurchase delinquent loans from GNMA loan securitization pools.


(2)	Includes sales and transfers of MSRs, which can result in an increase of total reported MSRs if the sales or transfers are related to nonperforming loan portfolios or portfolios with servicing liabilities.


(3)	Includes prepayment speed changes as well as other valuation changes due to changes in mortgage interest rates (such as changes in estimated interest earned on custodial deposit balances).


(4)	Includes costs to service and unreimbursed foreclosure costs.


(5)	Represents changes driven by other valuation model inputs or assumptions including prepayment speed estimation changes and other assumption updates. Prepayment speed estimation changes are influenced by observed changes in borrower behavior and other external factors that occur independent of interest rate changes.

Table 10.2 presents the changes in amortized MSRs.

Table 10.2: Analysis of Changes in Amortized MSRs



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Balance, beginning of period	$	1,411		1,402		1,424		1,406
Purchases	22			26		40		44
Servicing from securitizations or asset transfers	39			37		73		82
Amortization	(65		)	(66	)	(130	)	(133	)
Balance, end of period (1)	$	1,407		1,399		1,407		1,399
Fair value of amortized MSRs:
Beginning of period	$	2,307		2,051		2,025		1,956
End of period	2,309			1,989		2,309		1,989


(1)	Commercial amortized MSRs are evaluated for impairment purposes by the following risk strata: agency (GSEs) for multi-family properties and non-agency. There was no valuation allowance recorded for the periods presented on the commercial amortized MSRs.

113

We present the components of our managed servicing portfolio in Table 10.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.

Table 10.3: Managed Servicing Portfolio



(in billions)	Jun 30, 2018			Dec 31, 2017
Residential mortgage servicing:
Serviced for others	$	1,190		1,209
Owned loans serviced	340			342
Subserviced for others	4			3
Total residential servicing	1,534			1,554
Commercial mortgage servicing:
Serviced for others	518			495
Owned loans serviced	124			127
Subserviced for others	10			9
Total commercial servicing	652			631
Total managed servicing portfolio	$	2,186		2,185
Total serviced for others	$	1,708		1,704
Ratio of MSRs to related loans serviced for others	0.98		%	0.88

Table 10.4 presents the components of mortgage banking noninterest income.

Table 10.4: Mortgage Banking Noninterest Income



		Quarter ended June 30,					Six months ended June 30,
(in millions)		2018			2017		2018		2017
Servicing income, net:
Servicing fees:
Contractually specified servicing fees		$	901		900		1,817		1,807
Late charges		42			44		86		92
Ancillary fees		47			59		87		109
Unreimbursed direct servicing costs (1)		(85		)	(121	)	(179	)	(244	)
Net servicing fees		905			882		1,811		1,764
Changes in fair value of MSRs carried at fair value:
Due to changes in valuation model inputs or assumptions (2)	(A)	345			(360	)	1,675		(186	)
Changes due to collection/realization of expected cash flows over time		(460		)	(487	)	(943	)	(948	)
Total changes in fair value of MSRs carried at fair value		(115		)	(847	)	732		(1,134	)
Amortization		(65		)	(66	)	(130	)	(133	)
Net derivative gains (losses) from economic hedges (3)	(B)	(319		)	431		(1,539	)	359
Total servicing income, net		406			400		874		856
Net gains on mortgage loan origination/sales activities		364			748		830		1,520
Total mortgage banking noninterest income		$	770		1,148		1,704		2,376
Market-related valuation changes to MSRs, net of hedge results (2)(3)	(A)+(B)	$	26		71		136		173


(1)	Includes costs associated with foreclosures, unreimbursed interest advances to investors, and other interest costs.


(2)	Refer to the analysis of changes in fair value MSRs presented in Table 10.1 in this Note for more detail.


(3)	Represents results from economic hedges used to hedge the risk of changes in fair value of MSRs. See Note 14 (Derivatives Not Designated as Hedging Instruments) for additional discussion and detail.

114

Note 10: Mortgage Banking Activities ( continued )

Table 10.5 summarizes the changes in our liability for mortgage loan repurchase losses. This liability is in "Accrued expenses and other liabilities" in our consolidated balance sheet and adjustments to the repurchase liability are recorded in net gains on mortgage loan origination/sales activities in "Mortgage banking" in our consolidated income statement.

loss, and is based on currently available information, significant judgment, and a number of assumptions that are subject to change. The high end of this range of reasonably possible losses exceeded our recorded liability by $165 million at June 30, 2018 , and was determined based upon modifying the assumptions (particularly to assume significant changes in investor repurchase demand practices) used in our best estimate of probable loss to reflect what we believe to be the high end of reasonably possible adverse assumptions.

Table 10.5: Analysis of Changes in Liability for Mortgage Loan Repurchase Losses



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Balance, beginning of period	$	181		222		181		229
Provision for repurchase losses:
Loan sales	4			6		7		14
Change in estimate (1)	(2		)	(45	)	(1	)	(53	)
Net additions (reductions) to provision	2			(39	)	6		(39	)
Losses	(4		)	(5	)	(8	)	(12	)
Balance, end of period	$	179		178		179		178


(1)	Results from changes in investor demand and mortgage insurer practices, credit deterioration and changes in the financial stability of correspondent lenders.

115

Note 11: Intangible Assets

Table 11.1 presents the gross carrying value of intangible assets and accumulated amortization.

Table 11.1: Intangible Assets



	June 30, 2018					December 31, 2017
(in millions)	Gross carrying value		Accumulated amortization		Net carrying value	Gross carrying value	Accumulated amortization		Net carrying value
Amortized intangible assets (1):
MSRs (2)	$	3,989	(2,582	)	1,407	3,876	(2,452	)	1,424
Core deposit intangibles	12,834		(12,450	)	384	12,834	(12,065	)	769
Customer relationship and other intangibles	3,995		(3,302	)	693	3,994	(3,153	)	841
Total amortized intangible assets	$	20,818	(18,334	)	2,484	20,704	(17,670	)	3,034
Unamortized intangible assets:
MSRs (carried at fair value) (2)	$	15,411				13,625
Goodwill	26,429					26,587
Trademark	14					14


(1)	Excludes fully amortized intangible assets.


(2)	See Note 10 (Mortgage Banking Activities) for additional information on MSRs.

Table 11.2 provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing

asset balances at June 30, 2018 . Future amortization expense may vary from these projections.

Table 11.2: Amortization Expense for Intangible Assets



(in millions)	Amortized MSRs		Core deposit intangibles	Customer relationship and other intangibles (1)	Total
Six months ended June 30, 2018 (actual)	$	130	385	149	664
Estimate for the remainder of 2018	$	133	384	150	667
Estimate for year ended December 31,
2019	238		-	117	355
2020	211		-	97	308
2021	183		-	82	265
2022	162		-	69	231
2023	134		-	59	193


(1)	The six months ended June 30, 2018 balance includes $4 million for lease intangible amortization.

116

Table 11.3 shows the allocation of goodwill to our reportable operating segments.

Table 11.3: Goodwill



(in millions)	Community Banking			Wholesale Banking		Wealth and Investment Management	Consolidated Company
December 31, 2016	$	16,849		8,585		1,259	26,693
Reclassification of goodwill held for sale to Other Assets (1)	-			(96	)	-	(96	)
Reduction in goodwill related to divested businesses and other	-			(24	)	-	(24	)
June 30, 2017	$	16,849		8,465		1,259	26,573
December 31, 2017	$	16,849		8,455		1,283	26,587
Reclassification of goodwill held for sale to Other Assets (1)	(155		)	-		-	(155	)
Reduction in goodwill related to divested businesses and other	-			(3	)	-	(3	)
June 30, 2018	$	16,694		8,452		1,283	26,429

(1)

Goodwill classified as held-for-sale in other assets of $96 million for the six months ended June 30, 2017, relates to the sales agreement for Wells Fargo Insurance Services USA (and related businesses). Goodwill classified as held-for-sale in other assets of $155 million for the six months ended June 30, 2018, relates to the sales agreements for Reliable Financial Services, Inc. and the branch divestitures announced in June 2018.

We assess goodwill for impairment at a reporting unit level, which is one level below the operating segments. See Note 21 (Operating Segments) for further information on management reporting.

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Note 12: Guarantees, Pledged Assets and Collateral, and Other Commitments

descriptions of our guarantees, see Note 14 (Guarantees, Pledged Assets and Collateral, and Other Commitments) to Financial Statements in our 2017 Form 10-K. Table 12.1 shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.

Table 12.1: Guarantees – Carrying Value and Maximum Exposure to Loss



				Maximum exposure to loss
(in millions)	Carrying value of obligation (asset)			Expires in one year or less	Expires after one year through three years	Expires after three years through five years	Expires after five years	Total	Non- investment grade
June 30, 2018
Standby letters of credit (1)	$	40		14,771	7,734	2,880	479	25,864	8,214
Securities lending and other indemnifications (2)	-			-	-	2	1,167	1,169	2
Written put options (3)	(310		)	13,702	11,721	3,712	744	29,879	17,950
Loans and MLHFS sold with recourse (4)	50			154	546	1,194	9,472	11,366	8,362
Factoring guarantees (5)	-			765	-	-	-	765	658
Other guarantees	-			3	-	2	3,523	3,528	4
Total guarantees	$	(220	)	29,395	20,001	7,790	15,385	72,571	35,190
December 31, 2017
Standby letters of credit (1)	$	39		15,357	7,908	3,068	645	26,978	8,773
Securities lending and other indemnifications (2)	-			-	-	2	809	811	2
Written put options (3)	(455		)	14,758	12,706	3,890	1,038	32,392	19,087
Loans and MLHFS sold with recourse (4)	51			165	533	934	9,385	11,017	8,155
Factoring guarantees (5)	-			747	-	-	-	747	668
Other guarantees	1			7	-	2	4,175	4,184	7
Total guarantees	$	(364	)	31,034	21,147	7,896	16,052	76,129	36,692

(1)

Total maximum exposure to loss includes direct pay letters of credit (DPLCs) of $7.5 billion and $8.1 billion at June 30, 2018 , and December 31, 2017 , respectively. We issue DPLCs to provide credit enhancements for certain bond issuances. Beneficiaries (bond trustees) may draw upon these instruments to make scheduled principal and interest payments, redeem all outstanding bonds because a default event has occurred, or for other reasons as permitted by the agreement. We also originate multipurpose lending commitments under which borrowers have the option to draw on the facility in one of several forms, including as a standby letter of credit. Total maximum exposure to loss includes the portion of these facilities for which we have issued standby letters of credit under the commitments.


(2)	Includes indemnifications provided to certain third-party clearing agents. Outstanding customer obligations under these arrangements were $116 million and $92 million with related collateral of $1.1 billion and $717 million at June 30, 2018 , and December 31, 2017 , respectively. Estimated maximum exposure to loss was $1.2 billion at June 30, 2018 and $809 million at December 31, 2017 .


(3)	Written put options, which are in the form of derivatives, are also included in the derivative disclosures in Note 14 (Derivatives). Carrying value net asset position is a result of certain deferred premium option trades.


(4)	Represent recourse provided, predominantly to the GSEs, on loans sold under various programs and arrangements. Under these arrangements, we repurchased $1 million of loans associated with these agreements in both the second quarter and first half of 2018 , and $1 million and $2 million in the same periods of 2017 , respectively.


(5)	Consists of guarantees made under certain factoring arrangements to purchase trade receivables from third parties, generally upon their request, if receivable debtors default on their payment obligations.

"Maximum exposure to loss" and "Non-investment grade" are required disclosures under GAAP. Non-investment grade represents those guarantees on which we have a higher risk of being required to perform under the terms of the guarantee. If the underlying assets under the guarantee are non-investment grade (that is, an external rating that is below investment grade or an internal credit default grade that is equivalent to a below investment grade external rating), we consider the risk of performance to be high. Internal credit default grades are determined based upon the same credit policies that we use to evaluate the risk of payment or performance when making loans and other extensions of credit. Credit quality indicators we usually consider in evaluating risk of payments or performance are described in Note 6 (Loans and Allowance for Credit Losses).

Maximum exposure to loss represents the estimated loss that would be incurred under an assumed hypothetical circumstance, despite what we believe is a remote possibility, where the value of our interests and any associated collateral declines to zero. Maximum exposure to loss estimates in Table 12.1 do not reflect economic hedges or collateral we could use to offset or recover losses we may incur under our guarantee agreements. Accordingly, this required disclosure is not an indication of expected loss. We believe the carrying value, which is either fair value for derivative-related products or the allowance for lending-related commitments, is more representative of our exposure to loss than maximum exposure to loss.

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Note 12: Guarantees, Pledged Assets and Collateral, and Other Commitments ( continued )

Pledged Assets

As part of our liquidity management strategy, we pledge various assets to secure trust and public deposits, borrowings and letters of credit from the FHLB and FRB, securities sold under agreements to repurchase (repurchase agreements), securities lending arrangements, and for other purposes as required or permitted by law or insurance statutory requirements. The types of collateral we pledge include securities issued by federal agencies, GSEs, domestic and foreign companies and various commercial and consumer loans. Table 12.2 provides the total carrying amount of pledged assets by asset type and pledged off-

balance sheet securities for securities financings. The table excludes pledged consolidated VIE assets of $13.0 billion and $13.6 billion at June 30, 2018 , and December 31, 2017 , respectively, which can only be used to settle the liabilities of those entities. The table also excludes $648 million and $675 million in assets pledged in transactions with VIE's accounted for as secured borrowings at June 30, 2018 , and December 31, 2017 , respectively. See Note 9 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and secured borrowings.

Table 12.2: Pledged Assets



(in millions)	Jun 30, 2018		Dec 31, 2017
Held for trading:
Debt securities	$	95,400	96,993
Equity securities	10,895		12,161
Total pledged assets held for trading (1)	106,295		109,154
Not held for trading:
Debt securities and other (2)	59,528		73,592
Mortgage loans held for sale and loans (3)	459,985		469,554
Total pledged assets not held for trading	519,513		543,146
Total pledged assets	$	625,808	652,300

(1)

Consists of pledged assets held for trading of $44.5 billion and $41.9 billion at June 30, 2018 , and December 31, 2017 , respectively and off-balance sheet securities of $61.8 billion and $67.3 billion as of the same dates, respectively, that are pledged as collateral for repurchase agreements and other securities financings. Total pledged assets held for trading includes $106.3 billion and $109.0 billion at June 30, 2018 , and December 31, 2017 , respectively that permit the secured parties to sell or repledge the collateral.

(2)

Includes carrying value of $4.3 billion and $5.0 billion (fair value of $4.1 billion and $ 5.0 billion ) in collateral for repurchase agreements at June 30, 2018 , and December 31, 2017 , respectively, which are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Also includes $49 million and $64 million in collateral pledged under repurchase agreements at June 30, 2018 , and December 31, 2017 , respectively, that permit the secured parties to sell or repledge the collateral. Substantially all other pledged securities are pursuant to agreements that do not permit the secured party to sell or repledge the collateral.

(3)

Includes mortgage loans held for sale of $1.7 billion and $2.6 billion at June 30, 2018 , and December 31, 2017 , respectively. Substantially all of the total mortgage loans held for sale and loans are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Amounts exclude $812 million and $2.2 billion at June 30, 2018 , and December 31, 2017 , respectively, of pledged loans recorded on our balance sheet representing certain delinquent loans that are eligible for repurchase from GNMA loan securitizations.

Securities Financing Activities

We enter into resale and repurchase agreements and securities borrowing and lending agreements (collectively, "securities financing activities") typically to finance trading positions (including securities and derivatives), acquire securities to cover short trading positions, accommodate customers' financing needs, and settle other securities obligations. These activities are conducted through our broker-dealer subsidiaries and to a lesser extent through other bank entities. Most of our securities financing activities involve high quality, liquid securities such as U.S. Treasury securities and government agency securities, and to a lesser extent, less liquid securities, including equity securities, corporate bonds and asset-backed securities. We account for these transactions as collateralized financings in which we typically receive or pledge securities as collateral. We believe these financing transactions generally do not have material credit risk given the collateral provided and the related monitoring processes.

OFFSETTING OF RESALE AND REPURCHASE AGREEMENTS AND SECURITIES BORROWING AND LENDING AGREEMENTS Table 12.3 presents resale and repurchase agreements subject to master repurchase agreements (MRA) and securities borrowing and lending agreements subject to master securities lending agreements (MSLA). We account for transactions subject to these agreements as collateralized financings, and those with a single counterparty are presented net on our balance sheet, provided certain criteria are met that permit balance sheet netting. Most transactions subject to these agreements do not meet those criteria and thus are not eligible for balance sheet netting.

Collateral we pledged consists of non-cash instruments, such as securities or loans, and is not netted on the balance sheet against the related liability. Collateral we received includes securities or loans and is not recognized on our balance sheet. Collateral pledged or received may be increased or decreased over time to maintain certain contractual thresholds as the assets underlying each arrangement fluctuate in value. Generally, these agreements require collateral to exceed the asset or liability recognized on the balance sheet. The following table includes the amount of collateral pledged or received related to exposures subject to enforceable MRAs or MSLAs. While these agreements are typically over-collateralized, U.S. GAAP requires disclosure in this table to limit the reported amount of such collateral to the amount of the related recognized asset or liability for each counterparty.

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In addition to the amounts included in Table 12.3 , we also have balance sheet netting related to derivatives that is disclosed in Note 14 (Derivatives).

Table 12.3: Offsetting – Resale and Repurchase Agreements



(in millions)	Jun 30, 2018			Dec 31, 2017
Assets:
Resale and securities borrowing agreements
Gross amounts recognized	$	116,937		121,135
Gross amounts offset in consolidated balance sheet (1)	(18,892		)	(23,188	)
Net amounts in consolidated balance sheet (2)	98,045			97,947
Collateral not recognized in consolidated balance sheet (3)	(97,207		)	(96,829	)
Net amount (4)	$	838		1,118
Liabilities:
Repurchase and securities lending agreements
Gross amounts recognized (5)	$	107,391		111,488
Gross amounts offset in consolidated balance sheet (1)	(18,892		)	(23,188	)
Net amounts in consolidated balance sheet (6)	88,499			88,300
Collateral pledged but not netted in consolidated balance sheet (7)	(88,224		)	(87,918	)
Net amount (8)	$	275		382


(1)	Represents recognized amount of resale and repurchase agreements with counterparties subject to enforceable MRAs that have been offset in the consolidated balance sheet.

(2)

At June 30, 2018 , and December 31, 2017 , includes $80.0 billion and $78.9 billion , respectively, classified on our consolidated balance sheet in federal funds sold and securities purchased under resale agreements. Balance also includes securities purchased under long-term resale agreements (generally one year or more) classified in loans, which totaled $18.0 billion and $19.0 billion , at June 30, 2018 , and December 31, 2017 , respectively.

(3)

Represents the fair value of collateral we have received under enforceable MRAs or MSLAs, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. At June 30, 2018 , and December 31, 2017 , we have received total collateral with a fair value of $126.4 billion and $130.8 billion , respectively, all of which, we have the right to sell or repledge. These amounts include securities we have sold or repledged to others with a fair value of $63.5 billion at June 30, 2018 , and $66.3 billion at December 31, 2017 .


(4)	Represents the amount of our exposure that is not collateralized and/or is not subject to an enforceable MRA or MSLA.


(5)	For additional information on underlying collateral and contractual maturities, see the "Repurchase and Securities Lending Agreements" section in this Note.


(6)	Amount is classified in short-term borrowings on our consolidated balance sheet.

(7)

Represents the fair value of collateral we have pledged, related to enforceable MRAs or MSLAs, limited for table presentation purposes to the amount of the recognized liability owed to each counterparty. At June 30, 2018 , and December 31, 2017 , we have pledged total collateral with a fair value of $109.6 billion and $113.6 billion , respectively, of which, the counterparty does not have the right to sell or repledge $4.3 billion as of June 30, 2018 and $5.2 billion as of December 31, 2017 .


(8)	Represents the amount of our obligation that is not covered by pledged collateral and/or is not subject to an enforceable MRA or MSLA.

REPURCHASE AND SECURITIES LENDING AGREEMENTS Securities sold under repurchase agreements and securities lending arrangements are effectively short-term collateralized borrowings. In these transactions, we receive cash in exchange for transferring securities as collateral and recognize an obligation to reacquire the securities for cash at the transaction's maturity. These types of transactions create risks, including (1) the counterparty may fail to return the securities at maturity, (2) the fair value of the securities transferred may decline below the amount of our obligation to reacquire the securities, and therefore create an obligation for us to pledge additional amounts, and (3) the counterparty may accelerate the maturity on demand, requiring us to reacquire the security prior to contractual maturity. We attempt to mitigate these risks by the fact that most of our securities financing activities involve highly liquid securities, we underwrite and monitor the financial strength of our counterparties, we monitor the fair value of collateral pledged relative to contractually required repurchase amounts, and we monitor that our collateral is properly returned through the clearing and settlement process in advance of our cash repayment. Table 12.4 provides the underlying collateral types of our gross obligations under repurchase and securities lending agreements.

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Note 12: Guarantees, Pledged Assets and Collateral, and Other Commitments ( continued )

Table 12.4: Underlying Collateral Types of Gross Obligations



(in millions)	Jun 30, 2018		Dec 31, 2017
Repurchase agreements:
Securities of U.S. Treasury and federal agencies	$	51,517	51,144
Securities of U.S. States and political subdivisions	109		92
Federal agency mortgage-backed securities	35,920		35,386
Non-agency mortgage-backed securities	1,533		1,324
Corporate debt securities	5,141		7,152
Asset-backed securities	2,033		2,034
Equity securities	1,370		838
Other	33		1,783
Total repurchases	97,656		99,753
Securities lending:
Securities of U.S. Treasury and federal agencies	230		186
Federal agency mortgage-backed securities	1		-
Corporate debt securities	424		619
Equity securities (1)	9,080		10,930
Total securities lending	9,735		11,735
Total repurchases and securities lending	$	107,391	111,488


(1)	Equity securities are generally exchange traded and either re-hypothecated under margin lending agreements or obtained through contemporaneous securities borrowing transactions with other counterparties.

Table 12.5 provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.

Table 12.5: Contractual Maturities of Gross Obligations



(in millions)	Overnight/continuous		Up to 30 days	30-90 days	>90 days	Total gross obligation
June 30, 2018
Repurchase agreements	$	85,284	4,199	2,910	5,263	97,656
Securities lending	9,220		221	294	-	9,735
Total repurchases and securities lending (1)	$	94,504	4,420	3,204	5,263	107,391
December 31, 2017
Repurchase agreements	$	83,780	7,922	3,286	4,765	99,753
Securities lending	9,634		584	1,363	154	11,735
Total repurchases and securities lending (1)	$	93,414	8,506	4,649	4,919	111,488


(1)	Securities lending is executed under agreements that allow either party to terminate the transaction without notice, while repurchase agreements have a term structure to them that technically matures at a point in time. The overnight/continuous repurchase agreements require election of both parties to roll the trade rather than the election to terminate the arrangement as in securities lending.

OTHER COMMITMENTS To meet the financing needs of our customers, we may enter into commitments to purchase debt and equity securities to provide capital for their funding, liquidity or other future needs. As of June 30, 2018 , and December 31, 2017 , we had commitments to purchase debt securities of $401 million and $194 million , respectively, and commitments to purchase equity securities of $2.2 billion at both dates.

As part of maintaining our memberships in certain clearing organizations, we are required to stand ready to provide liquidity meant to sustain market clearing activity in the event unforeseen events occur or are deemed likely to occur. This includes commitments we have entered into to purchase securities under resale agreements from a central clearing organization that, at its option, require us to provide funding under such agreements. We do not have any outstanding amounts funded, and the amount of our unfunded contractual commitment was $13.2 billion and $2.8 billion as of June 30, 2018 , and December 31, 2017 , respectively.

The Parent will fully and unconditionally guarantee securities that its 100% owned finance subsidiary, Wells Fargo Finance LLC, may issue.

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Note 13: Legal Actions

Wells Fargo and certain of our subsidiaries are involved in a number of judicial, regulatory, arbitration, and other proceedings concerning matters arising from the conduct of our business activities, and many of those proceedings expose Wells Fargo to potential financial loss. These proceedings include actions brought against Wells Fargo and/or our subsidiaries with respect to corporate-related matters and transactions in which Wells Fargo and/or our subsidiaries were involved. In addition, Wells Fargo and our subsidiaries may be requested to provide information or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.

Although there can be no assurance as to the ultimate outcome, Wells Fargo and/or our subsidiaries have generally denied, or believe we have a meritorious defense and will deny, liability in all significant legal actions pending against us, including the matters described below, and we intend to defend vigorously each case, other than matters we describe as having settled. We establish accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. For such accruals, we record the amount we consider to be the best estimate within a range of potential losses that are both probable and estimable; however, if we cannot determine a best estimate, then we record the low end of the range of those potential losses. The actual costs of resolving legal actions may be substantially higher or lower than the amounts accrued for those actions.

ATM ACCESS FEE LITIGATION In October 2011, plaintiffs filed a putative class action, Mackmin, et al. v. Visa, Inc. et al. , against Wells Fargo & Company, Wells Fargo Bank, N.A., Visa, MasterCard, and several other banks in the United States District Court for the District of Columbia. Plaintiffs allege that the Visa and MasterCard requirement that if an ATM operator charges an access fee on Visa and MasterCard transactions, then that fee cannot be greater than the access fee charged for transactions on other networks violates antitrust rules. Plaintiffs seek treble damages, restitution, injunctive relief, and attorneys' fees where available under federal and state law. Two other antitrust cases that make similar allegations were filed in the same court, but these cases did not name Wells Fargo as a defendant. On February 13, 2013, the district court granted defendants' motions to dismiss the three actions. Plaintiffs appealed the dismissals and, on August 4, 2015, the United States Court of Appeals for the District of Columbia Circuit vacated the district court's decisions and remanded the three cases to the district court for further proceedings. On June 28, 2016, the United States Supreme Court granted defendants' petitions for writ of certiorari to review the decisions of the United States Court of Appeals for the District of Columbia. On November 17, 2016, the United States Supreme Court dismissed the petitions as improvidently granted, and the three cases returned to the district court for further proceedings.

AUTOMOBILE LENDING MATTERS On April 20, 2018, the Company entered into consent orders with the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) to resolve, among other things, investigations by the agencies into the Company's compliance risk management program and its past practices involving certain automobile collateral protection insurance (CPI) policies and, as discussed below, certain mortgage interest rate lock extensions.

The consent orders require remediation to customers and the payment of a total of $1 billion in civil money penalties to the agencies. In July 2017, the Company announced a plan to remediate customers who may have been financially harmed due to issues related to automobile CPI policies purchased through a third-party vendor on their behalf. Multiple putative class action cases alleging, among other things, unfair and deceptive practices relating to these CPI policies, have been filed against the Company and consolidated into one multi-district litigation in the United States District Court for the Central District of California. A putative class of shareholders also filed a securities fraud class action against the Company and its executive officers alleging material misstatements and omissions of CPI-related information in the Company's public disclosures. Former team members have also alleged retaliation for raising concerns regarding automobile lending practices. In addition, the Company has identified certain issues related to the unused portion of guaranteed automobile protection (GAP) waiver or insurance agreements between the dealer and, by assignment, the lender, which will result in refunds to customers in certain states. Allegations related to the CPI and GAP programs are among the subjects of shareholder derivative lawsuits pending in federal and state court in California. These and other issues related to the origination, servicing, and/or collection of consumer automobile loans, including related insurance products, have also subjected the Company to formal or informal inquiries, investigations, or examinations from federal and state government agencies, including a multi-state attorneys general group that is conducting an investigation into CPI and GAP. The Company anticipates it may continue to identify and remediate issues related to historical practices concerning the origination, servicing, and/or collection of consumer automobile loans.

CONSUMER DEPOSIT ACCOUNT RELATED REGULATORY INVESTIGATION The CFPB is conducting an investigation into whether customers were unduly harmed by the Company's procedures regarding the freezing (and, in many cases, closing) of consumer deposit accounts after the Company detected suspected fraudulent activity (by third parties or account holders) that affected those accounts. A former team member has brought a state court action alleging retaliation for raising concerns about these procedures.

FIDUCIARY AND CUSTODY ACCOUNT FEE CALCULATIONS Federal government agencies are conducting formal or informal inquiries, investigations, or examinations regarding fee calculations within certain fiduciary and custody accounts in the Company's investment and fiduciary services business, which is part of the wealth management business within WIM. The Company has determined that there have been instances of incorrect fees being applied to certain assets and accounts, resulting in both overcharges and undercharges to customers.

FOREIGN EXCHANGE BUSINESS Federal government agencies, including the United States Department of Justice, are investigating or examining certain activities in the Company's foreign exchange business. The Company has accrued amounts to remediate customers that may have received pricing inconsistent with commitments made to those customers, and to rebate customers where historic pricing, while consistent with contracts entered into with those customers, does not conform to recently implemented standards and pricing.

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Note 13: Legal Actions ( continued )

INADVERTENT CLIENT INFORMATION DISCLOSURE In July 2017, the Company inadvertently provided certain client information in response to a third-party subpoena issued in a civil litigation. The Company obtained permanent injunctions in New Jersey and New York state courts requiring the electronic data that contained the client information and all copies to be delivered to the New Jersey state court and the Company for safekeeping. The court has now returned the data to counsel for the Company. The Company has made voluntary self-disclosures to various state and federal regulatory agencies. Notifications have been sent to clients whose personal identifying data was contained in the inadvertent production.

INTERCHANGE LITIGATION Plaintiffs representing a putative class of merchants have filed putative class actions, and individual merchants have filed individual actions, against Wells Fargo Bank, N.A., Wells Fargo & Company, Wachovia Bank, N.A. and Wachovia Corporation regarding the interchange fees associated with Visa and MasterCard payment card transactions. Visa, MasterCard, and several other banks and bank holding companies are also named as defendants in these actions. These actions have been consolidated in the United States District Court for the Eastern District of New York. The amended and consolidated complaint asserts claims against defendants based on alleged violations of federal and state antitrust laws and seeks damages, as well as injunctive relief. Plaintiff merchants allege that Visa, MasterCard, and payment card issuing banks unlawfully colluded to set interchange rates. Plaintiffs also allege that enforcement of certain Visa and MasterCard rules and alleged tying and bundling of services offered to merchants are anticompetitive. Wells Fargo and Wachovia, along with other defendants and entities, are parties to Loss and Judgment Sharing Agreements, which provide that they, along with other entities, will share, based on a formula, in any losses from the Interchange Litigation. On July 13, 2012, Visa, MasterCard, and the financial institution defendants, including Wells Fargo, signed a memorandum of understanding with plaintiff merchants to resolve the consolidated class action and reached a separate settlement in principle of the consolidated individual actions. The settlement payments to be made by all defendants in the consolidated class and individual actions totaled approximately $6.6 billion before reductions applicable to certain merchants opting out of the settlement. The class settlement also provided for the distribution to class merchants of 10 basis points of default interchange across all credit rate categories for a period of eight consecutive months. The district court granted final approval of the settlement, which was appealed to the United States Court of Appeals for the Second Circuit by settlement objector merchants. Other merchants opted out of the settlement and are pursuing several individual actions. On June 30, 2016, the Second Circuit vacated the settlement agreement and reversed and remanded the consolidated action to the United States District Court for the Eastern District of New York for further proceedings. On November 23, 2016, prior class counsel filed a petition to the United States Supreme Court, seeking review of the reversal of the settlement by the Second Circuit, and the Supreme Court denied the petition on March 27, 2017. On November 30, 2016, the district court appointed lead class counsel for a damages class and an equitable relief class. An agreement in principle has been reached on certain primary terms to resolve the money damages claims of the class action. The agreement in principle is subject to further negotiation of remaining terms, full documentation, and court approval. Several of the opt-out litigations were settled during the pendency of the Second Circuit appeal while others remain pending. Discovery is

proceeding in the opt-out litigations and the remanded class cases.

LOW INCOME HOUSING TAX CREDITS Federal government agencies have undertaken formal or informal inquiries or investigations regarding the manner in which the Company purchased, and negotiated the purchase of, certain federal low income housing tax credits in connection with the financing of low income housing developments.

MORTGAGE BANKRUPTCY LOAN MODIFICATION LITIGATION Plaintiffs, representing a putative class of mortgage borrowers who were debtors in Chapter 13 bankruptcy cases, filed a putative class action, Cotton, et al. v. Wells Fargo, et al. , against Wells Fargo & Company and Wells Fargo Bank, N.A. in the United States Bankruptcy Court for the Western District of North Carolina on June 7, 2017. Plaintiffs allege that Wells Fargo improperly and unilaterally modified the mortgages of borrowers who were debtors in Chapter 13 bankruptcy cases. Plaintiffs allege that Wells Fargo implemented these modifications by improperly filing mortgage payment change notices in Chapter 13 bankruptcy cases, in violation of bankruptcy rules and process. The amended complaint asserts claims based on, among other things, alleged fraud, violations of bankruptcy rules and laws, and unfair and deceptive trade practices. The amended complaint seeks monetary damages, attorneys' fees, and declaratory and injunctive relief.

MORTGAGE INTEREST RATE LOCK RELATED REGULATORY INVESTIGATION On April 20, 2018, the Company entered into consent orders with the OCC and CFPB to resolve, among other things, investigations by the agencies into the Company's compliance risk management program and its past practices involving certain automobile CPI policies and certain mortgage interest rate lock extensions. The consent orders require remediation to customers and the payment of a total of $1 billion in civil money penalties to the agencies. On October 4, 2017, the Company announced plans to reach out to all home lending customers who paid fees for mortgage rate lock extensions requested from September 16, 2013, through February 28, 2017, and to provide refunds, with interest, to customers who believe they should not have paid those fees. The Company was named in a putative class action, filed in the United States District Court for the Northern District of California, alleging violations of federal and state consumer fraud statutes relating to mortgage rate lock extension fees. The Company filed a motion to dismiss and the court granted the motion. Subsequently, a putative class action was filed in the United States District Court for the District of Oregon, raising similar allegations. In addition, former team members have asserted claims, including in pending litigation, that they were terminated for raising concerns regarding mortgage interest rate lock extension practices. Allegations related to mortgage interest rate lock extension fees are also among the subjects of two shareholder derivative lawsuits filed in California state court. This matter has also subjected the Company to formal or informal inquiries, investigations or examinations from other federal and state government agencies, including a multi-state attorneys general group.

MORTGAGE-RELATED REGULATORY INVESTIGATIONS Federal and state government agencies, including the United States Department of Justice (Department of Justice), have been investigating or examining certain mortgage-related activities of Wells Fargo and predecessor institutions. Wells Fargo, for itself and for predecessor institutions, has responded, and continues to re

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spond, to requests from these agencies seeking information regarding the origination, underwriting, and securitization of residential mortgages, including sub-prime mortgages. These agencies have advanced theories of purported liability with respect to certain of these activities. An agreement, pursuant to which the Company will pay $2.09 billion , has been reached to resolve the Department of Justice investigation, which related to certain 2005-2007 residential mortgage-backed securities activities. The amount was fully accrued as of June 30, 2018. Other financial institutions have entered into similar settlements with these agencies, the nature of which related to the specific activities of those financial institutions, including the imposition of significant financial penalties and remedial actions.

OFAC RELATED INVESTIGATION The Company has self-identified an issue whereby certain foreign banks utilized a Wells Fargo software-based solution to conduct import/export trade-related financing transactions with countries and entities prohibited by the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury. We do not believe any funds related to these transactions flowed through accounts at Wells Fargo as a result of the aforementioned conduct. The Company has made voluntary self-disclosures to OFAC and is cooperating with an inquiry from the Department of Justice.

ORDER OF POSTING LITIGATION Plaintiffs filed a series of putative class actions against Wachovia Bank, N.A. and Wells Fargo Bank, N.A., as well as many other banks, challenging the "high to low" order in which the banks post debit card transactions to consumer deposit accounts. Most of these actions were consolidated in multi-district litigation proceedings (MDL proceedings) in the United States District Court for the Southern District of Florida. The court in the MDL proceedings has certified a class of putative plaintiffs, and Wells Fargo moved to compel arbitration of the claims of unnamed class members. The court denied the motions to compel arbitration in October 2016, and Wells Fargo appealed this decision to the United States Court of Appeals for the Eleventh Circuit. In May 2018, the Eleventh Circuit ruled in Wells Fargo's favor and found that Wells Fargo had not waived its arbitration rights and remanded the case to the District Court for further proceedings. Plaintiffs have filed a petition for rehearing to the Eleventh Circuit.

RMBS TRUSTEE LITIGATION In November 2014, a group of institutional investors (Institutional Investor Plaintiffs), including funds affiliated with BlackRock, Inc., filed a putative class action in the United States District Court for the Southern District of New York against Wells Fargo Bank, N.A., alleging claims against the Company in its capacity as trustee for a number of residential mortgage-backed securities (RMBS) trusts (Federal Court Complaint). Similar complaints have been filed against other trustees in various courts, including in the Southern District of New York, in New York state court, and in other states, by RMBS investors. The Federal Court Complaint alleges that Wells Fargo Bank, N.A., as trustee, caused losses to investors and asserts causes of action based upon, among other things, the trustee's alleged failure to notify and enforce repurchase obligations of mortgage loan sellers for purported breaches of representations and warranties, notify investors of alleged events of default, and abide by appropriate standards of care following alleged events of default. Plaintiffs seek money damages in an unspecified amount, reimbursement of expenses, and equitable relief. In December 2014 and December 2015, certain other investors filed four complaints alleging similar claims against Wells Fargo Bank, N.A. in the Southern District of New York

(Related Federal Cases), and the various cases pending against Wells Fargo are proceeding before the same judge. On January 19, 2016, the Southern District of New York entered an order in connection with the Federal Court Complaint dismissing claims related to certain of the trusts at issue (Dismissed Trusts). The Company's motion to dismiss the Federal Court Complaint and the complaints for the Related Federal Cases was granted in part and denied in part in March 2017. In May 2017, the Company filed third-party complaints against certain investment advisors affiliated with the Institutional Investor Plaintiffs seeking contribution with respect to claims alleged in the Federal Court Complaint. The investment advisors have moved to dismiss those complaints. On April 17, 2018, the Southern District of New York denied class certification in the Related Federal Case brought by Royal Park Investments SA/NV (Royal Park).

A complaint raising similar allegations to the Federal Court Complaint was filed in May 2016 in New York state court by a different plaintiff investor. In December 2016, the Institutional Investor Plaintiffs filed a new putative class action complaint in New York state court in respect of 261 RMBS trusts, including the Dismissed Trusts, for which Wells Fargo Bank, N.A. serves or served as trustee (State Court Action). The Company has moved to dismiss the State Court Action.

In July 2017, certain of the plaintiffs from the State Court Action filed a civil complaint relating to Wells Fargo Bank, N.A.'s setting aside reserves for legal fees and expenses in connection with the liquidation of eleven RMBS trusts at issue in the State Court Action. The complaint seeks, among other relief, declarations that Wells Fargo Bank, N.A. is not entitled to indemnification, the advancement of funds, or the taking of reserves from trust funds for legal fees and expenses it incurs in defending the claims in the State Court Action. In November 2017, the Company's motion to dismiss the complaint was granted. Plaintiffs filed a notice of appeal in January 2018. In September 2017, Royal Park filed a similar complaint in the Southern District of New York seeking declaratory and injunctive relief and money damages on an individual and class action basis.

SALES PRACTICES MATTERS Federal, state, and local government agencies, including the Department of Justice, the United States Securities and Exchange Commission and the United States Department of Labor, and state attorneys general, including the New York Attorney General, and prosecutors' offices, as well as Congressional committees, have undertaken formal or informal inquiries, investigations or examinations arising out of certain sales practices of the Company that were the subject of settlements with the CFPB, the OCC and the Office of the Los Angeles City Attorney announced by the Company on September 8, 2016. These matters are at varying stages. The Company has responded, and continues to respond, to requests from a number of the foregoing and has discussed the resolution of some of the matters, including with a multi-state attorneys general group.

In addition, a number of lawsuits have also been filed by non-governmental parties seeking damages or other remedies related to these sales practices. First, various class plaintiffs purporting to represent consumers who allege that they received products or services without their authorization or consent have brought separate putative class actions against the Company in the United States District Court for the Northern District of California and various other jurisdictions. In April 2017, the Company entered into a settlement agreement in the first-filed action, Jabbari v. Wells Fargo Bank, N.A ., to resolve claims regarding certain products or services provided without

124

Note 13: Legal Actions ( continued )

authorization or consent for the time period May 1, 2002 to April 20, 2017. Pursuant to the settlement, the Company will pay $142 million for remediation, attorneys' fees, and settlement fund claims administration. In the unlikely event that the $142 million settlement total is not enough to provide remediation, pay attorneys' fees, pay settlement fund claims administration costs, and have at least $25 million left over to distribute to all class members, the Company will contribute additional funds to the settlement. In addition, in the unlikely event that the number of unauthorized accounts identified by settlement class members in the claims process and not disputed by the claims administrator exceeds plaintiffs' 3.5 million account estimate, the Company will proportionately increase the $25 million reserve so that the ratio of reserve to unauthorized accounts is no less than what was implied by plaintiffs' estimate at the time of the district court's preliminary approval of the settlement in July 2017. The district court issued an order granting final approval of the settlement on June 14, 2018. Second, Wells Fargo shareholders are pursuing a consolidated securities fraud class action in the United States District Court for the Northern District of California alleging certain misstatements and omissions in the Company's disclosures related to sales practices matters. The Company has entered into a settlement agreement to resolve this matter pursuant to which the Company will pay $480 million . The amount was fully accrued as of March 31, 2018. Plaintiffs have filed a motion for preliminary approval of the settlement by the court. Third, Wells Fargo shareholders have brought numerous shareholder derivative lawsuits asserting breach of fiduciary duty claims, among others, against current and former directors and officers for their alleged failure to detect and prevent sales practices issues. These actions have been filed or transferred to the United States District Court for the Northern District of California and California state court for coordinated proceedings. An additional lawsuit asserting similar claims in Delaware state court has been stayed. Fourth, multiple employment litigation matters have been brought against Wells Fargo, including an Employee Retirement Income Security Act (ERISA) class action in the United States District Court for the District of Minnesota on behalf of 401(k) plan participants that has now been dismissed; a class action pending in the United States District Court for the Northern District of California on behalf of team members who allege that they protested sales practice misconduct and/or were terminated for not meeting sales goals; various wage and hour class actions brought in federal and state court in California, New Jersey, and Pennsylvania on behalf of non-exempt branch based team members alleging that sales pressure resulted in uncompensated overtime; and multiple single plaintiff Sarbanes-Oxley Act complaints and state law whistleblower actions filed with the United States Department of Labor or in various state courts alleging adverse employment actions for raising sales practice misconduct issues.

SEMINOLE TRIBE TRUSTEE LITIGATION The Seminole Tribe of Florida filed a complaint in Florida state court alleging that Wells Fargo, as trustee, charged excess fees in connection with the administration of a minor's trust and failed to invest the assets of the trust prudently. The complaint was later amended to include three individual current and former beneficiaries as plaintiffs and to remove the Tribe as a party to the case. In December 2016, the Company filed a motion to dismiss the amended complaint on the grounds that the Tribe is a necessary party and that the individual beneficiaries lack standing to bring claims. The motion was denied in June 2018.

WHOLESALE BANKING CONSENT ORDER INVESTIGATION On November 19, 2015, the Company entered into a consent order with the OCC, pursuant to which the Wholesale Banking group was required to implement customer due diligence standards that include collection of current beneficial ownership information for certain business customers. The Company is responding to recent inquiries from various federal government agencies regarding potentially inappropriate conduct in connection with the collection of beneficial ownership information.

OUTLOOK As described above, the Company establishes accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. The high end of the range of reasonably possible potential losses in excess of the Company's accrual for probable and estimable losses was approximately $2.2 billion as of June 30, 2018 . The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess of the established accrual or the range of reasonably possible loss. Wells Fargo is unable to determine whether the ultimate resolution of the sales practices matters will have a material adverse effect on its consolidated financial condition. Based on information currently available, advice of counsel, available insurance coverage, and established reserves, Wells Fargo believes that the eventual outcome of other actions against Wells Fargo and/or its subsidiaries will not, individually or in the aggregate, have a material adverse effect on Wells Fargo's consolidated financial condition. However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to Wells Fargo's results of operations for any particular period.

125

Note 14: 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. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Our remaining derivatives consist of economic hedges that do not qualify for hedge accounting and derivatives held for customer accommodation trading, or other purposes. For more information on our derivative activities, see Note 16 (Derivatives) to Financial Statements in our 2017 Form 10-K.

Table 14.1 presents the total notional or contractual amounts and fair values for our derivatives. Derivative transactions can be measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged but is used only as the basis on which interest and other payments are determined.

Table 14.1: Notional or Contractual Amounts and Fair Values of Derivatives



	June 30, 2018							December 31, 2017
	Notional or contractual amount					Fair value		Notional or contractual amount				Fair value
(in millions)		Derivative assets		Derivative liabilities			Derivative assets		Derivative liabilities
Derivatives designated as hedging instruments
Interest rate contracts (1)	$	168,949	2,418			627		209,677		2,492		1,092
Foreign exchange contracts (1)	31,256		730			1,301		34,135		1,482		1,137
Total derivatives designated as qualifying hedging instruments			3,148			1,928				3,974		2,229
Derivatives not designated as hedging instruments
Economic hedges:
Interest rate contracts (2)	195,129		236			295		220,558		159		201
Equity contracts	14,214		924			143		12,315		716		138
Foreign exchange contracts	16,083		341			105		15,976		78		309
Credit contracts – protection purchased	102		23			-		111		37		-
Subtotal			1,524			543				990		648
Customer accommodation trading and
other derivatives:
Interest rate contracts	7,862,120		13,994			15,062		6,434,673		14,979		14,179
Commodity contracts	74,842		3,613			1,707		62,530		2,354		1,335
Equity contracts	211,817		6,144			7,570		213,750		6,291		8,363
Foreign exchange contracts	356,406		6,828			6,057		362,896		7,413		7,122
Credit contracts – protection sold	8,938		77			152		9,021		147		214
Credit contracts – protection purchased	17,281		150			114		17,406		207		208
Subtotal			30,806			30,662				31,391		31,421
Total derivatives not designated as hedging instruments			32,330			31,205				32,381		32,069
Total derivatives before netting			35,478			33,133				36,355		34,298
Netting (3)			(24,379		)	(24,626	)			(24,127	)	(25,502	)
Total			$	11,099		8,507				12,228		8,796

(1)

Notional amounts presented exclude $0 million and $500 million of interest rate contracts at June 30, 2018 , and December 31, 2017 , respectively, for certain derivatives that are combined for designation as a hedge on a single instrument. The notional amount for foreign exchange contracts at June 30, 2018 , and December 31, 2017 , excludes $11.4 billion and $13.5 billion , respectively, for certain derivatives that are combined for designation as a hedge on a single instrument.


(2)	Includes economic hedge derivatives used to hedge the risk of changes in the fair value of residential MSRs, MLHFS, loans, derivative loan commitments and other interests held.


(3)	Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Table 14.2 for further information.

126

Note 14: Derivatives ( continued )

Table 14.2 provides information on the gross fair values of derivative assets and liabilities, the balance sheet netting adjustments and the resulting net fair value amount recorded on our balance sheet, as well as the non-cash collateral associated with such arrangements. We execute substantially all of our derivative transactions under master netting arrangements and reflect all derivative balances and related cash collateral subject to enforceable master netting arrangements on a net basis within the balance sheet. The "Gross amounts recognized" column in the following table includes $31.6 billion and $29.8 billion of gross derivative assets and liabilities, respectively, at June 30, 2018 , and $30.0 billion and $29.9 billion , respectively, at December 31, 2017 , with counterparties subject to enforceable master netting arrangements that are carried on the balance sheet net of offsetting amounts. The remaining gross derivative assets and liabilities of $3.9 billion and $3.3 billion , respectively, at June 30, 2018 , and $6.4 billion and $4.4 billion , respectively, at December 31, 2017 , include those with counterparties subject to master netting arrangements for which we have not assessed the enforceability because they are with counterparties where we do not currently have positions to offset, those subject to master netting arrangements where we have not been able to confirm the enforceability and those not subject to master netting arrangements. As such, we do not net derivative balances or collateral within the balance sheet for these counterparties.

We determine the balance sheet netting adjustments based on the terms specified within each master netting arrangement. We disclose the balance sheet netting amounts within the column titled "Gross amounts offset in consolidated balance sheet." Balance sheet netting adjustments are determined at the counterparty level for which there may be multiple contract types. For disclosure purposes, we allocate these netting adjustments to the contract type for each counterparty proportionally based upon the "Gross amounts recognized" by counterparty. As a result, the net amounts disclosed by contract type may not represent the actual exposure upon settlement of the contracts.

We do not net non-cash collateral that we receive and pledge on the balance sheet. For disclosure purposes, we present the fair value of this non-cash collateral in the column titled "Gross amounts not offset in consolidated balance sheet (Disclosure-only netting)" within the table. We determine and allocate the Disclosure-only netting amounts in the same manner as balance sheet netting amounts.

The "Net amounts" column within Table 14.2 represents the aggregate of our net exposure to each counterparty after considering the balance sheet and Disclosure-only netting adjustments. We manage derivative exposure by monitoring the credit risk associated with each counterparty using counterparty specific credit risk limits, using master netting arrangements and obtaining collateral. Derivative contracts executed in over-the-counter markets include bilateral contractual arrangements that are not cleared through a central clearing organization but are typically subject to master netting arrangements. The percentage of our bilateral derivative transactions outstanding at period end in such markets, based on gross fair value, is provided within the following table. Other derivative contracts executed in over-the-counter or exchange-traded markets are settled through a central clearing organization and are excluded from this percentage. In addition to the netting amounts included in the table, we also have balance sheet netting related to resale and repurchase agreements that are disclosed within Note 12 (Guarantees, Pledged Assets and Collateral, and Other Commitments).

127

Table 14.2: Gross Fair Values of Derivative Assets and Liabilities



(in millions)	Gross amounts recognized		Gross amounts offset in consolidated balance sheet (1)		Net amounts in consolidated balance sheet	Gross amounts not offset in consolidated balance sheet (Disclosure-only netting) (2)		Net amounts	Percent exchanged in over-the-counter market (3)
June 30, 2018
Derivative assets
Interest rate contracts	$	16,648	(11,307	)	5,341	(71	)	5,270	97	%
Commodity contracts	3,613		(1,164	)	2,449	(2	)	2,447	91
Equity contracts	7,068		(5,328	)	1,740	(136	)	1,604	77
Foreign exchange contracts	7,899		(6,366	)	1,533	(18	)	1,515	100
Credit contracts – protection sold	77		(75	)	2	-		2	12
Credit contracts – protection purchased	173		(139	)	34	(1	)	33	94
Total derivative assets	$	35,478	(24,379	)	11,099	(228	)	10,871
Derivative liabilities
Interest rate contracts	$	15,984	(12,523	)	3,461	(284	)	3,177	98	%
Commodity contracts	1,707		(832	)	875	-		875	60
Equity contracts	7,713		(5,074	)	2,639	(183	)	2,456	85
Foreign exchange contracts	7,463		(5,940	)	1,523	(105	)	1,418	100
Credit contracts – protection sold	152		(150	)	2	(1	)	1	92
Credit contracts – protection purchased	114		(107	)	7	-		7	9
Total derivative liabilities	$	33,133	(24,626	)	8,507	(573	)	7,934
December 31, 2017
Derivative assets
Interest rate contracts	$	17,630	(11,929	)	5,701	(145	)	5,556	99	%
Commodity contracts	2,354		(966	)	1,388	(4	)	1,384	88
Equity contracts	7,007		(4,233	)	2,774	(596	)	2,178	76
Foreign exchange contracts	8,973		(6,656	)	2,317	(25	)	2,292	100
Credit contracts – protection sold	147		(145	)	2	-		2	10
Credit contracts – protection purchased	244		(198	)	46	(3	)	43	89
Total derivative assets	$	36,355	(24,127	)	12,228	(773	)	11,455
Derivative liabilities
Interest rate contracts	$	15,472	(13,226	)	2,246	(1,078	)	1,168	99	%
Commodity contracts	1,335		(648	)	687	(1	)	686	76
Equity contracts	8,501		(4,041	)	4,460	(400	)	4,060	85
Foreign exchange contracts	8,568		(7,189	)	1,379	(204	)	1,175	100
Credit contracts – protection sold	214		(204	)	10	(9	)	1	85
Credit contracts – protection purchased	208		(194	)	14	-		14	9
Total derivative liabilities	$	34,298	(25,502	)	8,796	(1,692	)	7,104

(1)

Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in the consolidated balance sheet, including related cash collateral and portfolio level counterparty valuation adjustments. Counterparty valuation adjustments were $274 million and $245 million related to derivative assets and $127 million and $95 million related to derivative liabilities at June 30, 2018 , and December 31, 2017 , respectively. Cash collateral totaled $3.0 billion and $3.4 billion , netted against derivative assets and liabilities, respectively, at June 30, 2018 , and $2.7 billion and $4.2 billion , respectively, at December 31, 2017 .


(2)	Represents the fair value of non-cash collateral pledged and received against derivative assets and liabilities with the same counterparty that are subject to enforceable master netting arrangements. U.S. GAAP does not permit netting of such non-cash collateral balances in the consolidated balance sheet but requires disclosure of these amounts.

(3)

Represents derivatives executed in over-the-counter markets that are not settled through a central clearing organization. Over-the-counter percentages are calculated based on gross amounts recognized as of the respective balance sheet date. The remaining percentage represents derivatives settled through a central clearing organization, which are executed in either over-the-counter or exchange-traded markets.

128

Note 14: Derivatives ( continued )

Fair Value and Cash Flow Hedges

For fair value hedges, we use interest rate swaps to convert certain of our fixed-rate long-term debt and time certificates of deposit to floating rates to hedge our exposure to interest rate risk. We also enter into cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge our exposure to foreign currency risk and interest rate risk associated with the issuance of non-U.S. dollar denominated long-term debt. In addition, we use interest rate swaps, cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge against changes in fair value of certain investments in available-for-sale debt securities due to changes in interest rates, foreign currency rates, or both. We also use interest rate swaps to hedge against changes in fair value for certain mortgage loans held for sale.

For cash flow hedges, we use interest rate swaps to hedge the variability in interest payments received on certain floating-rate

commercial loans and paid on certain floating-rate debt due to changes in the contractually specified interest rate.

We estimate $311 million pre-tax of deferred net losses related to cash flow hedges in OCI at June 30, 2018 , will be reclassified into net interest income during the next twelve months. The deferred losses expected to be reclassified into net interest income are primarily related to discontinued hedges of floating rate loans. We are hedging our foreign exposure to the variability of future cash flows for all forecasted transactions for a maximum of 8 years . For more information on our accounting hedges, see Note 1 (Summary of Significant Accounting Policies) and Note 16 (Derivatives) to Financial Statements in our 2017 Form 10-K.

Table 14.3 shows the net gains (losses) related to derivatives in fair value and cash flow hedging relationships.

Table 14.3: Gains (Losses) Recognized in Consolidated Statement of Income on Fair Value and Cash Flow Hedging Relationships



	Net interest income											Noninterest income
(in millions)	Debt securities			Loans		Mortgage loans held for sale		Deposits		Long-term debt		Other		Total
Quarter ended June 30, 2018
Total amounts presented in the consolidated statement of income	$	3,594		10,912		198		(1,268	)	(1,658	)	485		12,263
Gains (losses) on fair value hedging relationships
Interest contracts
Amounts related to interest settlements on derivatives (1)	(42		)	-		(1	)	(20	)	81		-		18
Recognized on derivatives	356			-		5		(41	)	(819	)	-		(499	)
Recognized on hedged items	(352		)	-		(7	)	31		780		-		452
Foreign exchange contracts
Amounts related to interest settlements on derivatives (1)(2)	10			-		-		-		(102	)	-		(92	)
Recognized on derivatives (3)	2			-		-		-		97		(1,410	)	(1,311	)
Recognized on hedged items	1			-		-		-		(82	)	1,308		1,227
Net income (expense) recognized on fair value hedges	(25		)	-		(3	)	(30	)	(45	)	(102	)	(205	)

Gains (losses) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	-			(77	)	-		-		-		-		(77	)
Net income (expense) recognized on cash flow hedges	$	-		(77	)	-		-		-		-		(77	)
Six months ended June 30, 2018
Total amounts presented in the consolidated statement of income	$	7,008		21,491		377		(2,358	)	(3,234	)	1,087		24,371
Gains (losses) on fair value hedging relationships
Interest contracts
Amounts related to interest settlements on derivatives (1)	(124		)	-		(2	)	(25	)	252		-		101
Recognized on derivatives	1,306			1		11		(190	)	(3,212	)	-		(2,084	)
Recognized on hedged items	(1,320		)	(1	)	(15	)	172		3,114		-		1,950
Foreign exchange contracts
Amounts related to interest settlements on derivatives (1)(2)	15			-		-		-		(182	)	-		(167	)
Recognized on derivatives (3)	6			-		-		-		(74	)	(750	)	(818	)
Recognized on hedged items	(2		)	-		-		-		27		681		706
Net income (expense) recognized on fair value hedges	(119		)	-		(6	)	(43	)	(75	)	(69	)	(312	)

Gains (losses) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	-			(137	)	-		-		-		-		(137	)
Net income (expense) recognized on cash flow hedges	$	-		(137	)	-		-		-		-		(137	)

(continued on following page)

129



(continued from previous page)
	Net interest income											Noninterest income
(in millions)	Debt securities			Loans		Mortgage loans held for sale		Deposits		Long-term debt		Other		Total
Quarter ended June 30, 2017
Total amounts presented in the consolidated statement of income	$	3,226		10,358		191		(677	)	(1,275	)	472		12,295

Gains (losses) on fair value hedging relationships
Interest contracts
Amounts related to interest settlements on derivatives (1)	(122		)	-		(2	)	(8	)	380		-		248
Recognized on derivatives	(287		)	(1	)	(9	)	37		393		-		133
Recognized on hedged items	267			1		6		(32	)	(398	)	-		(156	)
Foreign exchange contracts
Amounts related to interest settlements on derivatives (1)(2)	2			-		-		-		(49	)	-		(47	)
Recognized on derivatives (3)	5			-		-		-		(108	)	1,501		1,398
Recognized on hedged items	(4		)	-		-		-		117		(1,355	)	(1,242	)
Net income (expense) recognized on fair value hedges	(139		)	-		(5	)	(3	)	335		146		334

Gains (losses) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	-			156		-		-		(3	)	-		153
Net income (expense) recognized on cash flow hedges	$	-		156		-		-		(3	)	-		153
Six months ended June 30, 2017
Total amounts presented in the consolidated statement of income	$	6,399		20,499		373		(1,213	)	(2,422	)	846		24,482

Gains (losses) on fair value hedging relationships
Interest contracts
Amounts related to interest settlements on derivatives (1)	(253		)	(1	)	(3	)	4		795		-		542
Recognized on derivatives	(161		)	-		(11	)	29		(163	)	-		(306	)
Recognized on hedged items	126			-		6		(22	)	158		-		268
Foreign exchange contracts
Amounts related to interest settlements on derivatives (1)(2)	6			-		-		-		(82	)	-		(76	)
Recognized on derivatives (3)	11			-		-		-		(155	)	1,876		1,732
Recognized on hedged items	(7		)	-		-		-		200		(1,695	)	(1,502	)
Net income (expense) recognized on fair value hedges	(278		)	(1	)	(8	)	11		753		181		658

Gains (losses) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	-			361		-		-		(6	)	-		355
Net income (expense) recognized on cash flow hedges	$	-		361		-		-		(6	)	-		355


(1)	Includes $17 million and $24 million for second quarter and first half of 2018, respectively, and includes $5 million and $10 million for the second quarter and first half of 2017, respectively which represents changes in fair value due to the passage of time associated with the non-zero fair value amount at hedge inception.


(2)	The second quarter and first half of 2018 both included $2 million , and the second quarter and first half of 2017 included $0 million , and $(1) million , respectively, of the time value component recognized as net interest income (expense) on forward derivatives hedging foreign currency debt securities and long-term debt that were excluded from the assessment of hedge effectiveness.


(3)	For certain fair value hedges of foreign currency risk, changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. See Note 20 (Other Comprehensive Income) for the amounts recognized in other comprehensive income.


(4)	See Note 20 (Other Comprehensive Income) for details of amounts reclassified to net income.

130

Note 14: Derivatives ( continued )

Table 14.4 shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships.

Table 14.4: Hedged Items in Fair Value Hedging Relationship



	Hedged Items Currently Designated					Hedged Items No Longer Designated (1)
(in millions)	Carrying Amount of Assets/(Liabilities) (2)(4)			Hedge Accounting Basis Adjustment Assets/(Liabilities) (3)		Carrying Amount of Assets/(Liabilities) (4)		Hedge Accounting Basis Adjustment Assets/(Liabilities)
June 30, 2018
Available-for-sale debt securities (5)	$	29,755		(587	)	4,939		271
Loans	128			(1	)	-		-
Mortgage loans held for sale	751			3		-		-
Deposits	(34,777		)	325		-		-
Long-term debt	(123,312		)	988		(807	)	12
December 31, 2017
Available-for-sale debt securities (5)	32,498			870		5,221		343
Loans	140			(1	)	-		-
Mortgage loans held for sale	465			(1	)	-		-
Deposits	(23,679		)	158		-		-
Long-term debt	(128,950		)	(2,154	)	(1,953	)	16


(1)	Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.


(2)	Does not include the carrying amount of hedged items where only foreign currency risk is the designated hedged risk. The carrying amount excluded for debt securities is $1.4 billion and $(6.4) billion for long-term debt as of June 30, 2018 and $1.5 billion for debt securities and for long-term debt is $(7.7) billion as of December 31, 2017.


(3)	The balance includes $1.5 billion and $244 million of debt securities and long-term debt cumulative basis adjustments as of June 30, 2018, respectively, and $2.1 billion and $297 million of debt securities and long-term debt cumulative basis adjustments, as of December 31, 2017, respectively, on terminated hedges whereby the hedged items have subsequently been re-designated into existing hedges.


(4)	Represents the full carrying amount of the hedged asset or liability item as of the balance sheet date, except for circumstances in which only a portion of the asset or liability was designated as the hedged item in which case only the portion designated is presented.


(5)	Carrying amount represents the amortized cost.

Derivatives Not Designated as Hedging Instruments

We use economic hedge derivatives to hedge the risk of changes in the fair value of certain residential MLHFS, residential MSRs measured at fair value, derivative loan commitments and other interests held. We also use economic hedge derivatives to mitigate the periodic earnings volatility caused by mismatches between the changes in fair value of the hedged item and hedging instrument recognized on our fair value accounting hedges. The resulting gain or loss on these economic hedge derivatives is reflected in mortgage banking noninterest income, net gains (losses) from equity investments and other noninterest income.

The derivatives used to hedge MSRs measured at fair value, resulted in net derivative gains (losses) of $(319) million and $(1.5) billion in the second quarter and first half of 2018, respectively, and $431 million and $359 million in the second quarter and first half of 2017 , respectively which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a net asset of $143 million at June 30, 2018 , and net asset of $89 million at December 31, 2017 . The change in fair value of these derivatives for each period end is due to changes in the underlying market indices and interest rates as well as the purchase and sale of derivative financial instruments throughout the period as part of our dynamic MSR risk management process.

Interest rate lock commitments for mortgage loans that we intend to sell are considered derivatives. The aggregate fair value of derivative loan commitments on the balance sheet was a net positive fair value of $24 million and $17 million at June 30, 2018 , and December 31, 2017 , respectively, and is included in the caption "Interest rate contracts" under "Customer accommodation trading and other derivatives" in Table 14.1 in this Note.

For more information on economic hedges and other derivatives, see Note 16 (Derivatives) to Financial Statements in our 2017 Form 10-K. Table 14.5 shows the net gains (losses) recognized by income statement lines, related to derivatives not designated as hedging instruments.

131

Table 14.5: Gains (Losses) on Derivatives Not Designated as Hedging Instruments



	Noninterest income
(in millions)	Mortgage banking			Net gains (losses) from equity securities		Net gains (losses) from trading activities		Other		Total
Quarter ended June 30, 2018
Net gains (losses) recognized on economic hedges derivatives:
Interest contracts (1)	$	(185	)	-		-		(3	)	(188	)
Equity contracts	-			(540	)	-		5		(535	)
Foreign exchange contracts	-			-		-		486		486
Credit contracts	-			-		-		(10	)	(10	)
Subtotal (2)	(185		)	(540	)	-		478		(247	)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
Interest contracts (3)	(46		)	-		182		-		136
Equity contracts	-			-		655		(71	)	584
Foreign exchange contracts	-			-		91		-		91
Credit contracts	-			-		(4	)	-		(4	)
Commodity contracts	-			-		35		-		35
Other	-			-		-		-		-
Subtotal	(46		)	-		959		(71	)	842
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	(231	)	(540	)	959		407		595
Six months ended June 30, 2018
Net gains (losses) recognized on economic hedges derivatives:
Interest contracts (1)	$	(780	)	-		-		6		(774	)
Equity contracts	-			(598	)	-		5		(593	)
Foreign exchange contracts	-			-		-		327		327
Credit contracts	-			-		-		(6	)	(6	)
Subtotal (2)	(780		)	(598	)	-		332		(1,046	)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
Interest contracts (3)	(305		)	-		567		-		262
Equity contracts	-			-		1,114		(266	)	848
Foreign exchange contracts	-			-		401		-		401
Credit contracts	-			-		6		-		6
Commodity contracts	-			-		74		-		74
Other	-			-		-		-		-
Subtotal	(305		)	-		2,162		(266	)	1,591
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	(1,085	)	(598	)	2,162		66		545

(continued on following page)

132

Note 14: Derivatives ( continued )



(continued from previous page)
	Noninterest income
(in millions)	Mortgage banking		Net gains (losses) from equity securities		Net gains (losses) from trading activities		Other		Total
Quarter ended June 30, 2017
Net gains (losses) recognized on economic hedges derivatives:
Interest contracts (1)	$	351	-		-		(51	)	300
Equity contracts	-		(200	)	-		(5	)	(205	)
Foreign exchange contracts	-		-		-		(441	)	(441	)
Credit contracts	-		-		-		10		10
Subtotal (2)	351		(200	)	-		(487	)	(336	)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
Interest contracts (3)	254		-		18		-		272
Equity contracts	-		-		(565	)	-		(565	)
Foreign exchange contracts	-		-		16		-		16
Credit contracts	-		-		(13	)	-		(13	)
Commodity contracts	-		-		15		-		15
Other	-		-		(8	)	10		2
Subtotal	254		-		(537	)	10		(273	)
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	605	(200	)	(537	)	(477	)	(609	)
Six months ended June 30, 2017
Net gains (losses) recognized on economic hedges derivatives:
Interest contracts (1)	$	342	-		-		(45	)	297
Equity contracts	-		(674	)	-		(12	)	(686	)
Foreign exchange contracts	-		-		-		(534	)	(534	)
Credit contracts	-		-		-		14		14
Subtotal (2)	342		(674	)	-		(577	)	(909	)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
Interest contracts (3)	447		-		63		-		510
Equity contracts	-		-		(1,674	)	-		(1,674	)
Foreign exchange contracts	-		-		201		-		201
Credit contracts	-		-		(28	)	-		(28	)
Commodity contracts	-		-		75		-		75
Other	-		-		-		14		14
Subtotal	447		-		(1,363	)	14		(902	)
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	789	(674	)	(1,363	)	(563	)	(1,811	)


(1)	Includes gains (losses) on the derivatives used as economic hedges of MSRs measured at fair value, interest rate lock commitments and mortgage loans held for sale.


(2)	Includes hedging gains (losses) of $8 million and $36 million for the second quarter and first half of 2018, respectively, and $(48) million and $(46) million for the second quarter and first half of 2017, respectively, which partially offset hedge accounting ineffectiveness.


(3)	Amounts presented in mortgage banking noninterest income are gains on interest rate lock commitments.

133

Credit Derivatives

Credit derivative contracts are arrangements whose value is derived from the transfer of credit risk of a reference asset or entity from one party (the purchaser of credit protection) to another party (the seller of credit protection). We use credit derivatives to assist customers with their risk management objectives. We may also use credit derivatives in structured product transactions or liquidity agreements written to special purpose vehicles. The maximum exposure of sold credit derivatives is managed through posted collateral, purchased credit derivatives and similar products in order to achieve our desired credit risk profile. This credit risk management provides

an ability to recover a significant portion of any amounts that would be paid under the sold credit derivatives. We would be

required to perform under sold credit derivatives in the event of default by the referenced obligors. Events of default include events such as bankruptcy, capital restructuring or lack of principal and/or interest payment. In certain cases, other triggers may exist, such as the credit downgrade of the referenced obligors or the inability of the special purpose vehicle for which we have provided liquidity to obtain funding.

Table 14.6 provides details of sold and purchased credit derivatives.

Table 14.6: Sold and Purchased Credit Derivatives



			Notional amount
(in millions)	Fair value liability		Protection sold (A)	Protection sold – non- investment grade	Protection purchased with identical underlyings (B)	Net protection sold (A) - (B)	Other protection purchased	Range of maturities
June 30, 2018
Credit default swaps on:
Corporate bonds	$	12	1,585	329	1,063	522	1,104	2018 - 2027
Structured products	68		168	163	150	18	114	2022 - 2047
Credit protection on:
Default swap index	-		2,265	347	485	1,780	3,104	2018 - 2028
Commercial mortgage-backed securities index	62		418	138	396	22	46	2047 - 2058
Asset-backed securities index	9		43	43	43	-	1	2045 - 2046
Other	1		4,459	4,275	-	4,459	10,877	2018 - 2048
Total credit derivatives	$	152	8,938	5,295	2,137	6,801	15,246
December 31, 2017
Credit default swaps on:
Corporate bonds	$	35	2,007	510	1,575	432	946	2018 - 2027
Structured products	86		267	252	232	35	153	2022 - 2047
Credit protection on:
Default swap index	-		2,626	540	308	2,318	3,932	2018 - 2027
Commercial mortgage-backed securities index	83		423	-	401	22	87	2047 - 2058
Asset-backed securities index	9		42	-	42	-	1	2045 - 2046
Other	1		3,656	3,306	-	3,656	9,840	2018 - 2031
Total credit derivatives	$	214	9,021	4,608	2,558	6,463	14,959

Protection sold represents the estimated maximum exposure to loss that would be incurred under an assumed hypothetical circumstance, where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. We believe this hypothetical circumstance to be a remote possibility and accordingly, this required disclosure is not an indication of expected loss. The amounts under non-investment grade represent the notional amounts of those credit derivatives on which we have a higher risk of being required to perform under the terms of the credit derivative and are a function of the underlying assets.

We consider the risk of performance to be high if the underlying assets under the credit derivative have an external rating that is below investment grade or an internal credit default grade that is equivalent thereto. We believe the net protection sold, which is representative of the net notional amount of protection sold and purchased with identical underlyings, in combination with other protection purchased, is more representative of our exposure to loss than either non-investment grade or protection sold. Other protection purchased represents additional protection, which may offset the exposure to loss for protection sold, that was not purchased with an identical underlying of the protection sold.

134

Note 14: Derivatives ( continued )

Credit-Risk Contingent Features

Certain of our derivative contracts contain provisions whereby if the credit rating of our debt were to be downgraded by certain major credit rating agencies, the counterparty could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a net liability position was $7.3 billion at June 30, 2018 , and $8.3 billion at December 31, 2017 , for which we posted $5.8 billion and $7.1 billion , respectively, in collateral in the normal course of business. A credit rating below investment grade is the credit-risk-related contingent feature that if triggered requires the maximum amount of collateral to be posted. If the credit rating of our debt had been downgraded below investment grade, on June 30, 2018 , or December 31, 2017 , we would have been required to post additional collateral of $1.5 billion or $1.2 billion , respectively, or potentially settle the contract in an amount equal to its fair value. Some contracts require that we provide more collateral than the fair value of derivatives that are in a net liability position if a downgrade occurs.

Counterparty Credit Risk

By using derivatives, we are exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet. The amounts reported as a derivative asset are derivative contracts in a gain position, and to the extent subject to legally enforceable master netting arrangements, net of derivatives in a loss position with the same counterparty and cash collateral received. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. To the extent the master netting arrangements and other criteria meet the applicable requirements, including determining the legal enforceability of the arrangement, it is our policy to present derivative balances and related cash collateral amounts net on the balance sheet. We incorporate credit valuation adjustments (CVA) to reflect counterparty credit risk in determining the fair value of our derivatives. Such adjustments, which consider the effects of enforceable master netting agreements and collateral arrangements, reflect market-based views of the credit quality of each counterparty. Our CVA calculation is determined based on observed credit spreads in the credit default swap market and indices indicative of the credit quality of the counterparties to our derivatives.

135

Note 15: Fair Values of Assets and Liabilities

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis are presented in Table 15.2 in this Note. From time to time, we may be required to record fair value adjustments on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of LOCOM accounting, measurement alternative accounting for nonmarketable equity securities or write-downs of individual assets. Assets recorded on a nonrecurring basis are presented in Table 15.14 in this Note.

See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 Form 10-K for discussion of how we determine fair value. For descriptions of the valuation methodologies we use for assets and liabilities recorded at fair value on a recurring or nonrecurring basis and for estimating fair value for financial instruments that are not recorded at fair value, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 2017 Form 10-K.

FAIR VALUE HIERARCHY We group our assets and liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:


•	Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.


•	Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.


•	Level 3 – Valuation is generated from techniques that use significant assumptions that are not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

We do not classify an equity security in the fair value hierarchy if we use the non-published net asset value (NAV) per share (or its equivalent) that has been communicated to us as an investor as a practical expedient to measure fair value. We generally use NAV per share as the fair value measurement for certain nonmarketable equity fund investments. Marketable equity securities with published NAVs continue to be classified in the fair value hierarchy.

Fair Value Measurements from Vendors

For certain assets and liabilities, we obtain fair value measurements from vendors, which predominantly consist of third-party pricing services, and record the unadjusted fair value in our financial statements. For additional information, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 2017 Form 10-K. Table 15.1 presents unadjusted fair value measurements provided by brokers or third-party pricing services by fair value hierarchy level. Fair value measurements obtained from brokers or third-party pricing services that we have adjusted to determine the fair value recorded in our financial statements are excluded from Table 15.1 .

136

Note 15: Fair Values of Assets and Liabilities ( continued )

Table 15.1: Fair Value Measurements by Brokers or Third-Party Pricing Services



	Brokers				Third-party pricing services
(in millions)	Level 1		Level 2	Level 3	Level 1		Level 2	Level 3
June 30, 2018
Trading debt securities	$	-	-	-	115		222	-
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	-		-	-	3,350		2,921	-
Securities of U.S. states and political subdivisions	-		-	-	-		46,829	40
Mortgage-backed securities	-		33	-	-		161,872	53
Other debt securities (1)	-		229	1,177	-		44,691	31
Total available-for-sale debt securities	-		262	1,177	3,350		256,313	124
Equity securities:
Marketable	-		-	-	-		225	-
Nonmarketable	-		-	-	-		2	293
Total equity securities	-		-	-	-		227	293
Derivative assets	-		-	-	25		-	-
Derivative liabilities	-		-	-	(25	)	-	-
Other liabilities (2)	-		-	-	-		-	-
December 31, 2017
Trading debt securities	$	-	-	-	926		215	-
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	-		-	-	3,389		2,930	-
Securities of U.S. states and political subdivisions	-		-	-	-		50,401	49
Mortgage-backed securities	-		33	-	-		168,948	75
Other debt securities (1)	-		307	1,158	-		44,465	22
Total available-for-sale debt securities	-		340	1,158	3,389		266,744	146
Equity securities:
Marketable	-		-	-	-		227	-
Nonmarketable	-		-	-	-		-	-
Total equity securities	-		-	-	-		227	-
Derivative assets	-		-	-	19		-	-
Derivative liabilities	-		-	-	(19	)	-	-
Other liabilities (2)	-		-	-	-		-	-


(1)	Includes corporate debt securities, collateralized loan and other debt obligations, asset-backed securities, and other debt securities.


(2)	Includes short sale liabilities and other liabilities.

137

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Table 15.2 presents the balances of assets and liabilities recorded at fair value on a recurring basis.

Table 15.2: Fair Value on a Recurring Basis



(in millions)	Level 1			Level 2		Level 3			Netting			Total
June 30, 2018
Trading debt securities:
Securities of U.S. Treasury and federal agencies	$	13,555		2,972		-			-			16,527
Securities of U.S. states and political subdivisions	-			3,741		3			-			3,744
Collateralized loan obligations	-			661		291			-			952
Corporate debt securities	-			11,561		36			-			11,597
Mortgage-backed securities	-			31,507		-			-			31,507
Asset-backed securities	-			1,251		-			-			1,251
Other trading debt securities	-			7		17			-			24
Total trading debt securities	13,555			51,700		347			-			65,602
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	3,350			2,921		-			-			6,271
Securities of U.S. states and political subdivisions	-			47,000		559			-			47,559
Mortgage-backed securities:
Federal agencies	-			154,556		-			-			154,556
Residential	-			4,095		-			-			4,095
Commercial	-			4,138		53			-			4,191
Total mortgage-backed securities	-			162,789		53			-			162,842
Corporate debt securities	36			6,382		443			-			6,861
Collateralized loan and other debt obligations (1)	-			35,611		1,037			-			36,648
Asset-backed securities:
Automobile loans and leases	-			548		-			-			548
Home equity loans	-			143		-			-			143
Other asset-backed securities	-			4,413		401			-			4,814
Total asset-backed securities	-			5,104		401			-			5,505
Other debt securities	-			1		-			-			1
Total available-for-sale debt securities	3,386			259,808		2,493		(2)	-			265,687
Mortgage loans held for sale	-			15,600		986			-			16,586
Loans held for sale	-			1,330		20			-			1,350
Loans	-			-		321			-			321
Mortgage servicing rights (residential)	-			-		15,411			-			15,411
Derivative assets:
Interest rate contracts	19			16,555		74			-			16,648
Commodity contracts	-			3,572		41			-			3,613
Equity contracts	1,612			3,927		1,529			-			7,068
Foreign exchange contracts	25			7,862		12			-			7,899
Credit contracts	-			158		92			-			250
Netting	-			-		-			(24,379	)	(3)	(24,379		)
Total derivative assets	1,656			32,074		1,748			(24,379	)		11,099
Equity securities - excluding securities at NAV:
Marketable	27,041			1,210		-			-			28,251
Nonmarketable	-			37		5,806			-			5,843
Total equity securities	$	27,041		1,247		5,806			-			34,094
Total assets included in the fair value hierarchy	$	45,638		361,759		27,132			(24,379	)		410,150
Equity securities at NAV (4)												33
Total assets recorded at fair value												$	410,183
Derivative liabilities:
Interest rate contracts	$	(13	)	(15,856	)	(115	)		-			(15,984		)
Commodity contracts	-			(1,692	)	(15	)		-			(1,707		)
Equity contracts	(1,158		)	(4,687	)	(1,868	)		-			(7,713		)
Foreign exchange contracts	(25		)	(7,411	)	(27	)		-			(7,463		)
Credit contracts	-			(198	)	(68	)		-			(266		)
Netting	-			-		-			24,626		(3)	24,626
Total derivative liabilities	(1,196		)	(29,844	)	(2,093	)		24,626			(8,507		)
Short sale liabilities:
Securities of U.S. Treasury and federal agencies	(12,825		)	(519	)	-			-			(13,344		)
Mortgage-backed securities	-			(2	)	-			-			(2		)
Corporate debt securities	-			(5,561	)	-			-			(5,561		)
Equity securities	(2,856		)	(2	)	-			-			(2,858		)
Other securities	-			-		-			-			-
Total short sale liabilities	(15,681		)	(6,084	)	-			-			(21,765		)
Other liabilities	-			-		(2	)		-			(2		)
Total liabilities recorded at fair value	$	(16,877	)	(35,928	)	(2,095	)		24,626			(30,274		)


(1)	Includes collateralized debt obligations of $1.0 billion .


(2)	Balance primarily consists of securities that are investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.


(3)	Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 14 (Derivatives) for additional information.


(4)	Consists of certain nonmarketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

(continued on following page)

138

Note 15: Fair Values of Assets and Liabilities ( continued )

(continued from previous page)



(in millions)	Level 1			Level 2		Level 3			Netting			Total
December 31, 2017
Trading debt securities:
Securities of U.S. Treasury and federal agencies	$	12,491		2,383		-			-			14,874
Securities of U.S. states and political subdivisions	-			3,732		3			-			3,735
Collateralized loan obligations	-			565		354			-			919
Corporate debt securities	-			11,760		31			-			11,791
Mortgage-backed securities	-			25,273		-			-			25,273
Asset-backed securities	-			993		-			-			993
Other trading debt securities	-			20		19			-			39
Total trading debt securities	12,491			44,726		407			-			57,624
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	3,389			2,930		-			-			6,319
Securities of U.S. states and political subdivisions	-			50,401		925			-			51,326
Mortgage-backed securities:
Federal agencies	-			160,219		-			-			160,219
Residential	-			4,607		1			-			4,608
Commercial	-			4,490		75			-			4,565
Total mortgage-backed securities	-			169,316		76			-			169,392
Corporate debt securities	56			7,203		407			-			7,666
Collateralized loan and other debt obligations (1)	-			35,036		1,020			-			36,056
Asset-backed securities:
Automobile loans and leases	-			553		-			-			553
Home equity loans	-			149		-			-			149
Other asset-backed securities	-			4,380		566			-			4,946
Total asset-backed securities	-			5,082		566			-			5,648
Other debt securities	-			-		-			-			-
Total available-for-sale debt securities	3,445			269,968		2,994		(2)	-			276,407
Mortgage loans held for sale	-			15,118		998			-			16,116
Loans held for sale	-			1,009		14			-			1,023
Loans	-			-		376			-			376
Mortgage servicing rights (residential)	-			-		13,625			-			13,625
Derivative assets:
Interest rate contracts	17			17,479		134			-			17,630
Commodity contracts	-			2,318		36			-			2,354
Equity contracts	1,698			3,970		1,339			-			7,007
Foreign exchange contracts	19			8,944		10			-			8,973
Credit contracts	-			269		122			-			391
Netting	-			-		-			(24,127	)	(3)	(24,127		)
Total derivative assets	1,734			32,980		1,641			(24,127	)		12,228
Equity securities - excluding securities at NAV:
Marketable	33,931			429		-			-			34,360
Nonmarketable	-			46		4,821			-			4,867
Total equity securities	$	33,931		475		4,821			-			39,227
Total assets included in the fair value hierarchy	$	51,601		364,276		24,876			(24,127	)		416,626
Equity securities at NAV (4)												-
Total assets recorded at fair value												$	416,626
Derivative liabilities:
Interest rate contracts	$	(17	)	(15,392	)	(63	)		-			(15,472		)
Commodity contracts	-			(1,318	)	(17	)		-			(1,335		)
Equity contracts	(1,313		)	(5,338	)	(1,850	)		-			(8,501		)
Foreign exchange contracts	(19		)	(8,546	)	(3	)		-			(8,568		)
Credit contracts	-			(336	)	(86	)		-			(422		)
Netting	-			-		-			25,502		(3)	25,502
Total derivative liabilities	(1,349		)	(30,930	)	(2,019	)		25,502			(8,796		)
Short sale liabilities:
Securities of U.S. Treasury and federal agencies	(10,420		)	(568	)	-			-			(10,988		)
Corporate debt securities	-			(4,986	)	-			-			(4,986		)
Equity securities	(2,168		)	(45	)	-			-			(2,213		)
Other securities	-			(285	)	-			-			(285		)
Total short sale liabilities	(12,588		)	(5,884	)	-			-			(18,472		)
Other liabilities	-			-		(3	)		-			(3		)
Total liabilities recorded at fair value	$	(13,937	)	(36,814	)	(2,022	)		25,502			(27,271		)


(1)	Includes collateralized debt obligations of $1.0 billion .


(2)	Balance primarily consists of securities that are investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.


(3)	Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 14 (Derivatives) for additional information.


(4)	Consists of certain nonmarketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

139

Changes in Fair Value Levels

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2, and Level 3 accordingly. Observable market data includes but is not limited to quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data. Changes in availability of observable market data, which also may result in changing the valuation technique used, are generally the cause of transfers between Level 1, Level 2, and Level 3.

Transfers into and out of Level 1, Level 2, and Level 3 are provided within Table 15.3 for the periods presented. The amounts reported as transfers represent the fair value as of the beginning of the quarter in which the transfer occurred.

Table 15.3: Transfers Between Fair Value Levels



	Transfers Between Fair Value Levels
	Level 1				Level 2				Level 3 (1)
(in millions)	In		Out		In		Out		In		Out		Total
Quarter ended June 30, 2018
Trading debt securities	$	-	-		1		-		-		(1	)	-
Available-for-sale debt securities	-		-		10		-		-		(10	)	-
Mortgage loans held for sale	-		-		3		(25	)	25		(3	)	-
Loans held for sale	-		-		-		(21	)	21		-		-
Equity securities	3		(3	)	7		(9	)	6		(4	)	-
Net derivative assets and liabilities (2)	-		-		(2	)	(3	)	3		2		-
Short sale liabilities	-		-		-		-		-		-		-
Total transfers	$	3	(3	)	19		(58	)	55		(16	)	-
Quarter ended June 30, 2017
Trading debt securities	$	-	-		-		-		-		-		-
Available-for-sale debt securities	-		-		424		-		-		(424	)	-
Mortgage loans held for sale	-		-		5		(19	)	19		(5	)	-
Loans held for sale	-		-		-		(16	)	16		-		-
Equity securities	-		-		-		(1	)	1		-		-
Net derivative assets and liabilities (2)	-		-		80		-		-		(80	)	-
Short sale liabilities	-		-		-		-		-		-		-
Total transfers	$	-	-		509		(36	)	36		(509	)	-
Six months ended June 30, 2018
Trading debt securities	$	-	-		1		-		-		(1	)	-
Available-for-sale debt securities	-		-		279		-		-		(279	)	-
Mortgage loans held for sale	-		-		6		(40	)	40		(6	)	-
Loans held for sale	-		-		-		(21	)	21		-		-
Equity securities	3		(14	)	18		(13	)	10		(4	)	-
Net derivative assets and liabilities (2)	-		-		(51	)	(3	)	3		51		-
Short sale liabilities	-		-		-		-		-		-		-
Total transfers	$	3	(14	)	253		(77	)	74		(239	)	-
Six months ended June 30, 2017
Trading debt securities	$	-	-		1		(3	)	3		(1	)	-
Available-for-sale debt securities	-		-		496		(5	)	5		(496	)	-
Mortgage loans held for sale	-		-		6		(61	)	61		(6	)	-
Loans held for sale	-		-		-		(16	)	16		-		-
Equity securities	-		-		-		(1	)	1		-		-
Net derivative assets and liabilities (2)	-		-		83		22		(22	)	(83	)	-
Short sale liabilities	-		-		-		-		-		-		-
Total transfers	$	-	-		586		(64	)	64		(586	)	-


(1)	All transfers in and out of Level 3 are disclosed within the recurring Level 3 rollforward tables in this Note.


(2)	Includes transfers of net derivative assets and net derivative liabilities between levels due to changes in observable market data.

140

Note 15: Fair Values of Assets and Liabilities ( continued )

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2018 , are presented in Table 15.4 .

Table 15.4: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended June 30, 2018



				Total net gains (losses) included in				Purchases, sales, issuances and settlements, net (1)								Net unrealized gains (losses) included in income related to assets and liabilities held at period end
(in millions)	Balance, beginning of period			Net income		Other compre- hensive income			Transfers into Level 3		Transfers out of Level 3		Balance, end of period		(2)
Quarter ended June 30, 2018
Trading debt securities:
Securities of U.S. states and political subdivisions	$	3		-		-		-		-		-		3		-
Collateralized loan obligations	316			(6	)	-		(19	)	-		-		291		(8	)
Corporate debt securities	34			-		-		3		-		(1	)	36		1
Mortgage-backed securities	-			-		-		-		-		-		-		-
Asset-backed securities	-			-		-		-		-		-		-		-
Other trading debt securities	18			(1	)	-		-		-		-		17		-
Total trading debt securities	371			(7	)	-		(16	)	-		(1	)	347		(7	)	(3)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	617			1		-		(49	)	-		(10	)	559		-
Mortgage-backed securities:
Residential	1			-		(1	)	-		-		-		-		-
Commercial	67			-		(1	)	(13	)	-		-		53		-
Total mortgage-backed securities	68			-		(2	)	(13	)	-		-		53		-
Corporate debt securities	410			1		1		31		-		-		443		-
Collateralized loan and other debt obligations	1,045			6		10		(24	)	-		-		1,037		-
Asset-backed securities:
Automobile loans and leases	-			-		-		-		-		-		-		-
Other asset-backed securities	501			-		(1	)	(99	)	-		-		401		-
Total asset-backed securities	501			-		(1	)	(99	)	-		-		401		-
Total available-for-sale debt securities	2,641			8		8		(154	)	-		(10	)	2,493		-		(4)
Mortgage loans held for sale	950			(11	)	-		25		25		(3	)	986		(11	)	(5)
Loans held for sale	-			(1	)	-		-		21		-		20		-
Loans	352			-		-		(31	)	-		-		321		(4	)	(5)
Mortgage servicing rights (residential) (6)	15,041			(115	)	-		485		-		-		15,411		345		(5)
Net derivative assets and liabilities:
Interest rate contracts	(8		)	(63	)	-		30		-		-		(41	)	6
Commodity contracts	10			15		-		(2	)	3		-		26		21
Equity contracts	(322		)	(12	)	-		(7	)	-		2		(339	)	261
Foreign exchange contracts	1			(18	)	-		2		-		-		(15	)	(13	)
Credit contracts	41			(12	)	-		(5	)	-		-		24		(17	)
Other derivative contracts	-			-		-		-		-		-		-		-
Total derivative contracts	(278		)	(90	)	-		18		3		2		(345	)	258		(7)
Equity securities:
Marketable	-			-		-		-		-		-		-		-
Nonmarketable	5,219			585		-		-		6		(4	)	5,806		586
Total equity securities	5,219			585		-		-		6		(4	)	5,806		586		(8)
Short sale liabilities	-			-		-		-		-		-		-		-		(3)
Other liabilities	(2		)	-		-		-		-		-		(2	)	-		(5)


(1)	See Table 15.5 for detail.


(2)	Represents only net gains (losses) that are due to changes in economic conditions and management's estimates of fair value and excludes changes due to the collection/realization of cash flows over time.


(3)	Included in net gains (losses) from trading activities in the income statement.


(4)	Included in net gains (losses) from debt securities in the income statement.


(5)	Included in mortgage banking and other noninterest income in the income statement.


(6)	For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).


(7)	Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.


(8)	Included in net gains (losses) from equity securities in the income statement.

the income statement.

(continued on following page)

141

(continued from previous page)

Table 15.5 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2018 .

Table 15.5: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended June 30, 2018



(in millions)	Purchases		Sales		Issuances	Settlements		Net
Quarter ended June 30, 2018
Trading debt securities:
Securities of U.S. states and political subdivisions	$	-	-		-	-		-
Collateralized loan obligations	89		(39	)	-	(69	)	(19	)
Corporate debt securities	4		(1	)	-	-		3
Mortgage-backed securities	-		-		-	-		-
Asset-backed securities	-		-		-	-		-
Other trading debt securities	-		-		-	-		-
Total trading debt securities	93		(40	)	-	(69	)	(16	)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	-		-		-	(49	)	(49	)
Mortgage-backed securities:
Residential	-		-		-	-		-
Commercial	-		-		-	(13	)	(13	)
Total mortgage-backed securities	-		-		-	(13	)	(13	)
Corporate debt securities	31		-		-	-		31
Collateralized loan and other debt obligations	-		-		-	(24	)	(24	)
Asset-backed securities:
Automobile loans and leases	-		-		-	-		-
Other asset-backed securities	-		-		9	(108	)	(99	)
Total asset-backed securities	-		-		9	(108	)	(99	)
Total available-for-sale debt securities	31		-		9	(194	)	(154	)
Mortgage loans held for sale	20		(68	)	109	(36	)	25
Loans held for sale	-		-		-	-		-
Loans	-		-		4	(35	)	(31	)
Mortgage servicing rights (residential) (1)	-		(1	)	486	-		485
Net derivative assets and liabilities:
Interest rate contracts	-		-		-	30		30
Commodity contracts	-		-		-	(2	)	(2	)
Equity contracts	-		-		-	(7	)	(7	)
Foreign exchange contracts	-		-		-	2		2
Credit contracts	5		(2	)	-	(8	)	(5	)
Other derivative contracts	-		-		-	-		-
Total derivative contracts	5		(2	)	-	15		18
Equity securities:
Marketable	-		-		-	-		-
Nonmarketable	-		-		-	-		-
Total equity securities	-		-		-	-		-
Short sale liabilities	-		-		-	-		-
Other liabilities	-		-		-	-		-


(1)	For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).

142

Note 15: Fair Values of Assets and Liabilities ( continued )

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2017 , are presented in Table 15.6 .

Table 15.6: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended June 30, 2017



	Balance, beginning of period			Total net gains (losses) included in				Purchases, sales, issuances and settlements, net (1)								Net unrealized gains (losses) included in income related to assets and liabilities held at period end
(in millions)		Net income		Other compre- hensive income			Transfers into Level 3		Transfers out of Level 3		Balance, end of period		(2)
Quarter ended June 30, 2017
Trading debt securities:
Securities of U.S. states and political subdivisions	$	3		-		-		6		-		-		9		-
Collateralized loan obligations	398			(7	)	-		12		-		-		403		7
Corporate debt securities	37			1		-		(12	)	-		-		26		(1	)
Mortgage-backed securities	-			-		-		-		-		-		-		-
Asset-backed securities	-			-		-		-		-		-		-		-
Other trading debt securities	26			(1	)	-		-		-		-		25		(1	)
Total trading debt securities	464			(7	)	-		6		-		-		463		5		(3)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	1,360			1		2		618		-		(424	)	1,557		-
Mortgage-backed securities:
Residential	1			-		-		-		-		-		1		-
Commercial	89			(3	)	(5	)	(6	)	-		-		75		(7	)
Total mortgage-backed securities	90			(3	)	(5	)	(6	)	-		-		76		(7	)
Corporate debt securities	391			-		2		(17	)	-		-		376		-
Collateralized loan and other debt obligations	964			5		4		29		-		-		1,002		-
Asset-backed securities:
Automobile loans and leases	-			-		-		-		-		-		-		-
Other asset-backed securities	845			-		1		26		-		-		872		-
Total asset-backed securities	845			-		1		26		-		-		872		-
Total available-for-sale debt securities	3,650			3		4		650		-		(424	)	3,883		(7	)	(4)
Mortgage loans held for sale	957			(1	)	-		25		19		(5	)	995		-		(5)
Loans held for sale	-			-		-		(2	)	16		-		14		-
Loans	505			-		-		(62	)	-		-		443		(4	)	(5)
Mortgage servicing rights (residential) (6)	13,208			(847	)	-		428		-		-		12,789		(360	)	(5)
Net derivative assets and liabilities:
Interest rate contracts	218			258		-		(361	)	-		-		115		12
Commodity contracts	19			-		-		-		-		(2	)	17		2
Equity contracts	(299		)	(14	)	-		(80	)	-		(78	)	(471	)	(109	)
Foreign exchange contracts	3			1		-		-		-		-		4		1
Credit contracts	87			28		-		(43	)	-		-		72		(17	)
Other derivative contracts	(36		)	3		-		(1	)	-		-		(34	)	2
Total derivative contracts	(8		)	276		-		(485	)	-		(80	)	(297	)	(109	)	(7)
Equity securities:
Marketable	-			-		-		-		-		-		-		-
Nonmarketable	3,740			220		-		(1	)	1		-		3,960		226
Total equity securities	3,740			220		-		(1	)	1		-		3,960		226		(8)
Short sale liabilities	-			-		-		-		-		-		-		-		(3)
Other liabilities	(4		)	1		-		-		-		-		(3	)	-		(5)


(1)


(1)	See Table 15.5 for detail.


(2)	Represents only net gains (losses) that are due to changes in economic conditions and management's estimates of fair value and excludes changes due to the collection/realization of cash flows over time.


(3)	Included in net gains (losses) from trading activities in the income statement.


(4)	Included in net gains (losses) from debt securities in the income statement.


(5)	Included in mortgage banking and other noninterest income in the income statement.


(6)	For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).


(7)	Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.


(8)	Included in net gains (losses) from equity securities in the income statement.


(9)	the income statement.in the income statement.

(continued on following page)

143

(continued from previous page)

Table 15.7 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2017 .

Table 15.7: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended June 30, 2017



(in millions)	Purchases		Sales		Issuances	Settlements		Net
Quarter ended June 30, 2017
Trading debt securities:
Securities of U.S. states and political subdivisions	$	6	-		-	-		6
Collateralized loan obligations	87		(53	)	-	(22	)	12
Corporate debt securities	3		(15	)	-	-		(12	)
Mortgage-backed securities	-		-		-	-		-
Asset-backed securities	-		-		-	-		-
Other trading debt securities	-		-		-	-		-
Total trading debt securities	96		(68	)	-	(22	)	6
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	-		-		655	(37	)	618
Mortgage-backed securities:
Residential	-		-		-	-		-
Commercial	-		-		-	(6	)	(6	)
Total mortgage-backed securities	-		-		-	(6	)	(6	)
Corporate debt securities	-		-		-	(17	)	(17	)
Collateralized loan and other debt obligations	57		-		-	(28	)	29
Asset-backed securities:
Automobile loans and leases	-		-		-	-		-
Other asset-backed securities	-		-		161	(135	)	26
Total asset-backed securities	-		-		161	(135	)	26
Total available-for-sale debt securities	57		-		816	(223	)	650
Mortgage loans held for sale	18		(88	)	133	(38	)	25
Loans held for sale	-		-		-	(2	)	(2	)
Loans	2		-		3	(67	)	(62	)
Mortgage servicing rights (residential) (1)	-		(8	)	436	-		428
Net derivative assets and liabilities:
Interest rate contracts	-		-		-	(361	)	(361	)
Commodity contracts	-		-		-	-		-
Equity contracts	-		(69	)	-	(11	)	(80	)
Foreign exchange contracts	-		-		-	-		-
Credit contracts	2		(1	)	-	(44	)	(43	)
Other derivative contracts	-		-		-	(1	)	(1	)
Total derivative contracts	2		(70	)	-	(417	)	(485	)
Equity securities:
Marketable	-		-		-	-		-
Nonmarketable	-		(1	)	-	-		(1	)
Total equity securities	-		(1	)	-	-		(1	)
Short sale liabilities	-		-		-	-		-
Other liabilities	-		-		-	-		-


(1)	For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).

144

Note 15: Fair Values of Assets and Liabilities ( continued )

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2018 , are presented in Table 15.8 .

Table 15.8: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Six months ended June 30, 2018



				Total net gains (losses) included in				Purchases, sales, issuances and settlements, net (1)								Net unrealized gains (losses) included in income related to assets and liabilities held at period end
(in millions)	Balance, beginning of period			Net income		Other compre- hensive income			Transfers into Level 3		Transfers out of Level 3		Balance, end of period		(2)
Six months ended June 30, 2018
Trading debt securities:
Securities of U.S. states and political subdivisions	$	3		-		-		-		-		-		3		-
Collateralized loan obligations	354			(4	)	-		(59	)	-		-		291		-
Corporate debt securities	31			-		-		6		-		(1	)	36		-
Mortgage-backed securities	-			-		-		-		-		-		-		-
Asset-backed securities	-			-		-		-		-		-		-		-
Other trading debt securities	19			(2	)	-		-		-		-		17		-
Total trading debt securities	407			(6	)	-		(53	)	-		(1	)	347		-		(3)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	925			5		(2	)	(90	)	-		(279	)	559		-
Mortgage-backed securities:
Residential	1			-		(1	)	-		-		-		-		-
Commercial	75			1		(2	)	(21	)	-		-		53		-
Total mortgage-backed securities	76			1		(3	)	(21	)	-		-		53		-
Corporate debt securities	407			2		4		30		-		-		443		-
Collateralized loan and other debt obligations	1,020			11		53		(47	)	-		-		1,037		-
Asset-backed securities:
Automobile loans and leases	-			-		-		-		-		-		-		-
Other asset-backed securities	566			8		(8	)	(165	)	-		-		401		-
Total asset-backed securities	566			8		(8	)	(165	)	-		-		401		-
Total available-for-sale debt securities	2,994			27		44		(293	)	-		(279	)	2,493		-		(4)
Mortgage loans held for sale	998			(34	)	-		(12	)	40		(6	)	986		(32	)	(5)
Loans held for sale	14			1		-		(16	)	21		-		20		-
Loans	376			(1	)	-		(54	)	-		-		321		(7	)	(5)
Mortgage servicing rights (residential) (6)	13,625			732		-		1,054		-		-		15,411		1,675		(5)
Net derivative assets and liabilities:
Interest rate contracts	71			(408	)	-		296		-		-		(41	)	(94	)
Commodity contracts	19			30		-		(26	)	3		-		26		22
Equity contracts	(511		)	57		-		64		-		51		(339	)	80
Foreign exchange contracts	7			(25	)	-		3		-		-		(15	)	(17	)
Credit contracts	36			(4	)	-		(8	)	-		-		24		(8	)
Other derivative contracts	-			-		-		-		-		-		-		-
Total derivative contracts	(378		)	(350	)	-		329		3		51		(345	)	(17	)	(7)
Equity securities:
Marketable	-			-		-		-		-		-		-		-
Nonmarketable (8)	5,203			693		-		(96	)	10		(4	)	5,806		687
Total equity securities	5,203			693		-		(96	)	10		(4	)	5,806		687		(9)
Short sale liabilities	-			-		-		-		-		-		-		-		(3)
Other liabilities	(3		)	1		-		-		-		-		(2	)	-		(5)


(1)	See Table 15.9 for detail.


(2)	Represents only net gains (losses) that are due to changes in economic conditions and management's estimates of fair value and excludes changes due to the collection/realization of cash flows over time.


(3)	Included in net gains (losses) from trading activities in the income statement.


(4)	Included in net gains (losses) from debt securities in the income statement.


(5)	Included in mortgage banking and other noninterest income in the income statement.


(6)	For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).


(7)	Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.


(8)	Beginning balance includes $382 million of auction rate securities, which changed from the cost to fair value method of accounting in connection with the adoption of ASU 2016-01 in first quarter 2018.


(9)	Included in net gains (losses) from equity securities in the income statement.

(continued on following page)

145

(continued from previous page)

Table 15.9 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2018 .

Table 15.9: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Six months ended June 30, 2018



(in millions)	Purchases		Sales		Issuances	Settlements		Net
Six months ended June 30, 2018
Trading debt securities:
Securities of U.S. states and political subdivisions	$	-	-		-	-		-
Collateralized loan obligations	271		(230	)	-	(100	)	(59	)
Corporate debt securities	8		(2	)	-	-		6
Mortgage-backed securities	-		-		-	-		-
Asset-backed securities	-		-		-	-		-
Other trading debt securities	-		-		-	-		-
Total trading debt securities	279		(232	)	-	(100	)	(53	)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	-		(4	)	10	(96	)	(90	)
Mortgage-backed securities:
Residential	-		-		-	-		-
Commercial	-		-		-	(21	)	(21	)
Total mortgage-backed securities	-		-		-	(21	)	(21	)
Corporate debt securities	31		-		-	(1	)	30
Collateralized loan and other debt obligations	-		-		-	(47	)	(47	)
Asset-backed securities:
Automobile loans and leases	-		-		-	-		-
Other asset-backed securities	-		(8	)	58	(215	)	(165	)
Total asset-backed securities	-		(8	)	58	(215	)	(165	)
Total available-for-sale debt securities	31		(12	)	68	(380	)	(293	)
Mortgage loans held for sale	47		(151	)	167	(75	)	(12	)
Loans held for sale	-		(16	)	-	-		(16	)
Loans	1		-		8	(63	)	(54	)
Mortgage servicing rights (residential) (1)	-		(5	)	1,059	-		1,054
Net derivative assets and liabilities:
Interest rate contracts	-		-		-	296		296
Commodity contracts	-		-		-	(26	)	(26	)
Equity contracts	-		-		-	64		64
Foreign exchange contracts	-		-		-	3		3
Credit contracts	8		(4	)	-	(12	)	(8	)
Other derivative contracts	-		-		-	-		-
Total derivative contracts	8		(4	)	-	325		329
Equity securities:
Marketable	-		-		-	-		-
Nonmarketable	-		(17	)	-	(79	)	(96	)
Total equity securities	-		(17	)	-	(79	)	(96	)
Short sale liabilities	-		-		-	-		-
Other liabilities	-		-		-	-		-


(1)	For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).

146

Note 15: Fair Values of Assets and Liabilities ( continued )

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2017 , are presented in Table 15.10 .

Table 15.10: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Six months ended June 30, 2017



	Balance, beginning of period			Total net gains (losses) included in				Purchases, sales, issuances and settlements, net (1)								Net unrealized gains (losses) included in income related to assets and liabilities held at period end
(in millions)		Net income		Other compre- hensive income			Transfers into Level 3		Transfers out of Level 3		Balance, end of period		(2)
Six months ended June 30, 2017
Trading debt securities:
Securities of U.S. states and political subdivisions	$	3		-		-		6		-		-		9		-
Collateralized loan obligations	309			(3	)	-		97		-		-		403		7
Corporate debt securities	34			1		-		(11	)	3		(1	)	26		-
Mortgage-backed securities	-			-		-		-		-		-		-		-
Asset-backed securities	-			-		-		-		-		-		-		-
Other trading debt securities	28			(3	)	-		-		-		-		25		(1	)
Total trading debt securities	374			(5	)	-		92		3		(1	)	463		6		(3)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	1,140			1		4		903		5		(496	)	1,557		-
Mortgage-backed securities:
Residential	1			-		-		-		-		-		1		-
Commercial	91			(6	)	(1	)	(9	)	-		-		75		(11	)
Total mortgage-backed securities	92			(6	)	(1	)	(9	)	-		-		76		(11	)
Corporate debt securities	432			(14	)	10		(52	)	-		-		376		-
Collateralized loan and other debt obligations	879			10		45		68		-		-		1,002		-
Asset-backed securities:
Automobile loans and leases	-			-		-		-		-		-		-		-
Other asset-backed securities	962			-		3		(93	)	-		-		872		-
Total asset-backed securities	962			-		3		(93	)	-		-		872		-
Total available-for-sale debt securities	3,505			(9	)	61		817		5		(496	)	3,883		(11	)	(4)
Mortgage loans held for sale	985			(10	)	-		(35	)	61		(6	)	995		(10	)	(5)
Loans held for sale	-			-		-		(2	)	16		-		14		-
Loans	758			(6	)	-		(309	)	-		-		443		(8	)	(5)
Mortgage servicing rights (residential) (6)	12,959			(1,134	)	-		964		-		-		12,789		(186	)	(5)
Net derivative assets and liabilities:
Interest rate contracts	121			467		-		(473	)	-		-		115		(7	)
Commodity contracts	23			2		-		(6	)	-		(2	)	17		14
Equity contracts	(267		)	(58	)	-		(43	)	(22	)	(81	)	(471	)	(189	)
Foreign exchange contracts	12			(8	)	-		-		-		-		4		(5	)
Credit contracts	77			35		-		(40	)	-		-		72		(32	)
Other derivative contracts	(47		)	14		-		(1	)	-		-		(34	)	14
Total derivative contracts	(81		)	452		-		(563	)	(22	)	(83	)	(297	)	(205	)	(7)
Equity securities:
Marketable	-			-		-		-		-		-		-		-
Nonmarketable	3,259			701		-		(1	)	1		-		3,960		711
Total equity securities	3,259			701		-		(1	)	1		-		3,960		711		(8)
Short sale liabilities	-			-		-		-		-		-		-		-		(3)
Other liabilities	(4		)	1		-		-		-		-		(3	)	-		(5)


(1)	See Table 15.11 for detail.


(2)	Represents only net gains (losses) that are due to changes in economic conditions and management's estimates of fair value and excludes changes due to the collection/realization of cash flows over time.


(3)	Included in net gains (losses) from trading activities in the income statement.


(4)	Included in net gains (losses) from debt securities in the income statement.


(5)	Included in mortgage banking and other noninterest income in the income statement.


(6)	For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).


(7)	Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.


(8)	Included in net gains (losses) from equity securities in the income statement.

(continued on following page)

147

(continued from previous page)

Table 15.11 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2017 .

Table 15.11: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Six months ended June 30, 2017



(in millions)	Purchases		Sales		Issuances	Settlements		Net
Six months ended June 30, 2017
Trading debt securities:
Securities of U.S. states and political subdivisions	$	7	(1	)	-	-		6
Collateralized loan obligations	286		(129	)	-	(60	)	97
Corporate debt securities	9		(20	)	-	-		(11	)
Mortgage-backed securities	-		-		-	-		-
Asset-backed securities	-		-		-	-		-
Other trading debt securities	-		-		-	-		-
Total trading debt securities	302		(150	)	-	(60	)	92
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	-		-		1,001	(98	)	903
Mortgage-backed securities:
Residential	-		-		-	-		-
Commercial	-		-		-	(9	)	(9	)
Total mortgage-backed securities	-		-		-	(9	)	(9	)
Corporate debt securities	4		-		-	(56	)	(52	)
Collateralized loan and other debt obligations	129		-		-	(61	)	68
Asset-backed securities:
Automobile loans and leases	-		-		-	-		-
Other asset-backed securities	-		-		182	(275	)	(93	)
Total asset-backed securities	-		-		182	(275	)	(93	)
Total available-for-sale debt securities	133		-		1,183	(499	)	817
Mortgage loans held for sale	40		(244	)	239	(70	)	(35	)
Loans held for sale	-		-		-	(2	)	(2	)
Loans	3		(129	)	9	(192	)	(309	)
Mortgage servicing rights (residential) (1)	-		(55	)	1,019	-		964
Net derivative assets and liabilities:
Interest rate contracts	-		-		-	(473	)	(473	)
Commodity contracts	-		-		-	(6	)	(6	)
Equity contracts	-		(69	)	-	26		(43	)
Foreign exchange contracts	-		-		-	-		-
Credit contracts	4		(2	)	-	(42	)	(40	)
Other derivative contracts	-		-		-	(1	)	(1	)
Total derivative contracts	4		(71	)	-	(496	)	(563	)
Equity securities:
Marketable	-		-		-	-		-
Nonmarketable	-		(1	)	-	-		(1	)
Total equity securities	-		(1	)	-	-		(1	)
Short sale liabilities	-		-		-	-		-
Other liabilities	-		-		-	-		-


(1)	For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).

Table 15.12 and Table 15.13 provide quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a recurring basis for which we use an internal model.

The significant unobservable inputs for Level 3 assets and liabilities that are valued using fair values obtained from third party vendors are not included in the table, as the specific inputs applied are not provided by the vendor. In addition, the table excludes the valuation techniques and significant unobservable inputs for certain classes of Level 3 assets and liabilities measured using an internal model that we consider, both individually and in the aggregate, insignificant relative to our overall Level 3 assets and liabilities. We made this determination based upon an evaluation of each class, which considered the magnitude of the positions, nature of the unobservable inputs and potential for significant changes in fair value due to changes

in those inputs. For information on how changes in significant unobservable inputs affect the fair values of Level 3 assets and liabilities, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 2017 Form 10-K.

148

Note 15: Fair Values of Assets and Liabilities ( continued )

Table 15.12: Valuation Techniques – Recurring Basis –June 30, 2018



($ in millions, except cost to service amounts)	Fair Value Level 3				Valuation Technique(s)	Significant Unobservable Input	Range of Inputs							Weighted Average (1)
June 30, 2018
Trading and available-for-sale debt securities:
Securities of U.S. states and political subdivisions:
Government, healthcare and other revenue bonds	$	512			Discounted cash flow	Discount rate	1.8			-	6.3		%	3.0
Other municipal bonds	10				Discounted cash flow	Discount rate	4.9			-	4.9			4.9
	40				Vendor priced
Collateralized loan and other debt obligations (2)	291				Market comparable pricing	Comparability adjustment	(18.5		)	-	16.5			2.5
	1,037				Vendor priced
Asset-backed securities:
Diversified payment rights (3)	213				Discounted cash flow	Discount rate	2.9			-	5.9			4.2
Other commercial and consumer	161			(4)	Discounted cash flow	Discount rate	4.1			-	5.6			4.4
						Weighted average life	1.6			-	1.9		yrs	1.6
	27				Vendor priced
Mortgage loans held for sale (residential)	969				Discounted cash flow	Default rate	0.0			-	8.6		%	1.0
						Discount rate	1.1			-	7.1			5.7
						Loss severity	0.0			-	44.9			25.4
						Prepayment rate	3.1			-	13.7			5.4
	17				Market comparable pricing	Comparability adjustment	(56.3		)	-	(25.0	)		(44.7	)
Loans	321			(5)	Discounted cash flow	Discount rate	3.3			-	7.2			4.2
						Prepayment rate	4.3			-	100.0			90.9
						Loss severity	0.0			-	34.6			8.5
Mortgage servicing rights (residential)	15,411				Discounted cash flow	Cost to service per loan (6)	$	77		-	528			131
						Discount rate	7.1			-	13.5		%	7.3
						Prepayment rate (7)	7.8			-	20.7			8.9
Net derivative assets and (liabilities):
Interest rate contracts	(65		)		Discounted cash flow	Default rate	0.1			-	5.0			2.1
						Loss severity	50.0			-	50.0			50.0
						Prepayment rate	2.8			-	12.5			10.6
Interest rate contracts: derivative loan commitments	24				Discounted cash flow	Fall-out factor	1.0			-	99.0			15.5
						Initial-value servicing	(49.6		)	-	69.7		bps	6.5
Equity contracts	133				Discounted cash flow	Conversion factor	(9.6		)	-	0.0		%	(8.7	)
						Weighted average life	1.0			-	2.5		yrs	1.8
	(472		)		Option model	Correlation factor	(77.0		)	-	99.0		%	28.0
						Volatility factor	6.5			-	100.0			19.0
Credit contracts	(2		)		Market comparable pricing	Comparability adjustment	(24.9		)	-	37.9			0.1
	26				Option model	Credit spread	0.0			-	8.2			0.6
						Loss severity	13.0			-	60.0			52.6
Nonmarketable equity securities	8				Discounted cash flow	Discount rate	10.0			-	10.0			10.0
						Volatility Factor	1.5			-	2.7			2.3
	5,505				Market comparable pricing	Comparability adjustment	(21.9		)	-	(8.2	)		(16.4	)
	293				Vendor priced

Insignificant Level 3 assets, net of liabilities	578			(8)
Total level 3 assets, net of liabilities	$	25,037		(9)


(1)	Weighted averages are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.


(2)	Includes $1.0 billion of collateralized debt obligations.


(3)	Securities backed by specified sources of current and future receivables generated from foreign originators.


(4)	A significant portion of the balance consists of investments in asset-backed securities that are revolving in nature, for which the timing of advances and repayments of principal are uncertain.


(5)	Consists of reverse mortgage loans.


(6)	The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $77 - $239 .


(7)	Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower behavior.

(8)

Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes corporate debt securities, mortgage-backed securities, other trading positions, other liabilities and certain net derivative assets and liabilities, such as commodity contracts, foreign exchange contracts, and other derivative contracts.


(9)	Consists of total Level 3 assets of $27.1 billion and total Level 3 liabilities of $2.1 billion , before netting of derivative balances.

149

Table 15.13: Valuation Techniques – Recurring Basis –December 31, 2017



($ in millions, except cost to service amounts)	Fair Value Level 3				Valuation Technique(s)	Significant Unobservable Input	Range of Inputs							Weighted Average (1)
December 31, 2017
Trading and available-for-sale debt securities:
Securities of U.S. states and political subdivisions:
Government, healthcare and other revenue bonds	$	868			Discounted cash flow	Discount rate	1.7			-	5.8		%	2.7
Other municipal bonds	11				Discounted cash flow	Discount rate	4.7			-	4.9			4.8
	49				Vendor priced
Collateralized loan and other debt obligations (2)	354				Market comparable pricing	Comparability adjustment	(22.0		)	-	19.5			3.0
	1,020				Vendor priced
Asset-backed securities:
Diversified payment rights (3)	292				Discounted cash flow	Discount rate	2.4			-	3.9			3.1
Other commercial and consumer	248			(4)	Discounted cash flow	Discount rate	3.7			-	5.2			3.9
						Weighted average life	2.0			-	2.3		yrs	2.1
	26				Vendor priced
Mortgage loans held for sale (residential)	974				Discounted cash flow	Default rate	0.0			-	7.1		%	1.3
						Discount rate	2.6			-	7.3			5.6
						Loss severity	0.1			-	41.4			19.6
						Prepayment rate	6.5			-	15.9			9.1
	24				Market comparable pricing	Comparability adjustment	(56.3		)	-	(6.3	)		(42.7	)
Loans	376			(5)	Discounted cash flow	Discount rate	3.1			-	7.5			4.2
						Prepayment rate	8.7			-	100.0			91.9
						Loss severity	0.0			-	33.9			6.6
Mortgage servicing rights (residential)	13,625				Discounted cash flow	Cost to service per loan (6)	$	78		-	587			143
						Discount rate	6.6			-	12.9		%	6.9
						Prepayment rate (7)	9.7			-	20.5			10.5
Net derivative assets and (liabilities):
Interest rate contracts	54				Discounted cash flow	Default rate	0.0			-	5.0			2.1
						Loss severity	50.0			-	50.0			50.0
						Prepayment rate	2.8			-	12.5			10.5
Interest rate contracts: derivative loan commitments	17				Discounted cash flow	Fall-out factor	1.0			-	99.0			15.2
						Initial-value servicing	(59.9		)	-	101.1		bps	2.7
Equity contracts	102				Discounted cash flow	Conversion factor	(9.7		)	-	0.0		%	(7.6	)
						Weighted average life	0.5			-	3.0		yrs	1.6
	(613		)		Option model	Correlation factor	(77.0		)	-	98.0		%	24.2
						Volatility factor	5.7			-	95.5			19.2
Credit contracts	(3		)		Market comparable pricing	Comparability adjustment	(29.9		)	-	17.3			(0.2	)
	39				Option model	Credit spread	0.0			-	63.7			1.3
						Loss severity	13.0			-	60.0			50.7
Nonmarketable equity securities	8				Discounted cash flow	Discount rate	10.0			-	10.0			10.0
						Volatility Factor	0.5			-	1.9			1.4
	4,813				Market comparable pricing	Comparability adjustment	(21.1		)	-	(5.5	)		(15.0	)

Insignificant Level 3 assets, net of liabilities	570			(8)
Total level 3 assets, net of liabilities	$	22,854		(9)


(1)	Weighted averages are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.


(2)	Includes $1.0 billion of collateralized debt obligations.


(3)	Securities backed by specified sources of current and future receivables generated from foreign originators.


(4)	A significant portion of the balance consists of investments in asset-backed securities that are revolving in nature, for which the timing of advances and repayments of principal are uncertain.


(5)	Consists of reverse mortgage loans.


(6)	The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $78 - $252 .


(7)	Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower behavior.

(8)


(9)	Consists of total Level 3 assets of $24.9 billion and total Level 3 liabilities of $2.0 billion , before netting of derivative balances.

150

Note 15: Fair Values of Assets and Liabilities ( continued )

The valuation techniques used for our Level 3 assets and liabilities, as presented in the previous tables, are described as follows:


•	Discounted cash flow – Discounted cash flow valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of an instrument and then discounting those cash flows at a rate of return that results in the fair value amount.


•	Market comparable pricing – Market comparable pricing valuation techniques are used to determine the fair value of certain instruments by incorporating known inputs, such as recent transaction prices, pending transactions, or prices of other similar investments that require significant adjustment to reflect differences in instrument characteristics.

•

Option model – Option model valuation techniques are generally used for instruments in which the holder has a contingent right or obligation based on the occurrence of a future event, such as the price of a referenced asset going above or below a predetermined strike price. Option models estimate the likelihood of the specified event occurring by incorporating assumptions such as volatility estimates, price of the underlying instrument and expected rate of return.


•	Vendor-priced – Prices obtained from third party pricing vendors or brokers that are used to record the fair value of the asset or liability for which the related valuation technique and significant unobservable inputs are not provided.

Significant unobservable inputs presented in the previous tables are those we consider significant to the fair value of the Level 3 asset or liability. We consider unobservable inputs to be significant if by their exclusion the fair value of the Level 3 asset or liability would be impacted by a predetermined percentage change. We also consider qualitative factors, such as nature of the instrument, type of valuation technique used, and the significance of the unobservable inputs relative to other inputs used within the valuation. Following is a description of the significant unobservable inputs provided in the table.


•	Comparability adjustment – is an adjustment made to observed market data, such as a transaction price in order to reflect dissimilarities in underlying collateral, issuer, rating, or other factors used within a market valuation approach, expressed as a percentage of an observed price.


•	Conversion Factor – is the risk-adjusted rate in which a particular instrument may be exchanged for another instrument upon settlement, expressed as a percentage change from a specified rate.


•	Correlation factor – is the likelihood of one instrument changing in price relative to another based on an established relationship expressed as a percentage of relative change in price over a period over time.


•	Cost to service – is the expected cost per loan of servicing a portfolio of loans, which includes estimates for unreimbursed expenses (including delinquency and foreclosure costs) that may occur as a result of servicing such loan portfolios.


•	Credit spread – is the portion of the interest rate in excess of a benchmark interest rate, such as Overnight Index Swap (OIS), LIBOR or U.S. Treasury rates, that when applied to an investment captures changes in the obligor's creditworthiness.


•	Default rate – is an estimate of the likelihood of not collecting contractual amounts owed expressed as a constant default rate (CDR).

•

Discount rate – is a rate of return used to calculate the present value of the future expected cash flow to arrive at the fair value of an instrument. The discount rate consists of a benchmark rate component and a risk premium component. The benchmark rate component, for example, OIS, LIBOR or U.S. Treasury rates, is generally observable within the market and is necessary to appropriately reflect the time value of money. The risk premium component reflects the amount of compensation market participants require due to the uncertainty inherent in the instruments' cash flows resulting from risks such as credit and liquidity.


•	Fall-out factor – is the expected percentage of loans associated with our interest rate lock commitment portfolio that are likely of not funding.


•	Initial-value servicing – is the estimated value of the underlying loan, including the value attributable to the embedded servicing right, expressed in basis points of outstanding unpaid principal balance.


•	Loss severity – is the estimated percentage of contractual cash flows lost in the event of a default.


•	Prepayment rate – is the estimated rate at which forecasted prepayments of principal of the related loan or debt instrument are expected to occur, expressed as a constant prepayment rate (CPR).


•	Volatility factor – is the extent of change in price an item is estimated to fluctuate over a specified period of time expressed as a percentage of relative change in price over a period over time.


•	Weighted average life – is the weighted average number of years an investment is expected to remain outstanding based on its expected cash flows reflecting the estimated date the issuer will call or extend the maturity of the instrument or otherwise reflecting an estimate of the timing of an instrument's cash flows whose timing is not contractually fixed.

151

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of LOCOM accounting, write-downs of individual assets or

commencing in 2018 with adoption of ASU 2016-01, use of the measurement alternative for nonmarketable equity securities. Table 15.14 provides the fair value hierarchy and carrying amount of all assets that were still held as of June 30, 2018 , and December 31, 2017 , and for which a nonrecurring fair value adjustment was recorded during the periods presented.

Table 15.14: Fair Value on a Nonrecurring Basis



	June 30, 2018					December 31, 2017
(in millions)	Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Mortgage loans held for sale (LOCOM) (1)	$	-	1,861	1,262	3,123	-	1,646	1,333	2,979
Loans held for sale	-		1,880	-	1,880	-	108	-	108
Loans:
Commercial	-		298	-	298	-	374	-	374
Consumer	-		243	4	247	-	502	10	512
Total loans (2)	-		541	4	545	-	876	10	886
Nonmarketable equity securities (3)	-		522	180	702	-	-	136	136
Other assets (4)	-		184	7	191	-	177	161	338
Total assets at fair value on a nonrecurring basis (5)	$	-	4,988	1,453	6,441	-	2,807	1,640	4,447


(1)	Consists of commercial mortgages and residential real estate 1-4 family first mortgage loans.


(2)	Represents the carrying value of loans for which nonrecurring adjustments are based on the appraised value of the collateral.


(3)	Consists of certain nonmarketable equity securities that are measured at fair value on a nonrecurring basis, including observable price adjustments for nonmarketable equity securities carried under the measurement alternative.


(4)	Includes the fair value of foreclosed real estate, other collateral owned and operating lease assets.


(5)	Prior period balances exclude $6 million of nonmarketable equity securities at NAV.

Table 15.15 presents the increase (decrease) in value of certain assets held at the end of the respective reporting periods presented for which a nonrecurring fair value adjustment was recognized during the periods presented.

Table 15.15: Change in Value of Assets with Nonrecurring Fair Value Adjustment



	Six months ended June 30,
(in millions)	2018			2017
Mortgage loans held for sale (LOCOM)	$	13		14
Loans held for sale	(78		)	(1	)
Loans:
Commercial	(138		)	(186	)
Consumer	(185		)	(261	)
Total loans (1)	(323		)	(447	)
Nonmarketable equity securities (2)	(17		)	(9	)
Other assets (3)	(30		)	(57	)
Total	$	(435	)	(500	)


(1)	Represents write-downs of loans based on the appraised value of the collateral.


(2)	Includes impairment losses and observable price adjustments for certain nonmarketable equity securities.


(3)	Includes the losses on foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

152

Note 15: Fair Values of Assets and Liabilities ( continued )

Table 15.16 provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets that are measured at fair value on a nonrecurring basis using an internal model. The table is limited to financial instruments that had nonrecurring fair value adjustments during the periods presented.

We have excluded from the table valuation techniques and significant unobservable inputs for certain classes of Level 3

assets measured using an internal model that we consider, both individually and in the aggregate, insignificant relative to our overall Level 3 nonrecurring measurements. We made this determination based upon an evaluation of each class that considered the magnitude of the positions, nature of the unobservable inputs and potential for significant changes in fair value due to changes in those inputs.

Table 15.16: Valuation Techniques – Nonrecurring Basis



($ in millions)	Fair Value Level 3			Valuation Technique(s) (1)	Significant Unobservable Inputs (1)		Range of inputs				Weighted Average (2)
June 30, 2018
Residential mortgage loans held for sale (LOCOM)	$	1,262	(3)	Discounted cash flow	Default rate	(4)	0.1	-	2.4	%	1.7	%
					Discount rate		1.5	-	8.5		3.9
					Loss severity		0.6	-	63.7		2.0
					Prepayment rate	(5)	6.1	-	100.0		47.8
Nonmarketable equity securities	-			Discounted cash flow	Discount rate		-	-	-		-
Insignificant level 3 assets	191
Total	$	1,453
December 31, 2017
Residential mortgage loans held for sale (LOCOM)	$	1,333	(3)	Discounted cash flow	Default rate	(4)	0.1	-	4.1	%	1.7	%
					Discount rate		1.5	-	8.5		3.8
					Loss severity		0.7	-	52.9		2.2
					Prepayment rate	(5)	5.4	-	100.0		50.6
Nonmarketable equity securities	122			Discounted cash flow	Discount rate		5.0	-	10.5		10.2
Insignificant level 3 assets	185
Total	$	1,640


(1)	Refer to the narrative following Table 15.13 for a definition of the valuation technique(s) and significant unobservable inputs.


(2)	For residential MLHFS, weighted averages are calculated using the outstanding unpaid principal balance of the loans.


(3)	Consists of approximately $1.2 billion and $1.3 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at June 30, 2018 , and December 31, 2017 , respectively, and $25 million and $26 million of other mortgage loans that are not government insured/guaranteed at June 30, 2018 and December 31, 2017 , respectively.


(4)	Applies only to non-government insured/guaranteed loans.


(5)	Includes the impact on prepayment rate of expected defaults for government insured/guaranteed loans, which impact the frequency and timing of early resolution of loans.

153

Fair Value Option

The fair value option is an irrevocable election, generally only permitted upon initial recognition of financial assets or liabilities, to measure eligible financial instruments at fair value with changes in fair value reflected in earnings. We may elect the fair value option to align the measurement model with how the financial assets or liabilities are managed or to reduce complexity or accounting asymmetry. For more information, including the

basis for our fair value option elections, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 2017 Form 10-K.

Table 15.17 reflects differences between the fair value carrying amount of the assets for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity.

Table 15.17: Fair Value Option



	June 30, 2018					December 31, 2017
(in millions)	Fair value carrying amount		Aggregate unpaid principal	Fair value carrying amount less aggregate unpaid principal		Fair value carrying amount	Aggregate unpaid principal	Fair value carrying amount less aggregate unpaid principal
Mortgage loans held for sale:
Total loans	$	16,586	16,353	233		16,116	15,827	289
Nonaccrual loans	123		161	(38	)	127	165	(38	)
Loans 90 days or more past due and still accruing	8		11	(3	)	16	21	(5	)
Loans held for sale:
Total loans	1,350		1,404	(54	)	1,023	1,075	(52	)
Nonaccrual loans	27		49	(22	)	34	56	(22	)
Loans:
Total loans	321		353	(32	)	376	404	(28	)
Nonaccrual loans	228		259	(31	)	253	281	(28	)
Equity securities (1)	5,548		N/A	N/A		4,867	N/A	N/A


(1)	Consists of nonmarketable equity securities carried at fair value.

154

Note 15: Fair Values of Assets and Liabilities ( continued )

The assets accounted for under the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in earnings. The changes in fair value related to initial

measurement and subsequent changes in fair value included in earnings for these assets measured at fair value are shown in Table 15.18 by income statement line item.

Table 15.18: Fair Value Option – Changes in Fair Value Included in Earnings



	2018						2017
(in millions)	Mortgage banking noninterest income		Net gains (losses) from trading activities		Other noninterest income		Mortgage banking noninterest income	Net gains (losses) from trading activities		Other noninterest income
Quarter ended June 30,
Mortgage loans held for sale	$	114	-		-		288	-		-
Loans held for sale	-		9		-		-	11		1
Loans	-		-		-		-	-		-
Equity securities	-		-		593		-	-		221
Other interests held (1)	-		(1	)	-		-	(2	)	-
Six months ended June 30,
Mortgage loans held for sale	$	55	-		-		567	-		-
Loans held for sale	-		15		-		-	36		1
Loans	-		-		(1	)	-	-		-
Equity securities	-		-		694		-	-		711
Other interests held (1)	-		(2	)	-		-	(4	)	-


(1)	Includes retained interests in securitizations.

For performing loans, instrument-specific credit risk gains or losses were derived principally by determining the change in fair value of the loans due to changes in the observable or implied credit spread. Credit spread is the market yield on the loans less the relevant risk-free benchmark interest rate. For

nonperforming loans, we attribute all changes in fair value to instrument-specific credit risk. Table 15.19 shows the estimated gains and losses from earnings attributable to instrument-specific credit risk related to assets accounted for under the fair value option.

Table 15.19: Fair Value Option – Gains/Losses Attributable to Instrument-Specific Credit Risk



	Quarter ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017
Gains (losses) attributable to instrument-specific credit risk:
Mortgage loans held for sale	$	(2	)	(4	)	(1	)	(5	)
Loans held for sale	9			11		15		36
Total	$	7		7		14		31

Disclosures about Fair Value of Financial Instruments

Table 15.20 is a summary of fair value estimates for financial instruments, excluding financial instruments recorded at fair value on a recurring basis, as they are included within Table 15.2 in this Note. In connection with the adoption of ASU 2016-01 in first quarter 2018, the valuation methodologies for estimating the fair value of financial instruments in Table 15.20 have been changed, where necessary, to conform with an exit price notion . Under an exit price notion, fair value estimates are based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date. For certain loans and deposit liabilities, the estimated fair values prior to adoption of ASU 2016-01 followed an entrance price notion that based fair values on recent prices offered to customers for loans and deposits with similar characteristics. The carrying amounts in the following table are recorded on the balance sheet under the indicated captions.

We have not included assets and liabilities that are not financial instruments in our disclosure, such as the value of the long-term relationships with our deposit, credit card and trust

customers, amortized MSRs, premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities.

The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.

155

Table 15.20: Fair Value Estimates for Financial Instruments



			Estimated fair value
(in millions)	Carrying amount		Level 1	Level 2	Level 3	Total
June 30, 2018
Financial assets
Cash and due from banks (1)	$	20,450	20,450	-	-	20,450
Interest-earning deposits with banks (1)	142,999		142,832	167	-	142,999
Federal funds sold and securities purchased under resale agreements (1)	80,184		-	80,184	-	80,184
Held-to-maturity debt securities	144,206		43,945	95,924	502	140,371
Mortgage loans held for sale	4,923		-	3,665	1,262	4,927
Loans held for sale	2,058		-	2,058	-	2,058
Loans, net (2)(3)	914,443		-	47,963	869,895	917,858
Nonmarketable equity securities (cost method) (4)	5,673		-	-	5,705	5,705
Total financial assets	$	1,314,936	207,227	229,961	877,364	1,314,552
Financial liabilities
Deposits (3)(5)	$	122,919	-	102,658	20,108	122,766
Short-term borrowings	104,496		-	104,496	-	104,496
Long-term debt (6)	219,246		-	218,979	1,922	220,901
Total financial liabilities	$	446,661	-	426,133	22,030	448,163
December 31, 2017
Financial assets
Cash and due from banks (1)	$	23,367	23,367	-	-	23,367
Interest-earning deposits with banks (1)	192,580		192,455	125	-	192,580
Federal funds sold and securities purchased under resale agreements (1)	80,025		1,002	78,954	69	80,025
Held-to-maturity securities	139,335		44,806	93,694	485	138,985
Mortgage loans held for sale	3,954		-	2,625	1,333	3,958
Loans held for sale	108		-	108	-	108
Loans, net (2)(3)	926,273		-	51,713	886,622	938,335
Nonmarketable equity securities (cost method)	7,136		-	23	7,605	7,628
Total financial assets (7)	$	1,372,778	261,630	227,242	896,114	1,384,986
Financial liabilities
Deposits (3)(5)	$	128,594	-	108,146	19,768	127,914
Short-term borrowings	103,256		-	103,256	-	103,256
Long-term debt (6)	224,981		-	227,109	3,159	230,268
Total financial liabilities	$	456,831	-	438,511	22,927	461,438


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


(2)	Excludes lease financing with a carrying amount of $19.6 billion and $19.4 billion at June 30, 2018 , and December 31, 2017 , respectively.


(3)	In connection with the adoption of ASU 2016-01, the valuation methodologies used to estimate the fair value at June 30, 2018 , for a portion of loans and deposit liabilities with a defined or contractual maturity has been changed to conform to an exit price notion. The fair value estimates at December 31, 2017 have not been revised to reflect application of the modified methodology.


(4)	Excludes $1.4 billion of nonmarketable equity securities accounted for under the measurement alternative at June 30, 2018 , that were accounted for under the cost method in prior periods.


(5)	Excludes deposit liabilities with no defined or contractual maturity of $1.1 trillion and $1.2 trillion at June 30, 2018 and December 31, 2017 , respectively.


(6)	Excludes capital lease obligations under capital leases of $38 million and $39 million at June 30, 2018 , and December 31, 2017 , respectively.


(7)	Excludes $27 million of carrying value and $30 million of fair value relating to nonmarketable equity securities at NAV at December 31, 2017 .

Loan commitments, standby letters of credit and commercial and similar letters of credit are not included in the table above. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the allowance for unfunded credit commitments, which totaled $1.0 billion at both June 30, 2018 , and December 31, 2017 .

156

Note 16: Preferred Stock ( continued )

Note 16: Preferred Stock

We are authorized to issue 20 million shares of preferred stock and 4 million shares of preference stock, both without par value. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. We have not issued any preference shares under

this authorization. If issued, preference shares would be limited to one vote per share. Our total authorized, issued and outstanding preferred stock is presented in the following two tables along with the Employee Stock Ownership Plan (ESOP) Cumulative Convertible Preferred Stock.

Table 16.1: Preferred Stock Shares



	June 30, 2018			December 31, 2017
	Liquidation preference per share		Shares authorized and designated	Liquidation preference per share		Shares authorized and designated
DEP Shares
Dividend Equalization Preferred Shares (DEP)	$	10	97,000	$	10	97,000
Series I
Floating Class A Preferred Stock	100,000		25,010	100,000		25,010
Series J
8.00% Non-Cumulative Perpetual Class A Preferred Stock	1,000		2,300,000	1,000		2,300,000
Series K (1)
Floating Non-Cumulative Perpetual Class A Preferred Stock	1,000		3,500,000	1,000		3,500,000
Series L
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock	1,000		4,025,000	1,000		4,025,000
Series N
5.20% Non-Cumulative Perpetual Class A Preferred Stock	25,000		30,000	25,000		30,000
Series O
5.125% Non-Cumulative Perpetual Class A Preferred Stock	25,000		27,600	25,000		27,600
Series P
5.25% Non-Cumulative Perpetual Class A Preferred Stock	25,000		26,400	25,000		26,400
Series Q
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock	25,000		69,000	25,000		69,000
Series R
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock	25,000		34,500	25,000		34,500
Series S
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock	25,000		80,000	25,000		80,000
Series T
6.00% Non-Cumulative Perpetual Class A Preferred Stock	25,000		32,200	25,000		32,200
Series U
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock	25,000		80,000	25,000		80,000
Series V
6.00% Non-Cumulative Perpetual Class A Preferred Stock	25,000		40,000	25,000		40,000
Series W
5.70% Non-Cumulative Perpetual Class A Preferred Stock	25,000		40,000	25,000		40,000
Series X
5.50% Non-Cumulative Perpetual Class A Preferred Stock	25,000		46,000	25,000		46,000
Series Y
5.625% Non-Cumulative Perpetual Class A Preferred Stock	25,000		27,600	25,000		27,600
ESOP
Cumulative Convertible Preferred Stock (2)	-		1,934,853	-		1,556,104
Total			12,415,163			12,036,414


(1)	Effective for the June 15, 2018 dividend payment, Preferred Stock, Series K, converted from a fixed to a floating coupon.


(2)	See the ESOP Cumulative Convertible Preferred Stock section in this Note for additional information about the liquidation preference for the ESOP Cumulative Convertible Preferred Stock.

157

Table 16.2: Preferred Stock – Shares Issued and Carrying Value



	June 30, 2018					December 31, 2017
(in millions, except shares)	Shares issued and outstanding	Liquidation preference value		Carrying value	Discount	Shares issued and outstanding	Liquidation preference value		Carrying value	Discount
DEP Shares
Dividend Equalization Preferred Shares (DEP)	96,546	$	-	-	-	96,546	$	-	-	-
Series I (1)
Floating Class A Preferred Stock	25,010	2,501		2,501	-	25,010	2,501		2,501	-
Series J (1)
8.00% Non-Cumulative Perpetual Class A Preferred Stock	2,150,375	2,150		1,995	155	2,150,375	2,150		1,995	155
Series K (1)(2)
Floating Non-Cumulative Perpetual Class A Preferred Stock	3,352,000	3,352		2,876	476	3,352,000	3,352		2,876	476
Series L (1)
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock	3,968,000	3,968		3,200	768	3,968,000	3,968		3,200	768
Series N (1)
5.20% Non-Cumulative Perpetual Class A Preferred Stock	30,000	750		750	-	30,000	750		750	-
Series O (1)
5.125% Non-Cumulative Perpetual Class A Preferred Stock	26,000	650		650	-	26,000	650		650	-
Series P (1)
5.25% Non-Cumulative Perpetual Class A Preferred Stock	25,000	625		625	-	25,000	625		625	-
Series Q (1)
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock	69,000	1,725		1,725	-	69,000	1,725		1,725	-
Series R (1)
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock	33,600	840		840	-	33,600	840		840	-
Series S (1)
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock	80,000	2,000		2,000	-	80,000	2,000		2,000	-
Series T (1)
6.00% Non-Cumulative Perpetual Class A Preferred Stock	32,000	800		800	-	32,000	800		800	-
Series U (1)
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock	80,000	2,000		2,000	-	80,000	2,000		2,000	-
Series V (1)
6.00% Non-Cumulative Perpetual Class A Preferred Stock	40,000	1,000		1,000	-	40,000	1,000		1,000	-
Series W (1)
5.70% Non-Cumulative Perpetual Class A Preferred Stock	40,000	1,000		1,000	-	40,000	1,000		1,000	-
Series X (1)
5.50% Non-Cumulative Perpetual Class A Preferred Stock	46,000	1,150		1,150	-	46,000	1,150		1,150	-
Series Y (1)
5.625% Non-Cumulative Perpetual Class A Preferred Stock	27,600	690		690	-	27,600	690		690	-
ESOP
Cumulative Convertible Preferred Stock	1,934,853	1,935		1,935	-	1,556,104	1,556		1,556	-
Total	12,055,984	$	27,136	25,737	1,399	11,677,235	$	26,757	25,358	1,399


(1)	Preferred shares qualify as Tier 1 capital.


(2)	Effective June 15, 2018, Preferred Stock, Series K, converted from a fixed to a floating coupon.

See Note 9 (Securitizations and Variable Interest Entities) for additional information on our trust preferred securities.

158

Note 16: Preferred Stock ( continued )

ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of our ESOP Cumulative Convertible Preferred Stock (ESOP Preferred Stock) were issued to a trustee acting on behalf of the Wells Fargo & Company 401(k) Plan (the 401(k) Plan). Dividends on the ESOP Preferred Stock are cumulative from the date of initial issuance and are payable quarterly at annual rates based upon the year of issuance. Each share of ESOP Preferred Stock released from the unallocated reserve of the 401(k) Plan is converted into shares of our common stock based on the stated

value of the ESOP Preferred Stock and the then current market price of our common stock. The ESOP Preferred Stock is also convertible at the option of the holder at any time, unless previously redeemed. We have the option to redeem the ESOP Preferred Stock at any time, in whole or in part, at a redemption price per share equal to the higher of (a) $1,000 per share plus accrued and unpaid dividends or (b) the fair market value, as defined in the Certificates of Designation for the ESOP Preferred Stock.

Table 16.3: ESOP Preferred Stock



	Shares issued and outstanding		Carrying value					Adjustable dividend rate
(in millions, except shares)	Jun 30, 2018	Dec 31, 2017	Jun 30, 2018			Dec 31, 2017		Minimum		Maximum
ESOP Preferred Stock
$1,000 liquidation preference per share
2018	865,338	-	$	865		-		7.00	%	8.00
2017	222,210	273,210	222			273		7.00		8.00
2016	233,835	322,826	234			323		9.30		10.30
2015	144,338	187,436	144			187		8.90		9.90
2014	174,151	237,151	174			237		8.70		9.70
2013	133,948	201,948	134			202		8.50		9.50
2012	77,634	128,634	78			129		10.00		11.00
2011	61,796	129,296	62			129		9.00		10.00
2010	21,603	75,603	22			76		9.50		10.50
Total ESOP Preferred Stock (1)	1,934,853	1,556,104	$	1,935		1,556
Unearned ESOP shares (2)			$	(2,051	)	(1,678	)


(1)	At June 30, 2018 and December 31, 2017 , additional paid-in capital included $116 million and $122 million , respectively, related to ESOP preferred stock.


(2)	We recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released.

159

Note 17: Revenue from Contracts with Customers

Our revenue includes net interest income on financial instruments and noninterest income. Table 17.1 presents our revenue by operating segment. The other segment for each of the tables below includes the elimination of certain items that are included in more than one business segment, most of which represents products and services for WIM customers served

through Community Banking distribution channels. For additional description of our operating segments, including additional financial information and the underlying management accounting process, see Note 21 (Operating Segments) to Financial Statements in this Report.

Table 17.1 : Revenue by Operating Segment



	Quarter ended June 30,
	Community Banking					Wholesale Banking				Wealth and Investment Management				Other				Consolidated Company
(in millions)	2018			2017		2018		2017		2018		2017		2018		2017		2018	2017
Net interest income (1)	$	7,346		7,133		4,693		4,809		1,111		1,171		(609	)	(642	)	12,541	12,471
Noninterest income:
Service charges on deposit accounts	632			725		530		550		5		5		(4	)	(4	)	1,163	1,276
Trust and investment fees:
Brokerage advisory, commissions and other fees	465			452		78		82		2,284		2,255		(473	)	(460	)	2,354	2,329
Trust and investment management	220			215		110		132		731		712		(226	)	(222	)	835	837
Investment banking	-			(20	)	485		483		1		-		-		-		486	463
Total trust and investment fees	685			647		673		697		3,016		2,967		(699	)	(682	)	3,675	3,629
Card fees	904			929		96		89		2		2		(1	)	(1	)	1,001	1,019
Other fees:
Charges and fees on loans (1)	69			79		235		246		1		1		(1	)	(1	)	304	325
Cash network fees	118			131		2		3		-		-		-		-		120	134
Commercial real estate brokerage commissions	-			-		109		102		-		-		-		-		109	102
Letters of credit fees (1)	-			2		72		74		1		1		(1	)	(1	)	72	76
Wire transfer and other remittance fees	67			61		53		50		2		2		(1	)	(1	)	121	112
All other fees	94			122		25		31		1		-		-		-		120	153
Total other fees	348			395		496		506		5		4		(3	)	(3	)	846	902
Mortgage banking (1)	695			1,038		75		110		(2	)	(2	)	2		2		770	1,148
Insurance (1)	16			35		78		236		18		22		(10	)	(13	)	102	280
Net gains (losses) from trading activities (1)	24			(33	)	154		168		13		16		-		-		191	151
Net gains (losses) on debt securities (1)	(2		)	184		42		(64	)	1		-		-		-		41	120
Net gains from equity securities (1)	409			222		89		16		(203	)	36		-		-		295	274
Lease income (1)	-			-		443		493		-		-						443	493
Other income of the segment (1)	749			680		(172	)	(131	)	(15	)	5		(77	)	(82	)	485	472
Total noninterest income	4,460			4,822		2,504		2,670		2,840		3,055		(792	)	(783	)	9,012	9,764
Revenue	$	11,806		11,955		7,197		7,479		3,951		4,226		(1,401	)	(1,425	)	21,553	22,235
	Six months ended June 30,
	Community Banking					Wholesale Banking				Wealth and Investment Management				Other				Consolidated Company
	2018			2017		2018		2017		2018		2017		2018		2017		2018	2017
Net interest income (1)	$	14,541		14,265		9,225		9,490		2,223		2,312		(1,210	)	(1,272	)	24,779	24,795
Noninterest income:
Service charges on deposit accounts	1,271			1,467		1,064		1,120		9		10		(8	)	(8	)	2,336	2,589
Trust and investment fees:
Brokerage advisory, commissions and other fees	943			896		145		166		4,628		4,500		(959	)	(909	)	4,757	4,653
Trust and investment management	453			433		223		261		1,474		1,419		(465	)	(447	)	1,685	1,666
Investment banking	(10		)	(47	)	925		928		1		(1	)	-		-		916	880
Total trust and investment fees	1,386			1,282		1,293		1,355		6,103		5,918		(1,424	)	(1,356	)	7,358	7,199
Card fees	1,725			1,794		183		169		3		3		(2	)	(2	)	1,909	1,964
Other fees:
Charges and fees on loans (1)	143			163		462		469		2		2		(2	)	(2	)	605	632
Cash network fees	243			254		3		6		-		-		-		-		246	260
Commercial real estate brokerage commissions	-			-		194		183		-		-		-		-		194	183
Letters of credit fees (1)	2			3		149		147		2		2		(2	)	(2	)	151	150
Wire transfer and other remittance fees	130			118		105		99		4		4		(2	)	(2	)	237	219
All other fees	157			252		55		70		1		1		-		-		213	323
Total other fees	675			790		968		974		9		9		(6	)	(6	)	1,646	1,767
Mortgage banking (1)	1,537			2,144		168		233		(5	)	(4	)	4		3		1,704	2,376
Insurance (1)	44			69		157		470		36		42		(21	)	(24	)	216	557
Net gains (losses) from trading activities (1)	23			(85	)	379		458		32		50		-		-		434	423
Net gains (losses) on debt securities (1)	(2		)	286		43		(130	)	1		-		-		-		42	156
Net gains from equity securities (1)	1,093			690		182		52		(197	)	102		-		-		1,078	844
Lease income (1)	-			-		898		974		-		-		-		-		898	974
Other income of the segment (1)	1,343			1,076		(84	)	(109	)	(21	)	41		(151	)	(162	)	1,087	846
Total noninterest income	9,095			9,513		5,251		5,566		5,970		6,171		(1,608	)	(1,555	)	18,708	19,695
Revenue	$	23,636		23,778		14,476		15,056		8,193		8,483		(2,818	)	(2,827	)	43,487	44,490


(1)	These revenues are not within the scope of ASU 2014-09 – Revenue from Contracts with Customers , and additional details are included in other footnotes to our financial statements. The scope explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, securities, and derivatives.

160

Note 17: Revenue from Contracts with Customers ( continued )

Following is a discussion of key revenues within the scope of ASU 2014-09 – Revenue from Contracts with Customers ("the new revenue guidance"). We provide services to customers which have related performance obligations that we complete to recognize revenue. Our revenues are generally recognized either immediately upon the completion of our service or over time as we perform services. Any services performed over time generally require that we render services each period and therefore we measure our progress in completing these services based upon the passage of time.

SERVICE CHARGES ON DEPOSIT ACCOUNTS are earned on depository accounts for commercial and consumer customers and

include fees for account and overdraft services. Account charges include fees for periodic account maintenance activities and event-driven services such as stop payment fees. Our obligation for event-driven services is satisfied at the time of the event when the service is delivered, while our obligation for maintenance services is satisfied over the course of each month. Our obligation for overdraft services is satisfied at the time of the overdraft.

Table 17.2 presents our service charges on deposit accounts by operating segment.

Table 17.2 : Service Charges on Deposit Accounts by Operating Segment



	Quarter ended June 30,
	Community Banking			Wholesale Banking		Wealth and Investment Management		Other				Consolidated Company
(in millions)	2018		2017	2018	2017	2018	2017	2018		2017		2018	2017
Overdraft fees	$	416	484	1	1	1	1	-		-		418	486
Account charges	216		241	529	549	4	4	(4	)	(4	)	745	790
Service charges on deposit accounts	$	632	725	530	550	5	5	(4	)	(4	)	1,163	1,276
	Six months ended June 30,
	Community Banking			Wholesale Banking		Wealth and Investment Management		Other				Consolidated Company
(in millions)	2018		2017	2018	2017	2018	2017	2018		2017		2018	2017
Overdraft fees	$	828	968	3	3	1	1	-		-		832	972
Account charges	443		499	1,061	1,117	8	9	(8	)	(8	)	1,504	1,617
Service charges on deposit accounts	$	1,271	1,467	1,064	1,120	9	10	(8	)	(8	)	2,336	2,589

BROKERAGE ADVISORY, COMMISSIONS AND OTHER FEES are earned for providing full-service and discount brokerage services predominantly to retail brokerage clients. These revenues include fees earned on asset-based and transactional accounts and other brokerage advisory services.

Asset-based revenues are charged based on the market value of the client's assets. The services and related obligations associated with certain of these revenues, which include investment advice, active management of client assets, or assistance with selecting and engaging a third-party advisory manager, are generally satisfied over a month or quarter. The remaining revenues include trailing commissions which are earned for selling shares to investors. Our obligation associated with earning trailing commissions is satisfied at the time shares are sold. However, these fees are received and recognized over time during the period the customer owns the shares and we remain the broker of record. The amount of trailing commissions is variable based on the length of time the customer holds the shares and on changes in the value of the underlying assets.

Transactional revenues are earned for executing transactions at the client's direction. Our obligation is generally satisfied upon the execution of the transaction and the fees are based on the size and number of transactions executed.

Other revenues earned from other brokerage advisory services include omnibus and networking fees received from mutual fund companies in return for providing record keeping and other administrative services, and annual account maintenance fees charged to customers.

161

Table 17.3 presents our brokerage advisory, commissions and other fees by operating segment.

Table 17.3 : Brokerage Advisory, Commissions and Other Fees by Operating Segment



	Quarter ended June 30,
	Community Banking			Wholesale Banking		Wealth and Investment Management		Other				Consolidated Company
(in millions)	2018		2017	2018	2017	2018	2017	2018		2017		2018	2017
Asset-based revenue (1)	$	365	340	-	-	1,722	1,642	(365	)	(339	)	1,722	1,643
Transactional revenue	83		94	16	14	400	456	(92	)	(103	)	407	461
Other revenue	17		18	62	68	162	157	(16	)	(18	)	225	225
Brokerage advisory, commissions and other fees	$	465	452	78	82	2,284	2,255	(473	)	(460	)	2,354	2,329
	Six months ended June 30,
	Community Banking			Wholesale Banking		Wealth and Investment Management		Other				Consolidated Company
(in millions)	2018		2017	2018	2017	2018	2017	2018		2017		2018	2017
Asset-based revenue (1)	$	736	666	-	-	3,465	3,241	(736	)	(665	)	3,465	3,242
Transactional revenue	176		194	28	24	839	935	(192	)	(208	)	851	945
Other revenue	31		36	117	142	324	324	(31	)	(36	)	441	466
Brokerage advisory, commissions and other fees	$	943	896	145	166	4,628	4,500	(959	)	(909	)	4,757	4,653


(1)	We earned trailing commissions of $321 million and $652 million in the second quarter and first half of 2018, respectively, and $333 million and $664 million for the second quarter and first half of 2017, respectively.

TRUST AND INVESTMENT MANAGEMENT FEES are earned for providing trust, investment management and other related services.

Investment management services include managing and administering assets, including mutual funds, and institutional separate accounts. Fees for these services are generally determined based on a tiered scale relative to the market value of assets under management (AUM). In addition to AUM we have client assets under administration (AUA) that earn various administrative fees which are generally based on the extent of the services provided to administer the account. Services with AUM and AUA-based fees are generally performed over time.

Trust services include acting as a trustee or agent for corporate trust, personal trust, and agency assets. Obligations for trust services are generally satisfied over time, while obligations for activities that are transactional in nature are satisfied at the time of the transaction.

Other related services include the custody and safekeeping of accounts. Our obligation for these services is generally satisfied over time.

Table 17.4 presents our trust and investment management fees by operating segment.

Table 17.4 : Trust and Investment Management Fees by Operating Segment



	Quarter ended June 30,
	Community Banking				Wholesale Banking		Wealth and Investment Management		Other				Consolidated Company
(in millions)	2018			2017	2018	2017	2018	2017	2018		2017		2018	2017
Investment management fees	$	-		1	-	-	531	517	-		-		531	518
Trust fees	232			214	82	107	185	193	(226	)	(222	)	273	292
Other revenue	(12		)	-	28	25	15	2	-		-		31	27
Trust and investment management fees	$	220		215	110	132	731	712	(226	)	(222	)	835	837
	Six months ended June 30,
	Community Banking				Wholesale Banking		Wealth and Investment Management		Other				Consolidated Company
(in millions)	2018			2017	2018	2017	2018	2017	2018		2017		2018	2017
Investment management fees	$	-		2	-	-	1,065	1,017	-		-		1,065	1,019
Trust fees	453			431	168	211	373	377	(465	)	(447	)	529	572
Other revenue	-			-	55	50	36	25	-		-		91	75
Trust and investment management fees	$	453		433	223	261	1,474	1,419	(465	)	(447	)	1,685	1,666

162

Note 17: Revenue from Contracts with Customers ( continued )

INVESTMENT BANKING FEES are earned for underwriting debt and equity securities, arranging loan syndications and performing other advisory services. Our obligation for these services is generally satisfied at closing of the transaction.

CARD FEES include credit and debit card interchange and network revenues and various card-related fees. Card-related fees such as late fees, cash advance fees, and balance transfer fees are loan-related and excluded from the scope of the new revenue guidance.

Credit and debit card interchange and network revenues are earned on credit and debit card transactions conducted through payment networks such as Visa, MasterCard, and American Express. Our obligation is satisfied concurrently with the delivery of services on a daily basis .

Table 17.5 presents our card fees by operating segment.

Table 17.5 : Card Fees by Operating Segment



	Quarter ended June 30,
	Community Banking			Wholesale Banking		Wealth and Investment Management		Other				Consolidated Company
(in millions)	2018		2017	2018	2017	2018	2017	2018		2017		2018	2017
Credit card interchange and network revenues (1)	$	211	254	96	89	2	2	(1	)	(1	)	308	344
Debit card interchange and network revenues	525		498	-	-	-	-	-		-		525	498
Late fees, cash advance fees, balance transfer fees, and annual fees	168		177	-	-	-	-	-		-		168	177
Card fees (1)	$	904	929	96	89	2	2	(1	)	(1	)	1,001	1,019
	Six months ended June 30,
	Community Banking			Wholesale Banking		Wealth and Investment Management		Other				Consolidated Company
(in millions)	2018		2017	2018	2017	2018	2017	2018		2017		2018	2017
Credit card interchange and network revenues (1)	$	382	473	183	169	3	3	(2	)	(2	)	566	643
Debit card interchange and network revenues	1,004		963	-	-	-	-	-		-		1,004	963
Late fees, cash advance fees, balance transfer fees, and annual fees	339		358	-	-	-	-	-		-		339	358
Card fees (1)	$	1,725	1,794	183	169	3	3	(2	)	(2	)	1,909	1,964


(1)	The cost of credit card rewards and rebates of $335 million and $678 million for the quarter and six months ended June 30, 2018, respectively, and $286 million and $563 million for the quarter and six months ended June 30, 2017, respectively, are presented net against the related revenues.

CASH NETWORK FEES are earned for processing ATM transactions. Our obligation is completed daily upon settlement of ATM transactions.

COMMERCIAL REAL ESTATE BROKERAGE COMMISSIONS are earned for assisting customers in the sale of real estate property. Our obligation is satisfied upon the successful brokering of a transaction. Fees are based on a fixed percentage of the sales price.

WIRE TRANSFER AND OTHER REMITTANCE FEES consist of fees earned for funds transfer services and issuing cashier's checks and money orders. Our obligation is satisfied at the time of the funds transfer services or upon issuance of the cashier's check or money order.

ALL OTHER FEES include various types of fees earned on services to customers which have related performance obligations that we complete to recognize revenue. A significant portion of the revenue is earned from providing business payroll services and merchant services, which are generally recognized over time as we perform the services.

163

Note 18: Employee Benefits

We sponsor a frozen noncontributory qualified defined benefit retirement plan, the Wells Fargo & Company Cash Balance Plan (Cash Balance Plan), which covers eligible employees of Wells Fargo. The Cash Balance Plan was frozen on July 1, 2009, and no new benefits accrue after that date.

Table 18.1 presents the components of net periodic benefit cost.

Table 18.1: Net Periodic Benefit Cost



	2018						2017
	Pension benefits						Pension benefits
(in millions)	Qualified			Non-qualified	Other benefits		Qualified		Non-qualified	Other benefits
Quarter ended June 30,
Service cost	$	2		-	-		2		-	-
Interest cost (1)	98			6	5		103		6	7
Expected return on plan assets (1)	(161		)	-	(8	)	(163	)	-	(8	)
Amortization of net actuarial loss (gain) (1)	33			3	(5	)	38		4	(3	)
Amortization of prior service credit (1)	-			-	(2	)	-		-	(2	)
Settlement loss (1)	-			-	-		-		4	-
Net periodic benefit cost (income)	$	(28	)	9	(10	)	(20	)	14	(6	)
Six months ended June 30,
Service cost	$	3		-	-		3		-	-
Interest cost (1)	196			11	10		206		12	14
Expected return on plan assets (1)	(321		)	-	(15	)	(326	)	-	(15	)
Amortization of net actuarial loss (gain) (1)	66			6	(9	)	76		6	(5	)
Amortization of prior service credit (1)	-			-	(5	)	-		-	(5	)
Settlement loss (1)	-			3	-		1		6	-
Net periodic benefit cost (income)	$	(56	)	20	(19	)	(40	)	24	(11	)


(1)	Effective January 1, 2018, we adopted ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost . Accordingly, 2018 balances are reported in other noninterest expense on the consolidated statement of income. For 2017, these balances were reported in employee benefits.

164

Note 19:

Earnings Per Common Share

Table 19.1 shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations.

See Note 1 (Summary of Significant Accounting Policies) for discussion of private share repurchases and the Consolidated Statement of Changes in Equity.

Table 19.1: Earnings Per Common Share Calculations



	Quarter ended June 30,			Six months ended June 30,
(in millions, except per share amounts)	2018		2017	2018		2017
Wells Fargo net income (1)	$	5,186	5,856	$	10,322	11,490
Less: Preferred stock dividends and other	394		406	797		807
Wells Fargo net income applicable to common stock (numerator) (1)	$	4,792	5,450	$	9,525	10,683
Earnings per common share
Average common shares outstanding (denominator)	4,865.8		4,989.9	4,875.7		4,999.2
Per share (1)	$	0.98	1.09	$	1.95	2.14
Diluted earnings per common share
Average common shares outstanding	4,865.8		4,989.9	4,875.7		4,999.2
Add: Stock options	8.2		17.2	9.0		19.3
Restricted share rights	20.7		19.9	25.4		24.7
Warrants	5.1		10.7	6.0		11.6
Diluted average common shares outstanding (denominator)	4,899.8		5,037.7	4,916.1		5,054.8
Per share (1)	$	0.98	1.08	$	1.94	2.11


(1)	Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.

Table 19.2 presents the outstanding options to purchase shares of common stock that were anti-dilutive (the exercise

price was higher than the weighted-average market price), and therefore not included in the calculation of diluted earnings per common share.

Table 19.2: Outstanding Anti-Dilutive Options



	Weighted-average shares
	Quarter ended June 30,		Six months ended June 30,
(in millions)	2018	2017	2018	2017
Options	-	1.8	0.5	2.1

165

Note 20: Other Comprehensive Income

Table 20.1 provides the components of other comprehensive income (OCI), reclassifications to net income by income statement line item, and the related tax effects.

Table 20.1: Summary of Other Comprehensive Income



	Quarter ended June 30,														Six months ended June 30,
	2018								2017						2018						2017
(in millions)	Before tax			Tax effect		Net of tax			Before tax		Tax effect		Net of tax		Before tax		Tax effect		Net of tax		Before tax		Tax effect		Net of tax
Debt securities (1):
Net unrealized gains (losses) arising during the period	$	(617	)	152		(465		)	1,565		(589	)	976		(4,060	)	1,000		(3,060	)	1,934		(722	)	1,212
Reclassification of net (gains) losses to net income:
Interest income on debt securities (2)	90			(22	)	68			45		(17	)	28		159		(39	)	120		52		(20	)	32
Net gains on debt securities	(41		)	10		(31		)	(120	)	44		(76	)	(42	)	10		(32	)	(156	)	57		(99	)
Net gains from equity securities (3)	-			-		-			(101	)	35		(66	)	-		-		-		(217	)	79		(138	)
Other noninterest income	-			-		-			(1	)	-		(1	)	-		-		-		(1	)	-		(1	)
Subtotal reclassifications to net income	49			(12	)	37			(177	)	62		(115	)	117		(29	)	88		(322	)	116		(206	)
Net change	(568		)	140		(428		)	1,388		(527	)	861		(3,943	)	971		(2,972	)	1,612		(606	)	1,006
Derivatives and hedging activities:
Fair Value Hedges:
Change in fair value of excluded components on fair value hedges (4)	(150		)	37		(113		)	(100	)	37		(63	)	(126	)	31		(95	)	(326	)	122		(204	)
Cash Flow Hedges:
Net unrealized gains (losses) arising during the period on cash flow hedges	-			-		-			376		(142	)	234		(266	)	66		(200	)	240		(91	)	149
Reclassification of net (gains) losses to net income on cash flow hedges:
Interest income on loans	77			(19	)	58			(156	)	59		(97	)	137		(34	)	103		(361	)	136		(225	)
Interest expense on long-term debt	-			-		-			3		(1	)	2		-		-		-		6		(2	)	4
Subtotal reclassifications to net income	77			(19	)	58			(153	)	58		(95	)	137		(34	)	103		(355	)	134		(221	)
Net change	(73		)	18		(55		)	123		(47	)	76		(255	)	63		(192	)	(441	)	165		(276	)
Defined benefit plans adjustments:
Net actuarial and prior service gains (losses) arising during the period	-			-		-			-		-		-		6		(2	)	4		(7	)	3		(4	)
Reclassification of amounts to net periodic benefit costs (5):
Amortization of net actuarial loss	31			(7	)	24			39		(16	)	23		63		(15	)	48		77		(30	)	47
Settlements and other	(2		)	-		(2		)	2		1		3		(2	)	1		(1	)	2		1		3
Subtotal reclassifications to net periodic benefit costs	29			(7	)	22			41		(15	)	26		61		(14	)	47		79		(29	)	50
Net change	29			(7	)	22			41		(15	)	26		67		(16	)	51		72		(26	)	46
Foreign currency translation adjustments:
Net unrealized gains (losses) arising during the period	(83		)	3		(80		)	31		2		33		(85	)	(2	)	(87	)	47		3		50
Net change	(83		)	3		(80		)	31		2		33		(85	)	(2	)	(87	)	47		3		50
Other comprehensive income (loss)	$	(695	)	154		(541		)	1,583		(587	)	996		(4,216	)	1,016		(3,200	)	1,290		(464	)	826
Less: Other comprehensive income (loss) from noncontrolling interests, net of tax						(1		)					(9	)					(1	)					5
Wells Fargo other comprehensive income (loss), net of tax						$	(540	)					1,005						(3,199	)					821

(1)

The quarter and six months ended ended June 30, 2017 includes net unrealized gains (losses) arising during the period from equity securities of $65 million and $126 million and reclassification of net (gains) losses to net income related to equity securities of $(101) million and $(217) million , respectively. With the adoption in first quarter 2018 of ASU 2016-01, the quarter and six months ended June 30, 2018 reflects net unrealized gains (losses) arising during the period and reclassification of net (gains) losses to net income from only debt securities.


(2)	Represents net unrealized gains and losses amortized over the remaining lives of securities that were transferred from the available-for-sale portfolio to the held-to-maturity portfolio.


(3)	Net gains from equity securities is presented for table presentation purposes. After adoption of ASU 2016-01 on January 1, 2018, this line does not contain balances as realized and unrealized gains and losses on marketable equity securities are recorded in earnings.


(4)	Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment of effectiveness recorded in other comprehensive income.


(5)	These items are included in the computation of net periodic benefit cost, which is recorded in employee benefits expense (see Note 18 (Employee Benefits) for additional details).

166

Note 20: Other Comprehensive Income ( continued )

Table 20.2: Cumulative OCI Balances



(in millions)	Debt securities (1)			Derivatives and hedging activities		Defined benefit plans adjustments		Foreign currency translation adjustments		Cumulative other compre- hensive income
Quarter ended June 30, 2018
Balance, beginning of period	$	(2,491	)	(555	)	(1,779	)	(96	)	(4,921	)
Net unrealized losses arising during the period	(465		)	(113	)	-		(80	)	(658	)
Amounts reclassified from accumulated other comprehensive income	37			58		22		-		117
Net change	(428		)	(55	)	22		(80	)	(541	)
Less: Other comprehensive loss from noncontrolling interests	-			-		-		(1	)	(1	)
Balance, end of period	$	(2,919	)	(610	)	(1,757	)	(175	)	(5,461	)
Quarter ended June 30, 2017
Balance, beginning of period	$	(967	)	(95	)	(1,923	)	(168	)	(3,153	)
Net unrealized gains arising during the period	976			171		-		33		1,180
Amounts reclassified from accumulated other comprehensive income	(115		)	(95	)	26		-		(184	)
Net change	861			76		26		33		996
Less: Other comprehensive income (loss) from noncontrolling interests	(10		)	-		-		1		(9	)
Balance, end of period	$	(96	)	(19	)	(1,897	)	(136	)	(2,148	)
Six months ended June 30, 2018
Balance, beginning of period	$	171		(418	)	(1,808	)	(89	)	(2,144	)
Transition adjustment (2)	(118		)	-		-		-		(118	)
Balance, January 1, 2018	53			(418	)	(1,808	)	(89	)	(2,262	)
Net unrealized gains (losses) arising during the period	(3,060		)	(295	)	4		(87	)	(3,438	)
Amounts reclassified from accumulated other comprehensive income	88			103		47		-		238
Net change	(2,972		)	(192	)	51		(87	)	(3,200	)
Less: Other comprehensive loss from noncontrolling interests	-			-		-		(1	)	(1	)
Balance, end of period	$	(2,919	)	(610	)	(1,757	)	(175	)	(5,461	)
Six months ended June 30, 2017
Balance, beginning of period	$	(1,099	)	89		(1,943	)	(184	)	(3,137	)
Transition adjustment (3)	-			168		-		-		168
Balance, January 1, 2017	(1,099		)	257		(1,943	)	(184	)	(2,969	)
Net unrealized gains (losses) arising during the period	1,212			(55	)	(4	)	50		1,203
Amounts reclassified from accumulated other comprehensive income	(206		)	(221	)	50		-		(377	)
Net change	1,006			(276	)	46		50		826
Less: Other comprehensive income from noncontrolling interests	3			-		-		2		5
Balance, end of period	$	(96	)	(19	)	(1,897	)	(136	)	(2,148	)

(1)


(2)	The transition adjustment relates to the adoption of ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . See Note 1 (Summary of Significant Accounting Policies) for more information.


(3)	The transition adjustment relates to the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities .

167

Note 21: Operating Segments

We have three reportable operating segments: Community Banking; Wholesale Banking; and Wealth and Investment Management (WIM). We define our operating segments by product type and customer segment and their results are based on our management accounting process, for which there is no comprehensive, authoritative guidance equivalent to GAAP for financial accounting. The management accounting process measures the performance of the operating segments based on our management structure and is not necessarily comparable with similar information for other financial services companies. If the management structure and/or the allocation process changes, allocations, transfers and assignments may change. Effective first quarter 2018, assets and liabilities receive a funding charge or

credit that considers interest rate risk, liquidity risk, and other product characteristics on a more granular level. This methodology change affects results across all three of our reportable operating segments and prior period operating segment results have been revised to reflect this methodology change. Our previously reported consolidated financial results were not impacted by the methodology change; however, in connection with the adoption of ASU 2016-01 in first quarter 2018, certain reclassifications have occurred within noninterest income. For a description of our operating segments see Note 25 (Operating Segments) to Financial Statements in our 2017 Form 10-K. Table 21.1 presents our results by operating segment.

Table 21.1: Operating Segments



	Community Banking			Wholesale Banking				Wealth and Investment Management			Other (1)				Consolidated Company
(income/expense in millions, average balances in billions)	2018		2017	2018		2017		2018		2017	2018		2017		2018	2017
Quarter ended June 30,
Net interest income (2)	$	7,346	7,133	4,693		4,809		1,111		1,171	(609	)	(642	)	12,541	12,471
Provision (reversal of provision) for credit losses	484		623	(36	)	(65	)	(2	)	7	6		(10	)	452	555
Noninterest income	4,460		4,822	2,504		2,670		2,840		3,055	(792	)	(783	)	9,012	9,764
Noninterest expense	7,290		7,266	4,219		4,036		3,361		3,071	(888	)	(832	)	13,982	13,541
Income (loss) before income tax expense (benefit)	4,032		4,066	3,014		3,508		592		1,148	(519	)	(583	)	7,119	8,139
Income tax expense (benefit)	1,413		1,255	379		775		147		436	(129	)	(221	)	1,810	2,245
Net income (loss) before noncontrolling interests	2,619		2,811	2,635		2,733		445		712	(390	)	(362	)	5,309	5,894
Less: Net income (loss) from noncontrolling interests	123		46	-		(9	)	-		1	-		-		123	38
Net income (loss) (3)	$	2,496	2,765	2,635		2,742		445		711	(390	)	(362	)	5,186	5,856
Average loans	$	463.8	475.1	464.7		466.9		74.7		71.7	(59.1	)	(56.8	)	944.1	956.9
Average assets	1,034.3		1,083.6	826.4		818.8		84.0		82.4	(59.8	)	(57.8	)	1,884.9	1,927.0
Average deposits	760.6		727.7	414.0		462.4		167.1		190.1	(70.4	)	(79.0	)	1,271.3	1,301.2
Six months ended June 30,
Net interest income (2)	$	14,541	14,265	9,225		9,490		2,223		2,312	(1,210	)	(1,272	)	24,779	24,795
Provision (reversal of provision) for credit losses	702		1,269	(56	)	(108	)	(8	)	3	5		(4	)	643	1,160
Noninterest income	9,095		9,513	5,251		5,566		5,970		6,171	(1,608	)	(1,555	)	18,708	19,695
Noninterest expense	15,992		14,547	8,197		8,203		6,651		6,275	(1,816	)	(1,692	)	29,024	27,333
Income (loss) before income tax expense (benefit)	6,942		7,962	6,335		6,961		1,550		2,205	(1,007	)	(1,131	)	13,820	15,997
Income tax expense (benefit)	2,222		2,237	827		1,748		386		822	(251	)	(429	)	3,184	4,378
Net income (loss) before noncontrolling interests	4,720		5,725	5,508		5,213		1,164		1,383	(756	)	(702	)	10,636	11,619
Less: Net income (loss) from noncontrolling interests	311		136	(2	)	(14	)	5		7	-		-		314	129
Net income (loss) (3)	$	4,409	5,589	5,510		5,227		1,159		1,376	(756	)	(702	)	10,322	11,490
Average loans	$	467.1	477.9	464.9		467.6		74.3		71.2	(58.8	)	(56.5	)	947.5	960.2
Average assets	1,048.0		1,089.7	827.8		814.7		84.1		82.1	(59.6	)	(57.5	)	1,900.3	1,929.0
Average deposits	754.1		722.8	429.9		463.8		172.5		193.8	(72.3	)	(80.2	)	1,284.2	1,300.2


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

(2)

Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets as well as interest credits for any funding of a segment available to be provided to other segments. The cost of liabilities includes actual interest expense on segment liabilities as well as funding charges for any funding provided from other segments.


(3)	Represents segment net income (loss) for Community Banking; Wholesale Banking; and Wealth and Investment Management segments and Wells Fargo net income for the consolidated company.

168

Note 22: Regulatory and Agency Capital Requirements

The Company and each of its subsidiary banks are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. The Federal Reserve establishes capital requirements for the consolidated financial holding company, and the OCC has similar requirements for the Company's national banks, including Wells Fargo Bank, N.A. (the Bank).

Table 22.1 presents regulatory capital information for Wells Fargo & Company and the Bank using Basel III, which increased minimum required capital ratios, and introduced a minimum Common Equity Tier 1 (CET1) ratio. We must report the lower of our CET1, tier 1 and total capital ratios calculated under the Standardized Approach and under the Advanced Approach in the assessment of our capital adequacy. The Standardized Approach applies assigned risk weights to broad risk categories, while the calculation of risk-weighted assets (RWAs) under the Advanced Approach differs by requiring applicable banks to utilize a risk-sensitive methodology, which relies upon the use of internal credit models, and includes an operational risk component. The

Basel III capital rules are being phased-in effective January 1, 2014, through the end of 2021. Beginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with RWAs, became fully phased-in. Accordingly, the information presented reflects fully phased-in CET1 capital, tier 1 capital, and RWAs, but reflects total capital still in accordance with Transition Requirements .

The Bank is an approved seller/servicer of mortgage loans and is required to maintain minimum levels of shareholders' equity, as specified by various agencies, including the United States Department of Housing and Urban Development, GNMA, FHLMC and FNMA. At June 30, 2018 , the Bank met these requirements. Other subsidiaries, including the Company's insurance and broker-dealer subsidiaries, are also subject to various minimum capital levels, as defined by applicable industry regulations. The minimum capital levels for these subsidiaries, and related restrictions, are not significant to our consolidated operations.

Table 22.1: Regulatory Capital Information



	Wells Fargo & Company								Wells Fargo Bank, N.A.
	June 30, 2018					December 31, 2017			June 30, 2018			December 31, 2017
(in millions, except ratios)	Advanced Approach			Standardized Approach		Advanced Approach	Standardized Approach		Advanced Approach	Standardized Approach		Advanced Approach	Standardized Approach
Regulatory capital:
Common equity tier 1	$	152,955		152,955		154,765	154,765		141,355	141,355		143,292	143,292
Tier 1	176,456			176,456		178,209	178,209		141,355	141,355		143,292	143,292
Total	208,637			216,718		210,333	220,097		155,204	163,070		156,661	165,734
Assets:
Risk-weighted	$	1,206,821		1,276,332		1,199,545	1,260,663		1,098,410	1,178,416		1,090,360	1,169,863
Adjusted average (1)	1,855,658			1,855,658		1,905,568	1,905,568		1,657,648	1,657,648		1,708,828	1,708,828
Regulatory capital ratios:
Common equity tier 1 capital	12.67		%	11.98	*	12.90	12.28	*	12.87	12.00	*	13.14	12.25	*
Tier 1 capital	14.62			13.83	*	14.86	14.14	*	12.87	12.00	*	13.14	12.25	*
Total capital	17.29			16.98	*	17.53	17.46	*	14.13	13.84	*	14.37	14.17	*
Tier 1 leverage (1)	9.51			9.51		9.35	9.35		8.53	8.53		8.39	8.39

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


(1)	The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items.

Table 22.2 presents the minimum required regulatory capital ratios under Transition Requirements to which the Company and the Bank were subject as of June 30, 2018 and December 31, 2017 .

Table 22.2: Minimum Required Regulatory Capital Ratios – Transition Requirements (1)



	Wells Fargo & Company			Wells Fargo Bank, N.A.
	June 30, 2018		December 31, 2017	June 30, 2018	December 31, 2017
Regulatory capital ratios:
Common equity tier 1 capital	7.875	%	6.750	6.375	5.750
Tier 1 capital	9.375		8.250	7.875	7.250
Total capital	11.375		10.250	9.875	9.250
Tier 1 leverage	4.000		4.000	4.000	4.000


(1)	At June 30, 2018 , under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements for Wells Fargo & Company include a capital conservation buffer of 1.875% and a global systemically important bank (G-SIB) surcharge of 1.500% . Only the 1.875% capital conservation buffer applies to the Bank at June 30, 2018 .

169



Glossary of Acronyms

ABS	Asset-backed security	G-SIB	Globally systemic important bank
ACL	Allowance for credit losses	HAMP	Home Affordability Modification Program
ALCO	Asset/Liability Management Committee	HUD	U.S. Department of Housing and Urban Development
ARM	Adjustable-rate mortgage	LCR	Liquidity coverage ratio
ASC	Accounting Standards Codification	LHFS	Loans held for sale
ASU	Accounting Standards Update	LIBOR	London Interbank Offered Rate
AUA	Assets under administration	LIHTC	Low income housing tax credit
AUM	Assets under management	LOCOM	Lower of cost or market value
AVM	Automated valuation model	LTV	Loan-to-value
BCBS	Basel Committee on Bank Supervision	MBS	Mortgage-backed security
BHC	Bank holding company	MHA	Making Home Affordable programs
CCAR	Comprehensive Capital Analysis and Review	MLHFS	Mortgage loans held for sale
CD	Certificate of deposit	MSR	Mortgage servicing right
CDO	Collateralized debt obligation	MTN	Medium-term note
CDS	Credit default swaps	NAV	Net asset value
CECL	Current expected credit loss	NPA	Nonperforming asset
CET1	Common Equity Tier 1	OCC	Office of the Comptroller of the Currency
CFPB	Consumer Financial Protection Bureau	OCI	Other comprehensive income
CLO	Collateralized loan obligation	OTC	Over-the-counter
CLTV	Combined loan-to-value	OTTI	Other-than-temporary impairment
CMBS	Commercial mortgage-backed securities	PCI Loans	Purchased credit-impaired loans
CPI	Collateral protection insurance	PTPP	Pre-tax pre-provision profit
CPP	Capital Purchase Program	RBC	Risk-based capital
CRE	Commercial real estate	RMBS	Residential mortgage-backed securities
DPD	Days past due	ROA	Wells Fargo net income to average total assets
ESOP	Employee Stock Ownership Plan	ROE	Wells Fargo net income applicable to common stock
FAS	Statement of Financial Accounting Standards		to average Wells Fargo common stockholders' equity
FASB	Financial Accounting Standards Board	ROTCE	Return on average tangible common equity
FDIC	Federal Deposit Insurance Corporation	RWAs	Risk-weighted assets
FFELP	Federal Family Education Loan Program	SEC	Securities and Exchange Commission
FHA	Federal Housing Administration	S&P	Standard & Poor's Ratings Services
FHLB	Federal Home Loan Bank	SLR	Supplementary leverage ratio
FHLMC	Federal Home Loan Mortgage Corporation	SPE	Special purpose entity
FICO	Fair Isaac Corporation (credit rating)	TARP	Troubled Asset Relief Program
FNMA	Federal National Mortgage Association	TDR	Troubled debt restructuring
FRB	Board of Governors of the Federal Reserve System	TLAC	Total Loss Absorbing Capacity
GAAP	Generally accepted accounting principles	VA	Department of Veterans Affairs
GNMA	Government National Mortgage Association	VaR	Value-at-Risk
GSE	Government-sponsored entity	VIE	Variable interest entity

170

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Information in response to this item can be found in Note 13 (Legal Actions) to Financial Statements in this Report which information is incorporated by reference into this item.

Item 1A. Risk Factors

Information in response to this item can be found under the "Financial Review – Risk Factors" section in this Report which information is incorporated by reference into this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows Company repurchases of its common stock for each calendar month in the quarter ended June 30, 2018 .



Calendar month	Total number of shares repurchased (1)	Weighted-average price paid per share		Maximum number of shares that may yet be repurchased under the authorization
April	7,554,406	$	51.54	362,690,550
May	16,535,887	53.87		346,154,663
June	11,681,435	54.99		334,473,228
Total	35,771,728

(1)

All shares were repurchased under an authorization covering up to 350 million shares of common stock approved by the Board of Directors and publicly announced by the Company on January 26, 2016, or an authorization covering up to an additional 350 million shares of common stock approved by the Board of Directors and publicly announced by the Company on January 23, 2018. Unless modified or revoked by the Board, these authorizations do not expire.

The following table shows Company repurchases of the warrants for each calendar month in the quarter ended June 30, 2018 .



Calendar month	Total number of warrants repurchased (1)	Average price paid per warrant		Maximum dollar value of warrants that may yet be repurchased
April	-	$	-	451,944,402
May	-	-		451,944,402
June	-	-		451,944,402
Total	-


(1)	Warrants are repurchased under the authorization covering up to $1 billion in warrants approved by the Board of Directors (ratified and approved on June 22, 2010). Unless modified or revoked by the Board, this authorization does not expire.

171


Item 6.	Exhibits

A list of exhibits to this Form 10-Q is set forth below.

The Company's SEC file number is 001-2979. On and before November 2, 1998, the Company filed documents with the SEC under the name Norwest Corporation. The former Wells Fargo & Company filed documents under SEC file number 001-6214.

Exhibit

Number

Description

Location

3(a)

Restated Certificate of Incorporation, as amended and in effect on the date hereof.

Incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

3(b)

By-Laws.

Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed March 1, 2018.

4(a)

See Exhibits 3(a) and 3(b).

4(b)

The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.

10(a)

Wells Fargo Bonus Plan, as amended and restated effective January 1, 2018.

Filed herewith.

12(a)

Computation of Ratios of Earnings to Fixed Charges: (1)

Filed herewith.

Quarter ended June 30,

Six months ended June 30,

2018

2017

2018

2017

Including interest on deposits

2.96

4.48

2.99

4.67

Excluding interest on deposits

4.03

5.91

4.05

6.11

(1) Financial information for the prior periods of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.

12(b)

Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends: (1)

Filed herewith.

Quarter ended June 30,

Six months ended June 30,

2018

2017

2018

2017

Including interest on deposits

2.57

3.61

2.59

3.72

Excluding interest on deposits

3.28

4.41

3.27

4.50

31(a)

Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

31(b)

Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

32(a)

Certification of Periodic Financial Report by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350.

Furnished herewith.

32(b)

Certification of Periodic Financial Report by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350.

Furnished herewith.

101.INS

XBRL Instance Document

Filed herewith.

101.SCH

XBRL Taxonomy Extension Schema Document

Filed herewith.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith.

101.DEF

XBRL Taxonomy Extension Definitions Linkbase Document

Filed herewith.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

Filed herewith.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

172

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 3, 2018 WELLS FARGO & COMPANY

By: /s/ RICHARD D. LEVY

Richard D. Levy

Executive Vice President and Controller

(Principal Accounting Officer)

173