Edgar Filing: WELLS FARGO & COMPANY/MN

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Form 10-Q

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, 2013

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 þ No ¨

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

Yes þ No ¨

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

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

Yes ¨ No þ

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

Shares Outstanding

July 31, 2013

Common stock, $1-2/3 par value

5,309,782,331

FORM 10-Q

CROSS-REFERENCE INDEX


PART I	Financial Information
Item 1.	Financial Statements	Page
	Consolidated Statement of Income	61
	Consolidated Statement of Comprehensive Income	62
	Consolidated Balance Sheet	63
	Consolidated Statement of Changes in Equity	64
	Consolidated Statement of Cash Flows	66
	Notes to Financial Statements
	1 - Summary of Significant Accounting Policies	67
	2 - Business Combinations	69
	3 - Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments	69
	4 - Securities Available for Sale	70
	5 - Loans and Allowance for Credit Losses	77
	6 - Other Assets	95
	7 - Securitizations and Variable Interest Entities	96
	8 - Mortgage Banking Activities	105
	9 - Intangible Assets	108
	10 - Guarantees, Pledged Assets and Collateral	109
	11 - Legal Actions	113
	12 - Derivatives	114
	13 - Fair Values of Assets and Liabilities	122
	14 - Preferred Stock	145
	15 - Employee Benefits	147
	16 - Earnings Per Common Share	148
	17 - Other Comprehensive Income	149
	18 - Operating Segments	151
	19 - Regulatory and Agency Capital Requirements	153

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data	2
	Overview	3
	Earnings Performance	4
	Balance Sheet Analysis	12
	Off-Balance Sheet Arrangements	16
	Risk Management	17
	Capital Management	52
	Regulatory Reform	56
	Critical Accounting Policies	57
	Current Accounting Developments	57
	Forward-Looking Statements	58
	Risk Factors	59
	Glossary of Acronyms	154

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	60

PART II	Other Information
Item 1.	Legal Proceedings	155

Item 1A.	Risk Factors	155

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	155

Item 6.	Exhibits	156

Signature		156

Exhibit Index		157

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW

Summary Financial Data


	Quarter ended							% Change June 30, 2013 from						Six months ended
($ in millions, except per share amounts)	June 30, 2013			March 31, 2013		June 30, 2012		March 31, 2013			June 30, 2012			June 30, 2013		June 30, 2012		% Change

For the Period
Wells Fargo net income	$	5,519			5,171		4,622		7	%		19			10,690		8,870		21	%
Wells Fargo net income applicable to common stock		5,272			4,931		4,403		7			20			10,203		8,425		21
Diluted earnings per common share		0.98			0.92		0.82		7			20			1.90		1.57		21
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)		1.55	%		1.49		1.41		4			10			1.52		1.36		12
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders’ equity (ROE)		14.02			13.59		12.86		3			9			13.81		12.51		10
Efficiency ratio (1)		57.3			58.3		58.2		(2	)		(2	)		57.8		59.1		(2	)
Total revenue	$	21,378			21,259		21,289		1			-			42,637		42,925		(1	)
Pre-tax pre-provision profit (PTPP) (2)		9,123			8,859		8,892		3			3			17,982		17,535		3
Dividends declared per common share		0.30			0.25		0.22		20			36			0.55		0.44		25
Average common shares outstanding		5,304.7			5,279.0		5,306.9		-			-			5,291.9		5,294.9		-
Diluted average common shares outstanding		5,384.6			5,353.5		5,369.9		1			-			5,369.9		5,354.3		-
Average loans	$	800,241			798,074		768,223		-			4			799,164		768,403		4
Average assets		1,429,005			1,404,334		1,321,584		2			8			1,416,741		1,312,252		8
Average core deposits (3)		936,090			925,866		880,636		1			6			931,006		875,576		6
Average retail core deposits (4)		666,043			662,913		624,329		-			7			664,487		620,445		7
Net interest margin		3.46	%		3.48		3.91		(1	)		(12	)		3.47		3.91		(11	)
At Period End
Securities available for sale	$	249,439			248,160		226,846		1			10			249,439		226,846		10
Loans		801,974			799,966		775,199		-			3			801,974		775,199		3
Allowance for loan losses		16,144			16,711		18,320		(3	)		(12	)		16,144		18,320		(12	)
Goodwill		25,637			25,637		25,406		-			1			25,637		25,406		1
Assets		1,440,563			1,436,634		1,336,204		-			8			1,440,563		1,336,204		8
Core deposits (3)		941,158			939,934		882,137		-			7			941,158		882,137		7
Wells Fargo stockholders’ equity		162,421			162,086		148,070		-			10			162,421		148,070		10
Total equity		163,777			163,395		149,437		-			10			163,777		149,437		10
Tier 1 capital (5)		132,969			129,071		117,856		3			13			132,969		117,856		13
Total capital (5)		164,998			161,551		149,813		2			10			164,998		149,813		10
Capital ratios:
Total equity to assets		11.37	%		11.37		11.18		-			2			11.37		11.18		2
Risk-based capital (5):
Tier 1 capital		12.12			11.80		11.69		3			4			12.12		11.69		4
Total capital		15.03			14.76		14.85		2			1			15.03		14.85		1
Tier 1 leverage (5)		9.63			9.53		9.25		1			4			9.63		9.25		4
Tier 1 common equity (6)		10.71			10.39		10.08		3			6			10.71		10.08		6
Common shares outstanding		5,302.2			5,288.8		5,275.7		-			1			5,302.2		5,275.7		1
Book value per common share	$	28.26			28.27		26.06		-			8			28.26		26.06		8
Common stock price:
High		41.74			38.20		34.59		9			21			41.74		34.59		21
Low		36.19			34.43		29.80		5			21			34.43		27.94		23
Period end		41.27			36.99		33.44		12			23			41.27		33.44		23
Team members (active, full-time equivalent)		274,300			274,300		264,400		-			4			274,300		264,400		4

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

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

(3)	Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).

(4)	Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.

(5)	See Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.

(6)	See the “Capital Management” section in this Report for additional information.

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, 2012 (2012 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. When we refer to “legacy Wells Fargo,” we mean Wells Fargo excluding Wachovia Corporation (Wachovia). See the Glossary of Acronyms at the end of this Report for terms used throughout this Report.

Financial Review

Overview

Wells Fargo & Company is a nationwide, diversified, community-based financial services company with $1.4 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs and the Internet (wellsfargo.com), and we have offices in more than 35 countries to support our customers who conduct business in the global economy. With more than 274,000 active, full-time equivalent team members, we serve one in three households in the United States and rank No. 25 on Fortune’s 2013 rankings of America’s largest corporations. We ranked fourth in assets and first in the market value of our common stock among all U.S. banks at June 30, 2013.

Our vision is to satisfy all our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. Our primary strategy to achieve this vision is to increase the number of our products our customers utilize and to offer them all of the financial products that fulfill their needs. Our cross-sell strategy, diversified business model and the breadth of our geographic reach facilitate growth in both strong and weak economic cycles, as we can grow by expanding the number of products our current customers have with us, gain new customers in our extended markets, and increase market share in many businesses.

Financial Performance

Wells Fargo net income was $5.5 billion in second quarter 2013, the highest quarterly profit in our history, with record diluted earnings per share of $0.98. Net income and diluted earnings per share (EPS) increased at double-digit rates (19% and 20%, respectively), compared with second quarter 2012. This was our 14^th consecutive quarter of earnings per share growth and 9^th consecutive quarter of record earnings per share. Achieving this consistent, strong performance, during a dynamic economic and interest rate environment, demonstrates the benefit of our diversified business model. We are not dependent on any one business to generate growth. We have over 90 different businesses that are all focused on meeting our customer’s

financial needs. Our results this quarter demonstrate the momentum we have throughout our businesses. Compared with a year ago:

•

we grew pre-tax pre-provision profit by 3%;

•

we reduced our expenses and improved our efficiency ratio by 90 basis points to 57.3%;

•

our loans grew by $26.8 billion, up 3%, and our core loan portfolio grew by $42.3 billion, up 6%;

•

our credit performance continued to improve, benefiting from our conservative underwriting and improving economic conditions, especially in housing, with net charge-offs down to 58 basis points and our total net charge-offs down 48% from a year ago;

•

our strong deposit franchise continued to grow, with total deposits up 10% from a year ago, while we reduced total deposit costs by 5 basis points to 14 basis points;

•

we achieved record retail banking cross-sell of 6.14 products per household (May 2013); Wholesale Banking grew to 6.9 products (March 2013) and Wealth, Brokerage and Retirement cross-sell increased to 10.35 products (May 2013);

•

we grew return on assets (ROA) by 14 basis points to 1.55% and return on equity (ROE) increased by 116 basis points to 14.02%; and

•

our capital levels continued to grow with our estimated Tier I common equity ratio under Basel III increasing to 8.62%.

Our balance sheet continued to strengthen in second quarter 2013 with further core loan and deposit growth and an increase in our securities portfolio. Our non-strategic/liquidating loan portfolios decreased $3.3 billion during the quarter and, excluding the planned runoff of these loans, our core loan portfolios increased $5.3 billion from the prior quarter. Total average loans were $800.2 billion, up $2.2 billion from the prior quarter. Our short-term investments and federal funds sold balances increased by $4.9 billion during the quarter on continued strong deposit growth. We grew our securities available for sale portfolio by $1.3 billion as new investments were largely offset by run-off and a $6.1 billion reduction in the net unrealized gain on securities available for sale. Deposit

Overview (continued)

growth remained strong with period-end deposits up $10.9 billion from first quarter 2013. We have successfully grown deposits while reducing our deposit costs for 10 consecutive quarters. Our ROA grew to 1.55%, within our targeted range of 1.3% to 1.6%, and our ROE increased to 14.02%, also within our targeted range of 12% to 15%.

Credit Quality

Credit quality continued to improve in second quarter 2013, with solid performance in several of our commercial and consumer loan portfolios. Net charge-offs of $1.2 billion were 0.58% (annualized) of average loans, down 57 basis points from a year ago, and the lowest rate since second quarter 2006. Net losses in our commercial portfolio were $44 million, or 5 basis points of average loans. Net consumer losses declined to 101 basis points from 176 basis points in second quarter 2012.

Commercial losses for second quarter 2013 were favorably affected by our commercial real estate portfolios reporting a net recovery position due to resolutions of problem loans. The consumer loss levels have improved due to lower severity reflecting the positive momentum in the residential real estate market, with home values improving significantly in many markets, as well as lower frequency.

Nonperforming assets decreased to $21.1 billion at June 30, 2013, from $24.5 billion at December 31, 2012, with declines in both nonaccrual loans and foreclosed assets.

Reflecting these improvements in our loan portfolios, our $652 million provision for credit losses this quarter was $1.1 billion less than a year ago. This provision included a release of $500 million from the allowance for credit losses (the amount by which net charge-offs exceeded the provision), compared with a release of $400 million a year ago. We continue to expect future allowance releases absent a significant deterioration in the economy.

Capital

We continued to build capital in second quarter 2013, increasing total equity to $163.8 billion at June 30, 2013. Our Tier 1 common equity ratio grew 32 basis points during the quarter to 10.71% of risk-weighted assets (RWA) under Basel I, reflecting strong internal capital generation. Our estimated Tier I common equity ratio under Basel III which reflects our interpretation of the Basel III capital rules adopted July 2, 2013, increased to 8.62% in the second quarter. Other comprehensive income (OCI) negatively impacted the ratio by 24 basis points in the quarter due primarily to a reduction in net unrealized securities gains as a result of the increase in interest rates. Because of our strong earnings growth, we grew capital even with the impact from the increase in rates. We expect reductions to net unrealized securities gains when rates rise and this is one reason why we target an internal capital buffer of approximately 100 basis points.

Our strong earnings growth has enabled us to grow our capital levels while returning more capital to our shareholders. We increased our second quarter 2013 dividend to $0.30 per share, a 20% increase over our first quarter dividend, purchased 26.7 million shares in the quarter and executed a $500 million forward contract that is expected to settle in third quarter 2013 for approximately 13 million shares.

Our other regulatory capital ratios remained strong with an increase in the Tier 1 capital ratio to 12.12% and Tier 1 leverage ratio to 9.63% at June 30, 2013, from 11.80% and 9.53%, respectively, at March 31, 2013. In July 2013, U.S. banking regulatory agencies issued a supplemental leverage ratio proposal. Based on our initial review, we believe our current leverage levels would meet the applicable proposed requirements at the holding company and each of its insured depository institution subsidiaries. See the “Capital Management” section in this Report for more information regarding our capital, including Tier 1 common equity.

Earnings Performance

Wells Fargo net income for second quarter 2013 was $5.5 billion ($0.98 diluted earnings per common share) compared with $4.6 billion ($0.82 diluted earnings per common share) for second quarter 2012. Net income for the first half of 2013 was $10.7 billion compared with $8.9 billion for the same period a year ago. Our second quarter 2013 quarterly and six-month earnings reflected the strength of our diversified business model with growth in many of our businesses. The key drivers of our financial performance in the second quarter and first half of 2013 were balanced net interest and fee income, diversified sources of fee income, a diversified loan portfolio and strong underlying credit performance.

Revenue, the sum of net interest income and noninterest income, was $21.4 billion in second quarter 2013, compared with $21.3 billion in second quarter 2012. Revenue for the first half of 2013 was $42.6 billion, down 1% from a year ago. The increase in revenue for second quarter 2013 was predominantly due to an increase in noninterest income, resulting from higher fee income in many of the Company’s core businesses. The decrease in

revenue for the first half of 2013 was predominantly due to a decrease in net interest income, resulting from continued repricing of the balance sheet in a low interest rate environment. Net interest income was $10.8 billion in second quarter 2013, representing 50% of revenue, compared with $11.0 billion (52%) in second quarter 2012. Continued success in generating low-cost deposits enabled us to grow assets by funding loans and securities growth while reducing higher cost long-term debt.

Noninterest income was $10.6 billion in second quarter 2013, representing 50% of revenue, compared with $10.3 billion (48%) in second quarter 2012. Noninterest income was $21.4 billion for the first half of 2013 compared with $21.0 billion for the same period a year ago. The increase in noninterest income for the second quarter and first half of 2013 was driven predominantly by solid performance in many of our businesses. Those fee sources generating double-digit year-over-year revenue growth in the second quarter and first half of 2013 included deposit service charges, brokerage advisory, commission and other fees, investment banking fees and card fees.

Noninterest expense was $12.3 billion in second quarter 2013, compared with $12.4 billion in second quarter 2012. Noninterest expense was $24.7 billion for the first half of 2013 compared with $25.4 billion for the same period a year ago. The decrease in noninterest expense in the second quarter and first half of 2013 from the same periods a year ago was primarily due to lower operating losses and a reduction in foreclosed assets expense reflecting improvement in the real estate market. Our efficiency ratio was 57.3% in second quarter 2013, compared with 58.2% in second quarter 2012, reflecting our continued focus on expense management efforts.

Net Interest Income

Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid on deposits, short-term borrowings and long-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding. Net interest income and the net interest margin are presented on a taxable-equivalent basis in Table 1 to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% federal statutory tax rate.

While the Company believes that it has the ability to increase net interest income over time, 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 asset portfolio and the cost of funding those assets. In addition, some sources of interest income, such as resolutions from purchased credit-impaired (PCI) loans, loan prepayment fees and collection of interest on nonaccrual loans, can vary from period to period.

Net interest income on a taxable-equivalent basis was $10.9 billion and $21.6 billion in the second quarter and first half of 2013, down from $11.2 billion and $22.3 billion, respectively, a year ago. The net interest margin was 3.46% and 3.47% in the second quarter and first half of 2013, down from 3.91% in the same periods a year ago. The decrease in net interest income in both the second quarter and first half of 2013 from the same periods a year ago was largely driven by the impact of higher yielding loan and available-for-sale (AFS) securities runoff, partially offset by the benefits of AFS securities purchases and the retention of $23.1 billion in high-

quality, conforming real estate 1-4 family first mortgages in the second half of 2012 and first half of 2013. In addition, reductions in deposit and long-term debt costs also helped offset lower asset income. The decline in net interest margin in the second quarter and first half of 2013, compared with the same periods a year ago, was primarily driven by deposit growth which caused short-term investment balances to increase. These balances, which are dilutive to net interest margin, are essentially neutral to net interest income. In addition, net interest margin for the second quarter and first half of 2013 experienced significant pressure related to growth and repricing of the balance sheet. We expect continued pressure on our net interest margin as the balance sheet continues to reprice in the current low interest rate environment.

Average earning assets increased $114.6 billion and $107.2 billion in the second quarter and first half of 2013 from a year ago, as average securities available for sale increased $20.5 billion and $15.9 billion for the same periods, respectively. Average short-term investments increased $65.2 billion for both the second quarter and first half of 2013. In addition, an increase in commercial and industrial loans contributed to $32.0 billion and $30.8 billion higher average loans in the second quarter and first half of 2013, compared with a year ago.

Core deposits are an important low-cost source of funding and affect both net interest income and the net interest margin. Core deposits include noninterest-bearing deposits, interest-bearing checking, savings certificates, market rate and other savings, and certain foreign deposits (Eurodollar sweep balances). Average core deposits rose to $936.1 billion in second quarter 2013 ($931.0 billion in the first half of 2013), compared with $880.6 billion in second quarter 2012 ($875.6 billion in the first half of 2012) and funded 117% of average loans in second quarter 2013 (116% for the first half of 2013), compared with 115% a year ago (114% for the first half of 2012). Average core deposits decreased to 74% of average earning assets in both the second quarter and first half of 2013, compared with 76% a year ago. The cost of these deposits has continued to decline due to a sustained low interest rate environment and a shift in our deposit mix from higher cost certificates of deposit to lower yielding checking and savings products. About 94% of our average core deposits are in checking and savings deposits, one of the highest industry percentages.

Earnings Performance (continued)

Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)(3)


	Quarter ended June 30,
	2013							2012
(in millions)	Average balance		Yields/ rates			Interest income/ expense		Average balance		Yields/ rates			Interest income/ expense

Earning assets
Federal funds sold, securities purchased under resale agreements and other short-term investments	$	136,484		0.33	%	$	113		71,250		0.47	%	$	83
Trading assets		46,622		2.98			347		42,614		3.27			348
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies		6,684		1.73			29		1,954		1.60			8
Securities of U.S. states and political subdivisions		39,267		4.42			434		34,560		4.39			379
Mortgage-backed securities:
Federal agencies		102,007		2.79			711		95,031		3.37			800
Residential and commercial		31,315		6.50			509		33,870		6.97			591

Total mortgage-backed securities		133,322		3.66			1,220		128,901		4.32			1,391
Other debt and equity securities		55,533		3.84			531		48,915		4.39			535

Total securities available for sale		234,806		3.77			2,214		214,330		4.32			2,313
Mortgages held for sale (4)		43,422		3.48			378		49,528		3.86			477
Loans held for sale (4)		177		7.85			4		833		5.48			12
Loans:
Commercial:
Commercial and industrial		186,130		3.69			1,714		171,776		4.21			1,801
Real estate mortgage		105,261		3.92			1,029		105,509		4.60			1,208
Real estate construction		16,458		5.02			206		17,943		4.96			221
Lease financing		12,338		6.66			206		12,890		6.86			221
Foreign		42,273		2.23			235		38,917		2.57			249

Total commercial		362,460		3.75			3,390		347,035		4.28			3,700

Consumer:
Real estate 1-4 family first mortgage		252,558		4.23			2,671		230,065		4.62			2,658
Real estate 1-4 family junior lien mortgage		71,376		4.29			764		82,076		4.30			878
Credit card		24,023		12.55			752		22,065		12.70			697
Automobile		47,942		7.05			842		44,625		7.59			842
Other revolving credit and installment		41,882		4.74			495		42,357		4.51			475

Total consumer		437,781		5.05			5,524		421,188		5.29			5,550

Total loans (4)		800,241		4.46			8,914		768,223		4.83			9,250
Other		4,151		5.55			57		4,486		4.56			51

Total earning assets	$	1,265,903		3.80	%	$	12,027		1,151,264		4.37	%	$	12,534

Funding sources
Deposits:
Interest-bearing checking	$	40,422		0.06	%	$	6		30,440		0.07	%	$	5
Market rate and other savings		541,843		0.08			111		500,327		0.12			152
Savings certificates		52,552		1.23			161		60,341		1.34			200
Other time deposits		26,045		0.76			50		12,803		1.83			59
Deposits in foreign offices		68,871		0.15			25		65,587		0.17			27

Total interest-bearing deposits		729,733		0.19			353		669,498		0.27			443
Short-term borrowings		57,812		0.14			21		51,698		0.19			24
Long-term debt		125,496		2.02			632		127,660		2.48			789
Other liabilities		13,315		2.25			75		10,408		2.48			65

Total interest-bearing liabilities		926,356		0.47			1,081		859,264		0.62			1,321
Portion of noninterest-bearing funding sources		339,547		-			-		292,000		-			-

Total funding sources	$	1,265,903		0.34			1,081		1,151,264		0.46			1,321

Net interest margin and net interest income on a taxable-equivalent basis (5)				3.46	%	$	10,946				3.91	%	$	11,213

Noninterest-earning assets
Cash and due from banks	$	16,214							16,200
Goodwill		25,637							25,332
Other		121,251							128,788

Total noninterest-earning assets	$	163,102							170,320

Noninterest-bearing funding sources
Deposits	$	280,029							254,442
Other liabilities		57,959							58,441
Total equity		164,661							149,437
Noninterest-bearing funding sources used to fund earning assets		(339,547)							(292,000)

Net noninterest-bearing funding sources	$	163,102							170,320

Total assets	$	1,429,005							1,321,584

(1)

Our average prime rate was 3.25% for the quarters ended June 30, 2013 and 2012, and 3.25% for the first six months of both 2013 and 2012. The average three-month London Interbank Offered Rate (LIBOR) was 0.28% and 0.47% for the quarters ended June 30, 2013 and 2012, respectively, and 0.28% and 0.49%, respectively, for the first six months of 2013 and 2012.

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

(3)	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.

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

(5)

Includes taxable-equivalent adjustments of $196 million and $176 million for the quarters ended June 30, 2013 and 2012, respectively, and $373 million and $346 million for the first six months of 2013 and 2012, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35% for the periods presented.


	Six months ended June 30,
	2013							2012
(in millions)	Average balance		Yields/ rates			Interest income/ expense		Average balance		Yields/ rates			Interest income/ expense

Earning assets
Federal funds sold, securities purchased under resale agreements and other short-term investments	$	128,797		0.35	%	$	221		63,635		0.49	%	$	156
Trading assets		44,388		3.07			681		43,190		3.39			731
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies		6,880		1.65			56		3,875		1.13			22
Securities of U.S. states and political subdivisions		38,430		4.40			844		33,578		4.45			747
Mortgage-backed securities:
Federal agencies		98,705		2.77			1,365		93,165		3.43			1,597
Residential and commercial		31,726		6.48			1,028		34,201		6.89			1,178

Total mortgage-backed securities		130,431		3.67			2,393		127,366		4.36			2,775
Other debt and equity securities		54,634		3.71			1,008		49,658		4.10			1,015

Total securities available for sale		230,375		3.74			4,301		214,477		4.26			4,559
Mortgages held for sale (4)		43,367		3.45			749		48,218		3.88			936
Loans held for sale (4)		159		8.28			7		790		5.29			21
Loans:
Commercial:
Commercial and industrial		185,327		3.71			3,414		169,279		4.20			3,534
Real estate mortgage		105,738		3.88			2,035		105,750		4.33			2,280
Real estate construction		16,508		4.93			404		18,337		4.87			444
Lease financing		12,381		6.72			416		13,009		7.89			513
Foreign		41,093		2.19			448		40,042		2.54			507

Total commercial		361,047		3.75			6,717		346,417		4.22			7,278

Consumer:
Real estate 1-4 family first mortgage		252,305		4.26			5,374		229,859		4.66			5,346
Real estate 1-4 family junior lien mortgage		72,715		4.29			1,548		83,397		4.28			1,778
Credit card		24,060		12.58			1,502		22,097		12.81			1,408
Automobile		47,258		7.12			1,668		44,155		7.69			1,688
Other revolving credit and installment		41,779		4.72			977		42,478		4.54			958

Total consumer		438,117		5.08			11,069		421,986		5.31			11,178

Total loans (4)		799,164		4.47			17,786		768,403		4.82			18,456
Other		4,203		5.37			112		4,545		4.49			103

Total earning assets	$	1,250,453		3.83	%	$	23,857		1,143,258		4.38	%	$	24,962

Funding sources
Deposits:
Interest-bearing checking	$	36,316		0.06	%	$	11		31,299		0.06	%	$	10
Market rate and other savings		539,708		0.09			233		498,177		0.12			305
Savings certificates		53,887		1.23			328		61,515		1.35			413
Other time deposits		21,003		0.95			99		12,727		1.88			119
Deposits in foreign offices		69,968		0.15			51		65,217		0.16			53

Total interest-bearing deposits		720,882		0.20			722		668,935		0.27			900
Short-term borrowings		56,618		0.16			44		50,040		0.17			43
Long-term debt		126,299		2.11			1,329		127,599		2.54			1,619
Other liabilities		12,467		2.24			140		10,105		2.55			129

Total interest-bearing liabilities		916,266		0.49			2,235		856,679		0.63			2,691
Portion of noninterest-bearing funding sources		334,187		-			-		286,579		-			-

Total funding sources	$	1,250,453		0.36			2,235		1,143,258		0.47			2,691

Net interest margin and net interest income on a taxable-equivalent basis (5)				3.47	%	$	21,622				3.91	%	$	22,271

Noninterest-earning assets
Cash and due from banks	$	16,371							16,587
Goodwill		25,638							25,230
Other		124,279							127,177

Total noninterest-earning assets	$	166,288							168,994

Noninterest-bearing funding sources
Deposits	$	277,141							250,528
Other liabilities		60,784							57,821
Total equity		162,550							147,224
Noninterest-bearing funding sources used to fund earning assets		(334,187)							(286,579)

Net noninterest-bearing funding sources	$	166,288							168,994

Total assets	$	1,416,741							1,312,252

Earnings Performance (continued)

Noninterest Income

Table 2: Noninterest Income


	Quarter ended June 30,				%			Six months ended June 30,				%
(in millions)	2013		2012		Change			2013		2012		Change

Service charges on deposit accounts	$	1,248		1,139		10	%	$	2,462		2,223		11	%
Trust and investment fees:
Brokerage advisory, commissions and other fees (1)		2,127		1,845		15			4,177		3,675		14
Trust and investment management (1)		829		762		9			1,628		1,514		8
Investment banking		538		291		85			891		548		63

Total trust and investment fees		3,494		2,898		21			6,696		5,737		17

Card fees		813		704		15			1,551		1,358		14
Other fees:
Charges and fees on loans		387		427		(9)			771		872		(12)
Merchant processing fees		174		157		11			328		282		16
Cash network fees		125		120		4			242		238		2
Commercial real estate brokerage commissions		73		82		(11)			118		132		(11)
Letters of credit fees		102		108		(6)			211		220		(4)
All other fees		228		240		(5)			453		485		(7)

Total other fees		1,089		1,134		(4)			2,123		2,229		(5)

Mortgage banking:
Servicing income, net		393		679		(42)			707		931		(24)
Net gains on mortgage loan origination/sales activities		2,409		2,214		9			4,889		4,832		1

Total mortgage banking		2,802		2,893		(3)			5,596		5,763		(3)

Insurance		485		522		(7)			948		1,041		(9)
Net gains from trading activities		331		263		26			901		903		-
Net losses on debt securities available for sale		(54)		(61)		(11)			(9)		(68)		(87)
Net gains from equity investments		203		242		(16)			316		606		(48)
Lease income		225		120		88			355		179		98
Life insurance investment income		142		154		(8)			287		322		(11)
All other		(150)		244		NM			162		707		(77)

Total	$	10,628		10,252		4		$	21,388		21,000		2

NM - Not meaningful

(1)	Prior year periods have been revised to reflect all fund distribution fees as brokerage related income.

Noninterest income was $10.6 billion and $10.3 billion for second quarter 2013 and 2012, respectively, and $21.4 billion and $21.0 billion for the first half of 2013 and 2012, respectively. Noninterest income represented 50% of revenue for both the second quarter and first half of 2013 compared with 48% and 49%, respectively, for the same periods a year ago. The increase in noninterest income in the second quarter and first half of 2013 from the same periods a year ago was driven by solid performance in many of our businesses including retail deposits, credit card, merchant card processing, government and institutional banking, corporate banking, capital markets, asset-backed finance, commercial real estate, corporate trust, wealth management, retail brokerage, and retirement services.

Our service charges on deposit accounts increased in second quarter 2013 by $109 million, or 10% from second quarter 2012, and $239 million in the first half of 2013, or 11% from the first half of 2012, due to primary consumer checking customer growth, product changes and continued customer adoption of overdraft services.

We receive brokerage advisory, commissions and other fees for providing services to full-service and discount brokerage customers. Brokerage advisory, commissions and other fees

include transactional commissions based on the number of transactions executed at the customer’s direction, and asset-based fees, which are based on the market value of the customer’s assets. These fees increased to $2.1 billion and $4.2 billion in the second quarter and first half of 2013, respectively, from $1.8 billion and $3.7 billion for the same periods in 2012. The growth was predominantly due to higher asset-based fees from improved market performance and growing market share, as well as higher brokerage transactional revenue driven by increased client activity. Brokerage client assets totaled $1.3 trillion at June 30, 2013, a 9% increase from $1.2 trillion at June 30, 2012, due to higher market values and customer growth in assets under management.

We earn trust and investment management fees from managing and administering assets, including mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. At June 30, 2013, these assets totaled $2.3 trillion, up 4% from $2.2 trillion at June 30, 2012, driven by higher market values. Trust and investment management fees are largely based on a tiered scale relative to the market value of the assets under management or administration. These fees increased to $829 million and $1.6 billion in the second quarter

and first half of 2013, respectively, from $762 million and $1.5 billion for the same periods in 2012, primarily due to growth in assets under management and higher market values.

We earn investment banking fees from underwriting debt and equity securities, loan syndications, and performing other related advisory services. Investment banking fees increased to $538 million and $891 million in the second quarter and first half of 2013, respectively, from $291 million and $548 million for the same periods a year ago, due primarily to increased loan syndication volume and equity originations.

Card fees were $813 million in second quarter 2013, compared with $704 million in second quarter 2012 and $1.6 billion and $1.4 billion for the first half of 2013 and 2012, respectively. Card fees increased primarily due to active account growth and increased purchase activity.

Mortgage banking noninterest income, consisting of net servicing income and net gains on loan origination/sales activities, totaled $2.8 billion in second quarter 2013, compared with $2.9 billion in second quarter 2012 and totaled $5.6 billion for the first half of 2013, compared with $5.8 billion for the same period a year ago.

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 for second quarter 2013 included a $68 million net MSR valuation gain ($1.87 billion increase in the fair value of the MSRs offset by a $1.80 billion hedge loss) and for second quarter 2012 included a $377 million net MSR valuation gain ($1.63 billion decrease in the fair value of MSRs offset by a $2.01 billion hedge gain). For the first half of 2013, net servicing income included a $197 million net MSR valuation gain ($2.63 billion increase in the fair value of the MSRs offset by a $2.43 billion hedge loss) and for the same period of 2012, included a $319 million net MSR valuation gain ($1.79 billion decrease in the fair value of MSRs offset by a $2.11 billion hedge gain). Our portfolio of loans serviced for others was $1.90 trillion at June 30, 2013, and $1.91 trillion at December 31, 2012. At June 30, 2013, the ratio of MSRs to related loans serviced for others was 0.81%, compared with 0.67% at December 31, 2012. See the “Risk Management – Mortgage Banking Interest Rate and Market Risk” section of this Report for additional information regarding our MSRs risks and hedging approach.

Net gains on mortgage loan origination/sale activities were $2.4 billion and $4.9 billion in the second quarter and first half of 2013, respectively, compared with $2.2 billion and $4.8 billion for the same periods a year ago. The year over year increases for both periods were driven by higher margins, partially offset by lower origination volumes. Mortgage loan originations were $112 billion for second quarter 2013, of which 44% were for home purchases, compared with $131 billion and 38% for the same period a year ago. During the first half of 2013, we retained for investment $3.6 billion of 1-4 family conforming first mortgage loans, forgoing approximately $120 million of revenue that could have been generated had the loans been originated for sale along with other agency conforming loan production. While retaining these mortgage loans on our balance

sheet reduced mortgage revenue, we expect to generate greater spread income in future quarters from mortgage loans with higher yields than mortgage-backed securities we could have purchased in the market. While we do not currently plan to hold additional conforming mortgages on balance sheet, we have a large mortgage business and strong capital that provides us with the flexibility to make such choices in the future to benefit our long-term results. Mortgage applications were $146 billion and $286 billion in the second quarter and first half of 2013, compared with $208 billion and $396 billion for the same periods a year ago. The 1-4 family first mortgage unclosed pipeline was $63 billion at June 30, 2013, and $102 billion at June 30, 2012. For additional information about our mortgage banking activities and results, see the “Risk Management – Mortgage Banking Interest Rate and Market Risk” section and Note 8 (Mortgage Banking Activities) and Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.

Net gains on mortgage loan origination/sales activities include the cost of additions 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. Additions to the mortgage repurchase liability that were charged against net gains on mortgage loan origination/sales activities during second quarter 2013 totaled $65 million (compared with $669 million for second quarter 2012), of which $25 million ($597 million for second quarter 2012) was for subsequent increases in estimated losses on prior period loan sales. Additions to the mortgage repurchase liability for the first half of 2013 and 2012 were $374 million and $1.1 billion, respectively, of which $275 million and $965 million, respectively, were for subsequent increase in estimated losses on prior period loan sales. For additional information about mortgage loan repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.

We engage in trading activities primarily to accommodate the investment activities of our customers, execute economic hedging to manage certain of our balance sheet risks and for a very limited amount of proprietary trading for our own account. Net gains (losses) from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $331 million and $901 million in the second quarter and first half of 2013, respectively, and $263 million and $903 million in the second quarter and first half of 2012. The year-over-year increase for the quarter was driven in part by higher gains on deferred compensation plan investments (offset in employee benefits expense). Net gains (losses) from trading activities do not include interest and dividend income and expense on trading securities. Those amounts are reported within interest income from trading assets and other interest expense from trading liabilities. Proprietary trading generated $4 million of net gains in second quarter 2013 and $8 million of net gains in the first half of 2013 compared with $1 million of net loss and $14 million of net gains for the same periods, respectively, in 2012. Proprietary trading results also included interest and fees reported in their corresponding income

Earnings Performance (continued)

statement line items. Proprietary trading activities are not significant to our client-focused business model. For additional information about proprietary and other trading, see Risk Management – “Asset and Liability Management – Market Risk – Trading Activities” section in this Report.

Net gains on debt and equity securities totaled $149 million for second quarter 2013 and $181 million for second quarter 2012 ($307 million and $538 million for the first half of 2013 and 2012, respectively), after other-than-temporary impairment (OTTI) write-downs of $111 million and $120 million for second

quarter 2013 and 2012, respectively, and $189 million and $185 million for the first half of 2013 and 2012, respectively.

All other income includes ineffectiveness recognized on derivatives that qualify for hedge accounting, losses on low income housing tax credit investments, foreign currency adjustments, and income from investments accounted for under the equity accounting method, any of which can cause other income losses. Lower other income for the second quarter and first half of 2013 primarily reflected an increase in ineffectiveness losses on derivatives that qualify for hedge accounting.

Noninterest Expense

Table 3: Noninterest Expense


	Quarter ended June 30,				%			Six months ended June 30,				%
(in millions)	2013		2012		Change			2013		2012		Change

Salaries	$	3,768		3,705		2	%	$	7,431		7,306		2	%
Commission and incentive compensation		2,626		2,354		12			5,203		4,771		9
Employee benefits		1,118		1,049		7			2,701		2,657		2
Equipment		418		459		(9	)		946		1,016		(7	)
Net occupancy		716		698		3			1,435		1,402		2
Core deposit and other intangibles		377		418		(10	)		754		837		(10	)
FDIC and other deposit assessments		259		333		(22	)		551		690		(20	)
Outside professional services		607		658		(8	)		1,142		1,252		(9	)
Operating losses		288		524		(45	)		445		1,001		(56	)
Foreclosed assets		146		289		(49	)		341		593		(42	)
Contract services		226		236		(4	)		433		539		(20	)
Outside data processing		235		233		1			468		449		4
Travel and entertainment		229		218		5			442		420		5
Postage, stationery and supplies		184		195		(6	)		383		411		(7	)
Advertising and promotion		183		144		27			288		266		8
Telecommunications		125		127		(2	)		248		251		(1	)
Insurance		143		183		(22	)		280		340		(18	)
Operating leases		49		27		81			97		55		76
All other		558		547		2			1,067		1,134		(6	)

Total	$	12,255		12,397		(1	)	$	24,655		25,390		(3	)

Noninterest expense was $12.3 billion in second quarter 2013, down 1% from $12.4 billion a year ago, primarily due to lower operating losses ($288 million, down from $524 million a year ago) and lower foreclosed assets expense ($146 million, down from $289 million a year ago), partially offset by higher personnel expenses ($7.5 billion, up from $7.1 billion a year ago). For the first half of 2013, noninterest expense was down 3% from the same period a year ago predominantly due to lower operating losses ($445 million, down from $1.0 billion in first half of 2012), the completion of Wachovia merger integration activities in the prior year ($218 million in first half of 2012), and lower foreclosed assets expense reflecting an improvement in the real estate market ($341 million, down from $593 million in first half of 2012), partially offset by higher personnel expenses ($15.3 billion, up from $14.7 billion a year ago).

Personnel expenses were up $404 million, or 6%, in second quarter 2013 compared with the same quarter last year, largely due to higher revenue-based compensation, increased staffing primarily in our mortgage business, and annual salary increases and related employment taxes. Included in personnel expense was a $69 million increase in employee benefits partly due to

higher deferred compensation expense (offset in trading income). Personnel expenses were up $601 million, or 4%, for the first half of 2013 compared with the same period in 2012, mostly due to higher revenue-based compensation, and annual salary increases and related salary taxes.

The completion of Wachovia integration activities, which totaled $218 million in first quarter 2012, contributed to year-over-year reductions in the first half of 2013, mainly in outside professional services and contract services.

Operating losses were down 45% and 56% in the second quarter and first half of 2013, respectively, compared with the same periods a year ago. The decrease for both periods is primarily due to lower mortgage-related litigation charges.

Foreclosed assets expense was down 49% in second quarter 2013 compared with the same quarter last year and down 42% in the first half of 2013 compared with the same period in 2012, reflecting lower write-downs and higher gains on sale of foreclosed properties, primarily due to the improvement in the real estate market.

The Company continued to operate within its targeted efficiency ratio range of 55 to 59%, with a ratio of 57.3% in second quarter 2013, compared with 58.2% in the prior year.

Income Tax Expense

Our effective tax rate was 34.2% and 33.9% for second quarter 2013 and 2012, respectively. Our effective tax rate was 33.1% in the first half of 2013, down from 34.6% in the first half of 2012. The lower tax rate in the first half of 2013 reflected a tax benefit from the realization for tax purposes of a previously written down investment and a reduction in accruals for uncertain tax positions.

Operating Segment Results

We are organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement. 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). In first quarter 2012, we modified internal funds transfer rates and the allocation of funding. Table 4 and the following discussion present our results by operating segment. For a more complete description of our operating segments, including additional financial information and the underlying management accounting process, see Note 18 (Operating Segments) to Financial Statements in this Report.

Table 4: Operating Segment Results – Highlights


	Community Banking				Wholesale Banking					Wealth, Brokerage and Retirement				Other (1)						Consolidated Company
(in billions)	2013		2012		2013			2012		2013		2012		2013			2012			2013		2012

Quarter ended June 30,
Revenue	$	12.9		13.1		6.1			6.1		3.3		3.0		(0.9	)		(0.9	)		21.4		21.3
Provision (reversal of provision) for credit losses		0.8		1.6		(0.1	)		0.2		-		-		-			-			0.7		1.8
Noninterest expense		7.2		7.6		3.2			3.1		2.5		2.4		(0.6	)		(0.7	)		12.3		12.4
Net income		3.2		2.5		2.0			1.9		0.4		0.3		(0.1	)		(0.1	)		5.5		4.6

Average loans		498.2		483.9		286.9			270.2		45.4		42.5		(30.3	)		(28.4	)		800.2		768.2
Average core deposits		623.0		586.1		230.5			220.9		146.4		134.2		(63.8	)		(60.6	)		936.1		880.6


Six months ended June 30,
Revenue	$	25.8		26.5		12.2			12.2		6.5		6.0		(1.9	)		(1.8	)		42.6		42.9
Provision (reversal of provision) for credit losses		2.0		3.5		(0.2	)		0.3		-		0.1		0.1			(0.1	)		1.9		3.8
Noninterest expense		14.6		15.4		6.3			6.2		5.2		4.9		(1.4	)		(1.1	)		24.7		25.4
Net income		6.2		4.9		4.0			3.7		0.8		0.6		(0.3	)		(0.3	)		10.7		8.9


Average loans		498.6		485.0		285.7			269.4		44.6		42.5		(29.7	)		(28.5	)		799.2		768.4
Average core deposits		621.1		580.7		227.3			220.9		147.9		134.9		(65.3	)		(60.9	)		931.0		875.6

(1)	Includes corporate items not specific to a business segment and the elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for wealth management customers provided in Community Banking stores.

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses. These products include investment, insurance and trust services in 39 states and D.C., and mortgage and home equity loans in all 50 states and D.C. through its Regional Banking and Wells Fargo Home Lending business units. Cross-sell of our products is an important part of our strategy to achieve our vision to satisfy all our customers’ financial needs. Our retail bank household cross-sell was 6.14 products per household in May 2013, up from 6.00 in May 2012. We believe there is more opportunity for cross-sell as we continue to earn more business from our customers. Our goal is eight products per household, which is approximately half of our estimate of potential demand for an average U.S. household. In May 2013, one of every four of our retail banking households had eight or more of our products.

Community Banking had net income of $3.2 billion, up $710 million, or 28%, from second quarter 2012, and $6.2 billion for the first six months of 2013, up $1.3 billion, or 26%, compared with the same period a year ago. Revenue of $12.9 billion,

decreased $150 million, or 1%, from second quarter 2012, and was $25.8 billion for the first six months of 2013, a decrease of $672 million, or 3%, compared with the same period last year. The decrease in revenue was due to lower net interest income, lower mortgage banking revenue, and lower other noninterest income, mostly offset by growth in deposit service charges, higher trust and investment fees, and higher debit, credit and merchant card processing volumes. Average core deposits increased $37 billion, or 6%, from second quarter 2012 and $40 billion, or 7%, from the first six months of 2012. The number of primary consumer checking customers grew 3.5% from second quarter 2012 (May 2013 compared with May 2012). Noninterest expense declined 5% from second quarter 2012 and for the first six months of 2012, largely driven by lower operating losses and Federal Deposit Insurance Corporation (FDIC) deposit insurance assessments. The provision for credit losses was $810 million, or 51% lower than second quarter 2012, and $1.4 billion, or 41% lower than the first six months of 2012, as net-charge offs declined and portfolio credit performance improved, largely in the residential real estate portfolios.

Earnings Performance (continued)

Wholesale Banking provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $20 million. Products and business segments include Middle Market Commercial Banking, Government and Institutional Banking, Corporate Banking, Commercial Real Estate, Treasury Management, Wells Fargo Capital Finance, Insurance, International, Real Estate Capital Markets, Commercial Mortgage Servicing, Corporate Trust, Equipment Finance, Wells Fargo Securities, Principal Investments, Asset Backed Finance, and Asset Management.

Wholesale Banking had net income of $2.0 billion in second quarter 2013, up $123 million, or 7%, from second quarter 2012. In the first half of the year, net income increased $300 million or 8% from a year ago to $4.0 billion. Results for the first six months of 2013 benefited from strong noninterest income growth and improvement in provision for loan losses. Revenue in second quarter 2013 increased $18 million, or 0.3%, from second quarter 2012 and revenue in the first half of 2013 increased $71 million, or 1%, from the first half of 2012 as strong noninterest income growth in capital markets, asset backed finance and real estate capital markets was partially offset by lower net interest income primarily related to lower purchased credit impaired (PCI) resolutions. Average loans of $286.9 billion in second quarter 2013 increased 6% from second quarter 2012 driven by strong customer demand. Average core deposits of $230.5 billion in second quarter 2013 increased 4% from second quarter 2012, reflecting continued customer liquidity. Noninterest expense in second quarter and for the first half of 2013 increased 2%, from the comparable periods last year, due to higher personnel expense related to growing the business and higher non-personnel expenses related to growth initiatives. The provision for credit losses improved $306 million from second quarter 2012 and $459 million from first half of 2012 driven by net recoveries in 2013 compared with net charge-offs in 2012 and other improved credit performance.

Wealth, Brokerage and Retirement provides a full range of financial advisory services to clients using a planning approach to meet each client’s financial needs. Wealth Management provides affluent and high net worth clients with a complete range of wealth management solutions, including financial planning, private banking, credit and investment fiduciary services. Abbot Downing, a Wells Fargo business, provides comprehensive wealth management services to ultra high net worth families and individuals as well as their endowments and foundations. Brokerage serves customers’ advisory, brokerage and financial needs as part of one of the largest full-service brokerage firms in the United States. Retirement is a national leader in providing institutional retirement and trust services (including 401(k) and pension plan record keeping) for businesses, retail retirement solutions for individuals, and reinsurance services for the life insurance industry.

Wealth, Brokerage and Retirement reported net income of $434 million in second quarter 2013, up 27% from second quarter 2012. Net income for the first half of 2013 was $771 million, up 21% compared with the same period a year ago. Net income growth was driven by higher noninterest income and an improved efficiency ratio. Second quarter 2013 total revenue was up 10% from second quarter 2012 and up 7% for the first six months of 2013 from the same period in 2012, predominantly due to growth in asset-based fees from improved market performance and growing market share, as well as higher brokerage transaction revenue, partially offset by reduced securities gains in the brokerage business. Average core deposits in second quarter 2013 of $146.4 billion were up 9% from second quarter 2012. First half 2013 average core deposits increased 10% from the same period a year ago. Noninterest expense for the second quarter 2013 was up 7% from second quarter 2012 and up 5% from the first six months of 2012 largely due to higher personnel expenses, primarily broker commissions. Total provision for credit losses decreased $18 million and $47 million from the second quarter and first half of 2012, respectively, driven by lower net charge-offs and continued improvement in credit.

Balance Sheet Analysis

At June 30, 2013, our assets totaled $1.4 trillion, up $17.6 billion from December 31, 2012. The predominant areas of asset growth were in securities available for sale, which increased $14.2 billion, and federal funds sold and short-term investments, which increased $11.4 billion, partially offset by a $3.9 billion decrease in cash and due from banks. Deposit growth of $18.8 billion and total equity growth of $4.9 billion from December 31, 2012, were the predominant sources of funding our asset growth for the first half of 2013. The deposit growth resulted in an increase in the proportion of interest-bearing deposits while equity growth benefited from $7.3 billion in earnings, net of dividends paid, as well as from the repurchase of common stock and the issuance of preferred stock. The strength of our business model produced record earnings and continued internal capital

generation as reflected in our capital ratios, all of which improved from December 31, 2012. Tier 1 capital as a percentage of total risk-weighted assets increased to 12.12%, total capital increased to 15.03%, Tier 1 leverage increased to 9.63%, and Tier 1 common equity increased to 10.71% at June 30, 2013, compared with 11.75%, 14.63%, 9.47%, and 10.12%, respectively, at December 31, 2012.

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

Securities Available for Sale

Table 5: Securities Available for Sale – Summary

June 30, 2013

December 31, 2012

(in millions)

Cost

Net
unrealized
gain

Fair
value

Cost

Net
unrealized
gain

Fair
value

Debt securities available for sale

242,158

4,524

246,682

220,946

11,468

232,414

Marketable equity securities

2,210

547

2,757

2,337

448

2,785

Total securities available for sale

244,368

5,071

249,439

223,283

11,916

235,199

Table 5 presents a summary of our securities available-for-sale portfolio, which consists of both debt and marketable equity securities. The total net unrealized gains on securities available for sale were $5.1 billion at June 30, 2013, down from net unrealized gains of $11.9 billion at December 31, 2012, due primarily to an increase in long-term interest rates.

The size and composition of the available-for-sale portfolio is largely dependent upon the Company’s liquidity and interest rate risk management objectives. Our business generates assets and liabilities, such as loans, deposits and long-term debt, which have different maturities, yields, re-pricing, prepayment characteristics and other provisions that expose us to interest rate and liquidity risk. The available-for-sale securities portfolio consists primarily of liquid, high quality federal agency debt, privately issued mortgage-backed securities (MBS), securities issued by U.S. states and political subdivisions and corporate debt securities. Due to its highly liquid nature, the available-for-sale portfolio can be used to meet funding needs that arise in the normal course of business or due to market stress. Changes in our interest rate risk profile may occur due to changes in overall economic or market conditions that could influence drivers such as loan origination demand, prepayment speeds, or deposit balances and mix. In response, the available-for-sale securities portfolio can be rebalanced to meet the Company’s interest rate risk management objectives. In addition to meeting liquidity and interest rate risk management objectives, the available-for-sale securities portfolio may provide yield enhancement over other short-term assets. See the “Risk Management - Asset/Liability Management” section of this Report for more information on liquidity and interest rate risk.

We analyze securities for OTTI quarterly or more often if a potential loss-triggering event occurs. Of the $189 million in OTTI write-downs recognized in the first half of 2013, $105 million related to debt securities. There was $9 million in OTTI write-downs for marketable equity securities and $75 million in OTTI write-downs related to nonmarketable equity investments. For a discussion of our OTTI accounting policies and underlying considerations and analysis see Note 1 (Summary of Significant Accounting Policies – Investments) in our 2012 Form 10-K and Note 4 (Securities Available for Sale) to Financial Statements in this Report.

At June 30, 2013, debt securities available for sale included $40.9 billion of municipal bonds, of which 83% were rated “A-” or better based predominantly on external and, in some cases, internal ratings. Additionally, some of the 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. Our municipal bond holdings are monitored as part of our ongoing impairment analysis of our securities available for sale.

The weighted-average expected maturity of debt securities available for sale was 6.7 years at June 30, 2013. Because 58% of this portfolio is MBS, the expected remaining maturity is shorter than the remaining contractual maturity 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 are shown in Table 6.

Table 6: Mortgage-Backed Securities


(in billions)	Fair value		Net unrealized gain (loss)			Expected remaining maturity (in years)

At June 30, 2013
Actual	$	144.0		2.6			5.7
Assuming a 200 basis point:
Increase in interest rates		130.4		(11.0	)		7.0
Decrease in interest rates		151.2		9.8			3.2

See Note 4 (Securities Available for Sale) to Financial Statements in this Report for securities available for sale by security type.

Balance Sheet Analysis (continued)

Loan Portfolio

Total loans were $802.0 billion at June 30, 2013, up $2.4 billion from December 31, 2012. Table 7 provides a summary of total outstanding loans for our commercial and consumer loan portfolios. The runoff in the non-strategic/liquidating portfolios was $7.0 billion, while loans in the core portfolio grew $9.4 billion from December 31, 2012. Our core loan growth in 2013 included:

•

a $2.9 billion increase in the commercial segment from growth in the commercial and industrial and foreign loans portfolios; and

•

a $6.5 billion increase in consumer loans with growth of $11.0 billion of 1-4 family non-conforming first mortgages, partially offset by runoff in the core portfolio.

In July 2013, we signed an agreement to acquire an institutional loan portfolio from Commerzbank’s Hypothekenbank Frankfurt involving £3.5 billion ($5.4 billion) of commercial real estate loans throughout the United Kingdom. A portion of the portfolio, consisting of approximately £1.0 billion ($1.5 billion) of non-performing assets, was acquired by a third party, for which we provided financing. The transaction closed on August 2, 2013.

Additional information on the non-strategic and liquidating loan portfolios is included in Table 12 in the “Risk Management – Credit Risk Management” section of this Report.

Table 7: Loan Portfolios

June 30, 2013

December 31, 2012

(in millions)

Core

Liquidating

Total

Core

Liquidating

Total

Commercial

360,940

2,532

363,472

358,028

3,170

361,198

Consumer

353,470

85,032

438,502

346,984

91,392

438,376

Total loans

714,410

87,564

801,974

705,012

94,562

799,574

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 5 (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 sensitivities of those loans to changes in interest rates.

Table 8: Maturities for Selected Commercial Loan Categories


	June 30, 2013								December 31, 2012
(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	$	42,973		126,183		19,602		188,758		45,212		123,578		18,969		187,759
Real estate mortgage		20,504		57,284		26,885		104,673		22,328		56,085		27,927		106,340
Real estate construction		6,659		8,507		1,276		16,442		7,685		7,961		1,258		16,904
Foreign		30,232		9,207		2,394		41,833		27,219		7,460		3,092		37,771
Total selected loans	$	100,368		201,181		50,157		351,706		102,444		195,084		51,246		348,774
Distribution of loans to changes in interest rates:
Loans at fixed interest rates	$	16,157		21,305		12,685		50,147		17,218		20,894		11,387		49,499
Loans at floating/variable interest rates		84,211		179,876		37,472		301,559		85,226		174,190		39,859		299,275
Total selected loans	$	100,368		201,181		50,157		351,706		102,444		195,084		51,246		348,774

Deposits

Deposits totaled $1.0 trillion at June 30, 2013, and December 31, 2012. 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 “Earnings Performance – Net Interest Income”

and Table 1 earlier in this Report. Total core deposits were $941.2 billion at June 30, 2013, down $4.5 billion from $945.7 billion at December 31, 2012.

Table 9: Deposits


($ in millions)	June 30, 2013		% of total deposits			Dec. 31, 2012		% of total deposits			% Change

Noninterest-bearing	$	277,647		27	%	$	288,207		29	%		(4	)
Interest-bearing checking		35,924		3			35,275		4			2
Market rate and other savings		527,036		52			517,464		52			2
Savings certificates		49,987		5			55,966		6			(11	)
Foreign deposits (1)		50,564		5			48,837		4			4

Core deposits		941,158		92			945,749		95			-
Other time and savings deposits		46,763		5			33,755		3			39
Other foreign deposits		33,664		3			23,331		2			44

Total deposits	$	1,021,585		100	%	$	1,002,835		100	%		2

(1)	Reflects Eurodollar sweep balances included in core deposits.

Fair Valuation of Financial Instruments

We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See our 2012 Form 10-K for a description of our critical accounting policy related to fair valuation 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, 2013					December 31, 2012
($ in billions)	Total balance			Level 3 (1)		Total balance		Level 3 (1)

Assets carried at fair value	$	368.5			42.5		358.7		51.9
As a percentage of total assets		26	%		3		25		4
Liabilities carried at fair value	$	23.2			3.6		22.4		3.1
As a percentage of total liabilities		2	%		*		2		*

*	Less than 1%.

(1)	Before derivative netting adjustments.

See Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional information regarding our use of fair valuation of financial instruments, our related measurement techniques and the impact to our financial statements.

Equity

Total equity was $163.8 billion at June 30, 2013 compared with $158.9 billion at December 31, 2012. The increase was predominantly driven by a $7.2 billion increase in retained earnings, partially offset by a $3.9 billion decline in cumulative other comprehensive income (OCI). The decline in OCI was due to a $6.8 billion ($4.2 billion after tax) reduction in net unrealized gains on our securities available for sale portfolio resulting from an increase in long-term interest rates. This decline was partially offset by our recognition of settlement losses and the related re-measurement of our Cash Balance Plan liability, which increased cumulative other comprehensive income by $840 million ($524 million after tax). See Note 15 (Employee Benefits) to Financial Statements in this Report for additional information.

Off-Balance Sheet Arrangements

In the ordinary course of business, we engage in financial transactions that are not recorded in the balance sheet, or may be recorded in 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, 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

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 are not expected to be fully utilized or will expire without being used by the customer. For more information on lending commitments, see Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Transactions with Unconsolidated Entities

We routinely enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions. For more information on securitizations, including sales proceeds and cash flows from securitizations, see Note 7 (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, liquidity agreements, written put options, recourse obligations, residual value guarantees and contingent consideration.

For more information on guarantees and certain contingent arrangements, see Note 10 (Guarantees, Pledged Assets and Collateral) to Financial Statements in this Report.

Derivatives

We primarily 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. Derivative transactions 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 12 (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 and commitments to purchase certain debt securities available for sale and private equity investments. Our operating lease obligations are discussed in Note 7 (Premises, Equipment, Lease Commitments and Other Assets) to Financial Statements in our 2012 Form 10-K. For more information on commitments to purchase debt securities available for sale, see the “Off-Balance Sheet Arrangements” section in our 2012 Form 10-K. Commitments to purchase private equity investments are further described in Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.

Risk Management

As a financial institution we must manage and control a variety of business risks that can significantly affect our financial performance. Among the key risks that we must manage are credit risks, asset/liability interest rate and market risks, and operational risks. For more information about how we managed credit, asset/liability interest rate and market risks, see the “Risk Management” section in our 2012 Form 10-K. The discussion that follows provides an update regarding these risks.

Operational Risk Management

Effective management of operational risks, which include risks relating to management information systems, security systems, and information security, is also an important focus for financial institutions such as Wells Fargo. Wells Fargo and reportedly other financial institutions continue to be the target of various evolving and adaptive denial-of-service or other cyber attacks as part of what appears to be a coordinated effort to disrupt the operations of financial institutions and potentially test their cybersecurity capabilities. Wells Fargo has not experienced any material losses relating to these or other cyber attacks. Cybersecurity and the continued development and enhancement of our controls, processes and systems to protect our networks, computers, software, and data from attack, damage or unauthorized access remain a priority for Wells Fargo. See the “Risk Factors” section in our 2012 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.

Credit Risk Management

Loans represent the largest component of assets on our balance sheet and their related credit risk is a significant risk we manage. 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). 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)	June 30, 2013		Dec. 31, 2012

Commercial:
Commercial and industrial	$	188,758		187,759
Real estate mortgage		104,673		106,340
Real estate construction		16,442		16,904
Lease financing		11,766		12,424
Foreign (1)		41,833		37,771

Total commercial		363,472		361,198

Consumer:
Real estate 1-4 family first mortgage		252,841		249,900
Real estate 1-4 family junior lien mortgage		70,059		75,465
Credit card		24,815		24,640
Automobile		48,648		45,998
Other revolving credit and installment		42,139		42,373

Total consumer		438,502		438,376
Total loans	$	801,974		799,574

(1)	Substantially all of our foreign loan portfolio is commercial loans. Loans are classified as foreign if the borrower’s primary address is outside of the United States.

Risk Management – Credit Risk Management (continued)

Non-Strategic and Liquidating Loan Portfolios We continually evaluate and modify our credit policies to address appropriate levels of risk. We may designate certain portfolios and loan products as non-strategic or liquidating after we cease their continued origination and actively work to limit losses and reduce our exposures.

Table 12 identifies our non-strategic and liquidating loan portfolios. They consist primarily of the Pick-a-Pay mortgage portfolio and PCI loans acquired from Wachovia, certain portfolios from legacy Wells Fargo Home Equity and Wells

Fargo Financial, and our education finance government guaranteed loan portfolio. The total balance of our non-strategic and liquidating loan portfolios has decreased 54% since the merger with Wachovia at December 31, 2008, and decreased 7% from the end of 2012.

The home equity portfolio of loans generated through third party channels is designated as liquidating. Additional information regarding this portfolio, as well as the liquidating PCI and Pick-a-Pay loan portfolios, is provided in the discussion of loan portfolios that follows.

Table 12: Non-Strategic and Liquidating Loan Portfolios


	Outstanding balance
	June 30,		December 31,
(in millions)	2013		2012		2008

Commercial:
Legacy Wachovia commercial and industrial, CRE and foreign PCI loans (1)	$	2,532		3,170		18,704

Total commercial		2,532		3,170		18,704

Consumer:
Pick-a-Pay mortgage (1)		54,755		58,274		95,315
Liquidating home equity		4,173		4,647		10,309
Legacy Wells Fargo Financial indirect auto		428		830		18,221
Legacy Wells Fargo Financial debt consolidation		13,707		14,519		25,299
Education Finance - government guaranteed		11,534		12,465		20,465
Legacy Wachovia other PCI loans (1)		435		657		2,478

Total consumer		85,032		91,392		172,087
Total non-strategic and liquidating loan portfolios	$	87,564		94,562		190,791

(1)	Net of purchase accounting adjustments related to PCI loans.

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 totaled $28.8 billion at June 30, 2013, down from $31.0 billion and $58.8 billion at December 31, 2012 and 2008, respectively. Such loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments. For additional information on PCI loans, see the “Risk Management – Credit Risk Management – Purchased Credit-Impaired Loans” section in our 2012 Form 10-K and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

During the first half of 2013, we recognized as income $52 million released from the nonaccretable difference related to commercial PCI loans due to payoffs and other resolutions. We also transferred $907 million from the nonaccretable difference to the accretable yield for PCI loans with improving credit-related cash flows and absorbed $564 million of losses in the nonaccretable difference from loan resolutions and write-downs. Our cash flows expected to be collected have been favorably affected by lower than expected defaults and losses as a result of observed economic strengthening, particularly in housing prices, and by our loan modification efforts. See the “Real Estate 1-4 Family First and Junior Lien Mortgage Loans” section in this Report for additional information. Table 13 provides an analysis of changes in the nonaccretable difference.

Table 13: Changes in Nonaccretable Difference for PCI Loans


(in millions)	Commercial			Pick-a-Pay			Other consumer			Total
Balance, December 31, 2008	$	10,410			26,485			4,069			40,964
Addition of nonaccretable difference due to acquisitions		195			-			-			195
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(1,426	)		-			-			(1,426	)
Loans resolved by sales to third parties (2)		(303	)		-			(85	)		(388	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(1,531	)		(3,031	)		(792	)		(5,354	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(6,923	)		(17,222	)		(2,882	)		(27,027	)


Balance, December 31, 2012		422			6,232			310			6,964
Addition of nonaccretable difference due to acquisitions		-			-			-			-
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(47	)		-			-			(47	)
Loans resolved by sales to third parties (2)		(5	)		-			-			(5	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(41	)		(866	)		-			(907	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(18	)		(486	)		(60	)		(564	)


Balance, June 30, 2013	$	311			4,880			250			5,441


Balance, March 31, 2013	$	336			5,887			263			6,486
Addition of nonaccretable difference due to acquisitions		-			-			-			-
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(17	)		-			-			(17	)
Loans resolved by sales to third parties (2)		-			-			-			-
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(10	)		(866	)		-			(876	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		2			(141	)		(13	)		(152	)


Balance, June 30, 2013	$	311			4,880			250			5,441

(1)

Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases for settlements with borrowers due to pool accounting for those loans, which assumes that the amount received approximates the pool performance expectations.

(2)	Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3)	Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.

(4)

Write-downs to net realizable value of PCI loans are absorbed by the nonaccretable difference when 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. Also includes foreign exchange adjustments related to underlying principal for which the nonaccretable difference was established.

Since December 31, 2008, we have released $8.1 billion in nonaccretable difference, including $6.3 billion transferred from the nonaccretable difference to the accretable yield and $1.8 billion released to income through loan resolutions. Also, we have provided $1.8 billion for losses on certain PCI loans or pools of PCI loans that have had credit-related decreases to cash flows expected to be collected. The net result is a $6.3 billion reduction from December 31, 2008, through June 30, 2013, in our initial projected losses of $41.0 billion on all PCI loans.

At June 30, 2013, the allowance for credit losses on certain PCI loans was $71 million. The allowance is to absorb credit-related decreases in cash flows expected to be collected and primarily relates to individual PCI commercial loans. Table 14 analyzes the actual and projected loss results on PCI loans since acquisition through June 30, 2013.

For additional information on PCI loans, see Note 1 (Summary of Significant Accounting Policies – Loans) in our 2012 Form 10-K and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Risk Management – Credit Risk Management (continued)

Table 14: Actual and Projected Loss Results on PCI Loans Since Acquisition of Wachovia


(in millions)	Commercial			Pick-a-Pay		Other consumer			Total

Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)	$	1,473			-		-			1,473
Loans resolved by sales to third parties (2)		308			-		85			393
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		1,572			3,897		792			6,261

Total releases of nonaccretable difference due to better than expected losses		3,353			3,897		877			8,127
Provision for losses due to credit deterioration (4)		(1,659	)		-		(124	)		(1,783	)


Actual and projected losses on PCI loans less than originally expected	$	1,694			3,897		753			6,344

(1)

(2)	Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3)	Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.

(4)	Provision for additional losses is recorded as a charge to income when it is estimated that the cash flows expected to be collected for a PCI loan or pool of loans may not support full realization of the carrying value.

Significant Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, FICO scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an appropriate allowance for credit losses. The following discussion provides additional characteristics and analysis of our significant portfolios. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information.

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. Table 15 summarizes commercial and industrial loans and lease financing by industry with the related nonaccrual totals. 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 divided between special mention, substandard and doubtful categories.

The commercial and industrial loans and lease financing portfolio, which totaled $200.5 billion or 25% of total loans at June 30, 2013, experienced credit improvement in second quarter 2013. The annualized net charge-off rate for this portfolio was 0.19% for both first and second quarter 2013, and 0.46% for the full year of 2012. At June 30, 2013, 0.52% of this portfolio was nonaccruing compared with 0.72% at December 31, 2012. In addition, $17.2 billion of this portfolio was criticized at June 30, 2013, down from $19.0 billion at December 31, 2012.

A majority of our commercial and industrial loans and lease financing portfolio is secured by short-term assets, such as accounts receivable, inventory and 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. See Note 5 (Loans and

Allowance for Credit Losses) to Financial Statements in this Report for additional credit metric information.

Table 15: Commercial and Industrial Loans and Lease Financing by Industry


	June 30, 2013
(in millions)	Nonaccrual loans		Total portfolio (1)			% of total loans
Investors	$	22		15,729			2	%
Cyclical retailers		27		14,160			2
Oil and gas		17		13,392			2
Food and beverage		44		12,876			2
Financial institutions		51		10,588			1
Industrial equipment		45		10,569			1
Healthcare		34		10,271			1
Real estate lessor		29		8,825			1
Technology		9		7,292			1
Transportation		7		6,408			1
Business services		32		6,018			1
Public Administration		135		5,569			*
Other		590		78,827	(2)		10


Total	$	1,042		200,524			25	%

*	Less than 1%.

(1)	Includes $195 million 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.

(2)	No other single category had loans in excess of $4.9 billion.

At the time of any modification of terms or extensions of maturity, we evaluate whether the loan should be classified as a TDR, and account for it accordingly. For more information on TDRs, see “Troubled Debt Restructurings” later in this section and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

COMMERCIAL REAL ESTATE (CRE) The CRE portfolio totaled $121.1 billion, or 15%, of total loans at June 30, 2013, and consisted of $16.4 billion of construction loans and $104.7 billion of mortgage loans. Table 16 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 combined CRE loans are in California and Florida, which

represented 27% and 8% of the total CRE portfolio, respectively. By property type, the largest concentrations are office buildings at 27% and apartments at 12% of the portfolio. CRE nonaccrual loans totaled 2.8% of the CRE outstanding balance at June 30, 2013, compared with 3.5% at December 31, 2012. At June 30, 2013, we had $15.4 billion of criticized CRE mortgage loans, down from $18.8 billion at December 31, 2012, and $2.8 billion of criticized CRE construction loans, down

from $4.5 billion at December 31, 2012. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for additional information on criticized loans.

At June 30, 2013, the recorded investment in PCI CRE loans totaled $2.3 billion, down from $12.3 billion when acquired at December 31, 2008, reflecting the reduction resulting from principal payments, loan resolutions and write-downs.

Table 16: CRE Loans by State and Property Type


	June 30, 2013
	Real estate mortgage				Real estate construction				Total					% of
	Nonaccrual		Total		Nonaccrual		Total		Nonaccrual		Total			total
(in millions)	loans		portfolio (1)		loans		portfolio (1)		loans		portfolio (1)			loans


By state:
California	$	627		29,250		80		2,960		707		32,210			4	%
Florida		389		8,836		96		1,315		485		10,151			1
Texas		208		8,537		27		1,564		235		10,101			1
New York		49		6,386		10		1,001		59		7,387			1
North Carolina		183		4,010		51		1,011		234		5,021			1
Arizona		115		3,979		16		541		131		4,520			1
Virginia		71		2,831		9		1,059		80		3,890			1
Georgia		176		3,198		59		464		235		3,662			*
Washington		29		2,932		6		554		35		3,486			*
Colorado		58		2,821		7		500		65		3,321			*
Other		803		31,893		304		5,473		1,107		37,366	(2)		5


Total	$	2,708		104,673		665		16,442		3,373		121,115			15	%

By property:
Office buildings	$	689		30,790		53		1,728		742		32,518			4	%
Apartments		138		10,599		18		4,493		156		15,092			2
Retail (excluding shopping center)		350		12,158		37		768		387		12,926			2
Industrial/warehouse		407		11,811		20		659		427		12,470			2
Real estate - other		311		10,379		9		284		320		10,663			1
Hotel/motel		140		8,531		10		631		150		9,162			1
Shopping center		218		7,753		10		591		228		8,344			1
Land (excluding 1-4 family)		8		82		207		3,977		215		4,059			1
Institutional		82		2,629		-		336		82		2,965			*
Agriculture		92		2,479		-		17		92		2,496			*
Other		273		7,462		301		2,958		574		10,420			1


Total	$	2,708		104,673		665		16,442		3,373		121,115			15	%

*	Less than 1%.

(1)	Includes a total of $2.3 billion PCI loans, consisting of $1.7 billion of real estate mortgage and $602 million of real estate construction, which are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.

(2)	Includes 40 states; no state had loans in excess of $2.7 billion.

FOREIGN LOANS AND COUNTRY RISK EXPOSURE We classify loans for financial statement and certain regulatory purposes as foreign if the borrower’s primary address is outside of the United States. At June 30, 2013, foreign loans totaled $41.8 billion, representing approximately 5% of our total consolidated loans outstanding and approximately 3% of our consolidated total assets.

Our foreign 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 on an ultimate country of risk basis, which is normally based on the country of residence of the guarantor or collateral location, and is different from the reporting based on the borrower’s primary address. Our largest single foreign country exposure on an ultimate risk basis at June 30, 2013, was the United Kingdom, which totaled $15.7 billion, or 1% of our total assets, and included $2.0 billion of sovereign claims. Our United Kingdom sovereign claims arise primarily from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch.

At June 30, 2013, our Eurozone exposure, including cross-border claims on an ultimate risk basis, and foreign exchange and derivative products, aggregated approximately $10.4

Risk Management – Credit Risk Management (continued)

billion, including $200 million of sovereign claims, compared with approximately $10.5 billion at December 31, 2012, which included $232 million of sovereign claims. Our Eurozone exposure is relatively small compared to our overall credit risk exposure and is diverse by country, type, and counterparty.

We conduct periodic stress tests of our significant country risk exposures, analyzing the direct and indirect impacts on the risk of loss from various macroeconomic and capital markets scenarios. We do not have significant exposure to foreign country risks because our foreign portfolio is relatively small. However, we have identified exposure to increased loss from

U.S. borrowers associated with the potential impact of a European downturn on the U.S. economy. We mitigate these potential impacts on the risk of loss through our normal risk management processes which include active monitoring and, if necessary, the application of aggressive loss mitigation strategies.

Table 17 provides information regarding our top 20 exposures on an ultimate risk basis by country (excluding the U.S.) and our Eurozone exposure. The selection of the top 20 countries is based solely on our largest total exposure by country.

Table 17: Select Country Exposures


	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
June 30, 2013
Top 20 country exposures:
United Kingdom	$	1,978		5,886		-		7,419		-		454		1,978		13,759		15,737
Canada		-		6,291		-		4,532		-		655		-		11,478		11,478
China		-		3,865		-		73		38		11		38		3,949		3,987
Netherlands		-		2,506		-		349		-		18		-		2,873		2,873
Germany		63		1,531		-		810		-		241		63		2,582		2,645
Bermuda		-		2,385		-		76		-		22		-		2,483		2,483
Brazil		-		2,248		-		17		-		2		-		2,267		2,267
South Korea		-		1,764		1		74		9		2		10		1,840		1,850
India		-		1,614		-		209		-		-		-		1,823		1,823
Turkey		-		1,687		-		-		-		2		-		1,689		1,689
Australia		-		932		-		611		-		17		-		1,560		1,560
France		-		198		-		1,149		-		136		-		1,483		1,483
Chile		-		1,344		-		12		-		48		-		1,404		1,404
Switzerland		-		747		-		82		-		518		-		1,347		1,347
Japan		-		431		778		37		-		98		778		566		1,344
Cayman Islands		-		889		-		-		-		23		-		912		912
Spain		-		794		-		53		-		5		-		852		852
Luxembourg		-		754		-		90		-		4		-		848		848
Ireland		33		639		-		128		-		9		33		776		809
Mexico		-		771		-		25		1		4		1		800		801
Total top 20 country exposures	$	2,074		37,276		779		15,746		48		2,269		2,901		55,291		58,192
Eurozone exposure:
Eurozone countries included in Top 20 above (5)	$	96		6,422		-		2,579		-		413		96		9,414		9,510
Austria		103		269		-		2		-		-		103		271		374
Italy		-		209		-		75		-		1		-		285		285&n

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