Edgar Filing: WELLS FARGO & COMPANY/MN

WFC-03.31.2015-10Q

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 March 31, 2015

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 o

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



Yes þ		No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, 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.



	Large accelerated filer þ		Accelerated filer o

	Non‑accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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



Yes o		No þ

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



		Shares Outstanding
		April 30, 2015
Common stock, $1-2/3 par value		5,149,204,973



FORM 10-Q
CROSS-REFERENCE INDEX
PART I	Financial Information
Item 1.	Financial Statements			Page
	Consolidated Statement of Income			67
	Consolidated Statement of Comprehensive Income			68
	Consolidated Balance Sheet			69
	Consolidated Statement of Changes in Equity			70
	Consolidated Statement of Cash Flows			72
	Notes to Financial Statements
	1	—	Summary of Significant Accounting Policies	73
	2	—	Business Combinations	75
	3	—	Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments	75
	4	—	Investment Securities	76
	5	—	Loans and Allowance for Credit Losses	83
	6	—	Other Assets	100
	7	—	Securitizations and Variable Interest Entities	101
	8	—	Mortgage Banking Activities	109
	9	—	Intangible Assets	112
	10	—	Guarantees, Pledged Assets and Collateral	113
	11	—	Legal Actions	116
	12	—	Derivatives	117
	13	—	Fair Values of Assets and Liabilities	124
	14	—	Preferred Stock	141
	15	—	Employee Benefits	144
	16	—	Earnings Per Common Share	145
	17	—	Other Comprehensive Income	146
	18	—	Operating Segments	148
	19	—	Regulatory and Agency Capital Requirements	149
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data			2
	Overview			3
	Earnings Performance			5
	Balance Sheet Analysis			14
	Off-Balance Sheet Arrangements			17
	Risk Management			18
	Capital Management			56
	Regulatory Reform			62
	Critical Accounting Policies			62
	Current Accounting Developments			63
	Forward-Looking Statements			64
	Risk Factors			65
	Glossary of Acronyms			150
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			42
Item 4.	Controls and Procedures			66

PART II	Other Information
Item 1.	Legal Proceedings			151
Item 1A.	Risk Factors			151
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			151
Item 6.	Exhibits			152

Signature				152

Exhibit Index				153

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW



Summary Financial Data
						% Change
	Quarter ended					Mar 31, 2015 from
($ in millions, except per share amounts)	Mar 31, 2015			Dec 31, 2014	Mar 31, 2014	Dec 31, 2014		Mar 31, 2014
For the Period
Wells Fargo net income	$	5,804		5,709	5,893	2	%	(2	)
Wells Fargo net income applicable to common stock	5,461			5,382	5,607	1		(3	)
Diluted earnings per common share	1.04			1.02	1.05	2		(1	)
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)	1.38		%	1.36	1.57	1		(12	)
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)	13.17			12.84	14.35	3		(8	)
Efficiency ratio (1)	58.8			59.0	57.9	—		2
Total revenue	21,278			21,443	20,625	(1	)	3
Pre-tax pre-provision profit (PTPP) (2)	8,771			8,796	8,677	—		1
Dividends declared per common share	0.35			0.35	0.30	—		17
Average common shares outstanding	5,160.4			5,192.5	5,262.8	(1	)	(2	)
Diluted average common shares outstanding	5,243.6			5,279.2	5,353.3	(1	)	(2	)
Average loans	$	863,261		849,429	823,790	2		5
Average assets	1,707,798			1,663,760	1,525,905	3		12
Average core deposits (3)	1,063,234			1,035,999	973,801	3		9
Average retail core deposits (4)	731,413			714,572	690,643	2		6
Net interest margin	2.95		%	3.04	3.20	(3	)	(8	)
At Period End
Investment securities	$	324,736		312,925	270,327	4		20
Loans	861,231			862,551	826,443	—		4
Allowance for loan losses	12,176			12,319	13,695	(1	)	(11	)
Goodwill	25,705			25,705	25,637	—		—
Assets	1,737,737			1,687,155	1,546,707	3		12
Core deposits (3)	1,086,993			1,054,348	994,185	3		9
Wells Fargo stockholders' equity	188,796			184,394	175,654	2		7
Total equity	189,964			185,262	176,469	3		8
Tier 1 capital (5)	158,787			154,666	147,549	3		8
Total capital (5)	196,204			192,940	183,559	2		7
Capital ratios (5):
Total equity to assets	10.93		%	10.98	11.41	—		(4	)
Risk-based capital:
Tier 1 capital	12.20			12.45	12.63	(2	)	(3	)
Total capital	15.08			15.53	15.71	(3	)	(4	)
Tier 1 leverage	9.48			9.45	9.84	—		(4	)
Common Equity Tier 1	10.69			11.04	11.36	(3	)	(6	)
Common shares outstanding	5,162.9			5,170.3	5,265.7	—		(2	)
Book value per common share	$	32.70		32.19	30.48	2		7
Common stock price:
High	56.29			55.95	49.97	1		13
Low	50.42			46.44	44.17	9		14
Period end	54.40			54.82	49.74	(1	)	9
Team members (active, full-time equivalent)	266,000			264,500	265,300	1		—


(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 the "Capital Management" section and Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements 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, 2014 (2014 Form 10-K).

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

Financial Review

Overview

Wells Fargo & Company is a nationwide, diversified, community-based financial services company with $1.7 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 8,700 locations, 12,500 ATMs, the internet (wellsfargo.com) and mobile banking, and we have offices in 36 countries to support customers who conduct business in the global economy. With approximately 266,000 active, full-time equivalent team members, we serve one in three households in the United States and rank No. 29 on Fortune’s 2014 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 March 31, 2015.

We use our Vision and Values to guide us toward growth and success. 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. Important to our 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 financial needs. We aspire to create deep and enduring relationships with our customers by discovering their needs and delivering the most relevant products, services, advice, and guidance.

We have six primary values, which are based on our vision and provide the foundation for everything we do. First, we value and support our people as a competitive advantage and strive to attract, develop, retain and motivate the most talented people we can find. Second, we strive for the highest ethical standards with our team members, our customers, our communities and our shareholders. Third, with respect to our customers, we strive to base our decisions and actions on what is right for them in everything we do. Fourth, for team members we strive to build and sustain a diverse and inclusive culture – one where they feel valued and respected for who they are as well as for the skills and experiences they bring to our company. Fifth, we also look to each of our team members to be leaders in establishing, sharing and communicating our vision. Sixth, we strive to make risk management a competitive advantage by working hard to ensure that appropriate controls are in place to reduce risks to our customers, maintain and increase our competitive market position, and protect Wells Fargo’s long-term safety, soundness and reputation.

Financial Performance

Wells Fargo net income was $5.8 billion in first quarter 2015 with diluted earnings per share (EPS) of $1.04, compared with $5.9 billion and $1.05, respectively, from a year ago. Our solid

earnings reflected the benefit of our diversified business model and our continued focus on serving the needs of our customers.

Compared with a year ago:


•	revenue grew 3% as a result of increases in both net interest income and noninterest income;


•	our loans increased $34.8 billion, or 4%, even with the planned runoff in our non-strategic/liquidating portfolios, and our core loan portfolio grew by $54.2 billion, or 7%;


•	our liquidating portfolio declined $19.4 billion and was only 7% of our total loans, down from 9% a year ago;


•	our deposit franchise continued to generate strong customer and balance growth, with total deposits reaching a record $1.2 trillion, up $102.1 billion, or 9%, and we grew the number of primary consumer checking customers by 5.7%;


•	our credit performance continued to be very strong with total net charge-offs down $117 million, or 14%, and represented only 33 basis points (annualized) of average loans; and


•	we continued to maintain our solid customer relationships across our company, with Retail Banking cross-sell of 6.13 products per household (February 2015); Wholesale Banking cross-sell of 7.2 products (December 2014); and Wealth, Brokerage and Retirement cross-sell of 10.44 products (February 2015).

Balance Sheet and Liquidity

Our balance sheet continued to strengthen in first quarter 2015 as we increased our liquidity position, generated core loan and deposit growth, experienced continued improvement in credit quality and maintained strong capital levels. We have been able to grow our loans on a year-over-year basis for 15 consecutive quarters (for the past 12 quarters year-over-year loan growth has been 3% or greater) despite the planned runoff from our non-strategic/liquidating portfolios. Our non-strategic/liquidating loan portfolios decreased $2.2 billion during the quarter and our core loan portfolio increased $914 million. Our investment securities increased by $11.8 billion during the quarter, driven primarily by our purchases of U.S. Treasuries, federal agency mortgage-backed securities (MBS) and municipal securities.

Deposit growth remained strong with period-end deposits up $28.4 billion, or 2%, from December 31, 2014. This increase reflected solid growth across both our commercial and consumer businesses. Our average deposit cost was 9 basis points, consistent with fourth quarter 2014 and down 2 basis points from a year ago. We successfully grew our primary consumer checking customers by 5.7% and primary business checking customers by 5.5% from a year ago (February 2015 compared with February 2014). Our ability to consistently grow primary checking customers is important to our results because these customers have more interactions with us, have higher cross-sell and are more than twice as profitable as non-primary customers.

Overview (continued)

Credit Quality

Credit quality remained strong in first quarter 2015 as losses remained at historically low levels, nonperforming assets (NPAs) continued to decline, and we continued to originate high quality loans, reflecting our long-term risk focus. Net charge-offs were $708 million, or 0.33% (annualized) of average loans, in first quarter 2015, compared with $825 million a year ago (0.41%), a 14% year-over-year decrease in credit losses. Our commercial portfolio net charge-offs were $44 million, or 4 basis points of average commercial loans. Net consumer credit losses declined to 60 basis points in first quarter 2015 from 75 basis points in first quarter 2014. Our commercial real estate portfolios were in a net recovery position for the ninth consecutive quarter, reflecting our conservative risk discipline and improved market conditions. Losses on our consumer real estate portfolios declined $156 million from a year ago, down 43%, which included a $46 million decline in losses in our core 1-4 family first mortgage portfolio. The lower consumer loss levels reflected the benefit of the improving economy and our continued focus on originating high quality loans. Approximately 61% of the consumer first mortgage portfolio was originated after 2008, when more stringent underwriting standards were implemented.

Our provision for credit losses reflected a release from the allowance for credit losses of $100 million in first quarter 2015, which was $400 million less than what we released a year ago. Future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions.

In addition to lower net charge-offs and provision expense, NPAs also improved and were down $618 million, or 4%, from December 31, 2014, the tenth consecutive quarter of decline. Nonaccrual loans declined $338 million from the prior quarter while foreclosed assets were down $280 million.

Capital

Our financial performance in first quarter 2015 resulted in strong capital generation, which increased total equity to $190.0 billion at March 31, 2015, up $4.7 billion from the prior quarter. We continued to reduce our common share count through the repurchase of 48.4 million common shares in the quarter. We also entered into a $750 million forward repurchase contract in January 2015 with an unrelated third party that settled in April 2015 for 14.0 million shares. In addition, we entered into another $750 million forward repurchase contract with an unrelated third party in April 2015 that is expected to settle before August 2015 for approximately 14 million shares. We expect to reduce our common shares outstanding through share repurchases throughout the remainder of 2015. In March 2015, the Federal Reserve Board (FRB) announced no objection to our 2015 Capital Plan (the Plan) under the Comprehensive Capital Analysis and Review (CCAR) of the nation's largest banks. The Plan included a proposed increase to our quarterly dividend rate by 7% to $0.375 per common share for second quarter 2015, which was approved by our Board of Directors on April 28, 2015. This result again demonstrates the benefit of our diversified business model and conservative risk discipline, which have positioned us well to return more capital to shareholders while maintaining strong capital levels.

We believe an important measure of our capital strength is the estimated Common Equity Tier 1 ratio under Basel III, using the Advanced Approach, fully phased-in, which increased to 10.48% at March 31, 2015.

Our regulatory capital ratios under Basel III (Standardized Approach with Transition Requirements) were strong with a total risk-based capital ratio of 15.08%, Tier 1 risk-based capital ratio of 12.20% and Tier 1 leverage ratio of 9.48% at March 31, 2015. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of common equity for regulatory purposes.

Earnings Performance

Wells Fargo net income for first quarter 2015 was $5.8 billion ($1.04 diluted earnings per common share), compared with $5.9 billion ($1.05 diluted per share) for first quarter 2014. Our first quarter 2015 earnings reflected strong execution of our business strategy as we continued to satisfy our customers' financial needs. We generated diversified sources of revenue across many of our businesses and grew loans and deposits.

Revenue, the sum of net interest income and noninterest income, was $21.3 billion in first quarter 2015, compared with $20.6 billion in first quarter 2014. Our diversified sources of revenue generated by our businesses continued to be balanced between net interest income and noninterest income. The increase in revenue for first quarter 2015 compared with the same period in 2014 was primarily due to an increase in net interest income, reflecting increases in interest income from loans and trading assets. In first quarter 2015, net interest income of $11.0 billion represented 52% of revenue, compared with $10.6 billion (51%) in the same period in 2014.

Noninterest income was $10.3 billion in first quarter 2015, representing 48% of revenue, compared with $10.0 billion (49%) in first quarter 2014. The increase was driven predominantly by higher trust and investment fees and card fees, as well as net gains on debt securities, partially offset by lower net gains from equity investments.

Noninterest expense was $12.5 billion in first quarter 2015, compared with $11.9 billion in first quarter 2014. The increase in noninterest expense in first quarter 2015, compared with first quarter 2014, reflected higher personnel expense, including higher commission and incentive compensation. Noninterest expense as a percentage of revenue (efficiency ratio) was 58.8% in first quarter 2015 compared with 57.9% in first quarter 2014.

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 assets 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 growth has been challenged during the prolonged low interest rate environment as higher yielding loans and securities runoff have been replaced with lower yielding assets. The pace of this repricing has slowed in recent quarters.

Net interest income on a taxable-equivalent basis was $11.2 billion in the first quarter of 2015, up from $10.8 billion for the same period a year ago. The net interest margin was 2.95% for the first quarter of 2015, down from 3.20% in the same period a year ago. The increase in net interest income in the first quarter of 2015 from the same period a year ago was largely driven by growth in earning assets, including growth in short-term investments, investment securities, commercial and industrial loans, and trading assets, which offset a decrease in earning asset yields. Lower funding expense, due to an increase in noninterest bearing funding sources and reduced deposit and long-term debt costs, also contributed to higher net interest income. The decline in net interest margin in first quarter of 2015, compared with the same period a year ago was primarily driven by higher funding balances, including customer-driven deposit growth and actions we took in 2014 in response to increased regulatory liquidity expectations which raised long- term debt and term deposits. This growth in funding increased cash and federal funds sold and other short-term investments which are dilutive to net interest margin although essentially neutral to net interest income.

Average earning assets increased $169.9 billion in first quarter 2015 from a year ago, as average investment securities increased $49.5 billion and average federal funds sold and other short-term investments increased $62.4 billion for the same period, respectively. In addition, average loans increased $39.5 billion in first quarter 2015, compared with the same period 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 $1.1 trillion in first quarter 2015, compared with $973.8 billion in first quarter 2014, and funded 123% of average loans compared with 118% a year ago. Average core deposits decreased to 69% of average earning assets in first quarter 2015, compared with 71% 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 97% of our average core deposits are in checking and savings deposits, one of the highest industry percentages.



Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
	Quarter ended March 31,
						2015						2014
(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	$	275,731		0.28	%	$	190	213,284		0.27	%	$	144
Trading assets	62,977			2.88		453		48,231		3.17		381
Investment securities (3):
Available-for-sale securities:
Securities of U.S. Treasury and federal agencies	26,163			1.55		100		6,572		1.68		28
Securities of U.S. states and political subdivisions	44,948			4.20		472		42,600		4.37		465
Mortgage-backed securities:
Federal agencies	102,193			2.76		706		117,641		2.94		864
Residential and commercial	23,938			5.71		342		28,035		6.12		429
Total mortgage-backed securities	126,131			3.32		1,048		145,676		3.55		1,293
Other debt and equity securities	47,051			3.43		400		49,156		3.59		438
Total available-for-sale securities	244,293			3.32		2,020		244,004		3.65		2,224
Held-to-maturity securities:
Securities of U.S. Treasury and federal agencies	42,869			2.21		234		1,104		2.18		6
Securities of U.S. states and political subdivisions	1,948			5.16		25		—		—		—
Federal agency mortgage-backed securities	11,318			1.87		53		6,162		3.11		48
Other debt securities	6,792			1.72		29		6,414		1.86		29
Total held-to-maturity securities	62,927			2.19		341		13,680		2.45		83
Total investment securities	307,220			3.08		2,361		257,684		3.59		2,307
Mortgages held for sale (4)	19,583			3.61		177		16,556		4.11		170
Loans held for sale (4)	700			2.67		5		111		6.28		2
Loans:
Commercial:
Commercial and industrial - U.S.	227,682			3.28		1,844		193,865		3.43		1,641
Commercial and industrial - Non U.S.	45,062			1.88		209		42,181		1.92		200
Real estate mortgage	111,497			3.57		981		112,824		3.56		990
Real estate construction	19,492			3.52		169		17,071		4.38		184
Lease financing	12,319			4.95		152		12,262		6.12		188
Total commercial	416,052			3.26		3,355		378,203		3.43		3,203
Consumer:
Real estate 1-4 family first mortgage	265,823			4.13		2,741		259,488		4.17		2,705
Real estate 1-4 family junior lien mortgage	58,880			4.27		621		65,014		4.30		692
Credit card	30,380			11.78		883		26,283		12.32		798
Automobile	56,004			5.95		821		51,794		6.50		831
Other revolving credit and installment	36,122			6.01		535		43,008		5.00		531
Total consumer	447,209			5.05		5,601		445,587		5.02		5,557
Total loans (4)	863,261			4.19		8,956		823,790		4.29		8,760
Other	4,730			5.41		63		4,655		5.72		66
Total earning assets	$	1,534,202		3.21	%	$	12,205	1,364,311		3.49	%	$	11,830
Funding sources
Deposits:
Interest-bearing checking	$	39,155		0.05	%	$	5	36,799		0.07	%	$	6
Market rate and other savings	613,413			0.06		97		579,044		0.07		105
Savings certificates	34,608			0.75		64		40,535		0.89		89
Other time deposits	56,549			0.39		56		45,822		0.42		48
Deposits in foreign offices	105,537			0.14		36		91,050		0.14		31
Total interest-bearing deposits	849,262			0.12		258		793,250		0.14		279
Short-term borrowings	71,712			0.11		18		54,502		0.09		13
Long-term debt	183,763			1.32		604		153,793		1.62		619
Other liabilities	16,894			2.30		97		12,859		2.72		87
Total interest-bearing liabilities	1,121,631			0.35		977		1,014,404		0.40		998
Portion of noninterest-bearing funding sources	412,571					—		349,907		—		—
Total funding sources	$	1,534,202		0.26		977		1,364,311		0.29		998
Net interest margin and net interest income on a taxable-equivalent basis (5)				2.95	%	$	11,228			3.20	%	$	10,832
Noninterest-earning assets
Cash and due from banks	$	17,059						16,363
Goodwill	25,705							25,637
Other	130,832							119,594
Total noninterest-earning assets	$	173,596						161,594
Noninterest-bearing funding sources
Deposits	$	325,531						284,069
Other liabilities	71,988							52,955
Total equity	188,648							174,477
Noninterest-bearing funding sources used to fund earning assets	(412,571		)					(349,907	)
Net noninterest-bearing funding sources	$	173,596						161,594
Total assets	$	1,707,798						1,525,905


(1)	Our average prime rate was 3.25% for the quarters ended March 31, 2015 and 2014. The average three-month London Interbank Offered Rate (LIBOR) was 0.26% and 0.24% for the quarters ended March 31, 2015 and 2014, respectively.


(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 $242 million and $217 million for the quarters ended March 31, 2015 and 2014, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35% for the periods presented.

Earnings Performance (continued)



Noninterest Income
Table 2: Noninterest Income
	Quarter ended Mar 31,
(in millions)	2015		2014		% Change
Service charges on deposit accounts	$	1,215	1,215		—	%
Trust and investment fees:
Brokerage advisory, commissions and other fees	2,380		2,241		6
Trust and investment management	852		844		1
Investment banking	445		327		36
Total trust and investment fees	3,677		3,412		8
Card fees	871		784		11
Other fees:
Charges and fees on loans	309		367		(16	)
Merchant processing fees	187		172		9
Cash network fees	125		120		4
Commercial real estate brokerage commissions	129		72		79
Letters of credit fees	88		96		(8	)
All other fees	240		220		9
Total other fees	1,078		1,047		3
Mortgage banking:
Servicing income, net	523		938		(44	)
Net gains on mortgage loan origination/sales activities	1,024		572		79
Total mortgage banking	1,547		1,510		2
Insurance	430		432		—
Net gains from trading activities	408		432		(6	)
Net gains on debt securities	278		83		235
Net gains from equity investments	370		847		(56	)
Lease income	132		133		(1	)
Life insurance investment income	145		132		10
All other	141		(17	)	NM
Total	$	10,292	10,010		3

NM - Not meaningful

Noninterest income of $10.3 billion represented 48% of revenue for first quarter 2015, compared with $10.0 billion, or 49% for first quarter 2014. The increase in noninterest income reflected growth in many of our businesses, including credit and debit cards, commercial banking, commercial real estate, corporate banking, investment banking, principal investments, asset-backed finance, real estate capital markets, wealth management and retail brokerage.

Service charges on deposit accounts was $1.2 billion in first quarter 2015, unchanged from first quarter 2014. Lower overdraft fees driven by changes implemented in early October 2014 designed to provide customers with more real time information were offset by higher fees from new commercial product sales and commercial product re-pricing.

Brokerage advisory, commissions and other fees are received for providing services to full-service and discount brokerage customers. Income from these brokerage-related activities include asset-based fees, which are based on the market value of the customer’s assets, and transactional commissions based on the number and size of transactions executed at the customer’s direction. These fees increased to $2.4 billion in first quarter 2015 from $2.2 billion for the same period in 2014. The increase in brokerage income was predominantly due to higher asset-based fees as a result of higher market values and growth in assets under management. Retail brokerage client assets totaled $1.44 trillion at March 31, 2015, up 4% from $1.38 trillion at March 31, 2014.

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. 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 $852 million in first quarter 2015 from $844 million for the same period in 2014, with growth primarily due to higher market values. At March 31, 2015, these assets totaled $2.5 trillion, an increase from $2.4 trillion at March 31, 2014.

We earn investment banking fees from underwriting debt and equity securities, arranging loan syndications, and performing other related advisory services. Investment banking fees increased to $445 million in first quarter 2015 from $327 million for the same period in 2014, driven by advisory services and broad based equity and debt origination performance in an active domestic market.

Card fees were $871 million in first quarter 2015, compared with $784 million from the same period a year ago. The increase was primarily due to account growth and increased purchase activity.

Other fees of $1.1 billion in first quarter 2015 increased $31 million compared with the same period a year ago as increases in commercial real estate brokerage commissions and merchant processing fees more than offset a decline in charges and fees on loans. Charges and fees on loans decreased to $309 million in first quarter 2015 compared with $367 million

for the same period a year ago primarily due to the phase out of the direct deposit advance product during the first half of 2014. Commercial real estate brokerage commissions increased by $57 million in first quarter 2015 compared with the same period a year ago, driven by increased sales and other property-related activities including financing and advisory services.

Mortgage banking noninterest income, consisting of net servicing income and net gains on loan origination/sales activities, totaled $1.5 billion in first quarter 2015, unchanged from first quarter 2014.

In addition to servicing fees, net mortgage loan servicing income includes amortization of commercial mortgage servicing rights (MSRs), changes in the fair value of residential MSRs during the period, as well as changes in the value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income for first quarter 2015 included a $108 million net MSR valuation gain ($773 million decrease in the fair value of the MSRs and a $881 million hedge gain) and for first quarter 2014 included a $407 million net MSR valuation gain ($441 million decrease in the fair value of the MSRs offset by an $848 million hedge gain). The decrease in net MSR valuation gains in first quarter 2015, compared with the same period in 2014, was primarily attributable to MSR valuation adjustments in first quarter 2015 that reflected higher prepayment expectations due to the reduction in FHA mortgage insurance premiums as well as overall lower actual prepayments in first quarter of 2014.

Our portfolio of residential and commercial loans serviced for others was $1.84 trillion at March 31, 2015, and $1.86 trillion at December 31, 2014. At March 31, 2015, the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.71%, compared with 0.75% at December 31, 2014. 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 $1.0 billion in first quarter 2015, up from $572 million for the same period a year ago. The increase in first quarter 2015, compared with the same period a year ago, was primarily driven by increased origination volumes and margins. Mortgage loan originations were $49.0 billion for first quarter 2015, of which 45% were for home purchases, compared with $36 billion and 66% for the same period a year ago. The year-over-year increase was primarily driven by lower mortgage interest rates. Mortgage applications were $93 billion in first quarter 2015 compared with $60 billion for the same period a year ago. The real estate 1-4 family first mortgage unclosed pipeline was $44 billion at March 31, 2015, its highest level since June 30, 2013, compared with $27 billion at March 31, 2014. 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 adjustments to the mortgage repurchase liability. Mortgage loans are repurchased from third parties based on standard representations and warranties, and early payment default clauses in mortgage sale contracts. For the first quarter of 2015, we released a net $16 million from the repurchase liability, compared with a provision of $6 million for the first quarter of 2014. 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 from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $408 million in first quarter 2015 compared with $432 million for the same period a year ago. The first quarter year-over-year decrease was primarily driven by lower customer accommodation trading within our capital markets business partly offset by higher deferred compensation gains (offset in employee benefits expense).

Net gains from trading activities do not include interest and dividend income and expense on trading securities. Those amounts are reported within interest income from trading assets and other interest expense from trading liabilities. Interest and fees related to proprietary trading are reported in their corresponding income statement line items. Proprietary trading activities are not significant to our client-focused business model. For additional information about proprietary and other trading, see the “Risk Management – Asset and Liability Management – Market Risk – Trading Activities” section in this Report.

Net gains on debt and equity securities totaled $648 million for first quarter 2015 and $930 million for first quarter 2014, net of other-than-temporary impairment (OTTI) write-downs of $73 million and $135 million for first quarter 2015 and 2014, respectively. The decrease in net gains on debt and equity securities was primarily due to lower net gains from equity investments as our portfolio benefited from strong public and private equity markets in first quarter 2014.

All other income was $141 million in first quarter 2015, compared with $(17) million for the same period a year ago. 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 method of accounting, any of which can cause decreases and net losses in other income. Higher other income for first quarter 2015, compared with the same period a year ago, reflected higher income from equity method investments and larger ineffectiveness gains on derivatives that qualify for hedge accounting.

Earnings Performance (continued)



Noninterest Expense
Table 3: Noninterest Expense
	Quarter ended Mar 31,
(in millions)	2015		2014	% Change
Salaries	$	3,851	3,728	3	%
Commission and incentive compensation	2,685		2,416	11
Employee benefits	1,477		1,372	8
Equipment	494		490	1
Net occupancy	723		742	(3	)
Core deposit and other intangibles	312		341	(9	)
FDIC and other deposit assessments	248		243	2
Outside professional services	548		559	(2	)
Operating losses	295		159	86
Outside data processing	253		241	5
Contract services	225		234	(4	)
Travel and entertainment	158		219	(28	)
Postage, stationery and supplies	171		191	(11	)
Advertising and promotion	118		118	—
Foreclosed assets	135		132	2
Telecommunications	111		114	(2	)
Insurance	140		125	12
Operating leases	62		50	25
All other	501		474	6
Total	$	12,507	11,948	5

Noninterest expense was $12.5 billion in first quarter 2015, up 5% from $11.9 billion in the same period a year ago, driven predominantly by higher personnel expenses ($8.0 billion, up from $7.5 billion a year ago) and higher operating losses ($295 million, up from $159 million a year ago). These increases were partially offset by lower travel and entertainment expense ($158 million, down from $219 million a year ago).

Personnel expenses, which include salaries, commissions, incentive compensation and employee benefits, were up $497 million, or 7%, in first quarter 2015 compared with the same quarter last year, largely due to higher revenue-related compensation, annual salary increases, higher deferred compensation (offset in trading income) and other benefits.

Operating losses were up $136 million, or 86%, in first quarter 2015 compared with the same period a year ago, primarily reflecting higher litigation accruals.

Travel and entertainment expenses were down $61 million, or 28%, in first quarter 2015 compared with the same period in 2014, primarily driven by travel expense reduction initiatives.

The efficiency ratio was 58.8% in first quarter 2015, compared with 57.9% in first quarter 2014. The Company expects to operate within its targeted efficiency ratio range of 55 to 59% for full year 2015.

Income Tax Expense

Our effective tax rate was 28.2% and 27.9% for first quarter 2015 and 2014, respectively. The effective tax rates for first quarter 2015 and 2014 reflected $359 million and $423 million, respectively, of discrete tax benefits primarily from reductions in reserves for uncertain tax positions due to audit resolutions of prior period matters with U.S. federal and state taxing authorities. Absent additional discrete tax benefits in 2015, we expect the effective income tax rate for full year 2015 to be higher than the effective tax rate for first quarter 2015.

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). Table 4 and the following discussion present our results by operating segment. For additional description of our operating segments, including additional financial information and the underlying management accounting process, see Note 18 (Operating Segments) to Financial Statements in this Report.



Table 4: Operating Segment Results – Highlights
(income/expense in millions,	Community Banking			Wholesale Banking				Wealth, Brokerage and Retirement				Other (1)				Consolidated Company
average balances in billions)	2015		2014	2015		2014		2015		2014		2015		2014		2015	2014
Quarter ended March 31,
Revenue	$	12,784	12,593	5,912		5,580		3,733		3,468		(1,151	)	(1,016	)	21,278	20,625
Provision (reversal of provision) for credit losses	617		419	(6	)	(93	)	(3	)	(8	)	—		7		608	325
Noninterest expense	7,064		6,774	3,409		3,215		2,831		2,711		(797	)	(752	)	12,507	11,948
Net income (loss)	3,665		3,844	1,797		1,742		561		475		(219	)	(168	)	5,804	5,893
Average loans	$	506.4	505.0	337.6		301.9		56.9		50.0		(37.6	)	(33.1	)	863.3	823.8
Average core deposits	668.9		626.5	303.4		259.0		161.4		156.0		(70.5	)	(67.7	)	1,063.2	973.8


(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.

Cross-sell Our cross-sell strategy is to increase the number of products our customers use by offering them all of the financial products that satisfy their financial needs. We track our cross-sell activities based on whether the customer is a retail banking household or has a wholesale banking relationship. For additional information regarding our cross-sell metrics, see the "Earnings Performance – Operating Segments – Cross-sell" section in our 2014 Form 10-K.

Operating Segment Results

The following discussion provides a description of each of our operating segments, including cross-sell metrics and financial results.

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including checking and savings accounts, credit and debit cards, and auto, student, and small business lending. These products also 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. The Community Banking segment also includes the results of our Corporate Treasury activities net of allocations in support of the other operating segments and results of investments in our affiliated venture capital partnerships. Our retail banking household cross-sell was 6.13 products per household in February 2015, compared with 6.17 in February 2014. The February 2015 retail banking household cross-sell ratio includes the impact of the sale of government guaranteed student loans in fourth quarter 2014. Our goal of eight products per retail banking household equates to approximately one-half of our estimate of potential demand for an average U.S. household. We believe there is continued opportunity to earn more business from our customers as we build lifelong relationships with them. Our approach is needs-based – some customers will benefit from more than eight products, some may need less, but on average our goal is to have eight products per retail banking household. In February 2015, one of every four of our retail banking households had eight or more of our products. Table 4a provides additional financial information for Community Banking.

Earnings Performance (continued)



Table 4a - Community Banking
	Quarter ended March 31,
(in millions, except average balances which are in billions)	2015			2014		% Change
Net interest income	$	7,561		7,275		4	%
Noninterest income:
Service charges on deposit accounts	772			817		(6	)
Trust and investment fees:
Brokerage advisory, commissions and other fees	506			433		17
Trust and investment management	214			199		8
Investment banking (1)	(36		)	(7	)	414
Total trust and investment fees	684			625		9
Card fees	802			721		11
Other fees	551			593		(7	)
Mortgage banking	1,435			1,424		1
Insurance	31			32		(3	)
Net gains from trading activities	83			36		131
Net gains on debt securities	206			10		NM
Net gains from equity investments (2)	290			755		(62	)
Other income of the segment	369			305		21
Total noninterest income	5,223			5,318		(2	)

Total revenue	12,784			12,593		2

Provision for credit losses	617			419		47
Noninterest expense:
Personnel expense	4,548			4,259		7
Equipment	436			420		4
Net occupancy	534			555		(4	)
Core deposit and other intangibles	146			158		(8	)
FDIC and other deposit assessments	147			152		(3	)
Outside professional services	207			224		(8	)
Operating losses	230			119		93
Other expense of the segment	816			887		(8	)
Total noninterest expense	7,064			6,774		4
Income before income tax expense and noncontrolling interests	5,103			5,400		(6	)
Income tax expense	1,364			1,376		(1	)
Net income from noncontrolling interests (3)	74			180		(59	)
Net income	$	3,665		3,844		(5	)
Average loans	$	506.4		505.0		—
Average core deposits	668.9			626.5		7

NM - Not meaningful


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


(2)	Predominantly represents gains resulting from venture capital investments.


(3)	Reflects results attributable to noncontrolling interests primarily associated with the Company’s consolidated merchant services joint venture and venture capital investments.

Community Banking reported net income of $3.7 billion in first quarter 2015, down $179 million, or 5%, from first quarter 2014. Revenue of $12.8 billion increased $191 million, or 2%, from a year ago primarily due to higher net interest income, gains on sale of debt securities, and higher card fees and trust and investment fees, partially offset by lower gains on equity investments and lower service charges on deposit accounts. Average core deposits increased $42.4 billion, or 7%, from first quarter 2014. Primary consumer checking customers as of February 2015 (customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit) were up 5.7% from February 2014. Noninterest expense increased $290 million, or 4%, from first quarter 2014, driven by higher personnel expenses and operating losses, partially offset by lower travel, occupancy, and

other expenses. Net charge-offs decreased $172 million from first quarter 2014 primarily due to credit improvement in consumer real estate loan portfolios. The provision for credit losses was $198 million higher than first quarter 2014 as the improvement in net charge-offs was more than offset by a lower allowance release.

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 cross-sell was 7.2 products per relationship in first quarter 2015, consistent with the first quarter of 2014. Table 4b provides additional financial information for Wholesale Banking.



Table 4b - Wholesale Banking
	Quarter ended March 31,
(in millions, except average balances which are in billions)	2015			2014		% Change
Net interest income	$	2,921		2,891		1	%
Noninterest income:
Service charges on deposit accounts	443			398		11
Trust and investment fees:
Brokerage advisory, commissions and other fees	85			76		12
Trust and investment management	453			460		(2	)
Investment banking	484			337		44
Total trust and investment fees	1,022			873		17
Card fees	69			62		11
Other fees	526			453		16
Mortgage banking	113			86		31
Insurance	344			361		(5	)
Net gains from trading activities	283			360		(21	)
Net gains on debt securities	61			69		(12	)
Net gains from equity investments	77			88		(13	)
Other income of the segment	53			(61	)	NM
Total noninterest income	2,991			2,689		11

Total revenue	5,912			5,580		6

Reversal of provision for credit losses	(6		)	(93	)	(94	)
Noninterest expense:
Personnel expense	1,951			1,790		9
Equipment	47			60		(22	)
Net occupancy	113			111		2
Core deposit and other intangibles	85			96		(11	)
FDIC and other deposit assessments	79			70		13
Outside professional services	236			243		(3	)
Operating losses	37			19		95
Other expense of the segment	861			826		4
Total noninterest expense	3,409			3,215		6
Income before income tax expense and noncontrolling interests	2,509			2,458		2
Income tax expense	706			714		(1	)
Net income from noncontrolling interests	6			2		200
Net income	$	1,797		1,742		3
Average loans	$	337.6		301.9		12
Average core deposits	303.4			259.0		17

NM - Not meaningful

Wholesale Banking reported net income of $1.8 billion, up $55 million, or 3%, from first quarter 2014 driven by revenue growth. Revenue grew $332 million, or 6%, from first quarter 2014 on both increased net interest income and noninterest income. Net interest income increased $30 million, or 1%, driven by loan and other earning asset growth. Noninterest income increased $302 million, or 11%, on increased investment banking, commercial real estate brokerage, treasury management, foreign exchange and loan fees, and improved mortgage banking activity and earnings on nonmarketable equity investments. Average loans of $337.6 billion increased $35.7 billion, or 12%, from first quarter 2014, driven by growth in asset backed finance, capital

finance, commercial banking, commercial real estate, corporate banking, equipment finance, government and institutional banking and real estate capital markets. Average core deposits of $303.4 billion increased $44.4 billion, or 17%, from first quarter 2014 reflecting continued strong customer liquidity. Noninterest expense increased $194 million, or 6%, from first quarter 2014 due primarily to higher personnel expenses related to growth initiatives, compliance, and regulatory requirements. The provision for credit losses increased $87 million from first quarter 2014 due primarily to lower recoveries.

Earnings Performance (continued)

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, investment management and fiduciary services. Abbot Downing, a Wells Fargo business, provides comprehensive wealth management services to ultra-high net worth families and individuals as well as 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 retirement and trust services (including 401(k) and pension plan record keeping) for institutional clients and reinsurance services for the life insurance industry. Wealth, Brokerage and Retirement cross-sell was 10.44 products per retail banking household in February 2015, up from 10.42 a year ago. Table 4c provides additional financial information for Wealth, Brokerage and Retirement.



Table 4c - Wealth, Brokerage and Retirement
	Quarter ended March 31,
(in millions, except average balances which are in billions)	2015			2014		% Change
Net interest income	$	861		768		12	%
Noninterest income:
Service charges on deposit accounts	4			4		—
Trust and investment fees:
Brokerage advisory, commissions and other fees	2,294			2,164		6
Trust and investment management	407			392		4
Investment banking (1)	(3		)	(3	)	—
Total trust and investment fees	2,698			2,553		6
Card fees	1			1		—
Other fees	4			4		—
Mortgage banking	(2		)	(1	)	100
Insurance	55			39		41
Net gains from trading activities	42			36		17
Net gains on debt securities	11			4		175
Net gains from equity investments	3			4		(25	)
Other income of the segment	56			56		—
Total noninterest income	2,872			2,700		6

Total revenue	3,733			3,468		8

Reversal of provision for credit losses	(3		)	(8	)	(63	)
Noninterest expense:
Personnel expense	1,932			1,847		5
Equipment	12			11		9
Net occupancy	105			103		2
Core deposit and other intangibles	81			87		(7	)
FDIC and other deposit assessments	37			35		6
Outside professional services	112			100		12
Operating losses	30			24		25
Other expense of the segment	522			504		4
Total noninterest expense	2,831			2,711		4
Income before income tax expense and noncontrolling interests	905			765		18
Income tax expense	344			290		19
Net income from noncontrolling interests	—			—		—
Net income	$	561		475		18
Average loans	$	56.9		50.0		14
Average core deposits	161.4			156.0		3


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

Wealth, Brokerage and Retirement reported net income of $561 million in first quarter 2015, up 18% from first quarter 2014 driven by higher net interest income and noninterest income. Revenue of $3.7 billion in first quarter 2015 was up 8% from first quarter 2014, predominantly due to strong growth in asset-based

fees and higher net interest income primarily driven by growth in investment and loan portfolios. Noninterest expense increased 4% from first quarter 2014, primarily due to brokerage volume-based expenses and higher other expenses. Total provision for credit losses increased $5 million from first quarter 2014.

Balance Sheet Analysis

At March 31, 2015, our assets totaled $1.7 trillion, up $50.6 billion from December 31, 2014. The predominant areas of asset growth were in federal funds sold and other short-term investments, which increased $32.9 billion, investment securities, which increased $11.8 billion, and mortgages held for sale, which increased $4.1 billion. Deposit growth of $28.4 billion, an increase in short-term borrowings of $14.2 billion, and total equity growth of $4.7 billion from December 31, 2014, were the predominant sources that funded our asset growth in first quarter 2015. Equity growth benefited from $3.6 billion in

earnings net of dividends paid. The strength of our business model produced solid earnings and continued internal capital generation.

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.



Investment Securities

Table 5: Investment Securities – Summary
	March 31, 2015				December 31, 2014
(in millions)	Amortized Cost		Net unrealized gain	Fair value	Amortized Cost	Net unrealized gain	Fair value
Available-for-sale securities:
Debt securities	$	247,757	6,342	254,099	247,747	6,019	253,766
Marketable equity securities	1,919		1,585	3,504	1,906	1,770	3,676
Total available-for-sale securities	249,676		7,927	257,603	249,653	7,789	257,442
Held-to-maturity debt securities	67,133		1,648	68,781	55,483	876	56,359
Total investment securities (1)	$	316,809	9,575	326,384	305,136	8,665	313,801


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

Table 5 presents a summary of our investment securities portfolio, which increased $11.8 billion from December 31, 2014, predominantly due to purchases of U.S. Treasury securities and Federal agency mortgage-backed securities. The total net unrealized gains on available-for-sale securities were $7.9 billion at March 31, 2015, up from $7.8 billion at December 31, 2014, due primarily to a decrease in long-term interest rates. For a discussion of our investment management objectives and practices, see the "Balance Sheet Analysis" section of our 2014 Form 10-K. Also, see the “Risk Management - Asset/Liability Management” section in this Report for information on our use of investments to manage liquidity and interest rate risk.

We analyze securities for other-than-temporary impairment (OTTI) quarterly or more often if a potential loss-triggering event occurs. Of the $73 million in OTTI write-downs recognized in earnings in first quarter 2015, $31 million related to debt securities and $42 million related to nonmarketable equity investments, which are included in other assets. For a discussion of our OTTI accounting policies and underlying considerations and analysis see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2014 Form 10-K and Note 4 (Investment Securities) to Financial Statements in this Report.

At March 31, 2015, investment securities included $49.5 billion of municipal bonds, of which 92.1% 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 substantially all 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.

The weighted-average expected maturity of debt securities available-for-sale was 6.0 years at March 31, 2015. Because 50% 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 portfolio are shown in Table 6.



Table 6: Mortgage-Backed Securities
(in billions)	Fair value	Net unrealized gain (loss)