Edgar Filing: WELLS FARGO & COMPANY/MN

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 September 30, 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
		October 30, 2015
Common stock, $1-2/3 par value		5,107,812,848



FORM 10-Q
CROSS-REFERENCE INDEX
PART I	Financial Information
Item 1.	Financial Statements			Page
	Consolidated Statement of Income			69
	Consolidated Statement of Comprehensive Income			70
	Consolidated Balance Sheet			71
	Consolidated Statement of Changes in Equity			72
	Consolidated Statement of Cash Flows			74
	Notes to Financial Statements
	1	—	Summary of Significant Accounting Policies	75
	2	—	Business Combinations	77
	3	—	Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments	77
	4	—	Investment Securities	78
	5	—	Loans and Allowance for Credit Losses	85
	6	—	Other Assets	103
	7	—	Securitizations and Variable Interest Entities	104
	8	—	Mortgage Banking Activities	112
	9	—	Intangible Assets	115
	10	—	Guarantees, Pledged Assets and Collateral	116
	11	—	Legal Actions	120
	12	—	Derivatives	121
	13	—	Fair Values of Assets and Liabilities	128
	14	—	Preferred Stock	149
	15	—	Employee Benefits	152
	16	—	Earnings Per Common Share	153
	17	—	Other Comprehensive Income	154
	18	—	Operating Segments	156
	19	—	Regulatory and Agency Capital Requirements	157
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			17
	Off-Balance Sheet Arrangements			20
	Risk Management			21
	Capital Management			58
	Regulatory Reform			64
	Critical Accounting Policies			64
	Current Accounting Developments			65
	Forward-Looking Statements			66
	Risk Factors			67
	Glossary of Acronyms			158
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			45
Item 4.	Controls and Procedures			68

PART II	Other Information
Item 1.	Legal Proceedings			159
Item 1A.	Risk Factors			159
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			159
Item 6.	Exhibits			160

Signature				160

Exhibit Index				161

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW



Summary Financial Data
						% Change
	Quarter ended					Sep 30, 2015 from				Nine months ended
($ in millions, except per share amounts)	Sep 30, 2015			Jun 30, 2015	Sep 30, 2014	Jun 30, 2015		Sep 30, 2014		Sep 30, 2015	Sep 30, 2014	% Change
For the Period
Wells Fargo net income	$	5,796		5,719	5,729	1	%	1		17,319	17,348	—	%
Wells Fargo net income applicable to common stock	5,443			5,363	5,408	1		1		16,267	16,439	(1	)
Diluted earnings per common share	1.05			1.03	1.02	2		3		3.12	3.08	1
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)	1.32		%	1.33	1.40	(1	)	(6	)	1.34	1.48	(9	)
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)	12.62			12.71	13.10	(1	)	(4	)	12.83	13.60	(6	)
Efficiency ratio (1)	56.7			58.5	57.7	(3	)	(2	)	58.0	57.9	—
Total revenue	$	21,875		21,318	21,213	3		3		64,471	62,904	2
Pre-tax pre-provision profit (PTPP) (2)	9,476			8,849	8,965	7		6		27,096	26,514	2
Dividends declared per common share	0.375			0.375	0.35	—		7		1.10	1.00	10
Average common shares outstanding	5,125.8			5,151.9	5,225.9	(1	)	(2	)	5,145.9	5,252.2	(2	)
Diluted average common shares outstanding	5,193.8			5,220.5	5,310.4	(1	)	(2	)	5,220.3	5,339.2	(2	)
Average loans	$	895,095		870,446	833,199	3		7		876,384	829,378	6
Average assets	1,746,402			1,729,278	1,617,942	1		8		1,727,967	1,569,621	10
Average core deposits (3)	1,093,608			1,079,160	1,012,219	1		8		1,078,778	992,723	9
Average retail core deposits (4)	749,838			741,500	703,062	1		7		740,984	697,535	6
Net interest margin	2.96		%	2.97	3.06	—		(3	)	2.96	3.13	(5	)
At Period End
Investment securities	$	345,074		340,769	289,009	1		19		345,074	289,009	19
Loans	903,233			888,459	838,883	2		8		903,233	838,883	8
Allowance for loan losses	11,659			11,754	12,681	(1	)	(8	)	11,659	12,681	(8	)
Goodwill	25,684			25,705	25,705	—		—		25,684	25,705	—
Assets	1,751,265			1,720,617	1,636,855	2		7		1,751,265	1,636,855	7
Core deposits (3)	1,094,083			1,082,634	1,016,478	1		8		1,094,083	1,016,478	8
Wells Fargo stockholders' equity	193,051			189,558	182,481	2		6		193,051	182,481	6
Total equity	194,043			190,676	182,990	2		6		194,043	182,990	6
Capital ratios (5)(6):
Total equity to assets	11.08		%	11.08	11.18	—		(1	)	11.08	11.18	(1	)
Risk-based capital:
Common Equity Tier 1	10.87			10.78	11.11	1		NM		10.87	11.11	NM
Tier 1 capital	12.42			12.28	12.55	1		NM		12.42	12.55	NM
Total capital	14.86			14.45	15.58	3		NM		14.86	15.58	NM
Tier 1 leverage	9.51			9.45	9.64	1		NM		9.51	9.64	NM
Common shares outstanding	5,108.5			5,145.2	5,215.0	(1	)	(2	)	5,108.5	5,215.0	(2	)
Book value per common share	$	33.69		32.96	31.55	2		7		33.69	31.55	7
Common stock price:
High	58.77			58.26	53.80	1		9		58.77	53.80	9
Low	47.75			53.56	49.47	(11	)	(3	)	47.75	44.17	8
Period end	51.35			56.24	51.87	(9	)	(1	)	51.35	51.87	(1	)
Team members (active, full-time equivalent)	265,200			265,800	263,900	—		—		265,200	263,900	—

NM - Not meaningful, as approaches differ between periods.


(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)	The risk-based capital ratios presented were calculated: (a) under the Basel III Standardized Approach with Transition Requirements at September 30 and June 30, 2015, except for total capital ratio at September 30 and June 30, 2015, which was calculated under the Basel III Advanced Approach with Transition Requirements, and (b) under the Basel III General Approach at September 30, 2014.


(6)	See the "Capital Management" section and Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.

Overview (continued)

This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 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 $1.8 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, investments, mortgage, and consumer and commercial finance through 8,700 locations, 12,800 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 265,000 active, full-time equivalent team members, we serve one in three households in the United States and rank No. 30 on Fortune’s 2015 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 September 30, 2015.

We use our Vision and Values to guide us toward growth and success. Our vision is to satisfy 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 use by offering 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 third quarter 2015 with diluted earnings per share (EPS) of $1.05, compared with $5.7 billion and $1.02, respectively, a year ago. Our results reflected the ability of our diversified business model to generate

consistent financial performance in an uneven economic environment. We remain focused on meeting the financial needs of our customers and on investing in our businesses so we may continue to meet the evolving needs of our customers in the future.

Compared with a year ago:


•	our EPS was up 3% to $1.05; our revenue grew 3%, with 5% growth in net interest income;


•	we grew pre-tax pre-provision profit by 6%;


•	our total loans reached a record $903.2 billion, an increase of $64.4 billion, or 8%, even with the continued planned run-off in our non-strategic/liquidating portfolios, and our core loan portfolio grew by $73.4 billion, or 9%;


•	our liquidating loan portfolio declined $9.1 billion and represented only 6% of our total loans, down from 8% a year ago; and


•	our deposit franchise once again generated strong customer and balance growth, with total deposits reaching a record $1.2 trillion, up $71.6 billion, or 6%, and we grew the number of primary consumer checking customers by 5.8% (August 2015 compared with August 2014);

Balance Sheet and Liquidity

Our balance sheet continued to strengthen in third quarter 2015 as we increased our liquidity position, generated core loan and deposit growth, experienced solid credit quality and maintained strong capital levels. We have been able to grow our loans on a year-over-year basis for 17 consecutive quarters (for the past 14 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 $2.3 billion during the quarter while our core loan portfolio increased $17.1 billion and included the benefit of the GE Capital commercial real estate loan purchase and associated financing transaction that settled late in second quarter 2015. Our investment securities increased by $4.3 billion during the quarter, driven primarily by purchases of federal agency mortgage-backed securities (MBS) and U.S. Treasury securities, which were partially offset by maturities, amortization and sales.

The strength of our balance sheet positioned us well for our recently announced agreement to purchase GE Capital's Commercial Distribution Finance and Vendor Finance platforms as well as a portion of its Corporate Finance business – an acquisition that will help us serve more markets and meet more of our customers' financial needs. The acquisition includes total assets of approximately $32 billion and is expected to close in first quarter 2016 but is expected to be neutral to modestly accretive in 2016 due to transition-related costs. Also, in September 2015, we announced an agreement to acquire GE Railcar Services, which is expected to close in first quarter 2016. This transaction involves 77,000 railcars and just over 1,000 locomotives, as well as associated operating and long-term

Overview (continued)

leases, that will be added to our existing First Union Rail business.

Deposit growth continued in third quarter 2015 with period-end deposits up $33.9 billion, or 3%, from December 31, 2014. This increase reflected growth across both our commercial and consumer businesses. Our average deposit cost was 8 basis points, down 2 basis points from a year ago. We successfully grew our primary consumer checking customers (i.e., customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit) by 5.8% and primary business checking customers by 5.0% from a year ago (August 2015 compared with August 2014). Our ability to consistently grow primary checking customers is important to our results because these customers have more interactions with us and are significantly more profitable than non-primary customers.

Credit Quality

Credit quality remained solid in third quarter 2015 as losses remained at historically low levels, nonperforming assets (NPAs) declined for the 12th consecutive quarter, and we continued to originate high quality loans, reflecting our long-term risk focus. Net charge-offs were $703 million, or 0.31% (annualized) of average loans, in third quarter 2015, compared with $668 million a year ago (0.32%) due to deterioration in the energy sector. Our commercial portfolio net charge-offs were $94 million, or 8 basis points of average commercial loans in third quarter 2015, compared with a net recovery of $24 million, or 2 basis points, a year ago. Net consumer credit losses declined to 53 basis points of average consumer loans in third quarter 2015 from 62 basis points in third quarter 2014. Our commercial real estate portfolios were in a net recovery position for the 11th consecutive quarter, reflecting our conservative risk discipline and improved market conditions. Losses on our consumer real estate portfolios declined $103 million from a year ago, down 41%, and included a $39 million decline in losses in our core 1-4 family junior lien mortgage portfolio. The lower consumer loss levels reflected the benefit of the improving housing market and our continued focus on originating high quality loans. Approximately 65% of the consumer first mortgage portfolio was originated after 2008, when more stringent underwriting standards were implemented.

We did not have an allowance release in third quarter 2015, the first quarter with no allowance release since first quarter 2010. While we continued to benefit from improvements in the performance of our residential real estate portfolio, we increased our commercial allowance to reflect deterioration in the energy sector. Future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions.

NPAs were down $1.1 billion, or 8%, from June 30, 2015. Nonaccrual loans declined $906 million from the prior quarter on improvements in several loan categories, including a $718 million decline in consumer real estate. In addition, foreclosed assets were down $191 million from the prior quarter.

Capital

Our financial performance in third quarter 2015 resulted in strong capital generation, which increased total equity to $194.0 billion at September 30, 2015, up $3.4 billion from the prior quarter. We continued to reduce our common share count through the repurchase of 51.7 million common shares in the quarter. We also entered into a $250 million forward repurchase contract with an unrelated third party in October 2015 that is expected to settle in fourth quarter 2015 for approximately 4.8 million shares. We returned $3.2 billion to shareholders in third quarter 2015 through dividends and net share repurchases and our net payout ratio (which is the ratio of (i) common stock dividends and share repurchases less issuances and stock compensation-related items, divided by (ii) net income applicable to common stock) was 60%, up from 54% in the prior quarter. We expect to reduce our common shares outstanding through share repurchases throughout the remainder of 2015.

We believe an important measure of our capital strength is the Common Equity Tier 1 ratio under Basel III, fully phased-in, which increased to 10.65% at September 30, 2015. Likewise, our other regulatory capital ratios remained strong. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.

Earnings Performance (continued)

Earnings Performance

Wells Fargo net income for third quarter 2015 was $5.8 billion ($1.05 diluted earnings per common share), compared with $5.7 billion ($1.02) for third quarter 2014. Net income for the first nine months of 2015 was $17.3 billion ($3.12), compared with $17.3 billion ($3.08) for the same period a year ago. Our third quarter 2015 earnings reflected execution of our business strategy as we continued to satisfy our customers' financial needs. The key drivers of our financial performance in the third quarter and first nine months of 2015 were balanced net interest income and noninterest income, diversified sources of fee income, a diversified and growing loan portfolio and strong underlying credit performance.

Revenue, the sum of net interest income and noninterest income, was $21.9 billion in third quarter 2015, compared with $21.2 billion in third quarter 2014. Revenue for the first nine months of 2015 was $64.5 billion, up 2% from the first nine months of 2014. The increase in revenue for the third quarter and first nine months of 2015, compared with the same periods in 2014, was largely due to an increase in net interest income, reflecting increases in interest income from loans and investment securities. In both the third quarter and first nine months of 2015, net interest income represented 52% of revenue, compared with 52% and 51% in the third quarter and first nine months of 2014, respectively.

Noninterest income was $10.4 billion and $30.8 billion in the third quarter and first nine months of 2015, respectively, representing 48% of revenue for both periods, compared with $10.3 billion (48%) and $30.6 billion (49%) for the same periods of 2014. The drivers of our noninterest income can differ depending on the interest rate and economic environment. For example, trading gains in third quarter 2015 were down $194 million from a year ago, driven by lower deferred compensation plan investment results and lower customer accommodation trading, while gains from equity investments in third quarter 2015 were up $208 million from a year ago, reflecting strong results from a number of venture capital, private equity and other investments.

Noninterest expense was $12.4 billion and $37.4 billion in the third quarter and first nine months of 2015, respectively, compared with $12.2 billion and $36.4 billion for the same periods of 2014. The increase for both periods reflected higher personnel expense, including higher salaries, commission and incentive compensation, as well as higher operating losses, partially offset by lower travel and entertainment expense.

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 have runoff and been replaced with lower yielding assets.

Net interest income on a taxable-equivalent basis was $11.7 billion and $34.5 billion in the third quarter and first nine months of 2015, respectively, up from $11.2 billion and $33.0 billion for the same periods a year ago. The net interest margin was 2.96% for both the third quarter and first nine months of 2015, respectively, down from 3.06% and 3.13% for the same periods a year ago. The increase in net interest income in the third quarter and first nine months of 2015 from the same periods a year ago, was primarily driven by growth in earning assets, including growth in investment securities, commercial and consumer loans, and trading assets, which offset a decrease in earning asset yields. The addition of duration to the balance sheet by swapping a portion of our variable rate commercial loans to fixed rate, and the reduction of funding costs due to an increase in noninterest-bearing funding sources and lower deposit yields, also contributed to higher net interest income.

The decline in net interest margin in the third quarter and first nine months of 2015, compared with the same periods a year ago, was primarily due to customer-driven deposit growth, partially offset by the growth in loans and securities. The growth in customer-driven deposits kept cash, federal funds sold, and other short-term investments elevated, which diluted net interest margin but was essentially neutral to net interest income.

Average earning assets increased $122.8 billion in the third quarter and $148.6 billion in the first nine months of 2015, compared with the same periods a year ago, as average investment securities increased $60.2 billion in the third quarter and $56.0 billion in the first nine months of 2015. In addition, average federal funds sold and other short-term investments decreased $3.1 billion in the third quarter but increased $32.0 billion in the first nine months of 2015 from the same periods a year ago. Average loans increased $61.9 billion in the third quarter and $47.0 billion in the first nine months of 2015, compared with the same periods 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 third quarter 2015 ($1.1 trillion in the first nine months of 2015), compared with $1.0 trillion in third quarter 2014 ($992.7 billion in the first nine months of 2014), and funded 122% and 123% of average loans in the third quarter and first nine months of 2015, respectively, compared with 121% and 120% for the same periods a year ago. Average core deposits decreased to 69% of average earning assets in both the third quarter and first nine months of 2015, compared with 70% and 71%, respectively, for the same periods 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 September 30,
						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	$	250,104		0.26	%	$	167	253,231		0.28	%	$	180
Trading assets	67,223			2.93		492		57,439		3.00		432
Investment securities (3):
Available-for-sale securities:
Securities of U.S. Treasury and federal agencies	35,709			1.59		143		8,816		1.69		38
Securities of U.S. states and political subdivisions	48,238			4.22		510		43,324		4.24		459
Mortgage-backed securities:
Federal agencies	98,459			2.70		665		113,022		2.76		780
Residential and commercial	21,876			5.84		319		25,946		5.98		388
Total mortgage-backed securities	120,335			3.27		984		138,968		3.36		1,168
Other debt and equity securities	50,371			3.40		430		47,131		3.45		408
Total available-for-sale securities	254,653			3.24		2,067		238,239		3.48		2,073
Held-to-maturity securities:
Securities of U.S. Treasury and federal agencies	44,649			2.18		245		23,672		2.22		133
Securities of U.S. states and political subdivisions	2,151			5.17		28		66		5.51		1
Federal agency mortgage-backed securities	27,079			2.38		161		5,854		2.23		32
Other debt securities	5,371			1.75		24		5,918		1.83		28
Total held-to-maturity securities	79,250			2.30		458		35,510		2.17		194
Total investment securities	333,903			3.02		2,525		273,749		3.31		2,267
Mortgages held for sale (4)	24,159			3.69		223		21,444		4.01		215
Loans held for sale (4)	568			2.57		4		9,533		2.10		50
Loans:
Commercial:
Commercial and industrial - U.S.	241,409			3.30		2,005		207,570		3.29		1,716
Commercial and industrial - Non U.S.	45,923			1.83		212		42,362		2.11		225
Real estate mortgage	120,983			3.31		1,009		112,946		3.69		1,050
Real estate construction	21,626			3.39		184		17,824		3.94		178
Lease financing	12,282			4.18		129		12,348		5.38		166
Total commercial	442,223			3.18		3,539		393,050		3.37		3,335
Consumer:
Real estate 1-4 family first mortgage	269,437			4.10		2,762		262,144		4.23		2,773
Real estate 1-4 family junior lien mortgage	55,298			4.22		588		61,606		4.30		666
Credit card	31,649			11.73		936		27,724		11.96		836
Automobile	58,534			5.80		855		54,638		6.19		852
Other revolving credit and installment	37,954			5.84		559		34,037		6.03		517
Total consumer	452,872			5.01		5,700		440,149		5.11		5,644
Total loans (4)	895,095			4.11		9,239		833,199		4.29		8,979
Other	5,028			5.11		64		4,674		5.41		64
Total earning assets	$	1,576,080		3.21	%	$	12,714	1,453,269		3.34	%	$	12,187
Funding sources
Deposits:
Interest-bearing checking	$	37,783		0.05	%	$	5	41,368		0.07	%	$	7
Market rate and other savings	628,119			0.06		90		586,353		0.07		98
Savings certificates	30,897			0.58		44		37,347		0.84		80
Other time deposits	48,676			0.46		57		55,128		0.39		54
Deposits in foreign offices	111,521			0.13		36		98,862		0.14		34
Total interest-bearing deposits	856,996			0.11		232		819,058		0.13		273
Short-term borrowings	90,357			0.06		13		62,285		0.10		16
Long-term debt	180,569			1.45		655		172,982		1.46		629
Other liabilities	16,435			2.13		89		15,536		2.73		106
Total interest-bearing liabilities	1,144,357			0.34		989		1,069,861		0.38		1,024
Portion of noninterest-bearing funding sources	431,723					—		383,408				—
Total funding sources	$	1,576,080		0.25		989		1,453,269		0.28		1,024
Net interest margin and net interest income on a taxable-equivalent basis (5)				2.96	%	$	11,725			3.06	%	$	11,163
Noninterest-earning assets
Cash and due from banks	$	16,979						16,189
Goodwill	25,703							25,705
Other	127,640							122,779
Total noninterest-earning assets	$	170,322						164,673
Noninterest-bearing funding sources
Deposits	$	341,878						307,991
Other liabilities	67,964							57,979
Total equity	192,203							182,111
Noninterest-bearing funding sources used to fund earning assets	(431,723		)					(383,408	)
Net noninterest-bearing funding sources	$	170,322						164,673
Total assets	$	1,746,402						1,617,942


(1)	Our average prime rate was 3.25% for the quarters ended September 30, 2015 and 2014, and 3.25% for the first nine months of both 2015 and 2014. The average three-month London Interbank Offered Rate (LIBOR) was 0.31% and 0.23% for the quarters ended September 30, 2015 and 2014, respectively, and 0.28% and 0.23% for the first nine months of 2015 and 2014, respectively.


(2)	Yields/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 $268 million and $222 million for the quarters ended September 30, 2015 and 2014, respectively, and $780 million and $664 million for the first nine months of 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.




	Nine months ended September 30,
						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	$	264,218		0.27	%	$	543	232,241		0.28	%	$	485
Trading assets	65,954			2.91		1,437		53,373		3.07		1,227
Investment securities (3):
Available-for-sale securities:
Securities of U.S. Treasury and federal agencies	31,242			1.57		368		7,331		1.72		95
Securities of U.S. states and political subdivisions	46,765			4.18		1,468		42,884		4.29		1,380
Mortgage-backed securities:
Federal agencies	99,523			2.71		2,021		115,696		2.85		2,475
Residential and commercial	22,823			5.80		992		27,070		6.07		1,233
Total mortgage-backed securities	122,346			3.28		3,013		142,766		3.46		3,708
Other debt and equity securities	48,758			3.44		1,257		48,333		3.60		1,303
Total available-for-sale securities	249,111			3.27		6,106		241,314		3.58		6,486
Held-to-maturity securities:
Securities of U.S. Treasury and federal agencies	44,010			2.19		722		11,951		2.22		198
Securities of U.S. states and political subdivisions	2,064			5.16		80		25		5.51		1
Federal agency mortgage-backed securities	19,871			2.14		319		6,034		2.70		122
Other debt securities	6,139			1.72		79		5,844		1.86		82
Total held-to-maturity securities	72,084			2.22		1,200		23,854		2.26		403
Total investment securities	321,195			3.03		7,306		265,168		3.47		6,889
Mortgages held for sale (4)	22,416			3.62		609		18,959		4.08		580
Loans held for sale (4)	644			2.93		14		3,302		2.15		53
Loans:
Commercial:
Commercial and industrial - U.S.	233,598			3.31		5,788		200,277		3.37		5,044
Commercial and industrial - Non U.S.	45,373			1.88		638		42,530		2.03		646
Real estate mortgage	115,224			3.45		2,972		112,855		3.62		3,056
Real estate construction	20,637			3.68		567		17,454		4.16		544
Lease financing	12,322			4.77		441		12,254		5.73		526
Total commercial	427,154			3.26		10,406		385,370		3.40		9,816
Consumer:
Real estate 1-4 family first mortgage	267,107			4.12		8,243		260,549		4.20		8,207
Real estate 1-4 family junior lien mortgage	57,068			4.24		1,812		63,296		4.30		2,038
Credit card	30,806			11.74		2,704		26,822		12.08		2,424
Automobile	57,180			5.87		2,512		53,314		6.34		2,528
Other revolving credit and installment	37,069			5.91		1,638		40,027		5.32		1,593
Total consumer	449,230			5.03		16,909		444,008		5.05		16,790
Total loans (4)	876,384			4.16		27,315		829,378		4.28		26,606
Other	4,874			5.21		191		4,622		5.62		195
Total earning assets	$	1,555,685		3.21	%	$	37,415	1,407,043		3.42	%	$	36,035
Funding sources
Deposits:
Interest-bearing checking	$	38,491		0.05	%	$	15	39,470		0.07	%	$	20
Market rate and other savings	620,510			0.06		274		583,128		0.07		304
Savings certificates	32,639			0.66		160		38,867		0.86		251
Other time deposits	52,459			0.43		168		49,855		0.41		152
Deposits in foreign offices	107,153			0.13		105		94,743		0.14		100
Total interest-bearing deposits	851,252			0.11		722		806,063		0.14		827
Short-term borrowings	82,258			0.09		52		58,573		0.10		43
Long-term debt	183,130			1.37		1,879		162,073		1.54		1,868
Other liabilities	16,576			2.16		269		14,005		2.73		286
Total interest-bearing liabilities	1,133,216			0.34		2,922		1,040,714		0.39		3,024
Portion of noninterest-bearing funding sources	422,469					—		366,329		—		—
Total funding sources	$	1,555,685		0.25		2,922		1,407,043		0.29		3,024
Net interest margin and net interest income on a taxable-equivalent basis (5)				2.96	%	$	34,493			3.13	%	$	33,011
Noninterest-earning assets
Cash and due from banks	$	17,167						16,169
Goodwill	25,703							25,681
Other	129,412							120,728
Total noninterest-earning assets	$	172,282						162,578
Noninterest-bearing funding sources
Deposits	$	335,160						296,066
Other liabilities	69,167							54,057
Total equity	190,424							178,784
Noninterest-bearing funding sources used to fund earning assets	(422,469		)					(366,329	)
Net noninterest-bearing funding sources	$	172,282						162,578
Total assets	$	1,727,967						1,569,621



Noninterest Income
Table 2: Noninterest Income
	Quarter ended Sep 30,				%		Nine months ended Sep 30,
(in millions)	2015			2014	Change		2015			2014	% Change
Service charges on deposit accounts	$	1,335		1,311	2	%	$	3,839		3,809	1	%
Trust and investment fees:
Brokerage advisory, commissions and other fees	2,368			2,327	2		7,147			6,848	4
Trust and investment management	843			856	(2	)	2,556			2,538	1
Investment banking	359			371	(3	)	1,254			1,189	5
Total trust and investment fees	3,570			3,554	—		10,957			10,575	4
Card fees	953			875	9		2,754			2,506	10
Other fees:
Charges and fees on loans	307			296	4		920			1,005	(8	)
Merchant processing fees	200			184	9		589			539	9
Cash network fees	136			134	1		393			382	3
Commercial real estate brokerage commissions	124			143	(13	)	394			314	25
Letters of credit fees	89			100	(11	)	267			288	(7	)
All other fees	243			233	4		721			697	3
Total other fees	1,099			1,090	1		3,284			3,225	2
Mortgage banking:
Servicing income, net	674			679	(1	)	1,711			2,652	(35	)
Net gains on mortgage loan origination/sales activities	915			954	(4	)	3,130			2,214	41
Total mortgage banking	1,589			1,633	(3	)	4,841			4,866	(1	)
Insurance	376			388	(3	)	1,267			1,273	—
Net gains (losses) from trading activities	(26		)	168	NM		515			982	(48	)
Net gains on debt securities	147			253	(42	)	606			407	49
Net gains from equity investments	920			712	29		1,807			2,008	(10	)
Lease income	189			137	38		476			399	19
Life insurance investment income	150			143	5		440			413	7
All other	116			8	NM		(28		)	94	NM
Total	$	10,418		10,272	1		$	30,758		30,557	1

NM - Not meaningful

Noninterest income was $10.4 billion and $10.3 billion for third quarter 2015 and 2014, respectively, and $30.8 billion and $30.6 billion for the first nine months of 2015 and 2014, respectively. This income represented 48% of revenue for both the third quarter and first nine months of 2015, respectively, compared with 48% and 49% for the third quarter and first nine months of 2014. The increase in noninterest income reflected growth in many of our businesses, including credit and debit cards, merchant card processing, commercial banking, corporate banking, commercial real estate, corporate trust, international, venture capital, wealth management and retirement.

Service charges on deposit accounts were $1.3 billion and $3.8 billion in the third quarter and first nine months of 2015, respectively, unchanged from the third quarter and first nine months of 2014, respectively. 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 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 includes 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 and $7.1 billion in

the third quarter and first nine months of 2015, respectively, from $2.3 billion and $6.8 billion for the same periods in 2014. The increase was predominantly due to higher asset-based fees as a result of higher market values at the end of the prior quarter pricing period. Retail brokerage client assets totaled $1.35 trillion at September 30, 2015, compared with $1.40 trillion at September 30, 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 primarily based on a tiered scale relative to the market value of the assets under management or administration. These fees decreased to $843 million in third quarter from $856 million for the same period in 2014, due to lower market values, partially offset by business growth in third quarter 2015. In the first nine months of 2015, trust and investment management fees increased to $2.6 billion from $2.5 billion for the same period in 2014, with growth primarily due to higher average market values during the first nine months of 2015. At September 30, 2015, these assets totaled $2.3 trillion, compared with $2.5 trillion at September 30, 2014.

We earn investment banking fees from underwriting debt and equity securities, arranging loan syndications, and performing other related advisory services. Investment banking fees decreased to $359 million in third quarter 2015 from

Earnings Performance (continued)

$371 million for the same period in 2014, driven by declines in equity origination due to market volatility. In the first nine months of 2015, investment banking fees increased to $1.3 billion from $1.2 billion for the same period in 2014, driven by higher investment grade debt origination reflecting an active domestic market.

Card fees were $953 million and $2.8 billion in the third quarter and first nine months of 2015, respectively, compared with $875 million and $2.5 billion for the same periods a year ago. The increase was primarily due to account growth and increased purchase activity.

Other fees were $1.1 billion in third quarter 2015, unchanged compared with the same period a year ago, as lower commercial real estate brokerage commissions, which declined due to lower sales and other property-related activity, were offset by higher charges and fees on loans driven by growth in real estate and commercial loan fees. In the first nine months of 2015, other fees increased to $3.3 billion from $3.2 billion for the same period in 2014, as increases in commercial real estate brokerage commissions and merchant processing fees were partially offset by lower charges and fees on loans which declined primarily due to the phase out of the direct deposit advance product during the first nine months of 2014. Commercial real estate brokerage commissions increased by $80 million in the first nine months of 2015, compared with the same period a year ago, driven by increased sales and other property-related activities, including financing and advisory services. Merchant processing fees increased $50 million in the first nine months of 2015, compared with the same period a year ago primarily due to higher purchase volumes.

Mortgage banking noninterest income, consisting of net servicing income and net gains on loan origination/sales activities, totaled $1.6 billion in both third quarter 2015 and 2014, respectively, and totaled $4.8 billion for the first nine months of 2015, compared with $4.9 billion for the same period a year ago.

In addition to servicing fees, net mortgage loan servicing income includes amortization of commercial mortgage servicing rights (MSRs), changes in the fair value of residential MSRs during the period, as well as changes in the value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income for third quarter 2015 included a $253 million net MSR valuation gain ($833 million decrease in the fair value of the MSRs and a $1.09 billion hedge gain) and for third quarter 2014 included a $270 million net MSR valuation gain ($253 million increase in the fair value of the MSRs and a $17 million hedge gain). For the first nine months of 2015, net servicing income included a $468 million net MSR valuation gain ($553 million decrease in the fair value of the MSRs and a $1.02 billion hedge gain) and for the same period of 2014 included a $1.15 billion net MSR valuation gain ($1.02 billion decrease in the fair value of the MSRs offset by a $2.18 billion hedge gain). The decrease in net MSR valuation gains in the third quarter and first nine months of 2015, compared with the same periods in 2014, was primarily attributable to lower hedge gains, 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 the first nine months of 2014.

Our portfolio of residential and commercial loans serviced for others was $1.79 trillion at September 30, 2015, and $1.86 trillion at December 31, 2014. At September 30, 2015, the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.73%, 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 $915 million and $3.1 billion in the third quarter and first nine months of 2015, respectively, compared with $954 million and $2.2 billion for the same periods a year ago. The decrease in third quarter 2015 compared with third quarter 2014 was primarily due to lower amounts of releases of the mortgage repurchase liability in 2015 than in 2014. The increase in the first nine months of 2015, compared with the same period a year ago, was primarily driven by increased origination volumes. Mortgage loan originations were $55 billion and $166 billion for the third quarter and first nine months of 2015, respectively, compared with $48 billion and $131 billion for the same periods a year ago. The production margin on residential held-for-sale mortgage originations, which represents net gains on residential mortgage loan origination/sales activities divided by total residential held-for-sale mortgage originations, provides a measure of the profitability of our residential mortgage origination activity. The production margin was higher for the third quarter and first nine months of 2015, respectively, compared with the same periods a year ago. Mortgage applications were $73 billion and $247 billion in the third