Edgar Filing: WELLS FARGO & COMPANY/MN

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Quarterly Report on Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

Commission file number 001-2979

WELLS FARGO & COMPANY

(Exact name of registrant as specified in its charter)


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

420 Montgomery Street, San Francisco, California 94163

(Address of principal executive offices) (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

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

Yes þ No ¨

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

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

Yes ¨ No þ

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

Shares Outstanding

April 30, 2012

Common stock, $1-2/3 par value

5,313,919,450

FORM 10-Q

CROSS-REFERENCE INDEX


PART I	Financial Information
Item 1.	Financial Statements	Page
	Consolidated Statement of Income	48
	Consolidated Statement of Comprehensive Income	49
	Consolidated Balance Sheet	50
	Consolidated Statement of Changes in Equity	51
	Consolidated Statement of Cash Flows	53
	Notes to Financial Statements
	1 - Summary of Significant Accounting Policies	54
	2 - Business Combinations	57
	3 - Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments	57
	4 - Securities Available for Sale	58
	5 - Loans and Allowance for Credit Losses	66
	6 - Other Assets	84
	7 - Securitizations and Variable Interest Entities	85
	8 - Mortgage Banking Activities	96
	9 - Intangible Assets	99
	10 - Guarantees, Pledged Assets and Collateral	100
	11 - Legal Actions	102
	12 - Derivatives	103
	13 - Fair Values of Assets and Liabilities	110
	14 - Preferred Stock	130
	15 - Employee Benefits	132
	16 - Earnings Per Common Share	133
	17 - Other Comprehensive Income	134
	18 - Operating Segments	135
	19 - Condensed Consolidating Financial Statements	137
	20 - Regulatory and Agency Capital Requirements	141

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data	1
	Overview	2
	Earnings Performance	4
	Balance Sheet Analysis	10
	Off-Balance Sheet Arrangements	12
	Risk Management	13
	Capital Management	41
	Regulatory Reform	44
	Critical Accounting Policies	44
	Current Accounting Developments	44
	Forward-Looking Statements	45
	Risk Factors	46
	Glossary of Acronyms	142

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	47

PART II	Other Information
Item 1.	Legal Proceedings	143

Item 1A.	Risk Factors	143

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	143

Item 6.	Exhibits	144

Signature		144

Exhibit Index		145

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW

Summary Financial Data


	Quarter ended							% Change Mar. 31, 2012 from
($ in millions, except per share amounts)	Mar. 31, 2012			Dec. 31, 2011		Mar. 31, 2011		Dec. 31, 2011			Mar. 31, 2011

For the Period
Wells Fargo net income	$	4,248			4,107		3,759		3	%		13
Wells Fargo net income applicable to common stock		4,022			3,888		3,570		3			13
Diluted earnings per common share		0.75			0.73		0.67		3			12
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)		1.31	%		1.25		1.23		5			7
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders’ equity (ROE)		12.14			11.97		11.98		1			1
Efficiency ratio (1)		60.1			60.7		62.6		(1	)		(4	)
Total revenue	$	21,636			20,605		20,329		5			6
Pre-tax pre-provision profit (PTPP) (2)		8,643			8,097		7,596		7			14
Dividends declared per common share		0.22			0.12		0.12		83			83
Average common shares outstanding		5,282.6			5,271.9		5,278.8		-			-
Diluted average common shares outstanding		5,337.8			5,317.6		5,333.1		-			-
Average loans	$	768,582			768,563		754,077		-			2
Average assets		1,302,921			1,306,728		1,241,176		-			5
Average core deposits (3)		870,516			864,928		796,826		1			9
Average retail core deposits (4)		616,569			606,810		584,100		2			6
Net interest margin		3.91	%		3.89		4.05		1			(3	)
At Period End
Securities available for sale	$	230,266			222,613		167,906		3			37
Loans		766,521			769,631		751,155		-			2
Allowance for loan losses		18,852			19,372		21,983		(3	)		(14	)
Goodwill		25,140			25,115		24,777		-			1
Assets		1,333,799			1,313,867		1,244,666		2			7
Core deposits (3)		888,711			872,629		795,038		2			12
Wells Fargo stockholders’ equity		145,516			140,241		133,471		4			9
Total equity		146,849			141,687		134,943		4			9
Tier 1 capital (5)		117,444			113,952		110,761		3			6
Total capital (5)		150,788			148,469		147,311		2			2
Capital ratios:
Total equity to assets		11.01	%		10.78		10.84		2			2
Risk-based capital (5):
Tier 1 capital		11.78			11.33		11.50		4			2
Total capital		15.13			14.76		15.30		3			(1	)
Tier 1 leverage (5)		9.35			9.03		9.27		4			1
Tier 1 common equity (6)		9.98			9.46		8.93		5			12
Common shares outstanding		5,301.5			5,262.6		5,300.9		1			-
Book value per common share	$	25.45			24.64		23.18		3			10
Common stock price:
High		34.59			27.97		34.25		24			1
Low		27.94			22.61		29.82		24			(6	)
Period end		34.14			27.56		31.71		24			8
Team members (active, full-time equivalent)		264,900			264,200		270,200		-			(2	)

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

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

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

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

(5)	See Note 20 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.

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

This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K).

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

Financial Review

Overview

Wells Fargo & Company is a diversified financial services company with $1.3 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, trust and investments, mortgage banking, investment banking, retail banking, brokerage services and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the internet and other distribution channels to individuals, businesses and institutions across North America and internationally. With approximately 265,000 active, full-time equivalent team members, we serve one in three households in America and ranked No. 23 on Fortune’s 2011 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, 2012.

Our vision is to satisfy all our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. Our primary strategy to achieve this vision is to increase the number of our products our customers utilize and to offer them all of the financial products that fulfill their needs. Our cross-sell strategy, diversified business model and the breadth of our geographic reach facilitate growth in both strong and weak economic cycles, as we can grow by expanding the number of products our current customers have with us, gain new customers in our extended markets, and increase market share in many businesses. Our retail bank household cross-sell increased each quarter during 2011 and in February 2012 was 5.98 products per household, up from 5.76 in February 2011. We believe there is more opportunity for cross-sell as we continue to earn more business from our customers. Our goal is eight products per customer, which is approximately half of our estimate of potential demand for an average U.S. household. Currently, one of every four of our retail banking households has eight or more products.

Our pursuit of growth and earnings performance is influenced by our belief that it is important to maintain a well controlled operating environment. We manage our credit risk by establishing what we believe are sound credit policies for underwriting new business, while monitoring and reviewing the performance of our loan portfolio. We manage the interest rate

and market risks inherent in our asset and liability balances within established ranges, while ensuring adequate liquidity and funding. We maintain strong capital levels to facilitate future growth.

Expense management is also important to us, but our efforts are intended to not adversely affect revenue. Our current company-wide expense management initiative, which we publicly announced with our second quarter 2011 results, is focused on removing unnecessary complexity and eliminating duplication as a way to improve our customers’ experience and the work process of our team members. With this initiative and the completion of Wachovia merger integration activities, we are targeting fourth quarter 2012 noninterest expense to be approximately $11.25 billion. We initially stated a target of $11 billion for fourth quarter 2012 noninterest expense, but have increased our target to reflect higher than originally assumed revenue growth, a driver of noninterest expense, as a result of higher mortgage banking and acquisition-related revenues. First quarter 2012 noninterest expense remained elevated as expected because of seasonally higher personnel expenses and our final quarter of Wachovia integration expenses, partially offset by continued gains from efficiency and cost save initiatives. We expect noninterest expense to decline $500 million to $700 million in second quarter 2012, driven by the elimination of merger integration expenses and lower personnel-related expenses and we expect expenses to continue to decline over the remainder of the year, driven by lower mortgage volume-related costs, personnel expense including lower severance-related costs, and lower legal costs. However, we will continue to invest in our businesses and add team members where appropriate.

Financial Performance

We reported strong financial results in first quarter 2012. Wells Fargo net income was $4.2 billion and diluted earnings per common share were $0.75, up 13% and 12%, respectively, from the prior year. First quarter 2012 was our ninth consecutive quarter of earnings per share growth. Total revenue was $21.6 billion in first quarter 2012, up 6% from the prior year. We experienced improved credit quality with lower net charge-offs and improved delinquency trends. Our return on assets of 1.31%

Overview (continued)

was up 8 basis points from the prior year and our return on equity of 12.14% was up 16 basis points. Noninterest expense of $13.0 billion was elevated as expected and up 2% from first quarter 2011, but our efficiency ratio of 60.1% improved by 250 basis points from a year ago.

Our net income growth from first quarter 2011 was primarily driven by higher noninterest income and net interest income and a lower provision for credit losses, all of which more than offset higher noninterest expense and income taxes.

On a year-over-year basis, revenue was up 6% in first quarter 2012, predominantly reflecting increased mortgage banking net gains on mortgage loan origination/sales activities due to the continued low interest rate environment which contributed to higher loan applications and higher margins. As a result of increased mortgage loan applications our unclosed mortgage loan pipeline of $79 billion was up $7 billion from December 31, 2011.

Our balance sheet continued to strengthen in first quarter 2012 with solid core loan and deposit growth. Our non-strategic/liquidating loan portfolios decreased $4.1 billion during the quarter and, excluding the planned runoff of these loans, our core loan portfolios increased $984 million. Included in our core loan growth was $858 million of commercial asset-based loans acquired during the quarter from the Bank of Ireland in connection with our acquisition of Burdale Financial Holdings Limited (Burdale) and the portfolio of Burdale Capital Finance Inc. In first quarter 2012, we announced the acquisition of BNP Paribas’s North American energy lending business, which closed in April 2012 and included approximately $3.5 billion of loans outstanding. Our securities portfolios grew $7.7 billion during the quarter as we continued to deploy cash into longer-term investments and benefited from strong deposit growth, with deposit balances up $10.2 billion. Our average core deposits were up $5.6 billion from fourth quarter 2011 and up $73.7 billion, or 9%, from a year ago. We have grown deposits while reducing our deposit costs for six consecutive quarters.

Credit Quality

Most of our key credit quality indicators continued to improve during the first quarter of 2012. Net charge-offs of $2.4 billion were 1.25% (annualized) of average loans, down 48 basis points from a year ago and was our lowest charge-off rate since 2007. Loans 90 days or more past due and still accruing (excluding government insured/guaranteed loans) decreased to $1.6 billion from $2.0 billion at December 31, 2011. Nonperforming assets increased by $678 million to $26.6 billion at March 31, 2012, from $26.0 billion at December 31, 2011. This increase, however, was entirely due to reclassifying $1.7 billion of real estate 1-4 family junior lien mortgages to nonaccrual status at quarter end in accordance with junior lien mortgage industry guidance issued by bank regulators during the quarter. Excluding the impact of the supervisory guidance, nonaccrual loans declined in all portfolios and were down $948 million from December 31, 2011. The improvement in our credit portfolio was due in part to the continued decline in balances in our non-strategic/liquidating loan portfolios, which decreased $4.1 billion during the quarter, and $82.6 billion in total since the beginning of 2009, to $108.2 billion at March 31, 2012.

With the continued credit performance improvement in our loan portfolios, our $2.0 billion provision for credit losses this quarter was $215 million less than a year ago. This provision resulted in releasing $400 million from the allowance for credit losses (the amount by which net charge-offs exceeded the provision) as compared with a release of $1.0 billion a year ago. Absent significant deterioration in the economy, we continue to expect future allowance releases in 2012.

Capital

We continued to build capital this quarter, increasing total equity by $5.2 billion to $146.8 billion at March 31, 2012. Our Tier 1 common equity ratio grew 52 basis points during the quarter to 9.98% of risk-weighted assets under Basel I, reflecting strong internal capital generation. Based on our interpretation of current Basel III capital proposals, we estimate that our Tier 1 common equity ratio was 7.84% at the end of this quarter, up 34 basis points from December 31, 2011. Our other regulatory capital ratios remained strong with an increase in the Tier 1 capital ratio to 11.78% and Tier 1 leverage ratio to 9.35% from 11.33% and 9.03%, respectively, at December 31, 2011. See the “Capital Management” section in this Report for more information regarding our capital, including Tier 1 common equity.

We repurchased approximately 8 million shares of our common stock this quarter, primarily through a forward repurchase transaction entered into during fourth quarter 2011. Also, in the first quarter, we issued notice to redeem $875 million of 6.38% trust preferred securities that carried a higher cost than other funding sources available to us. These securities were redeemed in April 2012. In first quarter 2012, we also increased our quarterly common stock dividend rate by 83% to $0.22 per share.

Earnings Performance

Wells Fargo net income for first quarter 2012 was $4.2 billion ($0.75 diluted earnings per common share) compared with $3.8 billion ($0.67 diluted earnings per common share) for first quarter 2011. Our first quarter 2012 earnings reflected strong execution of our business strategy. The key drivers of our financial performance in first quarter 2012 were improved credit quality, continued strong mortgage banking results, diversified sources of fee income, balanced net interest and fee income, and a diversified loan portfolio.

Revenue, the sum of net interest income and noninterest income, was $21.6 billion in first quarter 2012, compared with $20.3 billion in first quarter 2011. The increase in revenue was due to growth in noninterest income, including mortgage banking and market sensitive revenues (i.e. net gains from trading activities, net gains (losses) on debt securities available for sale and net gains from equity investments). Net interest income was $10.9 billion in first quarter 2012, representing 50% of revenue, compared with $10.7 billion (52%) in first quarter 2011. Continued success in generating low-cost deposits enabled us to grow assets by funding loans and securities growth while reducing higher cost long-term debt.

Noninterest income was $10.7 billion in first quarter 2012, representing 50% of revenue, compared with $9.7 billion (48%) in first quarter 2011. The increase in noninterest income in first quarter 2012 was driven by increases in net gains on mortgage loan origination/sales activities as well as service charges on deposit accounts.

Noninterest expense was $13.0 billion in first quarter 2012, compared with $12.7 billion in first quarter 2011. The increase in noninterest expense was primarily due to higher employee benefits expense and higher commissions and incentive compensation, offset by lower merger-related integration expense. Despite the increase in noninterest expense, our efficiency ratio was 60.1% in first quarter 2012 down from 62.6% in first quarter 2011.

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 for 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.

Net interest income and the net interest margin are significantly influenced by the mix and overall size of our earning asset portfolio and the cost of funding those assets. In addition, some sources of interest income, such as loan prepayment fees and collection of interest on nonaccrual loans, can vary from period to period. Net interest income on a taxable-equivalent basis was $11.1 billion in first quarter 2012, compared with $10.8 billion in first quarter 2011. The net interest margin was 3.91% in first quarter 2012, down 14 basis points from

4.05% in first quarter 2011. The increase in net interest income was largely driven by a reduction in funding costs resulting from disciplined deposit pricing, debt maturities, and redemptions of higher cost trust preferred securities. In addition, net interest income increased due to loan growth and the redeployment of short-term investments into long-term securities which partially offset the impact of higher yielding loan and investment runoff. Continued runoff of higher yielding assets was the primary driver of the decline in net interest margin in first quarter 2012 compared with first quarter 2011. We expect continued pressure on our net interest margin as a result of the current interest rate environment.

Average earning assets increased $59.8 billion in first quarter 2012 from first quarter 2011 as average securities available for sale increased $58.9 billion. In addition, strong commercial loan demand since first quarter 2011 offset the impact of liquidating certain loan portfolios, resulting in $14.5 billion higher average loans in first quarter 2012 compared with a year ago. These increases in average securities available for sale and average loans were partially offset by a $27.4 billion decline in average short-term investments from first quarter 2011.

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 $870.5 billion in first quarter 2012 compared with $796.8 billion in first quarter 2011 and funded 113% and 106% of average loans, respectively. Average core deposits increased to 77% of average earning assets in first quarter 2012 compared with 74% a year ago. The cost of these deposits has continued to decline due to continued low interest rates and a shift in our deposit mix from higher cost certificates of deposit to lower yielding checking and savings products. About 93% of our average core deposits are in checking and savings deposits, one of the highest percentages in the industry.

Earnings Performance (continued)

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


	Quarter ended March 31,
	2012							2011
(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	$	56,020		0.52	%	$	73		83,386		0.35	%	$	72
Trading assets		43,766		3.50			383		37,403		3.81			356
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies		5,797		0.97			14		1,545		2.87			11
Securities of U.S. states and political subdivisions		32,595		4.52			368		19,890		5.45			270
Mortgage-backed securities:
Federal agencies		91,300		3.49			797		70,418		4.72			832
Residential and commercial		34,531		6.80			587		30,229		9.68			732

Total mortgage-backed securities		125,831		4.40			1,384		100,647		6.21			1,564
Other debt and equity securities		50,402		3.82			480		33,601		5.55			465

Total securities available for sale		214,625		4.19			2,246		155,683		5.94			2,310
Mortgages held for sale (4)		46,908		3.91			459		38,742		4.51			437
Loans held for sale (4)		748		5.09			9		975		4.88			12
Loans:
Commercial:
Commercial and industrial		166,782		4.18			1,733		150,047		4.65			1,723
Real estate mortgage		105,990		4.07			1,072		99,797		3.92			967
Real estate construction		18,730		4.79			223		24,281		4.26			255
Lease financing		13,129		8.89			292		13,020		7.83			255
Foreign		41,167		2.52			258		33,638		2.83			235

Total commercial		345,798		4.16			3,578		320,783		4.33			3,435

Consumer:
Real estate 1-4 family first mortgage		229,653		4.69			2,688		229,570		5.01			2,867
Real estate 1-4 family junior lien mortgage		84,718		4.27			900		94,708		4.35			1,018
Credit card		22,129		12.93			711		21,509		13.18			709
Other revolving credit and installment		86,284		6.19			1,329		87,507		6.36			1,371

Total consumer		422,784		5.34			5,628		433,294		5.54			5,965

Total loans (4)		768,582		4.81			9,206		754,077		5.03			9,400
Other		4,604		4.42			51		5,228		3.90			50

Total earning assets	$	1,135,253		4.39	%	$	12,427		1,075,494		4.73	%	$	12,637

Funding sources
Deposits:
Interest-bearing checking	$	32,158		0.05	%	$	4		58,503		0.10	%	$	14
Market rate and other savings		496,027		0.12			153		443,586		0.22			237
Savings certificates		62,689		1.36			213		74,371		1.39			255
Other time deposits		12,651		1.93			61		13,850		2.24			76
Deposits in foreign offices		64,847		0.16			26		57,473		0.23			33

Total interest-bearing deposits		668,372		0.27			457		647,783		0.38			615
Short-term borrowings		48,382		0.15			18		54,751		0.22			30
Long-term debt		127,537		2.60			830		150,144		2.95			1,104
Other liabilities		9,803		2.63			64		9,472		3.24			76

Total interest-bearing liabilities		854,094		0.64			1,369		862,150		0.85			1,825
Portion of noninterest-bearing funding sources		281,159		-			-		213,344		-			-

Total funding sources	$	1,135,253		0.48			1,369		1,075,494		0.68			1,825

Net interest margin and net interest income on a taxable-equivalent basis (5)				3.91	%	$	11,058				4.05	%	$	10,812

Noninterest-earning assets
Cash and due from banks	$	16,974							17,360
Goodwill		25,128							24,775
Other		125,566							123,547

Total noninterest-earning assets	$	167,668							165,682

Noninterest-bearing funding sources
Deposits	$	246,614							193,100
Other liabilities		57,201							55,316
Total equity		145,012							130,610
Noninterest-bearing funding sources used to fund earning assets		(281,159)							(213,344)

Net noninterest-bearing funding sources	$	167,668							165,682

Total assets	$	1,302,921							1,241,176

(1)	Our average prime rate was 3.25% for the quarters ended March 31, 2012 and 2011. The average three-month London Interbank Offered Rate (LIBOR) was 0.51% and 0.31% for the same quarters, 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 $170 million and $161 million for the quarters ended March 31, 2012 and 2011, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for the periods presented.

Noninterest Income

Table 2: Noninterest Income


	Quarter ended March 31,				%
(in millions)	2012		2011		Change

Service charges on deposit accounts	$	1,084		1,012		7	%
Trust and investment fees:
Trust, investment and IRA fees		1,024		1,060		(3)
Commissions and all other fees		1,815		1,856		(2)

Total trust and investment fees		2,839		2,916		(3)

Card fees		654		957		(32)
Other fees:
Cash network fees		118		81		46
Charges and fees on loans		445		397		12
Processing and all other fees		532		511		4

Total other fees		1,095		989		11

Mortgage banking:
Servicing income, net		252		866		(71)
Net gains on mortgage loan origination/sales activities		2,618		1,150		128

Total mortgage banking		2,870		2,016		42

Insurance		519		503		3
Net gains from trading activities		640		612		5
Net losses on debt securities available for sale		(7)		(166)		(96)
Net gains from equity investments		364		353		3
Operating leases		59		77		(23)
All other		631		409		54


Total	$	10,748		9,678		11

Noninterest income was $10.7 billion for first quarter 2012, compared with $9.7 billion for first quarter 2011, representing 50% and 48% of revenue for both periods, respectively. The increase in total noninterest income from March 31, 2011, was due predominantly to higher net gains on mortgage loan origination/sales activities.

Our service charges on deposit accounts increased in first quarter by $72 million, or 7%, from a year ago. This increase was predominantly due to product and account changes, continued customer adoption of overdraft services and customer account growth.

We earn trust, investment and IRA (Individual Retirement Account) fees from managing and administering assets, including mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. These assets totaled $2.2 trillion at both March 31, 2012, and 2011. Trust, investment and IRA fees are largely based on a tiered scale relative to the market value of the assets under management or administration. These fees decreased 3% to $1.0 billion in first quarter 2012, from $1.1 billion a year ago.

We receive commissions and other fees for providing services to full-service and discount brokerage customers as well as from investment banking activities including equity and bond underwriting. These fees decreased to $1.8 billion in first quarter 2012 from $1.9 billion a year ago. Our commission and other fees include transactional commissions, which are based on the number of transactions executed at the customer’s direction, and

asset-based fees, which are based on the market value of the customer’s assets. Brokerage client assets totaled $1.2 trillion at March 31, 2012, flat compared with the same amount a year ago.

Card fees were $654 million in first quarter 2012, compared with $957 million a year ago. Card fees decreased because of lower debit card interchange rates resulting from the final Federal Reserve Board (FRB) rules implementing the Durbin Amendment to the Dodd-Frank Act, which became effective in fourth quarter 2011 and placed limits on debit card interchange rates. The reduction in debit card interchange rates was partially offset by growth in purchase volume and new accounts.

Mortgage banking noninterest income, consisting of net servicing income and net gains on loan origination/sales activities, totaled $2.9 billion in first quarter 2012, compared with $2.0 billion a year ago. The increase in mortgage banking noninterest income was primarily driven by increased net gains on mortgage loan origination/sales activities.

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 2012 included a $58 million net MSR valuation loss ($158 million decrease in the fair value of the MSRs offset by a $100 million hedge gain). The $158 million decrease in fair value for first quarter 2012 included the effect of a discount rate increase reflecting increased capital return requirements from market participants, partially offset by an increase in the valuation due to an increase in market interest rates. First quarter 2011 included a $379 million net MSR valuation gain ($499 million increase in the fair value of MSRs offset by a $120 million hedge loss) driven by an increase in market interest rates. The valuation of our MSRs for both first quarter 2012 and 2011 reflected our assessment of expected future amounts of servicing and foreclosure costs. Our portfolio of loans serviced for others was $1.89 trillion at March 31, 2012, and $1.85 trillion at December 31, 2011. At March 31, 2012, the ratio of MSRs to related loans serviced for others was 0.77%, compared with 0.76% at December 31, 2011. 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 and the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in this Report for information on the regulatory consent orders that we entered into relating to our mortgage servicing and foreclosure practices.

Income from mortgage loan origination/sale activities was $2.6 billion in first quarter 2012 compared with $1.2 billion a year ago. The increase was driven by higher loan origination volume and margins. Residential real estate originations were $129 billion in first quarter 2012, compared with $84 billion a year ago, and mortgage applications were $188 billion in first quarter 2012, compared with $102 billion a year ago. The 1-4 family first mortgage unclosed pipeline was $79 billion at March 31, 2012, and $45 billion at March 31, 2011. 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.

Earnings Performance (continued)

Net gains on mortgage loan origination/sales activities include the cost of any additions to the mortgage repurchase liability. Mortgage loans are repurchased from third parties based on standard representations and warranties, and early payment default clauses in mortgage sale contracts. Additions to the mortgage repurchase liability that were charged against net gains on mortgage loan origination/sales activities during first quarter 2012 totaled $430 million (compared with $249 million for first quarter 2011), of which $368 million ($214 million for first quarter 2011) was for subsequent increases in estimated losses on prior year’s loan sales. For additional information about mortgage loan repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.

Net gains from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $640 million in first quarter 2012 compared with $612 million in first quarter 2011. The year-over-year increase was driven by higher gains on deferred compensation plan investments (offset entirely in employee benefits expense). Net gains from trading activities do not include interest income and other fees earned from related activities. Those amounts are reported within interest income from trading assets and other noninterest income, respectively, in the income statement. Net gains from trading activities are primarily from trading conducted on behalf of or driven by the needs of our customers (customer accommodation trading) and also include the results of certain economic hedging and proprietary trading activity. Net gains from proprietary trading totaled $15 million and $14 million in first quarter 2012 and 2011, respectively. Proprietary trading results also included interest and fees reported in their corresponding income statement line items. Proprietary trading activities are not significant to our client-focused business model. Our trading activities, customer accommodation, economic hedging and proprietary trading are further discussed in the “Asset/Liability Management – Market Risk – Trading Activities” section in this Report.

Net gains on debt and equity securities totaled $357 million for first quarter 2012 and $187 million for first quarter 2011, after other-than-temporary impairment (OTTI) write-downs of $65 million for first quarter 2012 and $121 million for first quarter 2011.

Noninterest Expense

Table 3: Noninterest Expense


	Quarter ended Mar. 31,				%
(in millions)	2012		2011		Change

Salaries	$	3,601		3,454		4	%
Commission and incentive compensation		2,417		2,347		3
Employee benefits		1,608		1,392		16
Equipment		557		632		(12	)
Net occupancy		704		752		(6	)
Core deposit and other intangibles		419		483		(13	)
FDIC and other deposit assessments		357		305		17
Outside professional services		594		580		2
Contract services		303		369		(18	)
Foreclosed assets		304		408		(25	)
Operating losses		477		472		1
Postage, stationery and supplies		216		235		(8	)
Outside data processing		216		220		(2	)
Travel and entertainment		202		206		(2	)
Advertising and promotion		122		116		5
Telecommunications		124		134		(7	)
Insurance		157		133		18
Operating leases		28		24		17
All other		587		471		25

Total	$	12,993		12,733		2

Noninterest expense was $13.0 billion in first quarter 2012, up 2% from $12.7 billion a year ago, primarily driven by higher personnel expense ($7.6 billion, up from $7.2 billion in first quarter 2011) and partially offset by lower merger costs ($218 million, down from $440 million a year ago).

Personnel expenses were up 6% in first quarter 2012 compared with the same quarter last year, primarily due to annual salary increases and related salary taxes (partially offset by fewer team members), expenses generated by businesses with revenue-based compensation such as mortgage and higher deferred compensation expense, which was offset entirely in trading income.

The completion of Wachovia integration activities in first quarter 2012 significantly contributed to year-over-year reductions in equipment, occupancy, outside professional services, contract services, and postage, stationery and supplies.

In addition to the impact of winding down integration activity, equipment expense in first quarter 2012 also declined compared with the same quarter last year due to lower annual software license fees and savings in equipment purchases and maintenance. Likewise, contract services expense in first quarter 2012 was also lower compared with the same quarter last year due to reductions in the use of technology-related contractors.

Foreclosed assets expense of $304 million in first quarter 2012 was down from $408 million in first quarter 2011 mainly due to improved delinquency rates for mortgage loans and sales of non-performing loans.

All other expenses of $587 million in first quarter 2012 were up from $471 million in first quarter 2011, primarily due to higher mortgage origination-related expenses and a business termination fee.

We are targeting $11.25 billion of noninterest expense for fourth quarter 2012, and we expect noninterest expenses to decline $500 million to $700 million in second quarter 2012 and to continue to decline over the remainder of 2012, driven by the completion of integration activities, the benefit of ongoing cost save initiatives, and lower severance-related expense, mortgage volume-related costs, personnel expense and legal costs.

Income Tax Expense

Our effective tax rate was 35.4% and 29.5% for the first quarter 2012 and 2011, respectively. The lower tax rate in the first quarter of 2011 reflected tax benefits from the realization for tax purposes of a previously written down investment.

Earnings Performance (continued)

Operating Segment Results

We are organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement. These segments are defined by product type and customer segment and their results are based on our management accounting process, for which there is no comprehensive, authoritative financial accounting guidance equivalent to generally accepted accounting principles

(GAAP). In the first quarter 2012, we modified internal funds transfer rates and the allocation of funding. The prior periods have been revised to reflect these changes. Table 4 and the following discussion present our results by operating segment. For a more complete description of our operating segments, including additional financial information and the underlying management accounting process, see Note 18 (Operating Segments) to Financial Statements in this Report.

Table 4: Operating Segment Results – Highlights

Wealth, Brokerage

Community Banking

Wholesale Banking

and Retirement

(in billions)

2012

2011

2012

2011

2012

2011

Quarter ended March 31,

Revenue

13.4

12.7

6.0

5.4

3.1

3.2

Net income

2.3

2.2

1.9

1.6

0.3

0.3

Average loans

486.1

508.4

268.6

234.7

42.5

42.7

Average core deposits

575.2

548.1

220.9

184.8

135.6

125.4

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including 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 Mortgage business units.

Community Banking reported net income of $2.3 billion, up $168 million, or 8%, from first quarter 2011. Revenue of $13.4 billion increased $764 million, or 6%, from first quarter 2011 as a result of higher volume-related mortgage banking income, invested funds from deposit growth, and higher equity sales gains, partially offset by runoff of non-strategic loan balances and lower debit card revenue due to regulatory changes affecting debit card interchange fees that became effective in October 2011. Average core deposits increased $27.1 billion, or 5%, from first quarter 2011, primarily in non-interest bearing deposits. The number of consumer checking accounts grew 2.5% from February 2011 to February 2012. Noninterest expense increased $203 million, or 3%, from first quarter 2011, largely the result of higher mortgage volume-related expenses. The provision for credit losses decreased $183 million from first quarter 2011. Charge-offs decreased $733 million from first quarter 2011, showing improvement primarily in the home equity, credit card, and small business lending portfolios. Additionally, we released $300 million from the allowance for credit losses in first quarter 2012, compared with $850 million released in first quarter 2011.

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 reported net income of $1.9 billion, up $233 million, or 14%, from first quarter 2011 driven by quarterly revenues of $6.0 billion. Revenue increased $611 million, or 11%, from the prior year primarily driven by broad based loan growth and increased deposits to fund our assets. Average loans of $268.6 billion increased 14% and average total assets of $467.8 billion increased 17% from first quarter 2011 driven by growth across nearly all portfolios. Average core deposits of $220.9 billion grew 20% from first quarter 2011 reflecting continued strong customer liquidity. Noninterest expense increased $265 million, or 10%, from the prior year related to higher operating losses and personnel expenses. Total provision for credit losses of $95 million declined $39 million, or 29%, from first quarter 2011. The decrease was driven by lower net loan charge-offs and improvement in credit quality. The provision for credit losses also reflected a smaller release of $100 million of allowance for credit losses in first quarter 2012 compared with $150 million released in first quarter 2011.

Wealth, Brokerage and Retirement provides a full range of financial advisory services to clients using a planning approach to meet each client’s 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 trust. Abbot Downing (formerly branded as Lowry Hill and Wells Fargo Family Wealth) meets the unique needs of ultra high net worth clients. Brokerage serves customers’ advisory, brokerage and financial needs as part of one of the largest full-service brokerage firms in the United States. Retirement is a national leader in providing institutional retirement and trust services (including 401(k) and pension plan record keeping) for businesses, retail retirement solutions for individuals, and reinsurance services for the life insurance industry.

Wealth, Brokerage and Retirement reported net income of $296 million in first quarter 2012, down $47 million from first quarter 2011. Revenue was down 3% from first quarter 2011 due to lower brokerage transaction revenue and reduced securities gains in the brokerage business, partially offset by higher gains

on deferred compensation investments (offset in expense) and growth in managed account fee revenue. Noninterest expense was flat with first quarter 2011 driven by a decline in personnel

costs largely due to decreased broker commissions on lower production levels, offset by higher deferred compensation expense.

Balance Sheet Analysis

At March 31, 2012, our total assets and core deposits were up, while our total loans were down slightly from December 31, 2011. At March 31, 2012, core deposits totaled 116% of the loan portfolio, and we have the capacity to add higher yielding earning assets to generate future revenue and earnings growth. The strength of our business model produced record earnings and high rates of internal capital generation in first quarter 2012 as reflected in our improved capital ratios. Tier 1 capital increased to 11.78% as a percentage of total risk-weighted assets, total capital to 15.13%, Tier 1 leverage to 9.35%, and

Tier 1 common equity to 9.98% at March 31, 2012, up from 11.33%, 14.76%, 9.03%, and 9.46%, respectively, at December 31, 2011. For additional information about our capital requirements, see Note 20 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.

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 of this Report.

Securities Available for Sale

Table 5: Securities Available for Sale – Summary

March 31, 2012

December 31, 2011

(in millions)

Cost

Net
unrealized
gain

Fair
value

Cost

Net
unrealized
gain

Fair
value

Debt securities available for sale

218,840

8,273

227,113

212,642

6,554

219,196

Marketable equity securities

2,735

418

3,153

2,929

488

3,417

Total securities available for sale

221,575

8,691

230,266

215,571

7,042

222,613

Table 5 presents a summary of our securities available-for-sale portfolio, which consists of both debt and marketable equity securities. We hold debt securities available for sale primarily for liquidity, interest rate risk management and long-term yield enhancement. Accordingly, this portfolio consists primarily of liquid, high quality federal agency debt and privately issued mortgage-backed securities (MBS). The total net unrealized gains on securities available for sale were $8.7 billion at March 31, 2012, up from net unrealized gains of $7.0 billion at December 31, 2011, primarily due to tightening of credit spreads.

We analyze securities for OTTI quarterly or more often if a potential loss-triggering event occurs. Of the $65 million OTTI write-downs in first quarter 2012, $50 million related to debt securities. There was $1 million in OTTI write-downs for marketable equity securities and $14 million in OTTI write-downs related to nonmarketable equity securities. For a discussion of our OTTI accounting policies and underlying considerations and analysis see Note 1 (Summary of Significant Accounting Policies – Securities) in our 2011 Form 10-K and Note 4 (Securities Available for Sale) to Financial Statements in this Report.

At March 31, 2012, debt securities available for sale included $34.2 billion of municipal bonds, of which 79% were rated “A-” or better, based on external and, in some cases internal, ratings. Additionally, some of the securities in our total municipal bond portfolio are guaranteed against loss by bond insurers. These guaranteed bonds are predominantly investment grade and were generally underwritten in accordance with our own investment standards prior to the determination to purchase, without relying on the bond insurer’s guarantee in

making the investment decision. Our municipal bond holdings are monitored as part of our ongoing impairment analysis of our securities available for sale.

The weighted-average expected maturity of debt securities available for sale was 5.3 years at March 31, 2012. Because 61% of this portfolio is MBS, the expected remaining maturity may differ from contractual maturity because borrowers generally have the right to prepay obligations before the underlying mortgages mature. The estimated effect of a 200 basis point increase or decrease in interest rates on the fair value and the expected remaining maturity of the MBS available for sale are shown in Table 6.

Table 6: Mortgage-Backed Securities


(in billions)	Fair value		Net unrealized gain (loss)			Expected remaining maturity (in years)
At March 31, 2012	$
Actual		139.2		6.5			4.0
Assuming a 200 basis point:
Increase in interest rates		127.9		(4.8	)		5.7
Decrease in interest rates		144.0		11.3			3.0

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

Balance Sheet Analysis (continued)

Loan Portfolio

Total loans were $766.5 billion at March 31, 2012, down $3.1 billion from December 31, 2011. Table 7 provides a summary of total outstanding loans for our commercial and consumer loan portfolios. Excluding expected runoff in the non-strategic/liquidating portfolio of $4.1 billion, loans in the core portfolio grew $984 million in the first quarter. Included in our core loan growth was $858 million of commercial asset-based loans acquired with the acquisition of Burdale during the quarter. Loan growth occurred across commercial and

industrial, consumer auto lending and private student lending. This growth was offset by seasonally lower credit card balances, a decline in commercial real estate, and continued runoff in the home equity portfolio. In first quarter 2012, the Company announced the acquisition of BNP Paribas’s North American energy lending business. The transaction closed in April 2012 and included approximately $3.5 billion of loans outstanding. Additional information on the non-strategic and liquidating loan portfolios is included in Table 11 in the “Credit Risk Management” section of this Report.

Table 7: Loan Portfolios – Summary

March 31, 2012

December 31, 2011

(in millions)

Core

Liquidating

Total

Core

Liquidating

Total

Commercial

340,536

5,213

345,749

339,755

5,695

345,450

Consumer

317,753

103,019

420,772

317,550

106,631

424,181

Total loans

658,289

108,232

766,521

657,305

112,326

769,631

A discussion of the impact on net interest income and a comparative detail of average loan balances is included in “Earnings Performance – Net Interest Income” and Table 1 earlier in this Report. Additional information on total loans outstanding by portfolio segment and class of financing receivable is included in the “Credit Risk Management” section in this Report. Period-end balances and other loan related information are in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Deposits

Deposits totaled $930.3 billion at March 31, 2012, compared with $920.1 billion at December 31, 2011. Table 8 provides additional detail regarding deposits. A discussion of the impact of deposits on net interest income and a comparative detail of average deposit balances is provided in “Earnings Performance – Net Interest Income” and Table 1 earlier in this Report. Total core deposits were $888.7 billion at March 31, 2012, up $16.1 billion from $872.6 billion at December 31, 2011.

Table 8: Deposits


(in millions)	March 31, 2012		% of total deposits			December 31, 2011		% of total deposits			% Change

Noninterest-bearing	$	255,011		27	%	$	243,961		26	%		5
Interest-bearing checking		32,440		4			37,027		4			(12	)
Market rate and other savings		498,538		54			485,534		53			3
Savings certificates		61,653		7			63,617		7			(3	)
Foreign deposits (1)		41,069		4			42,490		5			(3	)

Core deposits		888,711		96			872,629		95			2
Other time and savings deposits		20,072		2			20,745		2			(3	)
Other foreign deposits		21,484		2			26,696		3			(20	)

Total deposits	$	930,267		100	%	$	920,070		100	%		1

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

Fair Valuation of Financial Instruments

We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See our 2011 Form 10-K for a description of our critical accounting policy related to fair valuation of financial instruments.

We may use independent pricing services and brokers (collectively, pricing vendors) to obtain fair values (vendor prices) which are used to either record the price of an instrument or to corroborate internally developed prices. For certain securities, we may use internal traders to price instruments. Where vendor prices are utilized for recording the price of an instrument, we determine the most appropriate and relevant pricing vendor for each security class and obtain a price from that particular pricing vendor for each security.

Determination of the fair value of financial instruments using either vendor prices or internally developed prices are both subject to our internal price validation procedures, which include, but are not limited to, one or a combination of the following procedures:

•

comparison to pricing vendors (for internally developed prices) or to other pricing vendors (for vendor developed prices);

•

variance analysis of prices;

•

corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices;

•

review of pricing by Company personnel familiar with market liquidity and other market-related conditions; and

•

investigation of prices on a specific instrument-by-instrument basis.

For instruments where we utilize vendor prices to record the price of an instrument, we perform additional procedures. We evaluate pricing vendors by comparing prices from one vendor to prices of other vendors for identical or similar instruments and evaluate the consistency of prices to known market transactions when determining the level of reliance to be placed on a particular pricing vendor. Methodologies employed and inputs used by third party pricing vendors are subject to additional review when such services are provided. This review may consist of, in part, obtaining and evaluating control reports issued and pricing methodology materials distributed.

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

Table 9: Fair Value Level 3 Summary


	March 31, 2012					December 31, 2011
($ in billions)	Total balance			Level 3 (1)		Total balance		Level 3 (1)
Assets carried at fair value	$	371.4			55.6		373.0		53.3
As a percentage of total assets		28	%		4		28		4

Liabilities carried at fair value	$	24.5			4.5		26.4		4.6
As a percentage of total liabilities		2	%		*		2		*

*	Less than 1%

(1)	Before derivative netting adjustments.

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

Off-Balance Sheet Arrangements

In the ordinary course of business, we engage in financial transactions that are not recorded in the balance sheet, or may be recorded in the balance sheet in amounts that are different from the full contract or notional amount of the transaction. These transactions are designed to (1) meet the financial needs of customers, (2) manage our credit, market or liquidity risks, (3) diversify our funding sources, and/or (4) optimize capital.

Off-Balance Sheet Transactions with Unconsolidated Entities

We routinely enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts or partnerships that are established for

a limited purpose. Historically, the majority of SPEs were formed in connection with securitization transactions. For more information on securitizations, including sales proceeds and cash flows from securitizations, see Note 7 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.

Risk Management

All financial institutions must manage and control a variety of business risks that can significantly affect their financial performance. Key among those are credit, asset/liability and market risk.

For more information about how we manage these risks, see the “Risk Management” section in our 2011 Form 10-K. The discussion that follows provides an update regarding these risks.

Credit Risk Management

Loans represent the largest component of our balance sheet and their related credit risk is among the most significant risks we manage. We define credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms). Table 10 presents our total loans outstanding by portfolio segment and class of financing receivable.

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


(in millions)	Mar. 31, 2012		Dec. 31, 2011

Commercial:
Commercial and industrial	$	168,546		167,216
Real estate mortgage		105,874		105,975
Real estate construction		18,549		19,382
Lease financing		13,143		13,117
Foreign (1)		39,637		39,760

Total commercial		345,749		345,450

Consumer:
Real estate 1-4 family first mortgage		228,885		228,894
Real estate 1-4 family junior lien mortgage		83,173		85,991
Credit card		21,998		22,836
Other revolving credit and installment		86,716		86,460

Total consumer		420,772		424,181
Total loans	$	766,521		769,631

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

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

Table 11 identifies our non-strategic and liquidating loan portfolios. They consist primarily of the Pick-a-Pay mortgage portfolio and other PCI loans acquired from Wachovia as well as some portfolios from legacy Wells Fargo Home Equity and Wells Fargo Financial. Effective first quarter 2011, we added our education finance government guaranteed loan portfolio to the non-strategic and liquidating loan portfolios as there ceased to be a U.S. Government guaranteed student loan program

available to private financial institutions pursuant to legislation enacted in 2010. The total of outstanding balances on non-strategic and liquidating loan portfolios has decreased 43% since the merger with Wachovia at December 31, 2008, and decreased 4% from the end of 2011.

The home equity portfolio of loans generated through third party channels was designated as liquidating in fourth quarter 2007. This portfolio is discussed in more detail in the “Credit Risk Management – Home Equity Portfolios” section of this Report.

Information about the liquidating PCI and Pick-a-Pay loan portfolios is provided in the discussion of loan portfolios that follows.

Table 11: Non-Strategic and Liquidating Loan Portfolios


	Outstanding balance
(in millions)	Mar. 31, 2012		Dec. 31, 2011		Dec. 31, 2010		Dec. 31, 2009		Dec. 31, 2008

Commercial:
Legacy Wachovia commercial and industrial, CRE and foreign PCI loans (1)	$	5,213		5,695		7,935		12,988		18,704

Total commercial		5,213		5,695		7,935		12,988		18,704

Consumer:
Pick-a-Pay mortgage (1)		63,983		65,652		74,815		85,238		95,315
Liquidating home equity		5,456		5,710		6,904		8,429		10,309
Legacy Wells Fargo Financial indirect auto		1,907		2,455		6,002		11,253		18,221
Legacy Wells Fargo Financial debt consolidation		16,013		16,542		19,020		22,364		25,299
Education Finance - government guaranteed		14,800		15,376		17,510		21,150		20,465
Legacy Wachovia other PCI loans (1)		860		896		1,118		1,688		2,478

Total consumer		103,019		106,631		125,369		150,122		172,087

Total non-strategic and liquidating loan portfolios	$	108,232		112,326		133,304		163,110		190,791

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

PURCHASED CREDIT-IMPAIRED (PCI) LOANS Loans acquired with evidence of credit deterioration since their origination and where it is probable that we will not collect all contractually required principal and interest payments are accounted for using the measurement provisions for PCI loans. PCI loans are recorded at fair value at the date of acquisition, and the historical allowance for credit losses related to these loans is not carried over. Such loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments. Substantially all of our PCI loans were acquired in the Wachovia acquisition on December 31, 2008. For additional information on PCI loans, see the “Risk Management – Credit Risk Management – Purchased Credit-Impaired Loans” section in our 2011 Form 10-K.

During first quarter 2012, we recognized in income $28 million released from the nonaccretable difference related to commercial PCI loans due to payoffs and other resolutions. We also transferred $235 million from the nonaccretable difference to the accretable yield for PCI loans with improving credit-related cash flows and absorbed $569 million of losses in the nonaccretable difference from loan resolutions and write-downs. Table 12 provides an analysis of changes in the nonaccretable difference.

Risk Management – Credit Risk Management (continued)

Table 12: Changes in Nonaccretable Difference for PCI Loans


(in millions)	Commercial			Pick-a-Pay			Other consumer			Total
Balance at December 31, 2008	$	10,410			26,485			4,069			40,964
Addition of nonaccretable difference due to acquisitions		188			-			-			188
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(1,345	)		-			-			(1,345	)
Loans resolved by sales to third parties (2)		(299	)		-			(85	)		(384	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(1,216	)		(2,383	)		(614	)		(4,213	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(6,809	)		(14,976	)		(2,718	)		(24,503	)


Balance at December 31, 2011		929			9,126			652			10,707
Addition of nonaccretable difference due to acquisitions		-			-			-			-
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(28	)		-			-			(28	)
Loans resolved by sales to third parties (2)		-			-			-			-
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(108	)		-			(127	)		(235	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(45	)		(505	)		(19	)		(569	)


Balance at March 31, 2012	$	748			8,621			506			9,875

(1)

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

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

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

(4)	Write-downs to net realizable value of PCI loans are absorbed by the nonaccretable difference when severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

Since December 31, 2008, we have released $6.2 billion in nonaccretable difference, including $4.4 billion transferred from the nonaccretable difference to the accretable yield and $1.8 billion released to income through loan resolutions. Also, we have provided $1.8 billion for losses on certain PCI loans or pools of PCI loans that have had credit-related decreases to cash flows expected to be collected. The net result is a $4.4 billion reduction from December 31, 2008, through March 31, 2012, in our initial projected losses on all PCI loans.

At March 31, 2012, the allowance for credit losses on certain PCI loans was $245 million. The allowance is necessary to absorb credit-related decreases in cash flows expected to be collected and primarily relates to individual PCI loans. Table 13 analyzes the actual and projected loss results on PCI loans since acquisition through March 31, 2012.

For additional information on PCI loans, see Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 13: Actual and Projected Loss Results on PCI Loans


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

Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)	$	1,373			-		-			1,373
Loans resolved by sales to third parties (2)		299			-		85			384
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		1,324			2,383		741			4,448

Total releases of nonaccretable difference due to less than expected losses		2,996			2,383		826			6,205
Provision for losses due to credit deterioration (4)		(1,707	)		-		(121	)		(1,828	)


Actual and projected losses on PCI loans less than originally expected	$	1,289			2,383		705			4,377

(1)

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

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

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

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

COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING For purposes of portfolio risk management, we aggregate commercial and industrial loans and lease financing according to market segmentation and standard industry codes. Table 14 summarizes commercial and industrial loans and lease financing by industry with the related nonaccrual totals. We generally subject commercial and industrial loans and lease financing to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to pass and criticized categories with our criticized categories aligned to special mention, substandard and doubtful categories as defined by bank regulatory agencies.

Across our non-PCI commercial loans and leases, the commercial and industrial loans and lease financing portfolio generally experienced credit improvement in first quarter 2012. Of the total commercial and industrial loans and lease financing non-PCI portfolio, 0.06% was 90 days or more past due and still accruing at March 31, 2012, compared with 0.09% at December 31, 2011, 0.98% (1.22% at December 31, 2011) was nonaccruing and 11.7% (12.5% at December 31, 2011) was criticized. The net charge-off rate for this portfolio declined to 0.58% in first quarter 2012 from 0.70% for the full year of 2011 and 0.69% for fourth quarter 2011.

A majority of our commercial and industrial loans and lease financing portfolio is secured by short-term liquid assets, such as accounts receivable, inventory and securities, as well as long-lived assets, such as equipment and other business assets. Generally, the collateral securing this portfolio represents a secondary source of repayment. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for additional credit metric information.

On February 1, 2012, we acquired commercial asset-based loans with the Burdale acquisition from the Bank of Ireland, which added $858 million to the commercial and industrial loan portfolio.

Table 14: Commercial and Industrial Loans and Lease Financing by Industry


	March 31, 2012

(in millions)	Nonaccrual loans		Outstanding balance (1)			% of Total Loans


PCI loans (1):
Insurance	$	-		72			*	%
Technology		-		63			*
Investors		-		50			*
Aerospace and defense		-		36			*
Healthcare		-		33			*
Media		-		18			*
Other		-		113	(2)		*


Total PCI loans	$	-		385			*	%


All other loans:
Financial institutions	$	124		11,941			2	%
Cyclical retailers		34		10,285			1
Food and beverage		27		10,189			1
Oil and gas		70		10,175			1
Investors		4		8,757			1
Healthcare		66		8,527			1
Industrial equipment		39		7,812			1
Technology		24		6,867			*
Transportation		11		6,425			*
Business services		35		6,238			*
Real estate lessor		40		6,001			*
Securities firms		54		4,469			*
Other		1,243		83,618	(3)		11


Total all other loans	$	1,771		181,304			24	%


Total	$	1,771		181,689			24	%

*	Less than 1%.

(1)	For PCI loans, amounts represent carrying value. PCI loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.

(2)	No other single category had loans in excess of $16.8 million.

(3)	No other single category had loans in excess of $4.3 billion.

Risk Management – Credit Risk Management (continued)

COMMERCIAL REAL ESTATE (CRE) The CRE portfolio, consisting of both CRE mortgage loans and CRE construction loans, totaled $124.4 billion, or 16%, of total loans at March 31, 2012. CRE construction loans totaled $18.5 billion at March 31, 2012, and CRE mortgage loans totaled $105.9 billion at March 31, 2012. Table 15 summarizes CRE loans by state and property type with the related nonaccrual totals. CRE nonaccrual loans totaled 5% of the non-PCI CRE outstanding balance at March 31, 2012. The portfolio is diversified both geographically and by property type. The largest geographic concentrations of combined CRE loans are in California and Florida, which represented 25% and 9% of the total CRE portfolio, respectively. By property type, the largest concentrations are office buildings at 26% and industrial/warehouse at 11% of the portfolio. At March 31, 2012, we had $22.0 billion of criticized non-PCI CRE mortgage loans, a decrease of 2% from December 31, 2011, and $6.0 billion of criticized non-PCI CRE construction loans, a decrease of 12% from December 31, 2011. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for additional information on criticized loans.

At March 31, 2012, the recorded investment in PCI CRE loans totaled $4.7 billion, down from $12.3 billion when they were acquired at December 31, 2008, reflecting the reduction resulting from principal payments, loan resolutions and write-downs.

Table 15: CRE Loans by State and Property Type


	March 31, 2012

	Real estate mortgage				Real estate construction				Total					% of
(in millions)	Nonaccrual loans		Outstanding balance (1)		Nonaccrual loans		Outstanding balance (1)		Nonaccrual loans		Outstanding balance (1)			total loans


By state:
PCI loans (1):
New York	$	-		677		-		171		-		848			*	%
Florida		-		370		-		228		-		598			*
California		-		481		-		50		-		531			*
Texas		-		182		-		113		-		295			*
North Carolina		-		89		-		187		-		276			*
Other		-		1,308		-		815		-		2,123	(2)		*


Total PCI loans	$	-		3,107		-		1,564		-		4,671			*	%


All other loans:
California	$	1,030		27,561		280		3,070		1,310		30,631			4	%
Florida		627		8,883		227		1,499		854		10,382			1
Texas		304		7,515		54		1,454		358		8,969			1
New York		35		5,493		4		885		39		6,378			*
North Carolina		278		4,336		185		1,002		463		5,338			*
Virginia		77		3,338		51		1,330		128		4,668			*
Arizona		188		4,103		40		522		228		4,625			*
Georgia		228		3,477		190		588		418		4,065			*
Washington		47		3,118		10		421		57		3,539			*
Colorado		95		2,968		30		393		125		3,361			*
Other		1,172		31,975		638		5,821		1,810		37,796	(3)		5


Total all other loans	$	4,081		102,767		1,709		16,985		5,790		119,752			16	%


Total	$	4,081		105,874		1,709		18,549		5,790		124,423			16	%


By property:
PCI loans (1):
Office buildings	$	-		1,245		-		129		-		1,374			*	%
Apartments		-		676		-		252		-		928			*
Retail (excluding shopping center)		-		426		-		66		-		492			*
1-4 family land		-		1		-		387		-		388			*
Shopping center		-		223		-		97		-		320			*
Other		-		536		-		633		-		1,169			*


Total PCI loans	$	-		3,107		-		1,564		-		4,671			*	%


All other loans:
Office buildings	$	997		29,517		69		1,433		1,066		30,950			4	%
Industrial/warehouse		580		12,832		26		386		606		13,218			2
Apartments		280		10,004		80		2,036		360		12,040			2
Retail (excluding shopping center)		587		11,179		43		409		630		11,588			2
Real estate - other		377		9,912		65		384		442		10,296			1
Shopping center		294		8,937		100		1,043		394		9,980			1
Hotel/motel		263		7,747		32		629		295		8,376			1
Land (excluding 1-4 family)		6		139		524		6,804		530		6,943			*
Institutional		107		3,034		-		264		107		3,298			*
Agriculture		165		2,623		-		18		165		2,641			*
Other		425		6,843		770		3,579		1,195		10,422			1


Total all other loans	$	4,081		102,767		1,709		16,985		5,790		119,752			16	%


Total	$	4,081		105,874		1,709		18,549		5,790		124,423			16	%

*	Less than 1%.

(1)	For PCI loans, amounts represent carrying value. PCI loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.

(2)	Includes 34 states; no state had loans in excess of $226 million.

(3)	Includes 40 states; no state had loans in excess of $3.2 billion.

Risk Management – Credit Risk Management (continued)

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

At March 31, 2012, foreign loans represented approximately 5% of our total consolidated loans outstanding and approximately 3% of our total assets. Our largest foreign country exposure on an ultimate risk basis was the United Kingdom, which amounted to approximately $13.4 billion, or 1% of our total assets, and included $1.8 billion of sovereign claims. Our United Kingdom sovereign claims arise primarily from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch.

In early 2012, the long-term debt ratings of several European countries were downgraded as a result of significant fiscal and economic deterioration experienced in recent months. At March 31, 2012, our Eurozone exposure, including cross-border claims

on an ultimate risk basis, and foreign exchange and derivative products, aggregated approximately $11.4 billion, including $396 million of sovereign claims, compared with approximately $11.4 billion at December 31, 2011, which included $364 million of sovereign claims. Our Eurozone exposure is relatively small compared to our overall risk exposure and is diverse by country, type, and counterparty.

We conduct periodic stress tests of our significant country risk exposures, analyzing the direct and indirect impacts on the risk of borrower default from various macroeconomic and capital markets scenarios. We do not have significant direct or indirect exposure to our foreign country risks because our foreign portfolio is relatively small. However, we have identified exposure to increased U.S. borrower default risk associated with the indirect impact of a European downturn – i.e., the “contagion effect”. We mitigate these contagion effect risks through our normal risk management processes which include active monitoring and, if necessary, the application of aggressive loss mitigation strategies.

Table 16 provides information regarding our exposures to European sovereign entities and institutions located within such countries, including cross-border claims on an ultimate risk basis, and foreign exchange and derivative products.

Table 16: European Exposure


	Lending (1)(2)				Securities (3)				Derivatives and other (4)				Total exposure
(in millions)	Sovereign		Non- sovereign		Sovereign		Non- sovereign		Sovereign		Non- sovereign		Sovereign		Non- sovereign (5)		Total

March 31, 2012
Eurozone:
Germany	$	58		2,276		-		348		-		339		58		2,963		3,021
Netherlands		-		2,131		-		232		-		38		-		2,401		2,401
Spain		-		1,185		-		128		-		40		-		1,353		1,353
Ireland		100		890		-		121		-		33		100		1,044		1,144
France		91		466		-		443		-		47		91		956		1,047
Luxembourg		-		759		-		157		-		2		-		918		918
Italy		-		451		-		170		-		1		-		622		622
Austria		98		232		-		9		-		2		98		243		341
Belgium		-		209		-		93		-		14		-		316		316
Other (6)		21		173		-		53		28		9		49		235		284
Total Eurozone exposure		368		8,772		-		1,754		28		525		396		11,051		11,447
United Kingdom		1,760		4,301		-		6,868		-		436		1,760		11,605		13,365
Other European countries		-		3,811		7		458		10		802		17		5,071		5,088
Total European exposure	$	2,128		16,884		7		9,080		38		1,763		2,173		27,727		29,900

(1)	Lending exposure includes funded loans and unfunded commitments, leveraged leases, and money market placements presented on a gross basis prior to the deduction of impairment allowance and collateral received under the terms of the credit agreements.

(2)	Includes $1.4 billion in PCI loans, predominantly to customers in Germany and United Kingdom territories, and $3.2 billion in defeased leases secured predominantly by U.S. Treasury and government agency securities, or government guaranteed.

(3)	Represents issuer exposure on cross-border debt and equity securities, held in trading or available-for-sale portfolio, at fair value.

(4)

Represents counterparty exposure on foreign exchange and derivative contracts, and securities resale and lending agreements. This exposure is presented net of counterparty netting adjustments and reduced by the amount of cash collateral. It includes credit default swaps (CDS) predominantly used to manage our U.S. and London-based cash credit trading businesses, which sometimes results in selling and purchasing protection on the identical reference entity. Generally, we do not use market instruments such as CDS to hedge the credit risk of our investment or loan positions, although we do use them to manage risk in our trading businesses. At March 31, 2012, the gross notional amount of our CDS sold that reference assets domiciled in Europe was $8.7 billion, which was offset by the notional amount of CDS purchased of $8.8 billion. We did not have any CDS purchased or sold where the reference asset was solely the sovereign debt of a European country. Certain CDS purchased or sold reference pools of assets that contain sovereign debt, however the amount of referenced sovereign European debt was insignificant at March 31, 2012.

(5)	Total non-sovereign exposure comprises $11.4 billion exposure to financial institutions and $16.3 billion to non-financial corporations at March 31, 2012.

(6)	Includes non-sovereign exposure to Greece and Portugal in the amount of $13 million and $73 million, respectively. We had no sovereign debt exposure to these countries at March 31, 2012.

REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANS Our real estate 1-4 family first and junior lien mortgage loans primarily include loans we have made to customers and retained as part of our asset liability management strategy. These loans also include the Pick-a-Pay portfolio acquired from Wachovia and the home equity portfolio, which are discussed later in this Report. In addition, these loans include other purchased loans and loans included on our balance sheet due to the adoption of consolidation accounting guidance related to variable interest entities (VIEs).

Our underwriting and periodic review of loans collateralized by residential real property includes appraisals or estimates from automated valuation models (AVMs). Additional information about AVMs and our policy for their use can be found in the “Risk Management – Credit Risk Management – Real Estate 1-4 Family Mortgage Loans” section in our 2011 Form 10-K.

Some of our real estate 1-4 family first and junior lien mortgage loans include an interest-only feature as part of the loan terms. These interest-only loans were approximately 21% of total loans at both March 31, 2012 and December 31, 2011.

We believe we have manageable adjustable-rate mortgage (ARM) reset risk across our owned mortgage loan portfolios. We do not offer option ARM products, nor do we offer variable-rate mortgage products with fixed payment amounts, commonly referred to within the financial services industry as negative amortizing mortgage loans. Our liquidating option ARM portfolio was acquired from Wachovia.

We continue to modify real estate 1-4 family mortgage loans to assist homeowners and other borrowers in the current difficult economic cycle. For more information on our participation in the U.S. Treasury’s Making Home Affordable (MHA) programs, see the “Risk Management – Credit Risk Management – Real Estate 1-4 Family Mortgage Loans” section in our 2011 Form 10-K.

Real estate 1-4 family first and junior lien mortgage loans by state are presented in Table 17. Our real estate 1-4 family mortgage loans to borrowers in California represented approximately 13% of total loans (3% of this amount were PCI loans from Wachovia) at March 31, 2012, mostly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 3% of total loans. We continuously monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our real estate 1-4 family mortgage portfolio as part of our credit risk management process.

Part of our credit monitoring includes tracking delinquency, FICO scores and collateral values (LTV/CLTV) on the entire real estate 1-4 family mortgage loan portfolio. These metrics continued to improve in first quarter 2012 on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at March 31, 2012, totaled $16.7 billion, or 6%, of total non-PCI mortgages, compared with $18.4 billion, or 6%, at December 31, 2011. Loans with FICO scores lower than 640 totaled $42.8 billion at March 31, 2012, or 15% of all non-PCI mortgages, compared with $44.1 billion, or 15%, at December 31, 2011. Mortgages with a LTV/CLTV greater than 100% totaled $72.8 billion at March 31, 2012, or 26% of total non-PCI

mortgages, compared with $74.2 billion, or 26%, at December 31, 2011. Information regarding credit risk trends can be found in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

We frequently monitor the credit performance of our junior lien mortgage portfolio for trends and factors that influence the frequency and severity of loss. In first quarter 2012, in accordance with Interagency Supervisory Guidance on Allowance for Loan and Lease Losses Estimation Practices for Loans and Lines of Credit Secured by Junior Liens on 1-4 Family Residential Properties issued by bank regulators on January 31, 2012 (Interagency Guidance), we aligned our nonaccrual reporting so that a junior lien is reported as a nonaccrual loan if the related first lien is 120 days past due or is in the process of foreclosure. This action increased our nonperforming assets by $1.7 billion, but otherwise had minimal financial impact as the expected loss content of these loans was already considered in the allowance for loan losses. See the “Risk Management – Credit Risk Management – Nonperforming Assets” section in this report for more information.

Table 17: Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State


	March 31, 2012
(in millions)	Real estate 1-4 family first mortgage		Real estate 1-4 family junior lien mortgage		Total real estate 1-4 family mortgage		% of total loans

PCI loans:
California	$	18,891		40		18,931		2	%
Florida		2,603		36		2,639		*
New Jersey		1,272		24		1,296		*
Other (1)		6,316		98		6,414		*


Total PCI loans	$	29,082		198		29,280		4	%


All other loans:
California	$	54,753		23,306		78,059		10	%
Florida		15,337		7,458		22,795		3
New Jersey		8,872		6,090		14,962		2
New York		9,133		3,497		12,630		2
Virginia		5,752		4,308		10,060		1
Pennsylvania		5,719		3,800		9,519		1
North Carolina		5,558		3,465		9,023		1
Georgia		4,411		3,259		7,670		1
Texas		6,281		1,274		7,555		*
Other (2)		56,084		26,518		82,602		11
Government insured/guaranteed loans (3)		27,903		-		27,903		4

Total all other loans	$	199,803		82,975		282,778		37	%

Total	$	228,885		83,173		312,058		41	%

*	Less than 1%.

(1)	Consists of 44 states; no state had loans in excess of $717 million.

(2)	Consists of 41 states; no state had loans in excess of $6.5 billion.

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

Risk Management – Credit Risk Management (continued)

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

The Pick-a-Pay portfolio includes loans that offer payment options (Pick-a-Pay option payment loans), and also includes loans that were originated without the option payment feature, loans that no longer offer the option feature as a result of our modification efforts since the acquisition, and loans where the

customer voluntarily converted to a fixed-rate product. The Pick-a-Pay portfolio is included in the consumer real estate 1-4 family first mortgage class of loans throughout this Report. Real estate 1-4 family junior lien mortgages and lines of credit associated with Pick-a-Pay loans are reported in the home equity portfolio. Table 18 provides balances by types of loans as of March 31, 2012, as a result of modification efforts, compared to the types of loans included in the portfolio at December 31, 2011, and at acquisition.

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


						December 31,
	March 31, 2012					2011					2008
(in millions)	Adjusted unpaid principal balance (1)		% of total			Adjusted unpaid principal balance (1)		% of total			Adjusted unpaid principal balance (1)		% of total

Option payment loans	$	37,251		52	%	$	39,164		53	%	$	99,937		86	%
Non-option payment adjustable-rate and fixed-rate loans		9,673		14			9,986		14			15,763		14
Full-term loan modifications		24,284		34			24,207		33			-		-


Total adjusted unpaid principal balance	$	71,208		100	%	$	73,357		100	%	$	115,700		100	%


Total carrying value	$	63,983				$	65,652				$	95,315

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

Pick-a-Pay loans may have fixed or adjustable rates with payment options that include a minimum payment, an interest-only payment or fully amortizing payment (both 15 and 30 year options). Total interest deferred due to negative amortization on Pick-a-Pay loans was $1.9 billion at March 31, 2012, and $2.0 billion at December 31, 2011. Approximately 85% of the Pick-a-Pay customers making a minimum payment in March 2012 did not defer interest, compared with 83% in December 2011.

Deferral of interest on a Pick-a-Pay loan may continue as long as the loan balance remains below a pre-defined principal cap, which is based on the percentage that the current loan balance represents to the original loan balance. Substantially all the Pick-a-Pay portfolio has a cap of 125% of the original loan balance. Most of the Pick-a-Pay loans on which there is a deferred interest balance re-amortize (the monthly payment amount is reset or “recast”) on the earlier of the date when the loan balance reaches its principal cap, or the 10-year anniversary of the loan. After a recast, the customers’ new payment terms are reset to the amount necessary to repay the balance over the rest of the original loan term.

Due to the terms of the Pick-a-Pay portfolio, there is little recast risk in the near term. Based on assumptions of a flat rate environment, if all eligible customers elect the minimum payment option 100% of the time and no balances prepay, we would expect the following balances of loans to recast based on reaching the principal cap: $7 million for the remainder of 2012, $21 million in 2013, and $72 million in 2014. In addition, in a flat rate environment, we would expect the following balances of loans to start fully amortizing due to reaching their recast anniversary date: $30 million for the remainder of 2012, $97 million in 2013, and $353 million in 2014. In first quarter 2012, $2 million was recast based on these events.

Table 19 reflects the geographic distribution of the Pick-a-Pay portfolio broken out between PCI loans and all other loans. In stressed housing markets with declining home prices and increasing delinquencies, the LTV ratio is a useful metric in predicting future real estate 1-4 family first mortgage loan performance, including potential charge-offs. Because PCI loans were initially recorded at fair value, including write-downs for expected credit losses, the ratio of the carrying value to the current collateral value will be lower compared with the LTV based on the adjusted unpaid principal balance. For informational purposes, we have included both ratios for PCI loans in the following table.

Table 19: Pick-a-Pay Portfolio (1)


	March 31, 2012
	PCI loans										All other loans
(in millions)	Adjusted unpaid principal balance (2)		Current LTV ratio (3)			Carrying value (4)		Ratio of carrying value to current value (5)			Carrying value (4)		Ratio of carrying value to current value (5)

California	$	24,292		119	%	$	18,852		92	%	$	17,371		85	%
Florida		3,187		120			2,471		88			3,640		99
New Jersey		1,310		91			1,217		83			2,261		78
New York		743		92			683		83			993		80
Texas		330		79			304		72			1,442		64
Other states		5,923		109			4,893		89			9,856		87


Total Pick-a-Pay loans	$	35,785				$	28,420				$	35,563

(1)	The individual states shown in this table represent the top five states based on the total net carrying value of the Pick-a-Pay loans at the beginning of 2012.

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

(3)

The current LTV ratio is calculated as the adjusted unpaid principal balance divided by the collateral value. Collateral values are generally determined using automated valuation models (AVM) and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.

(4)

Carrying value, which does not reflect the allowance for loan losses, includes remaining purchase accounting adjustments, which, for PCI loans may include the nonaccretable difference and the accretable yield and, for all other loans, an adjustment to mark the loans to a market yield at date of merger less any subsequent charge- offs.

(5)	The ratio of carrying value to current value is calculated as the carrying value divided by the collateral value.

To maximize return and allow flexibility for customers to avoid foreclosure, we have in place several loss mitigation strategies for our Pick-a-Pay loan portfolio. We contact customers who are experiencing financial difficulty and may in certain cases modify the terms of a loan based on a customer’s documented income and other circumstances.

We also have taken steps to work with customers to refinance or restructure their Pick-a-Pay loans into other loan products. For customers at risk, we offer combinations of term extensions of up to 40 years (from 30 years), interest rate reductions, forbearance of principal, and, in geographies with substantial property value declines, we may offer permanent principal forgiveness.

In first quarter 2012, we completed more than 3,000 proprietary and HAMP Pick-a-Pay loan modifications and have completed more than 103,000 modifications since the Wachovia acquisition, resulting in $4.0 billion of principal forgiveness to our Pick-a-Pay customers as well as an additional $616 million of conditional forgiveness that can be earned by borrowers through performance over the next three years. As announced in October 2010, we entered into agreements with certain state attorneys general whereby we agreed to offer loan modifications to eligible Pick-a-Pay customers through June 2013. These agreements cover the majority of our option payment loan portfolio and require that we offer modifications (both HAMP and proprietary) to eligible customers with the option payment loan product. In response to these agreements, we developed an enhanced proprietary modification product that allows for various means of principal forgiveness along with changes to other loan terms. Given that these agreements cover all modification efforts to eligible customers for the applicable states, our modifications (both HAMP and proprietary) for our Pick-a-Pay loan portfolio performed in first quarter 2012 were predominantly consistent with these agreements. Additionally,

as announced in February 2012, we reached a settlement regarding our mortgage servicing and foreclosure practices with federal and state government entities, which became effective on April 5, 2012, where we committed to provide additional relief to borrowers. See the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in this report and in our 2011 Form 10-K for more details.

Due to better than expected performance observed on the Pick-a-Pay portfolio compared with the original acquisition estimates, we have reclassified $2.4 billion from the nonaccretable difference to the accretable yield since acquisition. This performance is primarily attributable to significant modification efforts as well as the portfolio’s delinquency stabilization. The resulting increase in the accretable yield will be realized over the remaining life of the portfolio, which is estimated to have a weighted-average remaining life of approximately 11 years at March 31, 2012. The accretable yield percentage at March 31, 2012, was 4.32%, down from 4.45% at the end of 2011. Fluctuations in the accretable yield are driven by changes in interest rate indices for variable rate PCI loans, prepayment assumptions, and expected principal and interest payments over the estimated life of the portfolio, which will be affected by the pace and degree of improvements in the U.S. economy and housing markets and projected lifetime performance resulting from loan modification activity. Changes in the projected timing of cash flow events, including loan liquidations, modifications and short sales, can also affect the accretable yield percentage and the estimated weighted-average life of the portfolio.

The Pick-a-Pay portfolio is a significant portion of our PCI loans. For further information on the judgment involved in estimating expected cash flows for PCI loans, please see “Critical Accounting Policies – Purchased Credit-Impaired Loans” in our 2011 Form 10-K.

Risk Management – Credit Risk Management (continued)

HOME EQUITY PORTFOLIOS Our home equity portfolios consist of real estate 1-4 family junior lien mortgages and first and junior lines of credit secured by real estate. Our first lien lines of credit represent 20% of our home equity portfolio and are included in real estate 1-4 family first mortgages. The majority of our junior lien loan products are amortizing payment loans with fixed interest rates and repayment periods between 5 to 30 years. Junior lien loans with balloon payments at the end of the repayment term represent a small portion of our junior lien loans.

Our first and junior lien lines of credit products generally have a draw period of 10 years with variable interest rates and payment options during the draw period of (1) interest only or (2) 1.5% of total outstanding balance. During the draw period, the borrower has the option of converting all or a portion of the line from a variable interest rate to a fixed rate with terms

including interest-only payments for a fixed period between three to seven years or a fully amortizing payment with a fixed period between five to 30 years. At the end of the draw period, a line of credit generally converts to an amortizing payment loan with repayment terms of up to 30 years based on the balance at time of conversion. A majority of our lines of credit will remain in their draw period until after 2014.

Table 20 summarizes delinquency and loss rates by the holder of the lien. For additional information regarding current junior liens behind delinquent first lien loans, see the “Risk Management – Credit Risk Management – Home Equities Portfolios” section in our 2011 Form 10-K and the “Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans” section in this Report.

Table 20: Home Equity Portfolios Performance by Holder of 1st Lien (1)(2)

Outstanding balance

% of loans
two payments
or more past due

Loss rate
(annualized)
quarter ended

Mar. 31,

Dec. 31,

Mar. 31,

Dec. 31,

Mar. 31,

Dec. 31,

(in millions)

2012

2011

2012

2011

2012

2011

First lien lines

20,469

20,786

3.06

3.10

1.35

0.95

Junior lien mortgages and lines behind:

Wells Fargo owned or serviced first lien

41,362

42,810

2.73

2.91

3.54

3.48

Third party first lien

41,634

42,996

3.24

3.59

3.72

3.83

Total

103,465

106,592

3.00

3.22

3.18

3.13

(1)	Excludes PCI loans and real estate 1-4 family first lien line reverse mortgages added to the consumer portfolio in fourth quarter 2011 as a result of consolidating reverse mortgage loans previously sold. These reverse mortgage loans are insured by the FHA.

(2)	Includes $1.5 billion at March 31, 2012, and December 31, 2011, associated with the Pick-a-Pay portfolio.

We monitor the number of borrowers paying the minimum amount due on a monthly basis. In March 2012, approximately 44% of our borrowers with a home equity outstanding balance paid only the minimum amount due; 95% paid the minimum or more.

The home equity liquidating portfolio includes home equity loans generated through third party channels, including correspondent loans. This liquidating portfolio represents less than 1% of our total loans outstanding at March 31, 2012, and contains some of the highest risk in our home equity portfolio, with a loss rate of 8.11% compared with 2.91% for the core (non-liquidating) home equity portfolio at March 31, 2012. Table 21 shows the credit attributes of the core and liquidating home equity portfolios and lists the top five states by outstanding balance. California loans represent the largest state concentration in each of these portfolios. The decrease in outstanding balances primarily reflects loan paydowns and charge-offs. As of March 31, 2012, 37% of the outstanding balance of the core home equity portfolio was associated with loans that had a combined loan to value (CLTV) ratio in excess of 100%. CLTV means the ratio of the total loan balance of first mortgages and junior lien mortgages (including unused line amounts for credit line products) to property collateral value. The unsecured portion of the outstanding balances of these loans (the outstanding amount that was in excess of the most recent property collateral value) totaled 18% of the core home equity portfolio at March 31, 2012.

Table 21: Home Equity Portfolios (1)


	Outstanding balance				% of loans two payments or more past due					Loss rate (annualized) Quarter ended
	Mar. 31,		Dec. 31,		Mar. 31,			Dec. 31,		Mar. 31,		Dec. 31,
(in millions)	2012		2011		2012			2011		2012		2011

Core portfolio (2)
California	$	24,855		25,555		2.84	%		3.03		3.56		3.42
Florida		10,547		10,870		4.57			4.99		4.79		4.30
New Jersey		7,774		7,973		3.56			3.73		2.46		2.22
Virginia		5,115		5,248		2.10			2.15		1.42		1.31
Pennsylvania		4,958		5,071		2.50			2.82		1.49		1.41
Other		44,760		46,165		2.61			2.79		2.50		2.50


Total		98,009		100,882		2.92			3.13		2.91		2.79

Liquidating portfolio
California		1,926		2,024		5.27			5.50		10.80		11.93
Florida		253		265		6.40			7.02		9.84		9.71
Arizona		109		116		4.76			6.64		15.08		17.54
Texas		93		97		1.06			0.93		2.43		1.57
Minnesota		73		75		3.89			2.83		5.07		8.13
Other		3,002		3,133		3.80			4.13		6.23		7.12

Total		5,456		5,710		4.41			4.73		8.11		9.09

Total core and liquidating portfolios	$	103,465		106,592		3.00			3.22		3.18		3.13

(1)

Consists predominantly of real estate 1-4 family junior lien mortgages and first and junior lines of credit secured by real estate, but excludes PCI loans because their losses are generally covered by PCI accounting adjustment at the date of acquisition, and excludes real estate 1-4 family first lien open-ended line reverse mortgages because they do not have scheduled payments. These reverse mortgage loans are insured by the FHA.

(2)	Includes $1.5 billion at March 31, 2012, and December 31, 2011, associated with the Pick-a-Pay portfolio.

CREDIT CARDS Our credit card portfolio totaled $22.0 billion at March 31, 2012, which represented 3% of our total outstanding loans. The quarterly net charge-off rate (annualized) for our credit card loans was 4.40% for first quarter 2012 compared with 7.21% for first quarter 2011.

OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans totaled $86.7 billion at March 31, 2012, and predominantly include automobile, student and security-based margin loans. The quarterly loss rate (annualized) for other revolving credit and installment loans was 0.99% for first quarter 2012 compared with 1.42% for first quarter 2011. Excluding government guaranteed student loans, the loss rates were 1.17% and 1.73% of average loans for first quarter 2012 and 2011, respectively.

Risk Management – Credit Risk Management (continued)

NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 22 summarizes nonperforming assets (NPAs) for each of the last four quarters. We generally place loans on nonaccrual status when:

•

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

•

they are 90 days (120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for interest or principal, unless both well-secured and in the process of collection;

•

part of the principal balance has been charged off and no restructuring has occurred; or

•

effective first quarter 2012, for junior lien mortgages, we have evidence that the related first lien mortgage may be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status.

Table 22: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)


	March 31, 2012					December 31, 2011						September 30, 2011						June 30, 2011

			% of						% of						% of						% of
			total						total						total						total
($ in millions)	Balance		loans			Balance			loans			Balance			loans			Balance			loans

Nonaccrual loans:
Commercial:
Commercial and industrial	$	1,726		1.02	%	$	2,142			1.28	%	$	2,128			1.29	%	$	2,393			1.52	%
Real estate mortgage		4,081		3.85			4,085			3.85			4,429			4.24			4,691			4.62
Real estate construction		1,709		9.21			1,890			9.75			1,915			9.71			2,043			9.56
Lease financing		45		0.34			53			0.40			71			0.55			79			0.61
Foreign		38		0.10			47			0.12			68			0.18			59			0.16

Total commercial (1)		7,599		2.20			8,217			2.38			8,611			2.53			9,265			2.80

Consumer:
Real estate 1-4 family first mortgage (2)		10,683		4.67			10,913			4.77			11,024			4.93			11,427			5.13
Real estate 1-4 family junior lien mortgage (3)		3,558		4.28			1,975			2.30			2,035			2.31			2,098			2.33
Other revolving credit and installment		186		0.21			199			0.23			230			0.27			255			0.29

Total consumer		14,427		3.43			13,087			3.09			13,289			3.16			13,780			3.27

Total nonaccrual loans (4)(5)(6)		22,026		2.87			21,304			2.77			21,900			2.88			23,045			3.06

Foreclosed assets:
Government insured/guaranteed (7)		1,352					1,319						1,336						1,320
Non-government insured/guaranteed		3,265					3,342						3,608						3,541

Total foreclosed assets		4,617					4,661						4,944						4,861

Total nonperforming assets	$	26,643		3.48	%	$	25,965			3.37	%	$	26,844			3.53	%	$	27,906			3.71	%

Change in NPAs from prior quarter	$	678					(879	)					(1,062	)					(2,571	)

(1)	Includes LHFS of $9 million, $25 million, $37 million and $52 million at March 31, 2012, and December 31, September 30, and June 30, 2011, respectively.

(2)	Includes MHFS of $287 million, $301 million, $311 million and $304 million at March 31, 2012, and December 31, September 30 and June 30, 2011, respectively.

(3)

Includes $1.7 billion at March 31, 2012, resulting from implementation of the Interagency Guidance issued on January 31, 2012. This guidance accelerated the timing of placing these loans on nonaccrual to coincide with the timing of placing the related real estate 1-4 family first mortgage loans on nonaccrual.

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

(5)

Real estate 1-4 family mortgage loans insured by the FHA or guaranteed by the VA and student loans predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program are not placed on nonaccrual status because they are insured or guaranteed.

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

(7)

Consistent with regulatory reporting requirements, foreclosed real estate securing government insured/guaranteed loans is classified as nonperforming. Both principal and interest for government insured/guaranteed loans secured by the foreclosed real estate are collectible because the loans are insured by the FHA or guaranteed by the VA.

Total NPAs were $26.6 billion (3.48% of total loans) at March 31, 2012, and included $22.0 billion of nonaccrual loans and $4.6 billion of foreclosed assets. Nonaccrual loans increased in first quarter 2012 due to implementing the Interagency Guidance relating to junior lien mortgages, which resulted in $1.7 billion of junior liens reclassified to nonaccrual status. The

interest income impact of this change was immaterial to our earnings. Excluding the impact of the Interagency Guidance, nonaccrual loans declined in all portfolios and were down $948 million from December 31, 2011, continuing a trend of improvement that started in fourth quarter 2010. Table 23 provides an analysis of the changes in nonaccrual loans.

Table 23: Analysis of Changes in Nonaccrual Loans


	Quarter ended
	Mar. 31,			Dec. 31			Sept. 30,			June 30,			Mar. 31,
(in millions)	2012			2011			2011			2011			2011
Commercial nonaccrual loans
Balance, beginning of quarter	$	8,217			8,611			9,265			10,312			11,351
Inflows		1,138			1,329			1,148			1,622			1,881
Outflows:
Returned to accruing		(188	)		(185	)		(275	)		(501	)		(496	)
Foreclosures		(119	)		(161	)		(156	)		(174	)		(192	)
Charge-offs		(347	)		(382	)		(397	)		(399	)		(522	)
Payments, sales and other (1)		(1,102	)		(995	)		(974	)		(1,595	)		(1,710	)
Total outflows		(1,756	)		(1,723	)		(1,802	)		(2,669	)		(2,920	)
Balance, end of quarter		7,599			8,217			8,611			9,265			10,312
Consumer nonaccrual loans
Balance, beginning of quarter		13,087			13,289			13,780			14,653			14,891
Inflows (2)		4,765			3,465			3,544			3,443			3,955
Outflows:
Returned to accruing		(943	)		(1,277	)		(1,411	)		(1,562	)		(1,670	)
Foreclosures		(226	)		(209	)		(286	)		(221	)		(269	)
Charge-offs		(1,364	)		(1,404	)		(1,385	)		(1,494	)		(1,545	)
Payments, sales and other (1)		(892	)		(777	)		(953	)		(1,039	)		(709	)
Total outflows		(3,425	)		(3,667	)		(4,035	)		(4,316	)		(4,193	)
Balance, end of quarter		14,427			13,087			13,289			13,780			14,653
Total nonaccrual loans	$	22,026			21,304			21,900			23,045			24,965

(1)	Other outflows include the effects of VIE deconsolidations and adjustments for loans carried at fair value.

(2)	March 31, 2012, includes $1.7 billion moved to nonaccrual status as a result of implementing Interagency Guidance issued January 31, 2012.

Typically, changes to nonaccrual loans period-over-period represent inflows for loans that reach a specified past due status, offset by reductions for loans that are charged off, sold, transferred to foreclosed properties, or are no longer classified as nonaccrual as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities.

While nonaccrual loans are not free of loss content, we believe the estimated loss exposure remaining in these balances is significantly mitigated by four factors. First, 99% of consumer nonaccrual loans and 96% of commercial nonaccrual loans are secured. Of the $14.4 billion of consumer nonaccrual loans at March 31, 2012, 99% are secured by real estate and 34% have a combined LTV (CLTV) ratio of 80% or below. Second, losses have already been recognized on 46% of the remaining balance of consumer nonaccruals and commercial nonaccruals have been written down by $2.1 billion. Generally, when a consumer real estate loan is 120 days past due, we transfer it to nonaccrual status. When the loan reaches 180 days past due it is our policy to write these loans down to net realizable value (fair value of collateral less estimated costs to sell), except for modifications in their trial period that are not written down as long as trial payments are made on time.

Thereafter, we revalue each loan regularly and recognize additional write-downs if needed. Third, as of March 31, 2012, 59% of commercial nonaccrual loans were current on interest. Fourth, the risk of loss for all nonaccruals has been considered and we believe is appropriately covered by the allowance for loan losses.

Under both our proprietary modification programs and the MHA programs, customers may be required to provide updated documentation, and some programs require completion of trial payment periods to demonstrate sustained performance before the loan can be removed from nonaccrual status. In addition, for loans in foreclosure, many states, including California, Florida and New Jersey, have enacted legislation that significantly increases the time frames to complete the foreclosure process, meaning that loans will remain in nonaccrual status for longer periods.

Table 24 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.

Risk Management – Credit Risk Management (continued)

Table 24: Foreclosed Assets

Mar. 31,

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Large accelerated filer

Accelerated filer ¨

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company ¨