Edgar Filing: WELLS FARGO & COMPANY/MN

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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 September 30, 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

October 31, 2012

Common stock, $1-2/3 par value

5,264,273,367

FORM 10-Q

CROSS-REFERENCE INDEX


PART I	Financial Information
Item 1.	Financial Statements	Page
	Consolidated Statement of Income	57
	Consolidated Statement of Comprehensive Income	58
	Consolidated Balance Sheet	59
	Consolidated Statement of Changes in Equity	60
	Consolidated Statement of Cash Flows	62
	Notes to Financial Statements
	1 - Summary of Significant Accounting Policies	63
	2 - Business Combinations	65
	3 - Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments	65
	4 - Securities Available for Sale	66
	5 - Loans and Allowance for Credit Losses	74
	6 - Other Assets	93
	7 - Securitizations and Variable Interest Entities	94
	8 - Mortgage Banking Activities	105
	9 - Intangible Assets	108
	10 - Guarantees, Pledged Assets and Collateral	109
	11 - Legal Actions	111
	12 - Derivatives	113
	13 - Fair Values of Assets and Liabilities	120
	14 - Preferred Stock	145
	15 - Employee Benefits	147
	16 - Earnings Per Common Share	148
	17 - Other Comprehensive Income	149
	18 - Operating Segments	151
	19 - Regulatory and Agency Capital Requirements	153

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data	2
	Overview	3
	Earnings Performance	5
	Balance Sheet Analysis	14
	Off-Balance Sheet Arrangements	18
	Risk Management	19
	Capital Management	50
	Regulatory Reform	53
	Critical Accounting Policies	53
	Current Accounting Developments	54
	Forward-Looking Statements	54
	Risk Factors	55
	Glossary of Acronyms	154

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	56

PART II	Other Information
Item 1.	Legal Proceedings	155

Item 1A.	Risk Factors	155

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

Item 6.	Exhibits	156

Signature		156

Exhibit Index		157

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW

Summary Financial Data


	Quarter ended							% Change Sept. 30, 2012 from						Nine months ended
($ in millions, except per share amounts)	Sept. 30, 2012			June 30, 2012		Sept. 30, 2011		June 30, 2012			Sept. 30, 2011			Sept. 30, 2012		Sept. 30, 2011		% Change

For the Period
Wells Fargo net income	$	4,937			4,622		4,055		7	%		22			13,807		11,762		17	%
Wells Fargo net income applicable to common stock		4,717			4,403		3,839		7			23			13,142		11,137		18
Diluted earnings per common share		0.88			0.82		0.72		7			22			2.45		2.09		17
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)		1.45	%		1.41		1.26		3			15			1.39		1.25		11
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders’ equity (ROE)		13.38			12.86		11.86		4			13			12.81		11.92		7
Efficiency ratio (1)		57.1			58.2		59.5		(2	)		(4	)		58.5		61.1		(4	)
Total revenue	$	21,213			21,289		19,628		-			8			64,138		60,343		6
Pre-tax pre-provision profit (PTPP) (2)		9,101			8,892		7,951		2			14			26,636		23,458		14
Dividends declared per common share		0.22			0.22		0.12		-			83			0.66		0.36		83
Average common shares outstanding		5,288.1			5,306.9		5,275.5		-			-			5,292.7		5,280.2		-
Diluted average common shares outstanding		5,355.6			5,369.9		5,319.2		-			1			5,355.7		5,325.6		1
Average loans	$	776,734			768,223		754,544		1			3			771,200		753,293		2
Average assets		1,354,340			1,321,584		1,281,369		2			6			1,326,384		1,257,977		5
Average core deposits (3)		895,374			880,636		836,845		2			7			882,224		813,865		8
Average retail core deposits (4)		630,053			624,329		599,227		1			5			623,671		592,156		5
Net interest margin		3.66	%		3.91		3.84		(6	)		(5	)		3.82		3.96		(4	)
At Period End
Securities available for sale	$	229,350			226,846		207,176		1			11			229,350		207,176		11
Loans		782,630			775,199		760,106		1			3			782,630		760,106		3
Allowance for loan losses		17,385			18,320		20,039		(5	)		(13	)		17,385		20,039		(13	)
Goodwill		25,637			25,406		25,038		1			2			25,637		25,038		2
Assets		1,374,715			1,336,204		1,304,945		3			5			1,374,715		1,304,945		5
Core deposits (3)		901,075			882,137		849,632		2			6			901,075		849,632		6
Wells Fargo stockholders’ equity		154,679			148,070		137,768		4			12			154,679		137,768		12
Total equity		156,059			149,437		139,244		4			12			156,059		139,244		12
Tier 1 capital (5)		122,741			117,856		110,749		4			11			122,741		110,749		11
Total capital (5)		154,888			149,813		146,147		3			6			154,888		146,147		6
Capital ratios:
Total equity to assets		11.35	%		11.18		10.67		2			6			11.35		10.67		6
Risk-based capital (5):
Tier 1 capital		11.50			11.69		11.26		(2	)		2			11.50		11.26		2
Total capital		14.51			14.85		14.86		(2	)		(2	)		14.51		14.86		(2	)
Tier 1 leverage (5)		9.40			9.25		8.97		2			5			9.40		8.97		5
Tier 1 common equity (6)		9.92			10.08		9.34		(2	)		6			9.92		9.34		6
Common shares outstanding		5,289.6			5,275.7		5,272.2		-			-			5,289.6		5,272.2		-
Book value per common share	$	27.10			26.06		24.13		4			12			27.10		24.13		12
Common stock price:
High		36.60			34.59		29.63		6			24			36.60		34.25		7
Low		32.62			29.80		22.58		9			44			27.94		22.58		24
Period end		34.53			33.44		24.12		3			43			34.53		24.12		43
Team members (active, full-time equivalent)		267,000			264,400		263,800		1			1			267,000		263,800		1

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

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

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

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

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

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

This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 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 nationwide, diversified, community-based financial services company with $1.4 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs and the Internet (wellsfargo.com), and we have offices in more than 35 countries to support our customers who conduct business in the global economy. With approximately 265,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 26 on Fortune’s 2012 rankings of America’s largest corporations. We ranked fourth in assets and first in the market value of our common stock among all U.S. banks at September 30, 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 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.

Financial Performance

We reported strong financial results in third quarter 2012 including year over year increased net income and revenue,

continued loan and deposit growth, an improved efficiency ratio and continued improvement in underlying credit quality. Our return on assets of 1.45% was up 19 basis points from a year ago, the highest it has been in five years, and our return on equity increased to 13.38%, up 152 basis points from a year ago.

Wells Fargo net income was $4.9 billion and diluted earnings per common share were $0.88 in third quarter 2012, each up 22% from the prior year. Third quarter 2012 was our eleventh consecutive quarter of earnings per share growth. Our increase in net income from third quarter 2011 was driven by higher total revenue resulting primarily from increased noninterest income.

Our total revenue was $21.2 billion in third quarter 2012, up $1.6 billion, or 8%, from the prior year. The 8% year-over-year increase predominantly reflected $974 million in increased mortgage banking income and $971 million in increased net gains from trading activities. The increased mortgage banking income was due to higher net gains on higher mortgage loan origination/sales activities reflecting a lower interest rate environment compared with a year ago. Our unclosed mortgage loan pipeline at September 30, 2012, was a strong $97 billion, up 15% from $84 billion a year ago and down slightly from $102 billion at June 30, 2012, which was the second largest in our history.

Noninterest expense of $12.1 billion in third quarter 2012 increased from $11.7 billion in third quarter 2011. The increase in noninterest expense was primarily driven by increased mortgage banking volume. As announced in second quarter 2011, we have a current company-wide expense management initiative, which 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. Our expenses, however, are driven in part by our revenue opportunities. Accordingly, we believe our efficiency ratio, which measures our noninterest expense as a percentage of total revenue, is an appropriate measure of our expense management efforts. Our efficiency ratio of 57.1% in third quarter 2012 improved by 240 basis points from a year ago as a result of higher mortgage banking noninterest income and our continued focus on expenses. We have targeted an efficiency ratio of 55 to 59%, and our efficiency ratio of 57.1% in third quarter 2012 was

within this target range and was at its lowest level in 10 quarters. We expect to remain in our targeted range in fourth quarter 2012.

We had strong balance sheet growth in third quarter 2012 with growth in short-term investments, securities available for sale, total loans and average core deposits. Short-term investment balances increased $25.8 billion from second quarter 2012, driven by strong deposit growth, and securities available for sale increased $2.5 billion primarily due to an increase in their fair value as new investments were largely offset by the continued run-off of higher yielding securities. Our non-strategic/liquidating loan portfolios decreased $4.5 billion during the quarter and, excluding the planned runoff of these loans, our core loan portfolios increased $11.9 billion from the prior quarter, driven primarily by retention of $9.8 billion of 1-4 family conforming first mortgage production on the balance sheet. We also plan to retain some of our fourth quarter 2012 production of 1-4 family conforming first mortgage loans. In addition there was growth during the quarter in auto, credit card, private student lending, and commercial and industrial loan balances. Our average core deposits were up $14.7 billion from second quarter 2012 and up $58.5 billion, or 7%, from a year ago. We have grown deposits while reducing our deposit costs for eight consecutive quarters. Our costs on average deposits in third quarter 2012 were 18 basis points, down 7 basis points from the same quarter a year ago. Our average core deposits were 115% of average loans in third quarter 2012, up from 111% a year ago.

Credit Quality

Our credit quality continued to improve during third quarter 2012, as the overall financial condition of businesses and consumers strengthened and the housing market in many areas of the nation improved. Our reported credit metrics in third quarter 2012 were affected by implementation of the guidance in the Office of the Comptroller of the Currency (OCC) update to the Bank Accounting Advisory Series (OCC guidance) issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be written down to net realizable collateral value and classified as nonaccrual troubled debt restructurings (TDRs), regardless of their delinquency status. As of September 30, 2012, only 8% of the performing loans placed on nonaccrual status as a result of the OCC guidance were 30 days or more past due. Implementation of the OCC guidance in third quarter 2012 resulted in the following:

•

$1.4 billion reclassification of performing consumer loans to nonaccrual status;

•

$567 million increase in loan charge-offs; and

•

$4.3 billion of loans classified as TDRs.

Net charge-offs of $2.4 billion during third quarter 2012 were 1.21% (annualized) of average loans, down 16 basis points from 1.37% a year ago. Excluding $567 million in charge-offs resulting from implementation of the OCC guidance, net charge-offs were $1.8 billion or 0.92% (annualized) of average loans.

Nonperforming assets, including the $1.4 billion increase resulting from implementation of the OCC guidance, were $25.3 billion at September 30, 2012. These assets totaled

$26.0 billion at December 31, 2011. The year-to-date decrease in nonperforming assets also included the offsetting impact of our $1.7 billion reclassification of real estate 1-4 family junior lien mortgages to nonaccrual status in first quarter 2012 in accordance with junior lien mortgage industry guidance issued by bank regulators during that quarter.

Loans 90 days or more past due and still accruing (excluding government insured/guaranteed loans) totaled $1.5 billion at September 30, 2012, compared with $2.0 billion at 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 $4.5 billion during the quarter, and $92.1 billion in total since the beginning of 2009, to $98.7 billion at September 30, 2012.

Our $1.6 billion provision for credit losses in third quarter 2012 was $220 million less than a year ago, reflecting continued credit performance improvement in our portfolios. The provision for third quarter 2012 was $767 million lower than net loan charge-offs due to two factors:

•

$567 million increase in net loan charge offs charged directly against the allowance for loan losses from implementation of the OCC guidance; and

•

$200 million allowance for loan losses release due to continued strong underlying credit performance, compared with $400 million in the prior quarter and $800 million a year ago.

See the “Risk Management – Credit Risk Management” section in this Report for more information regarding implementation of the OCC guidance and its effect on our third quarter 2012 credit metrics.

During the last week of October 2012, Hurricane Sandy and related storms caused destruction along the East Coast, including in Connecticut, New Jersey, New York, Pennsylvania, Delaware, Maryland, Virginia and Washington D.C., and resulted in, among other things, property damage for our customers and the closing of many businesses and financial markets. We are currently assessing the impact to our customers and our business as a result of Hurricane Sandy. The financial impact to us is expected to primarily relate to our consumer and commercial real estate loan portfolios and will depend on a number of factors, including, as to our consumer and commercial loan portfolios, the types of loans most affected by the storms, the extent of damage to our collateral, the extent of available insurance coverage, the availability of government assistance for our borrowers, and whether our borrowers’ ability to repay their loans has been diminished. We are actively reviewing our exposure but are currently unable to reasonably estimate the extent of losses we may incur as a result of these storms. Absent significant deterioration in the economy or significant impact of Hurricane Sandy on our loan portfolios, we continue to expect future allowance releases.

Capital

Our capital position remained strong in third quarter 2012, as total equity increased $6.6 billion from second quarter 2012 to $156.1 billion and our Tier I common equity totaled

$105.8 billion under Basel I, or 9.92% of risk-weighted assets. Our other capital ratios also remained strong with a Tier 1 capital ratio of 11.50%, total capital ratio of 14.51% and Tier 1 leverage ratio of 9.40% at September 30, 2012, compared with 11.69%, 14.85% and 9.25%, respectively, at June 30, 2012. The third quarter 2012 Tier 1 and total risk-based capital ratios, and Tier 1 common equity ratio reflected refinements to the risk weighting of certain unused lending commitments that provide for the ability to issue standby letters of credit and commitments to issue standby letters of credit under syndication arrangements where we have an obligation to issue in a lead agent or similar capacity beyond our contractual

participation level. While these refinements reduced our Tier 1 common equity ratio under Basel I, they did not affect our estimated Tier 1 common equity ratio under current Basel III capital proposals, which rose to 8.02% at September 30, 2012.

See the “Capital Management” section in this Report for more information regarding our capital, including Tier 1 common equity.

In third quarter 2012 we repurchased approximately 17 million shares of common stock and entered into a forward repurchase contract to repurchase approximately 9 million shares that settled in October 2012. We also paid a quarterly common stock dividend of $0.22 per share.

Earnings Performance

Wells Fargo net income for third quarter 2012 was $4.9 billion ($0.88 diluted earnings per common share) compared with $4.1 billion ($0.72 diluted earnings per common share) for third quarter 2011. Net income for the first nine months of 2012 was $13.8 billion, compared with $11.8 billion for the same period a year ago. Our September 30, 2012, quarterly and nine-month earnings reflected strong execution of our business strategy and growth in many of our businesses. The key drivers of our financial performance in third quarter 2012 were balanced net interest and fee income, diversified sources of fee income, a diversified loan portfolio and strong underlying credit performance.

Revenue, the sum of net interest income and noninterest income, was $21.2 billion in third quarter 2012, compared with $19.6 billion in third quarter 2011. Revenue for the first nine months of 2012 was $64.1 billion, up 6% from a year ago. The increase in revenue for the third quarter and first nine months of 2012 was due to strong growth in noninterest income, predominantly from mortgage banking, and modest growth in net interest income. Mortgage banking revenue in third quarter 2012 increased 53% from a year ago due to higher net gains on higher mortgage loan origination/sales activities reflecting a lower interest rate environment. Mortgage originations were $139 billion in third quarter 2012, a 56% increase from a year ago. The unclosed mortgage pipeline at September 30, 2012, was strong at $97 billion, up from $84 billion a year ago. In addition to mortgage banking, businesses generating double-digit year-over-year revenue growth in third quarter 2012 included capital markets, commercial real estate, corporate trust, asset backed finance, merchant services, mortgage and retail sales finance. Net interest income was $10.7 billion in third quarter 2012, representing 50% of revenue, compared with $10.5 billion (54%) in third 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 $10.6 billion in third quarter 2012, representing 50% of revenue, compared with $9.1 billion (46%) in third quarter 2011. Noninterest income was $31.6 billion for the first nine months of 2012 compared with $28.5 billion for the same period a year ago. The increase in noninterest income for the third quarter and first nine months of 2012 was driven primarily by an increase in net gains on higher mortgage loan origination/sales activities.

Noninterest expense was $12.1 billion in third quarter 2012, compared with $11.7 billion in third quarter 2011. Noninterest expense was $37.5 billion for the first nine months of 2012, compared with $36.9 billion for the same period a year ago. The increase in noninterest expense in third quarter 2012 from third quarter 2011 was predominantly due to higher revenue-based commissions and incentive compensation. Our efficiency ratio was 57.1% in third quarter 2012 compared with 59.5% in third quarter 2011, reflecting our expense management efforts and revenue growth.

Net Interest Income

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

While the Company believes that it has the ability to increase net interest income over time, net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning asset portfolio and the cost of funding those assets. In addition, some sources of interest income, such as resolutions from purchased credit-impaired (PCI) loans, loan prepayment fees and collection of interest on nonaccrual loans, can vary from period to period.

Net interest income on a taxable-equivalent basis was $10.8 billion and $33.1 billion in the third quarter and first nine months of 2012, up from $10.7 billion and $32.4 billion for the same periods a year ago. The net interest margin was 3.66% and 3.82% for the third quarter and first nine months of 2012, down from 3.84% and 3.96% for the same periods a year ago. The increase in net interest income for both the third quarter and first nine months of 2012, compared with the same periods a year ago, was largely driven by growth in loans and available-for-sale securities, disciplined deposit pricing, debt maturities and redemptions of higher yielding trust preferred securities, which partially offset the impact of higher yielding loan and investment

securities runoff. The decline in net interest margin in the third quarter and first nine months of 2012, compared with the same periods a year ago, was largely driven by continued runoff of higher yielding assets. In addition, our third quarter and first nine months of 2012 net interest margin experienced pressure as short-term investment balances remained elevated because of robust deposit growth. We expect continued pressure on our net interest margin as the balance sheet continues to reprice in the current low interest rate environment.

Average earning assets increased $66.2 billion and $64.1 billion in the third quarter and first nine months of 2012 from a year ago, as average securities available for sale increased $32.8 billion and $48.6 billion, and average mortgages held for sale increased $17.5 billion and $14.9 billion for the same periods, respectively. In addition, the increase in commercial and industrial loans contributed to $22.2 billion and $17.9 billion higher average loans in the third quarter and first nine months of 2012, respectively, compared with a year ago. These increases in average securities available for sale, mortgages held for sale and average loans were predominantly offset by a $7.3 billion and $20.7 billion decline in average short-term investments from the third quarter and first nine months of 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 $895.4 billion in third quarter 2012 ($882.2 billion in the first nine months of 2012) compared with $836.8 billion in third quarter 2011 ($813.9 billion in the first nine months of 2011) and funded 115% of average loans in third quarter 2012 (114% in the first nine months of 2012) compared with 111% a year ago (108% for the first nine months of 2011). Average core deposits increased to 76% of average earning assets in both the third quarter and first nine months of 2012, compared with 75% for the same periods a year ago. The cost of these deposits has continued to decline due to a sustained low interest rate environment and a shift in our deposit mix from higher cost certificates of deposit to lower yielding checking and savings products. About 94% of our average core deposits are in checking and savings deposits, one of the highest industry percentages.

Earnings Performance (continued)

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


	Quarter ended September 30,
	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	$	91,561		0.44	%	$	101		98,909		0.42	%	$	105
Trading assets		39,441		3.08			304		37,939		3.67			348
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies		1,390		1.05			4		9,578		1.02			24
Securities of U.S. states and political subdivisions		35,925		4.36			392		25,593		4.93			315
Mortgage-backed securities:
Federal agencies		94,324		2.88			679		72,887		4.41			804
Residential and commercial		33,124		6.67			553		32,625		7.46			609

Total mortgage-backed securities		127,448		3.87			1,232		105,512		5.36			1,413
Other debt and equity securities		47,647		4.07			486		38,888		4.69			457

Total securities available for sale		212,410		3.98			2,114		179,571		4.92			2,209
Mortgages held for sale (4)		52,128		3.65			476		34,634		4.49			389
Loans held for sale (4)		932		7.38			17		968		5.21			13
Loans:
Commercial:
Commercial and industrial		177,500		3.84			1,711		159,625		4.22			1,697
Real estate mortgage		105,148		4.05			1,070		102,428		3.93			1,015
Real estate construction		17,687		5.21			232		20,537		6.12			317
Lease financing		12,608		6.60			208		12,964		7.21			234
Foreign		39,663		2.46			245		38,175		2.42			233

Total commercial		352,606		3.91			3,466		333,729		4.16			3,496

Consumer:
Real estate 1-4 family first mortgage		234,020		4.51			2,638		223,765		4.83			2,704
Real estate 1-4 family junior lien mortgage		79,718		4.26			854		89,065		4.37			980
Credit card		23,040		12.64			732		21,452		12.96			695
Other revolving credit and installment		87,350		6.08			1,334		86,533		6.25			1,364

Total consumer		424,128		5.23			5,558		420,815		5.44			5,743

Total loans (4)		776,734		4.63			9,024		754,544		4.87			9,239
Other		4,386		4.62			50		4,831		4.18			50

Total earning assets	$	1,177,592		4.09	%	$	12,086		1,111,396		4.43	%	$	12,353

Funding sources
Deposits:
Interest-bearing checking	$	28,815		0.06	%	$	4		43,986		0.07	%	$	8
Market rate and other savings		506,138		0.12			152		473,409		0.17			198
Savings certificates		58,206		1.29			188		67,633		1.47			251
Other time deposits		14,373		1.49			54		12,809		2.02			65
Deposits in foreign offices		71,791		0.16			30		63,548		0.23			37

Total interest-bearing deposits		679,323		0.25			428		661,385		0.34			559
Short-term borrowings		51,857		0.17			22		50,373		0.18			23
Long-term debt		127,486		2.37			756		139,542		2.81			980
Other liabilities		9,945		2.40			60		11,170		2.75			77

Total interest-bearing liabilities		868,611		0.58			1,266		862,470		0.76			1,639
Portion of noninterest-bearing funding sources		308,981		-			-		248,926		-			-

Total funding sources	$	1,177,592		0.43			1,266		1,111,396		0.59			1,639

Net interest margin and net interest income on a taxable-equivalent basis (5)				3.66	%	$	10,820				3.84	%	$	10,714

Noninterest-earning assets
Cash and due from banks	$	15,682							17,101
Goodwill		25,566							25,008
Other		135,500							127,864

Total noninterest-earning assets	$	176,748							169,973

Noninterest-bearing funding sources
Deposits	$	267,184							221,182
Other liabilities		66,116							57,464
Total equity		152,429							140,253
Noninterest-bearing funding sources used to fund earning assets		(308,981)							(248,926)

Net noninterest-bearing funding sources	$	176,748							169,973

Total assets	$	1,354,340							1,281,369

(1)

Our average prime rate was 3.25% for the quarters ended September 30, 2012 and 2011, and 3.25% for the first nine months of both 2012 and 2011. The average three-month London Interbank Offered Rate (LIBOR) was 0.43% and 0.30% for the quarters ended September 30, 2012 and 2011, respectively, and 0.47% and 0.29%, respectively, for the first nine months of 2012 and 2011.

(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 $158 million and $172 million for the quarters ended September 30, 2012 and 2011, respectively, and $504 million and $505 million for the first nine months of 2012 and 2011, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35% for the periods presented.


	Nine months ended September 30,
	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	$	73,011		0.47	%	$	257		93,661		0.37	%	$	257
Trading assets		41,931		3.29			1,035		37,788		3.73			1,056
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies		3,041		1.12			25		4,423		1.43			47
Securities of U.S. states and political subdivisions		34,366		4.42			1,139		22,694		5.21			887
Mortgage-backed securities:
Federal agencies		93,555		3.24			2,277		71,408		4.63			2,480
Residential and commercial		33,839		6.82			1,731		30,954		8.64			2,005

Total mortgage-backed securities		127,394		4.19			4,008		102,362		5.84			4,485
Other debt and equity securities		48,983		4.09			1,501		35,709		5.32			1,423

Total securities available for sale		213,784		4.16			6,673		165,188		5.52			6,842
Mortgages held for sale (4)		49,531		3.80			1,412		34,668		4.57			1,188
Loans held for sale (4)		838		6.07			38		1,100		5.05			42
Loans:
Commercial:
Commercial and industrial		172,039		4.07			5,245		154,469		4.48			5,181
Real estate mortgage		105,548		4.24			3,350		101,230		4.00			3,033
Real estate construction		18,118		4.98			676		22,255		4.96			826
Lease financing		12,875		7.47			721		12,961		7.59			737
Foreign		39,915		2.52			753		36,103		2.62			708

Total commercial		348,495		4.12			10,745		327,018		4.28			10,485

Consumer:
Real estate 1-4 family first mortgage		231,256		4.60			7,984		226,048		4.93			8,363
Real estate 1-4 family junior lien mortgage		82,161		4.28			2,631		91,881		4.32			2,973
Credit card		22,414		12.75			2,140		21,305		13.04			2,084
Other revolving credit and installment		86,874		6.12			3,980		87,041		6.31			4,107

Total consumer		422,705		5.28			16,735		426,275		5.49			17,527

Total loans (4)		771,200		4.76			27,480		753,293		4.97			28,012
Other		4,492		4.53			153		5,017		4.06			153

Total earning assets	$	1,154,787		4.28	%	$	37,048		1,090,715		4.59	%	$	37,550

Funding sources
Deposits:
Interest-bearing checking	$	30,465		0.06	%	$	14		51,891		0.09	%	$	34
Market rate and other savings		500,850		0.12			457		457,483		0.19			661
Savings certificates		60,404		1.33			601		71,343		1.43			762
Other time deposits		13,280		1.74			173		13,212		2.10			208
Deposits in foreign offices		67,424		0.16			83		59,662		0.23			103

Total interest-bearing deposits		672,423		0.26			1,328		653,591		0.36			1,768
Short-term borrowings		50,650		0.17			65		52,805		0.19			77
Long-term debt		127,561		2.48			2,375		145,000		2.85			3,093
Other liabilities		10,052		2.50			189		10,547		2.99			236

Total interest-bearing liabilities		860,686		0.61			3,957		861,943		0.80			5,174
Portion of noninterest-bearing funding sources		294,101		-			-		228,772		-			-

Total funding sources	$	1,154,787		0.46			3,957		1,090,715		0.63			5,174

Net interest margin and net interest income on a taxable-equivalent basis (5)				3.82	%	$	33,091				3.96	%	$	32,376

Noninterest-earning assets
Cash and due from banks	$	16,283							17,277
Goodwill		25,343							24,853
Other		129,971							125,132

Total noninterest-earning assets	$	171,597							167,262

Noninterest-bearing funding sources
Deposits	$	256,120							204,643
Other liabilities		60,606							55,324
Total equity		148,972							136,067
Noninterest-bearing funding sources used to fund earning assets		(294,101)							(228,772)

Net noninterest-bearing funding sources	$	171,597							167,262

Total assets	$	1,326,384							1,257,977

Earnings Performance (continued)

Noninterest Income

Table 2: Noninterest Income


	Quarter ended Sept. 30,				%			Nine months ended Sept. 30,				%
(in millions)	2012		2011		Change			2012		2011		Change

Service charges on deposit accounts	$	1,210		1,103		10	%	$	3,433		3,189		8	%
Trust and investment fees:
Trust, investment and IRA fees		1,062		1,019		4			3,127		3,099		1
Commissions and all other fees		1,892		1,767		7			5,564		5,547		-

Total trust and investment fees		2,954		2,786		6			8,691		8,646		1

Card fees		744		1,013		(27)			2,102		2,973		(29)
Other fees:
Cash network fees		121		105		15			359		280		28
Charges and fees on loans		426		438		(3)			1,298		1,239		5
Processing and all other fees		550		542		1			1,669		1,578		6

Total other fees		1,097		1,085		1			3,326		3,097		7

Mortgage banking:
Servicing income, net		197		1,030		(81)			1,128		2,773		(59)
Net gains on mortgage loan origination/sales activities		2,610		803		225			7,442		2,695		176

Total mortgage banking		2,807		1,833		53			8,570		5,468		57

Insurance		414		423		(2)			1,455		1,494		(3)
Net gains (losses) from trading activities		529		(442)		NM			1,432		584		145
Net gains (losses) on debt securities available for sale		3		300		(99)			(65)		6		NM
Net gains from equity investments		164		344		(52)			770		1,421		(46)
Operating leases		218		284		(23)			397		464		(14)
All other		411		357		15			1,440		1,130		27


Total	$	10,551		9,086		16		$	31,551		28,472		11

NM - Not meaningful

Noninterest income was $10.6 billion and $9.1 billion for third quarter 2012 and 2011, respectively, and $31.6 billion and $28.5 billion for the first nine months of 2012 and 2011, respectively. Noninterest income represented 50% of revenue in third quarter 2012 and 49% in the first nine months of 2012. The increase in total noninterest income in the third quarter and first nine months of 2012 from the same periods a year ago was primarily due to higher net gains on higher mortgage loan origination/sales activities reflecting a lower interest rate environment.

Our service charges on deposit accounts increased 10% in the third quarter and 8% in the first nine months of 2012 from the same periods a year ago. This increase was predominantly due to product and account changes including changes to service charges and fewer fee waivers, 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. At September 30, 2012, these assets totaled $2.2 trillion, up 6% from a year ago. 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 increased to $1.1 billion in third quarter 2012 compared with $1.0 billion a year ago, and were essentially flat at $3.1 billion in the first nine months of 2012 compared with the same period 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 were $1.9 billion in the third quarter of 2012, up 7% from the same period a year ago, and essentially flat at $5.6 billion for the first nine months of 2012 compared with the same period a year ago. Commissions and other fees include transactional commissions based on the number of transactions executed at the customer’s direction, and asset-based fees, which are based on the market value of the customer’s assets. Brokerage client assets totaled $1.2 trillion at September 30, 2012, an 11% increase from a year ago.

Card fees decreased to $744 million in third quarter 2012, from $1.0 billion in third quarter 2011. For the first nine months of 2012, card fees decreased to $2.1 billion from $3.0 billion a year ago. Card fees decreased because of lower debit card interchange rates resulting from the final FRB rules implementing the Durbin Amendment to the Dodd-Frank Act, which became effective in fourth quarter 2011. The reduction in debit card interchange income 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 $2.8 billion in third quarter 2012, compared with $1.8 billion a year ago, and totaled $8.6 billion for the first nine months of 2012 compared with $5.5 billion for the same period a year ago. The year over year increase in mortgage

banking noninterest income for both time periods was driven by an increase in net gains on higher mortgage loan origination/sales activities, partially offset by a decrease in servicing income.

Net mortgage loan servicing income includes amortization of commercial mortgage servicing rights (MSRs), changes in the fair value of residential MSRs during the period, and changes in the value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income for third quarter 2012 included a $142 million net MSR valuation gain ($1.43 billion decrease in the fair value of the MSRs offset by a $1.57 billion hedge gain) and for third quarter 2011 included a $607 million net MSR valuation gain ($2.64 billion decrease in the fair value of MSRs offset by a $3.25 billion hedge gain). For the first nine months of 2012, net servicing income included a $461 million net MSR valuation gain ($3.22 billion decrease in the fair value of MSRs offset by a $3.68 billion hedge gain) and for the same period of 2011, included a $1.36 billion net MSR valuation gain ($3.22 billion decrease in the fair value of MSRs offset by a $4.58 billion hedge gain). The $465 million decline in net MSR valuation gain results for third quarter 2012 compared with the same period last year was primarily due to a reduction in the fair value of our residential MSRs to reflect servicing and foreclosure cost updates. The third quarter 2012 MSRs valuation included a $350 million reduction reflecting the additional costs associated with implementation of the servicing standards developed in connection with our settlement with the Department of Justice (DOJ) and other state and federal agencies relating to our mortgage servicing and foreclosure practices, as well as higher foreclosure costs. The $899 million decline in net MSR valuation gain results for the first nine months of 2012 compared with the same period last year also included a $344 million reduction in the fair value of our residential MSRs, reflecting a discount rate increase driven by increased capital return requirements from market participants. The valuation of our MSRs at the end of third quarter 2012 and 2011 reflected our assessment of expected future amounts of servicing and foreclosure costs. Our portfolio of loans serviced for others was $1.91 trillion at September 30, 2012, and $1.85 trillion at December 31, 2011. At September 30, 2012, the ratio of MSRs to related loans serviced for others was 0.63%, 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 DOJ settlement and the regulatory consent orders that we entered into relating to our mortgages servicing and foreclosure practices.

Net gains on loan origination/sale activities were $2.6 billion and $7.4 billion in the third quarter and nine months ended September 30, 2012, respectively, up from $803 million and $2.7 billion for the same periods a year ago. The year over year increases were driven by higher loan origination volume and margins. Residential real estate originations were $139 billion and $399 billion in third quarter and nine months ended September 30, 2012 compared with $89 billion and $237 billion for the same periods a year ago, respectively. During third

quarter 2012 we retained for investment 1-4 family conforming first mortgage loans, forgoing approximately $200 million of fee revenue that could have been generated had the loans been originated for sale along with other agency loan originations. While retaining these mortgage loans on our balance sheet reduced mortgage revenue this quarter, we expect to generate spread income in future quarters from mortgage loans with higher yields than mortgage backed securities we could have purchased in the market. We have a large enough mortgage business and strong capital to make these choices that should benefit long-term results. We currently expect to retain additional conforming mortgages in fourth quarter 2012. Mortgage applications were $188 billion and $584 billion in the third quarter and nine months ended September 30, 2012, compared with $169 billion and $380 billion for the same periods a year ago, respectively. The 1-4 family first mortgage unclosed pipeline was $97 billion at September 30, 2012, and $84 billion a year ago. For additional information about our mortgage banking activities and results, see the “Risk Management – Mortgage Banking Interest Rate and Market Risk” section and Note 8 (Mortgage Banking Activities) and Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.

Net gains on mortgage loan origination/sales activities include the cost of additions to the mortgage repurchase liability. Mortgage loans are repurchased from third parties based on standard representations and warranties, and early payment default clauses in mortgage sale contracts. Additions to the mortgage repurchase liability that were charged against net gains on mortgage loan origination/sales activities during third quarter 2012 totaled $462 million (compared with $390 million for third quarter 2011), of which $387 million ($371 million for third quarter 2011) was for subsequent increases in estimated losses on prior period loan sales. Additions to the mortgage repurchase liability for the nine months ended September 30, 2012, and 2011 were $1.6 billion and $881 million, respectively, of which $1.4 billion and $807 million, respectively, were for subsequent increases in estimated losses on prior period loan sales. For additional information about mortgage loan repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.

Net gains (losses) from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $529 million and $1.4 billion in the third quarter and first nine months of 2012, respectively, compared with $(442) million and $584 million for the same periods a year ago. The year-over-year increase for the third quarter and first nine months of 2012 was driven by gains on customer accommodation trading activities and economic hedging gains, which included higher gains on deferred compensation plan investments. Net gains (losses) 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. Net gains (losses) from trading activities are primarily from trading conducted on behalf of or driven by the needs of our customers (customer accommodation trading)

Earnings Performance (continued)

and also include the results of certain economic hedging and proprietary trading activity. Proprietary trading had $2 million and $16 million of net gains in the third quarter and first nine months of 2012, compared with net losses of $9 million and $18 million, respectively, for the same periods a year ago. 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 $167 million for third quarter 2012 and $644 million for third quarter 2011 ($705 million and $1.4 billion for the first nine months of 2012 and 2011, respectively), after other-than-temporary impairment (OTTI) write-downs of $72 million and $144 million in third quarter 2012 and 2011, respectively, and $257 million and $470 million for the first nine months of 2012 and 2011, respectively.

Noninterest Expense

Table 3: Noninterest Expense


	Quarter ended Sept. 30,				%			Nine months ended Sept. 30,				%
(in millions)	2012		2011		Change			2012		2011		Change

Salaries	$	3,648		3,718		(2	)%	$	10,954		10,756		2	%
Commission and incentive compensation		2,368		2,088		13			7,139		6,606		8
Employee benefits		1,063		780		36			3,720		3,336		12
Equipment		510		516		(1	)		1,526		1,676		(9	)
Net occupancy		727		751		(3	)		2,129		2,252		(5	)
Core deposit and other intangibles		419		466		(10	)		1,256		1,413		(11	)
FDIC and other deposit assessments		359		332		8			1,049		952		10
Outside professional services		733		640		15			1,985		1,879		6
Contract services		237		341		(30	)		776		1,051		(26	)
Foreclosed assets		247		271		(9	)		840		984		(15	)
Operating losses		281		198		42			1,282		1,098		17
Postage, stationery and supplies		196		240		(18	)		607		711		(15	)
Outside data processing		234		226		4			683		678		1
Travel and entertainment		208		198		5			628		609		3
Advertising and promotion		170		159		7			436		441		(1	)
Telecommunications		127		128		(1	)		378		394		(4	)
Insurance		51		94		(46	)		391		428		(9	)
Operating leases		27		29		(7	)		82		84		(2	)
All other		507		502		1			1,641		1,537		7

Total	$	12,112		11,677		4		$	37,502		36,885		2

Noninterest expense was $12.1 billion in third quarter 2012, up 4% from $11.7 billion a year ago, predominantly due to higher personnel expenses ($7.1 billion, up from $6.6 billion a year ago), partially offset by lower merger costs resulting from the completion of Wachovia merger integration activities in first quarter 2012 ($376 million in third quarter 2011). For the first nine months of 2012, noninterest expense was up 2% from the same period a year ago.

Personnel expenses were up $493 million, or 7%, in third quarter 2012 compared with the same quarter last year, due to higher revenues generated by businesses with revenue-based compensation, such as capital markets and mortgage, and a $283 million increase in employee benefits due primarily to higher deferred compensation expense which was offset in trading income. Personnel expenses were up $1.1 billion, or 5%, for the first nine months of 2012 compared with the same period in 2011, mostly due to higher revenue-related compensation, higher deferred compensation expense which was offset in trading income, and annual salary increases and related salary taxes.

Outside professional services were up $93 million, or 15%, in third quarter 2012 compared with the same quarter last year and up $106 million, or 6%, in the first nine months of 2012 compared with the same period a year ago. Substantially all of the increase for both periods was due to expenses associated with our mortgage servicing regulatory consent orders.

Operating losses were up $83 million, or 42%, in third quarter 2012 and up $184 million, or 17%, in the first nine months of 2012, compared with the same periods in 2011, predominantly due to higher litigation charges.

The completion of Wachovia integration activities in the first quarter 2012 significantly contributed to year-over-year

reductions, for both the third quarter and first nine months of 2012, in equipment, occupancy, contract services, postage, stationery and supplies, and advertising and promotion expenses.

We remain focused on expense management and improving our expense efficiency ratio. In turn, we will not forgo attractive revenue opportunities in order to meet specific noninterest expense targets.

Income Tax Expense

Our effective tax rate was 33.4% in third quarter 2012, up from 33.0% in third quarter 2011. Our effective tax rate was 34.2% in the first nine months of 2012, up from 32.1% in the first nine months of 2011. The lower tax rate in 2011 reflected a tax benefit from the realization for tax purposes of a previously written down investment as well as tax benefits related to charitable donations of appreciated securities.

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 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


	Community Banking				Wholesale Banking				Wealth, Brokerage and Retirement
(in billions)	2012		2011		2012		2011		2012		2011
Quarter ended September 30,
Revenue	$	13.1		12.5		5.9		5.1		3.0		2.9
Net income		2.7		2.3		2.0		1.8		0.3		0.3
Average loans		485.3		489.7		277.1		253.4		42.5		43.1
Average core deposits		594.5		556.4		225.4		209.3		136.7		133.3

Nine months ended September 30,
Revenue	$	39.6		37.8		18.1		16.2		9.1		9.1
Net income		7.6		6.6		5.7		5.4		1.0		1.0
Average loans		485.1		498.3		272.0		243.7		42.5		43.1
Average core deposits		585.3		552.3		222.4		195.0		135.5		128.2

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses. These products include investment, insurance and trust services in 39 states and D.C., and mortgage and home equity loans in all 50 states and D.C. through its Regional Banking and Wells Fargo Home Lending business units. Cross-sell of our products is an important part of our strategy to achieve our vision to satisfy all our customers’ financial needs. Our retail bank household cross-sell has increased each quarter since the beginning of 2011, and in August 2012 our cross-sell was 6.04 products per household, up from 5.90 a year ago. 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. As of August 2012, one of every four of our retail banking households had eight or more of our products.

Community Banking had net income of $2.7 billion, up $416 million, or 18%, from third quarter 2011, and $7.6 billion for the first nine months of 2012, up $999 million, or 15%, compared with the same period a year ago. Revenue of $13.1 billion increased $600 million, or 5%, from third quarter 2011 and was $39.6 billion for the first nine months of 2012, an increase of $1.9 billion, or 5%, compared with the same period a year ago. Revenue increased in both periods as a result of higher volume-related mortgage banking income and growth in deposit service charges, partially offset by higher equity gains in the prior year, planned runoff of non-strategic loan balances and lower debit card revenue due to regulatory changes enacted in October 2011. Noninterest income increased $2.2 billion, or 14%, for the first nine months of 2012 compared with the same period a year ago, mostly due to higher volume-related mortgage banking income. Average core deposits increased $38.1 billion,

or 7%, from third quarter 2011 and $33 billion, or 6%, from the first nine months of 2011. Noninterest expense increased 7% from third quarter 2011, and 4% from the first nine months of 2011, largely due to higher mortgage volume-related expenses and increased severance expense associated with our efficiency and cost save initiatives. The provision for credit losses was $347 million, or 18%, lower than third quarter 2011 and $873 million, or 15%, lower than the first nine months of 2011, due to improved portfolio performance.

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

Wholesale Banking had record net income of $2.0 billion in third quarter 2012, up $190 million, or 11%, from third quarter 2011. Net income increased to $5.7 billion for the first nine months of 2012 from $5.4 billion a year ago. Results for the first nine months of 2012 benefited from strong revenue growth partially offset by increased noninterest expense and a higher provision for loan losses. Revenue in third quarter 2012 increased $814 million, or 16%, from third quarter 2011 and revenue in the first nine months of 2012 increased $1.9 billion, or 12%, from the first nine months of 2011 driven by broad-based business growth as well as growth from acquisitions. Average loans of $277.1 billion in third quarter 2012 increased 9% from third quarter 2011 driven by acquisitions and strong

borrowing demand with many lending areas experiencing double digit growth including asset backed finance, capital finance, commercial banking, commercial real estate, corporate banking, and real estate capital markets. Average core deposits of $225.4 billion in third quarter 2012 increased 8% from third quarter 2011, reflecting continued strong customer liquidity. Noninterest expense in third quarter and for the first nine months of 2012 increased 8% and 10%, respectively, from the comparable periods last year, on higher personnel expenses related to revenue growth and higher non-personnel expenses related to growth initiatives and compliance and regulatory requirements as well as increased operating losses. The provision for credit losses increased $121 million from third quarter 2011, and included a $110 million loan loss allowance release, compared with a $350 million release a year ago. The provision for credit losses increased $367 million for the first nine months of 2012, compared with the same period a year ago, primarily due to a lower allowance release.

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, a Wells Fargo business, provides comprehensive wealth management services to ultra high net worth families and individuals as well as their endowments and foundations. Brokerage serves customers’ advisory, brokerage and financial needs as part of one of the largest full-service

brokerage firms in the United States. Retirement is a national leader in providing institutional retirement and trust services (including 401(k) and pension plan record keeping) for businesses, retail retirement solutions for individuals, and reinsurance services for the life insurance industry.

Wealth, Brokerage and Retirement had net income of $338 million in third quarter 2012, up $48 million, or 17%, from third quarter 2011. Net income for the first nine months of 2012 was $977 million, up $7 million, or 1%, compared with the same period a year ago. The prior year results include the H.D. Vest Financial Services business that was divested in fourth quarter 2011. Revenue was $3.0 billion in third quarter 2012, up $145 million, or 5%, from third quarter 2011, due to $45 million in gains on deferred compensation plan investments (offset in expense), compared with $128 million in losses in third quarter 2011. Excluding deferred compensation, revenue was down 1% primarily due to lower net interest income and reduced securities gains in the brokerage business, partially offset by growth in managed account fee revenue. Revenue was down 1% from the first nine months of 2011 due to lower brokerage transaction revenue and reduced securities gains in the brokerage business, partially offset by an increase in gains on deferred compensation. Total provision for credit losses decreased $18 million from third quarter 2011 and $40 million compared with the first nine months of 2011. Noninterest expense was up 4% from third quarter 2011, driven by higher deferred compensation plan expense. Noninterest expense was flat for the first nine months of 2012 compared to the same period of 2011.

Balance Sheet Analysis

At September 30, 2012, our total assets, core deposits and total loans were up from December 31, 2011. Core deposits totaled 115% of the loan portfolio at September 30, 2012, 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 continued internal capital generation as reflected in our capital ratios, substantially all of which improved from December 31, 2011. Tier 1 capital as a percentage of total risk-weighted assets increased to 11.50%, total capital decreased to 14.51%, Tier 1 leverage

increased to 9.40%, and Tier 1 common equity increased to 9.92% at September 30, 2012, compared with 11.33%, 14.76%, 9.03%, and 9.46%, respectively, at December 31, 2011.

The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and changes in our asset mix is included in the “Earnings Performance – Net Interest Income” and “Capital Management” sections and Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.

Securities Available for Sale

Table 5: Securities Available for Sale – Summary

September 30, 2012

December 31, 2011

(in millions)

Cost

Net

unrealized

gain

Fair

value

Cost

Net

unrealized

gain

Fair

value

Debt securities available for sale

214,674

11,924

226,598

212,642

6,554

219,196

Marketable equity securities

2,327

425

2,752

2,929

488

3,417

Total securities available for sale

217,001

12,349

229,350

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

Balance Sheet Analysis (continued)

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 $12.3 billion at September 30, 2012, up from net unrealized gains of $7.0 billion at December 31, 2011, due to a decline in long-term yields and tightening of credit spreads.

We analyze securities for OTTI quarterly or more often if a potential loss-triggering event occurs. Of the $257 million OTTI write-downs recognized in the first nine months of 2012, $163 million related to debt securities. There was $9 million in OTTI write-downs for marketable equity securities and $85 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 September 30, 2012, debt securities available for sale included $37.9 billion of municipal bonds, of which 81% 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 5.0 years at September 30, 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 September 30, 2012
Actual	$	138.8		8.5		3.2
Assuming a 200 basis point:
Increase in interest rates		130.3		-		4.6
Decrease in interest rates		141.1		10.8		2.7

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

Loan Portfolio

Total loans were $782.6 billion at September 30, 2012, up $13.0 billion from December 31, 2011. Table 7 provides a summary of total outstanding loans for our commercial and consumer loan portfolios. Excluding the runoff in the non-strategic/liquidating portfolios of $13.7 billion, loans in the core portfolio grew $26.7 billion in the first nine months of 2012. Our core loan growth in 2012 included:

•

an $8.9 billion increase in commercial loans, which included:

•

$6.9 billion acquired during our second quarter 2012 acquisitions of BNP Paribas’ North American energy lending business and WestLB’s subscription finance loan portfolio; and

•

$858 million of commercial asset-based loans acquired with the acquisition of Burdale Financial Holdings Limited (Burdale) and the portfolio of Burdale Capital Finance Inc. in first quarter 2012; and

•

a $17.7 billion increase in consumer loans with growth in first mortgage (including the retention of $9.8 billion of 1-4 family conforming first mortgages), auto, credit card and private student lending.

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

September 30, 2012

December 31, 2011

(in millions)

Core

Liquidating

Total

Core

Liquidating

Total

Commercial

348,696

3,836

352,532

339,755

5,695

345,450

Consumer

335,278

94,820

430,098

317,550

106,631

424,181

Total loans

683,974

98,656

782,630

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 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 $952.2 billion at September 30, 2012, compared with $920.1 billion at December 31, 2011. Table 8 provides additional information regarding deposits. Information regarding the impact of deposits on net interest income and a comparison of average deposit balances is provided in “Earnings Performance – Net Interest Income” and Table 1 earlier in this Report. Total core deposits were $901.1 billion at September 30, 2012, up $28.5 billion from $872.6 billion at December 31, 2011.

Table 8: Deposits


($ in millions)	Sept. 30, 2012		% of total deposits			Dec. 31, 2011		% of total deposits			% Change

Noninterest-bearing	$	268,969		28	%	$	243,961		26	%		10
Interest-bearing checking		29,427		3			37,027		4			(21	)
Market rate and other savings		502,482		53			485,534		53			3
Savings certificates		57,547		6			63,617		7			(10	)
Foreign deposits (1)		42,650		5			42,490		5			-

Core deposits		901,075		95			872,629		95			3
Other time and savings deposits		21,636		2			20,745		2			4
Other foreign deposits		29,528		3			26,696		3			11

Total deposits	$	952,239		100	%	$	920,070		100	%		3

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

Balance Sheet Analysis (continued)

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 used 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 use 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


	September 30, 2012					December 31, 2011
($ in billions)	Total balance			Level 3 (1)		Total balance		Level 3 (1)
Assets carried at fair value	$	364.0			49.8		373.0		53.3
As a percentage of total assets		26	%		4		28		4

Liabilities carried at fair value	$	27.3			4.1		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 regarding 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. Effective management of operational risks, which include risks relating to management information systems, security systems, and information security, also is an important focus for financial institutions such as Wells Fargo. Recently, Wells Fargo and reportedly other financial institutions have been the target of various denial-of-service or other cyber attacks as part of what appears to be a coordinated effort to disrupt the operations of financial institutions. Although to date Wells Fargo has not experienced any material losses relating to these or other cyber attacks, cyber security and the continued development and enhancement of our controls, processes and systems to protect our networks, computers, software, and data from attack, damage or unauthorized access remain a priority for Wells Fargo. See the “Risk Factors” section in our 2011 Form 10-K for additional information regarding the risks associated with a failure or breach of our operational or security systems or infrastructure, including as a result of cyber attacks.

For more information about how we manage credit, asset/liability and market risk, 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 assets on 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)	Sept. 30, 2012		Dec. 31, 2011

Commercial:
Commercial and industrial	$	178,191		167,216
Real estate mortgage		104,611		105,975
Real estate construction		17,710		19,382
Lease financing		12,279		13,117
Foreign (1)		39,741		39,760

Total commercial		352,532		345,450

Consumer:
Real estate 1-4 family first mortgage		240,554		228,894
Real estate 1-4 family junior lien mortgage		78,091		85,991
Credit card		23,692		22,836
Other revolving credit and installment		87,761		86,460

Total consumer		430,098		424,181
Total loans	$	782,630		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.

Risk Management – Credit Risk Management (continued)

Non-Strategic and Liquidating Loan Portfolios We continually evaluate and modify our credit policies to address appropriate levels of risk. We may designate certain portfolios and loan products as non-strategic or liquidating 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 PCI loans acquired from Wachovia, some portfolios from legacy Wells Fargo Home Equity and Wells

Fargo Financial, and our education finance government guaranteed loan portfolio. The total of outstanding balances of our non-strategic and liquidating loan portfolios has decreased 48% since the merger with Wachovia at December 31, 2008, and decreased 12% from the end of 2011.

The home equity portfolio of loans generated through third party channels was designated as liquidating in fourth quarter 2007. Additional information regarding this portfolio, as well as the liquidating PCI and Pick-a-Pay loan portfolios, is provided in the discussion of loan portfolios that follows.

Table 11: Non-Strategic and Liquidating Loan Portfolios


	Outstanding balance
(in millions)	Sept. 30, 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)	$	3,836		5,695		7,935		12,988		18,704

Total commercial		3,836		5,695		7,935		12,988		18,704

Consumer:
Pick-a-Pay mortgage (1)		60,080		65,652		74,815		85,238		95,315
Liquidating home equity		4,951		5,710		6,904		8,429		10,309
Legacy Wells Fargo Financial indirect auto		1,104		2,455		6,002		11,253		18,221
Legacy Wells Fargo Financial debt consolidation		15,002		16,542		19,020		22,364		25,299
Education Finance - government guaranteed		12,951		15,376		17,510		21,150		20,465
Legacy Wachovia other PCI loans (1)		732		896		1,118		1,688		2,478

Total consumer		94,820		106,631		125,369		150,122		172,087

Total non-strategic and liquidating loan portfolios	$	98,656		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 the first nine months of 2012, we recognized as income $80 million released from the nonaccretable difference related to commercial PCI loans due to payoffs and other resolutions. We also transferred $1.0 billion from the nonaccretable difference to the accretable yield for PCI loans with improving credit-related cash flows and absorbed $2.0 billion of losses in the nonaccretable difference from loan resolutions and write-downs. Our cash flows expected to be collected have been favorably affected by lower expected defaults and losses as a result of observed strengthening in housing prices and loan modifications that are expected to keep borrowers in their homes longer. These factors led to the reduction in expected losses on PCI loans, primarily Pick-a-Pay, which resulted in a reclassification from nonaccretable difference to accretable yield. Table 12 provides an analysis of changes in the nonaccretable difference.

Table 12: Changes in Nonaccretable Difference for PCI Loans


(in millions)	Commercial			Pick-a-Pay			Other consumer			Total
Balance, December 31, 2008	$	10,410			26,485			4,069			40,964
Addition of nonaccretable difference due to acquisitions		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, 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)		(76	)		-			-			(76	)
Loans resolved by sales to third parties (2)		(4	)		-			-			(4	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(188	)		(648	)		(170	)		(1,006	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)(5)		(104	)		(1,799	)		(112	)		(2,015	)


Balance, September 30, 2012	$	557			6,679			370			7,606



Balance, June 30, 2012	$	658			8,128			440			9,226
Addition of nonaccretable difference due to acquisitions		-			-			-			-
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(24	)		-			-			(24	)
Loans resolved by sales to third parties (2)		(4	)		-			-			(4	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(41	)		(603	)		(43	)		(687	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)(5)		(32	)		(846	)		(27	)		(905	)


Balance, September 30, 2012	$	557			6,679			370			7,606

(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.

(5)

Quarter and nine months ended September 30, 2012, include $376 million resulting from the implementation of OCC guidance issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be written down to net realizable collateral value, regardless of their delinquency status.

Risk Management – Credit Risk Management (continued)

Since December 31, 2008, we have released $7.0 billion in nonaccretable difference, including $5.2 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 $5.2 billion reduction from December 31, 2008, through September 30, 2012, in our initial projected losses on all PCI loans.

At September 30, 2012, the allowance for credit losses on certain PCI loans was $160 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 September 30, 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 Since Acquisition of Wachovia


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

Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)	$	1,421			-		-			1,421
Loans resolved by sales to third parties (2)		303			-		85			388
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		1,404			3,031		784			5,219

Total releases of nonaccretable difference due to better than expected losses		3,128			3,031		869			7,028
Provision for losses due to credit deterioration (4)		(1,679	)		-		(125	)		(1,804	)


Actual and projected losses on PCI loans less than originally expected	$	1,449			3,031		744			5,224

(1)

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

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

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

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

COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING For purposes of portfolio risk management, we aggregate commercial and industrial loans and lease financing according to market segmentation and standard industry codes. Table 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 third quarter 2012. Of the total commercial and industrial loans and lease financing non-PCI portfolio, 0.03% was 90 days or more past due and still accruing at September 30, 2012, compared with 0.09% at

December 31, 2011, 0.76% (1.22% at December 31, 2011) was nonaccruing and 11.04% (12.5% at December 31, 2011) was criticized. The net charge-off rate for this portfolio declined to 0.28% in third quarter 2012 from 0.54% in second quarter 2012 and 0.70% for the full year of 2011.

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

During second quarter 2012, we acquired $6.9 billion of commercial loans in connection with our acquisitions of BNP Paribas’ North American energy lending business and WestLB’s subscription finance loan portfolio, of which an aggregate of $5.4 billion was added to the commercial and industrial loan portfolio. In first quarter 2012, we also added $858 million to this portfolio when we acquired commercial asset-based loans from the Bank of Ireland in the Burdale acquisition.

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


	September 30, 2012

(in millions)	Nonaccrual loans		Total portfolio (1)			% of total loans


PCI loans (1):
Healthcare	$	-		41			*	%
Technology		-		39			*
Aerospace and defense		-		34			*
Steel and metal products		-		22			*
Home furnishings		-		22			*
Cyclical retailers		-		22			*
Other		-		66	(2)		*


Total PCI loans	$	-		246			*	%


All other loans:
Oil and gas	$	49		13,991			2	%
Investors		2		13,216			2
Cyclical retailers		30		11,339			1
Food and beverage		49		10,702			1
Financial institutions		95		10,080			1
Industrial equipment		34		9,492			1
Healthcare		41		8,906			1
Real estate lessor		34		7,064			*
Technology		20		6,795			*
Transportation		9		6,471			*
Business services		29		5,816			*
Securities firms		23		5,248			*
Other		1,038		81,104	(3)		10


Total all other loans	$	1,453		190,224			24	%


Total	$	1,453		190,470			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 $14 million.

(3)	No other single category had loans in excess of $4.4 billion.

COMMERCIAL REAL ESTATE (CRE) The CRE portfolio, consisting of both CRE mortgage loans and CRE construction loans, totaled $122.3 billion, or 16%, of total loans at September 30, 2012. CRE construction loans totaled $17.7 billion at September 30, 2012, and CRE mortgage loans totaled $104.6 billion at September 30, 2012. Table 15 summarizes CRE loans by state and property type with the related nonaccrual totals. CRE nonaccrual loans totaled 4% of the non-PCI CRE outstanding balance at September 30, 2012. The portfolio is diversified both geographically and by property type. At September 30, 2012, we had $18.3 billion of criticized non-PCI CRE mortgage loans, a decrease of 18% from December 31, 2011, and $4.5 billion of criticized non-PCI CRE construction loans, a decrease of 34% 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. The largest geographic concentrations of combined CRE loans are in California and Florida, which represented 26% and 9% of the total CRE portfolio, respectively. By property type, the largest concentrations are office buildings at 26% and industrial/warehouse at 10% of the portfolio.

At September 30, 2012, the recorded investment in PCI CRE loans totaled $3.5 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.

Risk Management – Credit Risk Management (continued)

Table 15: CRE Loans by State and Property Type


	September 30, 2012

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


By state:
PCI loans (1):
New York	$	-		518		-		148		-		666			*	%
Florida		-		325		-		168		-		493			*
California		-		384		-		63		-		447			*
Pennsylvania		-		116		-		116		-		232			*
Texas		-		129		-		83		-		212			*
Other		-		878		-		586		-		1,464	(2)		*


Total PCI loans	$	-		2,350		-		1,164		-		3,514			*	%


All other loans:
California	$	903		27,909		231		3,286		1,134		31,195			4	%
Florida		401		8,941		150		1,418		551		10,359			1
Texas		308		7,647		33		1,393		341		9,040			1
New York		35		5,887		4		1,049		39		6,936			*
North Carolina		246		4,040		155		978		401		5,018			*
Arizona		153		4,253		31		431		184		4,684			*
Virginia		85		2,874		20		1,174		105		4,048			*
Georgia		226		3,264		122		466		348		3,730			*
Washington		31		3,080		19		477		50		3,557			*
Colorado		111		2,927		17		401		128		3,328			*
Other		1,100		31,439		471		5,473		1,571		36,912	(3)		5


Total all other loans	$	3,599		102,261		1,253		16,546		4,852		118,807			15	%


Total	$	3,599		104,611		1,253		17,710		4,852		122,321			16	%


By property:
PCI loans (1):
Office buildings	$	-		848		-		121		-		969			*	%
Apartments		-		463		-		162		-		625			*
Retail (excluding shopping center)		-		382		-		6		-		388			*
Shopping center		-		254		-		110		-		364			*
1-4 family land		-		-		-		313		-		313			*
Other		-		403		-		452		-		855			*


Total PCI loans	$	-		2,350		-		1,164		-		3,514			*	%


All other loans:
Office buildings	$	821		29,135		86		1,545		907		30,680			4	%
Industrial/warehouse		515		12,373		22		412		537		12,785			2
Apartments		197		9,664		25		1,799		222		11,463			1
Retail (excluding shopping center)		487		10,609		43		301		530		10,910			1
Real estate - other		354		10,082		55		344		409		10,426			1
Shopping center		357		9,631		38		741		395		10,372			1
Hotel/motel		184		8,361		31		708		215		9,069			1
Land (excluding 1-4 family)		6		69		362		6,972		368		7,041			*
Institutional		103		2,783		-		312		103		3,095			*
Agriculture		162		2,518		-		15		162		2,533			*
Other		413		7,036		591		3,397		1,004		10,433			1


Total all other loans	$	3,599		102,261		1,253		16,546		4,852		118,807			15	%


Total	$	3,599		104,611		1,253		17,710		4,852		122,321			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 32 states; no state had loans in excess of $196 million.

(3)	Includes 40 states; no state had loans in excess of $2.8 billion.

FOREIGN LOANS AND EUROPEAN EXPOSURE We classify loans as foreign if the borrower’s primary address is outside of the United States. At September 30, 2012, foreign loans represented approximately 5% of our total consolidated loans outstanding and approximately 3% of our total assets.

Our foreign country risk monitoring process incorporates frequent dialogue with our foreign financial institution customers, counterparties and with regulatory agencies, enhanced by centralized monitoring of macroeconomic and capital markets conditions. We establish exposure limits for each country through 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.

We evaluate our individual country risk exposure on an ultimate risk basis which is normally based on the country of residence of the guarantor or collateral location. Our largest foreign country exposure on an ultimate risk basis was the United Kingdom, which amounted to approximately $14.5 billion, or 1% of our total assets, and included $2.1 billion of sovereign claims. Our United Kingdom sovereign claims arise primarily from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch.

At September 30, 2012, our Eurozone exposure, including cross-border claims on an ultimate risk basis, and foreign exchange and derivative products, aggregated approximately $10.9 billion, including $214 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 credit risk exposure and is diverse by country, type, and counterparty.

We conduct periodic stress tests of our significant country risk exposures, analyzing the direct and indirect impacts on the risk of loss from various macroeconomic and capital markets scenarios. We do not have significant exposure to foreign country risks because our foreign portfolio is relatively small. However, we have identified exposure to increased loss from U.S. borrowers associated with the potential indirect impact of a European downturn on the U.S. economy. We mitigate these potential impacts 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

September 30, 2012
Eurozone
Netherlands	$	-		2,363		-		394		-		528		-		3,285		3,285
Germany		60		1,582		-		414		-		55		60		2,051		2,111
Luxembourg		-		835		-		161		-		5		-		1,001		1,001
Ireland		-		767		-		197		-		38		-		1,002		1,002
France		52		1,029		-		391		-		56		52		1,476		1,528
Spain		-		717		-		57		-		3		-		777		777
Italy		-		264		-		105		-		1		-		370		370
Austria		102		251		-		3		-		-		102		254		356
Belgium		-		175		-		40		-		62		-		277		277
Other (6)		-		113		-		35		-		1		-		149		149
Total Eurozone exposure		214		8,096		-		1,797		-		749		214		10,642		10,856
United Kingdom		2,098		5,395		-		6,525		-		484		2,098		12,404		14,502
Other European countries		-		3,939		4		365		-		523		4		4,827		4,831
Total European exposure	$	2,312		17,430		4		8,687		-		1,756		2,316		27,873		30,189

(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 $1.3 billion in PCI loans, largely to customers in Germany and United Kingdom territories, and $2.4 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 September 30, 2012, the gross notional amount of our CDS sold that reference assets domiciled in Europe was $7.6 billion, which was offset by the notional amount of CDS purchased of $7.7 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 September 30, 2012.

(5)	Total non-sovereign exposure comprises $11.9 billion exposure to financial institutions and $16.0 billion to non-financial corporations at September 30, 2012.

(6)	Includes non-sovereign exposure to Greece and Portugal in the amount of $7 million and $27 million, respectively. We had no sovereign debt exposure to these countries at September 30, 2012.

Risk Management – Credit Risk Management (continued)

REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANS Our real estate 1-4 family first and junior lien mortgage loans 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 19% of total loans at September 30, 2012, compared with 21% at 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. As announced in February 2012, we reached a settlement regarding our mortgage servicing and foreclosure practices with the DOJ and other federal and state government entities, which became effective on April 5, 2012, where we committed to provide relief to borrowers with real estate 1-4 family first and junior lien mortgage loans. 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. In addition, 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 Pick-a-Pay specific 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.

For more information on our modification 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 (2% of this amount were PCI loans from Wachovia) at September 30, 2012, located mostly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 3% of total loans. We monitor changes in real estate values and underlying economic

or market conditions for all geographic areas of our real estate 1-4 family 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 credit risk indicators continued to improve in third quarter 2012 on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at September 30, 2012, totaled $15.9 billion, or 5%, of total non-PCI mortgages, compared with $18.4 billion, or 6%, at December 31, 2011. Loans with FICO scores lower than 640 totaled $38.7 billion at September 30, 2012, or 13% of total non-PCI mortgages, compared with $44.1 billion, or 15%, at December 31, 2011. Mortgages with a LTV/CLTV greater than 100% totaled $63.2 billion at September 30, 2012, or 22% of total non-PCI mortgages, compared with $74.2 billion, or 26%, at December 31, 2011. Information regarding credit risk indicators can be found in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

We 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 regardless of the junior lien delinquency status. 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.

Credit metrics for third quarter 2012 real estate 1-4 family mortgage loans were affected by the implementation of OCC guidance, which requires consumer loans discharged in bankruptcy to be written down to net realizable collateral value and classified as nonaccrual TDRs, regardless of their delinquency status. Loans impacted were predominantly real estate 1-4 family mortgage loans. As of September 30, 2012, only 8% of the performing loans placed on nonaccrual status as a result of the OCC guidance were 30 days or more past due. Implementation of the OCC guidance in third quarter 2012 resulted in the following:

•

$1.4 billion reclassification of performing loans to nonaccrual status;

•

$567 million increase in loan charge-offs; and

•

$4.3 billion of loans classified as TDRs.

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


	September 30, 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	$	17,872		36		17,908		2	%
Florida		2,457		33		2,490		*
New Jersey		1,259		22		1,281		*
Other (1)		5,947		90		6,037		*


Total PCI loans	$	27,535		181		27,716		4	%


All other loans:
California	$	61,166		21,776		82,942		11	%
Florida		15,601		6,974		22,575		3
New Jersey		9,325		5,790		15,115		2
New York

Large accelerated filer

Accelerated filer ¨

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company ¨