Edgar Filing: WELLS FARGO & COMPANY/MN

WFC-06.30.2015-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

Commission file number 001-2979

WELLS FARGO & COMPANY

(Exact name of registrant as specified in its charter)



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

420 Montgomery Street, San Francisco, California 94163

(Address of principal executive offices) (Zip Code)

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

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



Yes þ		No o

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



Yes þ		No o

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



	Large accelerated filer þ		Accelerated filer o

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

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



Yes o		No þ

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



		Shares Outstanding
		July 31, 2015
Common stock, $1-2/3 par value		5,133,359,268



FORM 10-Q
CROSS-REFERENCE INDEX
PART I	Financial Information
Item 1.	Financial Statements			Page
	Consolidated Statement of Income			69
	Consolidated Statement of Comprehensive Income			70
	Consolidated Balance Sheet			71
	Consolidated Statement of Changes in Equity			72
	Consolidated Statement of Cash Flows			74
	Notes to Financial Statements
	1	—	Summary of Significant Accounting Policies	75
	2	—	Business Combinations	77
	3	—	Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments	77
	4	—	Investment Securities	78
	5	—	Loans and Allowance for Credit Losses	85
	6	—	Other Assets	103
	7	—	Securitizations and Variable Interest Entities	104
	8	—	Mortgage Banking Activities	112
	9	—	Intangible Assets	115
	10	—	Guarantees, Pledged Assets and Collateral	116
	11	—	Legal Actions	120
	12	—	Derivatives	121
	13	—	Fair Values of Assets and Liabilities	128
	14	—	Preferred Stock	149
	15	—	Employee Benefits	152
	16	—	Earnings Per Common Share	153
	17	—	Other Comprehensive Income	154
	18	—	Operating Segments	156
	19	—	Regulatory and Agency Capital Requirements	157
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data			2
	Overview			3
	Earnings Performance			5
	Balance Sheet Analysis			16
	Off-Balance Sheet Arrangements			19
	Risk Management			20
	Capital Management			58
	Regulatory Reform			64
	Critical Accounting Policies			64
	Current Accounting Developments			65
	Forward-Looking Statements			66
	Risk Factors			67
	Glossary of Acronyms			158
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			44
Item 4.	Controls and Procedures			68

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

Signature				160

Exhibit Index				161

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW



Summary Financial Data
						% Change
	Quarter ended					June 30, 2015 from				Six months ended
($ in millions, except per share amounts)	June 30, 2015			March 31, 2015	June 30, 2014	March 31, 2015		June 30, 2014		June 30, 2015	June 30, 2014	% Change
For the Period
Wells Fargo net income	$	5,719		5,804	5,726	(1	)%	—		11,523	11,619	(1	)%
Wells Fargo net income applicable to common stock	5,363			5,461	5,424	(2	)	(1	)	10,824	11,031	(2	)
Diluted earnings per common share	1.03			1.04	1.01	(1	)	2		2.07	2.06	—
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)	1.33		%	1.38	1.47	(4	)	(10	)	1.35	1.52	(11	)
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)	12.71			13.17	13.40	(3	)	(5	)	12.94	13.86	(7	)
Efficiency ratio (1)	58.5			58.8	57.9	(1	)	1		58.6	57.9	1
Total revenue	21,318			21,278	21,066	—		1		42,596	41,691	2
Pre-tax pre-provision profit (PTPP) (2)	8,849			8,771	8,872	1		—		17,620	17,549	—
Dividends declared per common share	0.375			0.35	0.35	7		7		0.725	0.65	12
Average common shares outstanding	5,151.9			5,160.4	5,268.4	—		(2	)	5,156.1	5,265.6	(2	)
Diluted average common shares outstanding	5,220.5			5,243.6	5,350.8	—		(2	)	5,233.2	5,353.2	(2	)
Average loans	$	870,446		863,261	831,043	1		5		866,873	827,436	5
Average assets	1,729,278			1,707,798	1,564,003	1		11		1,718,597	1,545,060	11
Average core deposits (3)	1,079,160			1,063,234	991,727	1		9		1,071,241	982,814	9
Average retail core deposits (4)	741,500			731,413	698,763	1		6		736,484	694,726	6
Net interest margin	2.97		%	2.95	3.15	1		(6	)	2.96	3.17	(7	)
At Period End
Investment securities	$	340,769		324,736	279,069	5		22		340,769	279,069	22
Loans	888,459			861,231	828,942	3		7		888,459	828,942	7
Allowance for loan losses	11,754			12,176	13,101	(3	)	(10	)	11,754	13,101	(10	)
Goodwill	25,705			25,705	25,705	—		—		25,705	25,705	—
Assets	1,720,617			1,737,737	1,598,874	(1	)	8		1,720,617	1,598,874	8
Core deposits (3)	1,082,634			1,086,993	1,007,485	—		7		1,082,634	1,007,485	7
Wells Fargo stockholders' equity	189,558			188,796	180,859	—		5		189,558	180,859	5
Total equity	190,676			189,964	181,549	—		5		190,676	181,549	5
Capital ratios (5)(6):
Total equity to assets	11.08		%	10.93	11.35	1		(2	)	11.08	11.35	(2	)
Risk-based capital:
Common Equity Tier 1	10.78			10.69	11.31	NM		NM		10.78	11.31	NM
Tier 1 capital	12.28			12.20	12.72	NM		NM		12.28	12.72	NM
Total capital	14.45			15.08	15.89	NM		NM		14.45	15.89	NM
Tier 1 leverage	9.45			9.48	9.86	NM		NM		9.45	9.86	NM
Common shares outstanding	5,145.2			5,162.9	5,249.9	—		(2	)	5,145.2	5,249.9	(2	)
Book value per common share	$	32.96		32.70	31.18	1		6		32.96	31.18	6
Common stock price:
High	58.26			56.29	53.05	3		10		58.26	53.05	10
Low	53.56			50.42	46.72	6		15		50.42	44.17	14
Period end	56.24			54.40	52.56	3		7		56.24	52.56	7
Team members (active, full-time equivalent)	265,800			266,000	263,500	—		1		265,800	263,500	1

NM - Not meaningful


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


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


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


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


(5)	The risk-based capital ratios presented were calculated: (a) under the Basel III Standardized Approach with Transition Requirements at June 30 and March 31, 2015, except for total capital ratio at June 30, 2015, which was calculated under the Basel III Advanced Approach with Transition Requirements, and (b) under the Basel III General Approach at June 30, 2014.


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

Overview (continued)

This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Form 10-K).

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

Financial Review

Overview

Wells Fargo & Company is a nationwide, diversified, community-based financial services company with $1.7 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, investments, mortgage, and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the internet (wellsfargo.com) and mobile banking, and we have offices in 36 countries to support customers who conduct business in the global economy. With approximately 266,000 active, full-time equivalent team members, we serve one in three households in the United States and rank No. 30 on Fortune’s 2015 rankings of America’s largest corporations. We ranked fourth in assets and first in the market value of our common stock among all U.S. banks at June 30, 2015.

We use our Vision and Values to guide us toward growth and success. Our vision is to satisfy our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. Important to our strategy to achieve this vision is to increase the number of our products our customers use and to offer them all of the financial products that fulfill their financial needs. We aspire to create deep and enduring relationships with our customers by discovering their needs and delivering the most relevant products, services, advice, and guidance.

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

Financial Performance

Wells Fargo net income was $5.7 billion in second quarter 2015 with diluted earnings per share (EPS) of $1.03, compared with $5.7 billion and $1.01, respectively, a year ago. Our results

reflected the benefit of our diversified business model, and our financial strength and competitive positioning allowed us to capture opportunities for growth - both organically and through acquisitions.

Compared with a year ago:


•	revenue grew 1%, with 4% growth in net interest income;


•	our total loans reached a record $888.5 billion, an increase of $59.5 billion, or 7%, even with the planned runoff in our non-strategic/liquidating portfolios, and our core loan portfolio grew by $68.5 billion, or 9%;


•	our liquidating portfolio declined $9.0 billion and was only 6% of our total loans, down from 8% a year ago;


•	our deposit franchise continued to generate strong customer and balance growth, with average deposits up $83.8 billion, or 8%, and we grew the number of primary consumer checking customers by 5.6% (May 2015 compared with May 2014);


•	our credit performance continued to improve with total net charge-offs down $67 million, or 9%, and represented only 30 basis points (annualized) of average loans; and


•	we increased the quarterly dividend rate on our common stock by 7% to $0.375 per share.

Balance Sheet and Liquidity

Our balance sheet continued to strengthen in second quarter 2015 as we increased our liquidity position, generated core loan and deposit growth, experienced continued improvement in credit quality and maintained strong capital levels. We have been able to grow our loans on a year-over-year basis for 16 consecutive quarters (for the past 13 quarters year-over-year loan growth has been 3% or greater) despite the planned runoff from our non-strategic/liquidating portfolios. Our non-strategic/liquidating loan portfolios decreased $2.2 billion during the quarter and our core loan portfolio increased $29.4 billion, which included $11.5 billion from the GE Capital loan purchase and associated financing transaction announced in first quarter 2015. Our investment securities increased by $16.0 billion during the quarter, driven primarily by purchases of federal agency mortgage-backed securities (MBS), U.S. Treasuries, and municipal securities, which were partially offset by maturities, amortization and sales.

Deposit growth continued in second quarter 2015 with period-end deposits up $17.5 billion, or 1%, from December 31, 2014. This increase reflected growth across both our commercial and consumer businesses. Our average deposit cost was 8 basis points, down 2 basis points from a year ago. We successfully grew our primary consumer checking customers (i.e., customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit) by 5.6% and primary business checking customers by 5.3% from a year ago (May 2015 compared with May 2014). Our ability to consistently grow primary checking customers is important to our results because these customers have more interactions with

Overview (continued)

us and are more than twice as profitable as non-primary customers.

Credit Quality

Credit quality improved in second quarter 2015 as losses remained at historically low levels, nonperforming assets (NPAs) continued to decline, and we continued to originate high quality loans, reflecting our long-term risk focus. Net charge-offs were $650 million, or 0.30% (annualized) of average loans, in second quarter 2015, compared with $717 million a year ago (0.35%), a 9% year-over-year decrease in credit losses. Our commercial portfolio net charge-offs were $62 million, or 6 basis points of average commercial loans. Net consumer credit losses declined to 53 basis points of average consumer loans in second quarter 2015 from 62 basis points in second quarter 2014. Our commercial real estate portfolios were in a net recovery position for the tenth consecutive quarter, reflecting our conservative risk discipline and improved market conditions. Losses on our consumer real estate portfolios declined $136 million from a year ago, down 46%, which included a $15 million decline in losses in our core 1-4 family first mortgage portfolio. The lower consumer loss levels reflected the benefit of the improving economy and our continued focus on originating high quality loans. Approximately 63% of the consumer first mortgage portfolio was originated after 2008, when more stringent underwriting standards were implemented.

Our provision for credit losses reflected a release from the allowance for credit losses of $350 million in second quarter 2015, which was $150 million less than what we released a year ago. Future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions.

In addition to lower net charge-offs and provision expense, NPAs also improved and were down $438 million, or 3%, from March 31, 2015, the eleventh consecutive quarter of decline. Nonaccrual loans declined $67 million from the prior quarter despite an increase in nonaccrual loans in our energy portfolio. The oil and gas portfolio represented only 2% of our total loan portfolio and balances in this portfolio declined by $1.1 billion from first quarter primarily due to pay downs. In addition, foreclosed assets were down $371 million from the prior quarter.

Capital

Our financial performance in second quarter 2015 resulted in strong capital generation, which increased total equity to $190.7 billion at June 30, 2015, up $712 million from the prior quarter. We continued to reduce our common share count through the repurchase of 36.3 million common shares in the quarter. We also entered into a $750 million forward repurchase contract in April 2015 with an unrelated third party that settled in July 2015 for 13.6 million shares. In addition, we entered into a $1.0 billion forward repurchase contract with an unrelated third party in July 2015 that is expected to settle in fourth quarter 2015 for approximately 17.5 million shares. We expect to reduce our common shares outstanding through share repurchases throughout the remainder of 2015. Our dividend payout ratio increased to 36% in second quarter 2015 as we increased the quarterly dividend rate on our common stock by 7%.

We believe an important measure of our capital strength is the Common Equity Tier 1 ratio under Basel III, fully phased-in, which increased to 10.55% at June 30, 2015. Likewise, our other regulatory capital ratios remained strong. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.

Earnings Performance (continued)

Earnings Performance

Wells Fargo net income for second quarter 2015 was $5.7 billion ($1.03 diluted earnings per common share), compared with $5.7 billion ($1.01) for second quarter 2014. Net income for the first half of 2015 was $11.5 billion ($2.07), compared with $11.6 billion ($2.06) for the same period a year ago. Our second quarter 2015 earnings reflected execution of our business strategy as we continued to satisfy our customers' financial needs. The key drivers of our financial performance in the second quarter and first half of 2015 were balanced net interest income and noninterest income, diversified sources of fee income, a diversified and growing loan portfolio and strong underlying credit performance.

Revenue, the sum of net interest income and noninterest income, was $21.3 billion in second quarter 2015, compared with $21.1 billion in second quarter 2014. Revenue for the first half of 2015 was $42.6 billion, up 2% from the first half of 2014. The increase in revenue for the second quarter and first half of 2015, compared with the same periods in 2014, was primarily due to an increase in net interest income, reflecting increases in interest income from loans and trading assets. In the second quarter and first half of 2015, net interest income represented 53% and 52% of revenue, respectively, compared with 51% for both the second quarter and first half of 2014.

Noninterest income represented 47% and 48% of revenue for the second quarter and first half of 2015, respectively, compared with 49% for both the second quarter and first half of 2014. The drivers of our noninterest income can differ depending on the interest rate and economic environment. For example, net gains on mortgage loan origination/sales activities were 12% of our fee income in second quarter 2015, up from 7% in the same period a year ago when the refinance market was not as strong. Other businesses, such as equity investments, brokerage and card, contributed more to fee income this quarter, demonstrating the benefit of our diversified business model.

Noninterest expense was $12.5 billion and $25.0 billion in the second quarter and first half of 2015, respectively, compared with $12.2 billion and $24.1 billion in the second quarter and first half of 2014, respectively. The increase for both periods reflected higher personnel expense, including higher commission and incentive compensation, as well as higher operating losses, partially offset by lower travel and entertainment expense.

Net Interest Income

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

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

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

Net interest income on a taxable-equivalent basis was $11.5 billion and $22.8 billion in the second quarter and first half of 2015, respectively, up from $11.0 billion and $21.8 billion for the same periods a year ago. The net interest margin was 2.97% and 2.96% for the second quarter and first half of 2015, respectively, down from 3.15% and 3.17% for the same periods a year ago. The increase in net interest income in the second quarter and first half of 2015 from the same periods a year ago, was primarily driven by growth in earning assets, including growth in short-term investments, investment securities, commercial and industrial loans, and trading assets, which offset a decrease in earning asset yields. Lower funding expense, due to an increase in noninterest bearing funding sources and reduced deposit costs, also contributed to higher net interest income. The decline in net interest margin in second quarter 2015, compared with the same period a year ago, was primarily driven by higher funding balances, including customer-driven deposit growth and actions we took in 2014 in response to increased regulatory liquidity expectations which raised long-term debt and term deposits. This growth in funding increased cash and federal funds sold and other short-term investments which are dilutive to net interest margin although essentially neutral to net interest income.

Average earning assets increased $153.7 billion in the second quarter and $161.8 billion in the first half of 2015, compared with the same periods a year ago, as average investment securities increased $58.3 billion in the second quarter and $53.9 billion in the first half of 2015 from the same periods a year ago. In addition, average federal funds sold and other short-term investments increased $37.3 billion in the second quarter and $49.8 billion in the first half of 2015 from the same periods a year ago. Average loans increased $39.4 billion in both the second quarter and first half of 2015, compared with the same periods a year ago.

Core deposits are an important low-cost source of funding and affect both net interest income and the net interest margin. Core deposits include noninterest-bearing deposits, interest-bearing checking, savings certificates, market rate and other savings, and certain foreign deposits (Eurodollar sweep balances). Average core deposits rose to $1.1 trillion in second quarter 2015 ($1.1 trillion in the first half of 2015), compared with $991.7 billion in second quarter 2014 ($982.8 billion in the first half of 2014), and funded 124% of average loans in both the second quarter and first half of 2015, compared with 119% for the same periods a year ago. Average core deposits decreased to 69% of average earning assets in both the second quarter and first half of 2015, compared with 71% for the same periods a year ago. The cost of these deposits has continued to decline due to a sustained low interest rate environment and a shift in our deposit mix from higher cost certificates of deposit to lower yielding checking and savings products. About 97% of our average core deposits are in checking and savings deposits, one of the highest industry percentages.



Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
	Quarter ended June 30,
						2015						2014
(in millions)	Average balance			Yields/ rates		Interest income/ expense		Average balance		Yields/ rates		Interest income/ expense
Earning assets
Federal funds sold, securities purchased under resale agreements and other short-term investments	$	267,101		0.28	%	$	186	229,770		0.28	%	$	161
Trading assets	67,615			2.91		492		54,347		3.05		414
Investment securities (3):
Available-for-sale securities:
Securities of U.S. Treasury and federal agencies	31,748			1.58		125		6,580		1.78		29
Securities of U.S. states and political subdivisions	47,075			4.13		486		42,721		4.26		456
Mortgage-backed securities:
Federal agencies	97,958			2.65		650		116,475		2.85		831
Residential and commercial	22,677			5.84		331		27,252		6.11		416
Total mortgage-backed securities	120,635			3.25		981		143,727		3.47		1,247
Other debt and equity securities	48,816			3.51		427		48,734		3.76		457
Total available-for-sale securities	248,274			3.25		2,019		241,762		3.62		2,189
Held-to-maturity securities:
Securities of U.S. Treasury and federal agencies	44,492			2.19		243		10,829		2.20		59
Securities of U.S. states and political subdivisions	2,090			5.17		27		8		6.00		—
Federal agency mortgage-backed securities	21,044			2.00		105		6,089		2.74		42
Other debt securities	6,270			1.70		26		5,206		1.90		25
Total held-to-maturity securities	73,896			2.18		401		22,132		2.28		126
Total investment securities	322,170			3.01		2,420		263,894		3.51		2,315
Mortgages held for sale (4)	23,456			3.57		209		18,824		4.16		195
Loans held for sale (4)	666			3.51		5		157		2.55		1
Loans:
Commercial:
Commercial and industrial - U.S.	231,551			3.36		1,939		199,246		3.39		1,687
Commercial and industrial - Non U.S.	45,123			1.93		217		43,045		2.06		221
Real estate mortgage	113,089			3.48		982		112,795		3.61		1,016
Real estate construction	20,771			4.12		214		17,458		4.18		182
Lease financing	12,364			5.16		160		12,151		5.68		172
Total commercial	422,898			3.33		3,512		384,695		3.42		3,278
Consumer:
Real estate 1-4 family first mortgage	266,023			4.12		2,740		259,985		4.20		2,729
Real estate 1-4 family junior lien mortgage	57,066			4.23		603		63,305		4.31		680
Credit card	30,373			11.69		885		26,442		11.97		790
Automobile	56,974			5.88		836		53,480		6.34		845
Other revolving credit and installment	37,112			5.88		544		43,136		5.07		545
Total consumer	447,548			5.02		5,608		446,348		5.02		5,589
Total loans (4)	870,446			4.20		9,120		831,043		4.28		8,867
Other	4,859			5.14		64		4,535		5.74		65
Total earning assets	$	1,556,313		3.22	%	$	12,496	1,402,570		3.43	%	$	12,018
Funding sources
Deposits:
Interest-bearing checking	$	38,551		0.05	%	$	5	40,193		0.07	%	$	7
Market rate and other savings	619,837			0.06		87		583,907		0.07		101
Savings certificates	32,454			0.63		52		38,754		0.86		82
Other time deposits	52,238			0.42		55		48,512		0.41		50
Deposits in foreign offices	104,334			0.13		33		94,232		0.15		35
Total interest-bearing deposits	847,414			0.11		232		805,598		0.14		275
Short-term borrowings	84,499			0.09		21		58,845		0.10		14
Long-term debt	185,093			1.34		620		159,233		1.56		620
Other liabilities	16,405			2.03		83		13,589		2.73		93
Total interest-bearing liabilities	1,133,411			0.34		956		1,037,265		0.39		1,002
Portion of noninterest-bearing funding sources	422,902					—		365,305		—		—
Total funding sources	$	1,556,313		0.25		956		1,402,570		0.28		1,002
Net interest margin and net interest income on a taxable-equivalent basis (5)				2.97	%	$	11,540			3.15	%	$	11,016
Noninterest-earning assets
Cash and due from banks	$	17,462						15,956
Goodwill	25,705							25,699
Other	129,798							119,778
Total noninterest-earning assets	$	172,965						161,433
Noninterest-bearing funding sources
Deposits	$	337,890						295,875
Other liabilities	67,595							51,184
Total equity	190,382							179,679
Noninterest-bearing funding sources used to fund earning assets	(422,902		)					(365,305	)
Net noninterest-bearing funding sources	$	172,965						161,433
Total assets	$	1,729,278						1,564,003


(1)	Our average prime rate was 3.25% for the quarters ended June 30, 2015 and 2014, and 3.25% for the first six months of both 2015 and 2014. The average three-month London Interbank Offered Rate (LIBOR) was 0.28% and 0.23% for the quarters ended June 30, 2015 and 2014, respectively, and 0.27% and 0.23% for the first six months of 2015 and 2014, respectively.


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


(3)	Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.


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


(5)	Includes taxable-equivalent adjustments of $270 million and $225 million for the quarters ended June 30, 2015 and 2014, respectively, and $512 million and $442 million for the first six months of 2015 and 2014, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35% for the periods presented.




	Six months ended June 30,
						2015						2014
(in millions)	Average balance			Yields/ rates		Interest income/ expense		Average balance		Yields/ rates		Interest income/ expense
Earning assets
Federal funds sold, securities purchased under resale agreements and other short-term investments	$	271,392		0.28	%	$	376	221,573		0.28	%	$	305
Trading assets	65,309			2.89		945		51,306		3.10		795
Investment securities (3):
Available-for-sale securities:
Securities of U.S. Treasury and federal agencies	28,971			1.56		225		6,576		1.73		57
Securities of U.S. states and political subdivisions	46,017			4.16		958		42,661		4.32		921
Mortgage-backed securities:
Federal agencies	100,064			2.71		1,356		117,055		2.90		1,695
Residential and commercial	23,304			5.77		673		27,641		6.12		845
Total mortgage-backed securities	123,368			3.29		2,029		144,696		3.51		2,540
Other debt and equity securities	47,938			3.47		827		48,944		3.68		895
Total available-for-sale securities	246,294			3.28		4,039		242,877		3.64		4,413
Held-to-maturity securities:
Securities of U.S. Treasury and federal agencies	43,685			2.20		477		5,993		2.20		65
Securities of U.S. states and political subdivisions	2,019			5.16		52		4		5.97		—
Federal agency mortgage-backed securities	16,208			1.95		158		6,125		2.93		90
Other debt securities	6,530			1.71		55		5,807		1.88		54
Total held-to-maturity securities	68,442			2.18		742		17,929		2.34		209
Total investment securities	314,736			3.04		4,781		260,806		3.55		4,622
Mortgages held for sale (4)	21,530			3.59		386		17,696		4.13		365
Loans held for sale (4)	683			3.08		10		134		4.08		3
Loans:
Commercial:
Commercial and industrial - U.S.	229,627			3.32		3,783		196,570		3.41		3,328
Commercial and industrial - Non U.S.	45,093			1.90		426		42,616		1.99		421
Real estate mortgage	112,298			3.52		1,963		112,810		3.58		2,006
Real estate construction	20,135			3.83		383		17,265		4.28		366
Lease financing	12,341			5.06		312		12,206		5.90		360
Total commercial	419,494			3.30		6,867		381,467		3.42		6,481
Consumer:
Real estate 1-4 family first mortgage	265,923			4.12		5,481		259,737		4.19		5,434
Real estate 1-4 family junior lien mortgage	57,968			4.25		1,224		64,155		4.31		1,372
Credit card	30,376			11.74		1,768		26,363		12.14		1,588
Automobile	56,492			5.91		1,657		52,642		6.42		1,676
Other revolving credit and installment	36,620			5.94		1,079		43,072		5.03		1,076
Total consumer	447,379			5.03		11,209		445,969		5.02		11,146
Total loans (4)	866,873			4.19		18,076		827,436		4.28		17,627
Other	4,795			5.27		127		4,595		5.73		131
Total earning assets	$	1,545,318		3.21	%	$	24,701	1,383,546		3.46	%	$	23,848
Funding sources
Deposits:
Interest-bearing checking	$	38,851		0.05	%	$	10	38,506		0.07	%	$	13
Market rate and other savings	616,643			0.06		184		581,489		0.07		206
Savings certificates	33,525			0.69		116		39,639		0.87		171
Other time deposits	54,381			0.41		111		47,174		0.42		98
Deposits in foreign offices	104,932			0.13		69		92,650		0.14		66
Total interest-bearing deposits	848,332			0.12		490		799,458		0.14		554
Short-term borrowings	78,141			0.10		39		56,686		0.10		27
Long-term debt	184,432			1.33		1,224		156,528		1.59		1,239
Other liabilities	16,648			2.17		180		13,226		2.72		180
Total interest-bearing liabilities	1,127,553			0.34		1,933		1,025,898		0.39		2,000
Portion of noninterest-bearing funding sources	417,765					—		357,648		—		—
Total funding sources	$	1,545,318		0.25		1,933		1,383,546		0.29		2,000
Net interest margin and net interest income on a taxable-equivalent basis (5)				2.96	%	$	22,768			3.17	%	$	21,848
Noninterest-earning assets
Cash and due from banks	$	17,262						16,159
Goodwill	25,705							25,668
Other	130,312							119,687
Total noninterest-earning assets	$	173,279						161,514
Noninterest-bearing funding sources
Deposits	$	331,745						290,004
Other liabilities	69,779							52,065
Total equity	189,520							177,093
Noninterest-bearing funding sources used to fund earning assets	(417,765		)					(357,648	)
Net noninterest-bearing funding sources	$	173,279						161,514
Total assets	$	1,718,597						1,545,060



Noninterest Income
Table 2: Noninterest Income
							Six months
	Quarter ended June 30,				%		ended June 30,
(in millions)	2015			2014	Change		2015			2014	% Change
Service charges on deposit accounts	$	1,289		1,283	—	%	$	2,504		2,498	—	%
Trust and investment fees:
Brokerage advisory, commissions and other fees	2,399			2,280	5		4,779			4,521	6
Trust and investment management	861			838	3		1,713			1,682	2
Investment banking	450			491	(8	)	895			818	9
Total trust and investment fees	3,710			3,609	3		7,387			7,021	5
Card fees	930			847	10		1,801			1,631	10
Other fees:
Charges and fees on loans	304			342	(11	)	613			709	(14	)
Merchant processing fees	202			183	10		389			355	10
Cash network fees	132			128	3		257			248	4
Commercial real estate brokerage commissions	141			99	42		270			171	58
Letters of credit fees	90			92	(2	)	178			188	(5	)
All other fees	238			244	(2	)	478			464	3
Total other fees	1,107			1,088	2		2,185			2,135	2
Mortgage banking:
Servicing income, net	514			1,035	(50	)	1,037			1,973	(47	)
Net gains on mortgage loan origination/sales activities	1,191			688	73		2,215			1,260	76
Total mortgage banking	1,705			1,723	(1	)	3,252			3,233	1
Insurance	461			453	2		891			885	1
Net gains from trading activities	133			382	(65	)	541			814	(34	)
Net gains on debt securities	181			71	155		459			154	198
Net gains from equity investments	517			449	15		887			1,296	(32	)
Lease income	155			129	20		287			262	10
Life insurance investment income	145			138	5		290			270	7
All other	(285		)	103	NM		(144		)	86	NM
Total	$	10,048		10,275	(2	)	$	20,340		20,285	—

NM - Not meaningful

Noninterest income was $10.0 billion and $10.3 billion for second quarter 2015 and 2014, respectively, and $20.3 billion for both the first half of 2015 and 2014. This income represented 47% and 48% of revenue for the second quarter and first half of 2015, respectively, compared with 49% for both the second quarter and first half of 2014. Many of our businesses, including credit and debit cards, merchant card processing, commercial banking, asset-backed finance, real estate capital markets, international, wealth management and retirement grew noninterest income in the second quarter and first half of 2015. This growth was offset by lower other income driven by the accounting impact related to debt hedges.

Service charges on deposit accounts were $1.3 billion and $2.5 billion in the second quarter and first half of 2015, respectively, unchanged from the second quarter and first half of 2014, respectively. Lower overdraft fees driven by changes implemented in early October 2014, designed to provide customers with more real time information, were offset by higher fees from commercial product sales and commercial product re-pricing.

Brokerage advisory, commissions and other fees are received for providing services to full-service and discount brokerage customers. Income from these brokerage-related activities include asset-based fees, which are based on the market value of the customer’s assets, and transactional commissions based on the number and size of transactions executed at the customer’s

direction. These fees increased to $2.4 billion and $4.8 billion in the second quarter and first half of 2015, respectively, from $2.3 billion and $4.5 billion for the same periods in 2014. The increase in retail brokerage income was predominantly due to higher asset-based fees as a result of higher market values and growth in assets under management. Retail brokerage client assets totaled $1.43 trillion at June 30, 2015, up 1% from $1.42 trillion at June 30, 2014.

We earn trust and investment management fees from managing and administering assets, including mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. Trust and investment management fees are largely based on a tiered scale relative to the market value of the assets under management or administration. These fees increased to $861 million and $1.71 billion in the second quarter and first half of 2015, respectively, from $838 million and $1.68 billion for the same periods in 2014, with growth primarily due to higher market values. At June 30, 2015, these assets totaled $2.4 trillion, compared with $2.5 trillion at June 30, 2014.

We earn investment banking fees from underwriting debt and equity securities, arranging loan syndications, and performing other related advisory services. Investment banking fees decreased to $450 million in second quarter 2015 from $491 million for the same period in 2014, driven by declines in advisory services and equity origination. In the first half of 2015, investment banking fees increased to $895 million from

Earnings Performance (continued)

$818 million for the same period in 2014, driven by higher investment grade debt origination reflecting an active domestic market.

Card fees were $930 million and $1.8 billion in the second quarter and first half of 2015, respectively, compared with $847 million and $1.6 billion for the same periods a year ago. The increase was primarily due to account growth and increased purchase activity.

Other fees of $1.11 billion and $2.19 billion in the second quarter and first half of 2015, respectively, increased from $1.09 billion and $2.14 billion for the same periods a year ago as increases in commercial real estate brokerage commissions and merchant processing fees more than offset a decline in charges and fees on loans. Charges and fees on loans decreased to $304 million and $613 million in the second quarter and first half of 2015, respectively, compared with $342 million and $709 million for the same periods a year ago, primarily due to the phase out of the direct deposit advance product during the first half of 2014. Commercial real estate brokerage commissions increased by $42 million and $99 million in the second quarter and first half of 2015, respectively, compared with the same periods a year ago, driven by increased sales and other property-related activities, including financing and advisory services.

Mortgage banking noninterest income, consisting of net servicing income and net gains on loan origination/sales activities, totaled $1.7 billion in both second quarter 2015 and 2014, and totaled $3.3 billion for the first half of 2015, compared with $3.2 billion for the same period a year ago.

In addition to servicing fees, net mortgage loan servicing income includes amortization of commercial mortgage servicing rights (MSRs), changes in the fair value of residential MSRs during the period, as well as changes in the value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income for second quarter 2015 included a $107 million net MSR valuation gain ($1.1 billion increase in the fair value of the MSRs and a $946 million hedge loss) and for second quarter 2014 included a $475 million net MSR valuation gain ($835 million decrease in the fair value of the MSRs offset by an $1.3 billion hedge gain). For the first half of 2015, net servicing income included a $215 million net MSR valuation gain ($280 million increase in the fair value of the MSRs and a $65 million hedge loss) and for the same period of 2014 included a $882 million net MSR valuation gain ($1.3 billion decrease in the fair value of the MSRs offset by an $2.2 billion hedge gain). The decrease in net MSR valuation gains in the second quarter and first half of 2015, compared with the same periods in 2014, was primarily attributable to lower hedge gains, MSR valuation adjustments in first quarter 2015 that reflected higher prepayment expectations due to the reduction in FHA mortgage insurance premiums as well as overall lower actual prepayments in the first half of 2014.

Our portfolio of residential and commercial loans serviced for others was $1.81 trillion at June 30, 2015, and $1.86 trillion at December 31, 2014. At June 30, 2015, the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.77%, compared with 0.75% at December 31, 2014. See the “Risk Management – Mortgage Banking Interest Rate and Market Risk” section of this Report for additional information regarding our MSRs risks and hedging approach.

Net gains on mortgage loan origination/sale activities were $1.2 billion and $2.2 billion in the second quarter and first half of 2015, respectively, up from $688 million and $1.3 billion for the same periods a year ago. The increase in the second quarter and first half of 2015, compared with the same periods a year ago, was primarily driven by increased origination volumes and

margins. Mortgage loan originations were $62 billion for second quarter 2015, of which 54% were for home purchases, compared with $47 billion and 74%, respectively, for the same period a year ago. The year-over-year increase was primarily driven by higher refinance activity reflecting lower mortgage interest rates. Mortgage applications were $81 billion and $174 billion in the second quarter and first half of 2015, respectively, compared with $72 billion and $132 billion for the same periods a year ago. The real estate 1-4 family first mortgage unclosed pipeline was $38 billion at June 30, 2015, compared with $30 billion at June 30, 2014. For additional information about our mortgage banking activities and results, see the “Risk Management – Mortgage Banking Interest Rate and Market Risk” section and Note 8 (Mortgage Banking Activities) and Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.

Net gains on mortgage loan origination/sales activities include adjustments to the mortgage repurchase liability. Mortgage loans are repurchased from third parties based on standard representations and warranties, and early payment default clauses in mortgage sale contracts. For the first half of 2015, we released a net $34 million from the repurchase liability, including $18 million in second quarter 2015, compared with a net $20 million release for the first half of 2014, including $26 million in second quarter 2014. For additional information about mortgage loan repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.

We engage in trading activities primarily to accommodate the investment activities of our customers, execute economic hedging to manage certain components of our balance sheet risks and for a very limited amount of proprietary trading for our own account. Net gains from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $133 million and $541 million in the second quarter and first half of 2015, respectively, compared with $382 million and $814 million for the same periods a year ago. Both