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WELLS FARGO WELLS FARGO & COMPANY  ANNUAL REPORTTHE POWER OF A CONVERSATION
Wells Fargo & Company Annual Report 2012
The power of a
conversation.

Table of contents

  • Page 1
    Wells Fargo & Company Annual Report 2012 WELLS FARGO THE POWER OF A CON VERSATION W E L L S FA R G O & COM PA N Y 201 2 A N N UA L R E P O R T The power of a conversation.

  • Page 2
    2 To Our Owners 10 Creating Conversations 22 Community 27 Board of Directors, Senior Leaders 29 2012 Financial Report 1$ 2 0 0'$Ɍ*0)/$)"Ɍ$-( #0 2 4 0

  • Page 3
    ... financially. Today, Wells Fargo serves one in three U.S. households and can provide just about any financial service an individual or business requires. We serve customers in communities across the country through our 9,097 stores, and we are the fourth largest in assets among U.S. banks. We got...

  • Page 4
    ...ve been having those conversations at Wells Fargo for more than 160 years, and they are the cornerstone of our success. Today, we serve one in three U.S. households and employ one in 500 working Americans. We handle 5.5 billion customer interactions a year in our Community Bank alone - these give us...

  • Page 5
    ...year over year: Community Banking by 15 percent, Wholesale Banking by 11 percent, and Wealth, Brokerage and Retirement by 4 percent. In 2012, Wells Fargo led in areas central to our customers' lives and our economy's vitality - small business lending, home mortgage lending, auto lending, and private...

  • Page 6
    ...50 percent increase in credit cards, lines of credit, and loan product solutions in our Business Direct lending unit, which focuses primarily on serving the credit needs of businesses with less than $2 million in annual sales. Since the beginning of 2009 and through the end of 2012, Wells Fargo has...

  • Page 7
    ...Wells Fargo Mobile® Deposit, expanded our Send & Receive Money service, and introduced a new Wells Fargo app for iPad. In 2012, retail customers made more than $30 billion in payments and transfers via mobile. Wells Fargo was the first major U.S. financial services company to offer mobile banking...

  • Page 8
    ...Average core deposits 3 Average retail core deposits 4 Net interest margin AT YEARâˆ'END Securities available for sale *). Allowance for loan losses Goodwill Assets Core deposits 3 Wells Fargo stockholders' equity Total equity Tier 1 capital 5 Total capital 5 Capital ratios: Total equity to assets...

  • Page 9
    ... in products and services that our customers value. This discipline is expressed by our "efficiency ratio," which reï¬,ects how much we spend in expenses for every dollar of revenue we earn. In 2012, Wells Fargo's efficiency ratio was 58.5 percent, the lowest of our industry's four largest companies...

  • Page 10
    ... cash investors were keeping many Americans from re-entering the housing market or buying their first home. In response, Wells Fargo partnered with housing nonprofit NeighborWorks® America to create NeighborhoodLIFT SM, one of several programs we've funded to help keep homeownership accessible...

  • Page 11
    ... to grow, and our economy is showing signs of increased vibrancy due to a housing market on the mend. 2012 was an outstanding year for Wells Fargo's customers, team members, communities, and shareholders. Because, in the end, it all comes down to how well we listen to the needs of all stakeholders...

  • Page 12
    ... to Wells Fargo after seeing how we managed the retirement plan of the hospital where he was an orthopedic surgeon. The Iversons worked with Christine Kaehler and a team of specialists at Wells Fargo Private Bank to craft a retirement plan. Because Wells Fargo had listened, and crafted a plan for...

  • Page 13
    Jean Iverson with granddaughters McKenzie (left) and Madeline, Spicer, Minnesota 11

  • Page 14
    12

  • Page 15
    ... to save checks until he had enough to make a trip to the bank. Now, he deposits them quickly and securely using CEO Mobile® Deposit. 9.4 million Wells Fargo has 9.4 million active consumer and business mobile banking customers, and the feature they ask for most is mobile deposit. Six years ago...

  • Page 16
    Wells Fargo's Joseph Millhouse with Maria Marquez, San Antonio, Texas 14

  • Page 17
    ... customers take advantage of historically low interest rates to refinance their mortgages. Not all conversations begin smoothly. Maria Marquez of San Antonio, Texas, stopped in a Wells Fargo store with questions about her monthly mortgage payment. She was referred to Home Mortgage Consultant...

  • Page 18
    16

  • Page 19
    ..., China, and Vietnam. "We use Wells Fargo for a variety of international business services, including foreign exchange, trade letters of credit, and financing our global operations," said Wang. Relationship Manager Rosalie Hawley said, "As Wells Fargo grows our international capabilities, we've...

  • Page 20
    Leonard Burch, Charlotte, North Carolina 18

  • Page 21
    ... Fargo allowed him to build an annex to his headquarters. "Along with our line of credit, it means we can buy what we need for projects very quickly, store it on-site, and move immediately on new business." What he values most is a financial review with the Wells Fargo team, organized twice a year...

  • Page 22
    Juanita Soranno, New York, New York 20

  • Page 23
    ...Soranno came back for advice on the best way to pay off her student loan, and then landed a job with Wells Fargo. No. 2 Wells Fargo is the No. 2 provider of private student loans. When Juanita Soranno was accepted to San Francisco State University, it was a tossup over who was most excited: her or...

  • Page 24
    ... in the university's Environmental Studies Program, helps manage the farm. With the urging of Wells Fargo team members, the Urban Farm applied for and was awarded a $100,000 environmental grant from Wells Fargo, and volunteers from a Wells Fargo Green Team regularly spend time weeding, planting...

  • Page 25
    Wells Fargo's Esther Lee with Professor Michael Boyle, Renton, Washington 23

  • Page 26
    Idania Remon with Wells Fargo's Jaime Yepes, Tampa, Florida 24

  • Page 27
    ...the U.S. from Cuba 10 years ago with her husband and two children. She got a job as a machine operator in a sports apparel manufacturing company and began working with Wells Fargo to establish credit. When she was interested in buying a home, she talked to Home Mortgage Consultant Jaime Yepes. Yepes...

  • Page 28
    ... 2012 Small business lending million in 2012 Product and service responsibility We offer all customers responsible financial advice and solutions for now and the future. 1,600 new homeowners helped with $27 million in down payment assistance through 16 Wells Fargo LIFT programs launched in 2012...

  • Page 29
    ...) John G. Stumpf Chairman, President, CEO Wells Fargo & Company Lloyd H. Dean 2, 5, 6, 7 President, CEO Dignity Health San Francisco, California (Healthcare) Federico F. Peña 1, 5 Senior Advisor Vestar Capital Partners Denver, Colorado (Private equity) Susan G. Swenson 1, 5 Retired President...

  • Page 30
    ... P. Day, Rural Community Insurance Services, Inc. Anne J. Doss, Personal and Small Business Insurance Ken Fraser, National Product and Special Risk Group Wholesale Services Stephen M. Ellis Michael J. Kennedy, Payment Strategies Daniel C. Peltz, Treasury Management Group WHOLESALE BANKING Group...

  • Page 31
    ... Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to Financial Statements 129 141 1 2 Summary of Significant Accounting Policies Business Combinations 243 Report of Independent Registered Public Accounting Firm Quarterly...

  • Page 32
    ... 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...

  • Page 33
    ... family conforming first mortgage production on the balance sheet), partially offset by the planned runoff in our nonstrategic/liquidating loan portfolio of $17.8 billion. We also increased securities available for sale by $12.6 billion in 2012 as rates rose and yields became more attractive. Credit...

  • Page 34
    ... per common share Dividends declared per common share Balance sheet (at year end) Securities available for sale Loans Allowance for loan losses Goodwill Assets Core deposits (2) Long-term debt Wells Fargo stockholders' equity Noncontrolling interests Total equity $ 235,199 799,574 17,060 25,637...

  • Page 35
    ... Tier 1 common equity (3) Average balances: Average Wells Fargo common stockholders' equity to average assets Average total equity to average assets Per common share data Dividend payout (4) Book value Market price (5) High Low Year end (1) (2) (3) (4) (5) The efficiency ratio is noninterest expense...

  • Page 36
    ...expense from the prior year was due to increased revenue generating activities and elevated operating losses and other costs associated with mortgage servicing regulatory consent orders, the IFR settlement, additional remediationrelated costs and the contribution to the Wells Fargo Foundation. Table...

  • Page 37
    ... (A) Noninterest income Service charges on deposit accounts Trust and investment fees (1) Card fees Other fees (1) Mortgage banking (1) Insurance Net gains from trading activities Net gains (losses) on debt securities available for sale Net gains from equity investments Operating leases Other Total...

  • Page 38
    ... $16.3 billion to higher average loans in 2012 compared with a year ago. These increases in average securities available for sale, mortgages held for sale and average loans were partially offset by a $3.1 billion decline in average short-term investments. Core deposits are an important low-cost...

  • Page 39
    ... estate 1-4 family junior lien mortgage Credit card Other revolving credit and installment Total consumer Total loans (1) Other Total earning assets Funding sources Deposits: Interest-bearing checking Market rate and other savings Savings certificates Other time deposits Deposits in foreign offices...

  • Page 40
    ... estate 1-4 family junior lien mortgage Credit card Other revolving credit and installment Total consumer Total loans (6) Other Total earning assets Funding sources Deposits: Interest-bearing checking Market rate and other savings Savings certificates Other time deposits Deposits in foreign offices...

  • Page 41
    ...Average balance Yields/ rates Interest income/ expense Average balance Yields/ rates 2009 Interest income/ expense Average balance Yields/ rates 2008...2012, 2011, 2010, 2009 and 2008, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate...

  • Page 42
    ... Income Year ended December 31, 2012 over 2011 (in millions) Increase (decrease) in interest income: Federal funds sold, securities purchased under resale agreements and other short-term investments Trading assets Debt securities available for sale: Securities of U.S. Treasury and federal agencies...

  • Page 43
    ...of credit fees All other fees Total other fees Mortgage banking: Servicing income, net Net gains on mortgage loan origination/sales activities Total mortgage banking Insurance Net gains from trading activities Net gains (losses) on debt securities available for sale Net gains from equity investments...

  • Page 44
    ... 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 mortgage loan origination/sale...

  • Page 45
    ...and gains on sale of foreclosed properties. Operating losses were up $974 million, or 77%, in 2012 compared with the prior year, predominantly due to additional mortgage servicing and foreclosure-related matters, including the Attorneys General settlement announced in February 2012, our $175 million...

  • Page 46
    ...Commercial Mortgage Servicing, Corporate Trust, Equipment Finance, Wells Fargo Securities, Principal Investments, Asset Backed Finance, and Asset Management. Wholesale Banking reported net income of $7.8 billion in 2012, up $787 million, or 11%, from $7.0 billion in 2011. The year over year increase...

  • Page 47
    ....4 billion of 1-4 family conforming first mortgage production on the balance sheet), partially offset by the runoff in our non strategic/liquidating loan portfolio of $17.8 billion. We also increased securities available for sale by $12.6 billion in 2012. The strength of our business model produced...

  • Page 48
    ... see Note 1 (Summary of Significant Accounting Policies - Investments) and Note 5 (Securities Available for Sale) to Financial Statements in this Report. At December 31, 2012, debt securities available for sale included $38.7 billion of municipal bonds, of which 82% were rated "A-" or better based...

  • Page 49
    ... 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 17 in the "Credit Risk Management" section of this Report. December 31, 2012 (in millions) Commercial...

  • Page 50
    ... us to make payments to a guaranteed party based on an event or a change in an underlying asset, liability, rate or index. Guarantees are generally in the form of standby letters of credit, securities lending and other indemnifications, liquidity agreements, written put options, recourse obligations...

  • Page 51
    ... interest rate risk management process for our customers or for other trading activities. See the "Risk Management - Asset/Liability" section and Note 16 (Derivatives) to Financial Statements in this Report for more information. Transactions with Related Parties The Related Party Disclosures topic...

  • Page 52
    ... access remain a priority for Wells Fargo. See the "Risk Factors" section of this Report 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. Credit Risk Management Loans...

  • Page 53
    ...-a-Pay mortgage (1) Liquidating home equity Legacy Wells Fargo Financial indirect auto Legacy Wells Fargo Financial debt consolidation Education Finance - government guaranteed Legacy Wachovia other PCI loans (1) Total consumer Total non-strategic and liquidating loan portfolios (1) Net of purchase...

  • Page 54
    ..., particularly in housing prices, and our loan modification efforts. See the "Real Estate 1-4 Family First and Junior Lien Mortgage Loans" section in this Report for additional information. These factors led to the reduction in expected losses on PCI loans, primarily Pick-a-Pay, which resulted...

  • Page 55
    ... Losses from loan resolutions and write-downs (4) Balance, December 31, 2009 Release of nonaccretable difference due to: Loans resolved by settlement with borrower (1) Loans resolved by sales to third parties (2) Reclassification to accretable yield for loans with improving credit-related cash flows...

  • Page 56
    ... by sales to third parties (2) Reclassification to accretable yield for loans with improving credit-related cash flows (3) Total releases of nonaccretable difference due to better than expected losses Provision for losses due to credit deterioration (4) Actual and projected losses on PCI loans less...

  • Page 57
    ... the agreed-upon terms. Extension terms generally range from six to thirty-six months and may require that the borrower provide additional economic support in the form of partial repayment, or additional collateral or guarantees. In cases where the value of collateral or financial condition of the...

  • Page 58
    Risk Management - Credit Risk Management (continued) Table 21: CRE Loans by State and Property Type December 31, 2012 Real estate mortgage Nonaccrual (in millions) By state: PCI loans (1): New York Florida California Pennsylvania Texas Other Total PCI loans All other loans: California Florida Texas ...

  • Page 59
    ... 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...

  • Page 60
    ... 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...

  • Page 61
    ... Management - Credit Risk Management - Nonperforming Assets" section in this Report for more information. Table 23: Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State December 31, 2012 Real estate Real estate 1-4 family first (in millions) PCI loans: California Florida New Jersey...

  • Page 62
    ...Report. Real estate 1-4 family junior lien mortgages and lines of credit associated Table 24: Pick-a-Pay Portfolio - Comparison to Acquisition Date December 31, 2012 (1) Adjusted unpaid principal (in millions) Option payment loans Non-option payment adjustable-rate and fixed-rate loans (3) Full-term...

  • Page 63
    ... The ratio of carrying value to current value is calculated as the carrying value divided by the collateral value. To maximize return and allow flexibility for customers to avoid foreclosure, we have in place several loss mitigation strategies for our Pick-a-Pay loan portfolio. We contact customers...

  • Page 64
    ... Lien Mortgage Loans" section in this Report. Table 26: Home Equity Portfolios Performance by Holder of 1st Lien (1) % of loans Outstanding balance (2) December 31, (in millions) First lien lines Junior lien mortgages and lines behind: Wells Fargo owned or serviced first lien Third party first...

  • Page 65
    ... of credit secured by real estate, but excludes PCI loans because their losses are generally covered by PCI accounting adjustment at the date of acquisition, and excludes real estate 1-4 family first lien open-ended line reverse mortgages because they do not have scheduled payments. These reverse...

  • Page 66
    ...income from accretable yield, independent of performance in accordance with their contractual terms. (6) Real estate 1-4 family mortgage loans predominantly insured by the FHA or guaranteed by the VA and student loans predominantly guaranteed by agencies on behalf of the U.S. Department of Education...

  • Page 67
    ... construction Lease financing Foreign Total commercial Consumer: Real estate 1-4 family first mortgage Real estate 1-4 family junior lien mortgage Other revolving credit and installment Total consumer Total nonaccrual loans Foreclosed assets: Government insured/guaranteed Non-government insured...

  • Page 68
    ...Credit Risk Management (continued) Table 30: Analysis of Changes in Nonaccrual Loans Quarter ended Dec. 31, (in millions) Commercial nonaccrual loans Balance, beginning of period Inflows Outflows: Returned to accruing Foreclosures Charge-offs Payments, sales and other (1) Total outflows Balance, end...

  • Page 69
    ...December 31, 2012, 68% of our foreclosed assets of $4.0 billion have been in the foreclosed assets portfolio one year or less. Given our real estate-secured loan concentrations and current economic conditions, we anticipate we will continue to hold an elevated level of NPAs on our balance sheet. 67

  • Page 70
    ...as well as written down to net realizable collateral value. Table 33: TDRs Balance by Quarter During 2012 Dec. 31, (in millions) Commercial TDRs Commercial and industrial Real estate mortgage Real estate construction Lease financing Foreign Total commercial TDRs Consumer TDRs Real estate 1-4 family...

  • Page 71
    ... December 31, 2012 and 2011, respectively. See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for additional information regarding TDRs. In those situations where principal is forgiven, the entire amount of such principal forgiveness is immediately charged off...

  • Page 72
    ... 90 days or more past due and still accruing. Represents loans whose repayments are predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the FFELP. The balance at December 31, 2012, includes the impact from the transfer of certain 1-4 family junior lien mortgages...

  • Page 73
    ...-offs Year ended December 31, Net loan charge($ in millions) 2012 Commercial: Commercial and industrial Real estate mortgage Real estate construction Lease financing Foreign Total commercial Consumer: Real estate 1-4 family first mortgage Real estate 1-4 family junior lien mortgage Credit card Other...

  • Page 74
    ...million to $3.2 billion in 2012. More information about the home equity portfolio, which includes substantially all of our real estate 1-4 family junior lien mortgage loans, is available in Table 27 of this Report and the related discussion. Credit card net charge-offs decreased $282 million to $916...

  • Page 75
    ...Credit Losses (ACL) December 31, 2012 Loans as % of total (in millions) Commercial: Commercial and industrial Real estate mortgage Real estate construction Lease financing Foreign Total commercial Consumer: Real estate 1-4 family first mortgage Real estate 1-4 family junior lien mortgage Credit card...

  • Page 76
    .... For additional information on PCI loans, see the "Risk Management - Credit Risk Management - Purchased Credit-Impaired Loans" section, Note 1 (Summary of Significant Accounting Policies) and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. The ratio of the...

  • Page 77
    ... current loan balance and the estimated collateral value less costs to sell the property. The overall level of unresolved repurchase demands and mortgage insurance rescissions outstanding at December 31, 2012, was down from a year ago in both number of outstanding loans and in total dollar balances...

  • Page 78
    ...that are reasonably possible. The estimate of the range of possible loss for representations and warranties does not represent a probable loss, and is based on currently available information, significant judgment, and a number of assumptions that are subject to change. The high end of this range of

  • Page 79
    ... with the SEC, (4) if required by the securitization documents, calculate distributions and loss allocations on the mortgage-backed securities, (5) prepare tax and information returns of the securitization trust, and (6) advance amounts required by non-affiliated servicers who fail to perform their...

  • Page 80
    ..., the Department of Veterans Affairs, the Federal Trade Commission (FTC), the Executive Office of the U.S. Trustee, the Consumer Financial Protection Bureau, a task force of Attorneys General representing 49 states, Wells Fargo, and four other servicers related to investigations of mortgage industry...

  • Page 81
    ... share of Wells Fargo-serviced loans in the overall IFR population. We fully accrued the cash portion of the settlement in 2012, along with other remediation-related costs. We also committed to foreclosure prevention actions which include first and second lien modifications and short sales/deeds-in...

  • Page 82
    ... reduce rates paid on checking and savings deposit accounts by an amount that is less than the general decline in market interest rates); x short-term and long-term market interest rates may change by different amounts (for example, the shape of the yield curve may affect new loan yields and funding...

  • Page 83
    ... certain timing differences and better matches changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets. During 2012 and 2011, in response to continued secondary market illiquidity, we continued to originate certain prime non-agency loans...

  • Page 84
    ... carrying value of our total MSRs represented 0.67% and 0.76% of mortgage loans serviced for others at December 31, 2012 and 2011, respectively. As part of our mortgage banking activities, we enter into commitments to fund residential mortgage loans at specified times in the future. A mortgage loan...

  • Page 85
    ...noninterest income in our income statement. From a market risk perspective, our net income is exposed to changes in the fair value of trading assets and liabilities due to changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices. Our Market Risk Committee, which...

  • Page 86
    ... rates, credit spreads, foreign exchange rates, and equity and commodity prices. The risk drivers for each position are updated on a daily basis. The historical simulation approach employs historical scenarios of the risk factors from each trading day in the previous year, and estimates the value...

  • Page 87
    ... Backtesting of Regulatory VaR: Year Ended December 31, 2012 trading positions that do not meet this definition include activity related to long-term positions held for economic hedging purposes, credit adjustments and other activity not representative of daily price changes driven by market risk...

  • Page 88
    ...for sale. See Note 5 (Securities Available for Sale) to Financial Statements in this Report for additional information. LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash...

  • Page 89
    ...debt securities, private placements and Table 47: Credit Ratings asset-backed secured funding. Investors in the long-term capital markets, as well as other market participants, generally will consider, among other factors, a company's debt rating in making investment decisions. Rating agencies base...

  • Page 90
    ...bank note program of $50 billion in short-term senior notes and $45.4 billion in longterm senior or subordinated notes. In February 2013, Wells Fargo Bank, N.A. issued $3.0 billion of senior floating-rate extendible notes. of the Federal Home Loan Banks based in Dallas, Des Moines and San Francisco...

  • Page 91
    ... Agency Capital Requirements) to Financial Statements in this Report for additional information. Current regulatory RBC rules are based primarily on broad credit-risk considerations and limited market-related risks, but do not take into account other types of risk facing a financial services company...

  • Page 92
    ... of Rule 10b5-1 of the Securities Exchange Act of 1934. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue for employee benefit plans and acquisitions, market conditions (including the trading price of...

  • Page 93
    ...a part of the Troubled Asset Relief Program (TARP), we issued to the U.S. Treasury Department warrants to purchase 110,261,688 shares of our common stock with an exercise price of $34.01 per share expiring on October 28, 2018. The Board authorized the repurchase by the Company of up to $1 billion of...

  • Page 94
    ... information on the part of market participants. (2) The Basel III Tier 1 common equity and risk-weighted assets are calculated based on management's current interpretation of the Basel III capital rules proposed by federal banking agencies in notices of proposed rulemaking announced in June 2012...

  • Page 95
    ... Fargo Bank as a swap dealer, which occurred at the end of 2012. Volcker Rule. The Volcker Rule will substantially restrict banking entities from engaging in proprietary trading or owning any interest in or sponsoring a hedge fund or a private equity fund. In October 2011, federal banking agencies...

  • Page 96
    ...In November 2011, the BCBS released its final rule for a common equity surcharge on certain designated global systemically important banks (G-SIBs). The Financial Stability Board (FSB), in an updated list published in November 2012 based on year-end 2011 data, identified the Company as one of the 28...

  • Page 97
    ... to submit capital plans annually and to obtain regulatory approval before making capital distributions. The rule also requires a capital adequacy assessment under a range of expected and stress scenarios. For additional information, see the "Capital Management" section of this Report. "Living Will...

  • Page 98
    ... by an independent internal model validation group operating in accordance with Company policies. OTHER ACL MATTERS The allowance for credit losses for both portfolio segments includes an amount for imprecision or uncertainty that may change from period to period. This amount represents management...

  • Page 99
    ... related to determining the allowance for credit losses, management considers changes in economic conditions, customer behavior, and collateral value, among other influences. From time to time, economic factors or business decisions, such as the addition or liquidation of a loan product or business...

  • Page 100
    ... in recent years, we have made significant adjustments to the assumptions for servicing and foreclosure costs as a result of an increase in the number of defaulted loans as well as changes in servicing processes associated with default and foreclosure management. While our current valuation reflects...

  • Page 101
    ... representations and warranties in the contractual provisions of our sales of mortgage loans. Because the level of mortgage loan repurchase losses are dependent on economic factors, investor demand strategies and other external conditions that may change over the life of the underlying loans, the...

  • Page 102
    ... Accounting Policies (continued) x Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government...

  • Page 103
    ..., and other asset-backed securities, auction-rate securities, certain derivative contracts such as credit default swaps related to collateralized mortgage obligation (CMO), CDO and CLO exposures and certain MHFS, certain loans, and MSRs. For additional information on how we value MSRs refer to the...

  • Page 104
    ... that are partially or entirely capitalized on the balance sheet, then companies must provide a cross-reference to disclosures that provide information about the effect of the reclassifications. This guidance is effective for us in Q1 2013 with prospective application. The Update will not...

  • Page 105
    ... funding costs, and declines in asset values and/or recognition of OTTI on securities held in our available-for-sale portfolio due to volatility or changes in interest rates, foreign exchange rates and/or debt, equity and commodity prices; our ability to sell more products to our existing customers...

  • Page 106
    Forward-Looking Statements (continued) x the effect of a fall in stock market prices on our investment banking business and our fee income from our brokerage, asset and wealth management businesses; changes in the value of our venture capital investments; changes in our accounting policies or in ...

  • Page 107
    ... in higher credit losses as borrowers may have more difficulty making higher interest payments. As described below, changes in interest rates also affect our mortgage business, including the value of our MSRs. Changes in the slope of the "yield curve" - or the spread between short-term and long...

  • Page 108
    ...bank deposits to be a low cost and stable source of funding for the loans we make and the operation of our business. Core customer deposits, which include noninterest-bearing deposits, interestbearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits...

  • Page 109
    ...margin and net interest income. Checking and savings account balances and other forms of customer deposits may decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff. When customers move money out of bank deposits and into other...

  • Page 110
    ... by deposit liabilities to a risk-based system based on total assets; (ix) phases out over three years beginning January 2013 the Tier 1 capital treatment of trust preferred securities; (x) permitted banks to pay interest on business checking accounts beginning on July 1, 2011; (xi) authorized the...

  • Page 111
    ... of capital, increasing the risk coverage of the capital framework, and increasing standards for the supervisory review process and public disclosure. When fully phased in, the Basel III guidelines require bank holding companies to maintain a minimum ratio of Tier 1 common equity to risk-weighted...

  • Page 112
    ... loans and investment securities on our balance sheet. RISKS RELATED TO CREDIT AND OUR MORTGAGE BUSINESS As one of the largest lenders in the U.S., increased credit risk, including as a result of a deterioration in economic conditions, could require us to increase our provision for credit losses...

  • Page 113
    ... to the "Critical Accounting Policies - Purchased Credit-Impaired (PCI) Loans" and "Risk Management - Credit Risk Management" sections in this Report. Our mortgage banking revenue can be volatile from quarter to quarter, including as a result of changes in interest rates and the value of our MSRs...

  • Page 114
    ... their current form, as well as any effect on the Company's business and financial results, are uncertain. For more information, refer to the "Risk Management - Asset/Liability Management - Mortgage Banking Interest Rate and Market Risk" and "Critical Accounting Policies" sections in this Report. We...

  • Page 115
    ... the loan. We may incur liability to securitization investors relating to delays or deficiencies in our processing of mortgage assignments or other documents necessary to comply with state law governing foreclosures. The fair value of our MSRs may be negatively affected to the extent our servicing...

  • Page 116
    ... or operating systems that support our businesses and customers. Information security risks for large financial institutions such as Wells Fargo have generally increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications...

  • Page 117
    ... public opinion could result from our actual or alleged conduct in any number of activities, including mortgage lending practices, servicing and foreclosure activities, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer...

  • Page 118
    ... in order to remain competitive. Given the current economic, regulatory, and political environment for large financial institutions such as Wells Fargo, and possible public backlash to bank fees, there is increased competitive pressure to provide products and services at current or lower prices...

  • Page 119
    ... or estimates underlying our financial statements are incorrect, we may experience material losses. Certain of our financial instruments, including trading assets and liabilities, available-for-sale securities, certain loans, MSRs, private equity investments, structured notes and certain repurchase...

  • Page 120
    ... revenue increases, cost savings, increases in geographic or product presence, and other projected benefits from the acquisition. The integration could result in higher than expected deposit attrition, loss of key team members, disruption of our business or the business of the acquired company, or...

  • Page 121
    ...concluded that the Company's disclosure controls and procedures were effective as of December 31, 2012. Internal Control Over Financial Reporting Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or...

  • Page 122
    ... consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 27, 2013, expressed an unqualified opinion on those consolidated financial statements. San Francisco...

  • Page 123
    ... for credit losses Noninterest income Service charges on deposit accounts Trust and investment fees Card fees Other fees Mortgage banking Insurance Net gains from trading activities Net gains (losses) on debt securities available for sale (1) Net gains from equity investments (2) Operating leases...

  • Page 124
    Wells Fargo & Company and Subsidiaries Consolidated Statement of Comprehensive Income Year ended December 31, (in millions) Wells Fargo net income Other comprehensive income, before tax: Foreign currency translation adjustments: Net unrealized gains (losses) arising during the period ...

  • Page 125
    Wells Fargo & Company and Subsidiaries Consolidated Balance Sheet December 31, (in millions, except shares) Assets Cash and due from banks Federal funds sold, securities purchased under resale agreements and other short-term investments Trading assets Securities available for sale Mortgages held for...

  • Page 126
    Wells Fargo & Company and Subsidiaries Consolidated Statement of Changes in Equity Preferred stock (in millions, except shares) Balance December 31, 2009 Balance January 1, 2010 Cumulative effect from change in accounting for VIEs Cumulative effect from change in accounting for embedded credit ...

  • Page 127
    ...3,009 3,009 Unearned ESOP shares (442) (442) Total Wells Fargo stockholders' equity 111,786 111,786 183 (28) 12,362 1,729 1,...Retained earnings 41,563 41,563 183 (28) 12,362 Treasury stock (2,450) (2,450) Noncontrolling interests 2,573 2,573 Total equity 114,359 114,359 183 (28) 12,663 1,754 (1,418...

  • Page 128
    ... previous pages) Wells Fargo & Company and Subsidiaries Consolidated Statement of Changes in Equity Preferred stock (in millions, except shares) Balance December 31, 2011 Cumulative effect of fair value election for certain residential mortgage servicing rights Balance January 1, 2012 Net income...

  • Page 129
    ... comprehensive income 3,207 Unearned ESOP shares (926) Total Wells Fargo stockholders' equity 140,241 2 3,207 2,443 (16) 2,326 ...157,554 1,446 471 4 (564) Retained earnings 64,385 2 Treasury stock (2,744) Noncontrolling interests 1,446 Total equity 141,687 2 141,689 19,368 2,447 (580) 2,488 (3,918...

  • Page 130
    Wells Fargo & Company and Subsidiaries Consolidated Statement of Cash Flows (in millions) Cash flows from operating activities: Net income before noncontrolling interests Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses Changes in fair ...

  • Page 131
    ...the end of this Report for terms used throughout the Financial Statements and related Notes of this Form 10-K. Note 1: Summary of Significant Accounting Policies Wells Fargo & Company is a diversified financial services company. We provide banking, insurance, trust and investments, mortgage banking...

  • Page 132
    ...marketable equity securities are classified as securities available for sale and reported at fair value. Unrealized gains and losses, after applicable income taxes, are reported in cumulative OCI. Fair value measurement is based upon quoted prices in active markets, if available. If quoted prices in...

  • Page 133
    ...income housing tax credit investments, venture capital equity securities that are not publicly traded and securities acquired for various purposes, such as to meet regulatory requirements (for example, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock). These investments are accounted for...

  • Page 134
    ... agency securities. We monitor the market value of securities purchased and sold, and obtain collateral from or return it to counterparties when appropriate. These financing transactions do not create material credit risk given the collateral provided and the related monitoring process. Mortgages...

  • Page 135
    ...payments have not been made on the due dates. LOAN CHARGE-OFF POLICIES For commercial loans, we x x x x x Auto loans - We generally fully charge off when the loan is 120 days past due. Credit card loans - We generally fully charge off when the loan is 180 days past due. Unsecured loans (closed end...

  • Page 136
    ...real estate. Generally, loans have been written down to their net realizable value prior to foreclosure. Any further reduction to their net realizable value is recorded with a charge to the allowance for credit losses at foreclosure. We allow up to 90 days after foreclosure to finalize determination...

  • Page 137
    ...delinquent first lien mortgages and junior lien lines of credit subject to near term significant payment increases. We incorporate the default rates and high severity of loss for these higher risk portfolios including the impact of our established loan modification programs. When modifications occur...

  • Page 138
    ...for credit losses incurred on loans (collectively "repurchase") in the event of a breach of specified contractual representations or warranties that are not remedied within a period (usually 90 days or less) after we receive notice of the breach. Our loan sale contracts to private investors (non-GSE...

  • Page 139
    ... group of top quartile Aa bonds consisting of approximately 325-350 bonds. The discount rate is determined by matching this yield curve with the timing and amounts of the expected benefit payments for our plans. Our determination of the reasonableness of our expected long-term rate of return on plan...

  • Page 140
    ... present value of future expected cash flows (with observable inputs, where available) discounted at a rate of return market participants require. The significant inputs utilized in the internal pricing techniques, which are estimated by type of underlying collateral, include credit loss assumptions...

  • Page 141
    ... to complement our open-market common stock repurchase strategies, to allow us to manage our share repurchases in a manner consistent with our capital plan submitted under the 2012 Comprehensive Capital Analysis and Review (CCAR), and to provide an economic benefit to the Company. As of December...

  • Page 142
    ... assets Securities available for sale Loans Other assets Short-term borrowings Long-term debt Accrued expenses and other liabilities Decrease in noncontrolling interests due to deconsolidation of subsidiaries Transfer from noncontrolling interests to long-term debt Consolidation of reverse mortgages...

  • Page 143
    ... explore opportunities to acquire financial services companies and businesses. Generally, we do not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. For information on additional contingent consideration related to acquisitions, which is...

  • Page 144
    ... Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies, pertaining to FRB's criteria, assessment and approval process for reductions in capital. The FRB supplemented this guidance with the Capital Plan Rule issued in fourth quarter...

  • Page 145
    ... remaining balances primarily include asset-backed securities collateralized by credit cards and student loans. (3) At December 31, 2012 and 2011, we held no securities of any single issuer (excluding the U.S. Treasury and federal agencies) with a book value that exceeded 10% of stockholders' equity...

  • Page 146
    ...value of securities in the securities available-for-sale portfolio by length of time that individual securities in each category had been in a continuous loss position. Debt securities on which we have taken credit-related OTTI write-downs are categorized as being "less than 12 months" or "12 months...

  • Page 147
    ...by forecasting the underlying mortgage loans in each transaction. We use forecasted loan performance to project cash flows to the various tranches in the structure. We also consider cash flow forecasts and, as applicable, independent industry analyst reports and forecasts, sector credit ratings, and...

  • Page 148
    ... losses and fair value of debt and perpetual preferred securities available for sale by those rated investment grade and those rated less than investment grade, according to their lowest credit rating by Standard & Poor's Rating Services (S&P) or Moody's Investors Service (Moody's). Credit ratings...

  • Page 149
    ... Treasury and federal agencies Securities of U.S. states and political subdivisions Mortgage-backed securities: Federal agencies Residential Commercial Total mortgage-backed securities Corporate debt securities Collateralized debt obligations Other Total debt securities at fair value $ 219,196 4.12...

  • Page 150
    ... as well as net realized gains and losses on nonmarketable equity investments (see Note 7 - Other Assets). Year ended December 31, (in millions) Gross realized gains Gross realized losses OTTI write-downs Net realized gains (losses) from securities available for sale Net realized gains from private...

  • Page 151
    ... related changes in OCI for the same securities. Year ended December 31, (in millions) OTTI on debt securities Recorded as part of gross realized losses: Credit-related OTTI Intent-to-sell OTTI (1) Total recorded as part of gross realized losses Changes to OCI for increase (decrease) in non-credit...

  • Page 152
    ...MBS. Year ended December 31, ($ in millions) Credit impairment losses on residential MBS Investment grade Non-investment grade Total credit impairment losses on residential MBS Significant inputs (non-agency - non-investment grade MBS) Expected remaining life of loan loss rate (1): Range (2) Credit...

  • Page 153
    ... amortizing payment with a fixed period between five to 30 years. At the end of the draw period, a line of credit generally converts to an amortizing payment loan with repayment terms of up to 30 years based on the balance at time of conversion. At December 31, 2012, our lines of credit portfolio...

  • Page 154
    ...losses in the same manner because the loans are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). On a net basis, such purchases net of transfers to MHFS were $9.8 billion and $10.4 billion for the year ended December 31, 2012...

  • Page 155
    ... 1-4 family first mortgage Real estate 1-4 family junior lien mortgage Credit card Other revolving credit and installment Total consumer Total loan recoveries Net loan charge-offs (3) Allowances related to business combinations/other (4) Balance, end of year Components: Allowance for loan losses...

  • Page 156
    ...and consumer portfolio segments. Year ended December 31, 2012 (in millions) Balance, beginning of period Provision for credit losses Interest income on certain impaired loans Loan charge-offs Loan recoveries Net loan charge-offs Allowance related to business combinations/other Balance, end of period...

  • Page 157
    ... 53,601 338,683 6,767 345,450 The following table provides past due information for commercial loans, which we monitor as part of our credit risk management practices. Commercial (in millions) December 31, 2012 By delinquency status: Current-29 DPD and still accruing 30-89 DPD and still accruing 90...

  • Page 158
    Note 6: Loans and Allowance for Credit Losses (continued) The following table provides the outstanding balances of our consumer portfolio by delinquency status. Real estate Real estate 1-4 family first (in millions) December 31, 2012 By delinquency status: Current-29 DPD 30-59 DPD 60-89 DPD 90-119 ...

  • Page 159
    .... LTV refers to the ratio comparing the loan's unpaid principal balance to the property's collateral value. CLTV refers to the combination of first mortgage and junior lien mortgage (including unused line amounts for credit line products) ratios. LTVs and CLTVs are updated quarterly using a cascade...

  • Page 160
    ... and Allowance for Credit Losses (continued) December 31, 2012 Real estate Real estate 1-4 family first mortgage (in millions) By LTV/CLTV: 0-60% 60.01-80% 80.01-100% 100.01-120% (1) > 120% (1) No LTV/CLTV available Government insured/guaranteed loans (2) Total consumer loans (excluding PCI) Total...

  • Page 161
    ...Includes mortgage loans held for sale 90 days or more past due and still accruing. (3) Represents loans whose repayments are predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the FFELP. (4) The balance at December 31, 2012, includes the impact from the transfer...

  • Page 162
    ...) December 31, 2012 Commercial: Commercial and industrial Real estate mortgage Real estate construction Lease financing Foreign Total commercial (1) Consumer: Real estate 1-4 family first mortgage Real estate 1-4 family junior lien mortgage Credit card Other revolving credit and installment Total...

  • Page 163
    ... not consider any loans modified through a loan resolution such as foreclosure or short sale to be a TDR. We may require some borrowers experiencing financial difficulty to make trial payments generally for a period of three to four months, according to the terms of a planned permanent modification...

  • Page 164
    ...interest rate reduction (5) (in millions) Year ended December 31, 2012 Commercial: Commercial and industrial Real estate mortgage Real estate construction Lease financing Foreign Total commercial Consumer: Real estate 1-4 family first mortgage Real estate 1-4 family junior lien mortgage Credit card...

  • Page 165
    ... 2011 Purchased Credit-Impaired Loans Substantially all of our PCI loans were acquired from Wachovia on December 31, 2008. The following table presents PCI loans net of any remaining purchase accounting adjustments. Real estate 1-4 family first mortgage PCI loans are predominantly Pick-a-Pay loans...

  • Page 166
    ... (1) Accretion into noninterest income due to sales (2) Reclassification from nonaccretable difference for loans with improving credit-related cash flows Changes in expected cash flows that do not affect nonaccretable difference (3) Total, end of year $ $ 2012 15,961 3 (2,152) (5) 1,141 3,600 18...

  • Page 167
    ...changes in allowance for PCI loan losses. Other (in millions) Balance, December 31, 2008 Provision for losses due to credit deterioration Charge-offs Balance, December 31, 2009 Provision for losses due to credit deterioration Charge-offs Balance, December 31, 2010 Provision for losses due to credit...

  • Page 168
    ... estate 1-4 family first mortgage 1-4 family junior lien mortgage Total (in millions) By delinquency status: Current-29 DPD 30-59 DPD 60-89 DPD 90-119 DPD 120-179 DPD 180+ DPD Total consumer PCI loans (adjusted unpaid principal balance) $ Total consumer PCI loans (carrying value) $ mortgage $ 22...

  • Page 169
    ...December 31, 2011 Real estate Real estate 1-4 family 1-4 family first mortgage by LTV junior lien mortgage by CLTV Total (1) Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100...

  • Page 170
    ... on changes in various economic indicators. Some leases also include a renewal option. The following table provides the future minimum payments under capital leases and noncancelable operating leases, net of sublease rentals, with terms greater than one year as of December 31, 2012. Operating (in...

  • Page 171
    ...facilities to support short-term obligations of SPEs issued to third party investors; ‡ providing credit enhancement on securities issued by SPEs or market value guarantees of assets held by SPEs through the use of letters of credit, financial guarantees, credit default swaps and total return swaps...

  • Page 172
    ... with VIEs follow: Transfers that we account for as secured borrowings Total VIEs that we (in millions) December 31, 2012 Cash Trading assets Securities available for sale (1) Mortgages held for sale Loans Mortgage servicing rights Other assets Total assets Short-term borrowings Accrued expenses...

  • Page 173
    ... 31, 2012 Carrying value - asset (liability) Residential mortgage loan securitizations: Conforming Other/nonconforming Commercial mortgage securitizations Collateralized debt obligations: Debt securities Loans (2) Asset-based finance structures Tax credit structures Collateralized loan obligations...

  • Page 174
    ... interests balance has been revised to include tax credit structures, which are all equity interests. Also includes debt interests in the form of both loans and securities. Excludes certain debt securities held related to loans serviced for FNMA, FHLMC and GNMA. (2) Represents senior loans to trusts...

  • Page 175
    ... mortgage loan securitizations are financed through the issuance of fixed- or floating-rate-asset-backed-securities, which are collateralized by the loans transferred to a VIE. We typically transfer loans we originated to these VIEs, account for the transfers as sales, retain the right to service...

  • Page 176
    ... a source of liquidity to fund ongoing vehicle sales operations. The third party auto financing institutions manage the collateral in the VIEs, which is indicative of power in them and we therefore do not consolidate these VIEs. TAX CREDIT STRUCTURES We co-sponsor and make investments in affordable...

  • Page 177
    Year ended December 31, 2012 Other Mortgage (in millions) Sales proceeds from securitizations (1) Servicing fees Other interests held Purchases of delinquent assets Net servicing advances (1) Represents cash flow data for all loans securitized in the period presented. 2011 Other Mortgage loans 337,...

  • Page 178
    ... key economic assumptions and the sensitivity of the current fair value of residential mortgage servicing rights and other retained interests to immediate adverse changes in those assumptions. "Other interests held" relate predominantly to residential and commercial mortgage loan securitizations...

  • Page 179
    ... and warranties associated with our loan sale or servicing contracts. Net charge-offs Total loans December 31, Delinquent loans December 31, 2012 2011 Year ended December 31, 2012 2011 (in millions) Commercial: Real estate mortgage Total commercial Consumer: Real estate 1-4 family first mortgage...

  • Page 180
    ... VIEs. Carrying value Total (in millions) December 31, 2012 Secured borrowings: Municipal tender option bond securitizations Commercial real estate loans Residential mortgage securitizations Total secured borrowings Consolidated VIEs: Nonconforming residential mortgage loan securitizations Multi...

  • Page 181
    ..., we consolidate municipal bond trusts that hold highly rated, long-term, fixedrate municipal bonds, the majority of which are rated AA or better. Our residual interests in these trusts generally allow us to capture the economics of owning the securities outright, and constructively make decisions...

  • Page 182
    ... custodial deposit balances). (3) Includes costs to service and unreimbursed foreclosure costs. (4) Reflects discount rate assumption change, excluding portion attributable to changes in mortgage interest rates; the year ended December 31, 2012, change predominantly reflects increased capital return...

  • Page 183
    ...The components of mortgage banking noninterest income were: Year ended December 31, (in millions) Servicing income, net: Servicing fees Contractually specified servicing fees Late charges Ancillary fees Unreimbursed direct servicing costs (1) Net servicing fees Changes in fair value of MSRs carried...

  • Page 184
    ... financial statements and the provision for repurchase losses reduces net gains on mortgage loan origination/sales activities. Because the level of mortgage loan repurchase losses depends upon economic factors, investor demand strategies and other external conditions that may change over the life of...

  • Page 185
    ... Note 24 for further information on management reporting. The following table shows the allocation of goodwill to our operating segments for purposes of goodwill impairment testing. Wealth, Community (in millions) December 31, 2010 Reduction in goodwill related to divested businesses Goodwill from...

  • Page 186
    .... Demand deposit overdrafts of $806 million and $649 million were included as loan balances at December 31, 2012 and 2011, respectively. Note 12: Short-Term Borrowings The table below shows selected information for short-term borrowings, which generally mature in less than 30 days. We pledge...

  • Page 187
    ... trust securities Floating-rate notes Total junior subordinated debt - Parent (3) Total long-term debt - Parent Wells Fargo Bank, N.A. and other bank entities (Bank) Senior Fixed-rate notes Floating-rate notes Floating-rate extendible notes (4) Fixed-rate advances - Federal Home Loan Bank (FHLB...

  • Page 188
    ...term and short-term borrowing arrangements, we are subject to various financial and operational covenants. Some of the agreements under which debt has been issued have provisions that may limit the merger or sale of certain subsidiary banks and the issuance of capital stock or convertible securities...

  • Page 189
    ... us to make payments to a guaranteed party based on an event or a change in an underlying asset, liability, rate or index. Guarantees are generally in the form of standby letters of credit, securities lending and other indemnifications, liquidity agreements, written put options, recourse obligations...

  • Page 190
    ... residual value guarantees as part of certain leasing transactions of corporate assets. The lessors in these leases are generally large financial institutions or their leasing subsidiaries. These guarantees protect the lessor from loss on sale of the related asset at the end of the lease term. To...

  • Page 191
    ...part of our liquidity management strategy, we pledge assets to secure trust and public deposits, borrowings from the FHLB and FRB and for other purposes as required or permitted by law. The following table provides pledged loans and securities available for sale where the secured party does not have...

  • Page 192
    ... business and instead operated to conceal Wells Fargo Bank, N.A.'s role in the loans at issue. A plaintiff class of borrowers who received a mortgage loan from Prosperity that was funded by Prosperity's line of credit with Wells Fargo Bank, Fargo & Company, Wachovia Bank, N.A. and Wachovia...

  • Page 193
    ... whose loans are secured by Maryland real property, which loans showed Prosperity Mortgage Company as the lender receiving a fee for services, and were funded through a Wells Fargo line of credit to Prosperity from 1993 to May 31, 2012. The Court has scheduled a trial in this case for March 18, 2013...

  • Page 194
    ... customers of Wells Fargo and Wachovia Bank in various courts. In general, each of the cases alleges that Wells Fargo violated fiduciary and contractual duties by investing collateral for loaned securities in investments that suffered losses. In addition, on March 27, 2012, a class of Wells Fargo...

  • Page 195
    ... loss on the derivatives or the hedged asset or liability is generally reflected in other comprehensive income and not in earnings. We also offer various derivatives, including interest rate, commodity, equity, credit and foreign exchange contracts, to our customers as part of our trading businesses...

  • Page 196
    ... not designated as hedging instruments Free-standing derivatives (economic hedges): Interest rate contracts (2) Equity contracts Foreign exchange contracts Credit contracts - protection purchased Other derivatives Subtotal Customer accommodation, trading and other free-standing derivatives: Interest...

  • Page 197
    ..., respectively, for year ended December 31, 2012 and 2011, of gains (losses) on forward derivatives hedging foreign currency securities available for sale and long-term debt, representing the portion of derivative gains (losses) excluded from the assessment of hedge effectiveness (time value). 195

  • Page 198
    ... loan commitments and other interests held. The resulting gain or loss on these economic hedges is reflected in mortgage banking noninterest income and other noninterest income. Changes in fair value of debt securities available for sale (unrealized gains and losses) are not included in servicing...

  • Page 199
    ... on free-standing derivatives (economic hedges): Interest rate contracts Recognized in noninterest income: Mortgage banking (1) Other (2) Equity contracts (2) Foreign exchange contracts (2) Credit contracts (2) Subtotal Net gains (losses) recognized on customer accommodation, trading and other free...

  • Page 200
    ...of sold and purchased credit derivatives. Notional amount Protection sold nonFair value (in millions) December 31, 2012 Credit default swaps on: Corporate bonds Structured products Credit protection on: Default swap index Commercial mortgagebacked securities index Asset-backed securities index Other...

  • Page 201
    ... the legal enforceability of the arrangement, it is our policy to present derivatives balances and related cash collateral amounts net in the balance sheet. Counterparty credit risk related to derivatives is considered in determining fair value and our assessment of hedge effectiveness. 199

  • Page 202
    ...readily available, we use management's best estimate. MORTGAGES HELD FOR SALE (MHFS) We carry substantially all Assets SHORT-TERM FINANCIAL ASSETS Short-term financial assets include cash and due from banks, federal funds sold and securities purchased under resale agreements and due from customers...

  • Page 203
    ...1-4 family first and junior lien mortgages, we calculate fair value by discounting contractual cash flows, adjusted for prepayment and credit loss estimates, using discount rates based on current industry pricing (where readily available) or our own estimate of an appropriate discount rate for loans...

  • Page 204
    ... risk management department. Corporate oversight responsibilities include evaluating adequacy of business unit risk management programs, maintaining company-wide model validation policies and standards and reporting the results of these activities to management and our Enterprise Risk Management...

  • Page 205
    ... or third party pricing services that we have adjusted to determine the fair value recorded in our financial statements are not included in the following table. Brokers (in millions) December 31, 2012 Trading assets (excluding derivatives) Securities available for sale: Securities of U.S. Treasury...

  • Page 206
    ... equity securities Total marketable equity securities Total securities available for sale Mortgages held for sale Loans held for sale Loans Mortgage servicing rights (residential) Derivative assets: Interest rate contracts Commodity contracts Equity contracts Foreign exchange contracts Credit...

  • Page 207
    ... equity securities Total marketable equity securities Total securities available for sale Mortgages held for sale Loans held for sale Loans Mortgage servicing rights (residential) Derivative assets: Interest rate contracts Commodity contracts Equity contracts Foreign exchange contracts Credit...

  • Page 208
    ... in which the transfer occurred. Transfers Between Fair Value Levels Level 1 (in millions) Year ended December 31, 2012 Trading securities Securities available for sale (2) Mortgages held for sale Loans (3) Net derivative assets and liabilities Short sale liabilities Total transfers $ $ 23 8 31 16...

  • Page 209
    ... to changes in economic conditions and management's estimates of fair value and excludes changes due to the collection/realization of cash flows over time. (3) Included in trading activities and other noninterest income in the income statement. (4) Included in debt securities available for sale in...

  • Page 210
    ... marketable equity securities Total marketable equity securities Total securities available for sale Mortgages held for sale Loans Mortgage servicing rights Net derivative assets and liabilities: Interest rate contracts Commodity contracts Equity contracts Foreign exchange contracts Credit contracts...

  • Page 211
    ... to changes in economic conditions and management's estimates of fair value and excludes changes due to the collection/realization of cash flows over time. (3) Included in trading activities and other noninterest income in the income statement. (4) Included in debt securities available for sale in...

  • Page 212
    ... marketable equity securities Total marketable equity securities Total securities available for sale Mortgages held for sale Loans Mortgage servicing rights Net derivative assets and liabilities: Interest rate contracts Commodity contracts Equity contracts Foreign exchange contracts Credit contracts...

  • Page 213
    ... to changes in economic conditions and management's estimates of fair value and excludes changes due to the collection/realization of cash flows over time. (2) Included in trading activities and other noninterest income in the income statement. (3) Included in debt securities available for sale in...

  • Page 214
    ... preferred equity securities with no maturity date that are callable by the issuer. (6) Consists predominantly of reverse mortgage loans securitized with GNMA which were accounted for as secured borrowing transactions. (7) The high end of the range of inputs is for servicing modified loans. For non...

  • Page 215
    ... embedded servicing right, expressed in basis points of outstanding unpaid principal balance. Loss severity - is the percentage of contractual cash flows lost in the event of a default. Prepayment rate - is the estimated rate at which forecasted prepayments of principal of the related loan or debt...

  • Page 216
    ... risk premium component of the discount rate (specifically, the portion related to credit risk) and a directionally opposite change in the assumption used for prepayment rates. Unobservable inputs for loss severity, fallout factor, initial-value servicing, and volatility do not increase or decrease...

  • Page 217
    ...table provides the fair value hierarchy and the fair value of the related individual assets or portfolios at period end. December 31, 2012 (in millions) Mortgages held for sale (LOCOM) (1) Loans held for sale Loans: Commercial Consumer (2) Total loans (3) Mortgage servicing rights (amortized) Other...

  • Page 218
    ...impacts the frequency and timing of early resolution of loans. Alternative Investments The following table summarizes our investments in various types of funds, which are included in trading assets, securities available for sale and other assets. We use the funds' net asset values (NAVs) per share...

  • Page 219
    ... to funding, gains and losses on the related loan commitment prior to funding, and premiums on acquired loans. (2) Represents collateralized, non-recourse debt securities issued by certain of our consolidated securitization VIEs that are held by third party investors. To the extent cash flows...

  • Page 220
    ... from earnings attributable to instrumentspecific credit risk related to assets accounted for under the fair value option. Year ended December 31, (in millions) Gains (losses) attributable to instrument-specific credit risk: Mortgages held for sale Loans held for sale Total $ (124) 21 (103) (144...

  • Page 221
    ... Company. December 31, 2012 Estimated fair value (in millions) Financial assets Cash and due from banks (1) Federal funds sold, securities purchased under resale agreements and other short-term investments (1) Mortgages held for sale (2) Loans held for sale (2) Loans, net (3) Nonmarketable equity...

  • Page 222
    Note 18: Preferred Stock We are authorized to issue 20 million shares of preferred stock and 4 million shares of preference stock, both without par value. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. We ...

  • Page 223
    ...of ESOP Preferred Stock released from the unallocated reserve of the 401(k) Plan is converted into shares of our common stock based on the stated value of the ESOP Preferred Stock and the then current market price of our common stock. The ESOP Preferred Stock is also convertible at the option of the...

  • Page 224
    ...converted employee and director stock options of acquired or merged companies into stock options to purchase our common stock based on the terms of the original stock option plan and the agreed-upon exchange ratio. In addition, we converted restricted stock awards into awards that entitle holders to...

  • Page 225
    ...amount of awards: Weightedaverage grant date Number Nonvested at January 1, 2012 Granted Nonvested at December 31, 2012 6,404,965 3,889,916 10,294,881 $ fair value 29.68 31.44 30.35 Director Awards Under the LTICP, we grant common stock and options to purchase common stock to non-employee directors...

  • Page 226
    ... benefit plans, market conditions (including the trading price of our stock), and regulatory and legal considerations. These factors can change at any time, and there can be no assurance as to the number of shares we will repurchase or when we will repurchase them. The fair value of each option...

  • Page 227
    ...Year ended December 31, 2012 Per share fair value of options granted Expected volatility Expected dividends Expected term (in years) Risk-free interest rate $ $ 2.79 29.2 % 0.68 0.7 0.1 % 2011 3.78 32.7 0.32 1.0 0.2 2010 6.11 44.3 0.20 1.3 0.6 Employee Stock Ownership Plan The Wells Fargo & Company...

  • Page 228
    ...at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contribution Plan participants' contributions Benefits paid Medicare Part D subsidy Asset transfer Foreign exchange impact Fair value of plan assets at end of year Funded status...

  • Page 229
    ...December 31, 2012 Pension benefits Non(in millions) Service cost Interest cost Expected return on plan assets Amortization of net actuarial loss Amortization of prior service credit Settlement loss Curtailment loss (gain) Net periodic benefit cost Other changes in plan assets and benefit obligations...

  • Page 230
    ... our Cash Balance Plan at a target mix range of 35-55% equities, 35-55% fixed income, and approximately 10% in real estate, venture capital, private equity and other investments. The Employee Benefit Review Committee (EBRC), which includes several members of senior management, formally reviews the...

  • Page 231
    ... annuity and low turnover investment strategies. Members of the EBRC formally review the investment risk and performance of these assets on a quarterly basis. Projected Benefit Payments Future benefits that we expect to pay under the pension and other benefit plans are presented in the following...

  • Page 232
    ...High-yield fixed income International fixed income Domestic large-cap stocks (3) Domestic mid-cap stocks Domestic small-cap stocks (4) International stocks (5) Emerging market stocks Real estate/timber (6) Multi-strategy hedge funds (7) Private equity Other Total plan investments Payable upon return...

  • Page 233
    ... (core) fixed income High-yield fixed income Domestic large-cap stocks International stocks Real estate/timber Multi-strategy hedge funds Private equity Other $ Other benefits plan assets Real estate/timber Multi-strategy hedge funds Private equity Other $ (1) All unrealized gains (losses) relate to...

  • Page 234
    ...price of the real estate can only be determined by negotiation between independent third parties in a sales transaction. This group of assets also includes investments in exchange-traded equity securities described above. Multi-Strategy Hedge Funds and Private Equity - the fair values of hedge funds...

  • Page 235
    ...) Deferred taxes related to net unrealized gains (losses) on securities available for sale, net unrealized gains (losses) on derivatives, foreign currency translation, and employee benefit plan adjustments are recorded in cumulative OCI (see Note 23). These associated adjustments decreased OCI by...

  • Page 236
    ... effective tax rate due to a decrease in tax expense associated with leveraged leases, as well as tax benefits related to charitable donations of appreciated securities. The change in unrecognized tax benefits follows: Year ended December 31, (in millions) Balance at beginning of year Additions: For...

  • Page 237
    ... calculations. See Note 1 for discussion of private share repurchases and the Consolidated Statement of Changes in Equity and Note 19 for information about stock and options activity and terms and conditions of warrants. Year ended December 31, (in millions, except per share amounts) Wells Fargo...

  • Page 238
    ... related tax effects were: Year ended December 31, 2012 (in millions) Foreign currency translation adjustments: Net unrealized gains (losses) arising during the period Reclassification of net gains to net income Net unrealized gains (losses) arising during the period Securities available for sale...

  • Page 239
    ... Banking also offers investment management and other services to retail customers and securities brokerage through affiliates. These products and services include the Wells Fargo Advantage FundsSM, a family of mutual funds. Loan products include lines of credit, auto floor plan lines, equity lines...

  • Page 240
    ... Wachovia integration expenses, through completion in the first quarter of 2012, and the elimination of items that are included in both Community Banking and Wealth, Brokerage and Retirement, largely representing services and products for wealth management customers provided in Community Banking...

  • Page 241
    ...Parent-Only Statement of Income Year ended December 31, (in millions) Income Dividends from subsidiaries: Bank Nonbank Interest income from subsidiaries Other interest income Other income Total income Expense Interest Expense: Indebtedness to nonbank subsidiaries Short-term borrowings Long-term debt...

  • Page 242
    ... of Comprehensive Income Year ended December 31, (in millions) Net income Other comprehensive income (loss), net of tax: Securities available for sale Derivatives and hedging activities Defined benefit plans adjustment Equity in other comprehensive income of subsidiaries Other comprehensive income...

  • Page 243
    ... Flows Year ended December 31, (in millions) Cash flows from operating activities: Net cash provided by operating activities Cash flows from investing activities: Securities available for sale: Sales proceeds Prepayments and maturities Purchases Loans: Net repayments from (advances to) subsidiaries...

  • Page 244
    ... of shareholders' equity, as specified by various agencies, including the United States Department of Housing and Urban Development, GNMA, FHLMC and FNMA. At December 31, 2012, each seller/servicer met these requirements. Certain broker-dealer subsidiaries of the Company are subject to SEC Rule 15c3...

  • Page 245
    ... consolidated balance sheet of Wells Fargo & Company and Subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2012...

  • Page 246
    ... provision for credit losses Noninterest income Service charges on deposit accounts Trust and investment fees Card fees Other fees Mortgage banking Insurance Net gains from trading activities Net gains (losses) on debt securities available for sale Net gains from equity investments Operating leases...

  • Page 247
    ... estate 1-4 family junior lien mortgage Credit card Other revolving credit and installment Total consumer Total loans (4) Other Total earning assets Funding sources Deposits: Interest-bearing checking Market rate and other savings Savings certificates Other time deposits Deposits in foreign offices...

  • Page 248
    ... ROE International Financial Reporting Standards Loans held for sale London Interbank Offered Rate Low-Income Housing Tax Credit Lower of cost or market value Loan-to-value Mortgage-backed security Making Home Affordable programs Mortgages held for sale Mortgage servicing right Medium-term note Net...

  • Page 249
    ... Keefe, Bruyette and Woods (KBW) Total Return Bank Index (KBW Bank Index (BKX)) and the S&P 500 Index. The cumulative total stockholder returns (including reinvested dividends) in the graphs assume the investment of $100 in Wells Fargo's common stock, the KBW Bank Index and the S&P 500 Index. Five...

  • Page 250
    ...' Meeting 8:30 a.m. Mountain Time Tuesday, April 23, 2013 The Grand America Hotel 555 South Main Street Salt Lake City, Utah 84111 Form 10-K We will send Wells Fargo's 2012 Annual Report on Form 10âˆ'K (including the financial statements filed with the Securities and Exchange Commission) free to...

  • Page 251
    ... Emirates United Kingdom Vietnam active mobile customers Wells Fargo Customer Connection customer contacts 9.4 million approximately Key rankings #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 Retail banking deposits 1 Total stores Retail mortgage lender Home loan originator to minority and low...

  • Page 252
    Wells Fargo & Company 420 Montgomery Street San Francisco, California 94104 1-866-878- 86 wellsfargo.com Our Vision: Satisfy all our customers' financial needs and help them succeed financially. Nuestra Vision: Deseamos satisfacer todas las necesidades financieras de nuestros clientes y ...