Wells Fargo 2014 Annual Report Download - page 228

Note 17: Fair Values of Assets and Liabilities (continued)
($ in millions, except cost to service amounts) Fair Value Level 3 Valuation Technique(s) Significant Unobservable Input Range of Inputs Weighted Average (1)
December 31, 2013
Trading and available-for-sale securities:
Securities of U.S. states and
political subdivisions:
Government, healthcare and
other revenue bonds 2,739 Discounted cash flow Discount rate 0.4 - 6.4 % 1.4
63 Vendor priced
Auction rate securities and other
municipal bonds 451 Discounted cash flow Discount rate 0.4 - 12.3 4.6
Weighted average life 1.4 - 13.0 yrs 4.4
Collateralized loan and other debt
obligations (2) 612 Market comparable pricing Comparability adjustment (12.0) - 23.3 % 8.5
1,349 Vendor priced
Asset-backed securities:
Auto loans and leases 492 Discounted cash flow Discount rate 0.6 - 0.9 0.8
Weighted average life 1.4 - 1.6 yrs 1.5
Other asset-backed securities:
Diversified payment rights (3) 757 Discounted cash flow Discount rate 1.4 - 4.7 % 3.0
Other commercial and consumer 944 (4) Discounted cash flow Discount rate 0.6 - 21.2 4.0
Weighted average life 0.6 - 7.6 yrs 2.2
78 Vendor priced
Marketable equity securities:
perpetual preferred 729 (5) Discounted cash flow Discount rate 4.8 - 8.3 % 7.4
Weighted average life 1.0 - 15.0 yrs 12.2
Mortgages held for sale (residential) 2,374 Discounted cash flow Default rate 0.6 - 12.4 % 2.8
Discount rate 3.8 - 7.9 5.5
Loss severity 1.3 - 32.5 21.5
Prepayment rate 2.0 - 9.9 5.4
Loans 5,723 (6) Discounted cash flow Discount rate 2.4 - 3.9 3.3
Prepayment rate 3.3 - 37.8 12.2
Utilization rate 0.0 - 2.0 0.8
Cost to service per
Mortgage servicing rights (residential) 15,580 Discounted cash flow loan (7) $ 86 - 773 191
Discount rate 5.4 - 11.2 % 7.8
Prepayment rate (8) 7.5 - 19.4 10.7
Net derivative assets and (liabilities):
Interest rate contracts (14) Discounted cash flow Default rate 0.0 - 16.5 5.0
Loss severity 44.9 - 50.0 50.0
Prepayment rate 11.1 - 15.6 15.6
Interest rate contracts: derivative loan
commitments (26) Discounted cash flow Fall-out factor 1.0 - 99.0 21.8
Initial-value servicing (21.5) - 81.6 bps 32.6
Equity contracts 199 Discounted cash flow Conversion factor (18.4) - 0.0 % (14.1)
Weighted average life 0.3 - 3.3 yrs 1.8
(245) Option model Correlation factor (5.3) - 87.6 % 72.2
Volatility factor 6.8 - 81.2 25.4
Credit contracts (378) Market comparable
pricing Comparability adjustment (31.3) - 30.4 (0.1)
3 Option model Credit spread 0.0 - 12.2 0.7
Loss severity 10.5 - 72.5 47.4
Other assets: nonmarketable equity investments 1,386 Market comparable pricing Comparability adjustment (30.6) - (5.4) (21.9)
Insignificant Level 3 assets, net of liabilities 678 (9)
Total level 3 assets, net of liabilities $ 33,494 (10)
(1) Weighted averages are calculated using outstanding unpaid principal balance for cash instruments such as loans and securities, and notional amounts for derivative
instruments.
(2) Includes $695 million of collateralized debt obligations.
(3) Securities backed by specified sources of current and future receivables generated from foreign originators.
(4) Consists primarily of investments in asset-backed securities that are revolving in nature, in which the timing of advances and repayments of principal are uncertain.
(5) Consists of auction rate 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-modified loans the range is $86 - $302.
(8) Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of
borrower behavior.
(9) Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The
amount includes corporate debt securities, mortgage-backed securities, asset-backed securities backed by home equity loans, other assets, other liabilities and certain net
derivative assets and liabilities, such as commodity contracts and other derivative contracts.
(10) Consists of total Level 3 assets of $37.2 billion and total Level 3 liabilities of $3.7 billion, before netting of derivative balances.
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