UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2014             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:  1-866-878-5865
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange
on Which Registered
Common Stock, par value $1-2/3
Warrants to purchase shares of Common Stock (expiring October 28, 2018)
New York Stock Exchange (NYSE)
NYSE
Depositary Shares, each representing a 1/40th interest in a share of 8.00% Non-Cumulative Perpetual Class A Preferred Stock, Series J
NYSE
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L
NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series N
NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series O
NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series P
NYSE
Depositary Shares, each representing a 1/1000th interest in a share of 5.85% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series Q
NYSE
Depositary Shares, each representing a 1/1000th interest in a share of 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series R
NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series T
NYSE
Guarantee of 5.80% Fixed-to-Floating Rate Normal Wachovia Income Trust Securities of Wachovia Capital Trust III
NYSE
Securities registered pursuant to Section 12(g) of the Act:
Dividend Equalization Preferred Shares, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ    No ¨    
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨    No þ    
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, and (2) has been subject to such filing requirements for the past 90 days.
Yes þ    No ¨    
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ    No ¨    
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
þ  
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  þ                                Accelerated filer  ¨  
Non-accelerated filer  ¨                                  Smaller reporting company  ¨                    
(Do not check if a smaller reporting company)  
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).
Yes ¨    No þ     
At June 30, 2014, the aggregate market value of common stock held by non-affiliates was approximately $274.8 billion, based on a closing price of $52.56. At January 30, 2015 , 5,152,280,886 shares of common stock were outstanding.
Documents Incorporated by Reference in Form 10-K
Incorporated Documents
Where incorporated in Form 10-K
1.     Portions of the Company’s Annual Report to Stockholders for the
year ended December 31, 2014 (“2014 Annual Report to Stockholders”)
Part I – Items 1, 1A, 2 and 3; Part II – Items 5, 6, 7,
7A, 8 and 9A; and Part IV– Item 15.
2.     Portions of the Company’s Proxy Statement for the Annual
Meeting of Stockholders to be held April 28, 2015 (“2015 Proxy Statement”)
Part III – Items 10, 11, 12, 13 and 14



PART I.
ITEM 1.
BUSINESS
 
Wells Fargo & Company is a corporation organized under the laws of Delaware and a financial holding company and a bank holding company registered under the Bank Holding Company Act of 1956, as amended (BHC Act). Its principal business is to act as a holding company for its subsidiaries. References in this report to “the Parent” mean the holding company. References to “we,” “our,” “us” or “the Company” mean the holding company and its subsidiaries that are consolidated for financial reporting purposes.
At December 31, 2014, we had assets of $1.7 trillion, loans of $863 billion, deposits of $1.2 trillion and stockholders’ equity of $184 billion. Based on assets, we were the fourth largest bank holding company in the United States. At December 31, 2014, Wells Fargo Bank, N.A. was the Company’s principal subsidiary with assets of $1.5 trillion, or 91% of the Company’s assets.
At December 31, 2014, we had 264,500 active, full-time equivalent team members.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available for free at www.wellsfargo.com/invest_relations/filings  as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC). They are also available for free on the SEC’s website at www.sec.gov . 

 
DESCRIPTION OF BUSINESS
 
General
 
We are a diversified financial services company. We provide retail, commercial and corporate banking services through banking stores and offices, the internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia and in other countries. We provide other financial services through subsidiaries engaged in various businesses, principally: wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency and brokerage services, computer and data processing services, trust services, investment advisory services, mortgage-backed securities servicing and venture capital investment.
We have three operating segments for management reporting purposes: Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement. The 2014 Annual Report to Stockholders includes financial information and descriptions of these operating segments.
 
Competition
 
The financial services industry is highly competitive. Our subsidiaries compete with financial services providers such as banks, savings and loan associations, credit unions, finance companies, mortgage banking companies, insurance companies, investment banks and mutual fund companies. They also face increased competition from nonbank institutions such as brokerage houses, as well as from financial services subsidiaries of commercial and manufacturing companies. Many of these competitors enjoy fewer regulatory constraints and some may have lower cost structures.
Securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. Combinations of this type could significantly change the competitive environment in which we conduct business. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.


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REGULATION AND SUPERVISION
 
We describe below, and in Note 3 (Cash, Loan and Dividend Restrictions) and Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements included in the 2014 Annual Report to Stockholders, the material elements of the regulatory framework applicable to us. Banking statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies, as well as foreign governments and financial regulators, and a change in them, including changes in how they are interpreted or implemented, could have a material effect on our business. The regulatory framework applicable to bank holding companies is intended to protect depositors, federal deposit insurance funds, consumers and the banking system as a whole, and not necessarily investors in bank holding companies such as the Company.
Statutes, regulations and policies could restrict our ability to diversify into other areas of financial services, acquire depository institutions, and pay dividends on our capital stock. They may also require us to provide financial support to one or more of our subsidiary banks, maintain capital balances in excess of amounts desired by management, and pay higher deposit insurance premiums as a result of a general deterioration in the financial condition of depository institutions. See the “Regulatory Reform” and "Risk Factors" sections in the 2014 Annual Report to Stockholders for additional information.
 
General
 
Parent Bank Holding Company.  As a bank holding company, the Parent is subject to regulation under the BHC Act and to inspection, examination and supervision by its primary regulator, the Board of Governors of the Federal Reserve System (Federal Reserve Board or FRB). The Parent is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the SEC. As a company with securities listed on the New York Stock Exchange (NYSE), the Parent is subject to the rules of the NYSE for listed companies.
 
Subsidiary Banks.   Our subsidiary national banks, and their subsidiaries, are subject to regulation and examination primarily by the Office of the Comptroller of the Currency (OCC) and also by the Federal Deposit Insurance Corporation (FDIC), the FRB, the Consumer Financial Protection Bureau (CFPB), the SEC and the Commodities Futures Trading Commission (CFTC). The foreign branches and representative offices of our subsidiary national banks are subject to regulation and examination by their respective foreign financial regulators as well as by the OCC and the FRB. Foreign subsidiaries of our national bank subsidiaries may be subject to the laws and regulations of the foreign countries in which they conduct business. Our state-chartered bank is subject to primary federal regulation and examination by the FDIC and, in addition, is regulated and examined by its state banking department.
 
Nonbank Subsidiaries.  Many of our nonbank subsidiaries are also subject to regulation by the FRB and other applicable federal and state agencies. Our insurance subsidiaries are subject to regulation by applicable state insurance regulatory agencies, as well as the FRB. Our brokerage subsidiaries are
 
regulated by the SEC, the Financial Industry Regulatory Authority (FINRA) and, in some cases, the CFTC and the Municipal Securities Rulemaking Board, and state securities regulators. Our other nonbank subsidiaries may be subject to the laws and regulations of the federal government and/or the various states as well as foreign countries in which they conduct business.
 
Parent Bank Holding Company Activities
 
“Financial in Nature” Requirement.  We became a financial holding company effective March 13, 2000. We continue to maintain our status as a bank holding company for purposes of other FRB regulations. As a bank holding company that has elected to become a financial holding company pursuant to the BHC Act, we may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature. “Financial in nature” activities include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking; and activities that the FRB, in consultation with the Secretary of the U.S. Treasury, determines to be financial in nature or incidental to such financial activity. “Complementary activities” are activities that the FRB determines upon application to be complementary to a financial activity and do not pose a safety and soundness risk.
FRB approval is generally not required for us to acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. Prior notice to the FRB may be required, however, if the company to be acquired has total consolidated assets of $10 billion or more. Prior FRB approval is required before we may acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings association. In addition, the FRB has implemented a final rule under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that also prohibits our ability to merge, acquire all or substantially all of the assets of, or acquire control of another company if our total resulting consolidated liabilities would exceed 10% of the aggregate consolidated liabilities of all financial companies.
Because we are a financial holding company, if any of our subsidiary banks receives a rating under the Community Reinvestment Act of 1977, as amended (CRA), of less than satisfactory, we will be prohibited, until the rating is raised to satisfactory or better, from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations, except that we could engage in new activities, or acquire companies engaged in activities, that are closely related to banking under the BHC Act. In addition, if the FRB finds that the Company or any one of our subsidiary banks is not well capitalized or well managed, we would be required to enter into an agreement with the FRB to comply with all applicable capital and management requirements and which may contain additional limitations or conditions. Until corrected, we could be prohibited from engaging in any new activity or acquiring companies engaged in activities that are not closely related to banking under the BHC Act without prior FRB approval. If we fail to correct any such condition within a prescribed period, the FRB could order us to divest our banking subsidiaries or, in the alternative, to cease engaging in


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activities other than those closely related to banking under the BHC Act.

Interstate Banking .  Under the Riegle-Neal Interstate Banking and Branching Act (Riegle-Neal Act), a bank holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company not control, prior to or following the proposed acquisition, more than 10% of the total amount of deposits of insured depository institutions nationwide or, unless the acquisition is the bank holding company’s initial entry into the state, more than 30% of such deposits in the state (or such lesser or greater amount set by the state). The Riegle-Neal Act also authorizes banks to merge across state lines, subject to the same deposit limits noted above, thereby creating interstate branches. Banks are also permitted to acquire and to establish new branches in other states.
 
Regulatory Approval.  In determining whether to approve a proposed bank acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition on competition, financial condition, and future prospects including current and projected capital ratios and levels, the competence, experience, and integrity of management and record of compliance with laws and regulations, the convenience and needs of the communities to be served, including the acquiring institution’s record of compliance under the CRA, the effectiveness of the acquiring institution in combating money laundering activities and the risk to the stability of the United States banking system.
 
Dividend Restrictions
 
The Parent is a legal entity separate and distinct from its subsidiary banks and other subsidiaries. A significant source of funds to pay dividends on our common and preferred stock and principal and interest on our debt is dividends from the Parent’s subsidiaries. Various federal and state statutory provisions and regulations limit the amount of dividends the Parent’s subsidiary banks and certain other subsidiaries may pay without regulatory approval. Federal banking regulators have the authority to prohibit the Parent’s subsidiary banks from engaging in unsafe or unsound practices in conducting their businesses. The payment of dividends, depending on the financial condition of the bank in question, could be deemed an unsafe or unsound practice. The ability of the Parent’s subsidiary banks to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines. For information about the restrictions applicable to the Parent’s subsidiary banks, see Note 3 (Cash, Loan and Dividend Restrictions) to Financial Statements included in the 2014 Annual Report to Stockholders.
In addition to these restrictions on the ability of our subsidiary banks to pay dividends to us, the FRB requires large bank holding companies (BHCs), including Wells Fargo, to submit annual capital plans and to obtain regulatory approval before making capital distributions, such as the payment of dividends. The FRB also finalized rules in July 2013 implementing in the United States the Basel Committee on Banking Supervision’s regulatory capital guidelines, including the reforms known as Basel III. These rules introduce new capital conservation buffer requirements. Moreover, federal banking regulators have finalized a rule that enhances the
 
supplementary leverage ratio requirements for large BHCs, like Wells Fargo, and their insured depository institutions. The rule, which becomes effective on January 1, 2018, will require a covered BHC to maintain a supplementary leverage ratio of at least 5% to avoid restrictions on capital distributions and discretionary bonus payments. The rule will also require that all of our insured depository institutions maintain a supplementary leverage ratio of 6% in order to be considered well capitalized. In December 2014, the FRB also proposed rules to implement an additional capital surcharge on those U.S. banking organizations, such as the Company, that are designated as global systemically important banks. The failure to maintain any of these minimum capital ratios and capital buffers could result in limitations or restrictions on our ability to make capital distributions.
In addition, the FRB's enhanced supervision regulations for large BHCs, like Wells Fargo, impose capital distribution restrictions, including on the payment of dividends, upon the occurrence of capital, stress test, risk management, or liquidity risk management triggers.
 
Holding Company Structure
 
Transfer of Funds from Subsidiary Banks.   The Parent’s subsidiary banks are subject to restrictions under federal law that limit the transfer of funds or other items of value from such subsidiaries to the Parent and its nonbank subsidiaries (including affiliates) in so-called “covered transactions.” In general, covered transactions include loans and other extensions of credit, investments and asset purchases, as well as certain other transactions involving the transfer of value from a subsidiary bank to an affiliate or for the benefit of an affiliate. Unless an exemption applies, covered transactions by a subsidiary bank with a single affiliate are limited to 10% of the subsidiary bank’s capital and surplus and, with respect to all covered transactions with affiliates in the aggregate, to 20% of the subsidiary bank’s capital and surplus. Also, loans and extensions of credit to affiliates generally are required to be secured by qualifying collateral. A bank’s transactions with its nonbank affiliates are also generally required to be on arm’s length terms.
 
Source of Strength.  The FRB has a policy that a BHC is expected to act as a source of financial and managerial strength to each of its subsidiary banks and, under appropriate circumstances, to commit resources to support each such subsidiary bank. This support may be required at times when the BHC may not have the resources to provide the support.
The OCC may order an assessment of the Parent if the capital of one of its national bank subsidiaries were to become impaired. If the Parent failed to pay the assessment within three months, the OCC could order the sale of the Parent’s stock in the national bank to cover the deficiency.
 
Depositor Preference.   In the event of the “liquidation or other resolution” of an insured depository institution, the claims of deposits payable in the United States (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If an insured depository institution fails, claims of insured and uninsured U.S. depositors, along with claims of the FDIC, will have priority in payment ahead of unsecured creditors, including the Parent, and depositors whose deposits


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are solely payable at such insured depository institution’s non-U.S. offices.
 
Liability of Commonly Controlled Institutions.   All of the Company’s subsidiary banks are insured by the FDIC. FDIC-insured depository institutions can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC due to the default of an FDIC-insured depository institution controlled by the same bank holding company, and for any assistance provided by the FDIC to an FDIC-insured depository institution that is in danger of default and that is controlled by the same bank holding company. “Default” means generally the appointment of a conservator or receiver. “In danger of default” means generally the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.
 
Dodd-Frank Act  
 
The Dodd-Frank Act, enacted on July 21, 2010, has resulted in broad changes to the U.S. financial system and is the most significant financial reform legislation since the 1930s. Federal regulatory agencies have issued numerous rulemakings to implement its provisions, but a number of the provisions of the Dodd-Frank Act still require final rulemaking or additional guidance and interpretation by these agencies. As a result, the ultimate impact of the Dodd-Frank Act is not yet known, but it has affected, and we expect it will continue to affect most of our businesses in some way, either directly through regulation of specific activities or indirectly through regulation of concentration risks, capital or liquidity. At the enterprise level, the FRB has finalized a number of regulations designed to prevent or mitigate the risks that may arise from the material distress or failure of a large BHC. These rules implement enhanced prudential requirements for large BHCs like Wells Fargo regarding risk-based capital and leverage, risk and liquidity management, and stress testing and would impose debt-to-equity limits on any BHC that regulators determine poses a grave threat to the financial stability of the United States. The FRB has also proposed, but not yet finalized, additional enhanced prudential standards that would implement single counterparty credit limits and establish remediation requirements for large BHCs experiencing financial distress. The OCC, under separate authority, has also finalized guidelines establishing heightened governance and risk management standards for large national banks such as Wells Fargo Bank, N.A.
In addition to rules for the enhanced supervision and regulation of large BHCs and other systemically important firms, the FDIC and FRB have implemented rules under the Dodd-Frank Act requiring large BHCs like Wells Fargo to prepare and submit resolution plans, known as “living wills,” to facilitate the rapid and orderly resolution of the Company in the event of material distress or its failure. The FDIC also released a notice regarding a proposed resolution strategy, known as “single point of entry,” designed to resolve a large financial institution in a manner that holds management responsible for its failure, maintains market stability, and imposes losses on shareholders and creditors in accordance with statutory priorities, without imposing a cost on U.S. taxpayers.
Federal regulatory agencies have also finalized rules to implement the provisions of the Dodd-Frank Act known as the “Volcker Rule.” The Volcker Rule substantially restricts banking entities from engaging in proprietary trading or
 
owning any interest in or sponsoring or having certain relationships with a hedge fund, a private equity fund or certain structured transactions that are deemed covered funds.
With respect to consumer protection maters, the Dodd-Frank Act established the CFPB to ensure consumers receive clear and accurate disclosures regarding financial products and to protect consumers from hidden fees and unfair or abusive practices. The CFPB concentrated much of its initial rulemaking efforts on a variety of mortgage-related topics required under the Dodd-Frank Act, including ability-to-repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, appraisal and escrow standards and requirements for higher-priced mortgages. The CFPB also recently finalized rules integrating disclosures required of lenders and settlement agents under the Truth in Lending Act and the Real Estate Settlement Procedures Act. In addition to the exercise of its rulemaking authority, the CFPB is continuing its on-going examination activities with respect to a number of consumer businesses and products, including mortgage lending and servicing, fair lending requirements, student lending activities, and auto finance.
Federal regulatory agencies issued numerous other rules and proposals to implement various other requirements of the Dodd-Frank Act. For example, federal regulatory agencies have adopted rules establishing a comprehensive framework for regulating over-the-counter derivatives. In addition, federal regulatory agencies have issued rules to implement the Dodd-Frank Act’s requirement that sponsors of asset-backed securities (ABS) retain at least a 5% ownership stake in the ABS. The SEC has also adopted a rule governing money market mutual funds that, among other things, requires significant structural changes to these funds, including requiring institutional prime money market funds to maintain a variable net asset value and providing for the imposition of liquidity fees and redemption gates for all non-governmental money market funds during periods in which they experience liquidity impairments of a certain magnitude.
For more information about the Dodd-Frank Act and its effect on our business, see the “Regulatory Reform” section of the 2014 Annual Report to Stockholders.
   
Capital Requirements and Planning
 
The Company and each of our insured depository institutions are subject to various regulatory capital adequacy requirements administered by federal banking regulators. These capital rules, among other things, establish required minimum ratios relating capital to different categories of assets and exposures. Federal banking regulators have also finalized rules to impose a supplementary leverage ratio on large BHCs like Wells Fargo and our insured depository institutions and to implement a liquidity coverage ratio. The FRB has also indicated that it is in the process of considering new rules to address the amount of equity and unsecured debt a company must hold to facilitate its orderly liquidation, often referred to as total loss absorbing capacity.
From time to time, the FRB and the Federal Financial Institutions Examination Council (FFIEC) propose changes and amendments to, and issue interpretations of, risk-based capital guidelines and related reporting instructions. In addition, the FRB closely monitors capital levels of the institutions it supervises and may require such institutions to modify capital levels based on FRB determinations. Such determinations, proposals or interpretations could, if


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implemented in the future, affect our reported capital ratios and net risk-adjusted assets.
As an additional means to identify problems in the financial management of depository institutions, the Federal Deposit Insurance Act (FDI Act) requires federal banking regulators to establish certain non-capital safety and soundness standards for institutions for which they are the primary federal regulator. The standards relate generally to operations and management, asset quality, interest rate exposure, executive compensation and risk management. The agencies are authorized to take action against institutions that fail to meet such standards.
The FDI Act requires federal banking regulators to take “prompt corrective action” with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. A depository institution’s treatment for purposes of the prompt corrective action provisions will depend upon how its capital levels compare to various capital measures and certain other factors, as established by regulation.
In addition, the FRB's capital plan rule requires large BHCs to submit capital plans annually for review to determine if the FRB has any objections before making any capital distributions. The rule requires updates to capital plans in the event of material changes in a BHC’s risk profile, including as a result of any significant acquisitions. Federal banking regulators also require stress tests to evaluate whether an institution has sufficient capital to continue to operate during periods of adverse economic and financial conditions.
For more information on our capital requirements and planning, see the “Capital Management” section of the 2014 Annual Report to Stockholders.
 
Deposit Insurance Assessments
 
Our bank subsidiaries, including Wells Fargo Bank, N.A., are members of the Deposit Insurance Fund (DIF) maintained by the FDIC. Through the DIF, the FDIC insures the deposits of our banks up to prescribed limits for each depositor and funds the DIF through assessments on member banks.
The Dodd-Frank Act gave the FDIC greater discretion to manage the DIF, changed the assessment base from domestic deposits to consolidated average assets less average tangible equity, and mandated a minimum Designated Reserve Ratio (reserve ratio or DRR) of 1.35%. In October 2010, the FDIC Board adopted a Restoration Plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. The FDIC Board has also finalized a comprehensive, long-range plan for DIF management, whereby the FDIC Board set the DRR at 2%.
In February 2011, the FDIC Board approved a final rule on assessments, dividends, assessment base and large bank pricing. To maintain the DIF, member institutions are assessed an insurance premium based on an assessment base and an assessment rate. For large and highly complex institutions (those that are very large and are structurally and operationally complex or that pose unique challenges and risks in the case of failure), the assessment rate is determined by combining supervisory ratings and certain financial measures into scorecards. The score received by an institution is converted into an assessment rate for the institution. The FDIC retains the ability to adjust the total score of large and highly complex institutions based upon quantitative or qualitative measures not adequately captured in the scorecards.
All FDIC-insured depository institutions must also pay a quarterly assessment towards interest payments on bonds
 
issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds (commonly referred to as FICO bonds) were used to capitalize the former Federal Savings and Loan Insurance Corporation. This assessment was 0.62% of the assessable deposit base during 2014, and is 0.60% of the assessable deposit base for first quarter 2015. For the year ended December 31, 2014, the Company’s FDIC deposit insurance assessments, including FICO assessments, totaled $928 million.
The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. The termination of deposit insurance for one or more of our bank subsidiaries could have a material adverse effect on our earnings, depending on the collective size of the particular banks involved.
 
Fiscal and Monetary Policies
 
Our business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the FRB are (a) conducting open market operations in United States government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or changing reserve requirements against depository institutions’ deposits, and (d) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The policies of the FRB may have a material effect on our business, results of operations and financial condition.
 
Privacy Provisions of the Gramm-Leach-Bliley Act and Restrictions on Cross-Selling
 
Federal banking regulators, as required under the Gramm-Leach-Bliley Act (the GLB Act), have adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties. The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors. Federal financial regulators have issued regulations under the Fair and Accurate Credit Transactions Act that have the effect of increasing the length of the waiting period, after privacy disclosures are provided to new customers, before information can be shared among different affiliated companies for the purpose of cross-selling products and services between those affiliated companies.
 


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Sarbanes-Oxley Act of 2002
 
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) implemented a broad range of corporate governance and accounting measures to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of disclosures under federal securities laws. We are subject to Sarbanes-Oxley because we are required to file periodic reports with the SEC under the Securities Exchange Act of 1934. Among other things, Sarbanes-Oxley and/or its implementing regulations established membership requirements and additional responsibilities for our audit committee, imposed restrictions on the relationship between us and our outside auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed additional responsibilities for our external financial statements on our chief executive officer and chief financial officer, expanded the disclosure requirements for our corporate insiders, required our management to evaluate our disclosure controls and procedures and our internal control over financial reporting, and required our independent registered public accounting firm to issue a report on our internal control over financial reporting.
 
Patriot Act
 
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Patriot Act) is intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to work together to combat terrorism on a variety of fronts. The Patriot Act has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money. The Patriot Act required us to implement new or revised policies and procedures relating to anti‑money laundering, compliance, suspicious activities, and currency transaction reporting and due diligence on customers. The Patriot Act also requires federal banking regulators to evaluate the effectiveness of an applicant in combating money laundering in determining whether to approve a proposed bank acquisition.
 
Future Legislation or Regulation
 
In light of recent conditions in the U.S. and global financial markets and the U.S. and global economy, legislators, the presidential administration and regulators have continued their increased focus on regulation of the financial services industry. Proposals that further increase regulation of the financial services industry have been and are expected to continue to be introduced in the U.S. Congress, in state legislatures and abroad. In addition, not all regulations authorized or required under the Dodd-Frank Act have been proposed or finalized by federal regulators. Further legislative changes and additional regulations may change  our operating environment in substantial and unpredictable ways. Such legislation and regulations could increase our cost of doing business, affect our compensation structure, restrict or expand the activities in which we may engage or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether future legislative proposals will be enacted and, if enacted, the effect that they, or any implementing regulations, would have on our
 
business, results of operations or financial condition. The same uncertainty exists with respect to regulations authorized or required under the Dodd-Frank Act but that have not yet been proposed or finalized.


ADDITIONAL INFORMATION
 
Additional information in response to this Item 1 can be found in the 2014 Annual Report to Stockholders under “Financial Review” and under “Financial Statements.” That information is incorporated into this item by reference.
ITEM 1A.
RISK FACTORS

Information in response to this Item 1A can be found in this report on pages 2-6 and in the 2014 Annual Report to Stockholders under “Financial Review – Risk Factors.” That information is incorporated into this item by reference.
 
ITEM 1B.
UNRESOLVED STAFF COMMENTS
 
Not applicable.


6


ITEM 2.
PROPERTIES
  
  
  
City
  
State
  
  
  
State
We own our corporate
  
  
  
We lease office space
 
  
  
  
headquarters
  
 
 
 
  
 
for various administrative
 
 
  
building in:
  
San Francisco
  
California
  
  
departments in major
 
  
  
 
 
 
 
 
 
  
  
locations in:
Alabama
  
New Mexico
 
 
 
 
 
  
  
 
Arizona
  
New Jersey
We own administrative
 
  
  
  
  
  
  
California
  
New York
  
facilities in:
  
Anchorage
  
Alaska
  
  
  
Colorado
  
North Carolina
  
  
  
Chandler
  
Arizona
  
  
  
Delaware
  
Ohio
  
  
  
Glendale
  
Arizona
  
  
  
Florida
  
Oregon
  
  
  
Mesa
  
Arizona
  
  
  
Georgia
  
Pennsylvania
  
  
  
Phoenix
  
Arizona
  
  
  
Idaho
  
South Carolina
  
  
  
Tempe
  
Arizona
  
  
  
Illinois
  
South Dakota
  
  
  
Tucson
  
Arizona
  
  
  
Indiana
  
Tennessee
  
  
  
Irvine
  
California
  
  
  
Iowa
  
Texas
  
  
  
Millbrae
  
California
  
  
  
Maryland
  
Utah
  
  
  
Sacramento
  
California
  
  
  
Massachusetts
  
Virginia
  
  
  
San Francisco
  
California
  
  
  
Minnesota
  
Washington
  
  
  
San Jose
  
California
  
  
  
Nebraska
  
Wisconsin
  
  
  
Santa Clara
  
California
  
 
 
Nevada
 
Washington, DC
  
  
  
Walnut Creek
  
California
  
 
 
 
 
Puerto Rico
  
  
  
Greenwood Village
  
Colorado
  
 
 
 
 
 
  
  
  
Littleton
  
Colorado
  
 
 
 
 
 
  
  
  
Coeur D'Alene
  
Idaho
  
We lease office space for
 
  
  
  
  
  
West Des Moines
  
Iowa
  
  
various operations/
 
  
  
  
  
  
Marquette
  
Michigan
  
  
servicing centers in:
Arizona
  
North Dakota
  
  
  
Anoka
  
Minnesota
  
  
  
California
  
Nevada
  
  
  
Maplewood
  
Minnesota
  
  
  
Colorado
  
New York
  
  
  
Minnetonka
  
Minnesota
  
  
  
Florida
  
Oregon
  
  
  
Rochester
  
Minnesota
  
  
  
Georgia
  
Pennsylvania
  
  
  
St. Louis
  
Missouri
  
 
 
Iowa
 
South Carolina
  
  
  
Omaha
  
Nebraska
 
 
 
Maryland
 
South Dakota
  
  
  
Summit
  
New Jersey
 
 
 
Minnesota
 
Texas
 
 
 
Las Vegas
 
Nevada
 
 
 
Missouri
 
Virginia
 
 
 
Charlotte
 
North Carolina
 
 
 
North Carolina
 
Washington
 
 
 
Fargo
 
North Dakota
 
 
 
 
 
Wisconsin
 
 
 
Eugene
 
Oregon
 
 
 
 
 
 
 
 
 
Portland
 
Oregon
 
 
 
 
 
 
 
 
 
Austin
 
Texas
 
 
 
City
 
State
 
 
 
Houston
 
Texas
 
We are also a joint
 
 
 
 
 
 
Round Rock
 
Texas
 
 
venture partner
 
 
 
 
 
 
San Antonio
 
Texas
 
 
in an office building in:
Minneapolis
 
Minnesota
 
 
 
Clearfield
 
Utah
 
 
 
 
 
 
 
 
 
Salt Lake City
 
Utah
  
 
 
 
 
 
 
 
 
Tukwila
 
Washington
 
 
 
 
 
 
  
  
  
Menomonee Falls
  
Wisconsin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(continued on next page)


7



(continued from prior page)
 
 
 
City
  
State
 
  
  
Country
We own operations/servicing
  
  
  
We lease office space
 
  
  
  
centers in:
  
Anchorage
  
Alaska
  
 
for international
Argentina
  
Italy
  
  
  
Birmingham
  
Alabama
  
  
operations in:
Australia
 
Japan
  
  
  
Homewood
  
Alabama
  
  
  
Bahamas
  
Malaysia
  
  
  
Chandler
  
Arizona
  
 
 
Bangladesh
 
Mexico
  
  
  
Phoenix
  
Arizona
  
 
 
Brazil
 
Netherlands
  
  
  
Tempe
  
Arizona
  
 
 
Canada
 
Philippines
  
  
  
Tucson
  
Arizona
  
 
 
Chile
 
Russia
  
  
  
El Monte
  
California
  
 
 
China
 
Singapore
  
  
  
Fremont
  
California
  
 
 
Colombia
 
South Africa
  
  
  
Fresno
  
California
  
 
 
Dominican Republic
 
South Korea
  
  
  
Irvine
  
California
  
 
 
Ecuador
 
Spain
  
  
  
Pleasant Hill
  
California
  
 
 
France
 
Taiwan
  
  
  
Sacramento
  
California
  
 
 
Germany
 
Thailand
  
  
  
San Diego
  
California
  
 
 
India
 
Turkey
  
  
  
San Francisco
  
California
  
 
 
Indonesia
 
United Arab Emirates
  
  
  
San Leandro
  
California
  
 
 
Ireland
 
United Kingdom
  
  
  
Walnut Creek
  
California
  
 
 
Israel
 
Vietnam
  
  
  
Denver
  
Colorado
  
  
  
  
  
  
 
 
 
Orlando
 
Florida
 
 
 
 
 
 
 
 
 
Riviera Beach
 
Florida
 
 
 
 
 
 
 
 
 
Boise
 
Idaho
 
 
 
 
 
 
 
 
 
Springfield
 
Illinois
 
 
 
 
 
 
 
 
 
Clive
 
Iowa
 
 
 
 
 
 
 
 
 
Des Moines
 
Iowa
 
 
 
 
 
 
 
 
 
West Des Moines
 
Iowa
 
 
 
 
 
 
 
 
 
Columbia
 
Maryland
 
 
 
 
 
 
 
 
 
Minneapolis
 
Minnesota
 
 
 
 
 
 
 
 
 
Shoreview
 
Minnesota
 
 
 
 
 
 
 
 
 
Billings
 
Montana
 
 
 
 
 
 
 
 
 
Omaha
 
Nebraska
 
 
 
 
 
 
 
 
 
Albuquerque
 
New Mexico
 
 
 
 
 
 
 
 
 
Las Vegas
 
Nevada
 
 
 
 
 
 
 
 
 
Reno
 
Nevada
 
 
 
 
 
 
 
 
 
Charlotte
 
North Carolina
 
 
 
 
 
 
 
 
 
Winston-Salem
 
North Carolina
 
 
 
 
 
 
 
 
 
Winterville
 
North Carolina
 
 
 
 
 
 
 
 
 
Portland
 
Oregon
 
 
 
 
 
 
 
 
 
Salem
 
Oregon
 
 
 
 
 
 
 
 
 
Sioux Falls
 
South Dakota
 
 
 
 
 
 
 
 
 
Irving
 
Texas
 
 
 
 
 
 
 
 
 
Lubbock
 
Texas
 
 
 
 
 
 
 
 
 
San Antonio
 
Texas
 
 
 
 
 
 
 
 
 
Salt Lake City
 
Utah
 
 
 
 
 
 
 
 
 
Glen Allen
 
Virginia
 
 
 
 
 
 
 
 
 
Tukwila
 
Washington
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

As of December 31, 2014 , we provided banking, insurance, investments, mortgage and consumer and commercial finance from more than 8,700 domestic stores under ownership and lease agreements.
 
ADDITIONAL INFORMATION
 
Additional information in response to this Item 2 can be found in the 2014 Annual Report to Stockholders under “Financial Statements – Notes to Financial Statements – Note 7 (Premises, Equipment, Lease Commitments and Other Assets).” That information is incorporated into this item by reference.


8


ITEM 3.
LEGAL PROCEEDINGS

Information in response to this Item 3 can be found in the 2014 Annual Report to Stockholders under “Financial Statements – Notes to Financial Statements – Note 15 (Legal Actions).” That information is incorporated into this item by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
 
Not applicable.

PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
MARKET INFORMATION
 
The Company’s common stock is listed on the NYSE (symbol “WFC”). The Quarterly Financial Data table of the 2014 Annual Report to Stockholders provides the quarterly prices of, and quarterly dividends paid on, the Company’s common stock for the two-year period ended December 31, 2014 , and is incorporated herein by reference. Prices shown represent the daily high and low, and the quarter-end sale prices of the Company’s common stock as reported on the NYSE Composite Transaction Reporting System for the periods indicated. The “Stock Performance” section of the 2014 Annual Report to Stockholders provides stockholder return comparisons and is incorporated herein by reference. At January 31,  2015 , there were 187,008 holders of record of the Company’s common stock.
 
DIVIDENDS
 
The dividend restrictions discussions on page 3 of this report and in the 2014 Annual Report to Stockholders under “Financial Statements – Notes to Financial Statements – Note 3 (Cash, Loan and Dividend Restrictions)” are incorporated into this item by reference.

 
REPURCHASES OF EQUITY SECURITIES
 
In October 2012, our Board of Directors authorized the repurchase of 200 million shares of our common stock, and we used all remaining repurchase authority under this authorization in 2014. In March 2014, our Board of Directors authorized the repurchase of an additional 350 million shares of our common stock. The authorizations cover shares repurchased to meet team member benefit plan requirements. The Company maintains a variety of retirement plans for its team members and typically is a net issuer of shares of common stock to these plans. From time to time, it also purchases shares of common stock from these plans to accommodate team member preferences. Share repurchases are subtracted from the Company’s repurchase authority without offset for share issuances. Shares may be repurchased as part of employee stock option exercises, from the different benefit plans or in the open market, subject to regulatory approval.
The amount and timing of stock repurchases will be based on various factors, 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 our stock), and regulatory and legal considerations. In June 2010, our Board of Directors also authorized the repurchase of up to $1 billion of warrants to purchase our common stock. The warrants are listed on the NYSE under the symbol “WFCWS.” The amount and timing of warrant repurchases will be based on various factors including market conditions. See the “Capital Management” section in the 2014  Annual Report to Stockholders for additional information about our common stock and warrant repurchases.



9


The following table shows Company repurchases of its common stock for each calendar month in the quarter ended December 31, 2014.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
Maximum number of 

  
 
  
 
Total number 

 
 
 
shares that may yet 

  
 
  
 
of shares 

 
Weighted-average

 
be repurchased under 

Calendar month
 
repurchased (1) 

 
price paid per share

 
the authorization

October (2)
 
31,116,572

 
$
49.81

 
270,843,385

November
 
10,760,726

 
53.46

 
260,082,659

December
 
19,702,495

 
54.30

 
240,380,164

  
 
Total
 
61,579,793

 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
 
All shares were repurchased under an authorization covering up to 350 million shares of common stock approved by the Board of Directors and publicly announced by the Company on March 26, 2014. Unless modified or revoked by the Board, this authorization does not expire.
(2)
 
Includes 19,846,349 shares at a weighted-average price paid per share of $50.39 repurchased in a private transaction.
 

The following table shows Company repurchases of the warrants for each calendar month in the quarter ended December 31, 2014.
  
 
  
 
  
 
  
 
  
  
 
  
 
  
 
  
 
  
  
 
  
 
Total number 

 
  

 
Maximum dollar value 

  
 
  
 
of warrants 

 
Average price 

 
of warrants that 

Calendar month
 
repurchased (1) 

 
paid per warrant 

 
may yet be purchased 

October
 
—

 
$
—

 
451,944,402

November
 
—

 
—

 
451,944,402

December
 
—

 
—

 
451,944,402

  
 
Total
 
—

 
  
 
  
  
 
  
 
  
 
  
 
  
  
 
  
 
  
 
  
 
  
(1)
 
Warrants are purchased under the authorization covering up to $1 billion in warrants approved by the Board of Directors (ratified and approved on June 22, 2010). Unless modified or revoked by the Board, this authorization does not expire.
  
 
 
 
 
 
 
 
 
ITEM 6.
SELECTED FINANCIAL DATA
 
Information in response to this Item 6 can be found in the 2014  Annual Report to Stockholders under “Financial Review” in Table 1. That information is incorporated into this item by reference.

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANACIAL CONDITION AND RESULTS OF OPERATIONS
 
Information in response to this Item 7 can be found in the 2014  Annual Report to Stockholders under “Financial Review.” That information is incorporated into this item by reference.

 
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Information in response to this Item 7A can be found in the 2014 Annual Report to Stockholders under “Financial Review – Risk Management – Asset/Liability Management.” That information is incorporated into this item by reference.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Information in response to this Item 8 can be found in the 2014 Annual Report to Stockholders under “Financial Statements,” under “Notes to Financial Statements” and under “Quarterly Financial Data.” That information is incorporated into this item by reference.



10


ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
 
 
Information in response to this Item 9A can be found in the
2014 Annual Report to Stockholders under “Controls and
Procedures.” That information is incorporated into this item by reference.
ITEM 9B.
OTHER INFORMATION
 
Not applicable.



PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
Patricia R. Callahan (age 61)
Senior Executive Vice President and Chief Administrative Officer since February 2011;
Executive Vice President (Office of Transition) from January 2009 to February 2011.
Ms. Callahan has served with the Company or its predecessors for 37 years.
 
David M. Carroll (age 57)
Senior Executive Vice President (Wealth, Brokerage and Retirement) since January 2009.
Mr. Carroll has served with the Company or its predecessors for 33 years.
 
Hope A. Hardison (age 50)
Executive Vice President (Human Resources) since September 2010;
Senior Vice President (Human Resources) from April 2008 to September 2010.
Ms. Hardison has served with the Company or its predecessors for 22 years.

Michael J. Heid (age 57)
Executive Vice President (Home Lending) since July 2011;  
Co-President of Wells Fargo Home Mortgage from May 2004 to July 2011.
Mr. Heid has served with the Company or its predecessors for 27 years.
 
Richard D. Levy (age 57)
Executive Vice President and Controller since February 2007.
Mr. Levy has served with the Company for 12 years.
 
Michael J. Loughlin (age 59)
Senior Executive Vice President and Chief Risk Officer since July 2011;
Executive Vice President and Chief Risk Officer from November 2010 to July 2011;
Executive Vice President and Chief Credit and Risk Officer from April 2006 to November 2010.
Mr. Loughlin has served with the Company or its predecessors for 33 years.
 
Avid Modjtabai (age 53)
Senior Executive Vice President (Consumer Lending) since July 2011;
Executive Vice President and Chief Information Officer from April 2007 to July 2011.
Ms. Modjtabai has served with the Company or its predecessors for 21 years.
 
Kevin A. Rhein (age 61)
Senior Executive Vice President and Chief Information Officer since July 2011;
Executive Vice President (Card Services and Consumer Lending) from January 2009 to July 2011.
Mr. Rhein has served with the Company or its predecessors for 36 years.
 
John R. Shrewsberry (age 49)
Senior Executive Vice President and Chief Financial Officer since May 2014;
President and Chief Executive Officer of Wells Fargo Securities, LLC from November 2009 to May 2014.
Mr. Shrewsberry has served with the Company or its predecessors for 16 years.

11


Timothy J. Sloan (age 54)
Senior Executive Vice President (Wholesale Banking) since May 2014;
Senior Executive Vice President and Chief Financial Officer from February 2011 to May 2014;
Senior Executive Vice President and Chief Administrative Officer from September 2010 to February 2011;
Executive Vice President (Commercial Banking, Real Estate and Specialized Financial Services) of Wells Fargo Bank, N.A. from June 2006 to September 2010.
Mr. Sloan has served with the Company or its predecessors for 27 years.
 
James M. Strother (age 63)
Senior Executive Vice President and General Counsel since July 2011;
Executive Vice President and General Counsel from January 2004 to July 2011.
Mr. Strother has served with the Company or its predecessors for 28 years.

John G. Stumpf (age 61)
Chairman, President and Chief Executive Officer since January 2010;
President and Chief Executive Officer from June 2007 to January 2010.
Mr. Stumpf has served with the Company or its predecessors for 33 years.
 
Carrie L. Tolstedt (age 55)
Senior Executive Vice President (Community Banking) since June 2007.
Ms. Tolstedt has served with the Company or its predecessors for 25 years.
 
There is no family relationship between any of the Company’s executive officers or directors. All executive officers serve at the pleasure of the Board of Directors.

  
AUDIT COMMITTEE INFORMATION
 
The Audit and Examination Committee is a standing audit committee of the Board of Directors established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Committee has six members: John D. Baker II, Enrique Hernandez, Jr., Federico F. Peña, James H. Quigley (Chair), Susan G. Swenson, and Suzanne M. Vautrinot. Each member is independent, as independence for audit committee members is defined by NYSE rules. The Board of Directors has determined, in its business judgment, that each member of the Audit and Examination Committee is financially literate, as required by NYSE rules, and that each of Messrs. Baker, Hernandez, Peña, and Quigley and Ms. Swenson qualifies as an “audit committee financial expert” as defined by SEC regulations.

CODE OF ETHICS AND BUSINESS
CONDUCT
 
The Company’s Code of Ethics and Business Conduct for team members (including executive officers), Director Code of Ethics, the Company’s corporate governance guidelines, and the charters for the Audit and Examination, Governance and Nominating, Human Resources, Corporate Responsibility, Credit, Finance, and Risk Committees are available at www.wellsfargo.com/about/corporate/corporate_governance . This information is also available in print to any stockholder upon written request to the Office of the Corporate Secretary, Wells Fargo & Company, MAC N9305-173, Wells Fargo Center, Sixth and Marquette, Minneapolis, Minnesota 55479.


 
ADDITIONAL INFORMATION
 
Additional information in response to this Item 10 can be found in the Company’s 2015 Proxy Statement under “Ownership of Our Common Stock – Section 16(a) Beneficial Ownership Reporting Compliance,” “Item 1 – Election of Directors – Director Nominees for Election” and “– Other Matters Relating to Directors” and “Corporate Governance – Director Nomination Process.” That information is incorporated into this item by reference.

ITEM 11.
EXECUTIVE COMPENSATION
 
Information in response to this Item 11 can be found in the Company’s 2015 Proxy Statement under “Item 1– Election of Directors – Compensation Committee Interlocks and Insider Participation,” under “Corporate Governance – Director Compensation,” under “Corporate Governance – Risk Management and Compensation Practices,” under “Information About Related Persons – Related Person Transactions,” and under “Item 2 – Executive Compensation and Advisory Resolution to Approve Executive Compensation (Say on  Pay)” excluding “– Advisory Resolution to Approve Executive Compensation (Say on Pay).” That information is incorporated into this item by reference.



12


ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
 
EQUITY COMPENSATION PLAN INFORMATION

The following table provides information about our equity compensation plans in effect on December 31, 2014 , separately aggregated for plans approved by stockholders and for plans not approved by stockholders. A description of the material features of each equity compensation plan not approved by stockholders follows the table. All outstanding awards relate to shares of our common stock. Information is as of December 31, 2014 , unless otherwise indicated.
 

Equity Compensation Plan Information  (1) 
 
 
 
 
 
 
 
 
 
 
 
(a)
 
 
 
(b)
 
(c)
 
 
 
 
 
  
 
 
 
  
 
# of shares remaining 

 
 
 
 
 
# of shares to be 

 
 
 
  
 
available for future 

 
 
 
 
 
issued upon exercise 

 
 
 
Weighted-average 

 
issuance under equity 

 
 
 
 
 
of outstanding 

 
 
 
exercise price of 

 
compensation plans 

 
 
 
 
 
options, warrants 

 
 
 
outstanding options, 

 
(excluding securities 

 
Plan category
 
and rights 

 
 
 
warrants and rights (2) 

 
reflected in column (a)) 

 
Equity compensation plans approved by security holders
 
156,371,459

 
(3)
 
$
28.15

 
248,063,702

(4)
Equity compensation plans not approved by security holders
 
17,714,435

 
(5)
 
152.12

 
2,887,788

(6)
 
 
Total
 
174,085,894

 
 
 
42.99

 
250,951,490

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
 
The table above does not include information about equity compensation plans assumed in mergers that we froze at the time of the merger. Under these assumed plans a total of 349,567 shares of common stock were issuable upon exercise of options. The weighted average exercise price per share of our common stock of the outstanding options was $146.73. We assumed the amended and restated Wachovia Corporation 2003 Stock Incentive Plan (2003 SIP) in the Wachovia merger and in February 2009 used substantially all remaining available shares for stock option grants to legacy Wachovia team members. Information for the 2003 SIP is included in the table above under the plan category for equity compensation plans not approved by security holders. No awards have been granted since February 2009, and no future awards will be granted under the 2003 SIP.
 
(2)
 
Does not reflect restricted share rights (RSRs), restricted share units (RSUs), or restricted share awards (RSAs) or deferred compensation benefits because they have no exercise price.
 
(3)
 
For the Long-Term Incentive Compensation Plan (LTICP), consists of 85,622,040 shares subject to options, 53,572,150 shares subject to unvested RSRs, and a maximum of 12,773,217 performance shares. For the Supplemental 401(k) Plan, consists of 3,322,131 shares issuable upon distribution of benefits. For the Directors Stock Compensation and Deferral Plan (Directors Plan), consists of 391,547 shares subject to options, 302,578 shares issuable upon distribution of vested but deferred stock awards, and 387,796 shares issuable upon distribution of deferred compensation benefits.
 
(4)
 
We could have issued the number of shares of our common stock indicated in the following table pursuant to any of the award types listed for the plan or, if indicated for the plan, pursuant to distributions of deferred compensation benefits. Each share of common stock issued under the LTICP pursuant to awards other than options or SARs counts as two shares.
 
 
 
 
 
 
 
 
 
 
 
 
 
Plan
 
# of shares 

 
 
 
Award types 
 
 
 
LTICP
 
245,444,104

 
 
 
Stock options, stock, SARs, restricted stock, 
 
 
 
 
 
 
 
 
 
RSRs, performance shares, performance units
 
Supplemental 401(k) Plan
 
2,068,430

 
 
 
Deferral distribution 
 
Directors Plan
 
551,168

 
 
 
Stock options, deferral distribution 
 
 
 
 
 
 
 
 
 
 
(5)
 
For the 2003 SIP, consists of 11,691,593 shares subject to options. For the other plans, consists of 6,022,842 shares of common stock issuable upon distribution of deferred compensation benefits.
 
(6)
 
We could have issued the number of shares of our common stock indicated in the following table pursuant to distributions of deferred compensation benefits. No information is provided for the 2003 SIP, the Norwest Corporation Directors’ Formula Stock Award Plan or the Norwest Corporation Directors’ Stock Deferral Plan because no future awards or deferrals will be made under these plans and because column (a) reflects all shares issuable under those plans upon exercise or distribution of outstanding awards or deferred compensation benefits.
 
 
 
 
 
 
 
 
 
 
 
 
Plan
 
# of shares 

 
 
 
Award types 
 
 
 
Deferred Compensation Plan
 
2,631,609

 
 
 
Deferral distribution 
 
 
 
Non-Qualified Deferred Compensation Plan for Independent
 
 
 
 
 
 
 
 
 
  
 
Contractors
 
256,179

 
 
 
Deferral distribution 
 
 
 


13


Material Features of Equity Compensation Plans Not Approved by Stockholders
 
The 2003 SIP .  The amended and restated Wachovia Corporation 2003 Stock Incentive Plan (2003 SIP) was originally approved by Wachovia’s shareholders in 2003 and prior to the merger had been used for equity awards to Wachovia’s executive officers and other key employees. We assumed the 2003 SIP in the merger and in February 2009 used substantially all remaining available shares for stock option grants to legacy Wachovia team members. No awards have been granted since then, and no future awards will be granted under the 2003 SIP.
At December 31, 2014, only options were outstanding under the 2003 SIP. The options generally expire on the tenth anniversary of the grant date and vest ratably over a three-year period from the grant date. The option price is payable to us in full by methods the Board’s Human Resources Committee (HRC) designates, including, but not limited to, in cash or its equivalent, by tendering or withholding shares of our common stock having a fair market value at the time of exercise equal to the total option price, or by a combination of the foregoing. Unless the HRC determines otherwise or except as prohibited by applicable law, options may also be exercised by a “cashless exercise” where the participant gives irrevocable instructions to a broker to promptly deliver to us the amount of sale proceeds from the shares covered by the option exercised, together with any withholding taxes due to the Company. The proceeds from any cash payments upon option exercise are added to our general funds and used for general corporate purposes.
 
Deferred Compensation Plan .  Under the Deferred Compensation Plan eligible team members may defer receipt of salary, bonuses and certain other compensation subject to the terms of the plan. Deferral elections are irrevocable once made except for limited re-deferral opportunities. We treat amounts deferred by a participant as if invested in the earnings options selected by the participant, and determine the deferred compensation benefit payable to the participant based on the performance of those earnings options. The plan offers a number of earnings options, including one based on our common stock with dividends reinvested. We generally distribute amounts allocated to the common stock option in shares of common stock. Participants have no direct interest in any of the earnings options and are general unsecured creditors of the Company with respect to their deferred compensation benefits under the plan.
 
Non-Qualified Deferred Compensation Plan for Independent Contractors .  Under the Non-Qualified Deferred Compensation Plan for Independent Contractors participants who performed qualifying investment or other financial services for participating affiliates as independent contractors were able to defer all or part of their eligible compensation payable to them by the affiliate subject to the terms of the plan. Deferral elections were irrevocable once made. Amounts deferred by a participant were treated as if invested in the earnings options selected by the participant, which determine the deferred compensation benefit payable to the participant. The plan offered a number of earnings options, including one based on our common stock with dividends reinvested. We generally distribute amounts allocated to the common stock option in shares of common stock. No future deferrals may be made under this plan and participants may no longer reallocate their existing account balances under the plan among different
 
investment options. Shares remaining available for issuance under the plan consist of shares issuable as a result of amounts credited to participant accounts denominated in our common stock to reflect cash dividends paid on the common stock. The plan is sponsored by a wholly owned subsidiary, WF Deferred Compensation Holdings, Inc. We have guaranteed its obligations under the plan. Participants have no direct interest in any of the earnings options and are general unsecured creditors of the plan sponsor and the Company with respect to their deferred compensation benefits under the plan.
 
Norwest Corporation Directors’ Formula Stock Award Plan .  Under the Norwest Corporation Directors’ Formula Stock Award Plan we awarded shares of common stock to non-employee directors. The plan allowed participants to defer receipt of all or a portion of their awards, with dividends reinvested, until a future year or years as selected by the participants subject to the terms of the plan. Participants can elect one time to defer commencement of distribution of their deferral accounts if the election is made sufficiently in advance of the original distribution commencement date and the new distribution commencement date is sufficiently beyond the original distribution commencement date. Participants have no direct interest in the shares deferred under the plan and are general unsecured creditors of the Company with respect to payment of their deferred stock awards under the plan. No future stock awards or deferrals may be made under this plan.
 
Norwest Corporation Directors’ Stock Deferral Plan . Under the Norwest Corporation Directors’ Stock Deferral Plan a participating director could defer receipt of all or part of the annual cash retainer and meeting fees payable to the director until a future year or years as selected by the director subject to the terms of the plan. A participating director could elect distribution of his or her deferral account in a lump sum in either cash or whole shares of common stock, or a combination of both. Alternatively, the director could elect to receive the distribution in up to ten annual installments of cash. A participant can elect one time to defer commencement of distribution of his or her deferral account if the election is made sufficiently in advance of the original distribution commencement date and the new distribution commencement date is sufficiently beyond the original distribution commencement date. No future deferrals may be made under this plan.

ADDITIONAL INFORMATION
 
Additional information in response to this Item 12 can be found in the Company’s 2015 Proxy Statement under “Ownership of Our Common Stock – Directors and Executive Officers” and “– Principal Stockholders.” That information is incorporated into this item by reference.



14


ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Information in response to this Item 13 can be found in the Company’s 2015 Proxy Statement under “Corporate Governance – Director Independence” and under “Information About Related Persons.” That information is incorporated into this item by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Information in response to this Item 14 can be found in the Company’s 2015 Proxy Statement under “Item 3 – Appointment of Independent Registered Public Accounting Firm for 2015 – KPMG Fees” and “– Audit and Examination Committee Pre-Approval Policies and Procedures.” That information is incorporated into this item by reference.

PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
1.  FINANCIAL STATEMENTS
 
The Company’s consolidated financial statements, including the notes thereto, and the report of the independent registered public accounting firm thereon, are set forth in the 2014 Annual Report to Stockholders, and are incorporated into this item by reference.
 
2.  FINANCIAL STATEMENT SCHEDULES
 
All financial statement schedules for the Company have been included in the consolidated financial statements or the related footnotes, or are either inapplicable or not required.
 

 
3.  EXHIBITS 
 
A list of exhibits to this Form 10-K is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated into this item by reference.
Stockholders may obtain a copy of any of the following exhibits, upon payment of a reasonable fee, by writing to Wells Fargo & Company, Office of the Corporate Secretary, Wells Fargo Center, N9305‑173, Sixth and Marquette, Minneapolis, Minnesota 55479.
The Company’s SEC file number is 001-2979. On and before November 2, 1998, the Company filed documents with the SEC under the name Norwest Corporation. The former Wells Fargo & Company filed documents under SEC file number 001-6214. The former Wachovia Corporation filed documents under SEC file number 001-10000.



15


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 25, 2015.
 
WELLS FARGO & COMPANY
 
 
By:      /s/ JOHN G. STUMPF                                           
John G. Stumpf
Chairman, President and Chief Executive Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
By:      /s/ JOHN G. STUMPF                                            
John G. Stumpf
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
February 25, 2015
 
 
By:      /s/ JOHN R. SHREWSBERRY                                
John R. Shrewsberry
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 25, 2015
 
 
By:      /s/ RICHARD D. LEVY                                         
Richard D. Levy
Executive Vice President and Controller
(Principal Accounting Officer)
February 25, 2015
 
 
The Directors of Wells Fargo & Company listed below have duly executed powers of attorney empowering James H. Quigley to sign this document on their behalf.
 
John D. Baker II
Elizabeth A. Duke
Cynthia H. Milligan
Stephen W. Sanger
Elaine L. Chao
Susan E. Engel
Federico F. Peña
John G. Stumpf
John S. Chen
Enrique Hernandez, Jr.
James H. Quigley
Susan G. Swenson
Lloyd H. Dean
Donald M. James
Judith M. Runstad
 
 
 
By:      /s/ JAMES H. QUIGLEY                                       
James H. Quigley
Director and Attorney-in-fact
February 25, 2015
 


16


EXHIBIT INDEX

Exhibit
Number
 
Description
 
Location
       3(a) 
 
Restated Certificate of Incorporation, as amended and in effect on the date hereof.
 
Filed herewith.
      3(b) 
 
By-Laws.
 
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed January 28, 2011.
       4(a) 
 
See Exhibits 3(a) and 3(b).
 
 
      4(b) 
 
The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.
 
 
10(a) *
 
Long-Term Incentive Compensation Plan (as amended and restated on April 23, 2013), which includes Performance-Based Compensation Policy.
 
Incorporated by reference to Exhibit 10(b) to the Company’s Current Report on Form 8-K filed April 26, 2013.
 
 
Long-Term Incentive Compensation Plan.    
 
Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
 
 
Forms of Performance Share Award Agreement:
 
 
 
 
For grants on or after February 24, 2015;
 
Filed herewith.
 
 
For grants on or after February 26, 2013;
 
Incorporated by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
 
 
For grants on February 28, 2012; 
 
Incorporated by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
 
 
For grants on February 22, 2011; and
 
Incorporated by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
 
For grants to John G. Stumpf, David M. Carroll, David A. Hoyt, and Carrie L. Tolstedt on June 22, 2010.
 
Incorporated by reference to Exhibit 10(a) to the Company’s Current Report on Form 8-K filed June 25, 2010.
 
 
Forms of Award Agreement for grants of stock awards to John G. Stumpf and David A. Hoyt.
 
Incorporated by reference to Exhibits 10(a) and
10(c) to the Company’s Current Report on Form 8-K filed August 6, 2009.
 
 
Forms of Restricted Share Rights Award Agreement:
 
 
 
 
For grants on or after February 24, 2015, including grants to John G. Stumpf, John R. Shrewsberry, David M. Carroll, Avid Modjtabai, Timothy J. Sloan, and Carrie L. Tolstedt;
 
Filed herewith.
 
 
For grants on or after February 26, 2013, including grants to John G. Stumpf, Timothy J. Sloan, David M. Carroll, David A. Hoyt, and Carrie L. Tolstedt;
 
Incorporated by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
 
 
For grants on February 28, 2012, including grants to John G. Stumpf, Timothy J. Sloan, David M. Carroll, David A. Hoyt, and Carrie L. Tolstedt;
 
Incorporated by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
 
 
For grants on February 22, 2011, including grants to John G. Stumpf, David M. Carroll, David A. Hoyt, Timothy J. Sloan, and Carrie L. Tolstedt;
 
Incorporated by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
 
For grants prior to February 22, 2011, including grants to John G. Stumpf, David M. Carroll, David A. Hoyt, Timothy J. Sloan, and Carrie L. Tolstedt; and
 
Incorporated by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
 
 
For grants to David A. Hoyt and Carrie L. Tolstedt on February 24, 2009, as amended on November 16, 2010.
 
Incorporated by reference to Exhibit 10(a) to the Company’s Current Report on Form 8-K filed February 27, 2009, and Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
*  Management contract or compensatory plan or arrangement.
 
 

17


Exhibit
Number
 
Description
 
Location
 
 
Form of Non-Qualified Stock Option Agreement, including grants to John G. Stumpf, David M. Carroll, David A. Hoyt, Timothy J. Sloan, and Carrie L. Tolstedt.
 
Incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
10(b)*
 
Long-Term Incentive Plan.
 
Incorporated by reference to Exhibit A to the former Wells Fargo’s Proxy Statement filed March 14, 1994.
10(c)*
 
Wells Fargo Bonus Plan, as amended effective January 1, 2011.
 
Incorporated by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.
10(d)*
 
Performance-Based Compensation Policy.
 
Incorporated by reference to Exhibit 10(b) to the Company’s Current Report on Form 8-K filed May 5, 2008.
10(e)*
 
Deferred Compensation Plan, as amended effective January 1, 2008.
 
Incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
 
 
Amendment to Deferred Compensation Plan, effective January 1, 2015.
 
 
Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.
 
 
Amendment to Deferred Compensation Plan, effective January 1, 2013.
 
 
Incorporated by reference to Exhibit 10(e) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
 
 
Amendment to Deferred Compensation Plan, effective January 1, 2011.
 
Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.
 
 
Amendment to Deferred Compensation Plan, effective December 1, 2009.
 
Incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
10(f)*
 
Directors Stock Compensation and Deferral Plan.
 
Incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
 
 
Amendment to Directors Stock Compensation and Deferral Plan, effective April 1, 2013.
 
 
Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
 
 
Amendment to Directors Stock Compensation and Deferral Plan, effective January 1, 2013.
 
 
Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.
 
 
Amendment to Directors Stock Compensation and Deferral Plan, effective January 24, 2012.
 
 
Incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
 
 
Amendment to Directors Stock Compensation and Deferral Plan, effective January 25, 2011.
 
 
Incorporated by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.
 
 
Amendment to Directors Stock Compensation and Deferral Plan, effective February 24, 2009.
 
 
Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.
 
 
Amendments to Directors Stock Compensation and Deferral Plan, effective September 23, 2008.
 
 
Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.
 
 
Amendment to Directors Stock Compensation and Deferral Plan, effective January 22, 2008.
 
 
Incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
 
 
Action of Governance and Nominating Committee Increasing Amount of Formula Stock and Option Awards Under Directors Stock Compensation and Deferral Plan, effective January 1, 2007.
 
 
Incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

18


Exhibit
Number
 
Description
 
Location
 
 
Form of Non-Qualified Stock Option Agreement for grants to directors on or before April 29, 2008.
 
 
Incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
10(g)*
 
Deferred Compensation Plan for Non-Employee Directors of the former Norwest.
 
Incorporated by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
 
 
Amendment to Deferred Compensation Plan for Non-Employee Directors, effective November 1, 2000.
 
Filed as paragraph (4) of Exhibit 10(ff) to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2000.
 
 
Amendment to Deferred Compensation Plan for Non-Employee Directors, effective January 1, 2004.
 
Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
10(h)*
 
Directors’ Stock Deferral Plan for directors of the former Norwest.
 
Incorporated by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
 
 
Amendment to Directors’ Stock Deferral Plan, effective November 1, 2000.
 
Filed as paragraph (5) of Exhibit 10(ff) to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2000.
 
 
Amendment to Directors’ Stock Deferral Plan, effective January 1, 2004.
 
Incorporated by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
10(i)*
 
Directors’ Formula Stock Award Plan for directors of the former Norwest.
 
Incorporated by reference to Exhibit 10(e) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
 
 
Amendment to Directors’ Formula Stock Award Plan, effective November 1, 2000.
 
Filed as paragraph (6) of Exhibit 10(ff) to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2000.
 
 
Amendment to Directors’ Formula Stock Award Plan, effective January 1, 2004.
 
Incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
10(j)*
 
Deferral Plan for Directors of the former Wells Fargo.
 
Incorporated by reference to Exhibit 10(b) to the former Wells Fargo’s Annual Report on Form 10-K for the year ended December 31, 1997.
 
 
Amendment to Deferral Plan, effective January 1, 2004.
 
Incorporated by reference to Exhibit 10(d) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
10(k)*
 
Supplemental 401(k) Plan.
 
Incorporated by reference to Exhibit 10(c) to the Company’s Current Report on Form 8-K filed May 4, 2009.
 
 
Amendment to Supplemental 401(k) Plan, effective January 1, 2015.
 
Incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.
10(l)*
 
Supplemental Cash Balance Plan.
 
Incorporated by reference to Exhibit 10(b) to the Company’s Current Report on Form 8-K filed May 4, 2009.
10(m)*
 
Supplemental Long-Term Disability Plan.
 
Incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1990.
 
 
Amendment to Supplemental Long-Term Disability Plan.
 
Incorporated by reference to Exhibit 10(g) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1992.

19


Exhibit
Number
 
Description
 
Location
10(n)*
 
Description of Relocation Program.
 
Incorporated by reference to Exhibit 10(y) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
    10(o) 
 
Non-Qualified Deferred Compensation Plan for Independent Contractors.
 
Incorporated by reference to Exhibit 10(x) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
 
 
Amendment to Non-Qualified Deferred Compensation Plan for Independent Contractors, effective January 1, 2014.
 
Filed herewith.
 
 
Amendment to Non-Qualified Deferred Compensation Plan for Independent Contractors, effective January 1, 2009.
 
Incorporated by reference to Exhibit 10(w) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
10(p)*
 
Description of Chairman/CEO Post-Retirement Policy.
 
Incorporated by reference to Exhibit 10(w) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
10(q)*
 
Description of the Company's Non-Employee Director Equity Compensation Program, effective January 1, 2015.
 
Filed herewith.
10(r)*
 
Description of the Company's Non-Employee Director Equity Compensation Program, effective January 1, 2014.
 
Incorporated by reference to Exhibit 10(q) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
10(s)*
 
Description of Wells Fargo Bank, N.A. Director Compensation Program, effective January 1, 2015.
 
Filed herewith.
10(t)*
 
Amended and Restated Wachovia Corporation Deferred Compensation Plan for Non-Employee Directors.
 
Incorporated by reference to Exhibit (10)(f) to Wachovia Corporation’s Current Report on Form 8-K filed December 29, 2008.
 
 
Amendment to Amended and Restated Wachovia Corporation Deferred Compensation   Plan for Non-Employee Directors, effective June 1, 2009.
 
Incorporated by reference to Exhibit 10(aa) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
10(u)*
 
Wachovia Corporation Executive Deferred Compensation Plan.
 
Incorporated by reference to Exhibit (10)(d) to Wachovia   Corporation’s Annual Report on Form 10-K for the year ended December 31, 1997.
10(v)*
 
Wachovia Corporation Supplemental Executive Long-Term   Disability Plan, as amended and restated.
 
Incorporated by reference to Exhibit (99) to Wachovia Corporation’s   Current Report on Form 8-K filed January 5, 2005.
10(w)*
 
Wachovia Corporation Savings Restoration Plan.
 
Incorporated by reference to Exhibit (10)(gg) to Wachovia   Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002.
10(x)*
 
Amendment 2007-1 to Wachovia Corporation Savings Restoration   Plan. 
 
Incorporated by reference to Exhibit (10)(b) to Wachovia Corporation’s   Current Report on Form 8-K filed December 20, 2007.
 
 
Amendment 2008-1 to Wachovia Corporation Savings Restoration   Plan. 
 
Incorporated by reference to Exhibit (10)(c) to Wachovia   Corporation’s Current Report on Form 8-K filed December 29, 2008.
10(y)*
 
Amended and Restated Wachovia Corporation Savings   Restoration Plan.
 
Incorporated by reference to Exhibit (10)(b) to Wachovia   Corporation’s Current Report on Form 8-K filed December 29, 2008.
10(z)*
 
Form of stock award agreement for Executive Officers of   Wachovia Corporation, including David M. Carroll.
 
Incorporated by reference to Exhibit (10)(ss) to Wachovia   Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.
10(aa)*
 
Amended and Restated Wachovia Corporation 2003 Stock   Incentive Plan.
 
Incorporated by reference to Appendix E to Wachovia Corporation’s   Registration Statement on Form S-4 (Reg. No. 333-134656) filed   on July 24, 2006.
 
 
Amendment to Amended and Restated Wachovia Corporation 2003 Stock Incentive Plan, effective February 24, 2009.
 
Incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.

20


Exhibit
Number
 
Description
 
Location
10(bb)*
 
Amended and Restated SouthTrust Corporation Additional Retirement Benefit Plan (Pension) effective July 15, 1992, Addendum thereto dated April 20, 1994, and Amendment 2008-1 thereto dated December 29, 2008.
 
Filed herewith.
12(a)
 
  
 
Computation of Ratios of Earnings to Fixed Charges:
 
Filed herewith.
  
 
  
 
  
 
  
 
Year ended December 31,
 
 
  
  
 
  
 
  
 
  
 
2014

 
2013

 
2012

 
2011

 
2010

 
  
  
 
  
 
Including interest on deposits
 
8.56

 
7.91

 
6.08

 
4.32

 
3.21

 
  
  
 
  
 
Excluding interest on deposits
 
11.05

 
10.68

 
8.40

 
5.92

 
4.32

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12(b)
 
  
 
Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends:
 
Filed herewith.
  
 
  
 
  
 
  
 
Year ended December 31,
 
 
  
  
 
  
 
  
 
  
 
2014

 
2013

 
2012

 
2011

 
2010

 
  
  
 
  
 
Including interest on deposits
 
6.27

 
5.99

 
4.90

 
3.67

 
2.84

 
  
  
 
  
 
Excluding interest on deposits
 
7.44

 
7.36

 
6.21

 
4.69

 
3.61

 
  

13
2014 Annual Report to Stockholders.
Filed herewith. 
21
Subsidiaries of the Company.
Filed herewith.
23
Consent of Independent Registered Public Accounting Firm.
Filed herewith.
24
Powers of Attorney.
Filed herewith.
31(a)
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
31(b)
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
32(a)
Certification of Periodic Financial Report by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350.
Furnished herewith.
32(b)
Certification of Periodic Financial Report by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350.
Furnished herewith.
 
99
Description of Replacement Capital Covenants of Wells Fargo and Wachovia.
Incorporated by reference to Exhibit 99 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
101.INS
XBRL Instance Document.
Filed herewith.
101.SCH
XBRL Taxonomy Extension Schema Document.
Filed herewith.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
Filed herewith.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
Filed herewith.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
Filed herewith.
101.DEF
XBRL Taxonomy Extension Definitions Linkbase Document.
Filed herewith.


21
Exhibit 3(a)
 
RESTATED CERTIFICATE OF INCORPORATION
 
OF
 
WELLS FARGO & COMPANY
 
___________________________________
 
Pursuant to Section 245 of the
General Corporation Law of the State of Delaware
___________________________________

Wells Fargo & Company, a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby certifies as follows:
 
1.                   The present name of the corporation is Wells Fargo & Company. 
 
2.                   The corporation was originally incorporated under the name Northwest Bancorporation, and its original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on January 24, 1929.  On April 26, 1983 the corporation filed an amendment to its Certificate of Incorporation to change its name from Northwest Bancorporation to Norwest Corporation effective April 29, 1983, and on November 2, 1998 the corporation filed an amendment to its Certificate of Incorporation to change its name from Norwest Corporation to Wells Fargo & Company.
 
3.                   The corporation’s Board of Directors has duly adopted this Restated Certificate of Incorporation in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware.  This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the corporation's Certificate of Incorporation, as theretofore amended or supplemented or restated, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.
 
4.                   The text of the corporation’s Certificate of Incorporation, as heretofore amended or supplemented or restated, is hereby restated to read in its entirety as follows:
 
FIRST:  The name of this corporation is Wells Fargo & Company.
 
SECOND:  Its registered office in the State of Delaware is located in the City of Wilmington, County of New Castle.  The name and address of its registered agent is Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware 19808.
 
THIRD:  The nature of the business, or objects or purposes to be transacted, promoted or carried on, are:
 
To acquire by purchase, subscription or otherwise, and to own and hold, for investment purposes, the capital stock, scrip or any voting trust certificates in respect of the shares of capital stock issued or created by any moneyed, financial or investment corporation or association created and organized, or to be created and organized, under the laws of the United States of America or of any State or territory thereof; and to issue in exchange therefor shares of the capital stock of this corporation; and while the holder or owner of any such shares of capital stock, scrip or voting trust certificates, to possess and exercise in respect thereof any and all rights, powers and privileges of ownership, including the right to vote thereon;
 
To loan money to any aforesaid corporation or association, any of whose shares of capital stock, scrip or voting trust certificates aforesaid shall be owned at the time of such loan by this corporation, and to do any and all

0


lawful things designed to protect, preserve, improve or enhance the value of any such shares, scrip or voting trust certificates;

In addition to and not in limitation of any of the aforesaid powers, to invest temporarily any of its capital or surplus funds in bonds, mortgages or evidences of indebtedness and any other securities issued or created by any individual, copartnership or other corporation, joint stock company or association, public or private, or of the Government of the United States of America, or of any Foreign Government, or of any State, territory, municipality or other political subdivision or of any governmental agency;
 
To acquire, hold, sell, reissue or cancel any shares of its own capital stock; provided, however, that this corporation may not use any of its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of the capital of this corporation, and provided further that the shares of its own capital stock belonging to this corporation shall not be voted, directly or indirectly;
 
To organize, incorporate and reorganize subsidiary corporations for all lawful purposes;
 
To conduct all or any part of its operations and business without restriction or limit as to amount in the State of Delaware or in any or all other States, territories, districts, colonies and dependencies of the United States of America;
 
To have and to exercise any and all powers and privileges now or hereafter conferred by the laws of the State of Delaware upon corporations formed under the Acts hereinafter referred to, or under any Act amendatory thereof or supplemental thereto or substituted therefor;
 
The foregoing clauses shall be construed both as objects and powers; and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of this corporation.
 
FOURTH: The total number of shares of all classes of stock which the corporation shall have authority to issue is Six Billion Twenty-Four Million (6,024,000,000), consisting of Twenty Million (20,000,000) shares of Preferred Stock without par value, Four Million (4,000,000) shares of Preference Stock without par value, and Six Billion (6,000,000,000) shares of Common Stock of the par value of $1-2/3 per share. *

*On April 29, 2010, Wells Fargo & Company filed a Certificate of Amendment Amending Article Fourth to increase the authorized common stock to 9,000,000,000 shares.
 
The designations and the voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of the Preferred Stock, the Preference Stock and the Common Stock which are fixed by the Certificate of Incorporation and the express grant of authority to the Board of Directors of the corporation (hereinafter referred to as the “Board of Directors”) to fix by resolution or resolutions the designations and the voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of the Preferred Stock and the Preference Stock which are not fixed by the Certificate of Incorporation are as follows:
 
1.         The Preferred Stock may be issued at any time or from time to time in any amount, provided not more than 20,000,000 shares thereof shall be outstanding at any one time, as Preferred Stock of one or more series, as hereinafter provided.  Each share of any one series of Preferred Stock shall be identical in all respects except as to the date from which dividends thereon may be cumulative, each series of Preferred Stock shall be distinctly designated by letter or descriptive words, and all series of Preferred Stock shall rank equally and be identical in all respects except as permitted by the provisions of Section 2 of this Article FOURTH.  Shares of Preferred Stock shall be issued only as fully paid and non-assessable shares.
 
The Preference Stock may be issued at any time or from time to time in any amount, provided not more than 4,000,000 shares thereof shall be outstanding at any one time, as Preference Stock of one or more series,

1


as hereinafter provided.  Each share of any one series of Preference Stock shall be identical in all respects except as to the date from which dividends thereon may be cumulative, each series of Preference Stock shall be distinctly designated by letter or descriptive words, and all series of Preference Stock shall rank equally and be identical in all respects except as permitted by the provisions of Section 2 of this Article FOURTH.  Shares of Preference Stock shall be issued only as fully paid and non-assessable shares.
 
2.         Authority is hereby expressly granted to and vested in the Board of Directors at any time or from time to time to issue the Preferred Stock as Preferred Stock of any series and the Preference Stock as Preference Stock of any series and, in connection with the creation of each such series, to fix by resolution or resolutions providing for the issue of shares
thereof the designations and the voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of such series so far as not inconsistent with the provisions of this Article FOURTH applicable to all series of Preferred Stock or Preference Stock, respectively, and to the full extent now or hereafter permitted by the laws of the State of Delaware, including the following:
 
(a)        The distinctive designation of such series and the number of shares which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors in creating such series) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors;
 
(b)        The annual rate or rates of dividends payable on shares of such series, whether dividends shall be cumulative and, if so, the date or dates from which dividends shall be cumulative on the shares of such series, the preferences, restrictions, limitations and conditions upon the payment of dividends, and the dates on which dividends, if declared, shall be payable;
 
(c)        Whether shares of such series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
 
(d)        The rights of the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of such series;
 
(e)        Whether shares of such series shall have a purchase, retirement or sinking fund for the purchase, retirement, or redemption of shares of such series and, if so, the terms and provisions thereof;
 
(f)        Whether shares of such series shall have conversion privileges and, if so, the terms and provisions thereof, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;
 
(g)        Whether shares of such series shall have voting rights, in addition to voting rights provided by law, and, if so, the terms and provisions thereof; and
 
(h)        Any other preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof.
 
3.         The holders of the Preferred Stock of each series and the holders of the Preference Stock of each series, respectively, shall be entitled to receive such dividends, when and as declared by the Board of Directors, out of funds legally available therefor, as they may be entitled to in accordance with the resolution or resolutions adopted by the Board of Directors providing for the issue of such series, payable on such dates as may be fixed in such resolution or resolutions.  So long as there shall be outstanding any shares of Preferred Stock of any series or any shares of Preference Stock of any series entitled to cumulative dividends pursuant to the resolution or resolutions providing for the issue of such series, no dividend, whether in cash or property, shall be paid or

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declared, nor shall any distribution be made, on the Common Stock, nor shall any shares of Common Stock be purchased, redeemed or otherwise acquired for value by the corporation, if at the time of making such payment, declaration, distribution, purchase, redemption or acquisition the corporation shall be in default with respect to any dividend payable on, or obligation to maintain a purchase, retirement or sinking fund with respect to or to redeem, shares of Preferred Stock of any series or shares of Preference Stock of any series.  The foregoing provisions of this Section 3 shall not, however, apply to a dividend payable in Common Stock or to the acquisition of shares of Common Stock in exchange for, or through application of the proceeds of the sale of, shares of Common Stock.
 
Subject to the foregoing and to any further limitations prescribed in accordance with the provisions of Section 2 of this Article FOURTH, the Board of Directors may declare, out of any funds legally available therefor, dividends upon the then outstanding shares of Common Stock, and shares of Preferred Stock of any series and shares of Preference Stock of any series shall not be entitled to participate therein.

4.         In the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the holders of the Preferred Stock of each series and the holders of the Preference Stock of each series shall be entitled to receive, out of the assets of the corporation available for distribution to its stockholders, before any distribution of assets shall be made to the holders of the Common Stock, the amount per share fixed by the Board of Directors pursuant to Section 2 of this Article FOURTH, plus in each such case an amount equal to any cumulative dividends thereon to the date of final distribution to the holders of the Preferred Stock or to the holders of the Preference Stock, respectively; and the holders of the Common Stock shall be entitled, to the exclusion of the holders of the Preferred Stock of any and all series and the holders of the Preference Stock of any and all series, respectively, to participate ratably in all the assets of the corporation then remaining in accordance with their respective rights and preferences.  If upon any liquidation, dissolution or winding up of the corporation the assets available for distribution shall be insufficient to pay the holders of all outstanding shares of Preferred Stock or the holders of all outstanding shares of Preference Stock the full amounts to which they respectively shall be entitled, the holders of shares of Preferred Stock of all series and the holders of shares of Preference Stock of all series, respectively, shall participate ratably in any distribution of assets according to the respective amounts which would be payable in respect of the shares of Preferred Stock or shares of Preference Stock held by them upon such distribution if all amounts payable in respect of the Preferred Stock of all series or the Preference Stock of all series, respectively, were paid in full.  Neither the statutory merger nor consolidation of the corporation into or with any other corporation, nor the statutory merger or consolidation of any other corporation into or with the corporation, nor a sale, transfer or lease of all or any part of the assets of the corporation, shall be deemed to be a liquidation, dissolution or winding up of the corporation within the meaning of this Section 4.
 
5.         The corporation, at the option of the Board of Directors, may redeem the whole or any part of the Preferred Stock of any series or of the Preference Stock of any series at the price or prices and on the terms and conditions provided in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series.
 
6.         Anything herein or in any resolution or resolutions adopted by the Board of Directors providing for the issue of any series of Preferred Stock or any series of Preference Stock contained to the contrary notwithstanding, the rights of the holders of all classes of stock of the corporation in respect of dividends and purchase, retirement or sinking funds, if any, shall at all times be subject to the power of the Board of Directors from time to time to set aside such reserves and to make such other provisions, if any, as the Board of Directors shall deem to be necessary or advisable for working capital, for expansion of the corporation's business (including the acquisition of real and personal property for that purpose) and for any other purpose of the corporation.
 
7.         Except as otherwise provided by the statutes of the State of Delaware or by the Certificate of Incorporation or by the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of Preferred Stock or any series of Preference Stock, the holders of the Preferred Stock and the holders of the Preference Stock shall have no right to vote.  The holders of the Preferred Stock and the holders of the Preference Stock shall not be entitled to receive notice of any meeting of stockholders at which they are not entitled to vote or consent.  The holders of shares of Preference Stock shall not be entitled to more than one vote per share.

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8.         Except as otherwise provided by the statutes of the State of Delaware or by the Certificate of Incorporation or by the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of Preferred Stock or any series of Preference Stock, the vote of the holders of all or any portion of any class of stock, as a class, shall not be required for any action whatsoever to be taken or authorized by the stockholders of the corporation, including any amendment of the Certificate of Incorporation.
 
9.         No holder of shares of the corporation of any class or of any security or obligation convertible into, or of any warrant, option or right to subscribe for, purchase or otherwise acquire, shares of the corporation of any class, whether now or hereafter authorized, shall, as such holder, have any preemptive right whatsoever to subscribe for, purchase or otherwise acquire shares of the corporation of any class or any security or obligation convertible into, or any warrant, option or right to subscribe for, purchase or otherwise acquire, shares of the corporation of any class, whether now or hereafter authorized.
 
10.       If it deems it desirable so to do, the Board of Directors may from time to time issue scrip for fractional shares of stock.  Such scrip shall not confer upon the holder any voting or other rights of a stockholder of the corporation, but the corporation shall from time to time, within such time as the Board of Directors may determine, issue one whole share
of stock upon the surrender of scrip for fractional shares aggregating one whole share, properly endorsed if in registered form.
 
Pursuant to the authority conferred by this Article FOURTH, the following series of Preferred Stock have been designated, each such series consisting of such number of shares, with such voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as are stated and expressed in the exhibit with respect to such series attached hereto as specified below and incorporated herein by reference:
 
Exhibit A
1997 ESOP Cumulative Convertible Preferred Stock* 
Exhibit B
1998 ESOP Cumulative Convertible Preferred Stock* 
Exhibit C
1999 ESOP Cumulative Convertible Preferred Stock* 
Exhibit D
2000 ESOP Cumulative Convertible Preferred Stock* 
Exhibit E
2001 ESOP Cumulative Convertible Preferred Stock* 
Exhibit F
2002 ESOP Cumulative Convertible Preferred Stock* 
Exhibit G
2003 ESOP Cumulative Convertible Preferred Stock
Exhibit H
2004 ESOP Cumulative Convertible Preferred Stock
Exhibit I
2005 ESOP Cumulative Convertible Preferred Stock
Exhibit J
2006 ESOP Cumulative Convertible Preferred Stock
 
*Wells Fargo & Company has filed Certificates Eliminating the Certificates of Designations for each of Wells Fargo's 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004 and 2005 ESOP Cumulative Convertible Preferred Stock (Exhibits A through I above)
 
FIFTH:  The amount of capital with which this corporation will commence business is One Thousand Dollars ($1,000.00), being twenty (20) shares of the par value of Fifty Dollars ($50.00) each. 
 
SIXTH:  The names and places of residence of the subscribers to the capital stock and the number of shares subscribed for by each are as follows:
 
                                Name                                 Residence                      No. of Shares
 
A. V. Lane                    Wilmington, Delaware                   18
C. S. Peabbles               Wilmington, Delaware                    1
L. E. Gray                     Wilmington, Delaware                    1

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SEVENTH:  This corporation is to have perpetual existence.
 
EIGHTH:  The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever.
 
NINTH:  The number of Directors of the corporation shall be as specified in the By-Laws, and such number may from time to time be increased or decreased in such manner as may be prescribed in the By-Laws, provided the number of Directors of the corporation shall not be less than three (3).  In case of any increase in the number of Directors, the additional Directors may be elected by the Board of Directors to hold office until the next annual meeting of the stockholders and until their successors are elected and qualified.  In case of a vacancy in the Board of Directors, a majority of the remaining members of the Board may elect Directors to fill such vacancy.
 
Directors shall be stockholders.
 
TENTH:  In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized:
 
To make, alter, amend or repeal the By-Laws of the corporation, except as otherwise provided in said By-Laws;
 
To determine from time to time whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the corporation except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors, or of the stockholders.
 
To set apart out of any funds of the corporation available for dividends a reserve or reserves for working capital or for any other lawful purpose, and also to abolish any such reserve in the same manner in which it was created;
 
If the By-Laws so provide, to designate two or more of its number to constitute an Executive Committee, which Committee shall for the time being, as provided in said resolution or in the By-Laws of this corporation, have and exercise any or all of the powers of the Board of Directors in the management of the business and affairs of this corporation and have power to authorize the seal of this corporation to be affixed to all papers which may require it.
 
This corporation may in its By-Laws confer powers upon its Directors in addition to the foregoing and in addition to the powers and authorities expressly conferred upon them by the Statute.
 
Both stockholders and Directors shall have power, if the By-Laws so provide, to hold their meetings and to have one or more offices within or without the State of Delaware and to keep the books of this corporation (subject to the provisions of the Statutes) outside of the State of Delaware at such places as may be from time to time designated by the Board of Directors.
 
ELEVENTH:  In the absence of fraud, no contract or transaction between this corporation and any other association or corporation shall be affected by the fact that any of the Directors or officers of this corporation are interested in or are Directors or officers of such other association or corporation, and any Director or officer of this corporation individually may be a party to or may be interested in any such contract or transaction of this corporation; and no such contract or transaction of this corporation with any person or persons, firm, association or corporation shall be affected by the fact that any Director or officer of this corporation is a party to or interested in such contract or transaction in any way connected with such person or persons, firm, association or corporation; provided that such contract or other transaction shall be authorized or ratified by the vote of a majority of the Directors of this corporation not so interested; and each and every person who may become a Director or officer of

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this corporation is hereby relieved from any liability that might otherwise exist from thus contracting with this corporation for the benefit of himself or any person, firm, association or corporation in which he may be in anywise interested.
 
TWELFTH:  This corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by Statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
 
THIRTEENTH:  The Board of Directors is expressly authorized:
 
(i)         to adopt, and from time to time to amend, one or more pension, profit sharing, retirement, and benefit plans benefiting any or all officers and employees and former officers and employees of this corporation and affiliated banks and companies;
 
(ii)        to adopt, and from time to time to amend, one or more stock option, stock purchase, stock bonus, incentive, and compensation plans benefiting any or all officers and employees of this corporation and affiliated banks and corporations; and
 
(iii)       to authorize affiliated banks and companies, on behalf of this corporation as a stockholder therein, to adopt, and from time to time to amend, any of said types of plans enumerated in clause (i) of this Article THIRTEENTH benefiting any or all officers and employees and former officers and employees thereof and any of said types of plans enumerated in clause (ii) of this Article THIRTEENTH benefiting any or all officers and employees thereof.
 
No action shall be taken under this Article except by the affirmative vote of a majority of the directors in office at the time such action is taken, and such majority shall not include any director who is a salaried officer of the corporation or of any affiliated bank or company.

FOURTEENTH:  (a)  Elimination of Certain Liability of Directors .  A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.
 
(b)(1)   Right to Indemnification .  Each person who was or is made a party or is threatened to be a made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in subparagraph (b)(2), the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation.  The right to indemnification conferred in this paragraph

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(b) shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this paragraph (b) or otherwise.  The corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers.
 
(2)  Right of Claimant to Bring Suit .  If a claim under subparagraph (b)(1) is not paid in full by the corporation within 30 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim.  It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation.  Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
 
(3)  Non-Exclusivity of Rights .  The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this paragraph (b) shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise.

(4)  Insurance .  The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
 
 
IN WITNESS WHEREOF, this Restated Certificate of Incorporation is executed on behalf of the corporation by its Chairman and attested by its Secretary this  28 th  day of September, 2006.
 
 
 
            /s/ Richard M. Kovacevich                                     
Richard M. Kovacevich, Chairman
 
 
Attest:        /s/ Laurel A. Holschuh                        
    Laurel A. Holschuh, Secretary
 
 
[As filed with the Delaware Secretary of State on September 28, 2006.]
 

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EXHIBIT J
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
 
2006 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
___________________________________
 
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Company”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the provisions of the Restated Certificate of Incorporation of the Company, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”), and pursuant to authority conferred upon the ESOP Preferred Stock Committee I of the Board (the “ESOP Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the resolutions of the Board set forth herein, the following resolutions were duly adopted by the Board at a meeting of the Board duly held on January 25, 2000, and by the ESOP Committee pursuant to the written consent of the ESOP Committee duly adopted on March 17, 2006, in accordance with Section 141(f) of the General Corporation Law:
 
1.         On January 25, 2000, the Board adopted the following resolutions (the “ESOP Board Resolutions”) appointing the ESOP Committee and delegating to the ESOP Committee the full powers of the Board, subject to the ESOP Board Resolutions, in all matters relating to issuance of one or more series of Preferred Stock (“ESOP Preferred Stock”) to the trustee on behalf of the Company’s 401(k) Plan hereinafter referred to:
 
RESOLVED that a committee of one member of the Board of the Company is hereby appointed by the Board as the ESOP Preferred Stock Committee I (the “First Committee”), which shall have and may exercise the full powers of the Board, subject to these resolutions, to issue from time to time one or more series of ESOP Preferred Stock, including any shares of Company common stock ($1-2/3 par value) issuable upon conversion of ESOP Preferred Stock, and in connection therewith, to fix the designations, voting powers, preferences, and all other rights, qualifications and restrictions of such ESOP Preferred Stock, to sell such ESOP Preferred Stock to the Plan on such terms and conditions and for such purchase price as the First Committee in its discretion shall approve, and to take any and all actions as the First Committee shall deem necessary or appropriate.
 
RESOLVED that Richard M. Kovacevich is designated to serve as the sole member of the First Committee until his successor is duly elected and qualified.
 
*  *  *  *
 
RESOLVED that any series of ESOP Preferred Stock authorized for issuance by the First Committee . . . shall have the voting rights set forth in Appendix A to these resolutions.
 

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APPENDIX A - VOTING RIGHTS
 
No series of the Preferred Stock, except as hereinafter set forth in this resolution or as otherwise from time to time required by law, shall have voting rights.  Whenever, at any time or times, dividends payable on any shares of a designated series of the Preferred Stock (such shares of such designated series of Preferred Stock being hereinafter referred to as the “Shares of such series”) shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding Shares of such series shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the Shares of such series, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders.  At elections for such directors, each holder of the Shares of such series shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding Shares of such series (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such Shares of such series (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such Shares of such series shall have been paid in full, at which time such right with respect to such Shares of such series shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
So long as any Shares of such series remain outstanding, the consent of the holders of the outstanding Shares of such series and outstanding shares of all other series of Preferred Stock ranking on a parity with such Shares of such series either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding Shares of such series and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:

(a)        the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to the Shares of such series with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or
 
(b)        the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designation for the Shares of such series designating the Shares of such series and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the Shares of such series or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock or the creation

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and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the Shares of such series with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Shares of such series shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.
 
2.         On March 17, 2006, pursuant to authority conferred upon it by the Board in the ESOP Board Resolutions, the ESOP Committee adopted the following resolutions by written consent in accordance with Section 141(f) of the General Corporation Law:
 
RESOLVED that the issuance of a series of Preferred Stock, without par value, of the Company is hereby authorized and the designation, voting powers, preferences, and relative, participating, optional, and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Company, as amended, are hereby fixed as follows:
 
2006 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
 
1.   Designation and Number of Shares; Restricted Issue . 
 
(a)  The designation of the series of Preferred Stock, without par value, provided for herein shall be “2006 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2006 ESOP Preferred Stock”) and the number of authorized shares constituting the 2006 ESOP Preferred Stock is 414,000, based on an offering price for the 2006 ESOP Preferred Stock of $1,070.40 per share.  Each share of 2006 ESOP Preferred Stock shall have a stated value of $1,000.00 per share.  The number of authorized shares of 2006 ESOP Preferred Stock may be reduced by further resolution duly adopted by the Board or the Securities Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, provided, however, that the authorized number of shares of 2006 ESOP Preferred Stock shall not be decreased below the then outstanding number of such shares, and provided further that the number of authorized shares of 2006 ESOP Preferred Stock shall not be increased.  All shares of the 2006 ESOP Preferred Stock purchased, redeemed, or converted by the Company shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of 2006 ESOP Preferred Stock.
 
(b)  Shares of 2006 ESOP Preferred Stock shall be issued only to a trustee (the “Trustee”) acting on behalf of the Wells Fargo & Company 401(k) Plan, or any successor to such plan (the “Plan”).  All references to the holder of shares of 2006 ESOP Preferred Stock shall mean the Trustee or any company with which or into which the Trustee may merge or any successor trustee under the trust agreement with respect to the Plan.  In the event of any transfer of record ownership of shares of 2006 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2006 ESOP Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder thereof, shall be automatically converted into shares of the common stock, par value $1-2/3 per share, of the Company (the “Common Stock”) on the terms otherwise provided for the conversion of the shares of 2006 ESOP Preferred Stock into shares of Common Stock pursuant to paragraph (a) of Section 4 hereof, and no such transferee shall have any of the voting powers, preferences, and relative, participating, optional or special rights ascribed to shares of 2006 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2006 ESOP Preferred Stock shall be so converted.  In the event of such a conversion, the transferee of the shares of 2006 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2006 ESOP Preferred Stock have been automatically converted as of the date of such transfer.  Shares of 2006 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option.  Certificates representing shares of 2006 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions.  In the case of uncertificated

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2006 ESOP Preferred Stock, the transfer agent for the 2006 ESOP Preferred Stock shall note the foregoing provisions on each 2006 ESOP Preferred Stock book entry account.  The Company may require that, as a condition to transferring record ownership of any uncertificated 2006 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2006 ESOP Preferred Stock are subject to the foregoing provisions.  Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2006 ESOP Preferred Stock (i)(A) shall be converted into shares of Common Stock as provided in paragraph (a) of Section 4 hereof, and (B) may be converted into shares of Common Stock as provided by paragraph (b) of Section 4 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided in Sections 5 and 6(c) hereof.
2.   Voting Rights .  No shares of 2006 ESOP Preferred Stock shall have voting rights except such voting rights as may from time to time be required by law and as set forth in this Section 2, as follows:
 
(a)  Whenever, at any time or times, dividends payable on shares of 2006 ESOP Preferred Stock shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding shares of 2006 ESOP Preferred Stock shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the shares of 2006 ESOP Preferred Stock, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders.  At elections for such directors, each holder of the shares of 2006 ESOP Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding shares of 2006 ESOP Preferred Stock (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such shares of 2006 ESOP Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such shares of 2006 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2006 ESOP Preferred Stock shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
(b)  Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
(c)  So long as any shares of 2006 ESOP Preferred Stock remain outstanding, the consent of the holders of the outstanding shares of 2006 ESOP Preferred Stock and outstanding shares of all other series of Preferred Stock ranking on a parity with such shares of 2006 ESOP Preferred Stock either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding shares of 2006 ESOP Preferred Stock and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:

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(i)  the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to shares of 2006 ESOP Preferred Stock with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or
 
(ii)  the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designations designating shares of 2006 ESOP Preferred Stock and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the shares of 2006 ESOP Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock, or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the shares of 2006 ESOP Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
(d)  The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of 2006 ESOP Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.
 
3.  Dividends .  (a)(i)  Holders of shares of 2006 ESOP Preferred Stock will be entitled to receive, when and as declared by the Board or a duly authorized committee thereof, out of assets of the Company legally available for payment, an annual cash dividend of $107.50 (the “Base Dividend”) per share, which Base Dividend shall be subject to adjustment from time to time as provided in this Section 3.
 
(ii)  The Base Dividend shall be adjusted, effective on December 1, 2007 and on each December 1 thereafter until December 1, 2015, as follows: 
 
(1)  If the Current Market Price (as hereinafter defined) of one share of Common Stock on November 30 (or the next preceding Trading Day (as hereinafter defined) if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the First Target Price but less than the Second Target Price shown opposite that year in such table, then holders of shares of the 2006 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $112.50 per share (the “First Adjusted Dividend”). 
 
(2)  If the Current Market Price of one share of Common Stock on November 30 (or the next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the Second Target Price shown opposite that year in such table, then holders of shares of 2006 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $117.50 per share (the “Second Adjusted Dividend”).
 
(3)  If the Current Market Price of one share of Common Stock on November 30 (or next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is less than the First Target Price shown opposite that year in such table, then the holders of shares of 2006 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to the Base Dividend.
 
5)                   Dividend Adjustment Table
 

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6)                                 Closing Price on 11/30
 
7)                                       First Target Price
 
8)                                             Second Target Price
2,007,000
 
$
72.625

 
$
81.118

2,008,000
 
77.926

 
92.718

2,009,000
 
83.615

 
105.976

2,010,000
 
89.719

 
121.131

2,011,000
 
96.268

 
138.453

2,012,000
 
103.296

 
158.251

2,013,000
 
110.837

 
180.881

2,014,000
 
118.928

 
206.747

2,015,000
 
127.609

 
236.312


(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2009, the Current Market Price of one share of Common Stock is $85.00, then the cash dividend payable for the immediately following twelve month period per share of 2006 ESOP Preferred Stock would equal $112.50, with the first quarterly payment of such $112.50 dividend to be made on March 1, 2010.  If on November 30, 2010, the Current Market Price of one share of Common Stock is $125.00, then the cash dividend payable for the immediately following twelve month period per share of 2006 ESOP Preferred Stock would equal $117.50, with the first quarterly payment of such $117.50 dividend to be made on March 1, 2011.  If on November 30, 2011, the Current Market Price of one share of Common Stock is $85.00, then the cash dividend payable for the immediately following twelve month period per share of 2006 ESOP Preferred Stock would equal $107.50, with the first quarterly payment of such $107.50 dividend to be made on March 1, 2012.
 
(5)  For purposes of this Section 3, the terms “First Adjusted Dividend” and “Second Adjusted Dividend” are sometimes referred to as an “Adjusted Dividend;” the term “Current Market Price” shall have the meaning given to it in Section 4(c)(iv); and the term “Trading Day” shall have the meaning given to it in Section 4(c)(vi).
 
(iii)  If one share of Common Stock in any year listed in the Dividend Adjustment Table shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the First Target Price and the Second Target Price listed in such table for that year and each subsequent year will be appropriately and proportionately adjusted.
 
(iv)  Dividends payable on shares of the 2006 ESOP Preferred Stock (whether such dividends are equal to the Base Dividend or to an Adjusted Dividend) shall be payable quarterly on March 1, June 1, September 1, and December 1 of each year, commencing June 1, 2006.  Dividends on shares of the 2006 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2006 ESOP Preferred Stock.  Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Company on such record dates, not more than 30 days nor less than 15 days preceding the payment dates thereof, as shall be fixed by the Board or a duly authorized committee thereof.  The amount of dividends payable per share for each dividend period shall be computed by dividing by four the Base Dividend or the Adjusted Dividend, whichever is then applicable.  The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of actual days elapsed in a 360-day year of twelve 30-day months.
 
(b)(i)  No full dividends shall be declared or paid or set apart for payment on any stock of the Company ranking, as to dividends, on a parity with or junior to the 2006 ESOP Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been set apart for such payment on shares of 2006 ESOP Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends.  When dividends are not paid in full, as aforesaid, upon the shares of 2006 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2006 ESOP Preferred Stock, all dividends

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declared upon shares of 2006 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2006 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2006 ESOP Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of 2006 ESOP Preferred Stock and such other series of Preferred Stock bear to each other.  Holders of shares of 2006 ESOP Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends, as herein provided, on 2006 ESOP Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on 2006 ESOP Preferred Stock which may be in arrears.

(ii)  So long as any shares of 2006 ESOP Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants, or rights to subscribe for or purchase shares of, Common Stock or any other stock ranking junior to 2006 ESOP Preferred Stock as to dividends or upon liquidation and other than as provided in paragraph (b)(i) of this Section 3) shall be declared or paid or set aside for payment or other distribution declared or made upon Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2006 ESOP Preferred Stock as to dividends or upon liquidation, nor shall any Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2006 ESOP Preferred Stock as to dividends or upon liquidation be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to 2006 ESOP Preferred Stock as to dividends or upon liquidation), unless, in each case, the full cumulative dividends on all outstanding shares of 2006 ESOP Preferred Stock shall have been paid or declared and set aside for payment of the then current dividend payment period and all past dividend payment periods.
 
4.   Conversion .  Shares of 2006 ESOP Preferred Stock are convertible from time to time hereafter pursuant to the provisions of paragraphs (a) or (b) of this Section 4 into that number of shares of Common Stock determined by dividing the stated value of each share of 2006 ESOP Preferred Stock by the then applicable Conversion Price, (as determined in accordance with the provisions of paragraph (c)(iii) of this Section 4), as follows:
 
(a)  Each share of 2006 ESOP Preferred Stock released from the unallocated reserve of the Plan in accordance with the terms thereof shall be automatically converted, without any further action by the Company or the holder thereof, as of the date such release occurs (the “Release Date”), into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for the 2006 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(b)  Subject to and upon compliance with the provisions of this Section 4, a holder of 2006 ESOP Preferred Stock shall be entitled at any time, prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 5 or 6 hereof, to cause any or all of the shares of 2006 ESOP Preferred Stock held by such holder to be converted into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for 2006 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(c)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
 
(i)  The “Average Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the Current Market Price for one share of Common Stock for the twenty (20) consecutive Trading Days ending on the Trading Day occurring prior to the date the “Purchase Offer” is made (as that term is defined in Section 6(d) hereof).
 
(ii)  A “Business Day” means each day that is not a Saturday, Sunday, or a day on which state or federally chartered banking institutions in the State of New York are not required to be open.
 
(iii)  (A)  For purposes of a mandatory conversion of shares of 2006 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (a) of this Section 4, the “Conversion Price”

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for such shares of 2006 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the relevant Release Date.
 
(B)  For purposes of an optional conversion of shares of 2006 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (b) of this Section 4, the “Conversion Price” for such shares of 2006 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the date the Conversion Notice (as that term is defined in paragraph (d) of this Section 4) is received by the Company, by the transfer agent for the 2006 ESOP Preferred Stock or by any agent for conversion of the 2006 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.

(C)  For purposes of a conversion of shares of 2006 ESOP Preferred Stock into shares of Common Stock in connection with a “Purchase Offer” (as defined in Section 6(d) hereof), the “Conversion Price” for such shares of 2006 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.
 
Each share of 2006 ESOP Preferred Stock shall be valued at its stated value of $1,000.00 for purposes of computing, based on the applicable Conversion Price, the number of shares of Common Stock into which the shares of 2006 ESOP Preferred Stock will be converted. 
 
(iv)  The “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for any day shall mean the reported last sale price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange only or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof.
(v)  “Common Stock” shall mean the Common Stock of the Company as the same exists at the date of this Certificate of Designations or as such stock may be constituted from time to time.
 
(vi)  “Trading Day” with respect to Common Stock means (x) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the Common Stock is quoted on the National Market System of NASDAQ, a day on which trades may be made on such National Market System or (z) otherwise, any Business Day.
(d)  In connection with any conversion of 2006 ESOP Preferred Stock pursuant to this Section 4, a written notice of conversion (the “Conversion Notice”) shall be delivered to the Company at its principal executive office or the offices of the transfer agent for the 2006 ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the 2006 ESOP Preferred Stock by the Company or the transfer agent for the 2006 ESOP Preferred Stock, which notice shall be accompanied by (a) in the case of certificated 2006 ESOP Preferred Stock, the certificate or certificates representing the shares of 2006 ESOP Preferred Stock being converted pursuant to this Section 4, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) and (b) in the case of uncertificated 2006 ESOP Preferred Stock, duly executed assignment and transfer documents

7


for the shares of 2006 ESOP Preferred Stock being converted pursuant to this Section 4.  Each Conversion Notice shall specify (i)(y) in the case of a mandatory conversion pursuant to paragraph (a) of this Section 4, the number of shares of 2006 ESOP Preferred Stock released from the unallocated reserve of the Plan on the Release Date or (z) in the case of an optional conversion pursuant to paragraph (b) of this Section 4, the number of shares of 2006 ESOP Preferred Stock being converted, and (ii) in connection with any conversion hereunder, (x) the name or names in which such holder wishes the certificate or certificates for Common Stock and, in the case of certificated 2006 ESOP Preferred Stock, for any shares of 2006 ESOP Preferred Stock not to be so converted to be issued, (y) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (z) such other information as the Company or its agents may reasonably request.
 
(e)  Upon delivery to the Company or the transfer agent for the 2006 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4,  the Company shall issue and send by hand delivery, by courier or by first-class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion.  If there shall have been surrendered a certificate or certificates representing shares of 2006 ESOP Preferred Stock only part of which are to be converted, the Company shall issue and deliver to such holder or such holder’s designee, in the manner set forth in the preceding sentence, a new certificate or certificates representing the number of shares of 2006 ESOP Preferred Stock which shall not have been converted.
(f)  The issuance by the Company of shares of Common Stock upon a conversion of shares of 2006 ESOP Preferred Stock into shares of Common Stock made pursuant to this Section 4 shall be effective (i) in the case of a mandatory conversion of shares of 2006 ESOP Preferred Stock pursuant to paragraph (a) of this Section 4, as of the Release Date; and (ii) in the case of an optional conversion of such shares pursuant to paragraph (b) of this Section 4, as of the earlier of (A) the delivery to such holder or such holder’s designee of the certificates representing the shares of Common Stock issued upon conversion thereof or (B) the commencement of business on the second Business Day after the delivery to the Company or the transfer agent for the 2006 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4.  On and after the effective date of conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date.  The Company shall not be obligated to pay any dividends which shall have accrued or have been declared and shall be payable to holders of shares of 2006 ESOP Preferred Stock if the date on which such dividends are paid is on or after the effective date of conversion of such shares.
(g)  The Company shall not be obligated to deliver to holders of 2006 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2006 ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law.
(h)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of 2006 ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of 2006 ESOP Preferred Stock then outstanding.
(i)  The Company will use its best efforts to cause the listing of the shares of Common Stock required to be delivered upon conversion of the 2006 ESOP Preferred Stock prior to distribution to Plan participants on the national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.
(j)  The Company will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of the 2006 ESOP Preferred Stock pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the

8


holder of the 2006 ESOP Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.
5.   Redemption At the Option of the Company .  (a)  The 2006 ESOP Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time, at a redemption price per share of 2006 ESOP Preferred Stock equal to the higher of (x) $1,000.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, and (y) the Fair Market Value (as that term is defined in paragraph (d) of this Section 5) per share of 2006 ESOP Preferred Stock on the date fixed for redemption.  Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (c) of this Section 5.  From and after the date fixed for redemption, dividends on shares of 2006 ESOP Preferred Stock called for redemption will cease to accrue and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price.  Upon payment of the redemption price, such shares shall be deemed to have been transferred to the Company, to be retired as provided in paragraph (a) of Section 1.  If the full cumulative dividends have not been paid, or contemporaneously declared and set aside for payment, on all outstanding shares of 2006 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2006 ESOP Preferred Stock pursuant to this Section 5.
(b)  Unless otherwise required by law, notice of any redemption pursuant to this Section 5 will be sent to the holders of 2006 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2006 ESOP Preferred Stock by hand delivery, by courier, by standard form of telecommunication or by first-class mail (postage prepaid) delivered, sent or mailed, as the case may be, not less than twenty (20) days nor more than sixty (60) days prior to the redemption date.  Each such notice shall state:  (i) the redemption date; (ii) the total number of shares of the 2006 ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) whether the redemption price shall be paid in cash or in shares of Common Stock, or in a combination of such Common Stock and cash; (v) in the case of certificated 2006 ESOP Preferred Stock the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vii) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised and the manner in which the number of shares of Common Stock issuable upon conversion of a share of 2006 ESOP Preferred Stock will be determined.  The Company shall redeem shares so called for redemption and not previously converted at the date fixed for redemption and at the redemption price set forth in this Section 5, provided that, in the case of certificated 2006 ESOP Preferred Stock, the Company shall not be obligated to pay the redemption price until the certificates for the shares to be redeemed are surrendered (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state).
(c)  The Company, at its option, may make payment of the redemption price required upon redemption of shares of 2006 ESOP Preferred Stock in cash or in shares of Common Stock, or in a combination of such Common Stock and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (d)(ii) of this Section 5) or their Current Market Price, in either case as of the date fixed for redemption of the 2006 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2006 ESOP Preferred Stock then being redeemed.
(d)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
(i)  ”Adjustment Period” shall mean the period of five (5) consecutive Trading Days preceding the date as of which the Fair Market Value of a security is to be determined.
(ii)  ”Fair Market Value” shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issue which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period.  The “Fair Market Value” of any security which is not publicly traded (other than the 2006 ESOP Preferred Stock) or of any other property shall mean the fair value thereof on the date as of which the Fair Market Value of the security is to be determined, as

9


determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board or a committee thereof.  The “Fair Market Value” of the 2006 ESOP Preferred Stock for purposes of paragraph (a) of Section 5, and for purposes of paragraph (c) of Section 6 shall mean the fair market value thereof determined by an independent appraiser, appointed by the Trustee of the Plan in accordance with the provisions of the Plan, as of the date fixed for redemption of the 2006 ESOP Preferred Stock (in the case of a redemption pursuant to Section 5) or as of the date specified in paragraph (c) of Section 6 (in the case of a redemption under that section).  For purposes of determining the Fair Market Value of the 2006 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2006 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2006 ESOP Preferred Stock held by the Plan into shares of Common Stock pursuant to Section 4(a) hereof would have occurred when and as payments of principal (together with accrued interest thereon) would have been made by the Trustee of the Plan in accordance with the terms of that certain 2006 ESOP Convertible Preferred Stock Note Agreement dated on or about March 21, 2006 between the Company and the Plan (including any amendments or modifications thereto).
6.   Consolidation, Merger, Etc.   (a)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Company) that constitutes “qualifying employer securities” with respect to a holder of 2006 ESOP Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of 2006 ESOP Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business combination, be assumed by and shall become Preferred Stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 5 and 6 hereof), and the qualifications, limitations or restrictions thereon, that the 2006 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:
(1)  After such transaction each share of the 2006 ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 4 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of 2006 ESOP Preferred Stock could have been converted immediately prior to such transaction.
(2)  The Company shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of 2006 ESOP Preferred Stock shall be assumed and authorized by the successor or resulting corporation as aforesaid.
(b)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (a) of this Section 6) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of 2006 ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (c) of this Section 6), be automatically converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of 2006 ESOP Preferred Stock could have been converted at such time so that each share of 2006 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2006 ESOP Preferred Stock could have been converted immediately prior to such transaction.  However, if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the 2006 ESOP Preferred Stock, then the shares of 2006 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the

10


aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2006 ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction.  If the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares.
(c)  In the event the Company shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (b) of this Section 6 (a “Business Combination”), then the Company shall as soon as practicable thereafter (and in any event at least fifteen (15) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of 2006 ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such 2006 ESOP Preferred Stock, a cash payment per share of 2006 ESOP Preferred Stock equal to the higher of (x) $1,000.00, plus accrued and unpaid dividends thereon to the date of consummation of such transaction or (y) the Fair Market Value per share of 2006 ESOP Preferred Stock, as of the last Business Day (as defined in paragraph (c) of Section 4 hereof) immediately preceding the date the Business Combination is consummated.  No such notice of redemption shall be effective unless given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction.
 
(d)  In the event that a Purchase Offer (as defined below) shall have been made and shall be continuing, each holder of 2006 ESOP Preferred Stock shall have the right to convert shares of 2006 ESOP Preferred Stock into shares of Common Stock at the Conversion Price specified in Section 4(c)(iii)(C) hereof until the date the Purchase Offer is terminated, including without limitation because the original Purchase Offer is withdrawn or because the Purchase Offer has expired and is not renewed, upon notice of such conversion given to the Company not later than the close of business on the date the Purchase Offer terminates (the “Purchase Offer Conversion Period”), unless the Company or any successor of the Company shall waive such prior notice, but any notice of conversion so given may be withdrawn by notice of withdrawal given to the Company prior to the end of the Purchase Offer Conversion Period.
 
For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
 
(i)  “Beneficial Ownership” shall have the meaning ascribed to it in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “person” shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
 
(ii)  A “Purchase Offer” shall have been made when any person (other than the Company or any affiliate of the Company) shall have “commenced” (as such term is defined in Rule 14d‑2 under the Exchange Act) a tender offer or exchange offer to purchase shares of Common Stock, such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined herein) or the right to acquire Beneficial Ownership, of twenty percent (20%) or more of the voting power of the Company.
 
7.   Liquidation Rights .  (a)  Upon the dissolution, liquidation, or winding up of the Company, the holders of the shares of 2006 ESOP Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on the Common Stock or any other class of stock ranking junior to 2006 ESOP Preferred Stock upon liquidation, the amount of $1,000.00 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.

11


 
(b)  Neither the sale of all or substantially all the property and assets of the Company, nor the merger or consolidation of the Company into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Company shall be deemed to be a dissolution, liquidation, or winding up, voluntary or involuntary, for the purposes of this Section 7.
 
(c)  After the payment to the holders of the shares of 2006 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2006 ESOP Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Company.
 
(d)  In the event the assets of the Company available for distribution to the holders of shares of 2006 ESOP Preferred Stock upon any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of Preferred Stock or other capital stock of the Company ranking on a parity with the shares of 2006 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2006 ESOP Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation, or winding up.
 
(e)  Subject to the rights of the holders of the shares of any series or class or classes of stock ranking on a parity with or prior to the shares of 2006 ESOP Preferred Stock upon liquidation, dissolution, or winding up, upon any liquidation, dissolution, or winding up of the Company, after payment shall have been made in full to the holders of the shares of 2006 ESOP Preferred Stock as provided in this Section 7, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of 2006 ESOP Preferred Stock upon liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the shares of 2006 ESOP Preferred Stock shall not be entitled to share therein.
 
8.   Ranking .  For the purposes of these resolutions, any stock of any series or class or classes of the Company shall be deemed to rank:
 
(a)  prior to the shares of 2006 ESOP Preferred Stock, either as to dividends or upon liquidation, if the holders of such series or class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of 2006 ESOP Preferred Stock;
 
(b)  on a parity with shares of 2006 ESOP Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of 2006 ESOP Preferred Stock, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of 2006 ESOP Preferred Stock; and
 
(c)  junior to shares of 2006 ESOP Preferred Stock, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of 2006 ESOP Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such series or class or classes.
 
9.   Priority of 2006 ESOP Preferred Stock .  The shares of 2006 ESOP Preferred Stock will rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the Company’s 1997 ESOP Cumulative Convertible Preferred Stock, its 1998 ESOP Cumulative Convertible Preferred Stock, its 1999 ESOP Cumulative Convertible Preferred Stock, its 2000 ESOP Cumulative Convertible Preferred Stock, its 2001 ESOP

12


Cumulative Convertible Preferred Stock, its 2002 ESOP Cumulative Convertible Preferred Stock, its 2003 ESOP Cumulative Convertible Preferred Stock, its 2004 ESOP Cumulative Convertible Preferred Stock, and its 2005 ESOP Cumulative Convertible Preferred Stock. 
 

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WELLS FARGO & COMPANY
___________________________________
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
 
2007 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
___________________________________
 
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Company”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the provisions of the Restated Certificate of Incorporation of the Company, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”), and pursuant to authority conferred upon the ESOP Preferred Stock Committee I of the Board (the “ESOP Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the resolutions of the Board set forth herein, the following resolutions were duly adopted by the Board at a meeting of the Board duly held on January 25, 2000, and by the ESOP Committee pursuant to the written consent of the ESOP Committee duly adopted on March 13, 2007, in accordance with Section 141(f) of the General Corporation Law:
 
1.         On January 25, 2000, the Board adopted the following resolutions (the “ESOP Board Resolutions”) appointing the ESOP Committee and delegating to the ESOP Committee the full powers of the Board, subject to the ESOP Board Resolutions, in all matters relating to issuance of one or more series of Preferred Stock (“ESOP Preferred Stock”) to the trustee on behalf of the Company’s 401(k) Plan hereinafter referred to:
 
RESOLVED that a committee of one member of the Board of the Company is hereby appointed by the Board as the ESOP Preferred Stock Committee I (the “First Committee”), which shall have and may exercise the full powers of the Board, subject to these resolutions, to issue from time to time one or more series of ESOP Preferred Stock, including any shares of Company common stock ($1 2/3 par value) issuable upon conversion of ESOP Preferred Stock, and in connection therewith, to fix the designations, voting powers, preferences, and all other rights, qualifications and restrictions of such ESOP Preferred Stock, to sell such ESOP Preferred Stock to the Plan on such terms and conditions and for such purchase price as the First Committee in its discretion shall approve, and to take any and all actions as the First Committee shall deem necessary or appropriate.
 
RESOLVED that Richard M. Kovacevich is designated to serve as the sole member of the First Committee until his successor is duly elected and qualified.
 
*  *  *  *
 
RESOLVED that any series of ESOP Preferred Stock authorized for issuance by the First Committee . . . shall have the voting rights set forth in Appendix A to these resolutions.
 
 
 

1


APPENDIX A - VOTING RIGHTS
 
No series of the Preferred Stock, except as hereinafter set forth in this resolution or as otherwise from time to time required by law, shall have voting rights.  Whenever, at any time or times, dividends payable on any shares of a designated series of the Preferred Stock (such shares of such designated series of Preferred Stock being hereinafter referred to as the “Shares of such series”) shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding Shares of such series shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the Shares of such series, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders.  At elections for such directors, each holder of the Shares of such series shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding Shares of such series (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such Shares of such series (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such Shares of such series shall have been paid in full, at which time such right with respect to such Shares of such series shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
So long as any Shares of such series remain outstanding, the consent of the holders of the outstanding Shares of such series and outstanding shares of all other series of Preferred Stock ranking on a parity with such Shares of such series either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding Shares of such series and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:
 
(a)        the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to the Shares of such series with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or
 
(b)        the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designation for the Shares of such series designating the Shares of such series and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the Shares of such series or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock or the creation

1


and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the Shares of such series with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Shares of such series shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.
 
2.         On March 13, 2007, pursuant to authority conferred upon it by the Board in the ESOP Board Resolutions, the ESOP Committee adopted the following resolutions by written consent in accordance with Section 141(f) of the General Corporation Law:
 
RESOLVED that the issuance of a series of Preferred Stock, without par value, of the Company is hereby authorized and the designation, voting powers, preferences, and relative, participating, optional, and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Company, as amended, are hereby fixed as follows:
 
2007 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
 
1.   Designation and Number of Shares; Restricted Issue . 
 
(a) The designation of the series of Preferred Stock, without par value, provided for herein shall be “2007 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2007 ESOP Preferred Stock”) and the number of authorized shares constituting the 2007 ESOP Preferred Stock is 484,000, based on an offering price for the 2007 ESOP Preferred Stock of $1,070.00 per share.  Each share of 2007 ESOP Preferred Stock shall have a stated value of $1,000.00 per share.  The number of authorized shares of 2007 ESOP Preferred Stock may be reduced by further resolution duly adopted by the Board or the Securities Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, provided, however, that the authorized number of shares of 2007 ESOP Preferred Stock shall not be decreased below the then outstanding number of such shares, and provided further that the number of authorized shares of 2007 ESOP Preferred Stock shall not be increased.  All shares of the 2007 ESOP Preferred Stock purchased, redeemed, or converted by the Company shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of 2007 ESOP Preferred Stock.
 
(b)  Shares of 2007 ESOP Preferred Stock shall be issued only to a trustee (the “Trustee”) acting on behalf of the Wells Fargo & Company 401(k) Plan, or any successor to such plan (the “Plan”).  All references to the holder of shares of 2007 ESOP Preferred Stock shall mean the Trustee or any company with which or into which the Trustee may merge or any successor trustee under the trust agreement with respect to the Plan.  In the event of any transfer of record ownership of shares of 2007 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2007 ESOP Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder thereof, shall be automatically converted into shares of the common stock, par value $1-2/3 per share, of the Company (the “Common Stock”) on the terms otherwise provided for the conversion of the shares of 2007 ESOP Preferred Stock into shares of Common Stock pursuant to paragraph (a) of Section 4 hereof, and no such transferee shall have any of the voting powers, preferences, and relative, participating, optional or special rights ascribed to shares of 2007 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2007 ESOP Preferred Stock shall be so converted.  In the event of such a conversion, the transferee of the shares of 2007 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2007 ESOP Preferred Stock have been automatically converted as of the date of such transfer.  Shares of 2007 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option.  Certificates representing shares of 2007 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions.  In the case of uncertificated

2


2007 ESOP Preferred Stock, the transfer agent for the 2007 ESOP Preferred Stock shall note the foregoing provisions on each 2007 ESOP Preferred Stock book entry account.  The Company may require that, as a condition to transferring record ownership of any uncertificated 2007 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2007 ESOP Preferred Stock are subject to the foregoing provisions.  Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2007 ESOP Preferred Stock (i)(A) shall be converted into shares of Common Stock as provided in paragraph (a) of Section 4 hereof, and (B) may be converted into shares of Common Stock as provided by paragraph (b) of Section 4 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided in Sections 5 and 6(c) hereof.
2.   Voting Rights .  No shares of 2007 ESOP Preferred Stock shall have voting rights except such voting rights as may from time to time be required by law and as set forth in this Section 2, as follows:
 
(a)  Whenever, at any time or times, dividends payable on shares of 2007 ESOP Preferred Stock shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding shares of 2007 ESOP Preferred Stock shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the shares of 2007 ESOP Preferred Stock, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders.  At elections for such directors, each holder of the shares of 2007 ESOP Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding shares of 2007 ESOP Preferred Stock (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such shares of 2007 ESOP Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such shares of 2007 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2007 ESOP Preferred Stock shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
(b)  Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
(c)  So long as any shares of 2007 ESOP Preferred Stock remain outstanding, the consent of the holders of the outstanding shares of 2007 ESOP Preferred Stock and outstanding shares of all other series of Preferred Stock ranking on a parity with such shares of 2007 ESOP Preferred Stock either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding shares of 2007 ESOP Preferred Stock and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:

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(i)  the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to shares of 2007 ESOP Preferred Stock with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or
 
(ii)  the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designations designating shares of 2007 ESOP Preferred Stock and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the shares of 2007 ESOP Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock, or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the shares of 2007 ESOP Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
(d)  The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of 2007 ESOP Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.
 
3.         Dividends .  (a)(i)  Holders of shares of 2007 ESOP Preferred Stock will be entitled to receive, when and as declared by the Board or a duly authorized committee thereof, out of assets of the Company legally available for payment, an annual cash dividend of $107.50 (the “Base Dividend”) per share, which Base Dividend shall be subject to adjustment from time to time as provided in this Section 3.
 
(ii)  The Base Dividend shall be adjusted, effective on December 1, 2008 and on each December 1 thereafter until December 1, 2016, as follows: 
 
(1)  If the Current Market Price (as hereinafter defined) of one share of Common Stock on November 30 (or the next preceding Trading Day (as hereinafter defined) if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the First Target Price but less than the Second Target Price shown opposite that year in such table, then holders of shares of the 2007 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $112.50 per share (the “First Adjusted Dividend”). 
 
(2)  If the Current Market Price of one share of Common Stock on November 30 (or the next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the Second Target Price shown opposite that year in such table, then holders of shares of 2007 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $117.50 per share (the “Second Adjusted Dividend”).
 
(3)  If the Current Market Price of one share of Common Stock on November 30 (or next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is less than the First Target Price shown opposite that year in such table, then the holders of shares of 2007 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to the Base Dividend.
 
9)                   Dividend Adjustment Table

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10)                             Closing Price on 11/30

 
11)                                   First Target Price

 
12)                                         Second Target Price

2,008,000

 
$
38.649

 
$
43.120

2,009,000

 
41.316

 
49.071

2,010,000

 
44.167

 
55.843

2,011,000

 
47.215

 
63.549

2,012,000

 
50.472

 
72.319

2,013,000

 
53.955

 
82.299

2,014,000

 
57.678

 
93.656

2,015,000

 
61.658

 
106.580

2,016,000

 
65.912

 
121.288

 
(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2010, the Current Market Price of one share of Common Stock is $50, then the cash dividend payable for the immediately following twelve month period per share of 2007 ESOP Preferred Stock would equal $112.50, with the first quarterly payment of such $112.50 dividend to be made on March 1, 2011.  If on November 30, 2011, the Current Market Price of one share of Common Stock is $65, then the cash dividend payable for the immediately following twelve month period per share of 2007 ESOP Preferred Stock would equal $117.50, with the first quarterly payment of such $117.50 dividend to be made on March 1, 2012.  If on November 30, 2012, the Current Market Price of one share of Common Stock is $45, then the cash dividend payable for the immediately following twelve month period per share of 2007 ESOP Preferred Stock would equal $107.50, with the first quarterly payment of such $107.50 dividend to be made on March 1, 2013.
 
(5)  For purposes of this Section 3, the terms “First Adjusted Dividend” and “Second Adjusted Dividend” are sometimes referred to as an “Adjusted Dividend;” the term “Current Market Price” shall have the meaning given to it in Section 4(c)(iv); and the term “Trading Day” shall have the meaning given to it in Section 4(c)(vi).
 
(iii)  If one share of Common Stock in any year listed in the Dividend Adjustment Table shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the First Target Price and the Second Target Price listed in such table for that year and each subsequent year will be appropriately and proportionately adjusted.
 
(iv)  Dividends payable on shares of the 2007 ESOP Preferred Stock (whether such dividends are equal to the Base Dividend or to an Adjusted Dividend) shall be payable quarterly on March 1, June 1, September 1, and December 1 of each year, commencing June 1, 2007.  Dividends on shares of the 2007 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2007 ESOP Preferred Stock.  Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Company on such record dates, not more than 30 days nor less than 15 days preceding the payment dates thereof, as shall be fixed by the Board or a duly authorized committee thereof.  The amount of dividends payable per share for each dividend period shall be computed by dividing by four the Base Dividend or the Adjusted Dividend, whichever is then applicable.  The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of actual days elapsed in a 360-day year of twelve 30-day months.
 
(b)(i)  No full dividends shall be declared or paid or set apart for payment on any stock of the Company ranking, as to dividends, on a parity with or junior to the 2007 ESOP Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been set apart for such payment on shares of 2007 ESOP Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends.  When dividends are not paid in full, as aforesaid, upon the shares of 2007 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2007 ESOP Preferred Stock, all dividends

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declared upon shares of 2007 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2007 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2007 ESOP Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of 2007 ESOP Preferred Stock
and such other series of Preferred Stock bear to each other.  Holders of shares of 2007 ESOP Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends, as herein provided, on 2007 ESOP Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on 2007 ESOP Preferred Stock which may be in arrears.
 
(ii)  So long as any shares of 2007 ESOP Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants, or rights to subscribe for or purchase shares of, Common Stock or any other stock ranking junior to 2007 ESOP Preferred Stock as to dividends or upon liquidation and other than as provided in paragraph (b)(i) of this Section 3) shall be declared or paid or set aside for payment or other distribution declared or made upon Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2007 ESOP Preferred Stock as to dividends or upon liquidation, nor shall any Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2007 ESOP Preferred Stock as to dividends or upon liquidation be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to 2007 ESOP Preferred Stock as to dividends or upon liquidation), unless, in each case, the full cumulative dividends on all outstanding shares of 2007 ESOP Preferred Stock shall have been paid or declared and set aside for payment of the then current dividend payment period and all past dividend payment periods.
 
4.   Conversion .  Shares of 2007 ESOP Preferred Stock are convertible from time to time hereafter pursuant to the provisions of paragraphs (a) or (b) of this Section 4 into that number of shares of Common Stock determined by dividing the stated value of each share of 2007 ESOP Preferred Stock by the then applicable Conversion Price, (as determined in accordance with the provisions of paragraph (c)(iii) of this Section 4), as follows:
 
(a)  Each share of 2007 ESOP Preferred Stock released from the unallocated reserve of the Plan in accordance with the terms thereof shall be automatically converted, without any further action by the Company or the holder thereof, as of the date such release occurs (the “Release Date”), into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for the 2007 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(b)  Subject to and upon compliance with the provisions of this Section 4, a holder of 2007 ESOP Preferred Stock shall be entitled at any time, prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 5 or 6 hereof, to cause any or all of the shares of 2007 ESOP Preferred Stock held by such holder to be converted into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for 2007 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(c)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
 
(i)  The “Average Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the Current Market Price for one share of Common Stock for the twenty (20) consecutive Trading Days ending on the Trading Day occurring prior to the date the “Purchase Offer” is made (as that term is defined in Section 6(d) hereof).
 
(ii)  A “Business Day” means each day that is not a Saturday, Sunday, or a day on which state or federally chartered banking institutions in the State of New York are not required to be open.
 
(iii)  (A)  For purposes of a mandatory conversion of shares of 2007 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (a) of this Section 4, the “Conversion Price”

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for such shares of 2007 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the relevant Release Date.
 
(B)  For purposes of an optional conversion of shares of 2007 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (b) of this Section 4, the “Conversion Price” for such shares of 2007 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the date the Conversion Notice (as that term is defined in paragraph (d) of this Section 4) is received by the Company, by the transfer agent for the 2007 ESOP Preferred Stock or by any agent for conversion of the 2007 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.
 
(C)  For purposes of a conversion of shares of 2007 ESOP Preferred Stock into shares of Common Stock in connection with a “Purchase Offer” (as defined in Section 6(d) hereof), the “Conversion Price” for such shares of 2007 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.
 
Each share of 2007 ESOP Preferred Stock shall be valued at its stated value of $1,000.00 for purposes of computing, based on the applicable Conversion Price, the number of shares of Common Stock into which the shares of 2007 ESOP Preferred Stock will be converted. 
 
(iv)  The “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for any day shall mean the reported last sale price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange only or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof.
(v)  “Common Stock” shall mean the Common Stock of the Company as the same exists at the date of this Certificate of Designations or as such stock may be constituted from time to time.
 
(vi)  “Trading Day” with respect to Common Stock means (x) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the Common Stock is quoted on the National Market System of NASDAQ, a day on which trades may be made on such National Market System or (z) otherwise, any Business Day.
(d)  In connection with any conversion of 2007 ESOP Preferred Stock pursuant to this Section 4, a written notice of conversion (the “Conversion Notice”) shall be delivered to the Company at its principal executive office or the offices of the transfer agent for the 2007 ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the 2007 ESOP Preferred Stock by the Company or the transfer agent for the 2007 ESOP Preferred Stock, which notice shall be accompanied by (a) in the case of certificated 2007 ESOP Preferred Stock, the certificate or certificates representing the shares of 2007 ESOP Preferred Stock being converted pursuant to this Section 4, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) and (b) in the case of uncertificated 2007 ESOP Preferred Stock, duly executed assignment and transfer documents

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for the shares of 2007 ESOP Preferred Stock being converted pursuant to this Section 4.  Each Conversion Notice shall specify (i)(y) in the case of a mandatory conversion pursuant to paragraph (a) of this Section 4, the number of shares of 2007 ESOP Preferred Stock released from the unallocated reserve of the Plan on the Release Date or (z) in the case of an optional conversion pursuant to paragraph (b) of this Section 4, the number of shares of 2007 ESOP Preferred Stock being converted, and (ii) in connection with any conversion hereunder, (x) the name or names in which such holder wishes the certificate or certificates for Common Stock and, in the case of certificated 2007 ESOP Preferred Stock, for any shares of 2007 ESOP Preferred Stock not to be so converted to be issued, (y) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (z) such other information as the Company or its agents may reasonably request.
 
(e)  Upon delivery to the Company or the transfer agent for the 2007 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4,  the Company shall issue and send by hand delivery, by courier or by first-class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion.  If there shall have been surrendered a certificate or certificates representing shares of 2007 ESOP Preferred Stock only part of which are to be converted, the Company shall issue and deliver to such holder or such holder’s designee, in the manner set forth in the preceding sentence, a new certificate or certificates representing the number of shares of 2007 ESOP Preferred Stock which shall not have been converted.
(f)  The issuance by the Company of shares of Common Stock upon a conversion of shares of 2007 ESOP Preferred Stock into shares of Common Stock made pursuant to this Section 4 shall be effective (i) in the case of a mandatory conversion of shares of 2007 ESOP Preferred Stock pursuant to paragraph (a) of this Section 4, as of the Release Date; and (ii) in the case of an optional conversion of such shares pursuant to paragraph (b) of this Section 4, as of the earlier of (A) the delivery to such holder or such holder’s designee of the certificates representing the shares of Common Stock issued upon conversion thereof or (B) the commencement of business on the second Business Day after the delivery to the Company or the transfer agent for the 2007 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4.  On and after the effective date of conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date.  The Company shall not be obligated to pay any dividends which shall have accrued or have been declared and shall be payable to holders of shares of 2007 ESOP Preferred Stock if the date on which such dividends are paid is on or after the effective date of conversion of such shares.
(g)  The Company shall not be obligated to deliver to holders of 2007 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2007 ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law.
(h)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of 2007 ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of 2007 ESOP Preferred Stock then outstanding.
(i)  The Company will use its best efforts to cause the listing of the shares of Common Stock required to be delivered upon conversion of the 2007 ESOP Preferred Stock prior to distribution to Plan participants on the national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.
(j)  The Company will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of the 2007 ESOP Preferred Stock pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the

8


holder of the 2007 ESOP Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.
5.   Redemption At the Option of the Company .  (a)  The 2007 ESOP Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time, at a redemption price per share of 2007 ESOP Preferred Stock equal to the higher of (x) $1,000.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, and (y) the Fair Market Value (as that term is defined in paragraph (d) of this Section 5) per share of 2007 ESOP Preferred Stock on the date fixed for redemption.  Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (c) of this Section 5.  From and after the date fixed for redemption, dividends on shares of 2007 ESOP Preferred Stock called for redemption will cease to accrue and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price.  Upon payment of the redemption price, such shares shall be deemed to have been transferred to the Company, to be retired as provided in paragraph (a) of Section 1.  If the full cumulative dividends have not been paid, or contemporaneously declared and set aside for payment, on all outstanding shares of 2007 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2007 ESOP Preferred Stock pursuant to this Section 5.
(b)  Unless otherwise required by law, notice of any redemption pursuant to this Section 5 will be sent to the holders of 2007 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2007 ESOP Preferred Stock by hand delivery, by courier, by standard form of telecommunication or by first-class mail (postage prepaid) delivered, sent or mailed, as the case may be, not less than twenty (20) days nor more than sixty (60) days prior to the redemption date.  Each such notice shall state:  (i) the redemption date; (ii) the total number of shares of the 2007 ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) whether the redemption price shall be paid in cash or in shares of Common Stock, or in a combination of such Common Stock and cash; (v) in the case of certificated 2007 ESOP Preferred Stock the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vii) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised and the manner in which the number of shares of Common Stock issuable upon conversion of a share of 2007 ESOP Preferred Stock will be determined.  The Company shall redeem shares so called for redemption and not previously converted at the date fixed for redemption and at the redemption price set forth in this Section 5, provided that, in the case of certificated 2007 ESOP Preferred Stock, the Company shall not be obligated to pay the redemption price until the certificates for the shares to be redeemed are surrendered (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state).
(c)  The Company, at its option, may make payment of the redemption price required upon redemption of shares of 2007 ESOP Preferred Stock in cash or in shares of Common Stock, or in a combination of such Common Stock and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (d)(ii) of this Section 5) or their Current Market Price, in either case as of the date fixed for redemption of the 2007 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2007 ESOP Preferred Stock then being redeemed.
(d)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
(i)  “Adjustment Period” shall mean the period of five (5) consecutive Trading Days preceding the date as of which the Fair Market Value of a security is to be determined.
(ii)  “Fair Market Value” shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issue which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period.  The “Fair Market Value” of any security which is not publicly traded (other than the 2007 ESOP Preferred Stock) or of any other property shall mean the fair value thereof on the date as of which the Fair Market Value of the security is to be determined, as

9


determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board or a committee thereof.  The “Fair Market Value” of the 2007 ESOP Preferred Stock for purposes of paragraph (a) of Section 5, and for purposes of paragraph (c) of Section 6 shall mean the fair market value thereof determined by an independent appraiser, appointed by the Trustee of the Plan in accordance with the provisions of the Plan, as of the date fixed for redemption of the 2007 ESOP Preferred Stock (in the case of a redemption pursuant to Section 5) or as of the date specified in paragraph (c) of Section 6 (in the case of a redemption under that section).  For purposes of determining the Fair Market Value of the 2007 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2007 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2007 ESOP Preferred Stock held by the Plan into shares of Common Stock pursuant to Section 4(a) hereof would have occurred when and as payments of principal (together with accrued interest thereon) would have been made by the Trustee of the Plan in accordance with the terms of that certain 2007 ESOP Convertible Preferred Stock Note Agreement dated on or about March 20, 2007 between the Company and the Plan (including any amendments or modifications thereto).
6.   Consolidation, Merger, etc.   (a)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Company) that constitutes “qualifying employer securities” with respect to a holder of 2007 ESOP Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of 2007 ESOP Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business combination, be assumed by and shall become Preferred Stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 5 and 6 hereof), and the qualifications, limitations or restrictions thereon, that the 2007 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:
(1)  After such transaction each share of the 2007 ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 4 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of 2007 ESOP Preferred Stock could have been converted immediately prior to such transaction.
(2)  The Company shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of 2007 ESOP Preferred Stock shall be assumed and authorized by the successor or resulting corporation as aforesaid.
(b)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (a) of this Section 6) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of 2007 ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (c) of this Section 6), be automatically converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of 2007 ESOP Preferred Stock could have been converted at such time so that each share of 2007 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2007 ESOP Preferred Stock could have been converted immediately prior to such transaction.  However, if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the 2007 ESOP Preferred Stock, then the shares of 2007 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the

10


aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2007 ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction.  If the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares.
(c)  In the event the Company shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (b) of this Section 6 (a “Business Combination”), then the Company shall as soon as practicable thereafter (and in any event at least fifteen (15) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of 2007 ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such 2007 ESOP Preferred Stock, a cash payment per share of 2007 ESOP Preferred Stock equal to the higher of (x) $1,000.00, plus accrued and unpaid dividends thereon to the date of consummation of such transaction or (y) the Fair Market Value per share of 2007 ESOP Preferred Stock, as of the last Business Day (as defined in paragraph (c) of Section 4 hereof) immediately preceding the date the Business Combination is consummated.  No such notice of redemption shall be effective unless given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction.
 
(d)  In the event that a Purchase Offer (as defined below) shall have been made and shall be continuing, each holder of 2007 ESOP Preferred Stock shall have the right to convert shares of 2007 ESOP Preferred Stock into shares of Common Stock at the Conversion Price specified in Section 4(c)(iii)(C) hereof until the date the Purchase Offer is terminated, including without limitation because the original Purchase Offer is withdrawn or because the Purchase Offer has expired and is not renewed, upon notice of such conversion given to the Company not later than the close of business on the date the Purchase Offer terminates (the “Purchase Offer Conversion Period”), unless the Company or any successor of the Company shall waive such prior notice, but any notice of conversion so given may be withdrawn by notice of withdrawal given to the Company prior to the end of the Purchase Offer Conversion Period.
 
For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
 
(i)  “Beneficial Ownership” shall have the meaning ascribed to it in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “person” shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
 
(ii)  A “Purchase Offer” shall have been made when any person (other than the Company or any affiliate of the Company) shall have “commenced” (as such term is defined in Rule 14d-2 under the Exchange Act) a tender offer or exchange offer to purchase shares of Common Stock, such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined herein) or the right to acquire Beneficial Ownership, of twenty percent (20%) or more of the voting power of the Company.
 
7.   Liquidation Rights .  (a)  Upon the dissolution, liquidation, or winding up of the Company, the holders of the shares of 2007 ESOP Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on the Common Stock or any other class of stock ranking junior to 2007 ESOP Preferred Stock upon liquidation, the amount of $1,000.00 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.

11


 
(b)  Neither the sale of all or substantially all the property and assets of the Company, nor the merger or consolidation of the Company into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Company shall be deemed to be a dissolution, liquidation, or winding up, voluntary or involuntary, for the purposes of this Section 7.
 
(c)  After the payment to the holders of the shares of 2007 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2007 ESOP Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Company.
 
(d)  In the event the assets of the Company available for distribution to the holders of shares of 2007 ESOP Preferred Stock upon any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of Preferred Stock or other capital stock of the Company ranking on a parity with the shares of 2007 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2007 ESOP Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation, or winding up.
 
(e)  Subject to the rights of the holders of the shares of any series or class or classes of stock ranking on a parity with or prior to the shares of 2007 ESOP Preferred Stock upon liquidation, dissolution, or winding up, upon any liquidation, dissolution, or winding up of the Company, after payment shall have been made in full to the holders of the shares of 2007 ESOP Preferred Stock as provided in this Section 7, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of 2007 ESOP Preferred Stock upon liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the shares of 2007 ESOP Preferred Stock shall not be entitled to share therein.
 
8.   Ranking .  For the purposes of these resolutions, any stock of any series or class or classes of the Company shall be deemed to rank:

(a)  prior to the shares of 2007 ESOP Preferred Stock, either as to dividends or upon liquidation, if the holders of such series or class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of 2007 ESOP Preferred Stock;
 
(b)  on a parity with shares of 2007 ESOP Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of 2007 ESOP Preferred Stock, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of 2007 ESOP Preferred Stock; and
 
(c)  junior to shares of 2007 ESOP Preferred Stock, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of 2007 ESOP Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such series or class or classes.
 
9.   Priority of 2007 ESOP Preferred Stock .  The shares of 2007 ESOP Preferred Stock will rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the Company’s 1998 ESOP Cumulative Convertible Preferred Stock, its 1999 ESOP Cumulative Convertible Preferred Stock, its 2000 ESOP Cumulative Convertible Preferred Stock, its 2001 ESOP Cumulative Convertible Preferred Stock, its 2002 ESOP

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Cumulative Convertible Preferred Stock, its 2003 ESOP Cumulative Convertible Preferred Stock, its 2004 ESOP Cumulative Convertible Preferred Stock, its 2005 ESOP Cumulative Convertible Preferred Stock and its 2006 ESOP Cumulative Convertible Preferred Stock. 
 
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Richard M. Kovacevich, its Chairman and Chief Executive Officer, and attested by Rachelle M. Graham, its Assistant Secretary, whereby such Chairman and Chief Executive Officer affirms, under penalties of perjury, that this Certificate of Designations is the act and deed of the Company and that the facts stated herein are true, this 13 th day of March, 2007.
 
WELLS FARGO & COMPANY
 
 
 
By         /s/ Richard M. Kovacevich              
Richard M. Kovacevich
i)                             Chairman and
ii)                           Chief Executive Officer
 
 
Attest:
 
/s/ Rachelle M. Graham     
Rachelle M. Graham
Assistant Secretary
 
 
[As filed with the Delaware Secretary of State on March 15, 2007.]
 


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WELLS FARGO & COMPANY
___________________________________
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
 
2008 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
___________________________________
 
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Company”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the provisions of the Restated Certificate of Incorporation of the Company, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”), and pursuant to authority conferred upon the ESOP Preferred Stock Committee II of the Board (the “ESOP Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the resolutions of the Board set forth herein, the following resolutions were duly adopted by the Board at meetings of the Board duly held on January 25, 2000 and February 27, 2007, and by the ESOP Committee pursuant to the written consent of the ESOP Committee duly adopted on March 11, 2008, in accordance with Section 141(f) of the General Corporation Law:
 
1.         On January 25, 2000, the Board adopted the following resolutions (the “ESOP Board Resolutions”) appointing the ESOP Committee and delegating to the ESOP Committee the full powers of the Board, subject to the ESOP Board Resolutions, in all matters relating to issuance of one or more series of Preferred Stock (“ESOP Preferred Stock”) to the trustee on behalf of the Company’s 401(k) Plan hereinafter referred to:
 
RESOLVED that a committee of one member of the Board of the Company is hereby appointed by the Board as the ESOP Preferred Stock Committee II (the “Second Committee”), which shall have and may exercise the full powers of the Board, subject to these resolutions, to issue from time to time one or more series of ESOP Preferred Stock, including any shares of Company common stock ($1 2/3 par value) issuable upon conversion of ESOP Preferred Stock, and in connection therewith, to fix the designations, voting powers, preferences, and all other rights, qualifications and restrictions of such ESOP Preferred Stock, to sell such ESOP Preferred Stock to the Plan on such terms and conditions and for such purchase price as the Second Committee in its discretion shall approve, and to take any and all actions as the Second Committee shall deem necessary or appropriate.
*  *  *  *
 
RESOLVED that any series of ESOP Preferred Stock authorized for issuance by the . . . Second Committee shall have the voting rights set forth in Appendix A to these resolutions.
 

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APPENDIX A - VOTING RIGHTS
 
No series of the Preferred Stock, except as hereinafter set forth in this resolution or as otherwise from time to time required by law, shall have voting rights.  Whenever, at any time or times, dividends payable on any shares of a designated series of the Preferred Stock (such shares of such designated series of Preferred Stock being hereinafter referred to as the “Shares of such series”) shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding Shares of such series shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the Shares of such series, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders.  At elections for such directors, each holder of the Shares of such series shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding Shares of such series (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such Shares of such series (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such Shares of such series shall have been paid in full, at which time such right with respect to such Shares of such series shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
So long as any Shares of such series remain outstanding, the consent of the holders of the outstanding Shares of such series and outstanding shares of all other series of Preferred Stock ranking on a parity with such Shares of such series either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding Shares of such series and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:
 
(a)        the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to the Shares of such series with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or
 
(b)        the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designation for the Shares of such series designating the Shares of such series and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the Shares of such series or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock or the creation

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and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the Shares of such series with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Shares of such series shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.
 
2.         Pursuant to resolutions adopted on February 27, 2007, the Board designated John G. Stumpf as the sole member of the ESOP Committee, effective April 25, 2007.
 
3.         On March 11, 2008, pursuant to authority conferred upon it by the Board in the ESOP Board Resolutions, the ESOP Committee adopted the following resolutions by written consent in accordance with Section 141(f) of the General Corporation Law:
 
RESOLVED that the issuance of a series of Preferred Stock, without par value, of the Company is hereby authorized and the designation, voting powers, preferences, and relative, participating, optional, and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Company, as amended, are hereby fixed as follows:
2008 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
 
1.   Designation and Number of Shares; Restricted Issue . 
 
(a) The designation of the series of Preferred Stock, without par value, provided for herein shall be “2008 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2008 ESOP Preferred Stock”) and the number of authorized shares constituting the 2008 ESOP Preferred Stock is 520,500, based on an offering price for the 2008 ESOP Preferred Stock of $1,058.00 per share.  Each share of 2008 ESOP Preferred Stock shall have a stated value of $1,000.00 per share.  The number of authorized shares of 2008 ESOP Preferred Stock may be reduced by further resolution duly adopted by the Board or the Securities Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, provided, however, that the authorized number of shares of 2008 ESOP Preferred Stock shall not be decreased below the then outstanding number of such shares, and provided further that the number of authorized shares of 2008 ESOP Preferred Stock shall not be increased.  All shares of the 2008 ESOP Preferred Stock purchased, redeemed, or converted by the Company shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of 2008 ESOP Preferred Stock.
 
(b)  Shares of 2008 ESOP Preferred Stock shall be issued only to a trustee (the “Trustee”) acting on behalf of the Wells Fargo & Company 401(k) Plan, or any successor to such plan (the “Plan”).  All references to the holder of shares of 2008 ESOP Preferred Stock shall mean the Trustee or any company with which or into which the Trustee may merge or any successor trustee under the trust agreement with respect to the Plan.  In the event of any transfer of record ownership of shares of 2008 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2008 ESOP Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder thereof, shall be automatically converted into shares of the common stock, par value $1-2/3 per share, of the Company (the “Common Stock”) on the terms otherwise provided for the conversion of the shares of 2008 ESOP Preferred Stock into shares of Common Stock pursuant to paragraph (a) of Section 4 hereof, and no such transferee shall have any of the voting powers, preferences, and relative, participating, optional or special rights ascribed to shares of 2008 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2008 ESOP Preferred Stock shall be so converted.  In the event of such a conversion, the transferee of the shares of 2008 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2008 ESOP Preferred Stock have been automatically converted as of the date of such transfer.  Shares of 2008 ESOP

2


Preferred Stock may be certificated or uncertificated, at the Company’s option.  Certificates representing shares of 2008 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions.  In the case of uncertificated 2008 ESOP Preferred Stock, the transfer agent for the 2008 ESOP Preferred Stock shall note the foregoing provisions on each 2008 ESOP Preferred Stock book entry account.  The Company may require that, as a condition to transferring record ownership of any uncertificated 2008 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2008 ESOP Preferred Stock are subject to the foregoing provisions.  Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2008 ESOP Preferred Stock (i)(A) shall be converted into shares of Common Stock as provided in paragraph (a) of Section 4 hereof, and (B) may be converted into shares of Common Stock as provided by paragraph (b) of Section 4 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided in Sections 5 and 6(c) hereof.
2.   Voting Rights .  No shares of 2008 ESOP Preferred Stock shall have voting rights except such voting rights as may from time to time be required by law and as set forth in this Section 2, as follows:
 
(a)  Whenever, at any time or times, dividends payable on shares of 2008 ESOP Preferred Stock shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding shares of 2008 ESOP Preferred Stock shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the shares of 2008 ESOP Preferred Stock, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders.  At elections for such directors, each holder of the shares of 2008 ESOP Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding shares of 2008 ESOP Preferred Stock (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such shares of 2008 ESOP Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such shares of 2008 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2008 ESOP Preferred Stock shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
(b)  Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
(c)  So long as any shares of 2008 ESOP Preferred Stock remain outstanding, the consent of the holders of the outstanding shares of 2008 ESOP Preferred Stock and outstanding shares of all other series of Preferred Stock ranking on a parity with such shares of 2008 ESOP Preferred Stock either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding shares of 2008 ESOP Preferred Stock and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in

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writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:
 
(i)  the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to shares of 2008 ESOP Preferred Stock with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or
 
(ii)  the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designations designating shares of 2008 ESOP Preferred Stock and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the shares of 2008 ESOP Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock, or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the shares of 2008 ESOP Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
(d)  The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of 2008 ESOP Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.
 
3.         Dividends .  (a)(i)  Holders of shares of 2008 ESOP Preferred Stock will be entitled to receive, when and as declared by the Board or a duly authorized committee thereof, out of assets of the Company legally available for payment, an annual cash dividend of $105.00 (the “Base Dividend”) per share, which Base Dividend shall be subject to adjustment from time to time as provided in this Section 3.

(ii)  The Base Dividend shall be adjusted, effective on December 1, 2009 and on each December 1 thereafter until December 1, 2017, as follows: 
 
(1)  If the Current Market Price (as hereinafter defined) of one share of Common Stock on November 30 (or the next preceding Trading Day (as hereinafter defined) if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the First Target Price but less than the Second Target Price shown opposite that year in such table, then holders of shares of the 2008 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $110.00 per share (the “First Adjusted Dividend”). 
 
(2)  If the Current Market Price of one share of Common Stock on November 30 (or the next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the Second Target Price shown opposite that year in such table, then holders of shares of 2008 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $115.00 per share (the “Second Adjusted Dividend”).
 
(3)  If the Current Market Price of one share of Common Stock on November 30 (or next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is less than the First Target Price shown opposite that year in such table, then the holders of shares of 2008 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to the Base Dividend.
13)                 
14)               Dividend Adjustment Table
 

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15)                             Closing Price on 11/30

 
16)                                   First Target Price

 
17)                                         Second Target Price

2,009,000

 
33.444

 
37.899

2,010,000

 
36.120

 
43.963

2,011,000

 
39.009

 
50.997

2,012,000

 
42.130

 
59.157

2,013,000

 
45.500

 
68.622

2,014,000

 
49.140

 
79.601

2,015,000

 
53.072

 
92.338

2,016,000

 
57.317

 
107.112

2,017,000

 
61.903

 
124.249

 
(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2011, the Current Market Price of one share of Common Stock is $50.00, then the cash dividend payable for the immediately following twelve month period per share of 2008 ESOP Preferred Stock would equal $110.00, with the first quarterly payment of such $110.00 dividend to be made on March 1, 2012.  If on November 30, 2012, the Current Market Price of one share of Common Stock is $60.00, then the cash dividend payable for the immediately following twelve month period per share of 2008 ESOP Preferred Stock would equal $115.00, with the first quarterly payment of such $115.00 dividend to be made on March 1, 2013.  If on November 30, 2013, the Current Market Price of one share of Common Stock is $40.00, then the cash dividend payable for the immediately following twelve month period per share of 2008 ESOP Preferred Stock would equal $105.00, with the first quarterly payment of such $105.00 dividend to be made on March 1, 2014.
 
(5)  For purposes of this Section 3, the terms “First Adjusted Dividend” and “Second Adjusted Dividend” are sometimes referred to as an “Adjusted Dividend;” the term “Current Market Price” shall have the meaning given to it in Section 4(c)(iv); and the term “Trading Day” shall have the meaning given to it in Section 4(c)(vi).
 
(iii)  If one share of Common Stock in any year listed in the Dividend Adjustment Table shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the First Target Price and the Second Target Price listed in such table for that year and each subsequent year will be appropriately and proportionately adjusted.
 
(iv)  Dividends payable on shares of the 2008 ESOP Preferred Stock (whether such dividends are equal to the Base Dividend or to an Adjusted Dividend) shall be payable quarterly on March 1, June 1, September 1, and December 1 of each year, commencing June 1, 2008.  Dividends on shares of the 2008 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2008 ESOP Preferred Stock.  Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Company on such record dates, not more than 30 days nor less than 15 days preceding the payment dates thereof, as shall be fixed by the Board or a duly authorized committee thereof.  The amount of dividends payable per share for each dividend period shall be computed by dividing by four the Base Dividend or the Adjusted Dividend, whichever is then applicable.  The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of actual days elapsed in a 360-day year of twelve 30-day months.
 
(b)(i)  No full dividends shall be declared or paid or set apart for payment on any stock of the Company ranking, as to dividends, on a parity with or junior to the 2008 ESOP Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been set apart for such payment on shares of 2008 ESOP Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends.  When dividends are not paid in full, as aforesaid, upon the shares of 2008 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2008 ESOP Preferred Stock, all dividends

5


declared upon shares of 2008 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2008 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2008 ESOP Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of 2008 ESOP Preferred Stock and such other series of Preferred Stock bear to each other.  Holders of shares of 2008 ESOP Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends, as herein provided, on 2008 ESOP Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on 2008 ESOP Preferred Stock which may be in arrears.
 
(ii)  So long as any shares of 2008 ESOP Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants, or rights to subscribe for or purchase shares of, Common Stock or any other stock ranking junior to 2008 ESOP Preferred Stock as to dividends or upon liquidation and other than as provided in paragraph (b)(i) of this Section 3) shall be declared or paid or set aside for payment or other distribution declared or made upon Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2008 ESOP Preferred Stock as to dividends or upon liquidation, nor shall any Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2008 ESOP Preferred Stock as to dividends or upon liquidation be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to 2008 ESOP Preferred Stock as to dividends or upon liquidation), unless, in each case, the full cumulative dividends on all outstanding shares of 2008 ESOP Preferred Stock shall have been paid or declared and set aside for payment of the then current dividend payment period and all past dividend payment periods.
 
4.   Conversion .  Shares of 2008 ESOP Preferred Stock are convertible from time to time hereafter pursuant to the provisions of paragraphs (a) or (b) of this Section 4 into that number of shares of Common Stock determined by dividing the stated value of each share of 2008 ESOP Preferred Stock by the then applicable Conversion Price, (as determined in accordance with the provisions of paragraph (c)(iii) of this Section 4), as follows:
 
(a)  Each share of 2008 ESOP Preferred Stock released from the unallocated reserve of the Plan in accordance with the terms thereof shall be automatically converted, without any further action by the Company or the holder thereof, as of the date such release occurs (the “Release Date”), into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for the 2008 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(b)  Subject to and upon compliance with the provisions of this Section 4, a holder of 2008 ESOP Preferred Stock shall be entitled at any time, prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 5 or 6 hereof, to cause any or all of the shares of 2008 ESOP Preferred Stock held by such holder to be converted into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for 2008 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(c)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
 
(i)  The “Average Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the Current Market Price for one share of Common Stock for the twenty (20) consecutive Trading Days ending on the Trading Day occurring prior to the date the “Purchase Offer” is made (as that term is defined in Section 6(d) hereof).
 
(ii)  A “Business Day” means each day that is not a Saturday, Sunday, or a day on which state or federally chartered banking institutions in the State of New York are not required to be open.
 
(iii)  (A)  For purposes of a mandatory conversion of shares of 2008 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (a) of this Section 4, the “Conversion Price”

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for such shares of 2008 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the relevant Release Date.
 
(B)  For purposes of an optional conversion of shares of 2008 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (b) of this Section 4, the “Conversion Price” for such shares of 2008 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the date the Conversion Notice (as that term is defined in paragraph (d) of this Section 4) is received by the Company, by the transfer agent for the 2008 ESOP Preferred Stock or by any agent for conversion of the 2008 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.
 
(C)  For purposes of a conversion of shares of 2008 ESOP Preferred Stock into shares of Common Stock in connection with a “Purchase Offer” (as defined in Section 6(d) hereof), the “Conversion Price” for such shares of 2008 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.
 
Each share of 2008 ESOP Preferred Stock shall be valued at its stated value of $1,000.00 for purposes of computing, based on the applicable Conversion Price, the number of shares of Common Stock into which the shares of 2008 ESOP Preferred Stock will be converted. 
 
(iv)  The “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for any day shall mean the reported last sale price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange only or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof.
(v)  “Common Stock” shall mean the Common Stock of the Company as the same exists at the date of this Certificate of Designations or as such stock may be constituted from time to time.
 
(vi)  “Trading Day” with respect to Common Stock means (x) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the Common Stock is quoted on the National Market System of NASDAQ, a day on which trades may be made on such National Market System or (z) otherwise, any Business Day.
(d)  In connection with any conversion of 2008 ESOP Preferred Stock pursuant to this Section 4, a written notice of conversion (the “Conversion Notice”) shall be delivered to the Company at its principal executive office or the offices of the transfer agent for the 2008 ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the 2008 ESOP Preferred Stock by the Company or the transfer agent for the 2008 ESOP Preferred Stock, which notice shall be accompanied by (a) in the case of certificated 2008 ESOP Preferred Stock, the certificate or certificates representing the shares of 2008 ESOP Preferred Stock being converted pursuant to this Section 4, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) and (b) in the case of uncertificated 2008 ESOP Preferred Stock, duly executed assignment and transfer documents

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for the shares of 2008 ESOP Preferred Stock being converted pursuant to this Section 4.  Each Conversion Notice shall specify (i)(y) in the case of a mandatory conversion pursuant to paragraph (a) of this Section 4, the number of shares of 2008 ESOP Preferred Stock released from the unallocated reserve of the Plan on the Release Date or (z) in the case of an optional conversion pursuant to paragraph (b) of this Section 4, the number of shares of 2008 ESOP Preferred Stock being converted, and (ii) in connection with any conversion hereunder, (x) the name or names in which such holder wishes the certificate or certificates for Common Stock and, in the case of certificated 2008 ESOP Preferred Stock, for any shares of 2008 ESOP Preferred Stock not to be so converted to be issued, (y) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (z) such other information as the Company or its agents may reasonably request.
 
(e)  Upon delivery to the Company or the transfer agent for the 2008 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4,  the Company shall issue and send by hand delivery, by courier or by first-class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion.  If there shall have been surrendered a certificate or certificates representing shares of 2008 ESOP Preferred Stock only part of which are to be converted, the Company shall issue and deliver to such holder or such holder’s designee, in the manner set forth in the preceding sentence, a new certificate or certificates representing the number of shares of 2008 ESOP Preferred Stock which shall not have been converted.
(f)  The issuance by the Company of shares of Common Stock upon a conversion of shares of 2008 ESOP Preferred Stock into shares of Common Stock made pursuant to this Section 4 shall be effective (i) in the case of a mandatory conversion of shares of 2008 ESOP Preferred Stock pursuant to paragraph (a) of this Section 4, as of the Release Date; and (ii) in the case of an optional conversion of such shares pursuant to paragraph (b) of this Section 4, as of the earlier of (A) the delivery to such holder or such holder’s designee of the certificates representing the shares of Common Stock issued upon conversion thereof or (B) the commencement of business on the second Business Day after the delivery to the Company or the transfer agent for the 2008 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4.  On and after the effective date of conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date.  The Company shall not be obligated to pay any dividends which shall have accrued or have been declared and shall be payable to holders of shares of 2008 ESOP Preferred Stock if the date on which such dividends are paid is on or after the effective date of conversion of such shares.
(g)  The Company shall not be obligated to deliver to holders of 2008 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2008 ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law.
(h)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of 2008 ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of 2008 ESOP Preferred Stock then outstanding.
(i)  The Company will use its best efforts to cause the listing of the shares of Common Stock required to be delivered upon conversion of the 2008 ESOP Preferred Stock prior to distribution to Plan participants on the national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.
(j)  The Company will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of the 2008 ESOP Preferred Stock pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the

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holder of the 2008 ESOP Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.
5.   Redemption At the Option of the Company .  (a)  The 2008 ESOP Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time, at a redemption price per share of 2008 ESOP Preferred Stock equal to the higher of (x) $1,000.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, and (y) the Fair Market Value (as that term is defined in paragraph (d) of this Section 5) per share of 2008 ESOP Preferred Stock on the date fixed for redemption.  Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (c) of this Section 5.  From and after the date fixed for redemption, dividends on shares of 2008 ESOP Preferred Stock called for redemption will cease to accrue and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price.  Upon payment of the redemption price, such shares shall be deemed to have been transferred to the Company, to be retired as provided in paragraph (a) of Section 1.  If the full cumulative dividends have not been paid, or contemporaneously declared and set aside for payment, on all outstanding shares of 2008 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2008 ESOP Preferred Stock pursuant to this Section 5.
(b)  Unless otherwise required by law, notice of any redemption pursuant to this Section 5 will be sent to the holders of 2008 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2008 ESOP Preferred Stock by hand delivery, by courier, by standard form of telecommunication or by first-class mail (postage prepaid) delivered, sent or mailed, as the case may be, not less than twenty (20) days nor more than sixty (60) days prior to the redemption date.  Each such notice shall state:  (i) the redemption date; (ii) the total number of shares of the 2008 ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) whether the redemption price shall be paid in cash or in shares of Common Stock, or in a combination of such Common Stock and cash; (v) in the case of certificated 2008 ESOP Preferred Stock the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vii) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised and the manner in which the number of shares of Common Stock issuable upon conversion of a share of 2008 ESOP Preferred Stock will be determined.  The Company shall redeem shares so called for redemption and not previously converted at the date fixed for redemption and at the redemption price set forth in this Section 5, provided that, in the case of certificated 2008 ESOP Preferred Stock, the Company shall not be obligated to pay the redemption price until the certificates for the shares to be redeemed are surrendered (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state).
(c)  The Company, at its option, may make payment of the redemption price required upon redemption of shares of 2008 ESOP Preferred Stock in cash or in shares of Common Stock, or in a combination of such Common Stock and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (d)(ii) of this Section 5) or their Current Market Price, in either case as of the date fixed for redemption of the 2008 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2008 ESOP Preferred Stock then being redeemed.
(d)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
(i)  “Adjustment Period” shall mean the period of five (5) consecutive Trading Days preceding the date as of which the Fair Market Value of a security is to be determined.
(ii)  “Fair Market Value” shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issue which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period.  The “Fair Market Value” of any security which is not publicly traded (other than the 2008 ESOP Preferred Stock) or of any other property shall mean the fair value thereof on the date as of which the Fair Market Value of the security is to be determined, as

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determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board or a committee thereof.  The “Fair Market Value” of the 2008 ESOP Preferred Stock for purposes of paragraph (a) of Section 5, and for purposes of paragraph (c) of Section 6 shall mean the fair market value thereof determined by an independent appraiser, appointed by the Trustee of the Plan in accordance with the provisions of the Plan, as of the date fixed for redemption of the 2008 ESOP Preferred Stock (in the case of a redemption pursuant to Section 5) or as of the date specified in paragraph (c) of Section 6 (in the case of a redemption under that section).  For purposes of determining the Fair Market Value of the 2008 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2008 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2008 ESOP Preferred Stock held by the Plan into shares of Common Stock pursuant to Section 4(a) hereof would have occurred when and as payments of principal (together with accrued interest thereon) would have been made by the Trustee of the Plan in accordance with the terms of that certain 2008 ESOP Convertible Preferred Stock Note Agreement dated on or about March 13, 2008 between the Company and the Plan (including any amendments or modifications thereto).
6.   Consolidation, Merger, etc.   (a)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Company) that constitutes “qualifying employer securities” with respect to a holder of 2008 ESOP Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of 2008 ESOP Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business combination, be assumed by and shall become Preferred Stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 5 and 6 hereof), and the qualifications, limitations or restrictions thereon, that the 2008 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:
            (1)  After such transaction each share of the 2008 ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 4 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of 2008 ESOP Preferred Stock could have been converted immediately prior to such transaction.
(2)  The Company shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of 2008 ESOP Preferred Stock shall be assumed and authorized by the successor or resulting corporation as aforesaid.
(b)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (a) of this Section 6) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of 2008 ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (c) of this Section 6), be automatically converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of 2008 ESOP Preferred Stock could have been converted at such time so that each share of 2008 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2008 ESOP Preferred Stock could have been converted immediately prior to such transaction.  However, if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the 2008 ESOP Preferred Stock, then the shares of 2008 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the

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aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2008 ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction.  If the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares.
(c)  In the event the Company shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (b) of this Section 6 (a “Business Combination”), then the Company shall as soon as practicable thereafter (and in any event at least fifteen (15) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of 2008 ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such 2008 ESOP Preferred Stock, a cash payment per share of 2008 ESOP Preferred Stock equal to the higher of (x) $1,000.00, plus accrued and unpaid dividends thereon to the date of consummation of such transaction or (y) the Fair Market Value per share of 2008 ESOP Preferred Stock, as of the last Business Day (as defined in paragraph (c) of Section 4 hereof) immediately preceding the date the Business Combination is consummated.  No such notice of redemption shall be effective unless given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction.
 
(d)  In the event that a Purchase Offer (as defined below) shall have been made and shall be continuing, each holder of 2008 ESOP Preferred Stock shall have the right to convert shares of 2008 ESOP Preferred Stock into shares of Common Stock at the Conversion Price specified in Section 4(c)(iii)(C) hereof until the date the Purchase Offer is terminated, including without limitation because the original Purchase Offer is withdrawn or because the Purchase Offer has expired and is not renewed, upon notice of such conversion given to the Company not later than the close of business on the date the Purchase Offer terminates (the “Purchase Offer Conversion Period”), unless the Company or any successor of the Company shall waive such prior notice, but any notice of conversion so given may be withdrawn by notice of withdrawal given to the Company prior to the end of the Purchase Offer Conversion Period.
 
For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
 
(i)  “Beneficial Ownership” shall have the meaning ascribed to it in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “person” shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
 
(ii)  A “Purchase Offer” shall have been made when any person (other than the Company or any affiliate of the Company) shall have “commenced” (as such term is defined in Rule 14d-2 under the Exchange Act) a tender offer or exchange offer to purchase shares of Common Stock, such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined herein) or the right to acquire Beneficial Ownership, of twenty percent (20%) or more of the voting power of the Company.
 
7.   Liquidation Rights .  (a)  Upon the dissolution, liquidation, or winding up of the Company, the holders of the shares of 2008 ESOP Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on the Common Stock or any other class of stock ranking junior to 2008 ESOP Preferred Stock upon liquidation, the amount of $1,000.00 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.

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(b)  Neither the sale of all or substantially all the property and assets of the Company, nor the merger or consolidation of the Company into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Company shall be deemed to be a dissolution, liquidation, or winding up, voluntary or involuntary, for the purposes of this Section 7.

(c)  After the payment to the holders of the shares of 2008 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2008 ESOP Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Company.
 
(d)  In the event the assets of the Company available for distribution to the holders of shares of 2008 ESOP Preferred Stock upon any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of Preferred Stock or other capital stock of the Company ranking on a parity with the shares of 2008 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2008 ESOP Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation, or winding up.
 
(e)  Subject to the rights of the holders of the shares of any series or class or classes of stock ranking on a parity with or prior to the shares of 2008 ESOP Preferred Stock upon liquidation, dissolution, or winding up, upon any liquidation, dissolution, or winding up of the Company, after payment shall have been made in full to the holders of the shares of 2008 ESOP Preferred Stock as provided in this Section 7, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of 2008 ESOP Preferred Stock upon liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the shares of 2008 ESOP Preferred Stock shall not be entitled to share therein.
 
8.   Ranking .  For the purposes of these resolutions, any stock of any series or class or classes of the Company shall be deemed to rank:
 
(a)  prior to the shares of 2008 ESOP Preferred Stock, either as to dividends or upon liquidation, if the holders of such series or class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of 2008 ESOP Preferred Stock;
 
(b)  on a parity with shares of 2008 ESOP Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of 2008 ESOP Preferred Stock, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of 2008 ESOP Preferred Stock; and
 
(c)  junior to shares of 2008 ESOP Preferred Stock, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of 2008 ESOP Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such series or class or classes.
 
9.   Priority of 2008 ESOP Preferred Stock .  The shares of 2008 ESOP Preferred Stock will rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the Company’s 1999 ESOP Cumulative Convertible Preferred Stock, its 2000 ESOP Cumulative Convertible Preferred Stock, its 2001 ESOP Cumulative Convertible Preferred Stock, its 2002 ESOP Cumulative Convertible Preferred Stock, its 2003 ESOP

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Cumulative Convertible Preferred Stock, its 2004 ESOP Cumulative Convertible Preferred Stock, its 2005 ESOP Cumulative Convertible Preferred Stock, its 2006 ESOP Cumulative Convertible Preferred Stock and its 2007 ESOP Cumulative Convertible Preferred Stock. 
 
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by John G. Stumpf, its President and Chief Executive Officer, and attested by Jeannine E. Zahn, its Assistant Secretary, whereby such President and Chief Executive Officer affirms, under penalties of perjury, that this Certificate of Designations is the act and deed of the Company and that the facts stated herein are true, this 12th day of March, 2008.
WELLS FARGO & COMPANY
 
 
 
By /s/ John G. Stumpf                                   
John G. Stumpf
i)                             President and
ii)                           Chief Executive Officer
 
 
Attest:
 
/s/ Jeannine E. Zahn                                        
Jeannine E. Zahn
Assistant Secretary
 
 
[As filed with the Delaware Secretary of State on March 12, 2008.]
 


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WELLS FARGO & COMPANY
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware

 
DIVIDEND EQUALIZATION PREFERRED SHARES
(Without Par Value)

 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “Board of Directors”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”), the following resolutions were duly adopted by the Committee pursuant to the written consent of the Committee duly adopted on November 20, 2008, in accordance with Section 141(f) of the General Corporation Law:

RESOLVED, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated October 2, 2008, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

18)               1.         Designation. 

(a)        The shares of such series of Preferred Stock shall be designated Dividend Equalization Preferred Shares (“DEPs”), and the number of shares constituting such series shall be 97,000.

(b)        DEPs redeemed, purchased or otherwise acquired by the Corporation or any of its subsidiaries (other than in a bona fide fiduciary capacity) shall be cancelled and may not be reissued.  DEPs may be issued in fractional shares which are whole number multiples of one one-millionth of a share, which fractional shares shall entitle the holder, in proportion to such holder’s fractional share, to all rights of a holder of a whole share of DEPs.

(c)        DEPs shall, with respect to distributions upon the liquidation, winding-up and dissolution of the Corporation, rank (x) senior to the Common Stock for the Liquidation Preference stated and defined in Section 3(a) below and (y) junior to each class or series of preferred stock issued in exchange for preferred stock of Wachovia Corporation established by the board of directors of Wachovia Corporation after September 1, 2001 and each class or series of preferred stock established by the Board of Directors after the date hereof.

19)                             2.         Dividends.  DEPs shall not entitle the holders thereof to any dividends, whether payable in cash, property, stock or otherwise.

20)                             3.         Liquidation. 

(a)        In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of full and fractional DEPs shall be entitled, before any distribution or payment is made on any date to the holders of the Common Stock or any other stock of the

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Corporation ranking junior to the DEPs upon liquidation, to be paid in full an amount per whole share of DEPs equal to $10.00 (the “Liquidation Preference”), together with accrued dividends to such distribution or payment date, whether or not earned or declared.  If such payment shall have been made in full to all holders of DEPs, the holders of DEPs as such shall have no right or claim to any of the remaining assets of the Corporation. 
(b)        In the event the assets of the Corporation available for distribution to the holders of DEPs upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 3(a), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the DEPs upon such liquidation, dissolution or winding up unless proportionate distributive amounts shall be paid on account of the DEPs, ratably in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such liquidation, dissolution or winding up. 

(c)        Upon the liquidation, dissolution or winding up of the Corporation, the holders of DEPs then outstanding shall be entitled to be paid out of assets of the Corporation available for distribution to its shareholders all amounts to which such holders are entitled pursuant to the first paragraph of this Section 3 before any payment shall be made to the holders of Common Stock or any other stock of the Corporation ranking junior upon liquidation to the DEPs. 

(d)        For the purposes of this Section 3, the consolidation or merger of, or binding statutory share exchange by, the Corporation with any other corporation shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation. 

21)               4.         Redemption, Conversion, Exchange.

(a)        The DEPs shall not be convertible or exchangeable.  Other than as described in the next sentence, the DEPs shall not be redeemable.  The DEPs shall be redeemable by the Corporation, at the Corporation’s option and in its sole discretion, for an amount in cash equal to the Liquidation Preference per share of DEPs, after December 31, 2021.

(b)        In case of redemption of less than all of the DEPs at the time outstanding, the shares to be redeemed shall be selected pro rata or by lot as determined by the Corporation in its sole discretion, provided that the Corporation may redeem all shares held by holders of fewer than 0.100 DEPs (or by holders that would hold fewer than 0.100 DEPs following such redemption) prior to its redemption of other DEPs. 

(c)        Notice of any redemption shall be sent by or on behalf of the Corporation no less than 30 nor more than 60 days prior to the date specified for redemption in such notice (the “Redemption Date”), by first class mail, postage prepaid, to all holders of record of the DEPs at their last addresses as they appear on the books of the Corporation; provided, however, that no failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any DEPs except as to the holder to whom the Corporation has failed to give notice or except as to the holder to whom notice was defective.  In addition to any information required by applicable law or regulation or the rules of any exchange upon which the DEPs may be listed or admitted to trading, such notice shall state (1) that such redemption is being made pursuant to the redemption provisions of this Section 5, (2) the Redemption Date, (3) the redemption price, (4) the total number of DEPs to be redeemed and, if less than all shares held by such holder are to be redeemed, the number of such shares to be redeemed, and (5) the place or places where certificates for such shares are to be surrendered for payment of the redemption price, including any procedures applicable to redemption to be accomplished through book-entry transfers.  Upon the mailing of any such notice of redemption, the Corporation shall become obligated to redeem, on the Redemption Date, all shares called for redemption. 

22)               5.         Voting Rights .  Except as otherwise required by applicable law or regulation or the rules of a securities exchange upon which the DEPs may be listed or quoted, holders of the DEPs shall have no voting rights.


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IN WITNESS WHEREOF, WELLS FARGO & COMPANY has caused this Certificate of Designations to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Laurel A. Holschuh, its Secretary, this  30 th  day of December, 2008.
 
WELLS FARGO & COMPANY



By:                   /s/ Barbara S. Brett                  

            Barbara S. Brett, Senior Vice President

            and Assistant Treasurer
/s/ Laurel A. Holschuh            

Laurel A. Holschuh, Secretary
 
 
[As filed with the Delaware Secretary of State on December 30, 2008.]

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WELLS FARGO & COMPANY
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware

 
CLASS A PREFERRED STOCK, SERIES H
(Without Par Value)

 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “Board of Directors”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”), the following resolutions were duly adopted by the Committee pursuant to the written consent of the Committee duly adopted on November 20, 2008, in accordance with Section 141(f) of the General Corporation Law:

RESOLVED, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated October 2, 2008, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

Designation .  The shares of such series of Preferred Stock shall be designated Class A Preferred Stock, Series H, with no par value and with a liquidation preference of $20,000.00 per share (hereinafter referred to as the “Series H Preferred Stock”), and the number of shares constituting such series shall be 50,000, which number may be increased or decreased (but not below the number of shares then outstanding) from time to time by the Board of Directors of the Corporation.  The Series H Preferred Stock shall rank prior to the common stock of the Corporation, $1-2/3 par value per share (the “Common Stock”), and on a parity with each series of the Corporation’s Parity Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation as expressly provided for herein.

Defined Terms .  As used in this Certificate of Designations, the following terms have the meanings specified below:

“Affiliate” of any specified Person shall mean (i) any other Person which, directly or indirectly, is in Control of, is controlled by or is under common Control with such specified Person, or (ii) any other Person who is a director or executive officer (A) of such specified Person, (B) of any subsidiary of such specified Person, or (C) of any Person described in clause (i) above.

“Applicable Rate” means, with respect to distributions on each Dividend Period, (i) a rate per annum equal to Three-Month LIBOR plus 1.83%, or (ii) upon the occurrence of an initial Fixed Rate Event and thereafter, a fixed rate equal to the Assigned Fixed Rate.

“Assigned Fixed Rate” means the fixed rate equal to the Applicable Rate on the date of the occurrence of the initial Fixed Rate Event.


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“Business Day” means any day other than a Saturday, a Sunday or a day on which banks located in the City of New York, New York or Charlotte, North Carolina generally are authorized or required by law or regulation to close.

“Common Stock” shall have the meaning set forth in Section 1.

“Conditional Exchange” shall mean the exchange of one Depositary Share for each share of WPFC Series B Preferred Securities following the occurrence of a Supervisory Event.

“Control” means the power, direct or indirect, to direct or cause the direction of the management and policies of any Person whether by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Corporation” means Wells Fargo & Company, a Delaware corporation, together with its successors and assigns.

“Depositary Company” shall have the meaning set forth in Section 5(c).

“Depositary Share” means a depositary share representing a one-eight hundredth interest in one share of Series H Preferred Stock.

“Dividend Payment” shall have the meaning set forth in Section 3(a).

“Dividend Payment Date” shall have the meaning set forth in Section 3(a).

“Dividend Period” shall have the meaning set forth in Section 3(a).

“Dividend Record Date” shall have the meaning set forth in Section 3(a).

“Federal Reserve Board” means the United States Board of Governors of the Federal Reserve System.

“Fixed Rate Event” means any Transfer with respect to all or a portion of the WPFC Series B Preferred Securities, subsequent to the initial issuance of the WPFC Series B Preferred Securities, through an initial public offering, private placement or otherwise, to any Person who is not an Affiliate of the Corporation.

“Initial Dividend Period” shall have the meaning set forth in Section 3(a).

“Junior Stock” means the Common Stock and all other classes and series of securities of the Corporation that rank below the Series H Preferred Stock as to dividend rights and rights upon liquidation, winding up, or dissolution.

“LIBOR Business Day” means any day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in London and New York.

“LIBOR Determination Date” means, as to each Dividend Period, commencing with the Initial Dividend Period, the date that is two LIBOR Business Days prior to the first day of such Dividend Period.

“OCC” means the United States Office of the Comptroller of the Currency.

“Parity Stock” means any outstanding class or series of Preferred Stock of the Corporation ranking, in accordance to its terms, as to dividends and upon voluntary or involuntary liquidation, dissolution or winding-up of affairs of the Corporation on parity with the Series H Preferred Stock.

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“Person” means an individual, corporation, partnership, estate, trust (or portion thereof), association, private foundation, joint stock company or other entity or any government or agency or political subdivision thereof and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.

“Preferred Stock” means the Corporation’s preferred stock, no par value, of which 20,000,000 shares are authorized as of the date hereof.

“Redemption Date” shall have the meaning set forth in Section 5(c).

“Redemption Price” shall have the meaning set forth in Section 5(a).

“Regulatory Capital Event” means a determination by the Corporation, based on the receipt by the Corporation of an opinion or letter of counsel, rendered by a law firm experienced in such matters, in form and substance satisfactory to the Corporation, which states that there is a significant risk that the Series H Preferred Stock will no longer constitute Tier 1 capital of the Corporation for purposes of the capital adequacy regulations or guidelines or policies of the Federal Reserve Board, or its successor, as the Corporation’s primary Federal banking regulator, as a result of (i) any amendment to, clarification of, or change in applicable laws or related regulations, guidelines, policies or official interpretations thereof, or (ii) any official administrative pronouncement or judicial decision interpreting or applying such laws or related regulations, guidelines, policies or official interpretations thereof.

“Series H Preferred Stock” shall have the meaning set forth in Section 1.

“Supervisory Event” means the occurrence of one of the following:  (i) Wachovia Bank becomes “undercapitalized” under the OCC’s prompt corrective action regulations, (ii) Wachovia Bank is placed into conservatorship or receivership, or (iii) the OCC, in its sole discretion, anticipates Wachovia Bank becoming “undercapitalized” in the near term or takes supervisory action that limits the payment of dividends by WPFC and in connection therewith the OCC directs an exchange of the WPFC Series B Preferred Securities for the Series H Preferred Stock.

“Three-Month LIBOR” means, with respect to any LIBOR Determination Date, a rate determined on the basis of the offered rates for three-month U.S. dollar deposits of not less than a principal amount equal to that which is representative for a single transaction in such market at such time, commencing on the second LIBOR Business Day immediately following such LIBOR Determination Date, which appears on US LIBOR Telerate Page 3750 as of approximately 11:00 a.m., London time, on such LIBOR Determination Date.

If on any LIBOR Determination Date no rate appears on US LIBOR Telerate Page 3750 as of approximately 11:00 a.m., London time, the Corporation shall on such LIBOR Determination Date require four major reference banks in the London interbank market selected by the Corporation to provide the Corporation with a quotation of the rate at which three-month deposits in U.S. dollars, commencing on the second LIBOR Business Day immediately following such LIBOR Determination Date, are offered by them to prime banks in the London interbank market as of approximately 11:00 a.m., London time, on such LIBOR Determination Date and in a principal amount equal to that which is representative for a single transaction in such market at such time.  If at least two such quotations are provided, Three-Month LIBOR for such LIBOR Determination Date will be the arithmetic mean of such quotations as calculated by the Corporation.  If fewer than two quotations are provided, Three-Month LIBOR for such LIBOR Determination Date will be the arithmetic mean of the rates quoted as of approximately 11:00 a.m., London time, on such LIBOR Determination Date by three major banks in the London inter-bank market selected by the Corporation for loans in U.S. dollars to leading European banks, having a three-month maturity commencing on the second LIBOR Business Day immediately following such LIBOR Determination Date and in a principal amount equal to that which is representative for a single transaction in such market at such time; provided, however, that, if the banks selected as aforesaid by the Corporation are not quoting as mentioned in this

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sentence, Three-Month LIBOR for such LIBOR Determination Date will be the Three-Month LIBOR determined with respect to the immediately preceding Dividend Period.

“Transfer” means any sale, transfer, gift, assignment, devise or other disposition of the WPFC Series B Preferred Securities, including, but not limited to, (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of such securities, or (ii) the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for WPFC Series B Preferred Securities, whether voluntary or involuntary, whether of record or beneficially and whether by operation of law or otherwise.

“Wachovia Bank” means Wachovia Bank, National Association, a national banking association, or its successors and assigns.

“WPFC” means Wachovia Preferred Funding Corp., a Delaware corporation.

“WPFC Series B Preferred Securities” means the Floating Rate Non-cumulative Series B Preferred Securities, par value $0.01, liquidation preference $25.00 per share, of WPFC.

Dividends .  (a) The dividend rate for the Series H Preferred Stock shall be the Applicable Rate per share per annum of the initial liquidation preference of $20,000.00 per share, accruing from the effective date of the Conditional Exchange to and including the last day of March, the last day of June, the last day of September or the last day of December, whichever occurs first, after issuance of the Series H Preferred Stock following the Conditional Exchange (such period being the “Initial Dividend Period”) and then for each quarterly period thereafter, commencing on April 1, July 1, October 1 or January 1, as the case may be, of each year and ending on and including the day next preceding the first day of the next such quarterly period (each such period, including the Initial Dividend Period, being a “Dividend Period”), payable to holders of record of the Series H Preferred Stock on the respective record dates fixed for such purpose by the Board of Directors in advance of payment of such dividend, which shall be the 15th calendar day of the last calendar month of the applicable Dividend Period (each such date, a “Dividend Record Date”).  If such Dividend Record Date is not a Business Day, then the Dividend Record Date for the applicable Dividend Period shall be the first Business Day immediately following the 15th calendar day of the last calendar month of the applicable Dividend Period, except if such Business Day falls in the calendar month following the last calendar month of the applicable Dividend Period, the Dividend Record Date shall be the last Business Date immediately preceding the 15th calendar day of the last calendar month of the applicable Dividend Period.  Until no longer outstanding, the holders of the Series H Preferred Stock shall be entitled to receive such cash dividends, and the Corporation shall be bound to pay the same, but only as, if and when declared by the Board of Directors, out of funds legally available for the payment thereof (each such payment, a “Dividend Payment”), on March 31, June 30, September 30 and December 31 of each year (each a “Dividend Payment Date”) for the respective Dividend Period ending on such date; provided, however, that the Dividend Payment for the Initial Dividend Period shall include any unpaid dividends accrued from the payment date of the last dividend paid prior to such date on the WPFC Series B Preferred Securities.  If a Dividend Payment Date is not a Business Day, the Dividend Payment due on such Dividend Payment Date shall be paid on the first Business Day immediately following such Dividend Payment Date, except if such Business Day falls in a different calendar year than such Dividend Payment Date, such Dividend Payment shall be paid on the last Business Date immediately preceding such Dividend Payment Date.  The amount of dividends payable for the Initial Dividend Period or any period shorter than a full Dividend Period shall be computed on the basis of a 360-day year having 30-day months and the actual number of days elapsed in the period.

(b)  Dividends shall be non-cumulative.  If the Board of Directors fails to or chooses not to declare a dividend on the Series H Preferred Stock for a Dividend Period, then holders of the Series H Preferred Stock shall have no right to receive a dividend for that Dividend Period, and the Corporation shall have no obligation to pay a dividend for that Dividend Period, whether or not dividends are declared and paid for any future Dividend Period, with respect to either the Series H Preferred Stock, other series of preferred stock of the Corporation, or the Common Stock.


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(c)  Holders of Series H Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full dividends for each Dividend Period, as herein provided, on the Series H Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any Dividend Payment or Dividend Payments or failure to make any Dividend Payment or Dividend Payments.

(d)  Unless full dividend payments on the Series H Preferred Stock have been declared and paid or declared and a sum sufficient for such payment has been set apart for payment for the immediately preceding Dividend Period, no dividends shall be declared or paid or set aside for payment and no other distribution shall be declared or made or set aside for payment upon any shares of Junior Stock, nor shall shares of Junior Stock be redeemed, purchased, or otherwise acquired for any consideration, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation, except by conversion into or exchange for other Junior Stock.

Liquidation Preference .  (a) The amount payable on the Series H Preferred Stock in the event of any voluntary or involuntary liquidation, dissolution, or winding-up of affairs of the Corporation shall be $20,000.00 per share, plus authorized, declared but unpaid dividends up to the date of such liquidation, dissolution, or winding-up of affairs of the Corporation, and no more before any distribution shall be made to the holders of any shares of Junior Stock.  The holders of Series H Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution, or winding-up of affairs of the Corporation other than what is expressly provided for in this Section 4(a).

(b)  If the amounts available for distribution in respect of the Series H Preferred Stock and any Parity Stock are not sufficient to satisfy the full liquidation rights of all of the outstanding Series H Preferred Stock and any Parity Stock, then the holders of the Series H Preferred Stock and any Parity Stock shall share ratably in any such distribution of assets in proportion to the full respective liquidation preference to which they are entitled.

(c)  The sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a dissolution, liquidation or winding up of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or Person or the merger, consolidation or any other business combination transaction of any other corporation or Person into or with the Corporation be deemed to be a dissolution, liquidation or winding up of the Corporation.

Redemption .  (a) The Series H Preferred Stock shall not be redeemable by the Corporation prior to the fifth anniversary of the initial issuance of the WPFC Series B Preferred Securities, except upon the occurrence of a Regulatory Capital Event.  On or after the fifth anniversary of the initial issuance of the WPFC Series B Preferred Securities, the Corporation may, with the prior approval of the OCC, redeem the Series H Preferred Stock for cash, in whole or in part, at a price equal to $20,000.00 per share of Series H Preferred Stock, plus authorized, declared, but unpaid dividends to the Redemption Date, without interest, on shares redeemed (collectively, the “Redemption Price”) from funds legally available for such purpose.

(b)  On or after the fifth anniversary of the initial issuance of the WPFC Series B Preferred Securities, the Corporation, at the option of the Board of Directors, may at any time redeem fewer than all the outstanding Series H Preferred Stock.  In that event, the shares to be redeemed shall be determined by lot, pro rata, or by such other method as the Board of Directors in its sole discretion determines to be equitable.

(c)  Prior to the fifth anniversary of the initial issuance of the WPFC Series B Preferred Securities, but only upon or after the occurrence of a Regulatory Capital Event, the Corporation, at the option of the Board of Directors, may redeem the outstanding Series H Preferred Stock, in whole, but not in part, for the Redemption Price from funds legally available for such purpose.

(d)  Not more than 60 days and not less than 30 days prior to the date established for such redemption by the Board of Directors (the “Redemption Date”), notice of the proposed redemption shall be mailed to the

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holders of record of the Series H Preferred Stock to be redeemed, such notice to be addressed to each such stockholder at his last known address shown on the records of the Corporation, and the time of mailing such notice shall be deemed to be the time of the giving thereof.  On or after the Redemption Date, the Series H Preferred Stock called for redemption shall automatically, and without further action on the part of the holder thereof, be deemed to have been redeemed and the former holder thereof shall thereupon only be entitled to receive payment of the Redemption Price.  If such notice of redemption shall have been given as aforesaid, and if on or before the Redemption Date the funds necessary for the redemption shall have been set aside so as to be available therefore, then the dividends thereon shall cease to accrue after the Redemption Date and all rights with respect to the Series H Preferred Stock so called for redemption shall forthwith after such Redemption Date cease, except the right of the holders to receive the Redemption Price, without interest.  If such notice of redemption of all or any part of the Series H Preferred Stock shall have been mailed as aforesaid and the Corporation shall thereafter deposit money for the payment of the Redemption Price pursuant thereto with any bank or trust company (the “Depositary Company”), including any Affiliate of the Corporation, selected by the Board of Directors for that purpose, to be applied to such redemption, then from and after the making of such deposit, such Series H Preferred Stock shall not be deemed to be outstanding for any purpose, and the rights of the holders thereof shall be limited to the rights to receive payment of the Redemption Price, without interest but including any declared, authorized, but unpaid, dividends to the Redemption Date, from the Depositary Company, if applicable, upon endorsement, if required, and surrender of the certificates therefore.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company, the interest, if any, allowed on such moneys deposited with it, and the holders of any Series H Preferred Stock so redeemed shall have no claim to any such interest.  Any moneys so deposited and remaining unclaimed at the end of three years from the Redemption Date shall, if thereafter requested by resolution of the Board of Directors, be repaid to the Corporation, and in the event of such repayment to the Corporation, such holders of record of the Series H Preferred Stock so redeemed which shall not have made claim against such moneys prior to such repayment to the Corporation shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of the Series H Preferred Stock and so repaid to the Corporation, but shall in no event be entitled to any interest.

(e)  Subject to the provisions herein, the Board of Directors shall have authority to prescribe from time to time the manner in which the Series H Preferred Stock shall be redeemed.

(f)  Nothing contained herein shall limit any legal right of the Corporation to purchase any shares of the Series H PreferredStock.

Conversion .  The holders of the Series H Preferred Stock shall not have any rights to convert such Series H Preferred Stock into shares of any other class of capital stock of the Corporation.

Rank .  Notwithstanding anything set forth in the Restated Certificate of Incorporation of the Corporation or this Certificate of Designations to the contrary, the Board of Directors, without the vote of the holders of the Series H Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or any class or series of stock ranking senior to Series H Preferred Stock as to dividends and upon voluntary or involuntary liquidation, dissolution or winding-up of affairs of the Corporation.

Repurchase .  Subject to the limitations imposed herein, the Corporation may purchase and sell Series H Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board of Directors may determine; provided, however, that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

Voting Rights .  The holders of Series H Preferred Stock will have no voting rights except as expressly provided by applicable law.

Unissued or Reacquired Shares .  Shares of Series H Preferred Stock not issued or which have been issued and converted, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

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No Sinking Fund .  Shares of Series H Preferred Stock are not subject to the operation of a sinking fund.

IN WITNESS WHEREOF, WELLS FARGO & COMPANY has caused this Certificate of Designations to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Laurel A. Holschuh, its Secretary, this  30 th  day of December, 2008.
 
WELLS FARGO & COMPANY



By:                   /s/ Barbara S. Brett                              

            Barbara S. Brett, Senior Vice President

            and Assistant Treasurer
/s/ Laurel A. Holschuh            

Laurel A. Holschuh, Secretary

[As filed with the Delaware Secretary of State on December 30, 2008.]

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WELLS FARGO & COMPANY
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware

 
CLASS A PREFERRED STOCK, SERIES I
(Without Par Value)

 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “Board of Directors”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”), the following resolutions were duly adopted by the Committee pursuant to the written consent of the Committee duly adopted on November 20, 2008, in accordance with Section 141(f) of the General Corporation Law:

RESOLVED, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated October 2, 2008, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

Section 1.         Designation .  The shares of such series of Preferred Stock shall be designated Class A Preferred Stock, Series I, with no par value and a liquidation preference of $100,000 per share (hereinafter referred to as the “Series I Preferred Stock”).  Each share of Series I Preferred Stock shall be identical in all respects to every other share of Series I Preferred Stock.  Series I Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

Section 2.         Number of Shares .  The number of shares of Series I Preferred Stock shall be 25,010.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock) or decreased (but not below the number of shares of Series I Preferred Stock then outstanding) by the board of directors.  Shares of Series I Preferred Stock that are redeemed, purchased or otherwise acquired by the Corporation shall be cancelled and shall revert to authorized but unissued shares of preferred stock undesignated as to series.  The Corporation shall have the authority to issue fractional shares of Series I Preferred Stock.

Section 3.         Definitions .  As used herein with respect to Series I Preferred Stock:

“Business Day” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in Charlotte, North Carolina or New York, New York are not authorized or obligated by law, regulation or executive order to close.

“Depositary Company” shall have the meaning set forth in Section 6(d).

“Dividend Payment Date” shall have the meaning set forth in Section 4(a).

“Dividend Period” shall have the meaning set forth in Section 4(a).


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“DTC” means The Depositary Trust Company, together with its successors and assigns.

“Junior Stock” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which Series I Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

“London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London.

“Parity Stock” means any other class or series of stock of the Corporation that ranks on a par with Series I Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

“Series I Preferred Stock” shall have the meaning set forth in Section 1.

“Telerate Page 3750” means the display page so designated on the Moneyline/Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to London Interbank Offered Rate for U.S. dollar deposits).

“Three-Month LIBOR” means, with respect to any Dividend Period, the rate (expressed as a percentage per annum ) for deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the second London Banking Day preceding the first day of that Dividend Period.  If such rate does not appear on Telerate Page 3750, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Corporation, at approximately 11:00 a.m., London time on the second London Banking Day preceding the first day of that Dividend Period.  Wachovia Bank, National Association, as calculation agent for the Preferred Stock, will request the principal London office of each of such banks to provide a quotation of its rate.  If at least two such quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of such quotations.  If fewer than two quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of the rates quoted by three major banks in New York City selected by the calculation agent, at approximately 11:00 a.m., New York City time, on the first day of that Dividend Period for loans in U.S. dollars to leading European banks for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000.  However, if the banks selected by the calculation agent to provide quotations are not quoting as described above, Three-Month LIBOR for that Dividend Period will be the same as Three-Month LIBOR as determined for the previous Dividend Period, or in the case of the first Dividend Period, the most recent rate that could have been determined in accordance with the first sentence of this paragraph had Series I Preferred Stock been outstanding.  The calculation agent’s establishment of Three-Month LIBOR and calculation of the amount of dividends for each Dividend Period will be on file at the principal offices of the Corporation, will be made available to any holder of Series I Preferred Stock upon request and will be final and binding in the absence of manifest error.

Section 4.         Dividends . 

(a)        Rate .  Holders of Series I Preferred Stock shall be entitled to receive, when, as and if declared by the board of directors, but only out of funds legally available therefor, non-cumulative cash dividends on the liquidation preference of $100,000 per share of Series I Preferred Stock, and no more, payable:  (1) if the Series I Preferred Stock is issued prior to March 15, 2011, semi-annually in arrears on each March 15 and September 15 through March 15, 2011 and (2) from and including the later of March 15, 2011 and the date of issuance, quarterly in arrears on each March 15, June 15, September 15 and December 15.  If any date prior to

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March 15, 2011 specified pursuant to the preceding sentence is not a Business Day, then dividends will be payable on the first Business Day following such date, without accrual to the actual payment date; if any date on or after March 15, 2011 specified pursuant the preceding sentence is not a Business Day, then dividends will be payable on the first Business Day following such date and dividends shall accrue to the actual payment date.  The term “Dividend Payment Date” means each of the following dates occurring after the date of issuance of the Series I Preferred Stock:  (i) each March 15 and September 15 through September 15, 2010 and (ii) each March 15, June 15, September 15 and December 15, or if any such day in the case of this clause (ii) is not a Business Day, the next Business Day.  The term “Dividend Period” means each period from and including a Dividend Payment Date (or the date of issuance of the Series I Preferred Stock for the first Dividend Payment Date) to but excluding the next Dividend Payment Date.  For any Dividend Period ending prior to the Dividend Payment Date in March 2011 dividends will accrue at a rate per annum equal to 5.80%, and for any Dividend Period ending after the Dividend Payment Date in March 2011, dividends will accrue at a rate per annum equal to the greater of (x) Three-Month LIBOR for the related Dividend Period plus 0.93% and (y) 5.56975%.  The amount of dividends payable for any Dividend Period (1) ending prior to the Dividend Payment Date in March 2011 shall be computed on the basis of a 360-day year consisting of twelve 30-day months and (2) beginning on or after the Dividend Payment Date in March 2011 shall be computed on the basis of a 360-day year and the actual number of days elapsed.

(b)        Non-Cumulative Dividends .  Dividends on shares of Series I Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series I Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to accrue and be payable and the Corporation shall have no obligation to pay, and the holders of Series I Preferred Stock shall have no right to receive, dividends accrued for the Dividend Period ending immediately prior to such Dividend Payment Date after such Dividend Payment Date or to pay interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series I Preferred Stock, Parity Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.  Holders of Series I Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full dividends for each Dividend Period on the Series I Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in respect of any Dividend Payment or Dividend Payments or failure to make any Dividend Payment or Dividend Payments.

(c)        Priority of Dividends .  So long as any share of Series I Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, (ii) no shares of Junior Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Junior Stock for or into Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation, and (iii) no shares of Parity Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series I Preferred Stock and such Parity Stock except by conversion into or exchange for Junior Stock, unless full dividends on all outstanding shares of Series I Preferred Stock for the then-current Dividend Period have been paid in full or declared and set aside for payment.  The foregoing shall not restrict the ability of the Corporation, or any affiliate of the Corporation, to engage in any market-making transactions in the Junior Stock or Parity Stock in the ordinary course of business.  When dividends are not paid in full upon the shares of Series I Preferred Stock and any Parity Stock, all dividends declared upon shares of Series I Preferred Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series I Preferred Stock, and accrued dividends, including any accumulations on Parity Stock, bear to each other.  No interest will be payable in respect of any dividend payment on such offered stock that may be in arrears.  If the board of directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of the Series I Preferred Stock prior to such date.  Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the board of directors may be declared and paid on any Junior Stock

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from time to time out of any funds legally available therefor, and the shares of Series I Preferred Stock shall not be entitled to participate in any such dividend.

Section 5.         Liquidation Rights . 

(a)        Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series I Preferred Stock shall be entitled, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series I Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidation preference in an amount equal to $100,000 per share, plus an amount equal to all accrued and unpaid dividends for the then-current Dividend Period to the date of liquidation.  The holder of Series I Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.
(b)        Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the liquidation preference to all holders of Series I Preferred Stock and the liquidation preferences of any Parity Stock to all holders of such Parity Stock, the amounts paid to the holders of Series I Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences of Series I Preferred Stock and all such Parity Stock.
(c)        Residual Distributions .  If the liquidation preference has been paid in full to all holders of Series I Preferred Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)        Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

Section 6.         Redemption . 

(a)        Optional Redemption .  So long as full dividends for all outstanding shares of Series I Preferred Stock for the then-current Dividend Period have been paid or declared and a sum sufficient for the payment thereof set aside, the Corporation, at the option of the board of directors, may redeem in whole or in part the shares of Series I Preferred Stock at the time outstanding, at any time on or after the later of March 15, 2011 and the date of original issuance of the Series I Preferred Stock, upon notice given as provided in Subsection (b) below, at the redemption price in effect at the redemption date as provided in this Section 6.  The redemption price for shares of Series I Preferred Stock shall be $100,000 per share plus dividends that have been declared but not paid plus accrued and unpaid dividends for the then-current Dividend Period to the redemption date.

(b)        Notice of Redemption .  Notice of every redemption of shares of Series I Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation.  Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption.  Notwithstanding the foregoing, if the Series I Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC.  Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series I Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series I

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Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series I Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where the Series I Preferred Stock are to be redeemed; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.

(c)        Partial Redemption .  In case of any redemption of only part of the shares of Series I Preferred Stock at the time outstanding, the shares of Series I Preferred Stock to be redeemed shall be selected either pro  rata from the holders of record of Series I Preferred Stock in proportion to the number of Series I Preferred Stock held by such holders or by lot or in such other manner as the board of directors may determine to be fair and equitable.  Subject to the provisions hereof, the board of directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series I Preferred Stock shall be redeemed from time to time.

(d)        Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the board of directors (the “Depositary Company”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company at any time after the redemption date the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.

Section 7.         Voting Rights .  The holders of Series I Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law.

Section 8.         Conversion .  The holders of Series I Preferred Stock shall not have any rights to convert such Series I Preferred Stock into shares of any other class of capital stock of the Corporation.

Section 9.         Rank .  Notwithstanding anything set forth in the Restated Certificate  of Incorporation of the Corporation or this Certificate of Designations to the contrary, the board of directors, without the vote of the holders of the Series I Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or any class of securities ranking senior to the Series I Preferred Stock as to dividends and upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

Section 10.       Repurchase .  Subject to the limitations imposed herein, the Corporation may purchase and sell Series I Preferred Stock from time to time to such extent, in such manner, and upon such terms as the board of directors may determine; provided, however, that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

Section 11.       Unissued or Reacquired Shares .  Shares of Series I Preferred Stock not issued or which have been issued and converted, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.


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Section 12.       No Sinking Fund .  Shares of Series I Preferred Stock are not subject to the operation of a sinking fund.

IN WITNESS WHEREOF, WELLS FARGO & COMPANY has caused this Certificate of Designations to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Laurel A. Holschuh, its Secretary, this  30 th  day of December, 2008.

WELLS FARGO & COMPANY



By:                   /s/ Barbara S. Brett                              
Barbara S. Brett, Senior Vice President

            and Assistant Treasurer
/s/ Laurel A. Holschuh            

Laurel A. Holschuh, Secretary
 
 
[As filed with the Delaware Secretary of State on December 30, 2008.]

 

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WELLS FARGO & COMPANY
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware

8.00% NON-CUMULATIVE PERPETUAL CLASS A PREFERRED STOCK, SERIES J
(Without Par Value)
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “Board of Directors”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”), the following resolutions were duly adopted by the Committee pursuant to the written consent of the Committee duly adopted on November 20, 2008, in accordance with Section 141(f) of the General Corporation Law:

RESOLVED, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated October 2, 2008, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

Section 1.         Designation .  The shares of such series of Preferred Stock shall be designated 8.00% Non-Cumulative Perpetual Class A Preferred Stock, Series J, with no par value and a liquidation preference of $1,000 per share (hereinafter referred to as the “ Series J Preferred Stock ”).  Each share of Series J Preferred Stock shall be identical in all respects to every other share of Series J Preferred Stock.  Series J Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

Section 2.         Number of Shares .  The number of shares of Series J Preferred Stock shall be 2,300,000.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series J Preferred Stock then outstanding) by the board of directors.  Shares of Series J Preferred Stock that are redeemed, purchased or otherwise acquired by the Corporation shall be cancelled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series.  The Corporation shall have the authority to issue fractional shares of Series J Preferred Stock.

Section 3.         Definitions .  As used herein with respect to Series J Preferred Stock:

“ Business Day ” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in Charlotte, North Carolina or New York, New York are not authorized or obligated by law, regulation or executive order to close.

“ Depositary Company ” shall have the meaning set forth in Section 6(d).

“ Dividend Payment Date ” shall have the meaning set forth in Section 4(a).

“ Dividend Period ” shall have the meaning set forth in Section 4(a).


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“ DTC ” means The Depositary Trust Company, together with its successors and assigns.

“ Junior Stock ” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which Series J Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Parity Stock ” means any other class or series of stock of the Corporation that ranks on a par with Series J Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Series J Preferred Stock ” shall have the meaning set forth in Section 1.

“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series J Preferred Stock.

Section 4.         Dividends. 

(a)        Rate .  Holders of Series J Preferred Stock shall be entitled to receive, when, as and if declared by the board of directors, but only out of funds legally available therefor, non-cumulative cash dividends on the liquidation preference of $1,000 per share of Series J Preferred Stock, and no more, payable quarterly in arrears on each March 15, June 15, September 15 and December 15.  If any date specified pursuant the preceding sentence is not a Business Day, then dividends will be payable on the first Business Day following such date and dividends shall accrue to the actual payment date.  The term “ Dividend Payment Date ” means March 15, June 15, September 15 and December 15, or if any such day in the case of this clause is not a Business Day, the next Business Day.  The term “ Dividend Period ” means each period from and including a Dividend Payment Date (or the date of issuance of the Series J Preferred Stock for the first Dividend Payment Date) to but excluding the next Dividend Payment Date; provided that the first Dividend Period shall be deemed to have commenced on December 15, 2008.  Dividends will accrue at a rate per annum equal to 8.00%.  The amount of dividends payable for any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months.

(b)        Non-Cumulative Dividends .  Dividends on shares of Series J Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series J Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to accrue and be payable and the Corporation shall have no obligation to pay, and the holders of Series J Preferred Stock shall have no right to receive, dividends accrued for the Dividend Period ending immediately prior to such Dividend Payment Date after such Dividend Payment Date, whether or not dividends are declared for any subsequent Dividend Period with respect to Series J Preferred Stock, Parity Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.  Holders of Series J Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full dividends for each Dividend Period on the Series J Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any Dividend Payment or Dividend Payments or failure to make any Dividend Payment or Dividend Payments.

(c)        Priority of Dividends .  So long as any share of Series J Preferred Stock remains outstanding, unless full dividends on all outstanding shares of Series J Preferred Stock for the then-current Dividend Period have been paid in full or declared and set aside for payment, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, (ii) no shares of Junior Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Junior Stock for or into Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock), nor shall any monies be paid to or made available for a

8


sinking fund for the redemption of any such securities by the Corporation, and (iii) no shares of Parity Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Parity Stock for or into Parity Stock or Junior Stock, or the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or for or into Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation, otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series J Preferred Stock and such Parity Stock.  The foregoing shall not restrict the ability of the Corporation, or any affiliate of the Corporation, to engage in any market-making transactions in the Junior Stock or Parity Stock in the ordinary course of business.  When dividends are not paid in full upon the shares of Series J Preferred Stock and any Parity Stock, all dividends declared upon shares of Series J Preferred Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series J Preferred Stock, and accrued dividends, including any accumulations, on Parity Stock, bear to each other.  No interest will be payable in respect of any dividend payment on such Parity Stock that may be in arrears.  If the board of directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of the Series J Preferred Stock prior to such date.  Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the board of directors may be declared and paid on any Junior Stock from time to time out of any funds legally available therefor, and the shares of Series J Preferred Stock shall not be entitled to participate in any such dividend.

Section 5.         Liquidation Rights.

(a)        Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series J Preferred Stock shall be entitled, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series J Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidation preference in an amount equal to $1,000 per share, plus an amount equal to all declared and unpaid dividends for the then-current Dividend Period to the date of liquidation.  The holder of Series J Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

(b)        Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the liquidation preference to all holders of Series J Preferred Stock and the liquidation preferences of any Parity Stock to all holders of such Parity Stock, the amounts paid to the holders of Series J Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences of Series J Preferred Stock and all such Parity Stock.

(c)        Residual Distributions .  If the liquidation preference has been paid in full to all holders of Series J Preferred Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)        Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.


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Section 6.         Redemption. 

(a)        Optional Redemption .  So long as full dividends for all outstanding shares of Series J Preferred Stock for the then-current Dividend Period have been paid or declared and a sum sufficient for the payment thereof set aside, and subject to applicable regulatory approvals, the Corporation, at the option of the board of directors, may redeem in whole or in part the shares of Series J Preferred Stock at the time outstanding, on any Dividend Payment Date on or after December 15, 2017 upon notice given as provided in Subsection (b) below, at the redemption price in effect at the redemption date as provided in this Section 6.  The redemption price for shares of Series J Preferred Stock shall be $1,000 per share plus declared and unpaid dividends for the then-current Dividend Period, without interest.

(b)        Notice of Redemption .  Notice of every redemption of shares of Series J Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation.  Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption.  Notwithstanding the foregoing, if the Series J Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC.  Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series J Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series J Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series J Preferred Stock to be redeemed; (iii) the redemption price; and (iv) the place or places where the Series J Preferred Stock are to be redeemed.

(c)        Partial Redemption .  In case of any redemption of only part of the shares of Series J Preferred Stock at the time outstanding, the shares of Series J Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series J Preferred Stock in proportion to the number of Series J Preferred Stock held by such holders or by lot or in such other manner as the board of directors may determine to be fair and equitable.  Subject to the provisions hereof, the board of directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series J Preferred Stock shall be redeemed from time to time.

(d)        Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the board of directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company at any time after the redemption date the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.

Section 7.         Voting Rights .  The holders of Series J Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by applicable law.

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(a)        Right To Elect Two Directors Upon Nonpayment Events .  If and whenever the dividends on the Series J Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to full dividends for at least six Dividend Periods or their equivalent (whether or not consecutive) (a “ Nonpayment Event ”), the number of directors then constituting the board of directors shall automatically be increased by two and the holders of Series J Preferred Stock, voting together as a single and separate class with the holders of any outstanding shares of Voting Parity Stock, shall be entitled to elect the two additional directors (the “ Preferred Stock Directors ”) by a plurality of the votes cast, provided that it shall be a qualification for election for any such Preferred Stock Director that the election of such director shall not cause the Corporation to violate the corporate governance requirement of the New York Stock Exchange (or any other securities exchange or other trading facility on which securities of the Corporation may then be listed or traded) that listed or traded companies must have a majority of independent directors, and provided further that the board of directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).

In the event that the holders of Series J Preferred Stock and such other holders of Voting Parity Stock shall be entitled to vote for the election of the Preferred Stock Directors following a Nonpayment Event, such directors shall be initially elected following such Nonpayment Event at the Corporation’s next annual meeting of shareholders, and, except as provided below, at each subsequent annual meeting of shareholders of the Corporation.

When dividends have been paid in full on the Series J Preferred Stock and any and all Voting Parity Stock for at least four consecutive Dividend Periods or their equivalent after a Nonpayment Event, then the right of the holders of Series J Preferred Stock to elect the Preferred Stock Directors shall cease (but subject always to revesting of such voting rights in the case of any future Nonpayment Event), and, if and when all rights of holders of Series J Preferred Stock and Voting Parity Stock to elect the Preferred Stock Directors shall have ceased, the terms of office of all the Preferred Stock Directors shall forthwith terminate and the number of directors constituting the board of directors shall automatically be reduced accordingly.

Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series J Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a single and separate class).  In case any vacancy shall occur among the Preferred Stock Directors, a successor shall be elected by a plurality of the votes cast by the holders of Series J Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a single and separate class.  The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the board of directors for a vote.

(b)        Other Voting Rights .  So long as any shares of Series J Preferred Stock are outstanding, in addition to any other vote or consent of shareholders required by law or by the certificate of incorporation, the vote or consent of the holders of at least 66 2/3% of the shares of Series J Preferred Stock at the time outstanding and entitled to vote thereon, voting separately as a single class with all other series of preferred stock ranking equally with the Series J Preferred Stock and entitled to vote thereon, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating any of the following actions, whether or not such approval is required by Delaware law:

(i)               Issuance of Senior Stock .  The issuance of any class or series of preferred stock of the Corporation ranking senior to the Series J Preferred Stock with respect to either the payment of dividends or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;

(ii)              Amendment Affecting Series J Preferred Stock .  Any amendment, alteration or repeal of any provision of the certificate of incorporation or bylaws so as to adversely affect the rights, preferences, privileges or voting powers of the Series J Preferred Stock;

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(iii) Authorization of Senior Stock .  Any amendment or alteration of any provision of the certificate of incorporation or bylaws to authorize, create or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of capital stock of the Corporation ranking senior to the Series J Preferred Stock with respect to either the payment of dividends or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; or

(iv)             Share Exchanges, Reclassifications, Mergers and Consolidations .  Any consummation of a binding share exchange or reclassification involving the Series J Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Series J Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting corporation, are converted into or exchanged for preference securities of the surviving or resulting corporation or a corporation controlling such corporation, and (y) such Series J Preferred Stock shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series J Preferred Stock, taken as a whole;
provided ,  however , that any amendment of the certificate of incorporation to authorize or create or to increase the authorized amount of any Junior Stock or any class or series or any securities convertible into shares of any class or series of Parity Stock or Junior Stock will not be deemed to adversely affect the rights, preferences, privileges or voting powers of the Series J Preferred Stock, and the Series J Preferred Stock shall have no right to vote thereon.

If any amendment, alteration, repeal, share exchange, reclassification, merger or consolidation specified in this Section 7(b) would adversely affect one or more but not all series of voting preferred stock (including the Series J Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a single class (in lieu of all other series of preferred stock).

(c)        Changes for Clarification .  Without the consent of the holders of Series J Preferred Stock, so long as such action does not adversely affect the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the Series J Preferred Stock, the Corporation may amend, alter, supplement or repeal any terms of the Series J Preferred Stock:

(i)               to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designations that may be defective or inconsistent; or

(ii)              to make any provision with respect to matters or questions arising with respect to the Series J Preferred Stock that is not inconsistent with the provisions of this Certificate of Designations.

(d)        Changes after Provision for Redemption .  No vote or consent of the holders of Series J Preferred Stock shall be required pursuant to this Section 7 if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of Series J Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been set aside for such redemption, in each case pursuant to Section 6.

(e)        Procedures for Voting and Consents .  The rules and procedures for calling and conducting any meeting of the holders of Series J Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the board of directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the certificate of incorporation, the bylaws, applicable law and any national securities exchange or other trading facility in which the Series J Preferred Stock is listed or traded at the time.  Whether the vote or consent of the holders of a plurality, majority or other portion of the shares of Series J Preferred Stock and any Voting Parity Stock has been cast or given on any matter on which the holders of shares of Series J Preferred Stock

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are entitled to vote shall be determined by the Corporation by reference to the specified liquidation amounts of the shares voted or covered by the consent.

For purposes of determining the voting rights of the holders of Series J Preferred Stock under this Section 7, each holder will be entitled to one vote for each $1,000 of liquidation preference to which his or her shares are entitled.  Holders of shares of Series J Preferred Stock will be entitled to one vote for each such share of Series J Preferred Stock held by them.

Section 8.         Conversion.    The holders of Series J Preferred Stock shall not have any rights to convert such Series J Preferred Stock into shares of any other class of capital stock of the Corporation.

Section 9.         Rank .  Notwithstanding anything set forth in the certificate of incorporation or this Certificate of Designations to the contrary, the board of directors, without the vote of the holders of the Series J Preferred Stock, may authorize and issue additional shares of Junior Stock or Parity Stock.

Section 10.       Repurchase .  Subject to the limitations imposed herein, the Corporation may purchase and sell Series J Preferred Stock from time to time to such extent, in such manner, and upon such terms as the board of directors may determine; provided ,  however , that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

Section 11.       Unissued or Reacquired Shares .  Shares of Series J Preferred Stock not issued or which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

Section 12.       No Sinking Fund .  Shares of Series J Preferred Stock are not subject to the operation of a sinking fund.

IN WITNESS WHEREOF, WELLS FARGO & COMPANY has caused this Certificate of Designations to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Laurel A. Holschuh, its Secretary, this  30 th  day of December, 2008.
WELLS FARGO & COMPANY



By:                   /s/ Barbara S. Brett                              

            Barbara S. Brett, Senior Vice President

            and Assistant Treasurer
/s/ Laurel A. Holschuh            

Laurel A. Holschuh, Secretary
 
 
[As filed with the Delaware Secretary of State on December 30, 2008.]

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WELLS FARGO & COMPANY
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151(g) of the
General Corporation Law

of the State of Delaware

 
FIXED-TO-FLOATING RATE NON-CUMULATIVE PERPETUAL CLASS A PREFERRED STOCK, SERIES K
(Without Par Value)

 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “Board of Directors”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”), the following resolutions were duly adopted by the Committee pursuant to the written consent of the Committee duly adopted on November 20, 2008, in accordance with Section 141(f) of the General Corporation Law:

RESOLVED, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated October 2, 2008, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

Section 1.         Designation .  The shares of such series of Preferred Stock shall be designated Fixed-to-Floating Rate non Cumulative Perpetual Class A Preferred Stock, Series K, with no par value and a liquidation preference of $1,000 per share (hereinafter referred to as the “ Series K Preferred Stock ”).  Each share of Series K Preferred Stock shall be identical in all respects to every other share of Series K Preferred Stock.  Series K Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

Section 2.         Number of Shares .  The number of shares of Series K Preferred Stock shall be 3,500,000.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series K Preferred Stock then outstanding) by the board of directors.  Shares of Series K Preferred Stock that are redeemed, purchased or otherwise acquired by the Corporation shall be cancelled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series.  The Corporation shall have the authority to issue fractional shares of Series K Preferred Stock.

Section 3.         Definitions .  As used herein with respect to Series K Preferred Stock:

“ Business Day ” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in Charlotte, North Carolina or New York, New York are not authorized or obligated by law, regulation or executive order to close.

“ Depositary Company ” shall have the meaning set forth in Section 6(d).


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“ Dividend Payment Date ” shall have the meaning set forth in Section 4(a).

“ Dividend Period ” shall have the meaning set forth in Section 4(a).

“ DTC ” means The Depositary Trust Company, together with its successors and assigns.

“ Fixed Rate Period ” shall have the meaning set forth in Section 4(a).

“ Floating Rate Period ” shall have the meaning set forth in Section 4(a).

“ Junior Stock ” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which Series K Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ London Banking Day ” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London.

“ Nonpayment Event ” shall have the meaning set forth in Section 7(a).

“ Parity Stock ” means any other class or series of stock of the Corporation that ranks on a par with Series K Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(a).

“ Reuters Screen LIBOR01 page ” means the display page so designated on Reuters (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to London Interbank Offered Rate for U.S. dollar deposits).
“ Series K Preferred Stock ” shall have the meaning set forth in Section 1.

“ Three-Month LIBOR ” means, with respect to any Dividend Period beginning on or after March 15, 2018, the rate for deposits in U.S. dollars for a three-month period that appears on Reuters Screen LIBOR01 page as of 11:00 a.m.  (London time) on the second London Banking Day preceding the first day of that Dividend Period.  If the rate described above does not appear on Reuters Screen LIBOR01 page, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by us, at approximately 11:00 a.m., London time on the second London Banking Day preceding the first day of that Dividend Period.  Wachovia Bank, National Association, as calculation agent for the Preferred Stock, will request the principal London office of each of such banks to provide a quotation of its rate.  If at least two such quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of such quotations.  If fewer than two quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of the rates quoted by three major banks in New York, New York, selected by the calculation agent, at approximately 11:00 a.m., New York City time, on the first day of that Dividend Period for loans in U.S. dollars to leading European banks for a three-month period and in a principal amount of not less than $1,000,000.  However, if the banks selected by the calculation agent to provide quotations are not quoting as described above, Three-Month LIBOR for that Dividend Period will be the same as Three-Month LIBOR as determined for the previous Dividend Period, or in the case of the first Dividend Period, the most recent rate that could have been determined in accordance with the first sentence of this paragraph had the Preferred Stock been outstanding.  The calculation agent’s establishment of Three-Month LIBOR and calculation of

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the amount of dividends for each Dividend Period will be on file at our principal offices, will be made available to any holder of Preferred Stock upon request and will be final and binding in the absence of manifest error.

“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series K Preferred Stock.

Section 4.         Dividends . 

(a)        Rate .  Holders of Series K Preferred Stock shall be entitled to receive, when, as and if declared by the board of directors, but only out of funds legally available therefor, non-cumulative cash dividends on the liquidation preference of $1,000 per share of Series K Preferred Stock, and no more, from the date of issuance to, but excluding March 15, 2018 at a rate of 7.98% per annum (the “ Fixed Rate Period ”) payable semi-annually in arrears on each March 15 and September 15, beginning on September 15, 2008.  Thereafter, declared dividends will be at a floating rate equal to Three-Month LIBOR plus 3.77% per annum, payable quarterly in arrears, on March 15, June 15, September 15 and December 15 of each year, beginning on June 15, 2018 (the “ Floating Rate Period ”).  If any date specified pursuant to the preceding sentence is not a Business Day, then dividends will be payable on the first Business Day following such date and dividends shall accrue to the actual payment date.  The term “ Dividend Payment Date ” means, with respect to the Fixed Rate Period, March 15 and September 15, and with respect to the Floating Rate Period, March 15, June 15, September 15 and December 15, or if any such day in the case of this clause is not a Business Day, the next Business Day.  The term “ Dividend Period ” means each period from and including a Dividend Payment Date (or the date of issuance of the Series K Preferred Stock for the first Dividend Payment Date) to but excluding the next Dividend Payment Date; provided that the first Dividend Period shall be deemed to have commenced on December 15, 2008.  The amount of dividends payable for any Dividend Period during the Fixed Rate Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months.  The amount of dividends payable for any Dividend Period during the Floating Rate Period shall be computed on the basis of actual number of days in a Dividend Period and a 360-day year.

(b)        Non-Cumulative Dividends .  Dividends on shares of Series K Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series K Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to accrue and be payable and the Corporation shall have no obligation to pay, and the holders of Series K Preferred Stock shall have no right to receive, dividends accrued for the Dividend Period ending immediately prior to such Dividend Payment Date after such Dividend Payment Date, whether or not dividends are declared for any subsequent Dividend Period with respect to Series K Preferred Stock, Parity Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.  Holders of Series K Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full dividends for each Dividend Period on the Series K Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any Dividend Payment or Dividend Payments or failure to make any Dividend Payment or Dividend Payments.

(c)        Priority of Dividends .  So long as any share of Series K Preferred Stock remains outstanding, unless full dividends on all outstanding shares of Series K Preferred Stock for the then-current Dividend Period have been paid in full or declared and set aside for payment, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, (ii) no shares of Junior Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Junior Stock for or into Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation, and (iii) no shares of Parity Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than as a result of a reclassification of Parity Stock for or into Parity Stock or Junior Stock, or the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or for or into Junior Stock, and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock), nor shall any monies be paid to

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or made available for a sinking fund for the redemption of any such securities by the Corporation, otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series K Preferred Stock and such Parity Stock.  The foregoing shall not restrict the ability of the Corporation, or any affiliate of the Corporation, to engage in any market-making transactions in the Junior Stock or Parity Stock in the ordinary course of business.  When dividends are not paid in full upon the shares of Series K Preferred Stock and any Parity Stock, all dividends declared upon shares of Series K Preferred Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series K Preferred Stock, and accrued dividends, including any accumulations, on Parity Stock, bear to each other.  No interest will be payable in respect of any dividend payment on such Parity Stock that may be in arrears.  If the board of directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of the Series K Preferred Stock prior to such date.  Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the board of directors may be declared and paid on any Junior Stock from time to time out of any funds legally available therefor, and the shares of Series K Preferred Stock shall not be entitled to participate in any such dividend.

Section 5.         Liquidation Rights . 

(a)        Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series K Preferred Stock shall be entitled, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series K Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidation preference in an amount equal to $1,000 per share, plus an amount equal to all declared and unpaid dividends for the then-current Dividend Period to the date of liquidation.  The holder of Series K Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

(b)        Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the liquidation preference to all holders of Series K Preferred Stock and the liquidation preferences of any Parity Stock to all holders of such Parity Stock, the amounts paid to the holders of Series K Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences of Series K Preferred Stock and all such Parity Stock.

(c)        Residual Distributions .  If the liquidation preference has been paid in full to all holders of Series K Preferred Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)        Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

Section 6.         Redemption . 

(a)        Optional Redemption .  So long as full dividends for all outstanding shares of Series K Preferred Stock and Parity Stock for the then-current Dividend Period have been paid or declared and a sum sufficient for the payment thereof set aside, and subject to applicable regulatory approvals, the Corporation, at the option of the board of directors, may redeem in whole or in part the shares of Series K Preferred Stock at the time outstanding, on any

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Dividend Payment Date on or after March 15, 2018 upon notice given as provided in Subsection (b) below, at the redemption price in effect at the redemption date as provided in this Section 6.  The redemption price for shares of Series K Preferred Stock shall be $1,000 per share plus declared and unpaid dividends for the then-current Dividend Period, without interest.

(b)        Notice of Redemption .  Notice of every redemption of shares of Series K Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation.  Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption.  Notwithstanding the foregoing, if the Series K Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC.  Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series K Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series K Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series K Preferred Stock to be redeemed; (iii) the redemption price; and (iv) the place or places where the Series K Preferred Stock are to be redeemed.

(c)        Partial Redemption .  In case of any redemption of only part of the shares of Series K Preferred Stock at the time outstanding, the shares of Series K Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series K Preferred Stock in proportion to the number of Series K Preferred Stock held by such holders or by lot or in such other manner as the board of directors may determine to be fair and equitable.  Subject to the provisions hereof, the board of directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series K Preferred Stock shall be redeemed from time to time.

(d)        Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other funds, in trust for the   pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the board of directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company at any time after the redemption date the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.

Section 7.         Voting Rights .  The holders of Series K Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by applicable law.

(a)        Right To Elect Two Directors Upon Nonpayment Events .  If and whenever the dividends on the Series K Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to full dividends for at least six Dividend Periods or their equivalent (whether or not consecutive) (a “ Nonpayment Event ”), the number of directors then constituting the board of directors shall automatically be increased by two and the holders of Series K Preferred Stock, voting together as a single and separate class with the holders of any outstanding shares of Voting Parity Stock, shall be entitled to elect the two additional directors (the “ Preferred Stock Directors ”) by a plurality of the votes cast, provided that it shall be a

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qualification for election for any such Preferred Stock Director that the election of such director shall not cause the Corporation to violate the corporate governance requirement of the New York Stock Exchange (or any other securities exchange or other trading facility on which securities of the Corporation may then be listed or traded) that listed or traded companies must have a majority of independent directors, and provided further that the board of directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).

In the event that the holders of Series K Preferred Stock and such other holders of Voting Parity Stock shall be entitled to vote for the election of the Preferred Stock Directors following a Nonpayment Event, such directors shall be initially elected following such Nonpayment Event at the Corporation’s next annual meeting of shareholders, and, except as provided below, at each subsequent annual meeting of shareholders of the Corporation.

When dividends have been paid in full on the Series K Preferred Stock and any and all Voting Parity Stock for at least four consecutive Dividend Periods or their equivalent after a Nonpayment Event, then the right of the holders of Series K Preferred Stock to elect the Preferred Stock Directors shall cease (but subject always to revesting of such voting rights in the case of any future Nonpayment Event), and, if and when all rights of holders of Series K Preferred Stock and Voting Parity Stock to elect the Preferred Stock Directors shall have ceased, the terms of office of all the Preferred Stock Directors shall forthwith terminate and the number of directors constituting the board of directors shall automatically be reduced accordingly.

Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series K Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a single and separate class).  In case any vacancy shall occur among the Preferred Stock Directors, a successor shall be elected by a plurality of the votes cast by the holders of Series K Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a single and separate class.  The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the board of directors for a vote.

(b)        Other Voting Rights .  So long as any shares of Series K Preferred Stock are outstanding, in addition to any other vote or consent of shareholders required by law or by the certificate of incorporation, the vote or consent of the holders of at least 66 2/3% of the shares of Series K Preferred Stock at the time outstanding and entitled to vote thereon, voting separately as a single class with all other series of preferred stock ranking equally with the Series K Preferred Stock and entitled to vote thereon, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating any of the following actions, whether or not such approval is required by Delaware law:

(i)         Issuance of Senior Stock .  The issuance of any class or series of preferred stock of the Corporation ranking senior to the Series K Preferred Stock with respect to either the payment of dividends or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;

(ii)        Amendment Affecting Series K Preferred Stock .  Any amendment, alteration or repeal of any provision of the certificate of incorporation or bylaws so as to adversely affect the rights, preferences, privileges or voting powers of the Series K Preferred Stock;

(iii)       Authorization of Senior Stock .  Any amendment or alteration of any provision of the certificate of incorporation or bylaws to authorize, create or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of capital stock of the Corporation ranking senior to the Series K Preferred Stock with respect to either the payment of dividends or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; or


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(iv)       Share Exchanges, Reclassifications, Mergers and Consolidations .  Any consummation of a binding share exchange or reclassification involving the Series K Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Series K Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting corporation, are converted into or exchanged for preference securities of the surviving or resulting corporation or a corporation controlling such corporation, and (y) such Series K Preferred Stock shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series K Preferred Stock, taken as a whole;
provided ,  however , that any amendment of the certificate of incorporation to authorize or create or to increase the authorized amount of any Junior Stock or any class or series or any securities convertible into shares of any class or series of Parity Stock or Junior Stock will not be deemed to adversely affect the rights, preferences, privileges or voting powers of the Series K Preferred Stock, and the Series K Preferred Stock shall have no right to vote thereon.

If any amendment, alteration, repeal, share exchange, reclassification, merger or consolidation specified in this Section 7(b) would adversely affect one or more but not all series of voting preferred stock (including the Series K Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a single class (in lieu of all other series of preferred stock).

(c)        Changes for Clarification .  Without the consent of the holders of Series K Preferred Stock, so long as such action does not adversely affect the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the Series K Preferred Stock, the Corporation may amend, alter, supplement or repeal any terms of the Series K Preferred Stock:

(i)         to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designations that may be defective or inconsistent; or

(ii)        to make any provision with respect to matters or questions arising with respect to the Series K Preferred Stock that is not inconsistent with the provisions of this Certificate of Designations.

(d)        Changes after Provision for Redemption .  No vote or consent of the holders of Series K Preferred Stock shall be required pursuant to this Section 7 if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of Series K Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been set aside for such redemption, in each case pursuant to Section 6.

(e)        Procedures for Voting and Consents .  The rules and procedures for calling and conducting any meeting of the holders of Series K Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the board of directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the certificate of incorporation, the bylaws, applicable law and any national securities exchange or other trading facility in which the Series K Preferred Stock is listed or traded at the time.  Whether the vote or consent of the holders of a plurality, majority or other portion of the shares of Series K Preferred Stock and any Voting Parity Stock has been cast or given on any matter on which the holders of shares of Series K Preferred Stock are entitled to vote shall be determined by the Corporation by reference to the specified liquidation amounts of the shares voted or covered by the consent.

For purposes of determining the voting rights of the holders of Series K Preferred Stock under this Section 7, each holder will be entitled to one vote for each $1,000 of liquidation preference to which his or her shares are entitled.  Holders of shares of Series K Preferred Stock will be entitled to one vote for each such share of Series K Preferred Stock held by them.


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Section 8.         Conversion .  The holders of Series K Preferred Stock shall not have any rights to convert such Series K Preferred Stock into shares of any other class of capital stock of the Corporation.

Section 9.         Rank .  Notwithstanding anything set forth in the certificate of incorporation or this Certificate of Designations to the contrary, the board of directors, without the vote of the holders of the Series K Preferred Stock, may authorize and issue additional shares of Junior Stock or Parity Stock.

Section 10.       Repurchase .  Subject to the limitations imposed herein, the Corporation may purchase and sell Series K Preferred Stock from time to time to such extent, in such manner, and upon such terms as the board of directors may determine; provided ,  however , that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

Section 11.       Unissued or Reacquired Shares .  Shares of Series K Preferred Stock not issued or which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

Section 12.       No Sinking Fund .  Shares of Series K Preferred Stock are not subject to the operation of a sinking fund.

IN WITNESS WHEREOF, WELLS FARGO & COMPANY has caused this Certificate of Designations to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Laurel A. Holschuh, its Secretary, this  30 th  day of December, 2008.

WELLS FARGO & COMPANY



By:                   /s/ Barbara S. Brett                              

            Barbara S. Brett, Senior Vice President

            and Assistant Treasurer
/s/ Laurel A. Holschuh            

Laurel A. Holschuh, Secretary
 
 
[As filed with the Delaware Secretary of State on December 30, 2008.]

 

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WELLS FARGO & COMPANY
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware

7.50% NON-CUMULATIVE PERPETUAL CONVERTIBLE
CLASS A PREFERRED STOCK, SERIES L
(Without Par Value)

 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “Board of Directors”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”), the following resolutions were duly adopted by the Committee pursuant to the written consent of the Committee duly adopted on November 20, 2008, in accordance with Section 141(f) of the General Corporation Law:

RESOLVED, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated October 2, 2008, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

Section 1.     Designation .  The shares of such series of Preferred Stock shall be designated 7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L, with no par value and a liquidation preference of $1,000 per share (hereinafter referred to as the “ Series L Preferred Stock ”). Each share of Series L Preferred Stock shall be identical in all respects to every other share of Series L Preferred Stock. Series L Preferred Stock will rank equally with Parity Stock, if any, and will rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary dissolution, winding-up and liquidation of the Corporation.

Section 2.     Number of Shares .  The authorized number of shares of Series L Preferred Stock shall be 4,025,000. Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series L Preferred Stock then outstanding) by the board of directors. Shares of Series L Preferred Stock that are converted in accordance with the terms hereof, purchased or otherwise acquired by the Corporation shall be cancelled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series. The Corporation shall have the authority to issue fractional shares of Series L Preferred Stock.

Section 3.     Definitions .  As used herein with respect to Series L Preferred Stock:

“ Applicable Conversion Price ” at any given time means, for each share of Series L Preferred Stock, the price equal to $1,000 divided by the Applicable Conversion Rate in effect at such time.

“ Applicable Conversion Rate ” means the Conversion Rate in effect at any given time.

“ Base Price ” has the meaning set forth in Section 13(d)(i).


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“ Business Day ” means each Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in Charlotte, North Carolina or New York, New York are not authorized or obligated by law, regulation or executive order to close.

“ Capital Stock ” of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any preferred stock, excluding any debt securities convertible into such equity.

“ Closing Price ” of the Common Stock on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares of the Common Stock on the New York Stock Exchange on that date. If the Common Stock is not traded on the New York Stock Exchange on any date of determination, the Closing Price of the Common Stock on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange or securities exchange in the European Economic Area on which the Common Stock is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange or securities exchange in the European Economic Area on which the Common Stock is so listed or quoted, or if the Common Stock is not so listed or quoted on a U.S. national or regional securities exchange or securities exchange in the European Economic Area, the last quoted bid price for the Common Stock in the over-the-counter market as reported by Pink Sheets LLC or a similar organization, or, if that bid price is not available, the market price of the Common Stock on that date as determined by a nationally recognized independent investment banking firm (unaffiliated with the Corporation) retained by the Corporation for this purpose. The “Closing Price” for any other share of Capital Stock shall be determined on a comparable basis, mutatis mutandis . 

For purposes of this Certificate of Designations, all references herein to the “Closing Price” and “last reported sale price” of the Common Stock on the New York Stock Exchange shall be such closing sale price and last reported sale price as reflected on the website of the New York Stock Exchange (http://www.nyse.com) and as reported by Bloomberg Professional Service; provided that in the event that there is a discrepancy between the closing sale price or last reported sale price as reflected on the website of the New York Stock Exchange and as reported by Bloomberg Professional Service, the closing sale price and last reported sale price on the website of the New York Stock Exchange will govern.

For purposes of calculating the Closing Price, if a Reorganization Event has occurred and (1) the Exchange Property consists only of shares of common securities, the Closing Price shall be based on the Closing Price of such common securities; (2) the Exchange Property consists only of cash, the Closing Price shall be the cash amount paid per share; and (3) the Exchange Property consists of securities, cash and/or other property, the Closing Price shall be based on the sum, as applicable, of (x) the Closing Price of such common securities, (y) the cash amount paid per share of Common Stock and (z) the value (as determined by the board of directors from time-to-time) of any other securities or property paid to holders of Common Stock in connection with the Reorganization Event.

“ Common Stock ” means the common stock, $1-2/3 par value per share, of the Corporation.

“ Conversion Agent ” means American Stock Transfer & Trust Company acting in its capacity as conversion agent for the Series L Preferred Stock, and its successors and assigns or any other conversion agent appointed by the Corporation.

“ Conversion Date ” has the meaning set forth in Section 13(a)(iv)(B).

“ Conversion Rate ” means for each share of Series L Preferred Stock, 6.3814 shares of Common Stock, plus cash in lieu of fractional shares, subject to adjustment as set forth herein.

“ Current Market Price ” per share of Common Stock on any date of determination means the average of the VWAP per share of Common Stock on each of the 10 consecutive VWAP Trading Days ending on

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the earlier of the day in question and the day before the Ex-Date or other specified date with respect to the issuance or distribution requiring such computation, appropriately adjusted to take into account the occurrence during such period of any event described in Section 14(a)(i) through (v).

“ Depositary ” means DTC or its nominee or any successor depositary appointed by the Corporation.

“ Dividend Payment Date ” has the meaning set forth in Section 4(a).

“ Dividend Period ” has the meaning set forth in Section 4(a).

“ Dividend Threshold Amount ” has the meaning set forth in Section 14(a)(iv).

“ DTC ” means The Depository Trust Company, together with its successors and assigns.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Exchange Property ” has the meaning set forth in Section 15(a).

“ Ex-Date ” when used with respect to any issuance or distribution, means the first date on which such shares of Common Stock or other securities trade without the right to receive an issuance or distribution with respect thereto.

“ Expiration Time ” has the meaning set forth in Section 12(a)(v).

“ Expiration Date ” has the meaning set forth in Section 14(a)(v).

“ Fiscal Quarter ” means, with respect to the Corporation, the fiscal quarter publicly disclosed by the Corporation.

“ Fundamental Change ” has the meaning set forth in Section 13(d)(i).

“ Holder ” means the Person in whose name the shares of Series L Preferred Stock are registered, which may be treated by the Corporation, Transfer Agent, Registrar, paying agent and Conversion Agent as the absolute owner of the shares of Series L Preferred Stock for the purpose of making payment and settling conversions and for all other purposes.

“ Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation hereafter authorized over which Series L Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets in the event of any voluntary or involuntary dissolution, liquidation or winding-up of the affairs of the Corporation.

“ Make-Whole Acquisition ” means the occurrence, prior to any Conversion Date, of one of the following:

(a)        “ person ” or “ group ” within the meaning of Section 13(d) of the Exchange Act files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of common equity of the Corporation representing more than 50% of the voting power of the Common Stock; or

(b)        consummation of any consolidation or merger of the Corporation or similar transaction or any sale, lease or other transfer in one transaction or a series of related transactions of all or substantially all of the consolidated assets of the Corporation and its subsidiaries, taken as a whole, to any Person other than one of the Corporation’s subsidiaries, in each case, pursuant to which the Common Stock will be

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converted into cash, securities, or other property, other than pursuant to a transaction in which the Persons that “beneficially owned” (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, Voting Shares immediately prior to such transaction beneficially own, directly or indirectly, Voting Shares representing a majority of the total voting power of all outstanding classes of Voting Shares of the continuing or surviving Person immediately after the transaction; provided ,  however that a Make-Whole Acquisition will not be deemed to have occurred if at least 90% of the consideration received by holders of the Common Stock in the transaction or transactions (as determined by the board of directors) consists of shares of common securities of a Person or American Depositary Receipts in respect of such common securities that are traded on a U.S. national securities exchange or a securities exchange in the European Economic Area or that will be traded on a U.S. national securities exchange or a securities exchange in the European Economic Area when issued or exchanged in connection with a Make-Whole Acquisition.

“ Make-Whole Acquisition Conversion ” has the meaning set forth in Section 13(c)(i).

“ Make-Whole Acquisition Conversion Period ” has the meaning set forth in Section 13(c)(i).

“ Make-Whole Acquisition Effective Date ” has the meaning set forth in Section 13(c)(i).

“ Make-Whole Acquisition Stock Price ” means the price paid per share of Common Stock in the event of a Make-Whole Acquisition. If the holders of shares of Common Stock receive only cash in the Make-Whole Acquisition in a single per-share amount, other than with respect to appraisal and similar rights, the Make-Whole Acquisition Stock Price shall be the cash amount paid per share of Common Stock. For purposes of the preceding sentence as applied to a Make-Whole Acquisition of the type set forth in clause (a) of the definition Make-Whole Acquisition, a single price per share of Common Stock shall be deemed to have been paid only if the transaction or transactions that caused the Make-Whole Acquisition to occur was a tender offer for more than 50% of the then-outstanding Common Stock. Otherwise, the Make-Whole Acquisition Stock Price shall be the average of the Closing Price per share of Common Stock on the ten Trading Days up to, but not including, the Make-Whole Acquisition Effective Date.

“ Make-Whole Shares ” has the meaning set forth in Section 13(c)(i).

“ Mandatory Conversion Date ” has the meaning set forth in Section 13(b)(iii).

“ Market Disruption Event ” means any of the following events that has occurred:

(a)        change or quotation system on which the VWAP is determined pursuant to the definition of the VWAP Trading Day (a “ Relevant Exchange ”) during the one-hour period prior to the close of trading for the regular trading session on the Relevant Exchange (or for purposes of determining the VWAP per share of Common Stock any period or periods aggregating one half-hour or longer during the regular trading session on the relevant day) and whether by reason of movements in price exceeding limits permitted by the Relevant Exchange, or otherwise relating to Common Stock or in futures or options contracts relating to the Common Stock on the Relevant Exchange;

(b)        any event (other than an event described in clause (c)) that disrupts or impairs (as determined by the Corporation in its reasonable discretion) the ability of market participants during the one-hour period prior to the close of trading for the regular trading session on the Relevant Exchange (or for purposes of determining the VWAP per share of Common Stock any period or periods aggregating one half-hour or longer during the regular trading session on the relevant day) in general to effect transactions in, or obtain market values for, the Common Stock on the Relevant Exchange or to effect transactions in, or obtain market values for, futures or options contracts relating to the Common Stock on the Relevant Exchange; or

(c)        the failure to open of the Relevant Exchange on which futures or options contracts relating to the Common Stock, are traded or the closure of such Relevant Exchange prior to its respective scheduled closing

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time for the regular trading session on such day (without regard to after hours or any other trading outside of the regular trading session hours) unless such earlier closing time is announced by such Relevant Exchange at least one hour prior to the earlier of the actual closing time for the regular trading session on such day and the submission deadline for orders to be entered into such Relevant Exchange for execution at the actual closing time on such day.

“ Nonpayment Event ” has the meaning set forth in Section 7(a).

“ Notice of Mandatory Conversion ” has the meaning set forth in Section 13(b)(iii).

“ Parity Stock ” means any other class or series of stock of the Corporation that ranks on a par with Series L Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary dissolution, winding-up and liquidation of the Corporation.

“ Person ” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

“ Preferred Stock Directors ” has the meaning set forth in Section 7(a).

“ Purchased Shares ” has the meaning set forth in Section 12(a)(v).

“ Record Date ” has the meaning set forth in Section 12(d), except for purposes of Section 14.

“ Reference Price ” means the applicable Make-Whole Acquisition Stock Price.

“ Registrar ” means American Stock Transfer & Trust Company acting in its capacity as registrar for the Series L Preferred Stock, and its successors and assigns or any other registrar appointed by the Corporation.

“ Relevant Exchange ” has the meaning set forth above in the definition of Market Disruption Event.

“ Reorganization Event ” has the meaning set forth in Section 15(a).

“ Series L Preferred Stock ” has the meaning set forth in Section 1.

“ Trading Day ” means a day on which the shares of Common Stock:

(a)        are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business; and

(b)        have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

“ Transfer Agent ” shall mean American Stock Transfer & Trust Company acting in its capacity as transfer agent for the Series L Preferred Stock, and its successors and assigns or any other transfer agent appointed by the Corporation.

“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series L Preferred Stock.

“ Voting Shares ” of a Person means shares of all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of the board of directors of such Person.


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“ VWAP ” per share of the Common Stock on any VWAP Trading Day means the per share volume-weighted average price as displayed under the heading Bloomberg VWAP on Bloomberg page WFC<equity>AQR (or its equivalent successor if such page is not available) in respect of the period from the open of trading on the relevant VWAP Trading Day until the close of trading on the relevant VWAP Trading Day (or if such volume-weighted average price is unavailable, the market price of one share of Common Stock on such VWAP Trading Days determined, using a volume-weighted average method, by a nationally recognized investment banking firm (unaffiliated with the Corporation) retained for this purpose by the Corporation). The VWAP for any other share of Capital Stock shall be determined on a comparable basis, mutatis mutandis.

“ VWAP Trading Day ” means, for purposes of determining a VWAP per share of Common Stock, a Business Day on which the Relevant Exchange (as defined in the definition of Market Disruption Event) is scheduled to be open for business and on which there has not occurred or does not exist a Market Disruption Event.

Section 4.     Dividends . 

(a)        Rate .  Holders of Series L Preferred Stock shall be entitled to receive, if, as and when declared by the board of directors, but only out of funds legally available therefor, non-cumulative cash dividends on the
liquidation preference of $1,000 per share of Series L Preferred Stock, and no more, from the date of issuance at a rate per annum equal to 7.50%, payable quarterly in arrears on each March 15, June 15, September 15 and December 15, commencing June 15, 2008. The term “Dividend Payment Date” means March 15, June 15, September 15 and December 15. If any date specified pursuant the preceding sentence is not a Business Day, then dividends will be payable on the first Business Day following such date and dividends shall be payable to the actual payment date and no interest or other payment shall be paid with respect of such delay. The term “Dividend Period” means each period from and including a Dividend Payment Date (or the date of issuance of the Series L Preferred Stock for the first Dividend Payment Date) to but excluding the next Dividend Payment Date; provided that the first Dividend Period shall be deemed to have commenced on December 15, 2008. The amount of dividends payable for any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months.

(b)        Non-Cumulative Dividends .  Dividends on shares of Series L Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series L Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall cease to be payable and the Corporation shall have no obligation to pay, and the holders of Series L Preferred Stock shall have no right to receive, dividends payable in respect of the Dividend Period ending immediately prior to such Dividend Payment Date after such Dividend Payment Date, whether or not dividends are declared for any subsequent Dividend Period with respect to the Series L Preferred Stock, any Parity Stock, any Junior Stock or any other class or series of authorized preferred stock of the Corporation. Holders of Series L Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full dividends for each Dividend Period on the Series L Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in respect of any Dividend Payment or Dividend Payments or failure to make any Dividend Payment or Dividend Payments.

(c)        Priority of Dividends .  So long as any share of Series L Preferred Stock remains outstanding and, as to any Junior Stock or Parity Stock then outstanding, unless full dividends on all outstanding shares of Series L Preferred Stock for the Dividend Period ending on or immediately prior to the dividend payment date or other payment date for such Junior Stock or Parity Stock have been paid in full or declared and set aside for payment, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on such Junior Stock (other than a dividend payable solely in Junior Stock) or on such Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, (ii) no shares of Junior Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than (1) as a result of a reclassification of Junior Stock for or into Junior Stock, (2) the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, (3) through the use of the

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proceeds of a substantially contemporaneous sale of other shares of Junior Stock or (4) in connection with the satisfaction of the Corporation’s obligations pursuant to any contract entered into in the ordinary course prior to the beginning of such Dividend Period), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation, and (iii) no shares of Parity Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than (1) as a result of a reclassification of Parity Stock for or into Parity Stock or Junior Stock, (2) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or for or into Junior Stock, (3) through the use of the proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock or (4) in connection with the satisfaction of the Corporation’s obligations pursuant to any contract entered into in the ordinary course prior to the beginning of such Dividend Period), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation (other than through the use of the proceeds of a substantially contemporaneous sale described in clause (ii)(3) or (iii)(3) above), otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series L Preferred Stock and such Parity Stock.

When dividends are not paid in full upon the Series L Preferred Stock and any Parity Stock, dividends upon shares of the Series L Preferred Stock and such Parity Stock will be declared on a proportional basis, based upon the ratio of the amount of dividends declared on the Series L Preferred Stock and such Parity Stock to the amount that, if declared, would be full dividends (including accrued and unpaid dividends as to any Parity Stock that bears dividends on a cumulative basis) on the Series L Preferred Stock and such Parity Stock through the next succeeding applicable dividend payment date. If the board of directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of the Series L Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the board of directors may be declared and paid on any Junior Stock from time to time out of any funds legally available therefor, and the shares of Series L Preferred Stock shall not be entitled to participate in any such dividend.

Section 5.     Liquidation Rights . 

(a)        Liquidation .  In the event of any voluntary or involuntary dissolution, winding-up and liquidation of the Corporation, holders of Series L Preferred Stock shall be entitled, before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of any Junior Stock and subject to the rights of the holders of any Parity Stock or class or series of securities ranking senior to or on parity with the Series L Preferred Stock upon liquidation and the rights of the Corporation’s creditors, to receive in full a liquidation preference in an amount equal to $1,000 per share, plus an amount equal to all declared and unpaid dividends for the then-current Dividend Period to the date of liquidation. The holder of Series L Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary dissolution, winding-up and liquidation of the Corporation other than what is expressly provided for in this Section 5.

(b)        Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the liquidation preference to all holders of Series L Preferred Stock and the liquidation preferences of any Parity Stock to all holders of such Parity Stock, the amounts paid to the holders of Series L Preferred Stock and to the holders of all Parity Stock shall be   pro rata   in accordance with the respective aggregate liquidation preferences of Series L Preferred Stock and all such Parity Stock.

(c)        Residual Distributions .  If the applicable liquidation preference has been paid in full to all holders of Series L Preferred Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)        Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding-up of the affairs of the Corporation, nor shall the merger, consolidation or any

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other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding-up of the affairs of the Corporation.

Section 6.     Redemption .  The shares of Series L Preferred Stock shall not be redeemable.

Section 7.     Voting Rights .  The holders of Series L Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by applicable law.

(a)        Right To Elect Two Directors Upon Nonpayment Events .  If after the issuance of the Series L Preferred Stock the Corporation fails to pay, or declare and set aside for payment, full dividends on the Series L Preferred Stock or any class or series of Voting Parity Stock for six Dividend Periods or their equivalent (whether or not consecutive) (a “ Nonpayment Event ”), the number of directors then constituting the board of directors shall automatically be increased by two and the holders of Series L Preferred Stock, voting together as a single and separate class with the holders of all outstanding shares of Voting Parity Stock, shall be entitled to elect the two additional directors (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that it shall be a qualification for election for any such Preferred Stock Director that the election of such director shall not cause the Corporation to violate the corporate governance requirement of the New York Stock Exchange (or any other securities exchange or other trading facility on which securities of the Corporation may then be listed or traded) that listed or traded companies must have a majority of independent directors; and provided further that the board of directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).

In the event that the holders of Series L Preferred Stock and such other holders of Voting Parity Stock shall be entitled to vote for the election of the Preferred Stock Directors following a Nonpayment Event, such directors shall be initially elected following such Nonpayment Event at the Corporation’s next annual meeting of shareholders, and, except as provided below, at each subsequent annual meeting of shareholders of the Corporation.

When dividends have been paid in full on the Series L Preferred Stock and any and all Voting Parity Stock for at least four consecutive Dividend Periods or their equivalent after a Nonpayment Event, then the right of then holders of Series L Preferred Stock to elect the Preferred Stock Directors shall cease (but subject always to revesting of such rights in the case of any future Nonpayment Event), and, if and when all rights of holders of Series L Preferred Stock and Voting Parity Stock to elect the Preferred Stock Directors shall have ceased, the terms of office of all the Preferred Stock Directors shall forthwith terminate and the number of directors constituting the board of directors shall automatically be reduced accordingly.

Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series L Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a single and separate class). In case any vacancy shall occur among the Preferred Stock Directors, a successor shall be elected by a plurality of the votes cast by the holders of Series L Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a single and separate class. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the board of directors for a vote.

(b)        Other Voting Rights .  So long as any shares of Series L Preferred Stock are outstanding, the vote or consent of the holders of at least 66   2/3 % of the shares of Series L Preferred Stock at the time outstanding and entitled to vote thereon, voting separately as a single class with all other classes or series of preferred stock ranking equally with the Series L Preferred Stock and entitled to vote thereon, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating any of the following actions, whether or not such approval is required by Delaware law:


29


(i)         Amendment Affecting Series L Preferred Stock .  Any amendment, alteration or repeal of any provision of the certificate of incorporation or bylaws so as to adversely affect the rights, preferences, privileges or voting powers of the Series L Preferred Stock.

(ii)        Authorization or Issuance of Senior Stock .  Any amendment or alteration of any provision of the certificate of incorporation or bylaws to authorize, create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into shares of, any class or series of Capital Stock of the Corporation ranking senior to the Series L Preferred Stock with respect to either the payment of dividends or the distribution of assets in the event of any voluntary or involuntary dissolution, winding-up and liquidation of the affairs of the Corporation; or

(iii)       Share Exchanges, Reclassifications, Mergers and Consolidations .  Any consummation of a binding share exchange or reclassification involving the Series L Preferred Stock, or of a merger or consolidation of the Corporation with another Person, unless in each case (x) the shares of Series L Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting Person, are converted into or exchanged for preference securities of the surviving or resulting Person or a Person controlling such Person, and (y) such Series L Preferred Stock shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series L Preferred Stock, taken as a whole; provided ,  however , that any authorization, creation or increase in the authorized amount of or issuance of Series L Preferred Stock or any class or series of Parity Stock or Junior Stock or any securities convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Series L Preferred Stock, and holders of the Series L Preferred Stock shall have no right to vote thereon.

If any amendment, alteration, repeal, share exchange, reclassification, merger or consolidation specified in this Section 7(b) would adversely affect one or more but not all series of voting preferred stock (including the Series L Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a single class (in lieu of all other series of preferred stock).

(c)        Changes for Clarification .  Without the consent of the holders of Series L Preferred Stock, so long as such action does not adversely affect the rights, preferences, privileges and voting powers, and
limitations and restrictions thereof, of the Series L Preferred Stock, the Corporation may amend, alter, supplement or repeal any terms of the Series L Preferred Stock:

(i)         to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designations that may be defective or inconsistent; or

(ii)        to make any provision with respect to matters or questions arising with respect to the Series L Preferred Stock that is not inconsistent with the provisions of this Certificate of Designations.

(d)        Procedures for Voting and Consents .  The rules and procedures for calling and conducting any meeting of the holders of Series L Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the board of directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the certificate of incorporation, the bylaws, applicable law and any national securities exchange or other trading facility in which the Series L Preferred Stock is listed or traded at the time. Whether the vote or consent of the holders of a plurality, majority or other portion of the shares of Series L Preferred Stock and any Voting Parity Stock has been cast or given on any matter on which the holders of shares of Series L Preferred Stock are entitled to vote shall be determined by the Corporation by reference to the specified liquidation amounts of the shares voted or covered by the consent.

30



For purposes of determining the voting rights of the holders of Series L Preferred Stock under this Section 7, each holder will be entitled to one vote for each $1,000 of liquidation preference to which his or her shares are entitled. Holders of shares of Series L Preferred Stock will be entitled to one vote for each such share of Series L Preferred Stock held by them.

Section 8.     Rank .  Notwithstanding anything set forth in the certificate of incorporation or this Certificate of Designations to the contrary, the board of directors, without the vote of the holders of the Series L Preferred Stock, may authorize and issue additional shares of Junior Stock or Parity Stock.

Section 9.     Repurchase .  Subject to the limitations imposed herein, the Corporation may purchase and sell Series L Preferred Stock from time to time to such extent, in such manner, and upon such terms as the board of directors may determine; provided ,  however , that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.

Section 10.   Unissued or Reacquired Shares .  Shares of Series L Preferred Stock not issued or which have been issued and converted in accordance with the terms hereof or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

Ssection 11.  No Sinking Fund .  Shares of Series L Preferred Stock are not subject to the operation of a sinking fund.

Section 12.   Right to Convert .  Each Holder shall have the right, at such Holder’s option, at any time, to convert all or any portion of such Holder’s Series L Preferred Stock into shares of Common Stock at the Applicable Conversion Rate (subject to the conversion procedures set forth in Section 13 herein) plus cash in lieu of fractional shares.

Section 13.   Conversion . 

(a)        Conversion Procedures . 

(i)         Effective immediately prior to the close of business on the Mandatory Conversion Date or any applicable Conversion Date, dividends shall no longer be declared on any converted shares of Series L Preferred Stock and such shares of Series L Preferred Stock shall cease to be outstanding, in each case, subject to the right of Holders to receive any declared and unpaid dividends on such shares and any other payments to which they are otherwise entitled pursuant to Section 12, Section 13(b), Section 13(c), Section 13(d), Section 15 or Section 16, as applicable.

(ii)        Prior to the close of business on the Mandatory Conversion Date or any applicable Conversion Date, shares of Common Stock issuable upon conversion of, or other securities issuable upon conversion of, any shares of Series L Preferred Stock shall not be deemed outstanding for any purpose, and Holders shall have no rights with respect to the Common Stock or other securities issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock and rights to receive any dividends or other distributions on the Common Stock and/or other securities issuable upon conversion), by virtue of holding shares of Series L Preferred Stock.

(iii)       The Person or Persons entitled to receive the Common Stock and/or other securities issuable upon conversion of Series L Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock and/or such other securities as of the close of business on the Mandatory Conversion Date or any applicable Conversion Date except to the extent that all or a portion of such Common Stock is subject to the limitations set forth in Section 18. In the event that a Holder shall not by written notice designate

31


the name in which shares of Common Stock and/or cash, other securities or other property (including payments of cash in lieu of fractional shares) to be issued or paid upon conversion of shares of Series L Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such shares, and make such payment, in the name of the Holder and in the manner shown on the records of the Corporation through book-entry transfer through the Depositary.

(iv)       Conversion into shares of Common Stock will occur on the Mandatory Conversion Date or any applicable Conversion Date as follows:

(A)       On the Mandatory Conversion Date or applicable Conversion Date, certificates or evidence of shares in book-entry form representing shares of Common Stock shall be issued and delivered to Holders or their designee upon presentation and surrender of the certificate evidencing the Series L Preferred Stock to the Conversion Agent if shares of the Series L Preferred Stock are held in certificated form, and, if required, the furnishing of appropriate endorsements and transfer documents and the payment of all transfer and similar taxes. If a Holder’s interest is a beneficial interest in a global certificate representing Series L Preferred Stock, a book-entry transfer through the Depositary will be made by the Conversion Agent upon compliance with the Depositary’s procedures for converting a beneficial interest in a global security.

(B)       On the date of any conversion at the option of Holders pursuant to Section 12, Section 13(c) or Section 13(d), if a Holder’s interest is in certificated form, a Holder must do each of the following in order to convert:

(1)        complete and manually sign the conversion notice provided by the Conversion Agent, or a facsimile of the conversion notice, and deliver this irrevocable notice to the Conversion Agent;

(2)        surrender the shares of Series L Preferred Stock to the Conversion Agent;

(3)        if required, furnish appropriate endorsements and transfer documents;

(4)        if required, pay all transfer or similar taxes; and

(5)        if required, pay funds equal to any declared and unpaid dividend payable on the next Dividend Payment Date.

If a Holder’s interest is a beneficial interest in a global certificate representing Series L Preferred Stock, in order to convert a Holder must comply with clauses (3) through (5) listed above and comply with the Depositary’s procedures for converting a beneficial interest in a global security.

The date on which a Holder complies with the procedures in this clause (v) is the “Conversion Date.”

(C)       Conversion Agent shall, on a Holder’s behalf, convert the Series L Preferred Stock into shares of Common Stock and/or cash, other securities or other property (involving payments of cash in lieu of fractional shares), in accordance with the terms of the notice delivered by such Holder described in clause (B) above. If a Conversion Date on which a Holder elects to convert Series L Preferred Stock is prior to the Record Date relating to any declared dividend for the Dividend Period, such Holder will not have the right to receive any declared dividends for that Dividend Period. If a Conversion Date on which a Holder elects to convert Series L Preferred Stock or the Mandatory Conversion Date is after the Record Date for any declared dividend and prior to the Dividend Payment Date, such Holder shall receive that dividend on the relevant Dividend Payment Date if such Holder was the Holder of record on the Record Date for that dividend. Notwithstanding the preceding

32


sentence, if the Conversion Date is after the Record Date and prior to the Dividend Payment Date, whether or not such Holder was the Holder of record on the Record Date, the Holder must pay to the Conversion Agent upon conversion of the shares of Series L Preferred Stock an amount in cash equal to the full dividend actually paid on the Dividend Payment Date for the then-current Dividend Period on the shares of Series L Preferred Stock being converted, unless the Holder’s shares of Series L Preferred Stock are being converted pursuant to Section 13(b), Section 13(c) or Section 13(d).

(b)        Mandatory Conversion at the Corporation’s Option . 

(i)         On or after March 15, 2013, the Corporation may, at its option, at any time or from time to time, cause some or all of the Series L Preferred Stock to be converted into shares of Common Stock at the Applicable Conversion Rate if, for 20 Trading Days during any period of 30 consecutive Trading Days, including the last Trading Day of such period, the Closing Price of the Common Stock exceeds 130% of the Applicable Conversion Price of the Series L Preferred Stock. The Corporation will provide Notice of Mandatory Conversion as set forth in Section 13(b)(iii) within three Trading Days after the end of the 30 consecutive Trading Day period.

(ii)        If the Corporation elects to cause less than all of the Series L Preferred Stock to be converted under clause (i) above, the Conversion Agent will select the Series L Preferred Stock to be converted by lot, or on a pro rata basis or by another method the Conversion Agent considers fair and appropriate, including any method required by the Depositary (so long as such method is not prohibited by the rules of any stock exchange or quotation association on which the Series L Preferred Stock is then traded or quoted). If the Conversion Agent selects a portion of a Holder’s Series L Preferred Stock for partial conversion at the Corporation’s option and such Holder converts a portion of its shares of Series L Preferred Stock at the same time, the portion converted at such Holder’s option will reduce the portion selected for conversion at the Corporation’s option under this Section 13(b).

(iii)       If the Corporation exercises the optional conversion right described in this Section 13(b), the Corporation shall give notice (such notice a “ Notice of Mandatory Conversion ”) by (i) providing a notice of such conversion by first class mail to each Holder of record for the shares of Series L Preferred Stock to be converted or (ii) issuing a press release and making this information available on its website. The Conversion Date shall be a date selected by the Corporation (the “ Mandatory Conversion Date ”), not less than 10 days, and not more than 20 days, after the date on which the Corporation provides the Notice of Mandatory Conversion. In addition to any information required by applicable law or regulation, the Notice of Mandatory Conversion shall state, as appropriate:

(A)       the Mandatory Conversion Date;

(B)       the number of shares of Common Stock to be issued upon conversion of each share of Series L Preferred Stock; and

(C)       the aggregate number of shares of Series L Preferred Stock to be converted.

(c)        Conversion upon Make-Whole Acquisition . 

(i)         In the event of a Make-Whole Acquisition occurring prior to a Mandatory Conversion Date or Conversion Date, each Holder shall have the option to convert its shares of Series L Preferred Stock (a “ Make-Whole Acquisition Conversion ”) during the period (the “ Make-Whole Acquisition Conversion Period ”) beginning on the effective date of the Make-Whole Acquisition (the “ Make-Whole Acquisition Effective Date ”) and ending on the date that is 30 days after the Make-Whole Acquisition Effective Date and receive an additional number of shares of Common Stock (the “ Make-Whole Shares ”) as set forth in clause (ii) below.


33


(ii)        The number of Make-Whole Shares per share of Series L Preferred Stock shall be determined by reference to the table below for the applicable Make-Whole Acquisition Effective Date and the applicable Make-Whole Acquisition Stock Price:

Make-Whole Acquisition Stock Price
Effective Date
 
$
120.54

 
$
125.57

 
$
138.12

 
$
150.68

 
$
156.71

 
$
175.79

 
$
203.72

 
$
226.02

 
$
251.13

 
$
301.36

 
$
401.81

 
$
502.26

April 17, 2008
 
1.9153

 
1.8855

 
1.5191

 
1.1110

 
0.9497

 
0.6471

 
0.3962

 
0.2847

 
0.2091

 
0.1354

 
0.0757

 
0.0458

March 15, 2009........
 
1.9153

 
1.8775

 
1.5052

 
1.0951

 
0.9437

 
0.6331

 
0.3763

 
0.2588

 
0.1852

 
0.1175

 
0.0697

 
0.0438

March 15, 2010........
 
1.9153

 
1.8397

 
1.4913

 
1.0871

 
0.9378

 
0.6073

 
0.3365

 
0.2210

 
0.1533

 
0.0956

 
0.0577

 
0.0358

March 15, 2011........
 
1.9153

 
1.7899

 
1.4694

 
1.0731

 
0.9238

 
0.5794

 
0.2887

 
0.1712

 
0.1075

 
0.0657

 
0.0398

 
0.0259

March 15, 2012........
 
1.9153

 
1.7561

 
1.4355

 
1.0652

 
0.9139

 
0.5356

 
0.2051

 
0.0896

 
0.0458

 
0.0299

 
0.0199

 
0.0119

March 15, 2013........
 
1.9153

 
1.6704

 
1.4275

 
1.0592

 
0.9119

 
0.5097

 
0.0916

 
—

 
—

 
—

 
—

 
—

Thereafter................
 
1.9153

 
1.6704

 
1.4275

 
1.0592

 
0.9119

 
0.5097

 
0.0916

 
—

 
—

 
—

 
—

 
—


 
(A)       The exact Make-Whole Acquisition Stock Prices and Make-Whole Acquisition Effective Dates may not be set forth in the table, in which case:

(1)        if the Make-Whole Acquisition Stock Price is between two Make-Whole Acquisition Stock Price amounts in the table or the Make-Whole Acquisition Effective Date is between two dates in the table, the number of Make-Whole Shares will be determined by straight-line interpolation between the number of Make-Whole Shares set forth for the higher and lower Make-Whole Acquisition Stock Price amounts and the two Make-Whole Acquisition Effective Dates, as applicable, based on a 365-day year;

(2)        if the Make-Whole Acquisition Stock Price is in excess of $502.26 per share (subject to adjustment pursuant to Section 14), no Make-Whole Shares will be issued upon conversion of the Series L Preferred Stock; and

(3)        if the Make-Whole Acquisition Stock Price is less than $120.54 per share (subject to adjustment pursuant to Section 14), no Make-Whole Shares will be issued upon conversion of the Series L Preferred Stock.

(B)       The Make-Whole Acquisition Stock Prices set forth in the table above are subject to adjustment pursuant to Section 14 hereof and shall be adjusted as of any date the Conversion Rate is adjusted. The adjusted Make-Whole Acquisition Stock Prices will equal the Make-Whole Acquisition Stock Prices applicable immediately prior to such adjustment multiplied by a fraction, the numerator of which is the Conversion Rate immediately prior to the adjustment giving rise to the Make-Whole Acquisition Stock Prices adjustment and the denominator of which is the Conversion Rate as so adjusted. Each of the number of Make-Whole Shares in the table shall also be subject to adjustment in the same manner as the Conversion Rate pursuant to Section 14.

(iii)       On or before the twentieth day prior to the date the Corporation anticipates being the effective date for the Make-Whole Acquisition or within two business days of becoming aware of a Make-Whole Acquisition of the type set forth in clause (a) of the definition Make-Whole Acquisition, a written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holders as they appear in the records of the Corporation. Such notice shall contain:


34


(A)       the anticipated effective date or effective date of the Make-Whole Acquisition; and

(B)       the date, which shall be 30 days after the Make-Whole Acquisition Effective Date, by which a Make-Whole Acquisition Conversion must be exercised.

(iv)       On the Make-Whole Acquisition Effective Date or as soon as practicable thereafter, another written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holders as they appear in the records of the Corporation. Such notice shall contain:

(A)       the date that shall be 30 days after the Make-Whole Acquisition Effective Date;

(B)       the number of Make-Whole Shares;

(C)       the amount of cash, securities and other consideration receivable by a Holder of Series L Preferred Stock upon conversion; and

(D)       the instructions a Holder must follow to exercise its conversion option in connection with such Make-Whole Acquisition.

(v)        To exercise a Make-Whole Acquisition Conversion option, a Holder must, no later than 5:00 p.m., New York City time on or before the date by which the Make-Whole Acquisition Conversion option must be exercised as specified in the notice delivered under clause (iv) above, comply with the procedures set forth in Section 13(a)(iv)(B).

(vi)       If a Holder does not elect to exercise the Make-Whole Acquisition Conversion option in accordance with the provisions specified in this Section 13(c), the shares of Series L Preferred Stock or successor security held by it shall remain outstanding (unless otherwise converted as provided herein), and the Holder will not be eligible to receive Make-Whole Shares.

(vii)      Upon a Make-Whole Acquisition Conversion, the Conversion Agent shall, except as otherwise provided in the instructions provided by the Holder thereof in the written notice provided to the Corporation or its successor as set forth in Section 13(a)(iv) above, deliver to the Holder such cash, securities or other property as are issuable with respect to Make-Whole Shares in the Make-Whole Acquisition.

(viii)     In the event that a Make-Whole Acquisition Conversion is effected with respect to shares of Series L Preferred Stock or a successor security representing less than all the shares of Series L Preferred Stock or a successor security held by a Holder, upon such Make-Whole Acquisition Conversion the Corporation or its successor shall execute and the Conversion Agent shall, unless otherwise instructed in writing, countersign and deliver to the Holder thereof, at the expense of the Corporation or its successors, a certificate evidencing the shares of Series L Preferred Stock or such successor security held by the Holder as to which a Make-Whole Acquisition Conversion was not effected.

(d)        Conversion Upon Fundamental Change . 

(i)         If the Reference Price in connection with a Make-Whole Acquisition is less than $120.54 (a “ Fundamental Change ”), a Holder may elect to convert each share of Series L Preferred Stock during the period beginning on the effective date of the Fundamental Change and ending on the date that is 30 days after the effective date of such Fundamental Change at an adjusted conversion price equal to the greater of (1) the Reference Price and (2) $60.27, subject to adjustment as described in clause (ii) below (the “ Base Price ”). If the Reference Price is less than the Base Price, Holders will receive a maximum of 16.5916 shares of Common Stock

35


per share of Series L Preferred Stock converted, subject to adjustment as a result of any adjustment to the Base Price described in clause (ii) below.

(ii)        The Base Price shall be adjusted as of any date the Conversion Rate of the Series L Preferred Stock is adjusted pursuant to Section 14. The adjusted Base Price shall equal the Base Price applicable immediately prior to such adjustment multiplied by a fraction, the numerator of which is the Conversion Rate immediately prior to the adjustment giving rise to the Conversion Rate adjustment and the denominator of which is the Conversion Rate as so adjusted.

(iii)       In lieu of issuing Common Stock upon conversion in the event of a Fundamental Change, the Corporation may at its option, and if it obtains any necessary regulatory approval, pay an amount in cash (computed to the nearest cent) equal to the Reference Price for each share of Common Stock otherwise issuable upon conversion.

(iv)       On or before the twentieth day prior to the date the Corporation anticipates being the effective date for the Fundamental Change or within two business days of becoming aware of the Fundamental Change if it is a Make-Whole Acquisition of the type set forth in clause (a) of the definition Make-Whole Acquisition, a written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holders as they appear in the records of the Corporation. Such notice shall contain:

(A)       the anticipated effective date of the Fundamental Change; and

(B)       the date, which shall be 30 days after the anticipated effective date of a Fundamental Change, by which a Fundamental Change conversion must be exercised.

(v)        On the effective date of a Fundamental Change or as soon as practicable thereafter, another written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holders as they appear in the records of the Corporation. Such notice shall contain:

(A)       the date that shall be 30 days after the effective date of the Fundamental Change;

(B)       the adjusted conversion price following the Fundamental Change;

(C)       the amount of cash, securities and other consideration received by a Holder of Series L Preferred Stock upon conversion; and

(D)       the instructions a Holder must follow to exercise its conversion option in connection with such Fundamental Change.

(vi)       To exercise its conversion option upon a Fundamental Change, a Holder must, no later than 5:00 p.m., New York City time on or before the date by which the conversion option upon the Fundamental Change must be exercised as specified in the notice delivered under clause (v) above, comply with the procedures set forth in Section 13 (a)(v)(B) and indicate that it is exercising the Fundamental Change conversion option.

(vii)      If a Holder does not elect to exercise its conversion option upon a Fundamental Change in accordance with the provisions specified in this Section 13(d), the shares of Series L Preferred Stock or successor security held by it shall remain outstanding (unless otherwise converted as provided herein) and the Holder will not be eligible to convert its shares pursuant to this Section 13(d).

(viii)     Upon a conversion upon a Fundamental Change, the Conversion Agent shall, except as otherwise provided in the instructions provided by the Holder thereof in the written notice provided

36


to the Corporation or its successor as set forth in Section 13(a)(iv), deliver to the Holder such cash, securities or other property as are issuable with respect to the adjusted conversion price following the Fundamental Change.

(ix)       In the event that a conversion upon a Fundamental Change is effected with respect to shares of Series L Preferred Stock or a successor security representing less than all the shares of Series L Preferred Stock or a successor security held by a Holder, upon such conversion the Corporation or its successor shall execute and the Conversion Agent shall, unless otherwise instructed in writing, countersign and deliver to the Holder thereof, at the expense of the Corporation, a certificate evidencing the shares of Series L Preferred Stock or such successor security held by the Holder as to which a conversion upon a Fundamental Change was not effected.

Section 14.   Anti-Dilution Adjustments . 

(a)        Adjustments .  The Conversion Rate will be subject to adjustment, without duplication, under the following circumstances:

(i)         The issuance of Common Stock as a dividend or distribution to all holders of Common Stock or a subdivision or combination of Common Stock (other than in connection with a Reorganization Event), in which event the Conversion Rate will be adjusted based on the following formula:

CR 1 = CR 0 x (OS 1 / OS 0 )

where,

CR 0          =          the Conversion Rate in effect at the close of business on the Record Date
CR 1          =          the Conversion Rate in effect immediately after the Record Date
OS 0          =          the number of shares of Common Stock outstanding at the close of business on the Record Date prior to giving effect to such event
OS 1          =          the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, such event

Notwithstanding the foregoing, (1) no adjustment will be made for the issuance of Common Stock as a dividend or distribution to all holders of Common Stock that is made in lieu of a quarterly or annual cash dividend or distribution to such holders, to the extent such dividend or distribution does not exceed the applicable Dividend Threshold Amount (with the amount of any such dividend or distribution equaling the number of such shares being issued multiplied by the average of the VWAP of the Common Stock over each of the five consecutive VWAP Trading Days prior to the Ex-Date for such dividend or distribution) and (2) in the event any dividend, distribution, subdivision or combination that is the subject of this Section 14(a)(i) is declared but not so paid or made, the Conversion Rate shall be immediately readjusted, effective as of the date the board of directors publicly announces its decision not to pay or make such dividend or distribution or effect such subdivision or combination, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared or such subdivision or combination had not been announced.

(ii)        The issuance to all holders of Common Stock of certain rights or warrants (other than rights issued pursuant to a shareholder rights plan or rights or warrants issued in connection with a Reorganization Event) entitling them for a period expiring 60 days or less from the date of issuance of such rights or warrants to purchase shares of Common Stock (or securities convertible into Common Stock) at less than (or having a conversion price per share less than) the Current Market Price as of the Record Date, in which event each Conversion Rate will be adjusted based on the following formula:

CR 1 = CR 0 x [(OS 0 + X) / (OS 0 + Y)]

where,


37


CR 0          =          the Conversion Rate in effect at the close of business on the Record Date
CR 1          =          the Conversion Rate in effect immediately after the Record Date
OS 0          =          the number of shares of Common Stock outstanding at the close of business on the Record Date
X           =          the total number of shares of Common Stock issuable pursuant to such rights or warrants (or upon conversion of such securities)
Y           =          the number of shares equal to the quotient of the aggregate price payable to exercise such rights or warrants (or the conversion price for such securities paid upon conversion) divided by the average of the VWAP of the Common Stock over each of the ten consecutive VWAP Trading Days prior to the Business Day immediately preceding the announcement of the issuance of such rights or warrants

Notwithstanding the foregoing, (1) in the event that such rights or warrants described in this Section 14(a)(ii) are not so issued, the Conversion Rate shall be immediately readjusted, effective as of the date the board of directors publicly announces its decision not to issue such rights or warrants, to the Conversion Rate that would then be in effect if such issuance had not been declared and (2) to the extent that such rights or warrants are not exercised prior to their expiration or shares of the Common Stock are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered.

In determining the aggregate price payable for such shares of the Common Stock, there shall be taken into account any consideration received by the Corporation for such rights or warrants and the value of such consideration (if other than cash, to be determined by the board of directors). If an adjustment to the Conversion Rate may be required pursuant to this Section 14(a)(ii), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required pursuant to this Section 14(a)(ii) shall be delayed to the extent necessary in order to complete the calculations provided for in this Section 14(a)(ii).

(iii)       The dividend or other distribution to all holders of Common Stock of shares of capital stock of the Corporation (other than Common Stock) or evidences of its indebtedness or its assets (excluding any dividend, distribution or issuance covered by clauses (a)(i) or (a)(ii) above or (a)(iv) below, any dividend or distribution in connection with a Reorganization Event or any spin-off to which the provisions set forth below in this clause (a)(iii) apply) in which event the Conversion Rate will be adjusted based on the following formula:

CR 1 = CR 0 x [SP 0 / (SP 0 – FMV)]

where,

CR 0          =          the Conversion Rate in effect at the close of business on the Record Date
CR 1          =          the Conversion Rate in effect immediately after the Record Date
SP 0           =          the Current Market Price as of the Record Date
FMV     =          the fair market value (as determined by the board of directors) on the Record Date of the shares of capital stock of the Corporation, evidences of indebtedness or assets so distributed, applicable to one share of Common Stock

However, if the transaction that gives rise to an adjustment pursuant to this clause (iii) is one pursuant to which the payment of a dividend or other distribution on Common Stock consists of shares of capital stock of the Corporation of, or similar equity interests in, a subsidiary or other business unit of the Corporation ( i.e.,  a spin-off) that are, or, when issued, will be, traded on the New York Stock Exchange, the Nasdaq Stock Market or any other national or regional securities exchange or market, then the Conversion Rate will instead be adjusted based on the following formula:

CR 1 = CR 0 x [(FMV 0 + MP 0 ) / MP 0 ]

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where,

CR 0          =          the Conversion Rate in effect at the close of business on the Record Date
CR 1          =          the Conversion Rate in effect immediately after the Record Date
FMV 0      =          the average of the VWAP of the Capital Stock distributed to holders of Common Stock applicable to one share of Common Stock over each of the 10 consecutive VWAP Trading Days commencing on and including the third VWAP Trading Day after the date on which “ex-distribution trading” commences for such dividend or distribution on the NYSE or such other national or regional exchange or association or over-the-counter market, or, if not so traded or quoted, the fair market value of the capital stock or similar equity interests distributed to holders of Common Stock applicable to one share of Common Stock as determined by the board of directors
MP 0      =          the average of the VWAP of the Common Stock over each of the 10 consecutive VWAP Trading Days commencing on and including the third VWAP Trading Day after the date on which “ex-distribution trading” commences for such dividend or distribution on the NYSE or such other national or regional exchange or association or over-the-counter market on which Common Stock is then traded or quoted

Notwithstanding the foregoing, (1) if any dividend or distribution of the type described in this Section 14(a)(iii) is declared but not so paid or made, the Conversion Rate shall be immediately readjusted, effective as of
the date the board of directors publicly announces its decision not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If an adjustment to the Conversion Rate may be required under this Section 14(a)(iii), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Section 14(a)(iii) shall be delayed to the extent necessary in order to complete the calculations provided for in this Section 14(a)(iii).

(iv)       The Corporation makes a distribution consisting exclusively of cash to all holders of Common Stock, excluding (a) any regular cash dividend on Common Stock to the extent that the aggregate cash dividend per share of Common Stock does not exceed $1.8835 in any fiscal quarter (the “ Dividend Threshold Amount ”) and (b) any consideration payable in connection with a tender or exchange offer made by the Corporation or any its subsidiaries referred to in clause (v) below, in which event, the Conversion Rate will be adjusted based on the following formula:

CR 1 = CR 0 x [SP 0 / (SP 0 – C)]

where,

CR 0          =          the Conversion Rate in effect at the close of business on the Record Date
CR 1          =          the Conversion Rate in effect immediately after the Record Date
SP 0           =          the Current Market Price as of the Record Date
C           =          the amount in cash per share equal to (1) in the case of a regular quarterly dividend, the amount the Corporation distributes to holders or pays, less the Dividend Threshold Amount or (2) in any other case, the amount the Corporation distributes to holders or pays

The Dividend Threshold Amount is subject to adjustment on an inversely proportional basis whenever the Conversion Rate is adjusted; provided that no adjustment will be made to the Dividend Threshold Amount for any adjustment made to the Conversion Rate pursuant to this clause (iv).

Notwithstanding the foregoing, if any dividend or distribution of the type described in this Section 14(a)(iv) is declared but not so paid or made, the Conversion Rate shall be immediately readjusted, effective as of the date the board of directors publicly announces its decision not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.


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(v)        The Corporation or one or more of its subsidiaries make purchases of Common Stock pursuant to a tender offer or exchange offer by the Corporation or a subsidiary of the Corporation for Common Stock to the extent that the cash and value (as determined by the board of directors) of any other consideration included in the payment per share of Common Stock validly tendered or exchanged exceeds the VWAP per share of Common Stock on the VWAP Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “ Expiration Date ”), in which event the Conversion Rate will be adjusted based on the following formula:

CR 1 = CR 0 x [(FMV + (SP 1 x OS 1 ) / (SP 1 x OS 0 )]

where,

CR 0          =          the Conversion Rate in effect at the close of business on the Expiration Date
CR 1          =          the Conversion Rate in effect immediately after the Expiration Date
FMV     =          the fair market value (as determined by the board of directors), on the Expiration Date, of the aggregate value of all cash and any other consideration paid or payable for shares validly tendered or exchanged and not withdrawn as of the Expiration Date (the “ Purchased Shares ”) 
OS 1          =          the number of shares of Common Stock outstanding as of the last time tenders or exchanges may be made pursuant to such tender or exchange offer (the “ Expiration Time ”) less any Purchased Shares
OS 0          =          the number of shares of Common Stock outstanding at the Expiration Time, including any Purchased Shares
SP 1           =          the average of the VWAP of the Common Stock over each of the ten consecutive VWAP Trading Days commencing with the VWAP Trading Day immediately after the Expiration Date.

Notwithstanding the foregoing, if the Corporation, or one of its subsidiaries, is obligated to purchase shares of Common Stock pursuant to any such tender or exchange offer, but the Corporation or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Rate shall be readjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. If an adjustment to the Conversion Rate may be required under this Section 14(a)(v), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Section 14(a)(v) shall be delayed to the extent necessary in order to complete the calculations provided for in this Section 14(a)(v).

(b)        Calculation of Adjustments .  All adjustments to the Conversion Rate shall be calculated by the Corporation to the nearest 1/10,000th of one share of Common Stock (or if there is not a nearest 1/10,000th of a share, to the next lower 1/10,000th of a share). No adjustment to the Conversion Rate will be required unless such adjustment would require an increase or decrease of at least one percent; provided , however , that any such minor adjustments that are not required to be made will be carried forward and taken into account in any subsequent adjustment, and provided further that any such adjustment of less than one percent that has not been made will be made prior to any conversion pursuant to Section 13(b), Section 13(c) or Section 13(d).

(c)        When No Adjustment Required . 

(i)         Except as otherwise provided in this Section 14, the Conversion Rate will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing or for the repurchase of Common Stock.

(ii)        Rights Plans .  To the extent that the Corporation has a stockholders’ rights plan in effect upon conversion of the Series L Preferred Stock into Common Stock, Holders will receive, in addition to any of Common Stock deliverable and in lieu of any adjustment to the Conversion Rate, the rights under the stockholders’ rights plan, unless prior to any conversion, the rights have separated from Common Stock, in which case the Conversion Rate will be adjusted at the time of separation as if we distributed to all holders of Common

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Stock, shares of the Corporation’s Capital Stock, evidences of indebtedness or assets as described in Section 14(a)(iii). A further adjustment will occur as described in Section 14(a)(iii), if such rights become exercisable to purchase different securities, evidences of indebtedness or assets, subject to readjustment in the event of the expiration, termination or redemption of such rights.

(iii)       No adjustment to the Conversion Rate need be made:

(A)       upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in Common Stock under any plan;

(B)       upon the issuance of any shares of Common Stock or options or rights to purchase those shares pursuant to any present or future employee, director or consultant benefit plan or program of or assumed by the Corporation or any of its subsidiaries; or

(C)       upon the issuance of any shares of Common Stock pursuant to any option, warrant, right, or exercisable, exchangeable or convertible security outstanding as of the date the Series L Preferred Stock was first issued.

(iv)       No adjustment to the Conversion Rate need be made for a transaction referred to in Section 14(a)(i) through (v) if Holders may participate in the transaction on a basis and with notice that the board of directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction.

(v)        No adjustment to the Conversion Rate need be made for a change in the par value or no par value of the Common Stock.

(vi)       No adjustment to the Conversion Rate will be made to the extent that such adjustment would result in the Conversion Price being less than the par value of the Common Stock.

(d)        Record Date .  For purposes of this Section 14, “Record Date” means, with respect to any dividend, distribution or other transaction or event in which the holders of the Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of the Common Stock entitled to receive such cash, securities or other property (whether such date is fixed by the board of directors or by statute, contract or otherwise).

(e)        Successive Adjustments .  After an adjustment to the Conversion Rate under this Section 14, any subsequent event requiring an adjustment under this Section 14 shall cause an adjustment to such Conversion Rate as so adjusted.

(f)        Multiple Adjustments .  For the avoidance of doubt, if an event occurs that would trigger an adjustment to the Conversion Rate pursuant to this Section 14 under more than one subsection hereof, such event, to the extent fully taken into account in a single adjustment, shall not result in multiple adjustments hereunder.

(g)        Other Adjustments .  The Corporation may (but is not required to) make such increases in the Conversion Rate, in addition to those required by Section 14(a)(i) through (v), as the board of directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes.


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In addition to the foregoing, to the extent permitted by applicable law and subject to the applicable rules of the New York Stock Exchange, the Corporation from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least 20 business days, the increase is irrevocable during the period and the board of directors shall have made a determination that such increase would be in the best interests of the Corporation, which determination shall be conclusive.

(h)        Notice of Adjustments .  Whenever a Conversion Rate is adjusted as provided under Section 14, the Corporation shall within 10 Business Days following the occurrence of an event that requires such adjustment (or if the Corporation is not aware of such occurrence, as soon as reasonably practicable after becoming so aware) or within 15 calendar days of the date the Corporation makes an adjustment pursuant to Section 14(g):

(i)         compute the adjusted applicable Conversion Rate in accordance with Section 14 and prepare and transmit to the Conversion Agent an Officers’ Certificate setting forth the applicable Conversion Rate, as the case may be, the method of calculation thereof in reasonable detail, and the facts requiring such adjustment and upon which such adjustment is based; and

(ii)        provide a written notice to the Holders of the occurrence of such event and a statement in reasonable detail setting forth the method by which the adjustment to the applicable Conversion Rate was determined and setting forth the adjusted applicable Conversion Rate.

(i)         Conversion Agent .  The Conversion Agent shall not at any time be under any duty or responsibility to any Holder to determine whether any facts exist that may require any adjustment of the applicable Conversion Rate or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed in making the same. The Conversion Agent shall be fully authorized and protected in relying on any Officers’ Certificate delivered pursuant to Section 14(h) and any adjustment contained therein and the Conversion Agent shall not be deemed to have knowledge of any adjustment unless and until it has received such certificate. The Conversion Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, that may at the time be issued or delivered with respect to any of the Series L Preferred Stock; and the Conversion Agent makes no representation with respect thereto. The Conversion Agent shall not be responsible for any failure of the Corporation to issue, transfer or deliver any shares of Common Stock pursuant to a the conversion of the Series L Preferred Stock or to comply with any of the duties, responsibilities or covenants of the Corporation contained in this Section 14.

Section 15.   Reorganization Events . 

(a)        In the event of:

(i)         any consolidation or merger of the Corporation with or into another Person, in each case pursuant to which the Common Stock will be converted into cash, securities, or other property of the Corporation or another Person;

(ii)        any sale, transfer, lease, or conveyance to another Person of all or substantially all of the consolidated assets of the Corporation and its subsidiaries, taken as a whole, in each case pursuant to which the Common Stock will be converted into cash, securities, or other property; or

(iii)       any reclassification of the Common Stock into securities, including securities other than the Common Stock; or

(iv)       any statutory exchange of the Corporation’s securities with another Person (other than in connection with a merger or acquisition); (any such event specified in this Section 15(a), a “ Reorganization Event ”); each share of Series L Preferred Stock outstanding immediately prior to such Reorganization Event shall, without the consent of Holders, become convertible into the types and amounts of

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securities, cash, and other property that is or was receivable in such Reorganization Event by a holder of the shares of Common Stock that was not the counterparty to the Reorganization Event or an affiliate of such other party in exchange for such Common Stock (such securities, cash, and other property, the “ Exchange Property ”). 

(b)        In the event that holders of the shares of the Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the consideration that the Holders are entitled to receive upon conversion shall be deemed to be the types and amounts of consideration received by the majority of the holders of the shares of the Common Stock that affirmatively make an election (or of all such holders if none make an election). On each Conversion Date following a Reorganization Event, the Conversion Rate then in effect will be applied to the value on such Conversion Date of the securities, cash, or other property received per share of Common Stock, determined as set forth above. The amount of Exchange Property receivable upon conversion of any Series L Preferred Stock in accordance with Section 12, Section 13(b), Section 13(c) or Section 13(d) hereof shall be determined based upon the then Applicable Conversion Rate.

(c)        The above provisions of this Section 15 shall similarly apply to successive Reorganization Events and the provisions of Section 14 shall apply to any shares of Capital Stock of the Corporation (or any successor) received by the holders of the Common Stock in any such Reorganization Event.

(d)        The Corporation (or any successor) shall, within 20 days of the occurrence of any Reorganization Event, provide written notice to the Holders of such occurrence of such event and of the type and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 15.

Section 16.   Fractional Shares . 

(a)        No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series L Preferred Stock.

(b)        In lieu of any fractional share of Common Stock otherwise issuable in respect of any conversion at the Corporation’s option pursuant to Section 13(b) hereof or any conversion at the option of the Holder pursuant to Section 12, Section 13(c) or Section 13(d) hereof, the Corporation shall pay an amount in cash (computed to the nearest cent) equal to the same fraction of the Closing Price of the Common Stock determined as of the second Trading Day immediately preceding the effective date of conversion.

(c)        If more than one share of the Series L Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series L Preferred Stock so surrendered.
Section 17.   Reservation of Common Stock . 

(a)        The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of Series L Preferred Stock as provided in this Certificate of Designations, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series L Preferred Stock then outstanding, calculated assuming the Applicable Conversion Price equals the Base Price, subject to adjustment as described under Section 14. For purposes of this Section 17(a), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series L Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.

(b)        All shares of Common Stock delivered upon conversion of the Series L Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders).


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(c)        Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series L Preferred Stock, the Corporation shall use its reasonable best efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

(d)        The Corporation hereby covenants and agrees that, so long as the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange or automated quotation system, the Corporation will, if permitted by the rules of such exchange or automated quotation system, list and keep listed all the Common Stock issuable upon conversion of the Series L Preferred Stock; provided ,  however , that if the rules of such exchange or automated quotation system permit the Corporation to defer the listing of such Common Stock until the first conversion of Series L Preferred Stock into Common Stock in accordance with the provisions hereof, the Corporation covenants to list such Common Stock issuable upon conversion of the Series L Preferred Stock in accordance with the requirements of such exchange or automated quotation system at such time.

Ssection 18.  Limitations on Beneficial Ownership .  Notwithstanding anything to the contrary contained herein, and subject to the last sentence of this Section 18, no holder of Series L Preferred Stock will be entitled to receive shares of Common Stock upon conversion pursuant to Section 12 and Section 13 hereof to the extent, but only to the extent, that such receipt would cause such converting holder to become, directly or indirectly, a “beneficial owner” (within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than 9.9% of the shares of Common Stock outstanding at such time. Any delivery of shares of Common Stock upon a purported conversion of Series L Preferred Stock shall be void and have no effect and such shares shall for all purposes continue to represent outstanding shares of Series L Preferred Stock to the extent (but only to the extent) that such delivery would result in the converting holder becoming the beneficial owner of more than 9.9% of the shares of Common Stock outstanding at such time. If any delivery of shares of Common Stock owed to a holder upon conversion of Series L Preferred Stock is not made, in whole or in part, as a result of this limitation, the Corporation’s obligation to make such delivery shall not be extinguished and the Corporation shall deliver such shares as promptly as practicable after any such converting holder gives notice to the Corporation that such delivery would not result in it being the beneficial owner of more than 9.9% of the shares of Common Stock outstanding at such time. Notwithstanding anything in this paragraph to the contrary, these limitations on beneficial ownership shall not be applicable to or limit the number of shares of Series L Preferred Stock to be converted as a result of a mandatory conversion by the Corporation pursuant to Section 13(b).

Section 19.   Preemptive or Subscription Rights .  The Holders of Series L Preferred Stock shall not have any preemptive or subscription rights.

IN WITNESS WHEREOF, WELLS FARGO & COMPANY has caused this Certificate of Designations to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Laurel A. Holschuh, its Secretary, this  30 th  day of December, 2008.

WELLS FARGO & COMPANY



By:                   /s/ Barbara S. Brett                              

            Barbara S. Brett, Senior Vice President

            and Assistant Treasurer
/s/ Laurel A. Holschuh            

Laurel A. Holschuh, Secretary
 
 
[As filed with the Delaware Secretary of State on December 30, 2008.]

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WELLS FARGO & COMPANY
___________________________________
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
 
2010 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
___________________________________
 
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Company”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the provisions of the Restated Certificate of Incorporation of the Company, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”), and pursuant to authority conferred upon the ESOP Preferred Stock Committee I of the Board (the “ESOP Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the resolutions of the Board set forth herein, the following resolutions were duly adopted by the Board at meetings of the Board duly held on January 25, 2000 and February 24, 2009, and by the ESOP Committee pursuant to the written consent of the ESOP Committee duly adopted on March 23, 2010, in accordance with Section 141(f) of the General Corporation Law:
 
1.         On January 25, 2000, the Board adopted the following resolutions (the “ESOP Board Resolutions”) appointing the ESOP Committee and delegating to the ESOP Committee the full powers of the Board, subject to the ESOP Board Resolutions, in all matters relating to issuance of one or more series of Preferred Stock (“ESOP Preferred Stock”) to the trustee on behalf of the Company’s 401(k) Plan hereinafter referred to:
 
RESOLVED that a committee of one member of the Board of the Company is hereby appointed by the Board as the ESOP Preferred Stock Committee I (the “First Committee”), which shall have and may exercise the full powers of the Board, subject to these resolutions, to issue from time to time one or more series of ESOP Preferred Stock, including any shares of Company common stock ($1 2/3 par value) issuable upon conversion of ESOP Preferred Stock, and in connection therewith, to fix the designations, voting powers, preferences, and all other rights, qualifications and restrictions of such ESOP Preferred Stock, to sell such ESOP Preferred Stock to the Plan on such terms and conditions and for such purchase price as the First Committee in its discretion shall approve, and to take any and all actions as the First Committee shall deem necessary or appropriate.
 
2.         Pursuant to resolutions adopted on February 24, 2009, the Board designated John G. Stumpf as the sole member of the ESOP Committee, effective April 29, 2009.

3.         On March 23, 2010, pursuant to authority conferred upon it by the Board in the ESOP Board Resolutions, the ESOP Committee adopted the following resolutions by written consent in accordance with Section 141(f) of the General Corporation Law:
 
RESOLVED that the issuance of a series of Preferred Stock, without par value, of the Company is hereby authorized and the designation, voting powers, preferences, and relative, participating, optional, and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Company, as amended, are hereby fixed as follows:
 
2010 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
 

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1.   Designation and Number of Shares; Restricted Issue . 
 
(a) The designation of the series of Preferred Stock, without par value, provided for herein shall be “2010 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2010 ESOP Preferred Stock”) and the number of authorized shares constituting the 2010 ESOP Preferred Stock is 1,000,000, based on an offering price for the 2010 ESOP Preferred Stock of $1,080.00 per share.  Each share of 2010 ESOP Preferred Stock shall have a stated value of $1,000.00 per share.  The number of authorized shares of 2010 ESOP Preferred Stock may be reduced by further resolution duly adopted by the Board or the Securities Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, provided, however, that the authorized number of shares of 2010 ESOP Preferred Stock shall not be decreased below the then outstanding number of such shares, and provided further that the number of authorized shares of 2010 ESOP Preferred Stock shall not be increased.  All shares of the 2010 ESOP Preferred Stock purchased, redeemed, or converted by the Company shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of 2010 ESOP Preferred Stock.
 
(b)  Shares of 2010 ESOP Preferred Stock shall be issued only to a trustee (the “Trustee”) acting on behalf of the Wells Fargo & Company 401(k) Plan, or any successor to such plan (the “Plan”).  All references to the holder of shares of 2010 ESOP Preferred Stock shall mean the Trustee or any company with which or into which the Trustee may merge or any successor trustee under the trust agreement with respect to the Plan.  In the event of any transfer of record ownership of shares of 2010 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2010 ESOP Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder thereof, shall be automatically converted into shares of the common stock, par value $1-2/3 per share, of the Company (the “Common Stock”) on the terms otherwise provided for the conversion of the shares of 2010 ESOP Preferred Stock into shares of Common Stock pursuant to paragraph (a) of Section 4 hereof, and no such transferee shall have any of the voting powers, preferences, and relative, participating, optional or special rights ascribed to shares of 2010 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2010 ESOP Preferred Stock shall be so converted.  In the event of such a conversion, the transferee of the shares of 2010 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2010 ESOP Preferred Stock have been automatically converted as of the date of such transfer.  Shares of 2010 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option.  Certificates representing shares of 2010 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions.  In the case of uncertificated 2010 ESOP Preferred Stock, the transfer agent for the 2010 ESOP Preferred Stock shall note the foregoing provisions on each 2010 ESOP Preferred Stock book entry account.  The Company may require that, as a condition to transferring record ownership of any uncertificated 2010 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2010 ESOP Preferred Stock are subject to the foregoing provisions.  Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2010 ESOP Preferred Stock (i)(A) shall be converted into shares of Common Stock as provided in paragraph (a) of Section 4 hereof, and (B) may be converted into shares of Common Stock as provided by paragraph (b) of Section 4 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided in Sections 5 and 6(c) hereof.
2.   Voting Rights .  No shares of 2010 ESOP Preferred Stock shall have voting rights except such voting rights as may from time to time be required by law and as set forth in this Section 2, as follows:

(a)  Whenever, at any time or times, dividends payable on shares of 2010 ESOP Preferred Stock shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding shares of 2010 ESOP Preferred Stock shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the shares of 2010 ESOP Preferred Stock, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual

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meeting of stockholders.  At elections for such directors, each holder of the shares of 2010 ESOP Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding shares of 2010 ESOP Preferred Stock (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such shares of 2010 ESOP Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such shares of 2010 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2010 ESOP Preferred Stock shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
(b)  Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
(c)  So long as any shares of 2010 ESOP Preferred Stock remain outstanding, the consent of the holders of the outstanding shares of 2010 ESOP Preferred Stock and outstanding shares of all other series of Preferred Stock ranking on a parity with such shares of 2010 ESOP Preferred Stock either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding shares of 2010 ESOP Preferred Stock and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:
 
(i)  the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to shares of 2010 ESOP Preferred Stock with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or
 
(ii)  the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designations designating shares of 2010 ESOP Preferred Stock and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the shares of 2010 ESOP Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock, or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the shares of 2010 ESOP Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

(d)  The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of 2010 ESOP Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.

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3.         Dividends .  (a)(i)  Holders of shares of 2010 ESOP Preferred Stock will be entitled to receive, when and as declared by the Board or a duly authorized committee thereof, out of assets of the Company legally available for payment, an annual cash dividend of $95.00 (the “Base Dividend”) per share, which Base Dividend shall be subject to adjustment from time to time as provided in this Section 3.
 
(ii)  The Base Dividend shall be adjusted, effective on December 1, 2011 and on each December 1 thereafter until December 1, 2019, as follows: 
 
(1)  If the Current Market Price (as hereinafter defined) of one share of Common Stock on November 30 (or the next preceding Trading Day (as hereinafter defined) if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the First Target Price but less than the Second Target Price shown opposite that year in such table, then holders of shares of the 2010 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $100.00 per share (the “First Adjusted Dividend”). 
 
(2)  If the Current Market Price of one share of Common Stock on November 30 (or the next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the Second Target Price shown opposite that year in such table, then holders of shares of 2010 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $105.00 per share (the “Second Adjusted Dividend”).
 
(3)  If the Current Market Price of one share of Common Stock on November 30 (or next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is less than the First Target Price shown opposite that year in such table, then the holders of shares of 2010 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to the Base Dividend.
23)                 
24)               Dividend Adjustment Table
 
25)                             Closing Price on 11/30

 
26)                                   First Target Price

 
27)                                         Second Target Price

2,011,000

 
35.445

 
41.275

2,012,000

 
38.990

 
49.530

2,013,000

 
42.889

 
59.436

2,014,000

 
47.178

 
71.323

2,015,000

 
51.895

 
85.588

2,016,000

 
57.085

 
102.706

2,017,000

 
62.793

 
123.247

2,018,000

 
69.073

 
147.896

2,019,000

 
75.980

 
177.475

 
(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2011, the Current Market Price of one share of Common Stock is $40.00, then the cash dividend payable for the immediately following twelve month period per share of 2010 ESOP Preferred Stock would equal $100.00, with the first quarterly payment of such $100.00 dividend to be made on March 1, 2012.  If on November 30, 2012, the Current Market Price of one share of Common Stock is $60.00, then the cash dividend payable for the immediately following twelve month period per share of 2010 ESOP Preferred Stock would equal $105.00, with the first quarterly payment of such $105.00 dividend to be made on March 1, 2013.  If on November 30, 2013, the Current Market Price of one share of Common Stock is $40.00, then the cash dividend

49


payable for the immediately following twelve month period per share of 2010 ESOP Preferred Stock would equal $95.00, with the first quarterly payment of such $95.00 dividend to be made on March 1, 2014.

(5)  For purposes of this Section 3, the terms “First Adjusted Dividend” and “Second Adjusted Dividend” are sometimes referred to as an “Adjusted Dividend;” the term “Current Market Price” shall have the meaning given to it in Section 4(c)(iv); and the term “Trading Day” shall have the meaning given to it in Section 4(c)(vi).
 
(iii)  If one share of Common Stock in any year listed in the Dividend Adjustment Table shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the First Target Price and the Second Target Price listed in such table for that year and each subsequent year will be appropriately and proportionately adjusted.
 
(iv)  Dividends payable on shares of the 2010 ESOP Preferred Stock (whether such dividends are equal to the Base Dividend or to an Adjusted Dividend) shall be payable quarterly on March 1, June 1, September 1, and December 1 of each year, commencing June 1, 2010.  Dividends on shares of the 2010 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2010 ESOP Preferred Stock.  Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Company on such record dates, not more than 30 days nor less than 15 days preceding the payment dates thereof, as shall be fixed by the Board or a duly authorized committee thereof.  The amount of dividends payable per share for each dividend period shall be computed by dividing by four the Base Dividend or the Adjusted Dividend, whichever is then applicable.  The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of actual days elapsed in a 360-day year of twelve 30-day months.
 
(b)(i)  No full dividends shall be declared or paid or set apart for payment on any stock of the Company ranking, as to dividends, on a parity with or junior to the 2010 ESOP Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been set apart for such payment on shares of 2010 ESOP Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends.  When dividends are not paid in full, as aforesaid, upon the shares of 2010 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2010 ESOP Preferred Stock, all dividends declared upon shares of 2010 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2010 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2010 ESOP Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of 2010 ESOP Preferred Stock and such other series of Preferred Stock bear to each other.  Holders of shares of 2010 ESOP Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends, as herein provided, on 2010 ESOP Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on 2010 ESOP Preferred Stock which may be in arrears.
 
(ii)  So long as any shares of 2010 ESOP Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants, or rights to subscribe for or purchase shares of, Common Stock or any other stock ranking junior to 2010 ESOP Preferred Stock as to dividends or upon liquidation and other than as provided in paragraph (b)(i) of this Section 3) shall be declared or paid or set aside for payment or other distribution declared or made upon Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2010 ESOP Preferred Stock as to dividends or upon liquidation, nor shall any Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2010 ESOP Preferred Stock as to dividends or upon liquidation be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to 2010 ESOP Preferred Stock as to dividends or upon liquidation), unless, in each case, the full cumulative dividends

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on all outstanding shares of 2010 ESOP Preferred Stock shall have been paid or declared and set aside for payment of the then current dividend payment period and all past dividend payment periods.
 
4.   Conversion .  Shares of 2010 ESOP Preferred Stock are convertible from time to time hereafter pursuant to the provisions of paragraphs (a) or (b) of this Section 4 into that number of shares of Common Stock determined by dividing the stated value of each share of 2010 ESOP Preferred Stock by the then applicable Conversion Price, (as determined in accordance with the provisions of paragraph (c)(iii) of this Section 4), as follows:

(a)  Each share of 2010 ESOP Preferred Stock released from the unallocated reserve of the Plan in accordance with the terms thereof shall be automatically converted, without any further action by the Company or the holder thereof, as of the date such release occurs (the “Release Date”), into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for the 2010 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(b)  Subject to and upon compliance with the provisions of this Section 4, a holder of 2010 ESOP Preferred Stock shall be entitled at any time, prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 5 or 6 hereof, to cause any or all of the shares of 2010 ESOP Preferred Stock held by such holder to be converted into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for 2010 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(c)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
 
(i)  The “Average Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the Current Market Price for one share of Common Stock for the twenty (20) consecutive Trading Days ending on the Trading Day occurring prior to the date the “Purchase Offer” is made (as that term is defined in Section 6(d) hereof).
 
(ii)  A “Business Day” means each day that is not a Saturday, Sunday, or a day on which state or federally chartered banking institutions in the State of New York are not required to be open.
 
(iii)  (A)  For purposes of a mandatory conversion of shares of 2010 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (a) of this Section 4, the “Conversion Price” for such shares of 2010 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the relevant Release Date.
 
(B)  For purposes of an optional conversion of shares of 2010 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (b) of this Section 4, the “Conversion Price” for such shares of 2010 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the date the Conversion Notice (as that term is defined in paragraph (d) of this Section 4) is received by the Company, by the transfer agent for the 2010 ESOP Preferred Stock or by any agent for conversion of the 2010 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.
 
(C)  For purposes of a conversion of shares of 2010 ESOP Preferred Stock into shares of Common Stock in connection with a “Purchase Offer” (as defined in Section 6(d) hereof), the “Conversion Price” for such shares of 2010 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.
 
Each share of 2010 ESOP Preferred Stock shall be valued at its stated value of $1,000.00 for purposes of computing, based on the applicable Conversion Price, the number of shares of Common Stock into which the shares of 2010 ESOP Preferred Stock will be converted. 
 
(iv)  The “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for any day shall mean the reported last

51


sale price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange only or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof.
(v)  “Common Stock” shall mean the Common Stock of the Company as the same exists at the date of this Certificate of Designations or as such stock may be constituted from time to time.
 
(vi)  “Trading Day” with respect to Common Stock means (x) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the Common Stock is quoted on the National Market System of NASDAQ, a day on which trades may be made on such National Market System or (z) otherwise, any Business Day.
(d)  In connection with any conversion of 2010 ESOP Preferred Stock pursuant to this Section 4, a written notice of conversion (the “Conversion Notice”) shall be delivered to the Company at its principal executive office or the offices of the transfer agent for the 2010 ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the 2010 ESOP Preferred Stock by the Company or the transfer agent for the 2010 ESOP Preferred Stock, which notice shall be accompanied by (a) in the case of certificated 2010 ESOP Preferred Stock, the certificate or certificates representing the shares of 2010 ESOP Preferred Stock being converted pursuant to this Section 4, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) and (b) in the case of uncertificated 2010 ESOP Preferred Stock, duly executed assignment and transfer documents for the shares of 2010 ESOP Preferred Stock being converted pursuant to this Section 4.  Each Conversion Notice shall specify (i)(y) in the case of a mandatory conversion pursuant to paragraph (a) of this Section 4, the number of shares of 2010 ESOP Preferred Stock released from the unallocated reserve of the Plan on the Release Date or (z) in the case of an optional conversion pursuant to paragraph (b) of this Section 4, the number of shares of 2010 ESOP Preferred Stock being converted, and (ii) in connection with any conversion hereunder, (x) the name or names in which such holder wishes the certificate or certificates for Common Stock and, in the case of certificated 2010 ESOP Preferred Stock, for any shares of 2010 ESOP Preferred Stock not to be so converted to be issued, (y) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (z) such other information as the Company or its agents may reasonably request.
 
(e)  Upon delivery to the Company or the transfer agent for the 2010 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4,  the Company shall issue and send by hand delivery, by courier or by first-class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion.  If there shall have been surrendered a certificate or certificates representing shares of 2010 ESOP Preferred Stock only part of which are to be converted, the Company shall issue and deliver to such holder or such holder’s designee, in the manner set forth in the preceding sentence, a new certificate or certificates representing the number of shares of 2010 ESOP Preferred Stock which shall not have been converted.
(f)  The issuance by the Company of shares of Common Stock upon a conversion of shares of 2010 ESOP Preferred Stock into shares of Common Stock made pursuant to this Section 4 shall be effective (i) in the

52


case of a mandatory conversion of shares of 2010 ESOP Preferred Stock pursuant to paragraph (a) of this Section 4, as of the Release Date; and (ii) in the case of an optional conversion of such shares pursuant to paragraph (b) of this Section 4, as of the earlier of (A) the delivery to such holder or such holder’s designee of the certificates representing the shares of Common Stock issued upon conversion thereof or (B) the commencement of business on the second Business Day after the delivery to the Company or the transfer agent for the 2010 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4.  On and after the effective date of conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date.  The Company shall not be obligated to pay any dividends which shall have accrued or have been declared and shall be payable to holders of shares of 2010 ESOP Preferred Stock if the date on which such dividends are paid is on or after the effective date of conversion of such shares.

(g)  The Company shall not be obligated to deliver to holders of 2010 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2010 ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law.

(h)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of 2010 ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of 2010 ESOP Preferred Stock then outstanding.

(i)  The Company will use its best efforts to cause the listing of the shares of Common Stock required to be delivered upon conversion of the 2010 ESOP Preferred Stock prior to distribution to Plan participants on the national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.

(j)  The Company will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of the 2010 ESOP Preferred Stock pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the 2010 ESOP Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.

5.   Redemption At the Option of the Company .  (a)  The 2010 ESOP Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time, at a redemption price per share of 2010 ESOP Preferred Stock equal to the higher of (x) $1,000.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, and (y) the Fair Market Value (as that term is defined in paragraph (d) of this Section 5) per share of 2010 ESOP Preferred Stock on the date fixed for redemption.  Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (c) of this Section 5.  From and after the date fixed for redemption, dividends on shares of 2010 ESOP Preferred Stock called for redemption will cease to accrue and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price.  Upon payment of the redemption price, such shares shall be deemed to have been transferred to the Company, to be retired as provided in paragraph (a) of Section 1.  If the full cumulative dividends have not been paid, or contemporaneously declared and set aside for payment, on all outstanding shares of 2010 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2010 ESOP Preferred Stock pursuant to this Section 5.

(b)  Unless otherwise required by law, notice of any redemption pursuant to this Section 5 will be sent to the holders of 2010 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2010 ESOP Preferred Stock by hand delivery, by courier, by standard form of telecommunication or

53


by first-class mail (postage prepaid) delivered, sent or mailed, as the case may be, not less than twenty (20) days nor more than sixty (60) days prior to the redemption date.  Each such notice shall state:  (i) the redemption date; (ii) the total number of shares of the 2010 ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) whether the redemption price shall be paid in cash or in shares of Common Stock, or in a combination of such Common Stock and cash; (v) in the case of certificated 2010 ESOP Preferred Stock the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vii) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised and the manner in which the number of shares of Common Stock issuable upon conversion of a share of 2010 ESOP Preferred Stock will be determined.  The Company shall redeem shares so called for redemption and not previously converted at the date fixed for redemption and at the redemption price set forth in this Section 5, provided that, in the case of certificated 2010 ESOP Preferred Stock, the Company shall not be obligated to pay the redemption price until the certificates for the shares to be redeemed are surrendered (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state).

(c)  The Company, at its option, may make payment of the redemption price required upon redemption of shares of 2010 ESOP Preferred Stock in cash or in shares of Common Stock, or in a combination of such Common Stock and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (d)(ii) of this Section 5) or their Current Market Price, in either case as of the date fixed for redemption of the 2010 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2010 ESOP Preferred Stock then being redeemed.

(d)  For purposes of these resolutions, the following terms shall have the meanings set forth below:

(i)  “Adjustment Period” shall mean the period of five (5) consecutive Trading Days preceding the date as of which the Fair Market Value of a security is to be determined.

(ii)  “Fair Market Value” shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issue which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period.  The “Fair Market Value” of any security which is not publicly traded (other than the 2010 ESOP Preferred Stock) or of any other property shall mean the fair value thereof on the date as of which the Fair Market Value of the security is to be determined, as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board or a committee thereof.  The “Fair Market Value” of the 2010 ESOP Preferred Stock for purposes of paragraph (a) of Section 5, and for purposes of paragraph (c) of Section 6 shall mean the fair market value thereof determined by an independent appraiser, appointed by the Trustee of the Plan in accordance with the provisions of the Plan, as of the date fixed for redemption of the 2010 ESOP Preferred Stock (in the case of a redemption pursuant to Section 5) or as of the date specified in paragraph (c) of Section 6 (in the case of a redemption under that section).  For purposes of determining the Fair Market Value of the 2010 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2010 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2010 ESOP Preferred Stock held by the Plan into shares of Common Stock pursuant to Section 4(a) hereof would have occurred when and as payments of principal (together with accrued interest thereon) would have been made by the Trustee of the Plan in accordance with the terms of that certain 2010 ESOP Cumulative Convertible Preferred Stock Note Agreement dated on or about March 26, 2010 between the Company and the Plan (including any amendments or modifications thereto).

6.   Consolidation, Merger, etc.   (a)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Company) that constitutes “qualifying employer securities” with respect to a holder of 2010 ESOP Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as

54


amended, and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of 2010 ESOP Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business combination, be assumed by and shall become Preferred Stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 5 and 6 hereof), and the qualifications, limitations or restrictions thereon, that the 2010 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:

(1)  After such transaction each share of the 2010 ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 4 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of 2010 ESOP Preferred Stock could have been converted immediately prior to such transaction.
(2)  The Company shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of 2010 ESOP Preferred Stock shall be assumed and authorized by the successor or resulting corporation as aforesaid.

(b)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (a) of this Section 6) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of 2010 ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (c) of this Section 6), be automatically converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of 2010 ESOP Preferred Stock could have been converted at such time so that each share of 2010 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2010 ESOP Preferred Stock could have been converted immediately prior to such transaction.  However, if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the 2010 ESOP Preferred Stock, then the shares of 2010 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2010 ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction.  If the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares.

(c)  In the event the Company shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (b) of this Section 6 (a “Business Combination”), then the Company shall as soon as practicable thereafter (and in any event at least fifteen (15) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of 2010 ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such 2010 ESOP Preferred Stock, a cash payment per share of 2010 ESOP Preferred Stock equal to the higher of (x) $1,000.00, plus accrued and unpaid dividends thereon to the date of consummation of such transaction or (y) the Fair Market Value per share of 2010 ESOP Preferred Stock, as of the last Business Day (as defined in paragraph (c) of Section 4 hereof) immediately preceding

55


the date the Business Combination is consummated.  No such notice of redemption shall be effective unless given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction.
 
(d)  In the event that a Purchase Offer (as defined below) shall have been made and shall be continuing, each holder of 2010 ESOP Preferred Stock shall have the right to convert shares of 2010 ESOP Preferred Stock into shares of Common Stock at the Conversion Price specified in Section 4(c)(iii)(C) hereof until the date the Purchase Offer is terminated, including without limitation because the original Purchase Offer is withdrawn or because the Purchase Offer has expired and is not renewed, upon notice of such conversion given to the Company not later than the close of business on the date the Purchase Offer terminates (the “Purchase Offer Conversion Period”), unless the Company or any successor of the Company shall waive such prior notice, but any notice of conversion so given may be withdrawn by notice of withdrawal given to the Company prior to the end of the Purchase Offer Conversion Period.
 
For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
 
(i)  “Beneficial Ownership” shall have the meaning ascribed to it in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “person” shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
 
(ii)  A “Purchase Offer” shall have been made when any person (other than the Company or any affiliate of the Company) shall have “commenced” (as such term is defined in Rule 14d-2 under the Exchange Act) a tender offer or exchange offer to purchase shares of Common Stock, such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined herein) or the right to acquire Beneficial Ownership, of twenty percent (20%) or more of the voting power of the Company.
 
7.   Liquidation Rights .  (a)  Upon the dissolution, liquidation, or winding up of the Company, the holders of the shares of 2010 ESOP Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on the Common Stock or any other class of stock ranking junior to 2010 ESOP Preferred Stock upon liquidation, the amount of $1,000.00 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.
 
(b)  Neither the sale of all or substantially all the property and assets of the Company, nor the merger or consolidation of the Company into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Company shall be deemed to be a dissolution, liquidation, or winding up, voluntary or involuntary, for the purposes of this Section 7.
 
(c)  After the payment to the holders of the shares of 2010 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2010 ESOP Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Company.
 
(d)  In the event the assets of the Company available for distribution to the holders of shares of 2010 ESOP Preferred Stock upon any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of Preferred Stock or other capital stock of the Company ranking on a parity with the shares of 2010 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2010 ESOP Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation, or winding up.
 

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(e)  Subject to the rights of the holders of the shares of any series or class or classes of stock ranking on a parity with or prior to the shares of 2010 ESOP Preferred Stock upon liquidation, dissolution, or winding up, upon any liquidation, dissolution, or winding up of the Company, after payment shall have been made in full to the holders of the shares of 2010 ESOP Preferred Stock as provided in this Section 7, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of 2010 ESOP Preferred Stock upon liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the shares of 2010 ESOP Preferred Stock shall not be entitled to share therein.
 
8.   Ranking .  For the purposes of these resolutions, any stock of any series or class or classes of the Company shall be deemed to rank:
 
(a)  prior to the shares of 2010 ESOP Preferred Stock, either as to dividends or upon liquidation, if the holders of such series or class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of 2010 ESOP Preferred Stock;
 
(b)  on a parity with shares of 2010 ESOP Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of 2010 ESOP Preferred Stock, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of 2010 ESOP Preferred Stock; and
 
(c)  junior to shares of 2010 ESOP Preferred Stock, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of 2010 ESOP Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such series or class or classes.
 
9.   Priority of 2010 ESOP Preferred Stock .  The shares of 2010 ESOP Preferred Stock will rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the Company’s 2001 ESOP Cumulative Convertible Preferred Stock, its 2002 ESOP Cumulative Convertible Preferred Stock, its 2003 ESOP Cumulative Convertible Preferred Stock, its 2004 ESOP Cumulative Convertible Preferred Stock, its 2005 ESOP Cumulative Convertible Preferred Stock, its 2006 ESOP Cumulative Convertible Preferred Stock, its 2007 ESOP Cumulative Convertible Preferred Stock and its 2008 ESOP Cumulative Convertible Preferred Stock. 
 
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by John G. Stumpf, its Chairman, President and Chief Executive Officer, and attested by Jeannine E. Zahn, its Assistant Secretary, whereby such President and Chief Executive Officer affirms, under penalties of perjury, that this Certificate of Designations is the act and deed of the Company and that the facts stated herein are true, this  23 rd  day of March, 2010.
 
WELLS FARGO & COMPANY
   
By         /s/ John G. Stumpf                                  
John G. Stumpf
i)                             Chairman, President and
ii)                           Chief Executive Officer
  Attest:
 
/s/ Jeannine E. Zahn                                    
Jeannine E. Zahn

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Assistant Secretary
 
[As filed with the Delaware Secretary of State on March 23, 2010.]

58


WELLS FARGO & COMPANY
_______________
 
CERTIFICATE OF AMENDMENT
OF  
CERTIFICATE OF INCORPORATION 
_______________
 
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
_______________
 
Laurel A. Holschuh, Senior Vice President, and Rachelle M. Graham, Assistant Secretary, of Wells Fargo & Company, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Company”), do hereby certify:
 
FIRST:  That at a meeting of the Board of Directors of the Company duly held on February 23, 2010, a resolution was duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of the Company, declaring the advisability of the amendment, and directing that the amendment be presented to stockholders of the Company for their consideration at the next annual meeting of the stockholders to be held on April 27, 2010.  The resolution setting forth the proposed amendment is as follows:
 
RESOLVED that an amendment to ARTICLE FOURTH of the Company’s Restated Certificate of Incorporation, as amended, to increase the authorized common stock to 9,000,000,000 shares is hereby proposed and declared advisable, and the following amendment to the first sentence of ARTICLE FOURTH is hereby directed to be presented to the stockholders of the Company for consideration at the annual meeting of stockholders to be held on April 27, 2010:

FOURTH:  The total number of shares of all classes of stock which the corporation shall have authority to issue is Nine Billion Twenty-Four Million (9,024,000,000), consisting of Twenty Million (20,000,000) shares of Preferred Stock without par value, Four Million (4,000,000) shares of Preference Stock without par value, and Nine Billion (9,000,000,000) shares of Common Stock of the par value of $1 2/3 per share.
 
SECOND:  That at such annual meeting of stockholders, duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, which notice set forth in full the proposed amendment, a majority of the outstanding shares of common stock of the Company were voted in favor of the amendment.
 
THIRD:  That the amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
 

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IN WITNESS WHEREOF, WELLS FARGO & COMPANY has caused this Certificate to be signed by Laurel A. Holschuh, its Senior Vice President, and attested by Rachelle M. Graham, its Assistant Secretary, this  29 th  day of April, 2010.
  

WELLS FARGO & COMPANY:
 
(Corporate Seal)
 
By:             /s/ Laurel A. Holschuh                
Senior Vice President
 
 
ATTEST:
 
 
 
By:         /s/ Rachelle M. Graham       
Assistant Secretary
 
 
[As filed with the Delaware Secretary of State on April 29, 2010.]
 

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WELLS FARGO & COMPANY
___________________________________
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
 
2011 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
___________________________________
 
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Company”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the provisions of the Restated Certificate of Incorporation of the Company, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”), and pursuant to authority conferred upon the ESOP Preferred Stock Committee I of the Board (the “ESOP Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the resolutions of the Board set forth herein, the following resolutions were duly adopted by the Board at meetings of the Board duly held on January 25, 2000 and February 24, 2009, and by the ESOP Committee pursuant to the written consent of the ESOP Committee duly adopted on March 15, 2011, in accordance with Section 141(f) of the General Corporation Law:
 
1.         On January 25, 2000, the Board adopted the following resolutions (the “ESOP Board Resolutions”) appointing the ESOP Committee and delegating to the ESOP Committee the full powers of the Board, subject to the ESOP Board Resolutions, in all matters relating to issuance of one or more series of Preferred Stock (“ESOP Preferred Stock”) to the trustee on behalf of the Company’s 401(k) Plan hereinafter referred to:
 
RESOLVED that a committee of one member of the Board of the Company is hereby appointed by the Board as the ESOP Preferred Stock Committee I (the “First Committee”), which shall have and may exercise the full powers of the Board, subject to these resolutions, to issue from time to time one or more series of ESOP Preferred Stock, including any shares of Company common stock ($1 2/3 par value) issuable upon conversion of ESOP Preferred Stock, and in connection therewith, to fix the designations, voting powers, preferences, and all other rights, qualifications and restrictions of such ESOP Preferred Stock, to sell such ESOP Preferred Stock to the Plan on such terms and conditions and for such purchase price as the First Committee in its discretion shall approve, and to take any and all actions as the First Committee shall deem necessary or appropriate.
 
2.         Pursuant to resolutions adopted on February 24, 2009, the Board designated John G. Stumpf as the sole member of the ESOP Committee, effective April 29, 2009.
 
3.         On March 15, 2011, pursuant to authority conferred upon it by the Board in the ESOP Board Resolutions, the ESOP Committee adopted the following resolutions by written consent in accordance with Section 141(f) of the General Corporation Law:
 
RESOLVED that the issuance of a series of Preferred Stock, without par value, of the Company is hereby authorized and the designation, voting powers, preferences, and relative, participating, optional, and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Company, as amended, are hereby fixed as follows:
 
2011 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
 
1.   Designation and Number of Shares; Restricted Issue . 

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(a) The designation of the series of Preferred Stock, without par value, provided for herein shall be “2011 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2011 ESOP Preferred Stock”) and the number of authorized shares constituting the 2011 ESOP Preferred Stock is 1,200,000, based on an offering price for the 2011 ESOP Preferred Stock of $1,085.00 per share.  Each share of 2011 ESOP Preferred Stock shall have a stated value of $1,000.00 per share.  The number of authorized shares of 2011 ESOP Preferred Stock may be reduced by further resolution duly adopted by the Board or the Securities Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, provided, however, that the authorized number of shares of 2011 ESOP Preferred Stock shall not be decreased below the then outstanding number of such shares, and provided further that the number of authorized shares of 2011 ESOP Preferred Stock shall not be increased.  All shares of the 2011 ESOP Preferred Stock purchased, redeemed, or converted by the Company shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of 2011 ESOP Preferred Stock.
 
(b)  Shares of 2011 ESOP Preferred Stock shall be issued only to a trustee (the “Trustee”) acting on behalf of the Wells Fargo & Company 401(k) Plan, or any successor to such plan (the “Plan”).  All references to the holder of shares of 2011 ESOP Preferred Stock shall mean the Trustee or any company with which or into which the Trustee may merge or any successor trustee under the trust agreement with respect to the Plan.  In the event of any transfer of record ownership of shares of 2011 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2011 ESOP Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder thereof, shall be automatically converted into shares of the common stock, par value $1-2/3 per share, of the Company (the “Common Stock”) on the terms otherwise provided for the conversion of the shares of 2011 ESOP Preferred Stock into shares of Common Stock pursuant to paragraph (a) of Section 4 hereof, and no such transferee shall have any of the voting powers, preferences, and relative, participating, optional or special rights ascribed to shares of 2011 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2011 ESOP Preferred Stock shall be so converted.  In the event of such a conversion, the transferee of the shares of 2011 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2011 ESOP Preferred Stock have been automatically converted as of the date of such transfer.  Shares of 2011 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option.  Certificates representing shares of 2011 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions.  In the case of uncertificated 2011 ESOP Preferred Stock, the transfer agent for the 2011 ESOP Preferred Stock shall note the foregoing provisions on each 2011 ESOP Preferred Stock book entry account.  The Company may require that, as a condition to transferring record ownership of any uncertificated 2011 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2011 ESOP Preferred Stock are subject to the foregoing provisions.  Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2011 ESOP Preferred Stock (i)(A) shall be converted into shares of Common Stock as provided in paragraph (a) of Section 4 hereof, and (B) may be converted into shares of Common Stock as provided by paragraph (b) of Section 4 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided in Sections 5 and 6(c) hereof.

2.   Voting Rights .  No shares of 2011 ESOP Preferred Stock shall have voting rights except such voting rights as may from time to time be required by law and as set forth in this Section 2, as follows:
 
(a)  Whenever, at any time or times, dividends payable on shares of 2011 ESOP Preferred Stock shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding shares of 2011 ESOP Preferred Stock shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the shares of 2011 ESOP Preferred Stock, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders.  At elections for such directors, each holder of the shares of 2011 ESOP Preferred Stock

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shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding shares of 2011 ESOP Preferred Stock (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such shares of 2011 ESOP Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such shares of 2011 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2011 ESOP Preferred Stock shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
(b)  Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
(c)  So long as any shares of 2011 ESOP Preferred Stock remain outstanding, the consent of the holders of the outstanding shares of 2011 ESOP Preferred Stock and outstanding shares of all other series of Preferred Stock ranking on a parity with such shares of 2011 ESOP Preferred Stock either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding shares of 2011 ESOP Preferred Stock and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:
 
(i)  the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to shares of 2011 ESOP Preferred Stock with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or
 
(ii)  the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designations designating shares of 2011 ESOP Preferred Stock and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the shares of 2011 ESOP Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock, or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the shares of 2011 ESOP Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
(d)  The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of 2011 ESOP Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.
 

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3.         Dividends .  (a)(i)  Holders of shares of 2011 ESOP Preferred Stock will be entitled to receive, when and as declared by the Board or a duly authorized committee thereof, out of assets of the Company legally available for payment, an annual cash dividend of $90.00 (the “Base Dividend”) per share, which Base Dividend shall be subject to adjustment from time to time as provided in this Section 3.
 
(ii)  The Base Dividend shall be adjusted, effective on December 1, 2012 and on each December 1 thereafter until December 1, 2020, as follows: 
 
(1)  If the Current Market Price (as hereinafter defined) of one share of Common Stock on November 30 (or the next preceding Trading Day (as hereinafter defined) if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the First Target Price but less than the Second Target Price shown opposite that year in such table, then holders of shares of the 2011 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $95.00 per share (the “First Adjusted Dividend”). 
 
(2)  If the Current Market Price of one share of Common Stock on November 30 (or the next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the Second Target Price shown opposite that year in such table, then holders of shares of 2011 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $100.00 per share (the “Second Adjusted Dividend”).
 
(3)  If the Current Market Price of one share of Common Stock on November 30 (or next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is less than the First Target Price shown opposite that year in such table, then the holders of shares of 2011 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to the Base Dividend.

28)               Dividend Adjustment Table
 
29)                             Closing Price on 11/30
 
30)                                   First Target Price
 
31)                                         Second Target Price
2,012,000
 
38.559

 
45.346

2,013,000
 
42.705

 
55.095

2,014,000
 
47.295

 
66.941

2,015,000
 
52.380

 
81.333

2,016,000
 
58.010

 
98.820

2,017,000
 
64.247

 
120.066

2,018,000
 
71.153

 
145.880

2,019,000
 
78.802

 
177.244

2,020,000
 
87.273

 
215.352

 
(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2012, the Current Market Price of one share of Common Stock is $40.00, then the cash dividend payable for the immediately following twelve month period per share of 2011 ESOP Preferred Stock would equal $95.00, with the first quarterly payment of such $95.00 dividend to be made on March 1, 2013.  If on November 30, 2013, the Current Market Price of one share of Common Stock is $60.00, then the cash dividend payable for the immediately following twelve month period per share of 2011 ESOP Preferred Stock would equal $100.00, with the first quarterly payment of such $100.00 dividend to be made on March 1, 2014.  If on November 30, 2014, the Current Market Price of one share of Common Stock is $40.00, then the cash dividend payable for the immediately following twelve month period per share of 2011 ESOP Preferred Stock would equal $90.00, with the first quarterly payment of such $90.00 dividend to be made on March 1, 2015.

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(5)  For purposes of this Section 3, the terms “First Adjusted Dividend” and “Second Adjusted Dividend” are sometimes referred to as an “Adjusted Dividend;” the term “Current Market Price” shall have the meaning given to it in Section 4(c)(iv); and the term “Trading Day” shall have the meaning given to it in Section 4(c)(vi).
 
(iii)  If one share of Common Stock in any year listed in the Dividend Adjustment Table shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the First Target Price and the Second Target Price listed in such table for that year and each subsequent year will be appropriately and proportionately adjusted.
 
(iv)  Dividends payable on shares of the 2011 ESOP Preferred Stock (whether such dividends are equal to the Base Dividend or to an Adjusted Dividend) shall be payable quarterly on March 1, June 1, September 1, and December 1 of each year, commencing June 1, 2011.  Dividends on shares of the 2011 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2011 ESOP Preferred Stock.  Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Company on such record dates, not more than 30 days nor less than 15 days preceding the payment dates thereof, as shall be fixed by the Board or a duly authorized committee thereof.  The amount of dividends payable per share for each dividend period shall be computed by dividing by four the Base Dividend or the Adjusted Dividend, whichever is then applicable.  The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of actual days elapsed in a 360-day year of twelve 30-day months.
 
(b)(i)  No full dividends shall be declared or paid or set apart for payment on any stock of the Company ranking, as to dividends, on a parity with or junior to the 2011 ESOP Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been set apart for such payment on shares of 2011 ESOP Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends.  When dividends are not paid in full, as aforesaid, upon the shares of 2011 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends
with 2011 ESOP Preferred Stock, all dividends declared upon shares of 2011 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2011 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2011 ESOP Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of 2011 ESOP Preferred Stock and such other series of Preferred Stock bear to each other.  Holders of shares of 2011 ESOP Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends, as herein provided, on 2011 ESOP Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on 2011 ESOP Preferred Stock which may be in arrears.
 
(ii)  So long as any shares of 2011 ESOP Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants, or rights to subscribe for or purchase shares of, Common Stock or any other stock ranking junior to 2011 ESOP Preferred Stock as to dividends or upon liquidation and other than as provided in paragraph (b)(i) of this Section 3) shall be declared or paid or set aside for payment or other distribution declared or made upon Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2011 ESOP Preferred Stock as to dividends or upon liquidation, nor shall any Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2011 ESOP Preferred Stock as to dividends or upon liquidation be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to 2011 ESOP Preferred Stock as to dividends or upon liquidation), unless, in each case, the full cumulative dividends on all outstanding shares of 2011 ESOP Preferred Stock shall have been paid or declared and set aside for payment of the then current dividend payment period and all past dividend payment periods.

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4.   Conversion .  Shares of 2011 ESOP Preferred Stock are convertible from time to time hereafter pursuant to the provisions of paragraphs (a) or (b) of this Section 4 into that number of shares of Common Stock determined by dividing the stated value of each share of 2011 ESOP Preferred Stock by the then applicable Conversion Price, (as determined in accordance with the provisions of paragraph (c)(iii) of this Section 4), as follows:
 
(a)  Each share of 2011 ESOP Preferred Stock released from the unallocated reserve of the Plan in accordance with the terms thereof shall be automatically converted, without any further action by the Company or the holder thereof, as of the date such release occurs (the “Release Date”), into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for the 2011 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(b)  Subject to and upon compliance with the provisions of this Section 4, a holder of 2011 ESOP Preferred Stock shall be entitled at any time, prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 5 or 6 hereof, to cause any or all of the shares of 2011 ESOP Preferred Stock held by such holder to be converted into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for 2011 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(c)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
 
(i)  The “Average Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the Current Market Price for one share of Common Stock for the twenty (20) consecutive Trading Days ending on the Trading Day occurring prior to the date the “Purchase Offer” is made (as that term is defined in Section 6(d) hereof).
 
(ii)  A “Business Day” means each day that is not a Saturday, Sunday, or a day on which state or federally chartered banking institutions in the State of New York are not required to be open.
 
(iii)  (A)  For purposes of a mandatory conversion of shares of 2011 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (a) of this Section 4, the “Conversion Price” for such shares of 2011 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the relevant Release Date.

(B)  For purposes of an optional conversion of shares of 2011 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (b) of this Section 4, the “Conversion Price” for such shares of 2011 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the date the Conversion Notice (as that term is defined in paragraph (d) of this Section 4) is received by the Company, by the transfer agent for the 2011 ESOP Preferred Stock or by any agent for conversion of the 2011 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.
 
(C)  For purposes of a conversion of shares of 2011 ESOP Preferred Stock into shares of Common Stock in connection with a “Purchase Offer” (as defined in Section 6(d) hereof), the “Conversion Price” for such shares of 2011 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.
 
Each share of 2011 ESOP Preferred Stock shall be valued at its stated value of $1,000.00 for purposes of computing, based on the applicable Conversion Price, the number of shares of Common Stock into which the shares of 2011 ESOP Preferred Stock will be converted. 
 
(iv)  The “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for any day shall mean the reported last sale price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange only or, if the Common Stock is not

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listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof.

(v)  “Common Stock” shall mean the Common Stock of the Company as the same exists at the date of this Certificate of Designations or as such stock may be constituted from time to time.
 
(vi)  “Trading Day” with respect to Common Stock means (x) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the Common Stock is quoted on the National Market System of NASDAQ, a day on which trades may be made on such National Market System or (z) otherwise, any Business Day.

(d)  In connection with any conversion of 2011 ESOP Preferred Stock pursuant to this Section 4, a written notice of conversion (the “Conversion Notice”) shall be delivered to the Company at its principal executive office or the offices of the transfer agent for the 2011 ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the 2011 ESOP Preferred Stock by the Company or the transfer agent for the 2011 ESOP Preferred Stock, which notice shall be accompanied by (a) in the case of certificated 2011 ESOP Preferred Stock, the certificate or certificates representing the shares of 2011 ESOP Preferred Stock being converted pursuant to this Section 4, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) and (b) in the case of uncertificated 2011 ESOP Preferred Stock, duly executed assignment and transfer documents for the shares of 2011 ESOP Preferred Stock being converted pursuant to this Section 4.  Each Conversion Notice shall specify (i)(y) in the case of a mandatory conversion pursuant to paragraph (a) of this Section 4, the number of shares of 2011 ESOP Preferred Stock released from the unallocated reserve of the Plan on the Release Date or (z) in the case of an optional conversion pursuant to paragraph (b) of this Section 4, the number of shares of 2011 ESOP Preferred Stock being converted, and (ii) in connection with any conversion hereunder, (x) the name or names in which such holder wishes the certificate or certificates for Common Stock and, in the case of certificated 2011 ESOP Preferred Stock, for any shares of 2011 ESOP Preferred Stock not to be so converted to be issued, (y) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (z) such other information as the Company or its agents may reasonably request.

(e)  Upon delivery to the Company or the transfer agent for the 2011 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4,  the Company shall issue and send by hand delivery, by courier or by first-class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion.  If there shall have been surrendered a certificate or certificates representing shares of 2011 ESOP Preferred Stock only part of which are to be converted, the Company shall issue and deliver to such holder or such holder’s designee, in the manner set forth in the preceding sentence, a new certificate or certificates representing the number of shares of 2011 ESOP Preferred Stock which shall not have been converted.

(f)  The issuance by the Company of shares of Common Stock upon a conversion of shares of 2011 ESOP Preferred Stock into shares of Common Stock made pursuant to this Section 4 shall be effective (i) in the case of a mandatory conversion of shares of 2011 ESOP Preferred Stock pursuant to paragraph (a) of this Section 4,

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as of the Release Date; and (ii) in the case of an optional conversion of such shares pursuant to paragraph (b) of this Section 4, as of the earlier of (A) the delivery to such holder or such holder’s designee of the certificates representing the shares of Common Stock issued upon conversion thereof or (B) the commencement of business on the second Business Day after the delivery to the Company or the transfer agent for the 2011 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4.  On and after the effective date of conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date.  The Company shall not be obligated to pay any dividends which shall have accrued or have been declared and shall be payable to holders of shares of 2011 ESOP Preferred Stock if the date on which such dividends are paid is on or after the effective date of conversion of such shares.

(g)  The Company shall not be obligated to deliver to holders of 2011 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2011 ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law.

(h)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of 2011 ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of 2011 ESOP Preferred Stock then outstanding.

(i)  The Company will use its best efforts to cause the listing of the shares of Common Stock required to be delivered upon conversion of the 2011 ESOP Preferred Stock prior to distribution to Plan participants on the national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.

(j)  The Company will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of the 2011 ESOP Preferred Stock pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the 2011 ESOP Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.

5.   Redemption At the Option of the Company .  (a)  The 2011 ESOP Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time, at a redemption price per share of 2011 ESOP Preferred Stock equal to the higher of (x) $1,000.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, and (y) the Fair Market Value (as that term is defined in paragraph (d) of this Section 5) per share of 2011 ESOP Preferred Stock on the date fixed for redemption.  Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (c) of this Section 5.  From and after the date fixed for redemption, dividends on shares of 2011 ESOP Preferred Stock called for redemption will cease to accrue and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price.  Upon payment of the redemption price, such shares shall be deemed to have been transferred to the Company, to be retired as provided in paragraph (a) of Section 1.  If the full cumulative dividends have not been paid, or contemporaneously declared and set aside for payment, on all outstanding shares of 2011 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2011 ESOP Preferred Stock pursuant to this Section 5.

(b)  Unless otherwise required by law, notice of any redemption pursuant to this Section 5 will be sent to the holders of 2011 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2011 ESOP Preferred Stock by hand delivery, by courier, by standard form of telecommunication or by first-class mail (postage prepaid) delivered, sent or mailed, as the case may be, not less than twenty (20) days nor

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more than sixty (60) days prior to the redemption date.  Each such notice shall state:  (i) the redemption date; (ii) the total number of shares of the 2011 ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) whether the redemption price shall be paid in cash or in shares of Common Stock, or in a combination of such Common Stock and cash; (v) in the case of certificated 2011 ESOP Preferred Stock the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vii) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised and the manner in which the number of shares of Common Stock issuable upon conversion of a share of 2011 ESOP Preferred Stock will be determined.  The Company shall redeem shares so called for redemption and not previously converted at the date fixed for redemption and at the redemption price set forth in this Section 5, provided that, in the case of certificated 2011 ESOP Preferred Stock, the Company shall not be obligated to pay the redemption price until the certificates for the shares to be redeemed are surrendered (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state).

(c)  The Company, at its option, may make payment of the redemption price required upon redemption of shares of 2011 ESOP Preferred Stock in cash or in shares of Common Stock, or in a combination of such Common Stock and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (d)(ii) of this Section 5) or their Current Market Price, in either case as of the date fixed for redemption of the 2011 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2011 ESOP Preferred Stock then being redeemed.

(d)  For purposes of these resolutions, the following terms shall have the meanings set forth below:

(i)  “Adjustment Period” shall mean the period of five (5) consecutive Trading Days preceding the date as of which the Fair Market Value of a security is to be determined.

(ii)  “Fair Market Value” shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issue which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period.  The “Fair Market Value” of any security which is not publicly traded (other than the 2011 ESOP Preferred Stock) or of any other property shall mean the fair value thereof on the date as of which the Fair Market Value of the security is to be determined, as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board or a committee thereof.  The “Fair Market Value” of the 2011 ESOP Preferred Stock for purposes of paragraph (a) of Section 5, and for purposes of paragraph (c) of Section 6 shall mean the fair market value thereof determined by an independent appraiser, appointed by the Trustee of the Plan in accordance with the provisions of the Plan, as of the date fixed for redemption of the 2011 ESOP Preferred Stock (in the case of a redemption pursuant to Section 5) or as of the date specified in paragraph (c) of Section 6 (in the case of a redemption under that section).  For purposes of determining the Fair Market Value of the 2011 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2011 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2011 ESOP Preferred Stock held by the Plan into shares of Common Stock pursuant to Section 4(a) hereof would have occurred when and as payments of principal (together with accrued interest thereon) would have been made by the Trustee of the Plan in accordance with the terms of that certain 2011 ESOP Cumulative Convertible Preferred Stock Note Agreement dated on or about March 18, 2011 between the Company and the Plan (including any amendments or modifications thereto).

6.   Consolidation, Merger, etc.   (a)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Company) that constitutes “qualifying employer securities” with respect to a holder of 2011 ESOP Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any

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successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of 2011 ESOP Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business combination, be assumed by and shall become Preferred Stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 5 and 6 hereof), and the qualifications, limitations or restrictions thereon, that the 2011 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:

(1)  After such transaction each share of the 2011 ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 4 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of 2011 ESOP Preferred Stock could have been converted immediately prior to such transaction.

(2)  The Company shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of 2011 ESOP Preferred Stock shall be assumed and authorized by the successor or resulting corporation as aforesaid.

(b)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (a) of this Section 6) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of 2011 ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (c) of this Section 6), be automatically converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of 2011 ESOP Preferred Stock could have been converted at such time so that each share of 2011 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2011 ESOP Preferred Stock could have been converted immediately prior to such transaction.  However, if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the 2011 ESOP Preferred Stock, then the shares of 2011 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2011 ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction.  If the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares.

(c)  In the event the Company shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (b) of this Section 6 (a “Business Combination”), then the Company shall as soon as practicable thereafter (and in any event at least fifteen (15) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of 2011 ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such 2011 ESOP Preferred Stock, a cash payment per share of 2011 ESOP Preferred Stock equal to the higher of (x) $1,000.00, plus accrued and unpaid dividends thereon to the date of consummation of such transaction or (y) the Fair Market Value per share of 2011 ESOP Preferred Stock, as of the last Business Day (as defined in paragraph (c) of Section 4 hereof) immediately preceding

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the date the Business Combination is consummated.  No such notice of redemption shall be effective unless given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction.
 
(d)  In the event that a Purchase Offer (as defined below) shall have been made and shall be continuing, each holder of 2011 ESOP Preferred Stock shall have the right to convert shares of 2011 ESOP Preferred Stock into shares of Common Stock at the Conversion Price specified in Section 4(c)(iii)(C) hereof until the date the Purchase Offer is terminated, including without limitation because the original Purchase Offer is withdrawn or because the Purchase Offer has expired and is not renewed, upon notice of such conversion given to the Company not later than the close of business on the date the Purchase Offer terminates (the “Purchase Offer Conversion Period”), unless the Company or any successor of the Company shall waive such prior notice, but any notice of conversion so given may be withdrawn by notice of withdrawal given to the Company prior to the end of the Purchase Offer Conversion Period.
 
For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
 
(i)  “Beneficial Ownership” shall have the meaning ascribed to it in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “person” shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
 
(ii)  A “Purchase Offer” shall have been made when any person (other than the Company or any affiliate of the Company) shall have “commenced” (as such term is defined in Rule 14d-2 under the Exchange Act) a tender offer or exchange offer to purchase shares of Common Stock, such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined herein) or the right to acquire Beneficial Ownership, of twenty percent (20%) or more of the voting power of the Company.
 
7.   Liquidation Rights .  (a)  Upon the dissolution, liquidation, or winding up of the Company, the holders of the shares of 2011 ESOP Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on the Common Stock or any other class of stock ranking junior to 2011 ESOP Preferred Stock upon liquidation, the amount of $1,000.00 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.
 
(b)  Neither the sale of all or substantially all the property and assets of the Company, nor the merger or consolidation of the Company into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Company shall be deemed to be a dissolution, liquidation, or winding up, voluntary or involuntary, for the purposes of this Section 7.
 
(c)  After the payment to the holders of the shares of 2011 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2011 ESOP Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Company.
 
(d)  In the event the assets of the Company available for distribution to the holders of shares of 2011 ESOP Preferred Stock upon any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of Preferred Stock or other capital stock of the Company ranking on a parity with the shares of 2011 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2011 ESOP Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation, or winding up.
 

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(e)  Subject to the rights of the holders of the shares of any series or class or classes of stock ranking on a parity with or prior to the shares of 2011 ESOP Preferred Stock upon liquidation, dissolution, or winding up, upon any liquidation, dissolution, or winding up of the Company, after payment shall have been made in full to the holders of the shares of 2011 ESOP Preferred Stock as provided in this Section 7, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of 2011 ESOP Preferred Stock upon liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the shares of 2011 ESOP Preferred Stock shall not be entitled to share therein.
 
8.   Ranking .  For the purposes of these resolutions, any stock of any series or class or classes of the Company shall be deemed to rank:
 
(a)  prior to the shares of 2011 ESOP Preferred Stock, either as to dividends or upon liquidation, if the holders of such series or class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of 2011 ESOP Preferred Stock;
 
(b)  on a parity with shares of 2011 ESOP Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of 2011 ESOP Preferred Stock, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of 2011 ESOP Preferred Stock; and
 
(c)  junior to shares of 2011 ESOP Preferred Stock, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of 2011 ESOP Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such series or class or classes.
 
9.   Priority of 2011 ESOP Preferred Stock .  The shares of 2011 ESOP Preferred Stock will rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the Company’s 2002 ESOP Cumulative Convertible Preferred Stock, its 2003 ESOP Cumulative Convertible Preferred Stock, its 2004 ESOP Cumulative Convertible Preferred Stock, its 2005 ESOP Cumulative Convertible Preferred Stock, its 2006 ESOP Cumulative Convertible Preferred Stock, its 2007 ESOP Cumulative Convertible Preferred Stock, its 2008 ESOP Cumulative Convertible Preferred Stock and its 2010 ESOP Cumulative Convertible Preferred Stock. 

IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by John G. Stumpf, its Chairman, President and Chief Executive Officer, and attested by Jeannine E. Zahn, its Assistant Secretary, whereby such President and Chief Executive Officer affirms, under penalties of perjury, that this Certificate of Designations is the act and deed of the Company and that the facts stated herein are true, this 17th day of March, 2011.
  

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WELLS FARGO & COMPANY
 
By         /s/ John G. Stumpf                           
John G. Stumpf
i)                             Chairman, President and
ii)                           Chief Executive Officer
 
 
Attest:
 
/s/ Jeannine E. Zahn                                        
Jeannine E. Zahn
Assistant Secretary
 
 
 
[As filed with the Delaware Secretary of State on March 17, 2011.]
 

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WELLS FARGO & COMPANY
___________________________________
 
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
 
2012 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
___________________________________
 
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Company”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the provisions of the Restated Certificate of Incorporation of the Company, as amended, which authorizes the issuance of not more than 20,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”), and pursuant to authority conferred upon the ESOP Preferred Stock Committee I of the Board (the “ESOP Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the resolutions of the Board set forth herein, the following resolutions were duly adopted by the Board at meetings of the Board duly held on January 25, 2000 and February 24, 2009, and by the ESOP Committee pursuant to the written consent of the ESOP Committee duly adopted on January 9, 2012, in accordance with Section 141(f) of the General Corporation Law:
 
1.         On January 25, 2000, the Board adopted the following resolutions (the “ESOP Board Resolutions”) appointing the ESOP Committee and delegating to the ESOP Committee the full powers of the Board, subject to the ESOP Board Resolutions, in all matters relating to issuance of one or more series of Preferred Stock (“ESOP Preferred Stock”) to the trustee on behalf of the Company’s 401(k) Plan hereinafter referred to:

RESOLVED that a committee of one member of the Board of the Company is hereby appointed by the Board as the ESOP Preferred Stock Committee I (the “First Committee”), which shall have and may exercise the full powers of the Board, subject to these resolutions, to issue from time to time one or more series of ESOP Preferred Stock, including any shares of Company common stock ($1 2/3 par value) issuable upon conversion of ESOP Preferred Stock, and in connection therewith, to fix the designations, voting powers, preferences, and all other rights, qualifications and restrictions of such ESOP Preferred Stock, to sell such ESOP Preferred Stock to the Plan on such terms and conditions and for such purchase price as the First Committee in its discretion shall approve, and to take any and all actions as the First Committee shall deem necessary or appropriate.
 
2.         Pursuant to resolutions adopted on February 24, 2009, the Board designated John G. Stumpf as the sole member of the ESOP Committee, effective April 29, 2009.
 
3.         On January 9, 2012, pursuant to authority conferred upon it by the Board in the ESOP Board Resolutions, the ESOP Committee adopted the following resolutions by written consent in accordance with Section 141(f) of the General Corporation Law:
 
RESOLVED that the issuance of a series of Preferred Stock, without par value, of the Company is hereby authorized and the designation, voting powers, preferences, and relative, participating, optional, and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Company, as amended, are hereby fixed as follows:
 
2012 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
 
1.   Designation and Number of Shares; Restricted Issue . 

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(a) The designation of the series of Preferred Stock, without par value, provided for herein shall be “2012 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2012 ESOP Preferred Stock”) and the number of authorized shares constituting the 2012 ESOP Preferred Stock is 940,000, based on an offering price for the 2012 ESOP Preferred Stock of $1,094.00 per share.  Each share of 2012 ESOP Preferred Stock shall have a stated value of $1,000.00 per share.  The number of authorized shares of 2012 ESOP Preferred Stock may be reduced by further resolution duly adopted by the Board or the Securities Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, provided, however, that the authorized number of shares of 2012 ESOP Preferred Stock shall not be decreased below the then outstanding number of such shares, and provided further that the number of authorized shares of 2012 ESOP Preferred Stock shall not be increased.  All shares of the 2012 ESOP Preferred Stock purchased, redeemed, or converted by the Company shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of 2012 ESOP Preferred Stock.
 
(b)  Shares of 2012 ESOP Preferred Stock shall be issued only to a trustee (the “Trustee”) acting on behalf of the Wells Fargo & Company 401(k) Plan, or any successor to such plan (the “Plan”).  All references to the holder of shares of 2012 ESOP Preferred Stock shall mean the Trustee or any company with which or into which the Trustee may merge or any successor trustee under the trust agreement with respect to the Plan.  In the event of any transfer of record ownership of shares of 2012 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2012 ESOP Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder thereof, shall be automatically converted into shares of the common stock, par value $1-2/3 per share, of the Company (the “Common Stock”) on the terms otherwise provided for the conversion of the shares of 2012 ESOP Preferred Stock into shares of Common Stock pursuant to paragraph (a) of Section 4 hereof, and no such transferee shall have any of the voting powers, preferences, and relative, participating, optional or special rights ascribed to shares of 2012 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2012 ESOP Preferred Stock shall be so converted.  In the event of such a conversion, the transferee of the shares of 2012 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2012 ESOP Preferred Stock have been automatically converted as of the date of such transfer.  Shares of 2012 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option.  Certificates representing shares of 2012 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions.  In the case of uncertificated 2012 ESOP Preferred Stock, the transfer agent for the 2012 ESOP Preferred Stock shall note the foregoing provisions on each 2012 ESOP Preferred Stock book entry account.  The Company may require that, as a condition to transferring record ownership of any uncertificated 2012 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2012 ESOP Preferred Stock are subject to the foregoing provisions.  Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2012 ESOP Preferred Stock (i)(A) shall be converted into shares of Common Stock as provided in paragraph (a) of Section 4 hereof, and (B) may be converted into shares of Common Stock as provided by paragraph (b) of Section 4 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided in Sections 5 and 6(c) hereof.

2.   Voting Rights .  No shares of 2012 ESOP Preferred Stock shall have voting rights except such voting rights as may from time to time be required by law and as set forth in this Section 2, as follows:
 
(a)  Whenever, at any time or times, dividends payable on shares of 2012 ESOP Preferred Stock shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding shares of 2012 ESOP Preferred Stock shall have the exclusive right, voting together as a class with holders of shares of any one or more other series of Preferred Stock ranking on a parity with the shares of 2012 ESOP Preferred Stock, either as to dividends or on the distribution of assets upon liquidation, dissolution or winding up, and upon which like voting rights have been conferred and are exercisable, to elect two directors of the Company at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders.  At elections for such directors, each holder of the shares of 2012 ESOP Preferred Stock

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shall be entitled to one vote for each share held (the holders of shares of any other series of Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding shares of 2012 ESOP Preferred Stock (together with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) as herein set forth.  The right of such holders of such shares of 2012 ESOP Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Preferred Stock ranking on such a parity and upon which like voting rights have been conferred and are exercisable) to elect members of the Board as aforesaid shall continue until such time as all dividends accumulated on such shares of 2012 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2012 ESOP Preferred Stock shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
(b)  Upon any termination of the right of the holders of all shares of Preferred Stock entitled to vote for directors as herein provided, the term of office of all directors then in office elected by such holders voting as a class shall terminate immediately.  If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders may choose a successor to fill such vacancy, which such successor shall hold office for the unexpired term in respect of which such vacancy occurred.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this resolution.
 
(c)  So long as any shares of 2012 ESOP Preferred Stock remain outstanding, the consent of the holders of the outstanding shares of 2012 ESOP Preferred Stock and outstanding shares of all other series of Preferred Stock ranking on a parity with such shares of 2012 ESOP Preferred Stock either as to dividends or the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable, by a vote of at least two-thirds of all such outstanding shares of 2012 ESOP Preferred Stock and such other series of Preferred Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following:
 
(i)  the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to shares of 2012 ESOP Preferred Stock with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up, or

(ii)  the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designations designating shares of 2012 ESOP Preferred Stock and the preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the shares of 2012 ESOP Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock, or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the shares of 2012 ESOP Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
(d)  The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of 2012 ESOP Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption.
 

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3.         Dividends .  (a)(i)  Holders of shares of 2012 ESOP Preferred Stock will be entitled to receive, when and as declared by the Board or a duly authorized committee thereof, out of assets of the Company legally available for payment, an annual cash dividend of $100.00 (the “Base Dividend”) per share, which Base Dividend shall be subject to adjustment from time to time as provided in this Section 3.
 
(ii)  The Base Dividend shall be adjusted, effective on December 1, 2013 and on each December 1 thereafter until December 1, 2021, as follows: 
 
(1)  If the Current Market Price (as hereinafter defined) of one share of Common Stock on November 30 (or the next preceding Trading Day (as hereinafter defined) if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the First Target Price but less than the Second Target Price shown opposite that year in such table, then holders of shares of the 2012 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $105.00 per share (the “First Adjusted Dividend”). 
 
(2)  If the Current Market Price of one share of Common Stock on November 30 (or the next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the Second Target Price shown opposite that year in such table, then holders of shares of 2012 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $110.00 per share (the “Second Adjusted Dividend”).
 
(3)  If the Current Market Price of one share of Common Stock on November 30 (or next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is less than the First Target Price shown opposite that year in such table, then the holders of shares of 2012 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to the Base Dividend.
32)                 
33)               Dividend Adjustment Table
 
34)                             Closing Price on 11/30
 
35)                                   First Target Price
 
36)                                         Second Target Price
2,013,000
 
28.424

 
30.617

2,014,000
 
31.124

 
34.980

2,015,000
 
34.081

 
39.964

2,016,000
 
37.319

 
45.659

2,017,000
 
40.864

 
52.166

2,018,000
 
44.746

 
59.599

2,019,000
 
48.997

 
68.092

2,020,000
 
53.652

 
77.795


(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2013, the Current Market Price of one share of Common Stock is $30.00, then the cash dividend payable for the immediately following twelve month period per share of 2012 ESOP Preferred Stock would equal $105.00, with the first quarterly payment of such $105.00 dividend to be made on March 1, 2014.  If on November 30, 2014, the Current Market Price of one share of Common Stock is $40.00, then the cash dividend payable for the immediately following twelve month period per share of 2012 ESOP Preferred Stock would equal $110.00, with the first quarterly payment of such $110.00 dividend to be made on March 1, 2015.  If on November 30, 2015, the Current Market Price of one share of Common Stock is $30.00, then the cash dividend payable for the immediately following twelve month period per share of 2012 ESOP Preferred Stock would equal $100.00, with the first quarterly payment of such $100.00 dividend to be made on March 1, 2016.
 

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(5)  For purposes of this Section 3, the terms “First Adjusted Dividend” and “Second Adjusted Dividend” are sometimes referred to as an “Adjusted Dividend;” the term “Current Market Price” shall have the meaning given to it in Section 4(c)(iv); and the term “Trading Day” shall have the meaning given to it in Section 4(c)(vi).
 
(iii)  If one share of Common Stock in any year listed in the Dividend Adjustment Table shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the First Target Price and the Second Target Price listed in such table for that year and each subsequent year will be appropriately and proportionately adjusted.
 
(iv)  Dividends payable on shares of the 2012 ESOP Preferred Stock (whether such dividends are equal to the Base Dividend or to an Adjusted Dividend) shall be payable quarterly on March 1, June 1, September 1, and December 1 of each year, commencing March 1, 2012.  Dividends on shares of the 2012 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2012 ESOP Preferred Stock.  Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Company on such record dates, not more than 30 days nor less than 15 days preceding the payment dates thereof, as shall be fixed by the Board or a duly authorized committee thereof.  The amount of dividends payable per share for each dividend period shall be computed by dividing by four the Base Dividend or the Adjusted Dividend, whichever is then applicable.  The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of actual days elapsed in a 360-day year of twelve 30-day months.
 
(b)(i)  No full dividends shall be declared or paid or set apart for payment on any stock of the Company ranking, as to dividends, on a parity with or junior to the 2012 ESOP Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been set apart for such payment on shares of 2012 ESOP Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends.  When dividends are not paid in full, as aforesaid, upon the shares of 2012 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2012 ESOP Preferred Stock, all dividends declared upon shares of 2012 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2012 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2012 ESOP Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of 2012 ESOP Preferred Stock and such other series of Preferred Stock bear to each other.  Holders of shares of 2012 ESOP Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends, as herein provided, on 2012 ESOP Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on 2012 ESOP Preferred Stock which may be in arrears.
 
(ii)  So long as any shares of 2012 ESOP Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants, or rights to subscribe for or purchase shares of, Common Stock or any other stock ranking junior to 2012 ESOP Preferred Stock as to dividends or upon liquidation and other than as provided in paragraph (b)(i) of this Section 3) shall be declared or paid or set aside for payment or other distribution declared or made upon Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2012 ESOP Preferred Stock as to dividends or upon liquidation, nor shall any Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2012 ESOP Preferred Stock as to dividends or upon liquidation be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to 2012 ESOP Preferred Stock as to dividends or upon liquidation), unless, in each case, the full cumulative dividends on all outstanding shares of 2012 ESOP Preferred Stock shall have been paid or declared and set aside for payment of the then current dividend payment period and all past dividend payment periods.
 

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4.   Conversion .  Shares of 2012 ESOP Preferred Stock are convertible from time to time hereafter pursuant to the provisions of paragraphs (a) or (b) of this Section 4 into that number of shares of Common Stock determined by dividing the stated value of each share of 2012 ESOP Preferred Stock by the then applicable Conversion Price, (as determined in accordance with the provisions of paragraph (c)(iii) of this Section 4), as follows:
 
(a)  Each share of 2012 ESOP Preferred Stock released from the unallocated reserve of the Plan in accordance with the terms thereof shall be automatically converted, without any further action by the Company or the holder thereof, as of the date such release occurs (the “Release Date”), into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for the 2012 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(b)  Subject to and upon compliance with the provisions of this Section 4, a holder of 2012 ESOP Preferred Stock shall be entitled at any time, prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 5 or 6 hereof, to cause any or all of the shares of 2012 ESOP Preferred Stock held by such holder to be converted into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for 2012 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(c)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
 
(i)  The “Average Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the Current Market Price for one share of Common Stock for the twenty (20) consecutive Trading Days ending on the Trading Day occurring prior to the date the “Purchase Offer” is made (as that term is defined in Section 6(d) hereof).
 
(ii)  A “Business Day” means each day that is not a Saturday, Sunday, or a day on which state or federally chartered banking institutions in the State of New York are not required to be open.
 
(iii)  (A)  For purposes of a mandatory conversion of shares of 2012 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (a) of this Section 4, the “Conversion Price” for such shares of 2012 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the relevant Release Date.
 
(B)  For purposes of an optional conversion of shares of 2012 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (b) of this Section 4, the “Conversion Price” for such shares of 2012 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the date the Conversion Notice (as that term is defined in paragraph (d) of this Section 4) is received by the Company, by the transfer agent for the 2012 ESOP Preferred Stock or by any agent for conversion of the 2012 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.
 
(C)  For purposes of a conversion of shares of 2012 ESOP Preferred Stock into shares of Common Stock in connection with a “Purchase Offer” (as defined in Section 6(d) hereof), the “Conversion Price” for such shares of 2012 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.
 
Each share of 2012 ESOP Preferred Stock shall be valued at its stated value of $1,000.00 for purposes of computing, based on the applicable Conversion Price, the number of shares of Common Stock into which the shares of 2012 ESOP Preferred Stock will be converted. 

(iv)  The “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for any day shall mean the reported last sale price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange only or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on

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which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof.

(v)  “Common Stock” shall mean the Common Stock of the Company as the same exists at the date of this Certificate of Designations or as such stock may be constituted from time to time.
 
(vi)  “Trading Day” with respect to Common Stock means (x) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the Common Stock is quoted on the National Market System of NASDAQ, a day on which trades may be made on such National Market System or (z) otherwise, any Business Day.
(d)  In connection with any conversion of 2012 ESOP Preferred Stock pursuant to this Section 4, a written notice of conversion (the “Conversion Notice”) shall be delivered to the Company at its principal executive office or the offices of the transfer agent for the 2012 ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the 2012 ESOP Preferred Stock by the Company or the transfer agent for the 2012 ESOP Preferred Stock, which notice shall be accompanied by (a) in the case of certificated 2012 ESOP Preferred Stock, the certificate or certificates representing the shares of 2012 ESOP Preferred Stock being converted pursuant to this Section 4, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) and (b) in the case of uncertificated 2012 ESOP Preferred Stock, duly executed assignment and transfer documents for the shares of 2012 ESOP Preferred Stock being converted pursuant to this Section 4.  Each Conversion Notice shall specify (i)(y) in the case of a mandatory conversion pursuant to paragraph (a) of this Section 4, the number of shares of 2012 ESOP Preferred Stock released from the unallocated reserve of the Plan on the Release Date or (z) in the case of an optional conversion pursuant to paragraph (b) of this Section 4, the number of shares of 2012 ESOP Preferred Stock being converted, and (ii) in connection with any conversion hereunder, (x) the name or names in which such holder wishes the certificate or certificates for Common Stock and, in the case of certificated 2012 ESOP Preferred Stock, for any shares of 2012 ESOP Preferred Stock not to be so converted to be issued, (y) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (z) such other information as the Company or its agents may reasonably request.
 
(e)  Upon delivery to the Company or the transfer agent for the 2012 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4,  the Company shall issue and send by hand delivery, by courier or by first-class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion.  If there shall have been surrendered a certificate or certificates representing shares of 2012 ESOP Preferred Stock only part of which are to be converted, the Company shall issue and deliver to such holder or such holder’s designee, in the manner set forth in the preceding sentence, a new certificate or certificates representing the number of shares of 2012 ESOP Preferred Stock which shall not have been converted.

(f)  The issuance by the Company of shares of Common Stock upon a conversion of shares of 2012 ESOP Preferred Stock into shares of Common Stock made pursuant to this Section 4 shall be effective (i) in the case of a mandatory conversion of shares of 2012 ESOP Preferred Stock pursuant to paragraph (a) of this Section 4, as of the Release Date; and (ii) in the case of an optional conversion of such shares pursuant to paragraph (b) of this Section 4, as of the earlier of (A) the delivery to such holder or such holder’s designee of the certificates

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representing the shares of Common Stock issued upon conversion thereof or (B) the commencement of business on the second Business Day after the delivery to the Company or the transfer agent for the 2012 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4.  On and after the effective date of conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date.  The Company shall not be obligated to pay any dividends which shall have accrued or have been declared and shall be payable to holders of shares of 2012 ESOP Preferred Stock if the date on which such dividends are paid is on or after the effective date of conversion of such shares.

(g)  The Company shall not be obligated to deliver to holders of 2012 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2012 ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law.

(h)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of 2012 ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of 2012 ESOP Preferred Stock then outstanding.

(i)  The Company will use its best efforts to cause the listing of the shares of Common Stock required to be delivered upon conversion of the 2012 ESOP Preferred Stock prior to distribution to Plan participants on the national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.

(j)  The Company will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of the 2012 ESOP Preferred Stock pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the 2012 ESOP Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.

5.   Redemption At the Option of the Company .  (a)  The 2012 ESOP Preferred Stock shall be redeemable, in whole or in part, at the option of the Company at any time, at a redemption price per share of 2012 ESOP Preferred Stock equal to the higher of (x) $1,000.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, and (y) the Fair Market Value (as that term is defined in paragraph (d) of this Section 5) per share of 2012 ESOP Preferred Stock on the date fixed for redemption.  Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (c) of this Section 5.  From and after the date fixed for redemption, dividends on shares of 2012 ESOP Preferred Stock called for redemption will cease to accrue and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price.  Upon payment of the redemption price, such shares shall be deemed to have been transferred to the Company, to be retired as provided in paragraph (a) of Section 1.  If the full cumulative dividends have not been paid, or contemporaneously declared and set aside for payment, on all outstanding shares of 2012 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2012 ESOP Preferred Stock pursuant to this Section 5.

(b)  Unless otherwise required by law, notice of any redemption pursuant to this Section 5 will be sent to the holders of 2012 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2012 ESOP Preferred Stock by hand delivery, by courier, by standard form of telecommunication or by first-class mail (postage prepaid) delivered, sent or mailed, as the case may be, not less than twenty (20) days nor more than sixty (60) days prior to the redemption date.  Each such notice shall state:  (i) the redemption date; (ii) the total number of shares of the 2012 ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by

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such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) whether the redemption price shall be paid in cash or in shares of Common Stock, or in a combination of such Common Stock and cash; (v) in the case of certificated 2012 ESOP Preferred Stock the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vii) the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised and the manner in which the number of shares of Common Stock issuable upon conversion of a share of 2012 ESOP Preferred Stock will be determined.  The Company shall redeem shares so called for redemption and not previously converted at the date fixed for redemption and at the redemption price set forth in this Section 5, provided that, in the case of certificated 2012 ESOP Preferred Stock, the Company shall not be obligated to pay the redemption price until the certificates for the shares to be redeemed are surrendered (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state).

(c)  The Company, at its option, may make payment of the redemption price required upon redemption of shares of 2012 ESOP Preferred Stock in cash or in shares of Common Stock, or in a combination of such Common Stock and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (d)(ii) of this Section 5) or their Current Market Price, in either case as of the date fixed for redemption of the 2012 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2012 ESOP Preferred Stock then being redeemed.

(d)  For purposes of these resolutions, the following terms shall have the meanings set forth below:

(i)  “Adjustment Period” shall mean the period of five (5) consecutive Trading Days preceding the date as of which the Fair Market Value of a security is to be determined.

(ii)  “Fair Market Value” shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issue which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period.  The “Fair Market Value” of any security which is not publicly traded (other than the 2012 ESOP Preferred Stock) or of any other property shall mean the fair value thereof on the date as of which the Fair Market Value of the security is to be determined, as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board or a committee thereof.  The “Fair Market Value” of the 2012 ESOP Preferred Stock for purposes of paragraph (a) of Section 5, and for purposes of paragraph (c) of Section 6 shall mean the fair market value thereof determined by an independent appraiser, appointed by the Trustee of the Plan in accordance with the provisions of the Plan, as of the date fixed for redemption of the 2012 ESOP Preferred Stock (in the case of a redemption pursuant to Section 5) or as of the date specified in paragraph (c) of Section 6 (in the case of a redemption under that section).  For purposes of determining the Fair Market Value of the 2012 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2012 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2012 ESOP Preferred Stock held by the Plan into shares of Common Stock pursuant to Section 4(a) hereof would have occurred when and as payments of principal (together with accrued interest thereon) would have been made by the Trustee of the Plan in accordance with the terms of that certain 2012 ESOP Cumulative Convertible Preferred Stock Note Agreement dated on or about January 12, 2012 between the Company and the Plan (including any amendments or modifications thereto).

6.   Consolidation, Merger, etc.   (a)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Company) that constitutes “qualifying employer securities” with respect to a holder of 2012 ESOP Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of 2012 ESOP Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business

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combination, be assumed by and shall become Preferred Stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 5 and 6 hereof), and the qualifications, limitations or restrictions thereon, that the 2012 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:

(1)  After such transaction each share of the 2012 ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 4 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of 2012 ESOP Preferred Stock could have been converted immediately prior to such transaction.

(2)  The Company shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of 2012 ESOP Preferred Stock shall be assumed and authorized by the successor or resulting corporation as aforesaid.

(b)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (a) of this Section 6) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of 2012 ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (c) of this Section 6), be automatically converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of 2012 ESOP Preferred Stock could have been converted at such time so that each share of 2012 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2012 ESOP Preferred Stock could have been converted immediately prior to such transaction.  However, if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the 2012 ESOP Preferred Stock, then the shares of 2012 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2012 ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction.  If the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares.

(c)  In the event the Company shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (b) of this Section 6 (a “Business Combination”), then the Company shall as soon as practicable thereafter (and in any event at least fifteen (15) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of 2012 ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such 2012 ESOP Preferred Stock, a cash payment per share of 2012 ESOP Preferred Stock equal to the higher of (x) $1,000.00, plus accrued and unpaid dividends thereon to the date of consummation of such transaction or (y) the Fair Market Value per share of 2012 ESOP Preferred Stock, as of the last Business Day (as defined in paragraph (c) of Section 4 hereof) immediately preceding the date the Business Combination is consummated.  No such notice of redemption shall be effective unless given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction,

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unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction.
 
(d)  In the event that a Purchase Offer (as defined below) shall have been made and shall be continuing, each holder of 2012 ESOP Preferred Stock shall have the right to convert shares of 2012 ESOP Preferred Stock into shares of Common Stock at the Conversion Price specified in Section 4(c)(iii)(C) hereof until the date the Purchase Offer is terminated, including without limitation because the original Purchase Offer is withdrawn or because the Purchase Offer has expired and is not renewed, upon notice of such conversion given to the Company not later than the close of business on the date the Purchase Offer terminates (the “Purchase Offer Conversion Period”), unless the Company or any successor of the Company shall waive such prior notice, but any notice of conversion so given may be withdrawn by notice of withdrawal given to the Company prior to the end of the Purchase Offer Conversion Period.
 
For purposes of this paragraph (d), the following terms shall have the meanings set forth below:

(i)  “Beneficial Ownership” shall have the meaning ascribed to it in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “person” shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.

(ii)  A “Purchase Offer” shall have been made when any person (other than the Company or any affiliate of the Company) shall have “commenced” (as such term is defined in Rule 14d-2 under the Exchange Act) a tender offer or exchange offer to purchase shares of Common Stock, such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined herein) or the right to acquire Beneficial Ownership, of twenty percent (20%) or more of the voting power of the Company.
 
7.   Liquidation Rights .  (a)  Upon the dissolution, liquidation, or winding up of the Company, the holders of the shares of 2012 ESOP Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on the Common Stock or any other class of stock ranking junior to 2012 ESOP Preferred Stock upon liquidation, the amount of $1,000.00 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.
 
(b)  Neither the sale of all or substantially all the property and assets of the Company, nor the merger or consolidation of the Company into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Company shall be deemed to be a dissolution, liquidation, or winding up, voluntary or involuntary, for the purposes of this Section 7.
 
(c)  After the payment to the holders of the shares of 2012 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2012 ESOP Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Company.
 
(d)  In the event the assets of the Company available for distribution to the holders of shares of 2012 ESOP Preferred Stock upon any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of Preferred Stock or other capital stock of the Company ranking on a parity with the shares of 2012 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2012 ESOP Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation, or winding up.
 
(e)  Subject to the rights of the holders of the shares of any series or class or classes of stock ranking on a parity with or prior to the shares of 2012 ESOP Preferred Stock upon liquidation, dissolution, or

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winding up, upon any liquidation, dissolution, or winding up of the Company, after payment shall have been made in full to the holders of the shares of 2012 ESOP Preferred Stock as provided in this Section 7, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of 2012 ESOP Preferred Stock upon liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the shares of 2012 ESOP Preferred Stock shall not be entitled to share therein.
 
8.   Ranking .  For the purposes of these resolutions, any stock of any series or class or classes of the Company shall be deemed to rank:
 
(a)  prior to the shares of 2012 ESOP Preferred Stock, either as to dividends or upon liquidation, if the holders of such series or class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of 2012 ESOP Preferred Stock;
 
(b)  on a parity with shares of 2012 ESOP Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of 2012 ESOP Preferred Stock, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of 2012 ESOP Preferred Stock; and
 
(c)  junior to shares of 2012 ESOP Preferred Stock, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of 2012 ESOP Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such series or class or classes.
 
9.   Priority of 2012 ESOP Preferred Stock .  The shares of 2012 ESOP Preferred Stock will rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the Company’s 2003 ESOP Cumulative Convertible Preferred Stock, its 2004 ESOP Cumulative Convertible Preferred Stock, its 2005 ESOP Cumulative Convertible Preferred Stock, its 2006 ESOP Cumulative Convertible Preferred Stock, its 2007 ESOP Cumulative Convertible Preferred Stock, its 2008 ESOP Cumulative Convertible Preferred Stock, its 2010 ESOP Cumulative Convertible Preferred Stock and its 2011 ESOP Cumulative Convertible Preferred Stock. 
 
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by John G. Stumpf, its Chairman, President and Chief Executive Officer, and attested by Jeannine E. Zahn, its Assistant Secretary, whereby such President and Chief Executive Officer affirms, under penalties of perjury, that this Certificate of Designations is the act and deed of the Company and that the facts stated herein are true, this 10th day of January, 2012.
 
 

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WELLS FARGO & COMPANY
 
 
 
By         /s/ John G. Stumpf                                  
John G. Stumpf
i)                             Chairman, President and
ii)                           Chief Executive Officer
 
 
Attest:
 
/s/ Jeannine E. Zahn                                        
Jeannine E. Zahn
Assistant Secretary
 
[As filed with the Delaware Secretary of State on January 10, 2012.]


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WELLS FARGO & COMPANY
_____________________
CERTIFICATE OF DESIGNATION
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
_____________________
NON-CUMULATIVE PERPETUAL CLASS A PREFERRED STOCK, SERIES N

(Without Par Value)
_____________________
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “ Board of Directors ”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “ Committee ”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), the following resolutions were duly adopted by the Committee pursuant to the unanimous written consent of the Committee duly adopted on August 14, 2012, in accordance with Section 141(f) of the General Corporation Law:
 
Resolved, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated January 27, 2009, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation, and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:
 
RIGHTS AND PREFERENCES
 
            Section 1.        Designation .  The shares of such series of Preferred Stock shall be designated Non-Cumulative Perpetual Class A Preferred Stock, Series N, with no par value and a liquidation preference amount of $25,000 per share  (the “ Series N Preferred Stock ”).  Each share of Series N Preferred Stock shall be identical in all respects to every other share of Series N Preferred Stock except with respect to the date from which dividends may accrue. Series N Preferred Stock will rank equally with Parity Stock with respect to the payment of dividends and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation and will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
 
            Section 2.        Number of Shares .  The number of authorized shares of Series N Preferred Stock shall be 30,000.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series N Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law stating that such increase

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or decrease, as the case may be, has been so authorized.  The Corporation shall have the authority to issue fractional shares of Series N Preferred Stock.

Section 3.        Definitions .  As used herein with respect to Series N Preferred Stock:

“ Business Day ” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York.

“ Certificate of Designation ” means this Certificate of Designation relating to the Series N Preferred Stock, as it may be amended from time to time.

“Common Stock” means the common stock of the Corporation, par value $1⅔ per share, as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.

“ Depositary Company ” has the meaning set forth in Section 6(d) hereof.

“Dividend Payment Date” has the meaning set forth in Section 4(a) hereof.

“ Dividend Period ” has the meaning set forth in Section 4(a) hereof.

“ DTC ” means The Depository Trust Company, together with its successors and assigns.

“Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation now existing or hereafter authorized over which the Series N Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Liquidation Preference ” has the meaning set forth in Section 5(a) hereof.

“ Nonpayment Event ” shall have the meaning set forth in Section 7(b).

“ Parity Stock ” means any other class or series of stock of the Corporation now existing or hereafter authorized that ranks on par with the Series N Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Preference Stock ” means any and all series of preference stock, having no par value, of the Corporation. 

“ Preferred Stock ” means any and all series of preferred stock, having no par value, of the Corporation, including the Series N Preferred Stock.

“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(b).

“ Regulatory Capital Treatment Event ” means the Corporation’s reasonable determination that as a result of any (i) amendment to, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or

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becomes effective after the initial issuance of any shares of Series N Preferred Stock; (ii) proposed change in those laws or regulations that is announced or becomes effective after the initial issuance of any shares of Series N Preferred Stock; or (iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial issuance of any shares of Series N Preferred Stock, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation preference amount of all shares of Series N Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series N Preferred Stock is outstanding.

“ Series N Preferred Stock ” has the meaning set forth in Section 1 hereof.

iii)                                                                                         “ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series N Preferred Stock.
iv)                                                                                           
Section 4.        Dividends.

(a)        Rate .  Dividends on the Series N Preferred Stock will not be mandatory.  Holders of Series N Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference amount of $25,000 per share of the Series N Preferred Stock, payable quarterly in arrears on the 15th day of March, June, September and December of each year (commencing on December 15, 2012); provided , however , if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, without any interest or other payment in respect of such delay (each such day on which dividends are payable a “ Dividend Payment Date ”).  A “ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date, except for the initial Dividend Period, which will be the period from, and including, August 16, 2012 to, but excluding, December 15, 2012.  Dividends on each share of Series N Preferred Stock will accrue at a rate per annum equal to 5.20%.  The record date for payment of dividends on the Series N Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other date as determined by the Corporation’s Board of Directors.  The amount of dividends payable shall be computed on the basis of a 360-day year of twelve 30-day months.  Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward.

(b)       Non-Cumulative Dividends .  Dividends on shares of Series N Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series N Preferred Stock on any Dividend Payment Date are not declared prior to such Dividend Payment Date, then such dividends shall not cumulate and shall cease to accrue and be payable, and the Corporation shall have no obligation to pay, and the holders of Series N Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period on the Dividend Payment Date for such Dividend Period or at any time in the future or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series N Preferred Stock or any other series of authorized Preferred Stock, Preference Stock, or Common Stock of the Corporation.

(c)        Priority of Dividends .  So long as any shares of Series N Preferred Stock remain outstanding,
 

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(1)                no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Common Stock, and no shares of Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Common Stock by the Corporation (other than (i) a dividend payable in Common Stock or (ii) the acquisition of shares of Common Stock in exchange for, or through application of proceeds of the sale of, shares of Common Stock);
 
(2)                no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Stock other than Common Stock, and no shares of Junior Stock other than Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Junior Stock other than Common Stock by the Corporation (other than (i) a dividend payable solely in shares of Junior Stock, (ii) any dividend in connection with the implementation of a stockholder rights plan, or the redemption or repurchase of any rights under any such plan, (iii) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (iv) as a result of a reclassification of Junior Stock other than Common Stock for or into other Junior Stock, (v) the exchange or conversion of one share of Junior Stock other than Common Stock for or into another share of Junior Stock, (vi) through the use of proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (vii) any purchase, redemption or other acquisition of Junior Stock other than Common Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after August 9, 2012, (viii) any purchase of fractional interests in shares of Junior Stock other than Common Stock pursuant to the conversion or exchange provisions of such Junior Stock other than Common Stock or the securities being converted or exchanged, (ix) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (x) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business); and
 
(3)                no shares of Parity Stock will be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series N Preferred Stock and such Parity Stock during a Dividend Period (other than (i) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (ii) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock, (iii) through the use of proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock, (iv) any purchase, redemption or other acquisition of Parity Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after August 9, 2012, (v) any purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the securities being converted or exchanged, (vi) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (vii) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business), unless, in each case, the full dividends for the then-current Dividend Period on all outstanding shares of the Series N Preferred Stock have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside.

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Subject to the succeeding sentence, for so long as any shares of Series N Preferred Stock remain outstanding, no dividends shall be declared, paid, or set aside for payment on any Parity Stock for any period unless full dividends on all outstanding shares of Series N Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside.  To the extent the Corporation declares dividends on the Series N Preferred Stock and on any Parity Stock but cannot make full payment of those declared dividends, the Corporation will allocate the dividend payments on a proportional basis among the holders of shares of Series N Preferred Stock and the holders of any Parity Stock then outstanding where the terms of such Parity Stock provide similar dividend rights. 
 
Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the board of Directors of the Corporation may be declared and paid on the Common Stock and any other stock that is Parity Stock or Junior Stock, from time to time out of any assets legally available for such payment, and the shares of Series N Preferred Stock shall not be entitled to participate in any such dividends.
Section 5.        Liquidation Rights.

(a)        Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series N Preferred Stock shall be entitled to receive in full out of assets available for distribution to its stockholders before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of the Common Stock or any other Junior Stock, and subject to the rights of the holders of Parity Stock or any stock of the Corporation ranking senior to the Series N Preferred Stock as to such distribution, a liquidating distribution in the amount of $25,000 per share, plus an amount equal to any dividends which have been declared but not yet paid, without accumulation of any undeclared dividends, to the date of liquidation (the “ Liquidation Preference ”).  The holders of Series N Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

(b)       Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the Liquidation Preference to all holders of Series N Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series N Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series N Preferred Stock and all such Parity Stock. 

(c)        Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series N Preferred Stock and all other amounts payable upon liquidation, dissolution or winding up of the Corporation have been paid in full to all holders of any Parity Stock, the holders of Common Stock and any other Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)       Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any

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other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

Section 6.        Redemption.

(a)        Optional Redemption .  The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem, subject to the prior approval of the Federal Reserve Board, out of funds legally available therefor, in whole or in part, the shares of Series N Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after September 15, 2017, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series N Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid up to the redemption date without accumulation of any undeclared dividends.

Notwithstanding the foregoing, within 90 days of the Corporation’s good faith determination that a Regulatory Capital Treatment Event has occurred, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may, subject to the approval of the appropriate federal banking agency, redeem out of funds legally available therefor, in whole, but not in part, the shares of Series N Preferred Stock at the time outstanding, prior to September 15, 2017, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series N Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid, without accumulation of any undeclared dividends.

(b)       Notice of Redemption .  Notice of every redemption of shares of Series N Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation.  Such mailing shall be at least 40 days and not more than 70 days before the date fixed for redemption.  Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series N Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series N Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series N Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, if applicable, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where the certificates for those shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.  Notwithstanding the foregoing, if the Series N Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. 

(c)        Partial Redemption .  In case of any redemption of only part of the shares of Series N Preferred Stock at the time outstanding, the shares of Series N Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series N Preferred Stock in proportion to the number of Series N Preferred Stock held by such holders or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable.  Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series N Preferred Stock shall be redeemed from time to time.


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(d)       Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been irrevocably set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders  thereof to receive the amount payable on such redemption from the Depository Company at any time after the redemption date from the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

Section 7.        Voting Rights.

(a)        General.  The holders of Series N Preferred Stock shall not be entitled to vote on any matter except as set forth in paragraph 7(b) below or as required by applicable law.

(b)       Right To Elect Two Directors Upon Nonpayment Events.  Whenever dividends payable on any shares of Series N Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to, as to any class or series, at least six quarterly Dividend Periods or their equivalent, whether or not for consecutive Dividend Periods (a “ Nonpayment Event ”), the holders of the outstanding Series N Preferred Stock, voting together as a class with holders of Voting Parity Stock whose voting rights are exercisable, will be entitled to vote for the election of two additional directors of the Corporation’s Board of Directors at the Corporation’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding Series N Preferred Stock (together with the holders of shares of any one or more other series of Voting Parity Stock).  At elections for such directors, each holder of the Series N Preferred Stock shall be entitled to 25 votes for each share held (the holders of shares of any other series of Voting Parity Stock being entitled to such number of votes, if any, for each share of such stock as may be granted to them).  The right of the holders of the Series N Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Voting Parity Stock) to elect Preferred Stock Directors shall continue until such time as the Corporation has paid in full dividends for the equivalent of at least four quarterly Dividend Periods or their equivalent, at which time such right with respect to the Series N Preferred Stock shall terminate, except as provided by law, and subject to revesting in the event of each and every subsequent default of the character described in this Section 7(b).


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Upon any termination of the right of the holders of all shares of Series N Preferred Stock and Voting Parity Stock to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by only those holders voting as a class shall terminate immediately.  Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series N Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of Series N Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this Section 7(b) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to this Section 7(b).

(c)     Other Voting Rights .  In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of the Series N Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series N Preferred Stock and outstanding shares of all other series of Voting Parity Stock entitled to vote on the matter, by a vote of at least 66 2/3% in voting power of all such outstanding Series N Preferred Stock and such Voting Parity Stock, voting together as a class, given in person or by proxy, either in writing without a meeting or at any meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following actions, whether or not such approval is required by Delaware law: (i) the issuance of any class or series of Preferred Stock or Preference Stock ranking senior to the Series N Preferred Stock in the payment of dividends or the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; (ii) any amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation, including the Certificate of Designation, or the Bylaws that would adversely affect the rights, preferences, privileges or voting powers of the Series N Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or Bylaws to authorize, create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series N Preferred Stock with respect to either the payment of dividends or in the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; or (iv) any consummation of a reclassification involving the Series N Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series N Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series N Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (b) such shares of Series N Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series N Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series N Preferred Stock or any Parity Stock or Junior Stock or any securities convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect
the rights, preferences, privileges or voting powers of the Series N Preferred Stock, and holders of the Series N Preferred Stock shall have no right to vote thereon.


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If any amendment, alteration, repeal, reclassification, merger or consolidation specified in this Section 7(c) would adversely affect one or more but not all series of voting Preferred Stock (including the Series N Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a  class (in lieu of all other series of Preferred Stock).

Each holder of the Series N Preferred Stock will have 25 votes per share on any matter on which holders of the Series N Preferred Stock are entitled to vote, whether separately or together with any other series of stock of the Corporation (the holders of any shares of any other series of stock being entitled to such number of votes, if any, for each share of stock as may be granted to them), pursuant to Delaware law or otherwise, including by written consent.

(1)           (d)       Changes after Provision for Redemption.  No vote or consent of the holders of Series N Preferred Stock shall be required pursuant to Section 7(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding Series N Preferred Stock shall have been redeemed, or notice of redemption has been given and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.
 
(e)        Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series N Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Certificate of Incorporation, the Bylaws, applicable law and any national securities exchange or other trading facility in which the Series N Preferred Stock is listed or traded at the time.

Section 8.        Preemption and Conversion .  The holders of Series N Preferred Stock shall not have any rights of preemption or rights to convert such Series N Preferred Stock into shares of any other class of capital stock of the Corporation.

Section 9.        Reacquired Shares .  Shares of Series N Preferred Stock which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

Section 10.      No Sinking Fund .  Shares of Series N Preferred Stock are not subject to the operation of a sinking fund.

Section 11.      Additional Classes or Series of Stock .  Notwithstanding anything set forth in the Restated Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, or any authorized committee of the Board of Directors of the Corporation, (i) without the vote of the holders of the Series N Preferred Stock, may authorize and issue additional shares of Junior Stock and Parity Stock and (ii) with the requisite vote of the holders of the Series N Preferred Stock and Parity Stock entitled to vote thereon, may authorize and issue any additional class or series of Preferred Stock or Preference Stock senior to the Series N Preferred Stock as to the payment of dividends and/or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.


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In Witness Whereof, Wells Fargo & Company has caused this Certificate of Designation to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Jeannine E. Zahn, its Assistant Secretary, this 14 th day of August, 2012.
 
Wells Fargo & Company
By : 
/s/ Barbara S. Brett
 
Barbara S. Brett, Senior Vice President and Assistant Treasurer
 
 
/s/ Jeannine E. Zahn                           

Jeannine E. Zahn, Assistant Secretary
 
[As filed with the Delaware Secretary of State on August 15, 2012.]


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WELLS FARGO & COMPANY
_____________________
CERTIFICATE OF DESIGNATION

Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
_____________________
NON-CUMULATIVE PERPETUAL CLASS A PREFERRED STOCK, SERIES O
(Without Par Value)
_____________________

WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “ Board of Directors ”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “ Committee ”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), the following resolutions were duly adopted by the Committee pursuant to the unanimous written consent of the Committee duly adopted on November 16, 2012, in accordance with Section 141(f) of the General Corporation Law:
 
Resolved, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated January 27, 2009, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation, and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:
 
RIGHTS AND PREFERENCES
 
            Section 1.        Designation .  The shares of such series of Preferred Stock shall be designated Non-Cumulative Perpetual Class A Preferred Stock, Series O, with no par value and a liquidation preference amount of $25,000 per share  (the “ Series O Preferred Stock ”).  Each share of Series O Preferred Stock shall be identical in all respects to every other share of Series O Preferred Stock except with respect to the date from which dividends may accrue. Series O Preferred Stock will rank equally with Parity Stock with respect to the payment of dividends and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation and will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
 
            Section 2.        Number of Shares .  The number of authorized shares of Series O Preferred Stock shall be 27,600.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series O Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law stating that such increase

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or decrease, as the case may be, has been so authorized.  The Corporation shall have the authority to issue fractional shares of Series O Preferred Stock.

Section 3.        Definitions .  As used herein with respect to Series O Preferred Stock:

“ Business Day ” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York.

“ Certificate of Designation ” means this Certificate of Designation relating to the Series O Preferred Stock, as it may be amended from time to time.

“Common Stock” means the common stock of the Corporation, par value $1⅔ per share, as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.

“ Depositary Company ” has the meaning set forth in Section 6(d) hereof.

“Dividend Payment Date” has the meaning set forth in Section 4(a) hereof.

“ Dividend Period ” has the meaning set forth in Section 4(a) hereof.

“ DTC ” means The Depository Trust Company, together with its successors and assigns.

“Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation now existing or hereafter authorized over which the Series O Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Liquidation Preference ” has the meaning set forth in Section 5(a) hereof.

“ Nonpayment Event ” shall have the meaning set forth in Section 7(b).

“ Parity Stock ” means any other class or series of stock of the Corporation now existing or hereafter authorized that ranks on par with the Series O Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Preference Stock ” means any and all series of preference stock, having no par value, of the Corporation. 

“ Preferred Stock ” means any and all series of preferred stock, having no par value, of the Corporation, including the Series O Preferred Stock.

“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(b).

“ Regulatory Capital Treatment Event ” means the Corporation’s reasonable determination that as a result of any (i) amendment to, clarification of, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is

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enacted or becomes effective on or after November 13, 2012; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after November 13, 2012; or (iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after November 13, 2012, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation preference amount of all shares of Series O Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series O Preferred Stock is outstanding.

“ Series O Preferred Stock ” has the meaning set forth in Section 1 hereof.

v)                                                                                           “ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series O Preferred Stock.
 
vi)                     Section 4.        Dividends.
(a)        Rate .  Dividends on the Series O Preferred Stock will not be mandatory.  Holders of Series O Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference amount of $25,000 per share of the Series O Preferred Stock, payable quarterly in arrears on the 15th day of March, June, September and December of each year (commencing on March 15, 2013); provided , however , if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, without any interest or other payment in respect of such delay (each such day on which dividends are payable a “ Dividend Payment Date ”).  A “ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date, except for the initial Dividend Period, which will be the period from, and including, November 20, 2012 to, but excluding, March 15, 2013.  Dividends on each share of Series O Preferred Stock will accrue at a rate per annum equal to 5.125%.  The record date for payment of dividends on the Series O Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other date as determined by the Corporation’s Board of Directors.  The amount of dividends payable shall be computed on the basis of a 360-day year of twelve 30-day months.  Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward.

(b)       Non-Cumulative Dividends .  Dividends on shares of Series O Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series O Preferred Stock on any Dividend Payment Date are not declared prior to such Dividend Payment Date, then such dividends shall not cumulate and shall cease to accrue and be payable, and the Corporation shall have no obligation to pay, and the holders of Series O Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period on the Dividend Payment Date for such Dividend Period or at any time in the future or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series O Preferred Stock or any other series of authorized Preferred Stock, Preference Stock, or Common Stock of the Corporation.

(c)        Priority of Dividends .  So long as any shares of Series O Preferred Stock remain outstanding,
 
(1) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Common Stock, and no shares of Common Stock shall be

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repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Common Stock by the Corporation (other than (i) a dividend payable in Common Stock or (ii) the acquisition of shares of Common Stock in exchange for, or through application of proceeds of the sale of, shares of Common Stock);
 
(2) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Stock other than Common Stock, and no shares of Junior Stock other than Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Junior Stock other than Common Stock by the Corporation (other than (i) a dividend payable solely in shares of Junior Stock, (ii) any dividend in connection with the implementation of a stockholder rights plan, or the redemption or repurchase of any rights under any such plan, (iii) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (iv) as a result of a reclassification of Junior Stock other than Common Stock for or into other Junior Stock, (v) the exchange or conversion of one share of Junior Stock other than Common Stock for or into another share of Junior Stock, (vi) through the use of proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (vii) any purchase, redemption or other acquisition of Junior Stock other than Common Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after November 13, 2012, (viii) any purchase of fractional interests in shares of Junior Stock other than Common Stock pursuant to the conversion or exchange provisions of such Junior Stock other than Common Stock or the securities being converted or exchanged, (ix) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (x) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business); and
 
(3) no shares of Parity Stock will be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series O Preferred Stock and such Parity Stock during a Dividend Period (other than (i) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (ii) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock, (iii) through the use of proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock, (iv) any purchase, redemption or other acquisition of Parity Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after November 13, 2012, (v) any purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the securities being converted or exchanged, (vi) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (vii) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business), unless, in each case, the full dividends for the then-current Dividend Period on all outstanding shares of the Series O Preferred Stock have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside.
 

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Subject to the succeeding sentence, for so long as any shares of Series O Preferred Stock remain outstanding, no dividends shall be declared, paid, or set aside for payment on any Parity Stock for any period unless full dividends on all outstanding shares of Series O Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside.  To the extent the Corporation declares dividends on the Series O Preferred Stock and on any Parity Stock but cannot make full payment of those declared dividends, the Corporation will allocate the dividend payments on a proportional basis among the holders of shares of Series O Preferred Stock and the holders of any Parity Stock then outstanding where the terms of such Parity Stock provide similar dividend rights. 
 
Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the board of Directors of the Corporation may be declared and paid on the Common Stock and any other stock that is Parity Stock or Junior Stock, from time to time out of any assets legally available for such payment, and the shares of Series O Preferred Stock shall not be entitled to participate in any such dividends.
 
Section 5.        Liquidation Rights.

(a)        Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series O Preferred Stock shall be entitled to receive in full out of assets available for distribution to its stockholders before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of the Common Stock or any other Junior Stock, and subject to the rights of the holders of Parity Stock or any stock of the Corporation ranking senior to the Series O Preferred Stock as to such distribution, a liquidating distribution in the amount of $25,000 per share, plus an amount equal to any dividends which have been declared but not yet paid, without accumulation of any undeclared dividends, to the date of liquidation (the “ Liquidation Preference ”).  The holders of Series O Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

(b)       Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the Liquidation Preference to all holders of Series O Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series O Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series O Preferred Stock and all such Parity Stock. 

(c)        Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series O Preferred Stock and all other amounts payable upon liquidation, dissolution or winding up of the Corporation have been paid in full to all holders of any Parity Stock, the holders of Common Stock and any other Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)       Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any

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other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

Section 6.        Redemption.

(a)        Optional Redemption .  The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem, subject to the prior approval of the Federal Reserve Board, out of funds legally available therefor, in whole or in part, the shares of Series O Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after December 15, 2017, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series O Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid up to the redemption date without accumulation of any undeclared dividends.

Notwithstanding the foregoing, within 90 days of the Corporation’s good faith determination that a Regulatory Capital Treatment Event has occurred, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may, subject to the approval of the appropriate federal banking agency, redeem out of funds legally available therefor, in whole, but not in part, the shares of Series O Preferred Stock at the time outstanding, prior to December 15, 2017, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series O Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid, without accumulation of any undeclared dividends.

(b)       Notice of Redemption .  Notice of every redemption of shares of Series O Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation.  Such mailing shall be at least 40 days and not more than 70 days before the date fixed for redemption.  Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series O Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series O Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series O Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, if applicable, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where the certificates for those shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.  Notwithstanding the foregoing, if the Series O Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. 

(c)        Partial Redemption .  In case of any redemption of only part of the shares of Series O Preferred Stock at the time outstanding, the shares of Series O Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series O Preferred Stock in proportion to the number of Series O Preferred Stock held by such holders or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable.  Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series O Preferred Stock shall be redeemed from time to time.


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(d)       Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been irrevocably set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders  thereof to receive the amount payable on such redemption from the Depository Company at any time after the redemption date from the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

Section 7.        Voting Rights.

(a)        General.  The holders of Series O Preferred Stock shall not be entitled to vote on any matter except as set forth in paragraph 7(b) below or as required by applicable law.

(b)       Right To Elect Two Directors Upon Nonpayment Events.  Whenever dividends payable on any shares of Series O Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to, as to any class or series, at least six quarterly Dividend Periods or their equivalent, whether or not for consecutive Dividend Periods (a “ Nonpayment Event ”), the holders of the outstanding Series O Preferred Stock, voting together as a class with holders of Voting Parity Stock whose voting rights are exercisable, will be entitled to vote for the election of two additional directors of the Corporation’s Board of Directors at the Corporation’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding Series O Preferred Stock (together with the holders of shares of any one or more other series of Voting Parity Stock).  At elections for such directors, each holder of the Series O Preferred Stock shall be entitled to 25 votes for each share held (the holders of shares of any other series of Voting Parity Stock being entitled to such number of votes, if any, for each share of such stock as may be granted to them).  The right of the holders of the Series O Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Voting Parity Stock) to elect Preferred Stock Directors shall continue until such time as the Corporation has paid in full dividends for the equivalent of at least four quarterly Dividend Periods or their equivalent, at which time such right with respect to the Series O Preferred Stock shall terminate, except as provided by law, and subject to revesting in the event of each and every subsequent default of the character described in this Section 7(b).


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Upon any termination of the right of the holders of all shares of Series O Preferred Stock and Voting Parity Stock to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by only those holders voting as a class shall terminate immediately.  Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series O Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of Series O Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this Section 7(b) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to this Section 7(b).

(c)     Other Voting Rights .  In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of the Series O Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series O Preferred Stock and outstanding shares of all other series of Voting Parity Stock entitled to vote on the matter, by a vote of at least 66 2/3% in voting power of all such outstanding Series O Preferred Stock and such Voting Parity Stock, voting together as a class, given in person or by proxy, either in writing without a meeting or at any meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following actions, whether or not such approval is required by Delaware law: (i) the issuance of any class or series of Preferred Stock or Preference Stock ranking senior to the Series O Preferred Stock in the payment of dividends or the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; (ii) any amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation, including the Certificate of Designation, or the Bylaws that would adversely affect the rights, preferences, privileges or voting powers of the Series O Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or Bylaws to authorize, create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series O Preferred Stock with respect to either the payment of dividends or in the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; or (iv) any consummation of a reclassification involving the Series O Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series O Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series O Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (b) such shares of Series O Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series O Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series O Preferred Stock or any Parity Stock or Junior Stock or any securities convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Series O Preferred Stock, and holders of the Series O Preferred Stock shall have no right to vote thereon.


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If any amendment, alteration, repeal, reclassification, merger or consolidation specified in this Section 7(c) would adversely affect one or more but not all series of voting Preferred Stock (including the Series O Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a  class (in lieu of all other series of Preferred Stock).
 
Each holder of the Series O Preferred Stock will have 25 votes per share on any matter on which holders of the Series O Preferred Stock are entitled to vote, whether separately or together with any other series of stock of the Corporation (the holders of any shares of any other series of stock being entitled to such number of votes, if any, for each share of stock as may be granted to them), pursuant to Delaware law or otherwise, including by written consent.

(1)           (d)       Changes after Provision for Redemption.  No vote or consent of the holders of Series O Preferred Stock shall be required pursuant to Section 7(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding Series O Preferred Stock shall have been redeemed, or notice of redemption has been given and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.
 
(e)        Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series O Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Certificate of Incorporation, the Bylaws, applicable law and any national securities exchange or other trading facility in which the Series O Preferred Stock is listed or traded at the time.

Section 8.        Preemption and Conversion .  The holders of Series O Preferred Stock shall not have any rights of preemption or rights to convert such Series O Preferred Stock into shares of any other class of capital stock of the Corporation.

Section 9.        Reacquired Shares .  Shares of Series O Preferred Stock which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

Section 10.      No Sinking Fund .  Shares of Series O Preferred Stock are not subject to the operation of a sinking fund.

Section 11.      Additional Classes or Series of Stock .  Notwithstanding anything set forth in the Restated Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, or any authorized committee of the Board of Directors of the Corporation, (i) without the vote of the holders of the Series O Preferred Stock, may authorize and issue additional shares of Junior Stock and Parity Stock and (ii) with the requisite vote of the holders of the Series O Preferred Stock and Parity Stock entitled to vote thereon, may authorize and issue any additional class or series of Preferred Stock or Preference Stock senior to the Series O Preferred Stock as to the payment of dividends and/or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

dms.us.51005459.05
 

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In Witness Whereof, Wells Fargo & Company has caused this Certificate of Designation to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Jeannine E. Zahn, its Assistant Secretary, this 19 th day of November, 2012.
 
Wells Fargo & Company
By : 
/s/ Barbara S. Brett
 
Barbara S. Brett, Senior Vice President and Assistant Treasurer
 
 
/s/ Jeannine E. Zahn                          

Jeannine E. Zahn, Assistant Secretary
[As filed with the Delaware Secretary of State on November 19, 2012.]


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WELLS FARGO & COMPANY
___________________________________
 
CERTIFICATE OF DESIGNATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
 
2013 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
___________________________________
 
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Company”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the provisions of the Restated Certificate of Incorporation of the Company, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”), and pursuant to authority conferred upon the ESOP Preferred Stock Committee I of the Board (the “ESOP Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the resolutions of the Board set forth herein, the following resolutions were duly adopted by the Board at meetings of the Board duly held on January 25, 2000, January 27, 2009, and February 24, 2009, and by the ESOP Committee pursuant to the written consent of the ESOP Committee duly adopted on January 7, 2013, in accordance with Section 141(f) of the General Corporation Law:
 
1.         On January 25, 2000, the Board adopted the following resolution (the “ESOP Board Resolutions”) appointing the ESOP Committee and delegating to the ESOP Committee the full powers of the Board, subject to the ESOP Board Resolutions, in all matters relating to issuance of one or more series of Preferred Stock (“ESOP Preferred Stock”) to the trustee on behalf of the Company’s 401(k) Plan hereinafter referred to:
 
RESOLVED that a committee of one member of the Board of the Company is hereby appointed by the Board as the ESOP Preferred Stock Committee I (the “First Committee”), which shall have and may exercise the full powers of the Board, subject to these resolutions, to issue from time to time one or more series of ESOP Preferred Stock, including any shares of Company common stock ($1 2/3 par value) issuable upon conversion of ESOP Preferred Stock, and in connection therewith, to fix the designations, voting powers, preferences, and all other rights, qualifications and restrictions of such ESOP Preferred Stock, to sell such ESOP Preferred Stock to the Plan on such terms and conditions and for such purchase price as the First Committee in its discretion shall approve, and to take any and all actions as the First Committee shall deem necessary or appropriate.
 
2.         On January 27, 2009, the Board adopted the following resolutions (the “January 2009 Resolutions”) amending the ESOP Board Resolutions to allow the ESOP Committee to establish the voting rights of any series of ESOP Preferred Stock:
 
RESOLVED that the resolution set forth in the [ESOP Board Resolutions] under the caption “Voting Rights of ESOP Preferred Stock” is hereby deleted in its entirety.


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RESOLVED that the [ESOP Board Resolutions] are hereby further amended to delete “Appendix A – Voting Rights” in its entirety.
 
3.         Pursuant to resolutions adopted on February 24, 2009, the Board designated John G. Stumpf as the sole member of the ESOP Committee, effective April 29, 2009.
 
4.         On January 7, 2013, pursuant to authority conferred upon it by the Board in the ESOP Board Resolutions as amended by the January 2009 Resolutions, the ESOP Committee adopted the following resolution by written consent in accordance with Section 141(f) of the General Corporation Law:
 
RESOLVED that the issuance of a series of Preferred Stock, without par value, of the Company is hereby authorized and the designation, voting powers, preferences, and relative, participating, optional, and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Company, as amended, are hereby fixed as follows:
 
2013 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
 
1.   Designation and Number of Shares; Restricted Issue . 
 
(a) The designation of the series of Preferred Stock, without par value, provided for herein shall be “2013 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2013 ESOP Preferred Stock”) and the number of authorized shares constituting the 2013 ESOP Preferred Stock is 1,200,000, based on an offering price for the 2013 ESOP Preferred Stock of $1,090.00 per share.  Each share of 2013 ESOP Preferred Stock shall have a stated value of $1,000.00 per share.  The number of authorized shares of 2013 ESOP Preferred Stock may be reduced by further resolution duly adopted by the Board or the Securities Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, provided, however, that the authorized number of shares of 2013 ESOP Preferred Stock shall not be decreased below the then outstanding number of such shares, and provided further that the number of authorized shares of 2013 ESOP Preferred Stock shall not be increased.  All shares of the 2013 ESOP Preferred Stock purchased, redeemed, or converted by the Company shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of 2013 ESOP Preferred Stock.
 
(b)  Shares of 2013 ESOP Preferred Stock shall be issued only to a trustee (the “Trustee”) acting on behalf of the Wells Fargo & Company 401(k) Plan, or any successor to such plan (the “Plan”).  All references to the holder of shares of 2013 ESOP Preferred Stock shall mean the Trustee or any company with which or into which the Trustee may merge or any successor trustee under the trust agreement with respect to the Plan.  In the event of any transfer of record ownership of shares of 2013 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2013 ESOP Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder thereof, shall be automatically converted into shares of the common stock, par value $1-2/3 per share, of the Company (the “Common Stock”) on the terms otherwise provided for the conversion of the shares of 2013 ESOP Preferred Stock into shares of Common Stock pursuant to paragraph (a) of Section 4 hereof, and no such transferee shall have any of the voting powers, preferences, and relative, participating, optional or special rights ascribed to shares of 2013 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2013 ESOP

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Preferred Stock shall be so converted.  In the event of such a conversion, the transferee of the shares of 2013 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2013 ESOP Preferred Stock have been automatically converted as of the date of such transfer.  Shares of 2013 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option.  Certificates representing shares of 2013 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions.  In the case of uncertificated 2013 ESOP Preferred Stock, the transfer agent for the 2013 ESOP Preferred Stock shall note the foregoing provisions on each 2013 ESOP Preferred Stock book entry account.  The Company may require that, as a condition to transferring record ownership of any uncertificated 2013 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2013 ESOP Preferred Stock are subject to the foregoing provisions.  Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2013 ESOP Preferred Stock (i)(A) shall be converted into shares of Common Stock as provided in paragraph (a) of Section 4 hereof, and (B) may be converted into shares of Common Stock as provided by paragraph (b) of Section 4 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided in Sections 5 and 6(c) hereof.

2.   Voting Rights .  No shares of 2013 ESOP Preferred Stock shall have voting rights except such voting rights as may from time to time be required by law and as set forth in this Section 2, as follows:
 
(a)  Whenever, at any time or times, dividends payable on shares of 2013 ESOP Preferred Stock shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding shares of 2013 ESOP Preferred Stock shall have the exclusive right, voting together as a class with holders of shares of any one or more series of Voting Parity Stock, as defined in paragraph (e) of this Section 2,whose voting rights are exercisable, to elect two directors of the Company’s Board at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “Preferred Stock Directors”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).  At elections for such directors, each holder of the shares of 2013 ESOP Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any series of Voting Parity Stock being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding shares of 2013 ESOP Preferred Stock (together with the holders of shares of any one or more series of Voting Parity Stock whose voting rights are exercisable) as herein set forth.  The right of such holders of such shares of 2013 ESOP Preferred Stock (voting together as a class with the holders of shares of any one or more series of Voting Parity Stock whose voting rights are exercisable) to elect Preferred Stock Directors as aforesaid shall continue until such time as all dividends accumulated on such shares of 2013 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2013 ESOP Preferred Stock shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
(b)  Upon any termination of the right of the holders of all shares of 2013 ESOP Preferred Stock and Voting Parity Stock entitled to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by such holders voting as a class shall terminate immediately.  Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of 2013 ESOP Preferred Stock and Voting Parity Stock, when they have

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the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of 2013 ESOP Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this Section 2(b).

(c)  In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of 2013 ESOP Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of 2013 ESOP Preferred Stock and outstanding shares of all series of Voting Parity Stock entitled to vote on the matter, by a vote of at least two-thirds in voting power of all such outstanding shares of 2013 ESOP Preferred Stock and such series of Voting Parity Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following whether or not such approval is required by Delaware law:
 
(i)  the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to shares of 2013 ESOP Preferred Stock with respect to payment of dividends or the distribution of assets on the Company’s voluntary or involuntary liquidation, dissolution or winding up, or
 
(ii)  the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designation designating shares of 2013 ESOP Preferred Stock and the preferences, powers and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the shares of 2013 ESOP Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock, or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the shares of 2013 ESOP Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
(d)  The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of 2013 ESOP Preferred Stock shall have been redeemed or sufficient funds shall have been irrevocably deposited in trust to effect such redemption.
 
(e)  As used in this Section 2, “Voting Parity Stock” means any other class or series of stock of the Company now existing or hereafter authorized that ranks on par with the 2013 ESOP Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company and having similar voting rights as the 2013 ESOP Preferred Stock.
 

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3.         Dividends .  (a)(i)  Holders of shares of 2013 ESOP Preferred Stock will be entitled to receive, when and as declared by the Board or a duly authorized committee thereof, out of assets of the Company legally available for payment, an annual cash dividend of $85.00 (the “Base Dividend”) per share, which Base Dividend shall be subject to adjustment from time to time as provided in this Section 3.
 
(ii)  The Base Dividend shall be adjusted, effective on December 1, 2014 and on each December 1 thereafter until December 1, 2021, as follows: 
 
(1)  If the Current Market Price (as hereinafter defined) of one share of Common Stock on November 30 (or the next preceding Trading Day (as hereinafter defined) if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the First Target Price but less than the Second Target Price shown opposite that year in such table, then holders of shares of the 2013 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $90.00 per share (the “First Adjusted Dividend”). 

(2)  If the Current Market Price of one share of Common Stock on November 30 (or the next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the Second Target Price shown opposite that year in such table, then holders of shares of 2013 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $95.00 per share (the “Second Adjusted Dividend”).
 
(3)  If the Current Market Price of one share of Common Stock on November 30 (or next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is less than the First Target Price shown opposite that year in such table, then the holders of shares of 2013 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to the Base Dividend.

Dividend Adjustment Table
 
Closing Price on 11/30
 
First Target Price
 
Second Target Price
2,014,000
 
$
36.562

 
$
39.174

2,015,000
 
$
39.761

 
$
44.316

2,016,000
 
$
43.240

 
$
50.132

2,017,000
 
$
47.023

 
$
56.712

2,018,000
 
$
51.138

 
$
64.156

2,019,000
 
$
55.612

 
$
72.576

2,020,000
 
$
60.479

 
$
82.102

2,021,000
 
$
65.770

 
$
92.878

 
(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2014, the Current Market Price of one share of Common Stock is $37.00, then the cash dividend payable for the immediately following twelve month period per share of 2013 ESOP Preferred Stock would equal $90.00, with the first quarterly payment of such $90.00 dividend to be made on March 1, 2015.  If on November 30, 2015, the Current Market Price of one share of Common Stock is $45.00, then the cash dividend payable for the immediately following twelve month period per share of 2013 ESOP Preferred Stock would equal $95.00, with the first quarterly payment of such $95.00 dividend to be made on March 1, 2016.  If on November 30, 2016, the Current Market Price

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of one share of Common Stock is $40.00, then the cash dividend payable for the immediately following twelve month period per share of 2013 ESOP Preferred Stock would equal $85.00, with the first quarterly payment of such $85.00 dividend to be made on March 1, 2017.
 
(5)  For purposes of this Section 3, the terms “First Adjusted Dividend” and “Second Adjusted Dividend” are sometimes referred to as an “Adjusted Dividend;” the term “Current Market Price” shall have the meaning given to it in Section 4(c)(iv); and the term “Trading Day” shall have the meaning given to it in Section 4(c)(vi).
 
(iii)  If one share of Common Stock in any year listed in the Dividend Adjustment Table shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the First Target Price and the Second Target Price listed in such table for that year and each subsequent year will be appropriately and proportionately adjusted.
 
(iv)  Dividends payable on shares of the 2013 ESOP Preferred Stock (whether such dividends are equal to the Base Dividend or to an Adjusted Dividend) shall be payable quarterly on March 1, June 1, September 1, and December 1 of each year, commencing March 1, 2013.  Dividends on shares of the 2013 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2013 ESOP Preferred Stock.  Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Company on such record dates, not more than 30 days nor less than 15 days preceding the payment dates thereof, as shall be fixed by the Board or a duly authorized committee thereof.  The amount of dividends payable per share for each dividend period shall be computed by dividing by four the Base Dividend or the Adjusted Dividend, whichever is then applicable.  The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of actual days elapsed in a 360-day year of twelve 30-day months.
 
(b)(i)  No full dividends shall be declared or paid or set apart for payment on any stock of the Company ranking, as to dividends, on a parity with or junior to the 2013 ESOP Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been set apart for such payment on shares of 2013 ESOP Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends.  When dividends are not paid in full, as aforesaid, upon the shares of 2013 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2013 ESOP Preferred Stock, all dividends declared upon shares of 2013 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2013 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2013 ESOP Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of 2013 ESOP Preferred Stock and such other series of Preferred Stock bear to each other.  Holders of shares of 2013 ESOP Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends, as herein provided, on 2013 ESOP Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on 2013 ESOP Preferred Stock which may be in arrears.
 
(ii)  So long as any shares of 2013 ESOP Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants, or rights to subscribe for or purchase shares of, Common Stock or any other stock ranking junior to 2013 ESOP

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Preferred Stock as to dividends or upon liquidation and other than as provided in paragraph (b)(i) of this Section 3) shall be declared or paid or set aside for payment or other distribution declared or made upon Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2013 ESOP Preferred Stock as to dividends or upon liquidation, nor shall any Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2013 ESOP Preferred Stock as to dividends or upon liquidation, dissolution or winding up be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to 2013 ESOP Preferred Stock as to dividends or upon liquidation, dissolution or winding up), unless, in each case, the full cumulative dividends on all outstanding shares of 2013 ESOP Preferred Stock shall have been paid or declared and set aside for payment of the then current dividend payment period and all past dividend payment periods.
 
4.   Conversion .  Shares of 2013 ESOP Preferred Stock are convertible from time to time hereafter pursuant to the provisions of paragraphs (a) or (b) of this Section 4 into that number of shares of Common Stock determined by dividing the stated value of each share of 2013 ESOP Preferred Stock by the then applicable Conversion Price, (as determined in accordance with the provisions of paragraph (c)(iii) of this Section 4), as follows:
 
(a)  Each share of 2013 ESOP Preferred Stock released from the unallocated reserve of the Plan in accordance with the terms thereof shall be automatically converted, without any further action by the Company or the holder thereof, as of the date such release occurs (the “Release Date”), into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for the 2013 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(b)  Subject to and upon compliance with the provisions of this Section 4, a holder of 2013 ESOP Preferred Stock shall be entitled at any time, prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 5 or 6 hereof, to cause any or all of the shares of 2013 ESOP Preferred Stock held by such holder to be converted into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for 2013 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(c)  For purposes of these resolutions, the following terms shall have the meanings set forth below:

(i)  The “Average Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the Current Market Price for one share of Common Stock for the twenty (20) consecutive Trading Days ending on the Trading Day occurring prior to the date the “Purchase Offer” is made (as that term is defined in Section 6(d) hereof).
 
(ii)  A “Business Day” means each day that is not a Saturday, Sunday, or a day on which state or federally chartered banking institutions in the State of New York are not required to be open.
 
(iii)  (A)  For purposes of a mandatory conversion of shares of 2013 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (a) of this Section 4, the “Conversion Price” for such shares of 2013 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the relevant Release Date.
 

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(B)  For purposes of an optional conversion of shares of 2013 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (b) of this Section 4, the “Conversion Price” for such shares of 2013 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the date the Conversion Notice (as that term is defined in paragraph (d) of this Section 4) is received by the Company, by the transfer agent for the 2013 ESOP Preferred Stock or by any agent for conversion of the 2013 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.
 
(C)  For purposes of a conversion of shares of 2013 ESOP Preferred Stock into shares of Common Stock in connection with a “Purchase Offer” (as defined in Section 6(d) hereof), the “Conversion Price” for such shares of 2013 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.
 
Each share of 2013 ESOP Preferred Stock shall be valued at its stated value of $1,000.00 for purposes of computing, based on the applicable Conversion Price, the number of shares of Common Stock into which the shares of 2013 ESOP Preferred Stock will be converted. 
 
(iv)  The “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for any day shall mean the reported last sale price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange only or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof.

(v)  “Common Stock” shall mean the Common Stock of the Company as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.
 
(vi)  “Trading Day” with respect to Common Stock means (x) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the Common Stock is quoted on the National Market System of NASDAQ, a day on which trades may be made on such National Market System or (z) otherwise, any Business Day.

(d)  In connection with any conversion of 2013 ESOP Preferred Stock pursuant to this Section 4, a written notice of conversion (the “Conversion Notice”) shall be delivered to the Company at its principal executive office or the offices of the transfer agent for the 2013 ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the 2013 ESOP Preferred Stock by the Company or the transfer agent for the 2013 ESOP Preferred Stock, which Conversion Notice shall be accompanied by (a) in the

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case of certificated 2013 ESOP Preferred Stock, the certificate or certificates representing the shares of 2013 ESOP Preferred Stock being converted pursuant to this Section 4, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) and (b) in the case of uncertificated 2013 ESOP Preferred Stock, duly executed assignment and transfer documents for the shares of 2013 ESOP Preferred Stock being converted pursuant to this Section 4.  Each Conversion Notice shall specify (i)(y) in the case of a mandatory conversion pursuant to paragraph (a) of this Section 4, the number of shares of 2013 ESOP Preferred Stock released from the unallocated reserve of the Plan on the Release Date or (z) in the case of an optional conversion pursuant to paragraph (b) of this Section 4, the number of shares of 2013 ESOP Preferred Stock being converted, and (ii) in connection with any conversion hereunder, (x) the name or names in which such holder wishes the certificate or certificates for Common Stock and, in the case of certificated 2013 ESOP Preferred Stock, for any shares of 2013 ESOP Preferred Stock not to be so converted to be issued, (y) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (z) such other information as the Company or its agents may reasonably request.
 
(e)  Upon delivery to the Company or the transfer agent for the 2013 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4,  the Company shall issue and send by hand delivery, by courier or by first-class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion.  If there shall have been surrendered a certificate or certificates representing shares of 2013 ESOP Preferred Stock only part of which are to be converted, the Company shall issue and deliver to such holder or such holder’s designee, in the manner set forth in the preceding sentence, a new certificate or certificates representing the number of shares of 2013 ESOP Preferred Stock which shall not have been converted.

(f)  The issuance by the Company of shares of Common Stock upon a conversion of shares of 2013 ESOP Preferred Stock into shares of Common Stock made pursuant to this Section 4 shall be effective (i) in the case of a mandatory conversion of shares of 2013 ESOP Preferred Stock pursuant to paragraph (a) of this Section 4, as of the Release Date; and (ii) in the case of an optional conversion of such shares pursuant to paragraph (b) of this Section 4, as of the earlier of (A) the delivery to such holder or such holder’s designee of the certificates representing the shares of Common Stock issued upon conversion thereof or (B) the commencement of business on the second Business Day after the delivery to the Company or the transfer agent for the 2013 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4.  On and after the effective date of a conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date.  The Company shall not be obligated to pay any dividends which shall have accrued or have been declared and shall be payable to holders of shares of 2013 ESOP Preferred Stock if the date on which such dividends are paid is on or after the effective date of conversion of such shares.

(g)  The Company shall not be obligated to deliver to holders of 2013 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2013 ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law.


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(h)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of 2013 ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of 2013 ESOP Preferred Stock then outstanding.

(i)  The Company will use its best efforts to cause the listing of the shares of Common Stock required to be delivered upon conversion of the 2013 ESOP Preferred Stock prior to distribution to Plan participants on the national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.

(j)  The Company will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of the 2013 ESOP Preferred Stock pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the 2013 ESOP Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.

5.   Redemption At the Option of the Company .  (a)  The 2013 ESOP Preferred Stock shall be redeemable out of assets legally available therefor, in whole or in part, at the option of the Company at any time, at a redemption price per share of 2013 ESOP Preferred Stock equal to the higher of (x) $1,000.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, and (y) the Fair Market Value (as that term is defined in paragraph (d) of this Section 5) per share of 2013 ESOP Preferred Stock on the date fixed for redemption.  Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (c) of this Section 5.  From and after the date fixed for redemption, dividends on shares of 2013 ESOP Preferred Stock called for redemption will cease to accrue and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price.  Upon payment of the redemption price, such shares shall be deemed to have been transferred to the Company, to be retired as provided in paragraph (a) of Section 1.  If the full cumulative dividends have not been paid, or contemporaneously declared and set aside for payment, on all outstanding shares of 2013 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2013 ESOP Preferred Stock pursuant to this Section 5.

(b)  Unless otherwise required by law, notice of any redemption pursuant to this Section 5 will be sent to the holders of 2013 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2013 ESOP Preferred Stock by hand delivery, by courier, by standard form of telecommunication or by first-class mail (postage prepaid) delivered, sent or mailed, as the case may be, not less than twenty (20) days nor more than sixty (60) days prior to the redemption date.  Each such notice shall state:  (i) the redemption date; (ii) the total number of shares of the 2013 ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) whether the redemption price shall be paid in cash or in shares of Common Stock, or in a combination of such Common Stock and cash; (v) in the case of certificated 2013 ESOP Preferred Stock the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vii) the conversion rights of the shares to be redeemed, the period within which conversion rights may be

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exercised and the manner in which the number of shares of Common Stock issuable upon conversion of a share of 2013 ESOP Preferred Stock will be determined.  The Company shall redeem shares so called for redemption and not previously converted at the date fixed for redemption and at the redemption price set forth in this Section 5, provided that, in the case of certificated 2013 ESOP Preferred Stock, the Company shall not be obligated to pay the redemption price until the certificates for the shares to be redeemed are surrendered (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state).

(c)  The Company, at its option, may make payment of the redemption price required upon redemption of shares of 2013 ESOP Preferred Stock in cash or in shares of Common Stock, or in a combination of such Common Stock and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (d)(ii) of this Section 5) or their Current Market Price, in either case as of the date fixed for redemption of the 2013 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2013 ESOP Preferred Stock then being redeemed.

(d)  For purposes of these resolutions, the following terms shall have the meanings set forth below:

(i)  “Adjustment Period” shall mean the period of five (5) consecutive Trading Days preceding the date as of which the Fair Market Value of a security is to be determined.

(ii)  “Fair Market Value” shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issue which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period.  The “Fair Market Value” of any security which is not publicly traded (other than the 2013 ESOP Preferred Stock) or of any other property shall mean the fair value thereof on the date as of which the Fair Market Value of the security is to be determined, as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board or a committee thereof.  The “Fair Market Value” of the 2013 ESOP Preferred Stock for purposes of paragraph (a) of Section 5, and for purposes of paragraph (c) of Section 6 shall mean the fair market value thereof determined by an independent appraiser, appointed by the Trustee of the Plan in accordance with the provisions of the Plan, as of the date fixed for redemption of the 2013 ESOP Preferred Stock (in the case of a redemption pursuant to Section 5) or as of the date specified in paragraph (c) of Section 6 (in the case of a redemption under that section).  For purposes of determining the Fair Market Value of the 2013 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2013 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2013 ESOP Preferred Stock held by the Plan into shares of Common Stock pursuant to Section 4(a) hereof would have occurred when and as payments of principal (together with accrued interest thereon) would have been made by the Trustee of the Plan in accordance with the terms of that certain 2013 ESOP Cumulative Convertible Preferred Stock Note Agreement dated on or about January 10, 2013 between the Company and the Plan (including any amendments or modifications thereto).

6.   Consolidation, Merger, etc.   (a)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Company) that constitutes “qualifying employer securities” with respect to a holder of 2013 ESOP Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement

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Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of 2013 ESOP Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business combination, be assumed by and shall become Preferred Stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 5 and 6 hereof), and the qualifications, limitations or restrictions thereon, that the 2013 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:

(1)  After such transaction each share of the 2013 ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 4 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of 2013 ESOP Preferred Stock could have been converted immediately prior to such transaction.

(2)  The Company shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of 2013 ESOP Preferred Stock shall be assumed and authorized by the successor or resulting corporation as aforesaid.

(b)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (a) of this Section 6) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of 2013 ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (c) of this Section 6), be automatically converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of 2013 ESOP Preferred Stock could have been converted at such time so that each share of 2013 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2013 ESOP Preferred Stock could have been converted immediately prior to such transaction.  However, if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the 2013 ESOP Preferred Stock, then the shares of 2013 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2013 ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction.  If the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares.

(c)  In the event the Company shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (b) of this Section 6 (a

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“Business Combination”), then the Company shall as soon as practicable thereafter (and in any event at least fifteen (15) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of 2013 ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such 2013 ESOP Preferred Stock, a cash payment per share of 2013 ESOP Preferred Stock equal to the higher of (x) $1,000.00, plus accrued and unpaid dividends thereon to the date of consummation of such transaction or (y) the Fair Market Value per share of 2013 ESOP Preferred Stock, as of the last Business Day (as defined in paragraph (c) of Section 4 hereof) immediately preceding the date the Business Combination is consummated.  No such notice of redemption shall be effective unless given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction.
 
(d)  In the event that a Purchase Offer (as defined below) shall have been made and shall be continuing, each holder of 2013 ESOP Preferred Stock shall have the right to convert shares of 2013 ESOP Preferred Stock into shares of Common Stock at the Conversion Price specified in Section 4(c)(iii)(C) hereof until the date the Purchase Offer is terminated, including without limitation because the original Purchase Offer is withdrawn or because the Purchase Offer has expired and is not renewed, upon notice of such conversion given to the Company not later than the close of business on the date the Purchase Offer terminates (the “Purchase Offer Conversion Period”), unless the Company or any successor of the Company shall waive such prior notice, but any notice of conversion so given may be withdrawn by notice of withdrawal given to the Company prior to the end of the Purchase Offer Conversion Period.
 
For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
 
(i)  “Beneficial Ownership” shall have the meaning ascribed to it in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “person” shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
 
(ii)  A “Purchase Offer” shall have been made when any person (other than the Company or any affiliate of the Company) shall have “commenced” (as such term is defined in Rule 14d-2 under the Exchange Act) a tender offer or exchange offer to purchase shares of Common Stock, such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined herein) or the right to acquire Beneficial Ownership, of twenty percent (20%) or more of the voting power of the Company.
 
7.   Liquidation Rights .  (a)  Upon the dissolution, liquidation, or winding up of the Company, the holders of the shares of 2013 ESOP Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on or set aside for the Common Stock or any other class of stock ranking junior to 2013 ESOP Preferred Stock and subject to the rights of the holders of the shares of any series or class or classes of stock ranking on parity with or senior to the 2013 ESOP Preferred Stock, the amount of $1,000.00 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.

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(b)  Neither the sale of all or substantially all the property and assets of the Company, nor the merger, consolidation or other business combination of the Company into or with any other corporation, nor the merger, consolidation or other business combination of any other corporation into or with the Company shall be deemed to be a dissolution, liquidation, or winding up, voluntary or involuntary, for the purposes of this Section 7.
 
(c)  After the payment to the holders of the shares of 2013 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2013 ESOP Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Company.
 
(d)  In the event the assets of the Company available for distribution to the holders of shares of 2013 ESOP Preferred Stock upon any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of Preferred Stock or other capital stock of the Company ranking on a parity with the shares of 2013 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2013 ESOP Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation, or winding up.
 
(e)  Subject to the rights of the holders of the shares of any series or class or classes of stock ranking on parity with or prior to the shares of 2013 ESOP Preferred Stock upon liquidation, dissolution, or winding up, upon any liquidation, dissolution, or winding up of the Company, after payment shall have been made in full to the holders of the shares of 2013 ESOP Preferred Stock as provided in this Section 7, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of 2013 ESOP Preferred Stock upon liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the shares of 2013 ESOP Preferred Stock shall not be entitled to share therein.
 
8.   Ranking .  For the purposes of these resolutions, any stock of any series or class or classes of the Company shall be deemed to rank:
 
(a)  prior to the shares of 2013 ESOP Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, if the holders of such series or class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of 2013 ESOP Preferred Stock;
 
(b)  on a parity with shares of 2013 ESOP Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of 2013 ESOP Preferred Stock, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of 2013 ESOP Preferred Stock; and
 

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(c)  junior to shares of 2013 ESOP Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, if such class shall be Common Stock or if the holders of shares of 2013 ESOP Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such series or class or classes.
 
9.   Priority of 2013 ESOP Preferred Stock .  The shares of 2013 ESOP Preferred Stock will rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the Company’s 2004 ESOP Cumulative Convertible Preferred Stock, its 2005 ESOP Cumulative Convertible Preferred Stock, its 2006 ESOP Cumulative Convertible Preferred Stock, its 2007 ESOP Cumulative Convertible Preferred Stock, its 2008 ESOP Cumulative Convertible Preferred Stock, its 2010 ESOP Cumulative Convertible Preferred Stock, its 2011 ESOP Cumulative Convertible Preferred Stock, and its 2012 ESOP Cumulative Convertible Preferred Stock. 

IN WITNESS WHEREOF, the Company has caused this Certificate of Designation to be signed by John G. Stumpf, its Chairman, President and Chief Executive Officer, and attested by Jeannine E. Zahn, its Assistant Secretary, on this 9th day of January, 2013.
 
 
WELLS FARGO & COMPANY
 
 
 
By         /s/ John G. Stumpf                          
John G. Stumpf
Chairman, President and
Chief Executive Officer
 
 
Attest:
 
/s/ Jeannine E. Zahn                                       
Jeannine E. Zahn
Assistant Secretary
 
 
[As filed with the Delaware Secretary of State on January 9, 2013.]


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WELLS FARGO & COMPANY
_____________________
CERTIFICATE OF DESIGNATION

Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
_____________________
NON-CUMULATIVE PERPETUAL CLASS A PREFERRED STOCK, SERIES P
(Without Par Value)
_____________________

WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “ Board of Directors ”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “ Committee ”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), the following resolutions were duly adopted by the Committee pursuant to the unanimous written consent of the Committee duly adopted on March 19, 2013, in accordance with Section 141(f) of the General Corporation Law:
 
Resolved, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated January 27, 2009, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation, and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:
 
RIGHTS AND PREFERENCES
 
            Section 1.        Designation .  The shares of such series of Preferred Stock shall be designated Non-Cumulative Perpetual Class A Preferred Stock, Series P, with no par value and a liquidation preference amount of $25,000 per share  (the “ Series P Preferred Stock ”).  Each share of Series P Preferred Stock shall be identical in all respects to every other share of Series P Preferred Stock except with respect to the date from which dividends may accrue. Series P Preferred Stock will rank equally with Parity Stock with respect to the payment of dividends and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation and will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
 
            Section 2.        Number of Shares .  The number of authorized shares of Series P Preferred Stock shall be 26,400.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series P Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the

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filing of a certificate pursuant to the provisions of the General Corporation Law stating that such increase or decrease, as the case may be, has been so authorized.  The Corporation shall have the authority to issue fractional shares of Series P Preferred Stock.

Section 3.        Definitions .  As used herein with respect to Series P Preferred Stock:

“ Business Day ” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York.

“ Certificate of Designation ” means this Certificate of Designation relating to the Series P Preferred Stock, as it may be amended from time to time.

“Common Stock” means the common stock of the Corporation, par value $1⅔ per share, as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.

“ Depositary Company ” has the meaning set forth in Section 6(d) hereof.

“ Dividend Payment Date ” has the meaning set forth in Section 4(a) hereof.

“ Dividend Period ” has the meaning set forth in Section 4(a) hereof.

“ DTC ” means The Depository Trust Company, together with its successors and assigns.

“Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation now existing or hereafter authorized over which the Series P Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Liquidation Preference ” has the meaning set forth in Section 5(a) hereof.

“ Nonpayment Event ” shall have the meaning set forth in Section 7(b).

“ Parity Stock ” means any other class or series of stock of the Corporation now existing or hereafter authorized that ranks on par with the Series P Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Preference Stock ” means any and all series of preference stock, having no par value, of the Corporation. 

“ Preferred Stock ” means any and all series of preferred stock, having no par value, of the Corporation, including the Series P Preferred Stock.

“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(b).

“ Regulatory Capital Treatment Event ” means the Corporation’s reasonable determination that as a result of any (i) amendment to, clarification of, or change (including any announced prospective change)

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in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective on or after March 15, 2013; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after March 15, 2013; or (iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after March 15, 2013, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation preference amount of all shares of Series P Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series P Preferred Stock is outstanding.

“ Series P Preferred Stock ” has the meaning set forth in Section 1 hereof.

“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series P Preferred Stock.

            Section 4.        Dividends.

(a)        Rate .  Dividends on the Series P Preferred Stock will not be mandatory.  Holders of Series P Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference amount of $25,000 per share of the Series P Preferred Stock, payable quarterly in arrears on the 15th day of March, June, September and December of each year (commencing on June 15, 2013); provided , however , if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, without any interest or other payment in respect of such delay (each such day on which dividends are payable a “ Dividend Payment Date ”).  A “ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date, except for the initial Dividend Period, which will be the period from, and including, March 22, 2013 to, but excluding, June 15, 2013.  Dividends on each share of Series P Preferred Stock will accrue at a rate per annum equal to 5.25%.  The record date for payment of dividends on the Series P Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other date as determined by the Corporation’s Board of Directors.  The amount of dividends payable shall be computed on the basis of a 360-day year of twelve 30-day months.  Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward.

(b)       Non-Cumulative Dividends .  Dividends on shares of Series P Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series P Preferred Stock on any Dividend Payment Date are not declared prior to such Dividend Payment Date, then such dividends shall not cumulate and shall cease to accrue and be payable, and the Corporation shall have no obligation to pay, and the holders of Series P Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period on the Dividend Payment Date for such Dividend Period or at any time in the future or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series P Preferred Stock or any other series of authorized Preferred Stock, Preference Stock, or Common Stock of the Corporation.

(c)        Priority of Dividends .  So long as any shares of Series P Preferred Stock remain outstanding,


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(1) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Common Stock, and no shares of Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Common Stock by the Corporation (other than (i) a dividend payable in Common Stock or (ii) the acquisition of shares of Common Stock in exchange for, or through application of proceeds of the sale of, shares of Common Stock);

(2) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Stock other than Common Stock, and no shares of Junior Stock other than Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Junior Stock other than Common Stock by the Corporation (other than (i) a dividend payable solely in shares of Junior Stock, (ii) any dividend in connection with the implementation of a stockholder rights plan, or the redemption or repurchase of any rights under any such plan, (iii) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (iv) as a result of a reclassification of Junior Stock other than Common Stock for or into other Junior Stock, (v) the exchange or conversion of one share of Junior Stock other than Common Stock for or into another share of Junior Stock, (vi) through the use of proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (vii) any purchase, redemption or other acquisition of Junior Stock other than Common Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after March 15, 2013, (viii) any purchase of fractional interests in shares of Junior Stock other than Common Stock pursuant to the conversion or exchange provisions of such Junior Stock other than Common Stock or the securities being converted or exchanged, (ix) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (x) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business); and

(3) no shares of Parity Stock will be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series P Preferred Stock and such Parity Stock during a Dividend Period (other than (i) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (ii) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock, (iii) through the use of proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock, (iv) any purchase, redemption or other acquisition of Parity Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after March 15, 2013, (v) any purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the securities being converted or exchanged, (vi) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (vii) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business), unless, in each case, the full dividends for the then-current Dividend Period on all outstanding shares of the Series P Preferred Stock have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside.

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Subject to the succeeding sentence, for so long as any shares of Series P Preferred Stock remain outstanding, no dividends shall be declared, paid, or set aside for payment on any Parity Stock for any period unless full dividends on all outstanding shares of Series P Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside.  To the extent the Corporation declares dividends on the Series P Preferred Stock and on any Parity Stock but cannot make full payment of those declared dividends, the Corporation will allocate the dividend payments on a proportional basis among the holders of shares of Series P Preferred Stock and the holders of any Parity Stock then outstanding where the terms of such Parity Stock provide similar dividend rights. 

Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the board of Directors of the Corporation may be declared and paid on the Common Stock and any other stock that is Parity Stock or Junior Stock, from time to time out of any assets legally available for such payment, and the shares of Series P Preferred Stock shall not be entitled to participate in any such dividends.

Section 5.        Liquidation Rights.

(a)        Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series P Preferred Stock shall be entitled to receive in full out of assets available for distribution to its stockholders before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of the Common Stock or any other Junior Stock, and subject to the rights of the holders of Parity Stock or any stock of the Corporation ranking senior to the Series P Preferred Stock as to such distribution, a liquidating distribution in the amount of $25,000 per share, plus an amount equal to any dividends which have been declared but not yet paid, without accumulation of any undeclared dividends, to the date of liquidation (the “ Liquidation Preference ”).  The holders of Series P Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

(b)       Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the Liquidation Preference to all holders of Series P Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series P Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series P Preferred Stock and all such Parity Stock. 

(c)        Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series P Preferred Stock and all other amounts payable upon liquidation, dissolution or winding up of the Corporation have been paid in full to all holders of any Parity Stock, the holders of Common Stock and any other Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)       Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any

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other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

Section 6.        Redemption.

(a)        Optional Redemption .  The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem, subject to the prior approval of the Federal Reserve Board, out of funds legally available therefor, in whole or in part, the shares of Series P Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after June 15, 2018, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series P Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid up to the redemption date without accumulation of any undeclared dividends.

Notwithstanding the foregoing, within 90 days of the Corporation’s good faith determination that a Regulatory Capital Treatment Event has occurred, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may, subject to the approval of the appropriate federal banking agency, redeem out of funds legally available therefor, in whole, but not in part, the shares of Series P Preferred Stock at the time outstanding, prior to June 15, 2018, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series P Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid, without accumulation of any undeclared dividends.

(b)       Notice of Redemption .  Notice of every redemption of shares of Series P Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation.  Such mailing shall be at least 40 days and not more than 70 days before the date fixed for redemption.  Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series P Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series P Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series P Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, if applicable, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where the certificates for those shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.  Notwithstanding the foregoing, if the Series P Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. 

(c)        Partial Redemption .  In case of any redemption of only part of the shares of Series P Preferred Stock at the time outstanding, the shares of Series P Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series P Preferred Stock in proportion to the number of Series P Preferred Stock held by such holders or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable.  Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series P Preferred Stock shall be redeemed from time to time.


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(d)       Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been irrevocably set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders  thereof to receive the amount payable on such redemption from the Depository Company at any time after the redemption date from the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

Section 7.        Voting Rights.

(a)        General.  The holders of Series P Preferred Stock shall not be entitled to vote on any matter except as set forth in paragraph 7(b) below or as required by applicable law.

(b)       Right To Elect Two Directors Upon Nonpayment Events.  Whenever dividends payable on any shares of Series P Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to, as to any class or series, at least six quarterly Dividend Periods or their equivalent, whether or not for consecutive Dividend Periods (a “ Nonpayment Event ”), the holders of the outstanding Series P Preferred Stock, voting together as a class with holders of Voting Parity Stock whose voting rights are exercisable, will be entitled to vote for the election of two additional directors of the Corporation’s Board of Directors at the Corporation’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding Series P Preferred Stock (together with the holders of shares of any one or more other series of Voting Parity Stock).  At elections for such directors, each holder of the Series P Preferred Stock shall be entitled to 25 votes for each share held (the holders of shares of any other series of Voting Parity Stock being entitled to such number of votes, if any, for each share of such stock as may be granted to them).  The right of the holders of the Series P Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Voting Parity Stock) to elect Preferred Stock Directors shall continue until such time as the Corporation has paid in full dividends for the equivalent of at least four quarterly Dividend Periods or their equivalent, at which time such right with respect to the Series P Preferred Stock shall terminate, except as provided by law, and subject to revesting in the event of each and every subsequent default of the character described in this Section 7(b).


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Upon any termination of the right of the holders of all shares of Series P Preferred Stock and Voting Parity Stock to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by only those holders voting as a class shall terminate immediately.  Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series P Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of Series P Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this Section 7(b) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to this Section 7(b).

(c)     Other Voting Rights .  In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of the Series P Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series P Preferred Stock and outstanding shares of all other series of Voting Parity Stock entitled to vote on the matter, by a vote of at least 66 2/3% in voting power of all such outstanding Series P Preferred Stock and such Voting Parity Stock, voting together as a class, given in person or by proxy, either in writing without a meeting or at any meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following actions, whether or not such approval is required by Delaware law: (i) the issuance of any class or series of Preferred Stock or Preference Stock ranking senior to the Series P Preferred Stock in the payment of dividends or the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; (ii) any amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation, including the Certificate of Designation, or the Bylaws that would adversely affect the rights, preferences, privileges or voting powers of the Series P Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or Bylaws to authorize, create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series P Preferred Stock with respect to either the payment of dividends or in the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; or (iv) any consummation of a reclassification involving the Series P Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series P Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series P Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (b) such shares of Series P Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series P Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series P Preferred Stock or any Parity Stock or Junior Stock or any securities convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Series P Preferred Stock, and holders of the Series P Preferred Stock shall have no right to vote thereon.


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If any amendment, alteration, repeal, reclassification, merger or consolidation specified in this Section 7(c) would adversely affect one or more but not all series of voting Preferred Stock (including the Series P Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a class (in lieu of all other series of Preferred Stock).

Each holder of the Series P Preferred Stock will have 25 votes per share on any matter on which holders of the Series P Preferred Stock are entitled to vote, whether separately or together with any other series of stock of the Corporation (the holders of any shares of any other series of stock being entitled to such number of votes, if any, for each share of stock as may be granted to them), pursuant to Delaware law or otherwise, including by written consent.

(d)       Changes after Provision for Redemption .  No vote or consent of the holders of Series P Preferred Stock shall be required pursuant to Section 7(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding Series P Preferred Stock shall have been redeemed, or notice of redemption has been given and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.

(e)        Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series P Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Certificate of Incorporation, the Bylaws, applicable law and any national securities exchange or other trading facility in which the Series P Preferred Stock is listed or traded at the time.

Section 8.        Preemption and Conversion .  The holders of Series P Preferred Stock shall not have any rights of preemption or rights to convert such Series P Preferred Stock into shares of any other class of capital stock of the Corporation.

Section 9.        Reacquired Shares .  Shares of Series P Preferred Stock which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

Section 10.      No Sinking Fund .  Shares of Series P Preferred Stock are not subject to the operation of a sinking fund.

Section 11.      Additional Classes or Series of Stock .  Notwithstanding anything set forth in the Restated Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, or any authorized committee of the Board of Directors of the Corporation, (i) without the vote of the holders of the Series P Preferred Stock, may authorize and issue additional shares of Junior Stock and Parity Stock and (ii) with the requisite vote of the holders of the Series P Preferred Stock and Parity Stock entitled to vote thereon, may authorize and issue any additional class or series of Preferred Stock or Preference Stock senior to the Series P Preferred Stock as to the payment of dividends and/or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.


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In Witness Whereof, Wells Fargo & Company has caused this Certificate of Designation to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Jeannine E. Zahn, its Assistant Secretary, this 21 st day of March, 2013.
 
Wells Fargo & Company
By:
/s/ Barbara S. Brett
 
Barbara S. Brett, Senior Vice President and Assistant Treasurer
 
 
/s/ Jeannine E. Zahn                           

Jeannine E. Zahn, Assistant Secretary

[As filed with the Delaware Secretary of State on March 21, 2013.]


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WELLS FARGO & COMPANY
_____________________
CERTIFICATE OF DESIGNATION

Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
_____________________
5.85% FIXED-TO-FLOATING RATE NON-CUMULATIVE PERPETUAL
CLASS A PREFERRED STOCK, SERIES Q
(Without Par Value)
_____________________

WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “ Board of Directors ”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “ Committee ”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), the following resolutions were duly adopted by the Committee pursuant to the unanimous written consent of the Committee duly adopted on July 19, 2013, in accordance with Section 141(f) of the General Corporation Law:
 
Resolved, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated January 27, 2009, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation, and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:
 
RIGHTS AND PREFERENCES
 
            Section 1.        Designation .  The shares of such series of Preferred Stock shall be designated 5.85% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series Q, with no par value and a liquidation preference amount of $25,000 per share (the “ Series Q Preferred Stock ”).  Each share of Series Q Preferred Stock shall be identical in all respects to every other share of Series Q Preferred Stock except with respect to the date from which dividends may accrue. Series Q Preferred Stock will rank equally with Parity Stock with respect to the payment of dividends and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation and will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
 
            Section 2.        Number of Shares .  The number of authorized shares of Series Q Preferred Stock shall be 69,000.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series Q Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the

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Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law stating that such increase or decrease, as the case may be, has been so authorized.  The Corporation shall have the authority to issue fractional shares of Series Q Preferred Stock.

Section 3.        Definitions .  As used herein with respect to Series Q Preferred Stock:

“ Business Day ” means for dividends payable for the Fixed Rate Period (as defined below) any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York, and for dividends payable for the Floating Rate Period (as defined below), it means any date that would be considered a Business Day during the Fixed Rate Period that is also a London Banking Day (as defined below).

“ Calculation Agent ”  means Wells Fargo Bank, N.A. or any other successor appointed by the Corporation, acting as Calculation Agent.

“ Certificate of Designation ” means this Certificate of Designation relating to the Series Q Preferred Stock, as it may be amended from time to time.

“Common Stock” means the common stock of the Corporation, par value $1⅔ per share, as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.

“ Depositary Company ” has the meaning set forth in Section 6(d) hereof.

“ Designated LIBOR Page” means the display on Reuters, or any successor service, on page LIBOR01, or any other page as may replace that page on that service, for the purpose of displaying the London interbank rates for U.S. dollars.

“ Dividend Payment Date ” has the meaning set forth in Section 4(a) hereof.

“ Dividend Period ” has the meaning set forth in Section 4(a) hereof.

“ DTC ” means The Depository Trust Company, together with its successors and assigns.

“ Fixed Rate Period ” has the meaning set forth in Section 4(a) hereof.

“ Floating Rate Period ” has the meaning set forth in Section 4(a) hereof.

“Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation now existing or hereafter authorized over which the Series Q Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ LIBOR Determination Date ” means the second London Banking Day immediately preceding the first day of the relevant Dividend Period.

“ Liquidation Preference ” has the meaning set forth in Section 5(a) hereof.


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“ London Banking Day ” means any day on which commercial banks and foreign exchange markets settle payments in London.

“ Nonpayment Event ” shall have the meaning set forth in Section 7(b).

“ Parity Stock ” means any other class or series of stock of the Corporation now existing or hereafter authorized that ranks on par with the Series Q Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Preference Stock ” means any and all series of preference stock, having no par value, of the Corporation. 

“ Preferred Stock ” means any and all series of preferred stock, having no par value, of the Corporation, including the Series Q Preferred Stock.

“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(b).

“ Regulatory Capital Treatment Event ” means the Corporation’s reasonable determination that as a result of any (i) amendment to, clarification of, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective on or after July 15, 2013; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after July 15, 2013; or (iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after July 15, 2013, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation preference amount of all shares of Series Q Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series Q Preferred Stock is outstanding.

“ Series Q Preferred Stock ” has the meaning set forth in Section 1 hereof.

“ Three-month LIBOR ” means, for any LIBOR Determination Date, the arithmetic mean of the offered rates for deposits in U.S. dollars for a three-month period commencing on the second London Banking Day immediately following that LIBOR Determination Date that appear on the Designated LIBOR Page as of 11:00 a.m., London time, on that LIBOR Determination Date, if at least two offered rates appear on the Designated LIBOR Page, provided that if the specified Designated LIBOR Page by its terms provides only for a single rate, that single rate will be used.  If (i) fewer than two offered rates appear or (ii) no rate appears and the Designated LIBOR Page by its terms provides only for a single rate, then the Calculation Agent will request the principal London offices of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide the Calculation Agent with its offered quotation for deposits in U.S. dollars for a three-month period commencing on the second London Banking Day immediately following that LIBOR Determination Date to prime banks in the London interbank market at approximately 11:00 a.m., London time, on that LIBOR Determination Date and in a principal amount that is representative of a single transaction in U.S. dollars in that market at that time.  If at least two quotations are provided, Three-month LIBOR determined on that LIBOR Determination Date will be the arithmetic mean of those quotations.  If fewer than two quotations are provided, Three-month LIBOR will be the arithmetic mean of the rates quoted at approximately 11:00 a.m., New York City time, on that LIBOR Determination Date by three major banks in New York City selected by the Calculation

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Agent for loans in U.S. dollars to leading European banks for a three-month period and in a principal amount that is representative of a single transaction in U.S. dollars in that market at that time.  If the banks so selected by the Calculation Agent are not quoting as set forth above, Three-month LIBOR for that LIBOR Determination Date will remain Three-month LIBOR for the immediately preceding Dividend Period or, in the case of the Dividend Period beginning September 15, 2023, 5.85%.  All percentages used in or resulting from any calculation of Three-month LIBOR will be rounded, if necessary, to the nearest one hundred-thousandth of a percentages point, with .000005% rounded up to .00001%.  The determination of Three-month LIBOR for each relevant Dividend Period by the Calculation Agent will (in the absence of manifest error) be final and binding.

“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series Q Preferred Stock.

            Section 4.        Dividends.

(a)        Rate .  Dividends on the Series Q Preferred Stock will not be mandatory.  Holders of Series Q Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference amount of $25,000 per share of the Series Q Preferred Stock, payable quarterly in arrears on the 15 th day of March, June, September and December, commencing September 15, 2013.  From July 22, 2013 to, but excluding, September 15, 2023 (the “ Fixed Rate Period ”), dividends will accrue at an annual rate of 5.85%, and from, and including, September 15, 2023 (the “ Floating Rate Period ”), dividends will accrue at an annual rate equal to Three-month LIBOR plus 3.09%.  Notwithstanding the foregoing, if any date on or prior to September 15, 2023 on which dividends otherwise would be payable is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, without any interest or other payment in respect of such delay, and if any date after September 15, 2023 on which dividends otherwise would be payable is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding Business Day unless that day falls in the next calendar month, in which case payment of any dividend otherwise payable on that date will be the immediately preceding Business Day, and dividends will accrue to the actual payment date (each such day on which dividends are payable a “ Dividend Payment Date ”).  A “ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date, except for the initial Dividend Period, which will be the period from, and including, July 22, 2013 to, but excluding, September 15, 2013.  The record date for payment of dividends on the Series Q Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other date as determined by the Corporation’s Board of Directors.  The amount of dividends payable for the Fixed Rate Period shall be computed on the basis of a 360-day year of twelve 30-day months.  The amount of dividends payable for the Floating Rate Period shall be computed on the basis of a 360-day year and the actual number of days elapsed.  Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward.  The Calculation Agent’s determination of any dividend rate, and its calculation of the amount of dividends payable for the Floating Rate Period, will be maintained on file at the Calculation Agent’s principal offices.

(b)       Non-Cumulative Dividends .  Dividends on shares of Series Q Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series Q Preferred Stock on any Dividend Payment Date are not declared prior to such Dividend Payment Date, then such dividends shall not cumulate and shall cease to accrue and be payable, and the Corporation shall have no obligation

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to pay, and the holders of Series Q Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period on the Dividend Payment Date for such Dividend Period or at any time in the future or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series Q Preferred Stock or any other series of authorized Preferred Stock, Preference Stock, or Common Stock of the Corporation.

(c)        Priority of Dividends .  So long as any shares of Series Q Preferred Stock remain outstanding,

(1) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Common Stock, and no shares of Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Common Stock by the Corporation (other than (i) a dividend payable in Common Stock or (ii) the acquisition of shares of Common Stock in exchange for, or through application of proceeds of the sale of, shares of Common Stock);

(2) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Stock other than Common Stock, and no shares of Junior Stock other than Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Junior Stock other than Common Stock by the Corporation (other than (i) a dividend payable solely in shares of Junior Stock, (ii) any dividend in connection with the implementation of a stockholder rights plan, or the redemption or repurchase of any rights under any such plan, (iii) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (iv) as a result of a reclassification of Junior Stock other than Common Stock for or into other Junior Stock, (v) the exchange or conversion of one share of Junior Stock other than Common Stock for or into another share of Junior Stock, (vi) through the use of proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (vii) any purchase, redemption or other acquisition of Junior Stock other than Common Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after July 15, 2013, (viii) any purchase of fractional interests in shares of Junior Stock other than Common Stock pursuant to the conversion or exchange provisions of such Junior Stock other than Common Stock or the securities being converted or exchanged, (ix) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (x) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business); and

(3) no shares of Parity Stock will be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series Q Preferred Stock and such Parity Stock during a Dividend Period (other than (i) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (ii) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock, (iii) through the use of proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock, (iv) any purchase, redemption or other acquisition of Parity Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans

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or arrangements (including any employment, severance or consulting arrangements) adopted before or after July 15, 2013, (v) any purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the securities being converted or exchanged, (vi) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (vii) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business), unless, in each case, the full dividends for the then-current Dividend Period on all outstanding shares of the Series Q Preferred Stock have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside.

Subject to the succeeding sentence, for so long as any shares of Series Q Preferred Stock remain outstanding, no dividends shall be declared, paid, or set aside for payment on any Parity Stock for any period unless full dividends on all outstanding shares of Series Q Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside.  To the extent the Corporation declares dividends on the Series Q Preferred Stock and on any Parity Stock but cannot make full payment of those declared dividends, the Corporation will allocate the dividend payments on a proportional basis among the holders of shares of Series Q Preferred Stock and the holders of any Parity Stock then outstanding where the terms of such Parity Stock provide similar dividend rights. 

Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on the Common Stock and any other stock that is Parity Stock or Junior Stock, from time to time out of any assets legally available for such payment, and the shares of Series Q Preferred Stock shall not be entitled to participate in any such dividends.

Section 5.        Liquidation Rights.

(a)        Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series Q Preferred Stock shall be entitled to receive in full out of assets available for distribution to its stockholders before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of the Common Stock or any other Junior Stock, and subject to the rights of the holders of Parity Stock or any stock of the Corporation ranking senior to the Series Q Preferred Stock as to such distribution, a liquidating distribution in the amount of $25,000 per share, plus an amount equal to any dividends which have been declared but not yet paid, without accumulation of any undeclared dividends, to the date of liquidation (the “ Liquidation Preference ”).  The holders of Series Q Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

(b)       Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the Liquidation Preference to all holders of Series Q Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series Q Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series Q Preferred Stock and all such Parity Stock. 

(c)        Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series Q Preferred Stock and all other amounts payable upon liquidation, dissolution or winding up of the Corporation have been paid in full to all holders of any Parity Stock, the holders of Common Stock

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and any other Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)       Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

Section 6.        Redemption.

(a)        Optional Redemption .  The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem, subject to the prior approval of the Federal Reserve Board, out of funds legally available therefor, in whole or in part, the shares of Series Q Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after September 15, 2023, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series Q Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid up to the redemption date without accumulation of any undeclared dividends.

Notwithstanding the foregoing, within 90 days of the Corporation’s good faith determination that a Regulatory Capital Treatment Event has occurred, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may, subject to the approval of the appropriate federal banking agency, redeem out of funds legally available therefor, in whole, but not in part, the shares of Series Q Preferred Stock at the time outstanding, prior to September 15, 2023, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series Q Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid, without accumulation of any undeclared dividends.

(b)       Notice of Redemption .  Notice of every redemption of shares of Series Q Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation.  Such mailing shall be at least 40 days and not more than 70 days before the date fixed for redemption.  Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series Q Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series Q Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series Q Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, if applicable, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where the certificates for those shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.  Notwithstanding the foregoing, if the Series Q Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. 


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(c)        Partial Redemption .  In case of any redemption of only part of the shares of Series Q Preferred Stock at the time outstanding, the shares of Series Q Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series Q Preferred Stock in proportion to the number of Series Q Preferred Stock held by such holders or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable.  Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series Q Preferred Stock shall be redeemed from time to time.

(d)       Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been irrevocably set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders  thereof to receive the amount payable on such redemption from the Depository Company at any time after the redemption date from the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

Section 7.        Voting Rights.

(a)        General.  The holders of Series Q Preferred Stock shall not be entitled to vote on any matter except as set forth in paragraph 7(b) below or as required by applicable law.

(b)       Right To Elect Two Directors Upon Nonpayment Events.  Whenever dividends payable on any shares of Series Q Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to, as to any class or series, at least six quarterly Dividend Periods or their equivalent, whether or not for consecutive Dividend Periods (a “ Nonpayment Event ”), the holders of the outstanding Series Q Preferred Stock, voting together as a class with holders of Voting Parity Stock whose voting rights are exercisable, will be entitled to vote for the election of two additional directors of the Corporation’s Board of Directors at the Corporation’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding Series Q Preferred Stock (together with the holders of shares of any one or more other series of Voting Parity Stock).  At elections for such directors, each holder of the Series Q Preferred Stock shall be entitled

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to 25 votes for each share held (the holders of shares of any other series of Voting Parity Stock being entitled to such number of votes, if any, for each share of such stock as may be granted to them).  The right of the holders of the Series Q Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Voting Parity Stock) to elect Preferred Stock Directors shall continue until such time as the Corporation has paid in full dividends for the equivalent of at least four quarterly Dividend Periods or their equivalent, at which time such right with respect to the Series Q Preferred Stock shall terminate, except as provided by law, and subject to revesting in the event of each and every subsequent default of the character described in this Section 7(b).

Upon any termination of the right of the holders of all shares of Series Q Preferred Stock and Voting Parity Stock to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by only those holders voting as a class shall terminate immediately.  Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series Q Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of Series Q Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this Section 7(b) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to this Section 7(b).

(c)     Other Voting Rights .  In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of the Series Q Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series Q Preferred Stock and outstanding shares of all other series of Voting Parity Stock entitled to vote on the matter, by a vote of at least 66 2/3% in voting power of all such outstanding Series Q Preferred Stock and such Voting Parity Stock, voting together as a class, given in person or by proxy, either in writing without a meeting or at any meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following actions, whether or not such approval is required by Delaware law: (i) the issuance of any class or series of Preferred Stock or Preference Stock ranking senior to the Series Q Preferred Stock in the payment of dividends or the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; (ii) any amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation, including the Certificate of Designation, or the Bylaws that would adversely affect the rights, preferences, privileges or voting powers of the Series Q Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or Bylaws to authorize, create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series Q Preferred Stock with respect to either the payment of dividends or in the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; or (iv) any consummation of a reclassification involving the Series Q Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series Q Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series Q Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (b) such shares of Series Q Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights,

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preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series Q Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series Q Preferred Stock or any Parity Stock or Junior Stock or any securities convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Series Q Preferred Stock, and holders of the Series Q Preferred Stock shall have no right to vote thereon.

If any amendment, alteration, repeal, reclassification, merger or consolidation specified in this Section 7(c) would adversely affect one or more but not all series of voting Preferred Stock (including the Series Q Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a class (in lieu of all other series of Preferred Stock).

Each holder of the Series Q Preferred Stock will have 25 votes per share on any matter on which holders of the Series Q Preferred Stock are entitled to vote, whether separately or together with any other series of stock of the Corporation (the holders of any shares of any other series of stock being entitled to such number of votes, if any, for each share of stock as may be granted to them), pursuant to Delaware law or otherwise, including by written consent.

(d)       Changes after Provision for Redemption .  No vote or consent of the holders of Series Q Preferred Stock shall be required pursuant to Section 7(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding Series Q Preferred Stock shall have been redeemed, or notice of redemption has been given and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.

(e)        Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series Q Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Certificate of Incorporation, the Bylaws, applicable law and any national securities exchange or other trading facility in which the Series Q Preferred Stock is listed or traded at the time.

Section 8.        Preemption and Conversion .  The holders of Series Q Preferred Stock shall not have any rights of preemption or rights to convert such Series Q Preferred Stock into shares of any other class of capital stock of the Corporation.

Section 9.        Reacquired Shares .  Shares of Series Q Preferred Stock which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

Section 10.      No Sinking Fund .  Shares of Series Q Preferred Stock are not subject to the operation of a sinking fund.

Section 11.      Additional Classes or Series of Stock .  Notwithstanding anything set forth in the Restated Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, or any authorized committee of the Board of Directors of the Corporation,

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(i) without the vote of the holders of the Series Q Preferred Stock, may authorize and issue additional shares of Junior Stock and Parity Stock and (ii) with the requisite vote of the holders of the Series Q Preferred Stock and Parity Stock entitled to vote thereon, may authorize and issue any additional class or series of Preferred Stock or Preference Stock senior to the Series Q Preferred Stock as to the payment of dividends and/or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

In Witness Whereof, Wells Fargo & Company has caused this Certificate of Designation to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Jeannine E. Zahn, its Assistant Secretary, this 19th day of July, 2013.
 
Wells Fargo & Company
By:
/s/ Barbara S. Brett
 
Barbara S. Brett, Senior Vice President and Assistant Treasurer
 
 
/s/ Jeannine E. Zahn                           

Jeannine E. Zahn, Assistant Secretary
[As filed with the Delaware Secretary of State on July 19, 2013.]
 

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WELLS FARGO & COMPANY
_____________________
CERTIFICATE OF DESIGNATION
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
_____________________
6.625% FIXED-TO-FLOATING RATE NON-CUMULATIVE PERPETUAL
CLASS A PREFERRED STOCK, SERIES R
(Without Par Value)
_____________________

WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “ Board of Directors ”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “ Committee ”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), the following resolutions were duly adopted by the Committee pursuant to the unanimous written consent of the Committee duly adopted on December 11, 2013, in accordance with Section 141(f) of the General Corporation Law:
 
Resolved, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated January 27, 2009, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation, and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:
RIGHTS AND PREFERENCES
 
            Section 1.        Designation .  The shares of such series of Preferred Stock shall be designated 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series R, with no par value and a liquidation preference amount of $25,000 per share (the “ Series R Preferred Stock ”).  Each share of Series R Preferred Stock shall be identical in all respects to every other share of Series R Preferred Stock except with respect to the date from which dividends may accrue. Series R Preferred Stock will rank equally with Parity Stock with respect to the payment of dividends and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation and will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
 
            Section 2.        Number of Shares .  The number of authorized shares of Series R Preferred Stock shall be 34,500.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series R Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law stating that such increase

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or decrease, as the case may be, has been so authorized.  The Corporation shall have the authority to issue fractional shares of Series R Preferred Stock.

Section 3.        Definitions .  As used herein with respect to Series R Preferred Stock:

“ Business Day ” means for dividends payable for the Fixed Rate Period (as defined below) any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York, and for dividends payable for the Floating Rate Period (as defined below), it means any date that would be considered a Business Day during the Fixed Rate Period that is also a London Banking Day (as defined below).

“ Calculation Agent ”  means Wells Fargo Bank, N.A. or any other successor appointed by the Corporation, acting as Calculation Agent.

“ Certificate of Designation ” means this Certificate of Designation relating to the Series R Preferred Stock, as it may be amended from time to time.

“Common Stock” means the common stock of the Corporation, par value $1⅔ per share, as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.

“ Depositary Company ” has the meaning set forth in Section 6(d) hereof.

“ Designated LIBOR Page” means the display on Reuters, or any successor service, on page LIBOR01, or any other page as may replace that page on that service, for the purpose of displaying the London interbank rates for U.S. dollars.

“ Dividend Payment Date ” has the meaning set forth in Section 4(a) hereof.

“ Dividend Period ” has the meaning set forth in Section 4(a) hereof.

“ DTC ” means The Depository Trust Company, together with its successors and assigns.

“ Fixed Rate Period ” has the meaning set forth in Section 4(a) hereof.

“ Floating Rate Period ” has the meaning set forth in Section 4(a) hereof.

“Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation now existing or hereafter authorized over which the Series R Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ LIBOR Determination Date ” means the second London Banking Day immediately preceding the first day of the relevant Dividend Period.

“ Liquidation Preference ” has the meaning set forth in Section 5(a) hereof.

“ London Banking Day ” means any day on which commercial banks and foreign exchange markets settle payments in London.

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“ Nonpayment Event ” shall have the meaning set forth in Section 7(b).

“ Parity Stock ” means any other class or series of stock of the Corporation now existing or hereafter authorized that ranks on par with the Series R Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

“ Preference Stock ” means any and all series of preference stock, having no par value, of the Corporation. 

“ Preferred Stock ” means any and all series of preferred stock, having no par value, of the Corporation, including the Series R Preferred Stock.

“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(b).

“ Regulatory Capital Treatment Event ” means the Corporation’s reasonable determination that as a result of any (i) amendment to, clarification of, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective on or after December 11, 2013; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after December 11, 2013; or (iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after December 11, 2013, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation preference amount of all shares of Series R Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series R Preferred Stock is outstanding.

“ Series R Preferred Stock ” has the meaning set forth in Section 1 hereof.

“ Three-month LIBOR ” means, for any LIBOR Determination Date, the arithmetic mean of the offered rates for deposits in U.S. dollars for a three-month period commencing on the second London Banking Day immediately following that LIBOR Determination Date that appear on the Designated LIBOR Page as of 11:00 a.m., London time, on that LIBOR Determination Date, if at least two offered rates appear on the Designated LIBOR Page, provided that if the specified Designated LIBOR Page by its terms provides only for a single rate, that single rate will be used.  If (i) fewer than two offered rates appear or (ii) no rate appears and the Designated LIBOR Page by its terms provides only for a single rate, then the Calculation Agent will request the principal London offices of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide the Calculation Agent with its offered quotation for deposits in U.S. dollars for a three-month period commencing on the second London Banking Day immediately following that LIBOR Determination Date to prime banks in the London interbank market at approximately 11:00 a.m., London time, on that LIBOR Determination Date and in a principal amount that is representative of a single transaction in U.S. dollars in that market at that time.  If at least two quotations are provided, Three-month LIBOR determined on that LIBOR Determination Date will be the arithmetic mean of those quotations.  If fewer than two quotations are provided, Three-month LIBOR will be the arithmetic mean of the rates quoted at approximately 11:00 a.m., New York City time, on that LIBOR Determination Date by three major banks in New York City selected by the Calculation Agent for loans in U.S. dollars to leading European banks for a three-month period and in a principal

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amount that is representative of a single transaction in U.S. dollars in that market at that time.  If the banks so selected by the Calculation Agent are not quoting as set forth above, Three-month LIBOR for that LIBOR Determination Date will remain Three-month LIBOR for the immediately preceding Dividend Period or, in the case of the Dividend Period beginning March 15, 2024, 6.625%.  All percentages used in or resulting from any calculation of Three-month LIBOR will be rounded, if necessary, to the nearest one hundred-thousandth of a percentages point, with .000005% rounded up to .00001%.  The determination of Three-month LIBOR for each relevant Dividend Period by the Calculation Agent will (in the absence of manifest error) be final and binding.

“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series R Preferred Stock.

            Section 4.        Dividends.

(a)        Rate .  Dividends on the Series R Preferred Stock will not be mandatory.  Holders of Series R Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference amount of $25,000 per share of the Series R Preferred Stock, payable quarterly in arrears on the 15 th day of March, June, September and December, commencing March 15, 2014,   From December 18, 2013 to, but excluding, March 15, 2024 (the “ Fixed Rate Period ”), dividends will accrue at an annual rate of 6.625%, and from, and including, March 15, 2024 (the “ Floating Rate Period ”), dividends will accrue at an annual rate equal to Three-month LIBOR plus 3.69%.  Notwithstanding the foregoing, if any date on or prior to March 15, 2024 on which dividends otherwise would be payable is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, without any interest or other payment in respect of such delay, and if any date after March 15, 2024 on which dividends otherwise would be payable is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding Business Day unless that day falls in the next calendar month, in which case payment of any dividend otherwise payable on that date will be the immediately preceding Business Day, and dividends will accrue to the actual payment date (each such day on which dividends are payable a “ Dividend Payment Date ”).  A “ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date, except for the initial Dividend Period, which will be the period from, and including, December 18, 2013 to, but excluding, March 15, 2014.  The record date for payment of dividends on the Series R Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other date as determined by the Corporation’s Board of Directors.  The amount of dividends payable for the Fixed Rate Period shall be computed on the basis of a 360-day year of twelve 30-day months.  The amount of dividends payable for the Floating Rate Period shall be computed on the basis of a 360-day year and the actual number of days elapsed.  Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half
cent being rounded upward.  The Calculation Agent’s determination of any dividend rate, and its calculation of the amount of dividends payable for the Floating Rate Period, will be maintained on file at the Calculation Agent’s principal offices.

(b)       Non-Cumulative Dividends .  Dividends on shares of Series R Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series R Preferred Stock on any Dividend Payment Date are not declared prior to such Dividend Payment Date, then such dividends shall not cumulate and shall cease to accrue and be payable, and the Corporation shall have no obligation to pay, and the holders of Series R Preferred Stock shall have no right to receive, dividends accrued for

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such Dividend Period on the Dividend Payment Date for such Dividend Period or at any time in the future or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series R Preferred Stock or any other series of authorized Preferred Stock, Preference Stock, or Common Stock of the Corporation.

(c)        Priority of Dividends .  So long as any shares of Series R Preferred Stock remain outstanding,

(1) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Common Stock, and no shares of Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Common Stock by the Corporation (other than (i) a dividend payable in Common Stock or (ii) the acquisition of shares of Common Stock in exchange for, or through application of proceeds of the sale of, shares of Common Stock);

(2) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Stock other than Common Stock, and no shares of Junior Stock other than Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Junior Stock other than Common Stock by the Corporation (other than (i) a dividend payable solely in shares of Junior Stock, (ii) any dividend in connection with the implementation of a stockholder rights plan, or the redemption or repurchase of any rights under any such plan, (iii) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (iv) as a result of a reclassification of Junior Stock other than Common Stock for or into other Junior Stock, (v) the exchange or conversion of one share of Junior Stock other than Common Stock for or into another share of Junior Stock, (vi) through the use of proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (vii) any purchase, redemption or other acquisition of Junior Stock other than Common Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after December 11, 2013, (viii) any purchase of fractional interests in shares of Junior Stock other than Common Stock pursuant to the conversion or exchange provisions of such Junior Stock other than Common Stock or the securities being converted or exchanged, (ix) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (x) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business); and

(3) no shares of Parity Stock will be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series R Preferred Stock and such Parity Stock during a Dividend Period (other than (i) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (ii) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock, (iii) through the use of proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock, (iv) any purchase, redemption or other acquisition of Parity Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans

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or arrangements (including any employment, severance or consulting arrangements) adopted before or after December 11, 2013, (v) any purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the securities being converted or exchanged, (vi) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (vii) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business), unless, in each case, the full dividends for the then-current Dividend Period on all outstanding shares of the Series R Preferred Stock have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside.

Subject to the succeeding sentence, for so long as any shares of Series R Preferred Stock remain outstanding, no dividends shall be declared, paid, or set aside for payment on any Parity Stock for any period unless full dividends on all outstanding shares of Series R Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside.  To the extent the Corporation declares dividends on the Series R Preferred Stock and on any Parity Stock but cannot make full payment of those declared dividends, the Corporation will allocate the dividend payments on a proportional basis among the holders of shares of Series R Preferred Stock and the holders of any Parity Stock then outstanding where the terms of such Parity Stock provide similar dividend rights. 

Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on the Common Stock and any other stock that is Parity Stock or Junior Stock, from time to time out of any assets legally available for such payment, and the shares of Series R Preferred Stock shall not be entitled to participate in any such dividends.

Section 5.        Liquidation Rights.

(a)        Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series R Preferred Stock shall be entitled to receive in full out of assets available for distribution to its stockholders before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of the Common Stock or any other Junior Stock, and subject to the rights of the holders of Parity Stock or any stock of the Corporation ranking senior to the Series R Preferred Stock as to such distribution, a liquidating distribution in the amount of $25,000 per share, plus an amount equal to any dividends which have been declared but not yet paid, without accumulation of any undeclared dividends, to the date of liquidation (the “ Liquidation Preference ”).  The holders of Series R Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.

(b)       Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the Liquidation Preference to all holders of Series R Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series R Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series R Preferred Stock and all such Parity Stock. 

(c)        Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series R Preferred Stock and all other amounts payable upon liquidation, dissolution or winding up of the Corporation have been paid in full to all holders of any Parity Stock, the holders of Common Stock

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and any other Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

(d)       Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

Section 6.        Redemption.

(a)        Optional Redemption .  The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem, subject to the prior approval of the Federal Reserve Board, out of funds legally available therefor, in whole or in part, the shares of Series R Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after March 15, 2024, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series R Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid up to the redemption date without accumulation of any undeclared dividends.

Notwithstanding the foregoing, within 90 days of the Corporation’s good faith determination that a Regulatory Capital Treatment Event has occurred, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may, subject to the approval of the appropriate federal banking agency, redeem out of funds legally available therefor, in whole, but not in part, the shares of Series R Preferred Stock at the time outstanding, prior to March 15, 2024, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series R Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid, without accumulation of any undeclared dividends.

(b)       Notice of Redemption .  Notice of every redemption of shares of Series R Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation.  Such mailing shall be at least 40 days and not more than 70 days before the date fixed for redemption.  Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series R Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series R Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series R Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, if applicable, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where the certificates for those shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.  Notwithstanding the foregoing, if the Series R Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. 


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(c)        Partial Redemption .  In case of any redemption of only part of the shares of Series R Preferred Stock at the time outstanding, the shares of Series R Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series R Preferred Stock in proportion to the number of Series R Preferred Stock held by such holders or in such other manner consistent with the rules and policies of the New York Stock Exchange as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable.  Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series R Preferred Stock shall be redeemed from time to time.

(d)       Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been irrevocably set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders  thereof to receive the amount payable on such redemption from the Depository Company at any time after the redemption date from the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

Section 7.        Voting Rights.

(a)        General.  The holders of Series R Preferred Stock shall not be entitled to vote on any matter except as set forth in paragraph 7(b) below or as required by applicable law.

(b)       Right To Elect Two Directors Upon Nonpayment Events.  Whenever dividends payable on any shares of Series R Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to, as to any class or series, at least six quarterly Dividend Periods or their equivalent, whether or not for consecutive Dividend Periods (a “ Nonpayment Event ”), the holders of the outstanding Series R Preferred Stock, voting together as a class with holders of Voting Parity Stock whose voting rights are exercisable, will be entitled to vote for the election of two additional directors of the Corporation’s Board of Directors at the Corporation’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding Series R Preferred Stock (together with the holders of shares of any one or more other series of Voting Parity Stock).  At elections for such directors, each holder of the Series R Preferred Stock shall be entitled

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to 25 votes for each share held (the holders of shares of any other series of Voting Parity Stock being entitled to such number of votes, if any, for each share of such stock as may be granted to them).  The right of the holders of the Series R Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Voting Parity Stock) to elect Preferred Stock Directors shall continue until such time as the Corporation has paid in full dividends for the equivalent of at least four quarterly Dividend Periods or their equivalent, at which time such right with respect to the Series R Preferred Stock shall terminate, except as provided by law, and subject to revesting in the event of each and every subsequent default of the character described in this Section 7(b).

Upon any termination of the right of the holders of all shares of Series R Preferred Stock and Voting Parity Stock to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by only those holders voting as a class shall terminate immediately.  Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series R Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of Series R Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this Section 7(b) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to this Section 7(b).

(c)     Other Voting Rights .  In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of the Series R Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series R Preferred Stock and outstanding shares of all other series of Voting Parity Stock entitled to vote on the matter, by a vote of at least 66 2/3% in voting power of all such outstanding Series R Preferred Stock and such Voting Parity Stock, voting together as a class, given in person or by proxy, either in writing without a meeting or at any meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following actions, whether or not such approval is required by Delaware law: (i) the issuance of any class or series of Preferred Stock or Preference Stock ranking senior to the Series R Preferred Stock in the payment of dividends or the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; (ii) any amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation, including the Certificate of Designation, or the Bylaws that would adversely affect the rights, preferences, privileges or voting powers of the Series R Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or Bylaws to authorize, create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series R Preferred Stock with respect to either the payment of dividends or in the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; or (iv) any consummation of a reclassification involving the Series R Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series R Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series R Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (b) such shares of Series R Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights,

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preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series R Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series R Preferred Stock or any Parity Stock or Junior Stock or any securities convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Series R Preferred Stock, and holders of the Series R Preferred Stock shall have no right to vote thereon.

If any amendment, alteration, repeal, reclassification, merger or consolidation specified in this Section 7(c) would adversely affect one or more but not all series of voting Preferred Stock (including the Series R Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a class (in lieu of all other series of Preferred Stock).

Each holder of the Series R Preferred Stock will have 25 votes per share on any matter on which holders of the Series R Preferred Stock are entitled to vote, whether separately or together with any other series of stock of the Corporation (the holders of any shares of any other series of stock being entitled to such number of votes, if any, for each share of stock as may be granted to them), pursuant to Delaware law or otherwise, including by written consent.

(d)       Changes after Provision for Redemption .  No vote or consent of the holders of Series R Preferred Stock shall be required pursuant to Section 7(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding Series R Preferred Stock shall have been redeemed, or notice of redemption has been given and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.

(e)        Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series R Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Certificate of Incorporation, the Bylaws, applicable law and any national securities exchange or other trading facility in which the Series R Preferred Stock is listed or traded at the time.

Section 8.        Preemption and Conversion .  The holders of Series R Preferred Stock shall not have any rights of preemption or rights to convert such Series R Preferred Stock into shares of any other class of capital stock of the Corporation.

Section 9.        Reacquired Shares .  Shares of Series R Preferred Stock which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

Section 10.      No Sinking Fund .  Shares of Series R Preferred Stock are not subject to the operation of a sinking fund.

Section 11.      Additional Classes or Series of Stock .  Notwithstanding anything set forth in the Restated Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, or any authorized committee of the Board of Directors of the Corporation,

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(i) without the vote of the holders of the Series R Preferred Stock, may authorize and issue additional shares of Junior Stock and Parity Stock and (ii) with the requisite vote of the holders of the Series R Preferred Stock and Parity Stock entitled to vote thereon, may authorize and issue any additional class or series of Preferred Stock or Preference Stock senior to the Series R Preferred Stock as to the payment of dividends and/or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

dms.us.53285252.04

In Witness Whereof, Wells Fargo & Company has caused this Certificate of Designation to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Jeannine E. Zahn, its Assistant Secretary, this 17 th day of December, 2013.
 
Wells Fargo & Company
By:
/s/ Barbara S. Brett
 
Barbara S. Brett, Senior Vice President and Assistant Treasurer
 
 
/s/ Jeannine E. Zahn                                                   

Jeannine E. Zahn, Assistant Secretary
 
 [As filed with the Delaware Secretary of State on December 17, 2013.]

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WELLS FARGO & COMPANY
___________________________________
 
CERTIFICATE OF DESIGNATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________
 
2014 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Without Par Value)
___________________________________
 
 
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “Company”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the provisions of the Restated Certificate of Incorporation of the Company, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”), and pursuant to authority conferred upon the ESOP Preferred Stock Committee I of the Board (the “ESOP Committee”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “General Corporation Law”) and by the resolutions of the Board set forth herein, the following resolutions were duly adopted by the Board at meetings of the Board duly held on January 25, 2000, January 27, 2009, and February 24, 2009, and by the ESOP Committee pursuant to the written consent of the ESOP Committee duly adopted on January 7, 2014, in accordance with Section 141(f) of the General Corporation Law:
 
1.         On January 25, 2000, the Board adopted the following resolution (the “ESOP Board Resolutions”) appointing the ESOP Committee and delegating to the ESOP Committee the full powers of the Board, subject to the ESOP Board Resolutions, in all matters relating to issuance of one or more series of Preferred Stock (“ESOP Preferred Stock”) to the trustee on behalf of the Company’s 401(k) Plan hereinafter referred to:
 
RESOLVED that a committee of one member of the Board of the Company is hereby appointed by the Board as the ESOP Preferred Stock Committee I (the “First Committee”), which shall have and may exercise the full powers of the Board, subject to these resolutions, to issue from time to time one or more series of ESOP Preferred Stock, including any shares of Company common stock ($1 2/3 par value) issuable upon conversion of ESOP Preferred Stock, and in connection therewith, to fix the designations, voting powers, preferences, and all other rights, qualifications and restrictions of such ESOP Preferred Stock, to sell such ESOP Preferred Stock to the Plan on such terms and conditions and for such purchase price as the First Committee in its discretion shall approve, and to take any and all actions as the First Committee shall deem necessary or appropriate.
 
2.         On January 27, 2009, the Board adopted the following resolutions (the “January 2009 Resolutions”) amending the ESOP Board Resolutions to allow the ESOP Committee to establish the voting rights of any series of ESOP Preferred Stock:
 
RESOLVED that the resolution set forth in the [ESOP Board Resolutions] under the caption “Voting Rights of ESOP Preferred Stock” is hereby deleted in its entirety.
 

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RESOLVED that the [ESOP Board Resolutions] are hereby further amended to delete “Appendix A – Voting Rights” in its entirety.
 
3.         Pursuant to resolutions adopted on February 24, 2009, the Board designated John G. Stumpf as the sole member of the ESOP Committee, effective April 29, 2009.
 
4.         On January 7, 2014, pursuant to authority conferred upon it by the Board in the ESOP Board Resolutions as amended by the January 2009 Resolutions, the ESOP Committee adopted the following resolution by written consent in accordance with Section 141(f) of the General Corporation Law:
 
RESOLVED that the issuance of a series of Preferred Stock, without par value, of the Company is hereby authorized and the designation, voting powers, preferences, and relative, participating, optional, and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation of the Company, as amended, are hereby fixed as follows:

2014 ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
 
1.   Designation and Number of Shares; Restricted Issue . 
 
(a) The designation of the series of Preferred Stock, without par value, provided for herein shall be “2014 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2014 ESOP Preferred Stock”) and the number of authorized shares constituting the 2014 ESOP Preferred Stock is 1,217,000, based on an offering price for the 2014 ESOP Preferred Stock of $1,089.00 per share.  Each share of 2014 ESOP Preferred Stock shall have a stated value of $1,000.00 per share.  The number of authorized shares of 2014 ESOP Preferred Stock may be reduced by further resolution duly adopted by the Board or the Securities Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, provided, however, that the authorized number of shares of 2014 ESOP Preferred Stock shall not be decreased below the then outstanding number of such shares, and provided further that the number of authorized shares of 2014 ESOP Preferred Stock shall not be increased.  All shares of the 2014 ESOP Preferred Stock purchased, redeemed, or converted by the Company shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series, and may thereafter be issued, but not as shares of 2014 ESOP Preferred Stock.
 
(b)  Shares of 2014 ESOP Preferred Stock shall be issued only to a trustee (the “Trustee”) acting on behalf of the Wells Fargo & Company 401(k) Plan, or any successor to such plan (the “Plan”).  All references to the holder of shares of 2014 ESOP Preferred Stock shall mean the Trustee or any company with which or into which the Trustee may merge or any successor trustee under the trust agreement with respect to the Plan.  In the event of any transfer of record ownership of shares of 2014 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2014 ESOP Preferred Stock so transferred, upon such transfer and without any further action by the Company or the holder thereof, shall be automatically converted into shares of the common stock, par value $1-2/3 per share, of the Company (the “Common Stock”) on the terms otherwise provided for the conversion of the shares of 2014 ESOP Preferred Stock into shares of Common Stock pursuant to paragraph (a) of Section 4 hereof, and no such transferee shall have any of the voting powers, preferences, and relative, participating, optional or special rights ascribed to shares of 2014 ESOP Preferred Stock hereunder but,

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rather, only the powers and rights pertaining to the Common Stock into which such shares of 2014 ESOP Preferred Stock shall be so converted.  In the event of such a conversion, the transferee of the shares of 2014 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2014 ESOP Preferred Stock have been automatically converted as of the date of such transfer.  Shares of 2014 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option.  Certificates representing shares of 2014 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions.  In the case of uncertificated 2014 ESOP Preferred Stock, the transfer agent for the 2014 ESOP Preferred Stock shall note the foregoing provisions on each 2014 ESOP Preferred Stock book entry account.  The Company may require that, as a condition to transferring record ownership of any uncertificated 2014 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2014 ESOP Preferred Stock are subject to the foregoing provisions.  Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2014 ESOP Preferred Stock (i)(A) shall be converted into shares of Common Stock as provided in paragraph (a) of Section 4 hereof, and (B) may be converted into shares of Common Stock as provided by paragraph (b) of Section 4 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Company upon the terms and conditions provided in Sections 5 and 6(c) hereof.

2.   Voting Rights .  No shares of 2014 ESOP Preferred Stock shall have voting rights except such voting rights as may from time to time be required by law and as set forth in this Section 2, as follows:
 
(a)  Whenever, at any time or times, dividends payable on shares of 2014 ESOP Preferred Stock shall be in arrears for such number of dividend periods which shall in the aggregate contain not less than 540 days, the holders of the outstanding shares of 2014 ESOP Preferred Stock shall have the exclusive right, voting together as a class with holders of shares of any one or more series of Voting Parity Stock, as defined in paragraph (e) of this Section 2,whose voting rights are exercisable, to elect two directors of the Company’s Board at the Company’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “Preferred Stock Directors”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).  At elections for such directors, each holder of the shares of 2014 ESOP Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any series of Voting Parity Stock being entitled to such number of votes, if any, for each share of Preferred Stock held as may be granted to them).  Upon the vesting of such right of such holders, the maximum authorized number of members of the Board shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of such outstanding shares of 2014 ESOP Preferred Stock (together with the holders of shares of any one or more series of Voting Parity Stock whose voting rights are exercisable) as herein set forth.  The right of such holders of such shares of 2014 ESOP Preferred Stock (voting together as a class with the holders of shares of any one or
more series of Voting Parity Stock whose voting rights are exercisable) to elect Preferred Stock Directors as aforesaid shall continue until such time as all dividends accumulated on such shares of 2014 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2014 ESOP Preferred Stock shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.
 
(b)  Upon any termination of the right of the holders of all shares of 2014 ESOP Preferred Stock and Voting Parity Stock entitled to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by such holders voting as a class shall terminate immediately.  Any Preferred Stock Director may be removed at any time without cause by the holders of a

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majority of the outstanding shares of 2014 ESOP Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of 2014 ESOP Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.  Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall be such number as may be provided for in the By-Laws of the Company irrespective of any increase made pursuant to the provisions of this Section 2(b).
 
(c)  In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of 2014 ESOP Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of 2014 ESOP Preferred Stock and outstanding shares of all series of Voting Parity Stock entitled to vote on the matter, by a vote of at least two-thirds in voting power of all such outstanding shares of 2014 ESOP Preferred Stock and such series of Voting Parity Stock voting together as a class, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following whether or not such approval is required by Delaware law:
 
(i)  the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock ranking prior to shares of 2014 ESOP Preferred Stock with respect to payment of dividends or the distribution of assets on the Company’s voluntary or involuntary liquidation, dissolution or winding up, or
 
(ii)  the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Restated Certificate of Incorporation or of the resolutions set forth in a Certificate of Designation designating shares of 2014 ESOP Preferred Stock and the preferences, powers and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof which would materially and adversely affect any right, preference, privilege or voting power of the shares of 2014 ESOP Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized Preferred Stock, or the creation and issuance of other series of Preferred Stock, or any increase in the amount of authorized shares of any series of Preferred Stock, in each case ranking on a parity with or junior to the shares of 2014 ESOP Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
 
(d)  The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of 2014 ESOP Preferred Stock shall have been redeemed or sufficient funds shall have been irrevocably deposited in trust to effect such redemption.

(e)  As used in this Section 2, “Voting Parity Stock” means any other class or series of stock of the Company now existing or hereafter authorized that ranks on par with the 2014 ESOP Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company and having similar voting rights as the 2014 ESOP Preferred Stock.

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3.         Dividends .  (a)(i)  Holders of shares of 2014 ESOP Preferred Stock will be entitled to receive, when and as declared by the Board or a duly authorized committee thereof, out of assets of the Company legally available for payment, an annual cash dividend of $87.00 (the “Base Dividend”) per share, which Base Dividend shall be subject to adjustment from time to time as provided in this Section 3.
 
(ii)  The Base Dividend shall be adjusted, effective on December 1, 2015 and on each December 1 thereafter until December 1, 2022, as follows: 
 
(1)  If the Current Market Price (as hereinafter defined) of one share of Common Stock on November 30 (or the next preceding Trading Day (as hereinafter defined) if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the First Target Price but less than the Second Target Price shown opposite that year in such table, then holders of shares of the 2014 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $92.00 per share (the “First Adjusted Dividend”). 
 
(2)  If the Current Market Price of one share of Common Stock on November 30 (or the next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is equal to or greater than the Second Target Price shown opposite that year in such table, then holders of shares of 2014 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $97.00 per share (the “Second Adjusted Dividend”).
 
(3)  If the Current Market Price of one share of Common Stock on November 30 (or next preceding Trading Day if November 30 is not a Trading Day) of any year listed in the Dividend Adjustment Table below is less than the First Target Price shown opposite that year in such table, then the holders of shares of 2014 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to the Base Dividend.

Dividend Adjustment Table
 
Closing Price on 11/30
 
First Target Price
 
Second Target Price
2,015,000
 
$
50.366

 
$
53.676

2,016,000
 
$
54.396

 
$
60.117

2,017,000
 
$
58.747

 
$
67.331

2,018,000
 
$
63.447

 
$
75.411

2,019,000
 
$
68.523

 
$
84.461

2,020,000
 
$
74.005

 
$
94.596

2,021,000
 
$
79.925

 
$
105.947

2,022,000
 
$
86.319

 
$
118.661

 
(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2015, the Current Market Price of one share of Common Stock is $51.00, then the cash dividend payable for the immediately following twelve month period per share of 2014 ESOP Preferred Stock would equal $92.00, with the first quarterly payment of such $92.00 dividend to be made on March 1, 2016.  If on November 30, 2016, the Current Market Price of one share of Common Stock is $61.00, then the cash dividend payable for the immediately following twelve month period per share of 2014 ESOP Preferred Stock would equal $97.00, with the first quarterly payment of

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such $97.00 dividend to be made on March 1, 2017.  If on November 30, 2017, the Current Market Price of one share of Common Stock is $55.00, then the cash dividend payable for the immediately following twelve month period per share of 2014 ESOP Preferred Stock would equal $87.00, with the first quarterly payment of such $87.00 dividend to be made on March 1, 2018.
 
(5)  For purposes of this Section 3, the terms “First Adjusted Dividend” and “Second Adjusted Dividend” are sometimes referred to as an “Adjusted Dividend;” the term “Current Market Price” shall have the meaning given to it in Section 4(c)(iv); and the term “Trading Day” shall have the meaning given to it in Section 4(c)(vi).
 
(iii)  If one share of Common Stock in any year listed in the Dividend Adjustment Table shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the First Target Price and the Second Target Price listed in such table for that year and each subsequent year will be appropriately and proportionately adjusted.
 
(iv)  Dividends payable on shares of the 2014 ESOP Preferred Stock (whether such dividends are equal to the Base Dividend or to an Adjusted Dividend) shall be payable quarterly on March 1, June 1, September 1, and December 1 of each year, commencing March 1, 2014.  Dividends on shares of the 2014 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2014 ESOP Preferred Stock.  Dividends will be payable, in arrears, to holders of record as they appear on the stock books of the Company on such record dates, not more than 30 days nor less than 15 days preceding the payment dates thereof, as shall be fixed by the Board or a duly authorized committee thereof.  The amount of dividends payable per share for each dividend period shall be computed by dividing by four the Base Dividend or the Adjusted Dividend, whichever is then applicable.  The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be calculated on the basis of actual days elapsed in a 360-day year of twelve 30-day months.
(b)(i)  No full dividends shall be declared or paid or set apart for payment on any stock of the Company ranking, as to dividends, on a parity with or junior to the 2014 ESOP Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been set apart for such payment on shares of 2014 ESOP Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends.  When dividends are not paid in full, as aforesaid, upon the shares of 2014 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2014 ESOP Preferred Stock, all dividends declared upon shares of 2014 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2014 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2014 ESOP Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of 2014 ESOP Preferred Stock and such other series of Preferred Stock bear to each other.  Holders of shares of 2014 ESOP Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends, as herein provided, on 2014 ESOP Preferred Stock.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on 2014 ESOP Preferred Stock which may be in arrears.
 
(ii)  So long as any shares of 2014 ESOP Preferred Stock are outstanding, no dividend (other than dividends or distributions paid in shares of, or options, warrants, or rights to subscribe for or purchase shares of, Common Stock or any other stock ranking junior to 2014 ESOP

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Preferred Stock as to dividends or upon liquidation and other than as provided in paragraph (b)(i) of this Section 3) shall be declared or paid or set aside for payment or other distribution declared or made upon Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2014 ESOP Preferred Stock as to dividends or upon liquidation, nor shall any Common Stock or any other capital stock of the Company ranking junior to or on a parity with 2014 ESOP Preferred Stock as to dividends or upon liquidation, dissolution or winding up be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company (except by conversion into or exchange for stock of the Company ranking junior to 2014 ESOP Preferred Stock as to dividends or upon liquidation, dissolution or winding up), unless, in each case, the full cumulative dividends on all outstanding shares of 2014 ESOP Preferred Stock shall have been paid or declared and set aside for payment of the then current dividend payment period and all past dividend payment periods.
 
4.   Conversion .  Shares of 2014 ESOP Preferred Stock are convertible from time to time hereafter pursuant to the provisions of paragraphs (a) or (b) of this Section 4 into that number of shares of Common Stock determined by dividing the stated value of each share of 2014 ESOP Preferred Stock by the then applicable Conversion Price, (as determined in accordance with the provisions of paragraph (c)(iii) of this Section 4), as follows:
 
(a)  Each share of 2014 ESOP Preferred Stock released from the unallocated reserve of the Plan in accordance with the terms thereof shall be automatically converted, without any further action by the Company or the holder thereof, as of the date such release occurs (the “Release Date”), into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for the 2014 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.
 
(b)  Subject to and upon compliance with the provisions of this Section 4, a holder of 2014 ESOP Preferred Stock shall be entitled at any time, prior to the close of business on the date fixed for redemption of such shares pursuant to Sections 5 or 6 hereof, to cause any or all of the shares of 2014 ESOP Preferred Stock held by such holder to be converted into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price for 2014 ESOP Preferred Stock provided for in paragraph (c) of this Section 4.

(c)  For purposes of these resolutions, the following terms shall have the meanings set forth below:
 
(i)  The “Average Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the Current Market Price for one share of Common Stock for the twenty (20) consecutive Trading Days ending on the Trading Day occurring prior to the date the “Purchase Offer” is made (as that term is defined in Section 6(d) hereof).
 
(ii)  A “Business Day” means each day that is not a Saturday, Sunday, or a day on which state or federally chartered banking institutions in the State of New York are not required to be open.
 
(iii)  (A)  For purposes of a mandatory conversion of shares of 2014 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (a) of this Section 4, the “Conversion Price” for such shares of 2014 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the relevant Release Date.
 

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(B)  For purposes of an optional conversion of shares of 2014 ESOP Preferred Stock into shares of Common Stock pursuant to the provisions of paragraph (b) of this Section 4, the “Conversion Price” for such shares of 2014 ESOP Preferred Stock shall be the Current Market Price of one share of Common Stock on the date the Conversion Notice (as that term is defined in paragraph (d) of this Section 4) is received by the Company, by the transfer agent for the 2014 ESOP Preferred Stock or by any agent for conversion of the 2014 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.
 
(C)  For purposes of a conversion of shares of 2014 ESOP Preferred Stock into shares of Common Stock in connection with a “Purchase Offer” (as defined in Section 6(d) hereof), the “Conversion Price” for such shares of 2014 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.
 
Each share of 2014 ESOP Preferred Stock shall be valued at its stated value of $1,000.00 for purposes of computing, based on the applicable Conversion Price, the number of shares of Common Stock into which the shares of 2014 ESOP Preferred Stock will be converted. 
 
(iv)  The “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer for any day shall mean the reported last sale price, regular way, or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange only or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if the Common Stock is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Common Stock on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof or, if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof.

(v)  “Common Stock” shall mean the Common Stock of the Company as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.

(vi)  “Trading Day” with respect to Common Stock means (x) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the Common Stock is quoted on the National Market System of NASDAQ, a day on which trades may be made on such National Market System or (z) otherwise, any Business Day.

(d)  In connection with any conversion of 2014 ESOP Preferred Stock pursuant to this Section 4, a written notice of conversion (the “Conversion Notice”) shall be delivered to the Company at its principal executive office or the offices of the transfer agent for the 2014 ESOP Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the 2014 ESOP Preferred Stock by the Company or the transfer agent for the 2014 ESOP Preferred Stock, which Conversion Notice shall be accompanied by (a) in the

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case of certificated 2014 ESOP Preferred Stock, the certificate or certificates representing the shares of 2014 ESOP Preferred Stock being converted pursuant to this Section 4, duly assigned or endorsed for transfer to the Company (or accompanied by duly executed stock powers relating thereto) and (b) in the case of uncertificated 2014 ESOP Preferred Stock, duly executed assignment and transfer documents for the shares of 2014 ESOP Preferred Stock being converted pursuant to this Section 4.  Each Conversion Notice shall specify (i)(y) in the case of a mandatory conversion pursuant to paragraph (a) of this Section 4, the number of shares of 2014 ESOP Preferred Stock released from the unallocated reserve of the Plan on the Release Date or (z) in the case of an optional conversion pursuant to paragraph (b) of this Section 4, the number of shares of 2014 ESOP Preferred Stock being converted, and (ii) in connection with any conversion hereunder, (x) the name or names in which such holder wishes the certificate or certificates for Common Stock and, in the case of certificated 2014 ESOP Preferred Stock, for any shares of 2014 ESOP Preferred Stock not to be so converted to be issued, (y) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (z) such other information as the Company or its agents may reasonably request.
 
(e)  Upon delivery to the Company or the transfer agent for the 2014 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4,  the Company shall issue and send by hand delivery, by courier or by first-class mail (postage prepaid) to the holder thereof or to such holder’s designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion.  If there shall have been surrendered a certificate or certificates representing shares of 2014 ESOP Preferred Stock only part of which are to be converted, the Company shall issue and deliver to such holder or such holder’s designee, in the manner set forth in the preceding sentence, a new certificate or certificates representing the number of shares of 2014 ESOP Preferred Stock which shall not have been converted.

(f)  The issuance by the Company of shares of Common Stock upon a conversion of shares of 2014 ESOP Preferred Stock into shares of Common Stock made pursuant to this Section 4 shall be effective (i) in the case of a mandatory conversion of shares of 2014 ESOP Preferred Stock pursuant to paragraph (a) of this Section 4, as of the Release Date; and (ii) in the case of an optional conversion of such shares pursuant to paragraph (b) of this Section 4, as of the earlier of (A) the delivery to such holder or such holder’s designee of the certificates representing the shares of Common Stock issued upon conversion thereof or (B) the commencement of business on the second Business Day after the delivery to the Company or the transfer agent for the 2014 ESOP Preferred Stock of the Conversion Notice and all other documentation and certificates required to effect the conversion, as provided in paragraph (d) of this Section 4.  On and after the effective date of a conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no allowance or adjustment shall be made in respect of dividends payable to holders of Common Stock in respect of any period prior to such effective date.  The Company shall not be obligated to pay any dividends which shall have accrued or have been declared and shall be payable to holders of shares of 2014 ESOP Preferred Stock if the date on which such dividends are paid is on or after the effective date of conversion of such shares.

(g)  The Company shall not be obligated to deliver to holders of 2014 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2014 ESOP Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law.


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(h)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of 2014 ESOP Preferred Stock as herein provided, free from any preemptive rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of 2014 ESOP Preferred Stock then outstanding.

(i)  The Company will use its best efforts to cause the listing of the shares of Common Stock required to be delivered upon conversion of the 2014 ESOP Preferred Stock prior to distribution to Plan participants on the national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.

(j)  The Company will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of the 2014 ESOP Preferred Stock pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the 2014 ESOP Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.

5.   Redemption At the Option of the Company .  (a)  The 2014 ESOP Preferred Stock shall be redeemable out of assets legally available therefor, in whole or in part, at the option of the Company at any time, at a redemption price per share of 2014 ESOP Preferred Stock equal to the higher of (x) $1,000.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, and (y) the Fair Market Value (as that term is defined in paragraph (d) of this Section 5) per share of 2014 ESOP Preferred Stock on the date fixed for redemption.  Payment of the redemption price shall be made by the Company in cash or shares of Common Stock, or a combination thereof, as permitted by paragraph (c) of this Section 5.  From and after the date fixed for redemption, dividends on shares of 2014 ESOP Preferred Stock called for redemption will cease to accrue and all rights in respect of such shares of the Company shall cease, except the right to receive the redemption price.  Upon payment of the redemption price, such shares shall be deemed to have been transferred to the Company, to be retired as provided in paragraph (a) of Section 1.  If the full cumulative dividends have not been paid, or contemporaneously declared and set aside for payment, on all outstanding shares of 2014 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2014 ESOP Preferred Stock pursuant to this Section 5.

(b)  Unless otherwise required by law, notice of any redemption pursuant to this Section 5 will be sent to the holders of 2014 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2014 ESOP Preferred Stock by hand delivery, by courier, by standard form of telecommunication or by first-class mail (postage prepaid) delivered, sent or mailed, as the case may be, not less than twenty (20) days nor more than sixty (60) days prior to the redemption date.  Each such notice shall state:  (i) the redemption date; (ii) the total number of shares of the 2014 ESOP Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) whether the redemption price shall be paid in cash or in shares of Common Stock, or in a combination of such Common Stock and cash; (v) in the case of certificated 2014 ESOP Preferred Stock the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vii) the conversion rights of the shares to be redeemed, the period within which conversion rights may be

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exercised and the manner in which the number of shares of Common Stock issuable upon conversion of a share of 2014 ESOP Preferred Stock will be determined.  The Company shall redeem shares so called for redemption and not previously converted at the date fixed for redemption and at the redemption price set forth in this Section 5, provided that, in the case of certificated 2014 ESOP Preferred Stock, the Company shall not be obligated to pay the redemption price until the certificates for the shares to be redeemed are surrendered (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state).

(c)  The Company, at its option, may make payment of the redemption price required upon redemption of shares of 2014 ESOP Preferred Stock in cash or in shares of Common Stock, or in a combination of such Common Stock and cash, any such shares of Common Stock to be valued for such purposes at their Fair Market Value (as defined in paragraph (d)(ii) of this Section 5) or their Current Market Price, in either case as of the date fixed for redemption of the 2014 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2014 ESOP Preferred Stock then being redeemed.

(d)  For purposes of these resolutions, the following terms shall have the meanings set forth below:

(i)  “Adjustment Period” shall mean the period of five (5) consecutive Trading Days preceding the date as of which the Fair Market Value of a security is to be determined.

(ii)  “Fair Market Value” shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Company or any other issue which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period.  The “Fair Market Value” of any security which is not publicly traded (other than the 2014 ESOP Preferred Stock) or of any other property shall mean the fair value thereof on the date as of which the Fair Market Value of the security is to be determined, as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property selected in good faith by the Board or a committee thereof.  The “Fair Market Value” of the 2014 ESOP Preferred Stock for purposes of paragraph (a) of Section 5, and for purposes of paragraph (c) of Section 6 shall mean the fair market value thereof determined by an independent appraiser, appointed by the Trustee of the Plan in accordance with the provisions of the Plan, as of the date fixed for redemption of the 2014 ESOP Preferred Stock (in the case of a redemption pursuant to Section 5) or as of the date specified in paragraph (c) of Section 6 (in the case of a redemption under that section).  For purposes of determining the Fair Market Value of the 2014 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2014 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2014 ESOP Preferred Stock held by the Plan into shares of Common Stock pursuant to Section 4(a) hereof would have occurred when and as payments of principal (together with accrued interest thereon) would have been made by the Trustee of the Plan in accordance with the terms of that certain 2014 ESOP Cumulative Convertible Preferred Stock Note Agreement dated on or about January 10, 2014 between the Company and the Plan (including any amendments or modifications thereto).

6.   Consolidation, Merger, etc.   (a)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Company) that constitutes “qualifying employer securities” with respect to a holder of 2014 ESOP Preferred Stock within the meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the Employee Retirement

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Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of 2014 ESOP Preferred Stock of such holder shall, in connection with such consolidation, merger or similar business combination, be assumed by and shall become Preferred Stock of such successor or resulting corporation, having in respect of such corporation, insofar as possible, the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 5 and 6 hereof), and the qualifications, limitations or restrictions thereon, that the 2014 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:

(1)  After such transaction each share of the 2014 ESOP Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 4 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of 2014 ESOP Preferred Stock could have been converted immediately prior to such transaction.

(2)  The Company shall not consummate any such merger, consolidation or similar transaction unless all then outstanding shares of 2014 ESOP Preferred Stock shall be assumed and authorized by the successor or resulting corporation as aforesaid.

(b)  If the Company consummates any consolidation or merger or similar business combination, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, other than any such consideration which is constituted solely of qualifying employer securities (as referred to in paragraph (a) of this Section 6) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of 2014 ESOP Preferred Stock shall, without any action on the part of the Company or any holder thereof (but subject to paragraph (c) of this Section 6), be automatically converted by virtue of such merger, consolidation or similar transaction immediately prior to such consummation into the number of shares of Common Stock into which such shares of 2014 ESOP Preferred Stock could have been converted at such time so that each share of 2014 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2014 ESOP Preferred Stock could have been converted immediately prior to such transaction.  However, if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, which election cannot practicably be made by the holders of the 2014 ESOP Preferred Stock, then the shares of 2014 ESOP Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in kind) receivable by a holder of the number of shares of Common Stock into which such shares of 2014 ESOP Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction.  If the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares.

(c)  In the event the Company shall enter into any agreement providing for any consolidation or merger or similar business combination described in paragraph (b) of this Section 6 (a

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“Business Combination”), then the Company shall as soon as practicable thereafter (and in any event at least fifteen (15) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of 2014 ESOP Preferred Stock and each such holder shall have the right to elect, by written notice to the Company, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Company or the successor of the Company, in redemption and retirement of such 2014 ESOP Preferred Stock, a cash payment per share of 2014 ESOP Preferred Stock equal to the higher of (x) $1,000.00, plus accrued and unpaid dividends thereon to the date of consummation of such transaction or (y) the Fair Market Value per share of 2014 ESOP Preferred Stock, as of the last Business Day (as defined in paragraph (c) of Section 4 hereof) immediately preceding the date the Business Combination is consummated.  No such notice of redemption shall be effective unless given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction, unless the Company or the successor of the Company shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Company prior to the close of business on the last Business Day prior to consummation of such transaction.
 
(d)  In the event that a Purchase Offer (as defined below) shall have been made and shall be continuing, each holder of 2014 ESOP Preferred Stock shall have the right to convert shares of 2014 ESOP Preferred Stock into shares of Common Stock at the Conversion Price specified in Section 4(c)(iii)(C) hereof until the date the Purchase Offer is terminated, including without limitation because the original Purchase Offer is withdrawn or because the Purchase Offer has expired and is not renewed, upon notice of such conversion given to the Company not later than the close of business on the date the Purchase Offer terminates (the “Purchase Offer Conversion Period”), unless the Company or any successor of the Company shall waive such prior notice, but any notice of conversion so given may be withdrawn by notice of withdrawal given to the Company prior to the end of the Purchase Offer Conversion Period.
 
For purposes of this paragraph (d), the following terms shall have the meanings set forth below:
 
(i)  “Beneficial Ownership” shall have the meaning ascribed to it in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “person” shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
 
(ii)  A “Purchase Offer” shall have been made when any person (other than the Company or any affiliate of the Company) shall have “commenced” (as such term is defined in Rule 14d-2 under the Exchange Act) a tender offer or exchange offer to purchase shares of Common Stock, such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined herein) or the right to acquire Beneficial Ownership, of twenty percent (20%) or more of the voting power of the Company.
 
7.   Liquidation Rights .  (a)  Upon the dissolution, liquidation, or winding up of the Company, the holders of the shares of 2014 ESOP Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders, before any payment or distribution shall be made on or set aside for the Common Stock or any other class of stock ranking junior to 2014 ESOP Preferred Stock and subject to the rights of the holders of the shares of any series or class or classes of stock ranking on parity with or senior to the 2014 ESOP Preferred Stock, the amount of $1,000.00 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution.

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(b)  Neither the sale of all or substantially all the property and assets of the Company, nor the merger, consolidation or other business combination of the Company into or with any other corporation, nor the merger, consolidation or other business combination of any other corporation into or with the Company shall be deemed to be a dissolution, liquidation, or winding up, voluntary or involuntary, for the purposes of this Section 7.
 
(c)  After the payment to the holders of the shares of 2014 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2014 ESOP Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Company.
 
(d)  In the event the assets of the Company available for distribution to the holders of shares of 2014 ESOP Preferred Stock upon any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of Preferred Stock or other capital stock of the Company ranking on a parity with the shares of 2014 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2014 ESOP Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation, or winding up.
 
(e)  Subject to the rights of the holders of the shares of any series or class or classes of stock ranking on parity with or prior to the shares of 2014 ESOP Preferred Stock upon liquidation, dissolution, or winding up, upon any liquidation, dissolution, or winding up of the Company, after payment shall have been made in full to the holders of the shares of 2014 ESOP Preferred Stock as provided in this Section 7, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of 2014 ESOP Preferred Stock upon liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the shares of 2014 ESOP Preferred Stock shall not be entitled to share therein.
 
8.   Ranking .  For the purposes of these resolutions, any stock of any series or class or classes of the Company shall be deemed to rank:
 
(a)  prior to the shares of 2014 ESOP Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, if the holders of such series or class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of 2014 ESOP Preferred Stock;
 
(b)  on a parity with shares of 2014 ESOP Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of 2014 ESOP Preferred Stock, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of 2014 ESOP Preferred Stock; and
 

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(c)  junior to shares of 2014 ESOP Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, if such class shall be Common Stock or if the holders of shares of 2014 ESOP Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such series or class or classes.
 
9.   Priority of 2014 ESOP Preferred Stock .  The shares of 2014 ESOP Preferred Stock will rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the Company’s 2005 ESOP Cumulative Convertible Preferred Stock, its 2006 ESOP Cumulative Convertible Preferred Stock, its 2007 ESOP Cumulative Convertible Preferred Stock, its 2008 ESOP Cumulative Convertible Preferred Stock, its 2010 ESOP Cumulative Convertible Preferred Stock, its 2011 ESOP Cumulative Convertible Preferred Stock, its 2012 ESOP Cumulative Convertible Preferred Stock, and its 2013 ESOP Cumulative Convertible Preferred Stock. 

IN WITNESS WHEREOF, the Company has caused this Certificate of Designation to be signed by John G. Stumpf, its Chairman, President and Chief Executive Officer, and attested by Jeannine E. Zahn, its Assistant Secretary, on this 8th day of January, 2014.
 
 
WELLS FARGO & COMPANY
 
 
 
By         /s/ John G. Stumpf                          
John G. Stumpf
Chairman, President and
Chief Executive Officer
 
 
Attest:
 
/s/ Jeannine E. Zahn                                       
Jeannine E. Zahn
Assistant Secretary
 
 
[As filed with the Delaware Secretary of State on January 8, 2014.]


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WELLS FARGO & COMPANY
_____________________
CERTIFICATE OF DESIGNATION
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
_____________________
5.90% FIXED-TO-FLOATING RATE NON-CUMULATIVE PERPETUAL
CLASS A PREFERRED STOCK, SERIES S
(Without Par Value)
_____________________
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “ Board of Directors ”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “ Committee ”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), the following resolutions were duly adopted by the Committee pursuant to the unanimous written consent of the Committee duly adopted on April 17, 2014, in accordance with Section 141(f) of the General Corporation Law:

Resolved, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated January 27, 2009, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation, and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

RIGHTS AND PREFERENCES

Section 1.      Designation .  The shares of such series of Preferred Stock shall be designated 5.90% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series S, with no par value and a liquidation preference amount of $25,000 per share (the “ Series S Preferred Stock ”).  Each share of Series S Preferred Stock shall be identical in all respects to every other share of Series S Preferred Stock except with respect to the date from which dividends may accrue. Series S Preferred Stock will rank equally with Parity Stock with respect to the payment of dividends and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation and will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

Section 2.      Number of Shares .  The number of authorized shares of Series S Preferred Stock shall be 80,000.  Such number may from time to time be increased (but not in excess of the total number

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of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series S Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law stating that such increase or decrease, as the case may be, has been so authorized.  The Corporation shall have the authority to issue fractional shares of Series S Preferred Stock.
Section 3.      Definitions .  As used herein with respect to Series S Preferred Stock:
“ Business Day ” means for dividends payable for the Fixed Rate Period (as defined below) any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York, and for dividends payable for the Floating Rate Period (as defined below), it means any date that would be considered a Business Day during the Fixed Rate Period that is also a London Banking Day (as defined below).
“ Calculation Agent ” means Wells Fargo Securities, LLC or any other successor appointed by the Corporation, acting as Calculation Agent.
“ Certificate of Designation ” means this Certificate of Designation relating to the Series S Preferred Stock, as it may be amended from time to time.
“Common Stock” means the common stock of the Corporation, par value $1⅔ per share, as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.
“ Depositary Company ” has the meaning set forth in Section 6(d) hereof.
“ Designated LIBOR Page” means the display on Reuters, or any successor service, on page LIBOR01, or any other page as may replace that page on that service, for the purpose of displaying the London interbank rates for U.S. dollars.
“ Dividend Payment Date ” has the meaning set forth in Section 4(a) hereof.
“ Dividend Period ” has the meaning set forth in Section 4(a) hereof.
“ DTC ” means The Depository Trust Company, together with its successors and assigns.
“ Fixed Rate Period ” has the meaning set forth in Section 4(a) hereof.
“ Floating Rate Period ” has the meaning set forth in Section 4(a) hereof.
“Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation now existing or hereafter authorized over which the Series S Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
“ LIBOR Determination Date ” means the second London Banking Day immediately preceding the first day of the relevant Dividend Period.
“ Liquidation Preference ” has the meaning set forth in Section 5(a) hereof.

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“ London Banking Day ” means any day on which commercial banks and foreign exchange markets settle payments in London.
“ Nonpayment Event ” shall have the meaning set forth in Section 7(b).
“ Parity Stock ” means any other class or series of stock of the Corporation now existing or hereafter authorized that ranks on par with the Series S Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
“ Preference Stock ” means any and all series of preference stock, having no par value, of the Corporation.
“ Preferred Stock ” means any and all series of preferred stock, having no par value, of the Corporation, including the Series S Preferred Stock.
“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(b).
“ Regulatory Capital Treatment Event ” means the Corporation’s reasonable determination that as a result of any (i) amendment to, clarification of, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective on or after April 14, 2014; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after April 14, 2014; or (iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after April 14, 2014, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation preference amount of all shares of Series S Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series S Preferred Stock is outstanding.
“ Series S Preferred Stock ” has the meaning set forth in Section 1 hereof.
“ Three-month LIBOR ” means, for any LIBOR Determination Date, the arithmetic mean of the offered rates for deposits in U.S. dollars for a three-month period commencing on the second London Banking Day immediately following that LIBOR Determination Date that appear on the Designated LIBOR Page as of 11:00 a.m., London time, on that LIBOR Determination Date, if at least two offered rates appear on the Designated LIBOR Page, provided that if the specified Designated LIBOR Page by its terms provides only for a single rate, that single rate will be used. If (i) fewer than two offered rates appear or (ii) no rate appears and the Designated LIBOR Page by its terms provides only for a single rate, then the Calculation Agent will request the principal London offices of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide the Calculation Agent with its offered quotation for deposits in U.S. dollars for a three-month period commencing on the second London Banking Day immediately following that LIBOR Determination Date to prime banks in the London interbank market at approximately 11:00 a.m., London time, on that LIBOR Determination Date and in a principal amount that is representative of a single transaction in U.S. dollars in that market at that time. If at least two quotations are provided, Three-month LIBOR determined on that LIBOR Determination Date will be the arithmetic mean of those quotations. If fewer than two quotations are provided, Three-month LIBOR will be the arithmetic mean of the rates quoted at approximately 11:00 a.m., New York City time, on that LIBOR Determination Date by three major banks in New York City selected by the Calculation Agent for loans in U.S. dollars to leading European banks for a three-month period and in a principal

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amount that is representative of a single transaction in U.S. dollars in that market at that time. If the banks so selected by the Calculation Agent are not quoting as set forth above, Three-month LIBOR for that LIBOR Determination Date will remain Three-month LIBOR for the immediately preceding Dividend Period or, in the case of the Dividend Period beginning June 15, 2024, 5.90%. All percentages used in or resulting from any calculation of Three-month LIBOR will be rounded, if necessary, to the nearest one hundred-thousandth of a percentages point, with .000005% rounded up to .00001%. The determination of Three-month LIBOR for each relevant Dividend Period by the Calculation Agent will (in the absence of manifest error) be final and binding.
“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series S Preferred Stock.
Section 4.      Dividends.
(a)      Rate . Dividends on the Series S Preferred Stock will not be mandatory. Holders of Series S Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference amount of $25,000 per share of the Series S Preferred Stock, payable (i) from April 22, 2014 to, but excluding, June 15, 2024 (the “ Fixed Rate Period ”), semi-annually in arrears on the 15 th day of each June and December, commencing December 15, 2014 at an annual rate of 5.90%, and (ii) from, and including, June 15, 2024 (the “ Floating Rate Period ”), quarterly in arrears on the 15 th day of each March, June, September and December, commencing September 15, 2024, at an annual rate equal to Three-month LIBOR plus 3.11%. Notwithstanding the foregoing, if any date on or prior to June 15, 2024 on which dividends otherwise would be payable is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, without any interest or other payment in respect of such delay, and if any date after June 15, 2024 on which dividends otherwise would be payable is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding Business Day unless that day falls in the next calendar month, in which case payment of any dividend otherwise payable on that date will be the immediately preceding Business Day, and dividends will accrue to the actual payment date (each such day on which dividends are payable a “ Dividend Payment Date ”).  A “ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date, except for the initial Dividend Period, which will be the period from, and including, April 22, 2014 to, but excluding, December 15, 2014. The record date for payment of dividends on the Series S Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other date as determined by the Corporation’s Board of Directors. The amount of dividends payable for the Fixed Rate Period shall be computed on the basis of a 360-day year of twelve 30-day months.  The amount of dividends payable for the Floating Rate Period shall be computed on the basis of a 360-day year and the actual number of days elapsed. Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward. The Calculation Agent’s determination of any dividend rate, and its calculation of the amount of dividends payable for the Floating Rate Period, will be maintained on file at the Calculation Agent’s principal offices.
(b)      Non-Cumulative Dividends .  Dividends on shares of Series S Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series S Preferred Stock on any Dividend Payment Date are not declared prior to such Dividend Payment Date, then such dividends shall not cumulate and shall cease to accrue and be payable, and the Corporation shall have no obligation to pay, and the holders of Series S Preferred Stock shall have no right to receive, dividends accrued for such

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Dividend Period on the Dividend Payment Date for such Dividend Period or at any time in the future or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series S Preferred Stock or any other series of authorized Preferred Stock, Preference Stock, or Common Stock of the Corporation.
(c)      Priority of Dividends .  So long as any shares of Series S Preferred Stock remain outstanding,
(1) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Common Stock, and no shares of Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Common Stock by the Corporation (other than (i) a dividend payable in Common Stock or (ii) the acquisition of shares of Common Stock in exchange for, or through application of proceeds of the sale of, shares of Common Stock);
(2) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Stock other than Common Stock, and no shares of Junior Stock other than Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Junior Stock other than Common Stock by the Corporation (other than (i) a dividend payable solely in shares of Junior Stock, (ii) any dividend in connection with the implementation of a stockholder rights plan, or the redemption or repurchase of any rights under any such plan, (iii) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (iv) as a result of a reclassification of Junior Stock other than Common Stock for or into other Junior Stock, (v) the exchange or conversion of one share of Junior Stock other than Common Stock for or into another share of Junior Stock, (vi) through the use of proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (vii) any purchase, redemption or other acquisition of Junior Stock other than Common Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after April 14, 2014, (viii) any purchase of fractional interests in shares of Junior Stock other than Common Stock pursuant to the conversion or exchange provisions of such Junior Stock other than Common Stock or the securities being converted or exchanged, (ix) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (x) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business); and
(3) no shares of Parity Stock will be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series S Preferred Stock and such Parity Stock during a Dividend Period (other than (i) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (ii) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock, (iii) through the use of proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock, (iv) any purchase, redemption or other acquisition of Parity Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after April 14, 2014, (v) any purchase of fractional interests in shares of Parity Stock pursuant to the conversion

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or exchange provisions of such Parity Stock or the securities being converted or exchanged, (vi) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (vii) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business),
unless, in each case, the full dividends for the then-current Dividend Period on all outstanding shares of the Series S Preferred Stock have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside.
Subject to the succeeding sentence, for so long as any shares of Series S Preferred Stock remain outstanding, no dividends shall be declared, paid, or set aside for payment on any Parity Stock for any period unless full dividends on all outstanding shares of Series S Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside.  To the extent the Corporation declares dividends on the Series S Preferred Stock and on any Parity Stock but cannot make full payment of those declared dividends, the Corporation will allocate the dividend payments on a proportional basis among the holders of shares of Series S Preferred Stock and the holders of any Parity Stock then outstanding where the terms of such Parity Stock provide similar dividend rights.
Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on the Common Stock and any other stock that is Parity Stock or Junior Stock, from time to time out of any assets legally available for such payment, and the shares of Series S Preferred Stock shall not be entitled to participate in any such dividends.
Section 5.      Liquidation Rights.
(a)      Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series S Preferred Stock shall be entitled to receive in full out of assets available for distribution to its stockholders before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of the Common Stock or any other Junior Stock, and subject to the rights of the holders of Parity Stock or any stock of the Corporation ranking senior to the Series S Preferred Stock as to such distribution, a liquidating distribution in the amount of $25,000 per share, plus an amount equal to any dividends which have been declared but not yet paid, without accumulation of any undeclared dividends, to the date of liquidation (the “ Liquidation Preference ”).  The holders of Series S Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.
(b)      Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the Liquidation Preference to all holders of Series S Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series S Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series S Preferred Stock and all such Parity Stock.
(c)      Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series S Preferred Stock and all other amounts payable upon liquidation, dissolution or winding up of the Corporation have been paid in full to all holders of any Parity Stock, the holders of Common Stock

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and any other Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.
(d)      Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.
Section 6.      Redemption.
(a)      Optional Redemption .  The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem, subject to the prior approval of the Federal Reserve Board, out of funds legally available therefor, in whole or in part, the shares of Series S Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after June 15, 2024, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series S Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid up to the redemption date without accumulation of any undeclared dividends.
Notwithstanding the foregoing, within 90 days of the Corporation’s good faith determination that a Regulatory Capital Treatment Event has occurred, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may, subject to the approval of the appropriate federal banking agency, redeem out of funds legally available therefor, in whole, but not in part, the shares of Series S Preferred Stock at the time outstanding, prior to June 15, 2024, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series S Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid, without accumulation of any undeclared dividends.
(b)      Notice of Redemption .  Notice of every redemption of shares of Series S Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation.  Such mailing shall be at least 40 days and not more than 70 days before the date fixed for redemption.  Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series S Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series S Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series S Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, if applicable, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where the certificates for those shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.  Notwithstanding the foregoing, if the Series S Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. 
(c)      Partial Redemption .  In case of any redemption of only part of the shares of Series S Preferred Stock at the time outstanding, the shares of Series S Preferred Stock to be redeemed shall be

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selected either pro rata from the holders of record of Series S Preferred Stock in proportion to the number of Series S Preferred Stock held by such holders as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable.  Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series S Preferred Stock shall be redeemed from time to time.
(d)      Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been irrevocably set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders  thereof to receive the amount payable on such redemption from the Depository Company at any time after the redemption date from the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.
Section 7.      Voting Rights.
(a)      General. The holders of Series S Preferred Stock shall not be entitled to vote on any matter except as set forth in paragraph 7(b) below or as required by applicable law.
(b)      Right To Elect Two Directors Upon Nonpayment Events. Whenever dividends payable on any shares of Series S Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to, as to any class or series, at least three semi-annual Dividend Periods or their equivalent, whether or not for consecutive Dividend Periods (a “ Nonpayment Event ”), the holders of the outstanding Series S Preferred Stock, voting together as a class with holders of Voting Parity Stock whose voting rights are exercisable, will be entitled to vote for the election of two additional directors of the Corporation’s Board of Directors at the Corporation’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights). Upon the vesting of such right of such holders, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding Series S Preferred Stock (together with the holders of shares of any one or more other series of Voting Parity Stock). At elections for such directors, each holder of the Series S Preferred Stock shall be entitled to 25 votes for each share held (the holders of shares of any other series of Voting Parity Stock being entitled to such number of votes, if any, for each share of such stock as may be granted to them). The right of the holders of the Series S Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Voting Parity Stock) to elect Preferred Stock Directors shall

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continue until such time as the Corporation has paid in full dividends for the equivalent of at least two semi-annual Dividend Periods or their equivalent, at which time such right with respect to the Series S Preferred Stock shall terminate, except as provided by law, and subject to revesting in the event of each and every subsequent default of the character described in this Section 7(b).
Upon any termination of the right of the holders of all shares of Series S Preferred Stock and Voting Parity Stock to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by only those holders voting as a class shall terminate immediately. Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series S Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of Series S Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote. Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this Section 7(b) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to this Section 7(b).
(c)      Other Voting Rights . In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of the Series S Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series S Preferred Stock and outstanding shares of all other series of Voting Parity Stock entitled to vote on the matter, by a vote of at least 66 2/3% in voting power of all such outstanding Series S Preferred Stock and such Voting Parity Stock, voting together as a class, given in person or by proxy, either in writing without a meeting or at any meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following actions, whether or not such approval is required by Delaware law: (i) the issuance of any class or series of Preferred Stock or Preference Stock ranking senior to the Series S Preferred Stock in the payment of dividends or the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; (ii) any amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation, including the Certificate of Designation, or the Bylaws that would adversely affect the rights, preferences, privileges or voting powers of the Series S Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or Bylaws to authorize, create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series S Preferred Stock with respect to either the payment of dividends or in the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; or (iv) any consummation of a reclassification involving the Series S Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series S Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series S Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (b) such shares of Series S Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series S Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series S Preferred Stock or any Parity Stock or Junior Stock or any securities

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convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Series S Preferred Stock, and holders of the Series S Preferred Stock shall have no right to vote thereon.
If any amendment, alteration, repeal, reclassification, merger or consolidation specified in this Section 7(c) would adversely affect one or more but not all series of voting Preferred Stock (including the Series S Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a class (in lieu of all other series of Preferred Stock).
Each holder of the Series S Preferred Stock will have 25 votes per share on any matter on which holders of the Series S Preferred Stock are entitled to vote, whether separately or together with any other series of stock of the Corporation (the holders of any shares of any other series of stock being entitled to such number of votes, if any, for each share of stock as may be granted to them), pursuant to Delaware law or otherwise, including by written consent.
(d)      Changes after Provision for Redemption . No vote or consent of the holders of Series S Preferred Stock shall be required pursuant to Section 7(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding Series S Preferred Stock shall have been redeemed, or notice of redemption has been given and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.
(e)      Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series S Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Certificate of Incorporation, the Bylaws and applicable law.
Section 8.      Preemption and Conversion . The holders of Series S Preferred Stock shall not have any rights of preemption or rights to convert such Series S Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9.      Reacquired Shares . Shares of Series S Preferred Stock which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.
Section 10.      No Sinking Fund . Shares of Series S Preferred Stock are not subject to the operation of a sinking fund.
Section 11.      Additional Classes or Series of Stock . Notwithstanding anything set forth in the Restated Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, or any authorized committee of the Board of Directors of the Corporation, (i) without the vote of the holders of the Series S Preferred Stock, may authorize and issue additional shares of Junior Stock and Parity Stock and (ii) with the requisite vote of the holders of the Series S Preferred Stock and Parity Stock entitled to vote thereon, may authorize and issue any additional class or series of Preferred Stock or Preference Stock senior to the Series S Preferred Stock as to the payment of dividends and/or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

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In Witness Whereof, Wells Fargo & Company has caused this Certificate of Designation to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Jeannine E. Zahn, its Assistant Secretary, this 17 th day of April, 2014.

Wells Fargo & Company
By:
/s/ Barbara S. Brett
 
Barbara S. Brett, Senior Vice President and Assistant Treasurer


/s/ Jeannine E. Zahn             
Jeannine E. Zahn, Assistant Secretary



[As filed with the Delaware Secretary of State on April 21, 2014.]


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WELLS FARGO & COMPANY
_____________________
CERTIFICATE OF DESIGNATION
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
_____________________
NON-CUMULATIVE PERPETUAL CLASS A PREFERRED STOCK, SERIES T
(Without Par Value)
_____________________
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “ Board of Directors ”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “ Committee ”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), the following resolutions were duly adopted by the Committee pursuant to the unanimous written consent of the Committee duly adopted on July 18, 2014, in accordance with Section 141(f) of the General Corporation Law:

Resolved, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated April 29, 2014, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation, and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

RIGHTS AND PREFERENCES

Section 1.      Designation .  The shares of such series of Preferred Stock shall be designated Non-Cumulative Perpetual Class A Preferred Stock, Series T, with no par value and a liquidation preference amount of $25,000 per share (the “ Series T Preferred Stock ”).  Each share of Series T Preferred Stock shall be identical in all respects to every other share of Series T Preferred Stock except with respect to the date from which dividends may accrue. Series T Preferred Stock will rank equally with Parity Stock with respect to the payment of dividends and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation and will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

Section 2.      Number of Shares .  The number of authorized shares of Series T Preferred Stock shall be 32,200.  Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series T Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the

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Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law stating that such increase or decrease, as the case may be, has been so authorized.  The Corporation shall have the authority to issue fractional shares of Series T Preferred Stock.
Section 3.      Definitions .  As used herein with respect to Series T Preferred Stock:
“ Business Day ” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York.
“ Certificate of Designation ” means this Certificate of Designation relating to the Series T Preferred Stock, as it may be amended from time to time.
“Common Stock” means the common stock of the Corporation, par value $1⅔ per share, as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.
“ Depositary Company ” has the meaning set forth in Section 6(d) hereof.
“ Dividend Payment Date ” has the meaning set forth in Section 4(a) hereof.
“ Dividend Period ” has the meaning set forth in Section 4(a) hereof.
“ DTC ” means The Depository Trust Company, together with its successors and assigns.
“Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation now existing or hereafter authorized over which the Series T Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
“ Liquidation Preference ” has the meaning set forth in Section 5(a) hereof.
“ Nonpayment Event ” shall have the meaning set forth in Section 7(b).
“ Parity Stock ” means any other class or series of stock of the Corporation now existing or hereafter authorized that ranks on par with the Series T Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
“ Preference Stock ” means any and all series of preference stock, having no par value, of the Corporation.
“ Preferred Stock ” means any and all series of preferred stock, having no par value, of the Corporation, including the Series T Preferred Stock.
“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(b).
“ Regulatory Capital Treatment Event ” means the Corporation’s reasonable determination that as a result of any (i) amendment to, clarification of, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective on or after July 14, 2014; (ii) proposed change in those laws or regulations

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that is announced or becomes effective on or after July 14, 2014; or (iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after July 14, 2014, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation preference amount of all shares of Series T Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series T Preferred Stock is outstanding.
“ Series T Preferred Stock ” has the meaning set forth in Section 1 hereof.
“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series T Preferred Stock.
Section 4.      Dividends.
(a)      Rate . Dividends on the Series T Preferred Stock will not be mandatory. Holders of Series T Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference amount of $25,000 per share of the Series T Preferred Stock, payable quarterly in arrears on the 15th day of March, June, September and December of each year (commencing on September 15, 2014); provided , however , if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, without any interest or other payment in respect of such delay (each such day on which dividends are payable a “ Dividend Payment Date ”).  A “ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date, except for the initial Dividend Period, which will be the period from, and including, July 21, 2014 to, but excluding, September 15, 2014. Dividends on each share of Series T Preferred Stock will accrue at a rate per annum equal to 6.00%.  The record date for payment of dividends on the Series T Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other date as determined by the Corporation’s Board of Directors. The amount of dividends payable shall be computed on the basis of a 360-day year of twelve 30-day months.  Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward.
(b)      Non-Cumulative Dividends .  Dividends on shares of Series T Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series T Preferred Stock on any Dividend Payment Date are not declared prior to such Dividend Payment Date, then such dividends shall not cumulate and shall cease to accrue and be payable, and the Corporation shall have no obligation to pay, and the holders of Series T Preferred Stock shall have no right to receive, dividends accrued for such Dividend Period on the Dividend Payment Date for such Dividend Period or at any time in the future or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series T Preferred Stock or any other series of authorized Preferred Stock, Preference Stock, or Common Stock of the Corporation.
(c)      Priority of Dividends .  So long as any shares of Series T Preferred Stock remain outstanding,
(1) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Common Stock, and no shares of Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or

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indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Common Stock by the Corporation (other than (i) a dividend payable in Common Stock or (ii) the acquisition of shares of Common Stock in exchange for, or through application of proceeds of the sale of, shares of Common Stock);
(2) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Stock other than Common Stock, and no shares of Junior Stock other than Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Junior Stock other than Common Stock by the Corporation (other than (i) a dividend payable solely in shares of Junior Stock, (ii) any dividend in connection with the implementation of a stockholder rights plan, or the redemption or repurchase of any rights under any such plan, (iii) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (iv) as a result of a reclassification of Junior Stock other than Common Stock for or into other Junior Stock, (v) the exchange or conversion of one share of Junior Stock other than Common Stock for or into another share of Junior Stock, (vi) through the use of proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (vii) any purchase, redemption or other acquisition of Junior Stock other than Common Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after July 14, 2014, (viii) any purchase of fractional interests in shares of Junior Stock other than Common Stock pursuant to the conversion or exchange provisions of such Junior Stock other than Common Stock or the securities being converted or exchanged, (ix) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (x) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business); and
(3) no shares of Parity Stock will be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series T Preferred Stock and such Parity Stock during a Dividend Period (other than (i) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (ii) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock, (iii) through the use of proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock, (iv) any purchase, redemption or other acquisition of Parity Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after July 14, 2014, (v) any purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the securities being converted or exchanged, (vi) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (vii) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business), unless, in each case, the full dividends for the then-current Dividend Period on all outstanding shares of the Series T Preferred Stock have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside.
Subject to the succeeding sentence, for so long as any shares of Series T Preferred Stock remain outstanding, no dividends shall be declared, paid, or set aside for payment on any Parity Stock for any

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period unless full dividends on all outstanding shares of Series T Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside.  To the extent the Corporation declares dividends on the Series T Preferred Stock and on any Parity Stock but cannot make full payment of those declared dividends, the Corporation will allocate the dividend payments on a proportional basis among the holders of shares of Series T Preferred Stock and the holders of any Parity Stock then outstanding where the terms of such Parity Stock provide similar dividend rights.
Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on the Common Stock and any other stock that is Parity Stock or Junior Stock, from time to time out of any assets legally available for such payment, and the shares of Series T Preferred Stock shall not be entitled to participate in any such dividends.
Section 5.      Liquidation Rights.
(a)      Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series T Preferred Stock shall be entitled to receive in full out of assets available for distribution to its stockholders before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of the Common Stock or any other Junior Stock, and subject to the rights of the holders of Parity Stock or any stock of the Corporation ranking senior to the Series T Preferred Stock as to such distribution, a liquidating distribution in the amount of $25,000 per share, plus an amount equal to any dividends which have been declared but not yet paid, without accumulation of any undeclared dividends, to the date of liquidation (the “ Liquidation Preference ”).  The holders of Series T Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.
(b)      Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the Liquidation Preference to all holders of Series T Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series T Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series T Preferred Stock and all such Parity Stock.
(c)      Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series T Preferred Stock and all other amounts payable upon liquidation, dissolution or winding up of the Corporation have been paid in full to all holders of any Parity Stock, the holders of Common Stock and any other Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.
(d)      Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

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Section 6.      Redemption.
(a)      Optional Redemption .  The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem, subject to the prior approval of the Federal Reserve Board, out of funds legally available therefor, in whole or in part, the shares of Series T Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after September 15, 2019, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series T Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid up to the redemption date without accumulation of any undeclared dividends.
Notwithstanding the foregoing, within 90 days of the Corporation’s good faith determination that a Regulatory Capital Treatment Event has occurred, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may, subject to the approval of the appropriate federal banking agency, redeem out of funds legally available therefor, in whole, but not in part, the shares of Series T Preferred Stock at the time outstanding, prior to September 15, 2019, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series T Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid, without accumulation of any undeclared dividends.
(b)      Notice of Redemption .  Notice of every redemption of shares of Series T Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation.  Such mailing shall be at least 40 days and not more than 70 days before the date fixed for redemption.  Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series T Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series T Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series T Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, if applicable, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where the certificates for those shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.  Notwithstanding the foregoing, if the Series T Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. 
(c)      Partial Redemption .  In case of any redemption of only part of the shares of Series T Preferred Stock at the time outstanding, the shares of Series T Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series T Preferred Stock in proportion to the number of Series T Preferred Stock held by such holders or in such other manner consistent with the rules and policies of the New York Stock Exchange as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable.  Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series T Preferred Stock shall be redeemed from time to time.
(d)      Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been irrevocably set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor,

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or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders  thereof to receive the amount payable on such redemption from the Depository Company at any time after the redemption date from the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.
Section 7.      Voting Rights.
(a)      General. The holders of Series T Preferred Stock shall not be entitled to vote on any matter except as set forth in paragraph 7(b) below or as required by applicable law.
(b)      Right To Elect Two Directors Upon Nonpayment Events. Whenever dividends payable on any shares of Series T Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to, as to any class or series, at least six quarterly Dividend Periods or their equivalent, whether or not for consecutive Dividend Periods (a “ Nonpayment Event ”), the holders of the outstanding Series T Preferred Stock, voting together as a class with holders of Voting Parity Stock whose voting rights are exercisable, will be entitled to vote for the election of two additional directors of the Corporation’s Board of Directors at the Corporation’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights). Upon the vesting of such right of such holders, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding Series T Preferred Stock (together with the holders of shares of any one or more other series of Voting Parity Stock). At elections for such directors, each holder of the Series T Preferred Stock shall be entitled to 25 votes for each share held (the holders of shares of any other series of Voting Parity Stock being entitled to such number of votes, if any, for each share of such stock as may be granted to them). The right of the holders of the Series T Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Voting Parity Stock) to elect Preferred Stock Directors shall continue until such time as the Corporation has paid in full dividends for the equivalent of at least four quarterly Dividend Periods or their equivalent, at which time such right with respect to the Series T Preferred Stock shall terminate, except as provided by law, and subject to revesting in the event of each and every subsequent default of the character described in this Section 7(b).
Upon any termination of the right of the holders of all shares of Series T Preferred Stock and Voting Parity Stock to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by only those holders voting as a class shall terminate immediately. Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series T Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock

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Directors, a successor may be elected by a plurality of the votes cast by the holders of Series T Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote. Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this Section 7(b) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to this Section 7(b).
(c)      Other Voting Rights . In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of the Series T Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series T Preferred Stock and outstanding shares of all other series of Voting Parity Stock entitled to vote on the matter, by a vote of at least 66 2/3% in voting power of all such outstanding Series T Preferred Stock and such Voting Parity Stock, voting together as a class, given in person or by proxy, either in writing without a meeting or at any meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following actions, whether or not such approval is required by Delaware law: (i) the issuance of any class or series of Preferred Stock or Preference Stock ranking senior to the Series T Preferred Stock in the payment of dividends or the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; (ii) any amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation, including the Certificate of Designation, or the Bylaws that would adversely affect the rights, preferences, privileges or voting powers of the Series T Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or Bylaws to authorize, create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series T Preferred Stock with respect to either the payment of dividends or in the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; or (iv) any consummation of a reclassification involving the Series T Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series T Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series T Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (b) such shares of Series T Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series T Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series T Preferred Stock or any Parity Stock or Junior Stock or any securities convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Series T Preferred Stock, and holders of the Series T Preferred Stock shall have no right to vote thereon.
If any amendment, alteration, repeal, reclassification, merger or consolidation specified in this Section 7(c) would adversely affect one or more but not all series of voting Preferred Stock (including the Series T Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a class (in lieu of all other series of Preferred Stock).
Each holder of the Series T Preferred Stock will have 25 votes per share on any matter on which holders of the Series T Preferred Stock are entitled to vote, whether separately or together with any other

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series of stock of the Corporation (the holders of any shares of any other series of stock being entitled to such number of votes, if any, for each share of stock as may be granted to them), pursuant to Delaware law or otherwise, including by written consent.
(d)      Changes after Provision for Redemption . No vote or consent of the holders of Series T Preferred Stock shall be required pursuant to Section 7(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding Series T Preferred Stock shall have been redeemed, or notice of redemption has been given and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.
(e)      Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series T Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Certificate of Incorporation, the Bylaws, applicable law and any national securities exchange or other trading facility in which the Series T Preferred Stock is listed or traded at the time.
Section 8.      Preemption and Conversion . The holders of Series T Preferred Stock shall not have any rights of preemption or rights to convert such Series T Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9.      Reacquired Shares . Shares of Series T Preferred Stock which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.
Section 10.      No Sinking Fund . Shares of Series T Preferred Stock are not subject to the operation of a sinking fund.
Section 11.      Additional Classes or Series of Stock . Notwithstanding anything set forth in the Restated Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, or any authorized committee of the Board of Directors of the Corporation, (i) without the vote of the holders of the Series T Preferred Stock, may authorize and issue additional shares of Junior Stock and Parity Stock and (ii) with the requisite vote of the holders of the Series T Preferred Stock and Parity Stock entitled to vote thereon, may authorize and issue any additional class or series of Preferred Stock or Preference Stock senior to the Series T Preferred Stock as to the payment of dividends and/or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
US.54547103.01
        

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In Witness Whereof, Wells Fargo & Company has caused this Certificate of Designation to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Jeannine E. Zahn, its Assistant Secretary, this 18th day of July, 2014.

Wells Fargo & Company
By:
/s/ Barbara S. Brett
 
Barbara S. Brett, Senior Vice President and Assistant Treasurer


/s/ Jeannine E. Zahn             
Jeannine E. Zahn, Assistant Secretary



[As filed with the Delaware Secretary of State on July 18, 2014.]



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WELLS FARGO & COMPANY
_____________________
CERTIFICATE OF DESIGNATION
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
_____________________
5.875% FIXED-TO-FLOATING RATE NON-CUMULATIVE PERPETUAL
CLASS A PREFERRED STOCK, SERIES U
(Without Par Value)
_____________________
WELLS FARGO & COMPANY, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), HEREBY CERTIFIES that, pursuant to authority conferred upon the Board of Directors of the Corporation (the “ Board of Directors ”) by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended, which authorize the issuance of not more than 20,000,000 shares of Preferred Stock, without par value, and pursuant to authority conferred upon the Securities Committee of the Board of Directors (the “ Committee ”) in accordance with Section 141(c) of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), the following resolutions were duly adopted by the Committee pursuant to the unanimous written consent of the Committee duly adopted on January 22, 2015, in accordance with Section 141(f) of the General Corporation Law:

Resolved, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated April 29, 2014, the provisions of the Restated Certificate of Incorporation, the By-laws of the Corporation, and applicable law, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

RIGHTS AND PREFERENCES

Section 1.      Designation .  The shares of such series of Preferred Stock shall be designated 5.875% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series U, with no par value and a liquidation preference amount of $25,000 per share (the “ Series U Preferred Stock ”).  Each share of Series U Preferred Stock shall be identical in all respects to every other share of Series U Preferred Stock except with respect to the date from which dividends may accrue. Series U Preferred Stock will rank equally with Parity Stock with respect to the payment of dividends and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation and will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

Section 2.      Number of Shares .  The number of authorized shares of Series U Preferred Stock shall be 80,000.  Such number may from time to time be increased (but not in excess of the total number

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of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series U Preferred Stock then outstanding) by further resolution duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of a certificate pursuant to the provisions of the General Corporation Law stating that such increase or decrease, as the case may be, has been so authorized.  The Corporation shall have the authority to issue fractional shares of Series U Preferred Stock.
Section 3.      Definitions .  As used herein with respect to Series U Preferred Stock:
“ Business Day ” means for dividends payable for the Fixed Rate Period (as defined below) any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in New York, New York, and for dividends payable for the Floating Rate Period (as defined below), it means any date that would be considered a Business Day during the Fixed Rate Period that is also a London Banking Day (as defined below).
“ Calculation Agent ” means Wells Fargo Securities, LLC or any other successor appointed by the Corporation, acting as Calculation Agent.
“ Certificate of Designation ” means this Certificate of Designation relating to the Series U Preferred Stock, as it may be amended from time to time.
“Common Stock” means the common stock of the Corporation, par value $1⅔ per share, as the same exists at the date of this Certificate of Designation or as such stock may be constituted from time to time.
“ Depositary Company ” has the meaning set forth in Section 6(d) hereof.
“ Designated LIBOR Page” means the display on Reuters, or any successor service, on page LIBOR01, or any other page as may replace that page on that service, for the purpose of displaying the London interbank rates for U.S. dollars.
“ Dividend Payment Date ” has the meaning set forth in Section 4(a) hereof.
“ Dividend Period ” has the meaning set forth in Section 4(a) hereof.
“ DTC ” means The Depository Trust Company, together with its successors and assigns.
“ Fixed Rate Period ” has the meaning set forth in Section 4(a) hereof.
“ Floating Rate Period ” has the meaning set forth in Section 4(a) hereof.
“Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation now existing or hereafter authorized over which the Series U Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
“ LIBOR Determination Date ” means the second London Banking Day immediately preceding the first day of the relevant Dividend Period.
“ Liquidation Preference ” has the meaning set forth in Section 5(a) hereof.

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“ London Banking Day ” means any day on which commercial banks and foreign exchange markets settle payments in London.
“ Nonpayment Event ” shall have the meaning set forth in Section 7(b).
“ Parity Stock ” means any other class or series of stock of the Corporation now existing or hereafter authorized that ranks on par with the Series U Preferred Stock in the payment of dividends (whether such dividends are cumulative or non-cumulative) or in the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
“ Preference Stock ” means any and all series of preference stock, having no par value, of the Corporation.
“ Preferred Stock ” means any and all series of preferred stock, having no par value, of the Corporation, including the Series U Preferred Stock.
“ Preferred Stock Directors ” shall have the meaning set forth in Section 7(b).
“ Regulatory Capital Treatment Event ” means the Corporation’s reasonable determination that as a result of any (i) amendment to, clarification of, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective on or after January 15, 2015; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after January 15, 2015; or (iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after January 15, 2015, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation preference amount of all shares of Series U Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series U Preferred Stock is outstanding.
“ Series U Preferred Stock ” has the meaning set forth in Section 1 hereof.
“ Three-month LIBOR ” means, for any LIBOR Determination Date, the arithmetic mean of the offered rates for deposits in U.S. dollars for a three-month period commencing on the second London Banking Day immediately following that LIBOR Determination Date that appear on the Designated LIBOR Page as of 11:00 a.m., London time, on that LIBOR Determination Date, if at least two offered rates appear on the Designated LIBOR Page, provided that if the specified Designated LIBOR Page by its terms provides only for a single rate, that single rate will be used. If (i) fewer than two offered rates appear or (ii) no rate appears and the Designated LIBOR Page by its terms provides only for a single rate, then the Calculation Agent will request the principal London offices of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide the Calculation Agent with its offered quotation for deposits in U.S. dollars for a three-month period commencing on the second London Banking Day immediately following that LIBOR Determination Date to prime banks in the London interbank market at approximately 11:00 a.m., London time, on that LIBOR Determination Date and in a principal amount that is representative of a single transaction in U.S. dollars in that market at that time. If at least two quotations are provided, Three-month LIBOR determined on that LIBOR Determination Date will be the arithmetic mean of those quotations. If fewer than two quotations are provided, Three-month LIBOR will be the arithmetic mean of the rates quoted at approximately 11:00 a.m., New York City time, on that LIBOR Determination Date by three major banks in New York City selected by the Calculation

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Agent for loans in U.S. dollars to leading European banks for a three-month period and in a principal amount that is representative of a single transaction in U.S. dollars in that market at that time. If the banks so selected by the Calculation Agent are not quoting as set forth above, Three-month LIBOR for that LIBOR Determination Date will remain Three-month LIBOR for the immediately preceding Dividend Period or, in the case of the Dividend Period beginning June 15, 2025, 5.875%. All percentages used in or resulting from any calculation of Three-month LIBOR will be rounded, if necessary, to the nearest one hundred-thousandth of a percentages point, with .000005% rounded up to .00001%. The determination of Three-month LIBOR for each relevant Dividend Period by the Calculation Agent will (in the absence of manifest error) be final and binding.
“ Voting Parity Stock ” means any Parity Stock having similar voting rights as the Series U Preferred Stock.
Section 4.      Dividends.
(a)      Rate . Dividends on the Series U Preferred Stock will not be mandatory. Holders of Series U Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference amount of $25,000 per share of the Series U Preferred Stock, payable (i) from January 23, 2015 to, but excluding, June 15, 2025 (the “ Fixed Rate Period ”), semi-annually in arrears on the 15 th day of each June and December, commencing June 15, 2015 at an annual rate of 5.875%, and (ii) from, and including, June 15, 2025 (the “ Floating Rate Period ”), quarterly in arrears on the 15 th day of each March, June, September and December, commencing September 15, 2025, at an annual rate equal to Three-month LIBOR plus 3.99%. Notwithstanding the foregoing, if any date on or prior to June 15, 2025 on which dividends otherwise would be payable is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, without any interest or other payment in respect of such delay, and if any date after June 15, 2025 on which dividends otherwise would be payable is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding Business Day unless that day falls in the next calendar month, in which case payment of any dividend otherwise payable on that date will be the immediately preceding Business Day, and dividends will accrue to the actual payment date (each such day on which dividends are payable a “ Dividend Payment Date ”).  A “ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date, except for the initial Dividend Period, which will be the period from, and including, January 23, 2015 to, but excluding, June 15, 2015. The record date for payment of dividends on the Series U Preferred Stock shall be the last Business Day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other date as determined by the Corporation’s Board of Directors. The amount of dividends payable for the Fixed Rate Period shall be computed on the basis of a 360-day year of twelve 30-day months.  The amount of dividends payable for the Floating Rate Period shall be computed on the basis of a 360-day year and the actual number of days elapsed. Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward. The Calculation Agent’s determination of any dividend rate, and its calculation of the amount of dividends payable for the Floating Rate Period, will be maintained on file at the Calculation Agent’s principal offices.
(b)      Non-Cumulative Dividends .  Dividends on shares of Series U Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series U Preferred Stock on any Dividend Payment Date are not declared prior to such Dividend Payment Date, then such dividends shall not cumulate and shall cease to accrue and be payable, and the Corporation shall have no obligation to pay, and the holders of Series U Preferred Stock shall have no right to receive, dividends accrued for

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such Dividend Period on the Dividend Payment Date for such Dividend Period or at any time in the future or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series U Preferred Stock or any other series of authorized Preferred Stock, Preference Stock, or Common Stock of the Corporation.
(c)      Priority of Dividends .  So long as any shares of Series U Preferred Stock remain outstanding,
(1) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Common Stock, and no shares of Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Common Stock by the Corporation (other than (i) a dividend payable in Common Stock or (ii) the acquisition of shares of Common Stock in exchange for, or through application of proceeds of the sale of, shares of Common Stock);
(2) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Stock other than Common Stock, and no shares of Junior Stock other than Common Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly, nor shall any monies be paid to or made available for a sinking fund for the redemption of any such Junior Stock other than Common Stock by the Corporation (other than (i) a dividend payable solely in shares of Junior Stock, (ii) any dividend in connection with the implementation of a stockholder rights plan, or the redemption or repurchase of any rights under any such plan, (iii) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (iv) as a result of a reclassification of Junior Stock other than Common Stock for or into other Junior Stock, (v) the exchange or conversion of one share of Junior Stock other than Common Stock for or into another share of Junior Stock, (vi) through the use of proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (vii) any purchase, redemption or other acquisition of Junior Stock other than Common Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after January 15, 2015, (viii) any purchase of fractional interests in shares of Junior Stock other than Common Stock pursuant to the conversion or exchange provisions of such Junior Stock other than Common Stock or the securities being converted or exchanged, (ix) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (x) the purchase of Junior Stock other than Common Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business); and
(3) no shares of Parity Stock will be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series U Preferred Stock and such Parity Stock during a Dividend Period (other than (i) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (ii) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock, (iii) through the use of proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock, (iv) any purchase, redemption or other acquisition of Parity Stock pursuant to any of the Corporation’s or any of its subsidiaries’ employee, consultant or director incentive or benefit plans or arrangements (including any employment, severance or consulting arrangements) adopted before or after

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January 15, 2015, (v) any purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the securities being converted or exchanged, (vi) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with the distribution thereof or (vii) the purchase of Parity Stock by Wells Fargo Securities, LLC, or any other affiliate of the Corporation, in connection with market-making or other secondary market activities in the ordinary course of business),
unless, in each case, the full dividends for the then-current Dividend Period on all outstanding shares of the Series U Preferred Stock have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside.
Subject to the succeeding sentence, for so long as any shares of Series U Preferred Stock remain outstanding, no dividends shall be declared, paid, or set aside for payment on any Parity Stock for any period unless full dividends on all outstanding shares of Series U Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside.  To the extent the Corporation declares dividends on the Series U Preferred Stock and on any Parity Stock but cannot make full payment of those declared dividends, the Corporation will allocate the dividend payments on a proportional basis among the holders of shares of Series U Preferred Stock and the holders of any Parity Stock then outstanding where the terms of such Parity Stock provide similar dividend rights.
Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on the Common Stock and any other stock that is Parity Stock or Junior Stock, from time to time out of any assets legally available for such payment, and the shares of Series U Preferred Stock shall not be entitled to participate in any such dividends.
Section 5.      Liquidation Rights.
(a)      Liquidation .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series U Preferred Stock shall be entitled to receive in full out of assets available for distribution to its stockholders before any distribution or payment out of the assets of the Corporation may be made to or set aside for the holders of the Common Stock or any other Junior Stock, and subject to the rights of the holders of Parity Stock or any stock of the Corporation ranking senior to the Series U Preferred Stock as to such distribution, a liquidating distribution in the amount of $25,000 per share, plus an amount equal to any dividends which have been declared but not yet paid, without accumulation of any undeclared dividends, to the date of liquidation (the “ Liquidation Preference ”).  The holders of Series U Preferred Stock shall not be entitled to any further payments in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.
(b)      Partial Payment .  If the assets of the Corporation are not sufficient to pay in full the Liquidation Preference to all holders of Series U Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series U Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series U Preferred Stock and all such Parity Stock.
(c)      Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series U Preferred Stock and all other amounts payable upon liquidation, dissolution or winding up of the Corporation have been paid in full to all holders of any Parity Stock, the holders of Common Stock

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and any other Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.
(d)      Merger, Consolidation and Sale of Assets Not Liquidation .  For purposes of this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.
Section 6.      Redemption.
(a)      Optional Redemption .  The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem, subject to the prior approval of the Federal Reserve Board, out of funds legally available therefor, in whole or in part, the shares of Series U Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after June 15, 2025, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series U Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid up to the redemption date without accumulation of any undeclared dividends.
Notwithstanding the foregoing, within 90 days of the Corporation’s good faith determination that a Regulatory Capital Treatment Event has occurred, the Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may, subject to the approval of the appropriate federal banking agency, redeem out of funds legally available therefor, in whole, but not in part, the shares of Series U Preferred Stock at the time outstanding, prior to June 15, 2025, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series U Preferred Stock shall be $25,000 per share plus an amount equal to any dividends that have been declared but not paid, without accumulation of any undeclared dividends.
(b)      Notice of Redemption .  Notice of every redemption of shares of Series U Preferred Stock shall be mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation.  Such mailing shall be at least 40 days and not more than 70 days before the date fixed for redemption.  Any notice mailed as provided in this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series U Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series U Preferred Stock.  Each notice shall state (i) the redemption date; (ii) the number of shares of Series U Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, if applicable, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where the certificates for those shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date.  Notwithstanding the foregoing, if the Series U Preferred Stock is held in book-entry form through DTC, the Corporation may give such notice in any manner permitted by DTC. 
(c)      Partial Redemption .  In case of any redemption of only part of the shares of Series U Preferred Stock at the time outstanding, the shares of Series U Preferred Stock to be redeemed shall be

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selected either pro rata from the holders of record of Series U Preferred Stock in proportion to the number of Series U Preferred Stock held by such holders as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable.  Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series U Preferred Stock shall be redeemed from time to time.
(d)      Effectiveness of Redemption .  If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been irrevocably set aside by the Corporation, separate and apart from its other assets, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) in trust for the pro rata benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividends with respect to such shares shall cease to accrue after such redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders  thereof to receive the amount payable on such redemption from the Depository Company at any time after the redemption date from the funds so deposited, without interest.  The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest.  Any funds so deposited and unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.
Section 7.      Voting Rights.
(a)      General. The holders of Series U Preferred Stock shall not be entitled to vote on any matter except as set forth in paragraph 7(b) below or as required by applicable law.
(b)      Right To Elect Two Directors Upon Nonpayment Events. Whenever dividends payable on any shares of Series U Preferred Stock or any class or series of Voting Parity Stock have not been declared and paid in an aggregate amount equal to, as to any class or series, at least three semi-annual Dividend Periods or their equivalent, whether or not for consecutive Dividend Periods (a “ Nonpayment Event ”), the holders of the outstanding Series U Preferred Stock, voting together as a class with holders of Voting Parity Stock whose voting rights are exercisable, will be entitled to vote for the election of two additional directors of the Corporation’s Board of Directors at the Corporation’s next annual meeting of stockholders and at each subsequent annual meeting of stockholders (the “ Preferred Stock Directors ”) by a plurality of the votes cast; provided that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights). Upon the vesting of such right of such holders, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of the outstanding Series U Preferred Stock (together with the holders of shares of any one or more other series of Voting Parity Stock). At elections for such directors, each holder of the Series U Preferred Stock shall be entitled to 25 votes for each share held (the holders of shares of any other series of Voting Parity Stock being entitled to such number of votes, if any, for each share of such stock as may be granted to them). The right of the holders of the Series U Preferred Stock (voting together as a class with the holders of shares of any one or more other series of Voting Parity Stock) to elect Preferred Stock Directors shall

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continue until such time as the Corporation has paid in full dividends for the equivalent of at least two semi-annual Dividend Periods or their equivalent, at which time such right with respect to the Series U Preferred Stock shall terminate, except as provided by law, and subject to revesting in the event of each and every subsequent default of the character described in this Section 7(b).
Upon any termination of the right of the holders of all shares of Series U Preferred Stock and Voting Parity Stock to vote for Preferred Stock Directors, the term of office of all Preferred Stock Directors then in office elected by only those holders voting as a class shall terminate immediately. Any Preferred Stock Director may be removed at any time without cause by the holders of a majority of the outstanding shares of Series U Preferred Stock and Voting Parity Stock, when they have the voting rights described above (voting together as a class). In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by a plurality of the votes cast by the holders of Series U Preferred Stock and Voting Parity Stock having the voting rights described above, voting together as a class, unless the vacancy has already been filled. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote. Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this Section 7(b) shall have expired, the number of directors shall be such number as may be provided for in the By-Laws irrespective of any increase made pursuant to this Section 7(b).
(c)      Other Voting Rights . In addition to any other vote required by law or the Restated Certificate of Incorporation, so long as any shares of the Series U Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series U Preferred Stock and outstanding shares of all other series of Voting Parity Stock entitled to vote on the matter, by a vote of at least 66 2/3% in voting power of all such outstanding Series U Preferred Stock and such Voting Parity Stock, voting together as a class, given in person or by proxy, either in writing without a meeting or at any meeting called for the purpose, shall be necessary to permit, effect or validate any one or more of the following actions, whether or not such approval is required by Delaware law: (i) the issuance of any class or series of Preferred Stock or Preference Stock ranking senior to the Series U Preferred Stock in the payment of dividends or the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; (ii) any amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation, including the Certificate of Designation, or the Bylaws that would adversely affect the rights, preferences, privileges or voting powers of the Series U Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or Bylaws to authorize, create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series U Preferred Stock with respect to either the payment of dividends or in the distribution of assets in the event of the Corporation’s voluntary or involuntary liquidation, dissolution or winding up; or (iv) any consummation of a reclassification involving the Series U Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series U Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series U Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (b) such shares of Series U Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Series U Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series U Preferred Stock or any Parity Stock or Junior Stock or any securities

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convertible into any class or series of Parity Stock (whether dividends payable in respect of such Parity Stock are cumulative or non-cumulative) or Junior Stock will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Series U Preferred Stock, and holders of the Series U Preferred Stock shall have no right to vote thereon.
If any amendment, alteration, repeal, reclassification, merger or consolidation specified in this Section 7(c) would adversely affect one or more but not all series of voting Preferred Stock (including the Series U Preferred Stock), then only those series affected by and entitled to vote on the matter shall vote on the matter together as a class (in lieu of all other series of Preferred Stock).
Each holder of the Series U Preferred Stock will have 25 votes per share on any matter on which holders of the Series U Preferred Stock are entitled to vote, whether separately or together with any other series of stock of the Corporation (the holders of any shares of any other series of stock being entitled to such number of votes, if any, for each share of stock as may be granted to them), pursuant to Delaware law or otherwise, including by written consent.
(d)      Changes after Provision for Redemption . No vote or consent of the holders of Series U Preferred Stock shall be required pursuant to Section 7(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding Series U Preferred Stock shall have been redeemed, or notice of redemption has been given and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.
(e)      Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series U Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Certificate of Incorporation, the Bylaws and applicable law.
Section 8.      Preemption and Conversion . The holders of Series U Preferred Stock shall not have any rights of preemption or rights to convert such Series U Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9.      Reacquired Shares . Shares of Series U Preferred Stock which have been issued and redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.
Section 10.      No Sinking Fund . Shares of Series U Preferred Stock are not subject to the operation of a sinking fund.
Section 11.      Additional Classes or Series of Stock . Notwithstanding anything set forth in the Restated Certificate of Incorporation or this Certificate of Designation to the contrary, the Board of Directors of the Corporation, or any authorized committee of the Board of Directors of the Corporation, (i) without the vote of the holders of the Series U Preferred Stock, may authorize and issue additional shares of Junior Stock and Parity Stock and (ii) with the requisite vote of the holders of the Series U Preferred Stock and Parity Stock entitled to vote thereon, may authorize and issue any additional class or series of Preferred Stock or Preference Stock senior to the Series U Preferred Stock as to the payment of dividends and/or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.


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In Witness Whereof, Wells Fargo & Company has caused this Certificate of Designation to be signed by Barbara S. Brett, its Senior Vice President and Assistant Treasurer, and Jeannine E. Zahn, its Assistant Secretary, this 22 nd day of January, 2015.

Wells Fargo & Company
By:
/s/ Barbara S. Brett
 
Barbara S. Brett, Senior Vice President and Assistant Treasurer


/s/ Jeannine E. Zahn             
Jeannine E. Zahn, Assistant Secretary


[As filed with the Delaware Secretary of State on January 22, 2015.]



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Exhibit 10(a)
Form of Performance Share Award Agreement for Grants on or after February 24, 2015
Brackets identify provisions that may vary depending on the particular grant, grant recipient
and/or other relevant factor.

WELLS FARGO & COMPANY
LONG-TERM INCENTIVE COMPENSATION PLAN
PERFORMANCE SHARE AWARD AGREEMENT

Name:
 
Grant Date:
 
 
I.D. Number:
 
Target Award Number
of Performance Shares:
 
 

1.
Award. Wells Fargo & Company (the “Company”) has awarded you Performance Shares to provide an incentive for you to remain in the employment of the Company or an Affiliate and provide valuable services to the Company or an Affiliate. The target number of Performance Shares (“Target Award Number”) awarded you [ if award agreement posted on plan administrator’s website: is identified as the “Total Granted” on the acknowledgement screen for your grant on this website] [ if award agreement not posted: is set forth above] . The Target Award Number is subject to upward and downward adjustments based on Company performance during the [ performance period ] (the “Performance Period”) as set forth on Exhibit A. The “Final Award Number” is the number of Performance Shares awarded to you under this Award Agreement after adjusting the Target Award Number in accordance with Exhibit A. This Award Agreement also grants Performance Shares with respect to dividend equivalents as provided in paragraph 4. Each Performance Share entitles you to receive one share of Wells Fargo & Company common stock ("Common Stock") contingent upon earning such Performance Share based on the Company performance criteria set forth on Exhibit A, vesting as set forth in paragraph 2 and subject to the other terms and conditions set forth in the Company’s Long‑Term Incentive Compensation Plan (the “Plan”) and this Award Agreement, including the performance conditions in paragraph 8, Exhibits A and B hereto and the attached Wells Fargo Agreement Regarding Trade Secrets, Confidential Information, and Non-Solicitation.
2.
Vesting. Except as otherwise provided in this Award Agreement, the Final Award Number of Performance Shares will vest on the Determination Date as set forth on Exhibit A (“Determination Date”), subject to the performance conditions in paragraph 8, which apply through the Settlement Date. Shares of Common Stock will be issued to you or, in case of your death, your Beneficiary determined in accordance with the Plan. You will have no rights as a stockholder of the Company with respect to your Performance Shares (including any Performance Shares with respect to dividend equivalents as provided below) until settlement. However, you may be entitled to dividend equivalents as set forth in paragraph 4. Except as otherwise provided in the Plan or this Award Agreement, vested Performance Shares will be settled and distributed in shares of Common Stock on [ applicable date ] (the “Settlement Date”).
3.
Termination.
(a)
If prior to [ end of Performance Period ] you cease to be an Employee due to your death, the Target Award Number of Performance Shares under this Award Agreement after giving effect to any Net Operating Loss adjustments determined in accordance with Exhibit A for any years in the Performance Period completed prior to the year in which you die (and any Performance Shares with respect to dividend equivalents as provided below) will immediately vest upon the date of your death and will be distributed to your Beneficiary in shares of Common Stock between January 2 and March 1 of the year following the year in which you die. If you cease to be an Employee due to your death on or after [ end of Performance Period ] and prior to the Determination Date, the Final Award Number of Performance Shares under this Award Agreement (and any Performance Shares with respect to dividend equivalents as provided below) will vest upon the Determination Date and will be distributed to your Beneficiary on [ applicable date ]. Notwithstanding the

1


foregoing, if by the applicable last payment date set forth herein your Beneficiary has not presented evidence deemed satisfactory by the Company to allow transfer of the shares of Common Stock to the Beneficiary under applicable laws, the Company may treat all Performance Shares awarded hereby as cancelled, in which case the Company shall have no obligation to issue shares of Common Stock or benefits in lieu of such shares to your Beneficiary and shall have no liability therefor.
(b)
If prior to the Determination Date you have an involuntary Separation from Service other than for Cause due to (i) application of the Company’s Extended Absence Policy to you in connection with a Disability, (ii) your displacement and receipt of an immediate lump sum severance benefit, placement on a Salary Continuation Leave of Absence or placement on another leave of absence associated with your displacement which will result in your receipt of a severance benefit in connection with that leave, or (iii) the Company or an Affiliate entering into a corporate transaction with another company (the “buyer”) (including a transaction where the buyer acquires all or any portion of the assets, stock or operations of the Company or Affiliate) and pursuant to the terms of the transaction your continuing in employment with the buyer after completion of the transaction, then the Final Award Number of Performance Shares under this Award Agreement (and any Performance Shares with respect to dividend equivalents as provided below) will vest upon the Determination Date and will be distributed to you (or your Beneficiary if you have died before such distribution) in shares of Common Stock on [ applicable date ], subject to the performance conditions in paragraph 8 below. For purposes of this Award, the term “Separation from Service” is determined by the Company in accordance with Section 409A (as defined in paragraph 12 below) and in accordance with the definition set forth on Exhibit B to this Award Agreement, which definition is incorporated by reference herein. For purposes of this Award, the terms “Cause” and “Disability” are defined as set forth on Exhibit B to this Award Agreement, which definitions are incorporated by reference herein. Notwithstanding the foregoing, if you die following any such involuntary Separation from Service and prior to [ end of Performance Period ], the Target Award Number of Performance Shares under this Award Agreement after giving effect to any Net Operating Loss adjustments determined in accordance with Exhibit A for any years in the Performance Period completed prior to the year in which you die (and any Performance Shares with respect to dividend equivalents as provided below) will immediately vest and will be distributed to your Beneficiary in accordance with paragraph 3(a) above.
(c)
If prior to the Determination Date, the Affiliate that employs you incurs a Change in Control and you do not continue employment with the Company or another Affiliate immediately after the Change in Control, then the Final Award Number of Performance Shares under this Award Agreement (and any Performance Shares with respect to dividend equivalents as provided below) will continue to vest upon the Determination Date and will be distributed to you (or your Beneficiary if you have died before such distribution) in shares of Common Stock on [ applicable date ], subject to the conditions and restrictions in paragraphs 7 and 8 below. For purposes of this Award, the term “Change in Control” is defined as set forth on Exhibit B to this Award Agreement, which definition is incorporated by reference herein. Notwithstanding the foregoing, if you die following such event and prior to [ end of Performance Period ], the Target Award Number of Performance Shares under this Award Agreement after giving effect to any Net Operating Loss adjustments determined in accordance with Exhibit A for any years in the Performance Period completed prior to the year in which you die (and any Performance Shares with respect to dividend equivalents as provided below) will immediately vest and will be distributed to your Beneficiary in accordance with paragraph 3(a) above.
(d)
If prior to the Determination Date you have a Separation from Service and you have satisfied the definition of Retirement under the Plan on your Separation from Service date or you satisfy the definition of Retirement following your Separation from Service date at the end of an approved leave of absence not to exceed six months, the Final Award Number of Performance Shares under this Award Agreement (and any Performance Shares with respect to dividend equivalents as provided below) will continue to vest upon the Determination Date and will be distributed to you (or your Beneficiary if you have died before such distribution) in shares of Common Stock on [ applicable date ] subject to the conditions and restrictions in paragraphs 7, 8 and 9 below, and provided that beginning immediately after you cease to be an Employee and continuing until the Determination Date you satisfy each of the following conditions (“vesting conditions”): (i) you comply with the terms of the attached Wells Fargo Agreement Regarding Trade Secrets, Confidential Information, and Non-Solicitation, which agreement is incorporated by reference herein, (ii) you do not express any

2


derogatory or damaging statements about the Company or any Affiliate, the management or the board of directors of the Company or any Affiliate, the products, services or the business condition of the Company or any Affiliate in any public way or to anyone who could make those statements public, and (iii) to the fullest extent enforceable under the applicable state law, you do not perform services as an officer, director, employee, consultant or otherwise for any business which is in competition with any line of business of the Company or any Affiliate for which you had executive responsibilities while you were employed by the Company or any Affiliate (including predecessors thereof) and which does business in any location in the geographic footprint of the Company or any Affiliate in which you had executive responsibilities. Notwithstanding the foregoing, if you die following your Retirement and prior to [ end of Performance Period ] and have satisfied the vesting conditions set forth above through your date of death, the Target Award Number of Performance Shares under this Award Agreement after giving effect to any Net Operating Loss adjustments determined in accordance with Exhibit A for any years in the Performance Period completed prior to the year in which you die (and any Performance Shares with respect to dividend equivalents as provided below) will immediately vest and will be distributed to your Beneficiary in accordance with paragraph 3(a) above.
(e)
If you incur a Separation from Service other than for a reason described in paragraph 3(a), 3(b), 3(c) or 3(d), or you fail to comply with any applicable vesting condition (including the vesting conditions set forth in paragraph 3(d)), any then unvested Performance Shares awarded hereby (including any Performance Shares with respect to dividend equivalents as provided below) will immediately terminate without notice to you and will be forfeited. For avoidance of doubt, a “Separation from Service other than as described in paragraph 3(a), 3(b), 3(c) or 3(d)” includes, without limitation, a voluntary Separation from Service that does not constitute a Retirement and an involuntary Separation from Service for Cause.
4.
Dividend Equivalents. During the period beginning on the Grant Date and ending on the Settlement Date for the Performance Shares or the date the Performance Shares are forfeited or cancelled, whichever occurs first, if the Company pays a dividend on the Common Stock, you will automatically receive, as of the payment date for such dividend, dividend equivalents in the form of additional Performance Shares based on the amount or number of shares that would have been paid on the Final Award Number of Performance Shares (or the NOL Adjusted Target Award Number of Performance Shares as applicable under paragraphs 3(a), 3(b), 3(c) and 3(d)) had they been issued and outstanding shares of Common Stock as of the record date and, if a cash dividend, the closing price of the Common Stock on the New York Stock Exchange as of the dividend payment date. You will also automatically receive dividend equivalents with respect to such additional Performance Shares, to be determined in the same manner. Performance Shares granted with respect to dividend equivalents will be subject to the same vesting schedule and other terms and conditions as the underlying Performance Shares, including the Company’s right of recoupment or forfeiture, and will be distributed in shares of Common Stock when, and if, the underlying Performance Shares are settled and distributed.
5.
Tax Withholding. The Company will withhold from the number of shares of Common Stock otherwise issuable hereunder (including with respect to dividend equivalents) a number of shares necessary to satisfy any and all applicable federal, state, local and foreign tax withholding obligations and employment-related tax requirements (“Tax-Related Items”). In addition, the Company (or your employer, if different) may withhold from your compensation any and all applicable Tax-Related Items in the event all or a portion of the Performance Shares are treated as taxable prior to or other than on the vesting date set forth in paragraph 2 above and the number of shares of Common Stock otherwise issuable (if any) is insufficient to satisfy such Tax-Related Items withholding obligations. Finally, you shall pay to the Company (or your employer, if different) any amount of Tax-Related Items that the Company or your employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Common Stock if you fail to comply with your obligations in connection with the Tax-Related Items.
6.
Nontransferable. Unless the Committee provides otherwise, (i) no rights under this Award will be assignable or transferable, and neither you nor your Beneficiary will have any power to anticipate, alienate, dispose of, pledge or encumber any rights under this Award, and (ii) the rights and the benefits of this Award may be exercised and received during your lifetime only by you or your legal representative.

3


7.
Other Restrictions; Amendment. The issuance of Common Stock hereunder is subject to compliance by the Company and you with all legal requirements applicable thereto, including tax withholding obligations, and with all applicable regulations of any stock exchange on which the Common Stock may be listed at the time of issuance. Subject to paragraphs 12 and 13 below, the Committee may, in its sole discretion and without your consent, reduce, delay vesting, modify, revoke, cancel, impose additional conditions and restrictions on or recover all or a portion of this Award if the Committee deems it necessary or advisable to comply with applicable laws, rules and regulations. This Award is subject to any applicable recoupment or “clawback” policies of the Company, as amended from time to time, and any applicable recoupment or clawback requirements imposed under laws, rules and regulations.
8.
Performance Conditions. This Award is fully conditioned on and subject to performance adjustments, which include the right of the Committee to cancel all or any unpaid portion of an Award, if the Committee determines in its sole discretion that:
▪
You engage in misconduct which has or might reasonably be expected to have reputational or other harm to the Company or any conduct that constitutes Cause;
▪
You engage in misconduct or commit a material error that causes or might reasonably be expected to cause significant financial or reputational harm to the Company or your business group;
▪
The Award was based on materially inaccurate performance metrics, whether or not you were responsible for the inaccuracy;
▪
You improperly or with gross negligence, including in a supervisory capacity, fail to identify, escalate, monitor, or manage, in a timely manner and as reasonably expected, risks material to the Company or your business group; or
▪
The Company or your business group suffers a material downturn in its financial performance or suffers a material failure of risk management.
The Committee may consider any factors it determines necessary or appropriate for purposes of making a determination whether a performance adjustment is appropriate and the amount of the adjustment based on the particular facts and circumstances. All determinations by the Committee will be final and binding.
9.
Stock Ownership Provision. If you are an Executive Officer of the Company or a member of its Operating Committee, as a condition to receiving this Award, you agree to hold, while employed by the Company or any Affiliate and for a period of one year after your Retirement, shares of Common Stock equal to at least 50% of the after-tax shares of Common Stock (assuming a 50% tax rate) acquired upon vesting and settlement of this Award. If you are not an Executive Officer or member of the Operating Committee, you are expected to hold that number of shares while employed by the Company or any Affiliate. 
10.
Additional Provisions. This Award Agreement is subject to the provisions of the Plan. Capitalized terms not defined in this Award Agreement or by reference to another document are used as defined in the Plan. If the Plan and this Award Agreement conflict, the provisions of the Plan will govern. Interpretations of the Plan and this Award Agreement by the Committee are binding on you and the Company.
11.
No Employment Agreement. Neither the award to you of the Performance Shares nor the delivery to you of this Award Agreement or any other document relating to the Performance Shares will confer on you the right to continued employment with the Company or any Affiliate. You understand that your employment with the Company or any Affiliate is “at will” and nothing in this document changes, alters or modifies your “at will” status or your obligation to comply with all policies, procedures and rules of the Company, as they may be adopted or amended from time to time.

12.
Section 409A . This Award is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the applicable Treasury regulations or other binding guidance thereunder (“Section 409A”). Accordingly, all provisions included in this Award Agreement, or incorporated by reference, will be interpreted and administered in accordance with that intent. If any provision of the Plan or this Award Agreement would otherwise conflict with or frustrate this intent, that provision will be interpreted and deemed amended or limited so as to avoid the conflict; provided, however, that the Company makes no representation that the Award is exempt from or complies with Section 409A and makes no undertaking to preclude Section 409A from applying to the Award. The Company will have no liability to

4


you or to any other party if the Award or payment of the Award that is intended to be compliant with Section 409A is not so compliant or for any action taken by the Committee with respect thereto.

13.
Six-month Delay . Notwithstanding any provision of the Plan or this Award Agreement to the contrary, if, upon your Separation from Service for any reason, the Company determines that you are a “Specified Employee” as defined in Section 409A and in accordance with the definition set forth on Exhibit B to this Award Agreement, which definition is incorporated by reference herein, your Performance Shares, if subject to settlement upon your Separation from Service and if required pursuant to Section 409A, will not settle before the date that is the first business day following the six-month anniversary of such Separation from Service, or, if earlier, upon your death.

14.
No Fractional Shares. The number of Performance Shares to be distributed to you under this Award Agreement will be rounded down to the nearest whole share.

15.
Severability and Judicial Modification. If any provision of this Award Agreement is held to be invalid or unenforceable under pertinent state law or otherwise or Wells Fargo elects not to enforce such restriction, the remaining provisions shall remain in full force and effect and the invalid or unenforceable provision shall be modified only to the extent necessary to render that provision valid and enforceable to the fullest extent permitted by law. If the invalid or unenforceable provision cannot be, or is not, modified, that provision shall be severed from the Award Agreement and all other provisions shall remain valid and enforceable.

16.
Applicable Law. This Award Agreement and the award of Performance Shares evidenced hereby will be governed by, and construed in accordance with the laws of the state of Delaware (without regard to its choice-of-law provisions), except to the extent Federal law would apply.

17.
Imposition of Other Requirements. The Company reserves the right to impose other requirements on your participation in the Plan, on the Award and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with applicable law or facilitate the administration of the Plan and provided the imposition of the term or condition will not result in adverse accounting expense to the Company, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

18.
Electronic Delivery and Acceptance. The Company is electronically delivering documents related to current or future participation in the Plan and is requesting your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through the current plan administrator’s on-line system, or any other on-line system or electronic means that the Company may decide, in its sole discretion, to use in the future.
[Insert requirement to acknowledge and accept grant terms]





5


WELLS FARGO & COMPANY
LONG-TERM INCENTIVE COMPENSATION PLAN
PERFORMANCE SHARE AWARD AGREEMENT

Exhibit A to Performance Share Award Agreement

This Exhibit A sets forth the manner in which the Final Award Number will be determined.

Definitions

Capitalized terms used but not defined herein (including, but not limited to, Return on Realized Common Equity) shall have the same meanings assigned to them in the Plan and the Award Agreement. In addition, the following terms used in the text of this Exhibit A shall have the meanings set forth below:

“Average Return on Realized Common Equity” means for each of the Financial Performance Group Companies the sum of such company’s Return on Realized Common Equity for each of the 12-month periods ending [ applicable dates during the Performance Period ] , which sum is then divided by [ applicable divisor ], rounded to two decimals.

“Company Return on Realized Common Equity Ranking” means the rank of the Company’s Average Return on Realized Common Equity relative to the Average Return on Realized Common Equity achieved by each of the other Financial Performance Group Companies.

“Final Award Number Percentage” means the “Final Award Number Percentage” determined in accordance with the Determination of Final Award Number section of this Exhibit A.

“Financial Performance Group Companies” means, in addition to the Company, the companies listed below provided that any such company for which financial data as of [ end of Performance Period ], is not publicly available shall be eliminated as a Financial Performance Group Company.

[ Financial Performance Group Companies ]

“Net Operating Loss” means for any year in the Performance Period a loss that results from adjusting a net loss as reported in the Company's consolidated financial statements to eliminate the effect of the following items, each determined based on generally accepted accounting principles: (1) losses resulting from discontinued operations; (2) extraordinary losses; (3) the cumulative effect of changes in generally accepted accounting principles; and (4) any other unusual or infrequent loss which is separately identified and quantified.

Determination of Final Award Number

Net Operating Loss Adjustments . If the Company incurs a Net Operating Loss for any year in the Performance Period, the Target Award Number will be reduced by one-third for each such year, effective upon certification by the Committee of a Net Operating Loss for such year. The Target Award Number after giving effect to each such Net Operating Loss adjustment is referred to herein as the “NOL Adjusted Target Award Number.” If the Company does not incur a Net Operating Loss in any year in the Performance Period, your NOL Adjusted Target Award Number will be the same as your Target Award Number.

RORCE Adjustment . The NOL Adjusted Target Award Number will be adjusted upward or downward depending on the Company’s Average Return on Realized Common Equity performance over the Performance Period as follows:

1.
Absolute RORCE . If the Company Average Return on Realized Common Equity is equal to or greater than [ applicable % ], your Final Award Number will be determined by multiplying the NOL Adjusted Target Award Number by [ applicable % ]. If the Company Average Return on Realized Common Equity is less than [ applicable % ], your Final Award Number will be [ applicable % or other applicable number ].

6



2.
Relative RORCE . If the Company Average Return on Realized Common Equity is less than [ applicable % ] but equal to or greater than [ applicable % ], the Final Award Number will be determined by the Company Return on Realized Common Equity Ranking in accordance with the chart below to calculate your Final Award Number of Performance Shares. The Final Award Number of Performance Shares will be determined by multiplying (i) the Final Award Number Percentage (rounded to the nearest whole percent) by (ii) your NOL Adjusted Target Award Number. Each Final Award Number Percentage in the chart below will be based on the Company Return on Realized Common Equity Ranking in each quartile among the Financial Performance Group Companies and apply to the lowest ranking percentile in each quartile that is equal to or greater than the Company Return on Realized Common Equity Ranking percentile shown.

Company Return on Realized Common Equity Ranking
Final Award Number Percentage
Final Award Number of
Performance Shares
[ applicable ranking ]
[ applicable % ]
[ applicable % ] x NOL Adjusted Target Award Number
 [ applicable ranking ]
[ applicable % ]
[ applicable % ] x NOL Adjusted Target Award Number
 [ applicable ranking ]
[ applicable % ]
[ applicable % ] x NOL Adjusted Target Award Number
----
[ applicable % ]
[ applicable % ] x NOL Adjusted Target Award Number

If the Company Return on Realized Common Equity Ranking is [ applicable ranking range ], the Final Award Number Percentage shall be interpolated on a straight-line basis between [ applicable percentage range ] and the Final Award Number of Performance Shares shall be interpolated on a corresponding straight-line basis between [ applicable percentage range ]of the NOL Adjusted Target Award Number.

If the Company Return on Realized Common Equity Ranking is [ applicable ranking range ], the Final Award Number Percentage shall be interpolated on a straight-line basis between [ applicable percentage range ] and the Final Award Number of Performance Shares shall be interpolated on a corresponding straight-line basis between [ applicable percentage range ] of the NOL Adjusted Target Award Number.

If the Company does not have the lowest Average Return on Realized Common Equity among the Financial Performance Group Companies and the Company Return on Realized Common Equity Ranking is [ applicable ranking range ], the Final Award Number Percentage shall be interpolated on a straight-line basis between [ applicable percentage range ] and the Final Award Number of Performance Shares shall be interpolated on a straight-line basis between [ applicable percentage range ]of the NOL Adjusted Target Award Number.

In no event shall the Final Award Number Percentage be greater than [ applicable percentage ] nor shall the Final Award Number of Performance Shares be greater than [ applicable percentage ] of the NOL Adjusted Target Award Number.

As provided in paragraph 4, you will be entitled to receive Performance Shares with respect to dividend equivalents on the Final Award Number (or the Target Award Number, as applicable and as may be adjusted under paragraphs 3(a), 3(b), 3(c) and 3(d)) to determine the total number of Performance Shares that will be distributed to you upon settlement.

Committee Determination

The Committee shall determine the Final Award Number of Performance Shares after the end of the Performance Period and not later than [ applicable date ] and the date the Committee makes such determination is referred to in this Award as the “Determination Date.” The Committee shall make all determinations in calculating the Final Award Number of Performance Shares and the Committee’s determination shall be binding.


7


WELLS FARGO & COMPANY
LONG-TERM INCENTIVE COMPENSATION PLAN
PERFORMANCE SHARE AWARD AGREEMENT

Exhibit B to Performance Share Award Agreement

Cause

“Cause” means your termination of employment by the Company or an Affiliate arising from or on or after (1) the continued failure by you to substantially perform your duties; (2) your conviction of a crime involving dishonesty or breach of trust, conviction of a felony, or commission of any act that makes you ineligible for coverage under Wells Fargo's fidelity bond or otherwise makes you ineligible for continued employment; or (3) your violation of the Company’s policies, including but not limited to Wells Fargo’s Code of Ethics and Business Conduct, Information Security Policies and Compliance and Risk Management Accountability Policy.

Change in Control

“Change in Control” means a change in the ownership or effective control of the Company or the Affiliate that employs you, or in the ownership of a substantial portion of the assets of the Company or the Affiliate that employs you within the meaning of Treas. Reg. section 1.409A-3(i)(5) as determined by the Company.

Disability

You will be considered to have a “Disability” if you are receiving income replacement benefits for a period of not less than three months under the Company’s or an Affiliate’s long-term disability plan as a result of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

Separation from Service

A “Separation from Service” occurs upon your death, retirement or other termination of employment or other event that qualifies as a “separation from service” under Internal Revenue Code Section 409A and the applicable regulations thereunder as in effect from time to time. The Company shall determine in each case when a Separation from Service has occurred, which determination shall be made in a manner consistent with Treasury Regulation Section 1.409A-1(h). The Company shall determine that a Separation from Service has occurred as of a certain date when the facts and circumstances indicate that the Company (or an Affiliate, if applicable) and you reasonably anticipate that, after that date, you will render no further services, or your level of bona fide services (either as an employee or independent contractor) will permanently decrease to a level that is 20% or less than the average level of your bona fide services (either as an employee or independent contractor) previously in effect for you over the immediately preceding 36-month period (or your entire period of service, if you have been providing services for less than 36 months).

The following presumptions shall also apply to all such determinations:

(1)
Transfers . A Separation from Service has not occurred upon your transfer of employment from the Company to an Affiliate or vice versa, or from an Affiliate to another Affiliate.

(2)
Medical leave of absence . Where you have a medical leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and you have not returned to employment with the Company or an Affiliate, a Separation from Service has occurred on the earlier of: (A) the first day on which you would not be considered “disabled” under any disability policy of the Company or Affiliate under which you are then receiving a benefit; or (B) the first day on which your medical leave of absence period exceeds 29 months.


8


(3)
Military leave of absence . Where you have a military leave of absence, and you have not returned to employment with the Company or an Affiliate, a Separation from Service has occurred on the day next following the last day on which you are entitled to reemployment rights under USERRA.

(4)
Salary continuation leave . A Separation from Service has occurred on the first day of your salary continuation leave taken under the Company’s salary continuation leave program.

(5)
Other leaves of absence . In the event that you are on a bona fide leave of absence, not otherwise described in this definition, from which you have not returned to employment with the Company or an Affiliate, your Separation from Service has occurred on the first day on which your leave of absence period exceeds six months or, if earlier, upon your termination of employment (provided that such termination of employment constitutes a Separation from Service in accordance with the last sentence of the first paragraph of this definition).

(6)
Asset purchase transaction . If, in connection with the sale or other disposition of substantial assets (such as a division or substantially all assets of a trade or business) of the Company or an Affiliate to an unrelated buyer, you become an employee of the buyer or an affiliate of the buyer upon the closing of or in connection with such transaction, a Separation from Service has not occurred if the Company and the buyer have specified that such transaction will not, with respect to any individual affected by such transaction who becomes an employee of the buyer or an affiliate, be considered a “separation from service” under Treasury Regulation Section 1.409A-1(h), and such specification meets the requirements of Treasury Regulation Section 1.409A-1(h)(4).

Specified Employee

A “Specified Employee” means:

(1)
Any Participant who is a “key employee” under Internal Revenue Code Section 416(i)(1)(A)(i), (ii) or (iii) (applied in accordance with the regulations thereunder and disregarding Internal Revenue Code Section 416(i)(5)) at any time during the 12-month period ending on the specified employee identification date. For purposes of determining “key employee” status under Internal Revenue Code Section 416(i)(1)(A)(i), except as required under such provision and the regulations thereunder, the term “officer” shall refer to an employee of the Company or an Affiliate with the title Senior Vice President or above, and

(2)
Any participant who served as a member of the Company’s Management Committee at any time during the 12-month period ending on the specified employee identification date.

For purposes of applying Internal Revenue Code section 409A, the “specified employee identification date” is each December 31. Any person described in (1) or (2) above on a specified employee identification date shall be treated as a Specified Employee for the entire 12-month period beginning on the following April 1.

Notwithstanding the above, in the event of a corporate transaction to which the Company or an Affiliate is a party, the Company may, in its discretion, establish a method for determining Specified Employees pursuant to Treasury Regulation Section 1.409A-1(i)(6).



9


Wells Fargo Agreement
Regarding Trade Secrets, Confidential Information, and Non-Solicitation

I. Introduction
In consideration for the Performance Share Award granted to me by Wells Fargo & Company on [ insert date ], on the terms and conditions contained in the Performance Share Award Agreement (“Performance Share Award Agreement”), I acknowledge that the nature of my employment with and performance of services for Wells Fargo & Company and its affiliates (the “Company”) permits me to have access to certain of its trade secrets and confidential and proprietary information and that such information is, and shall always remain, the sole property of the Company. Any unauthorized disclosure or use of this information would be wrongful and would cause the Company irreparable harm. Therefore, I agree as follows:

II. Trade Secrets and Confidential Information
During the course of my employment I have acquired, and will acquire, knowledge of the Company’s Trade Secrets and other proprietary information relating to its business, business methods, personnel, and customers (collectively referenced as “Confidential Information”). “Trade Secrets” are defined as information, including but not limited to, a formula, pattern, compilation, program, device, method, technique, or process, that: (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Company’s Trade Secrets include, but are not limited to, the following:

•
the names, address, and contact information of the Company’s customers and prospective customers, as well as any other personal or financial information relating to any customer or prospect, including, without limitation, account numbers, balances, portfolios, maturity and/or expiration or renewal dates, loans, policies, investment activities, purchasing practices, insurance, annuity policies and objectives;
•
any information concerning the Company’s operations, including without limitation, information related to its methods, services, pricing, costs, margins and mark-ups, finances, practices, strategies, business plans, agreements, decision-making, systems, technology, policies, procedures, marketing, sales, techniques, agent information and processes;
•
any other proprietary and/or confidential information relating to the Company’s customers, employees, products, services, sales, technologies, or business affairs.

I understand that Records of the Company also constitute Confidential Information and that my obligation to maintain the confidentiality thereof continues at all times during and after my employment. “Records” include, but are not limited to, original, duplicated, computerized, memorized, handwritten or any other form of information, whether contained in materials provided to me by the Company, or by any institution acquired by the Company, or compiled by me in any form or manner including information in documents or electronic devices, such as software, flowcharts, graphs, spreadsheets, resource manuals, videotapes, calendars, day timers, planners, rolodexes, or telephone directories maintained in personal computers, laptop computers, personal digital assistants or any other device. These records do not become any less confidential or proprietary to the Company because I may commit some of them to memory or because I may otherwise maintain them outside of the Company’s offices.

I agree that Confidential Information of the Company is to be used by me solely and exclusively for the purpose of conducting business on behalf of the Company. I am expected to keep such Confidential Information confidential and not to divulge, use or disclose this information except for that purpose. If I resign or am terminated from my employment for any reason, I agree to immediately return to the Company all Records and Confidential Information, including information maintained by me in my office, personal electronic devices, and/or at home.

III. Non-Solicitation of Company’s Employees and Customers
I agree that for the period beginning on my termination date with the Company through the greater of (i) the period beginning on my termination date through the Determination Date as defined in the Performance Share Award Agreement or (ii) the one-year period following my termination date (“the Non-Solicitation Period”), I will not do any of the following, either directly or indirectly or through associates, agents, or employees:

10



a.
solicit, recruit or promote the solicitation or recruitment of any employee or consultant of the Company for the purpose of encouraging that employee or consultant to leave the Company’s employ or sever an agreement for services; or

b.
to the fullest extent enforceable under the applicable state law, solicit, participate in or promote the solicitation of any of the Company's clients, customers, or prospective customers with whom I had Material Contact and/or regarding whom I received Confidential Information, for the purpose of providing products or services (“Competitive Products/Services”). “Material Contact” means interaction between me and the customer, client or prospective customer within one (1) year prior to my Separation of Service (as defined in the Performance Award Agreement) which takes place to manage, service or further the business relationship.

This limitation is not intended to limit the Company’s right to prevent misappropriation of its Confidential Information beyond the Non-Solicitation Period.

IV. Assignment of Inventions
I acknowledge and agree that all inventions and all worldwide intellectual property rights that I make, conceive or first reduce to practice (alone or in conjunction with others) during my employment with the Company are owned by the Company that (1) relate at the time of conception or reduction to practice of the invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company whether or not I made, conceived or first reduced the inventions to practice during normal working hours; and (2) involve the use of any time, material, information, or facility of the Company.

V. Partial Invalidity
If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall remain in full force and effect and the invalid or unenforceable provision shall be modified only to the extent necessary to render that provision valid and enforceable to the fullest extent permitted by law. If the invalid or unenforceable provision cannot be modified, that provision shall be severed from the Agreement and all other provisions shall remain valid and enforceable.

VI. Choice of Law/Integration/Survival
This Agreement and any dispute, controversy or claim which arises under or relates in any way to it shall be governed by the law of the state where the incident(s) giving rise to the dispute or claim arose. This Agreement supersedes any prior written or verbal agreements pertaining to the subject matter herein, and is intended to be a final expression of our Agreement with respect only to the terms contained herein. There may be no modification of this Agreement except in writing signed by me and an executive officer of the Company. This Agreement shall survive my employment by the Company, inure to the benefit of successors and assigns of the Company, and is binding upon my heirs and legal representatives.

Acknowledgement

I acknowledge that I have read, understand, and received a copy of this Agreement, and will abide by its terms.


                                          
[Name of Executive]                    Date


End of Form of Performance Share Award Agreement
For Grants on or after February 24, 2015



11




12



Form of Restricted Share Rights Award Agreement for Grants on or after February 24, 2015
Brackets identify provisions that may vary depending on the particular grant, grant recipient
and/or other relevant factor.

WELLS FARGO & COMPANY
LONG-TERM INCENTIVE COMPENSATION PLAN
RESTRICTED SHARE RIGHTS AWARD AGREEMENT

Name:
 
Grant Date:
 
I.D. Number:
 
Number of RSRs:
 
1.
Award. To encourage your continued employment with the Company or any Affiliate and to motivate you to help the Company increase stockholder value over the long term, Wells Fargo & Company (the “Company”) has awarded you the number of Restricted Share Rights [ if award agreement posted on plan administrator’s website : as set forth on the acknowledgement screen for your grant on this website] [ if not posted : indicated above] (the “Award”). Each Restricted Share Right entitles you to receive one share of Wells Fargo & Company common stock ("Common Stock") contingent upon vesting and subject to the other terms and conditions set forth in the Company’s Long‑Term Incentive Compensation Plan (the “Plan”) and this Award Agreement.
2.
Vesting. Except as otherwise provided in this Award Agreement, and subject to the Company’s right to recoup or forfeit all or any portion of this Award and other conditions as provided in this Award Agreement, including but not limited to the performance conditions in paragraph 8 below, the Restricted Share Rights will vest and be settled according to the following schedule:
[ Vesting Schedule ]
Shares of Common Stock in settlement of the RSRs will be issued to you or, in case of your death, your Beneficiary determined in accordance with the Plan. Although you may receive dividend equivalents as provided below, you will have no rights as a stockholder of the Company with respect to your Restricted Share Rights until settlement. Upon vesting, each Restricted Share Right will be settled and distributed as one share of Common Stock except as otherwise provided in the Plan or this Award Agreement.
3.
Termination.
(a)
If you cease to be an Employee due to your death, any then unvested Restricted Share Right awarded hereby (including any Restricted Share Right granted with respect to dividend equivalents as provided below) will immediately vest upon your date of death and will be settled and distributed to your Beneficiary in shares of Common Stock between January 2 and March 1 of the year following the year in which you die. Notwithstanding the foregoing, if by the last date set forth herein your Beneficiary has not presented evidence deemed satisfactory by the Company to allow transfer of the shares of Common Stock to the Beneficiary under applicable laws, the Company may treat all unvested Restricted Share Rights as cancelled, in which case the Company shall have no obligation to issue shares of Common Stock or benefits in lieu of such shares to your Beneficiary and shall have no liability therefor.
(b)
If you incur an involuntary [Separation from Service][termination from employment] for a reason other than for Cause as a result of one of the following:
(1)
application of the Company’s Extended Absence Policy to you in connection with a Disability,
(2)
your displacement and receipt of an immediate lump sum severance benefit, placement on a Salary Continuation Leave of Absence or placement on another leave of absence associated with your displacement which will result in your receipt of a severance benefit in connection with that leave, or
(3)
the Company or an Affiliate entering into a corporate transaction with another company (the “buyer”) (including a transaction where the buyer acquires all or any portion of the assets, stock or operations




of the Company or Affiliate) and pursuant to the terms of the transaction your continuing in employment with the buyer after completion of the corporate transaction,
any then unvested Restricted Share Right awarded hereby (including any Restricted Share Right granted with respect to dividend equivalents as provided below) will immediately vest and will be settled and distributed to you in shares of Common Stock within 90 days from your [Separation from Service][termination of employment or, if earlier, by March 1 of the year following the year in which the Restricted Share Rights vest], subject to the performance conditions in paragraph 8 below.
The definitions of the terms [“Separation from Service” (which is determined by the Company in accordance with Section 409A (as defined in paragraph 11 below)),] “Disability” and “Cause” are set forth on Exhibit A to this Award Agreement, which definitions are incorporated by reference herein.
(c)
[If you have a Separation from Service for a reason other than Cause that is not addressed in paragraph 3(b) above and you have satisfied the definition of Retirement under the Plan on your Separation from Service date or you satisfy the definition of Retirement following your Separation from Service date at the end of an approved leave of absence not to exceed six months, any then unvested Restricted Share Right awarded hereby (including any Restricted Share Right granted with respect to dividend equivalents as provided below) will continue to vest and be settled upon the scheduled vesting date as set forth in paragraph 2 above, subject to the conditions and restrictions in paragraphs 7, 8 and 9 below; provided, however, if you die following Retirement, subject to the limitations set forth in paragraph 3(a), any then unvested Restricted Share Right will vest immediately upon your date of death and will be settled and distributed to your Beneficiary in shares of Common Stock between January 2 and March 1 of the year following the year in which you die.]
(d)
If the Affiliate that employs you incurs a Change in Control and you do not continue employment with the Company or another Affiliate of the Company immediately after the Change in Control, any then unvested Restricted Share Right awarded hereby (including any Restricted Share Right granted with respect to dividend equivalents as provided below) will immediately vest and will be settled and distributed to you in shares of Common Stock between January 2 and March 1 of the year immediately following the year in which the Change in Control occurred, subject to the conditions and restrictions in paragraphs 7, 8 and 9 below. Exhibit A to this Award Agreement sets forth the definition of the term “Change in Control,” which definition is incorporated in this Award Agreement by reference.
(e)
If you [incur a Separation from Service][terminate employment] other than for a reason described in paragraphs 3(a), (b), (c), or (d) above, any then unvested Restricted Share Right awarded hereby (including any Restricted Share Right granted with respect to dividend equivalents as provided below) will immediately terminate without notice to you and will be forfeited.
4.
Dividend Equivalents. During the period beginning on the Grant Date and ending on the date the applicable Restricted Share Rights vest and are distributed, or are forfeited or cancelled, whichever occurs first, if the Company pays a dividend on the Common Stock, you will automatically receive, as of the payment date for such dividend, dividend equivalents in the form of additional Restricted Share Rights based on the amount or number of shares that would have been paid on the Restricted Share Rights had they been issued and outstanding shares of Common Stock as of the record date and, if a cash dividend, the closing price of the Common Stock on the New York Stock Exchange as of the dividend payment date. You will also automatically receive dividend equivalents with respect to such additional Restricted Share Rights, to be granted in the same manner. Restricted Share Rights granted with respect to dividend equivalents will be subject to the same vesting schedule and other terms and conditions as the underlying Restricted Share Rights, including the Company’s right of recoupment or forfeiture, and will be distributed in shares of Common Stock when, and if, the underlying Restricted Share Rights are settled and distributed.
5.
Tax Withholding. Regardless of any action the Company or an Affiliate which is your employer (the “Employer”) takes with respect to any or all income tax, payroll tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you or deemed by the Company or the Employer to be an appropriate charge to you even if technically due by the Company or the Employer (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer. You further acknowledge that the Company and/




or the Employer: (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant, vesting or settlement of the Restricted Share Rights, the issuance of shares of Common Stock upon settlement of the Restricted Share Rights, the subsequent sale of shares of Common Stock acquired pursuant to such issuance and the receipt of any dividends and/or any dividend equivalents; and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate your liability for such Tax-Related Items or to achieve any particular tax result. Further, if you are subject to tax on the Award in more than one jurisdiction at the time of any relevant taxable event, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, you shall pay or make adequate arrangements satisfactory to the Company or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the Company and/or the Employer, or their respective agents, at their discretion and pursuant to such procedures as the Company may specify from time to time, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (1) withholding from any wages or other cash compensation paid to you by the Company and/or the Employer; (2) withholding from proceeds of the sale of shares of Common Stock acquired upon vesting and settlement of the Restricted Share Rights either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization); or (3) withholding in shares of Common Stock to be issued upon vesting and settlement of the Restricted Share Rights. Notwithstanding the foregoing, if you are subject to the short-swing profit rules of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), the Company will withhold in shares of Common Stock upon the relevant tax withholding event[, except with respect to any Tax-Related Items required to be withheld prior to the vesting dates set forth in paragraph 2 which may be withheld from your wages or other cash compensation]. Only if withholding in shares of Common Stock is prevented by applicable law or has materially adverse accounting or tax consequences, may the Tax-Related Items withholding obligation for individuals subject to Section 16(b) of the Exchange Act be satisfied by one or a combination of methods (1) and (2) above.
To avoid negative accounting treatment, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates. Anything to the contrary in this paragraph 5 notwithstanding, the Company or the Employer’s right to withhold any amounts payable pursuant to this Award to cover Tax-Related Items for any portion of the Award that is considered deferred compensation subject to Section 409A shall be limited to the minimum amount permitted to avoid a prohibited acceleration under Section 409A. If the obligation for Tax-Related Items is satisfied by withholding in shares of Common Stock, for tax purposes, you will be deemed to have been issued the full number of shares of Common Stock subject to the vested Restricted Share Rights, notwithstanding that a number of the shares of Common Stock are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of your participation in the Plan.
Finally, you shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares or the proceeds of the sale of shares of Common Stock, if you fail to comply with your obligations in connection with the Tax-Related Items.
6.
Nontransferable. Unless the Committee provides otherwise, (i) no rights under this Award will be assignable or transferable, and neither you nor your Beneficiary will have any power to anticipate, alienate, dispose of, pledge or encumber any rights under this Award, and (ii) the rights and the benefits of this Award may be exercised and received during your lifetime only by you or your legal representative.
7.
Other Restrictions; Amendment. The issuance of Common Stock hereunder is subject to compliance by the Company and you with all legal requirements applicable thereto, including tax withholding obligations, and with all applicable regulations of any stock exchange on which the Common Stock may be listed at the time of issuance. Subject to paragraph[s] 11 [and 12] below, the Committee may, in its sole discretion and without your consent, reduce, delay vesting, modify, revoke, cancel, impose additional conditions and restrictions on or recover all or a portion of this Award if the Committee deems it necessary or advisable to comply with applicable laws, rules and regulations. This Award is subject to any applicable recoupment or “clawback” policies of the Company, as




amended from time to time, and any applicable recoupment or clawback requirements imposed under laws, rules and regulations.
8.
Performance Conditions. The Award is fully conditioned on and subject to performance adjustments, which include the right of the Committee to cancel all or any unpaid portion of an Award, if the Committee determines in its sole discretion that:
▪
You engage in misconduct which has or might reasonably be expected to have reputational or other harm to the Company or any conduct that constitutes Cause;
▪
You engage in misconduct or commit a material error that causes or might reasonably be expected to cause significant financial or reputational harm to the Company or your business group;
▪
The Award was based on materially inaccurate performance metrics, whether or not you were responsible for the inaccuracy;
▪
You improperly or with gross negligence, including in a supervisory capacity, fail to identify, escalate, monitor, or manage, in a timely manner and as reasonably expected, risks material to the Company or your business group; or
▪
The Company or your business group suffers a material downturn in its financial performance or suffers a material failure of risk management.
The Committee may consider any factors it determines necessary or appropriate for purposes of making a determination whether a performance adjustment is appropriate and the amount of the adjustment based on the particular facts and circumstances. All determinations by the Committee will be final and binding.
9.
Restrictive Covenants. In consideration of the terms of this Award and your access to Confidential Information, you agree to the restrictive covenants and associated remedies as set forth below, which exist independently of and in addition to any obligation to which you are subject under the terms of the Wells Fargo Agreement Regarding Trade Secrets, Confidential Information, Non-Solicitation, And Assignment Of Inventions (the “TSA”):
(a)
Trade Secrets and Confidential Information. During the course of your employment, you will acquire knowledge of the Company’s and/or any Affiliate’s (collectively “WFC”) Trade Secrets and other proprietary information relating to its business, business methods, personnel, and customers (collectively, “Confidential Information”). “Trade Secrets” means WFC’s confidential information, which has an economic value in being secret and which WFC has taken steps to keep secret and you understand and agree that Trade Secrets include, but are not limited to, confidentially maintained client and customer lists and information, and confidentially maintained prospective client and customer lists and information. You agree that Confidential Information of WFC is to be used solely and exclusively for the purpose of conducting business on behalf of WFC. You agree to keep such Confidential Information confidential and will not divulge, use or disclose this information except for that purpose. In addition, you agree that, both during and after your employment, you will not remove, share, disseminate or otherwise use WFC’s Trade Secrets to directly or indirectly solicit, participate in or promote the solicitation of any of WFC’s clients, customers, or prospective customers for the purpose of providing products or services that are in competition with WFC’s products or services.
(b)
Assignment of Inventions. You acknowledge and agree that all inventions and all worldwide intellectual property rights that you make, conceive or first reduce to practice (alone or in conjunction with others) during your employment with WFC are owned by WFC that (1) relate at the time of conception or reduction to practice of the invention to WFC’s business, or actual or demonstrably anticipated research or development of WFC whether or not you made, conceived or first reduced the inventions to practice during normal working hours; and (2) involve the use of any time, material, information, or facility of WFC.
(c)
Non-solicitation. If you are currently subject to a TSA, you shall continue to be bound by the terms of the TSA. If you are not currently subject to a TSA, you agree to the following:
For a period of one year immediately following termination of your employment for any reason, you will not do any of the following, either directly or indirectly or through associates, agents, or employees:
i.
solicit, recruit  or promote the solicitation or recruitment of any employee or consultant of WFC for the purpose of encouraging that employee or consultant to leave WFC’s employ or sever an agreement for services; or  




ii.
to the fullest extent enforceable under the applicable state law, solicit, participate in or promote the solicitation of any of WFC’s clients, customers, or prospective customers with whom you had Material Contact and/or regarding whom you received Confidential Information, for the purpose of providing products or services that are in competition with WFC’s products or services. "Material Contact" means interaction between you and the customer, client or prospective customer within one (1) year prior to your last day as a team member which takes place to manage, service or further the business relationship.
The one-year limitation is not intended to limit WFC’s right to prevent misappropriation of its Confidential Information beyond the one-year period.
(d)
Violation of TSA or Restrictive Covenants. If you breach any of the terms of a TSA and/or the restrictive covenants above, all unvested Restricted Share Rights shall be immediately and irrevocably forfeited. For any Restricted Share Rights that vested within one (1) year prior to the termination of your employment with WFC or at any time after your termination, you shall be required to repay or otherwise reimburse WFC an amount having a value equal to the aggregate fair market value (determined as of the date of vesting) of such vested shares. This paragraph does not constitute the Company’s exclusive remedy for violation of your restrictive covenant obligations, and WFC may seek any additional legal or equitable remedy, including injunctive relief, for any such violation.
10.
No Employment Agreement. Neither the award to you of the Restricted Share Rights nor the delivery to you of this Award Agreement or any other document relating to the Restricted Share Rights will confer on you the right to continued employment with the Company or any Affiliate. You understand that your employment with the Company or any Affiliate is “at will” and nothing in this document changes, alters or modifies your “at will” status or your obligation to comply with all policies, procedures and rules of the Company, as they may be adopted or amended from time to time.
11.
Section 409A . This Award is intended to [comply with the requirements of][be exempt from] Section 409A of the Internal Revenue Code of 1986, as amended, and the applicable Treasury Regulations or other binding guidance thereunder (“Section 409A”). Accordingly, all provisions included in this Award Agreement, or incorporated by reference, will be interpreted and administered in accordance with that intent. [Therefore, all Restricted Share Rights will be settled and distributed no later than March 1 of the year following the year when such Restricted Share Rights vest.] If any provision of the Plan or this Award Agreement would otherwise conflict with or frustrate this intent, that provision will be interpreted and deemed amended or limited so as to avoid the conflict; provided, however, that the Company makes no representation that the Award is exempt from or complies with Section 409A and makes no undertaking to preclude Section 409A from applying to the Award. The Company will have no liability to you or to any other party if the Award or payment of the Award that is intended to be [compliant with][exempt from] Section 409A is not so [compliant][exempt] or for any action taken by the Committee with respect thereto.
12.
[Six-month Delay . Notwithstanding any provision of the Plan or this Award Agreement to the contrary, if, upon your Separation from Service for any reason, the Company determines that you are a “Specified Employee” as defined in Section 409A and in accordance with the definition set forth on Exhibit A to this Award Agreement, which definition is incorporated by reference herein, your Restricted Share Rights, if subject to settlement upon your Separation from Service and if required pursuant to Section 409A, will not settle before the date that is the first business day following the six-month anniversary of such Separation from Service, or, if earlier, upon your death.]
13.
Stock Ownership Provision. If you are an Executive Officer of the Company or a member of its Operating Committee, as a condition to receiving this Award, you agree to hold, while employed by the Company or any Affiliate and for a period of one year after your Retirement, shares of Common Stock equal to at least 50% of the after-tax shares of Common Stock (assuming a 50% tax rate) acquired upon vesting and settlement of this Award. If you are not an Executive Officer or member of the Operating Committee, you are expected to hold that number of shares while employed by the Company or any Affiliate.
14.
Severability and Judicial Modification. If any provision of this Award Agreement is held to be invalid or unenforceable under pertinent state law or otherwise or Wells Fargo elects not to enforce such restriction, including but not limited to paragraph 9(c)ii, the remaining provisions shall remain in full force and effect and the invalid




or unenforceable provision shall be modified only to the extent necessary to render that provision valid and enforceable to the fullest extent permitted by law.  If the invalid or unenforceable provision cannot be, or is not, modified, that provision shall be severed from the Award Agreement and all other provisions shall remain valid and enforceable.
15.
Additional Provisions. This Award Agreement is subject to the provisions of the Plan. Capitalized terms not defined in this Award Agreement are used as defined in the Plan. If the Plan and this Award Agreement are inconsistent, the provisions of the Plan will govern. Interpretations of the Plan and this Award Agreement by the Committee are binding on you and the Company.
16.
Applicable Law. This Award Agreement and the award of Restricted Share Rights evidenced hereby will be governed by, and construed in accordance with the laws of the state of Delaware (without regard to its choice-of-law provisions), except to the extent Federal law would apply.
17.
Imposition of Other Requirements. The Company reserves the right to impose other requirements on your participation in the Plan, on the Award and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with applicable law or facilitate the administration of the Plan and provided the imposition of the term or condition will not result in adverse accounting expense to the Company, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
18.
Electronic Delivery and Acceptance. The Company is electronically delivering documents related to current or future participation in the Plan and is requesting your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through the current plan administrator’s on-line system, or any other on-line system or electronic means that the Company may decide, in its sole discretion, to use in the future.

[Insert requirement to acknowledge and accept grant terms]





Exhibit A
Certain Definitions
[Separation from Service

A Participant’s “Separation from Service” occurs upon his or her death, retirement or other termination of employment or other event that qualifies as a “separation from service” under Internal Revenue Code Section 409A and the applicable regulations thereunder as in effect from time to time. The Company shall determine in each case when a Participant’s Separation from Service has occurred, which determination shall be made in a manner consistent with Treasury Regulation Section 1.409A-1(h). The Company shall determine that a Separation from Service has occurred as of a certain date when the facts and circumstances indicate that the Company (or an Affiliate, if applicable) and the Participant reasonably anticipate that, after that date, the Participant will render no further services, or the Participant’s level of bona fide services (either as an employee or independent contractor) will permanently decrease to a level that is 20% or less than the average level of the Participant’s bona fide services (either as an employee or independent contractor) previously in effect for such Participant over the immediately preceding 36-month period (or the Participant’s entire period of service, if the Participant has been providing services for less than 36 months).

The following presumptions shall also apply to all such determinations:

(1)
Transfers . A Separation from Service has not occurred upon the Participant’s transfer of employment from the Company to an Affiliate or vice versa, or from an Affiliate to another Affiliate.

(2)
Medical leave of absence . Where the Participant has a medical leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and he or she has not returned to employment with the Company or an Affiliate, a Separation from Service has occurred on the earlier of: (A) the first day on which the Participant would not be considered “disabled” under any disability policy of the Company or Affiliate under which the Participant is then receiving a benefit; or (B) the first day on which the Participant’s medical leave of absence period exceeds 29 months.

(3)
Military leave of absence . Where the Participant has a military leave of absence, and he or she has not returned to employment with the Company or an Affiliate, a Separation from Service has occurred on the day next following the last day on which the Participant is entitled to reemployment rights under USERRA.

(4)
Salary continuation leave . A Separation from Service has occurred on the first day of the Participant’s salary continuation leave taken under the Company’s salary continuation leave program.

(5)
Other leaves of absence . In the event that the Participant is on a bona fide leave of absence, not otherwise described in this definition, from which he or she has not returned to employment with the Company or an Affiliate, the Participant’s Separation from Service has occurred on the first day on which the Participant’s leave of absence period exceeds six months or, if earlier, upon the Participant’s termination of employment (provided that such termination of employment constitutes a Separation from Service in accordance with the last sentence of the first paragraph of this definition).

(6)
Asset purchase transaction . If, in connection with the sale or other disposition of substantial assets (such as a division or substantially all assets of a trade or business) of the Company or an Affiliate to an unrelated buyer, the Participant becomes an employee of the buyer or an affiliate of the buyer upon the closing of or in connection with such transaction, a Separation from Service has not occurred if the Company and the buyer have specified that such transaction will not, with respect to any individual affected by such transaction who becomes an employee of the buyer or an affiliate, be considered a “separation from service” under Treasury Regulation Section 1.409A-1(h), and such specification meets the requirements of Treasury Regulation Section 1.409A-1(h)(4).]








[Specified Employee

A “Specified Employee” means:

(1)
Any Participant who is a “key employee” under Internal Revenue Code Section 416(i)(1)(A)(i), (ii) or (iii) (applied in accordance with the regulations thereunder and disregarding Internal Revenue Code Section 416(i)(5)) at any time during the 12-month period ending on the specified employee identification date. For purposes of determining “key employee” status under Internal Revenue Code Section 416(i)(1)(A)(i), except as required under such provision and the regulations thereunder, the term “officer” shall refer to an employee of the Company or an Affiliate with the title Senior Vice President or above, and

(2)
Any participant who served as a member of the Company’s Management Committee at any time during the 12-month period ending on the specified employee identification date.

For purposes of applying Internal Revenue Code section 409A, the “specified employee identification date” is each December 31. Any person described in (1) or (2) above on a specified employee identification date shall be treated as a Specified Employee for the entire 12-month period beginning on the following April 1.

Notwithstanding the above, in the event of a corporate transaction to which the Company or an Affiliate is a party, the Company may, in its discretion, establish a method for determining Specified Employees pursuant to Treasury Regulation Section 1.409A-1(i)(6).]

Disability
You will be considered to have a “Disability” if you are receiving income replacement benefits for a period of not less than three months under the Company’s or an Affiliate’s long-term disability plan as a result of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

Cause
“Cause” means your termination of employment by the Company or an Affiliate arising from or on or after (1) the continued failure by you to substantially perform your duties; (2) your conviction of a crime involving dishonesty or breach of trust, conviction of a felony, or commission of any act that makes you ineligible for coverage under Wells Fargo's fidelity bond or otherwise makes you ineligible for continued employment; or (3) your violation of the Company’s policies, including but not limited to Wells Fargo’s Code of Ethics and Business Conduct, Information Security Policies and Compliance and Risk Management Accountability Policy.

Change in Control
“Change in Control” means a change in the ownership or effective control of the Company or the Affiliate that employs you, or in the ownership of a substantial portion of the assets of the Company or the Affiliate that employs you within the meaning of Treas. Reg. section 1.409A-3(i)(5) as determined by the Company.



End of Form of Restricted Share Rights Award Agreement
For Grants on or after February 24, 2015





Exhibit 10(o)

Amendment to Nonqualified Deferred Compensation Plan for Independent Contractors

RESOLVED that the “WF Deferred Compensation Holdings, Inc. Nonqualified Deferred Compensation Plan for Independent Contractors” (the “Plan”) is amended effective January 1, 2014 to no longer permit Participants to make elections to allocate or reallocate their Accounts among one or more investment options including Common Stock pursuant to Section 6.3 of the Plan.




Exhibit 10(q)  
 
Wells Fargo & Company Non-Employee Director Equity Compensation Program
(Effective January 1, 2015)
Stock Awards
 
•
Award Value :  

◦
Each non-employee director elected at the Company’s annual meeting of stockholders shall automatically be granted, as of the date of such meeting, under the Long-Term Incentive Compensation Plan (LTICP), an award of Company common stock having an award value of $180,000.

◦
A non-employee director who joins the Board effective as of any other date shall automatically be granted, as of such other date, under the LTICP, an award of Company common stock having an award value based on the award value of the immediately preceding annual grant prorated to reflect the number of months (rounded up to the next whole month) remaining until the next annual meeting of stockholders; provided, however, that if the New York Stock Exchange (NYSE) is not open on the day such director joins the Board, the award shall be granted as of the next following day on which the NYSE is open.
 
•
Number of Shares Subject to Award : The number of shares of Company common stock subject to an award shall be determined by dividing the award value by the NYSE-only closing price of Company common stock on the date of grant (rounded up to the nearest whole share).

•
Vesting : The stock awards shall vest in full immediately upon grant.

•
Deferral : Non-employee directors may elect to defer receipt of their stock awards in accordance with the terms and conditions of the Company’s Directors Stock Compensation and Deferral Plan.


221
        


Exhibit 10(s)

Wells Fargo Bank, National Association
Non-Employee Director Compensation Program
(Effective January 1, 2015)

Component
Amount

Annual Cash Retainer, payable quarterly in equal installments

$10,000

Board or Committee Meeting Fee when not held concurrently with or immediately prior to or following a Company Board or committee meeting

$2,000






Exhibit 10(bb)

STATE OF ALABAMA    )
JEFFERSON COUNTY    )



AMENDED AND RESTATED
SOUTHTRUST CORPORATION
ADDITIONAL RETIREMENT BENEFIT PLAN (PENSION)


SOUTHTRUST CORPORATION, a Delaware corporation with its principal place of business in Birmingham, Alabama (hereinafter for convenience referred to as “SouthTrust”) hereby adopts and publishes this Amended and Restated SouthTrust Corporation Additional Retirement Benefit Plan (Pension) for the benefit of a select group of highly compensated or management employees of SouthTrust and other Employing Companies (hereinafter for convenience referred to as “Participants”), to be effective as of the 15th day of July, 1992, as follows:

WITNESSETH :

WHEREAS, SouthTrust has previously established the SouthTrust Corporation Additional Retirement Benefit Plan effective the 1st day of January, 1987 which was amended effective the 1st day of January, 1989; and

WHEREAS, notwithstanding the establishment of a trust, it is intended that the Plan shall remain unfunded for purposes of Title I of ERISA and for tax purposes; and
    
WHEREAS, SouthTrust has previously established the SouthTrust Corporation Additional Benefit Plan; and

WHEREAS, SouthTrust has determined that it is advisable to merge the portion of the SouthTrust Corporation Excess Benefit Plan referred to as Excess Pension Benefits, into the SouthTrust Corporation Additional Retirement Benefit Plan and to rename this Plan as the Amended and Restated SouthTrust Corporation Additional Retirement Benefit Plan (Pension); and

WHEREAS, SouthTrust has established the Trust for the Benefit of Participants in the SouthTrust Corporation Additional Retirement Benefit Plan (Pension) (hereinafter referred to as “Trust”) for the purpose of providing, upon the occurrence of certain events, the benefits prescribed under this Plan; and

WHEREAS, due to the establishment of the Trust, it is appropriate to amend and restate the Plan in its entirety; and
    
WHEREAS, Participants are currently highly compensated or management employees of SouthTrust and other Employing Companies; and

WHEREAS, SouthTrust has determined that the Participants have performed outstanding services for SouthTrust, and as such, shall be entitled to additional retirement benefits according to the terms and provisions set forth in this Plan and the Internal Revenue Code of 1986 as amended.

NOW, THEREFORE, IN CONSIDERATION OF THE ABOVE PREMISES, and the mutual covenants hereinafter set forth, faithfully to be kept by the parties hereto, it is agreed as follows:





1.     DEFINITIONS .    In addition to the definitions listed below, all definitions found in the Retirement Plan which are necessary for the logical interpretation of the terms of this Plan are incorporated herein by reference as if fully set forth herein.

1.1    “Beneficiary” means the individual or entity entitled to be paid the balance of a deceased Participant’s benefits hereunder.

1.2    “Board” means the Board of Directors of SouthTrust.

1.3    “Code” means the Internal Revenue Code of 1986, as amended.

1.4    “Committee” means the Administrative Committee of the Retirement Plan.

1.5    “Effective Date” of the Plan means the 1st day of January, 1987.

1.6    “Employing Company” means any subsidiary or other organization which is a member of an Affiliated Group, as that term is defined in Section 1504 of the Code, with SouthTrust.

1.7    “Participant” means a highly compensated or management employee of SouthTrust who has been notified by the Committee that he is covered under this Plan.

1.8    “Plan” means the Amended and Restated SouthTrust Corporation Additional Retirement Benefit Plan (Pension) established by this document and as may be amended from time to time and executed by SouthTrust, and any related documents executed by the Participant.

1.9    “Plan Year” means the calendar year.

1.10    “Retirement Plan” means the SouthTrust Corporation Retirement Income Plan, as the same may be from time to time amended.

1.11    “SouthTrust” means SouthTrust Corporation, a corporation, organized and exiting under the laws of the State of Delaware, with its principal place of business in Birmingham, Alabama, and any corporate successor thereto, whether by merger, consolidation, liquidation into a parent corporation, or otherwise.

1.12    “Trust” shall mean the Trust for the Benefit of Participants in the SouthTrust Corporation Additional Retirement Plan (Pension) created simultaneously herewith for the benefit of Participants pursuant to the terms of this Plan.

2.     PURPOSE .    The Plan is intended to be unfunded for purposes of Title I of ERISA and for tax purposes and is also intended to provide benefits to the Participants which would have been provided under the Retirement Plan if not for limitations imposed by the Code and the terms of the Retirement Plan, including, but not limited to, the restrictions and limitations on the definition of compensation.

3.     ELIGIBILITY .    Only those highly compensated or management employees of South Trust selected and notified by the Board to participate.

4.     PARTICIPATION . The Board will select those employees, if any, who will participate in the Plan by executing and delivering to the Committee in such form as the Committee shall prescribe, a list of all Participants in the Plan including their participation dates. The Board will notify each Participant in writing of his participation in the Plan and the date he commenced participation in the Plan.

5.     ESTABLISHMENT OF TRUST . SouthTrust or any Employing Company does hereby establish this Trust by making contributions to the Trustee of the Trust which is, at the date of this Amendment and Restatement, Trust Company Bank, a Georgia corporation (Trustee) to satisfy any and all obligations under the Plan.





6.     BENEFITS .

6.1    The types of benefits payable under this Plan shall be the same as those provided under the Retirement Plan.

6.2     Value of Benefits . The benefits payable to the Participant, or his Beneficiary, shall be equal to, as of any date, the excess of (a) over (b) below:

(a)    The Actuarial Equivalent of the Accrued Benefit that the Particpant would have accrued under the Retirement Plan as of such date if

(1)    The Participant’s Earnings for each Plan Year included, in addition to other amounts treated as Earnings under the Retirement Plan, all amounts which would otherwise constitute Earnings but with respect to which an election under the Amended and Restated SouthTrust Corporation Deferred Compensation Plan has been made by the Participant for such Plan Year;

(2)    No limitations were imposed on the amount of Earnings that could be taken into account in determining the Participant’s Accrued Benefit under the terms of the Retirement Plan;

(3)    The limitation imposed by Article VIII of the Retirement Plan were inapplicable; and

(4)    The Chairman of the Board and President of the Company were treated as Eligible Employees under the Retirement Plan with respect to periods after December 31, 1986.

(b)    The Actuarial Equivalent of the Participant’s actual Accrued Benefit determined under the terms of the Retirement Plan at such date.

7.     PAYMENT OF BENEFITS .

Payment of the benefits provided for in Section 6 hereinabove shall be made in the same manner, at the same time, upon occurrence of the same events, and subject to the same conditions as provided under the Retirement Plan. If a participant’s beneficiary (including an eligible spouse) becomes eligible at any time to receive a death benefit which is payable prior to the commencement of a participant’s retirement benefit under the Retirement Plan, the beneficiary shall be entitled to a benefit equal to (A) the amount of the death benefit which the beneficiary is entitled to receive under the Retirement Plan, without regard to any limitations imposed by the code and by the terms of the Retirement Plan, reduced by (B) the amount of the death benefit which the beneficiary is entitled to receive under the terms, provisions and limitations of the Retirement Plan. If a participant, at the date of his death, is receiving payment of benefits provided hereunder, in a form which contemplates that a payment or payments will be made after his death, such participant’s beneficiary (including an eligible spouse) shall be entitled to receive payment of the benefits hereunder if such Participant would be entitled to receive those benefits under the Retirement Plan.

8.     ADMINISTRATION.

8.1     Administrator.     This Plan shall be administered by the Committee.

8.2     Administrator’s Powers and Duties. The Administrator shall have the power and duty to:

(a)    construe and interpret the provisions of the Plan;





(b)    adopt, amend, or revoke rules and regulations for the administration of the Plan, provided they are not inconsistent with the provisions of the Plan;

(c)    provide appropriate parties with such returns, reports, descriptions and statements as may be required by law, within the times prescribed by the law and to make them available for examination by Participants and their Beneficiaries when required by law;

(d)    take such other action as may reasonably be required to administer the Plan in accordance with its terms or as may be provided for or required by law;

(e)    withhold applicable taxes and file with the Internal Revenue Service appropriate information returns, with respect to distributions made from the Plan; and

(f)    appoint and retain such persons as may be necessary to carry out the functions of the Administrator.

(g)    Upon the occurrence of a Change In Control, the Committee shall delegate and the Trustee shall accept any and all administrative duties created by this Agreement.

9.     MISCELLANEOUS.

9.1     Amendment or Termination of Plan . This Plan may not be modified or amended in whole or in part, except as amendments may be required as a result of applicable amendments made to the Retirement Plan. This Plan may not be terminated except to the extent that the Retirement Plan is terminated. In addition, no amendment or modification to the Plan shall reduce or impair the Participant’s or Beneficiary’s accrued benefits or optional forms of benefits which are attributable to services performed prior to the amendment. In the event the Plan is terminated prior to a Participant’s Normal Retirement Age, as defined in the Retirement Plan, the benefit payable to or with respect to the Participant hereunder shall be limited to the actuarial equivalent of the Participant’s benefit hereunder, determined as of the date of payment of such benefit is made.    

9.2     Reversion of Additional Assets . In the event there are assets (Additional Assets) remaining in the Trust after all obligations to all Participants and Beneficiaries have been satisfied and after this Plan has been terminated, such Additional Assets shall revert to SouthTrust.

9.3     Unsecured Promise .    SouthTrust, each Participant and each Employing Company acknowledge that this Agreement shall create only an unsecured promise by SouthTrust to Participants to pay the benefits provided herein. Until the occurrence of a distribution event, at which point Participant shall be entitled to receive all amounts as provided hereunder, all such amounts shall remain solely the property of SouthTrust, subject only to the claims of its general creditors.

9.4     Assignment of Rights to Benefits . A Participant’s rights to benefit payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge encumbrance, attachment or garnishment by the Participant, by creditors of the Participant or the Participant’s beneficiary.

9.5     Unfunded Plan .    It is the intention of SouthTrust, each Participating Employer and each Participant that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA.

9.6     Right to Employment .    This Agreement shall not be construed as giving the Participant any right to continued employment with SouthTrust.

9.7     Adoption By Employing Companies . Any Employing Company other than SouthTrust may adopt the Plan by executing and delivering to SouthTrust a written instrument provided for such Adoption.    





9.8     Binding Nature of the Plan . The Plan shall be binding upon and inure to the benefit of SouthTrust, its successors and assigns, the Participant and Beneficiaries and their heirs and legal representatives.

9.9     Written Notice . Any notice or other communication required or permitted under the Plan shall be in writing. If directed to SouthTrust, the notice or communication shall be sent to the Committee and the Trustee. If directed to the Participant, it shall be sent to such Participant at the last known address as it appears on SouthTrust’s records or at the work site, at SouthTrust’s option. If directed to a Beneficiary or Eligible Spouse, it shall be sent to such Beneficiary or Eligible Spouse at the last know address as it appears on SouthTrust’s records.





ADOPTION AGREEMENT
with respect to the
SOUTHTRUST CORPORATION
ADDITIONAL RETIREMENT BENEFIT PLAN


Pursuant to the provisions of Section 5 of the SouthTrust Corporation Additional Retirement Benefit Plan, as amended (“the Plan”), SouthTrust Bank of Alabama, National Association, hereby adopts the Plan, effective as of January 1, 1989.

IN WITNESS WHEREOF, SouthTrust Bank of Alabama, National Association, has caused this instrument to be executed and its seal to be hereunto affixed and attested by its duly authorized officer on this 18th day of January, 1990.

SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION



By: /s/ Julian W. Banton            

Its: President                    


ATTEST:



/s/ Doris B. Kilgore    
Its Cashier

[CORPORATE SEAL]


    





STATE OF ALABAMA    

JEFFERSON COUNTY        



ADDENDUM TO
SOUTHTRUST CORPORATION
ADDITIONAL RETIREMENT BENEFIT PLAN (PENSION)


SOUTHTRUST CORPORATION, a Corporation organized and existing under the laws of the State of Delaware (hereinafter called the “Employer”), hereby publishes on this the 20th day of April, 1994 this Addendum to the SouthTrust Corporation Additional Retirement Benefit Plan, as follows:

WITNESSETH :

WHEREAS, Employer, effective on January 1, 1987, established an Additional Retirement Benefit Plan and Trust; and

WHEREAS, the Internal Revenue Service has recently taken the position in a private letter ruling that all employers which participate in nonqualified deferred compensation plans are grantors under the plan and accompanying trust; and
    
WHEREAS, it is the desire of SouthTrust Corporation that the Plan and Trust conform to the Internal Revenue Service position.

NOW, THEREFORE, in consideration of the premises hereinabove set forth, Employer hereby clarifies the Plan, by addendum, as follows:

FIRST. Section 9.3 of said Plan shall be amended to read as follows:

9.3     Unsecured Promise . SouthTrust, each Employing Company and each Participant acknowledges that this Agreement shall create only an unsecured promise by SouthTrust and each Employing Company to Participants to pay the benefits provided herein. Until the occurrence of a distribution event, at which point Participant shall be entitled to receive all amounts as provided hereunder, all such amounts shall remain solely the property of SouthTrust and each Employing Company with respect to the assets contributed on behalf of its employees) subject only to the claims of the general creditors of the Employer and each Employing Company.

SECOND: This Addendum shall be effective as of the date first entered above.

THIRD: In all other respects, said Plan is hereby ratified, confirmed and approved.

    





The Employer has caused this Addendum to be executed by its duly authorized officer and duly attested, and its corporate seal to be hereunto affixed on the day and year first above written.


SOUTHTRUST CORPORATION
                    

By: /s/ Wallace D. Malone, Jr.            
Wallace D. Malone,
Chairman and Chief Executive Officer

(EMPLOYER)

ATTEST


/s/ Aubrey D. Barnard    
Aubrey D. Barnard,
Secretary

[CORPORATE SEAL]






AMENDMENT 2008-1 TO THE
AMENDED AND RESTATED
SOUTHTRUST CORPORATION
ADDITIONAL RETIREMENT BENEFIT PLAN (PENSION)


THIS AMENDMENT, dated as of December 29, 2008, hereby amends the Amended and Restated SouthTrust Corporation Additional Retirement Benefit Plan (Pension) (the “Plan”).

RECITALS

WHEREAS, SouthTrust Corporation (“SouthTrust”) previously adopted the Plan for the benefit of a select group of highly compensated or management employees of SouthTrust and other employing companies affiliated with SouthTrust (collectively referred to as “Participants”), effective as of July 15, 1992 and amended effective as of April 20, 1994.

WHEREAS, Wachovia Corporation (“Wachovia”) and SouthTrust merged, effective November 1, 2004, and Wachovia currently sponsors the Plan for the benefit of the Participants
    
WHEREAS, Wachovia desires to amend the Plan to bring it into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), by modifying the distribution provisions and adding a special distribution election for amounts subject to Section 409A of the Code.

1. A new Section 7A is hereby added after Section 7 to read as follows:

“7A.     PAYMENT OF NON-GRANDFATHERED BENEFITS .

7A.1    Notwithstanding anything in the Plan to the contrary, prior to December 31, 2008, a Participant who will not have begun receiving distributions of his Non-Grandfathered Benefits (as defined below) calculated pursuant to Section 6 of this Plan (the “Non-Grandfathered Retirement Benefit”) prior to January 1, 2009 and who is entitled to a Non-Grandfathered Retirement Benefit, may make an election with respect to the form of payment by filing an election form in the form prescribed by the Committee (the “Distribution Election”). The Participant may choose from a form of annuity available under the Retirement Plan or a lump sum. If a Participant selects an annuity, the Participant will be permitted to choose his annuity option at the time payment of his Non-Grandfathered Retirement Benefit commences. If a Participant chooses a lump sum, his Non-Grandfathered Retirement Benefit will be the actuarially equivalent lump sum of the Non-Grandfathered Retirement Benefit. For purposes of this Plan, “Non-Grandfathered Benefits” shall mean a Participant’s benefits hereunder that were not earned and vested for purposes of Section 409A of the Code on or before December 31, 2004.

7A.2    If a Participant does not elect an annuity on his Distribution Election, then the Participant’s Non-Grandfathered Retirement Benefit shall be paid in a lump sum.    

7A.3    If a Participant is not currently employed by SouthTrust (i) at the time he makes his Distribution Election, or (ii) as of December 31, 2008 in the event the Participant does not make a Distribution Election, then the Participant’s Non-Grandfathered Retirement Benefit will be distributed or commenced distribution, as applicable, on the first day of the month coincident with or next following the Participant’s 65th birthday.

7A.4    Notwithstanding anything to the contrary herein, a Participant shall not be permitted in Plan Year 2008 to (a) change payment elections in a manner that will defer




distribution of amounts that the Participant otherwise would have received in 2008 or (b) accelerate payments that would otherwise be made at a later date into 2008

7A.5    Notwithstanding anything to the contrary herein, if a Participant’s Beneficiary (including an eligible spouse) becomes eligible at any time to receive a death benefit which is payable prior to the commencement of the Participant’s retirement benefit under the Retirement Plan, the Participant’s Beneficiary shall be entitled to a death benefit under this Plan equal to (A) the amount of the death benefit which the Beneficiary is entitled to receive under the Retirement Plan, reduced by (B) the amount of the death benefit which the Beneficiary is entitled to receive under the terms, provision and limitations of the Retirement Plan. If a Participant, at the date of his death, is receiving payment of the Non-Grandfathered Retirement Benefit provided hereunder in a form which contemplates that a payment or payments will be made after his death, such Participant’s Beneficiary shall be entitled to receive payment of the Non-Grandfathered Retirement Benefit if such Participant would be entitled to receive those death benefits under the Retirement Plan. The death benefit payable to a Participant’s Beneficiary as described above in this Section 7A.5, shall be paid to the Participant’s Beneficiary in the actuarially equivalent lump sum of the death benefit within 60 days following Participant’s death.

7A.6    Distribution of the Non-Grandfathered Retirement Benefit pursuant to the Participant’s Distribution Election and this Section 7A shall supersede and replace any and all prior agreements with respect to distribution of the Non-Grandfathered Retirement Benefit entered into by the Participant and SouthTrust.”    

2. A new Section 9.10 is hereby added to read as follows:

“9.10     Compliance with Section 409A of the Code . The Plan is intended to comply with the requirements of Section 409A of the Code, and shall in all respects be administered in accordance with Section 409A of the Code. Notwithstanding anything in the Plan to the contrary, distributions of Non-Grandfathered Benefits may only be made under the Plan upon an event and in a manner permitted by Section 409A of the Code, including the requirement that Specified Employees, may not receive distributions of Non-Grandfathered Benefits prior to the end of the six-month period following a Separation from Service. If a payment of Non-Grandfathered Benefits is not made by the designated payment date under the Plan, the payment shall be made by December 31 of the calendar year in which the designated date occurs. To the extent that any provision of the Plan would cause a conflict with the requirements of Section 409A of the Code, or would cause the administration of the Plan to fail to satisfy the requirements of Section 409A of the Code, such provision shall be deemed null and void to the extent permitted by applicable law. Other than the special Distribution Election made before December 31, 2008 pursuant to Section 7A above, in no event may a Participant designate the year of a distribution of his Non-Grandfathered Benefits.”

3. This Amendment shall be effective as of the date first written above.

4. Nothing in this Amendment shall, or is intended to, constitute a “material modification” so as to subject amounts that were earned and vested as of December 31, 2004 to the provisions of Section 409A of the Code.

5. In all respects not modified herein, the Plan is hereby ratified, confirmed and approved.


[Signature Page Follows]




IN WITNESS WHEREOF, the parties set forth below have caused this instrument to be executed on the date first written above.



WACHOVIA CORPORATION
                    


By: /s/ Chuck Loring                
Chuck Loring
    
Title: Senior Vice President            

                            

PARTICIPANT



/s/ Elizabeth A. Duke                
Elizabeth Duke

    






EXHIBIT 12(a)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
 
 
 
 
 
 
 
 
  
  
 
  Year ended December 31,
 
($ in millions)
 
2014

 
2013

 
2012

 
2011

 
2010

Earnings including interest on deposits   (1):
 
  
 
  
 
  
 
  
 
  
  
Income before income tax expense
 
$
33,915

 
32,629

 
28,471

 
23,656

 
19,001

  
Less: Net income from noncontrolling interests
 
551

 
346

 
471

 
342

 
301

  
Income before income tax expense and after noncontrolling interests
 
33,364

 
32,283

 
28,000

 
23,314

 
18,700

  
Fixed charges
 
4,415

 
4,673

 
5,511

 
7,013

 
8,463

  
  
 
$
37,779

 
36,956

 
33,511

 
30,327

 
27,163

 
 
 
 
 
 
 
 
 
 
 
 
Fixed charges (1):
 
  

 
  

 
  

 
  

 
  

  
Interest expense
 
$
4,025

 
4,289

 
5,161

 
6,649

 
8,039

  
Estimated interest component of net rental expense
 
390

 
384

 
350

 
364

 
424

  
  
 
$
4,415

 
4,673

 
5,511

 
7,013

 
8,463

 
 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges (2)
 
8.56

 
7.91

 
6.08

 
4.32

 
3.21

 
 
 
 
 
 
 
 
 
 
 
Earnings excluding interest on deposits:
 
  

 
  

 
  

 
  

 
  

  
Income before income tax expense and after noncontrolling interests
 
$
33,364

 
32,283

 
28,000

 
23,314

 
18,700

  
Fixed charges
 
3,319

 
3,336

 
3,784

 
4,738

 
5,631

  
  
 
$
36,683

 
35,619

 
31,784

 
28,052

 
24,331

 
 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
  

 
  

 
  

 
  

 
  

  
Interest expense
 
$
4,025

 
4,289

 
5,161

 
6,649

 
8,039

  
Less: Interest on deposits
 
1,096

 
1,337

 
1,727

 
2,275

 
2,832

  
Estimated interest component of net rental expense
 
390

 
384

 
350

 
364

 
424

  
  
 
$
3,319

 
3,336

 
3,784

 
4,738

 
5,631

 
 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges (2)
 
11.05

 
10.68

 
8.40

 
5.92

 
4.32

 
 

(1)
As defined in Item 503(d) of Regulation S-K.
(2)
These computations are included herein in compliance with Securities and Exchange Commission regulations.  However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there was no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there was no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates.





 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 12(b)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
 
 
 
 
  
  
 
Year ended December 31,
 
(in millions)
 
2014

 
2013

 
2012

 
2011

 
2010

Earnings including interest on deposits   (1): 
 
  
 
  
 
  
 
  
 
  
  
Income before income tax expense
 
$
33,915

 
32,629

 
28,471

 
23,656

 
19,001

  
Less: Net income from noncontrolling interests
 
551

 
346

 
471

 
342

 
301

  
Income before income tax expense and after noncontrolling interests
 
33,364

 
32,283

 
28,000

 
23,314

 
18,700

  
Fixed charges
 
4,415

 
4,673

 
5,511

 
7,013

 
8,463

  
  
 
$
37,779

 
36,956

 
33,511

 
30,327

 
27,163

 
 
 
 
 
 
 
 
 
 
 
 
Preferred dividend requirement
 
1,235

 
1,017

 
898

 
844

 
730

Tax factor (based on effective tax rate)    
 
1.30

 
1.48

 
1.48

 
1.47

 
1.51

 
 
 
 
 
 
 
 
 
 
 
Preferred dividends (2)
 
$
1,611

 
1,501

 
1,331

 
1,240

 
1,104

Fixed charges (1):
 
  

 
  

 
  

 
  

 
  

  
Interest expense
 
$
4,025

 
4,289

 
5,161

 
6,649

 
8,039

  
Estimated interest component of net rental expense
 
390

 
384

 
350

 
364

 
424

  
  
 
4,415

 
4,673

 
5,511

 
7,013

 
8,463

  
Fixed charges and preferred dividends
 
$
6,026

 
6,174

 
6,842

 
8,253

 
9,567

 
 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges and preferred dividends (3)
 
6.27

 
5.99

 
4.90

 
3.67

 
2.84

 
 
 
 
 
 
 
 
 
 
 
Earnings excluding interest on deposits:
 
  

 
  

 
  

 
  

 
  

  
Income before income tax expense and after noncontrolling interests
 
$
33,364

 
32,283

 
28,000

 
23,314

 
18,700

  
Fixed charges
 
3,319

 
3,336

 
3,784

 
4,738

 
5,631

  
  
 
$
36,683

 
35,619

 
31,784

 
28,052

 
24,331

 
 
 
 
 
 
 
 
 
 
 
 
Preferred dividends (2)
 
1,611

 
1,501

 
1,331

 
1,240

 
1,104

Fixed charges:
 
  

 
  

 
  

 
  

 
  

  
Interest expense
 
$
4,025

 
4,289

 
5,161

 
6,649

 
8,039

  
Less: Interest on deposits
 
1,096

 
1,337

 
1,727

 
2,275

 
2,832

  
Estimated interest component of net rental expense
 
390

 
384

 
350

 
364

 
424

  
  
 
3,319

 
3,336

 
3,784

 
4,738

 
5,631

  
Fixed charges and preferred dividends
 
$
4,930

 
4,837

 
5,115

 
5,978

 
6,735

 
 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges and preferred dividends (3)
 
7.44

 
7.36

 
6.21

 
4.69

 
3.61

 
 
 
 
 
 
 
 
 
 
 
 

(1)
As defined in Item 503(d) of Regulation S-K.
(2)
The preferred dividends, including accretion, were increased to amounts representing the pretax earnings that would be required to cover such dividend and accretion requirements.
(3)
These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there was no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there was no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates.


263





                                                                                                                                                                                                                                                        
 
 
 
 
Financial Review
 
 
 
 
 
 
 
 
 
Overview
 
 
3

 
Cash, Loan and Dividend Restrictions
 
 
 
Earnings Performance
 
 
4

 
Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments
 
 
 
Balance Sheet Analysis
 
 
5

 
Investment Securities
 
 
 
Off-Balance Sheet Arrangements
 
 
6

 
Loans and Allowance for Credit Losses
 
 
 
Risk Management
 
 
7

 
Premises, Equipment, Lease Commitments and Other Assets
 
 
 
Capital Management
 
 
8

 
Securitizations and Variable Interest Entities
 
 
 
Regulatory Reform
 
 
9

 
Mortgage Banking Activities
 
 
 
Critical Accounting Policies
 
 
10

 
Intangible Assets
 
 
 
Current Accounting Developments
 
 
11

 
Deposits
 
 
 
Forward-Looking Statements
 
 
12

 
Short-Term Borrowings
 
 
 
Risk Factors
 
 
13

 
Long-Term Debt
 
 
 
 
 
 
 
14

 
Guarantees, Pledged Assets and Collateral
 
 
 
 
Controls and Procedures
 
 
15

 
Legal Actions
 
 
 
Disclosure Controls and Procedures
 
 
16

 
Derivatives
 
 
 
Internal Control Over Financial Reporting
 
 
17

 
Fair Values of Assets and Liabilities
 
 
 
Management's Report on Internal Control over Financial Reporting
 
 
18

 
Preferred Stock
 
 
 
Report of Independent Registered Public Accounting Firm
 
 
19

 
Common Stock and Stock Plans
 
 
 
 
 
 
 
20

 
Employee Benefits and Other Expenses
 
 
 
 
Financial Statements
 
 
21

 
Income Taxes
 
 
 
Consolidated Statement of Income
 
 
22

 
Earnings Per Common Share
 
 
 
Consolidated Statement of Comprehensive Income
 
 
23

 
Other Comprehensive Income
 
 
 
Consolidated Balance Sheet
 
 
24

 
Operating Segments
 
 
 
Consolidated Statement of Changes in Equity
 
 
25

 
Parent-Only Financial Statements
 
 
 
Consolidated Statement of Cash Flows
 
 
26

 
Regulatory and Agency Capital Requirements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Financial Statements
 
 
 
 
Report of Independent Registered Public Accounting Firm
 
1

 
Summary of Significant Accounting Policies
 
 
 
 
Quarterly Financial Data
 
2

 
Business Combinations
 
 
 
 
Glossary of Acronyms


29

This Annual 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” and “Risk Factors” sections, and in the “Regulation and Supervision” section 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. When we refer to “legacy Wells Fargo,” we mean Wells Fargo excluding Wachovia Corporation (Wachovia). See the Glossary of Acronyms for terms used throughout this Report.
 
Financial Review 1  

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 more than 8,700 locations, 12,500 ATMs, the internet (wellsfargo.com) and mobile banking, and we have offices in 36 countries to support our customers who conduct business in the global economy. With approximately 265,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 29 on Fortune’s  2014 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 December 31, 2014. 
We use our Vision and Values to guide us toward growth and success. Our vision is to satisfy all our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. 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

_________________________
1 Financial information for certain periods prior to 2014 was revised to reflect our determination that certain factoring arrangements did not qualify as loans. See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report for more information.
 
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
We completed another outstanding year of financial results in 2014 and remained America’s most profitable bank. We generated record earnings, produced strong loan and deposit growth, grew the number of customers we serve, improved credit quality, enhanced our strong risk management practices, strengthened our capital and liquidity levels and rewarded our shareholders by increasing our dividend and buying back more shares. Wells Fargo net income was $23.1 billion in 2014, an increase of 5% compared with 2013, with record diluted earnings per share (EPS) of $4.10, also up 5% from the prior year. Our achievements during 2014 demonstrated the benefit of our diversified business model and our continued focus on the real economy. 
Noteworthy items included: 
•
revenue of $84.3 billion, up 1% from 2013;
•
pre-tax pre-provision profit (PTPP) of $35.3 billion, up 1%;
•
our loans increased $40.3 billion, up 5%, even with the planned runoff in our non-strategic/liquidating portfolios, and our core loan portfolio grew by $60.3 billion, up 8%;
•
our deposit franchise continued to generate strong customer deposit growth, with total deposits up $89.1 billion, or 8%;
•
our credit performance continued to be strong with total net charge-offs down $1.6 billion, or 35%, from a year ago and our net charge-off ratio declined to 35 basis points of average loans;
•
we continued to maintain solid customer relationships across the Company, with retail banking household cross-sell of 6.17 products per household (November 2014); Wholesale Banking cross-sell of 7.2 products per relationship (September 2014); and Wealth, Brokerage and Retirement cross-sell of 10.49 products per retail banking household (November 2014);
•
we maintained strong capital levels as our estimated Common Equity Tier I ratio under Basel III (Advanced Approach, fully phased-in) was 10.43%; and
•
our common stock price increased 21% and we returned $12.5 billion in capital to our shareholders through an increased common stock dividend and additional net share repurchases (up 74% from 2013).


30

Balance Sheet and Liquidity
Our balance sheet grew 11% in 2014 to $1.7 trillion, as we increased our liquidity position, improved the quality of our assets and held more capital. We grew deposits by 8% in 2014 while reducing our deposit costs. We also grew our loans on a year-over-year basis for the 14th consecutive quarter (for the past 11 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 $20.1 billion during the year (now less than 8% of total loans) and our core loan portfolios increased $60.3 billion from the prior year. Our federal funds sold, securities purchased under resale agreements and other short-term investments (collectively referred to as federal funds sold and other short-term investments elsewhere in this Report) increased by $44.6 billion, or 21%, during the year on continued strong growth in interest-earning deposits, and we grew our investment securities portfolio by $48.6 billion in 2014. While we believe our liquidity position continued to remain strong with increased regulatory expectations, we have added to our position over the past year. We issued $24.0 billion of liquidity-related long-term debt as well as additional liquidity-related short-term funding in 2014.
Deposit growth remained strong with period-end deposits up $89.1 billion from 2013. This increase reflected solid growth across both our commercial and consumer businesses. We grew our primary consumer checking customers by 5.2% and primary small business and business banking checking customers by 5.4% from a year ago (November 2014 compared with November 2013). Our ability to grow primary customers is important to our results because these customers have more interactions with us, have higher cross-sell and are more than twice as profitable as non-primary customers.
 
Credit Quality
Credit quality continued to improve in 2014, with solid performance in several of our commercial and consumer loan portfolios as losses remained near historically low levels, reflecting our long-term risk focus and the benefit from the improving housing market. Net charge-offs of $2.9 billion were 0.35% of average loans, down 21 basis points from a year ago. Net losses in our commercial portfolio were only $44 million, or 1 basis point of average loans. Net consumer losses declined to 65 basis points in 2014 from 98 basis points in 2013. Our commercial real estate portfolios were in a net recovery position for each quarter of 2014 and 2013, reflecting our conservative risk discipline and improved market conditions. Losses on our consumer real estate portfolios declined $1.4 billion, or 55%,
 
from a year ago. The consumer loss levels reflected the benefit of the improving economy and our continued focus on originating high quality loans. Approximately 60% of the consumer first mortgage portfolio was originated after 2008, when new underwriting standards were implemented.
Reflecting these improvements in our loan portfolios, our provision for credit losses in 2014 was $1.4 billion compared with $2.3 billion a year ago. This provision reflected a release of $1.6 billion from the allowance for credit losses, compared with a release of $2.2 billion 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, nonperforming assets (NPAs) also improved and were down $4.1 billion, or 21%, from 2013. Nonaccrual loans declined $2.8 billion from the prior year while foreclosed assets were down $1.3 billion from 2013.

Capital
We continued to strengthen our capital levels in 2014 even as we returned more capital to our shareholders, increasing total equity to $185.3 billion at December 31, 2014, up $14.3 billion from the prior year. In 2014, our common shares outstanding declined by 86.8 million shares as we continued to reduce our common share count through the repurchase of 183.1 million common shares during the year. Also, we entered into a $750 million forward repurchase contract with an unrelated third party in October 2014 that settled in January 2015 for 14.3 million shares. In addition, we entered into another $750 million forward repurchase contract with an unrelated third party in January 2015 that is expected to settle in second quarter 2015 for approximately 14.3 million shares. We expect our share count to continue to decline in 2015 as a result of anticipated net share repurchases.
We believe an important measure of our capital strength is the estimated Common Equity Tier 1 ratio under Basel III, using the Advanced Approach, fully phased-in, which increased to 10.43% in 2014 from 9.76% a year ago.
Our regulatory capital ratios under Basel III (General Approach) remained strong with a total risk-based capital ratio of 15.53%, Tier 1 risk-based capital ratio of 12.45% and Tier 1 leverage ratio of 9.45% at December 31, 2014, compared with 15.43%, 12.33% and 9.60%, respectively, at December 31, 2013. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of common equity for regulatory purposes.




31

Overview (continued)

Table 1: Six-Year Summary of Selected Financial Data
(in millions, except per share amounts)
2014

 
2013

 
2012

 
2011

 
2010

 
2009

 
%
Change
2014/
2013

 
Five-year
compound
growth
rate 

Income statement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
43,527

 
42,800

 
43,230

 
42,763

 
44,757

 
46,324

 
2
 %
 
(1
)
Noninterest income
40,820

 
40,980

 
42,856

 
38,185

 
40,453

 
42,362

 
—

 
(1
)
Revenue
84,347

 
83,780


86,086


80,948


85,210


88,686

 
1

 
(1
)
Provision for credit losses
1,395

 
2,309

 
7,217

 
7,899

 
15,753

 
21,668

 
(40
)
 
(42
)
Noninterest expense
49,037

 
48,842

 
50,398

 
49,393

 
50,456

 
49,020

 
—

 
—

Net income before noncontrolling interests
23,608

 
22,224

 
19,368

 
16,211

 
12,663

 
12,667

 
6

 
13

Less: Net income from noncontrolling interests
551

 
346

 
471

 
342

 
301

 
392

 
59

 
7

Wells Fargo net income
23,057

 
21,878


18,897


15,869


12,362


12,275

 
5

 
13

Earnings per common share
4.17

 
3.95

 
3.40

 
2.85

 
2.23

 
1.76

 
6

 
19

Diluted earnings per common share
4.10

 
3.89

 
3.36

 
2.82

 
2.21

 
1.75

 
5

 
19

Dividends declared per common share
1.35

 
1.15

 
0.88

 
0.48

 
0.20

 
0.49

 
17

 
22

Balance sheet  (at year end)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities
$
312,925

 
264,353

 
235,199

 
222,613

 
172,654

 
172,710

 
18
 %
 
13

Loans
862,551

 
822,286

 
798,351

 
769,631

 
757,267

 
782,770

 
5

 
2

Allowance for loan losses
12,319

 
14,502

 
17,060

 
19,372

 
23,022

 
24,516

 
(15
)
 
(13
)
Goodwill
25,705

 
25,637

 
25,637

 
25,115

 
24,770

 
24,812

 
—

 
1

Assets
1,687,155

 
1,523,502

 
1,421,746

 
1,313,867

 
1,258,128

 
1,243,646

 
11

 
6

Core deposits (1)
1,054,348

 
980,063

 
945,749

 
872,629

 
798,192

 
780,737

 
8

 
6

Long-term debt
183,943

 
152,998

 
127,379

 
125,354

 
156,983

 
203,861

 
20

 
(2
)
Wells Fargo stockholders' equity
184,394

 
170,142

 
157,554

 
140,241

 
126,408

 
111,786

 
8

 
11

Noncontrolling interests
868

 
866

 
1,357

 
1,446

 
1,481

 
2,573

 
—

 
(20
)
Total equity
185,262

 
171,008

 
158,911

 
141,687

 
127,889

 
114,359

 
8

 
10


(1)
Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).

32

Table 2:  Ratios and Per Common Share Data
 
Year ended December 31, 
 
 
2014

 
2013

 
2012

Profitability ratios
 
 
 
 
 
Wells Fargo net income to average assets (ROA)
1.45
%
 
1.51

 
1.41

Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)
13.41

 
13.87

 
12.95

Efficiency ratio  (1)
58.1

 
58.3

 
58.5

Capital ratios
 
 
 
 
 
At year end:
 
 
 
 
 
Wells Fargo common stockholders' equity to assets
9.86

 
10.17

 
10.24

Total equity to assets
10.98

 
11.22

 
11.18

Risk-based capital (2)
 
 
 
 
 
Tier 1 capital
12.45

 
12.33

 
11.75

Total capital
15.53

 
15.43

 
14.63

Tier 1 leverage (2)
9.45

 
9.60

 
9.47

Common Equity Tier 1 (3)
11.04

 
10.82

 
10.12

Average balances:
 
 
 
 
 
Average Wells Fargo common stockholders' equity to average assets
10.22

 
10.41

 
10.36

Average total equity to average assets
11.32

 
11.41

 
11.27

Per common share data
 
 
 
 
 
Dividend payout (4)
32.9

 
29.6

 
26.2

Book value
$
32.19

 
29.48

 
27.64

Market price (5)
 
 
 
 
 
High
55.95

 
45.64

 
36.60

Low
44.17

 
34.43

 
27.94

Year end
54.82

 
45.40

 
34.18


(1)
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(2)
See Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
(3)
See the "Capital Management" section in this Report for additional information.
(4)
Dividends declared per common share as a percentage of diluted earnings per common share.
(5)
Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System.


33

Earnings Performance
Wells Fargo net income for 2014 was $23.1 billion ( $4.10 diluted earnings per common share), compared with $21.9 billion ( $3.89 diluted per share) for 2013 and $18.9 billion ( $3.36  diluted per share) for 2012 . Our 2014 earnings reflected strong execution of our business strategy as well as growth in many of our businesses. Our financial performance in 2014 benefited from a $914 million reduction in our provision for credit losses, reflecting strong underlying credit performance. We also generated diversified sources of fee income across many of our businesses and grew loans and deposits.
Revenue, the sum of net interest income and noninterest income, was $84.3 billion in 2014 , compared with $83.8 billion in 2013 and $86.1 billion in 2012 . The increase in revenue for 2014 compared with 2013 was predominantly due to an increase in net interest income, reflecting increases in income from trading assets and investment securities. Our diversified sources of revenue generated by our businesses continued to be balanced between net interest income and noninterest income. In 2014 , net interest income of $43.5 billion represented 52% of revenue, compared with $42.8 billion ( 51% ) in 2013 and $43.2 billion ( 50% ) in 2012 .
 
Noninterest income was $40.8 billion in 2014 , representing 48% of revenue, compared with $41.0 billion ( 49% ) in 2013 and $42.9 billion ( 50% ) in 2012 . The decrease in 2014 was driven predominantly by a 27% decline in mortgage banking income due to decreased net gains on mortgage loan origination/sales activities, partially offset by higher trust and investment fee income. Mortgage loan originations were $175 billion in 2014 , down from $351 billion a year ago.
Noninterest expense was $49.0 billion in 2014 , compared with $48.8 billion in 2013 and $50.4 billion in 2012 . The increase in noninterest expense in 2014 , compared with 2013 , reflected higher salaries expense and other expenses, including operating losses and outside professional services. Noninterest expense as a percentage of revenue (efficiency ratio) was 58.1% in 2014 , 58.3% in 2013 and 58.5% in 2012 , reflecting our expense management efforts.
Table 3 presents the components of revenue and noninterest expense as a percentage of revenue for year-over-year results.


34

Table 3:  Net Interest Income, Noninterest Income and Noninterest Expense as a Percentage of Revenue
 
Year ended December 31, 
 
(in millions)
2014

 
% of revenue 

 
2013

 
% of revenue 

 
2012

 
% of revenue 

Interest income
 
 
 
 
 
 
 
 
 
 
 
Trading assets
$
1,712

 
2
 %
 
$
1,406

 
2
 %
 
$
1,380

 
2
 %
Investment securities
9,253

 
11

 
8,841

 
11

 
8,757

 
10

Mortgages held for sale (MHFS)
767

 
1

 
1,290

 
2

 
1,825

 
2

Loans held for sale (LHFS)
78

 
—

 
13

 
—

 
41

 
—

Loans
35,715

 
42

 
35,618

 
43

 
36,517

 
42

Other interest income
932

 
1

 
724

 
1

 
587

 
1

Total interest income
48,457

 
57

 
47,892

 
57

 
49,107

 
57

Interest expense
 
 
 
 
 
 
 
 
 
 
 
Deposits
1,096

 
1

 
1,337

 
2

 
1,727

 
2

Short-term borrowings
62

 
—

 
71

 
—

 
94

 
—

Long-term debt
2,488

 
3

 
2,585

 
3

 
3,110

 
4

Other interest expense
382

 
—

 
307

 
—

 
245

 
—

Total interest expense
4,028

 
4

 
4,300

 
5

 
5,176

 
6

Net interest income (on a taxable-equivalent basis)
44,429

 
53

 
43,592

 
52

 
43,931

 
51

Taxable-equivalent adjustment
(902
)
 
(1
)
 
(792
)
 
(1
)
 
(701
)
 
(1
)
Net interest income  (A) 
43,527

 
52

 
42,800

 
51

 
43,230

 
50

Noninterest income
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
5,050

 
6

 
5,023

 
6

 
4,683

 
5

Trust and investment fees (1)
14,280

 
17

 
13,430

 
16

 
11,890

 
14

Card fees
3,431

 
4

 
3,191

 
4

 
2,838

 
3

Other fees (1)
4,349

 
5

 
4,340

 
5

 
4,519

 
5

Mortgage banking (1)
6,381

 
8

 
8,774

 
10

 
11,638

 
14

Insurance
1,655

 
2

 
1,814

 
2

 
1,850

 
2

Net gains from trading activities
1,161

 
1

 
1,623

 
2

 
1,707

 
2

Net gains (losses) on debt securities
593

 
1

 
(29
)
 
—

 
(128
)
 
—

Net gains from equity investments
2,380

 
3

 
1,472

 
2

 
1,485

 
2

Lease income
526

 
1

 
663

 
1

 
567

 
1

Other
1,014

 
1

 
679

 
1

 
1,807

 
2

Total noninterest income (B)
40,820

 
48

 
40,980

 
49

 
42,856

 
50

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Salaries
15,375

 
18

 
15,152

 
18

 
14,689

 
17

Commission and incentive compensation
9,970

 
12

 
9,951

 
12

 
9,504

 
11

Employee benefits
4,597

 
5

 
5,033

 
6

 
4,611

 
5

Equipment
1,973

 
2

 
1,984

 
2

 
2,068

 
2

Net occupancy
2,925

 
3

 
2,895

 
3

 
2,857

 
3

Core deposit and other intangibles
1,370

 
2

 
1,504

 
2

 
1,674

 
2

FDIC and other deposit assessments
928

 
1

 
961

 
1

 
1,356

 
2

Other (2)
11,899

 
14

 
11,362

 
14

 
13,639

 
16

Total noninterest expense
49,037

 
58

 
48,842

 
58

 
50,398

 
59

Revenue (A) + (B)
$
84,347

 
 
 
$
83,780

 
 
 
$
86,086

 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
See Table 7 – Noninterest Income in this Report for additional detail.
(2)
See Table 8 – Noninterest Expense in this Report for additional detail.


35

Earnings Performance (continued)

Net Interest Income
Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid for deposits, short-term borrowings and long-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding. Net interest income and the net interest margin are presented on a taxable-equivalent basis in Table 5 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 variable 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 runoff have 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 $44.4 billion in 2014, compared with $43.6 billion in 2013, and $43.9 billion in 2012. The net interest margin was 3.11% in 2014, down 29 basis points from 3.40% in 2013, which was down 36 basis points from 3.76% in 2012. The increase in net interest income for 2014, compared with 2013, was largely driven by securities purchases, higher trading balances, and reduced funding costs due to disciplined deposit pricing and lower long-term debt yields. Strong growth in commercial, retained real estate and automobile loans also contributed to higher net interest income as originations replaced runoff in the non-strategic/liquidating portfolios. The improvement in net interest income was partially offset by the impact of lower mortgages held for sale (MHFS) balances. The decline in net interest margin in 2014, compared with a year ago, was primarily driven by higher funding balances, including actions taken in response to increased regulatory liquidity expectations, which raised long-term debt and term deposits in addition to customer-driven deposit growth. This growth in funding increased cash and federal funds sold and other short-term investments and was dilutive to net interest margin although essentially neutral to net interest income.
 
Table 4 presents the components of earning assets and funding sources as a percentage of earning assets to provide a more meaningful analysis of year-over-year changes that influenced net interest income.
Average earning assets increased $147.3 billion in 2014 from a year ago, as average investment securities increased $30.6 billion and average federal funds sold and other short-term investments increased $86.4 billion for the same period, respectively. In addition, average loans increased $31.8 billion in 2014, compared with a year ago. The increases in average investment securities, average federal funds sold and other short-term investments and average loans were partially offset by a $16.3 billion decline in average MHFS.
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 $1.0 trillion in 2014, compared with $942.1 billion in 2013, and funded 120% of average loans compared with 117% a year ago. Average core deposits decreased to 70% of average earning assets in 2014, compared with 73% 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 96% of our average core deposits are in checking and savings deposits, one of the highest industry percentages.
Table 5 presents the individual components of net interest income and the net interest margin. The effect on interest income and costs of earning asset and funding mix changes described above, combined with rate changes during 2014, are analyzed in Table 6.


36

Table 4:  Average Earning Assets and Funding Sources as a Percentage of Average Earnings Assets
 
Year ended December 31,
 
 
2014
 
 
2013
 
(in millions)
Average
balance

 
% of
earning
assets

 
Average
balance

 
% of
earning
assets

Earning assets
 
 
 
 
 
 
 
Federal funds sold, securities purchased under resale agreements and other short-term investments
$
241,282

 
17
%
 
$
154,902

 
12
%
Trading assets
55,140

 
4

 
44,745

 
3

Investment securities:
 
 


 
 
 


Available-for-sale securities:
 
 


 
 
 


Securities of U.S. Treasury and federal agencies
10,400

 
1

 
6,750

 
1

Securities of U.S. states and political subdivisions
43,138

 
3

 
39,922

 
3

Mortgage-backed securities:
 
 


 
 
 


Federal agencies
114,076

 
8

 
107,148

 
8

Residential and commercial
26,475

 
2

 
30,717

 
2

Total mortgage-backed securities
140,551

 
10

 
137,865

 
11

Other debt and equity securities
47,488

 
3

 
55,002

 
4

Total available-for-sale securities
241,577

 
17

 
239,539

 
19

Held-to-maturity securities
29,319

 
2

 
717

 
—

Mortgages held for sale (1)
19,018

 
1

 
35,273

 
3

Loans held for sale (1)
4,226

 
—

 
163

 
—

Loans:
 
 


 
 
 


Commercial:
 
 


 
 
 


Commercial and industrial - U.S.
204,819

 
14

 
185,813

 
14

Commercial and industrial - Non U.S.
42,661

 
3

 
40,987

 
3

Real estate mortgage
112,710

 
8

 
107,316

 
8

Real estate construction
17,676

 
1

 
16,537

 
1

Lease financing
12,257

 
1

 
12,373

 
1

Total commercial
390,123

 
27

 
363,026

 
28

Consumer:
 
 


 
 
 


Real estate 1-4 family first mortgage
261,620

 
18

 
254,012

 
20

Real estate 1-4 family junior lien mortgage
62,510

 
4

 
70,264

 
5

Credit card
27,491

 
2

 
24,757

 
2

Automobile
53,854

 
4

 
48,476

 
4

Other revolving credit and installment
38,834

 
3

 
42,135

 
3

Total consumer
444,309

 
31

 
439,644

 
34

Total loans (1)
834,432

 
58

 
802,670

 
63

Other
4,673

 
—

 
4,354

 
—

Total earning assets
$
1,429,667

 
100
%
 
$
1,282,363

 
100
%
Funding sources
 
 


 
 
 


Deposits:
 
 


 
 
 


Interest-bearing checking
$
39,729

 
3
%
 
$
35,570

 
3
%
Market rate and other savings
585,854

 
41

 
550,394

 
43

Savings certificates
38,111

 
3

 
49,510

 
4

Other time deposits
51,434

 
4

 
28,090

 
2

Deposits in foreign offices
95,889

 
7

 
76,894

 
6

Total interest-bearing deposits
811,017

 
57

 
740,458

 
58

Short-term borrowings
60,111

 
4

 
54,716

 
4

Long-term debt
167,420

 
12

 
134,937

 
11

Other liabilities
14,401

 
1

 
12,471

 
1

Total interest-bearing liabilities
1,052,949

 
74

 
942,582

 
74

Portion of noninterest-bearing funding sources
376,718

 
26

 
339,781

 
26

Total funding sources
$
1,429,667

 
100
%
 
$
1,282,363

 
100
%
Noninterest-earning assets
 
 
 
 
 
 
 
Cash and due from banks
$
16,361

 
 
 
16,272

 
 
Goodwill
25,687

 
 
 
25,637

 
 
Other
121,634

 
 
 
121,711

 
 
Total noninterest-earning assets
$
163,682

 
 
 
163,620

 
 
Noninterest-bearing funding sources
 
 
 
 
 
 
 
Deposits
$
303,127

 
 
 
280,229

 
 
Other liabilities
56,985

 
 
 
58,178

 
 
Total equity
180,288

 
 
 
164,994

 
 
Noninterest-bearing funding sources used to fund earning assets
(376,718
)
 
 
 
(339,781
)
 
 
Net noninterest-bearing funding sources
$
163,682

 
 
 
163,620

 
 
Total assets
$
1,593,349

 
 
 
1,445,983

 
 
 
 
 
 
 
 
 
 

(1)
Nonaccrual loans are included in their respective loan categories.


37

Earnings Performance (continued)

Table 5:  Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
 
 
 
 
 
2014

 
 
 
 
 
2013

(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
$
241,282

 
0.28
%
 
$
673

 
154,902

 
0.32
%
 
$
489

Trading assets
55,140

 
3.10

 
1,712

 
44,745

 
3.14

 
1,406

Investment securities (3):
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
10,400

 
1.64

 
171

 
6,750

 
1.66

 
112

Securities of U.S. states and political subdivisions
43,138

 
4.29

 
1,852

 
39,922

 
4.38

 
1,748

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
114,076

 
2.84

 
3,235

 
107,148

 
2.83

 
3,031

Residential and commercial
26,475

 
6.03

 
1,597

 
30,717

 
6.47

 
1,988

Total mortgage-backed securities
140,551

 
3.44

 
4,832

 
137,865

 
3.64

 
5,019

Other debt and equity securities
47,488

 
3.66

 
1,741

 
55,002

 
3.53

 
1,940

Total available-for-sale securities
241,577

 
3.56

 
8,596

 
239,539

 
3.68

 
8,819

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
17,239

 
2.23

 
385

 
—

 
—

 
—

Securities of U.S. states and political subdivisions
246

 
4.93

 
12

 
—

 
—

 
—

Federal agency mortgage-backed securities
5,921

 
2.55

 
151

 
701

 
3.09

 
22

Other debt securities
5,913

 
1.85

 
109

 
16

 
1.99

 
—

Held-to-maturity securities
29,319

 
2.24

 
657

 
717

 
3.06

 
22

Total investment securities
270,896

 
3.42

 
9,253

 
240,256

 
3.68

 
8,841

Mortgages held for sale (4)
19,018

 
4.03

 
767

 
35,273

 
3.66

 
1,290

Loans held for sale (4)
4,226

 
1.85

 
78

 
163

 
7.95

 
13

Loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial - U.S.
204,819

 
3.35

 
6,869

 
185,813

 
3.66

 
6,807

Commercial and industrial - non U.S.

42,661

 
2.03

 
867

 
40,987

 
2.03

 
832

Real estate mortgage
112,710

 
3.64

 
4,100

 
107,316

 
3.94

 
4,233

Real estate construction
17,676

 
4.21

 
744

 
16,537

 
4.76

 
787

Lease financing
12,257

 
5.63

 
690

 
12,373

 
6.10

 
755

Total commercial
390,123

 
3.40

 
13,270

 
363,026

 
3.70

 
13,414

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
261,620

 
4.19

 
10,961

 
254,012

 
4.22

 
10,717

Real estate 1-4 family junior lien mortgage
62,510

 
4.30

 
2,686

 
70,264

 
4.29

 
3,014

Credit card
27,491

 
11.98

 
3,294

 
24,757

 
12.46

 
3,084

Automobile
53,854

 
6.27

 
3,377

 
48,476

 
6.94

 
3,365

Other revolving credit and installment
38,834

 
5.48

 
2,127

 
42,135

 
4.80

 
2,024

Total consumer
444,309

 
5.05

 
22,445

 
439,644

 
5.05

 
22,204

Total loans (4)
834,432

 
4.28

 
35,715

 
802,670

 
4.44

 
35,618

Other
4,673

 
5.54

 
259

 
4,354

 
5.39

 
235

Total earning assets
$
1,429,667

 
3.39
%
 
$
48,457

 
1,282,363

 
3.73
%
 
$
47,892

Funding sources
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
39,729

 
0.07
%
 
$
26

 
35,570

 
0.06
%
 
$
22

Market rate and other savings
585,854

 
0.07

 
403

 
550,394

 
0.08

 
450

Savings certificates
38,111

 
0.85

 
323

 
49,510

 
1.13

 
559

Other time deposits
51,434

 
0.40

 
207

 
28,090

 
0.69

 
194

Deposits in foreign offices
95,889

 
0.14

 
137

 
76,894

 
0.15

 
112

Total interest-bearing deposits
811,017

 
0.14

 
1,096

 
740,458

 
0.18

 
1,337

Short-term borrowings
60,111

 
0.10

 
62

 
54,716

 
0.13

 
71

Long-term debt
167,420

 
1.49

 
2,488

 
134,937

 
1.92

 
2,585

Other liabilities
14,401

 
2.65

 
382

 
12,471

 
2.46

 
307

Total interest-bearing liabilities
1,052,949

 
0.38

 
4,028

 
942,582

 
0.46

 
4,300

Portion of noninterest-bearing funding sources
376,718

 
—

 
—

 
339,781

 
—

 
—

Total funding sources
$
1,429,667

 
0.28

 
4,028

 
1,282,363

 
0.33

 
4,300

Net interest margin and net interest income on a taxable-equivalent basis   (5) 
 
 
3.11
%
 
$
44,429

 
 
 
3.40
%
 
$
43,592

Noninterest-earning assets
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
16,361

 
 
 
 
 
16,272

 
 
 
 
Goodwill
25,687

 
 
 
 
 
25,637

 
 
 
 
Other
121,634

 
 
 
 
 
121,711

 
 
 
 
Total noninterest-earning assets
$
163,682

 
 
 
 
 
163,620

 
 
 
 
Noninterest-bearing funding sources
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
303,127

 
 
 
 
 
280,229

 
 
 
 
Other liabilities
56,985

 
 
 
 
 
58,178

 
 
 
 
Total equity
180,288

 
 
 
 
 
164,994

 
 
 
 
Noninterest-bearing funding sources used to
fund earning assets
(376,718
)
 
 
 
 
 
(339,781
)
 
 
 
 
Net noninterest-bearing funding sources
$
163,682

 
 
 
 
 
163,620

 
 
 
 
Total assets
$
1,593,349

 
 
 
 
 
1,445,983

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Our average prime rate was 3.25% for 2014, 2013, 2012, 2011, and 2010, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 0.23% , 0.27% , 0.43% , 0.34% , and 0.34% for the same years, respectively.
(2)
Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

38

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012

 
 
 
 
 
2011

 
 
 
 
 
2010

Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
84,081

 
0.45
%
 
$
378

 
87,186

 
0.40
%
 
$
345

 
62,961

 
0.36
%
 
$
230

41,950

 
3.29

 
1,380

 
39,737

 
3.68

 
1,463

 
29,920

 
3.75

 
1,121

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,604

 
1.31

 
47

 
5,503

 
1.25

 
69

 
1,870

 
3.24

 
61

34,875

 
4.48

 
1,561

 
24,035

 
5.09

 
1,223

 
16,089

 
6.09

 
980

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
92,887

 
3.12

 
2,893

 
74,665

 
4.36

 
3,257

 
71,953

 
5.14

 
3,697

33,545

 
6.75

 
2,264

 
31,902

 
8.20

 
2,617

 
31,815

 
10.67

 
3,396

126,432

 
4.08

 
5,157

 
106,567

 
5.51

 
5,874

 
103,768

 
6.84

 
7,093

49,245

 
4.04

 
1,992

 
38,625

 
5.03

 
1,941

 
32,611

 
6.45

 
2,102

214,156

 
4.09

 
8,757

 
174,730

 
5.21

 
9,107

 
154,338

 
6.63

 
10,236

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

214,156

 
4.09

 
8,757

 
174,730

 
5.21

 
9,107

 
154,338

 
6.63

 
10,236

48,955

 
3.73

 
1,825

 
37,232

 
4.42

 
1,644

 
36,716

 
4.73

 
1,736

661

 
6.22

 
41

 
1,104

 
5.25

 
58

 
3,773

 
2.67

 
101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
173,913

 
4.01

 
6,981

 
157,608

 
4.37

 
6,894

 
149,576

 
4.80

 
7,186

38,838

 
2.34

 
910

 
35,042

 
2.13

 
745

 
27,176

 
2.53

 
688

105,492

 
4.19

 
4,416

 
102,320

 
4.07

 
4,167

 
98,558

 
3.90

 
3,839

18,047

 
4.97

 
897

 
21,672

 
4.88

 
1,057

 
31,306

 
3.36

 
1,052

13,067

 
7.18

 
939

 
13,223

 
7.52

 
994

 
13,735

 
9.16

 
1,258

349,357

 
4.05

 
14,143

 
329,865

 
4.20

 
13,857

 
320,351

 
4.38

 
14,023

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
235,011

 
4.55

 
10,704

 
227,676

 
4.90

 
11,156

 
236,673

 
5.21

 
12,321

80,887

 
4.28

 
3,460

 
90,755

 
4.33

 
3,930

 
101,598

 
4.45

 
4,525

22,809

 
12.68

 
2,892

 
21,556

 
13.04

 
2,811

 
22,542

 
13.38

 
3,017

44,986

 
7.54

 
3,390

 
43,834

 
8.14

 
3,568

 
43,986

 
8.88

 
3,905

42,174

 
4.57

 
1,928

 
43,458

 
4.56

 
1,980

 
45,451

 
4.44

 
2,017

425,867

 
5.25

 
22,374

 
427,279

 
5.49

 
23,445

 
450,250

 
5.73

 
25,785

775,224

 
4.71

 
36,517

 
757,144

 
4.93

 
37,302

 
770,601

 
5.17

 
39,808

4,438

 
4.70

 
209

 
4,929

 
4.12

 
203

 
5,849

 
3.56

 
207

$
1,169,465

 
4.20
%
 
$
49,107

 
1,102,062

 
4.55
%
 
$
50,122

 
1,064,158

 
5.02
%
 
$
53,439

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
30,564

 
0.06
%
 
$
19

 
47,705

 
0.08
%
 
$
40

 
60,941

 
0.12
%
 
$
72

505,310

 
0.12

 
592

 
464,450

 
0.18

 
836

 
416,877

 
0.26

 
1,088

59,484

 
1.31

 
782

 
69,711

 
1.43

 
995

 
87,133

 
1.43

 
1,247

13,363

 
1.68

 
225

 
13,126

 
2.04

 
268

 
14,654

 
2.07

 
302

67,920

 
0.16

 
109

 
61,566

 
0.22

 
136

 
55,097

 
0.22

 
123

676,641

 
0.26

 
1,727

 
656,558

 
0.35

 
2,275

 
634,702

 
0.45

 
2,832

51,196

 
0.18

 
94

 
51,781

 
0.18

 
94

 
46,824

 
0.22

 
106

127,547

 
2.44

 
3,110

 
141,079

 
2.82

 
3,978

 
185,426

 
2.64

 
4,888

10,032

 
2.44

 
245

 
10,955

 
2.88

 
316

 
6,863

 
3.31

 
227

865,416

 
0.60

 
5,176

 
860,373

 
0.77

 
6,663

 
873,815

 
0.92

 
8,053

304,049

 
—

 
—

 
241,689

 
—

 
—

 
190,343

 
—

 
—

$
1,169,465

 
0.44

 
5,176

 
1,102,062

 
0.61

 
6,663

 
1,064,158

 
0.76

 
8,053

 
 
3.76
%
 
$
43,931

 
 
 
3.94
%
 
$
43,459

 
 
 
4.26
%
 
$
45,386

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
16,303

 
 
 
 
 
17,388

 
 
 
 
 
17,618

 
 
 
 
25,417

 
 
 
 
 
24,904

 
 
 
 
 
24,824

 
 
 
 
130,450

 
 
 
 
 
125,911

 
 
 
 
 
120,338

 
 
 
 
$
172,170

 
 
 
 
 
168,203

 
 
 
 
 
162,780

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
263,863

 
 
 
 
 
215,242

 
 
 
 
 
183,008

 
 
 
 
61,214

 
 
 
 
 
57,399

 
 
 
 
 
47,877

 
 
 
 
151,142

 
 
 
 
 
137,251

 
 
 
 
 
122,238

 
 
 
 
(304,049
)
 
 
 
 
 
(241,689
)
 
 
 
 
 
(190,343
)
 
 
 
 
$
172,170

 
 
 
 
 
168,203

 
 
 
 
 
162,780

 
 
 
 
$
1,341,635

 
 
 
 
 
1,270,265

 
 
 
 
 
1,226,938

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(3)
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 $902 million, $792 million, $701 million, $696 million and $629 million for 2014, 2013, 2012, 2011 and 2010, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35% for the periods presented.

39

Earnings Performance (continued)

Table 6 allocates the changes in net interest income on a taxable-equivalent basis to changes in either average balances or average rates for both interest-earning assets and interest-bearing liabilities. Because of the numerous simultaneous volume and rate changes during any period, it is not possible to precisely allocate such changes between volume and rate. For
 
this table, changes that are not solely due to either volume or rate are allocated to these categories on a pro-rata basis based on the absolute value of the change due to average volume and average rate.


Table 6:  Analysis of Changes of Net Interest Income
 
Year ended December 31, 
 
 
2014 over 2013 
 
 
2013 over 2012 
 
(in millions)
Volume 

 
Rate 

 
Total 

 
Volume 

 
Rate 

 
Total 

Increase (decrease) in interest income:
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold, securities purchased under resale agreements and other short-term investments
$
252

 
(68
)
 
184

 
245

 
(134
)
 
111

Trading assets
324

 
(18
)
 
306

 
90

 
(64
)
 
26

Investment securities:
 
 
 
 

 
 
 
 
 

Available-for-sale securities:
 
 
 
 

 
 
 
 
 

Securities of U.S. Treasury and federal agencies
60

 
(1
)
 
59

 
49

 
16

 
65

Securities of U.S. states and political subdivisions
140

 
(36
)
 
104

 
223

 
(36
)
 
187

Mortgage-backed securities:
 
 
 
 

 
 
 
 
 

Federal agencies
193

 
11

 
204

 
421

 
(283
)
 
138

Residential and commercial
(262
)
 
(129
)
 
(391
)
 
(185
)
 
(91
)
 
(276
)
Total mortgage-backed securities
(69
)
 
(118
)
 
(187
)
 
236

 
(374
)
 
(138
)
Other debt and equity securities
(270
)
 
71

 
(199
)
 
217

 
(269
)
 
(52
)
Total available-for-sale securities
(139
)
 
(84
)
 
(223
)
 
725

 
(663
)
 
62

Held-to-maturity securities
643

 
(8
)
 
635

 
22

 
—

 
22

Mortgages held for sale
(643
)
 
120

 
(523
)
 
(502
)
 
(33
)
 
(535
)
Loans held for sale
82

 
(17
)
 
65

 
(37
)
 
9

 
(28
)
Loans:
 
 
 
 

 
 
 
 
 

Commercial:
 
 
 
 

 
 
 
 
 

Commercial and industrial - U.S.
664

 
(602
)
 
62

 
459

 
(633
)
 
(174
)
Commercial and industrial - non U.S.
35

 
—

 
35

 
48

 
(126
)
 
(78
)
Real estate mortgage
203

 
(336
)
 
(133
)
 
77

 
(260
)
 
(183
)
Real estate construction
52

 
(95
)
 
(43
)
 
(73
)
 
(37
)
 
(110
)
Lease financing
(7
)
 
(58
)
 
(65
)
 
(48
)
 
(136
)
 
(184
)
Total commercial
947

 
(1,091
)
 
(144
)
 
463

 
(1,192
)
 
(729
)
Consumer:
 
 
 
 

 
 
 
 
 

Real estate 1-4 family first mortgage
320

 
(76
)
 
244

 
825

 
(812
)
 
13

Real estate 1-4 family junior lien mortgage
(335
)
 
7

 
(328
)
 
(454
)
 
8

 
(446
)
Credit card
332

 
(122
)
 
210

 
243

 
(51
)
 
192

Automobile
354

 
(342
)
 
12

 
254

 
(279
)
 
(25
)
Other revolving credit and installment
(167
)
 
270

 
103

 
(2
)
 
98

 
96

Total consumer
504

 
(263
)
 
241

 
866

 
(1,036
)
 
(170
)
Total loans
1,451

 
(1,354
)
 
97

 
1,329

 
(2,228
)
 
(899
)
Other
17

 
7

 
24

 
(4
)
 
30

 
26

Total increase (decrease) in interest income
1,987

 
(1,422
)
 
565

 
1,868

 
(3,083
)
 
(1,215
)
Increase (decrease) in interest expense:
 
 
 
 

 
 
 
 
 

Deposits:
 
 
 
 

 
 
 
 
 

Interest-bearing checking
2

 
2

 
4

 
3

 
—

 
3

Market rate and other savings
21

 
(68
)
 
(47
)
 
55

 
(197
)
 
(142
)
Savings certificates
(114
)
 
(122
)
 
(236
)
 
(123
)
 
(100
)
 
(223
)
Other time deposits
117

 
(104
)
 
13

 
152

 
(183
)
 
(31
)
Deposits in foreign offices
32

 
(7
)
 
25

 
11

 
(8
)
 
3

Total interest-bearing deposits
58

 
(299
)
 
(241
)
 
98

 
(488
)
 
(390
)
Short-term borrowings
7

 
(16
)
 
(9
)
 
6

 
(29
)
 
(23
)
Long-term debt
551

 
(648
)
 
(97
)
 
171

 
(696
)
 
(525
)
Other liabilities
50

 
25

 
75

 
61

 
1

 
62

Total increase (decrease) in interest expense
666

 
(938
)
 
(272
)
 
336

 
(1,212
)
 
(876
)
Increase (decrease) in net interest income on a taxable-equivalent basis
$
1,321

 
(484
)
 
837

 
1,532

 
(1,871
)
 
(339
)

40

Noninterest Income
 
Table 7: Noninterest Income
 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Service charges on deposit accounts
$
5,050

 
5,023

 
4,683

Trust and investment fees:
 
 

 
 
Brokerage advisory, commissions and other fees
9,183

 
8,395

 
7,524

Trust and investment management
3,387

 
3,289

 
3,080

Investment banking
1,710

 
1,746

 
1,286

Total trust and investment fees
14,280

 
13,430

 
11,890

Card fees
3,431

 
3,191

 
2,838

Other fees:
 
 
 
 
 
Charges and fees on loans
1,316

 
1,540

 
1,746

Merchant processing fees
726

 
669

 
583

Cash network fees
507

 
493

 
470

Commercial real estate
brokerage commissions
469

 
338

 
307

Letters of credit fees
390

 
410

 
441

All other fees
941

 
890

 
972

Total other fees
4,349

 
4,340

 
4,519

Mortgage banking:
 
 
 
 
 
Servicing income, net
3,337

 
1,920

 
1,378

Net gains on mortgage loan
origination/sales activities
3,044

 
6,854

 
10,260

Total mortgage banking
6,381

 
8,774

 
11,638

Insurance
1,655

 
1,814

 
1,850

Net gains from trading activities
1,161

 
1,623

 
1,707

Net gains (losses) on debt securities
593

 
(29
)
 
(128
)
Net gains from equity investments
2,380

 
1,472

 
1,485

Lease income
526

 
663

 
567

Life insurance investment income
558

 
566

 
757

All other
456

 
113

 
1,050

Total
$
40,820

 
40,980

 
42,856


Noninterest income of $ 40.8 billion represented 48% of revenue for 2014 compared with $41.0 billion, or 49%, for 2013 and $42.9 billion, or 50%, for 2012. The decrease in noninterest income in 2014 was primarily due to a decline in mortgage banking, partially offset by growth in many of our other businesses including debit card, corporate banking, principal investments, asset-backed finance, equipment finance, international, venture capital, wealth management and retail brokerage. Excluding mortgage banking, noninterest income increased $2.2 billion from a year ago.
Service charges on deposit accounts increased $27 million from 2013 due to account growth, new commercial product sales and commercial product re-pricing, partially offset by changes we implemented in early October 2014 designed to provide customers with more real time information to manage their deposit accounts and avoid overdrafts. Service charges on deposit accounts in 2013 increased $340 million, or 7%, from 2012 due to primary consumer checking customer growth, product changes and customer adoption of overdraft services.
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 $ 9.2 billion in 2014, from $8.4 billion and $7.5 billion in 2013 and 2012, respectively. The increase in brokerage income was predominantly due to higher asset-based fees as a result of higher market values and growth in assets under management, partially offset by a decrease in brokerage transaction revenue. Retail brokerage client assets totaled $1.42 trillion at December 31, 2014, up 4% from $1.36 trillion at
 
December 31, 2013, which was up 12% from $1.22 trillion at December 31, 2012.
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 $ 3.4 billion in 2014 from $3.3 billion in 2013 and $3.1 billion in 2012, primarily due to growth in assets under management reflecting higher market values. At December 31, 2014, these assets totaled $2.5 trillion, an increase from $2.4 trillion and $2.2 trillion at December 31, 2013 and 2012, respectively.
We earn investment banking fees from underwriting debt and equity securities, arranging loan syndications, and performing other related advisory services. Investment banking fees remained unchanged at $ 1.7 billion in 2014 compared with 2013 as higher advisory services results were offset by lower loan syndication and origination fees. Investment banking fees increased $460 million in 2013 compared with 2012, primarily due to increased loan syndication volume and equity originations.
Card fees were $3.4 billion in 2014, compared with $3.2 billion in 2013 and $2.8 billion in 2012. Card fees increased in 2014 and 2013 primarily due to account growth and increased purchase activity.
Other fees of $4.3 billion in 2014 were unchanged compared with 2013 as a decline in charges and fees on loans was offset by an increase in commercial real estate brokerage commissions. Other fees in 2013 declined $179 million compared with 2012 due to a decline in charges and fees on loans. Charges and fees on loans decreased to $1.3 billion in 2014 compared with $1.5 billion and $1.7 billion in 2013 and 2012, respectively, primarily due to the phase out of the direct deposit advance product during the first half of 2014. Commercial real estate brokerage commissions increased to $469 million in 2014 compared with $338 million in 2013 and $307 million in 2012, driven by increased sales and other property-related activities including financing and advisory services.
Mortgage banking income, consisting of net servicing income and net gains on loan origination/sales activities, totaled $6.4 billion in 2014, compared with $8.8 billion in 2013 and $11.6 billion in 2012.
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 of $3.3 billion for 2014 included a $1.4 billion net MSR valuation gain ( $2.1 billion decrease in the fair value of the MSRs offset by a $3.5 billion hedge gain). Net servicing income of $1.9 billion for 2013 included a $489 million net MSR valuation gain ($3.4 billion increase in the fair value of the MSRs offset by a $2.9 billion hedge loss), and net servicing income of $1.4 billion for 2012 included a $681 million net MSR valuation gain ($2.9 billion decrease in the fair value of MSRs offset by a $3.6 billion hedge gain). The lower net MSR valuation gain in 2013, compared with 2014, was attributable to MSR valuation adjustments associated with higher prepayments and increases in servicing and foreclosure costs.
Our portfolio of loans serviced for others was $1.86 trillion at December 31, 2014, $1.90 trillion at December 31, 2013, and $1.91 trillion at December 31, 2012. At December 31, 2014, the ratio of MSRs to related loans serviced for others was 0.75% ,


41

Earnings Performance (continued)

compared with 0.88% at December 31, 2013 and 0.67% at December 31, 2012. See the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in this Report for additional information regarding our MSRs risks and hedging approach.
Net gains on mortgage loan origination/sale activities were $3.0 billion in 2014, compared with $6.9 billion in 2013 and $10.3 billion in 2012. The decrease from 2013 and 2012 was primarily driven by lower origination volume and margins. Mortgage loan originations were $ 175 billion in 2014, of which 68% were for home purchases, compared with $351 billion and 47%, respectively, for 2013 and $524 billion and 35%, respectively, for 2012. Mortgage applications were $ 262 billion in 2014, compared with $438 billion in 2013 and $736 billion in 2012. The 1-4 family first mortgage unclosed pipeline was $ 26 billion at December 31, 2014, compared with $25 billion at December 31, 2013 and $81 billion at December 31, 2012. For additional information about our mortgage banking activities and results, see the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section and Note 9 (Mortgage Banking Activities) and Note 17 (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 2014, we released a net $140 million from the repurchase liability, compared with a provision of $428 million for 2013 and $1.9 billion for 2012. For additional information about mortgage loan repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section and Note 9 (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 of our balance sheet risks and for a very limited amount of proprietary trading for our own account. Net gains (losses) from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $1.2 billion in 2014, $1.6 billion in 2013 and $1.7 billion in 2012. The year-over-year decrease in 2014 was driven by lower trading from customer accommodation activity within our capital markets business and lower deferred compensation gains (offset in employee benefits expense), and the decrease in 2013 from 2012 was largely driven by lower results in customer accommodation activity. Net gains from trading activities do not include interest and dividend income and expense on trading securities. Those amounts are reported within interest income from trading assets and other interest expense from trading liabilities. Interest and fees related to proprietary trading are reported in their corresponding income statement line items. Proprietary trading activities are not significant to our client-focused business model. For additional information about proprietary and other trading, see the “Risk Management – Asset/Liability Management – Market Risk – Trading Activities” section in this Report.
 
Net gains on debt and equity securities totaled $3.0 billion for 2014 and $1.4 billion for both 2013 and 2012, after other-than-temporary impairment (OTTI) write-downs of $322 million , $344 million and $416 million , respectively, for the same periods. The increase in net gains on debt and equity securities reflected the benefit of strong public and private equity markets.
All other income was $456 million for 2014 compared with $113 million in 2013 and $1.1 billion in 2012. All other income includes ineffectiveness recognized on derivatives that qualify for hedge accounting, losses on low-income housing tax credit investments, foreign currency adjustments and income from investments accounted for under the equity method, any of which can cause decreases and net losses in other income. Higher other income for 2014 compared with a year ago primarily reflected larger ineffectiveness gains on derivatives that qualify for hedge accounting, a gain on sale of government-guaranteed student loans in fourth quarter 2014, and a gain on sale of 40 insurance offices in second quarter 2014. These were partially offset by lower income from equity method investments.



42

Noninterest Expense
 
Table 8:  Noninterest Expense
 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Salaries
$
15,375

 
15,152

 
14,689

Commission and incentive compensation
9,970

 
9,951

 
9,504

Employee benefits
4,597

 
5,033

 
4,611

Equipment
1,973

 
1,984

 
2,068

Net occupancy
2,925

 
2,895

 
2,857

Core deposit and other intangibles
1,370

 
1,504

 
1,674

FDIC and other deposit assessments
928

 
961

 
1,356

Outside professional services
2,689

 
2,519

 
2,729

Operating losses
1,249

 
821

 
2,235

Outside data processing
1,034

 
983

 
910

Contract services
975

 
935

 
1,011

Travel and entertainment
904

 
885

 
839

Postage, stationery and supplies
733

 
756

 
799

Advertising and promotion
653

 
610

 
578

Foreclosed assets
583

 
605

 
1,061

Telecommunications
453

 
482

 
500

Insurance
422

 
437

 
453

Operating leases
220

 
204

 
109

All other
1,984

 
2,125

 
2,415

Total
$
49,037

 
48,842

 
50,398


Noninterest expense was $49.0 billion in 2014, up slightly from $48.8 billion in 2013, which was down 3% from $50.4 billion in 2012. The increase in 2014 was driven predominantly by higher operating losses ($1.2 billion, up from $821 million in 2013) and higher outside professional services ($2.7 billion, up from $2.5 billion in 2013), partially offset by lower personnel expenses ($29.9 billion, down from $30.1 billion in 2013). The decrease in 2013 from 2012 was driven by lower operating losses, lower foreclosed assets expense and lower FDIC and other deposit assessments, as well as the completion of Wachovia merger integration activities in first quarter 2012.
Personnel expenses, which include salaries, commissions, incentive compensation and employee benefits, were down $194 million, or 1%, in 2014 compared with 2013, due to lower deferred compensation plan expense (offset in trading revenue) and other employee benefit costs, and reduced staffing and lower volume-related compensation in our mortgage business. These decreases were partially offset by higher revenue-based compensation, annual salary increases, and increased staffing for risk management and our non-mortgage businesses. For 2013, these expenses were up 5% compared with 2012, due to annual salary increases and related salary taxes, higher revenue-based compensation, and higher employee benefit costs.
 
Outside professional services were up 7% in 2014 compared with 2013 due to continued investments by our businesses in their service delivery systems and in our risk management infrastructure to meet increased regulatory and compliance requirements as well as evolving cybersecurity risk.
Operating losses were up $428 million, or 52%, in 2014 compared with 2013, predominantly due to higher litigation accruals.
All other expenses of $2.0 billion in 2014 were down slightly from $2.1 billion in 2013, which were down from $2.4 billion in 2012. The decrease in 2013 compared with 2012 was primarily due to a $250 million charitable contribution to Wells Fargo Foundation in 2012.
Our full year 2014 efficiency ratio improved slightly to 58.1% compared with 58.3% in 2013. The Company expects to operate within its targeted efficiency ratio range of 55% - 59% for full year 2015.

Income Tax Expense
The 2014 annual effective tax rate was 30.9% compared with 32.2% in 2013 and 32.5% in 2012. The effective tax rate for 2014 included a net reduction in the reserve for uncertain tax positions primarily due to the resolution of prior period matters with state taxing authorities. The effective tax rate for 2013 included a net reduction in the reserve for uncertain tax positions primarily due to settlements with authorities regarding certain cross border transactions and tax benefits recognized from the realization for tax purposes of a previously written down investment. The 2012 effective tax rate included a tax benefit resulting from the surrender of previously written-down Wachovia life insurance investments. See Note 21 (Income Taxes) to Financial Statements in this Report for information regarding tax matters related to undistributed foreign earnings.



43

Earnings Performance (continued)

Operating Segments
We are organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement (WBR). These segments are defined by product type and customer segment and their results are based on our management accounting process, for which there is no comprehensive, authoritative financial accounting guidance equivalent to generally accepted accounting principles (GAAP). In addition to measuring financial
 
performance, each of our operating segments monitors cross-sell metrics to measure the extent they are satisfying our customers’ financial needs. The following discussion presents our methodology for measuring cross-sell for each of our operating segments, and along with Tables 9, 9a, 9b and 9c, presents our results by operating segment. For additional financial information and the underlying management accounting process, see Note 24 (Operating Segments) to Financial Statements in this Report.


Table 9:  Operating Segment Results – Highlights
 
Year ended December 31,
 
(in millions, except average balances which are in billions)
Community Banking 

 
Wholesale Banking 

 
Wealth, Brokerage and Retirement 

 
Other (1) 

 
Consolidated Company 

2014
 
 
 
 
 
 
 
 
 
Revenue
$
50,862

 
23,482

 
14,218

 
(4,215
)
 
84,347

Provision (reversal of provision) for credit losses
1,681

 
(266
)
 
(50
)
 
30

 
1,395

Net income (loss)
14,180

 
7,584

 
2,083

 
(790
)
 
23,057

 
 
 
 
 
 
 
 
 
 
Average loans
$
503.2

 
313.4

 
52.1

 
(34.3
)
 
834.4

Average core deposits
642.3

 
274.0

 
154.9

 
(67.6
)
 
1,003.6

 
 
 
 
 
 
 
 
 
 
2013
 
 
 
 
 
 
 
 
 
Revenue
$
50,339

 
24,064

 
13,203

 
(3,826
)
 
83,780

Provision (reversal of provision) for credit losses
2,755

 
(445
)
 
(16
)
 
15

 
2,309

Net income (loss)
12,732

 
8,133

 
1,712

 
(699
)
 
21,878

 
 
 
 
 
 
 
 
 
 
Average loans
$
499.3

 
287.7

 
46.1

 
(30.4
)
 
802.7

Average core deposits
620.1

 
237.2

 
150.1

 
(65.3
)
 
942.1

 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
 
 
Revenue
$
53,405

 
24,092

 
12,160

 
(3,571
)
 
86,086

Provision (reversal of provision) for credit losses
6,835

 
286

 
125

 
(29
)
 
7,217

Net income (loss)
10,492

 
7,774

 
1,328

 
(697
)
 
18,897

 
 
 
 
 
 
 
 
 
 
Average loans
$
487.1

 
273.8

 
42.7

 
(28.4
)
 
775.2

Average core deposits
591.2

 
227.0

 
137.5

 
(61.8
)
 
893.9


(1)
Includes items not assigned to a specific business segment and elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for wealth management customers provided in Community Banking stores.

Cross-sell Our cross-sell strategy is to increase the number of products our customers use by offering them all of the financial products that satisfy their financial needs. We track our cross-sell activities based on whether the customer is a retail banking household or has a wholesale banking relationship. A retail banking household is a household that uses at least one of the following retail products - a demand deposit account, savings account, savings certificate, individual retirement account (IRA) certificate of deposit, IRA savings account, personal line of credit, personal loan, home equity line of credit or home equity loan. A household is determined based on aggregating all accounts with the same address. For our wholesale banking relationships, we aggregate all related entities under common ownership or control.
We report cross-sell metrics for our Community Banking and WBR operating segments based on the average number of retail products used per retail banking household. For Community Banking the cross-sell metric represents the relationship of all retail products used by customers in retail banking households. For WBR the cross-sell metric represents the relationship of all retail products used by customers in retail banking households who are also WBR customers.
Products included in our retail banking household cross-sell metrics must be retail products and have the potential for
 
revenue generation and long-term viability. Products and services that generally do not meet these criteria - such as ATM cards, online banking and direct deposit - are not included. In addition, multiple holdings by a brokerage customer within an investment category, such as common stock, mutual funds or bonds, are counted as a single product. We may periodically update the p roducts included in our cross-sell metrics to account for changes in our product offerings.
For our Wholesale Banking operating segment cross-sell represents the average number of Wholesale Banking (non-retail) products used per Wholesale Banking customer relationship. What we include as products in the cross-sell metric comes from a defined set of revenue generating products within the following product families: credit, treasury management, deposits, risk management, foreign exchange, capital markets and advisory, investments, insurance, trade financing, and trust and servicing. The number of customer relationships is based on tax identification numbers adjusted to combine those entities under common ownership or another structure indicative of a single relationship and includes only relationships that produced revenue for the period of measurement.



44

Operating Segment Results
The following discussion provides a description of each of our operating segments, including cross-sell metrics and financial results.

COMMUNITY BANKING offers a complete line of diversified financial products and services for consumers and small businesses including checking and savings accounts, credit and debit cards, and auto, student, and small business lending. These products also include investment, insurance and trust services in 39 states and D.C., and mortgage and home equity loans in all 50 states and D.C. through its Regional Banking and Wells Fargo Home Lending business units. The Community Banking segment also includes the results of our Corporate Treasury activities net of allocations in support of the other operating segments and results of investments in our affiliated venture
 
capital partnerships. Our retail banking household cross-sell was 6.17 products per household in November 2014, up from 6.16 in November 2013 and 6.05 in November 2012. The November 2014 cross-sell ratio included the acquisition of an existing private label and co-branded credit card loan portfolio in connection with a new program agreement with Dillard's, Inc. (Dillard's), a major retail department store. We believe there is more opportunity for cross-sell as we continue to earn more business from our customers. Our goal is eight products per household, which is approximately one-half of our estimate of potential demand for an average U.S. household. In November 2014, one of every four of our retail banking households had eight or more of our products. Table 9a provides additional financial information for Community Banking.


Table 9a - Community Banking
 
 
 
 
 
 
Year ended December 31,
 
(in millions, except average balances which are in billions)
2014

 
2013

 
2012

Net interest income
$
29,709

 
28,839

 
29,045

Noninterest income:
 
 
 
 
 
Service charges on deposit accounts
3,386

 
3,463

 
3,298

Trust and investment fees:
 
 
 
 

Brokerage advisory, commissions and other fees
1,796

 
1,603

 
1,401

Trust and investment management
817

 
755

 
699

Investment banking (1)
(80
)
 
(77
)
 
(41
)
Total trust and investment fees
2,533

 
2,281

 
2,059

Card fees
3,167

 
2,958

 
2,638

Other fees
2,296

 
2,342

 
2,294

Mortgage banking
6,011

 
8,335

 
11,235

Insurance
127

 
130

 
147

Net gains from trading activities
134

 
244

 
133

Net gains (losses) on debt securities
253

 
(77
)
 
(120
)
Net gains from equity investments (2)
1,731

 
1,033

 
875

Other income of the segment
1,515

 
791

 
1,801

Total noninterest income
21,153

 
21,500

 
24,360

 
 
 
 
 
 
Total revenue
50,862

 
50,339

 
53,405

 
 
 
 
 
 
Provision for credit losses
1,681

 
2,755

 
6,835

Noninterest expense:
 
 
 
 
 
Personnel expense
17,077

 
17,693

 
17,195

Equipment
1,740

 
1,733

 
1,759

Net occupancy
2,181

 
2,133

 
2,093

Core deposit and other intangibles
629

 
697

 
781

FDIC and other deposit assessments
584

 
621

 
907

Outside professional services
1,124

 
1,117

 
1,311

Operating losses
1,065

 
698

 
2,029

Other expense of the segment
3,726

 
4,031

 
4,765

Total noninterest expense
28,126

 
28,723

 
30,840

Income before income tax expense and noncontrolling interests
21,055

 
18,861

 
15,730

Income tax expense
6,350

 
5,799

 
4,774

Net income from noncontrolling interests (3)
525

 
330

 
464

Net income
$
14,180

 
12,732

 
10,492

Average loans
$
503.2

 
499.3

 
487.1

Average core deposits
642.3

 
620.1

 
591.2


(1)
Represents syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.
(2)
Predominantly represents gains resulting from venture capital investments.
(3)
Reflects results attributable to noncontrolling interests primarily associated with the Company’s consolidated merchant services joint venture and venture capital investments.

45

Earnings Performance (continued)

Community Banking reported net income of $14.2 billion in 2014, up $1.4 billion, or 11%, from $12.7 billion in 2013, which was up 21% from $10.5 billion in 2012. Revenue was $50.9 billion in 2014, an increase of $523 million, or 1%, compared with $50.3 billion in 2013, which was down 6% compared with $53.4 billion in 2012. The increase in revenue for 2014 was primarily driven by higher net interest income, gains on sale of equity investments and debt securities, higher trust and investment fees, and higher card fees, partially offset by lower mortgage banking revenue, the phase out of the direct deposit advance product during the first half of 2014, and lower deferred compensation plan investment gains (offset in employee benefits expense). Higher other income for 2014 compared with a year ago reflected larger ineffectiveness gains on derivatives that qualify for hedge accounting and a gain on sale of government guaranteed student loans in fourth quarter 2014. The decrease in 2013 was a result of lower mortgage banking revenue, partially offset by higher trust and investment fees, and revenue from debit, credit and merchant card volumes. Lower other segment income for 2013 compared with 2012 was due to larger ineffectiveness losses on derivatives that qualify for hedge accounting and interest-related valuation changes on certain mortgage-related assets carried at fair value. Average core deposits increased $22.2 billion in 2014, or 4%, from 2013, which increased $28.9 billion, or 5%, from 2012. Noninterest expense decreased $597 million in 2014, or 2%, from 2013, which declined $2.1 billion, or 7%, from 2012. The decrease in
 
noninterest expense for 2014 largely reflected lower mortgage volume-related expenses and deferred compensation expense (offset in revenue), partially offset by higher operating losses. The decrease in noninterest expense for 2013 reflected lower FDIC and other deposit insurance assessments primarily due to lower FDIC assessment rates. The provision for credit losses of $1.7 billion in 2014 was 39% lower than 2013, which was $2.8 billion, or 60%, lower than 2012, due to improved performance of the consumer real estate portfolio in both 2014 and 2013.

WHOLESALE BANKING provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $20 million. Products and business segments include Middle Market Commercial Banking, Government and Institutional Banking, Corporate Banking, Commercial Real Estate, Treasury Management, Wells Fargo Capital Finance, Insurance, International, Real Estate Capital Markets, Commercial Mortgage Servicing, Corporate Trust, Equipment Finance, Wells Fargo Securities, Principal Investments, Asset Backed Finance, and Asset Management. Wholesale Banking cross-sell was 7.2 products per relationship in September 2014, up from 7.1 in September 2013 and 6.8 in September 2012. Table 9b provides additional financial information for Wholesale Banking.



46

Table 9b - Wholesale Banking
 
 
 
 
 
 
Year ended December 31,
 
(in millions, except average balances which are in billions)
2014

 
2013

 
2012

Net interest income
$
11,955

 
12,298

 
12,648

Noninterest income:
 
 
 
 
 
Service charges on deposit accounts
1,663

 
1,559

 
1,383

Trust and investment fees:
 
 
 
 

Brokerage advisory, commissions and other fees
333

 
270

 
235

Trust and investment management
1,824

 
1,789

 
1,672

Investment banking
1,803

 
1,839

 
1,341

Total trust and investment fees
3,960

 
3,898

 
3,248

Card fees
262

 
231

 
200

Other fees
2,048

 
1,993

 
2,219

Mortgage banking
370

 
426

 
407

Insurance
1,352

 
1,559

 
1,585

Net gains from trading activities
872

 
1,211

 
1,426

Net gains (losses) on debt securities
335

 
45

 
(13
)
Net gains from equity investments
636

 
425

 
511

Other income of the segment
29

 
419

 
478

Total noninterest income
11,527

 
11,766

 
11,444

 
 
 
 
 
 
Total revenue
23,482

 
24,064

 
24,092

 
 
 
 
 
 
Provision (reversal of provision) for credit losses
(266
)
 
(445
)
 
286

Noninterest expense:
 
 
 
 
 
Personnel expense
7,093

 
6,763

 
6,315

Equipment
186

 
194

 
268

Net occupancy
442

 
454

 
441

Core deposit and other intangibles
391

 
425

 
473

FDIC and other deposit assessments
269

 
259

 
313

Outside professional services
1,107

 
1,023

 
953

Operating losses
98

 
43

 
193

Other expense of the segment
3,389

 
3,217

 
3,126

Total noninterest expense
12,975

 
12,378

 
12,082

Income before income tax expense and noncontrolling interest
10,773

 
12,131

 
11,724

Income tax expense
3,165

 
3,984

 
3,943

Net income from noncontrolling interest
24

 
14

 
7

Net income
$
7,584

 
8,133

 
7,774

Average loans
$
313.4

 
287.7

 
273.8

Average core deposits
274.0

 
237.2

 
227.0


Wholesale Banking reported net income of $7.6 billion in 2014, down $549 million, or 7%, from $8.1 billion in 2013, which was up 5% from $7.8 billion in 2012. The year over year decrease in net income during 2014 was the result of lower revenues, increased noninterest expense and higher provision for credit losses. The year over year increase in net income during 2013 was the result of improvement in provision for credit losses and stable revenue performance partially offset by increased noninterest expense. Revenue in 2014 of $23.5 billion decreased $582 million, or 2%, from $24.1 billion in 2013, as growth in asset backed finance, asset management, commercial real estate brokerage, corporate banking, equipment finance, international, principal investing and treasury management was more than offset by lower PCI resolution income as well as lower crop insurance fee income. Revenue in 2013 of $24.1 billion was flat from 2012, as business growth from asset backed finance, asset management, capital markets and commercial real estate was offset by lower PCI resolution income.
 
Net interest income of $12.0 billion in 2014 decreased $343 million, or 3%, from 2013, which was down 3% from 2012. The decrease in 2014 and 2013 was due to lower PCI resolutions and net interest margin compression due to declining loan yields and fees that was partially offset by increased interest income primarily from strong loan growth. Average loans of $313.4 billion in 2014 increased $25.7 billion, or 9%, from $287.7 billion in 2013, which was up 5% from $273.8 billion in 2012. The loan growth in 2014 and 2013 was broad based across many Wholesale Banking businesses. Average core deposits of $274.0 billion in 2014 increased $36.8 billion, or 16%, from 2013 which was up 4%, from 2012, reflecting continued strong customer liquidity for both years.
Noninterest income of $11.5 billion in 2014 decreased $239 million, or 2%, from 2013 as business growth in asset backed finance, asset management, commercial real estate brokerage, corporate banking, equipment finance, international, principal investing and treasury management was more than offset by lower customer accommodation related gains on


47

Earnings Performance (continued)

trading assets, lower insurance income related to a decline in crop insurance fee income and the 2014 divestiture of 40 insurance offices, and lower other income. The reduction in other income was caused by the financial results of low-income housing tax credits and other nonmarketable investments which are accounted for under the equity accounting method, partially offset by a gain on the divestiture of the 40 insurance offices. Noninterest income of $11.8 billion in 2013 increased $322 million, or 3%, from 2012 due to strong growth in asset backed finance, asset management, capital markets, commercial banking, commercial real estate and corporate banking. Noninterest expense in 2014 increased $597 million, or 5%, compared with 2013, which was up 2%, or $296 million, from 2012. The increase in both 2014 and 2013 was due to higher personnel expenses and higher non-personnel expenses related to growth initiatives and compliance and regulatory requirements. The provision for credit losses increased $179 million from 2013 due primarily to strong commercial loan growth in 2014. The provision for credit losses in 2013 decreased $731 million from 2012, due to lower loan losses.

 
WEALTH, BROKERAGE AND RETIREMENT provides a full range of financial advisory services to clients using a planning approach to meet each client's financial needs. Wealth Management provides affluent and high net worth clients with a complete range of wealth management solutions, including financial planning, private banking, credit, investment management and fiduciary services. Abbot Downing, a Wells Fargo business, provides comprehensive wealth management services to ultra-high net worth families and individuals as well as endowments and foundations. Brokerage serves customers' advisory, brokerage and financial needs as part of one of the largest full-service brokerage firms in the United States. Retirement is a national leader in providing institutional retirement and trust services (including 401(k) and pension plan record keeping) for businesses and reinsurance services for the life insurance industry. Wealth, Brokerage and Retirement cross-sell was 10.49 products per retail banking household in November 2014, up from 10.42 in November 2013 and 10.27 in November 2012. Table 9c provides additional financial information for Wealth, Brokerage and Retirement.

Table 9c - Wealth, Brokerage and Retirement
 
Year ended December 31,
 
(in millions, except average balances which are in billions)
2014

 
2013

 
2012

Net interest income
$
3,179

 
2,888

 
2,768

Noninterest income:
 
 
 
 
 
Service charges on deposit accounts
18

 
17

 
18

Trust and investment fees:
 
 
 
 
 
Brokerage advisory, commissions and other fees
8,855

 
8,133

 
7,299

Trust and investment management
1,595

 
1,532

 
1,435

Investment banking (1)
(13
)
 
(16
)
 
(14
)
Total trust and investment fees
10,437

 
9,649

 
8,720

Card fees
4

 
4

 
1

Other fees
16

 
19

 
18

Mortgage banking
1

 
(24
)
 
(38
)
Insurance
176

 
125

 
118

Net gains from trading activities
155

 
171

 
151

Net gains on debt securities
5

 
3

 
5

Net gains from equity investments
13

 
14

 
99

Other income of the segment
214

 
337

 
300

Total noninterest income
11,039

 
10,315

 
9,392

 
 
 
 
 
 
Total revenue
14,218

 
13,203

 
12,160

 
 
 
 
 
 
Provision (reversal of provision) for credit losses
(50
)
 
(16
)
 
125

Noninterest expense:
 
 
 
 
 
Personnel expense
7,320

 
7,093

 
6,544

Equipment
51

 
63

 
47

Net occupancy
412

 
399

 
404

Core deposit and other intangibles
350

 
382

 
420

FDIC and other deposit assessments
127

 
136

 
236

Outside professional services
491

 
412

 
388

Operating losses
93

 
90

 
29

Other expense of the segment
2,063

 
1,880

 
1,825

Total noninterest expense
10,907

 
10,455

 
9,893

Income before income tax expense and noncontrolling interest
3,361

 
2,764

 
2,142

Income tax expense
1,276

 
1,050

 
814

Net income from noncontrolling interest
2

 
2

 
—

Net income
$
2,083

 
1,712

 
1,328

Average loans
$
52.1

 
46.1

 
42.7

Average core deposits
154.9

 
150.1

 
137.5


(1)
Represents syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.

48

Wealth, Brokerage and Retirement reported net income of $2.1 billion in 2014, up $371 million, or 22%, from 2013, which was up 29% from $1.3 billion in 2012. Net income growth in 2014 was driven by significant growth in noninterest income and net interest income. Growth in net income for 2013 was driven by higher noninterest income and lower provision for credit losses due to improved credit quality. Revenue of $14.2 billion in 2014 increased $1.0 billion from 2013, which was up 9% from $12.2 billion in 2012. The increase in revenue for both 2014 and 2013 was due to increases in both net interest income and noninterest income. Net interest income increased 10% in 2014 due to growth in investment portfolios and loan balances. Net interest income increased 4% in 2013 due to growth in loan balances and low-cost core deposits, partially offset by lower interest rates on the loan and investment portfolios.
Average loan balances of $52.1 billion in 2014 increased 13% from $46.1 billion in 2013, which was up 8% from $42.7 billion in 2012. Average core deposits in 2014 of $154.9 billion increased 3% from $150.1 billion in 2013, which was up 9% from
 
$137.5 billion in 2012. Noninterest income increased 7% in 2014 from 2013, largely due to strong growth in asset-based fees from growth in assets under management primarily from net inflows and improved market performance, partially offset by lower brokerage transaction revenue. Noninterest income increased 10% in 2013 from 2012, largely due to strong growth in asset-based fees from improved market performance and growth in assets under management, partially offset by reduced securities gains in the brokerage business. Noninterest expense of $10.9 billion for 2014 was up 4% from $10.5 billion in 2013, which was up 6% from $9.9 billion in 2012. The increase in 2014 was predominantly due to increased broker commissions and higher non-personnel expenses. The increase in 2013 was predominantly due to higher personnel expenses, primarily reflecting increased broker commissions. The provision for credit losses improved for both 2014 and 2013, driven by lower net charge-offs and continued improvement in credit quality.



Balance Sheet Analysis

At December 31, 2014 , our assets totaled $1.7 trillion , up $163.7 billion from December 31, 2013 . The predominant areas of asset growth were in federal funds sold and other short-term investments, which increased $44.6 billion , investment securities, which increased $48.6 billion , loans, which increased $40.3 billion ($50.0 billion excluding the transfer of $9.7 billion of government guaranteed student loans to loans held for sale at June 30, 2014), and trading assets, which increased $15.4 billion . Deposit growth of $89.1 billion , an increase in long-term debt of $30.9 billion , total equity growth of $14.3 billion and an increase in short-term borrowings of $9.6 billion from December 31, 2013 , were the predominant sources that funded our asset growth for 2014 . Equity growth benefited from $14.7 billion in earnings net of dividends paid. The strength of our business model produced record earnings
 
and continued internal capital generation as reflected in our capital ratios at December 31, 2014 . Tier 1 capital as a percentage of total risk-weighted assets increased to 12.45% , total capital increased to 15.53% , Tier 1 leverage decreased to 9.45% , and Common Equity Tier 1 (General Approach) increased to 11.04% at December 31, 2014 , compared with 12.33% , 15.43% , 9.60% , and 10.82% , respectively, at December 31, 2013 .
The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and changes in our asset mix is included in the “Earnings Performance – Net Interest Income” and “Capital Management” sections and Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.
 


Investment Securities
 
Table 10:  Investment Securities – Summary
 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Amortized Cost 

 
Net 
unrealized 
gain 

 
Fair 
value 

 
Amortized Cost 

 
Net 
unrealized 
gain (loss) 

 
Fair 
value 

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
247,747

 
6,019

 
253,766

 
246,048

 
2,574

 
248,622

Marketable equity securities
1,906

 
1,770

 
3,676

 
2,039

 
1,346

 
3,385

Total available-for-sale securities
249,653

 
7,789

 
257,442

 
248,087

 
3,920

 
252,007

Held-to-maturity debt securities
55,483

 
876

 
56,359

 
12,346

 
(99
)
 
12,247

Total investment securities (1)
$
305,136

 
8,665

 
313,801

 
260,433

 
3,821

 
264,254


(1)
Available-for-sale securities are carried on the balance sheet at fair value. Held-to-maturity securities are carried on the balance sheet at amortized cost.

Table 10 presents a summary of our investment securities portfolio, which increased $48.6 billion from December 31, 2013 , predominantly due to purchases of U.S. Treasury securities. The total net unrealized gains on available-for-sale securities were $7.8 billion at December 31, 2014 , up from net unrealized gains of $3.9 billion at December 31, 2013 , due primarily to a decrease in long-term interest rates.
 
The size and composition of the investment securities portfolio is largely dependent upon the Company’s liquidity and interest rate risk management objectives. Our business generates assets and liabilities, such as loans, deposits and long-term debt, which have different maturities, yields, re-pricing, prepayment characteristics and other provisions that expose us to interest rate and liquidity risk. The available-for-sale securities portfolio consists primarily of liquid, high quality U.S. Treasury and


49

Balance Sheet Analysis (continued)


federal agency debt, agency mortgage-backed securities (MBS), privately issued residential and commercial MBS, securities issued by U.S. states and political subdivisions, corporate debt securities, and highly rated collateralized loan obligations. Due to its highly liquid nature, the available-for-sale portfolio can be used to meet funding needs that arise in the normal course of business or due to market stress. Changes in our interest rate risk profile may occur due to changes in overall economic or market conditions, which could influence loan origination demand, prepayment speeds, or deposit balances and mix. In response, the available-for-sale securities portfolio can be rebalanced to meet the Company’s interest rate risk management objectives. In addition to meeting liquidity and interest rate risk management objectives, the available-for-sale securities portfolio may provide yield enhancement over other short-term assets. See the “Risk Management - Asset/Liability Management” section in this Report for more information on liquidity and interest rate risk. The held-to-maturity securities portfolio consists of high quality U.S. Treasury debt, securities issued by U.S. states and political subdivisions, agency MBS, asset-backed securities (ABS) primarily collateralized by auto loans and leases, and collateralized loan obligations, where our intent is to hold these securities to maturity and collect the contractual cash flows. The held-to-maturity portfolio may also provide yield enhancement over short-term assets.
We analyze securities for other-than-temporary impairment (OTTI) quarterly or more often if a potential loss-triggering event occurs. Of the $322 million in OTTI write-downs recognized in earnings in 2014 , $49 million related to debt securities and $3 million related to marketable equity securities, which are each included in available-for-sale securities. Another $270 million in OTTI write-downs was related to nonmarketable equity investments, which are included in other assets. For a discussion of our OTTI accounting policies and underlying considerations and analysis see Note 1 (Summary of Significant Accounting Policies) and Note 5 (Investment Securities) to Financial Statements in this Report.
 
At December 31, 2014 , investment securities included $46.9 billion of municipal bonds, of which 91.7% were rated “A-” or better based predominantly on external and, in some cases, internal ratings. Additionally, some of the securities in our total municipal bond portfolio are guaranteed against loss by bond insurers. These guaranteed bonds are substantially all investment grade and were generally underwritten in accordance with our own investment standards prior to the determination to purchase, without relying on the bond insurer’s guarantee in making the investment decision. Our municipal bond holdings are monitored as part of our ongoing impairment analysis.
The weighted-average expected maturity of debt securities available-for-sale was 6.2 years at December 31, 2014 . Because 54% of this portfolio is MBS, the expected remaining maturity is shorter than the remaining contractual maturity because borrowers generally have the right to prepay obligations before the underlying mortgages mature. The estimated effects of a 200 basis point increase or decrease in interest rates on the fair value and the expected remaining maturity of the MBS available-for-sale portfolio are shown in Table 11.

Table 11:  Mortgage-Backed Securities
(in billions)
Fair 
value 

 
Net 
unrealized 
gain (loss) 

 
Expected 
remaining 
maturity 
(in years) 
At December 31, 2014
 
 
 
 
 
Actual
136.4

 
4.1

 
4.4
Assuming a 200 basis point:
 
 
 
 
 
Increase in interest rates
124.8

 
(7.5
)
 
6.5
Decrease in interest rates
140.4

 
8.1

 
2.5

The weighted-average expected maturity of debt securities held-to-maturity was 6.5 years at December 31, 2014 . See Note 5 (Investment Securities) to Financial Statements in this Report for a summary of investment securities by security type. 



50

Loan Portfolio
Total loans were $862.6 billion at December 31, 2014 , up 5% from December 31, 2013 . Table 12 provides a summary of total outstanding loans by non-strategic/liquidating and core loan portfolios. The decrease in the non-strategic/liquidating portfolios was $20.1 billion , while loans in the core portfolio grew $60.3 billion from December 31, 2013. Our core loan growth during 2014 included:
•
a $38.6 billion increase in commercial loans, reflecting broad-based growth in our portfolios, including $6.5 billion from the financing related to the sale of government guaranteed student loans out of loans held for sale in fourth quarter 2014. For additional information on the government guaranteed student loan sale, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in this Report; and
 
•
a $21.7 billion increase in consumer loans, predominantly from growth in the nonconforming mortgage, automobile, credit card and other revolving credit and installment loan portfolios, partially offset by a decrease in the real estate 1-4 family junior lien mortgage portfolio and the transfer of the government guaranteed student loan portfolio to loans held for sale at the end of second quarter 2014. The increase in consumer loans also included the acquisition of an existing private label and co-branded credit card loan portfolio in fourth quarter 2014 in connection with the new Dillard's program agreement.
 
Additional information on the non-strategic and liquidating loan portfolios is included in Table 17 in the “Risk Management – Credit Risk Management” section in this Report.
 


Table 12:  Loan Portfolios
 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Core 

 
Liquidating

 
Total 

 
Core 

 
Liquidating 

 
Total 

Commercial
$
413,701

 
1,125

 
414,826

 
375,077

 
2,013

 
377,090

Consumer
388,062

 
59,663

 
447,725

 
366,343

 
78,853

 
445,196

Total loans
801,763

 
60,788

 
862,551

 
741,420

 
80,866

 
822,286

Change from prior year
$
60,343

 
(20,078
)
 
40,265

 
37,631

 
(13,696
)
 
23,935


A discussion of average loan balances and a comparative detail of average loan balances is included in Table 5 under “Earnings Performance – Net Interest Income” earlier in this Report. Additional information on total loans outstanding by portfolio segment and class of financing receivable is included in the “Risk Management – Credit Risk Management” section in this Report. Period-end balances and other loan related
 
information are in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. 
Table 13 shows contractual loan maturities for loan categories normally not subject to regular periodic principal reduction and sensitivities of those loans to changes in interest rates.



Table 13:  Maturities for Selected Commercial Loan Categories
 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Within 
one 
year 

 
After 
one year 
through 
five years 

 
After 
five 
years 

 
Total 

 
Within 
one 
year 

 
After 
one year through
five years 

 
After 
five 
years 

 
Total 

Selected loan maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
76,216

 
172,801

 
22,778

 
271,795

 
71,921

 
140,430

 
23,007

 
235,358

Real estate mortgage
17,485

 
61,092

 
33,419

 
111,996

 
20,028

 
62,965

 
29,434

 
112,427

Real estate construction
6,079

 
11,312

 
1,337

 
18,728

 
6,207

 
9,282

 
1,445

 
16,934

Total selected loans
$
99,780

 
245,205

 
57,534

 
402,519

 
98,156

 
212,677

 
53,886

 
364,719

Distribution of loans to changes in interest rates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans at fixed interest rates
$
15,574

 
25,429

 
20,002

 
61,005

 
14,802

 
23,846

 
14,690

 
53,338

Loans at floating/variable interest rates
84,206

 
219,776

 
37,532

 
341,514

 
83,354

 
188,831

 
39,196

 
311,381

Total selected loans
$
99,780

 
245,205

 
57,534

 
402,519

 
98,156

 
212,677

 
53,886

 
364,719


Deposits
Deposits totaled $1.2 trillion at December 31, 2014, compared with $1.1 trillion at December 31, 2013. Table 14 provides additional information regarding deposits. Deposit growth of $89.1 billion from December 31, 2013 reflected continued customer-driven growth as well as liquidity-related issuances of term deposits. Information regarding the impact of deposits on net interest income and a comparison of average deposit balances is provided in “Earnings Performance – Net Interest Income” and Table 5 earlier in this Report. Total core deposits
 
were $1.1 trillion at December 31, 2014, up $74.3 billion from $980.1 billion at December 31, 2013.


51

Balance Sheet Analysis (continued)


Table 14:  Deposits
($ in millions)
Dec 31,
2014

 
% of  
total 
deposits 

 
Dec 31,
2013

 
% of  
total 
deposits 

 
% Change 

Noninterest-bearing
$
321,962

 
27
%
 
$
288,116

 
27
%
 
12

Interest-bearing checking
41,713

 
4

 
37,346

 
3

 
12

Market rate and other savings
585,530

 
50

 
556,763

 
52

 
5

Savings certificates
35,354

 
3

 
41,567

 
4

 
(15
)
Foreign deposits (1)
69,789

 
6

 
56,271

 
5

 
24

Core deposits
1,054,348

 
90

 
980,063

 
91

 
8

Other time and savings deposits
76,322

 
7

 
64,477

 
6

 
18

Other foreign deposits
37,640

 
3

 
34,637

 
3

 
9

Total deposits
$
1,168,310

 
100
%
 
$
1,079,177

 
100
%
 
8



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

Equity
Total equity was $185.3 billion at December 31, 2014 compared with $171.0 billion at December 31, 2013 . The increase was predominantly driven by a $14.7 billion increase in retained earnings from earnings net of dividends paid and a $2.1 billion increase in cumulative other comprehensive income (OCI). The increase in OCI was substantially due to a $3.9 billion
 
( $2.4 billion after tax) increase in net unrealized gains on our investment securities portfolio resulting from a decrease in long-term interest rates. See Note 5 (Investment Securities) to Financial Statements in this Report for additional information.




Off-Balance Sheet Arrangements

In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include commitments to lend, transactions with unconsolidated entities, guarantees, derivatives, and other commitments. These transactions are designed to (1) meet the financial needs of customers, (2) manage our credit, market or liquidity risks, and/or (3) diversify our funding sources.

Commitments to Lend and Purchase Securities
We enter into commitments to lend funds to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we make commitments, we are exposed to credit risk. However, the maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments are not expected to be fully used or will expire without being used by the customer. For more information on lending commitments, see Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. We also enter into commitments to purchase securities under resale agreements. For more information on these commitments, see Note 4 (Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments) to Financial Statements in this Report.

Transactions with Unconsolidated Entities
We routinely enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions. For more information on securitizations, including sales proceeds and cash flows from securitizations, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.
 
Guarantees and Certain Contingent Arrangements
Guarantees are contracts that contingently require 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, written put options, recourse obligations for loans and mortgages sold, and other types of arrangements.
For more information on guarantees and certain contingent arrangements, see Note 14 (Guarantees, Pledged Assets and Collateral) to Financial Statements in this Report.

Derivatives
We primarily use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. Derivatives are recorded on the balance sheet at fair value and volumes can be measured in terms of the notional amount, which is generally not exchanged, but is used only as the basis on which interest and other payments are determined. The notional amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments.
For more information on derivatives, see Note 16 (Derivatives) to Financial Statements in this Report.

Contractual Cash Obligations
In addition to the contractual commitments and arrangements previously described, which, depending on the nature of the obligation, may or may not require use of our resources, we enter into other contractual obligations that may require future cash payments in the ordinary course of business, including debt issuances for the funding of operations and leases for premises and equipment.


52

Table 15 summarizes these contractual obligations as of December 31, 2014, excluding the projected cash payments for obligations for short-term borrowing arrangements and pension and postretirement benefit plans. More information on those
 
obligations is in Note 12 (Short-Term Borrowings) and Note 20 (Employee Benefits and Other Expenses) to Financial Statements in this Report. 


Table 15:  Contractual Cash Obligations
(in millions)
Note(s) to 
Financial 
Statements 
 
Less than 
1 year 

 
1-3 
years 

 
3-5 
years 

 
More 
than 
5 years 

 
Indeterminate 
maturity 

 
Total 

Contractual payments by period:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits (1)
11
 
$
103,409

 
13,275

 
4,411

 
3,785

 
1,043,430

 
1,168,310

Long-term debt (2)
7, 13
 
16,606

 
50,790

 
52,219

 
64,328

 
—

 
183,943

Interest (3)

 
2,455

 
3,568

 
2,394

 
10,063

 
—

 
18,480

Operating leases
7
 
1,148

 
1,937

 
1,449

 
2,521

 
—

 
7,055

Unrecognized tax obligations
21
 
50

 
—

 
—

 
—

 
2,932

 
2,982

Commitments to purchase debt
and equity securities (4)

 
1,300

 
2

 
—

 
—

 
—

 
1,302

Purchase and other obligations (5)

 
493

 
461

 
83

 
10

 
—

 
1,047

Total contractual obligations
 
 
$
125,461

 
70,033

 
60,556

 
80,707

 
1,046,362

 
1,383,119


(1)
Includes interest-bearing and noninterest-bearing checking, and market rate and other savings accounts.
(2)
Balances are presented net of unamortized debt discounts and premiums and purchase accounting adjustments.
(3)
Represents the future interest obligations related to interest-bearing time deposits and long-term debt in the normal course of business including a net reduction of $27 billion related to hedges used to manage interest rate risk. These interest obligations assume no early debt redemption. We estimated variable interest rate payments using December 31, 2014, rates, which we held constant until maturity. We have excluded interest related to structured notes where our payment obligation is contingent on the performance of certain benchmarks.
(4)
Includes unfunded commitments to purchase debt and equity investments, excluding trade date payables, of $1.1 billion and $197 million, respectively. Our unfunded equity commitments include certain investments subject to the Volcker Rule, which we expect to divest in the near future. For additional information regarding the Volcker Rule, see the "Regulatory Reform" section in this Report. We have presented our contractual obligations on equity investments above in the maturing in less than one year category as there are no specified contribution dates in the agreements. These obligations may be requested at any time by the investment manager.
(5)
Represents agreements to purchase goods or services.

We are subject to the income tax laws of the U.S., its states and municipalities, and those of the foreign jurisdictions in which we operate. We have various unrecognized tax obligations related to these operations that may require future cash tax payments to various taxing authorities. Because of their uncertain nature, the expected timing and amounts of these payments generally are not reasonably estimable or determinable. We attempt to estimate the amount payable in the next 12 months based on the status of our tax examinations and settlement discussions. See Note 21 (Income Taxes) to Financial Statements in this Report for more information.
 

Transactions with Related Parties
The Related Party Disclosures topic of the Accounting Standards Codification (ASC) requires disclosure of material related party transactions, other than compensation arrangements, expense allowances and other similar items in the ordinary course of business. We had no related party transactions required to be reported for the years ended December 31, 2014 , 2013 and  2012 .



53

Risk Management
Financial institutions must manage a variety of business risks that can significantly affect their financial performance. Among the key risks that we must manage are operational risks, credit risks, and asset/liability management risks, which include interest rate, market, and liquidity and funding risks. Our risk culture is strongly rooted in our Vision and Values , and in order to succeed in our mission of satisfying all our customers’ financial needs and helping them succeed financially, our business practices and operating model must support prudent risk management practices.

Risk Management Framework and Culture
The key elements of our risk management framework and culture include the following:
•
We strongly believe in managing risk as close to the source as possible .  We manage risk through three lines of defense, and the first line of defense is our team members in our lines of business who are responsible for identifying, assessing, monitoring, managing, mitigating, and owning the risks in their businesses. All of our team members have accountability for risk management.
•
We recognize the importance of strong oversight .  Our Corporate Risk group, led by our Chief Risk Officer who reports to the Board’s Risk Committee, as well as other corporate functions such as the Law Department, Corporate Controllers, and the Human Resources Department serve as the second line of defense and provide company-wide leadership, oversight, an enterprise view, and appropriate challenge to help ensure effective and consistent understanding and management of all risks by our lines of business. Wells Fargo Audit Services, led by our Chief Auditor who reports to the Board’s Audit and Examination Committee, serves as the third line of defense and through its audit, assurance, and advisory work evaluates and helps improve the effectiveness of the governance, risk management, and control processes across the enterprise.
•
We have a significant bias for conservatism .  We strive to maintain a conservative financial position measured by satisfactory asset quality, capital levels, funding sources, and diversity of revenues. Our risk is distributed by geography, product type, industry segment, and asset class, and while we want to grow the Company, we will attempt to do so in a way that supports our long-term goals and does not compromise our ability to manage risk.
•
We have a long-term customer focus .  Our focus is on knowing our customers and meeting our customers’ long-term financial needs by offering products and value-added services that are appropriate for their needs and circumstances. In addition, our team members are committed to operational excellence, and we recognize that our infrastructure, systems, processes, and compliance programs must support the financial success of our customers through a superior customer service experience.
•
We must understand and follow our risk appetite .  Our risk management framework is based on understanding and following our overall enterprise statement of risk appetite, which describes the nature and level of risks that we are willing to take to achieve our strategic and business objectives. This statement provides
 
the philosophical underpinnings that guide business and risk leaders as they manage risk on a day-to-day basis. Our CEO and Operating Committee, which consists of our Chief Risk Officer and other senior executives, develop our enterprise statement of risk appetite in the context of our risk management framework and culture described above. The Board approves our statement of risk appetite annually, and the Board’s Risk Committee reviews and approves any proposed changes to the statement to help ensure that it remains consistent with our risk profile.
As part of our review of our risk appetite, we maintain metrics along with associated objectives to measure and monitor the amount of risk that the Company is prepared to take. Actual results of these metrics are reported to the Enterprise Risk Management Committee on a quarterly basis as well as to the Risk Committee of the Board. Our operating segments also have business-specific risk appetite statements based on the enterprise statement of risk appetite. The metrics included in the operating segment statements are harmonized with the enterprise level metrics to ensure consistency where appropriate. Business lines also maintain metrics and qualitative statements that are unique to their line of business. This allows for monitoring of risk and definition of risk appetite deeper within the organization.
Our risk culture seeks to promote proactive risk management and puts the customer first by implementing an ongoing program of training, performance management, and regular communication. Our risk culture also depends on the “tone at the top” set by our Board, CEO, and Operating Committee members. The Board and the Operating Committee are the starting point for establishing and reinforcing our risk culture and have overall and ultimate responsibility to provide oversight for the three lines of defense and the risks we take. The Board and the Operating Committee carry out their oversight through governance committees with specific risk management responsibilities described below.
Board Oversight of Risk
The Board allocates its oversight responsibilities across its seven standing committees, all of which report to the full Board. Each Board committee has defined authorities and responsibilities for considering a specific set of risk issues, as outlined in each of their charters and as summarized on the following chart, and works closely with management to understand and oversee the Company’s key risk exposures. Allocating risk responsibilities among each Board level committee increases the overall amount of attention devoted to risk management. The Risk Committee serves as a focal point for enterprise-wide risk issues, overseeing all key risks facing the Company, and supports and assists the other six Board level committees as they consider their specific risk issues. To ensure that the Risk Committee does not duplicate the risk oversight efforts of other Board committees, the Risk Committee includes the Chairs of each of the Board’s other standing committees to provide a comprehensive perspective on risk across the Company and across all individual risk types. In addition to providing a forum for risk issues at the Board level, the Risk Committee plays an active role in approving and overseeing the Company’s enterprise-wide risk management framework established by management to manage risk, and the functional framework and oversight policies established by


54

management for each key risk type. The Risk Committee also reviews and approves the enterprise statement of risk appetite and the enterprise-wide limit structure, and actively monitors the risk profile relative to the approved risk appetite.


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Board of Directors
Annually approves overall enterprise risk appetite statement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Board Committees
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Committee
Oversight includes:
•
Enterprise-wide risk management framework, which outlines the policies, processes, and governance structures used to execute the Company’s risk management program
•
Functional framework and oversight policies, which outline roles and responsibilities for managing key risk types
•
Corporate Risk function, including performance of the Chief Risk Officer
•
Aggregate enterprise-wide risk profile and alignment of risk profile with Company strategy, goals, objectives, and risk appetite
•
Risk appetite statement, including changes in risk appetite, and adherence to risk limits
•
Risks associated with acquisitions and significant new business or strategic initiatives
•
Liquidity and funding risks, emerging risk, strategic risk, and cross-functional risk
 
Audit & Examination Committee
Oversight includes:
•
Internal controls over financial reporting
•
External auditor performance
•
Internal audit function, including performance of the Chief Auditor
•
Operational risk (including technology), compliance with legal and regulatory requirements, and financial crimes (BSA/AML) risk
•
Ethics, business conduct, and conflicts of interest program
 
 
Credit Committee
Oversight includes:
•
Credit risk, including high risk portfolios
•
Allowance for credit losses, including governance and methodology
•
Adherence to enterprise credit risk appetite metrics and concentration limits
•
Compliance with credit risk framework, policies and underwriting standards
•
Credit stress testing activities
•
Risk Asset Review organization, resources, and examinations of credit portfolios, processes, and practices
 
Corporate Responsibility Committee
Oversight includes:
•
Fair and responsible mortgage and other consumer lending reputational risks
•
Reputation, including with customers, as well as customer service and complaint matters
•
Social responsibility risks, including political and environmental risks
 
 
 
 
Human Resources Committee
Oversight includes:
•
Compensation risk management
•
Talent management and succession planning
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Governance & Nominating Committee
Oversight includes:
•
Corporate governance compliance
•
Board and committee performance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Finance Committee
Oversight includes:
•
Interest rate risk, including the MSR
•
Market risk, including trading and derivative activities, and counterparty risks
•
Investment risk, including fixed-income, and equity portfolios
•
Capital adequacy assessment and planning, and stress testing activities
•
Annual financial plan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



55

Risk Management ( continued )

Management Oversight of Risk
In addition to the Board level committees that consider risk issues, the Company has established several management-level governance committees (governance committees) to support Wells Fargo leaders in carrying out their responsibilities to manage risk on a daily basis. Each governance committee has a defined set of authorities and responsibilities specific to a single risk type or set of risk types. Accordingly, risk governance committees are responsible for making decisions on risk issues in line with each committee’s authorities, or escalating issues up the committee structure for further consideration.
The Enterprise Risk Management Committee, chaired by the Wells Fargo Chief Risk Officer, oversees the management of all types of risk across the Company. The Enterprise Risk Management Committee reports into and escalates matters directly to the Board’s Risk Committee, and as such serves as the focal point for risk governance and monitoring at the management level. The Enterprise Risk Management Committee is responsible for monitoring and evaluating the Company’s risk profile relative to its risk appetite across risk types, businesses, and activities; providing active oversight of risk mitigation and the adequacy of risk management resources, skills, and capabilities across the enterprise; reporting periodically to senior management and the Board on the most significant current and emerging risks, risk management issues, initiatives, and concerns; and addressing key risk issues which are escalated to it by its members or its reporting committees.
A number of governance committees that are responsible for issues specific to an individual risk type report into the Enterprise Risk Management Committee, including the Market Risk Committee, the Corporate Model Risk Committee, the Counterparty Credit Risk Committee, the Operational Risk Management Committee, the Regulatory Compliance Risk Management Committee, the BSA/AML (Financial Crimes) Risk Committee, the International Oversight Committee, and the Legal Entity Governance Committee. Certain of these governance committees have dual escalation and/or informational reporting paths to the Board level committee primarily responsible for the oversight of the specific risk type.
The Market Risk Committee is responsible for addressing key market risk management issues related to the Company’s trading, hedging, market-making, and investment activities. The Corporate Model Risk Committee assists in evaluating and managing the Company’s exposure to model risk and conducts oversight of the model risk management processes. The Counterparty Credit Risk Committee provides broad oversight of Wells Fargo’s counterparty risk-taking activities and issuer concentration risk. The Operational Risk Management Committee’s primary responsibility is to understand operational risk issues and concerns and work with management across the Company to ensure risks are managed effectively. The mandates of the Regulatory Compliance Risk Management Committee and the BSA/AML (Financial Crimes) Risk Committee are to provide forums through which material regulatory compliance and BSA/AML risks of the Company, respectively, are appropriately identified, communicated, escalated, and managed within the Company’s corresponding risk management frameworks.
 
The International Oversight Committee provides broad oversight of the Company’s foreign risk exposure to ensure it is consistent with the overall risk appetite of the Company. The Legal Entity Governance Committee provides executive leadership and oversight of the legal entity lifecycle framework and related corporate policies.
While the Enterprise Risk Management Committee and the committees that report to it serve as the focal point for the management of enterprise-wide risk issues, the management of specific risk types is supported by additional management-level governance committees. These committees include the SOX Disclosure Committee, the Regulatory Reporting Oversight Committee, the Capital Reporting Sub-committee, which all report to the Board’s Audit & Examination Committee; the Stress Testing Committee, the Corporate Asset and Liability Committee, the Economic Scenario Approval Committee, which all report to the Board’s Finance Committee; the Allowance for Credit Losses Approval Committee, which reports to the Board’s Credit Committee; and the Incentive Compensation Committee and the Employee Benefit Review Committee, which both report to the Board’s Human Resources Committee.
These committees help management facilitate enterprise-wide understanding and monitoring of risks and challenges faced by the Company. Management’s corporate risk organization, which is part of the second line of defense, is headed by the Company’s Chief Risk Officer who, among other things, provides oversight, opines on the performance and strategy of all risks taken by the businesses, and provides credible challenge to risks incurred. The Chief Risk Officer, as well as the Chief Enterprise, Credit, Market, Compliance, Operational, Information Security and Financial Crimes Risk Officers as his or her direct reports, work closely with the Board’s committees and frequently provide reports and updates to the committees and the committee chairs on risk issues during and outside of regular committee meetings, as appropriate. The full Board receives reports at each of its meetings from the committee chairs about committee activities, including risk oversight matters, and receives a quarterly report from the Enterprise Risk Management Committee regarding current or emerging risk issues.



56

Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal controls and processes, people and systems, or resulting from external events. These losses may be caused by events such as fraud, breaches of customer privacy, business disruptions, inappropriate employee behavior, vendors that do not perform their responsibilities and regulatory fines and penalties.
To address these risks, Wells Fargo maintains an operational risk management framework that includes the following objectives:
•
Provide a structured approach for identifying, measuring, managing, reporting, and monitoring operational risks across all areas of Wells Fargo;
•
Understand operational risk across the Company by establishing and maintaining an effective operational risk management program;
•
Adequately control operational risk-related losses;
•
Establish and hold an appropriate level of capital for such losses in accordance with regulatory guidance; and
•
Support the Board as it carries out its oversight duties and responsibilities relating to management’s establishment of an effective operational risk management program.

Wells Fargo’s operational risk management program seeks to accomplish these objectives by managing operational risk across the Company in a comprehensive, interconnected, and consistent manner, in line with the enterprise statement of risk appetite and relevant regulatory requirements.
The Audit & Examination Committee of the Board (A&E Committee) has primary responsibility for oversight of operational risk. In this capacity it reviews and approves the operational risk management framework and significant supporting risk policies and programs, including the Company’s business continuity, information security, and third party risk management policies and programs. The A&E Committee periodically reviews updates from management on the state of operational risk and the general condition of operational risk management in the Company.
 
At the management level, the Operational Risk Management Committee oversees operational risk management across the Company and informs and advises the Chief Operational Risk Officer on matters that affect the Company's operational risk profile.
Information security is a significant operational risk for financial institutions such as Wells Fargo, and includes the risk of losses resulting from cyber attacks. Wells Fargo and other financial institutions continue to be the target of various evolving and adaptive cyber attacks, including malware and denial-of-service, as part of an effort to disrupt the operations of financial institutions, potentially test their cybersecurity capabilities, or obtain confidential, proprietary or other information. Wells Fargo has not experienced any material losses relating to these or other cyber attacks. Addressing cybersecurity risks is a priority for Wells Fargo, and we continue to develop and enhance our controls, processes and systems in order to protect our networks, computers, software and data from attack, damage or unauthorized access. We are also proactively involved in industry cybersecurity efforts and working with other parties, including our third-party service providers and governmental agencies, to continue to enhance defenses and improve resiliency to cybersecurity threats. See the “Risk Factors” section in 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.




57

Credit Risk Management
We define credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms). Credit risk exists with many of our assets and exposures such as debt security holdings, certain derivatives, and loans. The following discussion focuses on our loan portfolios, which represent the largest component of assets on our balance sheet for which we have credit risk. Table 16 presents our total loans outstanding by portfolio segment and class of financing receivable.

Table 16:  Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable
 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

Commercial:
 
 
 
Commercial and industrial
$
271,795

 
235,358

Real estate mortgage
111,996

 
112,427

Real estate construction
18,728

 
16,934

Lease financing
12,307

 
12,371

Total commercial
414,826

 
377,090

Consumer:
 
 
 
Real estate 1-4 family first mortgage
265,386

 
258,507

Real estate 1-4 family junior lien mortgage
59,717

 
65,950

Credit card
31,119

 
26,882

Automobile
55,740

 
50,808

Other revolving credit and installment
35,763

 
43,049

Total consumer
447,725

 
445,196

Total loans
$
862,551

 
822,286


We manage our credit risk by establishing what we believe are sound credit policies for underwriting new business, while monitoring and reviewing the performance of our existing loan portfolios. We employ various credit risk management and monitoring activities to mitigate risks associated with multiple risk factors affecting loans we hold, could acquire or originate including: 
• Loan concentrations and related credit quality
• Counterparty credit risk
• Economic and market conditions
• Legislative or regulatory mandates
• Changes in interest rates
• Merger and acquisition activities
• Reputation risk
 
Our credit risk management oversight process is governed centrally, but provides for decentralized management and accountability by our lines of business. Our overall credit process includes comprehensive credit policies, disciplined credit underwriting, frequent and detailed risk measurement and modeling, extensive credit training programs, and a continual loan review and audit process.
A key to our credit risk management is adherence to a well-controlled underwriting process, which we believe is appropriate for the needs of our customers as well as investors who purchase the loans or securities collateralized by the loans.
 
Credit Quality Overview   Credit quality continued to improve during 2014 due in part to improving economic conditions, in particular the housing market, as well as our proactive credit risk management activities. The improvement occurred for both commercial and consumer portfolios as evidenced by their credit metrics:
•
Nonaccrual loans decreased to $2.2 billion and $10.6 billion in our commercial and consumer portfolios, respectively, at December 31, 2014 , from $3.5 billion and $12.2 billion at December 31, 2013 . Nonaccrual loans represented 1.49% of total loans at December 31, 2014 , compared with 1.91% at December 31, 2013 .
•
Net charge-offs as a percentage of average total loans improved to 0.35% in 2014 compared with 0.56% a year ago and were 0.01% and 0.65% in our commercial and consumer portfolios, respectively, compared with 0.06% and 0.98% in 2013.
•
Loans that are not government insured/guaranteed and 90 days or more past due and still accruing decreased to $47 million and $873 million in our commercial and consumer portfolios, respectively, at December 31, 2014 , from $143 million and $902 million at December 31, 2013 .

In addition to credit metric improvements, we continued to see improvement in various economic indicators such as home prices that influenced our evaluation of the allowance and provision for credit losses. Accordingly:
•
Our provision for credit losses decreased to $1.4 billion in 2014 from $2.3 billion in 2013.
•
The allowance for credit losses decreased to $13.2 billion or 1.53% of total loans, at December 31, 2014 from $15.0 billion or 1.82% of total loans, at December 31, 2013 .

Additional information on our loan portfolios and our credit quality trends follows.

Non-Strategic and Liquidating Loan Portfolios   We continually evaluate and, when appropriate, modify our credit policies to address appropriate levels of risk. We may designate certain portfolios and loan products as non-strategic or liquidating after which we cease their continued origination and actively work to limit losses and reduce our exposures.
Table 17 identifies our non-strategic and liquidating loan portfolios. They consist primarily of the Pick-a-Pay mortgage portfolio and PCI loans acquired from Wachovia, certain portfolios from legacy Wells Fargo Home Equity and Wells Fargo Financial, and our education finance government guaranteed loan portfolio. We transferred the government guaranteed student loan portfolio to loans held for sale at the end of second quarter 2014, and substantially all of the portfolio was sold as of December 31, 2014. The total balance of our non-strategic and liquidating loan portfolios has decreased 68 % since the merger with Wachovia at December 31, 2008, and decreased 25 % from the end of 2013.
Additional information regarding the liquidating PCI and Pick-a-Pay loan portfolios is provided in the discussion of loan portfolios that follows.


58

Table 17:  Non-Strategic and Liquidating Loan Portfolios
 
Outstanding balance 
 
 
Dec 31,

 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

 
2008

Commercial:
 
 
 
 
 
Legacy Wachovia commercial and industrial and commercial real estate PCI loans (1)
$
1,125

 
2,013

 
18,704

Total commercial
1,125

 
2,013

 
18,704

Consumer:
 
 
 
 
 
Pick-a-Pay mortgage (1)(2)
45,002

 
50,971

 
95,315

Legacy Wells Fargo Financial debt consolidation
11,417

 
12,893

 
25,299

Liquidating home equity
2,910

 
3,695

 
10,309

Legacy Wachovia other PCI loans (1)
300

 
375

 
2,478

Legacy Wells Fargo Financial indirect auto
34

 
207

 
18,221

Education Finance - government insured (3)
—

 
10,712

 
20,465

Total consumer
59,663

 
78,853

 
172,087

Total non-strategic and liquidating loan portfolios
$
60,788

 
80,866

 
190,791


(1)
Net of purchase accounting adjustments related to PCI loans.
(2)
Includes PCI loans of $21.5 billion, $23.8 billion and $37.6 billion at December 31, 2014, 2013 and 2008, respectively.
(3)
The government guaranteed student loan portfolio was transferred to held for sale during 2014, and substantially all of the portfolio was sold as of December 31, 2014.


PURCHASED CREDIT-IMPAIRED (PCI) LOANS   Loans acquired with evidence of credit deterioration since their origination and where it is probable that we will not collect all contractually required principal and interest payments are PCI loans. Substantially all of our PCI loans were acquired in the Wachovia acquisition on December 31, 2008. PCI loans are recorded at fair value at the date of acquisition, and the historical allowance for credit losses related to these loans is not carried over. The carrying value of PCI loans totaled $23.3 billion at December 31, 2014 , down from $26.7 billion and $58.8 billion at December 31, 2013 and 2008, respectively. Such loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments. The accretable yield at December 31, 2014 , was $17.8 billion . 
A nonaccretable difference is established for PCI loans to absorb losses expected on those loans at the date of acquisition. Amounts absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses.
Substantially all commercial and industrial and commercial real estate (CRE) PCI loans are accounted for as individual loans. Conversely, Pick-a-Pay and other consumer PCI loans have been aggregated into pools based on common risk characteristics. Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
 
Resolutions of loans may include sales to third parties, receipt of payments in settlement with the borrower, or foreclosure of the collateral. Our policy is to remove an individual PCI loan from a pool based on comparing the amount received from its resolution with its contractual amount. Any difference between these amounts is absorbed by the nonaccretable difference. This removal method assumes that the amount received from resolution approximates pool performance expectations. The accretable yield percentage is unaffected by the resolution and any changes in the effective yield for the remaining loans in the pool are addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full, there is no release of the nonaccretable difference for the pool because there is no difference between the amount received at resolution and the contractual amount of the loan. Modified PCI loans are not removed from a pool even if those loans would otherwise be deemed TDRs. Modified PCI loans that are accounted for individually are TDRs, and removed from PCI accounting, if there has been a concession granted in excess of the original nonaccretable difference. We include these TDRs in our impaired loans.
During 2014 , we recognized as income $61 million released from the nonaccretable difference related to commercial PCI loans due to payoffs and other resolutions. We also transferred $2.2 billion from the nonaccretable difference to the accretable yield for PCI loans with improving credit-related cash flows and recognized $31 million f or recoveries of previous write-downs. Our cash flows expected to be collected have been favorably affected by lower than expected defaults and losses as a result of observed economic strengthening, particularly in housing prices, and by our loan modification efforts. Table 18 provides an analysis of changes in the nonaccretable difference.


59

Risk Management - Credit Risk Management ( continued )

Table 18:  Changes in Nonaccretable Difference for PCI Loans
 
 
 
 
 
 
 
(in millions)
Commercial 

 
Pick-a-Pay 

 
Other consumer 

 
Total 

Balance, December 31, 2008
$
10,410

 
26,485

 
4,069

 
40,964

Addition of nonaccretable difference due to acquisitions
195

 
—

 
—

 
195

Release of nonaccretable difference due to:
 
 
 
 
 
 
 
Loans resolved by settlement with borrower (1)
(1,426
)
 
—

 
—

 
(1,426
)
Loans resolved by sales to third parties (2)
(303
)
 
—

 
(85
)
 
(388
)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)
(1,531
)
 
(3,031
)
 
(792
)
 
(5,354
)
Use of nonaccretable difference due to:
 
 
 
 
 
 
 
Losses from loan resolutions and write-downs (4)
(6,923
)
 
(17,222
)
 
(2,882
)
 
(27,027
)
Balance, December 31, 2012
422

 
6,232

 
310

 
6,964

Addition of nonaccretable difference due to acquisitions
18

 
—

 
—

 
18

Release of nonaccretable difference due to:
 
 
 
 
 
 
 
Loans resolved by settlement with borrower (1)
(86
)
 
—

 
—

 
(86
)
Loans resolved by sales to third parties (2)
(5
)
 
—

 
—

 
(5
)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)
(74
)
 
(866
)
 
(31
)
 
(971
)
Use of nonaccretable difference due to:
 
 
 
 
 
 
 
Losses from loan resolutions and write-downs (4)
(10
)
 
(662
)
 
(79
)
 
(751
)
Balance, December 31, 2013
265

 
4,704

 
200

 
5,169

Addition of nonaccretable difference due to acquisitions
13

 
—

 
—

 
13

Release of nonaccretable difference due to:
 
 
 
 

 
 
Loans resolved by settlement with borrower (1)
(33
)
 
—

 
—

 
(33
)
Loans resolved by sales to third parties (2)
(28
)
 
—

 
—

 
(28
)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)
(129
)
 
(2,094
)
 
(20
)
 
(2,243
)
Use of nonaccretable difference due to:
 
 
 
 
 
 
 
Net recoveries (losses) from loan resolutions and write-downs (4)
(15
)
 
29

 
17

 
31

Balance, December 31, 2014
$
73

 
2,639

 
197

 
2,909


(1)
Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases for settlements with borrowers due to pool accounting for those loans, which assumes that the amount received approximates the pool performance expectations.
(2)
Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.
(3)
Reclassification of nonaccretable difference to accretable yield will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.
(4)
Write-downs to net realizable value of PCI loans are absorbed by the nonaccretable difference when severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan. Also includes foreign exchange adjustments related to underlying principal for which the nonaccretable difference was established.

Since December 31, 2008, we have released $10.5 billion in nonaccretable difference, including $8.6 billion transferred from the nonaccretable difference to the accretable yield and $1.9 billion released to income through loan resolutions. Also, we have provided $1.7 billion for losses on certain PCI loans or pools of PCI loans that have had credit-related decreases to cash flows expected to be collected. The net result is an $8.8 billion reduction from December 31, 2008, through December 31, 2014 , in our initial projected losses of $41.0 billion on all PCI loans.
 
At December 31, 2014 , the allowance for credit losses on certain PCI loans was $11 million . The allowance is to absorb credit-related decreases in cash flows expected to be collected and primarily relates to individual PCI commercial loans. Table 19 analyzes the actual and projected loss results on PCI loans since acquisition through December 31, 2014 . 
For additional information on PCI loans, see Note 1 (Summary of Significant Accounting Policies – Loans) and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. 


60

Table 19:  Actual and Projected Loss Results on PCI Loans Since Acquisition of Wachovia
(in millions)
Commercial 

 
Pick-a-Pay 

 
Other consumer 

 
Total 

Release of nonaccretable difference due to:
 
 
 
 
 
 
 
Loans resolved by settlement with borrower (1)
$
1,545

 
—

 
—

 
1,545

Loans resolved by sales to third parties (2)
336

 
—

 
85

 
421

Reclassification to accretable yield for loans with improving credit-related cash flows (3)
1,734

 
5,991

 
843

 
8,568

Total releases of nonaccretable difference due to better than expected losses
3,615

 
5,991

 
928

 
10,534

Provision for losses due to credit deterioration (4)
(1,629
)
 
—

 
(104
)
 
(1,733
)
Actual and projected losses on PCI loans less than originally expected
$
1,986

 
5,991

 
824

 
8,801


(1)
Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases for settlements with borrowers due to pool accounting for those loans, which assumes that the amount received approximates the pool performance expectations.
(2)
Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.
(3)
Reclassification of nonaccretable difference to accretable yield will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.
(4)
Provision for additional losses is recorded as a charge to income when it is estimated that the cash flows expected to be collected for a PCI loan or pool of loans may not support full realization of the carrying value.

Significant Loan Portfolio Reviews    Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, FICO scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an appropriate allowance for credit losses. The following discussion provides additional characteristics and analysis of our significant portfolios. See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information for each of the following portfolios.

COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING   For purposes of portfolio risk management, we aggregate commercial and industrial loans and lease financing according to market segmentation and standard industry codes. We generally subject commercial and industrial loans and lease financing to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatory definitions of pass and criticized categories with criticized divided between special mention, substandard, doubtful and loss categories.
The commercial and industrial loans and lease financing portfolio totaled $284.1 billion or 33% of total loans at December 31, 2014 . The net charge-off rate for this portfolio was 0.10% in 2014 compared with 0.15% in 2013 . At December 31, 2014 , 0.20% of this portfolio was nonaccruing, compared with 0.32% at December 31, 2013 . In addition, $16.7 billion of this portfolio was rated as criticized in accordance with regulatory guidance at December 31, 2014 , compared with $17.5 billion at December 31, 2013 . 
A majority of our commercial and industrial loans and lease financing portfolio is secured by short-term assets, such as accounts receivable, inventory and securities, as well as long-lived assets, such as equipment and other business assets. Generally, the collateral securing this portfolio represents a secondary source of repayment.
 
Table 20 provides a breakout of commercial and industrial loans and lease financing by industry, and includes $45.0 billion of foreign loans at December 31, 2014, that were reported in a separate foreign loan class in prior periods. Foreign loans totaled $14.9 billion within the investors category, $18.1 billion within the financial institutions category and $1.3 billion within the oil and gas category.
The investors category includes loans to special purpose vehicles (SPVs) formed by sponsoring entities to invest in financial assets backed predominantly by commercial and residential real estate or corporate cash flow, and are repaid from the asset cash flows or the sale of assets by the SPV. We limit loan amounts to a percentage of the value of the underlying assets, as determined by us, based primarily on analysis of underlying credit risk and other factors such as asset duration and ongoing performance.
The $18.1 billion of foreign loans in the financial institutions category were primarily originated by our Global Financial Institutions (GFI) business. GFI has relationships with over 1,500 financial institutions, many of which are headquartered outside the U.S., and for whom we provide a variety of relationship focused products and services, including loans supporting short-term trade finance and working capital needs.
Slightly more than half of our oil and gas loans were to businesses in the exploration and production (E&P) sector. Nearly all of these E&P loans are secured by oil and/or gas reserves and have underlying borrowing base arrangements which include regular (typically semi-annual) “redeterminations” that consider refinements to borrowing structure and prices used to determine borrowing limits. The remainder of the oil and gas loans were to midstream and services and equipment companies.



61

Risk Management - Credit Risk Management ( continued )

Table 20: Commercial and Industrial Loans and Lease Financing by Industry (1)
 
December 31, 2014
 
(in millions)
Nonaccrual loans 

 
Total portfolio 

(2)
% of total loans 

Investors
$
40

 
39,192

 
5
%
Financial institutions
26

 
38,256

 
4

Oil and gas
76

 
18,410

 
2

Food and beverage
16

 
14,029

 
2

Real estate lessor
3

 
13,030

 
2

Cyclical retailers
24

 
12,971

 
2

Healthcare
26

 
12,914

 
1

Industrial equipment
4

 
12,898

 
1

Technology
9

 
8,320

 
1

Public administration
10

 
8,120

 
1

Transportation
3

 
7,184

 
1

Business services
27

 
7,018

 
1

Other
298

 
91,760

(3)
10

Total
$
562

 
284,102

 
33
%

(1)
Industry categories are based on the North American Industry Classification System and the amounts reported include foreign loans, which were reported in a separate foreign loan class in prior periods. See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for a breakout of commercial foreign loans.
(2)
Includes $75 million PCI loans, which are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.
(3)
No other single category had loans in excess of $5.5 billion.

Risk mitigation actions, including the restructuring of repayment terms, securing collateral or guarantees, and entering into extensions, are based on a re-underwriting of the loan and our assessment of the borrower’s ability to perform under 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 borrower is insufficient to repay our loan, we may rely upon the support of an outside repayment guarantee in providing the extension.
 
Our ability to seek performance under a guarantee is directly related to the guarantor’s creditworthiness, capacity and willingness to perform, which is evaluated on an annual basis, or more frequently as warranted. Our evaluation is based on the most current financial information available and is focused on various key financial metrics, including net worth, leverage, and current and future liquidity. We consider the guarantor’s reputation, creditworthiness, and willingness to work with us based on our analysis as well as other lenders’ experience with the guarantor. Our assessment of the guarantor’s credit strength is reflected in our loan risk ratings for such loans. The loan risk rating and accruing status are important factors in our allowance methodology.
In considering the accrual status of the loan, we evaluate the collateral and future cash flows as well as the anticipated support of any repayment guarantor. In many cases the strength of the guarantor provides sufficient assurance that full repayment of the loan is expected. When full and timely collection of the loan becomes uncertain, including the performance of the guarantor, we place the loan on nonaccrual status. As appropriate, we also charge the loan down in accordance with our charge-off policies, generally to the net realizable value of the collateral securing the loan, if any.




62

COMMERCIAL REAL ESTATE (CRE)  We generally subject CRE loans to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatory definitions of pass and criticized categories with criticized divided between special mention, substandard, doubtful and loss categories. The CRE portfolio, which included $5.0 billion of foreign CRE loans, totaled $130.7 billion, or 15%, of total loans at December 31, 2014 , and consisted of $112.0 billion of mortgage loans and $18.7 billion of construction loans. Foreign loans were not reported in this category in prior periods, but in a separate foreign loan class. Table 21 summarizes CRE loans by state and property type with the related nonaccrual totals. The portfolio is diversified both geographically and by property type. The largest geographic concentrations of combined CRE loans are in California (28% of
 
the total CRE portfolio), and in Texas and Florida (8% in each state). By property type, the largest concentrations are office buildings at 27% and apartments at 14% of the portfolio. CRE nonaccrual loans totaled 1.3% of the CRE outstanding balance at December 31, 2014 , compared with 2.1% at December 31, 2013 . At December 31, 2014 , we had $7.9 billion of criticized CRE mortgage loans, down from $13.1 billion at December 31, 2013 , and $949 million of criticized CRE construction loans, down from $2.1 billion at December 31, 2013 . 
At December 31, 2014 , the recorded investment in PCI CRE loans totaled $1.4 billion, down from $12.3 billion when acquired at December 31, 2008, reflecting principal payments, loan resolutions and write-downs.


Table 21:  CRE Loans by State and Property Type
 
December 31, 2014
 
 
Real estate mortgage 
 
 
Real estate construction 
 
 
Total 
 
 
% of

(in millions)
Nonaccrual loans 

 
Total portfolio 

(1)
Nonaccrual loans 

 
Total portfolio 

(1)
Nonaccrual loans 

 
Total portfolio 

(1)
total
 loans 

By state:
 
 
 
 
 
 
 
 
 
 
 
 
 
California
$
371

 
32,993

 
28

 
3,589

 
399

 
36,582

 
4
%
Texas
96

 
8,641

 
—

 
1,735

 
96

 
10,376

 
1

Florida
182

 
7,942

 
8

 
1,892

 
190

 
9,834

 
1

New York
40

 
6,851

 
4

 
1,233

 
44

 
8,084

 
1

North Carolina
85

 
3,847

 
8

 
1,048

 
93

 
4,895

 
1

Arizona
77

 
3,646

 
1

 
402

 
78

 
4,048

 
*

Washington
32

 
3,227

 
1

 
603

 
33

 
3,830

 
*

Virginia
40

 
2,444

 
4

 
1,039

 
44

 
3,483

 
*

Georgia
104

 
3,048

 
28

 
427

 
132

 
3,475

 
*

Colorado
27

 
2,775

 
1

 
440

 
28

 
3,215

 
*

Other
436

 
36,582

 
104

 
6,320

 
540

 
42,902

(2)
5

Total
$
1,490

 
111,996

 
187

 
18,728

 
1,677

 
130,724

 
15
%
By property:
 
 
 
 
 
 
 
 
 
 
 
 
 
Office buildings
$
405

 
33,438

 
1

 
2,338

 
406

 
35,776

 
4
%
Apartments
43

 
11,910

 
4

 
6,315

 
47

 
18,225

 
2

Industrial/warehouse
234

 
12,225

 
—

 
1,082

 
234

 
13,307

 
2

Retail (excluding shopping center)
183

 
12,100

 
2

 
866

 
185

 
12,966

 
2

Real estate - other
188

 
10,929

 
—

 
388

 
188

 
11,317

 
1

Hotel/motel
74

 
8,770

 
—

 
986

 
74

 
9,756

 
1

Shopping center
79

 
8,541

 
—

 
1,185

 
79

 
9,726

 
1

Institutional
70

 
3,168

 
—

 
432

 
70

 
3,600

 
*

Agriculture
33

 
2,370

 
—

 
24

 
33

 
2,394

 
*

Land (excluding 1-4 family)
3

 
114

 
32

 
2,253

 
35

 
2,367

 
*

Other
178

 
8,431

 
148

 
2,859

 
326

 
11,290

 
1

Total
$
1,490

 
111,996

 
187

 
18,728

 
1,677

 
130,724

 
15
%

*    Less than 1%.
(1)
Includes a total of $1.4 billion PCI loans, consisting of $1.3 billion of real estate mortgage and $171 million of real estate construction, which are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.
(2)
Includes 40 states; no state had loans in excess of $3.0 billion.




63

Risk Management - Credit Risk Management ( continued )

FOREIGN LOANS AND COUNTRY RISK EXPOSURE  We classify loans for financial statement and certain regulatory purposes as foreign primarily based on whether the borrower’s primary address is outside of the United States. At December 31, 2014 , foreign loans totaled $50.6 billion, representing approximately 6% of our total consolidated loans outstanding, compared with $47.6 billion, or approximately 6% of total consolidated loans outstanding, at December 31, 2013 . Foreign loans were approximately 3% of our consolidated total assets at December 31, 2014 and at December 31, 2013 .
Our foreign country risk monitoring process incorporates frequent dialogue with our financial institution customers, counterparties and regulatory agencies, enhanced by centralized monitoring of macroeconomic and capital markets conditions in the respective countries. We establish exposure limits for each country through a centralized oversight process based on customer needs, and in consideration of relevant economic, political, social, legal, and transfer risks. We monitor exposures closely and adjust our country limits in response to changing conditions.
We evaluate our individual country risk exposure on an ultimate country of risk basis, which is normally based on the country of residence of the guarantor or collateral location, and is different from the reporting based on the borrower’s primary
 
address. Our largest single foreign country exposure on an ultimate risk basis at December 31, 2014 , was the United Kingdom, which totaled $21.1 billion, or approximately 1% of our total assets, and included $5.0 billion of sovereign claims. Our United Kingdom sovereign claims arise primarily from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch.
We conduct periodic stress tests of our significant country risk exposures, analyzing the direct and indirect impacts on the risk of loss from various macroeconomic and capital markets scenarios. We do not have significant exposure to foreign country risks because our foreign portfolio is relatively small. However, we have identified exposure to increased loss from U.S. borrowers associated with the potential impact of a regional or worldwide economic downturn on the U.S. economy. We mitigate these potential impacts on the risk of loss through our normal risk management processes which include active monitoring and, if necessary, the application of aggressive loss mitigation strategies.
Table 22 provides information regarding our top 20 exposures by country (excluding the U.S.) and our Eurozone exposure, on an ultimate risk basis.



64

Table 22:  Select Country Exposures
 
Lending (1)
 
 
Securities (2)
 
 
Derivatives and other (3)
 
 
Total exposure
 
(in millions)
Sovereign

 
Non-sovereign

 
Sovereign

 
Non-sovereign

 
Sovereign

 
Non-sovereign

 
Sovereign

 
Non-
sovereign (4)

 
Total

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Top 20 country exposures:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United Kingdom
$
5,014

 
11,014

 
1

 
3,710

 
—

 
1,371

 
5,015

 
16,095

 
21,110

Canada
—

 
8,283

 
—

 
1,251

 
—

 
365

 
—

 
9,899

 
9,899

China
—

 
2,838

 
—

 
113

 
—

 
27

 
—

 
2,978

 
2,978

Brazil
—

 
2,645

 
4

 
28

 
—

 
4

 
4

 
2,677

 
2,681

Netherlands
—

 
2,262

 
—

 
268

 
—

 
37

 
—

 
2,567

 
2,567

France
—

 
882

 
—

 
1,145

 
—

 
343

 
—

 
2,370

 
2,370

Germany
94

 
1,323

 
60

 
599

 
—

 
137

 
154

 
2,059

 
2,213

Bermuda
—

 
1,937

 
—

 
65

 
—

 
26

 
—

 
2,028

 
2,028

India
—

 
1,625

 
—

 
121

 
—

 
—

 
—

 
1,746

 
1,746

Cayman Islands
—

 
1,588

 
—

 
—

 
—

 
26

 
—

 
1,614

 
1,614

Turkey
—

 
1,588

 
—

 
—

 
—

 
1

 
—

 
1,589

 
1,589

Switzerland
—

 
1,044

 
—

 
362

 
—

 
122

 
—

 
1,528

 
1,528

Luxembourg
—

 
1,391

 
—

 
95

 
—

 
9

 
—

 
1,495

 
1,495

Chile
—

 
1,426

 
—

 
23

 
—

 
33

 
—

 
1,482

 
1,482

Mexico
—

 
1,192

 
—

 
43

 
67

 
4

 
67

 
1,239

 
1,306

Ireland
53

 
1,101

 
—

 
104

 
—

 
16

 
53

 
1,221

 
1,274

Australia
22

 
641

 
—

 
558

 
—

 
36

 
22

 
1,235

 
1,257

South Korea
—

 
945

 
13

 
17

 
23

 
—

 
36

 
962

 
998

Jersey, C.I.
—

 
647

 
—

 
193

 
—

 
1

 
—

 
841

 
841

Spain
—

 
673

 
—

 
70

 
—

 
33

 
—

 
776

 
776

Total top 20 country exposures
$
5,183

 
45,045

 
78

 
8,765

 
90

 
2,591

 
5,351

 
56,401

 
61,752

Eurozone exposure:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eurozone countries included in Top 20 above (5)
$
147

 
7,632

 
60

 
2,281

 
—

 
575

 
207

 
10,488

 
10,695

Austria
77

 
396

 
—

 
—

 
—

 
—

 
77

 
396

 
473

Italy
—

 
206

 
—

 
73

 
—

 
6

 
—

 
285

 
285

Belgium
—

 
103

 
—

 
19

 
—

 
9

 
—

 
131

 
131

Other Eurozone countries (6)
—

 
37

 
—

 
38

 
—

 
2

 
—

 
77

 
77

Total Eurozone exposure
$
224

 
8,374

 
60

 
2,411

 
—

 
592

 
284

 
11,377

 
11,661


(1)
Lending exposure includes funded loans and unfunded commitments, leveraged leases, and money market placements presented on a gross basis prior to the deduction of impairment allowance and collateral received under the terms of the credit agreements. For the countries listed above, includes $373 million in PCI loans, predominantly to customers in Jersey, C.I. and the Netherlands, and $1.8 billion in defeased leases secured largely by U.S. Treasury and government agency securities, or government guaranteed.
(2)
Represents issuer exposure on cross-border debt and equity securities.
(3)
Represents counterparty exposure on foreign exchange and derivative contracts, and securities resale and lending agreements. This exposure is presented net of counterparty netting adjustments and reduced by the amount of cash collateral. It includes credit default swaps (CDS) predominantly used to manage our U.S. and London-based cash credit trading businesses, which sometimes results in selling and purchasing protection on the identical reference entity. Generally, we do not use market instruments such as CDS to hedge the credit risk of our investment or loan positions, although we do use them to manage risk in our trading businesses. At December 31, 2014 , the gross notional amount of our CDS sold that reference assets in the Top 20 or Eurozone countries was $3.3 billion, which was offset by the notional amount of CDS purchased of $3.4 billion. We did not have any CDS purchased or sold that reference pools of assets that contain sovereign debt or where the reference asset was solely the sovereign debt of a foreign country.
(4)
For countries presented in the table, total non-sovereign exposure comprises $20.9 billion exposure to financial institutions and $36.4 billion to non-financial corporations at December 31, 2014 .
(5)
Consists of exposure to Netherlands, France, Germany, Luxembourg, Ireland and Spain included in Top 20.
(6)
Includes non-sovereign exposure to Portugal in the amount of $67 million and less than $1 million each to Greece and Cyprus. We had no sovereign debt exposure to these countries at December 31, 2014 .



65

Risk Management - Credit Risk Management ( continued )

REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANS Our real estate 1-4 family first and junior lien mortgage loans primarily include loans we have made to customers and retained as part of our asset/liability management strategy. These loans, as presented in Table 23, include the Pick-a-Pay portfolio acquired from Wachovia, which
 
is discussed later in this Report, and other purchased loans and loans included on our balance sheet as a result of consolidation of variable interest entities (VIEs).



Table 23: Real Estate 1-4 Family First and Junior Lien Mortgage Loans
 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Balance

% of portfolio

 
Balance

% of portfolio

Real estate 1-4 family first mortgage
 
 
 
 
 
Core portfolio
$
208,852

64
%
 
$
194,499

60
%
Non-strategic and liquidating loan portfolios:
 
 
 
 
 
Pick-a-Pay mortgage
45,002

14

 
50,971

16

Other PCI and liquidating first mortgage
11,532

4

 
13,037

4

Total non-strategic and liquidating loan portfolios
56,534

18

 
64,008

20

Total real estate 1-4 family first mortgage loans
265,386

82

 
258,507

80

Real estate 1-4 family junior lien mortgage
 
 
 
 
 
Core portfolio
56,631

17

 
62,037

19

Non-strategic and liquidating loan portfolios
3,086

1

 
3,913

1

Total real estate 1-4 family junior lien mortgage loans
59,717

18

 
65,950

20

Total real estate 1-4 family mortgage loans
$
325,103

100
%
 
$
324,457

100
%

The real estate 1-4 family mortgage loan portfolio includes some loans with adjustable-rate features and some with an interest-only feature as part of the loan terms. Interest-only loans were approximately 12% and 15% of total loans at December 31, 2014 and December 31, 2013 , respectively. We believe we have manageable adjustable-rate mortgage (ARM) reset risk across our owned mortgage loan portfolios. We do not offer option ARM products, nor do we offer variable-rate mortgage products with fixed payment amounts, commonly referred to within the financial services industry as negative amortizing mortgage loans. The option ARMs we do have are included in the Pick-a-Pay portfolio which was acquired from Wachovia and are part of our liquidating loan portfolios. Since our acquisition of the Pick-a-Pay loan portfolio at the end of 2008, the option payment portion of the portfolio has reduced from 86% to 41% at December 31, 2014 , as a result of our modification activities and customers exercising their option to convert to fixed payments. For more information, see the “Pick-a-Pay Portfolio” section later in this Report.
We continue to modify real estate 1-4 family mortgage loans to assist homeowners and other borrowers experiencing financial difficulties. Loans are underwritten at the time of the modification in accordance with underwriting guidelines established for governmental and proprietary loan modification programs. As a participant in the U.S. Treasury’s Making Home Affordable (MHA) programs, we are focused on helping customers stay in their homes. The MHA programs create a standardization of modification terms including incentives paid to borrowers, servicers, and investors. MHA includes the Home Affordable Modification Program (HAMP) for first lien loans and the Second Lien Modification Program (2MP) for junior lien loans. Under both our proprietary programs and the MHA programs, we may provide concessions such as interest rate reductions, forbearance of principal, and in some cases, principal forgiveness. These programs generally include trial payment periods of three to four months, and after successful completion and compliance with terms during this period, the loan is permanently modified. Once the loan is modified either
 
through a permanent modification or a trial period, it is accounted for as a TDR. See the “Critical Accounting Policies – Allowance for Credit Losses” section in this Report for discussion on how we determine the allowance attributable to our modified residential real estate portfolios.
Part of our credit monitoring includes tracking delinquency, FICO scores and loan/combined loan to collateral values (LTV/CLTV) on the entire real estate 1-4 family mortgage loan portfolio. These credit risk indicators, which exclude government insured/guaranteed loans, continued to improve in fourth quarter 2014 on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at December 31, 2014 , totaled $10.2 billion, or 3%, of total non-PCI mortgages, compared with $11.9 billion, or 4%, at December 31, 2013 . Loans with FICO scores lower than 640 totaled $25.8 billion at December 31, 2014 , or 9% of total non-PCI mortgages, compared with $31.5 billion, or 10%, at December 31, 2013 . Mortgages with a LTV/CLTV greater than 100% totaled $20.3 billion at December 31, 2014 , or 7% of total non-PCI mortgages, compared with $34.3 billion, or 11%, at December 31, 2013 . Information regarding credit risk indicators, including PCI credit risk indicators, can be found in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Real estate 1-4 family first and junior lien mortgage loans by state are presented in Table 24. Our real estate 1-4 family mortgage loans to borrowers in California represented approximately 13% of total loans at December 31, 2014 , located mostly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 4% of total loans. We monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our real estate 1-4 family mortgage portfolio as part of our credit risk management process. Our underwriting and periodic review of loans secured by residential real estate collateral includes appraisals or estimates from automated valuation models (AVMs) to support property values. AVMs are computer-based tools used to estimate the market value of homes. AVMs are a lower-cost alternative to appraisals and support valuations of


66

large numbers of properties in a short period of time using market comparables and price trends for local market areas. The primary risk associated with the use of AVMs is that the value of an individual property may vary significantly from the average for the market area. We have processes to periodically validate AVMs and specific risk management guidelines addressing the circumstances when AVMs may be used. AVMs are generally used in underwriting to support property values on loan originations only where the loan amount is under $250,000. We generally require property visitation appraisals by a qualified independent appraiser for larger residential property loans. Additional information about AVMs and our policy for their use can be found in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 24:  Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State
 
December 31, 2014
 
(in millions)
Real estate 1-4 family first mortgage 

 
Real estate 1-4 family junior lien mortgage 

 
Total real estate 1-4 family mortgage 

 
% of total loans 

Real estate 1-4 family loans (excluding PCI):
 
 
 
 
 
 
 
California
$
80,338

 
16,570

 
96,908

 
11
%
New York
17,383

 
2,656

 
20,039

 
2

Florida
14,289

 
5,419

 
19,708

 
2

New Jersey
10,995

 
4,813

 
15,808

 
2

Virginia
7,061

 
3,297

 
10,358

 
1

Texas
7,993

 
868

 
8,861

 
1

Pennsylvania
5,844

 
2,974

 
8,818

 
1

North Carolina
5,970

 
2,631

 
8,601

 
1

Washington
5,956

 
1,489

 
7,445

 
1

Other (2)
61,577

 
18,899

 
80,476

 
10

Government insured/guaranteed loans (3)
26,268

 
—

 
26,268

 
3

Total
$
243,674

 
59,616

 
303,290

 
35
%
Real estate 1-4 family PCI loans:
 
 
 
 
 
 
 
California
$
15,014

 
27

 
15,041

 
2
%
Florida
1,566

 
16

 
1,582

 
*

New Jersey
797

 
14

 
811

 
*

Other (1)
4,335

 
44

 
4,379

 
1

Total
$
21,712

 
101

 
21,813

 
3
%
Total
$
265,386

 
59,717

 
325,103

 
38
%

*     Less than 1%.
(1)
Consists of 45 states; no state had loans in excess of $540 million.
(2)
Consists of 41 states; no state had loans in excess of $7.3 billion.
(3)
Represents loans whose repayments are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA)


67

Risk Management - Credit Risk Management ( continued )

First Lien Mortgage Portfolio The credit performance associated with our real estate 1-4 family first lien mortgage portfolio continued to improve in 2014 , as measured through net charge-offs and nonaccrual loans. Net charge-offs as a percentage of average total loans improved to 0.19% in 2014 , compared with 0.47% in 2013 . Nonaccrual loans were $8.6 billion at December 31, 2014 , compared with $9.8 billion at December 31, 2013 . Improvement in the credit performance was driven by both an improving economic and housing environment
 
and declining balances in non-strategic and liquidating loans, which have been replaced with higher quality assets originated after 2008 utilizing tighter underwriting standards. Real estate 1-4 family first lien mortgage loans originated after 2008 have resulted in minimal losses to date and were approximately 60% of our total real estate 1-4 family first lien mortgage portfolio as of December 31, 2014 . First lien mortgage portfolios by state are presented in Table 25.


Table 25: First Lien Mortgage Portfolios Performance (1)
 
Outstanding balance
 
 
% of loans two payments or more past due
 
Loss rate
 
Dec 31,

Dec 31,

 
Dec 31,

Dec 31,
 
Year ended December 31,
(in millions)
2014

2013

 
2014

2013
 
2014
2013
Core portfolio:
 
 
 
 
 
 
 
 
California
$
67,038

56,511

 
0.83
%
1.15
 
0.02
0.11
New York
16,102

13,030

 
1.97

2.73
 
0.09
0.17
Florida
10,991

11,113

 
3.78

4.97
 
0.12
0.87
New Jersey
9,203

8,091

 
3.95

5.17
 
0.30
0.71
Texas
6,646

6,200

 
1.48

1.86
 
0.01
0.09
Other
72,604

68,817

 
2.34

2.97
 
0.18
0.49
Total
182,584

163,762

 
1.89

2.53
 
0.11
0.36
Government insured/guaranteed loans
26,268

30,737

 
 
 
 
 
 
Total core portfolio including government insured/guaranteed loans
208,852

194,499

 
1.89

2.53
 
0.11
0.36
Liquidating portfolio
34,822

39,908

 
15.55

15.86
 
0.84
1.46
Total first lien mortgages
$
243,674

234,407

 
4.08
%
5.14
 
0.24
0.60

(1)
Excludes PCI loans because their losses were generally reflected in PCI accounting adjustments at the date of acquisition.

In 2014, we continued to grow our real estate 1-4 family first lien mortgage portfolio through the retention of high-quality non-conforming mortgages. Substantially all non-conforming loans originated in 2014 were classified as non-conforming due to the loan amount exceeding conventional conforming loan amount limits established by federal government-sponsored entities (GSEs). Our total real estate 1-4 family first lien mortgage portfolio increased $6.9 billion in 2014 . The growth in this portfolio has been largely offset by runoff in our real estate 1-4 family first lien mortgage non-strategic and liquidating portfolios. Excluding this runoff, our core real estate 1-4 family first lien mortgage portfolio increased $14.4 billion, as we retained $42.3 billion in non-conforming originations, primarily consisting of loans that exceed GSE lending limits, in 2014 .



68

Pick-a-Pay Portfolio   The Pick-a-Pay portfolio was one of the consumer residential first mortgage portfolios we acquired from Wachovia and a majority of the portfolio was identified as PCI loans.
The Pick-a-Pay portfolio includes loans that offer payment options (Pick-a-Pay option payment loans), and also includes loans that were originated without the option payment feature, loans that no longer offer the option feature as a result of our modification efforts since the acquisition, and loans where the customer voluntarily converted to a fixed-rate product. The Pick-a-Pay portfolio is included in the consumer real estate 1-4 family first mortgage class of loans throughout this Report. Table 26
 
provides balances by types of loans as of December 31, 2014, as a result of modification efforts, compared to the types of loans included in the portfolio at acquisition. Total adjusted unpaid principal balance of PCI Pick-a-Pay loans was $26.3 billion at December 31, 2014 , compared with $61.0 billion at acquisition. Primarily due to modification efforts, the adjusted unpaid principal balance of option payment PCI loans has declined to 16% of the total Pick-a-Pay portfolio at December 31, 2014 , compared with 51% at acquisition.
 


Table 26:  Pick-a-Pay Portfolio - Comparison to Acquisition Date
 
December 31, 
 
 
December 31,
 
 
2014
 
 
2008
 
(in millions)
Adjusted unpaid principal balance (1) 

 
% of total 

 
Adjusted unpaid principal balance (1) 

 
% of total 

Option payment loans
$
20,258

 
41
%
 
$
99,937

 
86
%
Non-option payment adjustable-rate and fixed-rate loans
6,776

 
14

 
15,763

 
14

Full-term loan modifications
22,674

 
45

 
—

 
—

Total adjusted unpaid principal balance
$
49,708

 
100
%
 
$
115,700

 
100
%
Total carrying value
$
45,002

 
 
 
$
95,315

 
 

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

Pick-a-Pay loans may have fixed or adjustable rates with payment options that include a minimum payment, an interest-only payment or fully amortizing payment (both 15 and 30 year options). Total interest deferred due to negative amortization on Pick-a-Pay loans was $606 million at December 31, 2014 , and $902 million at December 31, 2013. Approximately 95% of the Pick-a-Pay customers making a minimum payment in December 2014 did not defer interest, compared with 93% in December 2013. 
Deferral of interest on a Pick-a-Pay loan may continue as long as the loan balance remains below a pre-defined principal cap, which is based on the percentage that the current loan balance represents to the original loan balance. A significant portion of the Pick-a-Pay portfolio has a cap of 125% of the original loan balance. Most of the Pick-a-Pay loans on which there is a deferred interest balance re-amortize (the monthly payment amount is reset or “recast”) on the earlier of the date when the loan balance reaches its principal cap, or generally the 10-year anniversary of the loan. After a recast, the customers’ new payment terms are reset to the amount necessary to repay the balance over the remainder of the original loan term.
Due to the terms of the Pick-a-Pay portfolio, any remaining recast risk is covered through our allowance for credit losses and nonaccretable difference. Based on assumptions of a flat rate environment, if all eligible customers elect the minimum payment option 100% of the time and no balances prepay, we would expect the following balances of loans to recast based on reaching the principal cap and also experiencing a payment change over the annual 7.5% reset: $56 million in 2015, $29 million in 2016, $26 million in 2017, $0.4 million in 2018 and $0.2 million in 2019. In addition, in a flat rate environment, we would expect the following balances of loans to start fully amortizing due to reaching their recast anniversary date and also having a payment change over the annual 7.5% reset: $339 million in 2015, $395 million in 2016, $1,496 million in 2017, $208 million in 2018 and $4 million in 2019. In 2014, the
 
amount of loans reaching their recast anniversary date and also having a payment change over the annual 7.5% reset was $96 million. 
Table 27 reflects the geographic distribution of the Pick-a-Pay portfolio broken out between PCI loans and all other loans. The LTV ratio is a useful metric in predicting future real estate 1-4 family first mortgage loan performance, including potential charge-offs. Because PCI loans were initially recorded at fair value, including write-downs for expected credit losses, the ratio of the carrying value to the current collateral value will be lower compared with the LTV based on the adjusted unpaid principal balance. For informational purposes, we have included both ratios for PCI loans in the following table.


69

Risk Management - Credit Risk Management ( continued )

Table 27: Pick-a-Pay Portfolio (1)
 
 
December 31, 2014
 
 
 
PCI loans 
 
 
All other loans 
 
 
 
 
 
 
 
 
 
Ratio of 

 
 
 
Ratio of 

 
 
Adjusted 

 
 
 
 
 
carrying 

 
 
 
carrying 

 
 
unpaid 

 
Current 

 
 
 
value to 

 
 
 
value to 

 
 
principal 

 
LTV 

 
Carrying 

 
current 

 
Carrying 

 
current 

(in millions)
 
balance (2) 

 
ratio (3) 

 
value (4) 

 
value (5) 

 
value (4) 

 
value (5) 

California
 
$
18,257

 
77
%
 
$
15,001

 
62
%
 
$
11,426

 
57
%
Florida
 
2,108

 
87

 
1,523

 
59

 
2,375

 
71

New Jersey
 
890

 
83

 
768

 
65

 
1,527

 
70

New York
 
564

 
77

 
522

 
64

 
714

 
67

Texas
 
233

 
62

 
206

 
54

 
920

 
50

Other states
 
4,252

 
82

 
3,493

 
65

 
6,527

 
69

Total Pick-a-Pay loans
 
$
26,304

 
 
 
$
21,513

 
 
 
$
23,489

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
The individual states shown in this table represent the top five states based on the total net carrying value of the Pick-a-Pay loans at the beginning of 2014.
(2)
Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.
(3)
The current LTV ratio is calculated as the adjusted unpaid principal balance divided by the collateral value. Collateral values are generally determined using automated valuation models (AVM) and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.
(4)
Carrying value, which does not reflect the allowance for loan losses, includes remaining purchase accounting adjustments, which, for PCI loans may include the nonaccretable difference and the accretable yield and, for all other loans, an adjustment to mark the loans to a market yield at date of merger less any subsequent charge-offs.
(5)
The ratio of carrying value to current value is calculated as the carrying value divided by the collateral value.

To maximize return and allow flexibility for customers to avoid foreclosure, we have in place several loss mitigation strategies for our Pick-a-Pay loan portfolio. We contact customers who are experiencing financial difficulty and may in certain cases modify the terms of a loan based on a customer’s documented income and other circumstances.
We also have taken steps to work with customers to refinance or restructure their Pick-a-Pay loans into other loan products. For customers at risk, we offer combinations of term extensions of up to 40 years (from 30 years), interest rate reductions, forbearance of principal, and, in certain cases we may offer principal forgiveness to customers with substantial property value declines based on affordability needs.
In 2014, we completed more than 5,300 proprietary and Home Affordability Modification Program (HAMP) Pick-a-Pay loan modifications. We have completed nearly 130,000 modifications since the Wachovia acquisition, resulting in $6.0 billion of principal forgiveness to our Pick-a-Pay customers. There remains $30 million of conditional forgiveness that can be earned by borrowers through performance over a three year period.
Due to better than expected performance observed on the Pick-a-Pay PCI portfolio compared with the original acquisition estimates, we have reclassified $6.0 billion from the nonaccretable difference to the accretable yield since acquisition. Our cash flows expected to be collected have been favorably affected by lower expected defaults and losses as a result of observed and forecasted economic strengthening, particularly in housing prices, and our loan modification efforts. These factors are expected to reduce the frequency and severity of defaults and keep these loans performing for a longer period, thus increasing future principal and interest cash flows. The resulting increase in the accretable yield will be realized over the remaining life of the portfolio, which is estimated to have a weighted-average remaining life of approximately 11.7 years at December 31, 2014 , down from 12.7 years at December 31, 2013, primarily reflecting the passage of time. The accretable yield percentage at December 31, 2014 was 6.15%, up from 4.98% at the end of 2013 due to favorable changes in the expected timing and composition
 
of cash flows resulting from improving credit and prepayment expectations. Fluctuations in the accretable yield are driven by changes in interest rate indices for variable rate PCI loans, prepayment assumptions, and expected principal and interest payments over the estimated life of the portfolio, which will be affected by the pace and degree of improvements in the U.S. economy and housing markets and projected lifetime performance resulting from loan modification activity. Changes in the projected timing of cash flow events, including loan liquidations, modifications and short sales, can also affect the accretable yield rate and the estimated weighted-average life of the portfolio.
The predominant portion of our PCI loans is included in the Pick-a-Pay portfolio. For further information on the judgment involved in estimating expected cash flows for PCI loans, see the “Critical Accounting Policies – Purchased Credit-Impaired Loans” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

Junior Lien Mortgage Portfolio The junior lien mortgage portfolio consists of residential mortgage lines and loans that are subordinate in rights to an existing lien on the same property. It is not unusual for these lines and loans to have draw periods, interest only payments, balloon payments, adjustable rates and similar features. The majority of our junior lien loan products are amortizing payment loans with fixed interest rates and repayment periods between five to 30 years.
We continuously monitor the credit performance of our junior lien mortgage portfolio for trends and factors that influence the frequency and severity of loss. We have observed that the severity of loss for junior lien mortgages is high and generally not affected by whether we or a third party own or service the related first mortgage, but the frequency of delinquency is typically lower when we own or service the first lien mortgage. In general, we have limited information available on the delinquency status of the third party owned or serviced senior lien where we also hold a junior lien. To capture this inherent loss content, we use the experience of our junior lien mortgages behind delinquent first liens that are owned or


70

serviced by us adjusted for any observed differences in delinquency and loss rates associated with junior lien mortgages behind third party first mortgages. We incorporate this inherent loss content into our allowance for loan losses. Our allowance process for junior liens ensures consideration of the relative difference in loss experience for junior liens behind first lien mortgage loans we own or service, compared with those behind first lien mortgage loans owned or serviced by third parties. In addition, our allowance process for junior liens that are current,
 
but are in their revolving period, reflects the inherent loss where the borrower is delinquent on the corresponding first lien mortgage loans.
Table 28 summarizes delinquency and loss rates for our junior lien mortgages by the holder of the first lien.

 


Table 28:  Junior Lien Mortgage Portfolios Performance by Holder of 1st Lien (1)
 
 
 
 
 
% of loans 
 
 
Loss rate 
 
 
 
 
 
 
two payments 
 
 
(annualized) 
 
 
Outstanding balance 
 
 
or more past due 
 
 
quarter ended 
 
 
Dec 31,

 
Dec 31,

 
Dec 31,

 
Dec 31,

 
Dec 31,

 
Sep 30,

 
Jun 30,

 
Mar 31,

 
Dec 31,

(in millions)
2014

 
2013

 
2014

 
2013

 
2014

 
2014

 
2014

 
2014

 
2013

Junior lien mortgages behind:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo owned or serviced first lien
$
29,483

 
32,695

 
2.39
%
 
2.37

 
0.89

 
0.86

 
1.08

 
1.16

 
1.34

Third party first lien
30,133

 
33,132

 
2.58

 
2.53

 
0.88

 
0.94

 
0.96

 
1.23

 
1.35

Total junior lien mortgages
$
59,616

 
65,827

 
2.49
%
 
2.45

 
0.88

 
0.90

 
1.02

 
1.20

 
1.35


(1)
Excludes PCI loans because their losses were generally reflected in PCI accounting adjustments at the date of acquisition.

We monitor the number of borrowers paying the minimum amount due on a monthly basis. In December 2014, approximately 94% of our borrowers with a junior lien mortgage outstanding balance paid the minimum amount due or more, including approximately 47% who paid only the minimum amount due.
Table 29 shows the credit attributes of the core and liquidating junior lien mortgage portfolios and lists the top five states by outstanding balance for the core portfolio. Loans to California borrowers represent the largest state concentration in each of these portfolios. The decrease in outstanding balances since December 31, 2013 predominantly reflects loan paydowns. As of December 31, 2014, 20% of the outstanding balance of the junior lien mortgage portfolio was associated with loans that had
 
a combined loan to value (CLTV) ratio in excess of 100%. Of those junior mortgage liens with a CLTV ratio in excess of 100%, 3.03% were two payments or more past due as of December 31, 2014. CLTV means the ratio of the total loan balance of first mortgages and junior lien mortgages (including unused line amounts for credit line products) to property collateral value. The unsecured portion (the outstanding amount that was in excess of the most recent property collateral value) of the outstanding balances of these loans totaled 8% of the junior lien mortgage portfolio at December 31, 2014.



Table 29:  Junior Lien Mortgage Portfolios (1)
 
 
 
 
 
% of loans 
 
 
 
 
 
 
 
 
two payments 
 
 
 
 
Outstanding balance 
 
 
or more past due 
 
 
Loss rate
 
 
Dec 31,

 
Dec 31,

 
Dec 31,

Dec 31,

 
Year ended December 31,
 
(in millions)
2014

 
2013

 
2014

2013

 
2014

2013

Core portfolio
 
 
 
 
 
 
 
 
 
California
$
15,535

 
17,003

 
2.07
%
2.03

 
0.48

1.52

Florida
5,283

 
5,811

 
2.96

3.16

 
1.40

2.60

New Jersey
4,705

 
5,019

 
3.43

3.43

 
1.42

1.79

Virginia
3,160

 
3,378

 
2.18

2.02

 
0.84

1.19

Pennsylvania
2,942

 
3,137

 
2.72

2.64

 
1.11

1.29

Other
25,006

 
27,689

 
2.20

2.18

 
0.95

1.69

Total
56,631

 
62,037

 
2.36

2.35

 
0.90

1.69

Liquidating portfolio
2,985

 
3,790

 
4.77

4.10

 
2.74

4.50

Total core and   liquidating portfolios
$
59,616

 
65,827

 
2.49
%
2.45

 
1.00

1.86


(1)
Excludes PCI loans because their losses were generally reflected in PCI accounting adjustments at the date of acquisition.

Our junior lien, as well as first lien, lines of credit products generally have a draw period of 10 years (with some up to 15 or 20 years) with variable interest rate and payment options during
 
the draw period of (1) interest only or (2) 1.5% of outstanding principal balance plus accrued interest. During the draw period, the borrower has the option of converting all or a portion of the


71

Risk Management - Credit Risk Management ( continued )

line from a variable interest rate to a fixed rate with terms including interest-only payments for a fixed period between three to seven years or a fully amortizing payment with a fixed period between five to 30 years. At the end of the draw period, a line of credit generally converts to an amortizing payment schedule with repayment terms of up to 30 years based on the balance at time of conversion. Certain lines and loans have been structured with a balloon payment, which requires full repayment of the outstanding balance at the end of the term period. The conversion of lines or loans to fully amortizing or balloon payoff may result in a significant payment increase, which can affect some borrowers’ ability to repay the outstanding balance.
The lines that enter their amortization period may experience higher delinquencies and higher loss rates than the
ones in their draw or term period. We have considered this increased inherent risk in our allowance for credit loss estimate.
 
In anticipation of our borrowers reaching the end of their contractual commitment, we have created a program to inform, educate and help these borrowers transition from interest-only to fully-amortizing payments or full repayment. We monitor the performance of the borrowers moving through the program in an effort to refine our ongoing program strategy.
Table 30 reflects the outstanding balance of our portfolio of junior lien lines and loans and senior lien lines segregated into scheduled end of draw or end of term periods and products that are currently amortizing, or in balloon repayment status. It excludes real estate 1-4 family first lien line reverse mortgages, which total $2.3 billion, because they are predominantly insured by the FHA, and it excludes PCI loans, which total $130 million, because their losses were generally reflected in our nonaccretable difference established at the date of acquisition.


Table 30: Junior Lien Mortgage Line and Loan and Senior Lien Mortgage Line Portfolios Payment Schedule






Scheduled end of draw / term
 




Outstanding balance 















2020 and




(in millions)
December 31, 2014 


2015


2016

 
2017


2018


2019


thereafter (1)


Amortizing

Junior residential lines
$
52,658

 
4,813

 
6,451

 
6,692

 
3,633

 
1,422

 
24,639

 
5,008

Junior loans (2)
6,958

 
65

 
98

 
103

 
11

 
8

 
1,175

 
5,498

Total junior lien (3)(4)
59,616

 
4,878

 
6,549

 
6,795

 
3,644

 
1,430

 
25,814

 
10,506

First lien lines
17,080

 
1,089

 
923

 
932

 
1,053

 
467

 
11,394

 
1,222

Total (3)(4)
$
76,696

 
5,967

 
7,472

 
7,727

 
4,697

 
1,897

 
37,208

 
11,728

% of portfolios
100
%
 
7.8
%
 
9.7
%
 
10.1
%
 
6.1
%

2.5
%

48.5
%
 
15.3
%

(1)
The annual scheduled end of draw or term ranges from $1.7 billion to $10.0 billion and averages $5.3 billion per year for 2020 and thereafter. The loans that convert in 2025 and thereafter have draw periods that generally extend to 15 or 20 years.
(2)
Junior loans within the term period predominantly represent principal and interest products that require a balloon payment upon the end of the loan term. Amortizing junior loans include $62 million of balloon loans that have reached end of term and are now past due.
(3)
Lines in their draw period are predominantly interest-only. The unfunded credit commitments total $70.1 billion at December 31, 2014.
(4)
Includes scheduled end-of-term balloon payments totaling $455 million, $386 million, $501 million, $518 million, $445 million, and $1.9 billion for 2015, 2016, 2017, 2018, 2019, 2020 and thereafter, respectively. Amortizing lines include $189 million of end-of-term balloon payments, which are past due. At December 31, 2014, $425 million, or 7% of outstanding lines of credit that are amortizing, are 30 or more days past due compared to $1.3 billion, or 2% for lines in their draw period.

CREDIT CARDS   Our credit card portfolio totaled $31.1 billion at December 31, 2014 , which represented 4% of our total outstanding loans. In November 2014, we purchased an existing private label and co-branded credit card loan portfolio in connection with the Dillard's program agreement. The net charge-off rate for our credit card portfolio was 3.14% for 2014 , compared with 3.62% for 2013 .
 
AUTOMOBILE   Our automobile portfolio, predominantly composed of indirect loans, totaled $55.7 billion at December 31, 2014 . The net charge-off rate for our automobile portfolio was 0.70% for 2014 , compared with 0.63% for 2013 . 

 
OTHER REVOLVING CREDIT AND INSTALLMENT   Other revolving credit and installment loans totaled $35.8 billion at December 31, 2014 , and primarily included student and security-based loans. Student loans totaled $11.9 billion at December 31, 2014 , compared with $22.0 billion at December 31, 2013 , reflecting the transfer of $9.7 billion in government guaranteed student loans to loans held for sale at June 30, 2014 , of which $8.3 billion were sold in fourth quarter 2014. The net charge-off rate for other revolving credit and installment loans was 1.35% for 2014 , compared with 1.41% for 2013 .




72

NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS)   Table 31 summarizes nonperforming assets (NPAs) for each of the last five years. We generally place loans on nonaccrual status when:
•
the full and timely collection of interest or principal becomes uncertain (generally based on an assessment of the borrower’s financial condition and the adequacy of collateral, if any);
•
they are 90 days (120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for interest or principal, unless both well-secured and in the process of collection;
•
part of the principal balance has been charged off (including loans discharged in bankruptcy);
 
•
for junior lien mortgages, we have evidence that the related first lien mortgage may be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status; or
•
performing consumer loans are discharged in bankruptcy, regardless of their delinquency status.
 
Note 1 (Summary of Significant Accounting Policies – Loans) to Financial Statements in this Report describes our accounting policy for nonaccrual and impaired loans.
 


Table 31: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
 
 
December 31,
 
(in millions)
 
2014

 
2013

 
2012

 
2011

 
2010

Nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
538

 
775

 
1,467

 
2,167

 
3,277

Real estate mortgage
 
1,490

 
2,254

 
3,323

 
4,085

 
5,228

Real estate construction
 
187

 
416

 
1,003

 
1,890

 
2,676

Lease financing
 
24

 
30

 
29

 
55

 
115

Total commercial (1)
 
2,239

 
3,475

 
5,822

 
8,197

 
11,296

Consumer:
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage (2)
 
8,583

 
9,799

 
11,456

 
10,932

 
12,333

Real estate 1-4 family junior lien mortgage
 
1,848

 
2,188

 
2,923

 
1,976

 
2,303

Automobile
 
137

 
173

 
245

 
159

 
248

Other revolving credit and installment
 
41

 
33

 
40

 
40

 
62

Total consumer (3)
 
10,609

 
12,193

 
14,664

 
13,107

 
14,946

Total nonaccrual loans (4)(5)(6)
 
12,848

 
15,668

 
20,486

 
21,304

 
26,242

As a percentage of total loans
 
1.49
%
 
1.91

 
2.57

 
2.77

 
3.47

Foreclosed assets:
 
 
 
 
 
 
 
 
 
 
Government insured/guaranteed (7)
 
$
982

 
2,093

 
1,509

 
1,319

 
1,479

Non-government insured/guaranteed
 
1,627

 
1,844

 
2,514

 
3,342

 
4,530

Total foreclosed assets
 
2,609

 
3,937

 
4,023

 
4,661

 
6,009

Total nonperforming assets
 
$
15,457

 
19,605

 
24,509

 
25,965

 
32,251

As a percentage of total loans
 
1.79
%
 
2.38

 
3.07

 
3.37

 
4.26


(1)
Includes LHFS of $1 million , $1 million , $16 million , $25 million and $3 million at December 31, 2014 , 2013 , 2012 , 2011 and 2010 , respectively.
(2)
Includes MHFS of $177 million , $227 million , $336 million , $301 million and $426 million at December 31, 2014 , 2013 , 2012 , 2011 , and 2010 , respectively.
(3)
December 31, 2012, includes the impact of the implementation of guidance issued by bank regulatory agencies in 2012.
(4)
Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.
(5)
Real estate 1-4 family mortgage loans 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 under the Federal Family Education Loan Program are not placed on nonaccrual status because they are insured or guaranteed.
(6)
See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further information on impaired loans.
(7)
During fourth quarter 2014, we adopted Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure , effective as of January 1, 2014 . This ASU requires that certain government guaranteed residential real estate mortgage loans that meet specific criteria be recognized as other receivables upon foreclosure; previously, these assets were included in foreclosed assets. Government guaranteed residential real estate mortgage loans that completed foreclosure during 2014 and met the criteria specified by ASU 2014-14 are excluded from this table and included in Accounts Receivable in Other Assets. For more information on the changes in foreclosures for government guaranteed residential real estate mortgage loans, see Note 1 (Summary of Significant Accounting Policies) and Note 7 (Premises, Equipment, Lease Commitments and Other Assets).



73

Risk Management - Credit Risk Management ( continued )

Table 32 provides a summary of nonperforming assets during 2014.


Table 32:  Nonperforming Assets by Quarter During 2014
 
 
December 31, 2014
 
 
September 30, 2014
 
 
June 30, 2014
 
 
March 31, 2014
 
 
 
 
 
% of 

 
 
 
% of 

 
 
 
% of 

 
 
 
% of 

 
 
 
 
total 

 
 
 
total 

 
 
 
total 

 
 
 
total 

(in millions)
 
Balance 

 
loans 

 
Balance 

 
loans 

 
Balance 

 
loans 

 
Balance 

 
loans 

Nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
538

 
0.20
%
 
$
614

 
0.24
%
 
$
724

 
0.29
%
 
$
664

 
0.28
%
Real estate mortgage
 
1,490

 
1.33

 
1,636

 
1.46

 
1,805

 
1.59

 
2,034

 
1.80

Real estate construction
 
187

 
1.00

 
217

 
1.20

 
239

 
1.38

 
296

 
1.76

Lease financing
 
24

 
0.20

 
27

 
0.22

 
29

 
0.24

 
32

 
0.26

Total commercial
 
2,239

 
0.54

 
2,494

 
0.63

 
2,797

 
0.71

 
3,026

 
0.79

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
 
8,583

 
3.23

 
8,785

 
3.34

 
9,026

 
3.47

 
9,357

 
3.61

Real estate 1-4 family junior lien mortgage
 
1,848

 
3.09

 
1,903

 
3.13

 
1,965

 
3.14

 
2,073

 
3.24

Automobile
 
137

 
0.25

 
143

 
0.26

 
150

 
0.28

 
161

 
0.31

Other revolving credit and installment
 
41

 
0.11

 
40

 
0.11

 
34

 
0.10

 
33

 
0.08

Total consumer
 
10,609

 
2.37

 
10,871

 
2.46

 
11,175

 
2.55

 
11,624

 
2.61

Total nonaccrual loans
 
12,848

 
1.49

 
13,365

 
1.59

 
13,972

 
1.69

 
14,650

 
1.77

Foreclosed assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government insured/guaranteed (1)
 
982

 
 
 
1,140

 
 
 
1,257

 
 
 
1,609

 
 
Non-government insured/guaranteed
 
1,627

 
 
 
1,691

 
 
 
1,748

 
 
 
1,813

 
 
Total foreclosed assets
 
2,609

 
 
 
2,831

 
 
 
3,005

 
 
 
3,422

 
 
Total nonperforming assets
 
$
15,457

 
1.79
%
 
$
16,196

 
1.93
%
 
$
16,977

 
2.05
%
 
$
18,072

 
2.19
%
Change in NPAs from prior quarter (1)
 
$
(739
)
 
 
 
(781
)
 
 
 
(1,095
)
 
 
 
(1,533
)
 
 

(1)
During fourth quarter 2014, we adopted Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure , effective as of January 1, 2014 . This ASU requires that certain government guaranteed residential real estate mortgage loans that meet specific criteria be recognized as other receivables upon foreclosure; previously, these assets were included in foreclosed assets. Government guaranteed residential real estate mortgage loans that completed foreclosure during 2014 and met the criteria specified by ASU 2014-14 totaled $1.5 billion , $1.1 billion , and $693 million at September 30, 2014 , June 30, 2014 , and March 31, 2014 , respectively, and are excluded from this table. For more information on the changes in foreclosures for government guaranteed residential real estate mortgage loans, see Note 1 (Summary of Significant Accounting Policies) and Note 7 (Premises, Equipment, Lease Commitments and Other Assets).


74

Table 33 provides an analysis of the changes in nonaccrual loans.

 


Table 33: Analysis of Changes in Nonaccrual Loans
 
Quarter ended 
 
 
 
 
 
 
Dec 31,

 
Sep 30,

 
Jun 30,

 
Mar 31,

 
Year ended Dec 31,
 
(in millions)
2014

 
2014

 
2014

 
2014

 
2014

 
2013

Commercial nonaccrual loans
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
2,494

 
2,798

 
3,027

 
3,475

 
3,475

 
5,824

Inflows
410

 
342

 
433

 
367

 
1,552

 
2,178

Outflows:
 
 
 
 
 
 
 
 
 
 
 
Returned to accruing
(64
)
 
(37
)
 
(81
)
 
(98
)
 
(280
)
 
(497
)
Foreclosures
(45
)
 
(18
)
 
(32
)
 
(79
)
 
(174
)
 
(321
)
Charge-offs
(141
)
 
(124
)
 
(120
)
 
(116
)
 
(501
)
 
(723
)
Payments, sales and other (1)
(415
)
 
(467
)
 
(429
)
 
(522
)
 
(1,833
)
 
(2,986
)
Total outflows
(665
)
 
(646
)
 
(662
)
 
(815
)
 
(2,788
)
 
(4,527
)
Balance, end of period
2,239

 
2,494

 
2,798

 
3,027

 
2,239

 
3,475

Consumer nonaccrual loans
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
10,871

 
11,174

 
11,623

 
12,193

 
12,193

 
14,662

Inflows
1,454

 
1,529

 
1,673

 
1,650

 
6,306

 
8,117

Outflows:
 
 
 
 
 
 
 
 
 
 
 
Returned to accruing
(678
)
 
(817
)
 
(1,107
)
 
(1,104
)
 
(3,706
)
 
(4,137
)
Foreclosures
(114
)
 
(148
)
 
(132
)
 
(146
)
 
(540
)
 
(597
)
Charge-offs
(278
)
 
(289
)
 
(348
)
 
(400
)
 
(1,315
)
 
(2,343
)
Payments, sales and other (1)
(646
)
 
(578
)
 
(535
)
 
(570
)
 
(2,329
)
 
(3,509
)
Total outflows
(1,716
)
 
(1,832
)
 
(2,122
)
 
(2,220
)
 
(7,890
)
 
(10,586
)
Balance, end of period
10,609

 
10,871

 
11,174

 
11,623

 
10,609

 
12,193

Total nonaccrual loans
$
12,848

 
13,365

 
13,972

 
14,650

 
12,848

 
15,668


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

Typically, changes to nonaccrual loans period-over-period represent inflows for loans that are placed on nonaccrual status in accordance with our policy, offset by reductions for loans that are paid down, charged off, sold, foreclosed, or are no longer classified as nonaccrual as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities. Also, reductions can come from borrower repayments even if the loan remains on nonaccrual.
While nonaccrual loans are not free of loss content, we believe exposure to loss is significantly mitigated by the following factors at December 31, 2014 :
•
98% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 98% are secured by real estate and 72% have a combined LTV (CLTV) ratio of 80% or less.
•
losses of $495 million and $3.5 billion have already been recognized on 29% of commercial nonaccrual loans and 53% of consumer nonaccrual loans, respectively. Generally, when a consumer real estate loan is 120 days past due (except when required earlier by guidance issued by bank regulatory agencies), we transfer it to nonaccrual status. When the loan reaches 180 days past due, or is discharged in bankruptcy, it is our policy to write these loans down to net realizable value (fair value of collateral less estimated costs to sell), except for modifications in their trial period that are not written down as long as trial payments are made on time. Thereafter, we reevaluate each loan regularly and record additional write-downs if needed.
•
71% of commercial nonaccrual loans were current on interest.
 
•
the risk of loss of all nonaccrual loans has been considered and we believe is adequately covered by the allowance for loan losses.
•
$2.0 billion of consumer loans discharged in bankruptcy and classified as nonaccrual were 60 days or less past due, of which $1.9 billion were current.
 
We continue to work with our customers experiencing financial difficulty to determine if they can qualify for a loan modification so that they can stay in their homes. Under both our proprietary modification programs and the MHA programs, customers may be required to provide updated documentation, and some programs require completion of payment during trial periods to demonstrate sustained performance before the loan can be removed from nonaccrual status. In addition, for loans in foreclosure in certain states, including New York and New Jersey, the foreclosure timeline has significantly increased due to backlogs in an already complex process. Therefore, some loans may remain on nonaccrual status for a long period.
If interest due on all nonaccrual loans (including loans that were, but are no longer on nonaccrual at year end) had been accrued under the original terms, approximately $741 million of interest would have been recorded as income on these loans, compared with $598 million actually recorded as interest income in 2014, versus $764 million and $575 million , respectively, in 2013.
Table 34 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.
 


75

Risk Management - Credit Risk Management ( continued )

Table 34: Foreclosed Assets
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended
 
 
 
 
 
 
Dec 31,

 
Sep 30,

 
Jun 30,

 
Mar 31,

 
Year ended Dec 31,
 
(in millions)
2014

 
2014

 
2014

 
2014

 
2014

 
2013

Summary by loan segment
 
 
 
 
 
 
 
 
 
 
 
Government insured/guaranteed (1)
$
982

 
1,140

 
1,257

 
1,609

 
982

 
2,093

PCI loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
352

 
394

 
457

 
461

 
352

 
497

Consumer
212

 
214

 
208

 
177

 
212

 
149

Total PCI loans
564

 
608

 
665

 
638

 
564

 
646

All other loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
565

 
579

 
634

 
736

 
565

 
759

Consumer
498

 
504

 
449

 
439

 
498

 
439

Total all other loans
1,063

 
1,083

 
1,083

 
1,175

 
1,063

 
1,198

Total foreclosed assets
$
2,609

 
2,831

 
3,005

 
3,422

 
2,609

 
3,937

Analysis of changes in foreclosed assets
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
2,831

 
3,005

 
3,422

 
3,937

 
3,937

 
4,023

Net change in government insured/guaranteed (1)(2)
(158
)
 
(117
)
 
(352
)
 
(484
)
 
(1,111
)
 
584

Additions to foreclosed assets (3)
362

 
364

 
421

 
448

 
1,595

 
1,852

Reductions:
 
 
 
 
 
 
 
 
 
 
 
Sales
(462
)
 
(421
)
 
(493
)
 
(490
)
 
(1,866
)
 
(2,673
)
Write-downs and net gains (losses) on sales
36

 
—

 
7

 
11

 
54

 
151

Total reductions
(426
)
 
(421
)
 
(486
)
 
(479
)
 
(1,812
)
 
(2,522
)
Balance, end of period
$
2,609

 
2,831

 
3,005

 
3,422

 
2,609

 
3,937


(1)
During fourth quarter 2014, we adopted Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure , effective as of January 1, 2014 . This ASU requires that government guaranteed residential real estate mortgage loans that meet specific criteria be recognized as other receivables upon foreclosure; previously, these assets were included in foreclosed assets. Government guaranteed residential real estate mortgage loans that completed foreclosure during 2014 and met the criteria specified by ASU 2014-14 totaled $1.5 billion , $1.1 billion , and $693 million at September 30, 2014 , June 30, 2014 , and March 31, 2014 , respectively, and are excluded from this table. For more information on the changes in foreclosures for government guaranteed residential real estate mortgage loans, see Note 1 (Summary of Significant Accounting Policies) and Note 7 (Premises, Equipment, Lease Commitments and Other Assets).
(2)
Foreclosed government insured/guaranteed loans are temporarily transferred to and held by us as servicer, until reimbursement is received from FHA or VA. The net change in government insured/guaranteed foreclosed assets is made up of inflows from mortgages held for investment and MHFS, and outflows when we are reimbursed by FHA/VA. Transfers from government insured/guaranteed loans to foreclosed assets amounted to $45 million , $41 million , $43 million , and $62 million for the quarters ended December 31, September 30, June 30, and March 31, 2014 and $191 million and $2.9 billion for the years ended December 31, 2014 and 2013 , respectively. The amounts previously reported for the quarterly net change in government insured/guaranteed foreclosed assets have been revised to exclude $375 million , $409 million and $693 million at September 30, 2014 , June 30, 2014 , and March 31, 2014 , respectively, to reflect the impact of the adoption of ASU 2014-14.
(3)
Predominantly include loans moved into foreclosure from nonaccrual status, PCI loans transitioned directly to foreclosed assets and repossessed automobiles.

Foreclosed assets at December 31, 2014 , included $ 1.6 billion of foreclosed residential real estate that had collateralized commercial and consumer loans, of which 59% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining foreclosed assets balance of $ 1.0 billion has been written down to estimated net realizable value. The decrease in foreclosed assets at December 31, 2014 , compared with December 31, 2013 , was the result of the adoption of ASU 2014-14, which requires that government guaranteed residential real estate mortgage loans that meet specific criteria be recognized as other receivables upon foreclosure (previously, these were included in foreclosed assets). Of the $2.6 billion in foreclosed assets at December 31, 2014 , 33% have been in the foreclosed assets portfolio one year or less.




76

TROUBLED DEBT RESTRUCTURINGS (TDRs)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 35:  Troubled Debt Restructurings (TDRs)
 
 
 
 
 
 
 
 
 
 
December 31,
 
(in millions)
2014

 
2013

 
2012

 
2011

 
2010

Commercial TDRs
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
724

 
1,034

 
1,700

 
2,046

 
619

Real estate mortgage
1,880

 
2,248

 
2,625

 
2,262

 
725

Real estate construction
314

 
475

 
801

 
1,008

 
407

Lease financing
2

 
8

 
20

 
33

 
—

Total commercial TDRs
2,920

 
3,765

 
5,146

 
5,349

 
1,751

Consumer TDRs
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
18,226

 
18,925

 
17,804

 
13,799

 
11,603

Real estate 1-4 family junior lien mortgage
2,437

 
2,468

 
2,390

 
1,986

 
1,626

Credit Card
338

 
431

 
531

 
593

 
548

Automobile
127

 
189

 
314

 
260

 
214

Other revolving credit and installment
49

 
33

 
24

 
19

 
16

Trial modifications
452

 
650

 
705

 
651

 
—

Total consumer TDRs (1)
21,629

 
22,696

 
21,768

 
17,308

 
14,007

Total TDRs
$
24,549

 
26,461

 
26,914

 
22,657

 
15,758

TDRs on nonaccrual status
$
7,104

 
8,172

 
10,149

 
6,811

 
5,185

TDRs on accrual status (1)
17,445

 
18,289

 
16,765

 
15,846

 
10,573

Total TDRs
$
24,549

 
26,461

 
26,914

 
22,657

 
15,758


(1)
TDR loans include $2.1 billion, $2.5 billion, $1.9 billion, $318 million, and $429 million at December 31, 2014, 2013, 2012, 2011, and 2010, respectively, of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and are accruing.

Table 36:  TDRs Balance by Quarter During 2014
 
 
 
 
 
 
 
 
Dec 31,

 
Sep 30,

 
Jun 30,

 
Mar 31,

(in millions)
2014

 
2014

 
2014

 
2014

Commercial TDRs
 
 
 
 
 
 
 
Commercial and industrial
$
724

 
836

 
950

 
1,088

Real estate mortgage
1,880

 
2,034

 
2,179

 
2,233

Real estate construction
314

 
328

 
391

 
454

Lease financing
2

 
3

 
5

 
6

Total commercial TDRs
2,920

 
3,201

 
3,525

 
3,781

Consumer TDRs
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
18,226

 
18,366

 
18,582

 
19,043

Real estate 1-4 family junior lien mortgage
2,437

 
2,464

 
2,463

 
2,460

Credit Card
338

 
358

 
379

 
399

Automobile
127

 
135

 
151

 
169

Other revolving credit and installment
49

 
45

 
38

 
34

Trial modifications
452

 
473

 
469

 
593

Total consumer TDRs
21,629

 
21,841

 
22,082

 
22,698

Total TDRs
$
24,549

 
25,042

 
25,607

 
26,479

TDRs on nonaccrual status
$
7,104

 
7,313

 
7,638

 
7,774

TDRs on accrual status
17,445

 
17,729

 
17,969

 
18,705

Total TDRs
$
24,549

 
25,042

 
25,607

 
26,479


Table 35 and Table 36 provide information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $3.6 billion and $4.5 billion at December 31, 2014 and 2013, 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 forgiveness is immediately charged off to the extent not done so prior to the modification. We sometimes delay the timing on the
 
repayment of a portion of principal (principal forbearance) and charge off the amount of forbearance if that amount is not considered fully collectible.
Our nonaccrual policies are generally the same for all loan types when a restructuring is involved. We re-underwrite loans at the time of restructuring to determine whether there is sufficient evidence of sustained repayment capacity based on the borrower’s documented income, debt to income ratios, and other factors. Loans lacking sufficient evidence of sustained repayment


77

Risk Management - Credit Risk Management ( continued )

capacity at the time of modification are charged down to the fair value of the collateral, if applicable. For an accruing loan that has been modified, if the borrower has demonstrated performance under the previous terms and the underwriting process shows the capacity to continue to perform under the restructured terms, the loan will generally remain in accruing status. Otherwise, the loan will be placed in nonaccrual status until the borrower demonstrates a sustained period of performance, generally six consecutive months of payments, or equivalent, inclusive of consecutive payments made prior to modification. Loans will also be placed on nonaccrual, and a corresponding charge-off is recorded to the loan balance, when
 
we believe that principal and interest contractually due under the modified agreement will not be collectible.
Table 37 provides an analysis of the changes in TDRs. Loans that may be modified more than once are reported as TDR inflows only in the period they are first modified. Other than resolutions such as foreclosures, sales and transfers to held for sale, we may remove loans held for investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.  
 


Table 37:  Analysis of Changes in TDRs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended 
 
 
 
 
 
 
Dec 31,

 
Sep 30,

 
Jun 30,

 
Mar 31,

 
Year ended Dec. 31, 
 
(in millions)
2014

 
2014

 
2014

 
2014

 
2014

 
2013

Commercial TDRs
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
3,201

 
3,525

 
3,781

 
3,765

 
3,765

 
5,146

Inflows
232

 
208

 
276

 
442

 
1,158

 
1,794

Outflows
 
 
 
 
 
 
 
 
 
 
 
Charge-offs
(62
)
 
(42
)
 
(28
)
 
(23
)
 
(155
)
 
(132
)
Foreclosure
(27
)
 
(12
)
 
(8
)
 
(3
)
 
(50
)
 
(88
)
Payments, sales and other (1)
(424
)
 
(478
)
 
(496
)
 
(400
)
 
(1,798
)
 
(2,955
)
Balance, end of period
2,920

 
3,201

 
3,525

 
3,781

 
2,920

 
3,765

Consumer TDRs
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
21,841

 
22,082

 
22,698

 
22,696

 
22,696

 
21,768

Inflows
957

 
946

 
1,003

 
1,104

 
4,010

 
5,958

Outflows
 
 

 

 

 

 

Charge-offs
(99
)
 
(120
)
 
(139
)
 
(157
)
 
(515
)
 
(859
)
Foreclosure
(252
)
 
(303
)
 
(283
)
 
(325
)
 
(1,163
)
 
(1,290
)
Payments, sales and other (1)
(797
)
 
(768
)
 
(1,073
)
 
(563
)
 
(3,201
)
 
(2,826
)
Net change in trial modifications (2)
(21
)
 
4

 
(124
)
 
(57
)
 
(198
)
 
(55
)
Balance, end of period
21,629

 
21,841

 
22,082

 
22,698

 
21,629

 
22,696

Total TDRs
$
24,549

 
25,042

 
25,607

 
26,479

 
24,549

 
26,461


(1)
Other outflows include normal amortization/accretion of loan basis adjustments and loans transferred to held-for-sale. It also includes $1 million of loans refinanced or restructured as new loans and removed from TDR classification for the quarter ended March 31, 2014. No loans were removed from TDR classification for the quarters ended December 31, September 30, and June 30, 2014, respectively. During 2013, $84 million of loans were refinanced or restructured as new loans and removed from TDR classification.
(2)
Net change in trial modifications includes: inflows of new TDRs entering the trial payment period, net of outflows for modifications that either (i) successfully perform and enter into a permanent modification, or (ii) did not successfully perform according to the terms of the trial period plan and are subsequently charged-off, foreclosed upon or otherwise resolved. Our experience is that substantially all of the mortgages that enter a trial payment period program are successful in completing the program requirements.


78

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING  Loans 90 days or more past due as to interest or principal are still accruing if they are (1) well-secured and in the process of collection or (2) real estate 1‑4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans are not included in past due and still accruing loans even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.
Excluding insured/guaranteed loans, loans 90 days or more past due and still accruing at December 31, 2014, were down $ 125 million , or 12% , from December 31, 2013, due to payoffs,
 
modifications and other loss mitigation activities, decline in non-strategic and liquidating portfolios, and credit stabilization.
Loans 90 days or more past due and still accruing whose repayments are predominantly insured by the FHA or guaranteed by the VA for mortgages and the U.S. Department of Education for student loans under the Federal Family Education Loan Program (FFELP) were $ 16.9 billion at December 31, 2014, down from $ 22.2 billion at December 31, 2013.
Table 38 reflects non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed. For additional information on delinquencies by loan class, see Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
 


Table 38:  Loans 90 Days or More Past Due and Still Accruing
 
 
 
December 31, 
 
(in millions)
 
2014

 
2013

 
2012

 
2011

 
2010

Loans 90 days or more past due and still accruing:
 
 
 
 
 
 
 
 
 
 
 
Total (excluding PCI (1)):
 
$
17,810

 
23,219

 
23,245

 
22,569

 
18,488

 
Less: FHA insured/guaranteed by the VA (2)(3)
 
16,827

 
21,274

 
20,745

 
19,240

 
14,733

 
Less: Student loans guaranteed under the FFELP (4)
 
63

 
900

 
1,065

 
1,281

 
1,106

 
Total, not government insured/guaranteed
 
$
920

 
1,045

 
1,435

 
2,048

 
2,649

By segment and class, not government insured/guaranteed:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
31

 
11

 
48

 
159

 
330

 
Real estate mortgage
 
16

 
35

 
228

 
256

 
104

 
Real estate construction
 
—

 
97

 
27

 
89

 
193

 
Total commercial
 
47

 
143

 
303

 
504

 
627

 
Consumer:
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage (3)
 
260

 
354

 
564

 
781

 
941

 
Real estate 1-4 family junior lien mortgage (3)
 
83

 
86

 
133

 
279

 
366

 
Credit card
 
364

 
321

 
310

 
346

 
516

 
Automobile
 
73

 
55

 
40

 
51

 
79

 
Other revolving credit and installment
 
93

 
86

 
85

 
87

 
120

 
Total consumer
 
873

 
902

 
1,132

 
1,544

 
2,022

 
Total, not government insured/guaranteed
 
$
920

 
1,045

 
1,435

 
2,048

 
2,649


(1)
PCI loans totaled $ 3.7 billion, $ 4.5 billion, $ 6.0 billion, $ 8.7 billion and $ 11.6 billion at December 31, 2014, 2013, 2012, 2011 and 2010, respectively.
(2)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(3)
Includes mortgages held for sale 90 days or more past due and still accruing.
(4)
Represents loans whose repayments are predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the FFELP. In fourth quarter 2014, substantially all government guaranteed loans were sold.

 



79

Risk Management - Credit Risk Management ( continued )

NET CHARGE-OFFS
 
Table 39: Net Charge-offs
 
 
 
Year ended 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended 
 
 
 
 
December 31, 
 
 
December 31, 
 
 
September 30, 
 
 
June 30, 
 
 
March 31, 
 
 
 
 
Net loan 

 
% of 

 
Net loan 

 
% of 

 
Net loan 

 
% of 

 
Net loan 

 
% of 

 
Net loan 

 
% of 

 
 
 
charge- 

 
avg. 

 
charge- 

 
avg. 

 
charge- 

 
avg. 

 
charge- 

 
avg. 

 
charge- 

 
avg. 

($ in millions)
 
offs 

 
loans 

 
offs 

 
loans  (1) 

 
offs 

 
loans  (1) 

 
offs 

 
loans  (1) 

 
offs 

 
loans  (1) 

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
258

 
0.10
 %
 
$
82

 
0.12
 %
 
$
67

 
0.11
 %
 
$
60

 
0.10
 %
 
$
49

 
0.08
 %
 
Real estate mortgage
 
(94
)
 
(0.08
)
 
(25
)
 
(0.09
)
 
(37
)
 
(0.13
)
 
(10
)
 
(0.04
)
 
(22
)
 
(0.08
)
 
Real estate construction
 
(127
)
 
(0.72
)
 
(26
)
 
(0.56
)
 
(58
)
 
(1.27
)
 
(20
)
 
(0.47
)
 
(23
)
 
(0.54
)
 
Lease financing
 
7

 
0.06

 
1

 
0.05

 
4

 
0.10

 
1

 
0.05

 
1

 
0.03

Total commercial
 
44

 
0.01

 
32

 
0.03

 
(24
)
 
(0.02
)
 
31

 
0.03

 
5

 
0.01

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
 
509

 
0.19

 
88

 
0.13

 
114

 
0.17

 
137

 
0.21

 
170

 
0.27

 
Real estate 1-4 family junior lien mortgage
 
626

 
1.00

 
134

 
0.88

 
140

 
0.90

 
160

 
1.02

 
192

 
1.19

 
Credit card
 
864

 
3.14

 
221

 
2.97

 
201

 
2.87

 
211

 
3.20

 
231

 
3.57

 
Automobile
 
380

 
0.70

 
132

 
0.94

 
112

 
0.81

 
46

 
0.35

 
90

 
0.70

 
Other revolving credit and installment
 
522

 
1.35

 
128

 
1.45

 
125

 
1.46

 
132

 
1.22

 
137

 
1.29

Total consumer
 
2,901

 
0.65

 
703

 
0.63

 
692

 
0.62

 
686

 
0.62

 
820

 
0.75

 
Total
 
$
2,945

 
0.35
 %
 
$
735

 
0.34
 %
 
$
668

 
0.32
 %
 
$
717

 
0.35
 %
 
$
825

 
0.41
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
343

 
0.15
 %
 
$
107

 
0.18
 %
 
$
55

 
0.10
 %
 
$
81

 
0.14
 %
 
$
100

 
0.18
 %
 
Real estate mortgage
 
(36
)
 
(0.03
)
 
(41
)
 
(0.14
)
 
(19
)
 
(0.08
)
 
(5
)
 
(0.02
)
 
29

 
0.11

 
Real estate construction
 
(109
)
 
(0.66
)
 
(13
)
 
(0.32
)
 
(17
)
 
(0.40
)
 
(45
)
 
(1.09
)
 
(34
)
 
(0.83
)
 
Lease financing
 
17

 
0.14

 
—

 
—

 
—

 
—

 
18

 
0.55

 
(1
)
 
(0.03
)
Total commercial
 
215

 
0.06

 
53

 
0.06

 
19

 
0.02

 
49

 
0.05

 
94

 
0.11

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
 
1,193

 
0.47

 
195

 
0.30

 
242

 
0.38

 
327

 
0.52

 
429

 
0.69

 
Real estate 1-4 family junior lien mortgage
 
1,310

 
1.86

 
226

 
1.34

 
275

 
1.58

 
360

 
2.02

 
449

 
2.46

 
Credit card
 
895

 
3.62

 
220

 
3.38

 
207

 
3.28

 
233

 
3.90

 
235

 
3.95

 
Automobile
 
303

 
0.63

 
108

 
0.85

 
78

 
0.63

 
41

 
0.35

 
76

 
0.66

 
Other revolving credit and installment
 
593

 
1.41

 
161

 
1.50

 
154

 
1.45

 
142

 
1.34

 
136

 
1.34

Total consumer
 
4,294

 
0.98

 
910

 
0.82

 
956

 
0.86

 
1,103

 
1.01

 
1,325

 
1.23

 
Total
 
$
4,509

 
0.56
 %
 
$
963

 
0.47
 %
 
$
975

 
0.48
 %
 
$
1,152

 
0.58
 %
 
$
1,419

 
0.72
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Quarterly net charge-offs (recoveries) as a percentage of average respective loans are annualized.

Table 39 presents net charge-offs for the four quarters and full year of 2014 and 2013. Net charge-offs in 2014 were $2.9 billion (0.35% of average total loans outstanding) compared with $4.5 billion (0.56%) in 2013. We continued to have strong improvement in our commercial and residential real estate secured portfolios. Our commercial real estate portfolios were in a net recovery position every quarter in 2014 and 2013. Our consumer real estate portfolios continued to benefit from the improvement in the housing market with losses down $1.4 billion, or 55%, from 2013.




80

ALLOWANCE FOR CREDIT LOSSES   The allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments, is management’s estimate of credit losses inherent in the loan portfolio and unfunded credit commitments at the balance sheet date, excluding loans carried at fair value. The detail of the changes in the allowance for credit losses by portfolio segment (including charge-offs and recoveries by loan class) is in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
We apply a disciplined process and methodology to establish our allowance for credit losses each quarter. This process takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality
 
ratings and loan grade-specific characteristics. The process involves subjective and complex judgments. In addition, we review a variety of credit metrics and trends. These credit metrics and trends, however, do not solely determine the amount of the allowance as we use several analytical tools. For additional information on our allowance for credit losses, see the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Table 40 presents the allocation of the allowance for credit losses by loan segment and class for the last five years.


Table 40: Allocation of the Allowance for Credit Losses (ACL)
 
Dec 31, 2014
 
 
Dec 31, 2013
 
 
Dec 31, 2012
 
 
Dec 31, 2011
 
 
Dec 31, 2010
 
 
Loans 
 
 
Loans 
 
 
Loans 
 
 
Loans 
 
 
Loans 
 
 
 
 
as % 

 
 
 
as % 

 
 
 
as % 

 
 
 
as % 

 
 
 
as % 

 
 
of total 
 
 
 
of total 
 
 
 
of total 
 
 
 
of total 
 
 
 
of total 
 
(in millions)
ACL 

 
loans 

 
ACL 

 
loans 

 
ACL 

 
loans 

 
ACL 

 
loans 

 
ACL 

 
loans 

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
3,506

 
32
%
 
$
3,040

 
29
%
 
$
2,789

 
28
%
 
$
2,810

 
27
%
 
$
3,531

 
24
%
Real estate mortgage
1,576

 
13

 
2,157

 
14

 
2,284

 
13

 
2,570

 
14

 
3,072

 
13

Real estate construction
1,097

 
2

 
775

 
2

 
552

 
2

 
893

 
2

 
1,387

 
4

Lease financing
198

 
1

 
131

 
1

 
89

 
2

 
85

 
2

 
179

 
2

Total commercial
6,377

 
48

 
6,103

 
46

 
5,714

 
45

 
6,358

 
45

 
8,169

 
43

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
2,878

 
31

 
4,087

 
32

 
6,100

 
31

 
6,934

 
30

 
7,603

 
30

Real estate 1-4 family junior lien mortgage
1,566

 
7

 
2,534

 
8

 
3,462

 
10

 
3,897

 
11

 
4,557

 
13

Credit card
1,271

 
4

 
1,224

 
3

 
1,234

 
3

 
1,294

 
3

 
1,945

 
3

Automobile
516

 
6

 
475

 
6

 
417

 
6

 
555

 
6

 
771

 
6

Other revolving credit and installment
561

 
4

 
548

 
5

 
550

 
5

 
630

 
5

 
418

 
5

Total consumer
6,792

 
52

 
8,868

 
54

 
11,763

 
55

 
13,310

 
55

 
15,294

 
57

Total
$
13,169

 
100
%
 
$
14,971

 
100
%
 
$
17,477

 
100
%
 
$
19,668

 
100
%
 
$
23,463

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dec 31, 2014
 
 
Dec 31, 2013
 
 
Dec 31, 2012
 
 
Dec 31, 2011
 
 
Dec 31, 2010
 
Components:
 
 
 
 
 
 
 
 
 
Allowance for loan losses
$
12,319
 
 
14,502
 
 
17,060
 
 
19,372
 
 
23,022
 
Allowance for unfunded credit commitments
850
 
 
469
 
 
417
 
 
296
 
 
441
 
Allowance for credit losses
$
13,169
 

14,971
 
 
17,477
 
 
19,668
 
 
23,463
 
Allowance for loan losses as a percentage of total loans
 
1.43
%
 
 
1.76

 
 
2.13

 
 
2.52

 
 
3.04

Allowance for loan losses as a percentage of total net charge-offs
 
418

 
 
322

 
 
189

 
 
171

 
 
130

Allowance for credit losses as a percentage of total loans
 
1.53

 
 
1.82

 
 
2.19

 
 
2.56

 
 
3.10

Allowance for credit losses as a percentage of total nonaccrual loans
 
103

 
 
96

 
 
85

 
 
92

 
 
89


In addition to the allowance for credit losses, there was $2.9 billion at December 31, 2014, and $5.2 billion at December 31, 2013, of nonaccretable difference to absorb losses for PCI loans. The allowance for credit losses is lower than otherwise would have been required without PCI loan accounting. As a result of PCI loans, certain ratios of the Company may not be directly comparable with credit-related metrics for other financial institutions. 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 allowance for credit losses to total nonaccrual loans may fluctuate significantly from period to period due to such factors as the mix of loan types in the portfolio, borrower credit strength and the value and marketability of collateral. Substantially all of our nonaccrual


81

Risk Management - Credit Risk Management ( continued )

loans were real estate 1-4 family first and junior lien mortgage loans at December 31, 2014.
The allowance for credit losses again declined in 2014, which reflected continued credit improvement, particularly in residential real estate and primarily associated with continued improvement in the housing market. The total provision for credit losses was $1.4 billion in 2014, $2.3 billion in 2013 and $7.2 billion in 2012.
The 2014 provision for credit losses was $1.4 billion, $1.6 billion less than net charge-offs, due to strong underlying credit, and improvement in the housing market.
The 2013 provision was $2.3 billion, $2.2 billion less than net charge-offs, and the 2012 provision was $7.2 billion, $1.8 billion less than net charge-offs. In each of 2013 and 2012 the provision was influenced by continually improving credit performance.
We believe the allowance for credit losses of $13.2 billion at December 31, 2014, was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. The allowance for credit losses is subject to change and reflects existing factors as of the date of determination, including economic or market conditions and ongoing internal and external examination processes. Due to the sensitivity of the allowance for credit losses to changes in the economic and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date. Future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our process for determining the allowance for credit losses is discussed in the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.




82

LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES 
We sell residential mortgage loans to various parties, including (1) government-sponsored entities (GSEs) Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA) who include the mortgage loans in GSE-guaranteed mortgage securitizations, (2) SPEs that issue private label MBS, and (3) other financial institutions that purchase mortgage loans for investment or private label securitization. In addition, we pool FHA-insured and VA-guaranteed mortgage loans that are then used to back securities guaranteed by the Government National Mortgage Association (GNMA). We may be required to repurchase these mortgage loans, indemnify the securitization trust, investor or insurer, or reimburse the securitization trust, investor or insurer for credit losses incurred on loans (collectively, repurchase) in the event of a breach of contractual representations or warranties that is not remedied within a period (usually 90 days or less) after we receive notice of the breach. The majority of repurchase demands are on loans that default in the first 24 to 36 months following origination of the mortgage loan.
In connection with our sales and securitization of residential mortgage loans to various parties, we have established a mortgage repurchase liability, initially at fair value, related to various representations and warranties that reflect management’s estimate of losses for loans for which we could have a repurchase obligation, whether or not we currently service those loans, based on a combination of factors. Our mortgage repurchase liability estimation process also incorporates a forecast of repurchase demands associated with mortgage insurance rescission activity.
Because we retain the servicing for most of the mortgage loans we sell or securitize, we believe the quality of our residential mortgage loan servicing portfolio provides helpful information in evaluating our repurchase liability. Of the $1.8 trillion in the residential mortgage loan servicing portfolio at December 31, 2014, 94% was current and less than 2% was subprime at origination. Our combined delinquency and foreclosure rate on this portfolio was 5.79% at December 31, 2014, compared with 6.40% at December 31, 2013. Three percent of this portfolio is private label securitizations for which we originated the loans and therefore have some repurchase risk.
 
The overall level of unresolved repurchase demands and mortgage insurance rescissions outstanding at December 31, 2014, was down from a year ago both in number of outstanding loans and in total dollar balances as we continued to work through the new demands and mortgage insurance rescissions and as we announced settlements with both Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA) in 2013, that resolved substantially all repurchase liabilities associated with loans sold to FHLMC prior to January 1, 2009, and loans sold to FNMA that were originated prior to January 1, 2009. Demands from private investors declined from December 31, 2013 primarily due to settlements with two private investors in first quarter 2014 that resolved many of the increased demands we experienced commencing in 2012 and significantly in fourth quarter 2013.
Customary with industry practice, we have the right of recourse against correspondent lenders from whom we have purchased loans with respect to representations and warranties. Historical recovery rates as well as projected lender performance are incorporated in the establishment of our mortgage repurchase liability.
We do not typically receive repurchase requests from GNMA, FHA and the Department of Housing and Urban Development (HUD) or VA. As an originator of an FHA-insured or VA-guaranteed loan, we are responsible for obtaining the insurance with FHA or the guarantee with the VA. To the extent we are not able to obtain the insurance or the guarantee we must request permission to repurchase the loan from the GNMA pool. Such repurchases from GNMA pools typically represent a self-initiated process upon discovery of the uninsurable loan (usually within 180 days from funding of the loan). Alternatively, in lieu of repurchasing loans from GNMA pools, we may be asked by FHA/HUD or the VA to indemnify them (as applicable) for defects found in the Post Endorsement Technical Review process or audits performed by FHA/HUD or the VA. The Post Endorsement Technical Review is a process whereby HUD performs underwriting audits of closed/insured FHA loans for potential deficiencies. Our liability for mortgage loan repurchase losses incorporates probable losses associated with such indemnification.
Table 41 provides the number of unresolved repurchase demands and mortgage insurance rescissions.


83

Risk Management - Credit Risk Management ( continued )

Table 41:  Unresolved Repurchase Demands and Mortgage Insurance Rescissions
 
Government 
sponsored entities (1) 
 
 
Private 
 
 
Mortgage insurance 
rescissions with no demand (2) 
 
 
Total 
 
($ in millions)
Number of
loans

 
Original loan
balance (3) 

 
Number of
loans

 
Original loan
balance (3) 

 
Number of
loans

 
Original loan
balance (3) 

 
Number of
loans

 
Original loan
balance (3) 

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
546

 
$
118

 
173

 
$
34

 
120

 
$
31

 
839

 
$
183

September 30,
426

 
93

 
322

 
75

 
233

 
52

 
981

 
220

June 30,
678

 
149

 
362

 
80

 
305

 
66

 
1,345

 
295

March 31,
599

 
126

 
391

 
89

 
409

 
90

 
1,399

 
305

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
674

 
124

 
2,260

 
497

 
394

 
87

 
3,328

 
708

September 30,
4,422

 
958

 
1,240

 
264

 
385

 
87

 
6,047

 
1,309

June 30,
6,313

 
1,413

 
1,206

 
258

 
561

 
127

 
8,080

 
1,798

March 31,
5,910

 
1,371

 
1,278

 
278

 
652

 
145

 
7,840

 
1,794


(1)
Includes unresolved repurchase demands of 4 and $1 million, 7 and $1 million, 14 and $3 million, 25 and $3 million, 42 and $6 million, 1,247 and $225 million, 942 and $190 million and 674 and $147 million at December 31, September 30, June 30 and March 31, 2014, and December 31, September 30, June 30 and March 31, 2013, respectively, received from investors on mortgage servicing rights acquired from other originators. We generally have the right of recourse against the seller and may be able to recover losses related to such repurchase demands subject to counterparty risk associated with the seller.
(2)
As part of our representations and warranties in our loan sales contracts, we typically represent to GSEs and private investors that certain loans have mortgage insurance to the extent there are loans that have loan to value ratios in excess of 80% that require mortgage insurance. To the extent the mortgage insurance is rescinded by the mortgage insurer due to a claim of breach of a contractual representation or warranty, the lack of insurance may result in a repurchase demand from an investor. Similar to repurchase demands, we evaluate mortgage insurance rescission notices for validity and appeal for reinstatement if the rescission was not based on a contractual breach. When investor demands are received due to lack of mortgage insurance, they are reported as unresolved repurchase demands based on the applicable investor category for the loan (GSE or private).
(3)
While the original loan balances related to these demands are presented above, the establishment of the repurchase liability is based on a combination of factors, such as our appeals success rates, reimbursement by correspondent and other third party originators, and projected loss severity, which is driven by the difference between the current loan balance and the estimated collateral value less costs to sell the property.

Table 42 summarizes the changes in our mortgage repurchase liability. We incurred net losses on repurchased loans and investor reimbursements totaling $144 million in 2014, compared with $481 million in 2013, excluding the
 
$746 million and the $508 million cash payments for the FHLMC and FNMA settlement agreements, respectively.



Table 42:  Changes in Mortgage Repurchase Liability
 
Quarter ended 
 
 
 
 
 
 
Dec 31,

 
Sep 30,

 
Jun 30,

 
Mar 31,

 
Year ended Dec. 31,
 
(in millions)
2014

 
2014

 
2014

 
2014

 
2014

 
2013

 
2012

Balance, beginning of period
$
669

 
766

 
799

 
899

 
899

 
2,206

 
1,326

Provision for repurchase losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan sales
10

 
12

 
12

 
10

 
44

 
143

 
275

Change in estimate (1)
(49
)
 
(93
)
 
(38
)
 
(4
)
 
(184
)
 
285

 
1,665

Total additions (reductions)
(39
)
 
(81
)
 
(26
)
 
6

 
(140
)
 
428

 
1,940

Losses (2)
(15
)
 
(16
)
 
(7
)
 
(106
)
 
(144
)
 
(1,735
)
 
(1,060
)
Balance, end of period
$
615

 
669

 
766

 
799

 
615

 
899

 
2,206


(1)
Results from changes in investor demand and mortgage insurer practices, credit deterioration and changes in the financial stability of correspondent lenders.
(2)
Year ended December 31, 2013, reflects $746 million as a result of the agreement with FHLMC that resolves substantially all repurchase liabilities related to loans sold to FHLMC prior to January 1, 2009. Year ended December 31, 2013, reflects $508 million as a result of the agreement with FNMA that resolves substantially all repurchase liabilities related to loans sold to FNMA that were originated prior to January 1, 2009.

Our liability for mortgage repurchases, included in “Accrued expenses and other liabilities” in our consolidated balance sheet, represents our best estimate of the probable loss that we expect to incur for various representations and warranties in the contractual provisions of our sales of mortgage loans. The mortgage repurchase liability estimation process requires management to make difficult, subjective and complex judgments about matters that are inherently uncertain, including demand expectations, economic factors, and the specific characteristics of the loans subject to repurchase. Our evaluation considers all vintages and the collective actions of the GSEs and their regulator, the Federal Housing Finance Agency (FHFA), mortgage insurers and our correspondent lenders. We maintain regular contact with the GSEs, the FHFA, and other
 
significant investors to monitor their repurchase demand practices and issues as part of our process to update our repurchase liability estimate as new information becomes available. The liability was $615 million at December 31, 2014, and $899 million at December 31, 2013. In 2014, we released $140 million, which increased net gains on mortgage loan origination/sales activities, compared with a provision of $428 million in 2013. The release in 2014 was primarily due to a re-estimation of our liability based on recently observed trends.
Because of the uncertainty in the various estimates underlying the mortgage repurchase liability, there is a range of losses in excess of the recorded mortgage repurchase liability that are reasonably possible. The estimate of the range of possible loss for representations and warranties does not


84

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 reasonably possible losses in excess of our recorded liability was $973 million at December 31, 2014, and was determined based upon modifying the assumptions (particularly to assume significant changes in investor repurchase demand practices) used in our best estimate of probable loss to reflect what we believe to be the high end of reasonably possible adverse assumptions.
Table 43 provides information on the sensitivity of the mortgage repurchase liability estimate to changes in assumptions. For additional information on our repurchase liability, see Note 9 (Mortgage Banking Activities) to Financial Statements in this Report.

Table 43:  Mortgage Repurchase Liability - Sensitivity Assumptions
 
Mortgage 

 
repurchase 

(in millions)
liability 

Balance at December 31, 2014
$
615

 
 
Loss on repurchases (1)
28.4
%
Increase in liability from:
 
10% higher losses
$
57

25% higher losses
141

 
 
Repurchase rate assumption (2)
0.2
%
Increase in liability from:
 
10% higher repurchase rates
$
48

25% higher repurchase rates
120

 
 

(1)
Represents total estimated average loss rate on repurchased loans, net of recovery from third party originators, based on historical experience and current economic conditions. The average loss rate includes the impact of repurchased loans for which no loss is expected to be realized.
(2)
Represents the combination of the estimated investor audit/file review rate, the investor demand rate on those audited loans, and the unsuccessful appeal rate on those demands. As such, the repurchase rate can be significantly impacted by changes in investor behavior if they decide to review/audit more loans or demand more repurchases on the loans they audit. These behavior changes drive a significant component of our estimated high end of the range of reasonably possible losses in excess of our recorded repurchase liability, which includes adverse assumptions in excess of the sensitivity ranges presented in this table.

RISKS RELATING TO SERVICING ACTIVITIES   In addition to servicing loans in our portfolio, we act as servicer and/or master servicer of residential mortgage loans included in GSE-guaranteed mortgage securitizations, GNMA-guaranteed mortgage securitizations of FHA-insured/VA-guaranteed mortgages and private label mortgage securitizations, as well as for unsecuritized loans owned by institutional investors. The following discussion summarizes the primary duties and requirements of servicing and related industry developments.

General Servicing Duties and Requirements
The loans we service were originated by us or by other mortgage loan originators. As servicer, our primary duties are typically to (1) collect payments due from borrowers, (2) advance certain delinquent payments of principal and interest on the mortgage loans, (3) maintain and administer any hazard, title or primary mortgage insurance policies relating to the mortgage loans, (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments, (5) foreclose on defaulted mortgage loans or, to the extent consistent with the related servicing agreement, consider alternatives to foreclosure,
 
such as loan modifications or short sales, and (6) for loans sold into private label securitizations, manage the foreclosed property through liquidation. As master servicer, our primary duties are typically to (1) supervise, monitor and oversee the servicing of the mortgage loans by the servicer, (2) consult with each servicer and use reasonable efforts to cause the servicer to observe its servicing obligations, (3) prepare monthly distribution statements to security holders and, if required by the securitization documents, certain periodic reports required to be filed 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 advancing obligations.
Each agreement under which we act as servicer or master servicer generally specifies a standard of responsibility for actions we take in such capacity and provides protection against expenses and liabilities we incur when acting in compliance with the specified standard. For example, most private label securitization agreements under which we act as servicer or master servicer typically provide that the servicer and the master servicer are entitled to indemnification by the securitization trust for taking action or refraining from taking action in good faith or for errors in judgment. However, we are not indemnified, but rather are required to indemnify the securitization trustee, against any failure by us, as servicer or master servicer, to perform our servicing obligations or against any of our acts or omissions that involve willful misfeasance, bad faith or gross negligence in the performance of, or reckless disregard of, our duties. In addition, if we commit a material breach of our obligations as servicer or master servicer, we may be subject to termination if the breach is not cured within a specified period following notice, which can generally be given by the securitization trustee or a specified percentage of security holders. Whole loan sale contracts under which we act as servicer generally include similar provisions with respect to our actions as servicer. The standards governing servicing in GSE-guaranteed securitizations, and the possible remedies for violations of such standards, vary, and those standards and remedies are determined by servicing guides maintained by the GSEs, contracts between the GSEs and individual servicers and topical guides published by the GSEs from time to time. Such remedies could include indemnification or repurchase of an affected mortgage loan .

Consent Orders and Settlement Agreements for Mortgage Servicing and Foreclosure Practices
In connection with our servicing activities we have entered into various settlements with federal and state regulators to resolve certain alleged servicing issues and practices. In general, these settlements required us to provide customers with loan modification relief, refinancing relief, and foreclosure prevention and assistance, as well as imposed certain monetary penalties on us.
In particular, on February 28, 2013, we entered into amendments to an April 2011 Consent Order with both the Office of the Comptroller of the Currency (OCC) and the FRB, which effectively ceased the Independent Foreclosure Review program created by such Consent Order and replaced it with an accelerated remediation commitment to provide foreclosure prevention actions on $1.2 billion of residential mortgage loans, subject to a process to be administered by the OCC and the FRB. During 2014, we believe we reported sufficient foreclosure prevention actions to the monitor of the accelerated remediation


85

Risk Management - Credit Risk Management ( continued )

process to meet the $1.2 billion commitment, but are awaiting monitor approval.
In addition, on February 9, 2012, a federal/state settlement was announced among the DOJ, HUD, the Department of the Treasury, the Department of Veteran Affairs, the Federal Trade Commission, the Executive Office of the U.S. Trustee, the Consumer Financial Protection Bureau, a task force of Attorneys General, Wells Fargo, and four other servicers related to investigations of mortgage industry servicing and foreclosure practices. Under the terms of this settlement, we agreed to certain programmatic commitments, consisting of three components totaling approximately $5.3 billion. As announced on March 18, 2014, we have successfully fulfilled our remaining commitments (and state-level sub-commitments) in accordance with the terms of this settlement.

Asset/Liability Management
Asset/liability management involves evaluating, monitoring and managing interest rate risk, market risk, liquidity and funding. Primary oversight of interest rate risk and market risk resides with the Finance Committee of our Board of Directors (Board), which oversees the administration and effectiveness of financial risk management policies and processes used to assess and manage these risks. Primary oversight of liquidity and funding resides with the Risk Committee of the Board. At the management level we utilize a Corporate Asset/Liability Management Committee (Corporate ALCO), which consists of senior financial, risk, and business executives, to oversee these risks and report on them periodically to the Board’s Finance Committee and Risk Committee as appropriate. Each of our principal lines of business has its own asset/liability management committee and process linked to the Corporate ALCO process. As discussed in more detail for trading activities below, we employ separate management level oversight specific to market risk. Market risk, in its broadest sense, refers to the possibility that losses will result from the impact of adverse changes in market rates and prices on our trading and non-trading portfolios and financial instruments.

INTEREST RATE RISK Interest rate risk, which potentially can have a significant earnings impact, is an integral part of being a financial intermediary. We are subject to interest rate risk because:
•
assets and liabilities may mature or reprice at different times (for example, if assets reprice faster than liabilities and interest rates are generally falling, earnings will initially decline);
•
assets and liabilities may reprice at the same time but by different amounts (for example, when the general level of interest rates is falling, we may reduce rates paid on checking and savings deposit accounts by an amount that is less than the general decline in market interest rates);
•
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 costs differently);
•
the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change (for example, if long-term mortgage interest rates decline sharply, MBS held in the investment securities portfolio may prepay significantly earlier than anticipated, which could reduce portfolio income); or
•
interest rates may also have a direct or indirect effect on loan demand, collateral values, credit losses, mortgage origination volume, the fair value of MSRs and other
 
financial instruments, the value of the pension liability and other items affecting earnings.
We assess interest rate risk by comparing outcomes under various earnings simulations using many interest rate scenarios that differ in the direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. These simulations require assumptions regarding how changes in interest rates and related market conditions could influence drivers of earnings and balance sheet composition such as loan origination demand, prepayment speeds, deposit balances and mix, as well as pricing strategies.
Our risk measures include both net interest income sensitivity and interest rate sensitive noninterest income and expense impacts. We refer to the combination of these exposures as interest rate sensitive earnings. In general, the Company is positioned to benefit from higher interest rates. Currently, our profile is such that net interest income will benefit from higher interest rates as our assets reprice faster and to a greater degree than our liabilities, and, in response to lower market rates, our assets will reprice downward and to a greater degree than our liabilities. Our interest rate sensitive noninterest income and expense is largely driven by mortgage activity, and tends to move in the opposite direction of our net interest income. So, in response to higher interest rates, mortgage activity, primarily refinancing activity, generally declines. And in response to lower rates, mortgage activity generally increases. Mortgage results are also impacted by the valuation of MSRs and related hedge positions. See the “Risk Management - Asset/Liability Management - Mortgage Banking Interest Rate and Market Risk” section in this Report for more information.
The degree to which these sensitivities offset each other is dependent upon the timing and magnitude of changes in interest rates, and the slope of the yield curve. During a transition to a higher or lower interest rate environment, a reduction or increase in interest-sensitive earnings from the mortgage banking business could occur quickly, while the benefit or detriment from balance sheet repricing could take more time to develop. For example, our lower rate scenarios (scenario 1 and scenario 2) in the following table initially measure a decline in long-term interest rates versus our most likely scenario. Although the performance in these rate scenarios contain initial benefit from increased mortgage banking activity, the result is lower earnings relative to the most likely scenario over time given pressure on net interest income. The higher rate scenarios (scenario 3 and scenario 4) measure the impact of varying degrees of rising short-term and long-term interest rates over the course of the forecast horizon relative to the most likely scenario, both resulting in positive earnings sensitivity.
As of December 31, 2014, our most recent simulations estimate earnings at risk over the next 24 months under a range of both lower and higher interest rates. The results of the simulations are summarized in Table 44, indicating cumulative net income after tax earnings sensitivity relative to the most likely earnings plan over the 24 month horizon (a positive range indicates a beneficial earnings sensitivity measurement relative to the most likely earnings plan and a negative range indicates a detrimental earnings sensitivity relative to the most likely earnings plan).


86

Table 44: Earnings Sensitivity Over 24 Month Horizon Relative to Most Likely Earnings Plan
 
Most 

 
Lower rates 
 
Higher rates 
 
likely 

 
Scenario 1 

 
Scenario 2 

 
Scenario 3 

 
Scenario 4 

Ending rates:
 
 
 
 
 
 
 
 
 
Federal funds
1.87

%
0.25

 
1.61

 
2.10

 
5.00

10-year treasury (1)
3.76

 
1.70

 
3.26

 
4.26

 
6.01

Earnings relative to most likely
N/A 

 
(2)-(3)

%
(1)-(2)

 
0 - 5

 
>5


(1)
U.S. Constant Maturity Treasury Rate

We use the investment securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our interest rate exposures. See the “Balance Sheet Analysis - Investment Securities” section in this Report for more information on the use of the available-for-sale and held-to-maturity securities portfolios. The notional or contractual amount, credit risk amount and fair value of the derivatives used to hedge our interest rate risk exposures as of December 31, 2014, and December 31, 2013, are presented in Note 16 (Derivatives) to Financial Statements in this Report. We use derivatives for asset/liability management in two main ways:
•
to convert the cash flows from selected asset and/or liability instruments/portfolios, including investments, commercial loans and long-term debt, from fixed-rate payments to floating-rate payments, or vice versa; and
•
to economically hedge our mortgage origination pipeline, funded mortgage loans and MSRs using interest rate swaps, swaptions, futures, forwards and options.

MORTGAGE BANKING INTEREST RATE AND MARKET RISK  We originate, fund and service mortgage loans, which subjects us to various risks, including credit, liquidity and interest rate risks. Based on market conditions and other factors, we reduce credit and liquidity risks by selling or securitizing some or all of the long-term fixed-rate mortgage loans we originate and most of the ARMs we originate. On the other hand, we may hold originated ARMs and fixed-rate mortgage loans in our loan portfolio as an investment for our growing base of core deposits. We determine whether the loans will be held for investment or held for sale at the time of commitment. We may subsequently change our intent to hold loans for investment and sell some or all of our ARMs or fixed-rate mortgages as part of our corporate asset/liability management. We may also acquire and add to our securities available for sale a portion of the securities issued at the time we securitize MHFS.
As expected, with the increase in average mortgage interest rates in 2014, our mortgage banking revenue declined as the level of mortgage loan refinance activity decreased compared with 2013. The decline in mortgage loan origination income (primarily driven by the decline in mortgage loan refinancing volume) more than offset the increase in net servicing income. Despite the increase in average mortgage interest rates, the slow recovery in the housing sector, and the continued lack of liquidity in the nonconforming secondary markets, our mortgage banking revenue was strong in 2014, reflecting the complementary origination and servicing strengths of the business. The secondary market for agency-conforming mortgages functioned well during 2014.
Interest rate and market risk can be substantial in the mortgage business. Changes in interest rates may potentially reduce total origination and servicing fees, the value of our residential MSRs measured at fair value, the value of MHFS and the associated income and loss reflected in mortgage banking noninterest income, the income and expense associated with
 
instruments (economic hedges) used to hedge changes in the fair value of MSRs and MHFS, and the value of derivative loan commitments (interest rate “locks”) extended to mortgage applicants.
Interest rates affect the amount and timing of origination and servicing fees because consumer demand for new mortgages and the level of refinancing activity are sensitive to changes in mortgage interest rates. Typically, a decline in mortgage interest rates will lead to an increase in mortgage originations and fees and may also lead to an increase in servicing fee income, depending on the level of new loans added to the servicing portfolio and prepayments. Given the time it takes for consumer behavior to fully react to interest rate changes, as well as the time required for processing a new application, providing the commitment, and securitizing and selling the loan, interest rate changes will affect origination and servicing fees with a lag. The amount and timing of the impact on origination and servicing fees will depend on the magnitude, speed and duration of the change in interest rates.
We measure originations of MHFS at fair value where an active secondary market and readily available market prices exist to reliably support fair value pricing models used for these loans. Loan origination fees on these loans are recorded when earned, and related direct loan origination costs are recognized when incurred. We also measure at fair value certain of our other interests held related to residential loan sales and securitizations. We believe fair value measurement for MHFS and other interests held, which we hedge with free-standing derivatives (economic hedges) along with our MSRs measured at fair value, reduces 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 2014 and 2013, in response to continued secondary market illiquidity, we continued to originate certain prime non-agency loans to be held for investment for the foreseeable future rather than to be held for sale. In addition, in 2013, we originated certain prime agency-eligible loans to be held for investment as part of our asset/liability management strategy.
We initially measure all of our MSRs at fair value and carry substantially all of them at fair value depending on our strategy for managing interest rate risk. Under this method, the MSRs are recorded at fair value at the time we sell or securitize the related mortgage loans. The carrying value of MSRs carried at fair value reflects changes in fair value at the end of each quarter and changes are included in net servicing income, a component of mortgage banking noninterest income. If the fair value of the MSRs increases, income is recognized; if the fair value of the MSRs decreases, a loss is recognized. We use a dynamic and sophisticated model to estimate the fair value of our MSRs and periodically benchmark our estimates to independent appraisals. The valuation of MSRs can be highly subjective and involve complex judgments by management about matters that are inherently unpredictable. See “Critical Accounting Policies - Valuation of Residential Mortgage Servicing Rights” section in this Report for additional information. Changes in interest rates influence a variety of significant assumptions included in the periodic valuation of MSRs, including prepayment speeds, expected returns and potential risks on the servicing asset portfolio, the value of escrow balances and other servicing valuation elements.
A decline in interest rates generally increases the propensity for refinancing, reduces the expected duration of the servicing portfolio and therefore reduces the estimated fair value of MSRs. This reduction in fair value causes a charge to income for MSRs carried at fair value, net of any gains on free-standing derivatives


87

Risk Management - Asset/Liability Management ( continued )

(economic hedges) used to hedge MSRs. We may choose not to fully hedge all the potential decline in the value of our MSRs resulting from a decline in interest rates because the potential increase in origination/servicing fees in that scenario provides a partial “natural business hedge.” An increase in interest rates generally reduces the propensity for refinancing, extends the expected duration of the servicing portfolio and therefore increases the estimated fair value of the MSRs. However, an increase in interest rates can also reduce mortgage loan demand and therefore reduce origination income.
The price risk associated with our MSRs is economically hedged with a combination of highly liquid interest rate forward instruments including mortgage forward contracts, interest rate swaps and interest rate options. All of the instruments included in the hedge are marked to market daily. Because the hedging instruments are traded in highly liquid markets, their prices are readily observable and are fully reflected in each quarter’s mark to market. Quarterly MSR hedging results include a combination of directional gain or loss due to market changes as well as any carry income generated. If the economic hedge is effective, its overall directional hedge gain or loss will offset the change in the valuation of the underlying MSR asset. Gains or losses associated with these economic hedges are included in mortgage banking noninterest income. Consistent with our longstanding approach to hedging interest rate risk in the mortgage business, the size of the hedge and the particular combination of forward hedging instruments at any point in time is designed to reduce the volatility of the mortgage business’s earnings over various time frames within a range of mortgage interest rates. Because market factors, the composition of the mortgage servicing portfolio and the relationship between the origination and servicing sides of our mortgage business change continually, the types of instruments used in our hedging are reviewed daily and rebalanced based on our evaluation of current market factors and the interest rate risk inherent in our MSRs portfolio. Throughout 2014, our economic hedging strategy generally used forward mortgage purchase contracts that were effective at offsetting the impact of interest rates on the value of the MSR asset.
Mortgage forward contracts are designed to pass the full economics of the underlying reference mortgage securities to the holder of the contract, including both the directional gain and loss from the forward delivery of the reference securities and the corresponding carry income. Carry income represents the contract’s price accretion from the forward delivery price to the spot price including both the yield earned on the reference securities and the market implied cost of financing during the period. The actual amount of carry income earned on the hedge each quarter will depend on the amount of the underlying asset that is hedged and the particular instruments included in the hedge. The level of carry income is driven by the slope of the yield curve and other market driven supply and demand factors affecting the specific reference securities. A steep yield curve generally produces higher carry income while a flat or inverted yield curve can result in lower or potentially negative carry income. The level of carry income is also affected by the type of instrument used. In general, mortgage forward contracts tend to produce higher carry income than interest rate swap contracts. Carry income is recognized over the life of the mortgage forward as a component of the contract’s mark to market gain or loss.
Hedging the various sources of interest rate risk in mortgage banking is a complex process that requires sophisticated modeling and constant monitoring. While we attempt to balance these various aspects of the mortgage business, there are several potential risks to earnings:
 
•
Valuation changes for MSRs associated with interest rate changes are recorded in earnings immediately within the accounting period in which those interest rate changes occur, whereas the impact of those same changes in interest rates on origination and servicing fees occur with a lag and over time. Thus, the mortgage business could be protected from adverse changes in interest rates over a period of time on a cumulative basis but still display large variations in income from one accounting period to the next.
•
The degree to which our net gains on loan originations offsets valuation changes for MSRs is imperfect, varies at different points in the interest rate cycle, and depends not just on the direction of interest rates but on the pattern of quarterly interest rate changes.
•
Origination volumes, the valuation of MSRs and hedging results and associated costs are also affected by many factors. Such factors include the mix of new business between ARMs and fixed-rate mortgages, the relationship between short-term and long-term interest rates, the degree of volatility in interest rates, the relationship between mortgage interest rates and other interest rate markets, and other interest rate factors. Additional factors that can impact the valuation of the MSRs include changes in servicing and foreclosure costs due to changes in investor or regulatory guidelines, as well as individual state foreclosure legislation, and changes in discount rates due to market participants requiring a higher return due to updated market expectations on costs and risks associated with investing in MSRs. Many of these factors are hard to predict and we may not be able to directly or perfectly hedge their effect.
•
While our hedging activities are designed to balance our mortgage banking interest rate risks, the financial instruments we use may not perfectly correlate with the values and income being hedged. For example, the change in the value of ARM production held for sale from changes in mortgage interest rates may or may not be fully offset by Treasury and LIBOR index-based financial instruments used as economic hedges for such ARMs. Additionally, hedge-carry income we earn on our economic hedges for the MSRs may not continue if the spread between short-term and long-term rates decreases, we shift composition of the hedge to more interest rate swaps, or there are other changes in the market for mortgage forwards that affect the implied carry.

The total carrying value of our residential and commercial MSRs was $14.0 billion and $16.8 billion at December 31, 2014 and 2013, respectively. The weighted-average note rate on our portfolio of loans serviced for others was 4.45% and 4.52% at December 31, 2014 and 2013, respectively. The carrying value of our total MSRs represented 0.75% and 0.88% of mortgage loans serviced for others at December 31, 2014 and 2013, 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 commitment is an interest rate lock that binds us to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock. These loan commitments are derivative loan commitments if the loans that will result from the exercise of the commitments will be held for sale. These derivative loan commitments are recognized at fair value on the balance sheet with changes in their fair values recorded as part of mortgage banking noninterest income. The fair value of these commitments include, at inception and during


88

the life of the loan commitment, the expected net future cash flows related to the associated servicing of the loan as part of the fair value measurement of derivative loan commitments. Changes subsequent to inception are based on changes in fair value of the underlying loan resulting from the exercise of the commitment and changes in the probability that the loan will not fund within the terms of the commitment, referred to as a fall-out factor. The value of the underlying loan commitment is affected primarily by changes in interest rates and the passage of time.
Outstanding derivative loan commitments expose us to the risk that the price of the mortgage loans underlying the commitments might decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. To minimize this risk, we employ mortgage forwards and options, Eurodollar futures and options, and Treasury futures, forwards and options contracts as economic hedges against the potential decreases in the values of the loans. We expect that these derivative financial instruments will experience changes in fair value that will either fully or partially offset the changes in fair value of the derivative loan commitments. However, changes in investor demand, such as concerns about credit risk, can also cause changes in the spread relationships between underlying loan value and the derivative financial instruments that cannot be hedged.

MARKET RISK - TRADING ACTIVITIES  The Finance Committee of our Board of Directors reviews the acceptable market risk appetite for our trading activities. We engage in trading activities primarily to accommodate the investment and risk management activities of our customers, execute economic hedging to manage certain balance sheet risks and, to a very limited degree, for proprietary trading for our own account. These activities primarily occur within our Wholesale Banking businesses and to a lesser extent other divisions of the Company. This includes entering into transactions with our customers that are recorded as trading assets and liabilities on our balance sheet. All of our trading assets and liabilities, including securities, foreign exchange transactions, commodity transactions, and derivatives are carried at fair value. Income earned related to these trading activities include net interest income and changes in fair value related to trading assets and liabilities. Net interest income earned on trading assets and liabilities is reflected in the interest income and interest expense components of our income statement. Changes in fair value of trading assets and liabilities are reflected in net gains on trading activities, a component of noninterest income in our income statement .
 
Table 45 presents total revenue from trading activities.
Table 45:  Income from Trading Activities
 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Interest income (1)
$
1,685

 
1,376

 
1,358

Less: Interest expense (2)
382

 
307

 
245

Net interest income
1,303

 
1,069

 
1,113

Noninterest income:
 
 
 
 
 
Net gains from trading activities (3):
 
 
 
 
 
Customer accommodation
924

 
1,278

 
1,347

Economic hedges and other (4)
233

 
332

 
345

Proprietary trading
4

 
13

 
15

Total net trading gains
1,161

 
1,623

 
1,707

Total trading-related net interest and noninterest income
$
2,464

 
2,692

 
2,820


(1)
Represents interest and dividend income earned on trading securities.
(2)
Represents interest and dividend expense incurred on trading securities we have sold but have not yet purchased.
(3)
Represents realized gains (losses) from our trading activity and unrealized gains (losses) due to changes in fair value of our trading positions, attributable to the type of business activity.
(4)
Excludes economic hedging of mortgage banking activities and asset/liability management.
 
  Customer accommodation Customer accommodation activities are conducted to help customers manage their investment and risk management needs. We engage in market-making activities or act as an intermediary to purchase or sell financial instruments in anticipation of or in response to customer needs. This category also includes positions we use to manage our exposure to customer transactions.
For the majority of our customer accommodation trading, we serve as intermediary between buyer and seller. For example, we may purchase or sell a derivative to a customer who wants to manage interest rate risk exposure. We typically enter into offsetting derivative or security positions with a separate counterparty or exchange to manage our exposure to the derivative with our customer. We earn income on this activity based on the transaction price difference between the customer and offsetting derivative or security positions, which is reflected in the fair value changes of the positions recorded in net gains on trading activities.
Customer accommodation trading also includes net gains related to market-making activities in which we take positions to facilitate customer order flow. For example, we may own securities recorded as trading assets (long positions) or sold securities we have not yet purchased, recorded as trading liabilities (short positions), typically on a short-term basis, to facilitate support of buying and selling demand from our customers. As a market maker in these securities, we earn income due to: (1) the difference between the price paid or received for the purchase and sale of the security (bid-ask spread), (2) the net interest income, and (3) the change in fair value of the long or short positions during the short-term period held on our balance sheet. Additionally, we may enter into separate derivative or security positions to manage our exposure related to our long or short security positions. Collectively, income earned on this type of market-making activity is reflected in the fair value changes of these positions recorded in net gain on trading activities.



89

Risk Management - Asset/Liability Management ( continued )

Economic hedges and other Economic hedges in trading are not designated in a hedge accounting relationship and exclude economic hedging related to our asset/liability risk management and substantially all mortgage banking risk management activities. Economic hedging activities include the use of trading securities to economically hedge risk exposures related to non-trading activities or derivatives to hedge risk exposures related to trading assets or trading liabilities. Economic hedges are unrelated to our customer accommodation activities. Other activities include financial assets held for investment purposes that we elected to carry at fair value with changes in fair value recorded to earnings in order to mitigate accounting measurement mismatches or avoid embedded derivative accounting complexities.

Proprietary trading Proprietary trading consists of security or derivative positions executed for our own account based upon market expectations or to benefit from price differences between financial instruments and markets. Proprietary trading activity has been substantially restricted by the Dodd-Frank Act
 
provisions known as the “Volcker Rule.” Accordingly, we reduced and are exiting certain business activities in anticipation of the rule’s compliance date. As discussed within this section and the noninterest income section of our financial results, proprietary trading activity is insignificant to our business and financial results. For more details on the Volcker Rule, see the “Regulatory Reform” section in this Report.

Daily Trading-Related Revenue Table 46 provides information on the distribution of daily trading-related revenues for the Company’s trading portfolio. This trading-related revenue is defined as the change in value of the trading assets and trading liabilities, trading-related net interest income, and trading-related intra-day gains and losses. Net trading - related revenue does not include activity related to long-term positions held for economic hedging purposes, period-end adjustments , and other activity not representative of daily price changes driven by market factors.



Table 46:  Distribution of Daily Trading-Related Revenues

Market Risk is the risk of adverse changes in the fair value of the trading portfolios and financial instruments held by the Company due to changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity, and commodity prices. Market risk is intrinsic to the Company’s sales and trading, market making, investing, and risk management activities.
The Company uses Value-at-Risk (VaR) metrics complemented with sensitivity analysis and stress testing in measuring and monitoring market risk. These market risk
 
measures are monitored at both the business unit level and at aggregated levels on a daily basis. Our corporate market risk management function aggregates and monitors all exposures to ensure risk measures are within our established risk appetite. Changes to the market risk profile are analyzed and reported on a daily basis. The Company monitors various market risk exposure measures from a variety of perspectives, which include line of business, product, risk type , and legal entity.



90

VaR is a statistical risk measure used to estimate the potential loss from adverse moves in the financial markets. The VaR measures assume that historical changes in market values (historical simulation analysis) are representative of the potential future outcomes and measure the expected loss over a given time interval (for example, 1 day or 10 days) within a given confidence level. Our historical simulation analysis approach uses historical observations of daily changes of each of the market risk factors from each trading day in the previous 12 months. The risk drivers of each market risk exposure are updated on a daily basis. We measure and report VaR for a 1-day holding period at a 99% confidence level. This means that we would expect to incur single day losses greater than predicted by VaR estimates for the measured positions one time in every 100 trading days. We treat data from all historical periods as equally relevant and consider using data for the previous 12 months as appropriate for determining VaR. We believe using a 12 - month look back period helps ensure the Company’s VaR is responsive to current market conditions.
VaR measurement between different financial institutions is not readily comparable due to modeling and assumption differences from company to company. VaR measures are more useful when interpreted as an indication of trends rather than an absolute measure to be compared across financial institutions.
VaR models are subject to limitations which include, but are not limited to, the use of historical changes in market factors that may not accurately reflect future changes in market factors, and the inability to predict market liquidity in extreme market conditions. All limitations such as model inputs, model assumptions, and calculation methodology risk are monitored by the Corporate Market Risk Group and the Corporate Model Risk Group .
The VaR models measure exposure to the following categories:
 
•
credit risk - exposures from corporate credit spreads, asset-backed security spreads, and mortgage prepayments.
•
interest rate risk - exposures from changes in the level, scope, and curvature of interest rate curves and the volatility of interest rates.
•
equity risk - exposures to changes in equity prices and volatilities of single name, index, and basket exposure.
•
commodity risk - exposures to changes in commodity prices and volatilities.
•
foreign exchange risk - exposures to changes in foreign exchange rates and volatilities.

VaR is the primary market risk management measure for the assets and liabilities classified as trading and is used as a supplemental analysis tool to monitor exposures classified as available for sale (AFS) and other exposures that we carry at fair value.
Trading VaR is the measure used to provide insight into the market risk exhibited by the Company’s trading positions. The Company calculates Trading VaR for risk management purposes to establish line of business and Company-wide risk limits. Trading VaR is calculated based on all trading positions classified as trading assets or trading liabilities on our balance sheet.
Table 47 shows the results of the Company’s Trading VaR by risk category. As presented in the table, average Trading VaR was $ 21 million for the quarter ended December 31, 2014, compared with $ 17 million for the quarter ended September 30, 2014. The increase was primarily driven by changes in portfolio composition.





Table 47:  Trading 1-Day 99% General VaR Risk Category
 
Quarter ended
 
 
December 31, 2014
 
 
September 30, 2014
 
(in millions)
Period 
end 

 
Average 

 
Low 

 
High 

 
Period
end 

 
Average 

 
Low 

 
High 

General VaR Risk Categories
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit
$
10

 
14

 
10

 
19

 
17

 
16

 
12

 
20

Interest rate
24

 
27

 
19

 
37

 
29

 
30

 
25

 
39

Equity
9

 
8

 
6

 
12

 
8

 
7

 
6

 
9

Commodity
1

 
1

 
1

 
2

 
1

 
1

 
1

 
1

Foreign exchange
1

 
1

 
—

 
1

 
—

 
1

 
—

 
1

Diversification benefit (1)
(23
)
 
(30
)
 
 
 
 
 
(37
)
 
(38
)
 
 
 
 
Total VaR
22

 
21

 
 
 
 
 
18

 
17

 
 
 
 

(1)
The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification effect arises because the risks are not perfectly correlated causing a portfolio of positions to usually be less risky than the sum of the risks of the positions alone. The diversification benefit is not meaningful for low and high metrics since they may occur on different days.

Sensitivity Analysis Given the inherent limitations of the VaR models, the Company uses other measures, including sensitivity analysis, to measure and monitor risk. Sensitivity analysis is the measure of exposure to a single risk factor, such as a 0.01% increase in interest rates or a 1% increase in equity prices. We conduct and monitor sensitivity on interest rates, credit spreads, volatility, equity, commodity, and foreign exchange exposure. Sensitivity analysis complements VaR as it provides an indication of risk relative to each factor irrespective of historical market moves.
 
Stress Testing While VaR captures the risk of loss due to adverse changes in markets using recent historical market data, stress testing captures the Company’s exposure to extreme but low probability market movements. Stress scenarios estimate the risk of losses based on management’s assumptions of abnormal but severe market movements such as severe credit spread widening or a large decline in equity prices. These scenarios assume that the market moves happen instantaneously and no repositioning or hedging activity takes place to mitigate losses as events unfold (a conservative approach since experience demonstrates otherwise).


91

Risk Management - Asset/Liability Management ( continued )

An inventory of scenarios is maintained representing both historical and hypothetical stress events that affect a broad range of market risk factors with varying degrees of correlation and differing time horizons. Hypothetical scenarios assess the impact of large movements in financial variables on portfolio values. Typical examples include a 100 basis point increase across the yield curve or a 10% decline in stock market indexes. Historical scenarios utilize an event-driven approach: the stress scenarios are based on plausible but rare events, and the analysis addresses how these events might affect the risk factors relevant to a portfolio.
The Company’s stress testing framework is also used in calculating results in support of the Federal Reserve Board’s Comprehensive Capital Analysis & Review (CCAR) and internal stress tests. Stress scenarios are regularly reviewed and updated to address potential market events or concerns. For more detail on the CCAR process, see the “Capital Management” section in this Report.

Regulatory Market Risk Capital is based on U.S. regulatory agency risk-based capital regulations that are based on the Basel Committee Capital Accord of the Basel Committee on Banking Supervision. Prior to January 1, 2013, U.S. banking regulators’ market risk capital requirements were subject to Basel I and thereafter based on Basel 2.5. Effective January 1, 2014, the Company must calculate regulatory capital based on the Basel III market risk capital rule, which integrated Basel 2.5, and requires banking organizations with significant trading activities to adjust their capital requirements to better account for the market risks of those activities based on a comprehensive and risk sensitive method and models. The market risk capital rule is intended to
 
cover the risk of loss in value of covered positions due to changes in market conditions.

Composition of Material Portfolio of Covered Positions The market risk capital rule substantially modified the determination of market risk risk-weighted assets (RWAs), and implemented a more risk-sensitive methodology for the risks inherent in certain “covered” trading positions. The positions that are “covered” by the market risk capital rule are generally a subset of our trading assets and trading liabilities, specifically those held by the Company for the purpose of short-term resale or with the intent of benefiting from actual or expected short-term price movements, or to lock in arbitrage profits. Positions excluded from market risk regulatory capital treatment are subject to the credit risk capital rules applicable to the “non-covered” trading positions.
The material portfolio of the Company’s “covered” positions is predominantly concentrated in the trading assets and trading liabilities managed within Wholesale Banking where the substantial portion of market risk capital is required. Wholesale Banking engages in the fixed income, traded credit, foreign exchange, equities, and commodities markets businesses. Other business segments hold small additional trading positions covered under the market risk capital rule.
Table 48 summarizes the market risk-based capital requirements charge and market RWAs in accordance with the Basel III market risk capital rule as of December 31, 2014, and in accordance with the Basel 2.5 market risk capital rule as of December 31, 2013. The market RWAs are calculated as the sum of the components in the table below.


Table 48:  Market Risk Regulatory Capital and RWAs
 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Risk-
based
capital

 
Risk-
weighted
assets

 
Risk-
based
capital

 
Risk-
weighted
assets

Total VaR
$
146

 
1,822

 
252

 
3,149

Total Stressed VaR
1,469

 
18,359

 
921

 
11,512

Incremental Risk Charge
345

 
4,317

 
393

 
4,913

Securitized Products Charge
766

 
9,577

 
633

 
7,913

Standard Specific Risk Charge
1,177

 
14,709

 
583

 
7,289

De minimis Charges (positions not included in models)
66

 
829

 
125

 
1,563

Total
$
3,969

 
49,613

 
2,907

 
36,339




92

RWA Rollforward Table 49 depicts the changes in the market risk regulatory capital and RWAs under Basel III for the full year and fourth quarter of 2014.

Table 49: Analysis of Changes in Market Risk Regulatory Capital and RWAs
(in millions)
Risk-based capital

 
Risk-weighted assets

Balance, December 31, 2013
$
2,907

 
36,339

 
Total VaR
(106
)
 
(1,327
)
 
Total Stressed VaR
548

 
6,847

 
Incremental Risk Charge
(48
)
 
(596
)
 
Securitized Products Charge
133

 
1,664

 
Standardized Specific Risk Charge
594

 
7,420

 
De minimis Charges
(59
)
 
(734
)
Balance, December 31, 2014
$
3,969

 
49,613

 
 
 
 
 
Balance, September 30, 2014
$
4,089

 
51,117

 
Total VaR
(97
)
 
(1,215
)
 
Total Stressed VaR
110

 
1,370

 
Incremental Risk Charge
(23
)
 
(284
)
 
Securitized Products Charge
18

 
227

 
Standardized Specific Risk Charge
(120
)
 
(1,500
)
 
De minimis Charges
(8
)
 
(102
)
Balance, December 31, 2014
$
3,969

 
49,613


The increase in standardized specific risk charge for risk-based capital and RWAs in 2014 resulted primarily from a change during the quarter ended March 31, 2014, in positions now subject to standardized specific risk charges. All changes to market risk regulatory capital and RWAs in the quarter ended
 
December 31, 2014, were associated with changes in positions due to normal trading activity.
Regulatory Market Risk Capital Components The capital required for market risk on the Company’s “covered” positions is determined by internally developed models or standardized specific risk charges. The market risk regulatory capital models are subject to internal model risk management and validation. The models are continuously monitored and enhanced in response to changes in market conditions, improvements in system capabilities, and changes in the Company’s market risk exposure. The Company is required to obtain and has received prior written approval from its regulators before using its internally developed models to calculate the market risk capital charge.
Basel III prescribes various VaR measures in the determination of regulatory capital and risk-weighted assets. The Company uses the same VaR models for both market risk management purposes as well as regulatory capital calculations. For regulatory purposes, we use the following metrics to determine the Company’s market risk capital requirements:

General VaR measures the risk of broad market movements such as changes in the level of credit spreads, interest rates, equity prices, commodity prices, and foreign exchange rates. General VaR uses historical simulation analysis based on 99% confidence level and a 10-day time horizon.
Table 50 shows the General VaR measure categorized by major risk categories. Average 10-day General VaR was $ 36 million for the quarter ended December 31, 2014, compared with $ 29 million for the quarter ended September 30, 2014 . The increase was primarily driven by changes in portfolio composition.



Table 50:  Regulatory 10-Day 99% General VaR by Risk Category
 
 
 
Quarter ended 
 
 
 
 
December 31, 2014
 
 
September 30, 2014
 
(in millions)
Period
end 

 
Average

 
Low 

 
High 

 
Period
end 

 
Average 

 
Low 

 
High 

Wholesale General VaR Risk Categories
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit
$
34

 
45

 
34

 
52

 
47

 
43

 
25

 
74

Interest rate
66

 
68

 
48

 
96

 
73

 
79

 
63

 
103

Equity
9

 
10

 
4

 
16

 
10

 
7

 
4

 
11

Commodity
3

 
3

 
1

 
7

 
3

 
4

 
2

 
9

Foreign exchange
4

 
3

 
1

 
11

 
2

 
4

 
1

 
16

Diversification benefit (1)
(81
)
 
(92
)
 
 
 
 
 
(102
)
 
(107
)
 
 
 
 
Wholesale General VaR
$
35

 
37

 
22

 
54

 
33

 
30

 
20

 
44

Company General VaR
35

 
36

 
23

 
54

 
33

 
29

 
19

 
42


(1)
The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification effect arises because the risks are not perfectly correlated causing a portfolio of positions to usually be less risky than the sum of the risks of the positions alone. The diversification benefit is not meaningful for low and high metrics since they may occur on different days.

Specific Risk measures the risk of loss that could result from factors other than broad market movements, or name-specific market risk. Specific Risk uses Monte Carlo simulation analysis based on a 99% confidence level and a 10-day time horizon.

Total VaR (as presented in Table 51) is composed of General VaR and Specific Risk and uses the previous 12 months of historical market data to comply with regulatory requirements.

 
Total Stressed VaR (as presented in Table 51) uses a historical period of significant financial stress over a continuous 12 month period using historically available market data and is composed of Stressed General VaR and Stressed Specific Risk. Total Stressed VaR uses the same methodology and models as Total VaR.




93

Risk Management - Asset/Liability Management ( continued )

Incremental Risk Charge according to the market risk capital rule, must capture losses due to both issuer default and migration risk at the 99.9% confidence level over the one-year capital horizon under the assumption of constant level of risk or a constant position assumption. The model covers all non-securitized credit-sensitive products.
The Company calculates Incremental Risk by generating a portfolio loss distribution using Monte Carlo simulation, which assumes numerous scenarios, where an assumption is made that the portfolio’s composition remains constant for a one-year time horizon. Individual issuer credit grade migration and issuer default risk is modeled through generation of the issuer’s credit rating transition based upon statistical modeling. Correlation between credit grade migration and default is captured by a
 
multifactor proprietary model which takes into account industry classifications as well as regional effects. Additionally, the impact of market and issuer specific concentrations is reflected in the modeling framework by assignment of a higher charge for portfolios that have increasing concentrations in particular issuers or sectors. Lastly, the model captures product basis risk; that is, it reflects the material disparity between a position and its hedge.
Table 51 provides information on the Incremental Risk Charge results for the quarter ended December 31, 2014. For this charge, the required capital at quarter end equals the average for the quarter.



Table 51:  Market Risk Regulatory Capital Modeled Components
 
Quarter ended December 31, 2014
 
 
December 31, 2014
 
(in millions)
Average

 
Low

 
High

 
Quarter end

 
Risk-
based
capital (1)

 
Risk-
weighted
assets (1)

Total VaR
$
49

 
39

 
83

 
50

 
146

 
1,822

Total Stressed VaR
490

 
440

 
571

 
480

 
1,469

 
18,359

Incremental Risk Charge
345

 
310

 
382

 
338

 
345

 
4,317


(1)
Represents the required component amount for market risk based upon the respective VaR and Incremental Risk Charge requirements.

Securitized Products Charge Basel III requires a separate market risk capital charge for positions classified as a securitization or re-securitization. The primary criteria for classification as a securitization are whether there is a transfer of risk and whether the credit risk associated with the underlying exposures has been separated into at least two tranches reflecting different levels of seniority. Covered trading securitizations positions include consumer and commercial asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), and collateralized loan and other debt obligations (CLO/CDO) positions. The securitization capital requirements are the greater of the capital requirements of the net long or short exposure, and are capped at the maximum loss that could be incurred on any given transaction. Table 52 shows the aggregate net fair market value of securities and derivative securitization positions by exposure type that meet the regulatory definition of a covered trading securitization position at December 31, 2014 and 2013 .

Table 52:  Covered Securitization Positions by Exposure Type (Market Value)
(in millions)
ABS 

 
CMBS 

 
RMBS 

 
CLO/CDO 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securitization exposure:
 
 
 
 
 
 
 
Securities
$
752

 
709

 
689

 
553

Derivatives
(1
)
 
5

 
23

 
(31
)
Total
751

 
714

 
712

 
522

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securitization Exposure:
 
 
 
 
 
 
 
Securities
604

 
559

 
479

 
561

Derivatives
(2
)
 
2

 
16

 
(72
)
Total
$
602


561


495


489


 
SECURITIZATION DUE DILIGENCE AND RISK MONITORING   The market risk capital rule requires that the Company conduct due diligence on the risk of each position within three days of the purchase of a securitization position. The Company's due diligence on the creditworthiness of each position provides an understanding of the features that would materially affect the performance of a securitization or re-securitization. The due diligence analysis is performed again on a quarterly basis for each securitization and re-securitization position. The Company uses an automated solution to track the due diligence associated with securitization activity. The Company aims to manage the risks associated with securitization and re-securitization positions through the use of offsetting positions and portfolio diversification.
 
Standardized Specific Risk Charge For debt and equity positions that are not evaluated by the approved internal specific risk models, a regulatory prescribed standard specific risk charge is applied. The standard specific risk add-on for sovereign entities, public sector entities, and depository institutions is based on the Organization for Economic Co-operation and Development (OECD) country risk classifications (CRC) and the remaining contractual maturity of the position. These risk add-ons for debt positions range from 0.25% to 12%. The add-on for corporate debt is based on creditworthiness and the remaining contractual maturity of the position. All other types of debt positions are subject to an 8% add-on. The standard specific risk add-on for equity positions is generally 8%.

Comprehensive Risk Charge / Correlation Trading The market risk capital rule requires capital for correlation trading positions. The Company's remaining correlation trading exposure covered under the market risk capital rule matured in fourth quarter 2014.

VaR Backtesting The market risk capital rule requires backtesting as one form of validation of the VaR model. Backtesting is a comparison of the daily VaR estimate with the actual clean profit and loss (clean P&L) as defined by the market


94

risk capital rule. Clean P&L is the change in the value of the Company’s covered trading positions that would have occurred had previous end-of-day covered trading positions remained unchanged (therefore, excluding fees, commissions, net interest income, and intraday trading gains and losses). The backtesting analysis compares the daily Total VaR for each of the trading days in the preceding 12 months with the net clean P&L. Clean P&L does not include credit adjustments and other activity not representative of daily price changes driven by market risk factors. The clean P&L measure of revenue is used to evaluate the performance of the Total VaR and is not comparable to our actual daily trading net revenues, as reported elsewhere in this Report.
Any observed clean P&L loss in excess of the Total VaR is considered a market risk regulatory capital backtesting exception. The actual number of exceptions (that is, the number
 
of business days for which the clean P&L losses exceed the corresponding 1-day, 99% Total VaR measure) over the preceding 12 months is used to determine the capital multiplier for the capital calculation. The number of actual backtesting exceptions is dependent on current market performance relative to historic market volatility. This capital multiplier increases from a minimum of three to a maximum of four, depending on the number of exceptions. No backtesting exceptions occurred over the preceding 12 months. Backtesting is also performed at granular levels within the Company with sub-portfolio results provided to federal regulators.
Table 53 shows daily Total VaR (1-day, 99%) for the 12 months ended December 31, 2014. The Company’s average Total VaR for fourth quarter 2014 was $22 million with a low of $17 million and a high of $28 million.



Table 53:  Daily Total 1-Day 99% VaR Measure (Rolling 12 Months)
Market Risk Governance The Finance Committee of our Board has primary oversight over market risk-taking activities of the Company and reviews the acceptable market risk appetite. The Corporate Risk Group’s Market Risk Committee, which reports to the Finance Committee of the Board, is responsible for governance and oversight over market risk-taking activities across the Company as well as the establishment of market risk appetite and associated limits. The Corporate Market Risk Group, which is part of the Corporate Risk Group, administers and monitors compliance with the requirements established by the Market Risk Committee. The Corporate Market Risk Group has oversight responsibilities in identifying, measuring and monitoring the Company’s market risk. The group is responsible for developing corporate market risk policy, creating quantitative market risk models, establishing independent risk limits, calculating and analyzing market risk capital, and reporting aggregated and line - of - business market risk information. Limits are regularly reviewed to ensure they remain relevant and within the market risk appetite for the Company. An automated limits - monitoring system enables a daily
 
comprehensive review of multiple limits mandated across businesses. Limits are set with inner boundaries that will be periodically breached to promote an ongoing dialogue of risk exposure within the Company. Each line of business that exposes the Company to market risk has direct responsibility for managing market risk in accordance with defined risk tolerances and approved market risk mandates and hedging strategies. We measure and monitor market risk for both management and regulatory capital purposes.

Model Risk Management The market risk capital models are governed by our Corporate Model Risk Committee (CMoR) policies and procedures, which include model validation. The purpose of model validation includes ensuring the model is appropriate for its intended use and that appropriate controls exist to help mitigate the risk of invalid results. Model validation assesses the adequacy and appropriateness of the model, including reviewing its key components such as inputs, processing components, logic or theory, output results and supporting model documentation. Validation also includes


95

Risk Management - Asset/Liability Management ( continued )

ensuring significant unobservable model inputs are appropriate given observable market transactions or other market data within the same or similar asset classes. This ensures modeled approaches are appropriate given similar product valuation techniques and are in line with their intended purpose. The Corporate Model Risk Group provides oversight of model validation and assessment processes.
All internal valuation models are subject to ongoing review by business-unit-level management, and all models are subject to additional oversight by a corporate-level risk management department. Corporate oversight responsibilities include evaluating the adequacy of business unit risk management programs, maintaining company-wide model validation policies and standards, and reporting the results of these activities to management.

MARKET RISK - EQUITY INVESTMENTS We are directly and indirectly affected by changes in the equity markets. We make and manage direct equity investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make similar private equity investments. These private equity investments are made within capital allocations approved by management and the Board. The Board’s policy is to review business developments, key risks and historical returns for the private equity investment portfolio at least annually. Management reviews these investments at least quarterly and assesses them for possible OTTI. For nonmarketable investments, the analysis is based on facts and circumstances of each individual investment and the expectations for that investment’s cash flows and capital needs, the viability of its business model and our exit strategy. Nonmarketable investments include private equity investments accounted for under the cost method, equity method and fair value option.
As part of our business to support our customers, we trade public equities, listed/OTC equity derivatives and convertible bonds. We have parameters that govern these activities. We also have marketable equity securities in the available-for-sale securities portfolio, including securities relating to our venture capital activities. We manage these investments within capital risk limits approved by management and the Board and monitored by Corporate ALCO. Gains and losses on these securities are recognized in net income when realized and periodically include OTTI charges.
Changes in equity market prices may also indirectly affect our net income by (1) the value of third party assets under management and, hence, fee income, (2) borrowers whose ability to repay principal and/or interest may be affected by the stock market, or (3) brokerage activity, related commission income and other business activities. Each business line monitors and manages these indirect risks.
 
Table 54 provides information regarding our marketable and nonmarketable equity investments as of December 31, 2014 and 2013.

Table 54:  Nonmarketable and Marketable Equity Investments
 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

Nonmarketable equity investments:
 
 
 
Cost method:
 
 
 
Private equity and other
$
2,300

 
2,308

Federal bank stock
4,733

 
4,670

Total cost method
7,033

 
6,978

Equity method:
 
 
 
LIHTC investments (1)
7,278

 
6,209

Private equity and other
5,132

 
5,782

Total equity method
12,410

 
11,991

Fair value (2)
2,512

 
1,386

Total nonmarketable equity investments (3)
$
21,955

 
20,355

Marketable equity securities:
 
 
 
Cost
$
1,906

 
2,039

Net unrealized gains
1,770

 
1,346

Total marketable equity securities (4)
$
3,676

 
3,385


(1)
Represents low income housing tax credit investments.
(2)
Represents nonmarketable equity investments for which we have elected the fair value option. See Note 7 (Premises, Equipment, Lease Commitments and Other Assets) and Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional information.
(3)
Included in other assets on the balance sheet. See Note 7 (Premises, Equipment, Lease Commitments and Other Assets) to Financial Statements in this Report for additional information.
(4)
Included in available-for-sale securities. See Note 5 (Investment Securities) to Financial Statements in this Report for additional information.





96

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 commitments efficiently under both normal operating conditions and under periods of Wells Fargo-specific and/or market stress. To achieve this objective, the Board of Directors establishes liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. These guidelines are monitored on a monthly basis by the Corporate ALCO and on a quarterly basis by the Board of Directors. These guidelines are established and monitored for both the consolidated company and for the Parent on a stand-alone basis to ensure that the Parent is a source of strength for its regulated, deposit-taking banking subsidiaries.
We maintain liquidity in the form of cash, cash equivalents and unencumbered high-quality, liquid securities. These assets make up our primary sources of liquidity which are presented in
 
Table 55. Our cash is primarily on deposit with the Federal Reserve. Securities included as part of our primary sources of liquidity are comprised of U.S. Treasury and federal agency debt, and mortgage-backed securities issued by federal agencies within our investment securities portfolio. We believe these securities provide quick sources of liquidity through sales or by pledging to obtain financing, regardless of market conditions. Some of these securities are within the held-to-maturity portion of our investment securities portfolio and as such are not intended for sale but may be pledged to obtain financing. Some of the legal entities within our consolidated group of companies are subject to various regulatory, tax, legal and other restrictions that can limit the transferability of their funds. We believe we maintain adequate liquidity at these entities in consideration of such funds transfer restrictions.



Table 55:  Primary Sources of Liquidity
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
December 31, 2013 
 
(in millions)
Total

 
Encumbered

 
Unencumbered

 
Total 

 
Encumbered 

 
Unencumbered 

Interest-earning deposits
$
219,220

 
—

 
219,220

 
186,249

 
—

 
186,249

Securities of U.S. Treasury and federal agencies (1)
67,352

 
856

 
66,496

 
6,280

 
571

 
5,709

Mortgage-backed securities of federal agencies (2)
115,730

 
80,324

 
35,406

 
123,796

 
60,605

 
63,191

Total
$
402,302

 
81,180

 
321,122

 
316,325

 
61,176

 
255,149


(1)
Included in encumbered securities at December 31, 2014, were securities with a fair value of $152 million which were purchased in December 2014, but settled in January 2015.
(2)
Included in encumbered securities at December 31, 2014, were securities with a fair value of $5 million which were purchased in December 2014, but settled in January 2015. Included in encumbered securities at December 31, 2013, were securities with a fair value of $653 million which were purchased in December 2013, but settled in January 2014.

In addition to our primary sources of liquidity shown in Table 55, liquidity is also available through the sale or financing of other securities including trading and/or available-for-sale securities, as well as through the sale, securitization or financing of loans, to the extent such securities and loans are not encumbered. In addition, other securities in our held-to-maturity portfolio, to the extent not encumbered, may be pledged to obtain financing.
 
Core customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. At December 31, 2014 , core deposits were 122% of total loans compared with 119% a year ago. Additional funding is provided by long-term debt, other foreign deposits, and short-term borrowings.
Table 56 shows selected information for short-term borrowings, which generally mature in less than 30 days.


Table 56: Short-Term Borrowings
 
 
 
 
 
 
 
 
 
 
Quarter ended
 
(in millions)
Dec 31,
2014

 
Sep 30,
2014

 
Jun 30,
2014

 
Mar 31,
2014

 
Dec 31,
2013

Balance, period end
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
51,052

 
48,164

 
45,379

 
39,254

 
36,263

Commercial paper
2,456

 
4,365

 
4,261

 
6,070

 
5,162

Other short-term borrowings
10,010

 
10,398

 
12,209

 
11,737

 
12,458

Total
$
63,518

 
62,927

 
61,849

 
57,061

 
53,883

Average daily balance for period
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
51,509

 
47,088

 
42,233

 
37,711

 
36,232

Commercial paper
3,511

 
4,587

 
5,221

 
5,713

 
4,731

Other short-term borrowings
9,656

 
10,610

 
11,391

 
11,078

 
11,323

Total
$
64,676

 
62,285

 
58,845

 
54,502

 
52,286

Maximum month-end balance for period
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase (1)
$
51,052

 
48,164

 
45,379

 
39,589

 
36,263

Commercial paper (2)
3,740

 
4,665

 
5,175

 
6,070

 
5,162

Other short-term borrowings (3)
10,010

 
10,990

 
12,209

 
11,737

 
12,458

 
 
 
 
 
 
 
 
 
 

(1)
Highest month-end balance in each of the last five quarters was in December, September, June and February 2014, and December 2013.
(2)
Highest month-end balance in each of the last five quarters was in November, July, April and March 2014, and December 2013.
(3)
Highest month-end balance in each of the last five quarters was in December, July, June and March 2014, and December 2013.

97

Risk Management - Asset/Liability Management ( continued )

We access domestic and international capital markets for long-term funding (generally greater than one year) through issuances of registered debt securities, private placements and 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 their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, the level and quality of earnings, and rating agency assumptions regarding the probability and extent of federal financial assistance or support for certain large financial institutions. Adverse changes in these factors could result in a reduction of our credit rating; however, our debt securities do not contain credit rating covenants.
In light of industry changes and regulatory developments related to the Title II Orderly Liquidation Authority of the Dodd-Frank Act, rating agencies have proposed changes to various aspects of their ratings methodologies. Moody’s Investors Service has proposed significant revisions to its rating methodology, with a focus on how each type of creditor would be affected in any bank failure. Standard and Poor’s Ratings Services (S&P) is continuing its reassessment of whether to
 
incorporate the likelihood of extraordinary government support into the ratings of certain bank holding companies, including the Parent. In addition, S&P has recently issued a proposal to incorporate into its bank-level rating methodology an assessment of additional capital available to absorb losses to reduce default risk. During fourth quarter 2014, our ratings were affirmed by Fitch Ratings and formally reviewed by S&P, with no changes. Both the Parent and Wells Fargo Bank, N.A. remain among the top-rated financial firms in the U.S.
See the “Risk Management – Asset/Liability Management” and “Risk Factors” sections in this Report for additional information regarding our credit ratings as of December 31, 2014, and the potential impact a credit rating downgrade would have on our liquidity and operations, as well as Note 16 (Derivatives) to Financial Statements in this Report for information regarding additional collateral and funding obligations required for certain derivative instruments in the event our credit ratings were to fall below investment grade.
The credit ratings of the Parent and Wells Fargo Bank, N.A. as of December 31, 2014, are presented in Table 57.


Table 57: Credit Ratings as of December 31, 2014
 
 
 
Wells Fargo & Company 
 
Wells Fargo Bank, N.A. 
 
Senior debt 
 
Short-term 
borrowings 
 
Long-term 
deposits 
 
Short-term 
borrowings 
Moody's
 A2
 
 P-1
 
 Aa3
 
 P-1
S&P
 A+
 
 A-1
 
 AA-
 
 A-1+
Fitch, Inc.
 AA-
 
 F1+
 
 AA
 
 F1+
DBRS
 AA
 
 R-1*
 
 AA**
 
 R-1**

* middle    **high

On September 3, 2014, the FRB, OCC and FDIC issued a final rule that implements a quantitative liquidity requirement consistent with the liquidity coverage ratio (LCR) established by the Basel Committee on Banking Supervision (BCBS). The rule requires banking institutions, such as Wells Fargo, to hold
high-quality liquid assets, such as central bank reserves and government and corporate debt that can be converted easily
and quickly into cash, in an amount equal to or greater than its projected net cash outflows during a 30-day stress period. The final LCR rule will be phased-in beginning January 1, 2015,
and requires full compliance with a minimum 100% LCR by January 1, 2017. The FRB also recently finalized rules imposing enhanced liquidity management standards on large bank holding companies (BHC) such as Wells Fargo. We will continue to analyze these recently finalized rules and other regulatory proposals that may affect liquidity risk management to determine the level of operational or compliance impact to Wells Fargo. For additional information see the “Capital Management” and “Regulatory Reform” sections in this Report.
 
Parent Under SEC rules, our Parent is classified as a “well-known seasoned issuer,” which allows it to file a registration statement that does not have a limit on issuance capacity. In May 2014, the Parent filed a registration statement with the SEC for the issuance of senior and subordinated notes, preferred stock and other securities. The Parent’s ability to issue debt and other securities under this registration statement is limited by the debt issuance authority granted by the Board. The Parent is currently authorized by the Board to issue $60 billion in outstanding short-term debt and $170 billion in outstanding
 
long-term debt. At December 31, 2014 , the Parent had available $42.3 billion in short-term debt issuance authority and $67.8 billion in long-term debt issuance authority. The Parent’s debt issuance authority granted by the Board includes short-term and long-term debt issued to affiliates. During 2014, the Parent issued $18.1 billion of senior notes, of which $11.5 billion were registered with the SEC. In addition, during 2014, the Parent issued $4.5 billion of subordinated notes, all of which were registered with the SEC. Additionally, in February 2015, the Parent issued $5.2 billion of registered senior notes.
The Parent’s proceeds from securities issued were used for general corporate purposes, and, unless otherwise specified in the applicable prospectus or prospectus supplement, we expect the proceeds from securities issued in the future will be used for the same purposes. Depending on market conditions, we may purchase our outstanding debt securities from time to time in privately negotiated or open market transactions, by tender offer, or otherwise.
Table 58 provides information regarding the Parent’s medium-term note (MTN) programs. The Parent may issue senior and subordinated debt securities under Series L & M, Series N & O, and the European and Australian programmes. Under Series K, the Parent may issue senior debt securities linked to one or more indices or bearing interest at a fixed or floating rate.


98

Table 58: Medium-Term Note (MTN) Programs
 
 
 
 
 
 
December 31, 2014
 
(in billions)
 
Date
established 
 
 
 
Debt 
issuance 
authority 

 
Available 
for
issuance 

MTN program:
 
 
 
 
 
 
 
 
Series L & M (1)
 
May 2012
 
$
 
25.0

 
0.9

Series N & O (1)(2)
 
May 2014
 
 
 
—

 
—

Series K (1)(3)
 
April 2010
 
 
 
25.0

 
21.8

European (4)(5)
 
December 2009
 
 
 
25.0

 
12.0

European (4)(6)
 
August 2013
 
 
 
10.0

 
9.2

Australian (4)(7)
 
June 2005
 
AUD
 
10.0

 
4.6


(1)
SEC registered.
(2)
The Parent can issue an indeterminate amount of debt securities, subject to the debt issuance authority granted by the Board described above.
(3)
As amended in April 2012.
(4)
Not registered with the SEC. May not be offered in the United States without applicable exemptions from registration.
(5)
As amended in April 2012, April 2013 and April 2014. For securities to be admitted to listing on the Official List of the United Kingdom Financial Conduct Authority and to trade on the Regulated Market of the London Stock Exchange.
(6)
As amended in May 2014, for securities that will not be admitted to listing, trading and/or quotation by any stock exchange or quotation system, or will be admitted to listing, trading and/or quotation by a stock exchange or quotation system that is not considered to be a regulated market.
(7)
As amended in October 2005, March 2010 and September 2013.

Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is authorized by its board of directors to issue $100 billion  in outstanding short-term debt and $125 billion in outstanding long-term debt. At December 31, 2014 , Wells Fargo Bank, N.A. had available $100 billion in short-term debt issuance authority and $63.5 billion in long-term debt issuance authority. In March 2012, Wells Fargo Bank, N.A. established a $100 billion bank note program under which, subject to any other debt outstanding under the limits described above, it may issue $50 billion in outstanding short-term senior notes and $50 billion in outstanding long-term senior or subordinated notes. During 2014, Wells Fargo Bank, N.A. issued $3.1 billion of senior notes under the bank note program. At December 31, 2014, Wells Fargo Bank, N.A. had remaining issuance capacity under the bank note program of $50 billion in short-term senior notes and $33.5 billion in long-term senior or subordinated notes. In addition, during 2014, Wells Fargo Bank, N.A. executed advances of $15.0 billion with the Federal Home Loan Bank of Des Moines, and as of December 31, 2014, Wells Fargo Bank N.A. had outstanding advances of $34.1 billion across the Federal Home Loan Bank System.

 
Wells Fargo Canada Corporation In February 2014, Wells Fargo Canada Corporation (WFCC), an indirect wholly owned Canadian subsidiary of the Parent, qualified with the Canadian provincial securities commissions a base shelf prospectus for the distribution from time to time in Canada of up to CAD $7.0 billion in medium-term notes. At December 31, 2014, CAD $7.0 billion still remained available for future issuance under this prospectus. During 2014, WFCC issued CAD $1.3 billion in medium-term notes under a prior base shelf prospectus. All medium-term notes issued by WFCC are unconditionally guaranteed by the Parent.

FEDERAL HOME LOAN BANK MEMBERSHIP The Federal Home Loan Banks (the FHLBs) are a group of cooperatives that lending institutions use to finance housing and economic development in local communities. We are a member of the FHLBs based in Dallas, Des Moines and San Francisco. Each member of the FHLBs is required to maintain a minimum investment in capital stock of the applicable FHLB. The board of directors of each FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Board. Because the extent of any obligation to increase our investment in any of the FHLBs depends entirely upon the occurrence of a future event, potential future payments to the FHLBs are not determinable.
 



99

Capital Management
We have an active program for managing capital through a comprehensive process for assessing the Company’s overall capital adequacy. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. Our potential sources of capital primarily include retention of earnings net of dividends, as well as issuances of common and preferred stock. Retained earnings increased $14.7 billion from December 31, 2013 , predominantly from Wells Fargo net income of $23.1 billion , less common and preferred stock dividends of $8.4 billion . During 2014 , we issued 96.3 million shares of common stock. In April 2014, we issued 2 million Depositary Shares, each representing 1/25th interest in a share of the Company’s newly issued 5.9% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series S, for an aggregate public offering price of $2.0 billion. In July 2014, we issued 32 million Depositary Shares, each representing 1/1000th interest in a share of the Company’s newly issued Non-Cumulative Perpetual Class A Preferred Stock, Series T, for an aggregate public offering price of $800 million. In addition, in January 2015, we issued 2 million Depositary Shares, each representing 1/25th interest in a share of the Company’s newly issued 5.875% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series U, for an aggregate public offering price of $2.0 billion. During 2014 , we repurchased 183.1 million shares of common stock in open market transactions, private transactions and from employee benefit plans, at a cost of $9.2 billion . We also entered into a $750 million forward repurchase contract with an unrelated third party in October 2014 that settled in January 2015 for 14.3 million shares. In addition, we entered into another $750 million forward repurchase contract with an unrelated third party in January 2015 that is expected to settle in second quarter 2015 for approximately 14.3 million shares. For additional information about our forward repurchase agreements, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

Regulatory Capital Guidelines
The Company and each of our insured depository institutions are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC. Risk-based capital (RBC) guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures. At December 31, 2014 , the Company and each of our insured depository institutions were “well-capitalized” under applicable regulatory capital adequacy guidelines. See Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
The RBC guidelines, which have their roots in the 1988 capital accord of the Basel Committee on Banking Supervision (BCBS) establishing international guidelines for determining regulatory capital, reflect broad credit risk considerations and market-related risks, but do not take into account other types of risk facing a financial services company. Our capital adequacy assessment process contemplates a wide range of risks that the Company is exposed to and also takes into consideration our performance under a variety of stressed economic conditions, as well as regulatory expectations and guidance, rating agency viewpoints and the view of capital markets participants.
The market risk capital rule, effective January 1, 2013, is reflected in the Company’s calculation of RWAs to address the
 
market risks of significant trading activities. In December 2013, the FRB approved a final rule, effective April 1, 2014, revising the market risk capital rule to, among other things, conform to the FRB’s new capital framework finalized in July 2013 and discussed below. For additional information see the “Risk Management - Asset/Liability Management” section in this Report.
In 2007, federal banking regulators approved a final rule adopting revised international guidelines for determining regulatory capital known as “Basel II.” Basel II incorporates three pillars that address (a) capital adequacy, (b) supervisory review, which relates to the computation of capital and internal assessment processes, and (c) market discipline, through increased disclosure requirements. We entered the “parallel run phase” of Basel II in July 2012. During the “parallel run phase,” banking organizations must successfully complete an evaluation period under supervision from regulatory agencies in order to receive approval to calculate risk-based capital requirements under the Advanced Approach guidelines. The parallel run phase will continue until we receive regulatory approval to exit parallel reporting and subsequently begin publicly reporting our Advanced Approach regulatory capital results and related disclosures.
In December 2010, the BCBS finalized a set of further revised international guidelines for determining regulatory capital known as “Basel III.” These guidelines were developed in response to the 2008 financial crisis and were intended to address many of the weaknesses identified in the previous Basel standards, as well as in the banking sector that contributed to the crisis including excessive leverage, inadequate and low quality capital and insufficient liquidity buffers.
In July 2013, federal banking regulators approved final and interim final rules to implement the BCBS Basel III capital guidelines for U.S. banking organizations. These final capital rules, among other things:
•
implement in the United States the Basel III regulatory capital reforms including those that revise the definition of capital, increase minimum capital ratios, and introduce a minimum Common Equity Tier 1 (CET1) ratio of 4.5% and a capital conservation buffer of 2.5% (for a total minimum CET1 ratio of 7.0%) and a potential countercyclical buffer of up to 2.5%, which would be imposed by regulators at their discretion if it is determined that a period of excessive credit growth is contributing to an increase in systemic risk;
•
require a Tier 1 capital to average total consolidated assets ratio of 4% and introduce, for large and internationally active bank holding companies (BHCs), a Tier 1 supplementary leverage ratio of 3% that incorporates off-balance sheet exposures;
•
revise Basel I rules for calculating RWA to enhance risk sensitivity under a standardized approach;
•
modify the existing Basel II advanced approaches rules for calculating RWA to implement Basel III;
•
deduct certain assets from CET1, such as deferred tax assets that could not be realized through net operating loss carry-backs, significant investments in non-consolidated financial entities, and MSRs, to the extent any one category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1;
•
eliminate the accumulated other comprehensive income or loss filter that applies under RBC rules over a five-year phase-in period beginning in 2014; and


100

•
comply with the Dodd-Frank Act provision prohibiting the reliance on external credit ratings.

We were required to comply with the final Basel III capital rules beginning January 2014, with certain provisions subject to phase-in periods. The Basel III capital rules are scheduled to be fully phased in by January 1, 2022. Based on the final capital rules, we estimate that our CET1 ratio under the final Basel III capital rules using the Advanced Approach (fully phased-in) exceeded the minimum of 7.0% by 343 basis points at December 31, 2014 .
Consistent with the Collins Amendment to the Dodd-Frank Act, banking organizations that have completed their parallel run process and have been approved by the FRB to use the Advanced Approach methodology to determine applicable minimum risk-weighted capital ratios and additional buffers, must use the higher of their RWA as calculated under (i) the Advanced Approach rules, and (ii) from January 1, 2014, to December 31, 2014, the general approach under Basel III capital rules and, commencing on January 1, 2015, and thereafter, the risk weightings under the standardized approach.
In April 2014, federal banking regulators finalized a rule that enhances the supplementary leverage ratio requirements for large BHCs, like Wells Fargo, and their insured depository institutions. The rule, which becomes effective on January 1, 2018, will require a covered BHC to maintain a supplementary leverage ratio of at least 5% to avoid restrictions on capital distributions and discretionary bonus payments. The rule will also require that all of our insured depository institutions maintain a supplementary leverage ratio of 6% in order to be considered well capitalized. Based on our review, our current leverage levels would exceed the applicable requirements for the holding company and each of our insured depository institutions. Federal banking regulators, however, recently finalized additional changes to the supplementary leverage ratio requirements to implement revisions to the Basel III leverage framework finalized by the BCBS in January 2014. These additional changes, among other things, modify the methodology for including off-balance sheet items, including credit derivatives, repo-style transactions and lines of credit, in the denominator of the supplementary leverage ratio, and will become effective on January 1, 2018. In addition, as discussed in the “Risk Management - Asset/Liability Management - Liquidity and Funding” section in this Report, a final rule regarding the U.S. implementation of the Basel III LCR was issued by the FRB, OCC and FDIC in September 2014.
The FRB has also indicated that it is in the process of considering new rules to address the amount of equity and unsecured debt a company must hold to facilitate its orderly liquidation, often referred to as Total Loss Absorbing Capacity (TLAC). In November 2014, the Financial Stability Board (FSB) issued for public consultation policy proposals on TLAC. Under the FSB’s TLAC proposal, global systemically important banks (G-SIBs) would be required to hold loss absorbing equity and unsecured debt of 16-20% of RWAs, with at least 33% of this total being unsecured debt rather than equity. The FRB will likely propose related rules sometime after the FSB’s public consultation on the TLAC proposal ends.
In addition, in December 2014, the FRB proposed rules to implement an additional CET1 capital surcharge on those U.S. banking organizations, such as the Company, that have been designated by the FSB as G-SIBs. The G-SIB surcharge would be in addition to the minimum Basel III 7.0% CET1 requirement. Under the FRB proposal, a G-SIB would calculate its surcharge under two methods and use the higher of the two surcharges.
 
The first method would consider the G-SIB’s size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with a methodology developed by the BCBS and FSB. The second would use similar inputs, but would replace substitutability with use of short-term wholesale funding and would generally result in higher surcharges than the BCBS methodology. Under the FRB proposal, estimated surcharges for G-SIBs would range from 1.0 to 4.5 percent of a firm’s RWAs. The G-SIB surcharge would be phased in beginning on January 1, 2016 and become fully effective on January 1, 2019. The FSB, in an updated listing published in November 2014 based on year-end 2013 data, identified the Company as one of the 30 G-SIBs.

Capital Planning and Stress Testing
Under the FRB’s capital plan rule, large BHCs are required to submit capital plans annually for review to determine if the FRB has any objections before making any capital distributions. The rule requires updates to capital plans in the event of material changes in a BHC’s risk profile, including as a result of any significant acquisitions. The FRB assesses the overall financial condition, risk profile, and capital adequacy of BHCs while considering both quantitative and qualitative factors when evaluating capital plans.
On March 26, 2014, the FRB notified us that it did not object to our 2014 capital plan included in the 2014 CCAR. Since the FRB notification, the Company took several capital actions during 2014, including increasing its quarterly common stock dividend rate to $0.35 per share and repurchasing shares of our common stock.
Our 2015 CCAR, which was submitted on January 2, 2015, included a comprehensive capital plan supported by an assessment of expected uses and sources of capital over a given planning horizon under a range of expected and stress scenarios, similar to the process the FRB used to conduct the CCAR in 2014. As part of the 2015 CCAR, the FRB also generated a supervisory stress test, which assumed a sharp decline in the economy and significant decline in asset pricing using the information provided by the Company to estimate performance. The FRB is expected to review the supervisory stress results both as required under the Dodd-Frank Act using a common set of capital actions for all large BHCs and by taking into account the Company’s proposed capital actions. The FRB has indicated that it will publish its supervisory stress test results as required under the Dodd-Frank Act, and the related CCAR results taking into account the Company’s proposed capital actions, in March 2015.
In addition to CCAR, federal banking regulators also require stress tests to evaluate whether an institution has sufficient capital to continue to operate during periods of adverse economic and financial conditions. These stress testing requirements set forth the timing and type of stress test activities large BHCs and banks must undertake as well as rules governing stress testing controls, oversight and disclosure requirements. The FRB recently finalized rules amending the existing capital plan and stress testing rules to modify the start date of capital plan and stress testing cycles and to limit a large BHC’s ability to make capital distributions to the extent its actual capital issuances were less than amounts indicated in its capital plan. As required under the FRB’s stress testing rule, we completed a mid-cycle stress test based on March 31, 2014, data and scenarios developed by the Company. We submitted the results of the mid-cycle stress test to the FRB in July 2014 and disclosed a summary of the results in September 2014.



101

Capital Management (continued)

Securities Repurchases
From time to time the Board authorizes the Company to repurchase shares of our common stock. Although we announce when the Board authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Future stock repurchases may be private or open-market repurchases, including block transactions, accelerated or delayed block transactions, forward transactions, and similar transactions. Additionally, we may enter into plans to purchase stock that satisfy the conditions 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 our stock), and regulatory and legal considerations, including the FRB’s response to our capital plan and to changes in our risk profile.
In October 2012, the Board authorized the repurchase of 200 million shares, which was completed by July 2014. The Board authorized the repurchase of an additional 350 million shares in March 2014. At December 31, 2014 , we had remaining authority to repurchase approximately 240 million shares, subject to regulatory and legal conditions. For more information about share repurchases during fourth quarter 2014, see Part II, Item 5 in our 2014 Form 10-K.
Historically, our policy has been to repurchase shares under the “safe harbor” conditions of Rule 10b-18 of the Securities Exchange Act of 1934 including a limitation on the daily volume of repurchases. Rule 10b-18 imposes an additional daily volume limitation on share repurchases during a pending merger or acquisition in which shares of our stock will constitute some or all of the consideration. Our management may determine that during a pending stock merger or acquisition when the safe harbor would otherwise be available, it is in our best interest to repurchase shares in excess of this additional daily volume limitation. In such cases, we intend to repurchase shares in compliance with the other conditions of the safe harbor, including the standing daily volume limitation that applies whether or not there is a pending stock merger or acquisition.
 
In connection with our participation in the Capital Purchase Program (CPP), 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 original exercise price of $34.01 per share expiring on October 28, 2018. The terms of the warrants require the exercise price to be adjusted under certain circumstances when the Company’s quarterly common stock dividend exceeds $0.34 per share, which began occurring in second quarter 2014. Accordingly, with each quarterly common stock dividend above $0.34 per share, we must calculate whether an adjustment to the exercise price is required by the terms of the warrants, including whether certain minimum thresholds have been met to trigger an adjustment, and notify the holders of any such change. The Board authorized the repurchase by the Company of up to $1 billion of the warrants. At December 31, 2014 , there were 38,424,434 warrants outstanding, exercisable at $33.996 per share, and $452 million of unused warrant repurchase authority. Depending on market conditions, we may purchase from time to time additional warrants in privately negotiated or open market transactions, by tender offer or otherwise.

Risk-Based Capital and Risk-Weighted Assets
Table 59 and Table 60 provide information regarding the composition of and change in our risk-based capital, respectively, under Basel I and Basel III (General Approach).


102

Table 59:  Risk-Based Capital Components
 
 
Under Basel III (General Approach) (1)

 
Under
Basel I

 
 
Dec 31,

 
Dec 31,

(in billions)
 
2014

 
2013

Total equity
 
$
185.3

 
171.0

Noncontrolling interests
 
(0.9
)
 
(0.9
)
Total Wells Fargo stockholders' equity
 
184.4

 
170.1

Adjustments:
 
 
 
 
Preferred stock
 
(18.0
)
 
(15.2
)
Cumulative other comprehensive income (2)
 
(2.6
)
 
(1.4
)
Goodwill and other intangible assets (2)(3)
 
(26.3
)
 
(29.6
)
Investment in certain subsidiaries and other
 
(0.4
)
 
(0.4
)
Common Equity Tier 1 (1)(4)
(A)
137.1

 
123.5

Preferred stock
 
18.0

 
15.2

Qualifying hybrid securities and noncontrolling interests
 
—

 
2.0

Other
 
(0.4
)
 
—

Total Tier 1 capital
 
154.7

 
140.7

Long-term debt and other instruments qualifying as Tier 2
 
25.0

 
20.5

Qualifying allowance for credit losses
 
13.2

 
14.3

Other
 
—

 
0.7

Total Tier 2 capital
 
38.2

 
35.5

Total qualifying capital
(B)
$
192.9

 
176.2

Basel III Risk-weighted assets (RWAs) (5):
 
 
 
 
Credit risk
 
$
1,192.9

 
 
Market risk
 
49.6

 
 
Basel I RWAs (5):
 
 
 
 
Credit risk
 
 
 
1,105.2

Market risk
 
 
 
36.3

Total Basel III / Basel I RWAs
(C)
$
1,242.5

 
1,141.5

Capital Ratios:
 
 
 
 
Common Equity Tier I to total RWAs
(A)/(C)
11.04
%
 
10.82

Total capital to total RWAs
(B)/(C)
15.53

 
15.43


(1)
Basel III revises the definition of capital, increases minimum capital ratios, and introduces a minimum Common Equity Tier 1 (CET1) ratio. These changes are being fully phased in effective January 1, 2014, through the end of 2021 and the capital ratios will be determined using Basel III (General Approach) RWAs during 2014. See Table 62 in this section for a summary of changes in RWAs from December 31, 2013 , to December 31, 2014 .
(2)
Under transition provisions to Basel III, cumulative other comprehensive income (previously deducted under Basel I) is included in CET1 over a specified phase-in period. In addition, certain intangible assets includable in CET1 are phased out over a specified period.
(3)
Goodwill and other intangible assets are net of any associated deferred tax liabilities.
(4)
CET1 (formerly Tier 1 common equity under Basel I) is a non-GAAP financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews CET1 along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity, because of current interest in such information on the part of market participants.
(5)
Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total RWAs.


103

Capital Management (continued)

Table 60: Analysis of Changes in Capital Under Basel III (General Approach)
 
 
(in billions)
 
 
Common Equity Tier 1 at December 31, 2013
 
$
123.5

Net income
 
21.8

Common stock dividends
 
(7.1
)
Common stock issued, repurchased, and stock compensation-related items
 
(5.4
)
Goodwill and other intangible assets (net of any associated deferred tax liabilities)
 
3.3

Other
 
1.0

Change in Common Equity Tier 1
 
13.6

Common Equity Tier 1 at December 31, 2014
 
$
137.1

 
 
 
Tier 1 capital at December 31, 2013
 
$
140.7

Change in Common Equity Tier 1
 
13.6

Issuance of noncumulative perpetual preferred
 
2.8

Other
 
(2.4
)
Change in Tier 1 capital
 
14.0

Tier 1 capital at December 31, 2014
(A) 
$
154.7

 
 
 
Tier 2 capital at December 31, 2013
 
$
35.5

Change in long-term debt and other instruments qualifying as Tier 2
 
4.5

Change in qualifying allowance for credit losses
 
(1.1
)
Other
 
(0.7
)
Change in Tier 2 capital
 
2.7

Tier 2 capital at December 31, 2014
(B) 
38.2

Total qualifying capital
(A) + (B) 
$
192.9


Table 61 presents information on the components of RWAs included within our regulatory capital ratios. RWAs prior to
 
2014 were determined under Basel I, and RWAs in 2014 reflect the transition to Basel III (General Approach).


Table 61: RWAs
 
 
 
 
Under Basel III (General Approach) (1)

 
Under
Basel I

 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

On-balance sheet RWAs
 
 
 
Investment securities
$
85,501

 
93,445

Securities financing transactions (1)
12,369

 
10,385

Loans (2)
726,008

 
680,953

Market risk (3)
49,613

 
36,339

Other
112,619

 
91,788

Total on-balance sheet RWAs
986,110

 
912,910

Off-balance sheet RWAs
 
 
 
Commitments and guarantees (4)
218,884

 
199,197

Derivatives
10,314

 
10,545

Other
27,237

 
18,862

Total off-balance sheet RWAs
256,435

 
228,604

Total RWAs
$
1,242,545

 
1,141,514


(1)
Represents federal funds sold and securities purchased under resale agreements.
(2)
Represents loans held for sale and loans held for investment.
(3)
Represents regulatory ‘covered’ positions within trading assets and liabilities.
(4)
Primarily includes financial standby letters of credit and other unused commitments.



104

Table 62 presents changes in RWAs for 2014 . Effective January 1, 2014, we commenced transitioning RWAs from Basel I to Basel III (General Approach) under final rules adopted by federal banking regulators in July 2013.


Table 62: Analysis of Changes in RWAs
(in millions)
 
Basel I RWAs at December 31, 2013
$
1,141,514

Net change in on-balance sheet RWAs:
 
Investment securities
(7,944
)
Securities financing transactions
1,984

Loans
45,055

Market risk
13,274

Other
20,831

Total change in on-balance sheet RWAs
73,200

Net change in off-balance sheet RWAs:
 
Commitments and guarantees
19,687

Derivatives
(231
)
Other
8,375

Total change in off-balance sheet RWAs
27,831

Total change in RWAs
101,031

Basel III (General Approach) RWAs at December 31, 2014
$
1,242,545


The increase in total RWAs from December 31, 2013 , was primarily due to increased lending activity.
Table 63 provides information regarding our CET1 calculation as estimated under Basel III using the Advanced Approach, fully phased-in method.


Table 63: Common Equity Tier 1 Under Basel III (Advanced Approach, Fully Phased-In) (1)(2)
(in billions)
 
December 31, 2014

Common Equity Tier 1 (transition amount) under Basel III
 
$
137.1

Adjustments from transition amount to fully phased-in Basel III (3):
 
 
Cumulative other comprehensive income
 
2.4

Other
 
(2.8
)
Total adjustments
 
(0.4
)
Common Equity Tier 1 (fully phased-in) under Basel III
(C)
$
136.7

Total RWAs anticipated under Basel III (4)
(D)
$
1,310.5

Common Equity Tier 1 to total RWAs anticipated under Basel III (Advanced Approach, fully phased-in)
(C)/(D)
10.43
%

(1)
CET1 is a non-GAAP financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews CET1 along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity, because of current interest in such information on the part of market participants.
(2)
The Basel III CET1 and RWAs are estimated based on the Basel III capital rules adopted July 2, 2013, by the FRB. The rules establish a new comprehensive capital framework for U.S. banking organizations that implement the Basel III capital framework and certain provisions of the Dodd-Frank Act. The rules are being fully phased in effective January 1, 2014, through the end of 2021.
(3)
Assumes cumulative other comprehensive income is fully phased in and certain other intangible assets are fully phased out under Basel III capital rules.
(4)
The final Basel III capital rules provide for two capital frameworks: the Standardized Approach intended to replace Basel I, and the Advanced Approach applicable to certain institutions. Under the final rules, we will be subject to the lower of our CET1 ratio calculated under the Standardized Approach and under the Advanced Approach in the assessment of our capital adequacy. While the amount of RWAs determined under the Standardized and Advanced Approaches has been converging, the amount of RWAs as of December 31, 2014 , was based on the Advanced Approach, which was higher than RWAs under the Standardized Approach, and thus resulted in a lower CET1 ratio compared with the Standardized Approach. Basel III capital rules adopted by the Federal Reserve Board incorporate different classification of assets, with risk weights based on Wells Fargo's internal models, along with adjustments to address a combination of credit/counterparty, operational and market risks, and other Basel III elements.


105

Regulatory Reform
Since the enactment of the Dodd-Frank Act in 2010, the U.S. financial services industry has been subject to a significant increase in regulation and regulatory oversight initiatives. This increased regulation and oversight has substantially changed how most U.S. financial services companies conduct business and has increased their regulatory compliance costs. The following highlights the more significant regulations and regulatory oversight initiatives that have affected or may affect our business. For additional information about the regulatory reform matters discussed below and other regulations and regulatory oversight matters, see Part I, Item 1 “Regulation and Supervision” of our 2014 Form 10-K, and the “Capital Management,” “Forward-Looking Statements” and “Risk Factors” sections and Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.
 
Dodd-Frank Act
The Dodd-Frank Act is the most significant financial reform legislation since the 1930s and is driving much of the current U.S. regulatory reform efforts. The Dodd-Frank Act and many of its provisions became effective in July 2010 and July 2011. However, a number of its provisions still require final rulemaking or additional guidance and interpretation by regulatory authorities or will be implemented over time. Accordingly, in many respects the ultimate impact of the Dodd-Frank Act and its effects on the U.S. financial system and the Company remain uncertain. The following provides additional information on the Dodd-Frank Act, including the current status of certain of its rulemaking initiatives.

•
Enhanced supervision and regulation of systemically important firms . The Dodd-Frank Act grants broad authority to federal banking regulators to establish enhanced supervisory and regulatory requirements for systemically important firms. The FRB has finalized a number of regulations implementing enhanced prudential requirements for large bank holding companies (BHCs) like Wells Fargo regarding risk-based capital and leverage, risk and liquidity management, and imposing debt-to-equity limits on any BHC that regulators determine poses a grave threat to the financial stability of the United States. The FRB and OCC have also finalized rules implementing stress testing requirements for large BHCs and national banks. The FRB has also proposed, but not yet finalized, additional enhanced prudential standards that would implement single counterparty credit limits and establish remediation requirements for large BHCs experiencing financial distress. In addition to the authorization of enhanced supervisory and regulatory requirements for systemically important firms, the Dodd-Frank Act also established the Financial Stability Oversight Council and the Office of Financial Research, which may recommend new systemic risk management requirements and require new reporting of systemic risks. The OCC, under separate authority, has also recently finalized guidelines establishing heightened governance and risk management standards for large national banks such as Wells Fargo Bank, N.A. The OCC guidelines require covered banks to establish and adhere to a written risk governance framework in order to manage and control their risk-taking activities. The guidelines also formalize roles and responsibilities for risk management
 
practices within covered banks and create certain risk oversight responsibilities for their boards of directors.
•
The Collins Amendment. This provision of the Dodd-Frank Act phases out the benefit of issuing trust preferred securities by eliminating them from Tier 1 capital over a three year period that began on January 1, 2013.
•
Regulation of consumer financial products. The Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB) to ensure consumers receive clear and accurate disclosures regarding financial products and to protect them from hidden fees and unfair or abusive practices. With respect to residential mortgage lending, the CFPB issued a number of final rules in 2013 implementing new origination, notification and other requirements that generally became effective in January 2014. In November 2013, the CFPB also finalized rules integrating disclosures required of lenders and settlement agents under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) effective August 1, 2015. These rules combine existing separate disclosure forms under the TILA and RESPA into new integrated forms and provide additional limitations on the fees and charges that may be increased from the estimates provided by lenders. With respect to non-residential mortgage lending, in November 2014, the CFPB issued a proposed rule to expand consumer protections for prepaid products such as prepaid cards. The proposal would make prepaid cards subject to similar consumer protections as more traditional debit and credit cards such as fraud protection and expanded access to account information.
In addition to these rulemaking activities, the CFPB is continuing its on-going supervisory examination activities of the financial services industry with respect to a number of consumer businesses and products, including mortgage lending and servicing, fair lending requirements, student lending activities, and auto finance. At this time, the Company cannot predict the full impact of the CFPB’s rulemaking and supervisory authority on our business practices or financial results.
•
Volcker Rule. The Volcker Rule, with limited exceptions, prohibits banking entities from engaging in proprietary trading or owning any interest in or sponsoring or having certain relationships with a hedge fund, a private equity fund or certain structured transactions that are deemed covered funds. On December 10, 2013, federal banking regulators, the SEC and CFTC (collectively, the Volcker supervisory regulators) jointly released a final rule to implement the Volcker Rule’s restrictions. Banking entities are not required to come into compliance with the Volcker Rule’s restrictions until July 21, 2015. Banking entities with $50 billion or more in trading assets and liabilities such as Wells Fargo, however, are required to report to the Volcker supervisory regulators certain trading metrics beginning June 30, 2014. Wells Fargo has begun submitting such metrics to the Volcker supervisory regulators. During the conformance period, banking entities are expected to engage in good-faith planning efforts, appropriate for their activities and investments, to enable them to conform all of their activities and investments to the Volcker Rule’s restrictions by no later than July 21, 2015. Limited further extensions of the compliance period may be granted at the discretion of the FRB. The FRB has extended the rule’s


106

compliance date to give banking entities until July 21, 2016, to conform their ownership interests in and sponsorships of covered funds that were in place prior to December 31, 2013, and the FRB has announced that it intends to provide an additional one-year extension to this date in the future. As a banking entity with more than $50 billion in consolidated assets, we will also be subject to enhanced compliance program requirements. At this time, we do not anticipate a material impact to our financial results from the rule as prohibited proprietary trading and covered fund investment activities are not significant to our financial results. Moreover, we already have reduced or exited certain businesses in anticipation of the rule’s compliance date and expect to have to make limited divestments in non-conforming funds as a result of the rule.
•
Regulation of swaps and other derivatives activities . The Dodd-Frank Act established a comprehensive framework for regulating over-the-counter derivatives and authorized the CFTC and the SEC to regulate swaps and security-based swaps, respectively. The CFTC and SEC jointly adopted new rules and interpretations that established the compliance dates for many of their rules implementing the new regulatory framework, including provisional registration of our national bank subsidiary, Wells Fargo Bank, N.A., as a swap dealer, which occurred at the end of 2012. In addition, the CFTC has adopted final rules that, among other things, require extensive regulatory and public reporting of swaps, require certain swaps to be centrally cleared and traded on exchanges or other multilateral platforms, and require swap dealers to comply with comprehensive internal and external business conduct standards. Also included in this regulatory framework are so-called push-out provisions affecting U.S. banks acting as dealers in commodity swaps, equity swaps and certain credit default swaps, which require that these activities be conducted through an affiliate. These push-out provisions have since been amended to apply only to structured finance swaps. Margin rules for swaps not centrally cleared have been proposed, and in September 2014 were re-proposed. If adopted as re-proposed, the margin and capital requirements for swaps not centrally cleared may significantly increase the cost of hedging in the over-the-counter market. All of these new rules, as well as others being considered by regulators in other jurisdictions, may negatively impact customer demand for over-the-counter derivatives and may increase our costs for engaging in swaps and other derivatives activities.
•
Changes to asset-backed securities (ABS) markets. The Dodd-Frank Act requires sponsors of ABS to hold at least a 5% ownership stake in the ABS. Exemptions from the requirement include qualified residential mortgages (QRMs) and FHA/VA loans. In October 2014, federal regulatory agencies issued final rules to implement this credit risk retention requirement, which included an exemption for the GSE’s mortgage-backed securities. The final rules also aligned the definition of QRMs, which are exempt from the risk retention requirements, with the Consumer Financial Protection Bureau’s definition of “qualified mortgage.” In addition, the final rules addressed the measures for complying with the risk retention requirement and continued to provide limited exemptions for qualifying commercial loans, qualifying commercial real estate loans, and qualifying automobile loans that meet certain requirements. We continue to evaluate the final rules and assess their impact on our ability to issue certain
 
asset-backed securities or otherwise participate in various securitization transactions.
•
Enhanced regulation of money market mutual funds. On July 23, 2014, the SEC adopted a rule governing money market mutual funds that, among other things, requires significant structural changes to these funds, including requiring institutional prime money market funds to maintain a variable net asset value and providing for the imposition of liquidity fees and redemption gates for all non-governmental money market funds during periods in which they experience liquidity impairments of a certain magnitude. The SEC has provided a period of two years following the effective date of the rule for funds to comply with these structural changes.
•
Regulation of interchange transaction fees (the Durbin Amendment). On October 1, 2011, the FRB rule enacted to implement the Durbin Amendment to the Dodd-Frank Act that limits debit card interchange transaction fees to those reasonable and proportional to the cost of the transaction became effective. The rule generally established that the maximum allowable interchange fee that an issuer may receive or charge for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. On July 31, 2013, the U.S. District Court for the District of Columbia ruled that the approach used by the FRB in setting the maximum allowable interchange transaction fee impermissibly included costs that were specifically excluded from consideration under the Durbin Amendment. In August 2013, the FRB filed a notice of appeal of the decision to the United States Court of Appeals for the District of Columbia. In March 2014, the Court of Appeals reversed the District Court’s decision, but did direct the FRB to provide further explanation regarding its treatment of the costs of monitoring transactions. The plaintiffs did not file a petition for rehearing with the Court of Appeals but filed a petition for writ of certiorari with the U.S. Supreme Court. In January 2015, the U.S. Supreme Court denied the petition for writ of certiorari.

Regulatory Capital Guidelines and Capital Plans
During 2013, federal banking regulators issued final rules that substantially amended the risk-based capital rules for banking organizations. The rules implement the Basel III regulatory capital reforms in the U.S., comply with changes required by the Dodd-Frank Act, and replace the existing Basel I-based capital requirements. We were required to begin complying with the rules on January 1, 2014, subject to phase-in periods that are scheduled to be fully phased in by January 1, 2022. In 2014, federal banking regulators also finalized rules to impose a supplementary leverage ratio on large BHCs like Wells Fargo and our insured depository institutions and to implement the Basel III liquidity coverage ratio. For more information on the final capital, leverage and liquidity rules, and additional capital requirements under consideration by federal banking regulators, see the “Capital Management” section in this Report.

“Living Will” Requirements and Related Matters
Rules adopted by the FRB and the FDIC under the Dodd-Frank Act require large financial institutions, including Wells Fargo, to prepare and periodically revise resolution plans, so-called “living-wills”, that would facilitate their resolution in the event of material distress or failure. Under the rules, resolution plans are required to provide strategies for resolution under the Bankruptcy Code and other applicable insolvency regimes that


107

Regulatory Reform (continued)

can be accomplished in a reasonable period of time and in a manner that mitigates the risk that failure would have serious adverse effects on the financial stability of the United States. Wells Fargo submitted its second annual resolution plan under these rules on June 26, 2014. On November 25, 2014, the FRB and FDIC announced that our 2014 resolution plan submission provided a basis for a resolution strategy that could facilitate an orderly resolution under bankruptcy; however, they identified specific shortcomings in the 2014 resolution plan that would need to be addressed in the 2015 resolution plan. If the FRB and FDIC determine that our resolution plan is deficient, the Dodd-Frank Act authorizes the FRB and FDIC to impose more stringent capital, leverage or liquidity requirements on us or restrict our growth or activities until we submit a plan remedying the deficiencies. If the FRB and FDIC ultimately determine that we have been unable to remedy the deficiencies, they could order us to divest assets or operations in order to facilitate our orderly resolution in the event of our material distress or failure. Our national bank subsidiary, Wells Fargo Bank, N.A., is also required to prepare a resolution plan for the
 
FDIC under separate regulatory authority and submitted its second annual resolution plan on June 26, 2014.
The Dodd-Frank Act also establishes an orderly liquidation process which allows for the appointment of the FDIC as a receiver of a systemically important financial institution that is in default or in danger of default. The FDIC has issued rules to implement its orderly liquidation authority and released a notice and request for comment regarding a proposed resolution strategy, known as “single point of entry,” designed to resolve a large financial institution in a manner that holds management responsible for its failure, maintains market stability, and imposes losses on shareholders and creditors in accordance with statutory priorities, without imposing a cost on U.S. taxpayers. Implementation of the strategy would require that institutions maintain a sufficient amount of available equity and unsecured debt to absorb losses and recapitalize operating subsidiaries. The FDIC has not issued any final statements on the single point of entry resolution strategy.



Critical Accounting Policies 
Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report) are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Five of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern:
•
the allowance for credit losses;
•
PCI loans;
•
the valuation of residential MSRs;
•
the fair valuation of financial instruments; and
•
income taxes.
Management and the Board's Audit and Examination committee have reviewed and approved these critical accounting policies.

Allowance for Credit Losses
We maintain an allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments, which is management’s estimate of credit losses inherent in the loan portfolio, including unfunded credit commitments, at the balance sheet date, excluding loans carried at fair value. For a description of our related accounting policies, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
Changes in the allowance for credit losses and, therefore, in the related provision for credit losses can materially affect net income. In applying the review and judgment required to determine 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 unit, may affect the loan portfolio, causing management to provide or release amounts from the allowance for credit losses. While our methodology attributes portions of the allowance to specific
 
portfolio segments (commercial and consumer), the entire allowance for credit losses is available to absorb credit losses inherent in the total loan portfolio and unfunded credit commitments.
Judgment is specifically applied in:
•
Credit risk ratings applied to individual commercial loans and unfunded credit commitments. We estimate the probability of default in accordance with the borrower’s financial strength using a borrower quality rating and the severity of loss in the event of default using a collateral quality rating. Collectively, these ratings are referred to as credit risk ratings and are assigned to our commercial loans. Probability of default and severity at the time of default are statistically derived through historical observations of defaults and losses after default within each credit risk rating. Commercial loan risk ratings are evaluated based on each situation by experienced senior credit officers and are subject to periodic review by an internal team of credit specialists.
•
Economic assumptions applied to pools of consumer loans (statistically modeled). Losses are estimated using economic variables to represent our best estimate of inherent loss. Our forecasted losses are modeled using a range of economic scenarios.
•
Selection of a credit loss estimation model that fits the credit risk characteristics of its portfolio . We use both internally developed and vendor supplied models in this process. We often use expected loss, roll rate, net flow, vintage maturation, behavior score, and time series or statistical trend models, most with economic correlations. Management must use judgment in establishing additional input metrics for the modeling processes, considering further stratification into reference data time series, sub-product, origination channel, vintage, loss type, geographic location and other predictive characteristics. The models used to determine the allowance are validated by an internal model validation group operating in accordance with Company policies.
•
Assessment of limitations to credit loss estimation models. We apply our judgment to adjust or supplement our modeled estimates to reflect other risks that may be


108

identified from current conditions and developments in selected portfolios.
•
Identification and measurement of impaired loans, including loans modified in a TDR. Our experienced senior credit officers may consider a loan impaired based on their evaluation of current information and events, including loans modified in a TDR. The measurement of impairment is typically based on an analysis of the present value of expected future cash flows. The development of these expectations requires significant management review and judgment.
•
An amount for imprecision or uncertainty which reflects management’s overall estimate of the effect of quantitative and qualitative factors on inherent credit losses. This amount represents management’s judgment of risks inherent in the processes and assumptions used in establishing the allowance. This imprecision considers economic environmental factors, modeling assumptions and performance, process risk, and other subjective factors, including industry trends and emerging risk assessments.

SENSITIVITY TO CHANGES Table 64 demonstrates the impact of the sensitivity of our estimates on our allowance for credit losses.
Table 64: Allowance Sensitivity Summary
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
Estimated
 
 
 
 
 
 
 
 
increase / (decrease)
 
(in billions)
 
 
 
 
in allowance
 
Assumption:
 
 
 
 
 
 
 
Favorable (1)
 
 
 
 
 
 
$
(2.5
)
 
Adverse (2)
 
 
 
 
 
 
7.8

 
 
 
 
 
 
 
 
 
 

(1)
Represents a one risk rating upgrade throughout our commercial portfolio segment and a more optimistic economic outlook for modeled losses on our consumer portfolio segment.
(2)
Represents a one risk rating downgrade throughout our commercial portfolio segment, a more pessimistic economic outlook for modeled losses on our consumer portfolio segment, and incremental deterioration for PCI loans.

The sensitivity analyses provided in the previous table are hypothetical scenarios and are not considered probable. They do not represent management’s view of inherent losses in the portfolio as of the balance sheet date. Because significant judgment is used, it is possible that others performing similar analyses could reach different conclusions. See the “Risk Management - Credit Risk Management - Allowance for Credit Losses” section and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further discussion of our allowance for credit losses.
 
Purchased Credit-Impaired (PCI) Loans
Loans acquired with evidence of credit deterioration since their origination and where it is probable that we will not collect all contractually required principal and interest payments are PCI loans. Substantially all of our PCI loans were acquired in the Wachovia acquisition on December 31, 2008. For a description of our related accounting policies, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
We apply judgment for PCI loans in:
•
identifying loans that meet the PCI criteria at acquisition based on our evaluation of credit quality deterioration using indicators such as past due and nonaccrual status,
 
commercial risk ratings, recent borrower credit scores and recent loan-to-value percentages.
•
determining initial fair value at acquisition, which is based on an estimate of cash flows, both principal and interest, expected to be collected, discounted at the prevailing market rate of interest. We estimate the cash flows expected to be collected at acquisition using our internal credit risk, interest rate risk and prepayment risk models, which incorporate our best estimate of current key assumptions, such as property values, default rates, loss severity and prepayment speeds. Our estimation includes the timing and amount of cash flows expected to be collected.
•
regularly evaluating our estimates of cash flows expected to be collected, subsequent to acquisition. These evaluations, performed quarterly, require the continued usage of key assumptions and estimates, similar to our initial estimate of fair value. We must apply judgment to develop our estimates of cash flows for PCI loans given the impact of changes in value of underlying collateral such as home price and property value changes, changing loss severities, modification activity, and prepayment speeds.

The amount of cash flows expected to be collected and, accordingly, the appropriateness of the allowance for loan loss due to certain decreases in cash flows expected to be collected, is particularly sensitive to changes in loan credit quality. The sensitivity of the overall allowance for credit losses, including PCI loans, is presented in the preceding section, “Critical Accounting Policies - Allowance for Credit Losses.”
See the “Risk Management - Credit Risk Management - Purchased Credit Impaired Loans” section and Note 6 (Loans and Allowance for Credit Losses - Purchased Credit Impaired Loans") to Financial Statements in this Report for further discussion of PCI loans.

Valuation of Residential Mortgage Servicing Rights (MSRs)
MSRs are assets that represent the rights to service mortgage loans for others. We recognize MSRs when we purchase servicing rights from third parties, or retain servicing rights in connection with the sale or securitization of loans we originate (asset transfers). We also have MSRs acquired in the past under co-issuer agreements that provide for us to service loans that were originated and securitized by third-party correspondents.
We carry our MSRs related to residential mortgage loans at fair value. Periodic changes in our residential MSRs and the economic hedges used to hedge our residential MSRs are reflected in earnings .
We use a model to estimate the fair value of our residential MSRs. The model is validated by an internal model validation group operating in accordance with Company policies . The model calculates the present value of estimated future net servicing income and incorporates inputs and assumptions that market participants use in estimating fair value. Certain significant inputs and assumptions are not observable in the market and require judgment to determine:
•
The mortgage loan prepayment speed used to estimate future net servicing income. The prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. Prepayment speeds are influenced by changes in mortgage interest rates and borrower behavior, including estimates for borrower default.
•
The discount rate used to present value estimated future net servicing income. The discount rate is the required rate of return investors in the market would expect for an asset


109

Critical Accounting Policies (continued)

with similar risk. To determine the discount rate, we consider the risk premium for uncertainties from servicing operations (e.g., possible changes in future servicing costs, ancillary income and earnings on escrow accounts).
•
The expected cost to service loans used to estimate future net servicing income. The cost to service loans includes estimates for unreimbursed expenses, such as delinquency and foreclosure costs, which considers the number of defaulted loans as well as changes in servicing processes associated with default and foreclosure management.

Both prepayment speed and discount rate assumptions can, and generally will, change quarterly as market conditions and mortgage interest rates change. For example, an increase in either the prepayment speed or discount rate assumption results in a decrease in the fair value of the MSRs, while a decrease in either assumption would result in an increase in the fair value of the MSRs. In recent years, there have been significant market-driven fluctuations in loan prepayment speeds and the discount rate. These fluctuations can be rapid and may be significant in the future. Additionally, while our current valuation reflects our best estimate of servicing costs, future regulatory changes in servicing standards, as well as changes in individual state foreclosure legislation, may have an impact on our servicing cost assumption and our MSR valuation in future periods.
For a description of our valuation and sensitivity of MSRs, see Note 1 (Summary of Significant Accounting Policies), Note 8 (Securitizations and Variable Interest Entities), Note 9 (Mortgage Banking Activities) and Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.

Fair Value of Financial Instruments
Fair value represents the price that would be received to sell the financial asset or paid to transfer the financial liability in an orderly transaction between market participants at the measurement date.
We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. For example, trading assets, securities available for sale, derivatives and substantially all of our residential MHFS are carried at fair value each period. Other financial instruments, such as certain MHFS and loans held for investment, are not carried at fair value each period but may require nonrecurring fair value adjustments due to application of lower-of-cost-or-market accounting or write-downs of individual assets. We also disclose our estimate of fair value for financial instruments not recorded at fair value, such as loans held for investment or issuances of long-term debt.
The accounting provisions for fair value measurements include a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data. For additional information on fair value levels, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.
 
When developing fair value measurements, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, we use quoted prices in active markets to measure fair value. If quoted prices in active markets are not available, fair value measurement is based upon models that use primarily market-based or independently sourced market parameters, including interest rate yield curves, prepayment speeds, option volatilities and currency rates. However, in certain cases, when market observable inputs for model-based valuation techniques are not readily available, we are required to make judgments about assumptions market participants would use to estimate fair value. Additionally, we use third party pricing services to obtain fair values, which are used to either record the price of an instrument or to corroborate internally developed prices. For additional information on our use of pricing services, see Note 1 (Summary of Significant Accounting Policies) and Note 17 (Fair Value of Assets and Liabilities) to Financial Statements in this Report.
The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted prices in active markets or observable market parameters. For financial instruments with quoted market prices or observable market parameters in active markets, there is minimal subjectivity involved in measuring fair value. When quoted prices and observable data in active markets are not fully available, management judgment is necessary to estimate fair value. Changes in the market conditions, such as reduced liquidity in the capital markets or changes in secondary market activities, may reduce the availability and reliability of quoted prices or observable data used to determine fair value. When significant adjustments are required to price quotes or inputs, it may be appropriate to utilize an estimate based primarily on unobservable inputs. When an active market for a financial instrument does not exist, the use of management estimates that incorporate current market participant expectations of future cash flows, adjusted for an appropriate risk premium, is acceptable.
Significant judgment is also required to determine whether certain assets measured at fair value are classified as Level 2 or Level 3. When making this judgment, we consider available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. For securities in inactive markets, we use a predetermined percentage to evaluate the impact of fair value adjustments derived from weighting both external and internal indications of value to determine if the instrument is classified as Level 2 or Level 3. Otherwise, the classification of Level 2 or Level 3 is based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the Level 3 inputs to the instruments’ fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument is classified as Level 3.
Table 65 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information (collectively Level 1 and 2 measurements).



110

Table 65: Fair Value Level 3 Summary
 
December 31, 2014 
 
 
December 31, 2013 
 
($ in billions)
Total balance 

 
Level 3 (1) 

 
Total balance 

 
Level 3 (1) 

Assets carried
at fair value
$
378.1

 
32.3

 
353.1

 
37.2

As a percentage
of total assets
22

%
2

 
23

 
2

Liabilities carried
at fair value
$
34.9

 
2.3

 
22.7

 
3.7

As a percentage of
total liabilities
2

%
* 

 
2

 
* 


*    Less than 1%.
(1)
Before derivative netting adjustments.

See Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for a complete discussion on our fair value of financial instruments, our related measurement techniques and the impact to our financial statements.
 
Income Taxes
We are subject to the income tax laws of the U.S., its states and municipalities and those of the foreign jurisdictions in which we operate. Our income tax expense consists of current and deferred income tax expense. Current income tax expense represents our estimated taxes to be paid or refunded for the current period and includes income tax expense related to our uncertain tax positions. We determine deferred income taxes using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and recognizes enacted changes in tax rates and laws in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized subject to management’s judgment that realization is “more likely than not.” Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting our realization criteria represent unrecognized tax benefits. Our unrecognized tax benefits on uncertain tax positions are reflected in Note 21 (Income Taxes) to Financial Statements in this Report. Foreign taxes paid are generally applied as credits to reduce federal income taxes payable. We account for interest and penalties as a component of income tax expense.
 
The income tax laws of the jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions by the government taxing authorities, both domestic and foreign. Our interpretations may be subjected to review during examination by taxing authorities and disputes may arise over the respective tax positions. We attempt to resolve these disputes during the tax examination and audit process and ultimately through the court systems when applicable.
We monitor relevant tax authorities and revise our estimate of accrued income taxes due to changes in income tax laws and their interpretation by the courts and regulatory authorities on a quarterly basis. Revisions of our estimate of accrued income taxes also may result from our own income tax planning and from the resolution of income tax controversies. Such revisions in our estimates may be material to our operating results for any given quarter.
See Note 21 (Income Taxes) to Financial Statements in this Report for a further description of our provision for income taxes and related income tax assets and liabilities.


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Current Accounting Developments

The following table provides accounting pronouncements applicable to us that have been issued by the FASB but are not yet effective.


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Standard
 
Description
 
Effective date and financial statement impact
Accounting Standards Update (ASU or Update) 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis
 
The Update primarily amends the criteria companies use to evaluate whether they should consolidate certain variable interest entities that have fee arrangements and the criteria used to determine whether partnerships and similar entities are variable interest entities . The Update also excludes registered 2a-7 money market funds (including unregistered funds that operate in a similar manner) from the consolidation guidance.
 
The changes are effective for us in first quarter 2016 with early adoption permitted. We are evaluating the impact the Update will have on our consolidated financial statements.
ASU 2015-01 - Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

 
The Update removes the concept of extraordinary items from GAAP and eliminates the requirement for extraordinary items to be separately presented in the statement of income.
 
The Update is effective for us in first quarter 2016 with prospective or retrospective application. Early adoption is permitted. The Update will not have a material impact on our consolidated financial statements.
ASU 2014-16 - Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or Equity
 
The Update clarifies that the nature of host contracts in hybrid financial instruments that are issued in share form should be determined based on the entire instrument, including the embedded derivative.
 
The Update is effective for us in first quarter 2016 with retrospective application. The Update will not have a material impact on our consolidated financial statements.
ASU 2014-13 - Consolidation (Topic 810):   Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity
 
The Update provides a measurement alternative to companies that consolidate collateralized financing entities (CFEs), such as collateralized debt obligation and collateralized loan obligation structures. Under the new guidance, companies can measure both the financial assets and financial liabilities of a CFE using the more observable fair value of the financial assets or of the financial liabilities.
 
These changes are effective for us in first quarter 2016 with early adoption permitted at the beginning of an annual period. The guidance can be applied either retrospectively or by a modified retrospective approach. The Update will not have a material impact on our consolidated financial statements.
ASU 2014-12 - Compensation - Stock Compensation (Topic 718):   Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period
 
The Update provides accounting guidance for employee share-based payment awards with specific performance targets. The Update clarifies that performance targets should be treated as performance conditions if the targets affect vesting and could be achieved after the requisite service period.
 
The Update is effective for us in first quarter 2016 with early adoption permitted and can be applied prospectively or retrospectively. This Update will not have a material impact on our consolidated financial statements.
ASU 2014-11 - Transfers and Servicing (Topic 860):   Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures
 
The Update requires repurchase-to-maturity transactions to be accounted for as secured borrowings versus sales. The guidance also requires separate accounting for transfers of financial assets that are executed contemporaneously with repurchase agreements. The Update also includes new disclosures for transfers accounted for as sales and for repurchase agreements and similar arrangements, such as classes of collateral pledged for gross obligations and the remaining contractual maturity of repurchase agreements.
 
The accounting changes are effective for us in first quarter 2015 with early adoption prohibited. The disclosures are required in first quarter 2015 for transfers accounted for as sales with the remaining disclosures required in second quarter 2015. This Update will not have a material impact on our consolidated financial statements.

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Standard
 
Description
 
Effective date and financial statement impact
ASU 2014-09 - Revenue from Contracts With Customers  (Topic 606)
 
The Update modifies the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations.
 
The Update is effective for us in first quarter 2017 with retrospective application. Early adoption is not permitted. We are evaluating the impact this Update will have on our consolidated financial statements.
ASU 2014-08 - Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360):   Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
 
The Update changes the definition and reporting requirements for discontinued operations. Under the new guidance, an entity’s disposal of a component or group of components must be reported in discontinued operations if the disposal is a strategic shift that has or will have a significant effect on the entity’s operations and financial results.
 
These changes are effective for us in first quarter 2015 with prospective application. Early adoption is permitted for disposals that have not been previously reported. This Update will not have a material impact on our consolidated financial statements.
ASU 2014-01 - Investments - Equity Method and Joint Ventures (Topic 323):   Accounting for Investments in Qualified Affordable Housing Projects
 
The Update amends the accounting guidance for investments in affordable housing projects that qualify for the low-income housing tax credit. The Update allows companies to make an accounting policy election to amortize the cost of its investments in proportion to the tax benefits received if certain criteria are met and present the amortization as a component of income tax expense. Additionally, the Update requires incremental disclosures for all entities that invest in qualified affordable housing projects regardless of the policy election.
 
The new disclosure requirements are effective for us in first quarter 2015. We do not intend to adopt the accounting policy election permitted by the Update, and therefore, it will not affect our consolidated financial statements.



Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make forward-looking statements in our other documents filed or furnished with the SEC, and our management may make forward-looking statements orally to analysts, investors, representatives of the media and others. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “target,” “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can” and similar references to future periods. In particular, forward-looking statements include, but are not limited to, statements we make about: (i) the future operating or financial performance of the Company, including our outlook for future growth; (ii) our noninterest expense and efficiency ratio; (iii) future credit quality and performance, including our expectations regarding future loan losses and allowance releases; (iv) the appropriateness of the allowance for credit losses; (v) our expectations regarding net interest income and net interest margin; (vi) loan growth or the reduction or mitigation of risk in our loan portfolios; (vii) future capital levels and our estimated Common Equity Tier 1 ratio under Basel III capital standards; (viii) the performance of our mortgage business and any related exposures; (ix) the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; (x) future common stock dividends, common share repurchases and
 
other uses of capital; (xi) our targeted range for return on assets and return on equity; (xii) the outcome of contingencies, such as legal proceedings; and (xiii) the Company’s plans, objectives and strategies.
Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:
•
current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and the overall slowdown in global economic growth; 
•
our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital


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standards) and our ability to generate capital internally or raise capital on favorable terms;
•
financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;
•
the extent of our success in our loan modification efforts, as well as the effects of regulatory requirements or guidance regarding loan modifications;
•
the amount of mortgage loan repurchase demands that we receive and our ability to satisfy any such demands without having to repurchase loans related thereto or otherwise indemnify or reimburse third parties, and the credit quality of or losses on such repurchased mortgage loans;
•
negative effects relating to our mortgage servicing and foreclosure practices, including our obligations under the settlement with the Department of Justice and other federal and state government entities, as well as changes in industry standards or practices, regulatory or judicial requirements, penalties or fines, increased servicing and other costs or obligations, including loan modification requirements, or delays or moratoriums on foreclosures;
•
our ability to realize our efficiency ratio target as part of our expense management initiatives, including as a result of business and economic cyclicality, seasonality, changes in our business composition and operating environment, growth in our businesses and/or acquisitions, and unexpected expenses relating to, among other things, litigation and regulatory matters;
•
the effect of the current low interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;
•
a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, reduced investor demand for mortgage loans, a reduction in the availability of funding or increased funding costs, and declines in asset values and/or recognition of other-than-temporary impairment on securities held in our investment securities portfolio;
•
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;
 
•
reputational damage from negative publicity, protests, fines, penalties and other negative consequences from regulatory violations and legal actions;
•
a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber attacks;
•
the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;
•
fiscal and monetary policies of the Federal Reserve Board; and
•
the other risk factors and uncertainties described under “Risk Factors” in this Report.
 
In addition to the above factors, we also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements (including under Basel capital standards), common stock issuance requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by the Company’s Board of Directors, and may be subject to regulatory approval or conditions.
For more information about factors that could cause actual results to differ materially from our expectations, refer to our reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in this Report, as filed with the Securities and Exchange Commission and available on its website at www.sec.gov. 
Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.


Risk Factors
An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. We discuss below risk factors that could adversely affect our financial results and condition, and the value of, and return on, an investment in the Company.
 
RISKS RELATED TO THE ECONOMY, FINANCIAL MARKETS, INTEREST RATES AND LIQUIDITY
 
As one of the largest lenders in the U.S. and a provider of financial products and services to consumers and businesses across the U.S. and internationally, our financial results have been, and will continue to be, materially affected by general economic conditions, particularly unemployment levels and home prices in
 
the U.S., and a deterioration in economic conditions or in the financial markets may materially adversely affect our lending and other businesses and our financial results and condition.  We generate revenue from the interest and fees we charge on the loans and other products and services we sell, and a substantial amount of our revenue and earnings comes from the net interest income and fee income that we earn from our consumer and commercial lending and banking businesses, including our mortgage banking business where we currently are the largest mortgage originator in the U.S. These businesses have been, and will continue to be, materially affected by the state of the U.S. economy, particularly unemployment levels and home prices. Although the U.S. economy has continued to gradually improve from the depressed levels of 2008 and early 2009, economic growth has been slow and uneven. In addition, the negative effects and continued uncertainty stemming from U.S. fiscal and political matters,


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Risk Factors (continued)

including concerns about deficit levels, taxes and U.S. debt ratings, have impacted and may continue to impact the continuing global economic recovery. Moreover, geopolitical matters, including international political unrest or disturbances, as well as continued concerns over energy prices and global economic difficulties, may impact the stability of financial markets and the global economy. A prolonged period of slow growth in the global economy, particularly in the U.S., or any deterioration in general economic conditions and/or the financial markets resulting from the above matters or any other events or factors that may disrupt or dampen the global economic recovery ,  could materially adversely affect our financial results and condition. 
The improvement in the U.S. economy as well as higher home prices contributed to our strengthened credit performance and allowed us to release amounts from our allowance for credit losses, however there is no guarantee we will have allowance releases in the future. If unemployment levels worsen or if home prices fall we would expect to incur elevated charge-offs and provision expense from increases in our allowance for credit losses. These conditions may adversely affect not only consumer loan performance but also commercial and CRE loans, especially for those business borrowers that rely on the health of industries that may experience deteriorating economic conditions. The ability of these and other borrowers to repay their loans may deteriorate, causing us, as one of the largest commercial lenders and the largest CRE lender in the U.S., to incur significantly higher credit losses. In addition, weak or deteriorating economic conditions make it more challenging for us to increase our consumer and commercial loan portfolios by making loans to creditworthy borrowers at attractive yields. Although we have significant capacity to add loans to our balance sheet, weak economic conditions, as well as competition and/or increases in interest rates, could soften demand for our loans resulting in our retaining a much higher amount of lower yielding liquid assets on our balance sheet. If economic conditions do not continue to improve or if the economy worsens and unemployment rises, which also would likely result in a decrease in consumer and business confidence and spending, the demand for our credit products, including our mortgages, may fall, reducing our interest and noninterest income and our earnings.
A deterioration in business and economic conditions, which may erode consumer and investor confidence levels, and/or increased volatility of financial markets, also could adversely affect financial results for our fee-based businesses, including our investment advisory, mutual fund, securities brokerage, wealth management, and investment banking businesses. In 2014, approximately 26% of our revenue was fee income, which included trust and investment fees, card fees and other fees. We earn fee income from managing assets for others and providing brokerage and other investment advisory and wealth management services. Because investment management fees are often based on the value of assets under management, a fall in the market prices of those assets could reduce our fee income. Changes in stock market prices could affect the trading activity of investors, reducing commissions and other fees we earn from our brokerage business. The U.S. stock market experienced all-time highs in 2014 and there is no guarantee that those price levels will continue. Poor economic conditions and volatile or unstable financial markets also can negatively affect our debt and equity underwriting and advisory businesses, as well as our trading and venture capital businesses. Any deterioration in global financial markets and economies, including as a result of any international political unrest or disturbances, may adversely affect the revenues and earnings of our international operations,
 
particularly our global financial institution and correspondent banking services.
For more information, refer to the “Risk Management – Asset/Liability Management” and “– Credit Risk Management” sections in this Report.
 
Changes in interest rates and financial market values could reduce our net interest income and earnings, including as a result of recognizing losses or OTTI on the securities that we hold in our portfolio or trade for our customers.   Our net interest income is the interest we earn on loans, debt securities and other assets we hold less
the interest we pay on our deposits, long-term and short-term debt, and other liabilities. Net interest income is a measure of both our net interest margin – the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding – and the amount of earning assets we hold. Changes in either our net interest margin or the amount or mix of earning assets we hold could affect our net interest income and our earnings. Changes in interest rates can affect our net interest margin. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. When interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the asset yield increases.
The amount and type of earning assets we hold can affect our yield and net interest margin. We hold earning assets in the form of loans and investment securities, among other assets. As noted above, if the economy worsens we may see lower demand for loans by creditworthy customers, reducing our net interest income and yield. In addition, our net interest income and net interest margin can be negatively affected by a prolonged low interest rate environment, which as noted below is currently being experienced as a result of economic conditions and FRB monetary policies, as it may result in us holding short-term lower yielding loans and securities on our balance sheet, particularly if we are unable to replace the maturing higher yielding assets, including the loans in our non-strategic and liquidating loan portfolio, with similar higher yielding assets. Increases in interest rates, however, may negatively affect loan demand and could result 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-term interest rates – could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens, as is the case in the current interest rate environment, or even inverts, our net interest margin could decrease as our cost of funds increases relative to the yield we can earn on our assets.
The interest we earn on our loans may be tied to U.S.-denominated interest rates such as the federal funds rate while the interest we pay on our debt may be based on international rates such as LIBOR. If the federal funds rate were to fall without a corresponding decrease in LIBOR, we might earn less on our loans without any offsetting decrease in our funding costs. This could lower our net interest margin and our net interest income.


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We assess our interest rate risk by estimating the effect on our earnings under various scenarios that differ based on assumptions about the direction, magnitude and speed of interest rate changes and the slope of the yield curve. We hedge some of that interest rate risk with interest rate derivatives. We also rely on the “natural hedge” that our mortgage loan originations and servicing rights can provide.
We generally do not hedge all of our interest rate risk. There is always the risk that changes in interest rates could reduce our net interest income and our earnings in material amounts, especially if actual conditions turn out to be materially different than what we assumed. For example, if interest rates rise or fall faster than we assumed or the slope of the yield curve changes, we may incur significant losses on debt securities we hold as investments. To reduce our interest rate risk, we may rebalance our investment and loan portfolios, refinance our debt and take other strategic actions. We may incur losses when we take such actions.
We hold securities in our investment securities portfolio, including U.S. Treasury and federal agency securities and federal agency MBS, securities of U.S. states and political subdivisions, residential and commercial MBS, corporate debt securities, other asset-backed securities and marketable equity securities, including securities relating to our venture capital activities. We analyze securities held in our investment securities portfolio for OTTI on at least a quarterly basis. The process for determining whether impairment is other than temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving contractual principal and interest payments on the security. Because of changing economic and market conditions, as well as credit ratings, affecting issuers and the performance of the underlying collateral, we may be required to recognize OTTI in future periods. Our net income also is exposed to changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices in connection with our trading activities, which are conducted primarily to accommodate our customers in the management of their market price risk, as well as when we take positions based on market expectations or to benefit from differences between financial instruments and markets. The securities held in these activities are carried at fair value with realized and unrealized gains and losses recorded in noninterest income. As part of our business to support our customers, we trade public securities and these securities also are subject to market fluctuations with gains and losses recognized in net income when realized and periodically include OTTI charges. Although we have processes in place to measure and monitor the risks associated with our trading activities, including stress testing and hedging strategies, there can be no assurance that our processes and strategies will be effective in avoiding losses that could have a material adverse effect on our financial results.
The value of our public and private equity investments can fluctuate from quarter to quarter. Certain of these investments are carried under the cost or equity method, while others are carried at fair value with unrealized gains and losses reflected in earnings. Earnings from our equity investments may be volatile and hard to predict, and may have a significant effect on our earnings from period to period. When, and if, we recognize gains may depend on a number of factors, including general economic and market conditions, the prospects of the companies in which we invest, when a company goes public, the size of our position relative to the public float, and whether we are subject to any resale restrictions.
 
Our venture capital investments could result in significant OTTI losses for those investments carried under the cost or equity method. Our assessment for OTTI is based on a number of factors, including the then current market value of each investment compared with its carrying value. If we determine there is OTTI for an investment, we write-down the carrying value of the investment, resulting in a charge to earnings. The amount of this charge could be significant.
For more information, refer to the “Risk Management – Asset/Liability Management – Interest Rate Risk”, “– Market Risk – Equity Investments”, and “– Market Risk – Trading Activities” and the “Balance Sheet Analysis – Investment Securities” sections in this Report and Note 5 (Investment Securities) to Financial Statements in this Report.
 
Effective liquidity management, which ensures that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments, including principal and interest payments on our debt, efficiently under both normal operating conditions and other unpredictable circumstances of industry or financial market stress, is essential for the operation of our business, and our financial results and condition could be materially adversely affected if we do not effectively manage our liquidity.   Our liquidity is essential for the operation of our business. We primarily rely on 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, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits, have historically provided us with a sizeable source of relatively stable and low-cost funds. In addition to customer deposits, our sources of liquidity include investments in our securities portfolio, our ability to sell or securitize loans in secondary markets and to pledge loans to access secured borrowing facilities through the FHLB and the FRB, and our ability to raise funds in domestic and international money through capital markets.
Our liquidity and our ability to fund and run our business could be materially adversely affected by a variety of conditions and factors, including financial and credit market disruption and volatility or a lack of market or customer confidence in financial markets in general similar to what occurred during the financial crisis in 2008 and early 2009, which may result in a loss of customer deposits or outflows of cash or collateral and/or our inability to access capital markets on favorable terms. Market disruption and volatility could impact our credit spreads, which are the amount in excess of the interest rate of U.S. Treasury securities, or other benchmark securities, of the same maturity that we need to pay to our funding providers. Increases in interest rates and our credit spreads could significantly increase our funding costs. Other conditions and factors that could materially adversely affect our liquidity and funding include a lack of market or customer confidence in the Company or negative news about the Company or the financial services industry generally which also may result in a loss of deposits and/or negatively affect our ability to access the capital markets; our inability to sell or securitize loans or other assets, and, as described below, reductions in one or more of our credit ratings. Many of the above conditions and factors may be caused by events over which we have little or no control. While market conditions have continued to improve since the financial crisis, there can be no assurance that significant disruption and volatility in the financial markets will not occur in the future. For example, concerns over geopolitical issues, commodity and


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Risk Factors (continued)

currency prices, as well as global economic conditions, may cause financial market volatility.
In addition, concerns regarding the potential failure to raise the U.S. government debt limit and any associated downgrade of U.S. government debt ratings may cause uncertainty and volatility as well. A failure to raise the U.S. debt limit in the future and/or additional downgrades of the sovereign debt ratings of the U.S. government or the debt ratings of related institutions, agencies or instrumentalities, as well as other fiscal or political events could, in addition to causing economic and financial market disruptions, materially adversely affect the market value of the U.S. government securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms, as well as have other material adverse effects on the operation of our business and our financial results and condition.
As noted above, we rely heavily on bank deposits for our funding and liquidity. We compete with banks and other financial services companies for deposits. If our competitors raise the rates they pay on deposits our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Higher funding costs reduce our net interest 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 investments, we may lose a relatively low cost source of funds, increasing our funding costs and negatively affecting our liquidity.
If we are unable to continue to fund our assets through customer bank deposits or access capital markets on favorable terms or if we suffer an increase in our borrowing costs or otherwise fail to manage our liquidity effectively, our liquidity, net interest margin, financial results and condition may be materially adversely affected. As we did during the financial crisis, we may also need, or be required by our regulators, to raise additional capital through the issuance of common stock, which could dilute the ownership of existing stockholders, or reduce or even eliminate our common stock dividend to preserve capital or in order to raise additional capital . 
For more information, refer to the “Risk Management – Asset/Liability Management” section in this Report.
 
Adverse changes in our credit ratings could have a material adverse effect on our liquidity, cash flows, financial results and condition.   Our borrowing costs and ability to obtain funding are influenced by our credit ratings. Reductions in one or more of our credit ratings could adversely affect our ability to borrow funds and raise the costs of our borrowings substantially and could cause creditors and business counterparties to raise collateral requirements or take other actions that could adversely affect our ability to raise funding. Credit ratings and credit ratings agencies’ outlooks are based on the ratings agencies’ analysis of many quantitative and qualitative factors, such as our capital adequacy, liquidity, asset quality, business mix, the level and quality of our earnings, rating agency assumptions regarding the probability and extent of federal financial assistance or support, and other rating agency specific criteria. In addition to credit ratings, our borrowing costs are affected by various other external factors, including market volatility and concerns or perceptions about the financial services industry generally.
 
In light of industry changes and regulatory developments related to the Title II Orderly Liquidation Authority of the Dodd-Frank Act, rating agencies have proposed changes to various aspects of their ratings methodologies. Moody’s Investors Service has proposed significant revisions to its rating methodology, with a focus on how each type of creditor would be affected in any bank failure. Standard and Poor’s Ratings Services (S&P) is continuing its reassessment of whether to incorporate the likelihood of extraordinary government support into the ratings of certain bank holding companies, including the Parent. In addition, S&P has recently issued a proposal to incorporate into its bank-level rating methodology an assessment of additional capital available to absorb losses to reduce default risk. There can be no assurance that we will maintain our credit ratings and outlooks and that credit ratings downgrades in the future would not materially affect our ability to borrow funds and borrowing costs.
Downgrades in our credit ratings also may trigger additional collateral or funding obligations which could negatively affect our liquidity, including as a result of credit-related contingent features in certain of our derivative contracts. Although a one or two notch downgrade in our current credit ratings would not be expected to trigger a material increase in our collateral or funding obligations, a more severe credit rating downgrade of our long-term and short-term credit ratings could increase our collateral or funding obligations and the effect on our liquidity could be material. For information regarding additional collateral and funding obligations required of certain derivative instruments in the event our credit ratings were to fall below investment grade, see Note 16 (Derivatives) to Financial Statements in this Report.
 
We rely on dividends from our subsidiaries for liquidity, and federal and state law can limit those dividends.   Wells Fargo & Company, the parent holding company, is a separate and distinct legal entity from its subsidiaries. It receives a significant portion of its funding and liquidity from dividends and other distributions from its subsidiaries. We generally use these dividends and distributions, among other things, to pay dividends on our common and preferred stock and interest and principal on our debt. Federal and state laws limit the amount of dividends and distributions that our bank and some of our nonbank subsidiaries, including our broker-dealer subsidiaries, may pay to our parent holding company. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
For more information, refer to the “Regulation and Supervision – Dividend Restrictions” and “– Holding Company Structure” sections in our 2014 Form 10-K and to Note 3 (Cash, Loan and Dividend Restrictions) and Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.
 
RISKS RELATED TO FINANCIAL REGULATORY REFORM AND OTHER LEGISLATION AND REGULATIONS
 
Enacted legislation and regulation, including the Dodd-Frank Act, as well as future legislation and/or regulation, could require us to change certain of our business practices, reduce our revenue and earnings, impose additional costs on us or otherwise adversely affect our business operations and/or competitive position.   Our parent company, our subsidiary banks and many


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of our nonbank subsidiaries such as those related to our brokerage and mutual fund businesses, are subject to significant regulation under state and federal laws in the U.S., as well as the applicable laws of the various jurisdictions outside of the U.S. where we conduct business. These regulations protect depositors, federal deposit insurance funds, consumers, investors and the banking and financial system as a whole, not necessarily our stockholders. Economic, market and political conditions during the past few years have led to a significant amount of new legislation and regulation in the U.S. and abroad, as well as heightened expectations and scrutiny of financial services companies from banking regulators. These laws and regulations may affect the manner in which we do business and the products and services that we provide, affect or restrict our ability to compete in our current businesses or our ability to enter into or acquire new businesses, reduce or limit our revenue in businesses or impose additional fees, assessments or taxes on us, intensify the regulatory supervision of us and the financial services industry, and adversely affect our business operations or have other negative consequences.
On July 21, 2010, the Dodd-Frank Act, the most significant financial reform legislation since the 1930s, became law. The Dodd-Frank Act, among other things, (i) established the Financial Stability Oversight Council to monitor systemic risk posed by financial firms and imposes additional and enhanced FRB regulations, including capital and liquidity requirements, on certain large, interconnected bank holding companies such as Wells Fargo and systemically significant nonbanking firms intended to promote financial stability; (ii) creates a liquidation framework for the resolution of covered financial companies, the costs of which would be paid through assessments on surviving covered financial companies; (iii) makes significant changes to the structure of bank and bank holding company regulation and activities in a variety of areas, including prohibiting proprietary trading and private fund investment activities, subject to certain exceptions; (iv) creates a new framework for the regulation of over-the-counter derivatives and new regulations for the securitization market and strengthens the regulatory oversight of securities and capital markets by the SEC; (v) established the Consumer Financial Protection Bureau (CFPB) within the FRB, which has sweeping powers to administer and enforce a new federal regulatory framework of consumer financial regulation; (vi) may limit the existing pre-emption of state laws with respect to the application of such laws to national banks, makes federal pre-emption no longer applicable to operating subsidiaries of national banks, and gives state authorities, under certain circumstances, the ability to enforce state laws and federal consumer regulations against national banks; (vii) provides for increased regulation of residential mortgage activities; (viii) revised the FDIC's assessment base for deposit insurance by changing from an assessment base defined 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 FRB under the Durbin Amendment to adopt regulations that limit debit card interchange fees received by debit card issuers; and (xii) includes several corporate governance and executive compensation provisions and requirements, including mandating an advisory stockholder vote on executive compensation.
The Dodd-Frank Act and many of its provisions became effective in July 2010 and July 2011. However, a number of its provisions still require final rulemaking, guidance, and interpretation by regulatory authorities. Accordingly, in many
 
respects the ultimate impact of the Dodd-Frank Act and its effects on the U.S. financial system and the Company still remain uncertain. Nevertheless, the Dodd-Frank Act, including current and future rules implementing its provisions and the interpretation of those rules, could result in a loss of revenue, require us to change certain of our business practices, limit our ability to pursue certain business opportunities, increase our capital requirements and impose additional assessments and costs on us and otherwise adversely affect our business operations and have other negative consequences.
Our consumer businesses, including our mortgage, credit card and other consumer lending and non-lending businesses, may be negatively affected by the activities of the CFPB, which has broad rulemaking powers and supervisory authority over consumer financial products and services. Although the full impact of the CFPB on our businesses is uncertain, the CFPB’s activities may increase our compliance costs and require changes in our business practices as a result of new regulations and requirements which could limit or negatively affect the products and services that we currently offer our customers. For example, in 2013, the CFPB issued a number of new rules impacting residential mortgage lending practices. As a result of greater regulatory scrutiny of our consumer businesses, we have become subject to more and expanded regulatory examinations and/or investigations, which also could result in increased costs and harm to our reputation in the event of a failure to comply with the increased regulatory requirements.
The Dodd-Frank Act’s proposed prohibitions or limitations on proprietary trading and private fund investment activities, known as the “Volcker Rule,” also may reduce our revenue and earnings, although proprietary trading has not been significant to our financial results. Rules to implement the requirements of the Volcker Rule were first proposed in 2011, and final rules were issued in December 2013. Pursuant to an order of the FRB, banking entities are required to make good faith planning efforts to come into compliance with the Volcker Rule’s restrictions by July 21, 2015. The FRB announced that it intends to exercise its authority to give banking entities two additional one-year extensions to conform their ownership interests in and sponsorships of covered funds under the rule. Companies with $50 billion or more in trading assets and liabilities such as Wells Fargo were required to report trading metrics beginning June 30, 2014. Wells Fargo has begun submitting such metrics to the Volcker supervisory regulators. Wells Fargo will also be subject to enhanced compliance program requirements.
In addition, the Dodd-Frank Act established a comprehensive framework for regulating over-the-counter derivatives and authorized the CFTC and SEC to regulate swaps and security-based swaps, respectively. The CFTC and SEC have adopted various rules to implement this framework, including rules requiring extensive regulatory and public reporting of swaps, certain swaps to be centrally cleared and traded on exchanges or other multilateral platforms, and comprehensive internal and external business conduct standards. Also included in this regulatory framework are so-called push-out provisions requiring certain swap activities to be conducted through an affiliate. All of these rules, as well as others proposed or currently being considered by regulators in the U.S. and other jurisdictions, may negatively impact customer demand for over-the-counter derivatives and may increase our costs for engaging in swaps and other derivatives activities.
The Dodd-Frank Act also imposes changes on the ABS markets by requiring sponsors of ABS to hold at least a 5% ownership stake in the ABS. Exemptions from the requirement include qualified residential mortgages and FHA/VA loans.


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Federal regulatory agencies have finalized rules to implement this credit risk retention requirement, which have only included limited exemptions. We continue to evaluate the final rules and assess their impact on our ability to issue certain ABS or otherwise participate in various securitization transactions.
In order to address the perceived risks that money market mutual funds may pose to the financial stability of the United States, the SEC adopted rules in July 2014 that, among other things, require significant structural changes to these funds, including requiring institutional prime money market funds to maintain a variable net asset value and providing for the imposition of liquidity fees and redemption gates for all non-governmental money market funds during periods in which they experience liquidity impairments of a certain magnitude. The SEC has provided a period of two years following the effective date of the rule for funds to comply with these structural changes. Certain of our money market mutual funds may see a decline in assets under management in response to implementation of these structural changes.
Federal banking regulators also continue to implement the provisions of the Dodd-Frank Act addressing the risks to the financial system posed by the failure of a systemically important financial institution. Pursuant to rules adopted by the FRB and the FDIC, Wells Fargo has prepared and filed a resolution plan, a so-called “living will,” that is designed to facilitate our resolution in the event of material distress or failure. There can be no assurance that the FRB or FDIC will respond favorably to the Company’s resolution plans. If the FRB and FDIC determine that our resolution plan is deficient, the Dodd-Frank Act authorizes the FRB and FDIC to impose more stringent capital, leverage or liquidity requirements on us or restrict our growth or activities until we submit a plan remedying the deficiencies. If the FRB and FDIC ultimately determine that we have been unable to remedy the deficiencies, they could order us to divest assets or operations in order to facilitate our orderly resolution in the event of our material distress or failure. Our national bank subsidiary, Wells Fargo Bank, N.A., is also required to prepare and submit a resolution plan to the FDIC under separate regulatory authority.
The Dodd-Frank Act also establishes an orderly liquidation process which allows for the appointment of the FDIC as a receiver of a systemically important financial institution that is in default or in danger of default. The FDIC has issued rules to implement its orderly liquidation authority and released a notice and request for comment regarding a proposed resolution strategy, known as “single point of entry,” designed to resolve a large financial institution in a manner that would, among other things, impose losses on shareholders and creditors in accordance with statutory priorities, without imposing a cost on U.S. taxpayers. Implementation of the strategy would require that institutions maintain a sufficient amount of available equity and unsecured debt to absorb losses and recapitalize operating subsidiaries. The FDIC has not issued any final statements on the single point of entry resolution strategy.
Other future regulatory initiatives that could significantly affect our business include proposals to reform the housing finance market in the United States. These proposals, among other things, consider winding down the GSEs and reducing or eliminating over time the role of the GSEs in guaranteeing mortgages and providing funding for mortgage loans, as well as the implementation of reforms relating to borrowers, lenders, and investors in the mortgage market, including reducing the maximum size of a loan that the GSEs can guarantee, phasing in a minimum down payment requirement for borrowers, improving underwriting standards, and increasing
 
accountability and transparency in the securitization process. Congress also may consider the adoption of legislation to reform the mortgage financing market in an effort to assist borrowers experiencing difficulty in making mortgage payments or refinancing their mortgages. The extent and timing of any regulatory reform or the adoption of any legislation regarding the GSEs and/or the home mortgage market, as well as any effect on the Company’s business and financial results, are uncertain.
Any other future legislation and/or regulation, if adopted, also could significantly change our regulatory environment and increase our cost of doing business, limit the activities we may pursue or affect the competitive balance among banks, savings associations, credit unions, and other financial services companies, and have a material adverse effect on our financial results and condition.
For more information, refer to the “Regulatory Reform” section in this Report and the “Regulation and Supervision” section in our 2014 Form 10-K.
 
Bank regulations, including Basel capital and liquidity standards and FRB guidelines and rules, may require higher capital and liquidity levels, limiting our ability to pay common stock dividends, repurchase our common stock, invest in our business, or provide loans or other products and services to our customers .  Federal banking regulators continually monitor the capital position of banks and bank holding companies. In December 2010, the Basel Committee on Banking Supervision (BCBS) finalized a set of international guidelines for determining regulatory capital known as Basel III. These guidelines are designed to address many of the weaknesses identified in the previous Basel standards and in the banking sector as contributing to the financial crisis of 2008 and 2009 by, among other things, increasing minimum capital requirements, increasing the quality of capital, increasing the risk coverage of the capital framework, increasing liquidity buffers, 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 Common Equity Tier 1 (CET1) to risk-weighted assets of at least 7.0%.
U.S. regulatory authorities have been considering the BCBS capital guidelines and related proposals, and in July 2013, U.S. banking regulators approved final and interim final rules to implement the Basel III capital guidelines for U.S. banks. These final capital rules, among other things: 
•
implement in the United States the Basel III regulatory capital reforms including those that revise the definition of capital, increase minimum capital ratios, and introduce a minimum CET1 ratio of 4.5% and a capital conservation buffer of 2.5% (for a total minimum CET1 ratio of 7.0%) and a potential countercyclical buffer of up to 2.5%, which would be imposed by regulators at their discretion if it is determined that a period of excessive credit growth is contributing to an increase in systemic risk;
•
require a Tier 1 capital to average total consolidated assets ratio of 4% and introduce, for large and internationally active bank holding companies (BHCs), a Tier 1 supplementary leverage ratio of 3% that incorporates off-balance sheet exposures;
•
revise “Basel I” rules for calculating risk-weighted assets to enhance risk sensitivity under a standardized approach;
•
modify the existing Basel II advanced approaches rules for calculating risk-weighted assets to implement Basel III;


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•
deduct certain assets from CET1, such as deferred tax assets that could not be realized through net operating loss carry-backs, significant investments in non-consolidated financial entities, and mortgage servicing rights, to the extent any one category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1;
•
eliminate the accumulated other comprehensive income or loss filter that applies under risk-based capital rules over a five-year phase in period beginning in 2014; and
•
comply with the Dodd-Frank Act provision prohibiting the reliance on external credit ratings.
 
The final capital rules became effective for Wells Fargo in January 2014, with certain provisions subject to phase-in periods. The Basel III capital rules are scheduled to be fully phased in by January 1, 2022.
In April 2014, federal banking regulators finalized a rule that enhances the supplementary leverage ratio requirements provided in the final capital rules for large BHCs, like Wells Fargo, and their insured depository institutions. The rule, which becomes effective on January 1, 2018, will require a covered BHC to maintain a supplementary leverage ratio of at least 5% to avoid restrictions on capital distributions and discretionary bonus payments and require that its insured depository institutions maintain a supplementary leverage ratio of 6% to be considered well capitalized. In addition, in September 2014, federal banking regulators issued a final rule that implements a quantitative liquidity requirement consistent with the liquidity coverage ratio (LCR) originally established by the BCBS. The rule requires banking institutions, such as Wells Fargo, to hold high-quality liquid assets, such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash, in an amount equal to or greater than its projected net cash outflows during a 30-day stress period. The final LCR rule will be phased in beginning January 1, 2015, and requires full compliance with a minimum 100% LCR by January 1, 2017. The FRB also recently finalized rules imposing enhanced liquidity management standards on large BHCs such as Wells Fargo.
The FRB has also indicated that it is in the process of considering new rules to address the amount of equity and unsecured debt a company must hold to facilitate its orderly liquidation, often referred to as Total Loss Absorbing Capacity (TLAC). In November 2014, the Financial Stability Board (FSB) issued for public consultation policy proposals on TLAC. Under the FSB’s TLAC proposal, global systemically important banks (G-SIBs) would be required to hold loss absorbing equity and unsecured debt of 16-20% of RWAs, with at least 33% of this total being unsecured debt rather than equity. The FRB will likely propose related rules sometime after the FSB’s public consultation on the TLAC proposal ends.
In addition, in December 2014, the FRB proposed rules to implement an additional CET1 capital surcharge on those U.S. banking organizations, such as the Company, that have been designated by the FSB as G-SIBs. The G-SIB surcharge would be in addition to the minimum Basel III 7.0% CET1 requirement. Under the FRB proposal, estimated surcharges for G-SIBs would range from 1.0 to 4.5 percent of a firm’s RWAs depending on methodologies that look at, among other things, the firm’s systemic importance and use of short-term wholesale funding. The G-SIB surcharge would be phased in beginning on January 1, 2016 and become fully effective on January 1, 2019.
The ultimate impact of all of these finalized and proposed or contemplated rules on our capital and liquidity requirements will depend on final rulemaking and regulatory interpretation of
 
the rules as we, along with our regulatory authorities, apply the final rules during the implementation process.
As part of its obligation to impose enhanced capital and risk-management standards on large financial firms pursuant to the Dodd-Frank Act, the FRB issued a final capital plan rule that became effective December 30, 2011. The final capital plan rule requires top-tier BHCs, including the Company, to submit annual capital plans for review and to obtain regulatory approval before making capital distributions. There can be no assurance that the FRB would respond favorably to the Company’s future capital plans. The FRB has also finalized a number of regulations implementing enhanced prudential requirements for large BHCs like Wells Fargo regarding risk-based capital and leverage, risk and liquidity management, and imposing debt-to-equity limits on any BHC that regulators determine poses a grave threat to the financial stability of the United States. The FRB and OCC have also finalized rules implementing stress testing requirements for large BHCs and national banks. The FRB has also proposed, but not yet finalized, remediation requirements for large BHCs experiencing financial distress that would restrict capital distributions upon the occurrence of capital, stress test, or risk and liquidity management triggers. The OCC, under separate authority, has also established heightened governance and risk management standards for large national banks, such as Wells Fargo Bank, N.A.
The Basel standards and FRB regulatory capital and liquidity requirements may limit or otherwise restrict how we utilize our capital, including common stock dividends and stock repurchases, and may require us to increase our capital and/or liquidity. Any requirement that we increase our regulatory capital, regulatory capital ratios or liquidity could require us to liquidate assets or otherwise change our business, product offerings and/or investment plans, which may negatively affect our financial results. Although not currently anticipated, proposed capital requirements and/or our regulators may require us to raise additional capital in the future. Issuing additional common stock may dilute the ownership of existing stockholders. In addition, federal banking regulations may increase our compliance costs as well as limit our ability to invest in our business or provide loans or other products and services to our customers. For more information, refer to the “Capital Management” and “Regulatory Reform” sections in this Report and the “Regulation and Supervision” section of our 2014 Form 10-K.
 
FRB policies, including policies on interest rates, can significantly affect business and economic conditions and our financial results and condition.  The FRB regulates the supply of money in the United States. Its policies determine in large part our cost of funds for lending and investing and the return we earn on those loans and investments, both of which affect our net interest income and net interest margin. The FRB’s interest rate policies also can materially affect the value of financial instruments we hold, such as debt securities and MSRs. In addition, its policies can affect our borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in FRB policies are beyond our control and can be hard to predict. The FRB recently reaffirmed the target range for the federal funds rate at near zero as it continues to assess U.S. unemployment rates and the FRB’s two percent inflation target. The FRB has indicated that it will consider a wide range of information, such as additional labor market and financial market conditions, in its determination of how long to maintain the current target range. The FRB has stated that it intends to be patient before beginning to increase


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the level of the federal funds rate. As noted above, a declining or low interest rate environment and a flattening yield curve which may result from the FRB’s actions could negatively affect our net interest income and net interest margin as it may result in us holding lower yielding 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 and allowance for credit losses and could have a material adverse effect on our results of operations and financial condition.   When we loan money or commit to loan money we incur credit risk, or the risk of losses if our borrowers do not repay their loans. As one of the largest lenders in the U.S., the credit performance of our loan portfolios significantly affects our financial results and condition. As noted above, if the current economic environment were to deteriorate, more of our customers may have difficulty in repaying their loans or other obligations which could result in a higher level of credit losses and provision for credit losses. We reserve for credit losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of credit losses inherent in our loan portfolio (including unfunded credit commitments). The process for determining the amount of the allowance is critical to our financial results and condition. It requires difficult, subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans. We might increase the allowance because of changing economic conditions, including falling home prices and higher unemployment, significant loan growth, or other factors. For example, if oil prices remain low for a prolonged period of time, we may have to increase the allowance, particularly to cover potential losses on loans to customers in the energy sector. Additionally, the regulatory environment or external factors, such as natural disasters, also can influence recognition of credit losses in our loan portfolios and impact our allowance for credit losses.
Reflecting the continued improved credit performance in our loan portfolios, our provision for credit losses was $1.6 billion and $2.2 billion less than net charge-offs in 2014 and 2013, respectively, which had a positive effect on our earnings. Future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions. While we believe that our allowance for credit losses was appropriate at December 31, 2014, there is no assurance that it will be sufficient to cover future credit losses, especially if housing and employment conditions worsen. In the event of significant deterioration in economic conditions or if we experience significant loan growth, we may be required to build reserves in future periods, which would reduce our earnings.
For more information, refer to the “Risk Management – Credit Risk Management” and “Critical Accounting Policies – Allowance for Credit Losses” sections in this Report.
 
We may have more credit risk and higher credit losses to the extent our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral.   Our credit risk and credit losses can increase if our loans are concentrated to borrowers engaged in
 
the same or similar activities or to borrowers who as a group may be uniquely or disproportionately affected by economic or market conditions. We experienced the effect of concentration risk in 2009 and 2010 when we incurred greater than expected losses in our residential real estate loan portfolio due to a housing slowdown and greater than expected deterioration in residential real estate values in many markets, including the Central Valley California market and several Southern California metropolitan statistical areas. As California is our largest banking state in terms of loans and deposits, deterioration in real estate values and underlying economic conditions in those markets or elsewhere in California could result in materially higher credit losses. In addition, deterioration in macro-economic conditions generally across the country could result in materially higher credit losses, including for our residential real estate loan portfolio. We may experience higher delinquencies and higher loss rates as our consumer real estate secured lines of credit reach their contractual end of draw period and begin to amortize. Additionally, we may experience higher delinquencies and higher loss rates as borrowers in our consumer Pick-a-Pay portfolio reach their recast trigger, particularly if interest rates increase significantly which may cause more borrowers to experience a payment increase of more than 7.5% upon recast.
We are currently the largest CRE lender in the U.S. A deterioration in economic conditions that negatively affects the business performance of our CRE borrowers, including increases in interest rates and/or declines in commercial property values, could result in materially higher credit losses and have a material adverse effect on our financial results and condition. 
Challenging economic conditions in Europe have increased our foreign credit risk. Although our foreign loan exposure represented only approximately 6% of our total consolidated outstanding loans and 3% of our total assets at December 31, 2014, continued European economic difficulties could indirectly have a material adverse effect on our credit performance and results of operations and financial condition to the extent it negatively affects the U.S. economy and/or our borrowers who have foreign operations. 
For more information, refer to the “Risk Management – Credit Risk Management” section and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
 
We may incur losses on loans, securities and other acquired assets of Wachovia that are materially greater than reflected in our fair value adjustments.   We accounted for the Wachovia merger under the purchase method of accounting, recording the acquired assets and liabilities of Wachovia at fair value. All PCI loans acquired in the merger were recorded at fair value based on the present value of their expected cash flows. We estimated cash flows using internal credit, interest rate and prepayment risk models using assumptions about matters that are inherently uncertain. We may not realize the estimated cash flows or fair value of these loans. In addition, although the difference between the pre-merger carrying value of the credit-impaired loans and their expected cash flows – the “nonaccretable difference” – is available to absorb future charge-offs, we may be required to increase our allowance for credit losses and related provision expense because of subsequent additional credit deterioration in these loans.
For more information, refer to the “Critical Accounting Policies – Purchased Credit-Impaired (PCI) Loans” and “Risk Management – Credit Risk Management” sections in this Report.


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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 and MHFS, and we rely on the GSEs to purchase our conforming loans to reduce our credit risk and provide liquidity to fund new mortgage loans.   We were the largest mortgage originator and residential mortgage servicer in the U.S. as of December 31, 2014, and we earn revenue from fees we receive for originating mortgage loans and for servicing mortgage loans. As a result of our mortgage servicing business, we have a sizeable portfolio of MSRs. An MSR is the right to service a mortgage loan – collect principal, interest and escrow amounts – for a fee. We acquire MSRs when we keep the servicing rights after we sell or securitize the loans we have originated or when we purchase the servicing rights to mortgage loans originated by other lenders. We initially measure and carry all our residential MSRs using the fair value measurement method. Fair value is the present value of estimated future net servicing income, calculated based on a number of variables, including assumptions about the likelihood of prepayment by borrowers. Changes in interest rates can affect prepayment assumptions and thus fair value. When interest rates fall, borrowers are usually more likely to prepay their mortgage loans by refinancing them at a lower rate. As the likelihood of prepayment increases, the fair value of our MSRs can decrease. Each quarter we evaluate the fair value of our MSRs, and any decrease in fair value reduces earnings in the period in which the decrease occurs. We also measure at fair value MHFS for which an active secondary market and readily available market prices exist. In addition, we measure at fair value certain other interests we hold related to residential loan sales and securitizations. Similar to other interest-bearing securities, the value of these MHFS and other interests may be negatively affected by changes in interest rates. For example, if market interest rates increase relative to the yield on these MHFS and other interests, their fair value may fall.
When rates rise, the demand for mortgage loans usually tends to fall, reducing the revenue we receive from loan originations. Under the same conditions, revenue from our MSRs can increase through increases in fair value. When rates fall, mortgage originations usually tend to increase and the value of our MSRs usually tends to decline, also with some offsetting revenue effect. Even though they can act as a “natural hedge,” the hedge is not perfect, either in amount or timing. For example, the negative effect on revenue from a decrease in the fair value of residential MSRs is generally immediate, but any offsetting revenue benefit from more originations and the MSRs relating to the new loans would generally accrue over time. It is also possible that, because of economic conditions and/or a weak or deteriorating housing market, even if interest rates were to fall or remain low, mortgage originations may also fall or any increase in mortgage originations may not be enough to offset the decrease in the MSRs value caused by the lower rates.
We typically use derivatives and other instruments to hedge our mortgage banking interest rate risk. We may not hedge all of our risk, and we may not be successful in hedging any of the risk. Hedging is a complex process, requiring sophisticated models and constant monitoring, and is not a perfect science. We may use hedging instruments tied to U.S. Treasury rates, LIBOR or Eurodollars that may not perfectly correlate with the value or income being hedged. We could incur significant losses from our hedging activities. There may be periods where we elect not to use derivatives and other instruments to hedge mortgage banking interest rate risk.
 
We rely on GSEs to purchase mortgage loans that meet their conforming loan requirements and on the Federal Housing Authority (FHA) to insure loans that meet their policy requirements. These loans are then securitized into either GSE or GNMA securities that are sold to investors. In order to meet customer needs, we also originate loans that do not conform to either GSE or FHA standards, which are referred to as “nonconforming” loans. We generally retain these nonconforming loans on our balance sheet. When we retain a loan on our balance sheet not only do we forgo fee revenue and keep the credit risk of the loan but we also do not receive any sale proceeds that could be used to generate new loans. If we were unable or unwilling to continue retaining nonconforming loans on our balance sheet, whether due to regulatory, business or other reasons, our ability to originate new mortgage loans may be reduced, thereby reducing the fees we earn from originating and servicing loans. Similarly, if the GSEs or the FHA were to limit or reduce their purchases of loans, our ability to fund, and thus originate new mortgage loans, could also be reduced. We cannot assure that the GSEs or the FHA will not materially limit their purchases of conforming loans or change their criteria for what constitutes a conforming loan (e.g., maximum loan amount or borrower eligibility). Each of the GSEs is currently in conservatorship, with its primary regulator, the Federal Housing Finance Agency acting as conservator. We cannot predict if, when or how the conservatorship will end, or any associated changes to the GSEs business structure and operations that could result. As noted above, there are various proposals to reform the housing finance market in the U.S., including the role of the GSEs in the housing finance market. The impact of any such regulatory reform regarding the housing finance market and the GSEs, including whether the GSEs will continue to exist in 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 may be required to repurchase mortgage loans or reimburse investors and others as a result of breaches in contractual representations and warranties, and we may incur other losses as a result of real or alleged violations of statutes or regulations applicable to the origination of our residential mortgage loans.   The origination of residential mortgage loans is governed by a variety of federal and state laws and regulations, including the Truth in Lending Act of 1968 and various anti-fraud and consumer protection statutes, which are complex and frequently changing. We often sell residential mortgage loans that we originate to various parties, including GSEs, SPEs that issue private label MBS, and other financial institutions that purchase mortgage loans for investment or private label securitization. We may also pool FHA-insured and VA-guaranteed mortgage loans which back securities guaranteed by GNMA. The agreements under which we sell mortgage loans and the insurance or guaranty agreements with the FHA and VA contain various representations and warranties regarding the origination and characteristics of the mortgage loans, including ownership of the loan, compliance with loan criteria set forth in the applicable agreement, validity of the lien securing the loan, absence of delinquent taxes or liens against the property securing the loan, and compliance with applicable origination laws. We may be required to repurchase mortgage loans, indemnify the securitization trust, investor or insurer, or reimburse the


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securitization trust, investor or insurer for credit losses incurred on loans in the event of a breach of contractual representations or warranties that is not remedied within a period (usually 90 days or less) after we receive notice of the breach. Contracts for mortgage loan sales to the GSEs include various types of specific remedies and penalties that could be applied to inadequate responses to repurchase requests. Similarly, the agreements under which we sell mortgage loans require us to deliver various documents to the securitization trust or investor, and we may be obligated to repurchase any mortgage loan as to which the required documents are not delivered or are defective. We may negotiate global settlements in order to resolve a pipeline of demands in lieu of repurchasing the loans. We establish a mortgage repurchase liability related to the various representations and warranties that reflect management’s estimate of losses for loans which we have a repurchase obligation. Our mortgage repurchase liability represents management’s best estimate of the probable loss that we may expect to incur for the representations and warranties in the contractual provisions of our sales of mortgage loans. 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 the underlying loans, the level of the liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management judgment. As a result of the uncertainty in the various estimates underlying the mortgage repurchase liability, there is a range of losses in excess of the recorded mortgage repurchase liability 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. If economic conditions and the housing market do not continue to improve or future investor repurchase demand and our success at appealing repurchase requests differ from past experience, we could continue to have increased repurchase obligations and increased loss severity on repurchases, requiring material additions to the repurchase liability.
Additionally, for residential mortgage loans that we originate, borrowers may allege that the origination of the loans did not comply with applicable laws or regulations in one or more respects and assert such violation as an affirmative defense to payment or to the exercise by us of our remedies, including foreclosure proceedings, or in an action seeking statutory and other damages in connection with such violation. If we are not successful in demonstrating that the loans in dispute were originated in accordance with applicable statutes and regulations, we could become subject to monetary damages and other civil penalties, including the loss of certain contractual payments or the inability to exercise certain remedies under the loans.
For more information, refer to the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section in this Report. 
 
We may be terminated as a servicer or master servicer, be required to repurchase a mortgage loan or reimburse investors for credit losses on a mortgage loan, or incur costs, liabilities, fines and other sanctions if we fail to satisfy our servicing obligations, including our obligations with respect to mortgage loan foreclosure actions.   We act as servicer and/or master servicer for mortgage loans included in securitizations and for unsecuritized mortgage loans owned by investors. As a servicer
 
or master servicer for those loans we have certain contractual obligations to the securitization trusts, investors or other third parties, including, in our capacity as a servicer, foreclosing on defaulted mortgage loans or, to the extent consistent with the applicable securitization or other investor agreement, considering alternatives to foreclosure such as loan modifications or short sales and, in our capacity as a master servicer, overseeing the servicing of mortgage loans by the servicer. If we commit a material breach of our obligations as servicer or master servicer, we may be subject to termination if the breach is not cured within a specified period of time following notice, which can generally be given by the securitization trustee or a specified percentage of security holders, causing us to lose servicing income. In addition, we may be required to indemnify the securitization trustee against losses from any failure by us, as a servicer or master servicer, to perform our servicing obligations or any act or omission on our part that involves willful misfeasance, bad faith or gross negligence. For certain investors and/or certain transactions, we may be contractually obligated to repurchase a mortgage loan or reimburse the investor for credit losses incurred on the loan as a remedy for servicing errors with respect to the loan. If we have increased repurchase obligations because of claims that we did not satisfy our obligations as a servicer or master servicer, or increased loss severity on such repurchases, we may have a significant reduction to net servicing income within mortgage banking noninterest income.
We may incur costs if we are required to, or if we elect to, re-execute or re-file documents or take other action in our capacity as a servicer in connection with pending or completed foreclosures. We may incur litigation costs if the validity of a foreclosure action is challenged by a borrower. If a court were to overturn a foreclosure because of errors or deficiencies in the foreclosure process, we may have liability to the borrower and/or to any title insurer of the property sold in foreclosure if the required process was not followed. These costs and liabilities may not be legally or otherwise reimbursable to us, particularly to the extent they relate to securitized mortgage loans. In addition, if certain documents required for a foreclosure action are missing or defective, we could be obligated to cure the defect or repurchase 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 costs increase because of higher foreclosure costs. We may be subject to fines and other sanctions imposed by Federal or state regulators as a result of actual or perceived deficiencies in our foreclosure practices or in the foreclosure practices of other mortgage loan servicers. Any of these actions may harm our reputation or negatively affect our residential mortgage origination or servicing business. In particular, on February 28, 2013, we entered into amendments to an April 2011 Consent Order with both the OCC and the FRB, which effectively ceased the Independent Foreclosure Review program created by such Consent Order and replaced it with an accelerated remediation commitment to provide foreclosure prevention actions on $1.2 billion of residential mortgage loans, subject to a process to be administered by the OCC and the FRB. During 2014, we believe we reported sufficient foreclosure prevention actions to the monitor of the accelerated remediation process to meet the $1.2 billion commitment, but are awaiting monitor approval. As noted above, any increase in our servicing costs from changes in our foreclosure and other servicing practices, including resulting


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from consent orders, negatively affects the fair value of our MSRs.
In addition, on February 9, 2012, a federal/state settlement was announced among the DOJ, HUD, the Department of the Treasury, the Department of Veterans Affairs, the Federal Trade Commission, the Executive Office of the U.S. Trustee, the Consumer Financial Protection Bureau, a task force of Attorneys General, Wells Fargo, and four other servicers related to investigations of mortgage industry servicing and foreclosure practices. Under the terms of this settlement, we agreed to certain programmatic commitments, consisting of three components totaling approximately $5.3 billion. As announced on March 18, 2014, we have successfully fulfilled our remaining commitments (and state-level sub-commitments) in accordance with the terms of this settlement.
As part of the settlement, the Company was released from claims and allegations relating to servicing, modification and foreclosure practices; however, the settlement does not release the Company from any claims arising out of securitization activities, including representations made to investors respecting mortgage-backed securities; criminal claims; repurchase demands from the GSEs; and inquiries into MERS, among other items. Any investigations or litigation relating to any of the Company’s mortgage servicing and foreclosure practices that are not covered or released by the settlement could result in material fines, penalties, equitable remedies, or other enforcement actions.
For more information, refer to the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” and “– Risks Relating to Servicing Activities,” and “Critical Accounting Policies – Valuation of Residential Mortgage Servicing Rights” sections and Note 14 (Guarantees, Pledged Assets and Collateral) and Note 15 (Legal Actions) to Financial Statements in this Report. 
 
Financial difficulties or credit downgrades of mortgage and bond insurers may negatively affect our servicing and investment portfolios.  Our servicing portfolio includes certain mortgage loans that carry some level of insurance from one or more mortgage insurance companies. To the extent that any of these companies experience financial difficulties or credit downgrades, we may be required, as servicer of the insured loan on behalf of the investor, to obtain replacement coverage with another provider, possibly at a higher cost than the coverage we would replace. We may be responsible for some or all of the incremental cost of the new coverage for certain loans depending on the terms of our servicing agreement with the investor and other circumstances, although we do not have an additional risk of repurchase loss associated with claim amounts for loans sold to third-party investors. Similarly, some of the mortgage loans we hold for investment or for sale carry mortgage insurance. If a mortgage insurer is unable to meet its credit obligations with respect to an insured loan, we might incur higher credit losses if replacement coverage is not obtained. For example, in October 2011, PMI Mortgage Insurance Co. (PMI), one of our providers of mortgage insurance, was seized by its regulator. We previously utilized PMI to provide mortgage insurance on certain loans originated and held in our portfolio and on loans originated and sold to third-party investors. We also hold a small amount of residential MBS, which are backed by mortgages with a limited amount of insurance provided by PMI. PMI has announced that it will pay 50% of insurance claim amounts in cash with the rest deferred. Although we do not expect PMI’s situation to have a material adverse effect on our financial results because of the limited amount of loans and securities
 
held in our portfolios with PMI insurance support, we cannot be certain that any such future events involving one of our other mortgage insurance company providers will not materially adversely affect our mortgage business and/or financial results. We also have investments in municipal bonds that are guaranteed against loss by bond insurers. The value of these bonds and the payment of principal and interest on them may be negatively affected by financial difficulties or credit downgrades experienced by the bond insurers.
For more information, refer to the “Earnings Performance – Balance Sheet Analysis – Investment Securities” and “Risk Management – Credit Risk Management– Liability for Mortgage Loan Repurchase Losses” sections in this Report.
 
OPERATIONAL AND LEGAL RISK
 
A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.   As a large financial institution that serves over 70 million customers through over 8,700 locations, 12,500 ATMs, the Internet and other distribution channels across the U.S. and internationally, we depend on our ability to process, record and monitor a large number of customer transactions on a continuous basis. As our customer base and locations have expanded throughout the U.S. and internationally, and as customer, public, legislative and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns. Our business, financial, accounting, data processing systems or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. For example, there could be sudden increases in customer transaction volume; electrical or telecommunications outages; degradation or loss of public internet domain; climate change related impacts and natural disasters such as earthquakes, tornados, and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and, as described below, cyber attacks. Although we have business continuity plans and other safeguards in place, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure 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 technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties, including foreign state-sponsored parties. Those parties also may attempt to fraudulently induce employees, customers, or other users of our systems to disclose confidential information in order to gain access to our data or that of our customers. As noted above, our operations rely on the secure processing, transmission and storage of confidential information in our computer systems and networks. Our banking, brokerage, investment advisory, and capital markets businesses rely on our digital technologies, computer and email systems, software, and networks to conduct their operations. In


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Risk Factors (continued)

addition, to access our products and services, our customers may use personal smartphones, tablet PC’s, and other mobile devices that are beyond our control systems. Although we believe we have robust information security procedures and controls, our technologies, systems, networks, and our customers’ devices may become the target of cyber attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of Wells Fargo’s or our customers’ confidential, proprietary and other information, or otherwise disrupt Wells Fargo’s or its customers’ or other third parties’ business operations. For example, various retailers have reported they were victims of cyber attacks in which large amounts of their customers’ data, including debit and credit card information, was obtained. In these situations we generally incur costs to replace compromised cards and address fraudulent transaction activity affecting our customers.
Third parties with which we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints.
To date we have not experienced any material losses relating to cyber attacks or other information security breaches, but there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the prominent size and scale of Wells Fargo and its role in the financial services industry, our plans to continue to implement our Internet banking and mobile banking channel strategies and develop additional remote connectivity solutions to serve our customers when and how they want to be served, our expanded geographic footprint and international presence, the outsourcing of some of our business operations, and the current global economic and political environment. For example, Wells Fargo and other financial institutions continue to be the target of various evolving and adaptive cyber attacks, including malware and denial-of-service, as part of an effort to disrupt the operations of financial institutions, potentially test their cybersecurity capabilities, or obtain confidential, proprietary or other information. As a result, cybersecurity and the continued development and enhancement of our controls, processes and systems designed to protect our networks, computers, software and data from attack, damage or unauthorized access remain a priority for Wells Fargo. We are also proactively involved in industry cybersecurity efforts and working with other parties, including our third-party service providers and governmental agencies, to continue to enhance defenses and improve resiliency to cybersecurity threats. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks or security breaches of the networks, systems or devices that our customers use to access our products and services could result in customer attrition, financial losses, the inability of our customers to transact business with us, violations of applicable privacy and other laws, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.
 
Our framework for managing risks may not be effective in mitigating risk and loss to us.   Our risk management framework seeks to mitigate risk and loss to us. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and compliance risk, and reputational risk, among others. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. In certain instances, we rely on models to measure, monitor and predict risks, such as market and interest rate risks, however there is no assurance that these models will appropriately capture all relevant risks or accurately predict future events or exposures. In addition, we rely on data to aggregate and assess our various risk exposures and any issues with the quality or effectiveness of our data aggregation and validation procedures could result in ineffective risk management practices or inaccurate risk reporting. The recent financial and credit crisis and resulting regulatory reform highlighted both the importance and some of the limitations of managing unanticipated risks, and our regulators remain focused on ensuring that financial institutions build and maintain robust risk management policies. If our risk management framework proves ineffective, we could suffer unexpected losses which could materially adversely affect our results of operations or financial condition.
 
We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.  We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations. However, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance. For example, we are subject to regulations issued by the Office of Foreign Assets Control (OFAC) that prohibit financial institutions from participating in the transfer of property belonging to the governments of certain foreign countries and designated nationals of those countries. OFAC may impose penalties for inadvertent or unintentional violations even if reasonable processes are in place to prevent the violations. There may be other negative consequences resulting from a finding of noncompliance, including restrictions on certain activities. Such a finding may also damage our reputation as described below and could restrict the ability of institutional investment managers to invest in our securities.
Under the Iran Threat Reduction and Syria Human Rights Act of 2012, we are required to make certain disclosures in our periodic reports filed with the SEC relating to certain activities that we or our worldwide affiliates knowingly engaged in involving Iran during the quarterly period covered by the report. If we or an affiliate were to engage in a reportable transaction, we must also file a separate notice regarding the activity with the SEC, which the SEC will make publicly available on its website. The SEC will be required to forward the report to the President, the Senate Committees on Foreign Relations and Banking, Housing and Urban Affairs, and the House of Representatives Committees on Foreign Affairs and Financial Services. The President will then be required to initiate an investigation into the reported activity and within 180 days make a determination as to whether to impose sanctions on us. The scope of the


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reporting requirement is broad and covers any domestic or foreign entity or person that may be deemed to be an affiliate of ours. The potential sanctions and reputational harm for engaging in a reportable activity may be significant.

Negative publicity, including as a result of protests, could damage our reputation and business.   Reputation risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business and has increased substantially because of the financial crisis and our size and profile in the financial services industry. The reputation of the financial services industry in general has been damaged as a result of the financial crisis and other matters affecting the financial services industry, and negative public opinion about the financial services industry generally or Wells Fargo specifically could adversely affect our ability to keep and attract customers. Negative 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 information, and from actions taken by government regulators and community or other organizations in response to that conduct. Because we conduct most of our businesses under the “Wells Fargo” brand, negative public opinion about one business could affect our other businesses and also could negatively affect our “cross-sell” strategy. The proliferation of social media websites utilized by Wells Fargo and other third parties, as well as the personal use of social media by our team members and others, including personal blogs and social network profiles, also may increase the risk that negative, inappropriate or unauthorized information may be posted or released publicly that could harm our reputation or have other negative consequences, including as a result of our team members interacting with our customers in an unauthorized manner in various social media outlets.
As a result of the financial crisis, Wells Fargo and other financial institutions have been targeted from time to time by protests and demonstrations, which have included disrupting the operation of our retail banking stores and have resulted in negative public commentary about financial institutions, including the fees charged for various products and services. There can be no assurance that continued protests and negative publicity for the Company or large financial institutions generally will not harm our reputation and adversely affect our business and financial results.
 
Risks Relating to Legal Proceedings.   Wells Fargo and some of its subsidiaries are involved in judicial, regulatory and arbitration proceedings or investigations concerning matters arising from our business activities. Although we believe we have a meritorious defense in all significant litigation pending against us, there can be no assurance as to the ultimate outcome. We establish reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, the actual cost of resolving a legal claim may be substantially higher than any amounts reserved for that matter. The ultimate resolution of a pending legal proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial condition.
For more information, refer to Note 15 (Legal Actions) to Financial Statements in this Report. 
 
 
RISKS RELATED TO OUR INDUSTRY’S COMPETITIVE OPERATING ENVIRONMENT
 
We face significant and increasing competition in the rapidly evolving financial services industry.   We compete with other financial institutions in a highly competitive industry that is undergoing significant changes as a result of financial regulatory reform and increased public scrutiny stemming from the financial crisis and continued challenging economic conditions. Wells Fargo generally competes on the basis of the quality of our customer service, the wide variety of products and services that we can offer our customers and the ability of those products and services to satisfy our customers’ needs, the pricing of our products and services, the extensive distribution channels available for our customers, our innovation, and our reputation. Continued and increased competition in any one or all of these areas may negatively affect our market share and results of operations and/or cause us to increase our capital investment in our businesses 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. Consequently, our ability to reposition or reprice our products and services from time to time may be limited and could be influenced significantly by the actions of our competitors who may or may not charge similar fees for their products and services. Any changes in the types of products and services that we offer our customers and/or the pricing for those products and services could result in a loss of customers and market share and could materially adversely affect our results of operations.
Continued technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products, and for financial institutions and other companies to provide electronic and internet-based financial solutions, including electronic payment solutions. We may not respond effectively to these competitive threats from existing and new competitors and may be forced to increase our investment in our business to modify or adapt our existing products and services or develop new products and services to respond to our customers’ needs.
 
Our “cross-selling” efforts to increase the number of products our customers buy from us and offer our customers all of the financial products that fulfill their needs is a key part of our growth strategy, and our failure to execute this strategy effectively could have a material adverse effect on our revenue growth and financial results.   Selling more products to our customers – “cross-selling” – is very important to our business model and key to our ability to grow revenue and earnings especially during the current environment of slow economic growth and regulatory reform initiatives. Many of our competitors also focus on cross-selling, especially in retail banking and mortgage lending. This can limit our ability to sell more products to our customers or influence us to sell our products at lower prices, reducing our net interest income and revenue from our fee-based products. It could also affect our ability to keep existing customers. New technologies could require us to spend more to modify or adapt our products to attract and retain customers. Our cross-sell strategy also is dependent on earning more business from our Wachovia customers, and increasing our cross-sell ratio – or the average number of products sold to existing customers – may


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Risk Factors (continued)

become more challenging and we might not attain our goal of selling an average of eight products to each customer.
 
Our ability to attract and retain qualified team members is critical to the success of our business and failure to do so could adversely affect our business performance, competitive position and future prospects.   The success of Wells Fargo is heavily dependent on the talents and efforts of our team members, and in many areas of our business, including the commercial banking, brokerage, investment advisory, and capital markets businesses, the competition for highly qualified personnel is intense. In order to attract and retain highly qualified team members, we must provide competitive compensation. As a large financial institution we may be subject to limitations on compensation by our regulators that may adversely affect our ability to attract and retain these qualified team members. Some of our competitors may not be subject to these same compensation limitations, which may further negatively affect our ability to attract and retain highly qualified team members.
 
RISKS RELATED TO OUR FINANCIAL STATEMENTS
 
Changes in accounting policies or accounting standards, and changes in how accounting standards are interpreted or applied, could materially affect how we report our financial results and condition.  Our accounting policies are fundamental to determining and understanding our financial results and condition. As described below, some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Any changes in our accounting policies could materially affect our financial statements.
From time to time the FASB and the SEC change the financial accounting and reporting standards that govern the preparation of our external financial statements. In addition, accounting standard setters and those who interpret the accounting standards (such as the FASB, SEC, banking regulators and our outside auditors) may change or even reverse their previous interpretations or positions on how these standards should be applied. Changes in financial accounting and reporting standards and changes in current interpretations may be beyond our control, can be hard to predict and could materially affect how we report our financial results and condition. We may be required to apply a new or revised standard retroactively or apply an existing standard differently, also retroactively, in each case potentially resulting in our restating prior period financial statements in material amounts.
 
Our financial statements are based in part on assumptions and estimates which, if wrong, could cause unexpected losses in the future, and our financial statements depend on our internal controls over financial reporting.  Pursuant to U.S. GAAP, we are required to use certain assumptions and estimates in preparing our financial statements, including in determining credit loss reserves, reserves for mortgage repurchases, reserves related to litigation and the fair value of certain assets and liabilities, among other items. Several of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. For a description of these policies, refer to the “Critical Accounting Policies” section in this Report. If
 
assumptions or estimates underlying our financial statements are incorrect, we may experience material losses.
Certain of our financial instruments, including trading assets and liabilities, investment securities, certain loans, MSRs, private equity investments, structured notes and certain repurchase and resale agreements, among other items, require a determination of their fair value in order to prepare our financial statements. Where quoted market prices are not available, we may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management judgment, and there is no assurance that our models will capture or appropriately reflect all relevant inputs required to accurately determine fair value. Some of these and other assets and liabilities may have no direct observable price levels, making their valuation particularly subjective, being based on significant estimation and judgment. In addition, sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain balance sheet items, which may lead to the possibility that such valuations will be subject to further change or adjustment and could lead to declines in our earnings.
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) requires our management to evaluate the Company’s disclosure controls and procedures and its internal control over financial reporting and requires our auditors to issue a report on our internal control over financial reporting. We are required to disclose, in our annual report on Form 10-K, the existence of any “material weaknesses” in our internal controls. We cannot assure that we will not identify one or more material weaknesses as of the end of any given quarter or year, nor can we predict the effect on our stock price of disclosure of a material weakness. Sarbanes-Oxley also limits the types of non-audit services our outside auditors may provide to us in order to preserve their independence from us. If our auditors were found not to be “independent” of us under SEC rules, we could be required to engage new auditors and re-file financial statements and audit reports with the SEC. We could be out of compliance with SEC rules until new financial statements and audit reports were filed, limiting our ability to raise capital and resulting in other adverse consequences.
 
RISKS RELATED TO ACQUISITIONS
 
Acquisitions could reduce our stock price upon announcement and reduce our earnings if we overpay or have difficulty integrating them.  We regularly explore opportunities to acquire companies in the financial services industry. We cannot predict the frequency, size or timing of our acquisitions, and we typically do not comment publicly on a possible acquisition until we have signed a definitive agreement. When we do announce an acquisition, our stock price may fall depending on the size of the acquisition, the type of business to be acquired, the purchase price, and the potential dilution to existing stockholders or our earnings per share if we issue common stock in connection with the acquisition.
We generally must receive federal regulatory approvals before we can acquire a bank, bank holding company or certain other financial services businesses depending on the size of the financial services business to be acquired. In deciding whether to approve a proposed acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition and the risk to the stability of the U.S. banking or financial system, our financial condition and future prospects including current and projected capital ratios and levels, the competence, experience, and integrity of management and


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record of compliance with laws and regulations, the convenience and needs of the communities to be served, including our record of compliance under the Community Reinvestment Act, and our effectiveness in combating money laundering. As a result of the Dodd-Frank Act and concerns regarding the large size of financial institutions such as Wells Fargo, the regulatory process for approving acquisitions has become more complex and regulatory approvals may be more difficult to obtain. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. We might be required to sell banks, branches and/or business units or assets or issue additional equity as a condition to receiving regulatory approval for an acquisition. In addition, federal law prohibits regulatory approval of any transaction that would create an institution holding more than 10% of total U.S. insured deposits, or of any transaction (whether or not subject to prior approval) that would create a financial company with more than 10% of the liabilities of all financial companies in the U.S. As of September 30, 2014, we believe we already held more than 10% of total U.S. insured deposits. As a result, our size may limit our bank acquisition opportunities in the future.
Difficulty in integrating an acquired company may cause us not to realize expected 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 otherwise harm our ability to retain customers and team members or achieve the anticipated benefits of the acquisition. Time and resources spent on integration may also impair our ability to grow our existing businesses. Also, the negative effect of any divestitures required by regulatory authorities in acquisitions or business combinations may be greater than expected. Many of the foregoing risks may be increased if the acquired company operates internationally or in a geographic location where we do not already have significant business operations and/or team members.
 
*   *   *
 
Any factor described in this Report or in any of our other SEC filings could by itself, or together with other factors, adversely affect our financial results and condition. Refer to our quarterly reports on Form 10-Q filed with the SEC in 2015 for material changes to the above discussion of risk factors. There are factors not discussed above or elsewhere in this Report that could adversely affect our financial results and condition.




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Controls and Procedures
Disclosure Controls and Procedures
The Company’s management evaluated the effectiveness, as of December 31, 2014, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2014.
 
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 under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those policies and procedures that:
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during any quarter in 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Managements’ report on internal control over financial reporting is set forth below and should be read with these limitations in mind.
 
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (1992) . Based on this assessment, management concluded that as of December 31, 2014, the Company’s internal control over financial reporting was effective.
KPMG LLP, the independent registered public accounting firm that audited the Company’s financial statements included in this Annual Report, issued an audit report on the Company’s internal control over financial reporting. KPMG’s audit report appears on the following page.


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Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
Wells Fargo & Company:
 
We have audited Wells Fargo & Company and Subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by COSO.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2014 and 2013, 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, 2014, and our report dated February 25, 2015, expressed an unqualified opinion on those consolidated financial statements.
 

 
/s/ KPMG LLP                         
 
San Francisco, California
February 25, 2015

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Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income
 
 
Year ended December 31, 
 
(in millions, except per share amounts)
 
2014

 
2013

 
2012

Interest income
 
 
 
 
 
 
Trading assets
 
$
1,685

 
1,376

 
1,358

Investment securities
 
8,438

 
8,116

 
8,098

Mortgages held for sale
 
767

 
1,290

 
1,825

Loans held for sale
 
78

 
13

 
41

Loans
 
35,652

 
35,571

 
36,482

Other interest income
 
932

 
723

 
587

Total interest income
 
47,552

 
47,089

 
48,391

Interest expense
 
 
 
 
 
 
Deposits
 
1,096

 
1,337

 
1,727

Short-term borrowings
 
59

 
60

 
79

Long-term debt
 
2,488

 
2,585

 
3,110

Other interest expense
 
382

 
307

 
245

Total interest expense
 
4,025

 
4,289

 
5,161

Net interest income
 
43,527

 
42,800

 
43,230

Provision for credit losses
 
1,395

 
2,309

 
7,217

Net interest income after provision for credit losses
 
42,132

 
40,491

 
36,013

Noninterest income
 
 
 
 
 
 
Service charges on deposit accounts
 
5,050

 
5,023

 
4,683

Trust and investment fees
 
14,280

 
13,430

 
11,890

Card fees
 
3,431

 
3,191

 
2,838

Other fees
 
4,349

 
4,340

 
4,519

Mortgage banking
 
6,381

 
8,774

 
11,638

Insurance
 
1,655

 
1,814

 
1,850

Net gains from trading activities
 
1,161

 
1,623

 
1,707

Net gains (losses) on debt securities (1)
 
593

 
(29
)
 
(128
)
Net gains from equity investments (2)
 
2,380

 
1,472

 
1,485

Lease income
 
526

 
663

 
567

Other
 
1,014

 
679

 
1,807

Total noninterest income
 
40,820

 
40,980

 
42,856

Noninterest expense
 
 
 
 
 
 
Salaries
 
15,375

 
15,152

 
14,689

Commission and incentive compensation
 
9,970

 
9,951

 
9,504

Employee benefits
 
4,597

 
5,033

 
4,611

Equipment
 
1,973

 
1,984

 
2,068

Net occupancy
 
2,925

 
2,895

 
2,857

Core deposit and other intangibles
 
1,370

 
1,504

 
1,674

FDIC and other deposit assessments
 
928

 
961

 
1,356

Other
 
11,899

 
11,362

 
13,639

Total noninterest expense
 
49,037

 
48,842

 
50,398

Income before income tax expense
 
33,915

 
32,629

 
28,471

Income tax expense
 
10,307

 
10,405

 
9,103

Net income before noncontrolling interests
 
23,608

 
22,224

 
19,368

Less: Net income from noncontrolling interests
 
551

 
346

 
471

Wells Fargo net income
 
$
23,057

 
21,878

 
18,897

Less: Preferred stock dividends and other
 
1,236

 
989

 
898

Wells Fargo net income applicable to common stock
 
$
21,821

 
20,889

 
17,999

Per share information
 
 
 
 
 
 
Earnings per common share
 
$
4.17

 
3.95

 
3.40

Diluted earnings per common share
 
4.10

 
3.89

 
3.36

Dividends declared per common share
 
1.35

 
1.15

 
0.88

Average common shares outstanding
 
5,237.2

 
5,287.3

 
5,287.6

Diluted average common shares outstanding
 
5,324.4

 
5,371.2

 
5,351.5


(1)
Total other-than-temporary impairment (OTTI) losses were $18 million , $39 million and $3 million for the year ended December 31, 2014, 2013 and 2012, respectively. Of total OTTI, losses of $49 million , $158 million and $240 million were recognized in earnings, and reversal of losses of $(31) million , $(119) million and $(237) million were recognized as non-credit-related OTTI in other comprehensive income for the year ended December 31, 2014, 2013 and 2012, respectively. 
(2)
Includes OTTI losses of $273 million , $186 million and $176 million for the year ended December 31, 2014, 2013 and 2012, respectively.
 
The accompanying notes are an integral part of these statements.

132


Wells Fargo & Company and Subsidiaries
Consolidated Statement of Comprehensive Income
  
Year ended December 31,
 
(in millions)
2014

 
2013

 
2012

Wells Fargo net income
$
23,057

 
21,878

 
18,897

Other comprehensive income (loss), before tax:
 
 
 
 
 
Investment securities:
 
 
 
 
 
Net unrealized gains (losses) arising during the period
5,426

 
(7,661
)
 
5,143

Reclassification of net gains to net income
(1,532
)
 
(285
)
 
(271
)
Derivatives and hedging activities:
 
 
 
 
 
Net unrealized gains (losses) arising during the period
952

 
(32
)
 
52

Reclassification of net gains on cash flow hedges to net income
(545
)
 
(296
)
 
(388
)
Defined benefit plans adjustments:
 
 
 
 
 
Net actuarial gains (losses) arising during the period
(1,116
)
 
1,533

 
(775
)
Amortization of net actuarial loss, settlements and other to net income
74

 
276

 
144

Foreign currency translation adjustments:
 
 
 
 
 
Net unrealized losses arising during the period
(60
)
 
(44
)
 
(6
)
Reclassification of net (gains) losses to net income
6

 
(12
)
 
(10
)
Other comprehensive income (loss), before tax
3,205

 
(6,521
)
 
3,889

Income tax (expense) benefit related to other comprehensive income
(1,300
)
 
2,524

 
(1,442
)
Other comprehensive income (loss), net of tax
1,905

 
(3,997
)

2,447

Less: Other comprehensive income (loss) from noncontrolling interests
(227
)
 
267

 
4

Wells Fargo other comprehensive income (loss), net of tax
2,132

 
(4,264
)

2,443

Wells Fargo comprehensive income
25,189

 
17,614


21,340

Comprehensive income from noncontrolling interests
324

 
613

 
475

Total comprehensive income
$
25,513

 
18,227


21,815


The accompanying notes are an integral part of these statements.



133


Wells Fargo & Company and Subsidiaries
Consolidated Balance Sheet
 
Dec 31,

 
Dec 31,

(in millions, except shares)
2014

 
2013

Assets
 
 
 
Cash and due from banks
$
19,571

 
19,919

Federal funds sold, securities purchased under resale agreements and other short-term investments
258,429

 
213,793

Trading assets
78,255

 
62,813

Investment securities:
 
 
 
Available-for-sale, at fair value
257,442

 
252,007

Held-to-maturity, at cost (fair value $56,359 and $12,247)
55,483

 
12,346

Mortgages held for sale (includes $15,565 and $13,879 carried at fair value) (1)
19,536

 
16,763

Loans held for sale (includes $1 and $1 carried at fair value) (1)
722

 
133

Loans (includes $5,788 and $5,995 carried at fair value) (1)(2)
862,551

 
822,286

Allowance for loan losses
(12,319
)
 
(14,502
)
Net loans (2)
850,232

 
807,784

Mortgage servicing rights:
 
 
 
Measured at fair value
12,738

 
15,580

Amortized
1,242

 
1,229

Premises and equipment, net
8,743

 
9,156

Goodwill
25,705

 
25,637

Other assets (includes $2,512 and $1,386 carried at fair value) (1)
99,057

 
86,342

Total assets (2)(3)
$
1,687,155


1,523,502

Liabilities
 
 
 
Noninterest-bearing deposits
$
321,963

 
288,117

Interest-bearing deposits
846,347

 
791,060

Total deposits
1,168,310

 
1,079,177

Short-term borrowings
63,518

 
53,883

Accrued expenses and other liabilities (2)
86,122

 
66,436

Long-term debt
183,943

 
152,998

Total liabilities (2)(4)
1,501,893

 
1,352,494

Equity
 
 
 
Wells Fargo stockholders' equity:
 
 
 
Preferred stock
19,213

 
16,267

Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares and 5,481,811,474 shares
9,136

 
9,136

Additional paid-in capital
60,537

 
60,296

Retained earnings
107,040

 
92,361

Cumulative other comprehensive income
3,518

 
1,386

Treasury stock – 311,462,276 shares and 224,648,769 shares
(13,690
)
 
(8,104
)
Unearned ESOP shares
(1,360
)
 
(1,200
)
Total Wells Fargo stockholders' equity
184,394

 
170,142

Noncontrolling interests
868

 
866

Total equity
185,262

 
171,008

Total liabilities and equity (2)
$
1,687,155

 
1,523,502


(1)
Parenthetical amounts represent assets and liabilities for which we have elected the fair value option.
(2)
Financial information for certain periods prior to 2014 was revised to reflect our determination that certain factoring arrangements did not qualify as loans. See Note 1 (Summary of Significant Accounting Policies) for more information.
(3)
Our consolidated assets at December 31, 2014 and December 31, 2013 , include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash and due from banks, $117 million and $165 million ; Trading assets, $0 million and $162 million ; Investment securities, $875 million and $1.4 billion ; Mortgages held for sale, $0 million and $38 million ; Net loans, $4.5 billion and $6.1 billion ; Other assets, $316 million and $347 million , and Total assets, $5.8 billion and $8.1 billion , respectively.
(4)
Our consolidated liabilities at December 31, 2014 and December 31, 2013, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Short-term borrowings, $0 million and $29 million ; Accrued expenses and other liabilities, $49 million and $90 million ; Long-term debt, $1.6 billion and $2.3 billion ; and Total liabilities, $1.7 billion and $2.4 billion , respectively.
 
The accompanying notes are an integral part of these statements.

134


Wells Fargo & Company and Subsidiaries
Consolidated Statement of Changes in Equity
 
 
 
 
 

Preferred stock 
 
 

Common stock 
 
(in millions, except shares)
Shares 

 
Amount 

 
Shares 

 
Amount 

Balance December 31, 2011
10,450,690

 
$
11,431

 
5,262,611,636

 
$
8,931

Cumulative effect of fair value election for certain
residential mortgage servicing rights
 
 
 
 
 
 
 
Balance January 1, 2012
10,450,690

 
11,431

 
5,262,611,636

 
8,931

Net income
 
 
 
 
 
 
 
Other comprehensive income, net of tax
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
Common stock issued
 
 
 
 
97,267,538

 
162

Common stock repurchased (1)
 
 
 
 
(119,586,873
)
 
 
Preferred stock issued to ESOP
940,000

 
940

 
 
 
 
Preferred stock released by ESOP
 
 
 
 
 
 
 
Preferred stock converted to common shares
(887,825
)
 
(888
)
 
26,021,875

 
43

Common stock warrants repurchased
 
 
 
 
 
 
 
Preferred stock issued
56,000

 
1,400

 
 
 
 
Common stock dividends
 
 
 
 
 
 
 
Preferred stock dividends
 
 
 
 
 
 
 
Tax benefit from stock incentive compensation
 
 
 
 
 
 
 
Stock incentive compensation expense
 
 
 
 
 
 
 
Net change in deferred compensation and related plans
 
 
 
 
 
 
 
Net change
108,175

 
1,452

 
3,702,540

 
205

Balance December 31, 2012
10,558,865

 
$
12,883

 
5,266,314,176

 
$
9,136

Balance January 1, 2013
10,558,865

 
12,883

 
5,266,314,176

 
9,136

Net income
 
 
 
 
 
 
 
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
Common stock issued
 
 
 
 
89,392,517

 
  

Common stock repurchased (1)
 
 
 
 
(124,179,383
)
 
 
Preferred stock issued to ESOP
1,200,000

 
1,200

 
 
 
 
Preferred stock released by ESOP
 
 
 
 
 
 
 
Preferred stock converted to common shares
(1,005,270
)
 
(1,006
)
 
25,635,395

 
  

Common stock warrants repurchased/exercised
 
 
 
 
 
 
 
Preferred stock issued
127,600

 
3,190

 
 
 
 
Common stock dividends
 
 
 
 
 
 
 
Preferred stock dividends
 
 
 
 
 
 
 
Tax benefit from stock incentive compensation
 
 
 
 
 
 
 
Stock incentive compensation expense
 
 
 
 
 
 
 
Net change in deferred compensation and related plans
 
 
 
 
 
 
 
Net change
322,330

 
3,384

 
(9,151,471
)
 
—

Balance December 31, 2013
10,881,195

 
$
16,267

 
5,257,162,705

 
$
9,136


(1)
For the year ended December 31, 2012, includes $200 million related to a private forward repurchase transaction entered into in fourth quarter 2012 that settled in first quarter 2013 for 6 million shares of common stock. For the year ended December 31, 2013, includes $500 million related to a private forward repurchase transaction entered into in fourth quarter 2013 that settled in first quarter 2014 for 11.1 million shares of common stock. See Note 1 (Summary of Significant Accounting Policies) for additional information.
 
The accompanying notes are an integral part of these statements.
 
(continued on following pages)

135


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo stockholders' equity 
 
 
Additional
paid-in
capital 

 
Retained earnings 

 
Cumulative
other
comprehensive income 

 
Treasury
stock 

 
Unearned
ESOP
shares 

 
Total
Wells Fargo stockholders' equity 

 
Noncontrolling interests 

 
Total
equity 

55,957

 
64,385

 
3,207

 
(2,744
)
 
(926
)
 
140,241

 
1,446

 
141,687

 
 
2

 
 
 
 
 
 
 
2

 
 
 
2

55,957

 
64,387

 
3,207

 
(2,744
)
 
(926
)
 
140,243

 
1,446

 
141,689

 
 
18,897

 
 
 
 
 
 
 
18,897

 
471

 
19,368

 
 
 
 
2,443

 
 
 
 
 
2,443

 
4

 
2,447

(16
)
 
 
 
 
 
 
 
 
 
(16
)
 
(564
)
 
(580
)
2,326

 
 
 
 
 
 
 
 
 
2,488

 
 
 
2,488

(50
)
 
 
 
 
 
(3,868
)
 
 
 
(3,918
)
 
 
 
(3,918
)
88

 
 
 
 
 
 
 
(1,028
)
 
—

 
 
 
—

(80
)
 
 
 
 
 
 
 
968

 
888

 
 
 
888

845

 
 
 
 
 
 
 
 
 
—

 
 
 
—

(1
)
 
 
 
 
 
 
 
 
 
(1
)
 
 
 
(1
)
(23
)
 
 
 
 
 
 
 
 
 
1,377

 
 
 
1,377

55

 
(4,713
)
 
 
 
 
 
 
 
(4,658
)
 
 
 
(4,658
)
 
 
(892
)
 
 
 
 
 
 
 
(892
)
 
 
 
(892
)
230

 
 
 
 
 
 
 
 
 
230

 
 
 
230

560

 
 
 
 
 
 
 
 
 
560

 
 
 
560

(89
)
 
 
 
 
 
2

 
 
 
(87
)
 
 
 
(87
)
3,845


13,292


2,443


(3,866
)

(60
)

17,311


(89
)

17,222

59,802

 
77,679


5,650


(6,610
)

(986
)

157,554


1,357


158,911

59,802

 
77,679

 
5,650

 
(6,610
)
 
(986
)
 
157,554

 
1,357

 
158,911

 
 
21,878

 
 
 
 
 
 
 
21,878

 
346

 
22,224

 
 
 
 
(4,264
)
 
 
 
 
 
(4,264
)
 
267

 
(3,997
)
28

 
 
 
 
 
 
 
 
 
28

 
(1,104
)
 
(1,076
)
(2
)
 
(10
)
 
 
 
2,745

 
 
 
2,733

 
 
 
2,733

(300
)
 
 
 
 
 
(5,056
)
 
 
 
(5,356
)
 
 
 
(5,356
)
108

 
 
 
 
 
 
 
(1,308
)
 
—

 
 
 
—

(88
)
 
 
 
 
 
 
 
1,094

 
1,006

 
 
 
1,006

191

 
 
 
 
 
815

 
 
 
—

 
 
 
—

  

 
 
 
 
 
 
 
 
 
—

 
 
 
—

(45
)
 
 
 
 
 
 
 
 
 
3,145

 
 
 
3,145

83

 
(6,169
)
 
 
 
 
 
 
 
(6,086
)
 
 
 
(6,086
)
 
 
(1,017
)
 
 
 
 
 
 
 
(1,017
)
 
 
 
(1,017
)
269

 
 
 
 
 
 
 
 
 
269

 
 
 
269

725

 
 
 
 
 
 
 
 
 
725

 
 
 
725

(475
)
 
 
 
 
 
2

 
 
 
(473
)
 
 
 
(473
)
494

 
14,682


(4,264
)

(1,494
)

(214
)

12,588


(491
)

12,097

60,296

 
92,361


1,386


(8,104
)

(1,200
)

170,142


866


171,008


136



(continued from previous pages)
Wells Fargo & Company and Subsidiaries
Consolidated Statement of Changes in Equity
 
 
 
 
 

Preferred stock 
 
 

Common stock 
 
(in millions, except shares)
Shares 

 
Amount 

 
Shares 

 
Amount 

Balance December 31, 2013
10,881,195

 
$
16,267

 
5,257,162,705

 
$
9,136

Balance January 1, 2014
10,881,195

 
16,267

 
5,257,162,705

 
9,136

Net income
 
 
 
 
 
 
 
Other comprehensive income, net of tax
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
Common stock issued
 
 
 
 
75,340,898

 
 
Common stock repurchased (1)
 
 
 
 
(183,146,803
)
 
 
Preferred stock issued to ESOP
1,217,000

 
1,217

 
 
 
 
Preferred stock released by ESOP
 
 
 
 
 
 
 
Preferred stock converted to common shares
(1,071,377
)
 
(1,071
)
 
20,992,398

 
 
Common stock warrants repurchased/exercised
 
 
 
 
 
 
 
Preferred stock issued
112,000

 
2,800

 
 
 
 
Common stock dividends
 
 
 
 
 
 
 
Preferred stock dividends
 
 
 
 
 
 
 
Tax benefit from stock incentive compensation
 
 
 
 
 
 
 
Stock incentive compensation expense
 
 
 
 
 
 
 
Net change in deferred compensation and related plans
 
 
 
 
 
 
 
Net change
257,623

 
2,946


(86,813,507
)

—

Balance December 31, 2014
11,138,818

 
$
19,213


5,170,349,198


$
9,136


(1)
For the year ended December 31, 2014, includes $750 million related to a private forward repurchase transaction that settled in first quarter 2015 for 14.3 million shares of common stock. See Note 1 (Summary of Significant Accounting Policies) for additional information.
 
The accompanying notes are an integral part of these statements.

137




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo stockholders' equity 
 
 
Additional
 paid-in
capital 

 
Retained earnings 

 
Cumulative
other
comprehensive
income 

 
Treasury
stock 

 
Unearned
ESOP
shares 

 
Total
Wells Fargo stockholders' equity 

 
Noncontrolling interests 

 
Total
equity 

60,296

 
92,361

 
1,386

 
(8,104
)
 
(1,200
)
 
170,142

 
866

 
171,008

60,296

 
92,361

 
1,386

 
(8,104
)
 
(1,200
)
 
170,142

 
866

 
171,008

 
 
23,057

 
 
 
 
 
 
 
23,057

 
551

 
23,608

 
 
 
 
2,132

 
 
 
 
 
2,132

 
(227
)
 
1,905

(7
)
 
 
 
 
 
 
 
 
 
(7
)
 
(322
)
 
(329
)
(273
)
 

 
 
 
2,756

 
 
 
2,483

 
 
 
2,483

(250
)
 
 
 
 
 
(9,164
)
 
 
 
(9,414
)
 
 
 
(9,414
)
108

 
 
 
 
 
 
 
(1,325
)
 
—

 
 
 
—

(94
)
 
 
 
 
 
 
 
1,165

 
1,071

 
 
 
1,071

251

 
 
 
 
 
820

 
 
 
—

 
 
 
—

(9
)
 
 
 
 
 
 
 
 
 
(9
)
 
 
 
(9
)
(25
)
 
 
 
 
 
 
 
 
 
2,775

 
 
 
2,775

76

 
(7,143
)
 
 
 
 
 
 
 
(7,067
)
 
 
 
(7,067
)
 
 
(1,235
)
 
 
 
 
 
 
 
(1,235
)
 
 
 
(1,235
)
453

 
 
 
 
 
 
 
 
 
453

 
 
 
453

858

 
 
 
 
 
 
 
 
 
858

 
 
 
858

(847
)
 
 
 
 
 
2

 
 
 
(845
)
 
 
 
(845
)
241

 
14,679


2,132


(5,586
)

(160
)

14,252


2


14,254

60,537

 
107,040


3,518


(13,690
)

(1,360
)

184,394


868


185,262


138


Wells Fargo & Company and Subsidiaries
Consolidated Statement of Cash Flows
 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Cash flows from operating activities:
 
 
 
 
 
Net income before noncontrolling interests
$
23,608

 
22,224

 
19,368

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Provision for credit losses
1,395

 
2,309

 
7,217

Changes in fair value of MSRs, MHFS and LHFS carried at fair value
1,820

 
(3,229
)
 
(2,307
)
Depreciation, amortization and accretion
2,515

 
3,293

 
2,807

Other net gains
(3,760
)
 
(9,384
)
 
(3,661
)
Stock-based compensation
1,912

 
1,920

 
1,698

Excess tax benefits related to stock incentive compensation
(453
)
 
(271
)
 
(226
)
Originations of MHFS
(144,812
)
 
(317,054
)
 
(483,835
)
Proceeds from sales of and principal collected on mortgages originated for sale
117,097

 
311,431

 
421,623

Originations of LHFS
—

 
—

 
(15
)
Proceeds from sales of and principal collected on LHFS
207

 
575

 
9,383

Purchases of LHFS
(154
)
 
(291
)
 
(7,975
)
Net change in:

 
 
 
 
Trading assets
11,186

 
43,638

 
105,440

Deferred income taxes
2,354

 
4,977

 
(1,297
)
Accrued interest receivable
(372
)
 
(13
)
 
293

Accrued interest payable
119

 
(32
)
 
(84
)
Other assets
(10,681
)
 
4,693

 
2,064

Other accrued expenses and liabilities
15,548

 
(7,145
)
 
(11,953
)
Net cash provided by operating activities
17,529

 
57,641

 
58,540

Cash flows from investing activities:
 
 
 
 
 
Net change in:
 
 
 
 
 
Federal funds sold, securities purchased under resale agreements and other short-term investments
(41,778
)
 
(78,184
)
 
(92,946
)
Available-for-sale securities:
 
 
 
 
 
Sales proceeds
6,089

 
2,837

 
5,210

Prepayments and maturities
37,257

 
50,737

 
59,712

Purchases
(44,807
)
 
(89,474
)
 
(64,756
)
Held-to-maturity securities:
 
 
 
 
 
Paydowns and maturities
5,168

 
30

 
—

Purchases
(47,012
)
 
(5,782
)
 
—

Nonmarketable equity investments:
 
 
 
 
 
Sales proceeds
3,161

 
2,577

 
2,279

Purchases
(3,087
)
 
(3,273
)
 
(2,619
)
Loans:
 
 
 
 
 
Loans originated by banking subsidiaries, net of principal collected
(65,162
)
 
(43,744
)
 
(53,381
)
Proceeds from sales (including participations) of loans originated for investment
21,564

 
7,694

 
6,811

Purchases (including participations) of loans
(6,424
)
 
(11,563
)
 
(9,040
)
Principal collected on nonbank entities' loans
13,589

 
19,955

 
25,080

Loans originated by nonbank entities
(13,570
)
 
(17,311
)
 
(23,555
)
Net cash paid for acquisitions
(174
)
 
—

 
(4,322
)
Proceeds from sales of foreclosed assets and short sales (1)
7,697

 
11,021

 
12,690

Net cash from purchases and sales of MSRs
(150
)
 
407

 
116

Other, net
(741
)
 
581

 
(1,169
)
Net cash used by investing activities
(128,380
)
 
(153,492
)

(139,890
)
Cash flows from financing activities:
 
 
 
 
 
Net change in:
 
 
 
 
 
Deposits
89,133

 
76,342

 
82,762

Short-term borrowings
8,035

 
(3,390
)
 
7,699

Long-term debt:
 
 
 
 
 
Proceeds from issuance
42,154

 
53,227

 
27,695

Repayment
(15,829
)
 
(25,423
)
 
(28,093
)
Preferred stock:
 
 
 
 
 
Proceeds from issuance
2,775

 
3,145

 
1,377

Cash dividends paid
(1,235
)
 
(1,017
)
 
(892
)
Common stock:
 
 
 
 
 
Proceeds from issuance
1,840

 
2,224

 
2,091

Repurchased
(9,414
)
 
(5,356
)
 
(3,918
)
Cash dividends paid
(6,908
)
 
(5,953
)
 
(4,565
)
Common stock warrants repurchased
—

 
—

 
(1
)
Excess tax benefits related to stock incentive compensation
453

 
271

 
226

Net change in noncontrolling interests
(552
)
 
(296
)
 
(611
)
Other, net
51

 
136

 
—

Net cash provided by financing activities
110,503

 
93,910


83,770

Net change in cash due from banks
(348
)
 
(1,941
)

2,420

Cash and due from banks at beginning of year
19,919

 
21,860


19,440

Cash and due from banks at end of year
$
19,571

 
19,919

 
21,860

Supplemental cash flow disclosures:
 
 
 
 
 
Cash paid for interest
$
3,906

 
4,321

 
5,245

Cash paid for income taxes
8,808

 
7,132

 
8,024


(1)
Includes proceeds received for the settlement of claims on certain government guaranteed residential real estate mortgage loans in foreclosure that are reported as accounts receivables. During fourth quarter 2014, we adopted Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure , effective as of January 1, 2014. This ASU requires that certain government guaranteed residential real estate mortgage loans be recognized as other receivables upon foreclosure; previously, these were included in foreclosed assets.

The accompanying notes are an integral part of these statements. See Note 1 (Summary of Significant Accounting Policies) for noncash activities.

139

See the Glossary of Acronyms at the end of this Report for terms used throughout the Financial Statements and related Notes.
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, investment banking, retail banking, brokerage, and consumer and commercial finance through banking stores, the internet and other distribution channels to consumers, businesses and institutions in all 50 states, the District of Columbia, and in foreign countries. When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us,” we mean Wells Fargo & Company and Subsidiaries (consolidated). Wells Fargo & Company (the Parent) is a financial holding company and a bank holding company. We also hold a majority interest in a real estate investment trust, which has publicly traded preferred stock outstanding.
Our accounting and reporting policies conform with U.S. generally accepted accounting principles (GAAP) and practices in the financial services industry. To prepare the financial statements in conformity with GAAP, management must make estimates based on assumptions about future economic and market conditions (for example, unemployment, market liquidity, real estate prices, etc.) that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates in several areas, including allowance for credit losses and purchased credit-impaired (PCI) loans (Note 6 (Loans and Allowance for Credit Losses)), valuations of residential mortgage servicing rights (MSRs) (Note 8 (Securitizations and Variable Interest Entities) and Note 9 (Mortgage Banking Activities)) and financial instruments (Note 17 (Fair Values of Assets and Liabilities)) and income taxes (Note 21 (Income Taxes)). Actual results could differ from those estimates.
 
Accounting for Certain Factored Loan Receivable Arrangements
The Company determined that certain factoring arrangements previously included within commercial loans, which were recorded with a corresponding obligation in other liabilities, did not qualify as loan purchases under Accounting Standard Codification (ASC) Topic 860 (Transfers and Servicing of Financial Assets) based on interpretations of the specific arrangements. Accordingly, we revised our commercial loan balances for year-end 2012 and each of the quarters in 2013 in order to present the Company’s lending trends on a comparable basis over this period. This revision, which resulted in a reduction to total commercial loans and a corresponding decrease to other liabilities, did not impact the Company’s consolidated net income or total cash flows. We reduced our commercial loans by $3.5 billion , $3.2 billion , $2.1 billion , $1.6 billion , and $1.2 billion at December 31, September 30, June 30 and March 31, 2013, and December 31, 2012, respectively, which represented less than 1% of total commercial loans and less than 0.5% of our total loan portfolio. We also appropriately revised other affected financial information, including financial guarantees and financial ratios, to reflect this revision.

 
Accounting Standards Adopted in 2014
In 2014, we adopted the following new accounting guidance:
•
Accounting Standards Update (ASU) 2014-17, Business Combinations (Topic 805): Pushdown Accounting;
•
ASU 2014-14, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure;
•
ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure;
•
ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists; and
•
ASU 2013-08, Financial Services - Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements .
 
ASU 2014-17 provides an acquired entity with the option to apply pushdown accounting in its separate financial statements. We adopted the guidance in fourth quarter 2014 with prospective application. This Update did not have a material effect on our consolidated financial statements.

ASU 2014-14 requires certain government-guaranteed mortgage loans to be classified as other receivables upon foreclosure and measured based on the loan balance expected to be recovered from the guarantor. We early adopted this guidance in fourth quarter 2014, effective as of January 1, 2014, through a modified retrospective transition. Our adoption of this Update did not have a material effect on our consolidated financial statements. See Note 7 (Premises, Equipment, Lease Commitments and Other Assets).

ASU 2014-04 clarifies the timing of when a creditor has taken physical possession of residential real estate collateral for a consumer mortgage loan, resulting in the reclassification of the loan receivable to real estate owned. The guidance also requires disclosure of the amount of foreclosed residential real estate property held by the creditor and the recorded investment in residential real estate mortgage loans that are in process of foreclosure. We adopted this guidance in first quarter 2014. This Update did not have a material effect on our consolidated financial statements as this guidance was consistent with our prior practice. See Note 6 (Loans and Allowance for Credit Losses).

ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. We adopted this guidance in first quarter 2014 with prospective application to all existing unrecognized tax benefits at the effective date. This Update did not have a material effect on our consolidated financial statements.

ASU 2013-08 changes the criteria companies use to assess whether an entity is an investment company and requires new disclosures for investment companies. We adopted this guidance


140

in first quarter 2014. This Update did not have a material effect on our consolidated financial statements. 

Consolidation
Our consolidated financial statements include the accounts of the Parent and our majority-owned subsidiaries and variable interest entities (VIEs) (defined below) in which we are the primary beneficiary. Significant intercompany accounts and transactions are eliminated in consolidation. When we have significant influence over operating and financing decisions for a company but do not own a majority of the voting equity interests, we account for the investment using the equity method of accounting, which requires us to recognize our proportionate share of the company’s earnings. If we do not have significant influence, we recognize the equity investment at cost except for (1) marketable equity securities, which we recognize at fair value with changes in fair value included in OCI, and (2) nonmarketable equity investments for which we have elected the fair value option. Investments accounted for under the equity or cost method are included in Other Assets.
We are a variable interest holder in certain entities in which equity investors do not have the characteristics of a controlling financial interest or where the entity does not have enough equity at risk to finance its activities without additional subordinated financial support from other parties (referred to as VIEs). Our variable interest arises from contractual, ownership or other monetary interests in the entity, which change with fluctuations in the fair value of the entity's net assets. We consolidate a VIE if we are the primary beneficiary, defined as the party that has both the power to direct the activities that most significantly impact the VIE and a variable interest that potentially could be significant to the VIE. To determine whether or not a variable interest we hold could potentially be significant to the VIE, we consider both qualitative and quantitative factors regarding the nature, size and form of our involvement with the VIE. We assess whether or not we are the primary beneficiary of a VIE on an ongoing basis.
 
Cash and Due From Banks
Cash and cash equivalents include cash on hand, cash items in transit, and amounts due from the Federal Reserve Bank and other depository institutions.
 
Trading Assets
Trading assets are predominantly securities, including corporate debt, U.S. government agency obligations and other securities that we acquire for short-term appreciation or other trading purposes, certain loans held for market-making purposes to support the buying and selling demands of our customers
and derivatives primarily held for customer accommodation purposes or risk mitigation and hedging. Interest-only strips and other retained interests in securitizations that can be contractually prepaid or otherwise settled in a way that the holder would not recover substantially all of its recorded investment are classified as trading assets. Trading assets are carried at fair value, with changes in fair value recorded in earnings. For securities and loans in trading assets, interest and dividend income are recorded in interest income, and realized and unrealized gains and losses recorded in noninterest income. For other trading assets, including derivatives, the entire change in fair value is recorded in noninterest income.
 
 
Investments
Our investments include various debt and marketable equity securities and nonmarketable equity investments. We classify debt and marketable equity securities as available-for-sale or held-to-maturity securities based on our intent to hold to maturity. Our nonmarketable equity investments are reported in Other Assets.

AVAILABLE-FOR-SALE SECURITIES Debt securities that we might not hold until maturity and marketable equity securities are classified as available-for-sale securities and reported at fair value. Unrealized gains and losses, after applicable income taxes, are reported in cumulative OCI.
We conduct other-than-temporary impairment (OTTI) analysis on a quarterly basis or more often if a potential loss-triggering event occurs. The initial indicator of OTTI for both debt and equity securities is a decline in fair value below the amount recorded for an investment and the severity and duration of the decline.
For a debt security for which there has been a decline in the fair value below amortized cost basis, we recognize OTTI if we (1) have the intent to sell the security, (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, or (3) we do not expect to recover the entire amortized cost basis of the security.
Estimating recovery of the amortized cost basis of a debt security is based upon an assessment of the cash flows expected to be collected. If the present value of cash flows expected to be collected, discounted at the security’s effective yield, is less than amortized cost, OTTI is considered to have occurred. In performing an assessment of the cash flows expected to be collected, we consider all relevant information including:
•
the length of time and the extent to which the fair value has been less than the amortized cost basis;
•
the historical and implied volatility of the fair value of the security;
•
the cause of the price decline, such as the general level of interest rates or adverse conditions specifically related to the security, an industry or a geographic area;
•
the issuer's financial condition, near-term prospects and ability to service the debt;
•
the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future;
•
for asset-backed securities, the credit performance of the underlying collateral, including delinquency rates, level of non-performing assets, cumulative losses to date, collateral value and the remaining credit enhancement compared with expected credit losses;
•
any change in rating agencies' credit ratings at evaluation date from acquisition date and any likely imminent action;
•
independent analyst reports and forecasts, sector credit ratings and other independent market data; and
•
recoveries or additional declines in fair value subsequent to the balance sheet date.
 
If we intend to sell the security, or if it is more likely than not we will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the amortized cost basis and fair value of the security. For debt securities that are considered other-than-temporarily impaired that we do not intend to sell or it is more likely than not that we will not be required to sell before recovery, the OTTI write-down is separated into an amount representing the credit loss, which is recognized in earnings, and


141

Note 1: Summary of Significant Accounting Policies (continued)

the amount related to all other factors, which is recognized in OCI. The measurement of the credit loss component is equal to the difference between the debt security's amortized cost basis and the present value of its expected future cash flows discounted at the security's effective yield. The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit-related and, therefore, is recognized in OCI. We believe that we will fully collect the carrying value of securities on which we have recorded a non-credit-related impairment in OCI.
We hold investments in perpetual preferred securities (PPS) that are structured in equity form, but have many of the characteristics of debt instruments, including periodic cash flows in the form of dividends, call features, ratings that are similar to debt securities and pricing like long-term callable bonds.
Because of the hybrid nature of these securities, we evaluate PPS for OTTI using a model similar to the model we use for debt securities as described above. Among the factors we consider in our evaluation of PPS are whether there is any evidence of deterioration in the credit of the issuer as indicated by a decline in cash flows or a rating agency downgrade to below investment grade and the estimated recovery period. Additionally, in determining if there was evidence of credit deterioration, we evaluate: (1) the severity of decline in market value below cost, (2) the period of time for which the decline in fair value has existed, and (3) the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer. We consider PPS to be other-than-temporarily impaired if cash flows expected to be collected are insufficient to recover our investment or if we no longer believe the security will recover within the estimated recovery period. OTTI write-downs of PPS are recognized in earnings equal to the difference between the cost basis and fair value of the security. Based upon the factors considered in our OTTI evaluation, we believe our investments in PPS currently rated investment grade will be fully realized and, accordingly, have not recognized OTTI on such securities.
For marketable equity securities other than PPS, OTTI evaluations focus on whether evidence exists that supports recovery of the unrealized loss within a timeframe consistent with temporary impairment. This evaluation considers the severity of and length of time fair value is below cost, our intent and ability to hold the security until forecasted recovery of the fair value of the security, and the investee's financial condition, capital strength, and near-term prospects.
We recognize realized gains and losses on the sale of investment securities in noninterest income using the specific identification method.
Unamortized premiums and discounts are recognized in interest income over the contractual life of the security using the interest method. As principal repayments are received on securities (i.e., primarily mortgage-backed securities (MBS)) a proportionate amount of the related premium or discount is recognized in income so that the effective interest rate on the remaining portion of the security continues unchanged.
 
HELD-TO-MATURITY SECURITIES Debt securities for which the Company has the positive intent and ability to hold to maturity are reported at historical cost adjusted for amortization of premiums and accretion of discounts. We recognize OTTI when there is a decline in fair value and we do not expect to recover the entire amortized cost basis of the debt security. The amortized cost is written-down to fair value with the credit loss component recorded to earnings and the remaining component recognized in OCI. The OTTI assessment related to whether we
 
expect recovery of the amortized cost basis and determination of any credit loss component recognized in earnings for held-to-maturity securities is the same as described for available-for-sale securities. Security transfers to the held-to-maturity classification are recorded at fair value. Unrealized gains or losses from the transfer of available-for-sale securities continue to be reported in cumulative OCI and are amortized into earnings over the remaining life of the security using the effective interest method.
 
NONMARKETABLE EQUITY INVESTMENTS Nonmarketable equity investments include low income housing tax credit investments, 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). We have elected the fair value option for some of these investments with the remainder of these investments accounted for under the cost or equity method, which we review at least quarterly for possible OTTI. Our review typically includes an analysis of the facts and circumstances of each investment, the expectations for the investment's cash flows and capital needs, the viability of its business model and our exit strategy. We reduce the asset value when we consider declines in value to be other than temporary. We recognize the estimated loss as a loss from equity investments in noninterest income. 
 
Securities Purchased and Sold Agreements
Securities purchased under resale agreements and securities sold under repurchase agreements are accounted for as collateralized financing transactions and are recorded at the acquisition or sale price plus accrued interest. We monitor the fair 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 and Loans Held for Sale
Mortgages held for sale (MHFS) include commercial and residential mortgages originated for sale and securitization in the secondary market, which is our principal market, or for sale as whole loans. We elect the fair value option for substantially all residential MHFS (see Note 17 (Fair Values of Assets and Liabilities)). The remaining residential MHFS are held at the lower of cost or fair value (LOCOM), and are valued on an aggregate portfolio basis. Commercial MHFS are held at LOCOM and are valued on an individual loan basis.
Loans held for sale (LHFS) are carried at LOCOM. Generally, consumer loans are valued on an aggregate portfolio basis, and commercial loans are valued on an individual loan basis.
Gains and losses on MHFS are recorded in mortgage banking noninterest income. Gains and losses on LHFS are recorded in other noninterest income. Direct loan origination costs and fees for MHFS and LHFS under the fair value option are recognized in income at origination. For MHFS and LHFS recorded at LOCOM, loan costs and fees are deferred at origination and are recognized in income at time of sale. Interest income on MHFS and LHFS is calculated based upon the note rate of the loan and is recorded to interest income.
Our lines of business are authorized to originate held-for-investment loans that meet or exceed established loan product profitability criteria, including minimum positive net interest margin spreads in excess of funding costs. When a determination is made at the time of commitment to originate


142

loans as held for investment, it is our intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic review under our management evaluation processes, including corporate asset/liability management. In determining the “foreseeable future” for loans, management considers (1) the current economic environment and market conditions, (2) our business strategy and current business plans, (3) the nature and type of the loan receivable, including its expected life, and (4) our current financial condition and liquidity demands. If subsequent changes, including changes in interest rates significantly impact the ongoing profitability of certain loan products, we may subsequently change our intent to hold these loans, and we would take actions to sell such loans. Upon such management determination, we immediately transfer these loans to the MHFS or LHFS portfolio at LOCOM.
 
Loans
Loans are reported at their outstanding principal balances net of any unearned income, cumulative charge-offs, unamortized deferred fees and costs on originated loans and unamortized premiums or discounts on purchased loans. PCI loans are reported net of any remaining purchase accounting adjustments. See the “Purchased Credit-Impaired Loans” section in this Note for our accounting policy for PCI loans.
Unearned income, deferred fees and costs, and discounts and premiums are amortized to interest income over the contractual life of the loan using the interest method. Loan commitment fees are generally deferred and amortized into noninterest income on a straight-line basis over the commitment period.
We have private label and co-brand credit card loans through a program agreement that involves our active participation in the operating activity of the program with a third party. We share in the economic results of the loans subject to this agreement. We consider the program to be a collaborative arrangement and therefore report our share of revenue and losses on a net basis in interest income for loans, other noninterest income and provision for credit losses as applicable. Our net share of revenue from this activity represented less than 1% of our total revenues for 2014.
Loans also include direct financing leases that are recorded at the aggregate of minimum lease payments receivable plus the estimated residual value of the leased property, less unearned income. Leveraged leases, which are a form of direct financing leases, are recorded net of related non-recourse debt. Leasing income is recognized as a constant percentage of outstanding lease financing balances over the lease terms in interest income.
 
NONACCRUAL AND PAST DUE LOANS We generally place loans on nonaccrual status when:
•
the full and timely collection of interest or principal becomes uncertain (generally based on an assessment of the borrower’s financial condition and the adequacy of collateral, if any);
•
they are 90 days ( 120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for interest or principal, unless both well-secured and in the process of collection;
•
part of the principal balance has been charged off (including loans discharged in bankruptcy);
•
for junior lien mortgages, we have evidence that the related first lien mortgage may be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status; or
 
•
performing consumer loans are discharged in bankruptcy, regardless of their delinquency status.
 
PCI loans are written down at acquisition to fair value using an estimate of cash flows deemed to be collectible. Accordingly, such loans are no longer classified as nonaccrual even though they may be contractually past due because we expect to fully collect the new carrying values of such loans (that is, the new cost basis arising out of purchase accounting).
When we place a loan on nonaccrual status, we reverse the accrued unpaid interest receivable against interest income and amortization of any net deferred fees is suspended. If the ultimate collectability of the recorded loan balance is in doubt on a nonaccrual loan, the cost recovery method is used and cash collected is applied to first reduce the carrying value of the loan. Otherwise, interest income may be recognized to the extent cash is received. Generally, we return a loan to accrual status when all delinquent interest and principal become current under the terms of the loan agreement and collectability of remaining principal and interest is no longer doubtful.
For modified loans, we re-underwrite at the time of a restructuring to determine if there is sufficient evidence of sustained repayment capacity based on the borrower’s financial strength, including documented income, debt to income ratios and other factors. If the borrower has demonstrated performance under the previous terms and the underwriting process shows the capacity to continue to perform under the restructured terms, the loan will generally remain in accruing status. When a loan classified as a troubled debt restructuring (TDR) performs in accordance with its modified terms, the loan either continues to accrue interest (for performing loans) or will return to accrual status after the borrower demonstrates a sustained period of performance (generally six consecutive months of payments, or equivalent, inclusive of consecutive payments made prior to the modification). Loans will be placed on nonaccrual status and a corresponding charge-off is recorded if we believe it is probable that principal and interest contractually due under the modified terms of the agreement will not be collectible.
Our loans are considered past due when contractually required principal or interest payments have not been made on the due dates.
 
LOAN CHARGE-OFF POLICIES For commercial loans, we generally fully charge off or charge down to net realizable value (fair value of collateral, less estimated costs to sell) for loans secured by collateral when:
•
management judges the loan to be uncollectible;
•
repayment is deemed to be protracted beyond reasonable time frames;
•
the loan has been classified as a loss by either our internal loan review process or our banking regulatory agencies;
•
the customer has filed bankruptcy and the loss becomes evident owing to a lack of assets; or
•
the loan is 180 days past due unless both well-secured and in the process of collection.
 
For consumer loans, we fully charge off or charge down to net realizable value when deemed uncollectible due to bankruptcy discharge or other factors, or no later than reaching a defined number of days past due, as follows:
•
1-4 family first and junior lien mortgages – We generally charge down to net realizable value when the loan is 180 days past due.


143

Note 1: Summary of Significant Accounting Policies (continued)

•
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) – We generally fully charge off when the loan is 120 days past due.
•
Unsecured loans (open end) – We generally fully charge off when the loan is 180 days past due.
•
Other secured loans – We generally fully or partially charge down to net realizable value when the loan is 120 days past due.
 
IMPAIRED LOANS We consider a loan to be impaired when, based on current information and events, we determine that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. Our impaired loans predominantly include loans on nonaccrual status for commercial and industrial, commercial real estate (CRE) and any loans modified in a TDR, on both accrual and nonaccrual status.
When we identify a loan as impaired, we generally measure the impairment, if any, based on the difference between the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount) and the present value of expected future cash flows, discounted at the loan’s effective interest rate. When the value of an impaired loan is calculated by discounting expected cash flows, interest income is recognized using the loan’s effective interest rate over the remaining life of the loan. When collateral is the sole source of repayment for the impaired loan, rather than the borrower’s income or other sources of repayment, we charge down to net realizable value.
 
TROUBLED DEBT RESTRUCTURINGS In situations where, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to the borrower that we would not otherwise consider, the related loan is classified as a TDR. These modified terms may include rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of the collateral. For modifications where we forgive principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs, including loans in trial payment periods (trial modifications), are considered impaired loans. Other than resolutions such as foreclosures, sales and transfers to held-for-sale, we may remove loans held for investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.
 
PURCHASED CREDIT-IMPAIRED LOANS Loans acquired with evidence of credit deterioration since their origination and where it is probable that we will not collect all contractually required principal and interest payments are PCI loans. PCI loans are recorded at fair value at the date of acquisition, and the historical allowance for credit losses related to these loans is not carried over. Some loans that otherwise meet the definition as credit-impaired are specifically excluded from the PCI loan portfolios, such as revolving loans where the borrower still has revolving privileges.
Evidence of credit quality deterioration as of the purchase date may include statistics such as past due and nonaccrual
 
status, commercial risk ratings, recent borrower credit scores and recent loan-to-value percentages. Generally, acquired loans that meet our definition for nonaccrual status are considered to be credit-impaired.
Substantially all commercial PCI loans are accounted for as individual loans. Conversely, consumer PCI loans have been aggregated into pools based on common risk characteristics. Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
Accounting for PCI loans involves estimating fair value, at acquisition, using the principal and interest cash flows expected to be collected discounted at the prevailing market rate of interest. The excess of cash flows expected to be collected over the carrying value (estimated fair value at acquisition date) is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the loan, or pool of loans, in situations where there is a reasonable expectation about the timing and amount of cash flows to be collected. The difference between contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference.
Subsequent to acquisition, we regularly evaluate our estimates of cash flows expected to be collected. If we have probable decreases in cash flows expected to be collected (other than due to decreases in interest rate indices and changes in prepayment assumptions), we charge the provision for credit losses, resulting in an increase to the allowance for loan losses. If we have probable and significant increases in cash flows expected to be collected, we first reverse any previously established allowance for loan losses and then increase interest income as a prospective yield adjustment over the remaining life of the loan, or pool of loans. Estimates of cash flows are impacted by changes in interest rate indices for variable rate loans and prepayment assumptions, both of which are treated as prospective yield adjustments included in interest income.
Resolutions of loans may include sales of loans to third parties, receipt of payments in settlement with the borrower, or foreclosure of the collateral. For individual PCI loans, gains or losses on sales to third parties are included in noninterest income, and gains or losses as a result of a settlement with the borrower are included in interest income. Our policy is to remove an individual loan from a pool based on comparing the amount received from its resolution with its contractual amount. Any difference between these amounts is absorbed by the nonaccretable difference for the entire pool. This removal method assumes that the amount received from resolution approximates pool performance expectations. The remaining accretable yield balance is unaffected and any material change in remaining effective yield caused by this removal method is addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full, there is no release of the nonaccretable difference for the pool because there is no difference between the amount received at resolution and the contractual amount of the loan. Modified PCI loans are not removed from a pool even if those loans would otherwise be deemed TDRs. Modified PCI loans that are accounted for individually are considered TDRs, and removed from PCI accounting if there has been a concession granted in excess of the original nonaccretable difference. We include these TDRs in our impaired loans.
 
FORECLOSED ASSETS   Foreclosed assets obtained through our lending activities primarily include real estate. Generally, loans


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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 of net realizable value. Thereafter, changes in net realizable value are recorded to noninterest expense. The net realizable value of these assets is reviewed and updated periodically depending on the type of property. See the discussion earlier in this Note about classification changes for certain government-guaranteed loan foreclosures that resulted from our adoption of ASU 2014-14 this year.
 
ALLOWANCE FOR CREDIT LOSSES (ACL) The allowance for credit losses is management’s estimate of credit losses inherent in the loan portfolio, including unfunded credit commitments, at the balance sheet date. We have an established process to determine the appropriateness of the allowance for credit losses that assesses the losses inherent in our portfolio and related unfunded credit commitments. We develop and document our allowance methodology at the portfolio segment level - commercial loan portfolio and consumer loan portfolio. While we attribute portions of the allowance to our respective commercial and consumer portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio and unfunded credit commitments.
Our process involves procedures to appropriately consider the unique risk characteristics of our commercial and consumer loan portfolio segments. For each portfolio segment, losses are estimated collectively for groups of loans with similar characteristics, individually or pooled for impaired loans or, for PCI loans, based on the changes in cash flows expected to be collected.
Our allowance levels are influenced by loan volumes, loan grade migration or delinquency status, historic loss experience and other conditions influencing loss expectations, such as economic conditions.
 
COMMERCIAL PORTFOLIO SEGMENT ACL METHODOLOGY Generally, commercial loans are assessed for estimated losses by grading each loan using various risk factors as identified through periodic reviews. Our estimation approach for the commercial portfolio reflects the estimated probability of default in accordance with the borrower’s financial strength, and the severity of loss in the event of default, considering the quality of any underlying collateral. Probability of default and severity at the time of default are statistically derived through historical observations of default and losses after default within each credit risk rating. These estimates are adjusted as appropriate based on additional analysis of long-term average loss experience compared to previously forecasted losses, external loss data or other risks identified from current economic conditions and credit quality trends. The estimated probability of default and severity at the time of default are applied to loan equivalent exposures to estimate losses for unfunded credit commitments.
The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a TDR, whether on accrual or nonaccrual status.
 
CONSUMER PORTFOLIO SEGMENT ACL METHODOLOGY For consumer loans that are not identified as a TDR, we determine the allowance predominantly on a collective basis utilizing forecasted losses to represent our best estimate of inherent loss. We pool loans, generally by product types with similar risk characteristics, such as residential real estate
 
mortgages and credit cards. As appropriate and to achieve greater accuracy, we may further stratify selected portfolios by sub-product, origination channel, vintage, loss type, geographic location and other predictive characteristics. Models designed for each pool are utilized to develop the loss estimates. We use assumptions for these pools in our forecast models, such as historic delinquency and default, loss severity, home price trends, unemployment trends, and other key economic variables that may influence the frequency and severity of losses in the pool.
In determining the appropriate allowance attributable to our residential mortgage portfolio, we take into consideration portfolios determined to be at elevated risk, such as junior lien mortgages behind 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 or are probable to occur, our allowance considers the impact of these modifications, taking into consideration the associated credit cost, including re-defaults of modified loans and projected loss severity. Accordingly, the loss content associated with the effects of existing and probable loan modifications and higher risk portfolios has been captured in our allowance methodology.
We separately estimate impairment for consumer loans that have been modified in a TDR (including trial modifications), whether on accrual or nonaccrual status.
 
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’s judgment of risks inherent in the processes and assumptions used in establishing the allowance. This imprecision considers economic environmental factors, modeling assumptions and performance, process risk, and other subjective factors, including industry trends and emerging risk assessments.
 
Securitizations and Beneficial Interests
In certain asset securitization transactions that meet the applicable criteria to be accounted for as a sale, assets are sold to an entity referred to as an SPE, which then issues beneficial interests in the form of senior and subordinated interests collateralized by the assets. In some cases, we may retain beneficial interests issued by the entity. Additionally, from time to time, we may also re-securitize certain assets in a new securitization transaction.
The assets and liabilities transferred to an SPE are excluded from our consolidated balance sheet if the transfer qualifies as a sale and we are not required to consolidate the SPE.
For transfers of financial assets recorded as sales, we recognize and initially measure at fair value all assets obtained (including beneficial interests) and liabilities incurred. We record a gain or loss in noninterest income for the difference between the carrying amount and the fair value of the assets sold. Fair values are based on quoted market prices, quoted market prices for similar assets, or if market prices are not available, then the fair value is estimated using discounted cash flow analyses with assumptions for credit losses, prepayments and discount rates that are corroborated by and verified against market observable data, where possible. Retained interests and liabilities incurred from securitizations with off-balance sheet entities, including SPEs and VIEs, where we are not the primary beneficiary, are classified as investment securities, trading


145

Note 1: Summary of Significant Accounting Policies (continued)

account assets, loans, MSRs or other liabilities (including liabilities for mortgage repurchase losses) and are accounted for as described herein.
 
Mortgage Servicing Rights (MSRs)
We recognize the rights to service mortgage loans for others, or MSRs, as assets whether we purchase the MSRs or the MSRs result from a sale or securitization of loans we originate (asset transfers). We initially record all of our MSRs at fair value. Subsequently, residential loan MSRs are carried at fair value. All of our MSRs related to our commercial mortgage loans are subsequently measured at LOCOM. The valuation and sensitivity of MSRs is discussed further in Note 8 (Securitizations and Variable Interest Entities), Note 9 (Mortgage Banking Activities) and Note 17 (Fair Values of Assets and Liabilities).
For MSRs carried at fair value, changes in fair value are reported in noninterest income in the period in which the change occurs. MSRs subsequently measured at LOCOM are amortized in proportion to, and over the period of, estimated net servicing income. The amortization of MSRs is reported in noninterest income, analyzed monthly and adjusted to reflect changes in prepayment speeds, as well as other factors.
MSRs accounted for at LOCOM are periodically evaluated for impairment based on the fair value of those assets. For purposes of impairment evaluation and measurement, we stratify MSRs based on the predominant risk characteristics of the underlying loans, including investor and product type. If, by individual stratum, the carrying amount of these MSRs exceeds fair value, a valuation allowance is established. The valuation reserve is adjusted as the fair value changes.
 
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Capital leases, where we are the lessee, are included in premises and equipment at the capitalized amount less accumulated amortization.
We primarily use the straight-line method of depreciation and amortization. Estimated useful lives range up to 40 years for buildings, up to 10 years for furniture and equipment, and the shorter of the estimated useful life (up to 8 years ) or the lease term for leasehold improvements. We amortize capitalized leased assets on a straight-line basis over the lives of the respective leases.
 
Goodwill and Identifiable Intangible Assets
Goodwill is recorded in business combinations under the purchase method of accounting when the purchase price is higher than the fair value of net assets, including identifiable intangible assets.
We assess goodwill for impairment at a reporting unit level on an annual basis or more frequently in certain circumstances. We have determined that our reporting units are one level below the operating segments. We have the option of performing a qualitative assessment of goodwill. We may also elect to bypass the qualitative test and proceed directly to a quantitative test. We initially perform a qualitative assessment of goodwill to test for impairment. If, based on our qualitative review, we conclude that more likely than not a reporting unit’s fair value is less than its carrying amount, then we complete quantitative steps as described below to determine if there is goodwill impairment. If we conclude that a reporting unit’s fair value is not less than its carrying amount, quantitative tests are not required. We assess goodwill for impairment on a reporting unit level and apply various quantitative valuation methodologies when required to compare the estimated fair value to the carrying value of each
 
reporting unit. Valuation methodologies include discounted cash flow and earnings multiple approaches. If the fair value is less than the carrying amount, an additional test is required to measure the amount of impairment. We recognize impairment losses as a charge to noninterest expense (unless related to discontinued operations) and an adjustment to the carrying value of the goodwill asset. Subsequent reversals of goodwill impairment are prohibited.
We amortize core deposit and other customer relationship intangibles on an accelerated basis over useful lives not exceeding 10 years. We review such intangibles for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated if the sum of undiscounted estimated future net cash flows is less than the carrying value of the asset. Impairment is permanently recognized by writing down the asset to the extent that the carrying value exceeds the estimated fair value.
 
Operating Lease Assets
Operating lease rental income for leased assets is recognized in other income on a straight-line basis over the lease term. Related depreciation expense is recorded on a straight-line basis over the estimated useful life, considering the estimated residual value of the leased asset. The useful life may be adjusted to the term of the lease depending on our plans for the asset after the lease term. On a periodic basis, leased assets are reviewed for impairment. Impairment loss is recognized if the carrying amount of leased assets exceeds fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.
 
Liability for Mortgage Loan Repurchase Losses
In connection with our sales and securitization of residential mortgage loans to various parties, we establish a mortgage repurchase liability, initially at fair value, related to various representations and warranties that reflect management’s estimate of losses for loans for which we could have a repurchase obligation, whether or not we currently service those loans, based on a combination of factors. Such factors include default expectations, expected investor repurchase demands (influenced by current and expected mortgage loan file requests and mortgage insurance rescission notices, as well as estimated levels of origination defects) and appeals success rates (where the investor rescinds the demand based on a cure of the defect or acknowledges that the loan satisfies the investor’s applicable representations and warranties), reimbursement by correspondent and other third party originators, and projected loss severity. We continually update our mortgage repurchase liability estimate during the life of the loans.
The liability for mortgage loan repurchase losses is included in other liabilities. For additional information on our repurchase liability, see Note 9 (Mortgage Banking Activities).
 
Pension Accounting
We account for our defined benefit pension plans using an actuarial model. Two principal assumptions in determining net periodic pension cost are the discount rate and the expected long term rate of return on plan assets.
A discount rate is used to estimate the present value of our future pension benefit obligations. We use a consistent methodology to determine the discount rate based upon the yields on multiple portfolios of bonds with maturity dates that closely match the estimated timing and amounts of the expected


146

benefit payments for our plans. Such portfolios are derived from a broad-based universe of high quality corporate bonds as of the measurement date.
Our determination of the reasonableness of our expected long-term rate of return on plan assets is highly quantitative by nature. We evaluate the current asset allocations and expected returns under two sets of conditions: projected returns using several forward-looking capital market assumptions, and historical returns for the main asset classes dating back to 1970 or the earliest period for which historical data was readily available for the asset classes included. Using long term historical data allows us to capture multiple economic environments, which we believe is relevant when using historical returns. We place greater emphasis on the forward-looking return and risk assumptions than on historical results. We use the resulting projections to derive a base line expected rate of return and risk level for the Cash Balance Plan’s prescribed asset mix. We evaluate the portfolio based on: (1) the established target asset allocations over short term ( one -year) and longer term ( ten -year) investment horizons, and (2) the range of potential outcomes over these horizons within specific standard deviations. We perform the above analyses to assess the reasonableness of our expected long-term rate of return on plan assets. We consider the expected rate of return to be a long-term average view of expected returns. The use of an expected long term rate of return on plan assets may cause us to recognize pension income returns that are greater or less than the actual returns of plan assets in any given year. Differences between expected and actual returns in each year, if any, are included in our net actuarial gain or loss amount, which is recognized in OCI. We generally amortize net actuarial gain or loss in excess of a 5% corridor from accumulated OCI into net periodic pension cost over the estimated average remaining participation period, which at December 31, 2014 , is 21 years . See Note 20 (Employee Benefits and Other Expenses) for additional information on our pension accounting.
 
Income Taxes
We file consolidated and separate company federal income tax returns, foreign tax returns and various combined and separate company state tax returns.
We evaluate two components of income tax expense: current and deferred. Current income tax expense represents our estimated taxes to be paid or refunded for the current period and includes income tax expense related to our uncertain tax positions. We determine deferred income taxes using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and recognizes enacted changes in tax rates and laws in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized subject to management's judgment that realization is “more likely than not.” Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting our realization criteria represent unrecognized tax benefits. Foreign taxes paid are generally applied as credits to reduce federal income taxes payable. We account for interest and penalties as a component of income tax expense.
 
 
Stock-Based Compensation
We have stock-based employee compensation plans as more fully discussed in Note 19 (Common Stock and Stock Plan). Our Long-Term Incentive Compensation Plan provides for awards of incentive and nonqualified stock options, stock appreciation rights, restricted shares, restricted share rights (RSRs), performance share awards (PSAs) and stock awards without restrictions. For most awards, we measure the cost of employee services received in exchange for an award of equity instruments, such as stock options, RSRs or PSAs, based on the fair value of the award on the grant date. The cost is normally recognized in our income statement over the vesting period of the award; awards with graded vesting are expensed on a straight line method. Awards that continue to vest after retirement are expensed over the shorter of the period of time between the grant date and the final vesting period or between the grant date and when a team member becomes retirement eligible; awards to team members who are retirement eligible at the grant date are subject to immediate expensing upon grant.
Beginning in 2013, certain RSRs and all PSAs granted include discretionary performance based vesting conditions and are subject to variable accounting. For these awards, the associated compensation expense fluctuates with changes in our stock price. For PSAs, compensation expense also fluctuates based on the estimated outcome of meeting the performance conditions. 
 
Earnings Per Common Share
We compute earnings per common share by dividing net income (after deducting dividends on preferred stock) by the average number of common shares outstanding during the year. We compute diluted earnings per common share by dividing net income (after deducting dividends and related accretion on preferred stock) by the average number of common shares outstanding during the year, plus the effect of common stock equivalents (for example, stock options, restricted share rights, convertible debentures and warrants) that are dilutive.
 
Fair Value of Financial Instruments
We use fair value measurements in our fair value disclosures and to record certain assets and liabilities at fair value on a recurring basis, such as trading assets, or on a nonrecurring basis such as measuring impairment on assets carried at amortized cost.
 
DETERMINATION OF FAIR VALUE We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These fair value measurements are based on exit prices and determined by maximizing the use of observable inputs. However, for certain instruments we must utilize unobservable inputs in determining fair value due to the lack of observable inputs in the market, which requires greater judgment in measuring fair value.
In instances where there is limited or no observable market data, fair value measurements for assets and liabilities are based primarily upon our own estimates or combination of our own estimates and third-party vendor or broker pricing, and the measurements are often calculated based on current pricing for products we offer or issue, the economic and competitive environment, the characteristics of the asset or liability and other such factors. As with any valuation technique used to estimate fair value, changes in underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.


147

Note 1: Summary of Significant Accounting Policies (continued)

Accordingly, these fair value estimates may not be realized in an actual sale or immediate settlement of the asset or liability.
We incorporate lack of liquidity into our fair value measurement based on the type of asset or liability measured and the valuation methodology used. For example, for certain residential MHFS and certain securities where the significant inputs have become unobservable due to illiquid markets and vendor or broker pricing is not used, we use a discounted cash flow technique to measure fair value. This technique incorporates forecasting of expected cash flows (adjusted for credit loss assumptions and estimated prepayment speeds) discounted at an appropriate market discount rate to reflect the lack of liquidity in the market that a market participant would consider. For other securities where vendor or broker pricing is used, we use either unadjusted broker quotes or vendor prices or vendor or broker prices adjusted by weighting them with internal discounted cash flow techniques to measure fair value. These unadjusted vendor or broker prices inherently reflect any lack of liquidity in the market, as the fair value measurement represents an exit price from a market participant viewpoint.
Where markets are inactive and transactions are not orderly, transaction or quoted prices for assets or liabilities in inactive markets may require adjustment due to the uncertainty of whether the underlying transactions are orderly. For items that use price quotes in inactive markets, we analyze the degree of market inactivity and distressed transactions to determine the appropriate adjustment to the price quotes.
We continually assess the level and volume of market activity in our investment security classes in determining adjustments, if any, to price quotes. Given market conditions can change over time, our determination of which securities markets are considered active or inactive can change. If we determine a market to be inactive, the degree to which price quotes require adjustment, can also change. See Note 17 (Fair Values of Assets and Liabilities) for discussion of the fair value hierarchy and valuation methodologies applied to financial instruments to determine fair value.

Derivatives and Hedging Activities
We recognize all derivatives on the balance sheet at fair value. On the date we enter into a derivative contract, we designate the derivative as (1) a hedge of the fair value of a recognized asset or liability, including hedges of foreign currency exposure (“fair value hedge”), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) held for trading, customer accommodation or asset/liability risk management purposes, including economic hedges not qualifying for hedge accounting. For a fair value hedge, we record changes in the fair value of the derivative and, to the extent that it is effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk, in current period earnings in the same financial statement category as the hedged item. For a cash flow hedge, we record changes in the fair value of the derivative to the extent that it is effective in OCI, with any ineffectiveness recorded in current period earnings. We subsequently reclassify these changes in fair value to net income in the same period(s) that the hedged transaction affects net income in the same financial statement category as the hedged item. For derivatives not designated as a fair value or cash flow hedge, we report changes in the fair values in current period noninterest income.
For fair value and cash flow hedges qualifying for hedge accounting, we formally document at inception the relationship between hedging instruments and hedged items, our risk
 
management objective, strategy and our evaluation of effectiveness for our hedge transactions. This includes linking all derivatives designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions. Periodically, as required, we also formally assess whether the derivative we designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in fair values or cash flows of the hedged item using the regression analysis method.
We discontinue hedge accounting prospectively when (1) a derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item, (2) a derivative expires or is sold, terminated or exercised, (3) we elect to discontinue the designation of a derivative as a hedge, or (4) in a cash flow hedge, a derivative is de-designated because it is not probable that a forecasted transaction will occur.
When we discontinue fair value hedge accounting, we no longer adjust the previously hedged asset or liability for changes in fair value, and cumulative adjustments to the hedged item are accounted for in the same manner as other components of the carrying amount of the asset or liability. If the derivative continues to be held after fair value hedge accounting ceases, we carry the derivative on the balance sheet at its fair value with changes in fair value included in earnings.
When we discontinue cash flow hedge accounting and it is not probable that the forecasted transaction will not occur, the accumulated amount reported in OCI at the de-designation date continues to be reported in OCI until the forecasted transaction affects earnings. If cash flow hedge accounting is discontinued and it is probable the forecasted transaction will not occur, the accumulated amount reported in OCI at the de-designation date is immediately recognized in earnings. If the derivative continues to be held after cash flow hedge accounting ceases, we carry the derivative on the balance sheet at its fair value with future changes in fair value included in earnings.
We may purchase or originate financial instruments that contain an embedded derivative. At inception of the financial instrument, we assess (1) if the economic characteristics of the embedded derivative are not clearly and closely related to the economic characteristics of the financial instrument (host contract), (2) if the financial instrument that embodies both the embedded derivative and the host contract is not measured at fair value with changes in fair value reported in earnings, and (3) if a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative. If the embedded derivative meets all of these conditions, we separate it from the host contract by recording the bifurcated derivative at fair value and the remaining host contract at the difference between the basis of the hybrid instrument and the fair value of the bifurcated derivative. The bifurcated derivative is carried at fair value with changes recorded in current period earnings.
By using derivatives, we are exposed to counterparty credit risk, which is the risk that counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet. The amounts reported as a derivative asset are derivative contracts in a gain position, and to the extent subject to legally enforceable master netting arrangements, net of derivatives in a loss position with the same counterparty and cash collateral received. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. To the extent derivatives subject to master netting arrangements meet the applicable requirements, including determining the legal


148

enforceability of the arrangement, it is our policy to present derivatives balances and related cash collateral amounts net on the balance sheet. Counterparty credit risk related to derivatives is considered in determining fair value and our assessment of hedge effectiveness.
 
Private Share Repurchases
During 2014 and 2013, we repurchased approximately 66 million shares and 40 million shares of our common stock, respectively, under private forward repurchase contracts. We enter into these transactions with unrelated third parties to complement our open-market common stock repurchase strategies, to allow us to manage our share repurchases in a manner consistent with our capital plans, currently submitted under the 2014 Comprehensive Capital Analysis and Review (CCAR), and to provide an economic benefit to the Company.
Our payments to the counterparties for these private share repurchase contracts are recorded in permanent equity in the quarter paid and are not subject to re-measurement. The classification of the up-front payments as permanent equity assures that we have appropriate repurchase timing consistent with our 2014 capital plan, which contemplated a fixed dollar amount available per quarter for share repurchases pursuant to
 
Federal Reserve Board (FRB) supervisory guidance. In return, the counterparty agrees to deliver a variable number of shares based on a per share discount to the volume-weighted average stock price over the contract period. There are no scenarios where the contracts would not either physically settle in shares or allow us to choose the settlement method.
In fourth quarter 2014, we entered into a private forward repurchase contract and paid $750 million to an unrelated third party. This contract settled in first quarter 2015 for 14.3 million shares of common stock. At December 31, 2013, we had a $500 million private forward repurchase contract outstanding that settled in first quarter 2014 for 11.1 million shares of common stock. Our total number of outstanding shares of common stock is not reduced until settlement of the private share repurchase contract.

SUPPLEMENTAL CASH FLOW INFORMATION Noncash activities are presented below, including information on transfers affecting MHFS, LHFS, and MSRs.
 



 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Trading assets retained from securitizations of MHFS
$
28,604

 
47,198

 
85,108

Capitalization of MSRs from sale of MHFS
1,302

 
3,616

 
4,988

Transfers from loans to MHFS
11,021

 
7,610

 
7,584

Transfers from loans to LHFS
9,849

 
274

 
143

Transfers from loans to foreclosed and other assets (1)
4,094

 
4,470

 
6,114

Transfers from available-for-sale to held-to-maturity securities
1,810

 
6,042

 
—


(1)
Includes $2.5 billion , $2.7 billion and $3.5 billion in transfers of government insured/guaranteed loans for the years ended December 31, 2014, 2013 and 2012, respectively. During fourth quarter 2014, we adopted Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure , effective as of January 1, 2014, resulting in the transfer of these loans to accounts receivables for the year ended December 31, 2014.

SUBSEQUENT EVENTS We have evaluated the effects of events that have occurred subsequent to December 31, 2014 , and there have been no material events that would require recognition in our 2014 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.




149

Note 2:  Business Combinations
We regularly 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 considered to be a guarantee, see Note 14 (Guarantees, Pledged Assets and Collateral).
 
During 2014, we completed an acquisition of a railcar and locomotive leasing business with combined total assets of $422 million . We had no pending business combinations as of December 31, 2014. Additionally, no business combinations were completed in 2013. Business combinations completed in 2014 and 2012 are presented below.
 


(in millions)
Date 
 
Assets 

2014

 


Helm Financial Corporation
April 15
 
$
422

 
 
 


2012
 
 
 
EverKey Global Partners Limited / EverKey Global Management LLC /
 
 
 
EverKey Global Partners (GP), LLC / EverKey Global Focus (GP), LLC – Bahamas/New York, New York
January 1
 
$
7

Burdale Financial Holdings Limited / Certain Assets of Burdale Capital Finance, Inc. – England/Stamford, Connecticut
February 1
 
874

Energy Lending Business of BNP Paribas, SA – Houston, Texas
April 20
 
3,639

Merlin Securities, LLC / Merlin Canada LTD. / Certain Assets & Liabilities
 
 
 
of Merlin Group Holdings, LLC – San Francisco, California/Toronto, Ontario
August 1
 
281

 
 
 
$
4,801



150

Note 3:  Cash, Loan and Dividend Restrictions
Federal Reserve Board (FRB) regulations require that each of our subsidiary banks maintain reserve balances on deposit with the Federal Reserve Banks. The total daily average required reserve balance for all our subsidiary banks was $12.9 billion in 2014 and $11.8 billion in 2013.
Federal law restricts the amount and the terms of both credit and non-credit transactions between a bank and its nonbank affiliates. They may not exceed 10% of the bank's capital and surplus (which for this purpose represents Tier 1 and Tier 2 capital, as calculated under the risk-based capital (RBC) guidelines, plus the balance of the allowance for credit losses excluded from Tier 2 capital) with any single nonbank affiliate and 20% of the bank's capital and surplus with all its nonbank affiliates. Transactions that are extensions of credit may require collateral to be held to provide added security to the bank. For further discussion of RBC, see Note 26 (Regulatory and Agency Capital Requirements) in this Report.
Dividends paid by our subsidiary banks are subject to various federal and state regulatory limitations. Dividends that may be paid by a national bank without the express approval of the Office of the Comptroller of the Currency (OCC) are limited to that bank's retained net profits for the preceding two calendar years plus retained net profits up to the date of any dividend declaration in the current calendar year. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. 
 
We also have a state-chartered subsidiary bank that is subject to state regulations that limit dividends. Under these provisions and regulatory limitations, our national and state-chartered subsidiary banks could have declared additional dividends of $15.6 billion at December 31, 2014,without obtaining prior regulatory approval. We have elected to retain capital at our national and state-chartered subsidiary banks to meet internal capital policy minimums and regulatory requirements associated with the implementation of Basel III. Our nonbank subsidiaries are also limited by certain federal and state statutory provisions and regulations covering the amount of dividends that may be paid in any given year. Based on retained earnings at December 31, 2014, our nonbank subsidiaries could have declared additional dividends of $8.6 billion at December 31, 2014, without obtaining prior approval.
The FRB published clarifying supervisory guidance in first quarter 2009, SR 09-4 Applying Supervisory 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 2011 (codified at 12 CFR 225.8 of Regulation Y) that establishes capital planning and prior notice and approval requirements for capital distributions including dividends by certain bank holding companies. The effect of this guidance is to require the approval of the FRB (or specifically under the Capital Plan Rule, a notice of non-objection) for the Company to repurchase or redeem common or perpetual preferred stock as well as to raise the per share quarterly dividend from its current level of $0.35 per share as declared by the Company’s Board of Directors on January 27, 2015, payable on March 1, 2015.


151


Note 4:    Federal Funds Sold, Securities Purchased under Resale Agreements and Other   Short-Term Investments

The following table provides the detail of federal funds sold, securities purchased under short-term resale agreements (generally less than one year) and other short-term investments. The majority of interest-earning deposits at December 31, 2014 and 2013, were held at the Federal Reserve.

 
Dec. 31,

 
Dec. 31,

(in millions)
2014

 
2013

Federal funds sold and securities purchased under resale agreements
$
36,856

 
25,801

Interest-earning deposits
219,220

 
186,249

Other short-term investments
2,353

 
1,743

Total
$
258,429

 
213,793


 
As part of maintaining our memberships in certain clearing organizations, we are required to stand ready to provide liquidity meant to sustain market clearing activity in the event unforeseen events occur or are deemed likely to occur. This includes commitments we have entered into to purchase securities under resale agreements from a central clearing organization that, at its option, require us to provide funding under such agreements. We do not have any outstanding amounts funded, and the amount of our unfunded contractual commitment was $ 2.6 billion and $ 3.1 billion as of December 31, 2014 and 2013, respectively.
We have classified securities purchased under long-term resale agreements (generally one year or more), which totaled $14.9 billion and $10.1 billion at December 31, 2014 and 2013, respectively, in loans. For additional information on the collateral we receive from other entities under resale agreements and securities borrowings, see the “Offsetting of Resale and Repurchase Agreements and Securities Borrowing and Lending Agreements” section of Note 14 (Guarantees, Pledged Assets and Collateral).


152

Note 5:  Investment Securities
The following table provides the amortized cost and fair value by major categories of available-for-sale securities, which are carried at fair value, and held-to-maturity debt securities, which
 
are carried at amortized cost. The net unrealized gains (losses) for available-for-sale securities are reported on an after-tax basis as a component of cumulative OCI.


(in millions)
 Amortized Cost 

 
Gross unrealized gains 

 
Gross unrealized losses 

 
Fair value 

December 31, 2014
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
25,898

 
44

 
(138
)
 
25,804

Securities of U.S. states and political subdivisions
43,939

 
1,504

 
(499
)
 
44,944

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal agencies
107,850

 
2,990

 
(751
)
 
110,089

Residential
8,213

 
1,080

 
(24
)
 
9,269

Commercial
16,248

 
803

 
(57
)
 
16,994

Total mortgage-backed securities
132,311

 
4,873

 
(832
)
 
136,352

Corporate debt securities
14,211

 
745

 
(170
)
 
14,786

Collateralized loan and other debt obligations (1) 
25,137

 
408

 
(184
)
 
25,361

Other (2)
6,251

 
295

 
(27
)
 
6,519

Total debt securities
247,747

 
7,869

 
(1,850
)
 
253,766

Marketable equity securities:
 
 
 
 
 
 
 
Perpetual preferred securities
1,622

 
148

 
(70
)
 
1,700

Other marketable equity securities
284

 
1,694

 
(2
)
 
1,976

Total marketable equity securities
1,906

 
1,842

 
(72
)
 
3,676

Total available-for-sale securities
249,653

 
9,711

 
(1,922
)
 
257,442

Held-to-maturity securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
40,886

 
670

 
(8
)
 
41,548

Securities of U.S. states and political subdivisions
1,962

 
27

 
—

 
1,989

Federal agency mortgage-backed securities
5,476

 
165

 
—

 
5,641

Collateralized loans and other debt obligations (1)
1,404

 
—

 
(13
)
 
1,391

Other (2)
5,755

 
35

 
—

 
5,790

Total held-to-maturity securities
55,483

 
897

 
(21
)
 
56,359

Total (3) 
$
305,136

 
10,608

 
(1,943
)
 
313,801

December 31, 2013
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
6,592

 
17

 
(329
)
 
6,280

Securities of U.S. states and political subdivisions
42,171

 
1,092

 
(727
)
 
42,536

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal agencies
119,303

 
1,902

 
(3,614
)
 
117,591

Residential
11,060

 
1,433

 
(40
)
 
12,453

Commercial
17,689

 
1,173

 
(115
)
 
18,747

Total mortgage-backed securities
148,052


4,508

 
(3,769
)
 
148,791

Corporate debt securities
20,391

 
976

 
(140
)
 
21,227

Collateralized loan and other debt obligations (1)
19,610

 
642

 
(93
)
 
20,159

Other (2)
9,232

 
426

 
(29
)
 
9,629

Total debt securities
246,048

 
7,661

 
(5,087
)
 
248,622

Marketable equity securities:
 
 
 
 
 
 
 
Perpetual preferred securities
1,703

 
222

 
(60
)
 
1,865

Other marketable equity securities
336

 
1,188

 
(4
)
 
1,520

Total marketable equity securities
2,039

 
1,410

 
(64
)
 
3,385

Total available-for-sale-securities
248,087

 
9,071

 
(5,151
)
 
252,007

Held-to-maturity securities:
 
 
 
 
 
 
 
Federal agency mortgage-backed securities
6,304

 
—

 
(99
)
 
6,205

Other (2)
6,042

 
—

 
—

 
6,042

Total held-to-maturity securities
12,346

 
—

 
(99
)
 
12,247

Total (3)
$
260,433

 
9,071

 
(5,250
)
 
264,254


(1)
The available-for-sale portfolio includes collateralized debt obligations (CDOs) with a cost basis and fair value of $364 million and $500 million , respectively, at December 31, 2014 , and $509 million and $693 million , respectively at December 31, 2013 . The held-to-maturity portfolio only includes collateralized loan obligations.
(2)
The “Other” category of available-for-sale securities predominantly includes asset-backed securities collateralized by credit cards, student loans, home equity loans and auto leases or loans and cash. Included in the “Other” category of held-to-maturity securities are asset-backed securities collateralized by auto leases or loans and cash with a cost basis and fair value of $3.8 billion each at December 31, 2014 , and $4.3 billion each at December 31, 2013 . Also included in the “Other” category of held-to-maturity securities are asset-backed securities collateralized by dealer floorplan loans with a cost basis of $1.9 billion and fair value of $2.0 billion at December 31, 2014 , and $1.7 billion each at December 31, 2013 .
(3)
At December 31, 2014 and 2013 , 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.

153

Note 5:  Investment Securities (continued)

Gross Unrealized Losses and Fair Value
The following table shows the gross unrealized losses and fair value of securities in the investment securities 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 or more" in a continuous loss position based on the point in time that the fair value declined to below the cost basis and not the period of time since the credit-related OTTI write-down.


 
Less than 12 months 
 
 
12 months or more 
 
 
Total 
 
(in millions)
Gross unrealized losses 

 
Fair value 

 
Gross unrealized losses 

 
Fair value 

 
Gross unrealized losses 

 
Fair value 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
(16
)
 
7,138

 
(122
)
 
5,719

 
(138
)
 
12,857

Securities of U.S. states and political subdivisions
(198
)
 
10,228

 
(301
)
 
3,725

 
(499
)
 
13,953

Mortgage-backed securities:
 
 
 
 
 
 
 
 


 


Federal agencies
(16
)
 
1,706

 
(735
)
 
37,854

 
(751
)
 
39,560

Residential
(18
)
 
946

 
(6
)
 
144

 
(24
)
 
1,090

Commercial
(9
)
 
2,202

 
(48
)
 
1,532

 
(57
)
 
3,734

Total mortgage-backed securities
(43
)
 
4,854

 
(789
)
 
39,530

 
(832
)
 
44,384

Corporate debt securities
(102
)
 
1,674

 
(68
)
 
1,265

 
(170
)
 
2,939

Collateralized loan and other debt obligations
(99
)
 
12,755

 
(85
)
 
3,958

 
(184
)
 
16,713

Other
(23
)
 
708

 
(4
)
 
277

 
(27
)
 
985

Total debt securities
(481
)
 
37,357

 
(1,369
)
 
54,474

 
(1,850
)
 
91,831

Marketable equity securities:
 
 
 
 
 
 
 
 
 
 
 
Perpetual preferred securities
(2
)
 
92

 
(68
)
 
633

 
(70
)
 
725

Other marketable equity securities
(2
)
 
41

 
—

 
—

 
(2
)
 
41

Total marketable equity securities
(4
)
 
133

 
(68
)
 
633

 
(72
)
 
766

Total available-for-sale securities
(485
)
 
37,490

 
(1,437
)
 
55,107

 
(1,922
)
 
92,597

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
(8
)
 
1,889

 
—

 
—

 
(8
)
 
1,889

Collateralized loan and other debt obligations
(13
)
 
1,391

 
—

 
—

 
(13
)
 
1,391

Total held-to-maturity securities
(21
)
 
3,280

 
—

 
—

 
(21
)
 
3,280

Total
$
(506
)
 
40,770

 
(1,437
)
 
55,107

 
(1,943
)
 
95,877

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
(329
)
 
5,786

 
—

 
—

 
(329
)
 
5,786

Securities of U.S. states and political subdivisions
(399
)
 
9,238

 
(328
)
 
4,120

 
(727
)
 
13,358

Mortgage-backed securities:
 
 
 
 
 
 
 
 

 

Federal agencies
(3,562
)
 
67,045

 
(52
)
 
1,132

 
(3,614
)
 
68,177

Residential
(18
)
 
1,242

 
(22
)
 
232

 
(40
)
 
1,474

Commercial
(15
)
 
2,128

 
(100
)
 
2,027

 
(115
)
 
4,155

Total mortgage-backed securities
(3,595
)
 
70,415

 
(174
)
 
3,391

 
(3,769
)
 
73,806

Corporate debt securities
(85
)
 
2,542

 
(55
)
 
428

 
(140
)
 
2,970

Collateralized loan and other debt obligations
(55
)
 
7,202

 
(38
)
 
343

 
(93
)
 
7,545

Other
(11
)
 
1,690

 
(18
)
 
365

 
(29
)
 
2,055

Total debt securities
(4,474
)
 
96,873

 
(613
)
 
8,647

 
(5,087
)
 
105,520

Marketable equity securities:
 
 
 
 
 
 
 
 
 
 
 
Perpetual preferred securities
(28
)
 
424

 
(32
)
 
308

 
(60
)
 
732

Other marketable equity securities
(4
)
 
34

 
—

 
—

 
(4
)
 
34

Total marketable equity securities
(32
)
 
458

 
(32
)
 
308

 
(64
)
 
766

Total available-for-sale securities
(4,506
)
 
97,331

 
(645
)
 
8,955

 
(5,151
)
 
106,286

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agency mortgage-backed securities

(99
)
 
6,153

 
—

 
—

 
(99
)
 
6,153

Total held-to-maturity securities

(99
)
 
6,153

 
—

 
—

 
(99
)
 
6,153

Total

$
(4,605
)
 
103,484

 
(645
)
 
8,955

 
(5,250
)
 
112,439



154

We have assessed each security with gross unrealized losses included in the previous table for credit impairment. As part of that assessment we evaluated and concluded that we do not intend to sell any of the securities and that it is more likely than not that we will not be required to sell prior to recovery of the amortized cost basis. For debt securities, we evaluate, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the securities’ amortized cost basis. For equity securities, we consider numerous factors in determining whether impairment exists, including our intent and ability to hold the securities for a period of time sufficient to recover the cost basis of the securities.
For complete descriptions of the factors we consider when analyzing securities for impairment, see Note 1 (Summary of Significant Accounting Policies) and below.
 
SECURITIES OF U.S. TREASURY AND FEDERAL AGENCIES AND FEDERAL AGENCY MORTGAGE-BACKED SECURITIES (MBS) The unrealized losses associated with U.S. Treasury and federal agency securities and federal agency MBS are primarily driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided by the U.S. government.
 
SECURITIES OF U.S. STATES AND POLITICAL SUBDIVISIONS The unrealized losses associated with securities of U.S. states and political subdivisions are primarily driven by changes in the relationship between municipal and term funding credit curves rather than by changes to the credit quality of the underlying securities. Substantially all of these investments are investment grade. The securities were generally underwritten in accordance with our own investment standards prior to the decision to purchase. Some of these securities are guaranteed by a bond insurer, but we did not rely on this guarantee when making our investment decision. These investments will continue to be monitored as part of our ongoing impairment analysis but are expected to perform, even if the rating agencies reduce the credit rating of the bond insurers. As a result, we expect to recover the entire amortized cost basis of these securities.
 
RESIDENTIAL AND COMMERCIAL MBS   The unrealized losses associated with private residential MBS and commercial MBS are primarily driven by changes in projected collateral losses, credit spreads and interest rates. We assess for credit impairment by estimating the present value of expected cash flows. The key assumptions for determining expected cash flows include default rates, loss severities and/or prepayment rates. We estimate losses to a security 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 other independent market data. Based upon our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost basis of these securities.
 
 
CORPORATE DEBT SECURITIES  The unrealized losses associated with corporate debt securities are primarily related to unsecured debt obligations issued by various corporations. We evaluate the financial performance of each issuer on a quarterly basis to determine if the issuer can make all contractual principal and interest payments. Based upon this assessment, we expect to recover the entire amortized cost basis of these securities.

COLLATERALIZED LOAN AND OTHER DEBT OBLIGATIONS  The unrealized losses associated with collateralized loan and other debt obligations relate to securities primarily backed by commercial, residential or other consumer collateral. The unrealized losses are primarily driven by changes in projected collateral losses, credit spreads and interest rates. We assess for credit impairment by estimating the present value of expected cash flows. The key assumptions for determining expected cash flows include default rates, loss severities and prepayment rates. We also consider cash flow forecasts and, as applicable, independent industry analyst reports and forecasts, sector credit ratings, and other independent market data. Based upon our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost basis of these securities.
 
OTHER DEBT SECURITIES  The unrealized losses associated with other debt securities predominantly relate to other asset-backed securities. The losses are primarily driven by changes in projected collateral losses, credit spreads and interest rates. We assess for credit impairment by estimating the present value of expected cash flows. The key assumptions for determining expected cash flows include default rates, loss severities and prepayment rates. Based upon our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost basis of these securities.
 
MARKETABLE EQUITY SECURITIES   Our marketable equity securities include investments in perpetual preferred securities, which provide attractive tax-equivalent yields. We evaluate these hybrid financial instruments with investment-grade ratings for impairment using an evaluation methodology similar to that used for debt securities. Perpetual preferred securities are not considered to be other-than-temporarily impaired if there is no evidence of credit deterioration or investment rating downgrades of any issuers to below investment grade, and we expect to continue to receive full contractual payments. We will continue to evaluate the prospects for these securities for recovery in their market value in accordance with our policy for estimating OTTI. We have recorded impairment write-downs on perpetual preferred securities where there was evidence of credit deterioration.
 
OTHER INVESTMENT SECURITIES MATTERS   The fair values of our investment securities could decline in the future if the underlying performance of the collateral for the residential and commercial MBS or other securities deteriorate, and our credit enhancement levels do not provide sufficient protection to our contractual principal and interest. As a result, there is a risk that significant OTTI may occur in the future.


155

Note 5:  Investment Securities (continued)

The following table shows the gross unrealized losses and fair value of debt and perpetual preferred investment securities 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 express opinions about the credit quality of a security. Securities rated investment grade, that is those rated BBB- or higher by S&P or Baa3 or higher by Moody’s, are generally considered by the rating agencies and market participants to be low credit risk. Conversely, securities rated below investment grade, labeled as "speculative grade" by the rating agencies, are considered to be distinctively higher
 
credit risk than investment grade securities. We have also included securities not rated by S&P or Moody’s in the table below based on our internal credit grade of the securities (used for credit risk management purposes) equivalent to the credit rating assigned by major credit agencies. The unrealized losses and fair value of unrated securities categorized as investment grade based on internal credit grades were $25 million and $1.6 billion , respectively, at December 31, 2014 , and $18 million and $1.9 billion , respectively, at December 31, 2013 . If an internal credit grade was not assigned, we categorized the security as non-investment grade.


 
Investment grade
 
 
Non-investment grade
 
(in millions)
Gross unrealized losses 

 
Fair value 

 
Gross unrealized losses 

 
Fair value 

December 31, 2014
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
(138
)
 
12,857

 
—

 
—

Securities of U.S. states and political subdivisions
(459
)
 
13,600

 
(40
)
 
353

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal agencies
(751
)
 
39,560

 
—

 
—

Residential
—

 
139

 
(24
)
 
951

Commercial
(24
)
 
3,366

 
(33
)
 
368

Total mortgage-backed securities
(775
)
 
43,065

 
(57
)
 
1,319

Corporate debt securities
(39
)
 
1,807

 
(131
)
 
1,132

Collateralized loan and other debt obligations
(172
)
 
16,609

 
(12
)
 
104

Other
(23
)
 
782

 
(4
)
 
203

Total debt securities
(1,606
)
 
88,720

 
(244
)
 
3,111

Perpetual preferred securities
(70
)
 
725

 
—

 
—

Total available-for-sale securities
(1,676
)
 
89,445

 
(244
)
 
3,111

Held-to-maturity securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies

(8
)
 
1,889

 
—

 
—

Collateralized loan and other debt obligations

(13
)
 
1,391

 
—

 
—

Total held-to-maturity securities
(21
)
 
3,280

 
—

 
—

Total
$
(1,697
)
 
92,725

 
(244
)
 
3,111

December 31, 2013
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
(329
)
 
5,786

 
—

 
—

Securities of U.S. states and political subdivisions
(671
)
 
12,915

 
(56
)
 
443

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal agencies
(3,614
)
 
68,177

 
—

 
—

Residential
(2
)
 
177

 
(38
)
 
1,297

Commercial
(46
)
 
3,364

 
(69
)
 
791

Total mortgage-backed securities
(3,662
)
 
71,718

 
(107
)
 
2,088

Corporate debt securities
(96
)
 
2,343

 
(44
)
 
627

Collateralized loan and other debt obligations
(72
)
 
7,376

 
(21
)
 
169

Other
(19
)
 
1,874

 
(10
)
 
181

Total debt securities
(4,849
)
 
102,012

 
(238
)
 
3,508

Perpetual preferred securities
(60
)
 
732

 
—

 
—

Total available-for-sale securities
(4,909
)
 
102,744

 
(238
)

3,508

Held-to-maturity securities:
 
 
 
 
 
 
 
Federal agency mortgage-backed securities
(99
)
 
6,153

 
—

 
—

Total held-to-maturity securities
(99
)
 
6,153


—


—

Total
$
(5,008
)
 
108,897


(238
)

3,508



156

Contractual Maturities
The following table shows the remaining contractual maturities and contractual weighted-average yields (taxable-equivalent basis) of available-for-sale debt securities. The remaining
 
contractual principal maturities for MBS do not consider prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.


 
 
 
Remaining contractual maturity 
 
 
 
 
 
 
 
 
 
 
After one year 
 
 
After five years 
 
 
 
 
 
 
Total 

 
 
 
Within one year 
 
 
through five years 
 
 
through ten years 
 
 
After ten years 
 
(in millions)
amount 

 
Yield 

 
Amount 

 
Yield 

 
Amount 

 
Yield 

 
Amount 

 
Yield 

 
Amount 

 
Yield 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
25,804

 
1.49
%
 
$
181

 
1.47
%
 
$
22,348

 
1.44
%
 
$
3,275

 
1.83
%
 
$
—

 
—
%
Securities of U.S. states and political subdivisions
44,944

 
5.66

 
3,568

 
1.71

 
7,050

 
2.19

 
3,235

 
5.13

 
31,091

 
6.96

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
110,089

 
3.27

 
—

 
—

 
276

 
2.86

 
1,011

 
3.38

 
108,802

 
3.27

Residential
9,269

 
4.50

 
—

 
—

 
9

 
4.81

 
83

 
5.63

 
9,177

 
4.49

Commercial
16,994

 
5.16

 
1

 
0.28

 
62

 
2.71

 
5

 
1.30

 
16,926

 
5.17

Total mortgage-backed securities
136,352

 
3.59

 
1

 
0.28

 
347

 
2.88

 
1,099

 
3.54

 
134,905

 
3.59

Corporate debt securities
14,786

 
4.90

 
600

 
4.32

 
7,634

 
4.54

 
5,209

 
5.30

 
1,343

 
5.70

Collateralized loan and other debt obligations
25,361

 
1.83

 
23

 
1.95

 
944

 
0.71

 
8,472

 
1.67

 
15,922

 
1.99

Other
6,519

 
1.79

 
274

 
1.55

 
1,452

 
2.56

 
1,020

 
1.32

 
3,773

 
1.64

Total available-for-sale debt securities at fair value

$
253,766

 
3.60
%
 
$
4,647

 
2.03
%
 
$
39,775

 
2.20
%
 
$
22,310

 
3.12
%
 
$
187,034

 
3.99
%
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
6,280

 
1.66
%
 
$
86

 
0.54
%
 
$
701

 
1.45
%
 
$
5,493

 
1.71
%
 
$
—

 
—
%
Securities of U.S. states and political subdivisions
42,536

 
5.30

 
4,915

 
1.84

 
7,901

 
2.19

 
3,151

 
5.19

 
26,569

 
6.89

Mortgage-backed securities:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
117,591

 
3.33

 
1

 
7.14

 
398

 
2.71

 
956

 
3.46

 
116,236

 
3.33

Residential
12,453

 
4.31

 
—

 
—

 
—

 
—

 
113

 
5.43

 
12,340

 
4.30

Commercial
18,747

 
5.24

 
—

 
—

 
52

 
3.33

 
59

 
0.96

 
18,636

 
5.26

Total mortgage-backed securities
148,791

 
3.65

 
1

 
7.14

 
450

 
2.78

 
1,128

 
3.52

 
147,212

 
3.66

Corporate debt securities
21,227

 
4.18

 
6,136

 
2.06

 
7,255

 
4.22

 
6,528

 
5.80

 
1,308

 
5.77

Collateralized loan and other debt obligations
20,159

 
1.59

 
40

 
0.25

 
1,100

 
0.63

 
7,750

 
1.29

 
11,269

 
1.89

Other
9,629

 
1.80

 
906

 
2.53

 
2,977

 
1.74

 
1,243

 
1.64

 
4,503

 
1.73

Total available-for-sale debt securities at fair value
$
248,622

 
3.69
%
 
$
12,084

 
1.99
%
 
$
20,384

 
2.75
%
 
$
25,293

 
3.14
%
 
$
190,861

 
3.97
%

(1)
Weighted-average yields displayed by maturity bucket are weighted based on fair value and predominantly represent contractual coupon rates without effect for any related hedging derivatives.

157

Note 5:  Investment Securities (continued)

The following table shows the amortized cost and weighted-average yields of held-to-maturity debt securities by contractual maturity.


 
 
 
Remaining contractual maturity 
 
 
 
 
 
 
 
 
 
 
After one year 
 
 
After five years 
 
 
 
 
 
 
Total

 
 
 
Within one year 
 
 
through five years 
 
 
through ten years 
 
 
After ten years 
 
(in millions)
amount  

 
Yield 

 
Amount 

 
Yield 

 
Amount 

 
Yield 

 
Amount 

 
Yield 

 
Amount 

 
Yield 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortized cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
40,886

 
2.12
%
 
$
—

 
—
%
 
$
—

 
—
%
 
$
40,886

 
2.12
%
 
$
—

 
—
%
Securities of U.S. states and political subdivisions
1,962

 
5.60

 
—

 
—

 
—

 
—

 
9

 
6.60

 
1,953

 
5.59

Federal agency mortgage-backed securities
5,476

 
3.89

 
—

 
—

 
—

 
—

 
—

 
—

 
5,476

 
3.89

Collateralized loan and other debt obligations
1,404

 
1.96

 
—

 
—

 
—

 
—

 
—

 
—

 
1,404

 
1.96

Other
5,755

 
1.64

 
192

 
1.61

 
4,214

 
1.72

 
1,349

 
1.41

 
—

 
—

Total held-to-maturity debt securities at amortized cost
$
55,483

 
2.37
%
 
$
192

 
1.61
%
 
$
4,214

 
1.72
%
 
$
42,244

 
2.10
%
 
$
8,833

 
3.96
%
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortized cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal agency mortgage-backed securities
$
6,304

 
3.90
%
 
$
—

 
—
%
 
$
—

 
—
%
 
$
—

 
—
%
 
$
6,304

 
3.90
%
Other
6,042

 
1.89

 
195

 
1.72

 
4,468

 
1.87

 
1,379

 
1.98

 
—

 
—

Total held-to-maturity debt securities at amortized cost
$
12,346

 
2.92
%
 
$
195

 
1.72
%
 
$
4,468

 
1.87
%
 
$
1,379

 
1.98
%
 
$
6,304

 
3.90
%

(1)
Weighted-average yields displayed by maturity bucket are weighted based on amortized cost and predominantly represent contractual coupon rates.

The following table shows the fair value of held-to-maturity debt securities by contractual maturity.


 
 
Remaining contractual maturity 
 
 
 
 
 
 
 
 
After one year 
 
 
After five years 
 
 
 
 
 
 
Total

 
Within one year 
 
 
through five years 
 
 
through ten years 
 
 
After ten years 
 
(in millions)
amount  

 
 
 
Amount

 
 
 
Amount

 
 
 
Amount

 
 
 
Amount

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
41,548

 
 
 
$
—

 
 
 
$
—

 
 
 
$
41,548

 
 
 
$
—

Securities of U.S. states and political subdivisions
1,989

 
 
 
—

 
 
 
—

 
 
 
9

 
 
 
1,980

Federal agency mortgage-backed securities
5,641

 
 
 
—

 
 
 
—

 
 
 
—

 
 
 
5,641

Collateralized loan and other debt obligations
1,391

 
 
 
—

 
 
 
—

 
 
 
—

 
 
 
1,391

Other
5,790

 
 
 
193

 
 
 
4,239

 
 
 
1,358

 
 
 
—

Total held-to-maturity debt securities at fair value
$
56,359

 

 
$
193

 

 
$
4,239

 

 
$
42,915

 

 
$
9,012

December 31, 2013
 
 
 
 
 
 
 
 

 
 
 

 
 
 

Held-to-maturity securities:
 
 
 
 
 
 
 
 

 
 
 

 
 
 

Fair Value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal agency mortgage-backed securities
$
6,205

 
 
 
$
—

 
 
 
$
—

 
 
 
$
—

 
 
 
$
6,205

Other
6,042

 
 
 
195

 
 
 
4,468

 
 
 
1,379

 
 
 
—

Total held-to-maturity debt securities at fair value
$
12,247

 

 
$
195

 

 
$
4,468

 

 
$
1,379

 

 
$
6,205




158

Realized Gains and Losses
The following table shows the gross realized gains and losses on sales and OTTI write-downs related to the available-for-sale securities portfolio, which includes marketable equity securities,
 
as well as net realized gains and losses on nonmarketable equity investments (see Note 7 (Premises, Equipment, Lease Commitments and Other Assets)).


 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Gross realized gains
$
1,560

 
492

 
600

Gross realized losses
(14
)
 
(24
)
 
(73
)
OTTI write-downs
(52
)
 
(183
)
 
(256
)
Net realized gains from available-for-sale securities
1,494

 
285

 
271

Net realized gains from nonmarketable equity investments
1,479

 
1,158

 
1,086

Net realized gains from debt securities and equity investments
$
2,973

 
1,443

 
1,357


Other-Than-Temporary Impairment
The following table shows the detail of total OTTI write-downs included in earnings for available-for-sale debt securities, marketable equity securities and nonmarketable equity investments. There were no OTTI write-downs on held-to-
 
maturity securities during the years ended December 31, 2014 and 2013. There were no held-to-maturity securities in our investment securities portfolio for the year ended December 31, 2012.


 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

OTTI write-downs included in earnings
 
 
 
 
 
Debt securities:
 
 
 
 
 
Securities of U.S. states and political subdivisions
$
11

 
2

 
16

Mortgage-backed securities:
 
 
 
 
 
Federal agencies
—

 
1

 
—

Residential
26

 
72

 
84

Commercial
9

 
53

 
86

Corporate debt securities
1

 
4

 
11

Collateralized loan and other debt obligations
2

 
—

 
1

Other debt securities
—

 
26

 
42

Total debt securities
49

 
158

 
240

Equity securities:
 
 
 
 
 
Marketable equity securities:
 
 
 
 
 
Perpetual preferred securities
—

 
—

 
12

Other marketable equity securities
3

 
25

 
4

Total marketable equity securities
3

 
25

 
16

Total investment securities
52

 
183

 
256

Nonmarketable equity investments
270

 
161

 
160

Total OTTI write-downs included in earnings
$
322

 
344

 
416



159

Note 5:  Investment Securities (continued)

Other-Than-Temporarily Impaired Debt Securities
The following table shows the detail of OTTI write-downs on available-for-sale debt securities included in earnings and the related changes in OCI for the same securities.


 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

OTTI on debt securities
 
 
 
 
 
Recorded as part of gross realized losses:
 
 
 
 
 
Credit-related OTTI
$
40

 
107

 
237

Intent-to-sell OTTI
9

 
51

 
3

Total recorded as part of gross realized losses
49

 
158

 
240

Changes to OCI for losses (reversal of losses) in non-credit-related OTTI (1):
 
 
 
 
 
Securities of U.S. states and political subdivisions
—

 
(2
)
 
1

Residential mortgage-backed securities
(10
)
 
(27
)
 
(178
)
Commercial mortgage-backed securities
(21
)
 
(90
)
 
(88
)
Corporate debt securities
—

 
—

 
1

Collateralized loan and other debt obligations
—

 
(1
)
 
(1
)
Other debt securities
—

 
1

 
28

Total changes to OCI for non-credit-related OTTI
(31
)
 
(119
)
 
(237
)
Total OTTI losses recorded on debt securities
$
18

 
39

 
3


(1)
Represents amounts recorded to OCI for impairment, due to factors other than credit, on debt securities that have also had credit-related OTTI write-downs during the period. Increases represent initial or subsequent non-credit-related OTTI on debt securities. Decreases represent partial to full reversal of impairment due to recoveries in the fair value of securities due to non-credit factors.

The following table presents a rollforward of the OTTI credit loss that has been recognized in earnings as a write-down of available-for-sale debt securities we still own (referred to as "credit-impaired" debt securities) and do not intend to sell.
 
Recognized credit loss represents the difference between the present value of expected future cash flows discounted using the security’s current effective interest rate and the amortized cost basis of the security prior to considering credit loss.


 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Credit loss recognized, beginning of year
$
1,171

 
1,289

 
1,272

Additions:
 
 
 
 
 
For securities with initial credit impairments
5

 
21

 
55

For securities with previous credit impairments
35

 
86

 
182

Total additions
40

 
107

 
237

Reductions:
 
 
 
 
 
For securities sold, matured, or intended/required to be sold
(169
)
 
(194
)
 
(194
)
For recoveries of previous credit impairments (1)
(17
)
 
(31
)
 
(26
)
Total reductions
(186
)
 
(225
)
 
(220
)
Credit loss recognized, end of year
$
1,025

 
1,171

 
1,289


(1)
Recoveries of previous credit impairments result from increases in expected cash flows subsequent to credit loss recognition. Such recoveries are reflected prospectively as interest yield adjustments using the effective interest method.



160

Note 6:  Loans and Allowance for Credit Losses
The following table presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net reduction of $4.5 billion and $6.4 billion at
 
December 31, 2014 and December 31, 2013 , respectively, for unearned income, net deferred loan fees, and unamortized discounts and premiums.


 
December 31,
 
(in millions)
2014

 
2013

 
2012

 
2011

 
2010

Commercial:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
271,795

 
235,358

 
223,703

 
205,824

 
182,059

Real estate mortgage
111,996

 
112,427

 
106,392

 
106,028

 
99,490

Real estate construction
18,728

 
16,934

 
16,983

 
19,470

 
25,371

Lease financing
12,307

 
12,371

 
12,736

 
13,387

 
13,386

Total commercial
414,826

 
377,090

 
359,814

 
344,709

 
320,306

Consumer:
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
265,386

 
258,507

 
249,912

 
229,408

 
231,113

Real estate 1-4 family junior lien mortgage
59,717

 
65,950

 
75,503

 
86,041

 
96,205

Credit card
31,119

 
26,882

 
24,651

 
22,905

 
22,384

Automobile
55,740

 
50,808

 
45,998

 
43,508

 
43,754

Other revolving credit and installment
35,763

 
43,049

 
42,473

 
43,060

 
43,505

Total consumer
447,725

 
445,196

 
438,537

 
424,922

 
436,961

Total loans
$
862,551

 
822,286

 
798,351

 
769,631

 
757,267


Our foreign loans are reported by respective class of financing receivable in the table above. Substantially all of our foreign loan portfolio is commercial loans. Loans are classified as foreign primarily based on whether the borrower’s primary
 
address is outside of the United States. The following table presents total commercial foreign loans outstanding by class of financing receivable.


 
December 31,
 
(in millions)
2014

 
2013

 
2012

 
2011

 
2010

Commercial foreign loans:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
44,707

 
41,547

 
37,148

 
38,609

 
30,775

Real estate mortgage
4,776

 
5,328

 
52

 
53

 
55

Real estate construction
218

 
187

 
79

 
88

 
39

Lease financing
336

 
338

 
312

 
269

 
292

Total commercial foreign loans
$
50,037

 
47,400

 
37,591

 
39,019

 
31,161



161

Note 6: Loans and Allowance for Credit Losses (continued)

Loan Concentrations
Loan concentrations may exist when there are amounts loaned to borrowers engaged in similar activities or similar types of loans extended to a diverse group of borrowers that would cause them to be similarly impacted by economic or other conditions. At December 31, 2014 and 2013, we did not have concentrations representing 10% or more of our total loan portfolio in domestic commercial and industrial loans and lease financing by industry or CRE loans (real estate mortgage and real estate construction) by state or property type. Our real estate 1-4 family mortgage loans to borrowers in the state of California represented approximately 13% of total loans at both December 31, 2014 and 2013, of which 2% were PCI loans in both years. These California loans are generally diversified among the larger metropolitan areas in California, with no single area consisting of more than 4% of total loans. We continuously monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our real estate 1-4 family mortgage portfolio as part of our credit risk management process.
Some of our real estate 1-4 family first and junior lien mortgage loans include an interest-only feature as part of the loan terms. These interest-only loans were approximately 12% of total loans at December 31, 2014, and  15% at December 31, 2013. Substantially all of these interest-only loans at origination were considered to be prime or near prime. We do not offer option adjustable-rate mortgage (ARM) products, nor do we offer variable-rate mortgage products with fixed payment amounts, commonly referred to within the financial services industry as negative amortizing mortgage loans. We acquired an option payment loan portfolio (Pick-a-Pay) from Wachovia at December 31, 2008. A majority of the portfolio was identified as PCI loans. Since the acquisition, we have reduced our exposure to the option payment portion of the portfolio through our modification efforts and loss mitigation actions. At December 31, 2014, approximately 2% of total loans remained with the payment option feature compared with 10% at December 31, 2008.
Our first and junior lien lines of credit products generally have a draw period of 10 years (with some up to 15 or 20 years ) with variable interest rate and payment options during the draw period of (1) interest only or (2) 1.5% of total outstanding
 
balance plus accrued interest. During the draw period, the borrower has the option of converting all or a portion of the line from a variable interest rate to a fixed rate with terms including interest-only payments for a fixed period between three to seven years or a fully amortizing payment with a fixed period between five to 30 years . At the end of the draw period, a line of credit generally converts to an amortizing payment schedule with repayment terms of up to 30 years based on the balance at time of conversion. At December 31, 2014, our lines of credit portfolio had an outstanding balance of $69.7 billion , of which $6.2 billion , or 9% , is in its amortization period, another $13.3 billion , or 19% , of our total outstanding balance, will reach their end of draw period during 2015 through 2016, $14.2 billion , or 20% , during 2017 through 2019, and $36.0 billion , or 52% , will convert in subsequent years. This portfolio had unfunded credit commitments of $70.1 billion at December 31, 2014. The lines that enter their amortization period may experience higher delinquencies and higher loss rates than the ones in their draw period. At December 31, 2014 , $425 million , or 7% , of outstanding lines of credit that are in their amortization period were 30 or more days past due, compared with $1.3 billion , or 2% , for lines in their draw period. We have considered this increased inherent risk in our allowance for credit loss estimate. In anticipation of our borrowers reaching the end of their contractual commitment, we have created a program to inform, educate and help these borrowers transition from interest-only to fully-amortizing payments or full repayment. We monitor the performance of the borrowers moving through the program in an effort to refine our ongoing program strategy.

Loan Purchases, Sales, and Transfers
The following table summarizes the proceeds paid or received for purchases and sales of loans and transfers from loans held for investment to mortgages/loans held for sale at lower of cost or fair value. This loan activity primarily includes loans purchased and sales of whole loan or participating interests, whereby we receive or transfer a portion of a loan after origination. The table excludes PCI loans and loans recorded at fair value, including loans originated for sale because their loan activity normally does not impact the allowance for credit losses.


 
Year ended December 31,
 
 
2014
 
 
2013
 
(in millions)
Commercial

 
Consumer  

 
Total  

 
Commercial  

 
Consumer  

 
Total  

Purchases (1)
$
4,952

 
1,365

 
6,317

 
10,914

 
581

 
11,495

Sales
(1,706
)
 
(152
)
 
(1,858
)
 
(6,740
)
 
(514
)
 
(7,254
)
Transfers to MHFS/LHFS (1)
(99
)
 
(9,778
)
 
(9,877
)
 
(258
)
 
(11
)
 
(269
)

(1)
The “Purchases” and “Transfers to MHFS/LHFS" categories exclude activity in government insured/guaranteed real estate 1-4 family first mortgage loans. As servicer, we are able to buy delinquent insured/guaranteed loans out of the Government National Mortgage Association (GNMA) pools. These loans have different risk characteristics from the rest of our consumer portfolio, whereby this activity does not impact the allowance for loan 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). Such purchases net of transfers to MHFS were $2.9 billion and $8.2 billion for the year ended 2014 and 2013, respectively.


162

Commitments to Lend
A commitment to lend is a legally binding agreement to lend funds to a customer, usually at a stated interest rate, if funded, and for specific purposes and time periods. We generally require a fee to extend such commitments. Certain commitments are subject to loan agreements with covenants regarding the financial performance of the customer or borrowing base formulas on an ongoing basis that must be met before we are required to fund the commitment. We may reduce or cancel consumer commitments, including home equity lines and credit card lines, in accordance with the contracts and applicable law.
We may, as a representative for other lenders, advance funds or provide for the issuance of letters of credit under syndicated loan or letter of credit agreements. Any advances are generally repaid in less than a week and would normally require default of both the customer and another lender to expose us to loss. These temporary advance arrangements totaled approximately $87 billion at both December 31, 2014 , and December 31, 2013 .
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At both December 31, 2014 and 2013, we had $1.2 billion of outstanding issued commercial letters of credit. We also originate multipurpose lending commitments under which borrowers have the option to draw on the facility for different purposes in one of several forms, including a standby letter of credit. See Note 14 (Guarantees, Pledged Assets and Collateral) for additional information on standby letters of credit.
When we make commitments, we are exposed to credit risk. The maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments are expected to expire without being used by the customer. In addition, we manage the potential risk in commitments to lend by limiting the total amount of commitments, both by individual customer and in total, by monitoring the size and maturity structure of these commitments and by applying the same credit standards for these commitments as for all of our credit activities.
 
For loans and commitments to lend, we may require collateral or a guarantee. We may require various types of collateral, including commercial and consumer real estate, automobiles, other short-term liquid assets such as accounts receivable or inventory and long-lived asset, such as equipment and other business assets. Collateral requirements for each loan or commitment may vary based on the loan product and our assessment of a customer's credit risk according to the specific credit underwriting, including terms and structure.
The contractual amount of our unfunded credit commitments, including unissued standby and commercial letters of credit, is summarized by portfolio segment and class of financing receivable in the following table. The table excludes standby and commercial letters of credit issued under the terms of our commitments and temporary advance commitments on behalf of other lenders.

 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

Commercial:
 
 
 
Commercial and industrial
$
278,093

 
250,986

Real estate mortgage
6,134

 
5,993

Real estate construction
15,587

 
12,612

Lease financing
3

 
—

Total commercial
299,817

 
269,591

Consumer:
 
 
 
Real estate 1-4 family first mortgage
32,055

 
32,908

Real estate 1-4 family junior lien mortgage
45,492

 
47,667

Credit card
95,062

 
79,049

Other revolving credit and installment
24,816

 
24,216

Total consumer
197,425

 
183,840

Total unfunded credit commitments
$
497,242

 
453,431




163

Note 6: Loans and Allowance for Credit Losses (continued)

Allowance for Credit Losses
The allowance for credit losses consists of the allowance for loan losses and the allowance for unfunded credit commitments. Changes in the allowance for credit losses were: 


 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

 
2011

 
2010

Balance, beginning of year
$
14,971

 
17,477

 
19,668

 
23,463

 
25,031

Provision for credit losses
1,395

 
2,309

 
7,217

 
7,899

 
15,753

Interest income on certain impaired loans (1)
(211
)
 
(264
)
 
(315
)
 
(332
)
 
(266
)
Loan charge-offs:
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
Commercial and industrial
(627
)
 
(739
)
 
(1,404
)
 
(1,681
)
 
(2,820
)
Real estate mortgage
(66
)
 
(190
)
 
(382
)
 
(636
)
 
(1,152
)
Real estate construction
(9
)
 
(28
)
 
(191
)
 
(351
)
 
(1,189
)
Lease financing
(15
)
 
(34
)
 
(24
)
 
(41
)
 
(124
)
Total commercial
(717
)
 
(991
)
 
(2,001
)
 
(2,709
)
 
(5,285
)
Consumer:
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
(721
)
 
(1,439
)
 
(3,020
)
 
(3,896
)
 
(4,916
)
Real estate 1-4 family junior lien mortgage
(864
)
 
(1,579
)
 
(3,437
)
 
(3,765
)
 
(4,936
)
Credit card
(1,025
)
 
(1,022
)
 
(1,105
)
 
(1,458
)
 
(2,415
)
Automobile
(729
)
 
(625
)
 
(651
)
 
(797
)
 
(1,295
)
Other revolving credit and installment
(668
)
 
(754
)
 
(759
)
 
(990
)
 
(1,253
)
Total consumer
(4,007
)
 
(5,419
)
 
(8,972
)
 
(10,906
)
 
(14,815
)
Total loan charge-offs
(4,724
)
 
(6,410
)
 
(10,973
)
 
(13,615
)
 
(20,100
)
Loan recoveries:
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
Commercial and industrial
369

 
396

 
472

 
426

 
442

Real estate mortgage
160

 
226

 
163

 
143

 
68

Real estate construction
136

 
137

 
124

 
146

 
110

Lease financing
8

 
17

 
20

 
25

 
21

Total commercial
673

 
776

 
779

 
740

 
641

Consumer:
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
212

 
246

 
157

 
405

 
523

Real estate 1-4 family junior lien mortgage
238

 
269

 
260

 
218

 
211

Credit card
161

 
127

 
188

 
257

 
224

Automobile
349

 
322

 
364

 
449

 
509

Other revolving credit and installment
146

 
161

 
191

 
247

 
239

Total consumer
1,106

 
1,125

 
1,160

 
1,576

 
1,706

Total loan recoveries
1,779

 
1,901

 
1,939

 
2,316

 
2,347

Net loan charge-offs (2)
(2,945
)
 
(4,509
)
 
(9,034
)
 
(11,299
)
 
(17,753
)
Allowances related to business combinations/other (3)
(41
)
 
(42
)
 
(59
)
 
(63
)
 
698

Balance, end of year
$
13,169

 
14,971

 
17,477

 
19,668

 
23,463

Components:
 
 
 
 
 
 
 
 
 
Allowance for loan losses
$
12,319

 
14,502

 
17,060

 
19,372

 
23,022

Allowance for unfunded credit commitments
850

 
469

 
417

 
296

 
441

Allowance for credit losses (4)
$
13,169

 
14,971

 
17,477

 
19,668

 
23,463

Net loan charge-offs as a percentage of average total loans (2)
0.35
%
 
0.56

 
1.17

 
1.49

 
2.30

Allowance for loan losses as a percentage of total loans (4)
1.43

 
1.76

 
2.13

 
2.52

 
3.04

Allowance for credit losses as a percentage of total loans (4)
1.53

 
1.82

 
2.19

 
2.56

 
3.10


(1)
Certain impaired loans with an allowance calculated by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognize reductions in the allowance as interest income.
(2)
For PCI loans, charge-offs are only recorded to the extent that losses exceed the purchase accounting estimates.
(3)
Includes $693 million for the year ended December 31, 2010, related to the adoption of consolidation accounting guidance on January 1, 2010.
(4)
The allowance for credit losses includes $11 million , $30 million , $117 million , $231 million and $298 million at December 31, 2014, 2013, 2012, 2011, and 2010, respectively, related to PCI loans acquired from Wachovia. Loans acquired from Wachovia are included in total loans net of related purchase accounting net write-downs.

164

The following table summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments. 


 
Year ended December 31, 
 
 
2014
 
 
2013
 
(in millions)
Commercial

 
Consumer 

 
Total 

 
Commercial 

 
Consumer 

 
Total 

Balance, beginning of period
$
6,103

 
8,868

 
14,971

 
5,714

 
11,763

 
17,477

Provision for credit losses
342

 
1,053

 
1,395

 
680

 
1,629

 
2,309

Interest income on certain impaired loans
(20
)
 
(191
)
 
(211
)
 
(54
)
 
(210
)
 
(264
)
 
 
 
 
 
 
 
 
 
 
 
 
Loan charge-offs
(717
)
 
(4,007
)
 
(4,724
)
 
(991
)
 
(5,419
)
 
(6,410
)
Loan recoveries
673

 
1,106

 
1,779

 
776

 
1,125

 
1,901

Net loan charge-offs
(44
)
 
(2,901
)
 
(2,945
)
 
(215
)
 
(4,294
)
 
(4,509
)
Allowance related to business combinations/other
(4
)
 
(37
)
 
(41
)
 
(22
)
 
(20
)
 
(42
)
Balance, end of period
$
6,377

 
6,792

 
13,169

 
6,103

 
8,868

 
14,971


The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.

 
 
Allowance for credit losses 
 
 
Recorded investment in loans 
 
(in millions)
Commercial

 
Consumer 

 
Total 

 
Commercial 

 
Consumer 

 
Total 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated (1)
$
5,482

 
3,706

 
9,188

 
409,560

 
404,263

 
813,823

Individually evaluated (2)
884

 
3,086

 
3,970

 
3,759

 
21,649

 
25,408

PCI (3)
11

 
—

 
11

 
1,507

 
21,813

 
23,320

Total
$
6,377

 
6,792

 
13,169

 
414,826

 
447,725

 
862,551

December 31, 2013
 
Collectively evaluated (1)
$
4,921

 
5,011

 
9,932

 
369,252

 
398,237

 
767,489

Individually evaluated (2)
1,156

 
3,853

 
5,009

 
5,334

 
22,736

 
28,070

PCI (3)
26

 
4

 
30

 
2,504

 
24,223

 
26,727

Total
$
6,103

 
8,868

 
14,971

 
377,090

 
445,196

 
822,286


(1)
Represents loans collectively evaluated for impairment in accordance with Accounting Standards Codification (ASC) 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans.
(2)
Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables  (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.
(3)
Represents the allowance and related loan carrying value determined in accordance with ASC 310-30 , Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality (formerly SOP 3-3) and pursuant to amendments by ASU 2010-20 regarding allowance for PCI loans.


Credit Quality
We monitor credit quality by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. The following sections provide the credit quality indicators we most closely monitor. The credit quality indicators are generally based on information as of our financial statement date, with the exception of updated Fair Isaac Corporation (FICO) scores and updated loan-to-value (LTV)/combined LTV (CLTV), which are obtained at least quarterly. Generally, these indicators are updated in the second month of each quarter, with updates no older than September 30, 2014. See the “Purchased Credit-Impaired Loans” section of this Note for credit quality information on our PCI portfolio.

 
COMMERCIAL CREDIT QUALITY INDICATORS In addition to monitoring commercial loan concentration risk, we manage a consistent process for assessing commercial loan credit quality. Generally, commercial loans are subject to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to Pass and Criticized categories. The Criticized category includes Special Mention, Substandard, and Doubtful categories which are defined by bank regulatory agencies.
The following table provides a breakdown of outstanding commercial loans by risk category. Of the $8.3 billion in criticized commercial real estate (CRE) loans at December 31, 2014, $1.7 billion has been placed on nonaccrual status and written down to net realizable collateral value. CRE loans have a high level of monitoring in place to manage these assets and mitigate loss exposure.


165

Note 6: Loans and Allowance for Credit Losses (continued)

(in millions)
Commercial and industrial 

 
Real estate mortgage 

 
Real estate construction 

 
Lease financing 

 
Total 

December 31, 2014
 
 
 
 
 
 
 
 
 
By risk category:
 
 
 
 
 
 
 
 
 
Pass
$
255,611

 
103,319

 
17,661

 
11,723

 
388,314

Criticized
16,109

 
7,416

 
896

 
584

 
25,005

Total commercial loans (excluding PCI)
271,720

 
110,735

 
18,557

 
12,307

 
413,319

Total commercial PCI loans (carrying value)
75

 
1,261

 
171

 
—

 
1,507

Total commercial loans
$
271,795

 
111,996

 
18,728

 
12,307

 
414,826

December 31, 2013
 
 
 
 
 
 
 
 
 
By risk category:
 
 
 
 
 
 
 
 
 
Pass
$
218,231

 
98,984

 
14,669

 
11,894

 
343,778

Criticized
16,912

 
11,587

 
1,832

 
477

 
30,808

Total commercial loans (excluding PCI)
235,143

 
110,571

 
16,501

 
12,371

 
374,586

Total commercial PCI loans (carrying value)
215

 
1,856

 
433

 
—

 
2,504

Total commercial loans
$
235,358

 
112,427

 
16,934

 
12,371

 
377,090


The following table provides past due information for commercial loans, which we monitor as part of our credit risk management practices.


(in millions)
Commercial and industrial 

 
Real estate mortgage 

 
Real estate construction 

 
Lease financing 

 
Total 

December 31, 2014
 
 
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
 
 
Current-29 DPD and still accruing
$
270,624

 
109,032

 
18,345

 
12,251

 
410,252

30-89 DPD and still accruing
527

 
197

 
25

 
32

 
781

90+ DPD and still accruing
31

 
16

 
—

 
—

 
47

Nonaccrual loans
538

 
1,490

 
187

 
24

 
2,239

Total commercial loans (excluding PCI)
271,720

 
110,735

 
18,557

 
12,307

 
413,319

Total commercial PCI loans (carrying value)
75

 
1,261

 
171

 
—

 
1,507

Total commercial loans
$
271,795

 
111,996

 
18,728

 
12,307

 
414,826

December 31, 2013
 
 
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
 
 
Current-29 DPD and still accruing
$
234,012

 
107,744

 
15,885

 
12,308

 
369,949

30-89 DPD and still accruing
345

 
538

 
103

 
33

 
1,019

90+ DPD and still accruing
11

 
35

 
97

 
—

 
143

Nonaccrual loans
775

 
2,254

 
416

 
30

 
3,475

Total commercial loans (excluding PCI)
235,143

 
110,571

 
16,501

 
12,371

 
374,586

Total commercial PCI loans (carrying value)
215

 
1,856

 
433

 
—

 
2,504

Total commercial loans
$
235,358

 
112,427

 
16,934

 
12,371

 
377,090


166

CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique risks. Loan delinquency, FICO credit scores and LTV for loan types are common credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the allowance for credit losses for the consumer portfolio segment.
 
Many of our loss estimation techniques used for the allowance for credit losses rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality and the establishment of our allowance for credit losses. The following table provides the outstanding balances of our consumer portfolio by delinquency status.

 
(in millions)
Real estate 1-4 family first mortgage 

 
Real estate 1-4 family junior lien mortgage 

 
Credit card 

 
Automobile 

 
Other revolving credit and installment

 
Total 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
 
 
 
 
Current-29 DPD
$
208,642

 
58,182

 
30,356

 
54,365

 
35,356

 
386,901

30-59 DPD
2,415

 
398

 
239

 
1,056

 
180

 
4,288

60-89 DPD
993

 
220

 
160

 
235

 
111

 
1,719

90-119 DPD
488

 
158

 
136

 
78

 
82

 
942

120-179 DPD
610

 
194

 
227

 
5

 
21

 
1,057

180+ DPD
4,258

 
464

 
1

 
1

 
13

 
4,737

Government insured/guaranteed loans (1)
26,268

 
—

 
—

 
—

 
—

 
26,268

Total consumer loans (excluding PCI)
243,674

 
59,616

 
31,119

 
55,740

 
35,763

 
425,912

Total consumer PCI loans (carrying value)
21,712

 
101

 
—

 
—

 
—

 
21,813

Total consumer loans
$
265,386

 
59,717

 
31,119

 
55,740

 
35,763

 
447,725

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
 
 
 
 
Current-29 DPD
$
193,371

 
64,230

 
26,218

 
49,699

 
31,944

 
365,462

30-59 DPD
2,784

 
461

 
201

 
852

 
179

 
4,477

60-89 DPD
1,157

 
253

 
143

 
186

 
111

 
1,850

90-119 DPD
587

 
182

 
124

 
66

 
76

 
1,035

120-179 DPD
747

 
216

 
195

 
4

 
20

 
1,182

180+ DPD
5,024

 
485

 
1

 
1

 
7

 
5,518

Government insured/guaranteed loans (1)
30,737

 
—

 
—

 
—

 
10,712

 
41,449

Total consumer loans (excluding PCI)
234,407

 
65,827

 
26,882

 
50,808

 
43,049

 
420,973

Total consumer PCI loans (carrying value)
24,100

 
123

 
—

 
—

 
—

 
24,223

Total consumer loans
$
258,507

 
65,950

 
26,882

 
50,808

 
43,049

 
445,196


(1)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA and student loans whose repayments are predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program (FFELP). Loans insured/guaranteed by the FHA/VA and 90+ DPD totaled $16.2 billion at December 31, 2014 , compared with $20.8 billion at December 31, 2013 . On June 30, 2014, we transferred all government guaranteed student loans to loans held for sale. Student loans 90+ DPD totaled $900 million at December 31, 2013.

Of the $6.7 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at December 31, 2014 , $873 million was accruing, compared with $7.7 billion past due and $902 million accruing at December 31, 2013 .
Real estate 1-4 family first mortgage loans 180 days or more past due totaled $4.3 billion , or 1.7% of total first mortgages (excluding PCI), at December 31, 2014 , compared with $5.0 billion , or 2.1% , at December 31, 2013 .
The following table provides a breakdown of our consumer portfolio by updated FICO. We obtain FICO scores at loan origination and the scores are updated at least quarterly. The majority of our portfolio is underwritten with a FICO score of 680 and above. FICO is not available for certain loan types and may not be obtained if we deem it unnecessary due to strong collateral and other borrower attributes, primarily security-based loans of $5.9 billion at December 31, 2014 , and $5.0 billion at December 31, 2013 .


167

Note 6: Loans and Allowance for Credit Losses (continued)

(in millions)
Real estate 1-4 family first mortgage 

 
Real estate 1-4 family junior lien mortgage 

 
Credit card 

 
Automobile 

 
Other revolving credit and installment

 
Total 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
By updated FICO:
 
 
 
 
 
 
 
 
 
 
 
< 600
$
11,166

 
4,001

 
2,639

 
8,825

 
894

 
27,525

600-639
7,866

 
2,794

 
2,588

 
6,236

 
1,058

 
20,542

640-679
13,894

 
5,324

 
4,931

 
9,352

 
2,366

 
35,867

680-719
24,412

 
8,970

 
6,285

 
9,994

 
4,389

 
54,050

720-759
35,490

 
12,171

 
6,407

 
7,475

 
5,896

 
67,439

760-799
82,123

 
17,897

 
5,234

 
7,315

 
7,673

 
120,242

800+
39,219

 
7,581

 
2,758

 
6,184

 
5,819

 
61,561

No FICO available
3,236

 
878

 
277

 
359

 
1,814

 
6,564

FICO not required
—

 
—

 
—

 
—

 
5,854

 
5,854

Government insured/guaranteed loans (1)
26,268

 
—

 
—

 
—

 
—

 
26,268

Total consumer loans (excluding PCI)
243,674

 
59,616

 
31,119

 
55,740

 
35,763

 
425,912

Total consumer PCI loans (carrying value)
21,712

 
101

 
—

 
—

 
—

 
21,813

Total consumer loans
$
265,386

 
59,717

 
31,119

 
55,740

 
35,763

 
447,725

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
By updated FICO:
 
 
 
 
 
 
 
 
 
 
 
< 600
$
14,128

 
5,047

 
2,404

 
8,400

 
956

 
30,935

600-639
9,029

 
3,247

 
2,175

 
5,925

 
1,015

 
21,391

640-679
14,918

 
5,985

 
4,176

 
8,827

 
2,158

 
36,064

680-719
24,336

 
10,043

 
5,398

 
8,992

 
3,917

 
52,686

720-759
32,991

 
13,581

 
5,530

 
6,546

 
5,264

 
63,912

760-799
72,062

 
19,238

 
4,535

 
6,313

 
6,836

 
108,984

800+
33,310

 
7,707

 
2,409

 
5,397

 
5,130

 
53,953

No FICO available
2,896

 
979

 
255

 
408

 
2,054

 
6,592

FICO not required
—

 
—

 
—

 
—

 
5,007

 
5,007

Government insured/guaranteed loans (1)
30,737

 
—

 
—

 
—

 
10,712

 
41,449

Total consumer loans (excluding PCI)
234,407

 
65,827

 
26,882

 
50,808

 
43,049

 
420,973

Total consumer PCI loans (carrying value)
24,100

 
123

 
—

 
—

 
—

 
24,223

Total consumer loans
$
258,507

 
65,950

 
26,882

 
50,808

 
43,049

 
445,196


(1)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA and student loans whose repayments are predominantly guaranteed by agencies on behalf of the U.S. Department of Education under FFELP.
 
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 approach which first uses values provided by automated valuation models (AVMs) for the property. If an AVM is not available, then the value is estimated using the original appraised value adjusted by the change in Home Price Index (HPI) for the property location. If an HPI is not available, the original appraised value is used. The HPI value is normally the only method considered for high value properties, generally with an original value of $1 million or more, as the AVM values have proven less accurate for these properties.
 
The following table shows the most updated LTV and CLTV distribution of the real estate 1-4 family first and junior lien mortgage loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our allowance for credit losses. In the event of a default, any loss should be limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV primarily due to industry data availability and portfolios acquired from or serviced by other institutions.


168

 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Real estate 1-4 family first mortgage by LTV 

 
Real estate 1-4 family junior lien mortgage by CLTV 

 
Total 

 
Real estate 1-4 family first mortgage by LTV 

 
Real estate 1-4 family junior lien mortgage by CLTV 

 
Total 

By LTV/CLTV:
 
 
 
 
 
 
 
 
 
 
 
0-60%
$
95,719

 
15,603

 
111,322

 
74,047

 
13,645

 
87,692

60.01-80%
86,112

 
17,651

 
103,763

 
80,187

 
17,154

 
97,341

80.01-100%
25,170

 
14,004

 
39,174

 
30,842

 
16,273

 
47,115

100.01-120% (1)
6,133

 
7,254

 
13,387

 
10,678

 
9,992

 
20,670

> 120% (1)
2,856

 
4,058

 
6,914

 
6,306

 
7,369

 
13,675

No LTV/CLTV available
1,416

 
1,046

 
2,462

 
1,610

 
1,394

 
3,004

Government insured/guaranteed loans (2)
26,268

 
—

 
26,268

 
30,737

 
—

 
30,737

Total consumer loans (excluding PCI)
243,674

 
59,616

 
303,290

 
234,407

 
65,827

 
300,234

Total consumer PCI loans (carrying value)
21,712

 
101

 
21,813

 
24,100

 
123

 
24,223

Total consumer loans
$
265,386

 
59,717

 
325,103

 
258,507

 
65,950

 
324,457


(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% LTV/CLTV.
(2)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.

NONACCRUAL LOANS The following table provides loans on nonaccrual status. PCI loans are excluded from this table because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

Commercial:
 
 
 
Commercial and industrial
$
538

 
775

Real estate mortgage
1,490

 
2,254

Real estate construction
187

 
416

Lease financing
24

 
30

Total commercial (1)
2,239

 
3,475

Consumer:
 
 
 
Real estate 1-4 family first mortgage (2)
8,583

 
9,799

Real estate 1-4 family junior lien mortgage
1,848

 
2,188

Automobile
137

 
173

Other revolving credit and installment
41

 
33

Total consumer
10,609

 
12,193

Total nonaccrual loans
(excluding PCI)
$
12,848

 
15,668


(1)
Includes LHFS of $1 million at December 31, 2014 and December 31, 2013 .
(2)
Includes MHFS of $177 million and $227 million at December 31, 2014 , and December 31, 2013 , respectively.
 
LOANS IN PROCESS OF FORECLOSURE Our recorded investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $12.7 billion and $17.3 billion at December 31, 2014 and December 31, 2013 , respectively, which included $6.6 billion and $10.0 billion , respectively, of loans that are government insured/guaranteed. We commence the foreclosure process on consumer real estate loans when a borrower becomes 120 days delinquent in accordance with Consumer Finance Protection Bureau Guidelines. Foreclosure procedures and timelines vary depending on whether the property address resides in a judicial or non-judicial state. Judicial states require the foreclosure to be processed through the state's courts while non-judicial states are processed without court intervention. Foreclosure timelines vary according to state law.




169

Note 6: Loans and Allowance for Credit Losses (continued)

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING    Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1‑4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $3.7 billion at December 31, 2014, and $4.5 billion at December 31, 2013, are not included in these past due and still accruing loans even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.
The following table shows non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.
 
 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

Loan 90 days or more past due and still accruing:
 
 
 
Total (excluding PCI):
$
17,810

 
23,219

Less:  FHA insured/VA guaranteed (1)(2)
16,827

 
21,274

Less:  Student loans guaranteed under the FFELP (3)
63

 
900

Total, not government insured/guaranteed
$
920

 
1,045

By segment and class, not government insured/guaranteed:
 
 
 
Commercial:
 
 
 
Commercial and industrial
$
31

 
11

Real estate mortgage
16

 
35

Real estate construction
—

 
97

Total commercial
47

 
143

Consumer:
 
 
 
Real estate 1-4 family first mortgage (2)
260

 
354

Real estate 1-4 family junior lien mortgage (2)
83

 
86

Credit card
364

 
321

Automobile
73

 
55

Other revolving credit and installment
93

 
86

Total consumer
873

 
902

Total, not government insured/guaranteed
$
920

 
1,045


(1)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(2)
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. At the end of second quarter 2014, all government guaranteed student loans were transferred to loans held for sale.





170

IMPAIRED LOANS   The table below summarizes key information for impaired loans. Our impaired loans predominantly include loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans generally have estimated losses which are included in the allowance for credit losses. We have impaired loans with no allowance for credit losses when loss content has been previously recognized through charge-offs and we do not anticipate
 
additional charge-offs or losses, or certain loans are currently performing in accordance with their terms and for which no loss has been estimated. Impaired loans exclude PCI loans. The table below includes trial modifications that totaled $452 million at December 31, 2014, and $650 million at December 31, 2013.
For additional information on our impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies).


 
 
 
Recorded investment 
 
 
 
(in millions)
Unpaid principal balance (1) 

 
Impaired loans 

 
Impaired loans with related allowance for credit losses 

 
Related allowance for credit losses 

December 31, 2014
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
Commercial and industrial
$
1,524

 
926

 
757

 
240

Real estate mortgage
3,190

 
2,483

 
2,405

 
591

Real estate construction
491

 
331

 
308

 
45

Lease financing
33

 
19

 
19

 
8

Total commercial
5,238

 
3,759

 
3,489

 
884

Consumer:
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
21,324

 
18,600

 
12,433

 
2,322

Real estate 1-4 family junior lien mortgage
3,094

 
2,534

 
2,009

 
653

Credit card
338

 
338

 
338

 
98

Automobile
190

 
127

 
55

 
8

Other revolving credit and installment
60

 
50

 
42

 
5

Total consumer (2)
25,006

 
21,649

 
14,877

 
3,086

Total impaired loans (excluding PCI)
$
30,244

 
25,408

 
18,366

 
3,970

December 31, 2013
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
Commercial and industrial
$
2,060

 
1,311

 
1,061

 
228

Real estate mortgage
4,269

 
3,375

 
3,264

 
819

Real estate construction
946

 
615

 
589

 
101

Lease financing
71

 
33

 
33

 
8

Total commercial
7,346

 
5,334

 
4,947

 
1,156

Consumer:
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
22,450

 
19,500

 
13,896

 
3,026

Real estate 1-4 family junior lien mortgage
3,130

 
2,582

 
2,092

 
681

Credit card
431

 
431

 
431

 
132

Automobile
245

 
189

 
95

 
11

Other revolving credit and installment
44

 
34

 
27

 
3

Total consumer (2)
26,300

 
22,736

 
16,541

 
3,853

Total impaired loans (excluding PCI)
$
33,646

 
28,070

 
21,488

 
5,009


(1)
Excludes the unpaid principal balance for loans that have been fully charged off or otherwise have zero recorded investment.
(2)
Years ended December 31, 2014 and 2013, include the recorded investment of $2.1 billion and $2.5 billion , respectively, of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and generally do not have an allowance.


171

Note 6: Loans and Allowance for Credit Losses (continued)

Commitments to lend additional funds on loans whose terms have been modified in a TDR amounted to $341 million and $407 million at December 31, 2014 and 2013, respectively.
 
The following tables provide the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.

 
 
Year ended December 31, 
 
 
2014
 
 
2013
 
 
2012
 
(in millions)
Average recorded investment 

 
Recognized interest income 

 
Average recorded investment 

 
Recognized interest income 

 
Average recorded investment 

 
Recognized interest income 

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
1,089

 
77

 
1,508

 
94

 
2,317

 
112

Real estate mortgage
2,924

 
150

 
3,842

 
141

 
4,821

 
119

Real estate construction
457

 
39

 
966

 
35

 
1,818

 
61

Lease financing
28

 
—

 
38

 
1

 
57

 
1

Total commercial
4,498

 
266

 
6,354

 
271

 
9,013

 
293

Consumer:
 
 
 
 
 
 
 
 
 
 
 
  Real estate 1-4 family first mortgage
19,086

 
934

 
19,419

 
973

 
15,750

 
803

Real estate 1-4 family junior lien mortgage
2,547

 
142

 
2,498

 
143

 
2,193

 
80

Credit card
381

 
46

 
480

 
57

 
572

 
63

Automobile
154

 
18

 
232

 
29

 
299

 
42

Other revolving credit and installment
39

 
4

 
30

 
3

 
25

 
2

Total consumer
22,207

 
1,144

 
22,659

 
1,205

 
18,839

 
990

Total impaired loans (excluding PCI)
$
26,705

 
1,410

 
29,013

 
1,476

 
27,852

 
1,283

 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Average recorded investment in impaired loans
$
26,705

 
29,013

 
27,852

Interest income:
 
 
 
 
 
Cash basis of accounting
$
435

 
426

 
316

Other (1)
975

 
1,050

 
967

Total interest income
$
1,410

 
1,476

 
1,283


(1)
Includes interest recognized on accruing TDRs, interest recognized related to certain impaired loans which have an allowance calculated using discounting, and amortization of purchase accounting adjustments related to certain impaired loans. See footnote 1 to the table of changes in the allowance for credit losses.


172

TROUBLED DEBT RESTRUCTURINGS (TDRs)    When, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to a borrower that we would not otherwise consider, the related loan is classified as a TDR. We do not consider any loans modified through a loan resolution such as foreclosure or short sale to be a TDR.
We may require some consumer 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, to determine if they can perform according to those terms. These arrangements represent trial modifications, which we classify and account for as TDRs. While loans are in trial payment programs, their original terms are not considered modified and they continue to advance through delinquency status and accrue interest according to their original terms. The planned modifications for these arrangements predominantly involve interest rate reductions or other interest rate concessions; however, the exact concession type and resulting financial effect are usually not finalized and do not take effect until the loan is permanently modified. The trial period terms are developed in accordance with our proprietary programs or the U.S. Treasury’s Making Homes Affordable programs for real estate 1-4 family first lien (i.e. Home Affordable Modification Program – HAMP) and junior lien (i.e. Second Lien Modification Program – 2MP) mortgage loans.
 
At December 31, 2014, the loans in trial modification period were $149 million under HAMP, $34 million under 2MP and $269 million under proprietary programs, compared with $253 million , $45 million and $352 million at December 31, 2013, respectively. Trial modifications with a recorded investment of $167 million at December 31, 2014, and $286 million at December 31, 2013, were accruing loans and $285 million and $364 million , respectively, were nonaccruing loans. Our experience is that substantially all of the mortgages that enter a trial payment period program are successful in completing the program requirements and are then permanently modified at the end of the trial period. Our allowance process considers the impact of those modifications that are probable to occur.
The following table summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that occurred during the period.


173

Note 6: Loans and Allowance for Credit Losses (continued)

 
Primary modification type (1) 
 
 
Financial effects of modifications
 
(in millions)
Principal (2) 

 
Interest rate reduction 

 
Other
 concessions (3)

 
Total 

 
Charge- offs (4) 

 
Weighted average interest rate reduction 
 
 
Recorded investment related to interest rate reduction (5)

Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
4

 
51

 
914

 
969

 
36

 
1.53
 
%
$
51

Real estate mortgage
7

 
182

 
929

 
1,118

 
—

 
1.21
 
 
182

Real estate construction
—

 
10

 
270

 
280

 
—

 
2.12
 
 
10

Total commercial
11

 
243

 
2,113

 
2,367

 
36

 
1.32
 
 
243

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
571

 
401

 
2,690

 
3,662

 
92

 
2.50
 
 
833

Real estate 1-4 family junior lien mortgage
50

 
114

 
246

 
410

 
64

 
3.27
 
 
157

Credit card
—

 
155

 
—

 
155

 
—

 
11.40
 
 
155

Automobile
2

 
5

 
85

 
92

 
36

 
8.56
 
 
5

Other revolving credit and installment
—

 
12

 
16

 
28

 
—

 
5.26
 
 
12

Trial modifications (6)
—

 
—

 
(74
)
 
(74
)
 
—

 
—
 
 
—

Total consumer
623

 
687

 
2,963

 
4,273

 
192

 
3.84
 
 
1,162

Total
$
634

 
930

 
5,076

 
6,640

 
228

 
3.41
 
%
$
1,405

Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
19

 
177

 
1,081

 
1,277

 
17

 
4.71
 
%
$
177

Real estate mortgage
33

 
307

 
1,391

 
1,731

 
8

 
1.66
 
 
308

Real estate construction
—

 
12

 
381

 
393

 
4

 
1.07
 
 
12

Total commercial
52

 
496

 
2,853

 
3,401

 
29

 
2.72
 
 
497

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
1,143

 
1,170

 
3,681

 
5,994

 
233

 
2.64
 
 
2,019

Real estate 1-4 family junior lien mortgage
103

 
181

 
472

 
756

 
42

 
3.33
 
 
276

Credit card
—

 
182

 
—

 
182

 
—

 
10.38
 
 
182

Automobile
3

 
12

 
97

 
112

 
34

 
7.66
 
 
12

Other revolving credit and installment
—

 
10

 
12

 
22

 
—

 
4.87
 
 
10

Trial modifications (6)
—

 
—

 
50

 
50

 
—

 
—
 
 
—

Total consumer
1,249

 
1,555

 
4,312

 
7,116

 
309

 
3.31
 
 
2,499

Total
$
1,301

 
2,051

 
7,165

 
10,517

 
338

 
3.21
 
%
$
2,996

Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
11

 
35

 
1,389

 
1,435

 
40

 
1.60
 
%
$
38

Real estate mortgage
47

 
219

 
1,907

 
2,173

 
12

 
1.57
 
 
226

Real estate construction
12

 
19

 
531

 
562

 
10

 
1.69
 
 
19

Lease financing
—

 
—

 
4

 
4

 
—

 
—
 
 
—

Total commercial
70

 
273

 
3,831

 
4,174

 
62

 
1.58
 
 
283

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
1,371

 
1,302

 
5,822

 
8,495

 
547

 
3.00
 
 
2,379

Real estate 1-4 family junior lien mortgage
79

 
244

 
756

 
1,079

 
512

 
3.70
 
 
313

Credit card
—

 
241

 
—

 
241

 
—

 
10.85
 
 
241

Automobile
5

 
54

 
265

 
324

 
50

 
6.90
 
 
56

Other revolving credit and installment
—

 
1

 
22

 
23

 
5

 
4.29
 
 
2

Trial modifications (6)
—

 
—

 
666

 
666

 
—

 
—
 
 
—

Total consumer
1,455

 
1,842

 
7,531

 
10,828

 
1,114

 
3.78
 
 
2,991

Total
$
1,525

 
2,115

 
11,362

 
15,002

 
1,176

 
3.59
 
%
$
3,274


(1)
Amounts represent the recorded investment in loans after recognizing the effects of the TDR, if any. TDRs may have multiple types of concessions, but are presented only once in the first modification type based on the order presented in the table above. The reported amounts include loans remodified of $2.1 billion , $3.1 billion and $3.9 billion , for the years ended December 31, 2014, 2013, and 2012, respectively.
(2)
Principal modifications include principal forgiveness at the time of the modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with a zero percent contractual interest rate.
(3)
Other concessions include loan renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the contractual interest rate.
(4)
Charge-offs include write-downs of the investment in the loan in the period it is contractually modified. The amount of charge-off will differ from the modification terms if the loan has been charged down prior to the modification based on our policies. In addition, there may be cases where we have a charge-off/down with no legal principal modification. Modifications resulted in legally forgiving principal (actual, contingent or deferred) of $149 million , $393 million and $495 million for the years ended December 31, 2014, 2013, and 2012, respectively.
(5)
Reflects the effect of reduced interest rates on loans with principal or interest rate reduction primary modification type.
(6)
Trial modifications are granted a delay in payments due under the original terms during the trial payment period. However, these loans continue to advance through delinquency status and accrue interest according to their original terms. Any subsequent permanent modification generally includes interest rate related concessions; however, the exact concession type and resulting financial effect are usually not known until the loan is permanently modified. Trial modifications for the period are presented net of previously reported trial modifications that became permanent in the current period.


174

The table below summarizes permanent modification TDRs that have defaulted in the current period within 12 months of their permanent modification date. We are reporting these defaulted TDRs based on a payment default definition of 90 days
 
past due for the commercial portfolio segment and 60 days past due for the consumer portfolio segment.


 
Recorded investment of defaults 
 
 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Commercial:
 
 
 
 
 
Commercial and industrial
$
62

 
235

 
379

Real estate mortgage
117

 
303

 
579

Real estate construction
4

 
70

 
261

Lease financing
—

 
—

 
1

Total commercial
183

 
608

 
1,220

Consumer:
 
 
 
 
 
Real estate 1-4 family first mortgage
334

 
370

 
567

Real estate 1-4 family junior lien mortgage
29

 
34

 
55

Credit card
51

 
59

 
94

Automobile
14

 
18

 
55

Other revolving credit and installment
2

 
1

 
1

Total consumer
430

 
482

 
772

Total
$
613

 
1,090

 
1,992



Purchased Credit-Impaired Loans
Substantially all of our PCI loans were acquired from Wachovia on December 31, 2008, at which time we acquired commercial and consumer loans with a carrying value of $18.7 billion and $40.1 billion , respectively. The unpaid principal balance on December 31, 2008 was $98.2 billion for the total of commercial and consumer PCI loans. 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.

 
 
Dec 31,

 
Dec 31,

(in millions)
 
2014

 
2013

Commercial:
 
 
 
 
Commercial and industrial
 
$
75

 
215

Real estate mortgage
 
1,261

 
1,856

Real estate construction
 
171

 
433

Total commercial
 
1,507

 
2,504

Consumer:
 
 
 
 
Real estate 1-4 family first mortgage
 
21,712

 
24,100

Real estate 1-4 family junior lien mortgage
 
101

 
123

Total consumer
 
21,813

 
24,223

Total PCI loans (carrying value)
 
$
23,320

 
26,727

Total PCI loans (unpaid principal balance)
 
$
32,924

 
38,229



175

Note 6: Loans and Allowance for Credit Losses (continued)

ACCRETABLE YIELD   The excess of cash flows expected to be
collected over the carrying value of PCI loans is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the loan, or pools of loans. The accretable yield is affected by:
•
changes in interest rate indices for variable rate PCI loans – expected future cash flows are based on the variable rates in effect at the time of the regular evaluations of cash flows expected to be collected;
•
changes in prepayment assumptions – prepayments affect the estimated life of PCI loans which may change the amount of interest income, and possibly principal, expected to be collected; and
 
•
changes in the expected principal and interest payments over the estimated life – updates to expected cash flows are driven by the credit outlook and actions taken with borrowers. Changes in expected future cash flows from loan modifications are included in the regular evaluations of cash flows expected to be collected.
 
The change in the accretable yield related to PCI loans since the merger with Wachovia is presented in the following table.

 
(in millions)
2014

 
2013

 
2012

 
2009-2011

Total, beginning of period
$
17,392

 
18,548

 
15,961

 
10,447

Addition of accretable yield due to acquisitions
—

 
1

 
3

 
128

Accretion into interest income (1)
(1,599
)
 
(1,833
)
 
(2,152
)
 
(7,199
)
Accretion into noninterest income due to sales (2)
(37
)
 
(151
)
 
(5
)
 
(237
)
Reclassification from nonaccretable difference for loans with improving credit-related cash flows
2,243

 
971

 
1,141

 
4,213

Changes in expected cash flows that do not affect nonaccretable difference (3)
(209
)
 
(144
)
 
3,600

 
8,609

Total, end of period
$
17,790

 
17,392

 
18,548

 
15,961


(1)
Includes accretable yield released as a result of settlements with borrowers, which is included in interest income.
(2)
Includes accretable yield released as a result of sales to third parties, which is included in noninterest income.
(3)
Represents changes in cash flows expected to be collected due to the impact of modifications, changes in prepayment assumptions, changes in interest rates on variable rate PCI loans and sales to third parties.

176

PCI ALLOWANCE Based on our regular evaluation of estimates of cash flows expected to be collected, we may establish an allowance for a PCI loan or pool of loans, with a charge to income though the provision for losses. The following table
 
summarizes the changes in allowance for PCI loan losses since the merger with Wachovia.


(in millions)
Commercial 

 
Pick-a-Pay 

 
Other consumer 

 
Total 

Balance, December 31, 2008
$
—

 
—

 
—

 
—

Provision for loan losses
1,668

 
—

 
116

 
1,784

Charge-offs
(1,503
)
 
—

 
(50
)
 
(1,553
)
Balance, December 31, 2011
165

 
—

 
66

 
231

Provision for loan losses
25

 
—

 
7

 
32

Charge-offs
(102
)
 
—

 
(44
)
 
(146
)
Balance, December 31, 2012
88

 
—

 
29

 
117

Reversal of provision for loan losses
(52
)
 
—

 
(16
)
 
(68
)
Charge-offs
(10
)
 
—

 
(9
)
 
(19
)
Balance, December 31, 2013
26

 
—

 
4

 
30

Reversal of provision for loan losses
(12
)
 
—

 
(3
)
 
(15
)
Charge-offs
(3
)
 
—

 
(1
)
 
(4
)
Balance, December 31, 2014
$
11

 
—

 
—

 
11


COMMERCIAL PCI CREDIT QUALITY INDICATORS The following table provides a breakdown of commercial PCI loans by risk category.


(in millions)
Commercial and industrial 

 
Real estate mortgage 

 
Real estate construction 

 
Total 

December 31, 2014
 
 
 
 
 
 
 
By risk category:
 
 
 
 
 
 
 
Pass
$
21

 
783

 
118

 
922

Criticized
54

 
478

 
53

 
585

Total commercial PCI loans
$
75

 
1,261

 
171

 
1,507

December 31, 2013
 
 
 
 
 
 
 
By risk category:
 
 
 
 
 
 
 
Pass
$
118

 
324

 
160

 
602

Criticized
97

 
1,532

 
273

 
1,902

Total commercial PCI loans
$
215

 
1,856

 
433

 
2,504



177

Note 6: Loans and Allowance for Credit Losses (continued)

The following table provides past due information for commercial PCI loans.


(in millions)
Commercial and industrial 

 
Real estate mortgage 

 
Real estate construction 

 
Total 

December 31, 2014
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
Current-29 DPD and still accruing
$
75

 
1,135

 
161

 
1,371

30-89 DPD and still accruing
—

 
48

 
5

 
53

90+ DPD and still accruing
—

 
78

 
5

 
83

Total commercial PCI loans
$
75

 
1,261

 
171

 
1,507

December 31, 2013
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
Current-29 DPD and still accruing
$
210

 
1,684

 
355

 
2,249

30-89 DPD and still accruing
5

 
41

 
2

 
48

90+ DPD and still accruing
—

 
131

 
76

 
207

Total commercial PCI loans
$
215

 
1,856

 
433

 
2,504


CONSUMER PCI CREDIT QUALITY INDICATORS   Our consumer PCI loans were aggregated into several pools of loans at acquisition. Below, we have provided credit quality indicators based on the unpaid principal balance (adjusted for write-
 
downs) of the individual loans included in the pool, but we have not allocated the remaining purchase accounting adjustments, which were established at a pool level. The following table provides the delinquency status of consumer PCI loans.

 
 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Real estate 1-4 family first mortgage 

 
Real estate 1-4 family junior lien mortgage 

 
Total 

 
Real estate 1-4 family first mortgage 

 
Real estate 1-4 family junior lien mortgage 

 
Total 

By delinquency status:
 
 
 
 
 
 
 
 
 
 
 
Current-29 DPD and still accruing
$
19,236

 
168

 
19,404

 
20,712

 
171

 
20,883

30-59 DPD and still accruing
1,987

 
7

 
1,994

 
2,185

 
8

 
2,193

60-89 DPD and still accruing
1,051

 
3

 
1,054

 
1,164

 
4

 
1,168

90-119 DPD and still accruing
402

 
2

 
404

 
457

 
2

 
459

120-179 DPD and still accruing
440

 
3

 
443

 
517

 
4

 
521

180+ DPD and still accruing
3,654

 
83

 
3,737

 
4,291

 
95

 
4,386

Total consumer PCI loans (adjusted unpaid principal balance)
$
26,770

 
266

 
27,036

 
29,326

 
284

 
29,610

Total consumer PCI loans (carrying value)
$
21,712

 
101

 
21,813

 
24,100

 
123

 
24,223


178

The following table provides FICO scores for consumer PCI loans.  

 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Real estate 1-4 family first mortgage 

 
Real estate 1-4 family junior lien mortgage 

 
Total 

 
Real estate 1-4 family first mortgage 

 
Real estate 1-4 family junior lien mortgage 

 
Total 

By FICO:
 
 
 
 
 
 
 
 
 
 
 
< 600
$
7,708

 
75

 
7,783

 
9,933

 
101

 
10,034

600-639
5,416

 
53

 
5,469

 
6,029

 
60

 
6,089

640-679
6,718

 
69

 
6,787

 
6,789

 
70

 
6,859

680-719
4,008

 
39

 
4,047

 
3,732

 
35

 
3,767

720-759
1,728

 
13

 
1,741

 
1,662

 
11

 
1,673

760-799
875

 
6

 
881

 
865

 
5

 
870

800+
220

 
1

 
221

 
198

 
1

 
199

No FICO available
97

 
10

 
107

 
118

 
1

 
119

Total consumer PCI loans (adjusted unpaid principal balance)
$
26,770

 
266

 
27,036

 
29,326

 
284

 
29,610

Total consumer PCI loans (carrying value)
$
21,712

 
101

 
21,813

 
24,100

 
123

 
24,223


The following table shows the distribution of consumer PCI loans by LTV for real estate 1-4 family first mortgages and by CLTV for real estate 1-4 family junior lien mortgages.


 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Real
 estate 1-4 family first mortgage by LTV

 
Real estate 1-4 family junior lien mortgage by CLTV

 
Total 

 
Real estate 1-4 family first mortgage by LTV

 
Real estate 1-4 family junior lien mortgage by CLTV

 
Total

By LTV/CLTV:
 
 
 
 
 
 
 
 
 
 
 
0-60%
$
4,309

 
34

 
4,343

 
2,501

 
32

 
2,533

60.01-80%
11,264

 
71

 
11,335

 
8,541

 
42

 
8,583

80.01-100%
7,751

 
92

 
7,843

 
10,366

 
88

 
10,454

100.01-120% (1)
2,437

 
44

 
2,481

 
4,677

 
67

 
4,744

> 120% (1)
1,000

 
24

 
1,024

 
3,232

 
54

 
3,286

No LTV/CLTV available
9

 
1

 
10

 
9

 
1

 
10

Total consumer PCI loans (adjusted unpaid principal balance)
$
26,770

 
266

 
27,036

 
29,326

 
284

 
29,610

Total consumer PCI loans (carrying value)
$
21,712

 
101

 
21,813

 
24,100

 
123

 
24,223


(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% LTV/CLTV.




179


Note 7:  Premises, Equipment, Lease Commitments and Other Assets
 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

Land
$
1,748

 
1,759

Buildings
8,155

 
7,931

Furniture and equipment
7,215

 
7,517

Leasehold improvements
2,009

 
1,939

Premises and equipment leased under capital leases
79

 
82

Total premises and equipment
19,206

 
19,228

Less: Accumulated depreciation and amortization
10,463

 
10,072

Net book value, premises and equipment
$
8,743

 
9,156


Depreciation and amortization expense for premises and equipment was $1.2 billion , $1.2 billion and $1.3 billion in 2014 , 2013 and 2012 , respectively.
Dispositions of premises and equipment, included in noninterest expense, resulted in a net gain of $28 million in 2014 , a net loss of $15 million in 2013 and a net gain of $7 million in 2012 .
We have obligations under a number of noncancelable operating leases for premises and equipment. The leases predominantly expire over the next 15 years, with the longest expiring in 2105 , and many provide for periodic adjustment of rentals based 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, 2014 .
 
(in millions)
Operating leases 

 
Capital leases 

Year ended December 31,
 
 
 
2015
$
1,148

 
2

2016
1,033

 
2

2017
904

 
3

2018
777

 
3

2019
672

 
3

Thereafter
2,521

 
9

Total minimum lease payments
$
7,055

 
22

Executory costs
 
 
$
(8
)
Amounts representing interest
 
 
(5
)
Present value of net minimum lease payments
 
 
$
9

 
Operating lease rental expense (predominantly for premises), net of rental income, was $1.3 billion , $1.3 billion and $1.1 billion in 2014 ,  2013 and 2012 , respectively.
The components of other assets were:
 
 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

Nonmarketable equity investments:
 
 
 
Cost method:
 
 
 
Private equity and other
$
2,300

 
2,308

Federal bank stock
4,733

 
4,670

Total cost method
7,033

 
6,978

Equity method:
 
 
 
LIHTC investments (1)
7,278

 
6,209

Private equity and other
5,132

 
5,782

Total equity method
12,410

 
11,991

Fair value (2)
2,512

 
1,386

Total nonmarketable equity investments
21,955

 
20,355

Corporate/bank-owned life insurance
18,982

 
18,738

Accounts receivable (3)
27,151

 
21,422

Interest receivable
4,871

 
5,019

Core deposit intangibles
3,561

 
4,674

Customer relationship and other amortized intangibles
857

 
1,084

Foreclosed assets:
 
 
 
Residential real estate:
 
 
 
Government insured/guaranteed (3)
982

 
2,093

Non-government insured/guaranteed
671

 
814

Non-residential real estate
956

 
1,030

Operating lease assets
2,714

 
2,047

Due from customers on acceptances
201

 
279

Other (4)
16,156

 
8,787

Total other assets
$
99,057

 
86,342


(1)
Represents low income housing tax credit investments.
(2)
Represents nonmarketable equity investments for which we have elected the fair value option. See Note 17 (Fair Values of Assets and Liabilities) for additional information.
(3)
Upon adoption of ASU 2014-14, Classification of Certain Government-Guaranteed mortgage Loans Upon Foreclosure, certain government guaranteed residential real estate mortgage loans upon foreclosure are included in Accounts Receivable. Previously, these assets were included in government insured/guaranteed residential real estate foreclosed assets. This guidance was adopted during fourth quarter 2014, effective as of January 1, 2014. For more information on the classification of certain government-guaranteed mortgage loans upon foreclosure, see Note 1 (Summary of Significant Accounting Policies).
(4)
Includes derivatives designated as hedging instruments, free-standing derivatives (economic hedges), and derivative loan commitments, which are carried at fair value. See Note 16 (Derivatives) for additional information.
 
Income (expense) related to nonmarketable equity investments was:

 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Net realized gains from nonmarketable equity investments
$
1,479

 
1,158

 
1,086

All other
(741
)
 
(287
)
 
(185
)
Total
$
738

 
871

 
901



180

Note 8: Securitizations and Variable Interest Entities 

Involvement with SPEs
In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions. In a securitization transaction, assets from our balance sheet are transferred to an SPE, which then issues to investors various forms of interests in those assets and may also enter into derivative transactions. In a securitization transaction, we typically receive cash and/or other interests in an SPE as proceeds for the assets we transfer. Also, in certain transactions, we may retain the right to service the transferred receivables and to repurchase those receivables from the SPE if the outstanding balance of the receivables falls to a level where the cost exceeds the benefits of servicing such receivables. In addition, we may purchase the right to service loans in an SPE that were transferred to the SPE by a third party.
In connection with our securitization activities, we have various forms of ongoing involvement with SPEs, which may include:
•
underwriting securities issued by SPEs and subsequently making markets in those securities;
•
providing liquidity 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;
•
entering into other derivative contracts with SPEs;
•
holding senior or subordinated interests in SPEs;
•
acting as servicer or investment manager for SPEs; and
•
providing administrative or trustee services to SPEs.

 
SPEs are generally considered variable interest entities (VIEs). A VIE is an entity that has either a total equity investment that is insufficient to finance its activities without additional subordinated financial support or whose equity investors lack the ability to control the entity’s activities or lack the ability to receive expected benefits or absorb obligations in a manner that’s consistent with their investment in the entity. A VIE is consolidated by its primary beneficiary, the party that has both the power to direct the activities that most significantly impact the VIE and a variable interest that could potentially be significant to the VIE. A variable interest is a contractual, ownership or other interest that changes with changes in the fair value of the VIE’s net assets. To determine whether or not a variable interest we hold could potentially be significant to the VIE, we consider both qualitative and quantitative factors regarding the nature, size and form of our involvement with the VIE. We assess whether or not we are the primary beneficiary of a VIE on an on-going basis.
We have segregated our involvement with VIEs between those VIEs which we consolidate, those which we do not consolidate and those for which we account for the transfers of financial assets as secured borrowings. Secured borrowings are transactions involving transfers of our financial assets to third parties that are accounted for as financings with the assets pledged as collateral. Accordingly, the transferred assets remain recognized on our balance sheet. Subsequent tables within this Note further segregate these transactions by structure type.


181

Note 8: Securitizations and Variable Interest Entities (continued)

The classifications of assets and liabilities in our balance sheet associated with our transactions with VIEs follow: 
 



(in millions)
VIEs that we do not consolidate 

 
VIEs that we consolidate 

 
Transfers that we account for as secured borrowings 

 
Total 

December 31, 2014
 
 
 
Cash
$
—

 
117

 
4

 
121

Trading assets
2,165

 
—

 
204

 
2,369

Investment securities (1) 
18,271

 
875

 
4,592

 
23,738

Mortgages held for sale
—

 
—

 
—

 
—

Loans
13,195

 
4,509

 
5,280

 
22,984

Mortgage servicing rights
12,562

 
—

 
—

 
12,562

Other assets
7,456

 
316

 
52

 
7,824

Total assets
53,649

 
5,817

 
10,132

 
69,598

Short-term borrowings
—

 
—

 
3,141

 
3,141

Accrued expenses and other liabilities
848

 
49

(2)  
1

 
898

Long-term debt
2,585

 
1,628

(2)  
4,990

 
9,203

Total liabilities
3,433

 
1,677

 
8,132

 
13,242

Noncontrolling interests
—

 
103

 
—

 
103

Net assets
$
50,216

 
4,037

 
2,000

 
56,253

December 31, 2013
 
 
 
 
 
 
 
Cash
$
—

 
165

 
7

 
172

Trading assets
1,206

 
162

 
193

 
1,561

Investment securities (1)
18,795

 
1,352

 
8,976

 
29,123

Mortgages held for sale
—

 
38

 
—

 
38

Loans
7,652

 
6,058

 
6,021

 
19,731

Mortgage servicing rights (3)
15,281

 
—

 
—

 
15,281

Other assets
6,151

 
347

 
110

 
6,608

Total assets
49,085

 
8,122

 
15,307

 
72,514

Short-term borrowings
—

 
29

 
7,871

 
7,900

Accrued expenses and other liabilities (3)
1,395

 
99

(2)  
3

 
1,497

Long-term debt (3)
2,109

 
2,356

(2)  
5,673

 
10,138

Total liabilities
3,504

 
2,484

 
13,547

 
19,535

Noncontrolling interests
—

 
5

 
—

 
5

Net assets
$
45,581

 
5,633

 
1,760

 
52,974


(1)
Excludes certain debt securities related to loans serviced for the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and GNMA.
(2)
Includes the following VIE liabilities at December 31, 2014 and 2013, respectively, with recourse to the general credit of Wells Fargo: Accrued expenses and other liabilities, $0 million and $9 million ; and Long-term debt, $0 million and $29 million .
(3)
Amounts have been revised for "VIEs that we do not consolidate" to include assets and liabilities related to certain commercial mortgage securitizations and to conform to the current year presentation of long-term debt.

Transactions with Unconsolidated VIEs
Our transactions with VIEs include securitizations of residential mortgage loans, CRE loans, student loans, auto loans and leases and dealer floorplan loans; investment and financing activities involving collateralized debt obligations (CDOs) backed by asset-backed and CRE securities, collateralized loan obligations (CLOs) backed by corporate loans, and other types of structured financing. We have various forms of involvement with VIEs, including servicing, holding senior or subordinated interests, entering into liquidity arrangements, credit default swaps and other derivative contracts. Involvements with these unconsolidated VIEs are recorded on our balance sheet primarily in trading assets, investment securities, loans, MSRs, other assets and other liabilities, as appropriate.
The following tables provide a summary of unconsolidated VIEs with which we have significant continuing involvement, but we are not the primary beneficiary. We do not consider our continuing involvement in an unconsolidated VIE to be
 
significant when it relates to third-party sponsored VIEs for which we were not the transferor (unless we are servicer and have other significant forms of involvement) or if we were the sponsor only or sponsor and servicer but do not have any other forms of significant involvement.
Significant continuing involvement includes transactions where we were the sponsor or transferor and have other significant forms of involvement. Sponsorship includes transactions with unconsolidated VIEs where we solely or materially participated in the initial design or structuring of the entity or marketing of the transaction to investors. When we transfer assets to a VIE and account for the transfer as a sale, we are considered the transferor. We consider investments in securities (other than those held temporarily in trading), loans, guarantees, liquidity agreements, written options and servicing of collateral to be other forms of involvement that may be significant. We have excluded certain transactions with unconsolidated VIEs from the balances presented in the


182

following table where we have determined that our continuing involvement is not significant due to the temporary nature and size of our variable interests, because we were not the transferor or because we were not involved in the design of the unconsolidated VIEs. We also exclude from the table secured
 
borrowing transactions with unconsolidated VIEs (for information on these transactions, see the Transactions with Consolidated VIEs and Secured Borrowings section in this Note).


 
 
 
Carrying value - asset (liability) 
 
(in millions)
Total
VIE
assets 

 
Debt and equity interests (1) 

 
Servicing assets 

 
Derivatives 

 
Other commitments and guarantees 

 
Net assets 

December 31, 2014
 
 
 
 
 
 
 
Residential mortgage loan securitizations:
 
 
 
 
 
 
 
 
 
 
 
Conforming (2)
$
1,268,200

 
2,846

 
11,684

 
—

 
(581
)
 
13,949

Other/nonconforming
32,213

 
1,644

 
209

 
—

 
(8
)
 
1,845

Commercial mortgage securitizations
196,510

 
8,756

 
650

 
251

 
(32
)
 
9,625

Collateralized debt obligations:


 

 

 

 

 


Debt securities
5,039

 
11

 
—

 
163

 
(105
)
 
69

Loans (4)
5,347

 
5,221

 
—

 
—

 
—

 
5,221

Asset-based finance structures
18,954

 
13,044

 
—

 
(71
)
 
—

 
12,973

Tax credit structures
22,859

 
7,809

 
—

 
—

 
(2,585
)
 
5,224

Collateralized loan obligations
1,251

 
518

 
—

 
—

 
—

 
518

Investment funds
2,764

 
49

 
—

 
—

 
—

 
49

Other (5)
12,912

 
747

 
19

 
(18
)
 
(5
)
 
743

Total
$
1,566,049

 
40,645

 
12,562

 
325

 
(3,316
)
 
50,216

 
 
 
Maximum exposure to loss 
 
 
 
 
Debt and equity interests (1) 

 
Servicing assets 

 
Derivatives 

 
Other commitments and guarantees 

 
Net assets 

Residential mortgage loan securitizations:
 
 
 
 
 
 
 
 
 
 
 
Conforming
 
 
$
2,846

 
11,684

 
—

 
2,507

 
17,037

Other/nonconforming
 
 
1,644

 
209

 
—

 
345

 
2,198

Commercial mortgage securitizations
 
 
8,756

 
650

 
251

 
5,715

 
15,372

Collateralized debt obligations:
 
 

 

 

 

 


Debt securities
 
 
11

 
—

 
163

 
105

 
279

Loans (4)
 
 
5,221

 
—

 
—

 
—

 
5,221

Asset-based finance structures
 
 
13,044

 
—

 
89

 
656

 
13,789

Tax credit structures
 
 
7,809

 
—

 
—

 
725

 
8,534

Collateralized loan obligations
 
 
518

 
—

 
—

 
38

 
556

Investment funds
 
 
49

 
—

 
—

 
—

 
49

Other (5)
 
 
747

 
19

 
150

 
156

 
1,072

Total


 
$
40,645

 
12,562

 
653

 
10,247

 
64,107


(continued on following page)


183

Note 8: Securitizations and Variable Interest Entities (continued)

(continued from previous page)


 
 
Carrying value - asset (liability) 
 
(in millions)
Total
VIE
assets

Debt and equity interests (1) 

 
Servicing assets 

 
Derivatives 

 
Other commitments and guarantees 

 
Net assets 

December 31, 2013
 
 
 
 
 
 
 
 
 
 
Residential mortgage loan securitizations:
 
 
 
 
 
 
 
 
 
 
Conforming (2)
$
1,314,285

2,721

 
14,253

 
—

 
(745
)
 
16,229

Other/nonconforming
38,330

1,739

 
258

 
—

 
(26
)
 
1,971

Commercial mortgage securitizations (3)
202,700

7,627

 
747

 
209

 
(40
)
 
8,543

Collateralized debt obligations:



 

 

 

 
 
Debt securities
6,730

37

 
—

 
214

 
(130
)
 
121

Loans (4)
6,021

5,888

 
—

 
—

 
—

 
5,888

Asset-based finance structures
11,415

6,857

 
—

 
(84
)
 
—

 
6,773

Tax credit structures
23,112

6,455

 
—

 
—

 
(2,213
)
 
4,242

Collateralized loan obligations
4,382

1,061

 
—

 
—

 
—

 
1,061

Investment funds
3,464

54

 
—

 
—

 
—

 
54

Other (5)
10,343

860

 
23

 
5

 
(189
)
 
699

Total
$
1,620,782

33,299

 
15,281

 
344

 
(3,343
)
 
45,581

 
 
Maximum exposure to loss 
 
 
 
Debt and equity interests (1) 

 
Servicing assets 

 
Derivatives 

 
Other commitments and guarantees 

 
Net assets 

Residential mortgage loan securitizations:
 
 
 
 
 
 
 
 
 
 
Conforming
 
$
2,721

 
14,253

 
—

 
2,287

 
19,261

Other/nonconforming
 
1,739

 
258

 
—

 
346

 
2,343

Commercial mortgage securitizations (3)
 
7,627

 
747

 
322

 
5,232

 
13,928

Collateralized debt obligations:
 
 
 
 
 
 
 
 
 
 
Debt securities
 
37

 
—

 
214

 
130

 
381

Loans (4)
 
5,888

 
—

 
—

 
—

 
5,888

Asset-based finance structures
 
6,857

 
—

 
84

 
1,665

 
8,606

Tax credit structures
 
6,455

 
—

 
—

 
626

 
7,081

Collateralized loan obligations
 
1,061

 
—

 
—

 
159

 
1,220

Investment funds
 
54

 
—

 
—

 
31

 
85

Other (5)
 
860

 
23

 
178

 
188

 
1,249

Total
 
$
33,299

 
15,281

 
798

 
10,664

 
60,042


(1)
Includes total equity interests of $8.1 billion  at December 31, 2014 and $6.9 billion at December 31, 2013. 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)
Excludes assets and related liabilities with a recorded carrying value on our balance sheet of $1.7 billion and $2.1 billion at December 31, 2014 and 2013, respectively, for certain delinquent loans that are eligible for repurchase primarily from GNMA loan securitizations. The recorded carrying value represents the amount that would be payable if the Company was to exercise the repurchase option. The carrying amounts are excluded from the table because the loans eligible for repurchase do not represent interests in the VIEs.
(3)
December 31, 2013, has been revised to include certain commercial mortgage securitizations with FNMA and GNMA to conform with current period presentation.
(4)
Represents senior loans to trusts that are collateralized by asset-backed securities. The trusts invest primarily in senior tranches from a diversified pool of primarily U.S. asset securitizations, of which all are current and 70% and 72% were rated as investment grade by the primary rating agencies at December 31, 2014 and 2013, respectively. These senior loans are accounted for at amortized cost and are subject to the Company’s allowance and credit charge-off policies.
(5)
Includes structured financing and credit-linked note structures. Also contains investments in auction rate securities (ARS) issued by VIEs that we do not sponsor and, accordingly, are unable to obtain the total assets of the entity.

In the two preceding tables, “Total VIE assets” represents the remaining principal balance of assets held by unconsolidated VIEs using the most current information available. For VIEs that obtain exposure to assets synthetically through derivative instruments, the remaining notional amount of the derivative is included in the asset balance. “Carrying value” is the amount in our consolidated balance sheet related to our involvement with the unconsolidated VIEs. “Maximum exposure to loss” from our involvement with off-balance sheet entities, which is a required disclosure under GAAP, is determined as the carrying value of our involvement with off-balance sheet (unconsolidated) VIEs plus the remaining undrawn liquidity and lending commitments, the notional amount of net written derivative contracts, and generally the notional amount of, or stressed loss estimate for,
 
other commitments and guarantees. It represents estimated loss that would be incurred under severe, hypothetical circumstances, for which we believe the possibility is extremely remote, such as where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. Accordingly, this required disclosure is not an indication of expected loss.
 
RESIDENTIAL MORTGAGE LOANS   Residential mortgage loan securitizations are financed through the issuance of fixed-rate 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 the loans and may hold other beneficial


184

interests issued by the VIEs. We also may be exposed to limited liability related to recourse agreements and repurchase agreements we make to our issuers and purchasers, which are included in other commitments and guarantees. In certain instances, we may service residential mortgage loan securitizations structured by third parties whose loans we did not originate or transfer. Our residential mortgage loan securitizations consist of conforming and nonconforming securitizations.
Conforming residential mortgage loan securitizations are those that are guaranteed by the government-sponsored entities (GSEs), including GNMA. Because of the power of the GSEs over the VIEs that hold the assets from these conforming residential mortgage loan securitizations, we do not consolidate them.
The loans sold to the VIEs in nonconforming residential mortgage loan securitizations are those that do not qualify for a GSE guarantee. We may hold variable interests issued by the VIEs, primarily in the form of senior securities. We do not consolidate the nonconforming residential mortgage loan securitizations included in the table because we either do not hold any variable interests, hold variable interests that we do not consider potentially significant or are not the primary servicer for a majority of the VIE assets.
Other commitments and guarantees include amounts related to loans sold that we may be required to repurchase, or otherwise indemnify or reimburse the investor or insurer for losses incurred, due to material breach of contractual representations and warranties as well as other retained recourse arrangements. The maximum exposure to loss for material breach of contractual representations and warranties represents a stressed case estimate we utilize for determining stressed case regulatory capital needs and is considered to be a remote scenario.
 
COMMERCIAL MORTGAGE LOAN SECURITIZATIONS Commercial mortgage loan securitizations are financed through the issuance of fixed or floating-rate asset-backed securities, which are collateralized by the loans transferred to the VIE. In a typical securitization, we may transfer loans we originate to these VIEs, account for the transfers as sales, retain the right to service the loans and may hold other beneficial interests issued by the VIEs. In certain instances, we may service commercial mortgage loan securitizations structured by third parties whose loans we did not originate or transfer. We typically serve as primary or master servicer of these VIEs. The primary or master servicer in a commercial mortgage loan securitization typically cannot make the most significant decisions impacting the performance of the VIE and therefore does not have power over the VIE. We do not consolidate the commercial mortgage loan securitizations included in the disclosure because we either do not have power or do not have a variable interest that could potentially be significant to the VIE.
 
COLLATERALIZED DEBT OBLIGATIONS (CDOs)   A CDO is a securitization where a VIE purchases a pool of assets consisting of asset-backed securities and issues multiple tranches of equity or notes to investors. In some CDOs, a portion of the assets are obtained synthetically through the use of derivatives such as credit default swaps or total return swaps.
In addition to our role as arranger we may have other forms of involvement with these CDOs. Such involvement may include acting as liquidity provider, derivative counterparty, secondary market maker or investor. For certain CDOs, we may also act as the collateral manager or servicer. We receive fees in connection with our role as collateral manager or servicer.
 
We assess whether we are the primary beneficiary of CDOs based on our role in them in combination with the variable interests we hold. Subsequently, we monitor our ongoing involvement to determine if the nature of our involvement has changed. We are not the primary beneficiary of these CDOs in most cases because we do not act as the collateral manager or servicer, which generally denotes power. In cases where we are the collateral manager or servicer, we are not the primary beneficiary because we do not hold interests that could potentially be significant to the VIE.
 
COLLATERALIZED LOAN OBLIGATIONS (CLOs)   A CLO is a securitization where an SPE purchases a pool of assets consisting of loans and issues multiple tranches of equity or notes to investors. Generally, CLOs are structured on behalf of a third party asset manager that typically selects and manages the assets for the term of the CLO. Typically, the asset manager has the power over the significant decisions of the VIE through its discretion to manage the assets of the CLO. We assess whether we are the primary beneficiary of CLOs based on our role in them and the variable interests we hold. In most cases, we are not the primary beneficiary because we do not have the power to manage the collateral in the VIE.
In addition to our role as arranger, we may have other forms of involvement with these CLOs. Such involvement may include acting as underwriter, derivative counterparty, secondary market maker or investor. For certain CLOs, we may also act as the servicer, for which we receive fees in connection with that role. We also earn fees for arranging these CLOs and distributing the securities.
 
ASSET-BASED FINANCE STRUCTURES   We engage in various forms of structured finance arrangements with VIEs that are collateralized by various asset classes including energy contracts, auto and other transportation leases, intellectual property, equipment and general corporate credit. We typically provide senior financing, and may act as an interest rate swap or commodity derivative counterparty when necessary. In most cases, we are not the primary beneficiary of these structures because we do not have power over the significant activities of the VIEs involved in them.
In fourth quarter 2014, we sold $8.3 billion of government guaranteed student loans, including the rights to service the loans, to a third party, resulting in a $217 million gain. In connection with the sale, we provided $6.5 billion in floating-rate loan financing to an asset backed financing entity (VIE) formed by the third party purchaser. Our financing, which is fully collateralized by government guaranteed student loans, is measured at amortized cost and classified in loans on the balance sheet. The collateral supporting our loan includes a portion of the student loans we sold. We are not the primary beneficiary of the VIE and, therefore, are not required to consolidate the entity as we do not have power over the significant activities of the entity. For information on the estimated fair value of the loan and related sensitivity analysis, see the Retained Interests from Unconsolidated VIEs section in this Note.
In addition, we also have investments in asset-backed securities that are collateralized by auto leases or loans and cash. These fixed-rate and variable-rate securities have been structured as single-tranche, fully amortizing, unrated bonds that are equivalent to investment-grade securities due to their significant overcollateralization. The securities are issued by VIEs that have been formed by third party auto financing institutions primarily because they require a source of liquidity


185

Note 8: Securitizations and Variable Interest Entities (continued)

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 housing and sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits. In some instances, our investments in these structures may require that we fund future capital commitments at the discretion of the project sponsors. While the size of our investment in a single entity may at times exceed 50% of the outstanding equity interests, we do not consolidate these structures due to the project sponsor’s ability to manage the projects, which is indicative of power in them.
 
INVESTMENT FUNDS   We do not consolidate the investment funds because we do not absorb the majority of the expected future variability associated with the funds’ assets, including variability associated with credit, interest rate and liquidity risks.

OTHER TRANSACTIONS WITH VIEs   Auction rate securities (ARS) are debt instruments with long-term maturities, which re-price more frequently, and preferred equities with no maturity. At December 31, 2014, we held in our available-for-sale securities portfolio $567 million of ARS issued by VIEs compared with $653 million at December 31, 2013. We acquired the ARS pursuant to agreements entered into in 2008 and 2009.
We do not consolidate the VIEs that issued the ARS because we do not have power over the activities of the VIEs.
 
TRUST PREFERRED SECURITIES   VIEs that we wholly own issue debt securities or preferred equity to third party investors. All of the proceeds of the issuance are invested in debt securities or preferred equity that we issue to the VIEs. The VIEs’
 
operations and cash flows relate only to the issuance, administration and repayment of the securities held by third parties. We do not consolidate these VIEs because the sole assets of the VIEs are receivables from us, even though we own all of the voting equity shares of the VIEs, have fully guaranteed the obligations of the VIEs and may have the right to redeem the third party securities under certain circumstances. In our consolidated balance sheet at December 31, 2014 and December 31, 2013, we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $2.1 billion and $1.9 billion , respectively, and the preferred equity securities issued to the VIEs as preferred stock with a carrying value of $2.5 billion at both dates. These amounts are in addition to the involvements in these VIEs included in the preceding table.
In 2013, we redeemed $2.8 billion of trust preferred securities that will no longer count as Tier 1 capital under the Dodd-Frank Act and the Basel Committee recommendations known as the Basel III standards.
 
Securitization Activity Related to Unconsolidated VIEs
We use VIEs to securitize consumer and CRE loans and other types of financial assets. We typically retain the servicing rights from these sales and may continue to hold other beneficial interests in the VIEs. We may also provide liquidity to investors in the beneficial interests and credit enhancements in the form of standby letters of credit. Through these securitizations we may be exposed to liability under limited amounts of recourse as well as standard representations and warranties we make to purchasers and issuers. The following table presents the cash flows with our securitization trusts that were involved in transfers accounted for as sales.


 
Year ended December 31,
 
 
2014
 
 
2013
 
 
2012
 
(in millions)
Mortgage loans 

 
Other financial assets 

 
Mortgage loans 

 
Other financial assets 

 
Mortgage loans 

 
Other financial assets 

Sales proceeds from securitizations
$
164,331

 
—

 
357,807

 
—

 
535,372

 
—

Fees from servicing rights retained
4,062

 
8

 
4,240

 
10

 
4,433

 
10

Cash flows from other interests held (1)
1,417

 
75

 
2,284

 
93

 
1,767

 
135

Purchases of delinquent assets
6

 
—

 
18

 
—

 
62

 
—

Servicing advances, net of repayments
(170
)
 
—

 
(34
)
 
—

 
226

 
—


(1)
Cash flows from other interests held include principal and interest payments received on retained bonds and excess cash flows received on interest-only strips.

In 2014, 2013, and 2012, we recognized net gains of $288 million , $149 million and $518 million , respectively, from transfers accounted for as sales of financial assets in securitizations. These net gains primarily relate to commercial mortgage securitizations and residential mortgage securitizations where the loans were not already carried at fair value.
Sales with continuing involvement during 2014, 2013 and 2012 predominantly related to securitizations of residential mortgages that are sold to the GSEs, including FNMA, FHLMC and GNMA (conforming residential mortgage securitizations). During 2014, 2013 and 2012 we transferred $155.8 billion , $343.9 billion and $517.3 billion respectively, in fair value of conforming residential mortgages to unconsolidated VIEs and recorded the transfers as sales. Substantially all of these transfers did not result in a gain or loss because the loans were
 
already carried at fair value. In connection with all of these transfers, in 2014 we recorded a $1.2 billion servicing asset, measured at fair value using a Level 3 measurement technique, available-for-sale securities of $751 million , classified as Level 2, and a $44 million liability for repurchase losses which reflects management’s estimate of probable losses related to various representations and warranties for the loans transferred, initially measured at fair value. In 2013, we recorded a $3.5 billion servicing asset and a $143 million liability. In 2012, we recorded a $4.9 billion servicing asset and a $275 million liability.


186

We used the following key weighted-average assumptions to measure residential mortgage servicing rights at the date of securitization:

 
Residential mortgage servicing rights 
 
 
2014

 
2013

 
2012

Year ended December 31,
 
 
 
 
 
Prepayment speed (1)
12.4
%
 
11.2

 
13.4

Discount rate
7.6

 
7.3

 
7.3

Cost to service ($ per loan) (2)
$
259

 
184

 
151


(1)
The prepayment speed assumption for residential mortgage servicing rights includes a blend of prepayment speeds and default rates. Prepayment speed assumptions are influenced by mortgage interest rate inputs as well as our estimation of drivers of borrower behavior.
(2)
Includes costs to service and unreimbursed foreclosure costs, which can vary period to period depending on the mix of modified government-guaranteed loans sold to GNMA.

During 2014, 2013 and 2012, we transferred $10.3 billion , $5.6 billion and $3.4 billion , respectively, in fair value of commercial mortgages to unconsolidated VIEs and recorded the transfers as sales. These transfers resulted in a gain of $198 million in 2014, $152 million in 2013 and $178 million in 2012, respectively, because the loans were carried at LOCOM. In connection with these transfers, in 2014 we recorded a servicing
 
asset of $99 million , initially measured at fair value using a Level 3 measurement technique, and available-for-sale securities of $100 million , classified as Level 2. In 2013, we recorded a servicing asset of $20 million and available-for-sale securities of $54 million . In 2012, we recorded a servicing asset of $13 million and available-for-sale securities of $116 million .

Retained Interests from Unconsolidated VIEs
The following table provides 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. Residential mortgage-backed securities retained in securitizations issued through GSEs, such as FNMA, FHLMC and GNMA, are excluded from the table because these securities have a remote risk of credit loss due to the GSE guarantee. These securities also have economic characteristics similar to GSE mortgage-backed securities that we purchase, which are not included in the table. Subordinated interests include only those bonds whose credit rating was below AAA by a major rating agency at issuance. Senior interests include only those bonds whose credit rating was AAA by a major rating agency at issuance. The information presented excludes trading positions held in inventory.



187

Note 8: Securitizations and Variable Interest Entities (continued)

 
 
 
Other interests held
 
 
Residential mortgage servicing rights (1) 

 
Interest-only strips 

 
Consumer

 
 
Commercial (2)
 
($ in millions, except cost to service amounts)
 
 
Subordinated bonds

 
 
Subordinated bonds

 
Senior bonds

Fair value of interests held at December 31, 2014
$
12,738

 
117

 
36

 
 
294

 
546

Expected weighted-average life (in years)
5.7

 
3.9

 
5.5

 
 
2.9

 
6.2

 
 
 
 
 
 
 
 
 
 
 
Key economic assumptions:
 
 
 
 
 
 
 
 
 
 
Prepayment speed assumption (3)
12.5
%
 
11.4

 
7.1

 
 
 
 
 
Decrease in fair value from:
 
 
 
 
 
 
 
 
 
 
10% adverse change
$
738

 
2

 
—

 
 
 
 
 
25% adverse change
1,754

 
6

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate assumption
7.6
%
 
18.7

 
3.9

 
 
4.7

 
2.8

Decrease in fair value from:
 
 
 
 
 
 
 
 
 
 
100 basis point increase
$
617

 
2

 
2

 
 
8

 
29

200 basis point increase
1,178

 
4

 
3

 
 
15

 
55

 
 
 
 
 
 
 
 
 
 
 
Cost to service assumption ($ per loan)
179

 
 
 
 
 
 
 
 
 
Decrease in fair value from:
 
 
 
 
 
 
 
 
 
 
10% adverse change
579

 
 
 
 
 
 
 
 
 
25% adverse change
1,433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit loss assumption
 
 
 
 
0.4
%
 
 
4.1

 
—

Decrease in fair value from:
 
 
 
 
 
 
 
 
 
 
10% higher losses
 
 
 
 
$
—

 
 
3

 
—

25% higher losses
 
 
 
 
—

 
 
10

 
—

Fair value of interests held at December 31, 2013
$
15,580

 
135

 
39

 
 
283

 
587

Expected weighted-average life (in years)
6.4

 
3.8

 
5.9

 
 
3.6

 
6.3

 
 
 
 
 
 
 
 
 
 
 
Key economic assumptions:
 
 
 
 
 
 
 
 
 
 
Prepayment speed assumption (3)
10.7
%
 
10.7

 
6.7

 
 
 
 
 
Decrease in fair value from:
 
 
 
 
 
 
 
 
 
 
10% adverse change
$
864

 
3

 
—

 
 
 
 
 
25% adverse change
2,065

 
7

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate assumption
7.8
%
 
18.3

 
4.4

 
 
4.5

 
3.6

Decrease in fair value from:
 
 
 
 
 
 
 
 
 
 
100 basis point increase
$
840

 
2

 
2

 
 
30

 
30

200 basis point increase
1,607

 
5

 
4

 
 
38

 
58

 
 
 
 
 
 
 
 
 
 
 
Cost to service assumption ($ per loan)
191

 
 
 
 
 
 
 
 
 
Decrease in fair value from:
 
 
 
 
 
 
 
 
 
 
10% adverse change
636

 
 
 
 
 
 
 
 
 
25% adverse change
1,591

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit loss assumption
 
 
 
 
0.4
%
 
 
14.2

 
—

Decrease in fair value from:
 
 
 
 
 
 
 
 
 
 
10% higher losses
 
 
 
 
$
—

 
 
29

 
—

25% higher losses
 
 
 
 
—

 
 
39

 
1


(1)
See narrative following this table for a discussion of commercial mortgage servicing rights.
(2)
Prepayment speed assumptions do not significantly impact the value of commercial mortgage securitization bonds as the underlying commercial mortgage loans experience significantly lower prepayments due to certain contractual restrictions, impacting the borrower’s ability to prepay the mortgage.
(3)
The prepayment speed assumption for residential mortgage servicing rights includes a blend of prepayment speeds and default rates. Prepayment speed assumptions are influenced by mortgage interest rate inputs as well as our estimation of drivers of borrower behavior.

188

In addition to residential mortgage servicing rights (MSRs) included in the previous table, we have a small portfolio of commercial MSRs with a fair value of $1.6 billion at both December 31, 2014 and 2013. The nature of our commercial MSRs, which are carried at LOCOM, is different from our residential MSRs. Prepayment activity on serviced loans does not significantly impact the value of commercial MSRs because, unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions, impacting the borrower’s ability to prepay the mortgage. Additionally, for our commercial MSR portfolio, we are typically master/primary servicer, but not the special servicer, who is separately responsible for the servicing and workout of delinquent and foreclosed loans. It is the special servicer, similar to our role as servicer of residential mortgage loans, who is affected by higher servicing and foreclosure costs due to an increase in delinquent and foreclosed loans. Accordingly, prepayment speeds and costs to service are not key assumptions for commercial MSRs as they do not significantly impact the valuation. The primary economic driver impacting the fair value of our commercial MSRs is forward interest rates, which are derived from market observable yield curves used to price capital markets instruments. Market interest rates most significantly affect interest earned on custodial deposit balances. The sensitivity of the current fair value to an immediate adverse 25% change in the assumption about interest earned on deposit balances at December 31, 2014, and 2013, results in a decrease in fair value of $185 million and $175 million , respectively. See Note 9 (Mortgage Banking Activities) for further information on our commercial MSRs.
We also have a $6.5 billion loan to an unconsolidated third party VIE that we extended in fourth quarter 2014 in conjunction with our sale of government guaranteed student loans. The loan is carried at amortized cost and approximates fair value at December 31, 2014. The estimated fair value of the loan is considered a Level 3 measurement that is determined using discounted cash flows that are based on changes in the discount rate due to changes in the risk premium component
 
(credit spreads). The primary economic assumption impacting the fair value of our loan is the discount rate. Changes in the credit loss assumption are not expected to affect the estimated fair value of the loan due to the government guarantee of the underlying collateral. The sensitivity of the current fair value to an immediate adverse increase of 200 basis points in the risk premium component of the discount rate assumption is a decrease in fair value of $130 million at December 31, 2014. For more information on the student loan sale, see the discussion on Asset-Based Finance Structures earlier in this Note.
The sensitivities in the preceding paragraphs and table are hypothetical and caution should be exercised when relying on this data. Changes in value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in value may not be linear. Also, the effect of a variation in a particular assumption on the value of the other interests held is calculated independently without changing any other assumptions. In reality, changes in one factor may result in changes in others (for example, changes in prepayment speed estimates could result in changes in the credit losses), which might magnify or counteract the sensitivities.

Off-Balance Sheet Loans
The following table presents information about the principal balances of off-balance sheet loans that were sold or securitized, including residential mortgage loans sold to FNMA, FHLMC, GNMA and other investors, for which we have some form of continuing involvement (primarily servicer). Delinquent loans include loans 90 days or more past due and loans in bankruptcy, regardless of delinquency status. For loans sold or securitized where servicing is our only form of continuing involvement, we would only experience a loss if we were required to repurchase a delinquent loan or foreclosed asset due to a breach in representations and warranties associated with our loan sale or servicing contracts.


 
 
 
 
 
 
 
 
 
Net charge-offs 
 
 
Total loans
 
 
Delinquent loans and foreclosed assets (1)
 
 
Year ended 
 
 
December 31, 
 
 
December 31, 
 
 
December 31, 
 
(in millions)
2014

 
2013

 
2014

 
2013

 
2014

 
2013

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Real estate mortgage
114,081

 
119,346

 
7,949

 
8,808

 
621

 
617

Total commercial
114,081

 
119,346

 
7,949

 
8,808

 
621

 
617

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage (2)(3)
1,322,136

 
1,387,822

 
28,639

 
32,911

 
1,209

 
2,318

Real estate 1-4 family junior lien mortgage
1

 
1

 
—

 
—

 
—

 
—

Other revolving credit and installment
1,599

 
1,790

 
75

 
99

 
1

 
—

Total consumer
1,323,736

 
1,389,613

 
28,714

 
33,010

 
1,210

 
2,318

Total off-balance sheet sold or securitized loans (4)
$
1,437,817

 
1,508,959

 
36,663

 
41,818

 
1,831

 
2,935


(1)
Includes $3.3 billion and $2.8 billion of commercial foreclosed assets and $2.7 billion and $3.9 billion of consumer foreclosed assets at December 31, 2014 and 2013, respectively.
(2)
Total loans in prior period have been revised to include whole loan sales for which we have some form of continuing involvement.
(3)
Delinquent loans and foreclosed assets in prior period have been revised to include whole loan sale delinquencies and transferred assets in foreclosure status for which we have risk of loss. The related net charge-offs have also been revised.
(4)
At December 31, 2014 and 2013, the table includes total loans of $1.3 trillion at both dates and delinquent loans of $16.5 billion and $17.9 billion , respectively for FNMA, FHLMC and GNMA. Net charge-offs exclude loans sold to FNMA, FHLMC and GNMA as we do not service or manage the underlying real estate upon foreclosure and, as such, do not have access to net charge-off information.

189

Note 8: Securitizations and Variable Interest Entities (continued)

Transactions with Consolidated VIEs and Secured Borrowings
The following table presents a summary of transfers of financial assets accounted for as secured borrowings and involvements with consolidated VIEs. “Assets” are presented using GAAP measurement methods, which may include fair value, credit impairment or other adjustments, and therefore in some
 
instances will differ from “Total VIE assets.” For VIEs that obtain exposure synthetically through derivative instruments, the remaining notional amount of the derivative is included in “Total VIE assets.” On our consolidated balance sheet, we separately disclose the consolidated assets of certain VIEs that can only be used to settle the liabilities of those VIEs.


 
 
 
Carrying value
 
(in millions)
Total VIE assets 

 
Assets

 
Liabilities 

 
Noncontrolling interests 

 
Net assets 

December 31, 2014
 
 
 
 
 
 
 
 
 
Secured borrowings:
 
 
 
 
 
 
 
 
 
Municipal tender option bond securitizations
$
5,422

 
4,837

 
(3,143
)
 
—

 
1,694

Commercial real estate loans
250

 
250

 
(63
)
 
—

 
187

Residential mortgage securitizations
4,804

 
5,045

 
(4,926
)
 
—

 
119

Total secured borrowings
10,476

 
10,132

 
(8,132
)
 
—

 
2,000

Consolidated VIEs:
 
 
 
 
 
 
 
 
 
Nonconforming residential mortgage loan securitizations
5,041

 
4,491

 
(1,509
)
 
—

 
2,982

Structured asset finance
47

 
47

 
(23
)
 
—

 
24

Investment funds
904

 
904

 
(2
)
 
—

 
902

Other
431

 
375

 
(143
)
 
(103
)
 
129

Total consolidated VIEs
6,423

 
5,817

 
(1,677
)
 
(103
)
 
4,037

Total secured borrowings and consolidated VIEs
$
16,899

 
15,949

 
(9,809
)
 
(103
)
 
6,037

December 31, 2013
 
 
 
 
 
 
 
 
 
Secured borrowings:
 
 
 
 
 
 
 
 
 
Municipal tender option bond securitizations
$
11,626

 
9,210

 
(7,874
)
 
—

 
1,336

Commercial real estate loans
486

 
486

 
(277
)
 
—

 
209

Residential mortgage securitizations
5,337

 
5,611

 
(5,396
)
 
—

 
215

Total secured borrowings
17,449

 
15,307

 
(13,547
)
 
—

 
1,760

Consolidated VIEs:
 
 
 
 
 
 
 
 
 
Nonconforming residential mortgage loan securitizations
6,770

 
6,018

 
(2,214
)
 
—

 
3,804

Structured asset finance
56

 
56

 
(18
)
 
—

 
38

Investment funds
1,536

 
1,536

 
(70
)
 
—

 
1,466

Other
582

 
512

 
(182
)
 
(5
)
 
325

Total consolidated VIEs
8,944

 
8,122

 
(2,484
)
 
(5
)
 
5,633

Total secured borrowings and consolidated VIEs
$
26,393

 
$
23,429

 
$
(16,031
)
 
$
(5
)
 
$
7,393


In addition to the transactions included in the previous table, at both December 31, 2014, and December 31, 2013, we had approximately $6.0 billion of private placement debt financing issued through a consolidated VIE. The issuance is classified as long-term debt in our consolidated financial statements. At December 31, 2014, and December 31, 2013, we pledged approximately $637 million and $6.6 billion in loans (principal and interest eligible to be capitalized), $5.7 billion and $160 million in available-for-sale securities, and $0 million and $180 million in cash and cash equivalents to collateralize the VIE’s borrowings, respectively. These assets were not transferred to the VIE, and accordingly we have excluded the VIE from the previous table.
We have raised financing through the securitization of certain financial assets in transactions with VIEs accounted for as secured borrowings. We also consolidate VIEs where we are the primary beneficiary. In certain transactions we provide contractual support in the form of limited recourse and liquidity to facilitate the remarketing of short-term securities issued to third party investors. Other than this limited contractual support, the assets of the VIEs are the sole source of repayment of the securities held by third parties.
 
 
MUNICIPAL TENDER OPTION BOND SECURITIZATIONS   As part of our normal investment portfolio activities, we consolidate municipal bond trusts that hold highly rated, long-term, fixed-rate 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 that significantly impact the economic performance of the municipal bond vehicle, primarily by directing the sale of the municipal bonds owned by the vehicle. In addition, the residual interest owners have the right to receive benefits and bear losses that are proportional to owning the underlying municipal bonds in the trusts. The trusts obtain financing by issuing floating-rate trust certificates that reprice on a weekly or other basis to third-party investors. Under certain conditions, if we elect to terminate the trusts and withdraw the underlying assets, the third party investors are entitled to a small portion of any unrealized gain on the underlying assets. We may serve as remarketing agent and/or liquidity provider for the trusts. The floating-rate investors have the right to tender the certificates at specified dates, often with as little as seven days’ notice. Should we be unable to remarket


190

the tendered certificates, we are generally obligated to purchase them at par under standby liquidity facilities unless the bond’s credit rating has declined below investment grade or there has been an event of default or bankruptcy of the issuer and insurer.
 
NONCONFORMING RESIDENTIAL MORTGAGE LOAN SECURITIZATIONS  We have consolidated certain of our nonconforming residential mortgage loan securitizations in accordance with consolidation accounting guidance. We have determined we are the primary beneficiary of these securitizations because we have the power to direct the most significant activities of the entity through our role as primary servicer and also hold variable interests that we have determined to be significant. The nature of our variable interests in these entities may include beneficial interests issued by the VIE, mortgage servicing rights and recourse or repurchase reserve liabilities. The beneficial interests issued by the VIE that we hold include either subordinate or senior securities held in an amount that we consider potentially significant.
 
INVESTMENT FUNDS  We have consolidated certain of our investment funds where we manage the assets of the fund and our interests absorb a majority of the funds’ variability. We consolidate these VIEs because we have discretion over the management of the assets and are the sole investor in these funds.


191

Note 9:  Mortgage Banking Activities 
Mortgage banking activities, included in the Community Banking and Wholesale Banking operating segments, consist of residential and commercial mortgage originations, sale activity and servicing.
 
We apply the amortization method to commercial MSRs and apply the fair value method to residential MSRs. The changes in MSRs measured using the fair value method were:


 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Fair value, beginning of year
$
15,580

 
11,538

 
12,603

Servicing from securitizations or asset transfers (1)
1,196

 
3,469

 
5,182

Sales
(7
)
 
(583
)
 
(293
)
Net additions
1,189

 
2,886

 
4,889

Changes in fair value:
 
 
 
 
 
Due to changes in valuation model inputs or assumptions:
 
 
 
 
 
Mortgage interest rates (2)
(2,150
)
 
4,362

 
(2,092
)
Servicing and foreclosure costs (3)
(20
)
 
(228
)
 
(677
)
Discount rates (4)
(55
)
 
—

 
(397
)
Prepayment estimates and other (5)
103

 
(736
)
 
273

Net changes in valuation model inputs or assumptions
(2,122
)
 
3,398

 
(2,893
)
Other changes in fair value (6)
(1,909
)
 
(2,242
)
 
(3,061
)
Total changes in fair value
(4,031
)
 
1,156

 
(5,954
)
Fair value, end of year
$
12,738

 
15,580

 
11,538


(1)
The year ended December 31, 2012, includes $315 million residential MSRs transferred from amortized MSRs that we elected to carry at fair value effective January 1, 2012.
(2)
Includes prepayment speed changes as well as other valuation changes due to changes in mortgage interest rates (such as changes in estimated interest earned on 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.
(5)
Represents changes driven by other valuation model inputs or assumptions including prepayment speed estimation changes and other assumption updates. Prepayment speed estimation changes are influenced by observed changes in borrower behavior that occur independent of interest rate changes.
(6)
Represents changes due to collection/realization of expected cash flows over time.

The changes in amortized MSRs were:

 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Balance, beginning of year
$
1,229

 
1,160

 
1,445

Purchases
157

 
176

 
177

Servicing from securitizations or asset transfers (1)
110

 
147

 
(229
)
Amortization
(254
)
 
(254
)
 
(233
)
Balance, end of year
1,242

 
1,229

 
1,160

Valuation allowance:
 
 
 
 
 
Balance, beginning of year
—

 
—

 
(37
)
Reversal of provision (provision) for MSRs in excess of fair value
—

 
—

 
37

Balance, end of year (2)
—

 
—

 
—

Amortized MSRs, net
$
1,242

 
1,229

 
1,160

Fair value of amortized MSRs (3):
 
 
 
 
 
Beginning of year
$
1,575

 
1,400

 
1,756

End of year
1,637

 
1,575

 
1,400


(1)
The year ended December 31, 2012, is net of $350 million ( $313 million after valuation allowance) of residential MSRs that we elected to carry at fair value effective January 1, 2012. A cumulative adjustment of $2 million to fair value was recorded in retained earnings at January 1, 2012.
(2)
Commercial amortized MSRs are evaluated for impairment purposes by the following risk strata: agency (GSEs) and non-agency. There was no valuation allowance recorded for the periods presented on the commercial amortized MSRs. For the year ended December 31, 2012, a valuation allowance of $37 million for residential MSRs was reversed upon election to carry at fair value.
(3)
Represent commercial amortized MSRs.



192

We present the components of our managed servicing portfolio in the following table at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced. 


 
Dec 31,

 
Dec 31,

(in billions)
2014

 
2013

Residential mortgage servicing:
 
 
 
Serviced for others
$
1,405

 
1,485

Owned loans serviced
342

 
338

Subserviced for others
5

 
6

Total residential servicing
1,752

 
1,829

Commercial mortgage servicing:
 
 
 
Serviced for others
456

 
419

Owned loans serviced
112

 
107

Subserviced for others
7

 
7

Total commercial servicing
575

 
533

Total managed servicing portfolio
$
2,327

 
2,362

Total serviced for others
$
1,861

 
1,904

Ratio of MSRs to related loans serviced for others
0.75
%
 
0.88

 
The components of mortgage banking noninterest income were: 


 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Servicing income, net:
 
 
 
 
 
Servicing fees
 
 
 
 
 
Contractually specified servicing fees
$
4,285

 
4,442

 
4,626

Late charges
203

 
216

 
257

Ancillary fees
319

 
343

 
342

Unreimbursed direct servicing costs (1)
(694
)
 
(1,074
)
 
(1,234
)
Net servicing fees
4,113

 
3,927

 
3,991

Changes in fair value of MSRs carried at fair value:
 
 
 
 
 
Due to changes in valuation model inputs or assumptions (2)
(2,122
)
 
3,398

 
(2,893
)
Other changes in fair value (3)
(1,909
)
 
(2,242
)
 
(3,061
)
Total changes in fair value of MSRs carried at fair value
(4,031
)
 
1,156

 
(5,954
)
Amortization
(254
)
 
(254
)
 
(233
)
Net derivative gains (losses) from economic hedges (4)
3,509

 
(2,909
)
 
3,574

Total servicing income, net
3,337

 
1,920

 
1,378

Net gains on mortgage loan origination/sales activities
3,044

 
6,854

 
10,260

Total mortgage banking noninterest income
$
6,381

 
8,774

 
11,638

Market-related valuation changes to MSRs, net of hedge results (2) + (4)
$
1,387

 
489

 
681


(1)
Primarily associated with foreclosure expenses and unreimbursed interest advances to investors.
(2)
Refer to the changes in fair value of MSRs table in this Note for more detail.
(3)
Represents changes due to collection/realization of expected cash flows over time.
(4)
Represents results from economic hedges used to hedge the risk of changes in fair value of MSRs. See Note 16 (Derivatives Not Designated as Hedging Instruments) for additional discussion and detail.


193

Note 9:  Mortgage Banking Activities   (continued)

The table below summarizes the changes in our liability for mortgage loan repurchase losses. This liability is in “Accrued expenses and other liabilities” in our consolidated balance sheet and the provision for repurchase losses reduces net gains on mortgage loan origination/sales activities in "Mortgage banking" in our consolidated income statement. 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 the underlying loans, the level of the liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management judgment. We maintain regular contact with the GSEs, the Federal Housing Finance Agency (FHFA), and other significant investors to monitor their repurchase demand practices and issues as part of our process to update our repurchase liability estimate as new information becomes available. The Company reached settlements with both FHLMC and FNMA in 2013, that resolved substantially all repurchase liabilities associated with loans sold to FHLMC prior to January 1, 2009 and loans sold to FNMA that were originated prior to January 1, 2009.
Because of the uncertainty in the various estimates underlying the mortgage repurchase liability, there is a range of losses in excess of the recorded mortgage repurchase liability that is 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 reasonably possible losses in excess of our recorded liability was $973 million at December 31, 2014, and was determined based upon modifying the assumptions (particularly to assume significant changes in investor repurchase demand practices) utilized in our best estimate of probable loss to reflect what we believe to be the high end of reasonably possible adverse assumptions.

 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Balance, beginning of year
$
899

 
2,206

 
1,326

Provision for repurchase losses:
 
 
 
 
 
Loan sales
44

 
143

 
275

Change in estimate (1)
(184
)
 
285

 
1,665

Total additions (reductions)
(140
)
 
428

 
1,940

Losses (2)
(144
)
 
(1,735
)
 
(1,060
)
Balance, end of year
$
615

 
899

 
2,206


(1)
Results from changes in investor demand, mortgage insurer practices, credit and the financial stability of correspondent lenders.
(2)
Year ended December 31, 2013, reflects $746 million and $508 million as a result of the settlements reached with FHLMC and FNMA, respectively, that resolved substantially all repurchase liabilities associated with loans sold to FHLMC prior to January 1, 2009 and loans sold to FNMA that were originated prior to January 1, 2009.



194

Note 10:  Intangible Assets

The gross carrying value of intangible assets and accumulated amortization was:

 
 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Gross carrying value 

 
Accumulated amortization 

 
Net carrying value 

 
Gross carrying value 

 
Accumulated amortization 

 
Net carrying value

Amortized intangible assets (1):
 
 
 
 
 
 
 
 
 
 
 
MSRs (2)
$
2,906

 
(1,664
)
 
1,242

 
2,639

 
(1,410
)
 
1,229

Core deposit intangibles
12,834

 
(9,273
)
 
3,561

 
12,834

 
(8,160
)
 
4,674

Customer relationship and other intangibles
3,179

 
(2,322
)
 
857

 
3,145

 
(2,061
)
 
1,084

Total amortized intangible assets
$
18,919

 
(13,259
)
 
5,660

 
18,618

 
(11,631
)
 
6,987

Unamortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
MSRs (carried at fair value) (2)
$
12,738

 
 
 
 
 
15,580

 
 
 
 
Goodwill
25,705

 
 
 
 
 
25,637

 
 
 
 
Trademark
14

 
 
 
 
 
14

 
 
 
 

(1)
Excludes fully amortized intangible assets.
(2)
See Note 9 (Mortgage Banking Activities) for additional information on MSRs.

The following table provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on
 
existing asset balances at December 31, 2014. Future amortization expense may vary from these projections.


(in millions)
Amortized MSRs 

 
Core deposit intangibles 

 
Customer relationship and other intangibles

 
Total 

Year ended December 31, 2014 (actual)
$
254

 
1,113

 
261

 
1,628

Estimate for year ended December 31,
 
 
 
 
 
 
 
2015
$
240

 
1,022

 
225

 
1,487

2016
202

 
919

 
211

 
1,332

2017
160

 
851

 
197

 
1,208

2018
129

 
769

 
187

 
1,085

2019
113

 
—

 
12

 
125


For our goodwill impairment analysis, we allocate all of the goodwill to the individual operating segments. We identify reporting units that are one level below an operating segment (referred to as a component), and distinguish these reporting units based on how the segments and components are managed, taking into consideration the economic characteristics, nature of the products and customers of the components. At the time we acquire a business, we allocate goodwill to applicable reporting
 
units based on their relative fair value, and if we have a significant business reorganization, we may reallocate the goodwill . See Note 24 (Operating Segments) for further information on management reporting.
The following table shows the allocation of goodwill to our reportable operating segments for purposes of goodwill impairment testing.


(in millions)
Community Banking 

 
Wholesale Banking 

 
Wealth, Brokerage and Retirement 

 
Consolidated Company 

December 31, 2012
$
17,922

 
7,344

 
371

 
25,637

December 31, 2013
$
17,922

 
7,344

 
371

 
25,637

Reduction in goodwill related to divested businesses
—

 
(11
)
 
—

 
(11
)
Goodwill from business combinations
—

 
87

 
—

 
87

Other
(8
)
 
—

 
—

 
(8
)
December 31, 2014
$
17,914

 
7,420

 
371

 
25,705




195

Note 11:  Deposits
Following is a summary of the time certificates of deposit (CDs) and other time deposits issued by domestic and foreign offices.

 
 
 
December 31,
 
(in billions)
 
2014

 
2013

Total domestic and foreign
$
124.9

 
117.4

Domestic:
 
 
 
 
 
$100,000 or more
14.7

 
16.6

 
$250,000 or more
6.9

 
7.2

Foreign:
 
 
 
 
$100,000 or more
16.4

 
15.3

 
$250,000 or more
16.4

 
15.2


Substantially all CDs and other time deposits issued by domestic and foreign offices were interest bearing. The contractual maturities of these deposits are presented in the following table.

(in millions)
December 31, 2014 

2015
$
103,409

2016
10,205

2017
3,070

2018
3,207

2019
1,204

Thereafter
3,785

Total
$
124,880


 
The contractual maturities of the domestic time deposits with a denomination of $100,000 or more are presented in the following table.

(in millions)
2014

Three months or less
$
3,700

After three months through six months
2,352

After six months through twelve months
2,340

After twelve months
6,338

Total
$
14,730


Demand deposit overdrafts of $581 million and $554 million were included as loan balances at December 31, 2014 and 2013, respectively.



196

Note 12: Short-Term Borrowings
The table below shows selected information for short-term borrowings, which predominantly mature in less than 30 days . We pledge certain financial instruments that we own to
 
collateralize repurchase agreements and other securities financings. For additional information, see the “Pledged Assets” section of Note 14 (Guarantees, Pledged Assets and Collateral).


 
2014
 
 
2013
 
 
2012
 
(in millions)
Amount 

 
Rate 

 
Amount 

 
Rate 

 
Amount 

 
Rate 

As of December 31,
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
51,052

 
0.07
%
 
$
36,263

 
0.05
%
 
$
34,973

 
0.17
%
Commercial paper
2,456

 
0.34

 
5,162

 
0.18

 
4,038

 
0.27

Other short-term borrowings
10,010

 
0.07

 
12,458

 
0.31

 
18,164

 
0.16

Total
$
63,518

 
0.08

 
$
53,883

 
0.12

 
$
57,175

 
0.17

Year ended December 31,
 
 
 
 
 
 
 
 
 
 
 
Average daily balance
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
44,680

 
0.08

 
$
36,227

 
0.08

 
$
32,092

 
0.12

Commercial paper
4,751

 
0.17

 
4,702

 
0.25

 
4,142

 
0.26

Other short-term borrowings
10,680

 
0.18

 
13,787

 
0.22

 
14,962

 
0.29

Total
$
60,111

 
0.10

 
$
54,716

 
0.13

 
$
51,196

 
0.18

Maximum month-end balance
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase (1)
$
51,052

 
N/A 

 
$
39,451

 
N/A 

 
$
36,327

 
N/A 

Commercial paper (2)
6,070

 
N/A 

 
5,700

 
N/A 

 
5,036

 
N/A 

Other short-term borrowings (3)
12,209

 
N/A 

 
16,564

 
N/A 

 
18,164

 
N/A 


N/A- Not applicable
(1)
Highest month-end balance in each of the last three years was December 2014, May 2013 and June 2012. 
(2)
Highest month-end balance in each of the last three years was March 2014, March 2013 and September 2012.
(3)
Highest month-end balance in each of the last three years was June 2014, March 2013 and December 2012.

197

Note 13: Long-Term Debt 

We issue long-term debt denominated in multiple currencies, predominantly in U.S. dollars. Our issuances have both fixed and floating interest rates. As a part of our overall interest rate risk management strategy, we often use derivatives to manage our exposure to interest rate risk. We also use derivatives to manage our exposure to foreign currency risk. As a result, a major portion of the long-term debt presented below is hedged in a fair value or cash flow hedge relationship. See Note 16 (Derivatives) for further information on qualifying hedge contracts.
 
Following is a summary of our long-term debt carrying values, reflecting unamortized debt discounts and premiums, and purchase accounting adjustments, where applicable. The interest rates displayed represent the range of contractual rates in effect at December 31, 2014 . These interest rates do not include the effects of any associated derivatives designated in a hedge accounting relationship.
 


 
December 31,
 
 
2014
 
 
2013

(in millions)
Maturity date(s) 
 
Stated interest rate(s) 

 
 
 
 
Wells Fargo & Company (Parent only)
 
 
 
 
 
 
 
Senior
 
 
 
 
 
 
 
Fixed-rate notes
2015-2038
 
0.625-6.75%

 
$
54,441

 
44,145

Floating-rate notes
2015-2048
 
0.00-3.735

 
15,317

 
12,445

Structured notes (1)
2015-2053
 
Varies

 
4,825

 
4,891

Total senior debt - Parent
 
 
 
 
74,583

 
61,481

Subordinated
 
 
 
 
 
 
 
Fixed-rate notes (2)
2016-2044
 
3.45-7.574%

 
19,688

 
17,469

Floating-rate notes
2015-2016
 
0.573-0.601

 
1,215

 
1,190

Total subordinated debt - Parent
 
 
 
 
20,903

 
18,659

Junior subordinated
 
 
 
 
 
 
 
Fixed-rate notes - hybrid trust securities
2029-2036
 
5.95-7.95%

 
1,378

 
1,178

Floating-rate notes
2027
 
0.731-1.231

 
272

 
263

Total junior subordinated debt - Parent (3)
 
 
 
 
1,650

 
1,441

Total long-term debt - Parent (2)
 
 
 
 
97,136

 
81,581

Wells Fargo Bank, N.A. and other bank entities (Bank)
 
 
 
 
 
 
 
Senior
 
 
 
 
 
 
 
Fixed-rate notes
2015
 
0.75
%
 
500

 
500

Floating-rate notes
2015-2053
 
0.00-0.511

 
4,969

 
2,219

Floating-rate extendible notes (4)
2016
 
0.281-0.387

 
11,048

 
10,749

Fixed-rate advances - Federal Home Loan Bank (FHLB) (5)
2015-2031
 
3.83-8.17

 
125

 
160

Floating-rate advances - FHLB (5)
2018-2019
 
0.22-0.35

 
34,000

 
19,000

Structured notes (1)
2015-2025
 
Varies

 
4

 
13

Capital leases (Note 7)
2015-2025
 
Varies

 
9

 
11

Total senior debt - Bank
 
 
 
 
50,655

 
32,652

Subordinated
 
 
 
 
 
 
 
Fixed-rate notes
2015-2038
 
4.75-7.74%

 
10,310

 
10,725

Floating-rate notes
2016-2017
 
0.442-3.107

 
994

 
1,616

Total subordinated debt - Bank
 
 
 
 
11,304

 
12,341

Junior subordinated
 
 
 
 
 
 
 
Floating-rate notes
2027
 
0.802-0.881%

 
313

 
303

Total junior subordinated debt - Bank (3)
 
 
 
 
313

 
303

Long-term debt issued by VIE - Fixed rate (6)
2020-2047
 
0.00-7.00%

 
609

 
1,098

Long-term debt issued by VIE - Floating rate (6)
2016-2047
 
0.296-18.970

 
996

 
1,230

Mortgage notes and other debt (7)
2015-2062
 
0.00-9.20

 
16,239

 
16,874

Total long-term debt - Bank
 
 
 
 
80,116

 
64,498


(continued on following page)

198

(continued from previous page)

 
December 31,
 
 
2014
 
 
2013

(in millions)
Maturity date(s) 
 
Stated interest rate(s) 

 
 
 
 
Other consolidated subsidiaries
 
 
 
 
 
 
 
Senior
 
 
 
 
 
 
 
Fixed-rate notes
2015-2023
 
2.774-4.38%

 
6,317

 
6,543

FixFloat notes
2020
 
6.795% through 2015, Varies

 
20

 
20

Structured notes (1)
2021
 
Varies

 
1

 
—

Total senior debt - Other consolidated subsidiaries
  
 
 
 
6,338

 
6,563

Junior subordinated
 
 
 
 
 
 
 
Floating-rate notes
2027
 
0.733
%
 
155

 
155

Total junior subordinated debt - Other consolidated subsidiaries (3)
 
 
 
 
155

 
155

Long-term debt issued by VIE - Fixed rate (6)
2015
 
5.16
%
 
23

 
18

Long-term debt issued by VIE - Floating rate (6)

 


 
—

 
10

Mortgage notes and other (7)
2015-2022
 
1.563-5.920

 
175

 
173

Total long-term debt - Other consolidated subsidiaries
 
 
 
 
6,691

 
6,919

Total long-term debt
 
 
 
 
$
183,943

 
152,998


(1)
Predominantly consists of long-term notes where the performance of the note is linked to an embedded equity, commodity, or currency index, or basket of indices accounted for separately from the note as a free-standing derivative. For information on embedded derivatives, see the "Derivatives Not Designated as Hedging Instruments" section in Note 16 (Derivatives). In addition, a major portion consists of zero coupon callable notes where interest is paid as part of the final redemption amount.
(2)
Includes fixed-rate subordinated notes issued by the Parent at a discount of $139 million and $140 million in 2014 and 2013, respectively, to effect a modification of Wells Fargo Bank, NA notes. These notes are carried at their par amount on the balance sheet of the Parent presented in Note 25 (Parent-Only Financial Statements).
(3)
Represents junior subordinated debentures held by unconsolidated wholly-owned trusts formed for the sole purpose of issuing trust preferred securities. See Note 8 (Securitizations and Variable Interest Entities) for additional information on our trust preferred security structures.
(4)
Represents floating-rate extendible notes where holders of the notes may elect to extend the contractual maturity of all or a portion of the principal amount on a periodic basis.
(5)
At December 31, 2014, Federal Home Loan Bank advances were secured by investment securities and residential loan collateral. Outstanding advances at December 31, 2013, were secured by residential loan collateral.
(6)
For additional information on VIEs, see Note 8 (Securitizations and Variable Interest Entities).
(7)
Predominantly related to securitizations and secured borrowings, see Note 8 (Securitizations and Variable Interest Entities).
 
The aggregate carrying value of long-term debt that matures (based on contractual payment dates) as of December 31, 2014 , in each of the following five years and thereafter, is presented in the following table.

(in millions)
Parent 

 
Company 

2015
$
9,014

 
16,606

2016
15,238

 
32,920

2017
13,215

 
17,870

2018
8,312

 
27,029

2019
6,480

 
25,190

Thereafter
44,877

 
64,328

Total
$
97,136

 
183,943


As part of our long-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 by certain subsidiary banks. At December 31, 2014 , we were in compliance with all the covenants.



199

Note 14:  Guarantees, Pledged Assets and Collateral
Guarantees are contracts that contingently require 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, written put options,
 
recourse obligations, and other types of arrangements. The following table shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.


 
December 31, 2014
 
 
 
 
Maximum exposure to loss 
 
(in millions)
Carrying value 

 
Expires in one year or less 

 
Expires after one year through three years 

 
Expires after three years through five years 

 
Expires after five years 

 
Total 

 
Non-investment grade 

Standby letters of credit (1)
$
41

 
16,271

 
10,269

 
6,295

 
645

 
33,480

 
8,447

Securities lending and other indemnifications
—

 
—

 
2

 
2

 
5,948

 
5,952

 
—

Written put options (2)
469

 
7,644

 
5,256

 
2,822

 
2,409

 
18,131

 
7,902

Loans and MHFS sold with recourse
72

 
131

 
486

 
822

 
5,386

 
6,825

 
3,945

Factoring guarantees
—

 
3,460

 
—

 
—

 
—

 
3,460

 
3,460

Other guarantees
24

 
9

 
85

 
22

 
2,158

 
2,274

 
69

Total guarantees
$
606

 
27,515

 
16,098

 
9,963

 
16,546

 
70,122

 
23,823

 
December 31, 2013
 
 
 
 
Maximum exposure to loss 
 
(in millions)
Carrying value 

 
Expires in one year or less 

 
Expires after one year through three years 

 
Expires after three years through five years 

 
Expires after five years 

 
Total 

 
Non-investment grade 

Standby letters of credit (1)
$
56

 
16,907

 
11,628

 
5,308

 
994

 
34,837

 
9,512

Securities lending and other indemnifications
—

 
—

 
3

 
18

 
3,199

 
3,220

 
25

Written put options (2)
907

 
4,775

 
2,967

 
3,521

 
2,725

 
13,988

 
4,311

Loans and MHFS sold with recourse
86

 
116

 
418

 
849

 
5,014

 
6,397

 
3,674

Factoring guarantees
—

 
2,915

 
—

 
—

 
—

 
2,915

 
2,915

Other guarantees (3)
33

 
34

 
111

 
16

 
971

 
1,132

 
113

Total guarantees
$
1,082

 
24,747

 
15,127

 
9,712

 
12,903

 
62,489

 
20,550


(1)
Total maximum exposure to loss includes direct pay letters of credit (DPLCs) of $15.0 billion and $16.8 billion at December 31, 2014 and 2013, respectively. We issue DPLCs to provide credit enhancements for certain bond issuances. Beneficiaries (bond trustees) may draw upon these instruments to make scheduled principal and interest payments, redeem all outstanding bonds because a default event has occurred, or for other reasons as permitted by the agreement. We also originate multipurpose lending commitments under which borrowers have the option to draw on the facility in one of several forms, including as a standby letter of credit. Total maximum exposure to loss includes the portion of these facilities for which we have issued standby letters of credit under the commitments.
(2)
Written put options, which are in the form of derivatives, are also included in the derivative disclosure in Note 16 (Derivatives).
(3)
Includes amounts for liquidity agreements and contingent consideration that were previously reported separately.

“Maximum exposure to loss” and “Non-investment grade” are required disclosures under GAAP. Non-investment grade represents those guarantees on which we have a higher risk of being required to perform under the terms of the guarantee. If the underlying assets under the guarantee are non-investment grade (that is, an external rating that is below investment grade or an internal credit default grade that is equivalent to a below investment grade external rating), we consider the risk of performance to be high. Internal credit default grades are determined based upon the same credit policies that we use to evaluate the risk of payment or performance when making loans and other extensions of credit. These credit policies are further described in Note 6 (Loans and Allowance for Credit Losses).
Maximum exposure to loss represents the estimated loss that would be incurred under an assumed hypothetical circumstance, despite what we believe is its extremely remote possibility, where the value of our interests and any associated collateral declines to zero. Maximum exposure to loss estimates in the table above do not reflect economic hedges or collateral we
 
could use to offset or recover losses we may incur under our guarantee agreements. Accordingly, this required disclosure is not an indication of expected loss. We believe the carrying value, which is either fair value for derivative-related products or the allowance for lending-related commitments, is more representative of our exposure to loss than maximum exposure to loss.
 
STANDBY LETTERS OF CREDIT   We issue standby letters of credit, which include performance and financial guarantees, for customers in connection with contracts between our customers and third parties. Standby letters of credit are agreements where we are obligated to make payment to a third party on behalf of a customer if the customer fails to meet their contractual obligations. We consider the credit risk in standby letters of credit and commercial and similar letters of credit in determining the allowance for credit losses.


200

SECURITIES LENDING AND OTHER INDEMNIFICATIONS  As a securities lending agent, we lend debt and equity securities from participating institutional clients’ portfolios to third-party borrowers. These arrangements are for an indefinite period of time whereby we indemnify our clients against default by the borrower in returning these lent securities. This indemnity is supported by collateral received from the borrowers and is generally in the form of cash or highly liquid securities that are marked to market daily. The fair value of securities loaned out at December 31, 2014 and 2013, totaled $211 million and $337 million , respectively. The fair value of collateral supporting the loaned securities was $218 million and $346 million at December 31, 2014 and 2013, respectively.
We use certain third-party clearing agents to clear and settle transactions on behalf of some of our institutional brokerage customers. We indemnify the clearing agents against loss that could occur for non-performance by our customers on transactions that are not sufficiently collateralized. Transactions subject to the indemnifications may include customer obligations related to the settlement of margin accounts and short positions, such as written call options and securities borrowing transactions. Outstanding customer obligations were $950 million and $769 million and the related collateral was $5.6 billion and $3.7 billion at December 31, 2014, and December 31, 2013, respectively. Our estimate of maximum exposure to loss, which requires judgment regarding the range and likelihood of future events, was $5.7 billion as of December 31, 2014, and $2.9 billion as of December 31, 2013.
We enter into other types of indemnification agreements in the ordinary course of business under which we agree to indemnify third parties against any damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with us. These relationships or transactions include those arising from service as a director or officer of the Company, underwriting agreements relating to our securities, acquisition agreements and various other business transactions or arrangements. Because the extent of our obligations under these agreements depends entirely upon the occurrence of future events, we are unable to determine our potential future liability under these agreements. We do, however, record a liability for residential mortgage loans that we expect to repurchase pursuant to various representations and warranties. See Note 9 (Mortgage Banking Activities) for additional information on the liability for mortgage loan repurchase losses.
 
WRITTEN PUT OPTIONS Written put options are contracts that give the counterparty the right to sell to us an underlying instrument held by the counterparty at a specified price, and may include options, floors, caps and credit default swaps. These written put option contracts generally permit net settlement. While these derivative transactions expose us to risk if the option is exercised, we manage this risk by entering into offsetting trades or by taking short positions in the underlying instrument. We offset substantially all put options written to customers with purchased options. Additionally, for certain of these contracts, we require the counterparty to pledge the underlying instrument as collateral for the transaction. Our ultimate obligation under written put options is based on future market conditions and is only quantifiable at settlement. See Note 16 (Derivatives) for additional information regarding written derivative contracts.
 
 
LOANS AND MHFS SOLD WITH RECOURSE   In certain loan sales or securitizations, we provide recourse to the buyer whereby we are required to indemnify the buyer for any loss on the loan up to par value plus accrued interest. We provide recourse, predominantly to the GSEs, on loans sold under various programs and arrangements. Primarily all of these programs and arrangements require that we share in the loans’ credit exposure for their remaining life by providing recourse to the GSE, up to 33.33% of actual losses incurred on a pro-rata basis, in the event of borrower default. Under the remaining recourse programs and arrangements, if certain events occur within a specified period of time from transfer date, we have to provide limited recourse to the buyer to indemnify them for losses incurred for the remaining life of the loans. The maximum exposure to loss reported in the accompanying table represents the outstanding principal balance of the loans sold or securitized that are subject to recourse provisions or the maximum losses per the contractual agreements. However, we believe the likelihood of loss of the entire balance due to these recourse agreements is remote and amounts paid can be recovered in whole or in part from the sale of collateral. During 2014 and 2013 we repurchased $14 million and $33 million , respectively, of loans associated with these agreements. We also provide representation and warranty guarantees on loans sold under the various recourse programs and arrangements. Our loss exposure relative to these guarantees is separately considered and provided for, as necessary, in determination of our liability for loan repurchases due to breaches of representation and warranties. See Note 9 (Mortgage Banking Activities) for additional information on the liability for mortgage loan repurchase losses.

FACTORING GUARANTEES   Under certain factoring arrangements, we are required to purchase trade receivables from third parties, generally upon their request, if receivable debtors default on their payment obligations. See Note 1 (Summary of Significant Accounting Policies) for additional information.
 
OTHER GUARANTEES   We are members of exchanges and clearing houses that we use to clear our trades and those of our customers. It is common that all members in these organizations are required to collectively guarantee the performance of other members. Our obligations under the guarantees are based on either a fixed amount or a multiple of the collateral we are required to maintain with these organizations. We have not recorded a liability for these arrangements as of the dates presented in the previous table because we believe the likelihood of loss is remote.
Other guarantees also include liquidity agreements and contingent performance arrangements. We provide liquidity to certain off-balance sheet entities that hold securitized fixed-rate municipal bonds and consumer or commercial assets that are partially funded with the issuance of money market and other short-term notes. See Note 8 (Securitization and Variable Interest Entities) for additional information on securitization and VIEs.
Under our contingent performance arrangements, we are required to pay the counterparties to transactions related to various customer relationships and lease agreements if third parties default on certain obligations.



201

Note 14:  Guarantees, Pledged Assets and Collateral (continued)

Pledged Assets
As part of our liquidity management strategy, we pledge assets to secure trust and public deposits, borrowings and letters of credit from the FHLB and FRB, securities sold under agreements to repurchase (repurchase agreements), and for other purposes as required or permitted by law or insurance statutory requirements. The types of collateral we pledge include securities issued by federal agencies, GSEs, domestic and foreign companies and various commercial and consumer loans. The following table provides the total carrying amount of pledged
 
assets by asset type. The table excludes pledged consolidated VIE assets of $5.8 billion and $8.1 billion at December 31, 2014, and December 31, 2013, respectively, which can only be used to settle the liabilities of those entities. The table also excludes $10.1 billion and $15.3 billion in assets pledged in transactions accounted for as secured borrowings at December 31, 2014 and 2013, respectively. See Note 8 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and secured borrowings.
 


 
Dec. 31,

 
Dec. 31,

(in millions)
2014

 
2013

Trading assets and other (1)
49,685

 
30,288

Investment securities (2)
101,997

 
85,468

Mortgages held for sale and loans (3)
418,338

 
381,597

Total pledged assets
$
570,020

 
497,353


(1)
Represent assets pledged to collateralize repurchase agreements and other securities financings. Balance includes $49.4 billion and $29.0 billion at December 31, 2014 and 2013, respectively, under agreements that permit the secured parties to sell or repledge the collateral.
(2)
Includes carrying value of $6.6 billion and $8.7 billion (fair value of $6.8 billion and $8.7 billion ) in collateral for repurchase agreements at December 31, 2014 and 2013, respectively, which are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Also includes $164 million in collateral pledged under repurchase agreements at December 31, 2014, that permit the secured parties to sell or repledge the collateral.
(3)
Includes mortgages held for sale of $ 8.7 billion and $ 7.3 billion at December 31, 2014 and 2013, respectively. Balance consists of mortgages held for sale and loans that are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Amounts exclude $1.7 billion and $2.1 billion at December 31, 2014 and 2013, respectively, of pledged loans recorded on our balance sheet representing certain delinquent loans that are eligible for repurchase primarily from GNMA loan securitizations. See Note 8 (Securitizations and Variable Interest Entities) for additional information.


202

Offsetting of Resale and Repurchase Agreements and Securities Borrowing and Lending Agreements
The table below presents resale and repurchase agreements subject to master repurchase agreements (MRA) and securities borrowing and lending agreements subject to master securities lending agreements (MSLA). We account for transactions subject to these agreements as collateralized financings, and those with a single counterparty are presented net on our balance sheet, provided certain criteria are met that permit balance sheet netting. Most transactions subject to these agreements do not meet those criteria and thus are not eligible for balance sheet netting.
Collateral we pledged consists of non-cash instruments, such as securities or loans, and is not netted on the balance sheet against the related collateralized liability. Collateral we received
 
includes securities or loans and is not recognized on our balance sheet. Collateral received or pledged may be increased or decreased over time to maintain certain contractual thresholds as the assets underlying each arrangement fluctuate in value. Generally, these agreements require collateral to exceed the asset or liability recognized on the balance sheet. The following table includes the amount of collateral pledged or received related to exposures subject to enforceable MRAs or MSLAs. While these agreements are typically over-collateralized, U.S. GAAP requires disclosure in this table to limit the amount of such collateral to the amount of the related recognized asset or liability for each counterparty.
In addition to the amounts included in the table below, we also have balance sheet netting related to derivatives that is disclosed within Note 16 (Derivatives).



 
Dec. 31, 

 
Dec. 31, 

(in millions)
2014

 
2013

Assets:
 
 
 
Resale and securities borrowing agreements
 
 
 
Gross amounts recognized
58,148

 
38,635

Gross amounts offset in consolidated balance sheet (1)
(6,477
)
 
(2,817
)
Net amounts in consolidated balance sheet (2)
51,671

 
35,818

Collateral not recognized in consolidated balance sheet (3)
(51,624
)
 
(35,768
)
Net amount (4)
47

 
50

Liabilities:
 
 
 
Repurchase and securities lending agreements
 
 
 
Gross amounts recognized
56,583

 
38,032

Gross amounts offset in consolidated balance sheet (1)
(6,477
)
 
(2,817
)
Net amounts in consolidated balance sheet (5)
50,106

 
35,215

Collateral pledged but not netted in consolidated balance sheet (6)
(49,713
)
 
(34,770
)
Net amount (7)
393

 
445


(1)
Represents recognized amount of resale and repurchase agreements with counterparties subject to enforceable MRAs or MSLAs that have been offset in the consolidated balance sheet.
(2)
At December 31, 2014 and 2013, includes $36.8 billion and $25.7 billion , respectively, classified on our consolidated balance sheet in Federal funds sold, securities purchased under resale agreements and other short-term investments and $14.9 billion and $10.1 billion , respectively, in Loans.
(3)
Represents the fair value of collateral we have received under enforceable MRAs or MSLAs, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. At December 31, 2014 and 2013, we have received total collateral with a fair value of $64.5 billion and $43.3 billion , respectively, all of which, we have the right to sell or repledge. These amounts include securities we have sold or repledged to others with a fair value of $40.8 billion at December 31, 2014 and $23.8 billion at December 31, 2013.
(4)
Represents the amount of our exposure that is not collateralized and/or is not subject to an enforceable MRA or MSLA.
(5)
Amount is classified in Short-term borrowings on our consolidated balance sheet.
(6)
Represents the fair value of collateral we have pledged, related to enforceable MRAs or MSLAs, limited for table presentation purposes to the amount of the recognized liability owed to each counterparty. At December 31, 2014 and December 31, 2013, we have pledged total collateral with a fair value of $56.5 billion and $39.0 billion , respectively, of which, the counterparty does not have the right to sell or repledge $6.9 billion as of December 31, 2014, and $10.0 billion as of December 31, 2013.
(7)
Represents the amount of our obligation that is not covered by pledged collateral and/or is not subject to an enforceable MRA or MSLA.

203

Note 15:  Legal Actions
Wells Fargo and certain of our subsidiaries are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising from the conduct of our business activities. These proceedings include actions brought against Wells Fargo and/or our subsidiaries with respect to corporate related matters and transactions in which Wells Fargo and/or our subsidiaries were involved. In addition, Wells Fargo and our subsidiaries may be requested to provide information or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.
Although there can be no assurance as to the ultimate outcome, Wells Fargo and/or our subsidiaries have generally denied, or believe we have a meritorious defense and will deny, liability in all significant litigation pending against us, including the matters described below, and we intend to defend vigorously each case, other than matters we describe as having settled. Reserves are established for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts reserved for those claims.

FHA INSURANCE LITIGATION   On October 9, 2012, the United States filed a complaint, captioned United States of America v. Wells Fargo Bank, N . A. , in the U.S. District Court for the Southern District of New York. The complaint makes claims with respect to Wells Fargo's Federal Housing Administration (FHA) lending program for the period 2001 to 2010. The complaint alleges, among other allegations, that Wells Fargo improperly certified certain FHA mortgage loans for United States Department of Housing and Urban Development (HUD) insurance that did not qualify for the program, and therefore Wells Fargo should not have received insurance proceeds from HUD when some of the loans later defaulted. The complaint further alleges Wells Fargo knew some of the mortgages did not qualify for insurance and did not disclose the deficiencies to HUD before making insurance claims. On December 1, 2012, Wells Fargo filed a motion in the U.S. District Court for the District of Columbia seeking to enforce a release of Wells Fargo given by the United States, which was denied on February 12, 2013. On April 11, 2013, Wells Fargo appealed the decision to the U.S. Court of Appeals for the District of Columbia Circuit. The Court affirmed the denial of Wells Fargo's motion on June 20, 2014. Previous resolution discussions did not result in an acceptable final agreement. The parties are again engaged in discovery.
 
INTERCHANGE LITIGATION   Wells Fargo Bank, N.A., Wells Fargo & Company, Wachovia Bank, N.A. and Wachovia Corporation are named as defendants, separately or in combination, in putative class actions filed on behalf of a plaintiff class of merchants and in individual actions brought by individual merchants with regard to the interchange fees associated with Visa and MasterCard payment card transactions. These actions have been consolidated in the U.S. District Court for the Eastern District of New York. Visa, MasterCard and several banks and bank holding companies are named as defendants in various of these actions. The amended and consolidated complaint asserts claims against defendants based on alleged violations of federal and state antitrust laws and seeks damages, as well as injunctive relief. Plaintiff merchants allege that Visa, MasterCard and payment card issuing banks
 
unlawfully colluded to set interchange rates. Plaintiffs also allege that enforcement of certain Visa and MasterCard rules and alleged tying and bundling of services offered to merchants are anticompetitive. Wells Fargo and Wachovia, along with other defendants and entities, are parties to Loss and Judgment Sharing Agreements, which provide that they, along with other entities, will share, based on a formula, in any losses from the Interchange Litigation. On July 13, 2012, Visa, MasterCard and the financial institution defendants, including Wells Fargo, signed a memorandum of understanding with plaintiff merchants to resolve the consolidated class actions and reached a separate settlement in principle of the consolidated individual actions. The proposed settlement payments by all defendants in the consolidated class and individual actions total approximately $6.6 billion . The class settlement also provides for the distribution to class merchants of 10 basis points of default interchange across all credit rate categories for a period of eight consecutive months. The Court granted final approval of the settlement, which is proceeding. Merchants have filed several “opt-out” actions.
 
MORTGAGE RELATED REGULATORY INVESTIGATIONS  Government agencies continue investigations or examinations of certain mortgage related practices of Wells Fargo and predecessor institutions. Wells Fargo, for itself and for predecessor institutions, has responded, and continues to respond, to requests from government agencies seeking information regarding the origination, underwriting and securitization of residential mortgages, including sub-prime mortgages.
 
ORDER OF POSTING LITIGATION  A series of putative class actions have been filed against Wachovia Bank, N.A. and Wells Fargo Bank, N.A., as well as many other banks, challenging the high to low order in which the banks post debit card transactions to consumer deposit accounts. There are currently several such cases pending against Wells Fargo Bank (including the Wachovia Bank cases to which Wells Fargo succeeded), most of which have been consolidated in multi-district litigation proceedings in the U.S. District Court for the Southern District of Florida. The bank defendants moved to compel these cases to arbitration under Supreme Court authority. On November 22, 2011, the Judge denied the motion. The bank defendants appealed the decision to the U.S. Court of Appeals for the Eleventh Circuit. On October 26, 2012, the Eleventh Circuit affirmed the District Court’s denial of the motion. Wells Fargo renewed its motion to compel arbitration with respect to the unnamed putative class members. On April 8, 2013, the District Court denied the motion and Wells Fargo appealed the decision to the Eleventh Circuit. On February 10, 2015, the Eleventh Circuit vacated the order based on the District Court's lack of jurisdiction until class certification has been determined, and remanded to the District Court for further proceedings.
On August 10, 2010, the U.S. District Court for the Northern District of California issued an order in Gutierrez v. Wells Fargo Bank, N.A., a case that was not consolidated in the multi-district proceedings, enjoining the bank’s use of the high to low posting method for debit card transactions with respect to the plaintiff class of California depositors, directing the bank to establish a different posting methodology and ordering remediation of approximately $203 million . On October 26, 2010, a final


204

judgment was entered in Gutierrez. On October 28, 2010, Wells Fargo appealed to the U.S. Court of Appeals for the Ninth Circuit. On December 26, 2012, the Ninth Circuit reversed the order requiring Wells Fargo to change its order of posting and vacated the portion of the order granting remediation of approximately $203 million on the grounds of federal preemption. The Ninth Circuit affirmed the District Court’s finding that Wells Fargo violated a California state law prohibition on fraudulent representations and remanded the case to the District Court for further proceedings. On August 5, 2013, the District Court entered a judgment against Wells Fargo in the approximate amount of $203 million , together with post-judgment interest thereon from October 25, 2010, and, effective as of July 15, 2013, enjoined Wells Fargo from making or disseminating additional misrepresentations about its order of posting of transactions. On August 7, 2013, Wells Fargo appealed the judgment to the Ninth Circuit. On October 29, 2014, the Ninth Circuit affirmed the trial court’s judgment against Wells Fargo for approximately $203 million , but limited the injunction to debit card transactions. Wells Fargo is presently considering its options.

SECURITIES LENDING LITIGATION   Wells Fargo Bank, N.A. is involved in four separate actions brought by securities lending customers of Wells Fargo and Wachovia Bank in various courts. In general, each of the cases alleges losses based on claims that Wells Fargo violated fiduciary and contractual duties in its investment of collateral for loaned securities. Blue Cross/Blue Shield of Minnesota, et al., v. Wells Fargo Bank, N.A. resulted in verdicts dismissing the claims against Wells Fargo. Plaintiffs have appealed the verdicts. The remaining cases are scheduled for trial in 2015.

 
OUTLOOK  When establishing a liability for contingent litigation losses, the Company determines a range of potential losses for each matter that is both probable and estimable, and records the amount it considers to be the best estimate within the range. The high end of the range of reasonably possible potential litigation losses in excess of the Company’s liability for probable and estimable losses was $1.1 billion as of December 31, 2014. For these matters and others where an unfavorable outcome is reasonably possible but not probable, there may be a range of possible losses in excess of the established liability that cannot be estimated. Based on information currently available, advice of counsel, available insurance coverage and established reserves, Wells Fargo believes that the eventual outcome of the actions against Wells Fargo and/or its subsidiaries, including the matters described above, will not, individually or in the aggregate, have a material adverse effect on Wells Fargo’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, may be material to Wells Fargo’s results of operations for any particular period.



205

Note 16:  Derivatives
We primarily use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Our remaining derivatives consist of economic hedges that do not qualify for hedge accounting and derivatives held for customer accommodation, trading or other purposes.
Our asset/liability management approach to interest rate, foreign currency and certain other risks includes the use of derivatives. Such derivatives are typically designated as fair value or cash flow hedges, or economic hedges. This helps minimize significant, unplanned fluctuations in earnings, fair values of assets and liabilities, and cash flows caused by interest rate, foreign currency and other market risk volatility. This approach involves modifying the repricing characteristics of certain assets and liabilities so that changes in interest rates, foreign currency and other exposures do not have a significantly adverse effect on the net interest margin, cash flows and earnings. As a result of fluctuations in these exposures, hedged assets and liabilities will gain or lose fair value. In a fair value or economic hedge, the effect of this unrealized gain or loss will generally be offset by the gain or loss on the derivatives linked to the hedged assets and liabilities. In a cash flow hedge, where we manage the variability of cash payments due to interest rate fluctuations by the effective use of derivatives linked to hedged assets and liabilities, the hedged asset or liability is not adjusted and the unrealized gain or loss on the derivative 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. These derivative transactions, which involve us engaging in market-making activities or acting as an intermediary, are conducted in an effort to help customers manage their market price risks. We usually offset our exposure from such derivatives by entering into other financial contracts, such as separate derivative or security transactions. The customer accommodations and any offsetting derivatives are treated as customer accommodation, trading and other derivatives in our disclosures. Additionally, this category includes embedded derivatives that are required to be accounted for separately from their host contracts.
The following table presents the total notional or contractual amounts and fair values for our derivatives. Derivative transactions can be measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged, but is used only as the basis on which interest and other payments are determined. Derivatives designated as qualifying hedging instruments and economic hedges are recorded on the balance sheet at fair value in other assets or other liabilities. Customer accommodation, trading and other derivatives are recorded on the balance sheet at fair value in trading assets, other assets or other liabilities.


206

 
December 31, 2014
 
 
December 31, 2013
 
 
Notional or 

 
Fair value 
 
 
Notional or 

 
Fair value 
 
 
contractual 

 
Asset 

 
Liability 

 
contractual 

 
Asset 

 
Liability 

(in millions)
amount 

 
derivatives 

 
derivatives 

 
amount 

 
derivatives 

 
derivatives 

Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts (1)
$
148,967

 
6,536

 
2,435

 
100,412

 
4,315

 
2,528

Foreign exchange contracts (1)
26,778

 
752

 
1,347

 
26,483

 
1,091

 
847

Total derivatives designated as
 
 
 
 
 
 
 
 
 
 
 
     qualifying hedging instruments
 
 
7,288

 
3,782

 
 
 
5,406

 
3,375

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Economic hedges:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts (2)
221,527

 
697

 
487

 
220,577

 
595

 
897

Equity contracts
5,219

 
367

 
96

 
3,273

 
349

 
206

Foreign exchange contracts
14,405

 
275

 
28

 
10,064

 
21

 
35

Subtotal (3)
 
 
1,339

 
611

 
 
 
965

 
1,138

Customer accommodation, trading and
 
 
 
 
 
 
 
 
 
 
 
other derivatives:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
4,378,767

 
56,465

 
57,137

 
4,030,068

 
50,936

 
53,113

Commodity contracts
88,640

 
7,461

 
7,702

 
96,889

 
2,673

 
2,603

Equity contracts
138,422

 
8,638

 
6,942

 
96,379

 
7,475

 
7,588

Foreign exchange contracts
253,742

 
6,377

 
6,452

 
164,160

 
3,731

 
3,626

Credit contracts - protection sold
12,304

 
151

 
943

 
19,501

 
354

 
1,532

Credit contracts - protection purchased
16,659

 
755

 
168

 
23,314

 
1,147

 
368

Other derivatives (3)
1,994

 
—

 
44

 
2,160

 
13

 
16

Subtotal (3)
 
 
79,847

 
79,388

 
 
 
66,329

 
68,846

Total derivatives not designated as hedging instruments
 
 
81,186

 
79,999

 
 
 
67,294

 
69,984

Total derivatives before netting
 
 
88,474

 
83,781

 
 
 
72,700

 
73,359

Netting (4)
 
 
(65,869
)
 
(65,043
)
 
 
 
(56,894
)
 
(63,739
)
Total
 
 
$
22,605

 
18,738

 
 
 
15,806

 
9,620


(1)
Notional amounts presented exclude $1.9 billion of interest rate contracts at both December 31, 2014 and 2013, for certain derivatives that are combined for designation as a hedge on a single instrument. The notional amount for foreign exchange contracts at December 31, 2014, excludes $2.7 billion for certain derivatives that are combined for designation as a hedge on a single instrument.
(2)
Includes economic hedge derivatives used to hedge the risk of changes in the fair value of residential MSRs, MHFS, loans, derivative loan commitments and other interests held.
(3)
Prior period has been revised to conform with current period presentation.
(4)
Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See the next table in this Note for further information.

The following table provides information on the gross fair values of derivative assets and liabilities, the balance sheet netting adjustments and the resulting net fair value amount recorded on our balance sheet, as well as the non-cash collateral associated with such arrangements. We execute substantially all of our derivative transactions under master netting arrangements. We reflect all derivative balances and related cash collateral subject to enforceable master netting arrangements on a net basis within the balance sheet. The “Gross amounts recognized” column in the following table include $69.6 billion and $75.0 billion of gross derivative assets and liabilities, respectively, at December 31, 2014, and $59.8 billion and $66.1 billion , respectively, at December 31, 2013, with counterparties subject to enforceable master netting arrangements that are carried on the balance sheet net of offsetting amounts. The remaining gross derivative assets and liabilities of $18.9 billion and $8.8 billion , respectively, at December 31, 2014 and $12.9 billion and $7.3 billion , respectively, at December 31, 2013, include those with counterparties subject to master netting arrangements for which we have not assessed the enforceability because they are with counterparties where we do not currently have positions to offset, those subject to master netting arrangements where we have not been able to confirm the enforceability and those not subject to master netting arrangements. As such,we do not net
 
derivative balances or collateral within the balance sheet for these counterparties.
We determine the balance sheet netting adjustments based on the terms specified within each master netting arrangement. We disclose the balance sheet netting amounts within the column titled “Gross amounts offset in consolidated balance sheet.” Balance sheet netting adjustments are determined at the counterparty level for which there may be multiple contract types. For disclosure purposes, we allocate these adjustments to the contract type for each counterparty proportionally based upon the “Gross amounts recognized” by counterparty. As a result, the net amounts disclosed by contract type may not represent the actual exposure upon settlement of the contracts.
Balance sheet netting does not include non-cash collateral that we receive and pledge. For disclosure purposes, we present the fair value of this non-cash collateral in the column titled “Gross amounts not offset in consolidated balance sheet (Disclosure-only netting)” within the table. We determine and allocate the Disclosure-only netting amounts in the same manner as balance sheet netting amounts.
The “Net amounts” column within the following table represents the aggregate of our net exposure to each counterparty after considering the balance sheet and Disclosure-only netting adjustments. We manage derivative exposure by monitoring the credit risk associated with each counterparty


207

Note 16: Derivatives (continued)

using counterparty specific credit risk limits, using master netting arrangements and obtaining collateral. Derivative contracts executed in over-the-counter markets include bilateral contractual arrangements that are not cleared through a central clearing organization but are typically subject to master netting arrangements. The percentage of our bilateral derivative transactions outstanding at period end in such markets, based on gross fair value, is provided within the following table. Other derivative contracts executed in over-the-counter or exchange-
 
traded markets are settled through a central clearing organization and are excluded from this percentage. In addition to the netting amounts included in the table, we also have balance sheet netting related to resale and repurchase agreements that are disclosed within Note 14 (Guarantees, Pledged Assets and Collateral).



(in millions)
Gross amounts recognized

 
Gross amounts offset in consolidated balance sheet (1) 

 
Net amounts in consolidated balance sheet (2) 

 
Gross amounts not offset in consolidated balance sheet (Disclosure-only netting) (3) 

 
Net amounts 

 
Percent exchanged in over-the-counter market (4) 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
63,698

 
(56,051
)
 
7,647

 
(769
)
 
6,878

 
45
%
Commodity contracts
7,461

 
(1,233
)
 
6,228

 
(72
)
 
6,156

 
27

Equity contracts
9,005

 
(2,842
)
 
6,163

 
(405
)
 
5,758

 
54

Foreign exchange contracts
7,404

 
(4,923
)
 
2,481

 
(85
)
 
2,396

 
98

Credit contracts-protection sold
151

 
(131
)
 
20

 
—

 
20

 
90

Credit contracts-protection purchased
755

 
(689
)
 
66

 
(1
)
 
65

 
100

Total derivative assets
$
88,474

 
(65,869
)
 
22,605

 
(1,332
)
 
21,273

 
 
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
60,059

 
(54,394
)
 
5,665

 
(4,244
)
 
1,421

 
44
%
Commodity contracts
7,702

 
(1,459
)
 
6,243

 
(33
)
 
6,210

 
81

Equity contracts
7,038

 
(2,845
)
 
4,193

 
(484
)
 
3,709

 
82

Foreign exchange contracts
7,827

 
(5,511
)
 
2,316

 
(270
)
 
2,046

 
100

Credit contracts-protection sold
943

 
(713
)
 
230

 
(199
)
 
31

 
100

Credit contracts-protection purchased
168

 
(121
)
 
47

 
(18
)
 
29

 
86

Other contracts
44

 
—

 
44

 
—

 
44

 
100

Total derivative liabilities
$
83,781

 
(65,043
)
 
18,738

 
(5,248
)
 
13,490

 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
55,846

 
(48,271
)
 
7,575

 
(1,101
)
 
6,474

 
65
%
Commodity contracts
2,673

 
(659
)
 
2,014

 
(72
)
 
1,942

 
52

Equity contracts
7,824

 
(3,254
)
 
4,570

 
(239
)
 
4,331

 
81

Foreign exchange contracts
4,843

 
(3,567
)
 
1,276

 
(9
)
 
1,267

 
100

Credit contracts-protection sold
354

 
(302
)
 
52

 
—

 
52

 
92

Credit contracts-protection purchased
1,147

 
(841
)
 
306

 
(33
)
 
273

 
100

Other contracts
13

 
—

 
13

 
—

 
13

 
100

Total derivative assets
$
72,700

 
(56,894
)
 
15,806

 
(1,454
)
 
14,352

 
 
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
56,538

 
(53,902
)
 
2,636

 
(482
)
 
2,154

 
66
%
Commodity contracts
2,603

 
(952
)
 
1,651

 
(11
)
 
1,640

 
73

Equity contracts
7,794

 
(3,502
)
 
4,292

 
(124
)
 
4,168

 
94

Foreign exchange contracts
4,508

 
(3,652
)
 
856

 
—

 
856

 
100

Credit contracts-protection sold
1,532

 
(1,432
)
 
100

 
—

 
100

 
100

Credit contracts-protection purchased
368

 
(299
)
 
69

 
—

 
69

 
89

Other contracts
16

 
—

 
16

 
—

 
16

 
100

Total derivative liabilities
$
73,359

 
(63,739
)
 
9,620

 
(617
)
 
9,003

 
 

(1)
Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in the consolidated balance sheet, including related cash collateral and portfolio level counterparty valuation adjustments. Counterparty valuation adjustments were $266 million and $236 million related to derivative assets and $56 million and $67 million related to derivative liabilities as of December 31, 2014 and 2013, respectively. Cash collateral totaled $5.2 billion and $4.6 billion , netted against derivative assets and liabilities, respectively, at December 31, 2014, and $4.3 billion and $11.3 billion , respectively, at December 31, 2013.
(2)
Net derivative assets of $16.9 billion and $14.4 billion are classified in Trading assets as of December 31, 2014 and 2013, respectively. $5.7 billion and $1.4 billion are classified in Other assets in the consolidated balance sheet as of December 31, 2014 and 2013, respectively. Net derivative liabilities are classified in Accrued expenses and other liabilities in the consolidated balance sheet.
(3)
Represents the fair value of non-cash collateral pledged and received against derivative assets and liabilities with the same counterparty that are subject to enforceable master netting arrangements. U.S. GAAP does not permit netting of such non-cash collateral balances in the consolidated balance sheet but requires disclosure of these amounts.
(4)
Represents derivatives executed in over-the-counter markets not settled through a central clearing organization. Over-the-counter percentages are calculated based on Gross amounts recognized as of the respective balance sheet date. The remaining percentage represents derivatives settled through a central clearing organization, which are executed in either over-the-counter or exchange-traded markets.

208

Fair Value Hedges
We use interest rate swaps to convert certain of our fixed-rate long-term debt to floating rates to hedge our exposure to interest rate risk. We also enter into cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge our exposure to foreign currency risk and interest rate risk associated with the issuance of non-U.S. dollar denominated long-term debt. In addition, we use interest rate swaps, cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge against changes in fair value of certain investments in available-for-sale debt securities due to changes in interest rates, foreign currency rates, or both. We also use interest rate swaps to hedge against changes in fair value for certain mortgages held for sale. The entire derivative gain or loss is included in the assessment of hedge effectiveness for all fair value hedge relationships, except for those involving foreign-currency denominated available-for-sale securities and long-
 
term debt hedged with foreign currency forward derivatives for which the time value component of the derivative gain or loss related to the changes in the difference between the spot and forward price is excluded from the assessment of hedge effectiveness.
We use statistical regression analysis to assess hedge effectiveness, both at inception of the hedging relationship and on an ongoing basis. The regression analysis involves regressing the periodic change in fair value of the hedging instrument against the periodic changes in fair value of the asset or liability being hedged due to changes in the hedged risk(s). The assessment includes an evaluation of the quantitative measures of the regression results used to validate the conclusion of high effectiveness.
The following table shows the net gains (losses) recognized in the income statement related to derivatives in fair value hedging relationships.


 
Interest rate contracts hedging: 
 
 
Foreign exchange contracts hedging: 
 
 
Total net gains (losses) on fair value hedges 

(in millions)
Available-for-sale securities

 
Mortgages held for sale

 
Long-term debt 

 
Available-for-sale securities 

 
Long-term debt 

 
Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Net interest income (expense) recognized on derivatives
$
(722
)
 
(15
)
 
1,843

 
(10
)
 
308

 
1,404

Gains (losses) recorded in noninterest income
 
 
 
 
 
 
 
 
 
 
 
Recognized on derivatives
(1,943
)
 
(49
)
 
3,623

 
391

 
(1,418
)
 
604

Recognized on hedged item
1,911

 
32

 
(3,143
)
 
(388
)
 
1,490

 
(98
)
Net recognized on fair value hedges (ineffective portion) (1)
$
(32
)
 
(17
)
 
480

 
3

 
72

 
506

Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Net interest income (expense) recognized on derivatives
$
(584
)
 
(11
)
 
1,632

 
(8
)
 
280

 
1,309

Gains (losses) recorded in noninterest income
 
 
 
 
 
 
 
 
 
 
 
Recognized on derivatives
1,889

 
47

 
(3,767
)
 
(49
)
 
(847
)
 
(2,727
)
Recognized on hedged item
(1,874
)
 
(57
)
 
3,521

 
49

 
722

 
2,361

Net recognized on fair value hedges (ineffective portion) (1)
$
15

 
(10
)
 
(246
)
 
—

 
(125
)
 
(366
)
Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Net interest income (expense) recognized on derivatives
$
(457
)
 
(4
)
 
1,685

 
(5
)
 
248

 
1,467

Gains (losses) recorded in noninterest income
 
 
 
 
 
 
 
 
 
 
 
Recognized on derivatives
(22
)
 
(15
)
 
(179
)
 
39

 
567

 
390

Recognized on hedged item
17

 
6

 
233

 
(3
)
 
(610
)
 
(357
)
Net recognized on fair value hedges (ineffective portion) (1)
$
(5
)
 
(9
)
 
54

 
36

 
(43
)
 
33


(1)
Included $(1) million , $(5) million and $(9) million , respectively, for years ended December 31, 2014 , 2013 , and 2012 of the time value component recognized as net interest income (expense) on forward derivatives hedging foreign currency available-for-sale securities and long-term debt that were excluded from the assessment of hedge effectiveness.

209

Note 16: Derivatives (continued)

Cash Flow Hedges
We use interest rate swaps to hedge the variability in interest payments received on certain floating-rate commercial loans and paid on certain floating-rate debt due to changes in the benchmark interest rate. Gains and losses on derivatives that are reclassified from OCI to interest income (for loans) and interest expense (for debt) in the current period are included in the line item in which the hedged item’s effect on earnings is recorded. All parts of gain or loss on these derivatives are included in the assessment of hedge effectiveness. We assess hedge effectiveness using regression analysis, both at inception of the hedging relationship and on an ongoing basis. The regression analysis involves regressing the periodic changes in cash flows of the hedging instrument against the periodic changes in cash flows of the forecasted transaction being hedged due to changes in the
 
hedged risk(s). The assessment includes an evaluation of the quantitative measures of the regression results used to validate the conclusion of high effectiveness.
Based upon current interest rates, we estimate that $758 million (pre tax) of deferred net gains on derivatives in OCI at December 31, 2014 , will be reclassified into net interest income during the next twelve months. Future changes to interest rates may significantly change actual amounts reclassified to earnings. We are hedging our exposure to the variability of future cash flows for all forecasted transactions for a maximum of 7 years.
The following table shows the net gains (losses) recognized related to derivatives in cash flow hedging relationships.



 
 
Year ended December 31,
 
(in millions)
 
2014

 
2013

 
2012

Gains (losses) (pre tax) recognized in OCI on derivatives
 
$
952

 
(32
)
 
52

Gains (pre tax) reclassified from cumulative OCI into net income (1)
 
545

 
296

 
388

Gains (losses) (pre tax) recognized in noninterest income for hedge ineffectiveness (2)
 
2

 
1

 
(1
)

(1)
See Note 23 (Other Comprehensive Income) for detail on components of net income.
(2)
None of the change in value of the derivatives was excluded from the assessment of hedge effectiveness.

Derivatives Not Designated as Hedging Instruments
We use economic hedge derivatives primarily to hedge the risk of changes in the fair value of certain residential MHFS, certain loans held for investment, residential MSRs measured at fair value, derivative loan commitments and other interests held. The resulting gain or loss on these economic hedge derivatives is reflected in mortgage banking noninterest income, net gains (losses) from equity investments and other noninterest income.
The derivatives used to hedge MSRs measured at fair value, which include swaps, swaptions, constant maturity mortgages, forwards, Eurodollar and Treasury futures and options contracts, resulted in net derivative gains of $3.5 billion in 2014 , net derivative losses of $2.9 billion in 2013 and net derivative gains of $3.6 billion in 2012, which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a net asset of $492 million at December 31, 2014 and a net liability of $531 million at December 31, 2013 . The change in fair value of these derivatives for each period end is due to changes in the underlying market indices and interest rates as well as the purchase and sale of derivative financial instruments throughout the period as part of our dynamic MSR risk management process.
Interest rate lock commitments for mortgage loans that we intend to sell are considered derivatives. Our interest rate exposure on these derivative loan commitments, as well as substantially all residential MHFS, is hedged with economic hedge derivatives such as swaps, forwards and options, Eurodollar futures and options, and Treasury futures, forwards and options contracts. The derivative loan commitments, economic hedge derivatives and residential MHFS are carried at fair value with changes in fair value included in mortgage banking noninterest income. For the fair value measurement of interest rate lock commitments we include, at inception and during the life of the loan commitment, the expected net future cash flows related to the associated servicing of the loan. Fair value changes subsequent to inception are based on changes in fair value of the underlying loan resulting from the exercise of the commitment and changes in the probability that the loan will not fund within the terms of the commitment (referred to as a fall-out factor). The value of the underlying loan is affected
 
primarily by changes in interest rates and the passage of time. However, changes in investor demand can also cause changes in the value of the underlying loan value that cannot be hedged. The aggregate fair value of derivative loan commitments on the balance sheet was a net asset of $98 million and a net liability of $26 million at December 31, 2014 and December 31, 2013 , respectively, and is included in the caption “Interest rate contracts” under “Customer accommodation, trading and other derivatives” in the first table in this Note.
We also enter into various derivatives primarily to provide derivative products to customers. These derivatives are not linked to specific assets and liabilities on the balance sheet or to forecasted transactions in an accounting hedge relationship and, therefore, do not qualify for hedge accounting. We also enter into derivatives for risk management that do not otherwise qualify for hedge accounting. They are carried at fair value with changes in fair value recorded as other noninterest income.
Customer accommodation, trading and other derivatives also include embedded derivatives that are required to be accounted for separately from their host contract. We periodically issue hybrid long-term notes and CDs where the performance of the hybrid instrument notes is linked to an equity, commodity or currency index, or basket of such indices. These notes contain explicit terms that affect some or all of the cash flows or the value of the note in a manner similar to a derivative instrument and therefore are considered to contain an “embedded” derivative instrument. The indices on which the performance of the hybrid instrument is calculated are not clearly and closely related to the host debt instrument. The “embedded” derivative is separated from the host contract and accounted for as a derivative. Additionally, we may invest in hybrid instruments that contain embedded derivatives, such as credit derivatives, that are not clearly and closely related to the host contract. In such instances, we either elect fair value option for the hybrid instrument or separate the embedded derivative from the host contract and account for the host contract and derivative separately.


210

The following table shows the net gains recognized in the income statement related to derivatives not designated as hedging instruments.

 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Net gains (losses) recognized on economic hedge derivatives:
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Recognized in noninterest income:
 
 
 
 
 
Mortgage banking (1)
$
1,759

 
1,412

 
(1,882
)
Other (2)
(230
)
 
119

 
2

Equity contracts (3)
(469
)
 
(317
)
 
4

Foreign exchange contracts (2)
758

 
24

 
(53
)
Credit contracts (2)
(1
)
 
(6
)
 
(15
)
Subtotal
1,817

 
1,232

 
(1,944
)
Net gains (losses) recognized on customer accommodation, trading and other derivatives:
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
Recognized in noninterest income:
 
 
 
 
 
Mortgage banking (4)
1,350

 
(561
)
 
7,222

Other (5)
(855
)
 
743

 
589

Commodity contracts (5)
77

 
324

 
(14
)
Equity contracts (5)
(719
)
 
(622
)
 
(234
)
Foreign exchange contracts (5)
593

 
746

 
501

Credit contracts (5)
7

 
(53
)
 
(54
)
Other (5)
(39
)
 
—

 
—

Subtotal
414

 
577

 
8,010

Net gains recognized related to derivatives not designated as hedging instruments
$
2,231

 
1,809

 
6,066


(1)
Predominantly mortgage banking noninterest income including gains (losses) on the derivatives used as economic hedges of MSRs measured at fair value, interest rate lock commitments and mortgages held for sale.
(2)
Predominantly included in other noninterest income.
(3)
Predominantly included in net gains (losses) from equity investments in noninterest income.
(4)
Predominantly mortgage banking noninterest income including gains (losses) on interest rate lock commitments.
(5)
Predominantly included in net gains from trading activities in noninterest income.

Credit Derivatives
Credit derivative contracts are arrangements whose value is derived from the transfer of credit risk of a reference asset or entity from one party (the purchaser of credit protection) to another party (the seller of credit protection). We use credit derivatives primarily to assist customers with their risk management objectives. We may also use credit derivatives in structured product transactions or liquidity agreements written to special purpose vehicles. The maximum exposure of sold credit derivatives is managed through posted collateral, purchased credit derivatives and similar products in order to achieve our desired credit risk profile. This credit risk
 
management provides an ability to recover a significant portion of any amounts that would be paid under the sold credit derivatives. We would be required to perform under the noted credit derivatives in the event of default by the referenced obligors. Events of default include events such as bankruptcy, capital restructuring or lack of principal and/or interest payment. In certain cases, other triggers may exist, such as the credit downgrade of the referenced obligors or the inability of the special purpose vehicle for which we have provided liquidity to obtain funding.
The following table provides details of sold and purchased credit derivatives.



211

Note 16: Derivatives (continued)

 
 
 
Notional amount
 
 
 
(in millions)
Fair value liability 

 
Protection sold (A)

 
Protection sold - non-investment grade

 
Protection purchased with identical underlyings (B)

 
Net protection sold (A)-(B) 

 
Other protection purchased 

 
Range of maturities 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
23

 
6,344

 
2,904

 
4,894

 
1,450

 
2,831

 
2015 - 2021
Structured products
654

 
1,055

 
874

 
608

 
447

 
277

 
2017 - 2052
Credit protection on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Default swap index
—

 
1,659

 
292

 
777

 
882

 
1,042

 
2015 - 2019
Commercial mortgage-backed securities index
246

 
1,058

 
—

 
608

 
450

 
355

 
2047 - 2063
Asset-backed securities index
19

 
52

 
1

 
1

 
51

 
81

 
2045 - 2046
Other
1

 
2,136

 
2,136

 
—

 
2,136

 
5,185

 
2015 - 2025
Total credit derivatives
$
943

 
12,304

 
6,207

 
6,888

 
5,416

 
9,771

 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
48

 
10,947

 
5,237

 
6,493

 
4,454

 
5,557

 
2014-2021 
Structured products
1,091

 
1,553

 
1,245

 
894

 
659

 
389

 
2016-2052 
Credit protection on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Default swap index
—

 
3,270

 
388

 
2,471

 
799

 
898

 
2014-2018 
Commercial mortgage-backed securities index
344

 
1,106

 
1

 
535

 
571

 
535

 
2049-2052 
Asset-backed securities index
48

 
55

 
—

 
1

 
54

 
87

 
2045-2046 
Other
1

 
2,570

 
2,570

 
3

 
2,567

 
5,451

 
2014-2025 
Total credit derivatives
$
1,532

 
19,501

 
9,441

 
10,397

 
9,104

 
12,917

 
 

Protection sold represents the estimated maximum exposure to loss that would be incurred under an assumed hypothetical circumstance, where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. We believe this hypothetical circumstance to be an extremely remote possibility and accordingly, this required disclosure is not an indication of expected loss. The amounts under non-investment grade represent the notional amounts of those credit derivatives on which we have a higher risk of being required to perform under the terms of the credit derivative and are a function of the underlying assets.
We consider the risk of performance to be high if the underlying assets under the credit derivative have an external rating that is below investment grade or an internal credit default grade that is equivalent thereto. We believe the net protection sold, which is representative of the net notional amount of protection sold and purchased with identical underlyings, in combination with other protection purchased, is more representative of our exposure to loss than either non-investment grade or protection sold. Other protection purchased represents additional protection, which may offset the exposure to loss for protection sold, that was not purchased with an identical underlying of the protection sold.

Credit-Risk Contingent Features
Certain of our derivative contracts contain provisions whereby if the credit rating of our debt were to be downgraded by certain major credit rating agencies, the counterparty could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a net liability position was $13.6 billion at December 31, 2014 , and $14.3 billion at December 31, 2013 , respectively, for which we posted $10.5 billion and $12.2 billion , respectively, in collateral in the normal course of business. If the credit rating of our debt had been downgraded below investment grade, which is the credit-risk-related contingent feature that if triggered requires the maximum amount of collateral to be posted, on December 31,
 
2014 , or December 31, 2013 , we would have been required to post additional collateral of $3.1 billion or $2.5 billion , respectively, or potentially settle the contract in an amount equal to its fair value. Some contracts require that we provide more collateral than the fair value of derivatives that are in a net liability position if a downgrade occurs.

Counterparty Credit Risk
By using derivatives, we are exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet. The amounts reported as a derivative asset are derivative contracts in a gain position, and to the extent subject to legally enforceable master netting arrangements, net of derivatives in a loss position with the same counterparty and cash collateral received. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. To the extent the master netting arrangements and other criteria meet the applicable requirements, including determining the legal enforceability of the arrangement, it is our policy to present derivative balances and related cash collateral amounts net on the balance sheet. We incorporate credit valuation adjustments (CVA) to reflect counterparty credit risk in determining the fair value of our derivatives. Such adjustments, which consider the effects of enforceable master netting agreements and collateral arrangements, reflect market-based views of the credit quality of each counterparty. Our CVA calculation is determined based on observed credit spreads in the credit default swap market and indices indicative of the credit quality of the counterparties to our derivatives.


212

Note 17:  Fair Values of Assets and Liabilities
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis are presented in the recurring table in this Note. From time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as certain residential and commercial MHFS, certain LHFS, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.
Following is a discussion of the fair value hierarchy and the valuation methodologies used for assets and liabilities recorded at fair value on a recurring or nonrecurring basis and for estimating fair value for financial instruments not recorded at fair value.
 
Fair Value Hierarchy
We group our assets and liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
•
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
•
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
•
Level 3 – Valuation is generated from techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
 
In the determination of the classification of financial instruments in Level 2 or Level 3 of the fair value hierarchy, we consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. For securities in inactive markets, we use a predetermined percentage to evaluate the impact of fair value adjustments derived from weighting both external and internal indications of value to determine if the instrument is classified as Level 2 or Level 3. Otherwise, the classification of Level 2 or Level 3 is based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the Level 3 inputs to the instruments’ fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument is classified as Level 3.
 
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 on acceptances. These assets are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
 
TRADING ASSETS (EXCLUDING DERIVATIVES) AND INVESTMENT SECURITIES   Trading assets and available-for-sale securities are recorded at fair value on a recurring basis. Other investment securities classified as held-to-maturity are subject to impairment and fair value measurement if fair value declines below amortized cost and we do not expect to recover the entire amortized cost basis of the debt security. Fair value measurement is based upon various sources of market pricing. We use quoted prices in active markets, where available, and classify such instruments within Level 1 of the fair value hierarchy. Examples include exchange-traded equity securities and some highly liquid government securities, such as U.S. Treasuries. When instruments are traded in secondary markets and quoted market prices do not exist for such securities, we generally rely on internal valuation techniques or on prices obtained from vendors (predominantly third-party pricing services), and accordingly, we classify these instruments as Level 2 or 3.
Trading securities are mostly valued using internal trader prices that are subject to price verification procedures performed by separate internal personnel. The majority of fair values derived using internal valuation techniques are verified against multiple pricing sources, including prices obtained from third-party vendors. Vendors compile prices from various sources and often apply matrix pricing for similar securities when no price is observable. We review pricing methodologies provided by the vendors in order to determine if observable market information is being used versus unobservable inputs. When evaluating the appropriateness of an internal trader price compared with vendor prices, considerations include the range and quality of vendor prices. Vendor prices are used to ensure the reasonableness of a trader price; however valuing financial instruments involves judgments acquired from knowledge of a particular market. If a trader asserts that a vendor price is not reflective of market value, justification for using the trader price, including recent sales activity where possible, must be provided to and approved by the appropriate levels of management.
Similarly, while investment securities traded in secondary markets are typically valued using unadjusted vendor prices or vendor prices adjusted by weighting them with internal discounted cash flow techniques, these prices are reviewed and, if deemed inappropriate by a trader who has the most knowledge of a particular market, can be adjusted. Securities measured with these internal valuation techniques are generally classified as Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models, discounted cash flow analyses using significant inputs observable in the market where available or a combination of multiple valuation techniques. Examples include certain residential and commercial MBS, municipal bonds, U.S. government and agency MBS, and corporate debt securities.
Security fair value measurements using significant inputs that are unobservable in the market due to limited activity or a less liquid market are classified as Level 3 in the fair value hierarchy. Such measurements include securities valued using internal models or a combination of multiple valuation techniques, such as weighting of internal models and vendor pricing, where the unobservable inputs are significant to the overall fair value measurement. Securities classified as Level 3 include certain residential and commercial MBS, other asset-backed securities, CDOs and certain CLOs, and certain residual and retained interests in residential mortgage loan


213

Note 17: Fair Values of Assets and Liabilities (continued)

securitizations. We value CDOs using the prices of similar instruments, the pricing of completed or pending third-party transactions or the pricing of the underlying collateral within the CDO. Where vendor prices are not readily available, we use management's best estimate.

MORTGAGES HELD FOR SALE (MHFS)  We carry most of our residential MHFS portfolio at fair value. Fair value is based on quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics. As necessary, these prices are adjusted for typical securitization activities, including servicing value, portfolio composition, market conditions and liquidity. Most of our MHFS are classified as Level 2. For the portion where market pricing data is not available, we use a discounted cash flow model to estimate fair value and, accordingly, classify as Level 3.
 
LOANS HELD FOR SALE (LHFS)  LHFS are carried at the lower of cost or market value or at fair value. The fair value of LHFS is based on what secondary markets are currently offering for loans with similar characteristics. As such, we classify those loans subjected to nonrecurring fair value adjustments as Level 2.
 
LOANS  For information on how we report the carrying value of loans, including PCI loans, see Note 1 (Summary of Significant Accounting Policies). Although most loans are not recorded at fair value on a recurring basis, reverse mortgages are recorded at fair value on a recurring basis. In addition, we record nonrecurring fair value adjustments to loans to reflect partial write-downs that are based on the observable market price of the loan or current appraised value of the collateral.
We provide fair value estimates in this disclosure for loans that are not recorded at fair value on a recurring or nonrecurring basis. Those estimates differentiate loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment and credit loss estimates are evaluated by product and loan rate.
The fair value of commercial loans is calculated by discounting contractual cash flows, adjusted for credit loss estimates, using discount rates that are appropriate for loans with similar characteristics and remaining maturity. For real estate 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 of similar size, type, remaining maturity and repricing characteristics.
The carrying value of credit card loans, which is adjusted for estimates of credit losses inherent in the portfolio at the balance sheet date, is reported as a reasonable estimate of fair value. For all other consumer loans, the fair value is generally calculated by discounting the contractual cash flows, adjusted for prepayment and credit loss estimates, based on the current rates we offer for loans with similar characteristics.
Loan commitments, standby letters of credit and commercial and similar letters of credit generate ongoing fees at our current pricing levels, which are recognized over the term of the commitment period. In situations where the credit quality of the counterparty to a commitment has declined, we record an allowance. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees adjusted for the related allowance. Certain letters of credit that are hedged with derivative instruments are carried at fair value in trading assets or liabilities. For those letters of credit, fair value is
 
calculated based on readily quotable credit default spreads using a market risk credit default swap model.
 
DERIVATIVES  Quoted market prices are available and used for our exchange-traded derivatives, such as certain interest rate futures and option contracts, which we classify as Level 1. However, substantially all of our derivatives are traded in over-the-counter (OTC) markets where quoted market prices are not always readily available. Therefore we value most OTC derivatives using internal valuation techniques. Valuation techniques and inputs to internally-developed models depend on the type of derivative and nature of the underlying rate, price or index upon which the derivative's value is based. Key inputs can include yield curves, credit curves, foreign-exchange rates, prepayment rates, volatility measurements and correlation of such inputs. Where model inputs can be observed in a liquid market and the model does not require significant judgment, such derivatives are typically classified as Level 2 of the fair value hierarchy. Examples of derivatives classified as Level 2 include generic interest rate swaps, foreign currency swaps, commodity swaps, and certain option and forward contracts. When instruments are traded in less liquid markets and significant inputs are unobservable, such derivatives are classified as Level 3. Examples of derivatives classified as Level 3 include complex and highly structured derivatives, certain credit default swaps, interest rate lock commitments written for our mortgage loans that we intend to sell and long dated equity options where volatility is not observable. Additionally, significant judgments are required when classifying financial instruments within the fair value hierarchy, particularly between Level 2 and 3, as is the case for certain derivatives.
 
MORTGAGE SERVICING RIGHT (MSRs) AND CERTAIN OTHER INTERESTS HELD IN SECURITIZATIONS MSRs and certain other interests held in securitizations (e.g., interest-only strips) do not trade in an active market with readily observable prices. Accordingly, we determine the fair value of MSRs using a valuation model that calculates the present value of estimated future net servicing income cash flows. The model incorporates assumptions that market participants use in estimating future net servicing income cash flows, including estimates of prepayment speeds (including housing price volatility), discount rates, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income, ancillary income and late fees. Commercial MSRs are carried at lower of cost or market value, and therefore can be subject to fair value measurements on a nonrecurring basis. Changes in the fair value of MSRs occur primarily due to the collection/realization of expected cash flows, as well as changes in valuation inputs and assumptions. For other interests held in securitizations (such as interest-only strips), we use a valuation model that calculates the present value of estimated future cash flows. The model incorporates our own estimates of assumptions market participants use in determining the fair value, including estimates of prepayment speeds, discount rates, defaults and contractual fee income. Interest-only strips are recorded as trading assets. Our valuation approach is validated by our internal valuation model validation group. Fair value measurements of our MSRs and interest-only strips use significant unobservable inputs and, accordingly, we classify them as Level 3. 

FORECLOSED ASSETS  Foreclosed assets are carried at net realizable value, which represents fair value less costs to sell. Fair value is generally based upon independent market prices or


214

appraised values of the collateral and, accordingly, we classify foreclosed assets as Level 2.
 
NONMARKETABLE EQUITY INVESTMENTS  For certain equity securities that are not publicly traded, we have elected the fair value option and we use a market comparable pricing technique to estimate their fair value. The remaining nonmarketable equity investments include low income housing tax credit investments, Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock, and private equity investments which are recorded under the cost or equity method of accounting. We estimate fair value to record other-than-temporary impairment write-downs on a nonrecurring basis. Additionally, we provide fair value estimates in this disclosure for cost method investments that are not measured at fair value on a recurring or nonrecurring basis.
Federal Bank stock carrying values approximate fair value. For the remaining cost or equity method investments for which we determine fair value, we estimate the fair value using all available information and consider the range of potential inputs including discounted cash flow models, transaction prices, trading multiples of comparable public companies, and entry level multiples. Where appropriate these metrics are adjusted to account for comparative differences with public companies, and for company-specific issues like liquidity or marketability. For investments in private equity funds, we use the NAV provided by the fund sponsor as a practical expedient to measure fair value. In some cases, such NAVs may require adjustments based on certain unobservable inputs.

Liabilities
DEPOSIT LIABILITIES  Deposit liabilities are carried at historical cost. The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking, and market rate and other savings, is equal to the amount payable on demand at the measurement date. The fair value of other time deposits is calculated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for like wholesale deposits with similar remaining maturities.
 
SHORT-TERM FINANCIAL LIABILITIES Short-term financial liabilities are carried at historical cost and include federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
 
OTHER LIABILITIES  Other liabilities recorded at fair value on a recurring basis, excluding derivative liabilities (see the “Derivatives” section for derivative liabilities), primarily include short sale liabilities. Short sale liabilities are predominantly classified as either Level 1 or Level 2, generally depending upon whether the underlying securities have readily obtainable quoted prices in active exchange markets.
 
LONG-TERM DEBT  Long-term debt is generally carried at amortized cost. For disclosure, we are required to estimate the fair value of long-term debt and generally do so using the discounted cash flow method. Contractual cash flows are discounted using rates currently offered for new notes with similar remaining maturities and, as such, these discount rates include our current spread levels.  
 
 
Level 3 Asset and Liability Valuation Processes
We generally determine fair value of our Level 3 assets and liabilities by using internally developed models and, to a lesser extent, prices obtained from vendors, which predominantly consist of third-party pricing services. Our valuation processes vary depending on which approach is utilized.
 
INTERNAL MODEL VALUATIONS  Our internally developed models primarily use discounted cash flow techniques. Use of such techniques requires determining relevant inputs, some of which are unobservable. Unobservable inputs are generally derived from historic performance of similar assets or determined from previous market trades in similar instruments. These unobservable inputs usually consist of discount rates, default rates, loss severity upon default, volatilities, correlations and prepayment rates, which are inherent within our Level 3 instruments. Such inputs can be correlated to similar portfolios with known historic experience or recent trades where particular unobservable inputs may be implied, but due to the nature of various inputs being reflected within a particular trade, the value of each input is considered unobservable. We attempt to correlate each unobservable input to historic experience and other third-party data where available.
Internal valuation models are subject to review prescribed within our model risk management policies and procedures, which include model validation. The purpose of model validation includes ensuring the model is appropriate for its intended use and the appropriate controls exist to help mitigate risk of invalid valuations. Model validation assesses the adequacy and appropriateness of the model, including reviewing its key components, such as inputs, processing components, logic or theory, output results and supporting model documentation. Validation also includes ensuring significant unobservable model inputs are appropriate given observable market transactions or other market data within the same or similar asset classes. This ensures modeled approaches are appropriate given similar product valuation techniques and are in line with their intended purpose.
We have ongoing monitoring procedures in place for our Level 3 assets and liabilities that use such internal valuation models. These procedures, which are designed to provide reasonable assurance that models continue to perform as expected after approved, include:
•
ongoing analysis and benchmarking to market transactions and other independent market data (including pricing vendors, if available);
•
back-testing of modeled fair values to actual realized transactions; and
•
review of modeled valuation results against expectations, including review of significant or unusual value fluctuations.
 
We update model inputs and methodologies periodically to reflect these monitoring procedures. Additionally, procedures and controls are in place to ensure existing models are subject to periodic reviews, and we perform full model revalidations as necessary.
All internal valuation models are subject to ongoing review by business-unit-level management, and all models are subject to additional oversight by a corporate-level risk management department. Corporate oversight responsibilities include evaluating the 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 Corporate Model Risk Committee (CMoR). The CMoR consists of senior executive management and reports


215

Note 17: Fair Values of Assets and Liabilities (continued)

on top model risk issues to the Company’s Risk Committee of the Board.

VENDOR-DEVELOPED VALUATIONS  In certain limited circumstances we obtain pricing from third-party vendors for the value of our Level 3 assets or liabilities. We have processes in place to approve such vendors to ensure information obtained and valuation techniques used are appropriate. Once these vendors are approved to provide pricing information, we monitor and review the results to ensure the fair values are reasonable and in line with market experience in similar asset classes. While the input amounts used by the pricing vendor in determining fair value are not provided, and therefore unavailable for our review, we do perform one or more of the following procedures to validate the prices received:
•
comparison to other pricing vendors (if available);
•
variance analysis of prices;
•
corroboration of pricing by reference to other independent market data, such as market transactions and relevant benchmark indices;
•
review of pricing by Company personnel familiar with market liquidity and other market-related conditions; and
•
investigation of prices on a specific instrument-by-instrument basis.
 
Fair Value Measurements from Vendors
For certain assets and liabilities, we obtain fair value measurements from vendors, which predominantly consist of third-party pricing services, and record the unadjusted fair value in our financial statements. For instruments where we utilize vendor prices to record the price of an instrument, we perform additional procedures. We evaluate pricing vendors by comparing prices from one vendor to prices of other vendors for identical or similar instruments and evaluate the consistency of prices to known market transactions when determining the level of reliance to place on a particular pricing vendor. Methodologies employed, controls in place and inputs used by third-party pricing vendors are subject to additional review when such services are provided. This review may consist of, in part, obtaining and evaluating control reports issued and pricing methodology materials distributed.
The fair value measurements provided by brokers or third-party pricing services, and not adjusted by us, are shown by fair value hierarchy level in the table below. Fair value measurements obtained from brokers 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 
 
 
Third-party pricing services 
 
(in millions)
Level 1 

 
Level 2 

 
Level 3 

 
Level 1 

 
Level 2 

 
Level 3 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives)
$
—

 
—

 
—

 
2

 
105

 
—

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
—

 
—

 
—

 
19,899

 
5,905

 
—

Securities of U.S. states and political subdivisions
—

 
—

 
—

 
—

 
42,666

 
61

Mortgage-backed securities
—

 
152

 
—

 
—

 
135,997

 
133

Other debt securities (1)
—

 
1,035

 
601

 
—

 
41,933

 
541

Total debt securities
—

 
1,187

 
601

 
19,899

 
226,501

 
735

Total marketable equity securities
—

 
—

 
—

 
—

 
569

 
—

Total available-for-sale securities
—

 
1,187

 
601

 
19,899

 
227,070

 
735

Derivatives (trading and other assets)
—

 
1

 
—

 
—

 
290

 
—

Derivatives (liabilities)
—

 
(1
)
 
—

 
—

 
(292
)
 
—

Other liabilities
—

 
—

 
—

 
—

 
(1
)
 
—

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives)
$
—

 
122

 
1

 
1,804

 
652

 
3

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
—

 
—

 
—

 
557

 
5,723

 
—

Securities of U.S. states and political subdivisions
—

 
—

 
—

 
—

 
39,257

 
63

Mortgage-backed securities
—

 
621

 
—

 
—

 
148,074

 
180

Other debt securities (1)
—

 
1,537

 
722

 
—

 
44,681

 
746

Total debt securities
—

 
2,158

 
722

 
557

 
237,735

 
989

Total marketable equity securities
—

 
—

 
—

 
—

 
630

 
—

Total available-for-sale securities
—

 
2,158

 
722

 
557

 
238,365

 
989

Derivatives (trading and other assets)
—

 
5

 
—

 
—

 
417

 
3

Derivatives (liabilities)
—

 
(12
)
 
—

 
—

 
(418
)
 
—

Other liabilities
—

 
(115
)
 
—

 
—

 
(36
)
 
—


(1)
Includes corporate debt securities, collateralized loan and other debt obligations, asset-backed securities, and other debt securities.


216

Assets and Liabilities Recorded at Fair Value on a Recurring Basis
 
The following two tables present the balances of assets and liabilities recorded at fair value on a recurring basis.


(in millions)
Level 1 

 
Level 2 

 
Level 3 

 
Netting 

 
Total 

December 31, 2014
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives)
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
10,506

 
3,886

 
—

 
—

 
14,392

Securities of U.S. states and political subdivisions
—

 
1,537

 
7

 
—

 
1,544

Collateralized loan and other debt obligations   (1) 
—

 
274

 
445

 
—

 
719

Corporate debt securities
—

 
7,517

 
54

 
—

 
7,571

Mortgage-backed securities
—

 
16,273

 
—

 
—

 
16,273

Asset-backed securities
—

 
776

 
79

 
—

 
855

Equity securities
18,512

 
38

 
10

 
—

 
18,560

Total trading securities (2) 
29,018

 
30,301

 
595

 
—

 
59,914

Other trading assets
—

 
1,398

 
55

 
—

 
1,453

Total trading assets (excluding derivatives)
29,018

 
31,699

 
650

 
—

 
61,367

Securities of U.S. Treasury and federal agencies
19,899

 
5,905

 
—

 
—

 
25,804

Securities of U.S. states and political subdivisions
—

 
42,667

 
2,277

(3)
—

 
44,944

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Federal agencies
—

 
110,089

 
—

 
—

 
110,089

Residential
—

 
9,245

 
24

 
—

 
9,269

Commercial
—

 
16,885

 
109

 
—

 
16,994

Total mortgage-backed securities
—

 
136,219

 
133

 
—

 
136,352

Corporate debt securities
83

 
14,451

 
252

 
—

 
14,786

Collateralized loan and other debt obligations (4) 
—

 
24,274

 
1,087

(3)
—

 
25,361

Asset-backed securities:
 
 
 
 
 
 
 
 
 
Auto loans and leases
—

 
31

 
245

(3)
—

 
276

Home equity loans
—

 
662

 
—

 
—

 
662

Other asset-backed securities
—

 
4,189

 
1,372

(3)
—

 
5,561

Total asset-backed securities
—

 
4,882

 
1,617

 
—

 
6,499

Other debt securities
—

 
20

 
—

 
—

 
20

Total debt securities
19,982

 
228,418

 
5,366

 
—

 
253,766

Marketable equity securities:
 
 
 
 
 
 
 
 
 
Perpetual preferred securities (5) 
468

 
569

 
663

(3)
—

 
1,700

Other marketable equity securities
1,952

 
24

 
—

 
—

 
1,976

Total marketable equity securities
2,420

 
593

 
663

 
—

 
3,676

Total available-for-sale securities
22,402

 
229,011

 
6,029

 
—

 
257,442

Mortgages held for sale
—

 
13,252

 
2,313

 
—

 
15,565

Loans held for sale
—

 
1

 
—

 
—

 
1

Loans
—

 
—

 
5,788

 
—

 
5,788

Mortgage servicing rights (residential)
—

 
—

 
12,738

 
—

  
12,738

Derivative assets:
 
 
 
 
 
 
 
 
 
Interest rate contracts
27

 
63,306

 
365

 
—

 
63,698

Commodity contracts
—

 
7,438

 
23

 
—

 
7,461

Equity contracts
4,102

 
3,544

 
1,359

 
—

 
9,005

Foreign exchange contracts
65

 
7,339

 
—

 
—

 
7,404

Credit contracts
—

 
440

 
466

 
—

 
906

Other derivative contracts
—

 
—

 
—

 
—

 
—

Netting
—

 
—

 
—

 
(65,869
)
(6)
(65,869
)
Total derivative assets (7) 
4,194

 
82,067

 
2,213

 
(65,869
)
 
22,605

Other assets
—

 
—

 
2,593

 
—

 
2,593

Total assets recorded at fair value
55,614

 
356,030

 
32,324

 
(65,869
)
 
378,099

Derivative liabilities:
 
 
 
 
 
 
 
 
 
Interest rate contracts
(29
)
 
(59,958
)
 
(72
)
 
—

 
(60,059
)
Commodity contracts
—

 
(7,680
)
 
(22
)
 
—

 
(7,702
)
Equity contracts
(1,290
)
 
(4,305
)
 
(1,443
)
 
—

  
(7,038
)
Foreign exchange contracts
(60
)
 
(7,767
)
 
—

 
—

 
(7,827
)
Credit contracts
—

 
(456
)
 
(655
)
 
—

 
(1,111
)
Other derivative contracts
—

 
—

 
(44
)
 
—

 
(44
)
Netting
—

 
—

 
—

 
65,043

(6)
65,043

Total derivative liabilities (7) 
(1,379
)
 
(80,166
)
 
(2,236
)
 
65,043

 
(18,738
)
Short sale liabilities:
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
(7,043
)
 
(1,636
)
 
—

 
—

 
(8,679
)
Securities of U.S. states and political subdivisions
—

 
(26
)
 
—

 
—

 
(26
)
Corporate debt securities
—

 
(5,055
)
 
—

 
—

 
(5,055
)
Equity securities
(2,259
)
 
(2
)
 
—

 
—

 
(2,261
)
Other securities
—

 
(73
)
 
(6
)
 
—

 
(79
)
Total short sale liabilities
(9,302
)
 
(6,792
)
 
(6
)
 
—

 
(16,100
)
Other liabilities (excluding derivatives)
—

 
—

 
(28
)
 
—

 
(28
)
Total liabilities recorded at fair value
(10,681
)
 
(86,958
)
 
(2,270
)
 
65,043

 
(34,866
)

(1)
The entire balance only consists of collateralized loan obligations. 
(2)
Net gains from trading activities recognized in the income statement for the year ended December 31, 2014 include $211 million in net unrealized gains on trading securities held at December 31, 2014 . 
(3)
Balances consist of securities that are mostly investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.
(4)
Includes collateralized debt obligations of $500 million . 
(5)
Perpetual preferred securities include ARS and corporate preferred securities. See Note 8 (Securitizations and Variable Interest Entities) for additional information.
(6)
Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 16 (Derivatives) for additional information.
(7)
Derivative assets and derivative liabilities include contracts qualifying for hedge accounting, economic hedges, and derivatives included in trading assets and trading liabilities, respectively.
 
(continued on following page)

217

Note 17: Fair Values of Assets and Liabilities (continued)

(continued from previous page)
(in millions)
Level 1 

 
Level 2 

 
Level 3 

 
Netting 

 
Total 

December 31, 2013
 
 
  
 
  
  
  
  
  
Trading assets (excluding derivatives)
  
 
  
 
  
  
  
  
  
Securities of U.S. Treasury and federal agencies
8,301

 
3,669

 
—

  
—

  
11,970

Securities of U.S. states and political subdivisions
—

 
2,043

 
39

  
—

  
2,082

Collateralized loan and other debt obligations (1)
—

 
212

 
541

  
—

  
753

Corporate debt securities
—

 
7,052

 
53

  
—

  
7,105

Mortgage-backed securities
—

 
14,608

 
1

  
—

  
14,609

Asset-backed securities
—

 
487

 
122

  
—

  
609

Equity securities
5,908

 
87

 
13

  
—

  
6,008

Total trading securities (2)
14,209

 
28,158

 
769

  
—

  
43,136

Other trading assets
2,694

 
2,487

 
54

  
—

  
5,235

Total trading assets (excluding derivatives)
16,903

 
30,645

 
823

  
—

  
48,371

Securities of U.S. Treasury and federal agencies
557

 
5,723

 
—

  
—

  
6,280

Securities of U.S. states and political subdivisions
—

 
39,322

 
3,214

(3)
—

  
42,536

Mortgage-backed securities:
  
 
  
 
  
  
  
  
 
Federal agencies
—

 
117,591

 
—

  
—

  
117,591

Residential
—

 
12,389

 
64

  
—

  
12,453

Commercial
—

 
18,609

 
138

  
—

  
18,747

Total mortgage-backed securities
—

 
148,589

 
202

  
—

  
148,791

Corporate debt securities
113

 
20,833

 
281

  
—

  
21,227

Collateralized loan and other debt obligations (4)
—

 
18,739

 
1,420

(3)
—

  
20,159

Asset-backed securities:
  
 
  
 
  
  
  
  
 
Auto loans and leases
—

 
21

 
492

(3)
—

  
513

Home equity loans
—

 
843

 
—

  
—

  
843

Other asset-backed securities
—

 
6,577

 
1,657

(3)
—

  
8,234

Total asset-backed securities
—

 
7,441

 
2,149

 
—

  
9,590

Other debt securities
—

 
39

 
—

  
—

  
39

Total debt securities
670

 
240,686

 
7,266

  
—

  
248,622

Marketable equity securities:
  
 
  
 
  
  
  
  
 
Perpetual preferred securities (5)
508

 
628

 
729

(3)
—

  
1,865

Other marketable equity securities
1,511

 
9

 
—

  
—

  
1,520

Total marketable equity securities
2,019

 
637

 
729

  
—

  
3,385

Total available-for-sale securities
2,689

 
241,323

 
7,995

  
—

  
252,007

Mortgages held for sale
—

 
11,505

 
2,374

  
—

  
13,879

Loans held for sale
—

 
1

 
—

  
—

  
1

Loans
—

 
272

 
5,723

  
—

  
5,995

Mortgage servicing rights (residential)
—

 
—

 
15,580

  
—

  
15,580

Derivative assets:
  
 
  
 
  
  
  
  
 
Interest rate contracts
36

 
55,466

 
344

  
—

  
55,846

Commodity contracts
—

 
2,667

 
6

  
—

  
2,673

Equity contracts
1,522

 
4,221

 
2,081

  
—

  
7,824

Foreign exchange contracts
44

 
4,789

 
10

  
—

  
4,843

Credit contracts
—

 
782

 
719

  
—

  
1,501

Other derivative contracts
—

 
—

 
13

  
—

  
13

Netting
—

 
—

 
—

  
(56,894
)
(6)
(56,894
)
Total derivative assets (7)
1,602

 
67,925

 
3,173

  
(56,894
)
  
15,806

Other assets
—

 
—

 
1,503

  
—

  
1,503

Total assets recorded at fair value
21,194

 
351,671

 
37,171

  
(56,894
)
  
353,142

Derivative liabilities:
  
 
  
 
  
  
  
  
 
Interest rate contracts
(26
)
 
(56,128
)
 
(384
)
  
—

  
(56,538
)
Commodity contracts
—

 
(2,587
)
 
(16
)
  
—

  
(2,603
)
Equity contracts
(449
)
 
(5,218
)
 
(2,127
)
  
—

  
(7,794
)
Foreign exchange contracts
(75
)
 
(4,432
)
 
(1
)
  
—

  
(4,508
)
Credit contracts
—

 
(806
)
 
(1,094
)
  
—

  
(1,900
)
Other derivative contracts
—

 
—

 
(16
)
  
—

  
(16
)
Netting
—

 
—

 
—

  
63,739

(6)
63,739

Total derivative liabilities (7)
(550
)
 
(69,171
)
 
(3,638
)
  
63,739

  
(9,620
)
Short sale liabilities:
  
 
 
 
  
  
  
  
 
Securities of U.S. Treasury and federal agencies
(4,311
)
 
(2,063
)
 
—

  
—

  
(6,374
)
Securities of U.S. states and political subdivisions
—

 
(24
)
 
—

  
—

  
(24
)
Corporate debt securities
—

 
(4,683
)
 
—

  
—

  
(4,683
)
Equity securities
(1,788
)
 
(48
)
 
—

  
—

  
(1,836
)
Other securities
—

 
(95
)
 
—

  
—

  
(95
)
Total short sale liabilities
(6,099
)
 
(6,913
)
 
—

  
—

  
(13,012
)
Other liabilities (excluding derivatives)
—

 
—

 
(39
)
  
—

  
(39
)
Total liabilities recorded at fair value
(6,649
)
 
(76,084
)
 
(3,677
)
  
63,739

  
(22,671
)

(1)
Includes collateralized debt obligations of $2 million .
(2)
Net gains from trading activities recognized in the income statement for the year ended December 31, 2013 include $(29) million in net unrealized losses on trading securities held at December 31, 2013 .
(3)
Balances consist of securities that are predominantly investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.
(4)
Includes collateralized debt obligations of $693 million . 
(5)
Perpetual preferred securities include ARS and corporate preferred securities. See Note 8 (Securitizations and Variable Interest Entities) for additional information.
(6)
Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 16 (Derivatives) for additional information.
(7)
Derivative assets and derivative liabilities include contracts qualifying for hedge accounting, economic hedges, and derivatives included in trading assets and trading liabilities, respectively.

218

Changes in Fair Value Levels
We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2, and Level 3 accordingly. Observable market data includes but is not limited to quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data. Changes in
 
availability of observable market data, which also may result in changing the valuation technique used, are generally the cause of transfers between Level 1, Level 2, and Level 3.
Transfers into and out of Level 1, Level 2, and Level 3 for the periods presented are provided within the following table. The amounts reported as transfers represent the fair value as of the beginning of the quarter in which the transfer occurred.
 


 
Transfers Between Fair Value Levels
 
 
 
Level 1
 
Level 2
 
Level 3 (1)
 
 
(in millions)
In
 
Out
 
In
 
Out
 
In
 
Out
 
Total
Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives)
$
—

 
(11
)
 
70

 
(31
)
 
31

 
(59
)
 
—

Available-for-sale securities
—

 
(8
)
 
370

 
(148
)
 
148

 
(362
)
 
—

Mortgages held for sale
—

 
—

 
229

 
(440
)
 
440

 
(229
)
 
—

Loans
—

 
—

 
49

 
(270
)
 
270

 
(49
)
 
—

Net derivative assets and liabilities (2)
—

 
—

 
(134
)
 
20

 
(20
)
 
134

 
—

Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

Total transfers
$
—

 
(19
)
 
584

 
(869
)
 
869

 
(565
)
 
—

Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives) (3)
$
—

 
(242
)
 
535

 
(56
)
 
52

 
(289
)
 
—

Available-for-sale securities (3)(4)
17

 
—

 
12,830

 
(117
)
 
100

 
(12,830
)
 
—

Mortgages held for sale
—

 
—

 
343

 
(336
)
 
336

 
(343
)
 
—

Loans
—

 
—

 
193

 
—

 
—

 
(193
)
 
—

Net derivative assets and liabilities (2)
—

 
—

 
(142
)
 
13

 
(13
)
 
142

 
—

Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

Total transfers
$
17

 
(242
)
 
13,759

 
(496
)
 
475

 
(13,513
)
 
—

Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives) 
$
23

 
—

 
16

 
(37
)
 
14

 
(16
)
 
—

Available-for-sale securities (5)
8

 
—

 
9,832

 
(68
)
 
60

 
(9,832
)
 
—

Mortgages held for sale
—

 
—

 
298

 
(488
)
 
488

 
(298
)
 
—

Loans (6)
—

 
—

 
41

 
(5,851
)
 
5,851

 
(41
)
 
—

Net derivative assets and liabilities
—

 
—

 
51

 
8

 
(8
)
 
(51
)
 
—

Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

Total transfers
$
31

 
—

 
10,238

 
(6,436
)
 
6,405

 
(10,238
)
 
—


(1)
All transfers in and out of Level 3 are disclosed within the recurring Level 3 rollforward table in this Note.
(2)
Consists of net derivative liabilities that were transferred from Level 3 to Level 2 due to increased observable market data. Also includes net derivative liabilities that were transferred from Level 2 to Level 3 due to a decrease in observable market data.
(3)
Consists of $231 million of collateralized loan obligations classified as trading assets and $12.5 billion classified as available-for-sale securities that we transferred from Level 3 to Level 2 in 2013 as a result of increased observable market data in the valuation of such instruments.
(4)
Transfers out of available-for-sale securities classified as Level 3 exclude $6.0 billion in asset-backed securities that were transferred from the available-for-sale portfolio to held-to-maturity securities.
(5)
Includes $9.4 billion of securities of U.S. states and political subdivisions that we transferred from Level 3 to Level 2 as a result of increased observable market data in the valuation of such instruments. This transfer was done in conjunction with a change in our valuation technique from an internal model based upon unobservable inputs to third-party vendor pricing based upon market observable data.
(6)
Consists of reverse mortgage loans securitized with GNMA which were accounted for as secured borrowing transactions. We transferred the loans from Level 2 to Level 3 due to decreased market activity and visibility to significant trades of the same or similar products. As a result, we changed our valuation technique from an internal model based on market observable data to an internal discounted cash flow model based on unobservable inputs. 


219

Note 17: Fair Values of Assets and Liabilities (continued)

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2014 , are summarized as follows:

 
 
 
Total net gains 
(losses) included in 
 
 
Purchases,
sales,
issuances
and
settlements, 
net (1)

 
 
 
 
 
 
 
Net unrealized 
gains (losses) 
included in 
income related 
to assets and 
liabilities held 
at period end

 
(in millions)
Balance, 
beginning 
of period

 
Net
income

 
Other
compre-
hensive
income 

 
 
Transfers 
into 
Level 3

 
Transfers 
out of 
Level 3

 
Balance, 
end of 
period

 
(2)
Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. states and
political subdivisions
$
39

 
1

 
—

 
(2
)
 
—

 
(31
)
 
7

 
—

 
Collateralized loan and other
debt obligations
541

 
36

 
—

 
(121
)
 
4

 
(15
)
 
445

 
(48
)
 
Corporate debt securities
53

 
—

 
—

 
(21
)
 
26

 
(4
)
 
54

 
1

 
Mortgage-backed securities
1

 
—

 
—

 
2

 
—

 
(3
)
 
—

 
—

 
Asset-backed securities
122

 
32

 
—

 
(70
)
 
—

 
(5
)
 
79

 
32

 
Equity securities
13

 
—

 
—

 
(3
)
 
—

 
—

 
10

 
—

 
Total trading securities
769

 
69

 
—

 
(215
)
 
30

 
(58
)
 
595

 
(15
)
 
Other trading assets
54

 
(10
)
 
—

 
11

 
1

 
(1
)
 
55

 
(1
)
 
Total trading assets
(excluding derivatives)
823

 
59

 
—

 
(204
)
 
31

 
(59
)
 
650

 
(16
)
(3)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. states and
political subdivisions
3,214

 
21

 
(86
)
 
(569
)
 
59

 
(362
)
 
2,277

 
(2
)
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
Residential
64

 
11

 
(5
)
 
(46
)
 
—

 
—

 
24

 
—

 
Commercial
138

 
9

 
(1
)
 
(37
)
 
—

 
—

 
109

 
(4
)
 
Total mortgage-backed securities
202

 
20

 
(6
)
 
(83
)
 
—

 
—

 
133

 
(4
)
 
Corporate debt securities
281

 
25

 
(25
)
 
(29
)
 
—

 
—

 
252

 
—

 
Collateralized loan and other
debt obligations
1,420

 
117

 
(47
)
 
(403
)
 
—

 
—

 
1,087

 
(2
)
 
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
Auto loans and leases
492

 
—

 
(33
)
 
(214
)
 
—

 
—

 
245

 
—

 
Home equity loans
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Other asset-backed securities
1,657

 
5

 
(6
)
 
(373
)
 
89

 
—

 
1,372

 
—

 
Total asset-backed securities
2,149

 
5

 
(39
)
 
(587
)
 
89

 
—

 
1,617

 
—

 
Total debt securities
7,266

 
188

 
(203
)
 
(1,671
)
 
148

 
(362
)
 
5,366

 
(8
)
(4)
Marketable equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Perpetual preferred securities
729

 
8

 
(29
)
 
(45
)
 
—

 
—

 
663

 
—

 
Other marketable equity securities
—

 
4

 
—

 
(4
)
 
—

 
—

 
—

 
—

 
Total marketable
equity securities
729

 
12

 
(29
)
 
(49
)
 
—

 
—

 
663

 
—

(5)
Total available-for-sale
securities
7,995

 
200

 
(232
)
 
(1,720
)
 
148

 
(362
)
 
6,029

 
(8
)
 
Mortgages held for sale
2,374

 
4

 
—

 
(276
)
 
440

 
(229
)
 
2,313

 
7

(6)
Loans
5,723

 
(52
)
 
—

 
(104
)
 
270

 
(49
)
 
5,788

 
(32
)
(6)
Mortgage servicing rights (residential) (7)
15,580

 
(4,031
)
 
—

 
1,189

 
—

 
—

 
12,738

 
(2,122
)
(6)
Net derivative assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
Interest rate contracts
(40
)
 
1,588

 
—

 
(1,255
)
 
—

 
—

 
293

 
317

 
Commodity contracts
(10
)
 
(21
)
 
—

 
(2
)
 
(3
)
 
37

 
1

 
(1
)
 
Equity contracts
(46
)
 
96

 
—

 
(214
)
 
(17
)
 
97

 
(84
)
 
(42
)
 
Foreign exchange contracts
9

 
5

 
—

 
(14
)
 
—

 
—

 
—

 
—

 
Credit contracts
(375
)
 
26

 
—

 
160

 
—

 
—

 
(189
)
 
(38
)
 
Other derivative contracts
(3
)
 
(41
)
 
—

 
—

 
—

 
—

 
(44
)
 
(40
)
 
Total derivative contracts
(465
)
 
1,653

 
—

 
(1,325
)
 
(20
)
 
134

 
(23
)
 
196

(8)
Other assets
1,503

 
514

 
—

 
576

 
—

 
—

 
2,593

 
(8
)
(3)
Short sale liabilities
—

 
1

 
—

 
(7
)
 
—

 
—

 
(6
)
 
1

(3)
Other liabilities (excluding derivatives)
(39
)
 
(10
)
 
—

 
21

 
—

 
—

 
(28
)
 
(1
)
(6)

(1)
See next page for detail.
(2)
Represents only net gains (losses) that are due 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 net gains (losses) from trading activities and other noninterest income in the income statement.
(4)
Included in net gains (losses) from debt securities in the income statement.
(5)
Included in net gains (losses) from equity investments in the income statement.
(6)
Included in mortgage banking and other noninterest income in the income statement.
(7)
For more information on the changes in mortgage servicing rights, see Note 9 (Mortgage Banking Activities).
(8)
Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.

(continued on following page)

220

(continued from previous page)
 
The following table presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2014 .

(in millions)
Purchases 

 
Sales 

 
Issuances 

 
Settlements 

 
Net 

Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives):
 
 
 
 
 
 
 
 
 
Securities of U.S. states and political subdivisions
$
10

 
(12
)
 
—

 
—

 
(2
)
Collateralized loan and other debt obligations
1,057

 
(1,174
)
 
—

 
(4
)
 
(121
)
Corporate debt securities
85

 
(106
)
 
—

 
—

 
(21
)
Mortgage-backed securities
3

 
(1
)
 
—

 
—

 
2

Asset-backed securities
17

 
(47
)
 
—

 
(40
)
 
(70
)
Equity securities
—

 
—

 
—

 
(3
)
 
(3
)
Total trading securities
1,172

 
(1,340
)
 
—

 
(47
)
 
(215
)
Other trading assets
11

 
(1
)
 
1

 
—

 
11

Total trading assets (excluding derivatives)
1,183

 
(1,341
)
 
1

 
(47
)
 
(204
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Securities of U.S. states and political subdivisions
73

 
(144
)
 
336

 
(834
)
 
(569
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Residential
—

 
(44
)
 
—

 
(2
)
 
(46
)
Commercial
—

 
(31
)
 
—

 
(6
)
 
(37
)
Total mortgage-backed securities
—

 
(75
)
 
—

 
(8
)
 
(83
)
Corporate debt securities
21

 
(32
)
 
10

 
(28
)
 
(29
)
Collateralized loan and other debt obligations
134

 
(34
)
 
—

 
(503
)
 
(403
)
Asset-backed securities:
 
 
 
 
 
 
 
 
 
Auto loans and leases
—

 
—

 
—

 
(214
)
 
(214
)
Home equity loans
—

 
—

 
—

 
—

 
—

Other asset-backed securities
117

 
(16
)
 
522

 
(996
)
 
(373
)
Total asset-backed securities
117

 
(16
)
 
522

 
(1,210
)
 
(587
)
Total debt securities
345

 
(301
)
 
868

 
(2,583
)
 
(1,671
)
Marketable equity securities:
 
 
 
 
 
 
 
 
 
Perpetual preferred securities
—

 
—

 
—

 
(45
)
 
(45
)
Other marketable equity securities
—

 
(4
)
 
—

 
—

 
(4
)
Total marketable equity securities
—

 
(4
)
 
—

 
(45
)
 
(49
)
Total available-for-sale securities
345

 
(305
)
 
868

 
(2,628
)
 
(1,720
)
Mortgages held for sale
208

 
(276
)
 
167

 
(375
)
 
(276
)
Loans
76

 
—

 
438

 
(618
)
 
(104
)
Mortgage servicing rights (residential)
—

 
(7
)
 
1,196

 
—

 
1,189

Net derivative assets and liabilities:
 
 
 
 
 
 
 
 
 
Interest rate contracts
—

 
—

 
—

 
(1,255
)
 
(1,255
)
Commodity contracts
—

 
—

 
—

 
(2
)
 
(2
)
Equity contracts
—

 
(116
)
 
—

 
(98
)
 
(214
)
Foreign exchange contracts
—

 
—

 
—

 
(14
)
 
(14
)
Credit contracts
3

 
(2
)
 
—

 
159

 
160

Other derivative contracts
—

 
—

 
—

 
—

 
—

Total derivative contracts
3

 
(118
)
 
—

 
(1,210
)
 
(1,325
)
Other assets
608

 
(1
)
 
—

 
(31
)
 
576

Short sale liabilities
20

 
(27
)
 
—

 
—

 
(7
)
Other liabilities (excluding derivatives)
—

 
—

 
—

 
21

 
21


221

Note 17: Fair Values of Assets and Liabilities (continued)

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2013 , are summarized as follows:

 
 
 
Total net gains 
 (losses) included in 
 
 
Purchases,
sales,
issuances
and
settlements,
net (1) 

 
 
 
 
 
 
 
Net unrealized
gains (losses)
included in 
income related 
to assets and 
liabilities held 
at period end

 
(in millions)
Balance,
beginning
of period 

 
Net
income 

 
Other
compre-
hensive
income 

 
 
Transfers
into
Level 3 

 
Transfers
out of
Level 3

 
Balance,
end of
period 

 
(2)
Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. states and
political subdivisions
$
46

 
3

 
—

 
(10
)
 
—

 
—

 
39

 
—

 
Collateralized loan and other
debt obligations
742

 
67

 
—

 
(37
)
 
—

 
(231
)
 
541

 
(33
)
 
Corporate debt securities
52

 
9

 
—

 
(1
)
 
13

 
(20
)
 
53

 
6

 
Mortgage-backed securities
6

 
1

 
—

 
9

 
—

 
(15
)
 
1

 
1

 
Asset-backed securities
138

 
16

 
—

 
(35
)
 
25

 
(22
)
 
122

 
15

 
Equity securities
3

 
—

 
—

 
(3
)
 
13

 
—

 
13

 
—

 
Total trading securities
987

 
96

 
—

 
(77
)
 
51

 
(288
)
 
769

 
(11
)
 
Other trading assets
76

 
(22
)
 
—

 
—

 
1

 
(1
)
 
54

 
(8
)
 
Total trading assets (excluding derivatives)
1,063

 
74

 
—

 
(77
)
 
52

 
(289
)
 
823

 
(19
)
(3)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. states and
political subdivisions
3,631

 
11

 
(85
)
 
(182
)
 
53

 
(214
)
 
3,214

 
—

 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
94

 
17

 
(1
)
 
(40
)
 
—

 
(6
)
 
64

 
—

 
Commercial
203

 
(13
)
 
28

 
(58
)
 
—

 
(22
)
 
138

 
(8
)
 
Total mortgage-backed securities
297

 
4

 
27

 
(98
)
 
—

 
(28
)
 
202

 
(8
)
 
Corporate debt securities
274

 
10

 
(10
)
 
(13
)
 
23

 
(3
)
 
281

 
—

 
Collateralized loan and other
debt obligations
13,188

 
8

 
124

 
625

 
—

 
(12,525
)
 
1,420

 
—

 
Asset-backed securities:

 

 

 

 
 
 
 
 

 

 
Auto loans and leases
5,921

 
(1
)
 
(34
)
 
(1,067
)
 
—

 
(4,327
)
 
492

 
—

 
Home equity loans
51

 
3

 
(1
)
 
(5
)
 
—

 
(48
)
 
—

 
—

 
Other asset-backed securities
3,283

 
27

 
19

 
31

 
24

 
(1,727
)
 
1,657

 
(7
)
 
Total asset-backed securities
9,255

 
29

 
(16
)
 
(1,041
)
 
24

 
(6,102
)
 
2,149

 
(7
)
(4)
Total debt securities
26,645

 
62

 
40

 
(709
)
 
100

 
(18,872
)
 
7,266

 
(15
)
(5)
Marketable equity securities:

 

 

 

 

 

 

 

 
Perpetual preferred securities
794

 
10

 
(2
)
 
(73
)
 
—

 
—

 
729

 
—

 
Other marketable equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Total marketable equity securities
794

 
10

 
(2
)
 
(73
)
 
—

 
—

 
729

 
—

(6)
Total available-for-sale
securities
27,439

 
72

 
38

 
(782
)
 
100

 
(18,872
)
 
7,995

 
(15
)
 
Mortgages held for sale
3,250

 
5

 
—

 
(874
)
 
336

 
(343
)
 
2,374

 
(74
)
(7)
Loans
6,021

 
(211
)
 
—

 
106

 
—

 
(193
)
 
5,723

 
(178
)
(7)
Mortgage servicing rights (residential) (8)
11,538

 
1,156

 
—

 
2,886

 
—

 
—

 
15,580

 
3,398

(7)
Net derivative assets and liabilities:

 

 

 

 

 

 

 

 
Interest rate contracts
659

 
(662
)
 
—

 
(39
)
 
—

 
2

 
(40
)
 
(186
)
 
Commodity contracts
21

 
—

 
—

 
(66
)
 
(1
)
 
36

 
(10
)
 
(19
)
 
Equity contracts
(122
)
 
(151
)
 
—

 
137

 
(14
)
 
104

 
(46
)
 
48

 
Foreign exchange contracts
21

 
(15
)
 
—

 
1

 
2

 
—

 
9

 
(8
)
 
Credit contracts
(1,150
)
 
(30
)
 
—

 
805

 
—

 
—

 
(375
)
 
345

 
Other derivative contracts
(78
)
 
75

 
—

 
—

 
—

 
—

 
(3
)
 
—

 
Total derivative contracts
(649
)
 
(783
)
 
—

 
838

 
(13
)
 
142

 
(465
)
 
180

(9)
Other assets
162

 
315

 
—

 
1,026

 
—

 
—

 
1,503

 
(2
)
(3)
Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

(3)
Other liabilities (excluding derivatives)
(49
)
 
3

 
—

 
7

 
—

 
—

 
(39
)
 
5

(7)

(1)
See next page for detail.
(2)
Represents only net gains (losses) that are due 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 net gains (losses) from trading activities and other noninterest income in the income statement.
(4)
Level 3 transfers out include $6.0 billion in asset-backed securities that were transferred from the available-for-sale portfolio to held-to-maturity securities.
(5)
Included in net gains (losses) from debt securities in the income statement.
(6)
Included in net gains (losses) from equity investments in the income statement.
(7)
Included in mortgage banking and other noninterest income in the income statement.
(8)
For more information on the changes in mortgage servicing rights, see Note 9 (Mortgage Banking Activities).
(9)
Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.

(continued on following page)

222

(continued from previous page)
 
The following table presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2013 .

(in millions)
Purchases 

 
Sales 

 
Issuances 

 
Settlements 

 
Net 

Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives):
 
 
 
 
 
 
 
 
 
Securities of U.S. states and political subdivisions
$
127

 
(136
)
 
—

 
(1
)
 
(10
)
Collateralized loan and other debt obligations
1,030

 
(1,064
)
 
—

 
(3
)
 
(37
)
Corporate debt securities
117

 
(117
)
 
—

 
(1
)
 
(1
)
Mortgage-backed securities
429

 
(420
)
 
—

 
—

 
9

Asset-backed securities
53

 
(45
)
 
—

 
(43
)
 
(35
)
Equity securities
—

 
(3
)
 
—

 
—

 
(3
)
Total trading securities
1,756

 
(1,785
)
 
—

 
(48
)
 
(77
)
Other trading assets
—

 
—

 
—

 
—

 
—

Total trading assets (excluding derivatives)
1,756

 
(1,785
)
 
—

 
(48
)
 
(77
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Securities of U.S. states and political subdivisions
—

 
(69
)
 
648

 
(761
)
 
(182
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Residential
—

 
(37
)
 
—

 
(3
)
 
(40
)
Commercial
—

 
(1
)
 
—

 
(57
)
 
(58
)
Total mortgage-backed securities
—

 
(38
)
 
—

 
(60
)
 
(98
)
Corporate debt securities
—

 
—

 
20

 
(33
)
 
(13
)
Collateralized loan and other debt obligations
1,008

 
(14
)
 
—

 
(369
)
 
625

Asset-backed securities:
 
 
 
 
 
 
 
 
 
Auto loans and leases
1,751

 
—

 
1,047

 
(3,865
)
 
(1,067
)
Home equity loans
—

 
(5
)
 
—

 
—

 
(5
)
Other asset-backed securities
1,164

 
(36
)
 
1,116

 
(2,213
)
 
31

Total asset-backed securities
2,915

 
(41
)
 
2,163

 
(6,078
)
 
(1,041
)
Total debt securities
3,923

 
(162
)
 
2,831

 
(7,301
)
 
(709
)
Marketable equity securities:
 
 
 
 
 
 
 
 
 
Perpetual preferred securities
—

 
(20
)
 
—

 
(53
)
 
(73
)
Other marketable equity securities
—

 
—

 
—

 
—

 
—

Total marketable equity securities
—

 
(20
)
 
—

 
(53
)
 
(73
)
Total available-for-sale securities
3,923

 
(182
)
 
2,831

 
(7,354
)
 
(782
)
Mortgages held for sale
286

 
(574
)
 
—

 
(586
)
 
(874
)
Loans
23

 
—

 
452

 
(369
)
 
106

Mortgage servicing rights (residential)
—

 
(583
)
 
3,469

 
—

 
2,886

Net derivative assets and liabilities:
 
 
 
 
 
 
 
 
 
Interest rate contracts
—

 
—

 
—

 
(39
)
 
(39
)
Commodity contracts
—

 
—

 
—

 
(66
)
 
(66
)
Equity contracts
—

 
(148
)
 
—

 
285

 
137

Foreign exchange contracts
—

 
—

 
—

 
1

 
1

Credit contracts
7

 
(5
)
 
(4
)
 
807

 
805

Other derivative contracts
—

 
—

 
—

 
—

 
—

Total derivative contracts
7

 
(153
)
 
(4
)
 
988

 
838

Other assets
1,064

 
(2
)
 
—

 
(36
)
 
1,026

Short sale liabilities
8

 
(8
)
 
—

 
—

 
—

Other liabilities (excluding derivatives)
—

 
—

 
(4
)
 
11

 
7


223

Note 17: Fair Values of Assets and Liabilities (continued)

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2012 are summarized as follows:

 
 
 
Total net gains 
 (losses) included in 
 
 
Purchases,
sales,
issuances
and
settlements,
net (1) 

 
 
 
 
 
 
 
Net unrealized
gains (losses)
included in 
income related 
to assets and 
liabilities held 
at period end

 
(in millions)
Balance,
beginning
of period 

 
Net
income 

 
Other
compre-
hensive
income 

 
 
Transfers
into
Level 3 

 
Transfers
out of
Level 3 

 
Balance,
end of
period 

 
(2)
Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. states and
political subdivisions
$
53

 
3

 
—

 
(10
)
 
—

 
—

 
46

 
—

 
Collateralized loan and other
debt obligations
1,582

 
(191
)
 
—

 
(649
)
 
—

 
—

 
742

 
(47
)
 
Corporate debt securities
97

 
—

 
—

 
(45
)
 
—

 
—

 
52

 
(3
)
 
Mortgage-backed securities
108

 
8

 
—

 
(110
)
 
—

 
—

 
6

 
2

 
Asset-backed securities
190

 
48

 
—

 
(98
)
 
14

 
(16
)
 
138

 
23

 
Equity securities
4

 
—

 
—

 
(1
)
 
—

 
—

 
3

 
—

 
Total trading securities
2,034

 
(132
)
 
—

 
(913
)
 
14

 
(16
)
 
987

 
(25
)
 
Other trading assets
115

 
(39
)
 
—

 
—

 
—

 
—

 
76

 
(19
)
 
Total trading assets (excluding derivatives)
2,149

 
(171
)
 
—

 
(913
)
 
14

 
(16
)
 
1,063

 
(44
)
(3)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. states and
political subdivisions
11,516

 
10

 
160

 
1,347

 
—

 
(9,402
)
 
3,631

 
—

 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
61

 
12

 
16

 
50

 
29

 
(74
)
 
94

 
(1
)
 
Commercial
232

 
(56
)
 
57

 
(30
)
 
—

 
—

 
203

 
(56
)
 
Total mortgage-backed securities
293

 
(44
)
 
73

 
20

 
29

 
(74
)
 
297

 
(57
)
 
Corporate debt securities
295

 
20

 
19

 
(20
)
 
1

 
(41
)
 
274

 
—

 
Collateralized loan and other
debt obligations
8,599

 
135

 
514

 
3,940

 
—

 
—

 
13,188

 
—

 
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Auto loans and leases
6,641

 
3

 
3

 
(726
)
 
—

 
—

 
5,921

 
—

 
Home equity loans
282

 
15

 
14

 
(3
)
 
29

 
(286
)
 
51

 
(1
)
 
Other asset-backed securities
2,863

 
(29
)
 
148

 
329

 
1

 
(29
)
 
3,283

 
(6
)
 
Total asset-backed securities
9,786

 
(11
)
 
165

 
(400
)
 
30

 
(315
)
 
9,255

 
(7
)
 
Total debt securities
30,489

 
110

 
931

 
4,887

 
60

 
(9,832
)
 
26,645

 
(64
)
(4)
Marketable equity securities:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
Perpetual preferred securities
1,344

 
91

 
(30
)
 
(611
)
 
—

 
—

 
794

 
—

 
Other marketable equity securities
23

 
2

 
(16
)
 
(9
)
 
—

 
—

 
—

 
—

 
Total marketable equity securities
1,367

 
93

 
(46
)
 
(620
)
 
—

 
—

 
794

 
—

(5)
Total available-for-sale securities
31,856

 
203

 
885

 
4,267

 
60

 
(9,832
)
 
27,439

 
(64
)
 
Mortgages held for sale
3,410

 
(42
)
 
—

 
(308
)
 
488

 
(298
)
 
3,250

 
(30
)
(6)
Loans
23

 
43

 
—

 
145

 
5,851

 
(41
)
 
6,021

 
43

(6)
Mortgage servicing rights (residential) (7)
12,603

 
(5,954
)
 
—

 
4,889

 
—

 
—

 
11,538

 
(2,893
)
(6)
Net derivative assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
609

 
7,397

 
—

 
(7,349
)
 
—

 
2

 
659

 
562

 
Commodity contracts
—

 
78

 
—

 
(50
)
 
(8
)
 
1

 
21

 
40

 
Equity contracts
(75
)
 
(11
)
 
—

 
18

 
—

 
(54
)
 
(122
)
 
(16
)
 
Foreign exchange contracts
(7
)
 
23

 
—

 
5

 
—

 
—

 
21

 
30

 
Credit contracts
(1,998
)
 
38

 
—

 
810

 
—

 
—

 
(1,150
)
 
41

 
Other derivative contracts
(117
)
 
40

 
(1
)
 
—

 
—

 
—

 
(78
)
 
—

 
Total derivative contracts
(1,588
)
 
7,565

 
(1
)
 
(6,566
)
 
(8
)
 
(51
)
 
(649
)
 
657

(8)
Other assets
244

 
(21
)
 
—

 
(61
)
 
—

 
—

 
162

 
(8
)
(3)
Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

(3)
Other liabilities (excluding derivatives)
(44
)
 
(43
)
 
—

 
38

 
—

 
—

 
(49
)
 
—

(6)
 
(1)
See next page for detail.
(2)
Represents only net gains (losses) that are due 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 net gains (losses) from trading activities and other noninterest income in the income statement.
(4)
Included in net gains (losses) from debt securities in the income statement.
(5)
Included in net gains (losses) from equity investments in the income statement.
(6)
Included in mortgage banking and other noninterest income in the income statement.
(7)
For more information on the change in mortgage servicing rights, see Note 9 (Mortgage Banking Activities).
(8)
Included in mortgage banking, trading activities and other noninterest income in the income statement.
 
(continued on following page)

224

(continued from previous page)

The following table presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2012 . 

(in millions)
Purchases 

 
Sales 

 
Issuances 

 
Settlements 

 
Net 

Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives):
 
 
 
 
 
 
 
 
 
Securities of U.S. states and political subdivisions
$
85

 
(95
)
 
—

 
—

 
(10
)
Collateralized loan and other debt obligations
829

 
(1,478
)
 
—

 
—

 
(649
)
Corporate debt securities
192

 
(237
)
 
—

 
—

 
(45
)
Mortgage-backed securities
49

 
(159
)
 
—

 
—

 
(110
)
Asset-backed securities
116

 
(169
)
 
—

 
(45
)
 
(98
)
Equity securities
1

 
(2
)
 
—

 
—

 
(1
)
Total trading securities
1,272

 
(2,140
)
 
—

 
(45
)
 
(913
)
Other trading assets
—

 
—

 
—

 
—

 
—

Total trading assets (excluding derivatives)
1,272

 
(2,140
)
 
—

 
(45
)
 
(913
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Securities of U.S. states and political subdivisions
1,847

 
(37
)
 
1,011

 
(1,474
)
 
1,347

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Residential
86

 
(34
)
 
—

 
(2
)
 
50

Commercial
39

 
—

 
—

 
(69
)
 
(30
)
Total mortgage-backed securities
125

 
(34
)
 
—

 
(71
)
 
20

Corporate debt securities
26

 
(37
)
 
—

 
(9
)
 
(20
)
Collateralized loan and other debt obligations
5,608

 
(185
)
 
—

 
(1,483
)
 
3,940

Asset-backed securities:
 
 
 
 
 
 
 
 
 
Auto loans and leases
3,004

 
—

 
666

 
(4,396
)
 
(726
)
Home equity loans
—

 
(2
)
 
—

 
(1
)
 
(3
)
Other asset-backed securities
2,074

 
(159
)
 
1,401

 
(2,987
)
 
329

Total asset-backed securities
5,078

 
(161
)
 
2,067

 
(7,384
)
 
(400
)
Total debt securities
12,684

 
(454
)
 
3,078

 
(10,421
)
 
4,887

Marketable equity securities:
 
 
 
 
 
 
 
 
 
Perpetual preferred securities
—

 
—

 
—

 
(611
)
 
(611
)
Other marketable equity securities
—

 
(8
)
 
—

 
(1
)
 
(9
)
Total marketable equity securities
—

 
(8
)
 
—

 
(612
)
 
(620
)
Total available-for-sale securities
12,684

 
(462
)
 
3,078

 
(11,033
)
 
4,267

Mortgages held for sale
441

 
—

 
—

 
(749
)
 
(308
)
Loans
2

 
—

 
257

 
(114
)
 
145

Mortgage servicing rights (residential)
—

 
(293
)
 
5,182

 
—

 
4,889

Net derivative assets and liabilities:
 
 
 
 
 
 
 
 
 
Interest rate contracts
11

 
—

 
—

 
(7,360
)
 
(7,349
)
Commodity contracts
—

 
(2
)
 
—

 
(48
)
 
(50
)
Equity contracts
386

 
(375
)
 
1

 
6

 
18

Foreign exchange contracts
2

 
(3
)
 
—

 
6

 
5

Credit contracts
(6
)
 
3

 
—

 
813

 
810

Other derivative contracts
—

 
—

 
—

 
—

 
—

Total derivative contracts
393

 
(377
)
 
1

 
(6,583
)
 
(6,566
)
Other assets
19

 
(8
)
 
—

 
(72
)
 
(61
)
Short sale liabilities
9

 
(9
)
 
—

 
—

 
—

Other liabilities (excluding derivatives)
(3
)
 
11

 
(216
)
 
246

 
38


The following table provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a recurring basis for which we use an internal model.
The significant unobservable inputs for Level 3 assets and liabilities that are valued using fair values obtained from third-party vendors are not included in the table as the specific inputs applied are not provided by the vendor (see discussion regarding vendor-developed valuations within the “Level 3 Asset and
 
Liability Valuation Processes” section previously within this Note). In addition, the table excludes the valuation techniques and significant unobservable inputs for certain classes of Level 3 assets and liabilities measured using an internal model that we consider, both individually and in the aggregate, insignificant relative to our overall Level 3 assets and liabilities. We made this determination based upon an evaluation of each class which considered the magnitude of the positions, nature of the unobservable inputs and potential for significant changes in fair value due to changes in those inputs .


225

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, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Trading and available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. states and
political subdivisions:
 
 
 
 
 
 
 
 
 
 
 
 
Government, healthcare and
other revenue bonds
$
1,900

 
Discounted cash flow
 
Discount rate
 
0.4

-
5.6

%
 
1.5

 
61

 
Vendor priced
 
 
 
 
 
 
 
 
 
Auction rate securities and other
municipal bonds
323

 
Discounted cash flow
 
Discount rate
 
1.5

-
7.6

 
 
3.9

 
 
 
 
 
Weighted average life
 
1.3

-
19.4

yrs
 
6.4

Collateralized loan and other debt
obligations (2)
565

 
Market comparable pricing
 
Comparability adjustment
 
(53.9
)
-
25.0

%
 
0.9

 
967

 
Vendor priced
 
 
 
 
 
 
 
 
 
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Auto loans and leases
245

 
Discounted cash flow
 
Discount rate
 
0.4

-
0.4

 
 
0.4

Other asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Diversified payment rights (3)
661

 
Discounted cash flow
 
Discount rate
 
0.9

-
7.1

 
 
2.9

Other commercial and consumer
750

(4)
Discounted cash flow
 
Discount rate
 
1.9

-
21.5

 
 
5.0

 
 
 
 
 
Weighted average life
 
1.6

-
10.7

yrs
 
4.0

 
40

 
Vendor priced
 
 
 
 
 
 
 
 
 
Marketable equity securities:
perpetual preferred
663

(5)
Discounted cash flow
 
Discount rate
 
4.1

-
9.3

% 
 
6.6

 
 
 
 
 
Weighted average life
 
1.0

-
11.8

yrs
 
9.7

Mortgages held for sale (residential)
2,235

 
Discounted cash flow
 
Default rate
 
0.4

-
15.0

%
 
2.6

 
 
 
 
 
Discount rate
 
1.1

-
7.7

 
 
5.2

 
 
 
 
 
Loss severity
 
0.1

-
26.4

 
 
18.3

 
 
 
 
 
Prepayment rate
 
2.0

-
15.5

 
 
8.1

 
78

 
Market comparable pricing
 
Comparability adjustment
 
(93.0
)
-
10.0

 
 
(30.0
)
Loans
5,788

(6)
Discounted cash flow
 
Discount rate
 
0.0

-
3.8

 
 
3.1

 
 
 
 
 
Prepayment rate
 
0.6

-
100.0

 
 
11.2

 
 
 
 
 
Utilization rate
 
0.0

-
1.0

 
 
0.4

Mortgage servicing rights (residential)
12,738

 
Discounted cash flow
 
Cost to service per loan (7)
 
$
86

-
683

 
 
179

 
 
 
 
 
Discount rate
 
5.9

-
16.9

%
 
7.6

 
 
 
 
 
Prepayment rate (8)
 
8.0

-
22.0

 
 
12.5

Net derivative assets and (liabilities):
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
196

 
Discounted cash flow
 
Default rate
 
0.00

-
0.02

 
 
0.01

 
 
 
 
 
Loss severity
 
50.0

-
50.0

 
 
50.0

Interest rate contracts: derivative loan
commitments
97

 
Discounted cash flow
 
Fall-out factor
 
1.0

-
99.0

 
 
24.5

 
 
 
 
 
Initial-value servicing
 
(31.1
)
-
113.3

bps
 
46.5

Equity contracts
162

 
Discounted cash flow
 
Conversion factor
 
(11.2
)
-
0.0

%
 
(8.4
)
 
 
 
 
 
Weighted average life
 
1.0

-
2.0

yrs
 
1.3

 
(246
)
 
Option model
 
Correlation factor
 
(56.0
)
-
96.3

%
 
42.1

 
 
 
 
 
Volatility factor
 
8.3

-
80.9

 
 
28.3

Credit contracts
(192
)
 
Market comparable pricing
 
Comparability adjustment
 
(28.6
)
-
26.3

 
 
1.8

 
3

 
Option model
 
Credit spread
 
0.0

-
17.0

 
 
0.9

 
 
 
 
 
Loss severity
 
11.5

-
72.5

 
 
48.7

 
 
 
 
 
 
 
 
 
 
 
 
 
Other assets: nonmarketable equity investments
2,512

 
Market comparable pricing
 
Comparability adjustment
 
(19.7
)
-
(4.0
)
 
 
(14.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Insignificant Level 3 assets, net of liabilities
507

(9)
 
 
 
 
 
 
 
 
 
 
Total level 3 assets, net of liabilities
$
30,054

(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 $500 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 - $270 .
(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, other marketable equity securities, other assets, other liabilities and certain net derivative assets and liabilities, such as commodity contracts, foreign exchange contracts and other derivative contracts. 
(10)
Consists of total Level 3 assets of $32.3 billion and total Level 3 liabilities of $2.3 billion , before netting of derivative balances.

226

($ 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

Mortgage servicing rights (residential)
15,580

 
Discounted cash flow
 
Cost to service per
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.

227

Note 17: Fair Values of Assets and Liabilities (continued)

The valuation techniques used for our Level 3 assets and liabilities, as presented in the previous tables, are described as follows: 
•
Discounted cash flow - Discounted cash flow valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of an instrument and then discounting those cash flows at a rate of return that results in the fair value amount.
•
Option model - Option model valuation techniques are generally used for instruments in which the holder has a contingent right or obligation based on the occurrence of a future event, such as the price of a referenced asset going above or below a predetermined strike price. Option models estimate the likelihood of the specified event occurring by incorporating assumptions such as volatility estimates, price of the underlying instrument and expected rate of return.
•
Market comparable pricing - Market comparable pricing valuation techniques are used to determine the fair value of certain instruments by incorporating known inputs such as recent transaction prices, pending transactions, or prices of other similar investments which require significant adjustment to reflect differences in instrument characteristics.
•
Vendor-priced  - Prices obtained from third-party pricing vendors or brokers that are used to record the fair value of the asset or liability, of which the related valuation technique and significant unobservable inputs are not provided.
 
Significant unobservable inputs presented in the previous tables are those we consider significant to the fair value of the Level 3 asset or liability. We consider unobservable inputs to be significant, if by their exclusion, the fair value of the Level 3 asset or liability would be impacted by a predetermined percentage change or based on qualitative factors, such as nature of the instrument, type of valuation technique used, and the significance of the unobservable inputs relative to other inputs used within the valuation. Following is a description of the significant unobservable inputs provided in the tables.
 
•
Comparability adjustment - is an adjustment made to observed market data, such as a transaction price in order to reflect dissimilarities in underlying collateral, issuer, rating, or other factors used within a market valuation approach expressed as a percentage of an observed price.
•
Conversion Factor - is the risk-adjusted rate in which a particular instrument may be exchanged for another instrument upon settlement, expressed as a percentage change from a specified rate.
•
Correlation factor - is the likelihood of one instrument changing in price relative to another based on an established relationship expressed as a percentage of relative change in price over a period over time.
•
Cost to service - is the expected cost per loan of servicing a portfolio of loans, which includes estimates for unreimbursed expenses (including delinquency and foreclosure costs) that may occur as a result of servicing such loan portfolios.
•
Credit spread - is the portion of the interest rate in excess of a benchmark interest rate, such as OIS, LIBOR or U.S. Treasury rates, that when applied to an investment captures changes in the obligor’s creditworthiness.
•
Default rate - is an estimate of the likelihood of not collecting contractual amounts owed expressed as a constant default rate (CDR).
 
•
Discount rate - is a rate of return used to present value the future expected cash flow to arrive at the fair value of an instrument. The discount rate consists of a benchmark rate component and a risk premium component. The benchmark rate component, for example, OIS, LIBOR or U.S. Treasury rates, is generally observable within the market and is necessary to appropriately reflect the time value of money. The risk premium component reflects the amount of compensation market participants require due to the uncertainty inherent in the instruments’ cash flows resulting from risks such as credit and liquidity.
•
Fall-out factor - is the expected percentage of loans associated with our interest rate lock commitment portfolio that are likely of not funding.
•
Initial-value servicing - is the estimated value of the underlying loan, including the value attributable to the 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 instrument are expected to occur, expressed as a constant prepayment rate (CPR).
•
Utilization rate - is the estimated rate in which incremental portions of existing reverse mortgage credit lines are expected to be drawn by borrowers expressed as an annualized rate.
•
Volatility factor - is the extent of change in price an item is estimated to fluctuate over a specified period of time expressed as a percentage of relative change in price over a period over time.
•
Weighted average life - is the weighted average number of years an investment is expected to remain outstanding, based on its expected cash flows reflecting the estimated date the issuer will call or extend the maturity of the instrument or otherwise reflecting an estimate of the timing of an instrument’s cash flows whose timing is not contractually fixed.
 


228

Significant Recurring Level 3 Fair Value Asset and Liability Input Sensitivity
We generally use discounted cash flow or similar internal modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding tables. Accordingly, changes in these unobservable inputs may have a significant impact on fair value.
Certain of these unobservable inputs will (in isolation) have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input. Where multiple inputs are used within the valuation technique of an asset or liability, a change in one input in a certain direction may be offset by an opposite change in another input having a potentially muted impact to the overall fair value of that particular instrument. Additionally, a change in one unobservable input may result in a change to another unobservable input (that is, changes in certain inputs are interrelated to one another), which may counteract or magnify the fair value impact.
 
SECURITIES, LOANS, MORTGAGES HELD FOR SALE and NONMARKETABLE EQUITY INVESTMENTS  The fair values of predominantly all Level 3 trading securities, mortgages held for sale, loans, other nonmarketable equity investments, and available-for-sale securities have consistent inputs, valuation techniques and correlation to changes in underlying inputs. The internal models used to determine fair value for these Level 3 instruments use certain significant unobservable inputs within a discounted cash flow or market comparable pricing valuation technique. Such inputs include discount rate, prepayment rate, default rate, loss severity, utilization rate, comparability adjustment and weighted average life.
These Level 3 assets would decrease (increase) in value based upon an increase (decrease) in discount rate, default rate, loss severity, or weighted average life inputs. Conversely, the fair value of these Level 3 assets would generally increase (decrease) in value if the prepayment rate input were to increase (decrease) or if the utilization rate input were to increase (decrease).
Generally, a change in the assumption used for default rate is accompanied by a directionally similar change in the 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, utilization rate and weighted average life do not increase or decrease based on movements in the other significant unobservable inputs for these Level 3 assets.
 
DERIVATIVE INSTRUMENTS   Level 3 derivative instruments are valued using market comparable pricing, option pricing and discounted cash flow valuation techniques. We utilize certain unobservable inputs within these techniques to determine the fair value of the Level 3 derivative instruments. The significant unobservable inputs consist of credit spread, a comparability adjustment, prepayment rate, default rate, loss severity, initial-value servicing, fall-out factor, volatility factor, weighted average life, conversion factor, and correlation factor.
 
Level 3 derivative assets (liabilities) where we are long the underlying would decrease (increase) in value upon an increase (decrease) in default rate, fall-out factor, credit spread, conversion factor, or loss severity inputs. Conversely, Level 3 derivative assets (liabilities) would increase (decrease) in value upon an increase (decrease) in prepayment rate, initial-value servicing, weighted average life, or volatility factor inputs. The inverse of the above relationships would occur for instruments in which we are short the underlying. The correlation factor and comparability adjustment inputs may have a positive or negative impact on the fair value of these derivative instruments depending on the change in value of the item the correlation factor and comparability adjustment is referencing. The correlation factor and comparability adjustment is considered independent from movements in other significant unobservable inputs for derivative instruments.
Generally, for derivative instruments for which we are subject to changes in the value of the underlying referenced instrument, change in the assumption used for default rate is accompanied by directionally similar change in the 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, fall-out factor, initial-value servicing, weighted average life, conversion factor, and volatility do not increase or decrease based on movements in other significant unobservable inputs for these Level 3 instruments.
 
MORTGAGE SERVICING RIGHTS   We use a discounted cash flow valuation technique to determine the fair value of Level 3 mortgage servicing rights. These models utilize certain significant unobservable inputs including prepayment rate, discount rate and costs to service. An increase in any of these unobservable inputs will reduce the fair value of the mortgage servicing rights and alternatively, a decrease in any one of these inputs would result in the mortgage servicing rights increasing in value. Generally, a change in the assumption used for the default rate is accompanied by a directionally similar change in the assumption used for cost to service and a directionally opposite change in the assumption used for prepayment. The sensitivity of our residential MSRs is discussed further in Note 8 (Securitizations and Variable Interest Entities).



229

Note 17: Fair Values of Assets and Liabilities (continued)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of LOCOM accounting or write-downs of individual
 
assets. The following table provides the fair value hierarchy and carrying amount of all assets that were still held as of December 31, 2014 , and 2013 , and for which a nonrecurring fair adjustment was recorded during the years then ended.
 


 
December 31, 2014
 
 
December 31, 2013
 
(in millions)
Level 1 

 
Level 2 

 
Level 3 

 
Total 

 
Level 1 

 
Level 2 

 
Level 3 

 
Total 

Mortgages held for sale (LOCOM) (1)
$
—

 
2,197

 
1,098

 
3,295

 
—

 
1,126

 
893

 
2,019

Loans held for sale
—

 
—

 
—

 
—

 
—

 
14

 
—

 
14

Loans:

 

 

 
 
 

 

 

 
 
Commercial
—

 
243

 
—

 
243

 
—

 
414

 
—

 
414

Consumer
—

 
2,018

 
5

 
2,023

 
—

 
3,690

 
7

 
3,697

Total loans (2)
—

 
2,261

 
5

 
2,266

 
—

 
4,104

 
7

 
4,111

Other assets (3)
—

 
417

 
460

 
877

 
—

 
445

 
740

 
1,185


(1)
Mostly real estate 1-4 family first mortgage loans.
(2)
Represents carrying value of loans for which adjustments are based on the appraised value of the collateral.
(3)
Includes the fair value of foreclosed real estate, other collateral owned and nonmarketable equity investments.
 
The following table presents the increase (decrease) in value of certain assets for which a nonrecurring fair value adjustment has been recognized during the periods presented.

 
Year ended December 31,
 
(in millions)
2014

 
2013

Mortgages held for sale (LOCOM)
$
33

 
(23
)
Loans held for sale
—

 
(1
)
Loans:

 
 
Commercial
(125
)
 
(216
)
Consumer (1)
(1,336
)
 
(2,050
)
Total loans
(1,461
)
 
(2,266
)
Other assets (2)
(341
)
 
(214
)
Total
$
(1,769
)
 
(2,504
)

(1)
Represents write-downs of loans based on the appraised value of the collateral.
(2)
Includes the losses on foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets. Also includes impairment losses on nonmarketable equity investments. 


230

The table below provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a nonrecurring basis for which we use an internal model.
We have excluded from the table classes of Level 3 assets and liabilities measured using an internal model that we consider, both individually and in the aggregate, insignificant
 
relative to our overall Level 3 nonrecurring measurements. We made this determination based upon an evaluation of each class, which considered the magnitude of the positions, nature of the unobservable inputs and potential for significant changes in fair value due to changes in those inputs.
 


($ in millions)
Fair Value Level 3

 
Valuation Technique(s) (1)
 
Significant Unobservable Inputs (1)
 
Range of inputs
 
Weighted Average (2)

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages held for sale (LOCOM)
$
1,098

(3)
Discounted cash flow
 
Default rate
(5)
0.9
-
3.8
%
 
2.1
%
 
 
 
 
 
Discount rate
 
1.5
-
8.5

 
3.6

 
 
 
 
 
Loss severity
 
0.0
-
29.8

 
3.8

 
 
 
 
 
Prepayment rate
(6)
2.0
-
100.0

 
65.5

Other assets: private equity fund investments (4)
171

 
Market comparable pricing
 
Comparability adjustment

6.0
-
6.0


6.0

Insignificant level 3 assets
294

 
 
 
 
 
 
 
 
 
 
Total
1,563

 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages held for sale (LOCOM)
$
893

(3)
Discounted cash flow
 
Default rate
(5)
1.2
-
4.4
%
 
2.7
%
 
 
 
 
 
Discount rate
 
4.3
-
12.0

 
10.9

 
 
 
 
 
Loss severity
 
1.6
-
48.2

 
5.2

 
 
 
 
 
Prepayment rate
(6)
2.0
-
100.0

 
67.2

Other assets: private equity fund investments (4)
505

 
Market comparable pricing
 
Comparability adjustment
 
4.6
-
4.6

 
4.6

Insignificant level 3 assets
242

 
 
 
 
 
 
 
 
 
 
Total
1,640

 
 
 
 
 
 
 
 
 
 

(1)
Refer to the narrative following the recurring quantitative Level 3 table of this Note for a definition of the valuation technique(s) and significant unobservable inputs.
(2)
For residential MHFS, weighted averages are calculated using outstanding unpaid principal balance of the loans.
(3)
Consists of $1.0 billion and $825 million government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitization, at December 31, 2014 and 2013 ,respectively and $78 million and $68 million of other mortgage loans that are not government insured/guaranteed at December 31, 2014 and 2013 , respectively.
(4)
Represents a single investment. For additional information, see the “Alternative Investments” section in this Note.
(5)
Applies only to non-government insured/guaranteed loans.
(6)
Includes the impact on prepayment rate of expected defaults for the government insured/guaranteed loans, which impacts the frequency and timing of early resolution of loans.


231

Note 17: Fair Values of Assets and Liabilities (continued)

Alternative Investments
The following table summarizes our investments in various types of funds for which we use net asset values (NAVs) per share as a practical expedient to measure fair value on recurring and nonrecurring bases. The investments are included in trading
 
assets, available-for-sale securities, and other assets. The table excludes those investments that are probable of being sold at an amount different from the funds’ NAVs.
 


(in millions)
Fair value 

 
Unfunded commitments 

 
Redemption frequency 
 
Redemption notice period 
December 31, 2014
 
 
 
 
 
 
 
Offshore funds
$
125

 
—

 
Daily - Quarterly
 
1 - 60 days
Hedge funds
1

 
—

 
Daily - Quarterly
 
1-90 days
Private equity funds (1)(2)
1,313

 
243

 
N/A
 
N/A
Venture capital funds (2)
68

 
9

 
N/A
 
N/A
Total (3)
$
1,507

 
252

 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
Offshore funds
$
308

 
—

 
Daily-Quarterly
 
1-180 days
Hedge funds
2

 
—

 
Monthly-Semi Annually
 
5-95 days
Private equity funds (1)(2)
1,496

 
316

 
N/A
 
N/A
Venture capital funds (2)
63

 
14

 
N/A
 
N/A
Total (3)
$
1,869

 
330

 
 
 
 

N/A - Not applicable
(1)
Excludes a private equity fund investment of $171 million and $505 million at December 31, 2014, and December 31, 2013, respectively for which we recorded a nonrecurring fair value adjustment during the periods then ended. The investment is probable of being sold for an amount different from the fund’s NAV; therefore, the investment’s fair value has been estimated using recent transaction information. This investment is subject to the Volcker Rule, which includes provisions that restrict banking entities from owning interests in certain types of funds.
(2)
Includes certain investments subject to the Volcker Rule that we may have to divest.
(3)
December 31, 2014, and December 31, 2013, include $1.3 billion and $1.5 billion , respectively, of fair value for nonmarketable equity investments carried at cost for which we use NAVs as a practical expedient for determining nonrecurring fair value adjustments. The fair values of investments that had nonrecurring fair value adjustments were $108 million and $88 million at December 31, 2014, and December 31, 2013 respectively.

Offshore funds primarily invest in foreign mutual funds. Redemption restrictions are in place for these investments with a fair value of $24 million and $144 million at December 31, 2014 and December 31,2013, respectively, due to lock-up provisions that will remain in effect until February 2017.
Private equity funds invest in equity and debt securities issued by private and publicly-held companies in connection with leveraged buyouts, recapitalizations and expansion opportunities. These investments do not allow redemptions. Alternatively, we receive distributions as the underlying assets of the funds liquidate, which we expect to occur over the next 6  years.
Venture capital funds invest in domestic and foreign companies in a variety of industries, including information technology, financial services and healthcare. These investments can never be redeemed with the funds. Instead, we receive distributions as the underlying assets of the fund liquidate, which we expect to occur over the next 5 years.




232

Fair Value Option
The fair value option is an irrevocable election, generally only permitted upon initial recognition of financial assets or liabilities, to measure eligible financial instruments at fair value with changes in fair value reflected in earnings. We may elect the fair value option to align the measurement model with how the financial assets or liabilities are managed or to reduce complexity or accounting asymmetry. Following is a discussion of the portfolios for which we elected the fair value option.

TRADING ASSETS - LOANS We engage in holding loans for market-making purposes to support the buying and selling demands of our customers. These loans are generally held for a short period of time and managed within parameters of internally approved market risk limits. We have elected to measure and carry them at fair value, which best aligns with our risk management practices. Fair value for these loans is primarily determined using readily available market data based on recent transaction prices for similar loans.

MORTGAGES HELD FOR SALE (MHFS) We measure MHFS at fair value for MHFS originations for which an active secondary market and readily available market prices exist to reliably support fair value pricing models used for these loans. Loan origination fees on these loans are recorded when earned, and related direct loan origination costs are recognized when incurred. We also measure at fair value certain of our other interests held related to residential loan sales and securitizations. We believe fair value measurement for MHFS and other interests held, which we hedge with economic hedge derivatives along with our MSRs measured at fair value, reduces 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.
 
LOANS HELD FOR SALE (LHFS) We elected to measure certain LHFS portfolios at fair value in conjunction with customer accommodation activities, which better aligns the measurement basis of the assets held with our management objectives given the trading nature of these portfolios.

LOANS Loans that we measure at fair value consist predominantly of reverse mortgage loans previously transferred under a GNMA reverse mortgage securitization program accounted for as a secured borrowing. Before the transfer, they were classified as MHFS measured at fair value and, as such, remain carried on our balance sheet under the fair value option.

OTHER FINANCIAL INSTRUMENTS We elected to measure at fair value certain letters of credit and nonmarketable equity securities that are hedged with derivative instruments to better reflect the economics of the transactions. The letters of credit are included in trading account assets or liabilities, and the nonmarketable equity securities are included in other assets.
Similarly, we may elect fair value option for the assets and liabilities of certain consolidated VIEs. This option is generally elected for newly consolidated VIEs for which predominantly all of our interests, prior to consolidation, are carried at fair value with changes in fair value recorded to earnings. Accordingly, such an election allows us to continue fair value accounting through earnings for those interests and eliminate income statement mismatch otherwise caused by differences in the measurement basis of the consolidated VIEs assets and liabilities.
The following table reflects differences between the fair value carrying amount of certain assets and liabilities for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity.


 
December 31, 2014
 
 
December 31, 2013
 
 
(in millions)
Fair value carrying amount 

 
Aggregate unpaid principal 

 
Fair value carrying amount less aggregate unpaid principal 

 
Fair value carrying amount 

 
Aggregate unpaid principal 

 
Fair value carrying amount less aggregate unpaid principal 

 
Trading assets - loans:
 
 
 
 
 
 
 
 
 
 
 
 
Total loans
$
1,387

 
1,410

 
(23
)
 
2,360

 
2,385

 
(25
)
 
Nonaccrual loans
—

 
1

 
(1
)
 
26

 
32

 
(6
)
 
Mortgages held for sale:
 
 
 
 
 
 

 
 
 
 
 
Total loans
15,565

 
15,246

 
319

 
13,879

 
13,966

 
(87
)
 
Nonaccrual loans
160

 
252

 
(92
)
 
205

 
359

 
(154
)
 
Loans 90 days or more past due and still accruing
27

 
30

 
(3
)
 
39

 
46

 
(7
)
 
Loans held for sale:
 
 
 
 
 
 

 
 
 
 
 
Total loans
1

 
10

 
(9
)
 
1

 
9

 
(8
)
 
Nonaccrual loans
1

 
10

 
(9
)
 
1

 
9

 
(8
)
 
Loans:
 
 
 
 
 
 

 
 
 
 
 
Total loans
5,788

 
5,527

 
261

 
5,995

 
5,674

 
321

 
Nonaccrual loans
367

 
376

 
(9
)
 
188

 
188

 
—

 
Other assets (1)
2,512

 
n/a

 
n/a

 
1,386

 
n/a

 
n/a

 
Long-term debt
—

 
—

 
—

 
—

 
(199
)
 
199

(2)

(1)
Consists of nonmarketable equity investments carried at fair value. See Note 7 (Premises, Equipment, Lease Commitments and Other Assets) for more information.
(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 from the underlying collateral are not sufficient to pay the unpaid principal amount of the debt, those third party investors absorb losses.

233

Note 17: Fair Values of Assets and Liabilities (continued)

The assets and liabilities accounted for under the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in earnings. The changes in fair value related to initial measurement and subsequent changes in fair value included in earnings for these assets and liabilities measured at fair value are shown below by income statement line item.

 
 
 
 
 
 
 
 
 
 
 
Year ended December 31,
 
 
2014
 
 
2013
 
 
2012
 
(in millions)
Mortgage banking noninterest income 

 
Net gains (losses) from trading activities 

 
Other noninterest income 

 
Mortgage banking noninterest income 

 
Net gains (losses) from trading activities 

 
Other noninterest income 

 
Mortgage banking noninterest income 

 
Net gains (losses) from trading activities 

 
Other noninterest income 

Trading assets - loans
$
—

 
29

 
4

 
—

 
40

 
3

 
—

 
14

 
1

Mortgages held for sale
2,211

 
—

 
—

 
2,073

 
—

 
—

 
8,240

 
—

 
1

Loans held for sale
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
21

Loans
—

 
—

 
(49
)
 
—

 
—

 
(216
)
 
—

 
—

 
63

Other assets
—

 
—

 
518

 
—

 
—

 
324

 
—

 
—

 
—

Long-term debt
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(27
)
Other interests held (1)
—

 
(12
)
 
—

 


 
(15
)
 
—

 
—

 
(42
)
 
34


(1)
Consists of retained interests in securitizations and changes in fair value of letters of credit.

For performing loans, instrument-specific credit risk gains or losses were derived principally by determining the change in fair value of the loans due to changes in the observable or implied credit spread. Credit spread is the market yield on the loans less the relevant risk-free benchmark interest rate. For nonperforming loans, we attribute all changes in fair value to instrument-specific credit risk. The following table shows the estimated gains and losses from earnings attributable to instrument-specific credit risk related to assets accounted for under the fair value option.

 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Gains (losses) attributable to instrument-specific credit risk:
 
 
 
 
 
Trading assets - loans
$
29

 
40

 
14

Mortgages held for sale
60

 
126

 
(124
)
Loans held for sale
—

 
—

 
21

Total
$
89


166


(89
)



234

Disclosures about Fair Value of Financial Instruments
The table below is a summary of fair value estimates for financial instruments, excluding financial instruments recorded at fair value on a recurring basis as they are included within the Assets and Liabilities Recorded at Fair Value on a Recurring Basis table included earlier in this Note. The carrying amounts in the following table are recorded on the balance sheet under the indicated captions, except for nonmarketable equity investments, which are included in Other Assets.
We have not included assets and liabilities that are not financial instruments in our disclosure, such as the value of the
 
long-term relationships with our deposit, credit card and trust customers, amortized MSRs, premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.




 
 
 
Estimated fair value 
 
(in millions)
Carrying amount 

 
Level 1 

 
Level 2 

 
Level 3 

 
Total

December 31, 2014
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
Cash and due from banks (1)
$
19,571

 
19,571

 
—

 
—

 
19,571

Federal funds sold, securities purchased under resale agreements and other short-term investments (1)
258,429

 
8,991

 
249,438

 
—

 
258,429

Held-to-maturity securities
55,483

 
41,548

 
9,021

 
5,790

 
56,359

Mortgages held for sale (2)
3,971

 
—

 
2,875

 
1,098

 
3,973

Loans held for sale (2)
721

 
—

 
739

 
—

 
739

Loans, net (3)
832,671

 
—

 
60,052

 
784,786

 
844,838

Nonmarketable equity investments (cost method)
7,033

 
—

 
—

 
8,377

 
8,377

Financial liabilities
 
 
 
 
 
 
 
 
 
Deposits
1,168,310

 
—

 
1,132,845

 
35,566

 
1,168,411

Short-term borrowings (1)
63,518

 
—

 
63,518

 
—

 
63,518

Long-term debt (4)
183,934

 
—

 
174,996

 
10,479

 
185,475

December 31, 2013
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
Cash and due from banks (1)
$
19,919

 
19,919

 
—

 
—

 
19,919

Federal funds sold, securities purchased under resale agreements and other short-term investments (1)
213,793

 
5,160

 
208,633

 
—

 
213,793

Held to maturity securities
12,346

 
—

 
6,205

 
6,042

 
12,247

Mortgages held for sale (2)
2,884

 
—

 
2,009

 
893

 
2,902

Loans held for sale (2)
132

 
—

 
136

 
—

 
136

Loans, net (3)
789,513

 
—

 
58,350

 
736,214

 
794,564

Nonmarketable equity investments (cost method)
6,978

 
—

 
—

 
8,635

 
8,635

Financial liabilities
 
 
 
 
 
 
 
 
 
Deposits
1,079,177

 
—

 
1,037,448

 
42,079

 
1,079,527

Short-term borrowings (1)
53,883

 
—

 
53,883

 
—

 
53,883

Long-term debt (4)
152,987

 
—

 
144,984

 
10,879

 
155,863


(1)
Amounts consist of financial instruments in which carrying value approximates fair value.
(2)
Balance reflects MHFS and LHFS, as applicable, other than those MHFS and LHFS for which election of the fair value option was made.
(3)
Loans exclude balances for which the fair value option was elected and also exclude lease financing with a carrying amount of $12.3 billion and $12.4 billion at December 31, 2014 and 2013 respectively.
(4)
The carrying amount and fair value exclude obligations under capital leases of $9 million and $11 million at December 31, 2014 and 2013, respectively.
 
Loan commitments, standby letters of credit and commercial and similar letters of credit are not included in the table above. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related
allowance, which totaled $945 million and $597 million at December 31, 2014 and 2013, respectively.




235

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 have not issued any preference shares
 
under this authorization. If issued, preference shares would be limited to one vote per share. Our total authorized, issued and outstanding preferred stock is presented in the following two tables along with the Employee Stock Ownership Plan (ESOP) Cumulative Convertible Preferred Stock.

 
 
December 31, 2014
 
 
December 31, 2013
 
 
Liquidation 
 preference 
 per share 

 
Shares 
 authorized 
and designated 

 
Liquidation 
 preference 
 per share 

 
Shares 
 authorized 
 and designated

DEP Shares
 
 
 
 
 
 
 
Dividend Equalization Preferred Shares (DEP)
$
10

 
97,000

 
$
10

 
97,000

Series G
 
 
 
 
 
 
 
7.25% Class A Preferred Stock
15,000

 
50,000

 
15,000

 
50,000

Series H
 
 
 
 
 
 
 
Floating Class A Preferred Stock
20,000

 
50,000

 
20,000

 
50,000

Series I
 
 
 
 
 
 
 
Floating Class A Preferred Stock
100,000

 
25,010

 
100,000

 
25,010

Series J
 
 
 
 
 
 
 
8.00% Non-Cumulative Perpetual Class A Preferred Stock
1,000

 
2,300,000

 
1,000

 
2,300,000

Series K
 
 
 
 
 
 
 
7.98% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
1,000

 
3,500,000

 
1,000

 
3,500,000

Series L
 
 
 
 
 
 
 
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock
1,000

 
4,025,000

 
1,000

 
4,025,000

Series N
 
 
 
 
 
 
 
5.20% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
30,000

 
25,000

 
30,000

Series O
 
 
 
 
 
 
 
5.125% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
27,600

 
25,000

 
27,600

Series P
 
 
 
 
 
 
 
5.25% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
26,400

 
25,000

 
26,400

Series Q
 
 
 
 
 
 
 
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
69,000

 
25,000

 
69,000

Series R
 
 
 
 
 
 
 
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
34,500

 
25,000

 
34,500

Series S
 
 
 
 
 
 
 
5.900% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
80,000

 
—

 
—

Series T
 
 
 
 
 
 
 
6.00% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
32,200

 
—

 
—

ESOP
 
 
 
 
 
 
 
Cumulative Convertible Preferred Stock (1)
—

 
1,251,287

 
—

 
1,105,664

Total

 
11,597,997

 

 
11,340,174


(1)
See the ESOP Cumulative Convertible Preferred Stock section of this Note for additional information about the liquidation preference for the ESOP Cumulative Preferred Stock.

236

 
December 31, 2014
 
 
December 31, 2013
 
(in millions, except shares)
Shares issued and outstanding 

 
Par value

 
Carrying
value 

 
Discount 

 
Shares issued and  outstanding

 
Par value 

 
Carrying value

 
Discount 

DEP Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividend Equalization Preferred Shares (DEP)
96,546

 
—

 
—

 
—

 
96,546

 
—

 
—

 
—

Series I (1) 


 


 


 
 
 


 


 


 
 
Floating Class A Preferred Stock
25,010

 
2,501

 
2,501

 
—

 
25,010

 
2,501

 
2,501

 
—

Series J (1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8.00% Non-Cumulative Perpetual Class A Preferred Stock
2,150,375

 
2,150

 
1,995

 
155

 
2,150,375

 
2,150

 
1,995

 
155

Series K (1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.98% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
3,352,000

 
3,352

 
2,876

 
476

 
3,352,000

 
3,352

 
2,876

 
476

Series L (1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock
3,968,000

 
3,968

 
3,200

 
768

 
3,968,000

 
3,968

 
3,200

 
768

Series N (1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.20% Non-Cumulative Perpetual Class A Preferred Stock
30,000

 
750

 
750

 
—

 
30,000

 
750

 
750

 
—

Series O (1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.125% Non-Cumulative Perpetual Class A Preferred Stock
26,000

 
650

 
650

 
—

 
26,000

 
650

 
650

 
—

Series P (1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.25% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
625

 
625

 
—

 
25,000

 
625

 
625

 
—

Series Q (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
69,000

 
1,725

 
1,725

 
—

 
69,000

 
1,725

 
1,725

 
—

Series R (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
33,600

 
840

 
840

 
—

 
33,600

 
840

 
840

 
—

Series S (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.900% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
80,000

 
2,000

 
2,000

 
—

 
—

 
—

 
—

 
—

Series T (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.00% Non-Cumulative Perpetual Class A Preferred Stock
32,000

 
800

 
800

 
—

 
—

 
—

 
—

 
—

ESOP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative Convertible Preferred Stock
1,251,287

 
1,251

 
1,251

 
—

 
1,105,664

 
1,105

 
1,105

 
—

Total
11,138,818

 
$
20,612

 
19,213

 
1,399

 
10,881,195

 
$
17,666

 
16,267

 
1,399

(1)
Preferred shares qualify as Tier 1 capital.

In April 2014, we issued 2 million Depositary Shares, each representing a 1/25 th interest in a share of the Non-Cumulative Perpetual Class A Preferred Stock, Series S, for an aggregate public offering price of $2.0 billion . In July 2014, we issued 32 million Depositary Shares, each representing a 1/1,000 th interest in a share of the Non-Cumulative Perpetual Class A Preferred Stock, Series T, for an aggregate public offering price of $800 million . See Note 8 (Securitizations and Variable Interest Entities) for additional information on our trust preferred securities. We do not have a commitment to issue Series G or H preferred stock.


237

Note 18: Preferred Stock (continued)

ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of our ESOP Cumulative Convertible Preferred Stock (ESOP Preferred Stock) were issued to a trustee acting on behalf of the Wells Fargo & Company 401(k) Plan (the 401(k) Plan). Dividends on the ESOP Preferred Stock are cumulative from the date of initial issuance and are payable quarterly at annual rates based upon the year of issuance. Each share 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 holder at any time, unless previously redeemed. We have the option to redeem the ESOP Preferred Stock at any time, in whole or in part, at a redemption price per share equal to the higher of (a) $1,000 per share plus accrued and unpaid dividends or (b) the fair market value, as defined in the Certificates of Designation for the ESOP Preferred Stock.


 
Shares issued and outstanding
 
 
Carrying value 
 
 
 
 
 
 
Dec 31,

 
Dec 31,

 
Dec 31,

 
Dec 31,

 
Adjustable dividend rate
(in millions, except shares)
2014

 
2013

 
2014

 
2013

 
Minimum 

 
Maximum 
ESOP Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
$1,000 liquidation preference per share
 
 
 
 
 
 
 
 
 
 
 
2014
352,158

 
—

 
$
352

 
—

 
8.70
%
 
9.70
2013
288,000

 
349,788

 
288

 
350

 
8.50

 
9.50
2012
189,204

 
217,404

 
189

 
217

 
10.00

 
11.00
2011
205,263

 
241,263

 
205

 
241

 
9.00

 
10.00
2010
141,011

 
171,011

 
141

 
171

 
9.50

 
10.50
2008
42,204

 
57,819

 
42

 
58

 
10.50

 
11.50
2007
24,728

 
39,248

 
25

 
39

 
10.75

 
11.75
2006
8,719

 
21,139

 
9

 
21

 
10.75

 
11.75
2005
—

 
7,992

 
—

 
8

 
9.75

 
10.75
Total ESOP Preferred Stock (1)
1,251,287

 
1,105,664

 
$
1,251

 
1,105

 
 
 
 
Unearned ESOP shares (2)
 
 
 
 
$
(1,360
)
 
(1,200
)
 
 
 
 

(1)
At December 31, 2014 and December 31,2013, additional paid-in capital included $109 million and $95 million , respectively, related to ESOP preferred stock.  
(2)
We recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released.



238

Note 19:  Common Stock and Stock Plans
Common Stock
The following table presents our reserved, issued and authorized shares of common stock at December 31, 2014 .

 
Number of shares 

Dividend reinvestment and common stock purchase plans
9,892,201

Director plans
942,715

Stock plans (1)
524,917,342

Convertible securities and warrants
104,259,902

Total shares reserved
640,012,160

Shares issued
5,481,811,474

Shares not reserved
2,878,176,366

Total shares authorized
9,000,000,000


(1)
Includes employee options, restricted shares and restricted share rights, 401 (k) profit sharing and compensation deferral plans.

At December 31, 2014 , we have warrants outstanding and exercisable to purchase 38,424,434 shares of our common stock with an exercise price of $33.996 per share, expiring on October 28, 2018. We did not purchase any of these warrants in 2014 or 2013. Warrants to purchase 684,430 and 435 shares of our common stock were exercised in 2014 and 2013, respectively. These warrants were issued in connection with our participation in the TARP CPP. 
 
Dividend Reinvestment and Common Stock Purchase Plans
Participants in our dividend reinvestment and common stock direct purchase plans may purchase shares of our common stock at fair market value by reinvesting dividends and/or making optional cash payments, under the plan's terms.
 
Employee Stock Plans
We offer stock-based employee compensation plans as described below. For information on our accounting for stock-based compensation plans, see Note 1 (Summary of Significant Accounting Policies).
 
LONG-TERM INCENTIVE COMPENSATION PLANS  Our Long- Term Incentive Compensation Plan (LTICP) provides for awards of incentive and nonqualified stock options, stock appreciation rights, restricted shares, restricted stock rights (RSRs), performance share awards (PSAs), performance units and stock awards with or without restrictions.
Beginning in 2010, we granted RSRs and performance shares as our primary long-term incentive awards instead of stock options. Holders of RSRs are entitled to the related shares of common stock at no cost generally vesting over three to five years after the RSRs were granted. RSRs generally continue to vest after retirement according to the original vesting schedule. Except in limited circumstances, RSRs are canceled when employment ends.
 
Holders of each vested PSA are entitled to the related shares of common stock at no cost. PSAs continue to vest after retirement according to the original vesting schedule subject to satisfying the performance criteria and other vesting conditions.
Holders of RSRs and PSAs may be entitled to receive additional RSRs and PSAs (dividend equivalents) or cash payments equal to the cash dividends that would have been paid had the RSRs or PSAs been issued and outstanding shares of common stock. RSRs and PSAs granted as dividend equivalents are subject to the same vesting schedule and conditions as the underlying award.
Stock options must have an exercise price at or above fair market value (as defined in the plan) of the stock at the date of grant (except for substitute or replacement options granted in connection with mergers or other acquisitions) and a term of no more than 10 years . Except for options granted in 2004 and 2005, which generally vested in full upon grant, options generally become exercisable over three years beginning on the first anniversary of the date of grant. Except as otherwise permitted under the plan, if employment is ended for reasons other than retirement, permanent disability or death, the option exercise period is reduced or the options are canceled.
Compensation expense for most of our RSRs, and PSAs granted prior to 2013, is based on the quoted market price of the related stock at the grant date; beginning in 2013 certain RSRs and all PSAs granted include discretionary performance based vesting conditions and are subject to variable accounting. For these awards, the associated compensation expense fluctuates with changes in our stock price. Stock option expense is based on the fair value of the awards at the date of grant. The following table summarizes the major components of stock incentive compensation expense and the related recognized tax benefit.

 
Year ended December 31,
 
(in millions)
2014

 
2013

 
2012

RSRs
$
639

 
568

 
435

Performance shares
219

 
157

 
112

Stock options
—

 
—

 
13

Total stock incentive compensation expense
$
858

 
725

 
560

Related recognized tax benefit
$
324

 
273

 
211


For various acquisitions and mergers, we 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 our stock after the vesting conditions are met. Holders receive cash dividends on outstanding awards if provided in the original award.
The total number of shares of common stock available for grant under the plans at December 31, 2014 , was 245 million .
 


239

Note 19: Common Stock and Stock Plans (continued)

Director Awards
Beginning in 2011, we granted only common stock awards under the LTICP to non-employee directors elected or re-elected at the annual meeting of stockholders and prorated awards to directors who join the Board at any other time. Stock awards vest immediately. Options also were granted to directors prior to 2011, and can be exercised after twelve months through the tenth anniversary of the grant date. Options granted prior to 2005 may include the right to acquire a “reload” stock option. Reload grants are fully vested upon grant and are expensed immediately. The last reload options were granted in 2013. As of December 31, 2014, none of the options outstanding included a reload feature.  

Restricted Share Rights
A summary of the status of our RSRs and restricted share awards at December 31, 2014 , and changes during 2014 is in the following table:

 
Number 

 
Weighted- 
 average 
 grant-date 
 fair value 

Nonvested at January 1, 2014
60,643,994

 
$
31.61

Granted
15,583,325

 
46.79

Vested
(21,307,272
)
 
31.29

Canceled or forfeited
(1,347,898
)
 
19.36

Nonvested at December 31, 2014
53,572,149

 
36.46

 
 
 
 

The weighted-average grant date fair value of RSRs granted during 2013 and 2012 was $35.52 and $31.49 , respectively.
At December 31, 2014 , there was $708 million of total unrecognized compensation cost related to nonvested RSRs. The cost is expected to be recognized over a weighted-average period of 2.5 years . The total fair value of RSRs that vested during 2014 , 2013 and 2012 was $1.0 billion , $472 million and $89 million , respectively.
 
 
Performance Share Awards
Holders of PSAs are entitled to the related shares of common stock at no cost subject to the Company's achievement of specified performance criteria over a three -year period. PSAs are granted at a target number; based on the Company's performance, the number of awards that vest can be adjusted downward to zero and upward to a maximum of either 125% or 150% of target. The awards vest in the quarter after the end of the performance period. For PSAs whose performance period ended December 31, 2014 , the determination of the number of performance shares that will vest will occur in the first quarter of 2015 , after review of the Company’s performance by the Human Resources Committee of the Board of Directors. Beginning in 2013, PSAs granted include discretionary performance based vesting conditions and are subject to variable accounting. For these awards, the associated compensation expense fluctuates with changes in our stock price and the estimated outcome of meeting the performance conditions. The total expense that will be recognized on these awards cannot be finalized until the determination of the awards that will vest.
A summary of the status of our PSAs at December 31, 2014 and changes during 2014 is in the following table, based on the target amount of awards:

 
Number 

 
Weighted- 
 average 
 grant-date 
 fair value 

Nonvested at January 1, 2014
10,839,148

 
$
32.72

Granted
3,968,637

 
41.01

Vested
(5,513,017
)
 
31.68

Nonvested at December 31, 2014
9,294,768

 
36.87

 
 
 
 

The weighted-average grant date fair value of performance awards granted during 2013 and 2012 was $33.56 and $31.44 , respectively.
At December 31, 2014 , there was $41 million of total unrecognized compensation cost related to nonvested performance awards. The cost is expected to be recognized over a weighted-average period of 1.6 years . The total fair value of PSAs that vested during 2014 and 2013 was $262 million and $168 million , respectively. No performance awards vested during 2012.




240

Stock Options
The table below summarizes stock option activity and related information for the stock plans. Options assumed in mergers are included in the activity and related information for Incentive
 
Compensation Plans if originally issued under an employee plan, and in the activity and related information for Director Awards if originally issued under a director plan.

 
 
Number 

 
Weighted- 
 average 
 exercise price

 
Weighted- 
 average 
 remaining contractual term (in yrs.)
 
Aggregate 
 intrinsic 
 value 
 (in millions) 

Incentive compensation plans
 
 
 
 
 
 
 
Options outstanding as of December 31, 2013
140,484,056

 
$
42.86

 
 
 
 
Canceled or forfeited
(2,844,648
)
 
206.02

 
 
 
 
Exercised
(39,976,208
)
 
29.93

 
 
 
 
Options exercisable and outstanding as of December 31, 2014
97,663,200

 
43.40

 
2.7
 
$
2,476

Director awards
 
 
 
 
 
 
 
Options outstanding as of December 31, 2013
479,637

 
31.95

 
 
 
 
Exercised
(88,090
)
 
31.43

 
 
 
 
Options exercisable and outstanding as of December 31, 2014
391,547

 
32.07

 
2.1
 
9

 
 
 
 
 
 
 
 

As of December 31, 2014 , there was no unrecognized compensation cost related to stock options. The total intrinsic value of options exercised during 2014 , 2013 and 2012 was $805 million , $643 million and $694 million , respectively.
Cash received from the exercise of stock options for 2014 , 2013 and 2012 was $1.2 billion , $1.6 billion and $1.5 billion , respectively.
We do not have a specific policy on repurchasing shares to satisfy share option exercises. Rather, we have a general policy on repurchasing shares to meet common stock issuance requirements for our benefit plans (including share option exercises), conversion of our convertible securities, acquisitions and other corporate purposes. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue for acquisitions and employee 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 award granted on or after January 1, 2006, is estimated using a Black-Scholes valuation model. The expected term of reload options granted is generally based on the midpoint between the valuation date and the contractual termination date of the original option. Our expected volatilities are based on a combination of the historical volatility of our common stock and implied volatilities for traded options on our common stock. The risk-free rate is based on the U.S. Treasury zero-coupon yield curve in effect at the time of grant. Both expected volatility and the risk-free rates are based on a period commensurate with our expected term. The expected dividend is based on a fixed dividend amount.
The following table presents the weighted-average per share fair value of options granted and the assumptions used, based on a Black-Scholes option valuation model. All of the options granted in 2013 and 2012 resulted from the reload feature.

 
 
Year ended December 31,
 
 
2014

 
2013

 
2012

Per share fair value of options granted
$
—

 
1.58

 
2.79

Expected volatility
—
%
 
18.3

 
29.2

Expected dividends
$
—

 
0.93

 
0.68

Expected term (in years)
—

 
0.5

 
0.7

Risk-free interest rate
—
%
 
0.1

 
0.1

 
 
 
 
 
 

Employee Stock Ownership Plan
The Wells Fargo & Company 401(k) Plan (401(k) Plan) is a defined contribution plan with an Employee Stock Ownership Plan (ESOP) feature. The ESOP feature enables the 401(k) Plan to borrow money to purchase our preferred or common stock. From 1994 through 2014, with the exception of 2009, we loaned money to the 401(k) Plan to purchase shares of our ESOP preferred stock. As our employer contributions are made to the 401(k) Plan and are used by the 401(k) Plan to make ESOP loan payments, the ESOP preferred stock in the 401(k) Plan is released and converted into our common stock shares. Dividends on the common stock shares allocated as a result of the release and conversion of the ESOP preferred stock reduce retained earnings and the shares are considered outstanding for computing earnings per share. Dividends on the unallocated ESOP preferred stock do not reduce retained earnings, and the shares are not considered to be common stock equivalents for computing earnings per share. Loan principal and interest payments are made from our employer contributions to the 401(k) Plan, along with dividends paid on the ESOP preferred stock. With each principal and interest payment, a portion of the ESOP preferred stock is released and converted to common stock shares, which are allocated to the 401(k) Plan participants and invested in the Wells Fargo ESOP Fund within the 401(k) Plan.


241

Note 19: Common Stock and Stock Plans (continued)

The balance of common stock and unreleased preferred stock held in the Wells Fargo ESOP fund, the fair value of unreleased ESOP preferred stock and the dividends on allocated
 
shares of common stock and unreleased ESOP Preferred Stock paid to the 401(k) Plan were:


 
Shares outstanding
 
 
December 31,
 
(in millions, except shares)
2014

 
2013

 
2012

Allocated shares (common)
136,801,782

 
137,354,139

 
136,821,035

Unreleased shares (preferred)
1,251,287

 
1,105,664

 
910,934

Fair value of unreleased ESOP preferred shares
$
1,251

 
1,105

 
911

 
Dividends paid
 
 
Year ended December 31,
 
 
2014

 
2013

 
2012

Allocated shares (common)
$
186

 
159

 
117

Unreleased shares (preferred)
152

 
132

 
115


Deferred Compensation Plan for Independent Sales Agents
WF Deferred Compensation Holdings, Inc. is a wholly-owned subsidiary of the Parent formed solely to sponsor a deferred compensation plan for independent sales agents who provide investment, financial and other qualifying services for or with respect to participating affiliates.

 
The Nonqualified Deferred Compensation Plan for Independent Contractors, which became effective January 1, 2002, allowed participants to defer all or part of their eligible compensation payable to them by a participating affiliate. The Parent has fully and unconditionally guaranteed the deferred compensation obligations of WF Deferred Compensation Holdings, Inc. under the plan. No future deferrals may be made under this plan and participants may no longer reallocate their existing account balances under the plan among different investment options.


242

Note 20: Employee Benefits and Other Expenses
Pension and Postretirement Plans
We sponsor a frozen noncontributory qualified defined benefit retirement plan called the Wells Fargo & Company Cash Balance Plan (Cash Balance Plan), which covers eligible employees of Wells Fargo. The Cash Balance Plan was frozen on July 1, 2009 and no new benefits accrue after that date.
Prior to July 1, 2009, eligible employees' Cash Balance Plan accounts were allocated a compensation credit based on a percentage of their certified compensation; the freeze discontinued the allocation of compensation credits after June 30, 2009. Investment credits continue to be allocated to participants based on their accumulated balances.
We recognize settlement losses for our Cash Balance Plan based on an assessment of whether our estimated lump sum payments related to the Cash Balance Plan will, in aggregate for the year, exceed the sum of its annual service and interest cost (threshold). Lump sum payments did not exceed this threshold in 2014. In 2013, lump sum payments exceeded this threshold. Settlement losses of $123 million were recognized in 2013, representing the pro rata portion of the net loss remaining in cumulative other comprehensive income based on the percentage reduction in the Cash Balance Plan’s projected benefit obligation. A remeasurement of the Cash Balance liability and related plan assets occurs at the end of each quarter in which settlement losses are recognized.
We did not make a contribution to our Cash Balance Plan in 2014. We do not expect that we will be required to make a
 
contribution to the Cash Balance Plan in 2015; however, this is dependent on the finalization of the actuarial valuation in 2015. Our decision of whether to make a contribution in 2015 will be based on various factors including the actual investment performance of plan assets during 2015. Given these uncertainties, we cannot estimate at this time the amount, if any, that we will contribute in 2015 to the Cash Balance Plan. For the nonqualified pension plans and postretirement benefit plans, there is no minimum required contribution beyond the amount needed to fund benefit payments; we may contribute more to our postretirement benefit plans dependent on various factors.
We provide health care and life insurance benefits for certain retired employees and reserve the right to terminate, modify or amend any of the benefits at any time.
The information set forth in the following tables is based on current actuarial reports using the measurement date of December 31 for our pension and postretirement benefit plans. In October 2014, the Society of Actuaries (SOA) published updated mortality tables that reflect improved longevity. The benefit obligations at December 31, 2014 reflect the SOA's updated mortality tables, which did not have a material effect on these obligations.
The changes in the benefit obligation and the fair value of plan assets, the funded status and the amounts recognized on the balance sheet were:


 
December 31, 2014
 
 
December 31, 2013
 
 
Pension benefits 
 
 
 
 
Pension benefits 
 
 
 
(in millions)
Qualified 

 
Non- 
qualified 

 
Other 
benefits 

 
Qualified 

 
Non- 
qualified 

 
Other 
benefits 

Change in benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
10,198

 
669

 
982

 
11,717

 
719

 
1,293

Service cost
1

 
—

 
7

 
—

 
—

 
11

Interest cost
465

 
27

 
42

 
465

 
29

 
47

Plan participants’ contributions
—

 
—

 
73

 
—

 
—

 
77

Actuarial loss (gain)
1,161

 
89

 
136

 
(1,106
)
 
(17
)
 
(306
)
Benefits paid
(692
)
 
(54
)
 
(148
)
 
(875
)
 
(62
)
 
(147
)
Medicare Part D subsidy
—

 
—

 
9

 
—

 
—

 
8

Foreign exchange impact
(8
)
 
(1
)
 
(1
)
 
(3
)
 
—

 
(1
)
Benefit obligation at end of year
11,125

 
730

 
1,100

 
10,198

 
669

 
982

Change in plan assets:
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
9,409

 
—

 
645

 
9,539

 
—

 
636

Actual return on plan assets
909

 
—

 
26

 
743

 
—

 
71

Employer contribution
7

 
54

 
19

 
4

 
62

 
—

Plan participants’ contributions
—

 
—

 
73

 
—

 
—

 
77

Benefits paid
(692
)
 
(54
)
 
(148
)
 
(875
)
 
(62
)
 
(147
)
Medicare Part D subsidy
—

 
—

 
9

 
—

 
—

 
8

Foreign exchange impact
(7
)
 
—

 
—

 
(2
)
 
—

 
—

Fair value of plan assets at end of year
9,626

 
—

 
624

 
9,409

 
—

 
645

Funded status at end of year
$
(1,499
)
 
(730
)
 
(476
)
 
(789
)
 
(669
)
 
(337
)
Amounts recognized on the balance sheet at end of year:
Liabilities
$
(1,499
)
 
(730
)
 
(476
)
 
(789
)
 
(669
)
 
(337
)

243

Note 20: Employee Benefits and Other Expenses (continued)

The following table provides information for pension plans with benefit obligations in excess of plan assets.

 
Dec 31,

 
Dec 31,

(in millions)
2014

 
2013

Projected benefit obligation
$
11,855

 
10,822

Accumulated benefit obligation
11,851

 
10,820

Fair value of plan assets
9,626

 
9,364

 


 
The components of net periodic benefit cost and other comprehensive income were:

 



 
December 31, 2014
 
 
December 31, 2013
 
 
December 31, 2012
 
 
Pension benefits 
 
 
 
 
Pension benefits 
 
 
 
 
Pension benefits 
 
 
 
(in millions)
Qualified 

 
Non- 
qualified 

 
Other 
benefits 

 
Qualified 

 
Non- 
qualified 

 
Other 
benefits 

 
Qualified 

 
Non- 
qualified 

 
Other 
 benefits 

Service cost
$
1

 
—

 
7

 
—

 
—

 
11

 
3

 
—

 
11

Interest cost
465

 
27

 
42

 
465

 
29

 
47

 
514

 
32

 
60

Expected return on plan assets
(629
)
 
—

 
(36
)
 
(674
)
 
—

 
(36
)
 
(652
)
 
—

 
(36
)
Amortization of net actuarial loss (gain)
91

 
11

 
(28
)
 
137

 
15

 
(1
)
 
131

 
10

 
—

Amortization of prior service credit
—

 
—

 
(2
)
 
—

 
—

 
(2
)
 
—

 
—

 
(2
)
Settlement loss (1)
—

 
2

 
—

 
124

 
3

 
—

 
2

 
5

 
—

Curtailment gain
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
Net periodic benefit cost
(72
)
 
40

 
(17
)
 
52

 
47

 
19

 
(2
)
 
47

 
30

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net actuarial loss (gain)
881

 
89

 
146

 
(1,175
)
 
(17
)
 
(341
)
 
758

 
62

 
(42
)
Amortization of net actuarial gain (loss)
(91
)
 
(11
)
 
28

 
(137
)
 
(15
)
 
1

 
(131
)
 
(10
)
 
—

Prior service cost
—

 
—

 
—

 
—

 
—

 
—

 
(2
)
 
—

 
—

Amortization of prior service credit
—

 
—

 
2

 
—

 
—

 
2

 
—

 
—

 
2

Settlement (1)
—

 
(2
)
 
—

 
(124
)
 
(3
)
 
—

 
(1
)
 
(5
)
 
—

Total recognized in other comprehensive income
790

 
76

 
176

 
(1,436
)
 
(35
)
 
(338
)
 
624

 
47

 
(40
)
Total recognized in net periodic benefit cost and other comprehensive income
$
718

 
116

 
159

 
(1,384
)
 
12

 
(319
)
 
622

 
94

 
(10
)

(1)
Qualified settlements in 2013 include $123 million for the Cash Balance Plan.

Amounts recognized in cumulative OCI (pre tax) consist of:

 


 
December 31, 2014
 
 
December 31, 2013
 
 
Pension benefits 
 
 
 
 
Pension benefits 
 
 
 
(in millions)
Qualified 

 
Non- 
qualified 

 
Other 
benefits 

 
Qualified 

 
Non- 
qualified 

 
Other 
benefits 

Net actuarial loss (gain)
$
2,677

 
224

 
(147
)
 
1,887

 
148

 
(321
)
Net prior service credit
(2
)
 
—

 
(20
)
 
(2
)
 
—

 
(22
)
Total
$
2,675

 
224

 
(167
)
 
1,885

 
148

 
(343
)

The net actuarial loss for the defined benefit pension plans and other post retirement plans that will be amortized from cumulative OCI into net periodic benefit cost in 2015 is $122 million . The net prior service credit for the defined benefit pension plans and other post retirement plans that will be amortized from cumulative OCI into net periodic benefit cost in 2015 is $2 million .



244

Plan Assumptions
For additional information on our pension accounting assumptions, see Note 1 (Summary of Significant Accounting
 
Policies).The weighted-average discount rates used to estimate the projected benefit obligation for pension benefits were:


 
December 31, 2014
 
December 31, 2013
 
Pension benefits 
 
 
 
Pension benefits 
 
 
 
Qualified 

 
Non- 
qualified 
 
Other 
benefits 
 
Qualified 
 
Non- 
qualified 
 
Other 
benefits 
Discount rate
4.00
%
 
3.75
 
4.00
 
4.75
 
4.25
 
4.50

The weighted-average assumptions used to determine the net periodic benefit cost were:


 
December 31, 2014
 
December 31, 2013
 
December 31, 2012
 
Pension benefits 
 
 
 
Pension benefits 
 
 
 
Pension benefits 
 
 
 
Qualified 

 
Non- 
qualified 
 
Other 
benefits 
 
Qualified 
 
Non- 
qualified 
 
Other 
benefits 
 
Qualified 
 
Non- 
qualified 
 
Other 
 benefits 
Discount rate (1)
4.75
%
 
4.16
 
4.50
 
4.38
 
4.08
 
3.75
 
5.00
 
4.92
 
4.75
Expected return on plan assets
7.00

 
n/a
 
6.00
 
7.50
 
 n/a
 
6.00
 
7.50
 
 n/a
 
6.00

(1)
The discount rate for the 2013 qualified pension benefits and for the 2014, 2013, and 2012 nonqualified pension benefits includes the impact of quarter-end remeasurements when settlement losses are recognized.

To account for postretirement health care plans we use health care cost trend rates to recognize the effect of expected changes in future health care costs due to medical inflation, utilization changes, new technology, regulatory requirements and Medicare cost shifting. In determining the end of year benefit obligation we assume an average annual increase of approximately 7.00% , for health care costs in 2015. This rate is assumed to trend down 0.25% per year until the trend rate reaches an ultimate rate of 5.00% in 2023 . The 2014 periodic benefit cost was determined using an initial annual trend rate of 7.25% . This rate was assumed to decrease 0.25% per year until the trend rate reached an ultimate rate of 5.00% in 2023 . Increasing the assumed health care trend by one percentage point in each year would increase the benefit obligation as of December 31, 2014, by $45 million and the total of the interest cost and service cost components of the net periodic benefit cost for 2014 by $2 million . Decreasing the assumed health care trend by one percentage point in each year would decrease the benefit obligation as of December 31, 2014, by $40 million and the total of the interest cost and service cost components of the net periodic benefit cost for 2014 by $2 million . 

Investment Strategy and Asset Allocation
We seek to achieve the expected long-term rate of return with a prudent level of risk given the benefit obligations of the pension plans and their funded status. Our overall investment strategy is designed to provide our Cash Balance Plan with long-term growth opportunities while ensuring that risk is mitigated through diversification across numerous asset classes and various investment strategies. We target the asset allocation for our Cash Balance Plan at a target mix range of 30% - 50% equities, 40% - 60% 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 investment risk and performance of our Cash Balance Plan on a quarterly basis. Annual Plan liability analysis and periodic asset/liability evaluations are also conducted.
Other benefit plan assets include (1) assets held in a 401(h) trust, which are invested with a target mix of 40% - 60% for both
 
equities and fixed income, and (2) assets held in the Retiree Medical Plan Voluntary Employees' Beneficiary Association (VEBA) trust, which are invested with a general target asset mix of 20% - 40% equities and 60% - 80% fixed income. In addition, the strategy for the VEBA trust assets considers the effect of income taxes by utilizing a combination of variable 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 table. Other benefits payments are expected to be reduced by prescription drug subsidies from the federal government provided by the Medicare Prescription Drug, Improvement and Modernization Act of 2003.
 
 
Pension benefits
 
 
Other benefits
 
(in millions)
Qualified 

 
Non- 
qualified 

 
Future 
benefits 

 
Subsidy 
receipts 

Year ended
December 31,
 
 
 
 
 
 
 
2015
$
750

 
92

 
88

 
10

2016
741

 
66

 
89

 
11

2017
732

 
61

 
89

 
11

2018
730

 
57

 
89

 
11

2019
738

 
55

 
89

 
12

2020-2024
3,568

 
233

 
424

 
59



245

Note 20: Employee Benefits and Other Expenses (continued)

Fair Value of Plan Assets
The following table presents the balances of pension plan assets and other benefit plan assets measured at fair value. See Note 17 (Fair Values of Assets and Liabilities) for fair value hierarchy level definitions.
 



 
Carrying value at year end
 
 
Pension plan assets
 
 
Other benefits plan assets
 
(in millions)
Level 1 

 
Level 2 

 
Level 3 

 
Total 

 
Level 1 

 
Level 2 

 
Level 3 

 
Total 

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
31

 
224

 
—

 
255

 
139

 
21

 
—

 
160

Long duration fixed income  (1) 
556

 
3,622

 
12

 
4,190

 
—

 
—

 
—

 
—

Intermediate (core) fixed income  (2) 
127

 
329

 
—

 
456

 
61

 
115

 
—

 
176

High-yield fixed income
1

 
321

 
5

 
327

 
—

 
—

 
—

 
—

International fixed income
53

 
284

 
—

 
337

 
—

 
—

 
—

 
—

Domestic large-cap stocks  (3) 
833

 
375

 
—

 
1,208

 
—

 
102

 
—

 
102

Domestic mid-cap stocks
252

 
140

 
—

 
392

 
—

 
47

 
—

 
47

Domestic small-cap stocks  (4) 
238

 
17

 
—

 
255

 
—

 
37

 
—

 
37

Global stocks (5)
47

 
155

 
—

 
202

 
—

 
—

 
—

 
—

International stocks  (6) 
457

 
276

 
—

 
733

 
25

 
53

 
—

 
78

Emerging market stocks
—

 
412

 
—

 
412

 
—

 
—

 
—

 
—

Real estate/timber  (7) 
121

 
1

 
265

 
387

 
—

 
—

 
—

 
—

Hedge funds  (8) 
—

 
203

 
84

 
287

 
—

 
—

 
—

 
—

Private equity
—

 
—

 
155

 
155

 
—

 
—

 
—

 
—

Other
—

 
23

 
52

 
75

 
2

 
—

 
22

 
24

Total plan investments
$
2,716

 
6,382

 
573

 
9,671

 
227

 
375

 
22

 
624

Payable upon return of securities loaned
 
 
 
 
 
 
(53
)
 
 
 
 
 
 
 
—

Net receivables
 
 
 
 
 
 
8

 
 
 
 
 
 
 
—

Total plan assets
 
 
 
 
 
 
$
9,626

 
 
 
 
 
 
 
624

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
65

 
357

 
—

 
422

 
147

 
22

 
—

 
169

Long duration fixed income (1)
546

 
3,287

 
1

 
3,834

 
—

 
—

 
—

 
—

Intermediate (core) fixed income (2)
86

 
339

 
—

 
425

 
64

 
115

 
—

 
179

High-yield fixed income
5

 
326

 
—

 
331

 
—

 
—

 
—

 
—

International fixed income
201

 
112

 
—

 
313

 
—

 
—

 
—

 
—

Domestic large-cap stocks (3)
824

 
415

 
—

 
1,239

 
—

 
107

 
—

 
107

Domestic mid-cap stocks
260

 
145

 
—

 
405

 
—

 
46

 
—

 
46

Domestic small-cap stocks (4)
286

 
15

 
—

 
301

 
—

 
38

 
—

 
38

International stocks (6)
540

 
354

 
1

 
895

 
28

 
54

 
—

 
82

Emerging market stocks
—

 
405

 
—

 
405

 
—

 
—

 
—

 
—

Real estate/timber (7)
89

 
1

 
294

 
384

 
—

 
—

 
—

 
—

Hedge funds (8)
—

 
149

 
152

 
301

 
—

 
—

 
—

 
—

Private equity
—

 
—

 
158

 
158

 
—

 
—

 
—

 
—

Other
—

 
27

 
52

 
79

 
2

 
—

 
22

 
24

Total plan investments
$
2,902

 
5,932

 
658

 
9,492

 
241

 
382

 
22

 
645

Payable upon return of securities loaned
 
 
 
 
 
 
(94
)
 
 
 
 
 
 
 
—

Net receivables
 
 
 
 
 
 
11

 
 
 
 
 
 
 
—

Total plan assets
 
 
 
 
 
 
$
9,409

 
 
 
 
 
 
 
645


(1)
This category includes a diversified mix of assets which are being managed in accordance with a duration target of approximately 10 years and an emphasis on corporate credit bonds combined with investments in U.S. Treasury securities and other U.S. agency and non-agency bonds.
(2)
This category includes assets that are primarily intermediate duration, investment grade bonds held in investment strategies benchmarked to the Barclays Capital U.S. Aggregate Bond Index. Includes U.S. Treasury securities, agency and non-agency asset-backed bonds and corporate bonds. 
(3)
This category covers a broad range of investment styles, including active, enhanced index and passive approaches, as well as style characteristics of value, core and growth emphasized strategies. Assets in this category are currently diversified across seven unique investment strategies with no single investment manager strategy representing more than 2.5% of total plan assets.
(4)
This category consists of a highly diversified combination of four distinct investment management strategies with no single strategy representing more than 2% of total plan assets. Allocations in this category are spread across actively managed approaches with distinct value and growth emphasized approaches in fairly equal proportions.
(5)
This category consists of three unique investment strategies providing exposure to broadly diversified, global equity investments, which generally have an allocation of 40 - 60% in U.S. domiciled equities and and an equivalent allocation range in primarily developed market, non-U.S. equities, with no single strategy representing more than 1.5% of total Plan assets.
(6)
This category includes assets diversified across six unique investment strategies providing exposure to companies based primarily in developed market, non-U.S. countries with no single strategy representing more than 2.5% of total plan assets.
(7)
This category primarily includes investments in private and public real estate, as well as timber specific limited partnerships; real estate holdings are diversified by geographic location and sector (e.g., retail, office, apartments).
(8)
This category consists of several investment strategies diversified across more than 30 hedge fund managers. Single manager allocation exposure is limited to 0.15% (15 basis points) of total plan assets.

246

The changes in Level 3 pension plan and other benefit plan assets measured at fair value are summarized as follows:


 
Balance beginning 
 of year

 
Gains (losses) 
 
 
Purchases, 
 sales 
 and  
settlements (net)

 
Transfers 
 Into/(Out of) 
 Level 3

 
Balance 
 end of 
 year 

(in millions)
 
Realized 

 
Unrealized (1) 

 
 
 
Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Pension plan assets:
 
 
 
 
 
 
 
 
 
 
 
Long duration fixed income
$
1

 
—

 
—

 
1

 
10

 
12

High-yield fixed income
—

 
—

 
—

 
3

 
2

 
5

International stocks
1

 
—

 
—

 
(1
)
 
—

 
—

Real estate/timber
294

 
9

 
34

 
(72
)
 
—

 
265

Hedge funds
152

 
1

 
4

 
(9
)
 
(64
)
 
84

Private equity
158

 
12

 
(3
)
 
(12
)
 
—

 
155

Other
52

 
2

 
1

 
(3
)
 
—

 
52

 
$
658

 
24

 
36

 
(93
)
 
(52
)
 
573

Other benefits plan assets:
 
 
 
 
 
 
 
 
 
 
 
Other
$
22

 
—

 
—

 
—

 
—

 
22

 
$
22


—


—


—


—


22

Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Pension plan assets:
 
 
 
 
 
 
 
 
 
 
 
Long duration fixed income
$
1

 
—

 
—

 
—

 
—

 
1

International stocks
1

 
—

 
—

 
—

 
—

 
1

Real estate/timber
328

 
27

 
52

 
(113
)
 
—

 
294

Hedge funds
71

 
5

 
6

 
56

 
14

 
152

Private equity
145

 
19

 
6

 
(12
)
 
—

 
158

Other
48

 
1

 
5

 
(2
)
 
—

 
52

 
$
594

 
52

 
69

 
(71
)
 
14

 
658

Other benefits plan assets:
 
 
 
 
 
 
 
 
 
 
 
Other
$
22

 
—

 
—

 
—

 
—

 
22

 
$
22

 
—

 
—

 
—

 
—

 
22


(1)
All unrealized gains (losses) relate to instruments held at period end.

VALUATION METHODOLOGIES  Following is a description of the valuation methodologies used for assets measured at fair value.
 
Cash and Cash Equivalents – includes investments in collective investment funds valued at fair value based upon the quoted market values of the underlying net assets. The unit price is quoted on a private market that is not active; however, the unit price is based on underlying investments traded on an active market. This group of assets also includes investments in registered investment companies valued at the NAV of shares held at year end.
 
Long Duration, Intermediate (Core), High-Yield, and International Fixed Income – includes investments traded on the secondary markets; prices are measured by using quoted market prices for similar securities, pricing models, and discounted cash flow analyses using significant inputs observable in the market where available, or a combination of multiple valuation techniques. This group of assets also includes highly liquid government securities such as U.S. Treasuries, limited partnerships valued at the NAV provided by the fund sponsor and registered investment companies and collective investment funds described above.
 
Domestic, Global, International and Emerging Market Stocks – investments in exchange-traded equity securities are valued at
 
quoted market values. This group of assets also includes investments in registered investment companies and collective investment funds described above.
 
Real Estate and Timber – the fair value of real estate and timber is estimated based primarily on appraisals prepared by third-party appraisers. Market values are estimates and the actual market 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.
 
Hedge Funds and Private Equity – the fair values of hedge funds are valued based on the proportionate share of the underlying net assets of the investment funds that comprise the fund, based on valuations supplied by the underlying investment funds. Investments in private equity funds are valued at the NAV provided by the fund sponsor. Market values are estimates and the actual market price of the investments can only be determined by negotiation between independent third parties in a sales transaction.

Other – insurance contracts that are generally stated at cash surrender value. This group of assets also includes investments in collective investment funds and private equity described above.


247

Note 20: Employee Benefits and Other Expenses (continued)

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Defined Contribution Retirement Plans
We sponsor a defined contribution retirement plan named the Wells Fargo & Company 401(k) Plan (401(k) Plan). Under the 401(k) Plan, after one month of service, eligible employees may contribute up to 50% of their certified compensation, subject to statutory limits. Eligible employees who complete one year of service are eligible for company matching contributions, which are generally dollar for dollar up to 6% of an employee's eligible certified compensation. Effective January 1, 2010, matching contributions are 100% vested. The 401(k) Plan includes an employer discretionary profit sharing contribution feature to allow us to make a contribution to eligible employees’ 401(k) Plan accounts. Eligible employees who complete one year of service are eligible for profit sharing contributions. Profit sharing contributions are vested after three years of service. Total defined contribution retirement plan expenses were $1.1 billion , $1.2 billion , and $1.1 billion in 2014, 2013, and 2012 respectively.
 
Other Expenses
Expenses exceeding 1% of total interest income and noninterest income in any of the years presented that are not otherwise shown separately in the financial statements or Notes to Financial Statements were:
 
 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Outside professional services
$
2,689

 
2,519

 
2,729

Operating losses
1,249

 
821

 
2,235

Outside data processing
1,034

 
983

 
910

Contract services
975

 
935

 
1,011

Travel and entertainment
904

 
885

 
839

Foreclosed assets
583

 
605

 
1,061



248

Note 21:  Income Taxes  
The components of income tax expense were:
 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Current:
 
 
 
 
 
Federal
$
7,321

 
4,601

 
9,141

State and local
520

 
736

 
1,198

Foreign
112

 
91

 
61

Total current
7,953

 
5,428

 
10,400

Deferred:
 
 
 
 
 
Federal
2,117

 
4,457

 
(1,151
)
State and local
224

 
522

 
(166
)
Foreign
13

 
(2
)
 
20

Total deferred
2,354

 
4,977

 
(1,297
)
Total
$
10,307

 
10,405

 
9,103

The tax effects of our temporary differences that gave rise to significant portions of our deferred tax assets and liabilities are presented in the following table.

 
December 31, 
 
(in millions)
2014

 
2013

Deferred tax assets
 
 
 
Allowance for loan losses
$
4,592

 
5,227

Deferred compensation and employee benefits
4,608

 
4,283

Accrued expenses
1,213

 
1,247

PCI loans
1,935

 
2,150

Basis difference in investments
382

 
1,084

Net operating loss and tax credit carry forwards
631

 
773

Other
1,318

 
1,720

Total deferred tax assets
14,679

 
16,484

Deferred tax assets valuation allowance
(426
)
 
(457
)
Deferred tax liabilities
 
 
 
Mortgage servicing rights
(5,860
)
 
(6,657
)
Leasing
(4,057
)
 
(4,274
)
Mark to market, net
(7,635
)
 
(5,761
)
Intangible assets
(1,494
)
 
(1,885
)
Net unrealized gains on investment securities
(2,737
)
 
(1,155
)
Insurance reserves
(2,087
)
 
(2,068
)
Other
(1,635
)
 
(1,733
)
Total deferred tax liabilities
(25,505
)
 
(23,533
)
Net deferred tax liability (1)
$
(11,252
)
 
(7,506
)

(1)
Included in accrued expenses and other liabilities.

 
Deferred taxes related to net unrealized gains (losses) on investment securities, net unrealized gains (losses) on derivatives, foreign currency translation, and employee benefit plan adjustments are recorded in cumulative OCI (see Note 23 (Other Comprehensive Income)). These associated adjustments decreased OCI by $1.3 billion in 2014.
We have determined that a valuation reserve is required for 2014 in the amount of $426 million predominantly attributable to deferred tax assets in various state and foreign jurisdictions where we believe it is more likely than not that these deferred tax assets will not be realized. In these jurisdictions, carry back limitations, lack of sources of taxable income, and tax planning strategy limitations contributed to our conclusion that the deferred tax assets would not be realizable. We have concluded that it is more likely than not that the remaining deferred tax assets will be realized based on our history of earnings, sources of taxable income in carry back periods, and our ability to implement tax planning strategies.
At December 31, 2014, we had net operating loss carry forwards with related deferred tax assets of $631 million . If these carry forwards are not utilized, they will expire in varying amounts through 2034 .
At December 31, 2014, we had undistributed foreign earnings of $1.8 billion related to foreign subsidiaries. We intend to reinvest these earnings indefinitely outside the U.S. and accordingly have not provided $513 million of income tax liability on these earnings.
The following table reconciles the statutory federal income tax expense and rate to the effective income tax expense and rate. Our effective tax rate is calculated by dividing income tax expense by income before income tax expense less the net income from noncontrolling interests.



249

Note 21:  Income Taxes  (continued)

 
December 31,
 
 
2014
 
 
2013
 
 
2012
 
(in millions)
Amount 

 
Rate 

 
Amount 

 
Rate 

 
Amount 

 
Rate 

Statutory federal income tax expense and rate
$
11,677

 
35.0
 %
 
$
11,299

 
35.0
 %
 
$
9,800

 
35.0
 %
Change in tax rate resulting from:
 
 
 
 
 
 
 
 
 
 
 
State and local taxes on income, net of federal income tax benefit
971

 
2.9

 
964

 
3.0

 
856

 
3.1

Tax-exempt interest
(550
)
 
(1.6
)
 
(490
)
 
(1.5
)
 
(414
)
 
(1.5
)
Excludable dividends
(70
)
 
(0.2
)
 
(49
)
 
(0.2
)
 
(132
)
 
(0.5
)
Tax credits
(1,074
)
 
(3.2
)
 
(967
)
 
(3.0
)
 
(815
)
 
(2.9
)
Life insurance
(179
)
 
(0.5
)
 
(173
)
 
(0.5
)
 
(524
)
 
(1.9
)
Leveraged lease tax expense
158

 
0.5

 
302

 
0.9

 
347

 
1.2

Other
(626
)
 
(2.0
)
 
(481
)
 
(1.5
)
 
(15
)
 
—

Effective income tax expense and rate
$
10,307

 
30.9
 %
 
$
10,405

 
32.2
 %
 
$
9,103

 
32.5
 %

The effective tax rate for 2014, includes a net reduction in the reserve for uncertain tax positions primarily due to the resolution of prior period matters with state taxing authorities. The effective tax rate for 2013, included a net reduction in the reserve for uncertain tax positions primarily due to settlements with authorities regarding certain cross border transactions and tax benefits recognized from the realization for tax purposes of a previously written down investment. The 2012 effective tax rate included a tax benefit resulting from the surrender of previously written-down Wachovia life insurance investments.
The change in unrecognized tax benefits follows:

 
Year ended 
 December 31, 
 
(in millions)
2014

 
2013

Balance at beginning of year
$
5,528

 
6,069

Additions:
 
 
 
For tax positions related to the current year
412

 
427

For tax positions related to prior years
324

 
283

Reductions:
 
 
 
For tax positions related to prior years
(213
)
 
(540
)
Lapse of statute of limitations
(50
)
 
(74
)
Settlements with tax authorities
(999
)
 
(637
)
Balance at end of year
$
5,002

 
5,528

 
Of the $5.0 billion of unrecognized tax benefits at December 31, 2014, approximately $3.1 billion would, if recognized, affect the effective tax rate. The remaining $1.9 billion of unrecognized tax benefits relates to income tax positions on temporary differences.
We recognize interest and penalties as a component of income tax expense. At December 31, 2014 and 2013, we have accrued approximately $660 million and $832 million for the payment of interest and penalties, respectively. In 2014, we recognized in income tax expense, a net tax benefit related to interest and penalties of $142 million . In 2013, we recognized in income tax expense, interest and penalties of $69 million .
 

We are subject to U.S. federal income tax as well as income tax in numerous state and foreign jurisdictions. We are routinely examined by tax authorities in these various jurisdictions. The IRS is currently examining the 2007 through 2012 consolidated federal income tax returns of Wells Fargo & Company and its subsidiaries. In addition, we are currently subject to examination by various state, local and foreign taxing authorities. With few exceptions, Wells Fargo and its subsidiaries are not subject to federal, state, local and foreign income tax examinations for taxable years prior to 2007. Wachovia Corporation and its subsidiaries are no longer subject to federal examination and, with limited exception, are no longer subject to state, local and foreign income tax examinations.
We are litigating or appealing various issues related to our prior IRS examinations for the periods 2003 through 2006, and we are appealing various issues related to IRS examinations of Wachovia’s 2006 through 2008 tax years. We have paid the IRS the contested income tax and interest associated with these issues and refund claims have been filed for the respective years. During 2014 we filed a petition for certiorari to the U.S. Supreme Court, which was denied, in connection with a lease restructuring transaction. It is possible that one or more of these examinations, appeals or litigation may be resolved within the next twelve months resulting in a decrease of up to $700 million to our gross unrecognized tax benefits.



250

Note 22: Earnings Per Common Share
The table below shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations. See Note 1 (Summary of Significant Accounting Policies) for
 
discussion of private share repurchases and the Consolidated Statement of Changes in Equity and Note 19 (Common Stock and Stock Plans) for information about stock and options activity and terms and conditions of warrants.


 
Year ended December 31, 
 
(in millions, except per share amounts)
2014

 
2013

 
2012

Wells Fargo net income
$
23,057

 
21,878

 
18,897

Less: Preferred stock dividends and other
1,236

 
989

 
898

Wells Fargo net income applicable to common stock (numerator)
$
21,821

 
20,889

 
17,999

Earnings per common share
 
 
 
 
 
Average common shares outstanding (denominator)
5,237.2

 
5,287.3

 
5,287.6

Per share
$
4.17

 
3.95

 
3.40

Diluted earnings per common share
 
 
 
 
 
Average common shares outstanding
5,237.2

 
5,287.3

 
5,287.6

Add: Stock Options
32.9

 
33.1

 
27.5

Restricted share rights
41.6

 
44.8

 
36.4

Warrants
12.7

 
6.0

 
—

Diluted average common shares outstanding (denominator)
5,324.4

 
5,371.2

 
5,351.5

Per share
$
4.10

 
3.89

 
3.36


The following table presents the outstanding options and warrants to purchase shares of common stock that were anti-dilutive (the exercise price was higher than the weighted-average market price), and therefore not included in the calculation of diluted earnings per common share.

 
Weighted-average shares
 
 
Year ended December 31, 
 
(in millions)
2014

 
2013

 
2012

Options
8.0

 
11.1

 
56.4

Warrants
—

 
—

 
39.2



251

Note 23: Other Comprehensive Income 
The following table provides the components of other comprehensive income (OCI), reclassifications to net income by income statement line item, and the related tax effects.


 
Year ended December 31,
 
 
2014
 
 
2013
 
 
2012
 
(in millions)
Before 
 tax 

 
Tax 
 effect 

 
Net of 
 tax 

 
Before 
 tax 

 
Tax 
 effect 

 
Net of 
 tax 

 
Before 
 tax 

 
Tax 
 effect 

 
Net of 
 tax 

Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
$
5,426

 
(2,111
)
 
3,315

 
(7,661
)
 
2,981

 
(4,680
)
 
5,143

 
(1,921
)
 
3,222

Reclassification of net (gains) losses to net income:
 
 
 
 


 
 
 
 
 


 
 
 
 
 


Interest income on investment securities (1)
(37
)
 
14

 
(23
)
 
—

 
—

 
—

 
—

 
—

 
—

Net (gains) losses on debt securities
(593
)
 
224

 
(369
)
 
29

 
(11
)
 
18

 
128

 
(48
)
 
80

Net gains from equity investments
(901
)
 
340

 
(561
)
 
(314
)
 
118

 
(196
)
 
(399
)
 
150

 
(249
)
Other noninterest income
(1
)
 
—

 
(1
)
 
—

 
—

 
—

 
—

 
—

 
—

Subtotal reclassifications to net income
(1,532
)
 
578


(954
)

(285
)

107


(178
)

(271
)

102


(169
)
Net change
3,894

 
(1,533
)

2,361

 
(7,946
)
 
3,088

 
(4,858
)
 
4,872

 
(1,819
)
 
3,053

Derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
952

 
(359
)
 
593

 
(32
)
 
12

 
(20
)
 
52

 
(12
)
 
40

Reclassification of net (gains) losses to net income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income on loans
(588
)
 
222

 
(366
)
 
(426
)
 
156

 
(270
)
 
(490
)
 
185

 
(305
)
Interest expense on long-term debt
44

 
(17
)
 
27

 
91

 
(34
)
 
57

 
96

 
(36
)
 
60

Noninterest income
—

 
—

 
—

 
35

 
(13
)
 
22

 
—

 
—

 
—

Salaries expense
—

 
—

 
—

 
4

 
(2
)
 
2

 
6

 
(2
)
 
4

Interest income on investment securities
(1
)
 
—

 
(1
)
 
—

 
—

 
—

 
—

 
—

 
—

Subtotal reclassifications
 to net income
(545
)
 
205


(340
)

(296
)

107


(189
)

(388
)

147


(241
)
Net change
407

 
(154
)
 
253

 
(328
)
 
119

 
(209
)
 
(336
)
 
135

 
(201
)
Defined benefit plans adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net actuarial gains (losses) arising during the period
(1,116
)
 
420

 
(696
)
 
1,533

 
(578
)
 
955

 
(775
)
 
290

 
(485
)
Reclassification of amounts to net periodic benefit costs (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss
74

 
(28
)
 
46

 
151

 
(57
)
 
94

 
141

 
(53
)
 
88

Settlements and other
—

 
—

 
—

 
125

 
(46
)
 
79

 
3

 
(1
)
 
2

Subtotal reclassifications to net periodic benefit costs
74

 
(28
)
 
46

 
276

 
(103
)
 
173

 
144

 
(54
)
 
90

Net change
(1,042
)
 
392

 
(650
)
 
1,809

 
(681
)
 
1,128

 
(631
)
 
236

 
(395
)
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized losses arising during the period
(60
)
 
(5
)
 
(65
)
 
(44
)
 
(7
)
 
(51
)
 
(6
)
 
2

 
(4
)
Reclassification of net gains to net income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest income
6

 
—

 
6

 
(12
)
 
5

 
(7
)
 
(10
)
 
4

 
(6
)
Net change
(54
)
 
(5
)
 
(59
)
 
(56
)
 
(2
)
 
(58
)
 
(16
)
 
6

 
(10
)
Other comprehensive income (loss)
$
3,205

 
(1,300
)
 
1,905

 
(6,521
)
 
2,524

 
(3,997
)
 
3,889

 
(1,442
)
 
2,447

Less: Other comprehensive income (loss) from noncontrolling interests, net of tax
 
 
 
 
(227
)
 
 
 
 
 
267

 
 
 
 
 
4

Wells Fargo other comprehensive income (loss), net of tax
 
 
 
 
$
2,132

 
 
 
 
 
(4,264
)
 
 
 
 
 
2,443


(1)
Represents unrealized gains amortized over the remaining lives of securities that were transferred from the available-for-sale portfolio to the held-to-maturity portfolio.
(2)
These items are included in the computation of net periodic benefit cost, which is recorded in employee benefits expense (see Note 20 (Employee Benefits and Other Expenses) for additional details).

252

Cumulative OCI balances were:
(in millions)
Investment 
 securities 

 
Derivatives 
 and 
 hedging 
 activities 

 
Defined 
 benefit 
 plans 
 adjustments 

 
Foreign 
 currency 
 translation 
adjustments 

 
Cumulative 
 other 
comprehensive 
 income 

Balance, December 31, 2011
$
4,413

 
490

 
(1,786
)
 
90

 
3,207

Net unrealized gains (losses) arising during the period
3,222

 
40

 
(485
)
 
(4
)
 
2,773

Amounts reclassified from accumulated other comprehensive income
(169
)
 
(241
)
 
90

 
(6
)
 
(326
)
Net change
3,053

 
(201
)
 
(395
)
 
(10
)
 
2,447

Less: Other comprehensive income from noncontrolling interests
4

 
—

 
—

 
—

 
4

Balance, December 31, 2012
7,462


289


(2,181
)

80


5,650

Net unrealized gains (losses) arising during the period
(4,680
)
 
(20
)
 
955

 
(51
)
 
(3,796
)
Amounts reclassified from accumulated other comprehensive income
(178
)
 
(189
)
 
173

 
(7
)
 
(201
)
Net change
(4,858
)
 
(209
)
 
1,128

 
(58
)
 
(3,997
)
Less: Other comprehensive income from noncontrolling interests
266

 
—

 
—

 
1

 
267

Balance, December 31, 2013
2,338


80


(1,053
)

21


1,386

Net unrealized gains (losses) arising during the period

3,315

 
593

 
(696
)
 
(65
)
 
3,147

Amounts reclassified from accumulated other comprehensive income
(954
)
 
(340
)
 
46

 
6

 
(1,242
)
Net change
2,361


253


(650
)

(59
)

1,905

Less: Other comprehensive loss from noncontrolling interests
(227
)
 
—

 
—

 
—

 
(227
)
Balance, December 31, 2014
$
4,926


333


(1,703
)

(38
)

3,518


253

Note 24:  Operating Segments
We have three reportable operating segments: Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement. The results for these reportable operating segments are based on our management accounting process, for which there is no comprehensive, authoritative guidance equivalent to GAAP for financial accounting. The management accounting process measures the performance of the operating segments based on our management structure and is not necessarily comparable with similar information for other financial services companies. We define our operating segments by product type and customer segment. If the management structure and/or the allocation process changes, allocations, transfers and assignments may change.
 
Community Banking offers a complete line of diversified financial products and services to consumers and small businesses with annual sales generally up to $20 million in which the owner generally is the financial decision maker. Community 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 Funds SM , a family of mutual funds. Loan products include lines of credit, auto floor plan lines, equity lines and loans, equipment and transportation loans, education loans, origination and purchase of residential mortgage loans and servicing of mortgage loans and credit cards. Other credit products and financial services available to small businesses and their owners include equipment leases, real estate and other commercial financing, Small Business Administration financing, venture capital financing, cash management, payroll services, retirement plans, Health Savings Accounts, credit cards, and merchant payment processing. Community Banking also offers private label financing solutions for retail merchants across the United States and purchases retail installment contracts from auto dealers in the United States and Puerto Rico. Consumer and business deposit products include checking accounts, savings deposits, market rate accounts, Individual Retirement Accounts, time deposits, global remittance and debit cards.
Community Banking serves customers through a complete range of channels, including traditional banking stores, in-store banking centers, business centers, ATMs, Online and Mobile Banking, and Wells Fargo Customer Connection, a 24-hours a day, seven days a week telephone service.
The Community Banking segment also includes the results of our Corporate Treasury activities net of allocations in support of other segments and results of investments in our affiliated venture capital partnerships.

 
 
Wholesale Banking provides financial solutions to businesses across the United States with annual sales generally in excess of $20 million and to financial institutions globally. Wholesale Banking provides a complete line of commercial, corporate, capital markets, cash management and real estate banking products and services. These include traditional commercial loans and lines of credit, letters of credit, asset-based lending, equipment leasing, international trade facilities, trade financing, collection services, foreign exchange services, treasury management, investment management, institutional fixed-income sales, interest rate, commodity and equity risk management, online/electronic products such as the Commercial Electronic Office ® ( CEO ® ) portal, insurance, corporate trust fiduciary and agency services, and investment banking services. Wholesale Banking manages customer investments through institutional separate accounts and mutual funds, including the Wells Fargo Advantage Funds and Wells Capital Management. Wholesale Banking also supports the CRE market with products and services such as construction loans for commercial and residential development, land acquisition and development loans, secured and unsecured lines of credit, interim financing arrangements for completed structures, rehabilitation loans, affordable housing loans and letters of credit, permanent loans for securitization, CRE loan servicing and real estate and mortgage brokerage services.
 
Wealth, Brokerage and Retirement provides a full range of financial advisory services to clients using a planning approach to meet each client's financial needs. Wealth Management provides affluent and high net worth clients with a complete range of wealth management solutions, including financial planning, private banking, credit, investment management and fiduciary services. Abbot Downing, a Wells Fargo business, provides comprehensive wealth management services to ultra-high net worth families and individuals as well as endowments and foundations. Brokerage serves customers' advisory, brokerage and financial needs as part of one of the largest full-service brokerage firms in the United States. Retirement is a national leader in providing institutional retirement and trust services (including 401(k) and pension plan record keeping) for businesses and reinsurance services for the life insurance industry.
 
Other includes items not assigned to a specific business segment and elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for wealth management customers provided in Community Banking stores.


254

(income/expense in millions, average balances in billions)
Community 
 Banking 

 
Wholesale 
 Banking 

 
Wealth, 
 Brokerage
 and 
 Retirement

 
Other (1) 

 
Consolidated
 Company 

2014
 
 
 
 
 
 
 
 
 
Net interest income  (2)  
$
29,709

 
$
11,955

 
$
3,179

 
$
(1,316
)
 
$
43,527

Provision (reversal of provision) for credit losses
1,681

 
(266
)
 
(50
)
 
30

 
1,395

Noninterest income
21,153

 
11,527

 
11,039

 
(2,899
)
 
40,820

Noninterest expense
28,126

 
12,975

 
10,907

 
(2,971
)
 
49,037

Income (loss) before income tax expense (benefit)
21,055

 
10,773


3,361


(1,274
)

33,915

Income tax expense (benefit)
6,350

 
3,165

 
1,276

 
(484
)
 
10,307

Net income (loss) before noncontrolling interests
14,705

 
7,608

 
2,085

 
(790
)
 
23,608

Less: Net income from noncontrolling interests
525

 
24

 
2

 
—

 
551

Net income (loss)  (3)  
$
14,180

 
$
7,584

 
$
2,083

 
$
(790
)
 
$
23,057

2013
 
 
 
 
 
 
 
 
 
Net interest income (2)
$
28,839

 
$
12,298

 
$
2,888

 
$
(1,225
)
 
$
42,800

Provision (reversal of provision) for credit losses
2,755

 
(445
)
 
(16
)
 
15

 
2,309

Noninterest income
21,500

 
11,766

 
10,315

 
(2,601
)
 
40,980

Noninterest expense
28,723

 
12,378

 
10,455

 
(2,714
)
 
48,842

Income (loss) before income tax expense (benefit)
18,861

 
12,131

 
2,764

 
(1,127
)
 
32,629

Income tax expense (benefit)
5,799

 
3,984

 
1,050

 
(428
)
 
10,405

Net income (loss) before noncontrolling interests
13,062

 
8,147

 
1,714

 
(699
)
 
22,224

Less: Net income from noncontrolling interests
330

 
14

 
2

 
—

 
346

Net income (loss) (3)
$
12,732

 
$
8,133

 
$
1,712

 
$
(699
)
 
$
21,878

2012
 
 
 
 
 
 
 
 
 
Net interest income (2)
$
29,045

 
$
12,648

 
$
2,768

 
$
(1,231
)
 
$
43,230

Provision (reversal of provision) for credit losses
6,835

 
286

 
125

 
(29
)
 
7,217

Noninterest income
24,360

 
11,444

 
9,392

 
(2,340
)
 
42,856

Noninterest expense
30,840

 
12,082

 
9,893

 
(2,417
)
 
50,398

Income (loss) before income tax expense (benefit)
15,730

 
11,724

 
2,142

 
(1,125
)
 
28,471

Income tax expense (benefit)
4,774

 
3,943

 
814

 
(428
)
 
9,103

Net income (loss) before noncontrolling interests
10,956

 
7,781

 
1,328

 
(697
)
 
19,368

Less: Net income from noncontrolling interests
464

 
7

 
—

 
—

 
471

Net income (loss) (3)
$
10,492

 
$
7,774

 
$
1,328

 
$
(697
)
 
$
18,897

2014
 
 
 
 
 
 
 
 
 
Average loans
$
503.2

 
313.4

 
52.1

 
(34.3
)
 
834.4

Average assets
934.2

 
544.2

 
189.8

 
(74.9
)
 
1,593.3

Average core deposits
642.3

 
274.0

 
154.9

 
(67.6
)
 
1,003.6

2013
 
 
 
 
 
 
 
 
 
Average loans
499.3

 
287.7

 
46.1

 
(30.4
)
 
802.7

Average assets
835.4

 
500.0

 
180.9

 
(70.3
)
 
1,446.0

Average core deposits
620.1

 
237.2

 
150.1

 
(65.3
)
 
942.1


(1)
Includes corporate items not specific to a business segment and the elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for wealth management customers provided in Community Banking stores. 
(2)
Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to other segments. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of excess liabilities from another segment.
(3)
Represents segment net income (loss) for Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement segments and Wells Fargo net income for the consolidated company.

255

Note 25: Parent-Only Financial Statements
The following tables present Parent-only condensed financial statements.


Parent-Only Statement of Income
 
Year ended December 31,
 
(in millions)
2014

 
2013

 
2012

Income
 
 
 
 
 
Dividends from subsidiaries:
 
 
 
 
 
Bank
$
15,077

 
10,612

 
11,767

Nonbank
526

 
33

 
1,150

Interest income from subsidiaries
772

 
848

 
897

Other interest income
216

 
240

 
222

Other income
1,032

 
484

 
267

Total income
17,623

 
12,217

 
14,303

Expense
 
 
 
 
 
Interest expense:
 
 
 
 
 
Indebtedness to nonbank subsidiaries
357

 
334

 
287

Short-term borrowings
7

 
5

 
1

Long-term debt
1,540

 
1,546

 
1,877

Other
5

 
15

 
23

Noninterest expense
797

 
1,175

 
1,127

Total expense
2,706

 
3,075

 
3,315

Income before income tax benefit and
 
 
 
 
 
equity in undistributed income of subsidiaries
14,917

 
9,142

 
10,988

Income tax benefit
(926
)
 
(570
)
 
(903
)
Equity in undistributed income of subsidiaries
7,214

 
12,166

 
7,006

Net income
$
23,057

 
21,878

 
18,897


256

Parent-Only Statement of Comprehensive Income
 
Year ended December 31,
 
(in millions)
2014

 
2013

 
2012

Net income
$
23,057

 
21,878

 
18,897

Other comprehensive income (loss), net of tax:
 
 
 
 
 
Investment securities
142

 
(248
)
 
61

Derivatives and hedging activities
12

 
39

 
31

Defined benefit plans adjustment
(633
)
 
1,136

 
(379
)
Equity in other comprehensive income (loss) of subsidiaries
2,611

 
(5,191
)
 
2,730

Other comprehensive income (loss), net of tax:
2,132

 
(4,264
)
 
2,443

Total comprehensive income
$
25,189

 
17,614

 
21,340


Parent-Only Balance Sheet
 
December 31,
 
(in millions)
2014

 
2013

Assets
 
 
 
Cash and cash equivalents due from:
 
 
 
Subsidiary banks
$
43,843

 
42,386

Nonaffiliates
3

 
3

Investment securities issued by:
 
 
 
Subsidiary banks
10,001

 
—

Nonaffiliates
10,753

 
11,652

Loans to subsidiaries:
 
 
 
Bank
18,166

 
7,140

Nonbank
35,783

 
38,504

Investments in subsidiaries:
 
 
 
Bank
162,806

 
154,577

Nonbank
24,567

 
21,852

Other assets
6,225

 
7,329

Total assets
$
312,147

 
283,443

Liabilities and equity
 
 
 
Short-term borrowings
$
2,270

 
5,121

Accrued expenses and other liabilities
6,984

 
7,241

Long-term debt
97,275

 
81,721

Indebtedness to nonbank subsidiaries
21,224

 
19,218

Total liabilities
127,753

 
113,301

Stockholders' equity
184,394

 
170,142

Total liabilities and equity
$
312,147

 
283,443


257

Note 25: Parent-Only Financial Statements (continued)

Parent-Only Statement of Cash Flows
 
Year ended December 31,
 
(in millions)
2014

 
2013

 
2012

Cash flows from operating activities:
 
 
 
 
 
Net cash provided by operating activities
$
18,019

 
8,607

 
13,365

Cash flows from investing activities:
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
Sales proceeds
1,196

 
3,606

 
6,171

Prepayments and maturities:
 
 
 
 
 
     Subsidiary banks
25

 
—

 
—

Nonaffiliates
—

 
12

 
30

Purchases:
 
 
 
 
 
Subsidiary banks
(10,025
)
 
—

 
—

Nonaffiliates
(14
)
 
(6,016
)
 
(5,845
)
Loans:
 
 
 
 
 
Net repayments from (advances to) subsidiaries
(2,199
)
 
655

 
9,191

Capital notes and term loans made to subsidiaries
(11,275
)
 
(6,700
)
 
(1,850
)
Principal collected on notes/loans made to subsidiaries
2,526

 
1,472

 
2,462

Net increase in investment in subsidiaries
(1,096
)
 
(1,188
)
 
(5,218
)
Other, net
470

 
461

 
(2
)
Net cash provided (used) by investing activities
(20,392
)
 
(7,698
)
 
4,939

Cash flows from financing activities:
 
 
 
 
 
Net increase in short-term borrowings and indebtedness to subsidiaries
2,314

 
6,732

 
5,456

Long-term debt:
 
 
 
 
 
Proceeds from issuance
22,627

 
18,714

 
16,989

Repayment
(8,659
)
 
(13,096
)
 
(18,693
)
Preferred stock:
 
 
 
 
 
Proceeds from issuance
2,775

 
3,145

 
1,377

Cash dividends paid
(1,235
)
 
(1,017
)
 
(892
)
Common stock warrants repurchased
—

 
—

 
(1
)
Common stock:
 
 
 
 
 
Proceeds from issuance
1,840

 
2,224

 
2,091

Repurchased
(9,414
)
 
(5,356
)
 
(3,918
)
Cash dividends paid
(6,908
)
 
(5,953
)
 
(4,565
)
Excess tax benefits related to stock option payments
453

 
271

 
226

Other, net
37

 
114

 
(14
)
Net cash provided (used) by financing activities
3,830

 
5,778

 
(1,944
)
Net change in cash and due from banks
1,457


6,687


16,360

Cash and due from banks at beginning of year
42,389

 
35,702

 
19,342

Cash and due from banks at end of year
$
43,846

 
42,389

 
35,702


258

Note 26:  Regulatory and Agency Capital Requirements
The Company and each of its subsidiary banks are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. The Federal Reserve establishes capital requirements, including well capitalized standards, for the consolidated financial holding company, and the OCC has similar requirements for the Company’s national banks, including Wells Fargo Bank, N.A. (the Bank).
The following table presents regulatory capital information for Wells Fargo & Company and the Bank. Information presented for December 31, 2014, reflects the transition to Basel III capital requirements from previous regulatory capital adequacy guidelines under Basel I effective in 2013. Among other matters, Basel III revises the definition of capital, and changes are being phased-in effective January 1, 2014, through the end of 2021, with regulatory capital ratios determined using Basel III (General Approach) risk-weighted assets during 2014. Under the Basel III (General Approach), at December 31, 2014, the Company’s Common Equity Tier 1 capital was $137.1 billion , or 11.04% of risk-weighted assets, and the Bank’s Common Equity Tier 1 capital was $119.9 billion , or 10.49% of risk-weighted assets.
 
We do not consolidate our wholly-owned trust (the Trust) formed solely to issue trust preferred and preferred purchase securities (the Securities). Securities issued by the Trust includable in Tier 2 capital were $2.1 billion at December 31, 2014. Under the new Basel III capital requirements, our remaining trust preferred and preferred purchase securities will begin amortizing in 2016 and will no longer count as Tier 2 capital in 2022.
The Bank is an approved seller/servicer of mortgage loans and is required to maintain minimum levels 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, 2014, the Bank met these requirements. Other subsidiaries, including the Company’s insurance and broker-dealer subsidiaries, are also subject to various minimum capital levels, as defined by applicable industry regulations. The minimum capital levels for these subsidiaries, and related restrictions, are not significant to our consolidated operations.


 
Wells Fargo & Company 
 
 
Wells Fargo Bank, N.A. 
 
 
 
 
 
 
Under

 
 
 
Under

 
 
 
 
 
 
 
Basel III

 
 
 
Basel III

 
 
 
 
 
 
 
(General

 
Under

 
(General

 
Under

 
 
 
 
 
Approach)

 
Basel I

 
Approach)

 
Basel I

 
Well- 
 
Minimum 
 
December 31, 
 
 
capitalized 
 
capital 
(in billions, except ratios)
2014

 
2013

 
2014

 
2013

 
ratios (1) 
 
ratios (1) 
Regulatory capital:
 
 
 
 
 
 
 
 
 
 
 
Tier 1
$
154.7

 
140.7

 
119.9

 
110.0

 
 
 
 
Total
192.9

 
176.2

 
144.0

 
136.4

 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
Risk-weighted
$
1,242.5

 
1,141.5

 
1,142.5

 
1,057.3

 
 
 
 
Adjusted average (2)
1,637.0

 
1,466.7

 
1,487.6

 
1,324.0

 
 
 
 
Capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital
12.45
%
 
12.33

 
10.49

 
10.40

 
6.00
 
4.00
Total capital
15.53

 
15.43

 
12.61

 
12.90

 
10.00
 
8.00
Tier 1 leverage (2)
9.45

 
9.60

 
8.06

 
8.31

 
5.00
 
4.00
 

(1)
As defined by the regulations issued by the Federal Reserve, OCC and FDIC.
(2)
The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items. The minimum leverage ratio guideline is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings, effective management and monitoring of market risk and, in general, are considered top-rated, strong banking organizations.

259

Report of Independent Registered Public Accounting Firm 
The Board of Directors and Stockholders
Wells Fargo & Company:
 
We have audited the accompanying consolidated balance sheet of Wells Fargo & Company and Subsidiaries (the Company) as of December 31, 2014 and 2013, 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, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2015, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
 
 
 
/s/ KPMG LLP                         
 
San Francisco, California
February 25, 2015

260

Quarterly Financial Data
Condensed Consolidated Statement of Income - Quarterly (Unaudited)
 
2014
 
 
2013
 
 
Quarter ended 
 
 
Quarter ended 
 
(in millions, except per share amounts)
Dec 31,

 
Sep 30,

 
Jun 30,

 
Mar 31,

 
Dec 31,

 
Sep 30,

 
Jun 30,

 
Mar 31,

Interest income
$
12,183

 
11,964

 
11,793

 
11,612

 
11,836

 
11,776

 
11,827

 
11,650

Interest expense
1,003

 
1,023

 
1,002

 
997

 
1,033

 
1,028

 
1,077

 
1,151

Net interest income
11,180

 
10,941

 
10,791

 
10,615

 
10,803


10,748


10,750


10,499

Provision for credit losses
485

 
368

 
217

 
325

 
363

 
75

 
652

 
1,219

Net interest income after provision for credit losses
10,695

 
10,573

 
10,574

 
10,290

 
10,440


10,673


10,098


9,280

Noninterest income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
1,241

 
1,311

 
1,283

 
1,215

 
1,283

 
1,278

 
1,248

 
1,214

Trust and investment fees
3,705

 
3,554

 
3,609

 
3,412

 
3,458

 
3,276

 
3,494

 
3,202

Card fees
925

 
875

 
847

 
784

 
827

 
813

 
813

 
738

Other fees
1,124

 
1,090

 
1,088

 
1,047

 
1,119

 
1,098

 
1,089

 
1,034

Mortgage banking
1,515

 
1,633

 
1,723

 
1,510

 
1,570

 
1,608

 
2,802

 
2,794

Insurance
382

 
388

 
453

 
432

 
453

 
413

 
485

 
463

Net gains from trading activities
179

 
168

 
382

 
432

 
325

 
397

 
331

 
570

Net gains (losses) on debt securities
186

 
253

 
71

 
83

 
(14
)
 
(6
)
 
(54
)
 
45

Net gains from equity investments
372

 
712

 
449

 
847

 
654

 
502

 
203

 
113

Lease income
127

 
137

 
129

 
133

 
148

 
160

 
225

 
130

Other
507

 
151

 
241

 
115

 
39

 
191

 
(8
)
 
457

Total noninterest income
10,263

 
10,272

 
10,275

 
10,010

 
9,862

 
9,730


10,628


10,760

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries
3,938

 
3,914

 
3,795

 
3,728

 
3,811

 
3,910

 
3,768

 
3,663

Commission and incentive compensation
2,582

 
2,527

 
2,445

 
2,416

 
2,347

 
2,401

 
2,626

 
2,577

Employee benefits
1,124

 
931

 
1,170

 
1,372

 
1,160

 
1,172

 
1,118

 
1,583

Equipment
581

 
457

 
445

 
490

 
567

 
471

 
418

 
528

Net occupancy
730

 
731

 
722

 
742

 
732

 
728

 
716

 
719

Core deposit and other intangibles
338

 
342

 
349

 
341

 
375

 
375

 
377

 
377

FDIC and other deposit assessments
231

 
229

 
225

 
243

 
196

 
214

 
259

 
292

Other
3,123

 
3,117

 
3,043

 
2,616

 
2,897

 
2,831

 
2,973

 
2,661

Total noninterest expense
12,647

 
12,248

 
12,194

 
11,948

 
12,085

 
12,102

 
12,255

 
12,400

Income before income tax expense
8,311

 
8,597

 
8,655

 
8,352

 
8,217

 
8,301

 
8,471

 
7,640

Income tax expense
2,519

 
2,642

 
2,869

 
2,277

 
2,504

 
2,618

 
2,863

 
2,420

Net income before noncontrolling interests
5,792

 
5,955

 
5,786

 
6,075

 
5,713

 
5,683

 
5,608

 
5,220

Less: Net income from noncontrolling interests
83

 
226

 
60

 
182

 
103

 
105

 
89

 
49

Wells Fargo net income
$
5,709

 
5,729

 
5,726

 
5,893

 
5,610

 
5,578

 
5,519

 
5,171

Less: Preferred stock dividends and other
327

 
321

 
302

 
286

 
241

 
261

 
247

 
240

Wells Fargo net income applicable to common stock
5,382

 
5,408

 
5,424

 
5,607

 
5,369

 
5,317

 
5,272

 
4,931

Per share information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share
$
1.04

 
1.04

 
1.02

 
1.07

 
1.02

 
1.00

 
1.00

 
0.93

Diluted earnings per common share
1.02

 
1.02

 
1.01

 
1.05

 
1.00

 
0.99

 
0.98

 
0.92

Dividends declared per common share
0.35

 
0.35

 
0.35

 
0.30

 
0.30

 
0.30

 
0.30

 
0.25

Average common shares outstanding
5,192.5

 
5,225.9

 
5,268.4

 
5,262.8

 
5,270.3

 
5,295.3

 
5,304.7

 
5,279.0

Diluted average common shares outstanding
5,279.2

 
5,310.4

 
5,350.8

 
5,353.3

 
5,358.6

 
5,381.7

 
5,384.6

 
5,353.5

Market price per common share (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High
$
55.95

 
53.80

 
53.05

 
49.97

 
45.64

 
44.79

 
41.74

 
38.20

Low
46.44

 
49.47

 
46.72

 
44.17

 
40.07

 
40.79

 
36.19

 
34.43

Quarter-end
54.82

 
51.87

 
52.56

 
49.74

 
45.40

 
41.32

 
41.27

 
36.99


(1)
Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System.





261

Average Balances, Yields and Rates Paid (Taxable-Equivalent basis) - Quarterly (1)(2) - (Unaudited)
 
Quarter ended December 31,
 
 
2014
 
 
2013
 
(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
$
268,109

 
0.28
%
 
$
188

 
205,276

 
0.28
%
 
$
148

Trading assets
60,383

 
3.21

 
485

 
45,379

 
3.40

 
386

Investment securities (3):
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
19,506

 
1.55

 
76

 
6,611

 
1.67

 
27

Securities of U.S. states and political subdivisions
43,891

 
4.30

 
472

 
42,025

 
4.38

 
460

Mortgage-backed securities:
 
 
 
 

 

 
 
 
 
Federal agencies
109,270

 
2.78

 
760

 
117,910

 
2.94

 
866

Residential and commercial
24,711

 
5.89

 
364

 
29,233

 
6.35

 
464

Total mortgage-backed securities
133,981

 
3.36

 
1,124

 
147,143

 
3.62

 
1,330

Other debt and equity securities
44,980

 
3.87

 
438

 
55,325

 
3.43

 
478

Total available-for-sale securities
242,358

 
3.48

 
2,110

 
251,104

 
3.65

 
2,295

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
32,930

 
2.25

 
187

 
—

 
—

 
—

Securities of U.S. states and political subdivisions
902

 
4.92

 
11

 
—

 
—

 
—

Federal agency mortgage-backed securities
5,586

 
2.07

 
29

 
2,780

 
3.11

 
22

Other debt securities
6,118

 
1.81

 
27

 
65

 
1.99

 
—

Total held-to-maturity securities
45,536

 
2.22

 
254

 
2,845

 
3.09

 
22

Total investment securities
287,894

 
3.28

 
2,364

 
253,949

 
3.65

 
2,317

Mortgages held for sale (4)
19,191

 
3.90

 
187

 
21,396

 
4.13

 
221

Loans held for sale (4)
6,968

 
1.43

 
25

 
138

 
8.21

 
3

Loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial - U.S.
218,297

 
3.32

 
1,825

 
189,939

 
3.54

 
1,696

Commercial and industrial - Non U.S.
43,049

 
2.03

 
221

 
41,062

 
1.88

 
194

Real estate mortgage
112,277

 
3.69

 
1,044

 
110,674

 
3.90

 
1,087

Real estate construction
18,336

 
4.33

 
200

 
16,744

 
4.76

 
201

Lease financing
12,268

 
5.35

 
164

 
12,085

 
5.68

 
171

Total commercial
404,227

 
3.39

 
3,454

 
370,504

 
3.59

 
3,349

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
264,799

 
4.16

 
2,754

 
257,265

 
4.15

 
2,672

Real estate 1-4 family junior lien mortgage
60,177

 
4.28

 
648

 
66,809

 
4.29

 
721

Credit card
29,477

 
11.71

 
870

 
25,865

 
12.23

 
798

Automobile
55,457

 
6.08

 
849

 
50,213

 
6.70

 
849

Other revolving credit and installment
35,292

 
6.01

 
534

 
42,662

 
4.94

 
531

Total consumer
445,202

 
5.06

 
5,655

 
442,814

 
5.01

 
5,571

Total loans (4)
849,429

 
4.27

 
9,109

 
813,318

 
4.36

 
8,920

Other
4,829

 
5.30

 
64

 
4,728

 
5.22

 
61

Total earning assets
$
1,496,803

 
3.31
%
 
$
12,422

 
1,344,184

 
3.57
%
 
$
12,056

Funding sources
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
40,498

 
0.06
%
 
$
6

 
35,171

 
0.07
%
 
$
6

Market rate and other savings
593,940

 
0.07

 
99

 
568,750

 
0.08

 
110

Savings certificates
35,870

 
0.80

 
72

 
43,067

 
0.94

 
102

Other time deposits
56,119

 
0.39

 
55

 
39,700

 
0.48

 
47

Deposits in foreign offices
99,289

 
0.15

 
37

 
86,333

 
0.15

 
32

Total interest-bearing deposits
825,716

 
0.13

 
269

 
773,021

 
0.15

 
297

Short-term borrowings
64,676

 
0.12

 
19

 
52,286

 
0.12

 
15

Long-term debt
183,286

 
1.35

 
620

 
153,470

 
1.65

 
635

Other liabilities
15,580

 
2.44

 
96

 
12,822

 
2.70

 
87

Total interest-bearing liabilities
1,089,258

 
0.37

 
1,004

 
991,599

 
0.42

 
1,034

Portion of noninterest-bearing funding sources
407,545

 
—

 
—

 
352,585

 
—

 
—

Total funding sources
$
1,496,803

 
0.27

 
1,004

 
1,344,184

 
0.30

 
1,034

Net interest margin and net interest income on a taxable-equivalent basis (5)
 
 
3.04
%
 
$
11,418

 
 
 
3.27
%
 
$
11,022

 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-earning assets
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
16,932

 
 
 
 
 
15,998

 
 
 
 
Goodwill
25,705

 
 
 
 
 
25,637

 
 
 
 
Other
124,320

 
 
 
 
 
119,947

 
 
 
 
Total noninterest-earning assets
$
166,957

 
 
 
 
 
161,582

 
 
 
 
Noninterest-bearing funding sources
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
324,080

 
 
 
 
 
287,379

 
 
 
 
Other liabilities
65,672

 
 
 
 
 
57,138

 
 
 
 
Total equity
184,750

 
 
 
 
 
169,650

 
 
 
 
Noninterest-bearing funding sources used to fund earning assets
(407,545
)
 
 
 
 
 
(352,585
)
 
 
 
 
Net noninterest-bearing funding sources
$
166,957

 
 
 
 
 
161,582

 
 
 
 
Total assets
$
1,663,760

 
 
 
 
 
1,505,766

 
 
 
 
 

(1)
Our average prime rate was 3.25% for the quarters ended December 31, 2014 and 2013 . The average three-month London Interbank Offered Rate (LIBOR) was 0.24% for the same quarters.
(2)
Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(3)
Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.
(4)
Nonaccrual loans and related income are included in their respective loan categories.
(5)
Includes taxable-equivalent adjustments of $238 million and $219 million for the quarters ended December 31, 2014 and 2013 , respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for the periods presented.

262

Glossary of Acronyms
 
 
 
 
ABS
Asset-backed securities
G-SIB
Globally systemic important bank
ACL
Allowance for credit losses
HAMP
Home Affordability Modification Program
ALCO
Asset/Liability Management Committee
HPI
Home Price Index
ARM
Adjustable-rate mortgage
HUD
U.S. Department of Housing and Urban Development
ARS
Auction rate security
LCR
Liquidity coverage ratio
ASC
Accounting Standards Codification
LHFS
Loans held for sale
ASU
Accounting Standards Update
LIBOR
London Interbank Offered Rate
AVM
Automated valuation model
LIHTC
Low-Income Housing Tax Credit
BCBS
Basel Committee on Bank Supervision
LOCOM
Lower of cost or market value
BHC
Bank holding company
LTV
Loan-to-value
CCAR
Comprehensive Capital Analysis and Review
MBS
Mortgage-backed security
CD
Certificate of deposit
MHA
Making Home Affordable programs
CDO
Collateralized debt obligation
MHFS
Mortgages held for sale
CDS
Credit default swaps
MSR
Mortgage servicing right
CET1
Common Equity Tier 1
MTN
Medium-term note
CFTC
U. S. Commodity Futures Trading Commission
NAV
Net asset value
CLO
Collateralized loan obligation
NPA
Nonperforming asset
CLTV
Combined loan-to-value
OCC
Office of the Comptroller of the Currency
CMBS
Commercial mortgage-backed securities
OCI
Other comprehensive income
CPP
Capital Purchase Program
OTC
Over-the-counter
CRE
Commercial real estate
OTTI
Other-than-temporary impairment
DOJ
U. S. Department of Justice
PCI Loans
Purchased credit-impaired loans
DPD
Days past due
PTPP
Pre-tax pre-provision profit
ESOP
Employee Stock Ownership Plan
RBC
Risk-based capital
FAS
Statement of Financial Accounting Standards
RMBS
Residential mortgage-backed securities
FASB
Financial Accounting Standards Board
ROA
Wells Fargo net income to average total assets
FDIC
Federal Deposit Insurance Corporation
ROE
Wells Fargo net income applicable to common stock
FFELP
Federal Family Education Loan Program
 
to average Wells Fargo common stockholders' equity
FHA
Federal Housing Administration
RWAs
Risk-weighted assets
FHFA
Federal Housing Finance Agency
SEC
Securities and Exchange Commission
FHLB
Federal Home Loan Bank
S&P
Standard & Poor’s Ratings Services
FHLMC
Federal Home Loan Mortgage Corporation
SPE
Special purpose entity
FICO
Fair Isaac Corporation (credit rating)
TARP
Troubled Asset Relief Program
FNMA
Federal National Mortgage Association
TDR
Troubled debt restructuring
FRB
Board of Governors of the Federal Reserve System
VA
Department of Veterans Affairs
FSB
Financial Stability Board
VaR
Value-at-Risk
GAAP
Generally accepted accounting principles
VIE
Variable interest entity
GNMA
Government National Mortgage Association
WFCC
Wells Fargo Canada Corporation
GSE
Government-sponsored entity
 
 


263


EXHIBIT 21

SUBSIDIARIES OF THE PARENT
 
 
  
 
  
The following is a list of the direct and indirect subsidiaries of the Parent as of December 31, 2014:
 
 
  
 
  
 
  
Subsidiary
  
Jurisdiction of Incorporation or Organization
  
2007 Vento II, LLC
  
Delaware
  
A.G. Edwards Capital, Inc.
  
Delaware
  
ABS Global Long Short ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
ABS Global Long Short II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
ACAS Wachovia Investments, L.P.
  
Delaware
  
ACAS/WCM, LLC
  
Delaware
  
ACO Brokerage Holdings Corporation
  
Delaware
  
ACP AOE 1 Limited
  
Cayman Islands
  
ACP AOE 2 Limited
  
Cayman Islands
  
ACP AOE 3 Limited
  
Cayman Islands
  
ACP AOE 4 Limited
  
Cayman Islands
  
ACP AOE 5 Limited
  
Cayman Islands
  
ACP Borrower Limited
  
Cayman Islands
  
ACP France 1 SARL
  
France
  
ACP France 2 SARL
  
France
  
Adirondack Rock Creek Emerging Markets Fund, LP
  
Delaware
  
AGE Capital Holding, Inc.
  
Delaware
  
AILS, Inc.
  
Delaware
  
Alano Funding, LLC
  
Delaware
  
AllBlue ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Alternative Income Legends ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Alternative Income Legends II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Alternative Strategies Managed Futures & Commodities Platform, LLC
  
Delaware
  
Alternative Strategies Platform, LLC
  
Delaware
  
Alternative Strategies Private Equity Platform, LLC
  
Delaware
  
Alternative Strategies Real Estate Platform, LLC
  
Delaware
  
American Securities Company
  
California
  
American Securities Company of Missouri
  
Missouri
  
American Securities Company of Nevada
  
Nevada
  
American Securities Company of Utah
  
Utah
  
Amkai LLC
  
Delaware
  
Anchor6 Offshore Fund Limited
  
Cayman Islands
  
Apothecary Holdco, LLC
  
Delaware
  
Apothecary International, LLC
  
Delaware
  
Apothecary Products, LLC
  
Delaware
  
ASGI Hedged Equities, Accredited, L.P.
  
Delaware
  
ASGI Hedged Equities, Super Accredited, L.P.
  
Delaware
  
ASGI Private Equity Fund II, L.P.
  
Delaware
  
ASGI Private Equity Fund, L.P.
  
Delaware
  
ASGI Private Equity Partners 1999, L.P.
  
Delaware
  
ASGI Private Equity Partners 2001, L.P.
  
Delaware
  
ASGI Private Equity Partners QP 1999, L.P.
  
Delaware
  




ASGI Private Equity Partners QP 2001, L.P.
  
Delaware
  
Asset Management Affiliates, Inc.
  
Wisconsin
  
ATC Realty Fifteen, Inc.
  
California
  
ATC Realty Nine, Inc.
  
California
  
ATC Realty One, LLC
  
Delaware
  
ATC Realty Sixteen, Inc.
  
California
  
Augite Pte. Ltd.
  
Singapore
  
Augustus Ventures, L.L.C.
  
Nevada
  
Aurora Diversified ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Aurora Diversified II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Aurora Global Opportunities ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Aurora Global Opportunities II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Aurora GP Holding, LLC
  
Delaware
  
Avolon Capital Partners (Ireland) AOE 1 Limited
  
Ireland
  
Avolon Capital Partners Limited
  
Cayman Islands
  
AZ-#3644 Jackson, LLC
  
Delaware
  
Azalea Asset Management, Inc.
  
Delaware
  
Barrow Aviation Limited
  
Ireland
  
Bateman Eichler, Hill Richards Realty Co., Incorporated
  
California
  
Bellevue Property Holdings, LLC
  
Delaware
  
Bergamasco Funding, LLC
  
Delaware
  
Berkeley Teen Center Investment Fund, LLC
  
Delaware
  
BGMCO PA, Inc.
  
Pennsylvania
  
Biscoe Finance, LLC
  
Delaware
  
Bitterroot Asset Management, Inc.
  
Cayman Islands
  
BlackRock Special Credit Opportunities ASP Fund, a series of Alternative Strategies Private Equity Platform, LLC
  
Delaware
  
BlackRock Special Credit Opportunities II ASP Fund, a series of Alternative Strategies Private Equity Platform, LLC
  
Delaware
  
BlueTrend ASP Fund, a series of Alternative Strategies Managed Futures & Commodities Platform, LLC
  
Delaware
  
Bowler Housing L.P.
  
Virginia
  
Brittlebush Financing, LLC
  
Nevada
  
Bryan, Pendleton, Swats & McAllister, LLC
  
Tennessee
  
BT Costa Rican Land, Sociedad De Responsabilidad Limitada
  
Costa Rica
  
Burdale Financial Limited
  
UK - England
  
Business Development Corporation of South Carolina
  
South Carolina
  
California GP X, LLC
  
Delaware
  
Cardinal International Leasing, LLC
  
Delaware
  
Carlyle Energy Mezzanine Access - ASP Fund, LLC
  
Delaware
  
Carlyle Realty Partners VII ASP Fund, a series of Alternative Strategies Private Equity Platform, LLC
  
Delaware
  
Carlyle Realty Partners VII-II ASP Fund, a series of Alternative Strategies Private Equity Platform, LLC
  
Delaware
  
Carnation Asset Management, Inc.
  
Delaware
  
Castle Pines Capital International LLC
  
Delaware
  
Castle Pines Capital LLC
  
Delaware
  
Cateavon Limited
  
Hong Kong
  
CCM Community Development LVIII, LLC
  
Delaware
  
CD&R Univar NEP IX Co-Investor, LLC
  
Delaware
  
CD&R Univar NEP VIII Co-Investor, LLC
  
Delaware
  
Cenizo Midstream, LLC
  
Texas
  
Central Fidelity Capital Trust I
  
Delaware
  
Centurion Casualty Company
  
Iowa
  




Centurion Life Insurance Company
  
Iowa
  
CGRF Subsidiary Seven LLC
  
Colorado
  
CGT Insurance Company Ltd.
  
Barbados
  
Charter Holdings, Inc.
  
Nevada
  
Chaucer Investment Fund, LLC
  
Delaware
  
Chaucer State Investment Fund, LLC
  
Delaware
  
Chestnut Asset Management, Inc.
  
Delaware
  
ChinaVest Ltd.
  
Bermuda
  
City First Capital III, LLC
  
Delaware
  
City First Capital V, LLC
  
Delaware
  
City First Capital XI, LLC
  
Delaware
  
City Place Buckhead, LLC
  
Delaware
  
clearXchange, LLC
  
Delaware
  
CNB Investment Trust I
  
Maryland
  
CNB Investment Trust II
  
Maryland
  
Collin Equities, Inc.
  
Texas
  
CoLTS LLC 2005-1
  
Delaware
  
CoLTS LLC 2005-2
  
Delaware
  
CoLTS LLC 2007-1
  
Delaware
  
Congress Financial Capital Corporation (Canada)
  
Canada - Ontario
  
Consortium America II, LLC
  
Delaware
  
Corbin Pinehurst ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Corbin Pinehurst Institutional ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
CoreStates Capital II
  
Delaware
  
CoreStates Capital III
  
Delaware
  
CoreStates Holdings, Inc.
  
Delaware
  
CP Equity LLC
  
Delaware
  
CPC Funding SPE 1, LLC
  
New York
  
CPC Funding SPE 2, LLC
  
New York
  
CPC Global LLC
  
Delaware
  
Crocker Properties, Inc.
  
California
  
CT/KDF Sub-CDE I, LLC
  
California
  
CTB Realty Ventures XXI, Inc.
  
Connecticut
  
Danube Holdings I C.V.
  
Netherlands
  
Danube Holdings III C.V.
  
Netherlands
  
Danube I Limited Partner, LLC
  
Delaware
  
Data and Contact Management Solutions, LLC
  
Delaware
  
DFG Holdings, LLC
  
Delaware
  
Discovery Global Macro ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Diversified Finance Investments, LLC
  
Delaware
  
DNA Investment Holdings LLC
  
Delaware
  
Dorchester Capital Partners ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Early Warning Services, LLC
  
Delaware
  
Eastdil Secured Broker Services, Inc.
  
Delaware
  
Eastdil Secured, L.L.C.
  
New York
  
ECM Absolute Return Credit Fund
  
Luxembourg
  
ECM Asset Management Limited
  
UK - England
  
ECM Holdings Limited
  
UK - England
  
ECM Senior Secured Fund LLC
  
Delaware
  
Ecotrust Sub CDE XV, LLC
  
Delaware
  




Ecotrust Sub-CDE XIII, LLC
  
Delaware
  
ELEW, LLC
  
Minnesota
  
Empowerment Reinvestment Fund, LLC
  
Delaware
  
EnerVest-Wachovia Co-Investment Partnership, L.P.
  
Delaware
  
Enfinity WF Solar Trust I
  
Delaware
  
Epic Funding Corporation
  
California
  
Equity Hedge Legends ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
European Credit X S.a r.l.
  
Luxembourg
  
European Credit Y S.a r.l.
  
Luxembourg
  
EVEREN Capital Corporation
  
Delaware
  
Evergreen Alternative Capital, Inc.
  
Delaware
  
Evergreen ECM Holdings B.V.
  
Netherlands
  
Evergreen Financing Company, LLC
  
Delaware
  
EverKey Global Focus (GP), LLC
  
Delaware
  
EverKey Global Focus Fund, LP
  
Delaware
  
EverKey Global Focus Master Limited
  
Bahamas
  
EverKey Global Fund, LP
  
Delaware
  
EverKey Global Offshore Master Limited
  
Bahamas
  
EverKey Global Partners (GP), LLC
  
Delaware
  
FA Recruiting Services, LLC
  
Texas
  
Falcon Asset Management, Inc.
  
Delaware
  
FCB/SC Capital Trust II
  
Delaware
  
First Clearing, LLC
  
Delaware
  
First International Advisors, LLC
  
Delaware
  
First Union Capital II
  
Delaware
  
First Union Community Development Corporation
  
Virginia
  
First Union Rail Corporation
  
North Carolina
  
FNL Insurance Company, Ltd
  
Hawaii
  
Forte, LLC
  
Delaware
  
Fortress Special Opportunities ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Forum Capital Markets, LLC
  
Delaware
  
Forum Credit Company, LLC
  
Delaware
  
Fullerton Towers Holdings, LLC
  
Delaware
  
G. C. Leasing, Inc.
  
Virginia
  
G/WDC 541 N Fairbanks, LLC
  
Delaware
  
GAI Agility Income Fund
  
Delaware
  
GAI Aurora Opportunities Fund, LLC
  
Delaware
  
GAI Aurora Special Onshore Asset Holdings, Inc.
  
Delaware
  
GAI Corbin Multi-Strategy Fund, LLC
  
Delaware
  
GAI Mesirow Insight Fund, LLC
  
Delaware
  
GAI Special Asset Holdings, Inc.
  
Delaware
  
Galliard Capital Management, Inc.
  
Minnesota
  
General Homes Corp.
  
Texas
  
Glenview Partners ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Global Alternative Investment Services, Inc.
  
Delaware
  
Global Macro Legends ASP Fund, a series of Alternative Strategies Managed Futures & Commodities Platform, LLC
  
Delaware
  
Golden Capital Management, LLC
  
Delaware
  
Golden Funding Company
  
Cayman Islands
  
Goldenrod Asset Management, Inc.
  
Delaware
  




GoldenTree Credit Opportunities ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
GoldenTree Credit Opportunities II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Graham Alternative Investment ASP Fund, a series of Alternative Strategies Managed Futures & Commodities Platform, LLC
  
Delaware
  
Graham Alternative Investment II ASP Fund, a series of Alternative Strategies Managed Futures & Commodities Platform, LLC
  
Delaware
  
Graham Global Discretionary ASP Fund, a series of Alternative Strategies Managed Futures & Commodities Platform, LLC
  
Delaware
  
GRE II ASP Fund, a series of Alternative Strategies Real Estate Platform, LLC
  
Delaware
  
Greenfield Funding, LLC
  
Minnesota
  
Gresham Commodities ASP Fund, a series of Alternative Strategies Managed Futures & Commodities Platform, LLC
  
Delaware
  
Gresham Commodities II ASP Fund, a series of Alternative Strategies Managed Futures & Commodities Platform, LLC
  
Delaware
  
GS Bridgeport I CDE, LLC
  
Delaware
  
GS Private Equity Partners IX ASW Fund, LLC
  
Delaware
  
HADBO Investments C.V.
  
Netherlands
  
Halcyon Multi-Strategy ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Halcyon Multi-Strategy II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Hanover/FUDC Master Limited Partnership
  
Delaware
  
Harrier Funding, LLC
  
Delaware
  
Haven for Hope Investment Fund, LLC
  
Delaware
  
Helm Chesapeake Limited Partnership
  
Delaware
  
Helm General Corporation
  
California
  
Helm Pacific Corporation
  
California
  
Helm-Pacific Leasing
  
Nebraska
  
Heritage Indemnity Company
  
California
  
Heritage Mechanical Breakdown Corporation
  
Delaware
  
Horizon Management Services, Inc.
  
Florida
  
Hyattsville Center, LLC
  
Delaware
  
Hyattsville Property Holdings, LLC
  
Delaware
  
Iapetus Funding, LLC
  
Delaware
  
IntraWest Asset Management, Inc.
  
Delaware
  
Island Finance Holding Company, LLC
  
Cayman Islands
  
Island Finance Puerto Rico, Inc.
  
Delaware
  
Island Finance Sales Finance Corporation
  
Cayman Islands
  
Island Finance Sales Finance Trust
  
Puerto Rico
  
IWIC Insurance Company
  
Vermont
  
JC-Warren MI, LLC
  
Delaware
  
JERSEY CENTER/FIDOREO, INC.
  
New Jersey
  
Kalorama Special Products Fund, SPC, Ltd.
  
Cayman Islands
  
Killdeer Capital Company, LLC
  
Delaware
  
Kimberlite Frontier Africa Fund (US), L.P.
  
Delaware
  
Kimberlite Frontier Africa Fund GP, LLC
  
Delaware
  
Kimberlite Frontier Africa Fund GP, Ltd.
  
Cayman Islands
  
Kimberlite Frontier Africa Fund Offshore, L.P.
  
Cayman Islands
  
Kimberlite Frontier Africa Master Fund, L.P.
  
Cayman Islands
  
KKR Special Situations ASP Fund, a series of Alternative Strategies Private Equity Platform, LLC
  
Delaware
  
Komondor Funding, LLC
  
Delaware
  
Landfill Portfolio, LLC
  
Delaware
  
Landmark Equity Partners XIV ASP Fund, LLC
  
Delaware
  
Landmark Equity Partners XV ASP Fund, a series of Alternative Strategies Private Equity Platform, LLC
  
Delaware
  




Lincoln Building Corporation
  
Colorado
  
LMC Millenia Holdings, LLC
  
Delaware
  
Lordship LLC
  
Delaware
  
MAA/NCF Sub-CDE, LLC
  
Delaware
  
Macquarie Asia Pacific II ASP Fund, LLC
  
Delaware
  
Macro*World Research Corporation
  
North Carolina
  
Makah Investment Fund, LLC
  
Delaware
  
Marina Towers Melbourne, LLC
  
Delaware
  
Marshall Wace Eureka ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Mastiff Funding, LLC
  
Delaware
  
Meadowmont JV, LLC
  
North Carolina
  
Meridian Venture Partners
  
Pennsylvania
  
Mesirow Alternative Strategies ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Mesirow Institutional Multi-Strategy ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Metropolitan West Capital Management, LLC
  
California
  
MHI - South Carolina, LLC
  
Delaware
  
MHI Syndicated Holdings - 2010, LLC
  
Delaware
  
Mid-City Community CDE - Operating Fund, LLC
  
Delaware
  
Mid-Peninsula Capital, LLC
  
California
  
Milford Highlands PA, LLC
  
Delaware
  
Monument Peak, LLC
  
Delaware
  
Monument Street Funding, LLC
  
Delaware
  
Monument Street Funding-II, LLC
  
Delaware
  
Morganite Pte. Ltd.
  
Singapore
  
Mulberry Asset Management, Inc.
  
Delaware
  
Multi-Strategy Legends ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Multi-Strategy Legends II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
MVP Distribution Partners
  
Pennsylvania
  
MW1-2002, LLC
  
Delaware
  
NB Crossroads XVIII ASP Fund, LLC
  
Delaware
  
NB Private Debt ASP Fund, a series of Alternative Strategies Private Equity Platform, LLC
  
Delaware
  
NCT Exchange, LLC
  
Delaware
  
NEC IX, LLC
  
Delaware
  
NEC VIII, LLC
  
Delaware
  
Neckar Financial, LLC
  
Delaware
  
NeighborCare Health Investment Fund, LLC
  
Delaware
  
Nelson Capital Management, LLC
  
Delaware
  
New Markets Investment XIII, LLC
  
Delaware
  
NFPS, LLC
  
Delaware
  
North Hart Run, Inc.
  
Virginia
  
Norwest Center, Inc.
  
Minnesota
  
Norwest Equity Capital, L.L.C.
  
Minnesota
  
Norwest Equity Partners IX, LP
  
Delaware
  
Norwest Equity Partners VI, LP
  
Minnesota
  
Norwest Equity Partners VII, LP
  
Minnesota
  
Norwest Equity Partners VIII, LP
  
Delaware
  
Norwest Financial Canada DE, Inc.
  
Delaware
  
Norwest Financial Funding, Inc.
  
Nevada
  
Norwest Limited LP, LLLP
  
Delaware
  
Norwest Mezzanine Partners II, LP
  
Delaware
  




Norwest Mezzanine Partners III, LP
  
Delaware
  
Norwest Properties Holding Company
  
Minnesota
  
Norwest Venture Capital Management, Inc.
  
Minnesota
  
Norwest Venture Partners Advisory - Mauritius
  
Mauritius
  
Norwest Venture Partners Advisory Hong Kong Limited
  
Hong Kong
  
Norwest Venture Partners FVCI-Mauritius
  
Mauritius
  
Norwest Venture Partners IX, LP
  
Delaware
  
Norwest Venture Partners VI, LP
  
Minnesota
  
Norwest Venture Partners VI-A, LP
  
Delaware
  
Norwest Venture Partners VII, LP
  
Minnesota
  
Norwest Venture Partners VII-A Mauritius
  
Mauritius
  
Norwest Venture Partners VII-A, LP
  
Delaware
  
Norwest Venture Partners VIII, LP
  
Delaware
  
Norwest Venture Partners X - Mauritius
  
Mauritius
  
Norwest Venture Partners X FII - Mauritius
  
Mauritius
  
Norwest Venture Partners X, LP
  
Delaware
  
Norwest Venture Partners XI, LP
  
Delaware
  
Norwest Venture Partners XII, LP
  
Delaware
  
NVP Associates, LLC
  
Delaware
  
NVP Israel Ltd
  
Israel
  
NVP Venture Capital India Private Limited
  
India
  
Oaktree Real Estate Debt ASP Fund, a series of Alternative Strategies Private Equity Platform, LLC
  
Delaware
  
Ocean View Holdco, LLC
  
Delaware
  
OmniPlus Capital Corporation
  
Tennessee
  
Orcutt Property Holdings, LLC
  
Delaware
  
Overland Advisors, LLC
  
Delaware
  
Overland GP LLC
  
Delaware
  
Overland Relative Value Fund LLC
  
Delaware
  
Overland Relative Value Fund Ltd.
  
Cayman Islands
  
Overland Relative Value Master Fund LP
  
Cayman Islands
  
Overland Viceroy Fund Ltd.
  
Cayman Islands
  
Overland Viceroy GP LLC
  
Delaware
  
Overland Viceroy Master Fund LP
  
Delaware
  
Oxmoor Center, LLC
  
Delaware
  
Pal Office Holdings, LLC
  
Delaware
  
Pamlico Capital II ASP Fund, LLC
  
Delaware
  
Pamlico Capital II, L.P.
  
Delaware
  
Pamlico Capital Secondary Fund, L.P.
  
Delaware
  
Partnership Investments S.a.r.l.
  
Luxembourg
  
Pelican Asset Management, Inc.
  
Delaware
  
Peony Asset Management, Inc.
  
Delaware
  
Peregrine Capital Management, Inc.
  
Minnesota
  
PFC Exchange, LLC
  
Delaware
  
PFC Gas Liquids, LLC
  
Texas
  
Pheasant Asset Management, Inc.
  
Delaware
  
PHH Funding, LLC
  
Delaware
  
PIDC - Regional Development Corporation
  
Pennsylvania
  
Preferred Funding S.a.r.l.
  
Luxembourg
  
Preferred Investments S.a.r.l.
  
Luxembourg
  
Preferred Motor Sports Risk Purchasing Group, LLC
  
Minnesota
  




Premium Timberland Sales, Inc.
  
North Carolina
  
Prime Valuation Services, LLC
  
Minnesota
  
Primrose Asset Management, Inc.
  
Delaware
  
Principal Enhanced Property ASP Fund, a series of Alternative Strategies Real Estate Platform, LLC
  
Delaware
  
PRN Holdings, LLC
  
Delaware
  
Prudence Crandall Fund III, LLC
  
Delaware
  
Pumi Funding, LLC
  
Delaware
  
PWP Asset Based Income ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
PWP Asset Based Income II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Pyrenees Funding, LLC
  
Delaware
  
R. B. C. Corporation
  
North Carolina
  
RC Kenwood Fund Ltd.
  
Cayman Islands
  
RC Woodley Park, LP
  
Delaware
  
Real Sincere Group Limited
  
UK - Virgin Islands
  
REDUS AD, LLC
  
Delaware
  
REDUS Alabama Commercial, LLC
  
Delaware
  
REDUS Alabama, LLC
  
Delaware
  
REDUS ALK, LLC
  
Delaware
  
REDUS Arizona, LLC
  
Delaware
  
REDUS Arlington Ridge FL Land, LLC
  
Delaware
  
REDUS Arlington Ridge FL, LLC
  
Delaware
  
REDUS Atlanta Housing, LLC
  
Delaware
  
REDUS Atlanta Subdivisions, LLC
  
Delaware
  
REDUS Beau View Towers, LLC
  
Delaware
  
REDUS Beauview Condos, LLC
  
Delaware
  
REDUS Broadway AA, LLC
  
Delaware
  
REDUS Bundoran Farms, LLC
  
Delaware
  
REDUS CA Properties, LLC
  
Delaware
  
REDUS Charlotte Housing, LLC
  
Delaware
  
REDUS Colorado, LLC
  
Delaware
  
REDUS Dallas TX, LLC
  
Delaware
  
REDUS DE, LLC
  
Delaware
  
REDUS Delaware, LLC
  
Delaware
  
REDUS EL, LLC
  
Delaware
  
REDUS Emerald Green, LLC
  
Delaware
  
REDUS Ferguson, LLC
  
Delaware
  
REDUS FL Properties, LLC
  
Delaware
  
REDUS Florida Commercial, LLC
  
Delaware
  
REDUS Florida Condos, LLC
  
Delaware
  
REDUS Florida Housing, LLC
  
Delaware
  
REDUS Florida Land, LLC
  
Delaware
  
REDUS Frederica Club, LLC
  
Delaware
  
REDUS Frederica, LLC
  
Delaware
  
REDUS Georgia Commercial, LLC
  
Delaware
  
REDUS Greensboro Subdivisions, LLC
  
Delaware
  
REDUS Halifax Landing, LLC
  
Delaware
  
REDUS Houston, LLC
  
Delaware
  
REDUS Illinois, LLC
  
Delaware
  
REDUS Indiana, LLC
  
Delaware
  
REDUS Kentucky, LLC
  
Delaware
  




REDUS Lake Wilson, LLC
  
Delaware
  
REDUS LH SC, LLC
  
Delaware
  
REDUS LH, LLC
  
Delaware
  
REDUS McCar Homes, LLC
  
Delaware
  
REDUS MD Land, LLC
  
Delaware
  
REDUS Mississippi Land, LLC
  
Delaware
  
REDUS Mississippi, LLC
  
Delaware
  
REDUS Nashville Housing, LLC
  
Delaware
  
REDUS NC Coastal, LLC
  
Delaware
  
REDUS NC Commercial, LLC
  
Delaware
  
REDUS NC Land, LLC
  
Delaware
  
REDUS NC-ALL, LLC
  
Delaware
  
REDUS Nevada, LLC
  
Delaware
  
REDUS New Jersey, LLC
  
Delaware
  
REDUS NH Sewer Co, LLC
  
Delaware
  
REDUS NH Water Co, LLC
  
Delaware
  
REDUS NWP, LLC
  
Delaware
  
REDUS Ohio, LLC
  
Delaware
  
REDUS One Market, LLC
  
Delaware
  
REDUS One, LLC
  
Delaware
  
REDUS OR Land, LLC
  
Delaware
  
REDUS PDG, LLC
  
Delaware
  
REDUS Peninsula Millsboro, LLC
  
Delaware
  
REDUS Pennsylvania, LLC
  
Delaware
  
REDUS PG, LLC
  
Delaware
  
REDUS Piemonte, LLC
  
Delaware
  
REDUS Properties, Inc.
  
Delaware
  
REDUS Raleigh Housing, LLC
  
Delaware
  
REDUS Reno, LLC
  
Delaware
  
REDUS RG, LLC
  
South Carolina
  
REDUS SC Coastal, LLC
  
Delaware
  
REDUS SC Housing, LLC
  
Delaware
  
REDUS Seneca, LLC
  
Delaware
  
REDUS South Carolina, LLC
  
Delaware
  
REDUS SVTC, LLC
  
Delaware
  
REDUS Texas Land, LLC
  
Delaware
  
REDUS TN-ALL, LLC
  
Delaware
  
REDUS TRG II, LLC
  
Delaware
  
REDUS TRG III, LLC
  
Delaware
  
REDUS TRG, LLC
  
Delaware
  
REDUS Twin Lakes, LLC
  
Delaware
  
REDUS TX Properties, LLC
  
Delaware
  
REDUS VA Housing, LLC
  
Delaware
  
REDUS Virginia Commercial, LLC
  
Delaware
  
REDUS Virginia Subdivisions, LLC
  
Delaware
  
REDUS Wakefield, LLC
  
Delaware
  
Reliable Finance Holding Company
  
Puerto Rico
  
Reliable Finance Holding Company, LLC
  
Nevada
  
Reliable Financial Services, Inc.
  
Puerto Rico
  
Reliable Insurance Services Corp.
  
Puerto Rico
  




RELS Management Company, LLC
  
Delaware
  
RELS Title Services, LLC
  
Delaware
  
RELS, L.L.C.
  
Delaware
  
Renaissance Finance II, LLC
  
Delaware
  
Rhine Investment Holdings, LLC
  
Delaware
  
Rigil Funding, LLC
  
Delaware
  
Rock Creek 1848 Fund L.P.
  
Delaware
  
Rock Creek 1848 GP, LLC
  
Delaware
  
Rock Creek Adams Fund Series, LLC
  
Delaware
  
Rock Creek Adirondack GP, LLC
  
Delaware
  
Rock Creek Austin Fund, L.P.
  
Delaware
  
Rock Creek Austin GP, LLC
  
Delaware
  
Rock Creek Connecticut LLC
  
Delaware
  
Rock Creek Emerging Markets Fund Offshore L.P.
  
Cayman Islands
  
Rock Creek Emerging Markets Fund SPC, Ltd.
  
Cayman Islands
  
Rock Creek Emerging Markets GP, Ltd.
  
Cayman Islands
  
Rock Creek Empire Fund GP, LLC
  
Delaware
  
Rock Creek Empire Fund, L.P.
  
Delaware
  
Rock Creek Fort Reno Series LLC
  
Delaware
  
Rock Creek Fund (E), Ltd.
  
Cayman Islands
  
Rock Creek Georgetown Fund, Ltd.
  
Cayman Islands
  
Rock Creek Glen Echo Fund, Ltd.
  
Cayman Islands
  
Rock Creek GP Holdings, LLC
  
Delaware
  
Rock Creek Human Capital Fund, Ltd.
  
Cayman Islands
  
Rock Creek Limestone Emerging Markets, L.P.
  
Delaware
  
Rock Creek Limestone GP, LLC
  
Delaware
  
Rock Creek Mozarkite Emerging Markets Fund, L.P.
  
Delaware
  
Rock Creek Mozarkite Emerging Markets GP, LLC
  
Delaware
  
Rock Creek Penn Quarter GP, LLC
  
Delaware
  
Rock Creek Penn Quarter, L.P.
  
Delaware
  
Rock Creek Potomac Fund SPV, LTD.
  
Cayman Islands
  
Rock Creek Potomac Fund, Ltd.
  
Cayman Islands
  
Rock Creek Spring Valley Opportunities Onshore Fund GP, LLC
  
Delaware
  
Rock Creek Two Harbors Emerging Market Fund, Ltd.
  
Cayman Islands
  
Rock Creek Whitehaven Fund, Ltd.
  
Cayman Islands
  
Rock Creek Whitehurst EM Series LLC
  
Delaware
  
Rock Creek Wilson Fund SPC, Ltd.
  
Cayman Islands
  
Rocky River Project LLC
  
Delaware
  
RORI Property Holdings, LLC
  
Delaware
  
Ruby Asset Management Inc.
  
Maryland
  
Rural Community Insurance Agency, Inc.
  
Minnesota
  
Rural Community Insurance Company
  
Minnesota
  
Ryder Exchange, LLC
  
Delaware
  
Safehold Special Risk, Inc.
  
Illinois
  
Sagebrush Asset Management, Inc.
  
Delaware
  
Saguaro Asset Management, Inc.
  
Delaware
  
Salvo Finance GP
  
Delaware
  
SC Realty, LLC
  
Delaware
  
SCG Funding, LLC
  
Delaware
  
Seriford International Limited
  
UK - Virgin Islands
  




Shanghai Commercial Bank Limited
  
Hong Kong
  
Shannon River Doonbeg ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Siguler Guff BRIC Opportunities II ASW Fund, LLC
  
Delaware
  
Siguler Guff Distressed Real Estate ASP Fund, LLC
  
Delaware
  
Silver Asset Management, Inc.
  
Delaware
  
Sirius Funding, LLC
  
Delaware
  
Solid Bond Limited
  
UK - Virgin Islands
  
SouthTrust Community Reinvestment Company, LLC
  
Alabama
  
Southwest Partners, Inc.
  
California
  
Sparta GP Holding REO Corp.
  
Delaware
  
Sparta GP Holding, LLC
  
Delaware
  
Spring Cypress Water Supply Corporation
  
Texas
  
SR 70 Land Bradenton, LLC
  
Delaware
  
Stagecoach Wagon Wheel, Inc.
  
California
  
Sterling Bradenton, LLC
  
Delaware
  
Strata WF Solar Statutory Trust
  
Delaware
  
Structured Asset Investors, LLC
  
Delaware
  
Structured Credit Partners, LLC
  
Delaware
  
Structured Principal Strategies Holdings, LLC
  
Delaware
  
Structured Principal Strategies, LLC
  
Delaware
  
Summitt PELS Funding, LLC
  
Delaware
  
Superior Guaranty Insurance Company
  
Vermont
  
Sweetroot Funding, LLC
  
Cayman Islands
  
Synthetic Fixed-Income Securities, Inc.
  
Delaware
  
TAI Title Trust
  
Delaware
  
Taylor County Land GA, LLC
  
Delaware
  
TAYLORR LAKES/FIDOREO, INC.
  
New Jersey
  
TE-WF Solar Trust
  
Delaware
  
The Ridges at Mountain Harbour, LLC
  
Delaware
  
The Rock Creek Group, LLC
  
Delaware
  
The Rock Creek Group, LP
  
Delaware
  
The Thirty-Eight Hundred Fund, LLC
  
Delaware
  
Thirty-Eight Hundred Holdings, LLC
  
Delaware
  
Thirty-Eight Hundred Investments Limited
  
Cayman Islands
  
Tiberius Ventures, L.L.C.
  
Nevada
  
Topaz Asset Management Inc.
  
Maryland
  
Trade School Finance LLC
  
Delaware
  
Transportation Equipment Advisors, Inc.
  
Illinois
  
Triad Apartment Portfolio, LLC
  
Delaware
  
Tricadia Credit Strategies ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
Tricadia Credit Strategies II ASP Fund, a series of Alternative Strategies Platform, LLC
  
Delaware
  
TRSTE II, Inc.
  
Tennessee
  
TRSTE, Inc.
  
Virginia
  
Tryon Management, Inc.
  
North Carolina
  
TW Container Leasing Ltd.
  
Bermuda
  
Tyro Funding, LLC
  
Delaware
  
UELS Holding, LLC
  
Delaware
  
UELS, LLC
  
Delaware
  
Union Hamilton Reinsurance, Ltd.
  
Bermuda
  
Union Station Holding Company, LLC
  
Delaware
  




United Bancshares, Inc.
  
Pennsylvania
  
Universal Master Servicing, LLC
  
Delaware
  
Valley Asset Management, Inc.
  
Delaware
  
Valuation Information Technology, L.L.C.
  
Iowa
  
Valuation Ventures, LLC
  
Delaware
  
Vento WF, LLC
  
Delaware
  
Vermillion Huntersville, LLC
  
Delaware
  
Viewpointe Archive Services, L.L.C.
  
Delaware
  
Villages at Warner Ranch PUD, LP
  
Delaware
  
Violet Asset Management, Inc.
  
Delaware
  
W.C.A. Service Corporation, Inc.
  
California
  
Wachovia Asia Limited
  
Hong Kong
  
Wachovia Asset Securitization Issuance II, LLC
  
Delaware
  
Wachovia Asset Securitization Issuance, LLC
  
North Carolina
  
Wachovia Capital Investments, Inc.
  
Georgia
  
Wachovia Capital Partners 2002, LLC
  
North Carolina
  
Wachovia Capital Partners 2005, LLC
  
North Carolina
  
Wachovia Capital Partners Secondary Fund I, L.P.
  
Delaware
  
Wachovia Capital Partners, Inc.
  
Virginia
  
Wachovia Capital Trust II
  
Delaware
  
Wachovia Capital Trust III
  
Delaware
  
Wachovia Community Development Corporation
  
North Carolina
  
Wachovia Community Development Enterprises I, LLC
  
North Carolina
  
Wachovia Community Development Enterprises II, LLC
  
North Carolina
  
Wachovia Community Development Enterprises III, LLC
  
North Carolina
  
Wachovia Community Development Enterprises IV, LLC
  
North Carolina
  
Wachovia Community Development Enterprises V, LLC
  
North Carolina
  
Wachovia Community Development Enterprises XIX, LLC
  
Delaware
  
Wachovia Community Development Enterprises XVII, LLC
  
Delaware
  
Wachovia Community Development Enterprises XVIII, LLC
  
Delaware
  
Wachovia Community Development Enterprises XX, LLC
  
Delaware
  
WACHOVIA CRE CDO 2006-1 INVESTOR LLC
  
Delaware
  
WACHOVIA CRE CDO 2006-1 LLC
  
Delaware
  
Wachovia CRE CDO 2006-1, Ltd.
  
UK - Cayman Islands
  
Wachovia Defeasance 175 Jackson III LLC
  
Delaware
  
Wachovia Defeasance 39510 North Gavilan LLC
  
Delaware
  
Wachovia Defeasance 601 Valley III LLC
  
Delaware
  
Wachovia Defeasance 8800 Broadway III LLC
  
Delaware
  
Wachovia Defeasance Alta Mira Shopping Center LLC
  
Delaware
  
Wachovia Defeasance AmericasMart Real Estate III LLC
  
Delaware
  
Wachovia Defeasance Aventura Mall III LLC
  
Delaware
  
Wachovia Defeasance BACM 2001-PB1 III LLC
  
Delaware
  
Wachovia Defeasance BACM 2001-PB1 LLC
  
Delaware
  
Wachovia Defeasance BACM 2002-2 LLC
  
Delaware
  
Wachovia Defeasance BACM 2003-1 LLC
  
Delaware
  
Wachovia Defeasance BACM 2005-5 III LLC
  
Delaware
  
Wachovia Defeasance BACM 2006-2 III LLC
  
Delaware
  
Wachovia Defeasance BACM 2006-5 III LLC
  
Delaware
  
Wachovia Defeasance BACM 2010-K7 III LLC
  
Delaware
  
Wachovia Defeasance BOA-FUNB 2001-3 CAC V-CRIT Portfolio LLC
  
Delaware
  




Wachovia Defeasance BOA-FUNB 2001-3 III LLC
  
Delaware
  
Wachovia Defeasance BOA-FUNB 2001-3 LLC
  
Delaware
  
Wachovia Defeasance BSCM 2004-PWR3 III LLC
  
Delaware
  
Wachovia Defeasance BSCM 2006-PWR12 III LLC
  
Delaware
  
Wachovia Defeasance BSCM 2006-TOP22 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 1999-C1 II LLC
  
Delaware
  
Wachovia Defeasance BSCMS 1999-C1 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 1999-WF2 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 1999-WF2 LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2000-WF2 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2001-TOP2 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2001-TOP4 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2002-PBW1 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2002-PBW1 LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2002-TOP6 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2002-TOP8 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2003-PWR2 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2003-TOP10 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2003-Top10 LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2003-TOP12 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2003-Top12 LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2004-PWR3 LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2004-PWR4 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2004-PWR5 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2004-PWR6 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2004-TOP14 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2004-TOP16 525 Vine Street LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2004-TOP16 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2005-PWR10 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2005-PWR7 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2005-PWR8 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2005-PWR9 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2005-TOP18 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2005-TOP20 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2006-PWR11 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2006-PWR13 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2006-PWR14 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2006-TOP24 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2007-PWR15 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2007-PWR16 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2007-PWR17 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2007-PWR18 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2007-TOP26 III LLC
  
Delaware
  
Wachovia Defeasance BSCMS 2007-TOP28 III LLC
  
Delaware
  
Wachovia Defeasance CCMT 2007-MF1 III LLC
  
Delaware
  
Wachovia Defeasance CD 2006-CD2 III LLC
  
Delaware
  
Wachovia Defeasance CD 2007-CD4 III LLC
  
Delaware
  
Wachovia Defeasance Chase 1999-2 II LLC
  
Delaware
  
Wachovia Defeasance Chase 1999-2 III LLC
  
Delaware
  
Wachovia Defeasance CHASE 2000-1 III LLC
  
Delaware
  




Wachovia Defeasance CHASE 2000-2 III LLC
  
Delaware
  
Wachovia Defeasance CHASE 2000-3 III LLC
  
Delaware
  
Wachovia Defeasance Chase-FUNB 1999-1 II LLC
  
Delaware
  
Wachovia Defeasance Chase-FUNB 1999-1 III LLC
  
Delaware
  
Wachovia Defeasance Citigroup 2004-C1 CF West Palm LLC
  
Delaware
  
Wachovia Defeasance Citigroup 2004-C1 III LLC
  
Delaware
  
Wachovia Defeasance Citigroup 2004-C1 LLC
  
Delaware
  
Wachovia Defeasance Citigroup 2004-C1 Seaboard Associates LLC
  
Delaware
  
Wachovia Defeasance Citigroup 2005-C3 III LLC
  
Delaware
  
Wachovia Defeasance Citigroup 2006-C5 III LLC
  
Delaware
  
Wachovia Defeasance Citigroup 2007-C6 III LLC
  
Delaware
  
Wachovia Defeasance CMAC 1999-C1 LLC
  
Delaware
  
Wachovia Defeasance CMLB 2001-1 III LLC
  
Delaware
  
Wachovia Defeasance CMLB 2001-1 LLC
  
Delaware
  
Wachovia Defeasance COBALT 2006-C1 III LLC
  
Delaware
  
Wachovia Defeasance Cobalt 2007-C2 III LLC
  
Delaware
  
Wachovia Defeasance Cobalt 2007-C3 III LLC
  
Delaware
  
Wachovia Defeasance COMM 2004-LNB2 III LLC
  
Delaware
  
Wachovia Defeasance COMM 2009-K3 III LLC
  
Delaware
  
Wachovia Defeasance COMM 2010-C1 III LLC
  
Delaware
  
Wachovia Defeasance Crest 2003-2 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 1997-C1 LLC
  
Delaware
  
Wachovia Defeasance CSFB 1997-C2 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 1997-C2 LLC
  
Delaware
  
Wachovia Defeasance CSFB 1998-C2 II LLC
  
Delaware
  
Wachovia Defeasance CSFB 1998-C2 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2001-CK3 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2001-CK3 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2001-CKN5 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2002-CKP1 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2002-CKS4 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2002-CP5 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2003-C3 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2003-C5 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2003-CPN1 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2004-C1 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2004-C2 LLC
  
Delaware
  
Wachovia Defeasance CSFB 2004-C3 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2005-C1 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2005-C2 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2005-C3 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2005-C6 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2005-C6 III-KEYCORP LLC
  
Delaware
  
Wachovia Defeasance CSFB 2006-C1 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2006-C2 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2006-C3 III LLC
  
Delaware
  
Wachovia Defeasance CSFB 2007-C2 III LLC
  
Delaware
  
Wachovia Defeasance DBUBS 2011-LC1 III LLC
  
Delaware
  
Wachovia Defeasance DBUBS 2011-LC2 III LLC
  
Delaware
  
Wachovia Defeasance DLJ 1998-CG1 II LLC
  
Delaware
  




Wachovia Defeasance DLJ 1998-CG1 III LLC
  
Delaware
  
Wachovia Defeasance DLJ 1999-CG1 II LLC
  
Delaware
  
Wachovia Defeasance DLJ 1999-CG1 III LLC
  
Delaware
  
Wachovia Defeasance DLJ 1999-CG2 II LLC
  
Delaware
  
Wachovia Defeasance DLJ 1999-CG2 III LLC
  
Delaware
  
Wachovia Defeasance DLJ 1999-CG2 LLC
  
Delaware
  
Wachovia Defeasance DLJ 1999-CG3 II LLC
  
Delaware
  
Wachovia Defeasance DLJ 1999-CG3 III LLC
  
Delaware
  
Wachovia Defeasance DLJ 1999-CG3 LLC
  
Delaware
  
Wachovia Defeasance DLJ 2000-CF1 LLC
  
Delaware
  
Wachovia Defeasance DLJ 2000-CKP1 LLC
  
Delaware
  
Wachovia Defeasance Four New York Plaza III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2010-K7 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2010-K8 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2010-K9 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2011-K11 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2011-K13 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2011-K15 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2011-K701 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2011-K702 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2011-K703 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2012-K20 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2012-K22 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2012-K501 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2012-K706 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2012-K707 III LLC
  
Delaware
  
Wachovia Defeasance FREMF 2012-K708 III LLC
  
Delaware
  
Wachovia Defeasance FUCM 1999-C4 II LLC
  
Delaware
  
Wachovia Defeasance FUCM 1999-C4 LLC
  
Delaware
  
Wachovia Defeasance FU-LB 1997-C1 LLC
  
Delaware
  
Wachovia Defeasance FU-LB 1997-C2 II LLC
  
Delaware
  
Wachovia Defeasance FU-LB 1998-C2 III LLC
  
Delaware
  
Wachovia Defeasance FU-LB-BOA 1998-C2 LLC
  
Delaware
  
Wachovia Defeasance FUNB 1999-C1 II LLC
  
Delaware
  
Wachovia Defeasance FUNB 1999-C1 III LLC
  
Delaware
  
Wachovia Defeasance FUNB 1999-C1 LLC
  
Delaware
  
Wachovia Defeasance FUNB 1999-C4 III LLC
  
Delaware
  
Wachovia Defeasance FUNB 1999-C4 LLC
  
Delaware
  
Wachovia Defeasance FUNB 1999-C4 ML Windsor-ML Hammocks LLC
  
Delaware
  
Wachovia Defeasance FUNB 2000-C1 III LLC
  
Delaware
  
Wachovia Defeasance FUNB 2000-C1 LLC
  
Delaware
  
Wachovia Defeasance FUNB 2000-C1 POOL SB LLC
  
Delaware
  
Wachovia Defeasance FUNB 2000-C2 II LLC
  
Delaware
  
Wachovia Defeasance FUNB 2000-C2 III LLC
  
Delaware
  
Wachovia Defeasance FUNB 2000-C2 LLC
  
Delaware
  
Wachovia Defeasance FUNB 2000-C2 Phoenix Crowne LLC
  
Delaware
  
Wachovia Defeasance FUNB 2001-C2 III LLC
  
Delaware
  
Wachovia Defeasance FUNB 2001-C2 LLC
  
Delaware
  
Wachovia Defeasance FUNB 2001-C3 CAC II LLC
  
Delaware
  
Wachovia Defeasance FUNB 2001-C3 III LLC
  
Delaware
  




Wachovia Defeasance FUNB 2001-C3 LLC
  
Delaware
  
Wachovia Defeasance FUNB 2001-C4 CRIT Portfolio LLC
  
Delaware
  
Wachovia Defeasance FUNB 2001-C4 CRIT-VA IV LLC
  
Delaware
  
Wachovia Defeasance FUNB 2001-C4 III LLC
  
Delaware
  
Wachovia Defeasance FUNB 2001-C4 LLC
  
Delaware
  
Wachovia Defeasance FUNB 2002-C1 CRIT-VA V LLC
  
Delaware
  
Wachovia Defeasance FUNB 2002-C1 III LLC
  
Delaware
  
Wachovia Defeasance FUNB 2002-C1 LLC
  
Delaware
  
Wachovia Defeasance FUNB 2002-C1 Madison Sixty LLC
  
Delaware
  
Wachovia Defeasance FUNB-BOA 2001-C1 (CRIT NC) LLC
  
Delaware
  
Wachovia Defeasance FUNB-BOA 2001-C1 (CRIT VA) LLC
  
Delaware
  
Wachovia Defeasance FUNB-BOA 2001-C1 II LLC
  
Delaware
  
Wachovia Defeasance FUNB-BOA 2001-C1 LLC
  
Delaware
  
Wachovia Defeasance FUNB-BOA 2001-C1 POOL SB LLC
  
Delaware
  
Wachovia Defeasance FUNB-CHASE 1999-C2 III LLC
  
Delaware
  
Wachovia Defeasance FUNB-Chase 1999-C2 LLC
  
Delaware
  
Wachovia Defeasance GA-AL Commercial III LLC
  
Delaware
  
Wachovia Defeasance GE 2002-2 183 Madison LLC
  
Delaware
  
Wachovia Defeasance GE 2002-2 II LLC
  
Delaware
  
Wachovia Defeasance GE 2002-2 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2000-1 III LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2000-1 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-1 II LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-1 III LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-1 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-2 II LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-2 III LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-2 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-3 II LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-3 III LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2001-3 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-1 Cameron Crossing LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-1 Culver Center West LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-1 III LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-1 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-2 III LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-2 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-2 Wills Group FLP LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-3 III LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2002-3 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2003-C2 Culver Center East LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2003-C2 III LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2003-C2 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2004-C2 LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2004-C2 POOL SB LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2004-C2 Stefan Associates LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2005-C1 PIL I LLC
  
Delaware
  
Wachovia Defeasance GECCMC 2006-C1 III LLC
  
Delaware
  
Wachovia Defeasance GECC-Subway LLC
  
Delaware
  
Wachovia Defeasance GECMC 2003-C1 LLC
  
Delaware
  




Wachovia Defeasance GECMC 2004-C2 III LLC
  
Delaware
  
Wachovia Defeasance GMAC 1997-C2 LLC
  
Delaware
  
Wachovia Defeasance GMAC 1998-C2 LLC
  
Delaware
  
Wachovia Defeasance GMAC 1999-C1 LLC
  
Delaware
  
Wachovia Defeasance GMAC 1999-C2 LLC
  
Delaware
  
Wachovia Defeasance GMAC 2000-C3 LLC
  
Delaware
  
Wachovia Defeasance GMAC 2001-C1 LLC
  
Delaware
  
Wachovia Defeasance GMAC 2001-C2 LLC
  
Delaware
  
Wachovia Defeasance GMAC 2002-C1 LLC
  
Delaware
  
Wachovia Defeasance GMAC 2002-C2 LLC
  
Delaware
  
Wachovia Defeasance GMAC 2002-C3 LLC
  
Delaware
  
Wachovia Defeasance GMAC 2003-C1 LLC
  
Delaware
  
Wachovia Defeasance GMAC 2003-C2 LLC
  
Delaware
  
Wachovia Defeasance GMACCM 1997-C1 LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2002-C1 II LLC
  
Delaware
  
Wachovia Defeasance GREENWICH 2002-C1 III LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2002-C1 Landmark IV LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2002-C1 LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2003-C1 LLC
  
Delaware
  
Wachovia Defeasance GREENWICH 2003-C2 III LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2003-C2 LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2004-GG1 III LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2004-GG1 LLC
  
Delaware
  
Wachovia Defeasance GREENWICH 2005-GG5 III LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2007-GG11 III LLC
  
Delaware
  
Wachovia Defeasance Greenwich 2007-GG9 III LLC
  
Delaware
  
Wachovia Defeasance GS 1998-C1 LLC
  
Delaware
  
Wachovia Defeasance GS 2004-C1 LLC
  
Delaware
  
Wachovia Defeasance GS 2004-GG2 III LLC
  
Delaware
  
Wachovia Defeasance GS 2006-GG6 III LLC
  
Delaware
  
Wachovia Defeasance GS 2007-GG10 III LLC
  
Delaware
  
Wachovia Defeasance GS 2010-C1 III LLC
  
Delaware
  
Wachovia Defeasance GS 2010-C2 III LLC
  
Delaware
  
Wachovia Defeasance GS 2011-GC3 III LLC
  
Delaware
  
Wachovia Defeasance GS 2011-GC5 III LLC
  
Delaware
  
Wachovia Defeasance GS 2012-GCJ7 III LLC
  
Delaware
  
Wachovia Defeasance GS 2012-GCJ9 III LLC
  
Delaware
  
Wachovia Defeasance GSMSC II 1999-C1 LLC
  
Delaware
  
Wachovia Defeasance GSMSC II 2003-C1 LLC
  
Delaware
  
Wachovia Defeasance GSMSC II 2004-GG2 1410 Broadway LLC
  
Delaware
  
Wachovia Defeasance GSMSC II 2004-GG2 1441 Broadway LLC
  
Delaware
  
Wachovia Defeasance HF 1999-PH1 II LLC
  
Delaware
  
Wachovia Defeasance HF 1999-PH1 III LLC
  
Delaware
  
Wachovia Defeasance HF 1999-PH1 LLC
  
Delaware
  
Wachovia Defeasance HF 2000 PH-1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 1999-C7 LLC
  
Delaware
  
Wachovia Defeasance JPMC 1999-PLSI LLC
  
Delaware
  
Wachovia Defeasance JPMC 2000-C10 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2000-C9 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2001-C1 III LLC
  
Delaware
  




Wachovia Defeasance JPMC 2001-C1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2001-CIBC1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2001-CIBC2 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2001-CIBC3 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2001-CIBC3 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-C1 II LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-C1 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-C1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-C2 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-C2 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-C3 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-C3 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-CIBC4 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-CIBC5 CP Pembroke Pines LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-CIBC5 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2002-CIBC5 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-C1 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-C1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-CIBC6 CP Deerfield LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-CIBC6 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-CIBC6 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-CIBC7 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-LN1 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-LN1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-ML1 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-ML1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-PM1 Battery Commercial LLC
  
Delaware
  
Wachovia Defeasance JPMC 2003-PM1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2004-C2 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2004-C2 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2004-C3 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2004-CIBC10 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2004-CIBC8 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2004-LN2 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2005-LDP1 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2005-LDP2 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2005-LDP2 LLC
  
Delaware
  
Wachovia Defeasance JPMC 2006-CIBC15 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2006-CIBC17 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2006-LDP7 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2006-LDP8 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2007-CIBC19 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2007-LDP10 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2007-LDP11 III LLC
  
Delaware
  
Wachovia Defeasance JPMC 2007-LDP12 III LLC
  
Delaware
  
Wachovia Defeasance Kritz Falconer LLC
  
Delaware
  
Wachovia Defeasance LB 1998-C1 LLC
  
Delaware
  
Wachovia Defeasance LB 1998-C4 II Ardsley Associates LLC
  
Delaware
  
Wachovia Defeasance LB 1998-C4 II LLC
  
Delaware
  
Wachovia Defeasance LB 1998-C4 III LLC
  
Delaware
  




Wachovia Defeasance LB 1998-C4 LLC
  
Delaware
  
Wachovia Defeasance LB 1999-C1 II LLC
  
Delaware
  
Wachovia Defeasance LB 1999-C1 III LLC
  
Delaware
  
Wachovia Defeasance LB 1999-C1 LLC
  
Delaware
  
Wachovia Defeasance LB 1999-C2 II LLC
  
Delaware
  
Wachovia Defeasance LB 1999-C2 III LLC
  
Delaware
  
Wachovia Defeasance LB 1999-C2 LLC
  
Delaware
  
Wachovia Defeasance LB UBS 2002-C2 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2000-C3 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2000-C3 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2000-C3 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2000-C4 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2000-C4 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2000-C5 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2000-C5 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C2 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C2 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C2 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C3 1735 North Lynn LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C3 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C3 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C3 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C7 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C7 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2001-C7 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C1 400 Atlantic LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C1 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C1 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C1 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C2 Hibbs/Woodinville LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C2 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C2 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C4 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C4 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C7 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C7 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C7 Independence Shoppingtown LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2002-C7 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C1 (Clear) LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C1 Franklin Avenue LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C1 II LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C1 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C1 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C3 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C3 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C5 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C5 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C7 (Getty) LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C7 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2003-C8 III LLC
  
Delaware
  




Wachovia Defeasance LB-UBS 2003-C8 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C1 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C1 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C4 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C4 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C6 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C6 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C7 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C7 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C8 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2004-C8 LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2005-C1 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2005-C2 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2005-C3 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2005-C5 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2005-C7 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2005-C7 VR Bayou LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2006-C1 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2006-C3 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2006-C4 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2006-C6 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2006-C7 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2007-C2 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2007-C6 III LLC
  
Delaware
  
Wachovia Defeasance LB-UBS 2008-C1 III LLC
  
Delaware
  
Wachovia Defeasance Management - KeyCorp LLC
  
Delaware
  
Wachovia Defeasance Management - Midland LLC
  
Delaware
  
Wachovia Defeasance Management II LLC
  
Delaware
  
Wachovia Defeasance Management III LLC
  
Delaware
  
Wachovia Defeasance Management LLC
  
Delaware
  
Wachovia Defeasance Management-KeyCorp III LLC
  
Delaware
  
Wachovia Defeasance Management-Midland III LLC
  
Delaware
  
Wachovia Defeasance Marquis Apartments LLC
  
Delaware
  
Wachovia Defeasance MCF 1998-MC3 LLC
  
Delaware
  
Wachovia Defeasance ML-CFC 2006-1 III LLC
  
Delaware
  
Wachovia Defeasance ML-CFC 2006-2 III LLC
  
Delaware
  
Wachovia Defeasance ML-CFC 2006-4 III LLC
  
Delaware
  
Wachovia Defeasance ML-CFC 2007-5 III LLC
  
Delaware
  
Wachovia Defeasance ML-CFC 2007-6 III LLC
  
Delaware
  
Wachovia Defeasance ML-CFC 2007-7 III LLC
  
Delaware
  
Wachovia Defeasance ML-CFC 2007-8 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 1998-C2 II LLC
  
Delaware
  
Wachovia Defeasance MLMI 1998-C2 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 1998-C2 LLC
  
Delaware
  
Wachovia Defeasance MLMI 1998-C3 LLC
  
Delaware
  
Wachovia Defeasance MLMI 2002-MW1 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2002-MW1 LLC
  
Delaware
  
Wachovia Defeasance MLMI 2005-CKI1 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2005-CKI1 LLC
  
Delaware
  
Wachovia Defeasance MLMI 2005-MCP1 LLC
  
Delaware
  




Wachovia Defeasance MLMI 2005-MCP1 PVA III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2005-MKB2 LLC
  
Delaware
  
Wachovia Defeasance MLMI 2006-1 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2006-2 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2006-C2 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2007-5 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2007-9 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2007-C1 III LLC
  
Delaware
  
Wachovia Defeasance MLMI 2008-C1 III LLC
  
Delaware
  
Wachovia Defeasance MLMT 2004-MKB1 LLC
  
Delaware
  
Wachovia Defeasance MLMT 2006-C1 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 1998-CF1 LLC
  
Delaware
  
Wachovia Defeasance MSCI 1998-HF2 LLC
  
Delaware
  
Wachovia Defeasance MSCI 1998-WF2 LLC
  
Delaware
  
Wachovia Defeasance MSCI 1999-FNVI LLC
  
Delaware
  
Wachovia Defeasance MSCI 1999-LIFE1 LLC
  
Delaware
  
Wachovia Defeasance MSCI 1999-RM1 LLC
  
Delaware
  
Wachovia Defeasance MSCI 1999-WF1 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 1999-WF1 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2003-IQ4 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2003-IQ5 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2003-IQ6 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2003-IQ6 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2003-TOP11 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2003-Top11 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-HQ3 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-HQ3 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-HQ4 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-IQ7 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-IQ7 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-IQ8 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-TOP13 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-TOP15 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2004-TOP15 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2005-HQ6 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2005-HQ7 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2005-IQ9 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2005-TOP17 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2005-TOP19 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2005-TOP19 LLC
  
Delaware
  
Wachovia Defeasance MSCI 2006-HQ10 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2006-HQ8 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2006-HQ9 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2006-IQ11 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2006-TOP21 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2006-TOP23 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2007-HQ12 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2007-IQ13 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2007-IQ14 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2007-IQ16 III LLC
  
Delaware
  




Wachovia Defeasance MSCI 2007-TOP25 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2007-TOP27 III LLC
  
Delaware
  
Wachovia Defeasance MSCI 2011-C3 III LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2000-LIFE1 III LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2000-LIFE1 LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2000-Life2 LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2001-TOP1 III LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2001-TOP3 III LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2001-TOP5 III LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2001-Top5 LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2002-TOP7 III LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2002-Top7 LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2003-HQ2 III LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2003-HQ2 LLC
  
Delaware
  
Wachovia Defeasance MSDWCI 2003-TOP9 III LLC
  
Delaware
  
Wachovia Defeasance PMAC 1999-C1 LLC
  
Delaware
  
Wachovia Defeasance PNCMAC 1999-CM1 LLC
  
Delaware
  
Wachovia Defeasance PNCMAC 2000-C1 LLC
  
Delaware
  
Wachovia Defeasance PNCMAC 2001-C1 LLC
  
Delaware
  
Wachovia Defeasance PSSFC 1998-C1 LLC
  
Delaware
  
Wachovia Defeasance PSSFC 1999-NRF1 LLC
  
Delaware
  
Wachovia Defeasance PSSFC 2003-PWR1 III LLC
  
Delaware
  
Wachovia Defeasance PSSFC 2003-PWR1 LLC
  
Delaware
  
Wachovia Defeasance PSSFC 2003-PWR1 PAL-MED LLC
  
Delaware
  
Wachovia Defeasance Rite Aid 1999-1 III LLC
  
Delaware
  
Wachovia Defeasance River Terrace LLC
  
Delaware
  
Wachovia Defeasance SBMS 2000-C1 LLC
  
Delaware
  
Wachovia Defeasance SBMS VII 2000-C3 LLC
  
Delaware
  
Wachovia Defeasance SBMS VII 2000-C3 Wellington Place LLC
  
Delaware
  
Wachovia Defeasance SBMS VII 2001-C1 LLC
  
Delaware
  
Wachovia Defeasance SBMS VII 2001-C2 LLC
  
Delaware
  
Wachovia Defeasance Sonoma Valley Inn III LLC
  
Delaware
  
Wachovia Defeasance TIAA 2007-C4 III LLC
  
Delaware
  
Wachovia Defeasance UBS 2012-C1 III LLC
  
Delaware
  
Wachovia Defeasance UBS-Barclays 2012-C2 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2002-C1 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2002-C1 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2002-C2 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2002-C2 Lawndale Market Place LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2002-C2 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C3 Big Trout Lodge LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C3 Gaddis LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C3 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C3 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C4 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C4 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C5 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C5 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C6 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C6 John & Son's LLC
  
Delaware
  




Wachovia Defeasance Wachovia 2003-C6 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C7 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C7 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C8 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C8 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C9 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2003-C9 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C10 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C10 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C11 III LLC
  
Delaware
  
Wachovia Defeasance WACHOVIA 2004-C12 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C12 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C14 Amstar LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C14 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C14 Lenexa LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C14 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C15 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2004-C15 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C16 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C16 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C17 450 Partners LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C17 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C17 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C18 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C18 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C19 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C20 III 60 Hudson LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C20 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C20 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C21 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C21 LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2005-C22 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2006-C23 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2006-C24 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2006-C25 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2006-C26 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2006-C27 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2006-C28 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2006-C29 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2007-C30 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2007-C31 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2007-C32 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2007-C33 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 2007-C34 III LLC
  
Delaware
  
Wachovia Defeasance Wachovia 3409 PRIMM III LLC
  
Delaware
  
Wachovia Defeasance WBCMT 2002-C1 III LLC
  
Delaware
  
Wachovia Defeasance WFCMS 2010-C1 III LLC
  
Delaware
  
Wachovia Defeasance WFCMS 2011-C2 III LLC
  
Delaware
  
Wachovia Defeasance WFCMS 2011-C3 III LLC
  
Delaware
  
Wachovia Defeasance WFCMS 2011-C4 III LLC
  
Delaware
  




Wachovia Defeasance WFCMS 2012-C6 III LLC
  
Delaware
  
Wachovia Development Corporation
  
North Carolina
  
Wachovia Education Loan Funding LLC
  
Delaware
  
Wachovia Fixed Income Structured Trading Solutions, LLC
  
Delaware
  
Wachovia International Capital Corporation
  
Georgia
  
Wachovia Investors, Inc.
  
North Carolina
  
Wachovia Mortgage Loan Trust, LLC
  
Delaware
  
Wachovia Netherlands Holdings, LLC
  
Delaware
  
Wachovia Ocean View Member, LLC
  
Delaware
  
Wachovia Preferred Funding Corp.
  
Delaware
  
Wachovia Preferred Funding Holding Corp.
  
California
  
Wachovia Preferred Realty, LLC
  
Delaware
  
Wachovia Re, Inc.
  
Vermont
  
Wachovia Residual Interest Securitization, LLC
  
Delaware
  
Wachovia Securities Financial Holdings, LLC
  
Delaware
  
Wachovia Service Corporation
  
Delaware
  
Wachovia Student Loan Trust 2005-1
  
Delaware
  
Wachovia Student Loan Trust 2006-1
  
Delaware
  
Wachovia Technology Planning & Solutions Private Limited
  
India
  
Wachovia Trade Finance Corporation
  
Delaware
  
Warranty Solutions Administrative Services, Inc.
  
Florida
  
Warranty Solutions Management Corporation
  
California
  
WBI Holdings I, LLC
  
Delaware
  
WBI Holdings II, LLC
  
Delaware
  
WBI Holdings III, LLC
  
Delaware
  
WBI Holdings IV, LLC
  
Delaware
  
WBI Holdings V, LLC
  
Delaware
  
WBI Holdings VI, LLC
  
Delaware
  
WCI OREO, LLC
  
Delaware
  
WCP Holdings 2002, LLC
  
North Carolina
  
WCP Secondary Fund I GP, LLC
  
Delaware
  
WDC 541 N Fairbanks Member, LLC
  
Delaware
  
WDC Triad Member I, LLC
  
Delaware
  
WDC Triad Parent, LLC
  
Delaware
  
WDC Union Station, LLC
  
Delaware
  
WDC Ventures Ltd.
  
Mauritius
  
WDS Holdings, Inc.
  
Delaware
  
Wealth Enhancement Advisory Services, LLC
  
Minnesota
  
Wealth Enhancement Brokerage Services, LLC
  
Minnesota
  
Wealth Enhancement Group, LLC
  
Minnesota
  
WEG Holdings, LLC
  
Delaware
  
WELF Holding LLC
  
Delaware
  
Wells Capital Management Incorporated
  
California
  
Wells Fargo (Lux) Worldwide Fund - China Equity Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - Emerging Markets Equity Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - Emerging Markets Equity II Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - Emerging Markets Equity Income Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - Global Equity Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - Global Opportunity Bond Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - Precious Metals Fund
  
Luxembourg
  




Wells Fargo (Lux) Worldwide Fund - SICAV
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - U.S. All Cap Growth Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - U.S. Dollar Short-Term Money Market Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - U.S. High Yield Bond Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - U.S. Large Cap Growth Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - U.S. Premier Growth Fund
  
Luxembourg
  
Wells Fargo (Lux) Worldwide Fund - U.S. Short Term High Yield Bond Fund
  
Luxembourg
  
Wells Fargo Advantage Alternative Strategies Fund
  
Delaware
  
Wells Fargo Advantage Emerging Markets Equity Income Fund
  
Delaware
  
Wells Fargo Advantage Emerging Markets Equity Select Fund
  
Delaware
  
Wells Fargo Advantage Emerging Markets Local Bond Fund
  
Delaware
  
Wells Fargo Advantage Global Long/Short Fund
  
Delaware
  
Wells Fargo Advantage High Yield Municipal Bond Fund
  
Delaware
  
Wells Fargo Advantage Strategic Income Fund
  
Delaware
  
Wells Fargo Advisors Financial Network, LLC
  
Delaware
  
Wells Fargo Advisors Insurance Agency, LLC
  
Virginia
  
Wells Fargo Advisors, LLC
  
Delaware
  
Wells Fargo Affordable Housing Community Development Corporation
  
North Carolina
  
Wells Fargo Affordable Housing Corp.
  
North Carolina
  
Wells Fargo Aircraft S.a r.l.
  
Luxembourg
  
Wells Fargo Asia Limited
  
Hong Kong
  
Wells Fargo Asset Management Luxembourg S.A.
  
Luxembourg
  
Wells Fargo Asset Securities Corporation
  
Delaware
  
Wells Fargo Auto Receivables, LLC
  
Delaware
  
Wells Fargo Bank International
  
Ireland
  
Wells Fargo Bank Northwest, National Association
  
United States
  
Wells Fargo Bank South Central, National Association
  
United States
  
Wells Fargo Bank, Ltd.
  
California
  
Wells Fargo Bank, National Association
  
United States
  
Wells Fargo Brasil Escritorio De Representacao Ltda.
  
Brazil
  
Wells Fargo Business Credit Canada ULC
  
Canada - Alberta
  
Wells Fargo Canada Corporation
  
Canada - Nova Scotia
  
Wells Fargo Capital Finance Corporation Canada
  
Canada - Ontario
  
Wells Fargo Capital Finance, LLC
  
Delaware
  
Wells Fargo Capital Holdings Inc.
  
Delaware
  
Wells Fargo Capital II
  
Delaware
  
Wells Fargo Capital X
  
Delaware
  
Wells Fargo Cedar Creek LLC
  
Delaware
  
Wells Fargo Central Pacific Holdings, Inc.
  
California
  
Wells Fargo Commercial Mortgage
  
Delaware
  
Wells Fargo Commercial Mortgage Securities, Inc.
  
North Carolina
  
Wells Fargo Commodities, LLC
  
Delaware
  
Wells Fargo Community Development Corporation
  
Nevada
  
Wells Fargo Community Development Enterprise Round 7 Subsidiary 7, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 8 Subsidiary 6P, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 8 Subsidiary 7, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 8 Subsidiary 8, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 8 Subsidiary 9, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 1, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 10P, LLC
  
Delaware
  




Wells Fargo Community Development Enterprise Round 9 Subsidiary 11, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 12, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 13, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 2, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 3, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 4, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 5, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 6, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 7, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 8, LLC
  
Delaware
  
Wells Fargo Community Development Enterprise Round 9 Subsidiary 9, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 6 Sub 10, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 6 Sub 8, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 6 Sub 9, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 7 Sub 1, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 7 Sub 2, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 7 Sub 3, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 7 Sub 4, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 7 Sub 5, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 7 Sub 6, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Round 8 Sub 1, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Subsidiary 1, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Subsidiary 2, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Subsidiary 3, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Subsidiary 4, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Subsidiary 5, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Subsidiary 6, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises Subsidiary 7, LLC
  
Delaware
  
Wells Fargo Community Development Enterprises, Inc.
  
Nevada
  
Wells Fargo Community Investment Holdings, LLC
  
Delaware
  
Wells Fargo Container Corp. Ltd.
  
Bermuda
  
Wells Fargo Credit Card Funding, LLC
  
Delaware
  
Wells Fargo Credit Card Master Note Trust
  
Delaware
  
Wells Fargo Credit, Inc.
  
Minnesota
  
Wells Fargo Delaware Trust Company, National Association
  
United States
  
Wells Fargo Distribution Finance, LLC
  
Delaware
  
Wells Fargo Energy Capital, Inc.
  
Texas
  
Wells Fargo Enterprise Global Services, LLC
  
Delaware
  
Wells Fargo Equipment Finance Company
  
Canada - Nova Scotia
  
Wells Fargo Equipment Finance, Inc.
  
Minnesota
  
Wells Fargo Equity Capital, Inc.
  
California
  
Wells Fargo Exchange Services, Inc.
  
North Carolina
  
Wells Fargo Exchange Services, LLC
  
Delaware
  
Wells Fargo Financial Acceptance America, Inc.
  
Pennsylvania
  
Wells Fargo Financial Alabama, Inc.
  
Alabama
  
Wells Fargo Financial Alaska, Inc.
  
Alaska
  
Wells Fargo Financial America, Inc.
  
Pennsylvania
  
Wells Fargo Financial Arizona, Inc.
  
Arizona
  
Wells Fargo Financial California, Inc.
  
Colorado
  
Wells Fargo Financial Colorado, Inc.
  
Colorado
  




Wells Fargo Financial Connecticut, Inc.
  
Connecticut
  
Wells Fargo Financial Corporation Canada
  
Canada - Nova Scotia
  
Wells Fargo Financial Credit Services New York, Inc.
  
New York
  
Wells Fargo Financial Delaware, Inc.
  
Delaware
  
Wells Fargo Financial Florida, Inc.
  
Florida
  
Wells Fargo Financial Funding B.V.
  
Netherlands
  
Wells Fargo Financial Georgia, Inc.
  
Iowa
  
Wells Fargo Financial Holdings, LLC
  
Delaware
  
Wells Fargo Financial Idaho, Inc.
  
Idaho
  
Wells Fargo Financial Illinois, Inc.
  
Iowa
  
Wells Fargo Financial Indiana, Inc.
  
Indiana
  
Wells Fargo Financial Iowa 1, Inc.
  
Iowa
  
Wells Fargo Financial Iowa 3, Inc.
  
Iowa
  
Wells Fargo Financial Kansas, Inc.
  
Kansas
  
Wells Fargo Financial Kentucky 1, Inc.
  
Kentucky
  
Wells Fargo Financial Kentucky, Inc.
  
Kentucky
  
Wells Fargo Financial Leasing, Inc.
  
Iowa
  
Wells Fargo Financial Louisiana, Inc.
  
Louisiana
  
Wells Fargo Financial Maine, Inc.
  
Maine
  
Wells Fargo Financial Maryland, Inc.
  
Maryland
  
Wells Fargo Financial Massachusetts, Inc.
  
Massachusetts
  
Wells Fargo Financial Michigan, Inc.
  
Michigan
  
Wells Fargo Financial Minnesota, Inc.
  
Minnesota
  
Wells Fargo Financial Missouri, Inc.
 
Missouri
 
Wells Fargo Financial Montana, Inc.
 
Montana
 
Wells Fargo Financial National Bank
 
United States
 
Wells Fargo Financial Nebraska, Inc.
 
Nebraska
 
Wells Fargo Financial Nevada 2, Inc.
 
Nevada
 
Wells Fargo Financial Nevada, Inc.
 
Nevada
 
Wells Fargo Financial New Hampshire 1, Inc.
 
New Hampshire
 
Wells Fargo Financial New Jersey, Inc.
 
New Jersey
 
Wells Fargo Financial New Mexico, Inc.
 
New Mexico
 
Wells Fargo Financial New York, Inc.
 
New York
 
Wells Fargo Financial North Carolina 1, Inc.
 
North Carolina
 
Wells Fargo Financial North Dakota, Inc.
 
North Dakota
 
Wells Fargo Financial Ohio 1, Inc.
 
New Hampshire
 
Wells Fargo Financial Ohio, Inc.
 
Ohio
 
Wells Fargo Financial Oklahoma, Inc.
 
Oklahoma
 
Wells Fargo Financial Oregon, Inc.
 
Oregon
 
Wells Fargo Financial Pennsylvania, Inc.
 
Pennsylvania
 
Wells Fargo Financial Retail Credit, Inc.
 
Iowa
 
Wells Fargo Financial Rhode Island, Inc.
 
Rhode Island
 
Wells Fargo Financial Services, LLC
 
Delaware
 
Wells Fargo Financial South Carolina, Inc.
 
South Carolina
 
Wells Fargo Financial South Dakota, Inc.
 
South Dakota
 
Wells Fargo Financial System Florida, Inc.
 
Florida
 
Wells Fargo Financial System Virginia, Inc.
 
Virginia
 
Wells Fargo Financial Tennessee 1, LLC
 
Tennessee
 
Wells Fargo Financial Tennessee, Inc.
 
Tennessee
 
Wells Fargo Financial Texas, Inc.
 
Texas
 




Wells Fargo Financial Utah, Inc.
 
Utah
 
Wells Fargo Financial Virginia, Inc.
 
Virginia
 
Wells Fargo Financial Washington 1, Inc.
 
Washington
 
Wells Fargo Financial West Virginia, Inc.
 
West Virginia
 
Wells Fargo Financial Wisconsin, Inc.
 
Wisconsin
 
Wells Fargo Financial Wyoming, Inc.
 
Wyoming
 
Wells Fargo Financial, LLC
 
Iowa
 
Wells Fargo Foothill Canada ULC
 
Canada - Alberta
 
Wells Fargo Fund Services, LLC
 
Delaware
 
Wells Fargo Funding, Inc.
 
Minnesota
 
Wells Fargo Funds Distributor, LLC
 
Delaware
 
Wells Fargo Funds Management, LLC
 
Delaware
 
Wells Fargo Gaming Capital, LLC
 
Delaware
 
Wells Fargo Global Fund Services (Asia) Pte Ltd.
 
Singapore
 
Wells Fargo Global Fund Services (Ireland) Limited
 
Ireland
 
Wells Fargo Global Fund Services (UK) Limited
 
UK - England
 
Wells Fargo Global Fund Services Holdings LLC
 
Delaware
 
Wells Fargo Global Fund Services LLC
 
Delaware
 
Wells Fargo Home Mortgage Real Estate Funding 1, Inc.
 
Delaware
 
Wells Fargo India Solutions Private Limited
 
India
 
Wells Fargo Institutional Securities, LLC
 
Delaware
 
Wells Fargo Insurance Services of West Virginia, Inc.
 
West Virginia
 
Wells Fargo Insurance Services USA, Inc.
 
North Carolina
 
Wells Fargo Insurance, Inc.
 
Minnesota
 
Wells Fargo International B.V.
 
Netherlands
 
Wells Fargo International Banking Corporation
 
United States
 
Wells Fargo International Holdings (Luxembourg) S.a r.l.
 
Luxembourg
 
Wells Fargo International Inc.
 
Delaware
 
Wells Fargo International Services Private Limited
 
India
 
Wells Fargo Investment Group, Inc.
 
Delaware
 
Wells Fargo Investment Institute, Inc.
 
North Carolina
 
Wells Fargo Merchant Services, L.L.C.
 
Delaware
 
Wells Fargo Mortgage Loan Trust II, LLC
 
Delaware
 
Wells Fargo Mortgage Loan Trust, LLC
 
Delaware
 
Wells Fargo Municipal Capital Strategies, LLC
 
Delaware
 
Wells Fargo Prime Services, LLC
 
Delaware
 
Wells Fargo Principal Investments, LLC
 
Delaware
 
Wells Fargo Principal Lending, LLC
 
Delaware
 
Wells Fargo Properties, Inc.
 
Minnesota
 
Wells Fargo Real Estate Capital Investments, LLC
 
Delaware
 
Wells Fargo Real Estate Investment Corporation
 
Delaware
 
Wells Fargo Real Estate Tax Services, LLC
 
Delaware
 
Wells Fargo Relative Value Portfolio
 
Cayman Islands
 
Wells Fargo Risk Services, Inc.
 
Virginia
 
Wells Fargo Securities (Japan) Co., Ltd.
 
Japan
 
Wells Fargo Securities Asia Limited
 
Hong Kong
 
Wells Fargo Securities Canada, LTD
 
Canada - Nova Scotia
 
Wells Fargo Securities International Limited
 
UK - England
 
Wells Fargo Securities, LLC
 
Delaware
 
Wells Fargo Small Business Investment Company, Inc.
 
California
 




Wells Fargo Soporte Global Limitada
 
Chile
 
Wells Fargo Trade Capital Services, Inc.
 
New York
 
Wells Fargo Trust Corporation Limited
 
UK - England
 
Wells Fargo Ventures, LLC
 
Delaware
 
Wells Fargo Wealth Brokerage Insurance Agency, LLC
 
Virginia
 
Wells Fargo Wind Holdings LLC
 
Delaware
 
WestFin Insurance Agency, Inc.
 
California
 
Westlake Insurance Company (Bermuda), Ltd.
 
Bermuda
 
Westwood Vistas GP, LLC
 
Delaware
 
WF Deferred Compensation Holdings, Inc.
 
Delaware
 
WF Investment Holdings, LLC
 
Delaware
 
WF PCCP Co-Invest LLC
 
Delaware
 
WF Penta Wind, LLC
 
Delaware
 
WFC Holdings Corporation
 
Delaware
 
WF-GCL I Solar Statutory Trust
 
Connecticut
 
WF-SE-I SOLAR STATUTORY TRUST
 
Connecticut
 
WF-SPWR I SOLAR STATUTORY TRUST
 
Connecticut
 
WF-SUNE-CASCADE SOLAR STATUTORY TRUST
 
Connecticut
 
WF-SUNE-EPE SOLAR STATUTORY TRUST
 
Connecticut
 
WF-SUNE-ORION I SOLAR STATUTORY TRUST
 
Connecticut
 
WF-SUNE-ORION II SOLAR STATUTORY TRUST
 
Connecticut
 
WF-SUNE-SPS SOLAR STATUTORY TRUST
 
Connecticut
 
WF-SUNE-XII Solar Statutory Trust
 
Delaware
 
Wheels Exchange, LLC
 
Delaware
 
Whippet Funding, LLC
 
Delaware
 
WIBC Aruba N.V.
 
Aruba
 
WIH CDO, LLC
 
Delaware
 
WIH Holdings
 
Mauritius
 
William Byrd Hotel Associates, L.P.
 
Virginia
 
Winchester REO, LLC
 
North Carolina
 
Wind Joint Venture LLC
 
Delaware
 
WNT Futures ASP Fund, a series of Alternative Strategies Managed Futures & Commodities Platform, LLC
 
Delaware
 
World Savings, Inc.
 
California
 
WPFC Asset Funding LLC
 
Delaware
 
WR Land Three, LLC
 
Delaware
 
WREK Retail I, LLC
 
Delaware
 
WS Aftermarket Services Corporation
 
Delaware
 
WTC Property Holdings, LLC
 
Delaware
 
York Multi-Strategy ASP Fund, a series of Alternative Strategies Platform, LLC
 
Delaware
 
York Multi-Strategy II ASP Fund, a series of Alternative Strategies Platform, LLC
 
Delaware
 




Exhibit 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Wells Fargo & Company:
We consent to the incorporation by reference in the registration statements noted below on Forms S‑3, S-4, and S‑8 of Wells Fargo & Company of our reports dated February 25, 2015, with respect to the consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 2014 and 2013, 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, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014 Annual Report on Form 10-K of Wells Fargo & Company.
Registration Statement Number
Form
Description
333-184967
S-3
Wells Fargo Direct Purchase and Dividend Reinvestment Plan
333-180728
S-3
Debt Shelf 2012
333-180989
S-3
Universal Shelf 2012
333-195697
S-3
Universal Shelf 2014
333-142102
S-4/S-8
Placer Sierra Bancshares
333-144455
S-4/S-8
Greater Bay Bancorp
333-154879
S-4/S-8
Wachovia Corporation
333-128598
S-8
Long-Term Incentive Compensation Plan
333-152415
S-8
Long-Term Incentive Compensation Plan
333-168819
S-8
Long-Term Incentive Compensation Plan
333-192903
S-8
Long-Term Incentive Compensation Plan
333-173386
S-8
401(k) Plan
333-180997
S-8
Directors Stock Compensation and Deferral Plan
333-173387
S-8
Directors Stock Compensation and Deferral Plan
333-105091
S-8
Directors Stock Compensation and Deferral Plan
333-149566
S-8
Directors Stock Compensation and Deferral Plan
333-158711
S-8
Directors Stock Compensation and Deferral Plan
333-176266
S-8
Special Deferral Plan for Select Employees and Special Award Plan
333-142941
S-8
Deferred Compensation Plan
333-164082
S-8
Deferred Compensation Plan
333-158712
S-8
Wells Fargo Stock Purchase Plan
333-161529
S-8
Wachovia Deferred Compensation Obligations
333-200400
S-8
Supplemental 401(k) Plan


/s/ KPMG LLP         

San Francisco, California
February 25, 2015





Exhibit 24
 
WELLS FARGO & COMPANY
 
Power of Attorney of Director
 
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint JAMES H. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and ENRIQUE HERNANDEZ, JR., a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned’s true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned’s name, place, and stead, to sign and affix the undersigned’s name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
 
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 24th day of February, 2015.
  
/s/ JOHN D. BAKER II
/s/ CYNTHIA H. MILLIGAN
/s/ ELAINE L. CHAO
/s/ FEDERICO F. PEÑA
/s/ JOHN S. CHEN
/s/ JAMES H. QUIGLEY
/s/ LLOYD H. DEAN
/s/ JUDITH M. RUNSTAD
/s/ ELIZABETH A. DUKE
/s/ STEPHEN W. SANGER
/s/ SUSAN E. ENGEL
/s/ JOHN G. STUMPF
/s/ ENRIQUE HERNANDEZ, JR.
/s/ SUSAN G. SWENSON
/s/ DONALD M. JAMES
 





Exhibit 31(a)
 
CERTIFICATION
 
I, John G. Stumpf, certify that:
 
1.        I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014, of Wells Fargo & Company;
2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.        The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.        The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 25, 2015
/s/ JOHN G. STUMPF                                      
John G. Stumpf
Chief Executive Officer





Exhibit 31(b)
 
CERTIFICATION
 
I, John R. Shrewsberry, certify that:
 
1.        I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014, of Wells Fargo & Company;
2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.        The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  
(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.        The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 25, 2015
/s/ JOHN R. SHREWSBERRY               
John R. Shrewsberry
Chief Financial Officer





Exhibit 32(a)
 
 
Certifications Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002  
  
In connection with the Annual Report on Form 10-K of Wells Fargo & Company (the “Company”) for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John G. Stumpf, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and  
 
(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
/s/ JOHN G. STUMPF                                          
John G. Stumpf
Chief Executive Officer
Wells Fargo & Company
February 25, 2015





Exhibit 32(b)
 
 
Certifications Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
  
In connection with the Annual Report on Form 10-K of Wells Fargo & Company (the “Company”) for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John R. Shrewsberry, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and  
 
(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
/s/ JOHN R. SHREWSBERRY                 
John R. Shrewsberry
Chief Financial Officer
Wells Fargo & Company
February 25, 2015