UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10‑Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
 
Commission file number 001-2979
 
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
Delaware
 
No. 41-0449260
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices)  (Zip Code)
 
Registrant’s telephone number, including area code:  1-866-249-3302 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ
 
No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ
 
No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer     þ
 
Accelerated filer  o
 
 
 
 
 
 
 
Non‑accelerated filer     o (Do not check if a smaller reporting company)
 
Smaller reporting company  o
 
          
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o
 
No þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
 
Shares Outstanding
 
 
July 29, 2016
Common stock, $1-2/3 par value
 
5,045,547,142
          



FORM 10-Q
 
CROSS-REFERENCE INDEX
 
PART I
Financial Information
 
Item 1.
Financial Statements
Page
 
Consolidated Statement of Income
 
Consolidated Statement of Comprehensive Income
 
Consolidated Balance Sheet
 
Consolidated Statement of Changes in Equity
 
Consolidated Statement of Cash Flows
 
Notes to Financial Statements
  
 
1

—
Summary of Significant Accounting Policies  
 
2

—
Business Combinations
 
3

—
Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments  
 
4

—
Investment Securities
 
5

—
Loans and Allowance for Credit Losses
 
6

—
Other Assets
 
7

—
Securitizations and Variable Interest Entities
 
8

—
Mortgage Banking Activities
 
9

—
Intangible Assets
 
10

—
Guarantees, Pledged Assets and Collateral
 
11

—
Legal Actions
 
12

—
Derivatives
 
13

—
Fair Values of Assets and Liabilities
 
14

—
Preferred Stock
 
15

—
Employee Benefits
 
16

—
Earnings Per Common Share
 
17

—
Other Comprehensive Income
 
18

—
Operating Segments
 
19

—
Regulatory and Agency Capital Requirements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
 
 
Summary Financial Data  
 
Overview
 
Earnings Performance
 
Balance Sheet Analysis
 
Off-Balance Sheet Arrangements  
 
Risk Management
 
Capital Management
 
Regulatory Reform
 
Critical Accounting Policies  
 
Current Accounting Developments
 
Forward-Looking Statements  
 
Risk Factors 
 
Glossary of Acronyms
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II
Other Information
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
 
 
 
 
 
Signature
 
 
Exhibit Index

1


PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW
Summary Financial Data
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
  
 
 
 
 
 
 
% Change
 
 
  
 
  
 
  
 
Quarter ended
 
 
Jun 30, 2016 from
 
 
Six months ended
 
 
  

($ in millions, except per share amounts)
Jun 30,
2016

 
Mar 31,
2016

 
Jun 30,
2015

 
Mar 31,
2016

 
Jun 30,
2015

 
Jun 30,
2016


Jun 30,
2015

 
%
Change

For the Period
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
Wells Fargo net income
$
5,558

 
5,462

 
5,719

 
2
 %
 
(3
)
 
$
11,020

 
11,523

 
(4
)%
Wells Fargo net income applicable to common stock
5,173

 
5,085

 
5,363

 
2

 
(4
)
 
10,258

 
10,824

 
(5
)
Diluted earnings per common share
1.01

 
0.99

 
1.03

 
2

 
(2
)
 
2.00

 
2.07

 
(3
)
Profitability ratios (annualized):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo net income to average assets (ROA)
1.20
%
 
1.21

 
1.33

 
(1
)
 
(10
)
 
1.20
%
 
1.35

 
(11
)
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)
11.70

 
11.75

 
12.71

 
—

 
(8
)
 
11.72

 
12.94

 
(9
)
Return on average tangible common equity (ROTCE) (1)
14.15

 
14.15

 
15.32

 
—

 
(8
)
 
14.15

 
15.61

 
(9
)
Efficiency ratio (2)
58.1

 
58.7

 
58.5

 
(1
)
 
(1
)
 
58.4

 
58.6

 
—

Total revenue
$
22,162

 
22,195

 
21,318

 
—

 
4

 
$
44,357

 
42,596

 
4

Pre-tax pre-provision profit (PTPP) (3)
9,296

 
9,167

 
8,849

 
1

 
5

 
18,463

 
17,620

 
5

Dividends declared per common share
0.380

 
0.375

 
0.375

 
1

 
1

 
0.755

 
0.725

 
4

Average common shares outstanding
5,066.9

 
5,075.7

 
5,151.9

 
—

 
(2
)
 
5,071.3

 
5,156.1

 
(2
)
Diluted average common shares outstanding
5,118.1

 
5,139.4

 
5,220.5

 
—

 
(2
)
 
5,129.8

 
5,233.2

 
(2
)
Average loans
$
950,751

 
927,220

 
870,446

 
3

 
9

 
$
938,986

 
866,873

 
8

Average assets
1,862,084

 
1,819,875

 
1,729,278

 
2

 
8

 
1,840,980

 
1,718,597

 
7

Average total deposits
1,236,658

 
1,219,430

 
1,185,304

 
1

 
4

 
1,228,044

 
1,180,077

 
4

Average consumer and small business banking deposits (4)
726,359

 
714,837

 
674,889

 
2

 
8

 
720,598

 
670,418

 
7

Net interest margin
2.86
%
 
2.90

 
2.97

 
(1
)
 
(4
)
 
2.88
%
 
2.96

 
(3
)
At Period End
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
Investment securities
$
353,426

 
334,899

 
340,769

 
6

 
4

 
$
353,426

 
340,769

 
4

Loans
957,157

 
947,258

 
888,459

 
1

 
8

 
957,157

 
888,459

 
8

Allowance for loan losses
11,664

 
11,621

 
11,754

 
—

 
(1
)
 
11,664

 
11,754

 
(1
)
Goodwill
26,963

 
27,003

 
25,705

 
—

 
5

 
26,963

 
25,705

 
5

Assets
1,889,235

 
1,849,182

 
1,720,617

 
2

 
10

 
1,889,235

 
1,720,617

 
10

Deposits
1,245,473

 
1,241,490

 
1,185,828

 
—

 
5

 
1,245,473

 
1,185,828

 
5

Common stockholders' equity
178,633

 
175,534

 
169,596

 
2

 
5

 
178,633

 
169,596

 
5

Wells Fargo stockholders' equity
201,745

 
197,496

 
189,558

 
2

 
6

 
201,745

 
189,558

 
6

Total equity
202,661

 
198,504

 
190,676

 
2

 
6

 
202,661

 
190,676

 
6

Tangible common equity (1)
148,110

 
144,679

 
140,520

 
2

 
5

 
148,110

 
140,520

 
5

Capital ratios (5)(6):
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
Total equity to assets
10.73
%
 
10.73

 
11.08

 
—

 
(3
)
 
10.73
%
 
11.08

 
(3
)
Risk-based capital:
 
 
 
 
 
 
 
 


 
  
 
  
 


Common Equity Tier 1
10.82

 
10.87

 
10.78

 
—

 
—

 
10.82

 
10.78

 
—

Tier 1 capital
12.50

 
12.49

 
12.28

 
—

 
2

 
12.50

 
12.28

 
2

Total capital
15.14

 
14.91

 
14.45

 
2

 
5

 
15.14

 
14.45

 
5

Tier 1 leverage
9.25

 
9.26

 
9.45

 
—

 
(2
)
 
9.25

 
9.45

 
(2
)
Common shares outstanding
5,048.5

 
5,075.9

 
5,145.2

 
(1
)
 
(2
)
 
5,048.5

 
5,145.2

 
(2
)
Book value per common share (7)
$
35.38

 
34.58

 
32.96

 
2

 
7

 
$
35.38

 
32.96

 
7

Tangible book value per common share (1) (7)
29.34

 
28.50

 
27.31

 
3

 
7

 
29.34

 
27.31
 
7

Common stock price:
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
High
51.41

 
53.27

 
58.26

 
(3
)
 
(12
)
 
53.27

 
58.26

 
(9
)
Low
44.50

 
44.50

 
53.56

 
—

 
(17
)
 
44.50

 
50.42

 
(12
)
Period end
47.33

 
48.36

 
56.24

 
(2
)
 
(16
)
 
47.33

 
56.24

 
(16
)
Team members (active, full-time equivalent)
267,900

 
268,600

 
265,800

 
—

 
1

 
267,900

 
265,800

 
1

(1)
Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, and goodwill and certain identifiable intangible assets (including goodwill and intangible assets associated with certain of our nonmarketable equity investments but excluding mortgage servicing rights), net of applicable deferred tax liabilities. The methodology of determining tangible common equity may differ among companies. Management believes that return on average tangible common equity and tangible book value per common share, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company's use of equity. For additional information, including a corresponding reconciliation to GAAP financial measures, see the "Capital Management – Tangible Common Equity" section in this Report.
(2)
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(3)
Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company's ability to generate capital to cover credit losses through a credit cycle.
(4)
Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.
(5)
The risk-based capital ratios presented at June 30 and March 31, 2016, and June 30, 2015 were calculated under the lower of Standardized or Advanced Approach determined pursuant to Basel III with Transition Requirements. Accordingly, the total capital ratio was calculated under the Advanced Approach and the other ratios were calculated under the Standardized Approach, for each of the periods, respectively.
(6)
See the "Capital Management" section and Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
(7)
Book value per common share is common stockholders' equity divided by common shares outstanding. Tangible book value per common share is tangible common equity divided by common shares outstanding.

2
Overview (continued)

This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2015 ( 2015 Form 10-K).
 
When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company. See the Glossary of Acronyms for terms used throughout this Report.
 
Financial Review
 
Overview
Wells Fargo & Company is a diversified, community-based financial services company with $1.9 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 8,600 locations, 13,000 ATMs, digital (online, mobile and social), and contact centers (phone, email and correspondence), and we have offices in 36 countries and territories to support customers who conduct business in the global economy. With approximately 268,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 27 on Fortune’s  2016 rankings of America’s largest corporations. We ranked third in assets and first in the market value of our common stock among all U.S. banks at June 30, 2016 .
We use our Vision and Values to guide us toward growth and success. Our vision is to satisfy our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. We aspire to create deep and enduring relationships with our customers by providing them with an exceptional experience and by discovering their needs and delivering the most relevant products, services, advice, and guidance.
We have five 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. In addition to our five primary values, one of our key day-to-day priorities is to make risk management a competitive advantage by working hard to ensure that appropriate controls are in place to reduce risks to our customers, maintain and increase our competitive market position, and protect Wells Fargo’s long-term safety, soundness and reputation.
 
Financial Performance
Wells Fargo net income was $5.6 billion in second quarter 2016 with diluted earnings per common share (EPS) of $ 1.01 , compared with $5.7 billion and $1.03 , respectively, a year ago. We have now generated quarterly earnings of more than
 
$5 billion for 15 consecutive quarters, which reflected the ability of our diversified business model and risk discipline to generate consistent financial performance during a period that included persistent low interest rates, market volatility and economic uncertainty. Britain's vote to withdraw from the European Union (Brexit) in June 2016 added to global economic uncertainty and could result in interest rates remaining lower for longer than expected. However, we remain focused on meeting the financial needs of our customers and on investing in our businesses so we may continue to meet the evolving needs of our customers in the future.
Compared with a year ago:
•
revenue was $22.2 billion, up 4%, with growth in both net interest income and noninterest income;
•
we generated positive operating leverage (revenue growth exceeded expense growth) while we continued to make investments throughout our businesses;
•
we grew pre-tax pre-provision profit by 5%;
•
our total loans reached a record $957.2 billion , an increase of $68.7 billion , or 8% ;
•
our deposit franchise generated strong customer and balance growth, with total deposits reaching a record $1.25 trillion , up $59.6 billion , or 5% , and we grew the number of primary consumer checking customers by 4.7% (May 2016 compared with May 2015); and
•
our solid capital position enabled us to return $3.2 billion to shareholders through common stock dividends and net share repurchases, the fourth consecutive quarter of returning more than $3 billion.

Balance Sheet and Liquidity
Our balance sheet maintained its strength in second quarter 2016 as we increased our liquidity position, generated loan and deposit growth, experienced solid credit quality and maintained strong capital levels. We have been able to grow our loans on a year-over-year basis for 20 consecutive quarters (for the past 17 quarters year-over-year loan growth has been 3% or greater). Our loan portfolio increased $40.6 billion from December 31, 2015 , predominantly due to growth in commercial and industrial, real estate mortgage, real estate construction and lease financing loans within the commercial loan portfolio segment, which included $25.1 billion of commercial and industrial loans and capital leases acquired from GE Capital in the first half of 2016.
With the expectation of interest rates remaining lower for a longer period, we grew our investment securities portfolio by $5.9 billion , or 2% , from December 31, 2015, with approximately $38 billion of gross purchases during second quarter 2016 , compared with last year's average of $26 billion per quarter.
Deposit growth continued in the first half of 2016 with period-end deposits up $22.2 billion , or 2% , from December 31, 2015 . Our average deposit cost in second quarter 2016 was 11 basis points, up 3 basis points from a year ago, which reflected an increase in deposit pricing for certain wholesale banking


3

customers. We successfully grew our primary consumer checking customers (i.e., customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit) by 4.7% (May 2016 compared with May 2015). Our ability to consistently grow primary checking customers is important to our results because these customers have more interactions with us and are significantly more profitable than non-primary customers.

Credit Quality
Solid overall credit results continued in second quarter 2016 as losses remained low and we continued to originate high quality loans, reflecting our long-term risk focus. Net charge-offs were $924 million , or 0.39% (annualized) of average loans, in second quarter 2016 , compared with $650 million a year ago ( 0.30% ). The increase in net charge-offs in second quarter 2016 was predominantly due to continued challenges in the oil and gas portfolio. While substantially all of the loan portfolio performed well, the oil and gas portfolio remained under pressure due to low energy prices and excess leverage in the industry. Our commercial portfolio net charge-offs were $357 million , or 29 basis points of average commercial loans, in second quarter 2016 , compared with net charge-offs of $62 million, or 6 basis points, a year ago. Net consumer credit losses declined to 49 basis points of average consumer loans in second quarter 2016 from 53 basis points in second quarter 2015 . Our commercial real estate portfolios were in a net recovery position for the 14th consecutive quarter, reflecting our conservative risk discipline and improved market conditions. Losses on our consumer real estate portfolios declined $85 million from a year ago, down 53%. The lower consumer loss levels reflected the benefit of the continued improvement in the housing market and our continued focus on originating high quality loans. Approximately 70% of the consumer first mortgage portfolio was originated after 2008, when more stringent underwriting standards were implemented.
The allowance for credit losses in second quarter 2016 reflected an allowance build of $150 million for the quarter, due to loan growth in the commercial, automobile and credit card portfolios, partially offset by continued improvement in the residential real estate portfolios. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our provision for
 
loan losses was $1.1 billion in second quarter 2016, up from $300 million a year ago, reflecting losses in the oil and gas portfolio and the loan growth mentioned above.
Nonperforming assets were down $433 million , or 3% , from March 31, 2016 , as lower residential and commercial real estate nonaccruals and foreclosed assets were partially offset by higher oil and gas nonaccruals. Nonaccrual loans decreased $271 million from the prior quarter as an $809 million decrease in consumer nonaccruals was partially offset by a $651 million increase in oil and gas nonaccruals. In addition, foreclosed assets were down $162 million from the prior quarter.

Capital
Our financial performance in second quarter 2016 resulted in strong capital generation, which increased total equity to a record $202.7 billion at June 30, 2016 , up $4.2 billion from the prior quarter and the first time total equity exceeded $200 billion. We returned $3.2 billion to shareholders in second quarter 2016 through common stock dividends and net share repurchases and our net payout ratio (which is the ratio of (i) common stock dividends and share repurchases less issuances and stock compensation-related items, divided by (ii) net income applicable to common stock) was 62%, compared with 60% in the prior quarter, and within our targeted range of 55-75%. We continued to reduce our common share count through the repurchase of 44.8 million common shares in the quarter. We also entered into a $750 million forward repurchase contract with an unrelated third party in July 2016 that is expected to settle in fourth quarter 2016 for approximately 16 million shares. We expect to reduce our common shares outstanding through share repurchases throughout the remainder of 2016 .
We believe an important measure of our capital strength is the Common Equity Tier 1 ratio under Basel III, fully phased-in, which was 10.61 % at June 30, 2016 . Likewise, our other regulatory capital ratios remained strong. We also received a non-objection to our 2016 Comprehensive Capital Analysis and Review (CCAR) submission from the Federal Reserve. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.


Earnings Performance
Wells Fargo net income for second quarter 2016 was $5.6 billion ( $1.01 diluted earnings per common share), compared with $5.7 billion ( $1.03 diluted per share) for second quarter 2015 . Net income for the first half of 2016 was $11.0 billion ($ 2.00 ), compared with $11.5 billion ( $2.07 ) for the same period a year ago. Our second quarter and first half of 2016 earnings reflected continued execution of our business strategy as we continued to satisfy our customers' financial needs. We generated revenue across many of our businesses and grew loans and deposits. Our financial performance in the first half of 2016 , compared with the same period a year ago, benefited from a $1.1 billion increase in net interest income, which was offset by a $1.3 billion increase in our provision for credit losses and a $918 million increase in noninterest expense. The key drivers of our financial performance in the second quarter and first half of 2016 were balanced net interest income and noninterest income, diversified sources of fee income, a diversified and growing loan portfolio and strong underlying credit performance.
 
Revenue, the sum of net interest income and noninterest income, was $22.2 billion in second quarter 2016 , compared with $21.3 billion in second quarter 2015 . Revenue for the first half of 2016 was $44.4 billion , up 4% from the first half of 2015. The increase in revenue for the second quarter and first half of 2016 , compared with the same periods in 2015 , was primarily due to an increase in net interest income, reflecting increases in interest income from loans and trading assets, partially offset by higher long-term debt and deposit interest expense. In both the second quarter and first half of 2016 , net interest income represented 53% of revenue, compared with 53% and 52% in the same periods in 2015 , respectively.
Noninterest income was $10.4 billion and $21.0 billion in the second quarter and first half of 2016 , respectively, representing 47% of revenue for both periods, compared with $10.0 billion ( 47% ) and $20.3 billion ( 48% ) in the second quarter and first half of 2015 . Noninterest income for second quarter 2016 , compared with the same period in 2015 , reflected an increase in net gains from trading activities, lease income and gain from the sale of our


4
Earnings Performance ( continued )




health benefit services business, partially offset by lower insurance revenue due to the sale of our crop insurance business in first quarter 2016, as well as lower mortgage banking, other fees, and gains on equity investments. Noninterest income for the first half of 2016 , compared with the same period in 2015 , reflected an increase in lease income related to operating leases acquired in the GE Capital transactions, gains from the sale of our crop insurance and health benefit services businesses, and hedge ineffectiveness income, primarily on our long-term debt hedges, partially offset by lower trust and investment fees, mortgage banking, other fees, and gains on equity investments.
Noninterest expense was $12.9 billion and $25.9 billion in the second quarter and first half of 2016 , respectively, compared with $12.5 billion and $25.0 billion for the same periods in 2015 . The increase in noninterest expense for the first half of 2016 , compared with the same period in 2015 , reflected higher operating lease depreciation expense due to the leases acquired in the GE Capital transactions, higher personnel expenses, and outside professional services, partially offset by lower insurance, foreclosed assets expense, and outside data processing expense. The increase in noninterest expense for second quarter 2016 , compared with the same period in 2015 , was primarily due to higher personnel expenses and operating lease depreciation expenses. Noninterest expense as a percentage of revenue (efficiency ratio) was 58.1% in second quarter 2016 ( 58.4% in the first half of 2016 ) , compared with 58.5% in second quarter 2015 ( 58.6% in the first half of 2015 ).
During first quarter 2016, we closed substantially all of the previously announced acquisition of certain commercial lending businesses and assets from GE Capital. A portion of the assets were acquired in January 2016 with additional assets acquired in March 2016 . In July 2016, we closed the Asia segment of GE Capital’s Commercial Distribution Finance business. The remaining GE Capital assets, including segments in Europe, the Middle East, and Africa, are anticipated to close in the second half of 2016.
 
Net Interest Income
Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid on deposits, short-term borrowings and long-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding. Net interest income and the net interest margin are presented on a taxable-equivalent basis in Table 1 to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% federal statutory tax rate.
While the Company believes that it has the ability to increase net interest income over time, net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. In addition, some 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 and net interest margin growth has been challenged during the prolonged low interest rate environment as higher yielding loans and securities have run off and been replaced with lower yielding assets.
 
Net interest income on a taxable-equivalent basis was $12.0 billion and $24.0 billion in the second quarter and first half of 2016 , respectively, compared with $11.5 billion and $22.8 billion for the same periods a year ago. The net interest margin was 2.86% and 2.88% for the second quarter and first half of 2016 , down from 2.97% and 2.96% for the same periods a year ago. The increase in net interest income in the second quarter and first half of 2016 from the same periods a year ago was driven by growth in commercial and consumer loans, including the GE Capital transactions that closed in first quarter 2016, increased trading income, growth in investment securities, and higher short-term interest rates. Funding interest expense increased in the second quarter and first half of 2016 , compared with the same periods a year ago, primarily due to growth and repricing of long-term debt. Deposit interest expense was also higher, predominantly due to an increase in wholesale pricing resulting from higher short-term interest rates.
The decline in net interest margin in the second quarter and first half of 2016 , compared with the same periods a year ago, was primarily due to customer-driven deposit growth, reduced yield on investment securities, and higher long-term debt balances, including debt issued to fund the GE Capital acquisitions. As a result of growth in funding balances, net interest margin was diluted by an increase in cash, federal funds sold, and other short-term investments, which was partially offset by growth in loans, trading, and the benefit of higher short-term interest rates.
Average earning assets increased $130.6 billion and $124.0 billion in the second quarter and first half of 2016 , respectively, compared with the same periods a year ago, as average loans increased $80.3 billion in the second quarter and $72.1 billion in the first half of 2016 , average investment securities increased $12.4 billion in the second quarter and $20.2 billion in the first half of 2016 , and average trading assets increased $13.8 billion in the second quarter and $15.6 billion in the first half of 2016 , compared with the same periods a year ago. In addition, average federal funds sold and other short-term investments increased $26.7 billion and $ 17.8 billion in the second quarter and first half of 2016 , respectively, compared with the same periods a year ago.
Deposits are an important low-cost source of funding and affect both net interest income and the net interest margin. Deposits include noninterest-bearing deposits, interest-bearing checking, market rate and other savings, savings certificates, other time deposits, and deposits in foreign offices. Average deposits of $1.24 trillion increased in second quarter 2016 ( $1.23 trillion in the first half of 2016 ), compared with $1.19 trillion in second quarter 2015 ( $1.18 trillion in the first half of 2015 ), and represented 130% of average loans in second quarter 2016 ( 131% in the first half of 2016 ) compared with 136% in both the second quarter and first half of 2015 . Average deposits decreased to 73% and 74% of average earning assets in the second quarter and first half of 2016 , respectively, compared with 76% for the same periods a year ago as the growth in total loans outpaced deposit growth.


5

Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
  
Quarter ended June 30,
 
 
  
 
  
 
2016

 
  
 
  
 
2015

(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
$
293,783

 
0.49
%
 
$
359

 
267,101

 
0.28
%
 
$
186

Trading assets
81,380

 
2.86

 
582

 
67,615

 
2.91

 
492

Investment securities (3): 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
31,525

 
1.56

 
123

 
31,748

 
1.58

 
125

Securities of U.S. states and political subdivisions
52,201

 
4.24

 
553

 
47,075

 
4.13

 
486

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
92,010

 
2.53

 
583

 
97,958

 
2.65

 
650

Residential and commercial
19,571

 
5.44

 
266

 
22,677

 
5.84

 
331

Total mortgage-backed securities
111,581

 
3.04

 
849

 
120,635

 
3.25

 
981

Other debt and equity securities
53,301

 
3.48

 
461

 
48,816

 
3.51

 
427

Total available-for-sale securities
248,608

 
3.20

 
1,986

 
248,274

 
3.25

 
2,019

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
44,671

 
2.19

 
243

 
44,492

 
2.19

 
243

Securities of U.S. states and political subdivisions
2,155

 
5.41

 
29

 
2,090

 
5.17

 
27

Federal agency mortgage-backed securities
35,057

 
1.90

 
166

 
21,044

 
2.00

 
105

Other debt securities
4,077

 
1.92

 
20

 
6,270

 
1.70

 
26

Total held-to-maturity securities
85,960

 
2.14

 
458

 
73,896

 
2.18

 
401

Total investment securities
334,568

 
2.93

 
2,444

 
322,170

 
3.01

 
2,420

Mortgages held for sale (4)
20,140

 
3.60

 
181

 
23,456

 
3.57

 
209

Loans held for sale (4)
239

 
4.83

 
3

 
666

 
3.51

 
5

Loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial – U.S.
270,862

 
3.45

 
2,328

 
231,551

 
3.36

 
1,939

Commercial and industrial – Non U.S.
51,201

 
2.35

 
300

 
45,123

 
1.93

 
217

Real estate mortgage
126,126

 
3.41

 
1,069

 
113,089

 
3.48

 
982

Real estate construction
23,115

 
3.49

 
200

 
20,771

 
4.12

 
214

Lease financing
18,930

 
5.12

 
242

 
12,364

 
5.16

 
160

Total commercial
490,234

 
3.39

 
4,139

 
422,898

 
3.33

 
3,512

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
275,854

 
4.01

 
2,765

 
266,023

 
4.12

 
2,740

Real estate 1-4 family junior lien mortgage
50,609

 
4.37

 
551

 
57,066

 
4.23

 
603

Credit card
33,368

 
11.52

 
956

 
30,373

 
11.69

 
885

Automobile
61,149

 
5.66

 
860

 
56,974

 
5.88

 
836

Other revolving credit and installment
39,537

 
5.91

 
581

 
37,112

 
5.88

 
544

Total consumer
460,517

 
4.98

 
5,713

 
447,548

 
5.02

 
5,608

Total loans (4)
950,751

 
4.16

 
9,852

 
870,446

 
4.20

 
9,120

Other
6,014

 
2.30

 
35

 
4,859

 
5.14

 
64

Total earning assets
$
1,686,875

 
3.20
%
 
$
13,456

 
1,556,313

 
3.22
%
 
$
12,496

Funding sources
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
39,772

 
0.13
%
 
$
13

 
38,551

 
0.05
%
 
$
5

Market rate and other savings
658,944

 
0.07

 
110

 
619,837

 
0.06

 
87

Savings certificates
26,246

 
0.35

 
23

 
32,454

 
0.63

 
52

Other time deposits
61,170

 
0.85

 
129

 
52,238

 
0.42

 
55

Deposits in foreign offices
97,525

 
0.23

 
57

 
104,334

 
0.13

 
33

Total interest-bearing deposits
883,657

 
0.15

 
332

 
847,414

 
0.11

 
232

Short-term borrowings
111,848

 
0.28

 
78

 
84,499

 
0.09

 
21

Long-term debt
236,156

 
1.56

 
921

 
185,093

 
1.34

 
620

Other liabilities
16,336

 
2.06

 
83

 
16,405

 
2.03

 
83

Total interest-bearing liabilities
1,247,997

 
0.45

 
1,414

 
1,133,411

 
0.34

 
956

Portion of noninterest-bearing funding sources
438,878

 


 
—

 
422,902

 


 
—

Total funding sources
$
1,686,875

 
0.34

 
1,414

 
1,556,313

 
0.25

 
956

Net interest margin and net interest income on a taxable-equivalent basis (5)
 
 
2.86
%
 
$
12,042

 
 
 
2.97
%
 
$
11,540

Noninterest-earning assets
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
18,818

 
  
 
  
 
17,462

 
  
 
  
Goodwill
27,037

 
  
 
  
 
25,705

 
  
 
  
Other
129,354

 
 
 
 
 
129,798

 
 
 
 
Total noninterest-earning assets
$
175,209

 
 
 
 
 
172,965

 
 
 
 
Noninterest-bearing funding sources
 
 
 
 
 
 
  
 
 
 
 
Deposits
$
353,001

 
 
 
 
 
337,890

 
 
 
 
Other liabilities
60,083

 
 
 
 
 
67,595

 
 
 
 
Total equity
201,003

 
 
 
 
 
190,382

 
 
 
 
Noninterest-bearing funding sources used to fund earning assets
(438,878
)
 
 
 
 
 
(422,902
)
 
 
 
 
Net noninterest-bearing funding sources
$
175,209

 
 
 
 
 
172,965

 
 
 
 
Total assets
$
1,862,084

 
 
 
 
 
1,729,278

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Our average prime rate was 3.50% and 3.25% both for the quarters ended June 30, 2016 and 2015 , and for the first half of 2016 and 2015 , respectively. The average three-month London Interbank Offered Rate (LIBOR) was 0.64% and 0.28% for the quarters ended June 30, 2016 and 2015 , respectively, and 0.63% and 0.27% for the first half of 2016 and 2015 , respectively.
(2)
Yields/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(3)
Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.
(4)
Nonaccrual loans and related income are included in their respective loan categories.
(5)
Includes taxable-equivalent adjustments of $309 million and $270 million for the quarters ended June 30, 2016 and 2015 , respectively, and $599 million and $512 million for the first half of 2016 and 2015 , respectively, predominantly related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35% for the periods presented.

6



 
Six months ended June 30,
 
 
  
 
  
 
2016

 
  
 
  
 
2015

(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
$
289,240

 
0.49
%
 
$
703

 
271,392

 
0.28
%
 
$
376

Trading assets
80,922

 
2.94

 
1,187

 
65,309

 
2.89

 
945

Investment securities (3):
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities: 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
33,000

 
1.58

 
259

 
28,971

 
1.56

 
225

Securities of U.S. states and political subdivisions
51,357

 
4.24

 
1,088

 
46,017

 
4.16

 
958

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
94,216

 
2.67

 
1,258

 
100,064

 
2.71

 
1,356

Residential and commercial
20,199

 
5.32

 
537

 
23,304

 
5.77

 
673

Total mortgage-backed securities
114,415

 
3.14

 
1,795

 
123,368

 
3.29

 
2,029

Other debt and equity securities
53,430

 
3.34

 
890

 
47,938

 
3.47

 
827

Total available-for-sale securities
252,202

 
3.20

 
4,032

 
246,294

 
3.28

 
4,039

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
44,667

 
2.19

 
487

 
43,685

 
2.20

 
477

Securities of U.S. states and political subdivisions
2,155

 
5.41

 
58

 
2,019

 
5.16

 
52

Federal agency mortgage-backed securities
31,586

 
2.16

 
341

 
16,208

 
1.95

 
158

Other debt securities
4,338

 
1.92

 
42

 
6,530

 
1.71

 
55

Total held-to-maturity securities
82,746

 
2.25

 
928

 
68,442

 
2.18

 
742

Total investment securities
334,948

 
2.97

 
4,960

 
314,736

 
3.04

 
4,781

Mortgages held for sale (4)
19,005

 
3.60

 
342

 
21,530

 
3.59

 
386

Loans held for sale (4)
260

 
3.97

 
5

 
683

 
3.08

 
10

Loans:
  
 
 
 
  
 
  
 
 
 
  
Commercial:
  
 
 
 
  
 
  
 
 
 
  
Commercial and industrial – U.S.
264,295

 
3.42

 
4,505

 
229,627

 
3.32

 
3,783

Commercial and industrial – Non U.S.
50,354

 
2.23

 
558

 
45,093

 
1.90

 
426

Real estate mortgage
124,432

 
3.41

 
2,109

 
112,298

 
3.52

 
1,963

Real estate construction
22,859

 
3.55

 
403

 
20,135

 
3.83

 
383

Lease financing
16,989

 
4.95

 
420

 
12,341

 
5.06

 
312

Total commercial
478,929

 
3.35

 
7,995

 
419,494

 
3.30

 
6,867

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
275,288

 
4.03

 
5,547

 
265,923

 
4.12

 
5,481

Real estate 1-4 family junior lien mortgage
51,423

 
4.38

 
1,122

 
57,968

 
4.25

 
1,224

Credit card
33,367

 
11.56

 
1,919

 
30,376

 
11.74

 
1,768

Automobile
60,631

 
5.66

 
1,708

 
56,492

 
5.91

 
1,657

Other revolving credit and installment
39,348

 
5.95

 
1,165

 
36,620

 
5.94

 
1,079

Total consumer
460,057

 
5.00

 
11,461

 
447,379

 
5.03

 
11,209

Total loans (4)
938,986

 
4.16

 
19,456

 
866,873

 
4.19

 
18,076

Other
5,910

 
2.18

 
65

 
4,795

 
5.27

 
127

Total earning assets
$
1,669,271

 
3.21
%
 
$
26,718

 
1,545,318

 
3.21
%
 
$
24,701

Funding sources
 
 
 
 
 
 
 
 
 
 
 
Deposits:
  
 
 
 
  
 
  
 
 
 
  
Interest-bearing checking
$
39,242

 
0.12
%
 
$
24

 
38,851

 
0.05
%
 
$
10

Market rate and other savings
655,247

 
0.07

 
217

 
616,643

 
0.06

 
184

Savings certificates
27,063

 
0.40

 
54

 
33,525

 
0.69

 
116

Other time deposits
59,688

 
0.80

 
236

 
54,381

 
0.41

 
111

Deposits in foreign offices
97,604

 
0.22

 
108

 
104,932

 
0.13

 
69

Total interest-bearing deposits
878,844

 
0.15

 
639

 
848,332

 
0.12

 
490

Short-term borrowings
109,853

 
0.27

 
145

 
78,141

 
0.10

 
39

Long-term debt
226,519

 
1.56

 
1,763

 
184,432

 
1.33

 
1,224

Other liabilities
16,414

 
2.10

 
172

 
16,648

 
2.17

 
180

Total interest-bearing liabilities
1,231,630

 
0.44

 
2,719

 
1,127,553

 
0.34

 
1,933

Portion of noninterest-bearing funding sources
437,641

 
 
 
—

 
417,765

 
—

 
—

Total funding sources
$
1,669,271

 
0.33

 
2,719

 
1,545,318

 
0.25

 
1,933

Net interest margin and net interest income on a taxable-equivalent basis (5)
  
 
2.88
%
 
$
23,999

 
  
 
2.96
%
 
$
22,768

Noninterest-earning assets
  
 
  
 
  
 
  
 
  
 
  
Cash and due from banks
$
18,407

 
  
 
  
 
17,262

 
  
 
  
Goodwill
26,553

 
  
 
  
 
25,705

 
  
 
  
Other
126,749

 
 
 
 
 
130,312

 
 
 
 
Total noninterest-earning assets
$
171,709

 
 
 
 
 
173,279

 
 
 
 
Noninterest-bearing funding sources
  
 
 
 
 
 
  
 
 
 
 
Deposits
$
349,200

 
 
 
 
 
331,745

 
 
 
 
Other liabilities
61,355

 
 
 
 
 
69,779

 
 
 
 
Total equity
198,795

 
 
 
 
 
189,520

 
 
 
 
Noninterest-bearing funding sources used to fund earning assets
(437,641
)
 
 
 
 
 
(417,765
)
 
 
 
 
Net noninterest-bearing funding sources
$
171,709

 
 
 
 
 
173,279

 
 
 
 
Total assets
$
1,840,980

 
 
 
 
 
1,718,597

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




7

Noninterest Income
Table 2: Noninterest Income
 
Quarter ended June 30,
 
 
%

 
Six months ended June 30,
 
 
%

(in millions)
2016

 
2015

 
Change

 
2016

 
2015

 
Change

Service charges on deposit accounts
$
1,336

 
1,289

 
4
 %
 
$
2,645

 
2,504

 
6
 %
Trust and investment fees:
 
 
 
 
  
 
 
 
 
 
 
Brokerage advisory, commissions and other fees
2,291

 
2,399

 
(5
)
 
4,530

 
4,779

 
(5
)
Trust and investment management
835

 
861

 
(3
)
 
1,650

 
1,713

 
(4
)
Investment banking
421

 
450

 
(6
)
 
752

 
895

 
(16
)
Total trust and investment fees
3,547

 
3,710

 
(4
)
 
6,932

 
7,387

 
(6
)
Card fees
997

 
930

 
7

 
1,938

 
1,801

 
8

Other fees:
 
 
 
 
  
 
 
 
 
 

Charges and fees on loans
317

 
304

 
4

 
630

 
613

 
3

Cash network fees
138

 
132

 
5

 
269

 
257

 
5

Commercial real estate brokerage commissions
86

 
141

 
(39
)
 
203

 
270

 
(25
)
Letters of credit fees
83

 
90

 
(8
)
 
161

 
178

 
(10
)
Wire transfer and other remittance fees
101

 
93

 
9

 
193

 
180

 
7

All other fees (1)(2)(3)
181

 
347

 
(48
)
 
383

 
687

 
(44
)
Total other fees
906

 
1,107

 
(18
)
 
1,839


2,185

 
(16
)
Mortgage banking:
  
 
  
 
  
 
 
 
 
 

Servicing income, net
360

 
514

 
(30
)
 
1,210

 
1,037

 
17

Net gains on mortgage loan origination/sales activities
1,054

 
1,191

 
(12
)
 
1,802

 
2,215

 
(19
)
Total mortgage banking
1,414

 
1,705

 
(17
)
 
3,012


3,252

 
(7
)
Insurance
286

 
461

 
(38
)
 
713

 
891

 
(20
)
Net gains from trading activities
328

 
133

 
147

 
528

 
541

 
(2
)
Net gains on debt securities
447

 
181

 
147

 
691

 
459

 
51

Net gains from equity investments
189

 
517

 
(63
)
 
433

 
887

 
(51
)
Lease income
497

 
155

 
221

 
870

 
287

 
203

Life insurance investment income
149

 
145

 
3

 
303

 
290

 
4

All other (3)
333

 
(285
)
 
NM

 
1,053

 
(144
)
 
NM

Total
$
10,429

 
10,048

 
4

 
$
20,957


20,340

 
3

NM- Not meaningful
(1)
Wire transfer and other remittance fees, reflected in all other fees prior to 2016, have been separately disclosed.
(2)
All other fees have been revised to include merchant processing fees for all periods presented.
(3)
Effective fourth quarter 2015, the Company's proportionate share of its merchant services joint venture earnings is included in All other income.

Noninterest income was $10.4 billion and $21.0 billion for the second quarter and first half of 2016 , respectively, compared with $10.0 billion and $20.3 billion for the same periods a year ago. This income represented 47% of revenue for both the second quarter and first half of 2016 , compared with 47% and 48% for the second quarter and first half of 2015 , respectively. Noninterest income in the second quarter and first half of 2016 benefited from the gain on sale of our health benefits services business, hedge ineffectiveness income primarily on our long-term debt hedges, and the increase in lease income related to the GE Capital acquisitions we completed in first quarter 2016. Many of our businesses, including credit and debit cards, international, corporate trust and venture capital, also grew noninterest income in the second quarter and first half of 2016.
Service charges on deposit accounts were $1.34 billion and $2.65 billion in the second quarter and first half of 2016 , respectively, compared with $1.29 billion and $2.50 billion in the second quarter and first half of 2015 . The increase in the second quarter as well as the first half of 2016 was driven by higher overdraft fee revenue, account growth and higher fees from commercial product sales and commercial product re-pricing.
Brokerage advisory, commissions and other fees are received for providing full-service and discount brokerage services
 
predominantly to retail brokerage clients. Income from these brokerage-related activities include asset-based fees for advisory accounts, which are based on the market value of the client’s assets, and transactional commissions based on the number and size of transactions executed at the client’s direction. These fees decreased to $2.3 billion and $4.5 billion in the second quarter and first half of 2016 , respectively, from $2.4 billion and $4.8 billion for the same periods in 2015 . The decrease was predominantly due to lower brokerage transaction revenue and lower asset-based fees. Retail brokerage client assets totaled $1.46 trillion  at June 30, 2016 , compared with $1.43 trillion at June 30, 2015 , with all retail brokerage services provided by our Wealth and Investment Management (WIM) operating segment. For additional information on retail brokerage client assets, see the discussion and Tables 4d and 4e in the "Operating Segment Results – Wealth and Investment Management – Retail Brokerage Client Assets" section in this Report.
We earn trust and investment management fees from managing and administering assets, including mutual funds, institutional separate accounts, corporate trust, personal trust, employee benefit trust and agency assets. Trust and investment management fee income is predominantly from client assets under management (AUM) for which the fees are determined


8
Earnings Performance ( continued )




based on a tiered scale relative to the market value of the AUM. AUM consists of assets for which we have investment management discretion. Our AUM totaled $649.1 billion at June 30, 2016 , compared with $653.9 billion at June 30, 2015 , with substantially all of our AUM managed by our WIM operating segment. Additional information regarding our WIM operating segment AUM is provided in Table 4f and the related discussion in the "Operating Segment Results – Wealth and Investment Management – Trust and Investment Client Assets Under Management" section in this Report. In addition to AUM we have client assets under administration (AUA) that earn various administrative fees which are generally based on the type of the services provided to administer the account. Our AUA totaled $1.55 trillion at June 30, 2016 , compared with $1.54 trillion at June 30, 2015 . Trust and investment management fees decreased to $835 million and $1.65 billion in the second quarter and first half of 2016 , respectively, from $861 million and $1.71 billion for the same periods in 2015 , due to lower AUM reflecting net client outflows, lower market values and lower trust revenue.
We earn investment banking fees from underwriting debt and equity securities, arranging loan syndications, and performing other related advisory services. Investment banking fees decreased to $421 million and $752 million in the second quarter and first half of 2016 , respectively, from $450 million and $895 million for the same periods in 2015 , driven by declines in debt and equity origination due to market volatility.
Card fees were $997 million and $1.9 billion in the second quarter and first half of 2016 , respectively, compared with $930 million and $1.8 billion for the same periods a year ago. The increase was predominantly due to account growth and increased purchase activity.
Other fees decreased to $906 million and $1.8 billion in the second quarter and first half of 2016 , respectively, from $1.1 billion and $2.2 billion for the same periods in 2015 , predominantly driven by lower commercial real estate brokerage fees, and all other fees. All other fees were $181 million and $383 million in the second quarter and first half of 2016 , respectively, compared with $347 million and $687 million for the same periods in 2015 . The decrease was predominantly due to the deconsolidation of our merchant services joint venture in fourth quarter 2015, which resulted in a proportionate share of that income now being reported in all other income.
Mortgage banking noninterest income, consisting of net servicing income and net gains on loan origination/sales activities, totaled $1.4 billion and $3.0 billion in the second quarter and first half of 2016 , respectively, compared with $1.7 billion and $3.3 billion for the same periods a year ago.
In addition to servicing fees, net mortgage loan servicing income includes amortization of commercial mortgage servicing rights (MSRs), changes in the fair value of residential MSRs during the period, as well as changes in the value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income of $360 million for second quarter 2016  included a $154 million net MSR valuation gain ( $824 million decrease in the fair value of the MSRs and a $978 million hedge gain). Net servicing income of $514 million for second quarter 2015 included a $107 million net MSR valuation gain ( $1.1 billion increase in the fair value of the MSRs and a $946 million hedge loss). For the first half of 2016 , net servicing income of $1.2 billion included a $652 million net MSR valuation gain ( $1.8 billion decrease in the fair value of the MSRs and a $2.4 billion hedge gain) and for the same period of 2015 net servicing income of $1.0 billion included a $215 million net MSR valuation gain ( $280 million increase in the fair value of the MSRs and a $65 million hedge loss). Net servicing income
 
decreased in second quarter 2016, compared with the same period a year ago, from higher unreimbursed servicing costs related to FHA loans and lower contractual servicing fees due to servicing portfolio runoff, offset by the increase in net MSR valuation gains. The increase in net MSR valuation gains in the first half of 2016 , compared with the same period in 2015 , was primarily attributable to MSR valuation adjustments in first quarter 2015 that reflected higher prepayment expectations due to the reduction in FHA mortgage insurance premiums as well as a reduction in forecasted prepayments in first half of 2016 due to updated economic and mortgage market rate inputs.
Our portfolio of loans serviced for others was $1.73 trillion at June 30, 2016 , and $1.78 trillion at December 31, 2015 . At June 30, 2016 , the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.68% , compared with 0.77% at December 31, 2015 . 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/sales activities was $1.1 billion and $1.8 billion in the second quarter and first half of 2016 , respectively, compared with $1.2 billion and $2.2 billion for the same periods a year ago. The decrease in the second quarter and first half of 2016 , compared with the same periods a year ago, was mainly driven by a decrease in production margins. Mortgage loan originations were $63 billion and $107 billion for the second quarter and first half of 2016 , respectively, compared with $62 billion and $111 billion for the same periods a year ago. The production margin on residential held-for-sale mortgage originations, which represents net gains on residential mortgage loan origination/sales activities divided by total residential held-for-sale mortgage originations, provides a measure of the profitability of our residential mortgage origination activity. Table 2a presents the information used in determining the production margin.

Table 2a: Selected Residential Mortgage Production Data
 
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
 
 
2016

2015

 
2016

2015

Net gains on mortgage loan origination/sales activities (in millions):
 
 
 
 
 
 
Residential
(A)
$
744

814

 
1,276

1,525

Commercial
 
72

108

 
143

199

Residential pipeline and unsold/repurchased loan management (1)
 
238

269

 
383

491

Total
 
$
1,054

1,191

 
1,802

2,215

Residential real estate originations (in billions):
 
 
 
 
 
 
Held-for-sale
(B)
$
46

46

 
77

83

Held-for-investment
 
17

16

 
30

28

Total
 
$
63

62

 
107

111

Production margin on residential held-for-sale mortgage originations
(A)/(B)
1.66
%
1.75

 
1.67

1.83

(1)
Primarily includes the results of GNMA loss mitigation activities, interest rate management activities and changes in estimate to the liability for mortgage loan repurchase losses.



9

The production margin was 1.66% and 1.67% for the second quarter and first half of 2016 , respectively, compared with 1.75% and 1.83% for the same periods a year ago. Mortgage applications were $95 billion and $172 billion for the second quarter and first half of 2016 , respectively, compared with $81 billion and $174 billion for the same periods a year ago. The 1-4 family first mortgage unclosed pipeline was $47 billion at June 30, 2016, compared with $38 billion at June 30, 2015. 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 8 (Mortgage Banking Activities) and Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.
Net gains on mortgage loan origination/sales activities include adjustments to the mortgage repurchase liability. Mortgage loans are repurchased from third parties based on standard representations and warranties, and early payment default clauses in mortgage sale contracts. For the first half of 2016 , we released a net $93 million from the repurchase liability, including $81 million in second quarter 2016 , compared with a net $34 million release for the first half of 2015 , including $18 million in second quarter 2015 . For additional information about mortgage loan repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.
Net gains from trading activities, which reflect both unrealized changes in fair value of our trading positions and realized gains, were $328 million and $528 million in the second quarter and first half of 2016 , respectively, compared with $133 million and $541 million for the same periods a year ago. The increase in the second quarter of 2016 was predominantly driven by higher customer accommodation trading activity within our capital markets business, and higher deferred compensation gains (offset in employee benefits expense). The decrease in the first half of 2016 compared to the same period in 2015 was due to lower economic hedge income. 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. For additional information about our trading activities, see the “Risk Management – Asset/Liability Management – Market Risk – Trading Activities” section in this Report. 
 
Net gains on debt and equity securities totaled $636 million and $1.1 billion for the second quarter and first half of 2016 , respectively, compared with $698 million and $1.3 billion for the same periods in 2015, after other-than-temporary impairment (OTTI) write-downs of $130 million and $328 million , respectively, for the second quarter and first half of 2016, compared with $96 million and $169 million for the same periods in 2015 . OTTI write-downs in the second quarter and first half of 2016 reflected deterioration in energy sector investments and primarily drove the decrease in net gains on debt and equity securities compared with the same period a year ago.
Lease income was $497 million and $870 million in the second quarter and first half of 2016 , respectively, compared with $155 million and $287 million for the same periods a year ago, primarily driven by the GE Capital acquisitions completed in first quarter 2016 .
All other income was $333 million and $1.1 billion in the second quarter and first half of 2016 , respectively, compared with $(285) million and $(144) million for the same periods a year ago. All other income includes ineffectiveness recognized on derivatives that qualify for hedge accounting, the results of certain economic hedges, 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. The increase in other income for the second quarter and first half of 2016 , compared with the same periods a year ago, reflected a $381 million gain on sale of our crop insurance business in first quarter 2016, a $290 million gain on sale of our health benefit services business in second quarter 2016 and changes in ineffectiveness recognized on interest rate swaps used to hedge our exposure to interest rate risk on long-term debt and cross-currency swaps, cross-currency interest rate swaps and forward contracts used to hedge our exposure to foreign currency risk and interest rate risk involving non-U.S. dollar denominated long-term debt. A portion of the hedge ineffectiveness recognized was partially offset by the results of certain economic hedges and accordingly we recognized a net hedge benefit of $56 million and $435 million for the second quarter and first half of 2016, respectively, compared with a net hedge loss of $175 million and $53 million for the same periods a year ago. For additional information about derivatives used as part of our asset/liability management, see Note 12 (Derivatives) to Financial Statements in this Report.




10
Earnings Performance ( continued )




Noninterest Expense
Table 3: Noninterest Expense
 
Quarter ended June 30,
 
 
%

 
Six months ended June 30,
 
 
%

(in millions)
2016

 
2015

 
Change

 
2016

 
2015

 
Change

Salaries
$
4,099

 
3,936

 
4
 %
 
$
8,135

 
7,787

 
4
 %
Commission and incentive compensation
2,604

 
2,606

 
—

 
5,249

 
5,291

 
(1
)
Employee benefits
1,244

 
1,106

 
12

 
2,770

 
2,583

 
7

Equipment
493

 
470

 
5

 
1,021

 
964

 
6

Net occupancy
716

 
710

 
1

 
1,427

 
1,433

 
—

Core deposit and other intangibles
299

 
312

 
(4
)
 
592

 
624

 
(5
)
FDIC and other deposit assessments
255

 
222

 
15

 
505

 
470

 
7

Outside professional services
769

 
627

 
23

 
1,352

 
1,175

 
15

Operating losses
334

 
521

 
(36
)
 
788

 
816

 
(3
)
Outside data processing
225

 
269

 
(16
)
 
433

 
522

 
(17
)
Contract services
283

 
238

 
19

 
565

 
463

 
22

Postage, stationery and supplies
153

 
180

 
(15
)
 
316

 
351

 
(10
)
Travel and entertainment
193

 
172

 
12

 
365

 
330

 
11

Advertising and promotion
166

 
169

 
(2
)
 
300

 
287

 
5

Insurance
22

 
156

 
(86
)
 
133

 
296

 
(55
)
Telecommunications
94

 
113

 
(17
)
 
186

 
224

 
(17
)
Foreclosed assets
66

 
117

 
(44
)
 
144

 
252

 
(43
)
Operating leases
352

 
64

 
450

 
587

 
126

 
366

All other
499

 
481

 
4

 
1,026

 
982

 
4

Total
$
12,866

 
12,469

 
3

 
$
25,894

 
24,976

 
4


Noninterest expense was $12.9 billion in second quarter 2016 and $25.9 billion in the first half of 2016, up 3% and 4%, respectively, from the same periods a year ago, driven predominantly by higher personnel expenses, operating lease expense, outside professional services and contract services, partially offset by lower operating losses, insurance, foreclosed assets and outside data processing expenses.
Personnel expenses, which include salaries, commissions, incentive compensation and employee benefits, were up $299 million, or 4%, in second quarter 2016 compared with the same period a year ago, and up $493 million, or 3%, for the first half of 2016 compared with the same period a year ago. The increase in both periods was primarily due to annual salary increases and staffing growth driven by the GE Capital acquisitions that closed in first quarter 2016, as well as increases in risk management. The increase in the first half of 2016 was also driven by an extra payroll day.
Operating lease expense was up $288 million in second quarter 2016 and $461 million in the first half of 2016, compared with the same periods a year ago, largely due to depreciation expense on the operating leases acquired from GE Capital.
Outside professional services expense was up 23% and 15% in the second quarter and first half of 2016, respectively, compared with the same periods a year ago. Contract services expense was up 19% and 22% in the second quarter and first half of 2016, respectively, compared with the same periods a year ago. The increase in both expense categories reflected continued investments in our products, technology and service delivery, as well as costs to meet heightened regulatory expectations and evolving cybersecurity risk.
Insurance expense was down 86% and 55% in the second quarter and first half of 2016, respectively, compared with the same periods a year ago, due to the sale of our crop insurance business in first quarter 2016 and the sale of our Warranty Solutions business in third quarter 2015.
 
Operating losses were down 36% and 3% in the second quarter and first half of 2016, respectively, compared with the same periods a year ago, largely due to lower litigation expense for various legal matters.
Foreclosed assets expense was down 44% and 43% in the second quarter and first half of 2016, respectively, compared with the same periods a year ago, driven by lower operating expense and write-downs, partially offset by lower gains on sales of foreclosed properties.
Outside data processing expense was down 16% and 17% in the second quarter and first half of 2016, respectively, compared with the same periods a year ago, largely due to lower card processing expense.
The efficiency ratio was 58.1% in second quarter 2016, compared with 58.5% in second quarter 2015. The Company expects to operate at the higher end of its targeted efficiency ratio range of 55-59% for full year 2016.

Income Tax Expense
Our effective tax rate was 32.3% and 32.6% for second quarter 2016 and 2015, respectively. Our effective tax rate was 32.1% in the first half of 2016, up from 30.4% in the first half of 2015. The effective tax rate for the first half of 2015 reflected $359 million of discrete tax benefits primarily from reductions in reserves for uncertain tax positions due to audit resolutions of prior period matters with U.S. federal and state taxing authorities.



11

Operating Segment Results
We are organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and Wealth and Investment Management (WIM). 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). Table 4 and the following discussion present our results by operating segment. For additional description of our operating segments, including additional financial information and the underlying management accounting process, see Note 18 (Operating Segments) to Financial Statements in this Report.

Table 4: Operating Segment Results – Highlights
(income/expense in millions,
 
Community Banking
 
 
Wholesale Banking
 
 
Wealth and Investment Management
 
 
Other (1)
 
 
Consolidated
Company
 
average balances in billions)
 
2016

 
2015

 
2016

 
2015

 
2016

 
2015

 
2016

 
2015

 
2016

 
2015

Quarter ended June 30,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
12,204

 
11,967

 
7,284

 
6,610

 
3,919

 
3,976

 
(1,245
)
 
(1,235
)
 
22,162

 
21,318

Provision (reversal of provision) for credit losses
 
689

 
397

 
385

 
(84
)
 
2

 
(10
)
 
(2
)
 
(3
)
 
1,074

 
300

Noninterest expense
 
6,648

 
6,719

 
4,036

 
3,504

 
2,976

 
3,038

 
(794
)
 
(792
)
 
12,866

 
12,469

Net income (loss)
 
3,179

 
3,215

 
2,073

 
2,191

 
584

 
586

 
(278
)
 
(273
)
 
5,558

 
5,719

Average loans
 
$
485.7

 
472.3

 
451.4

 
386.2

 
66.7

 
59.3

 
(53.0
)
 
(47.4
)
 
950.8

 
870.4

Average deposits
 
703.7

 
654.8

 
425.8

 
432.4

 
182.5

 
168.2

 
(75.3
)
 
(70.1
)
 
1,236.7

 
1,185.3

Six months ended June 30,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
24,818

 
24,078

 
14,242

 
13,019

 
7,773

 
7,952

 
(2,476
)
 
(2,453
)
 
44,357

 
42,596

Provision (reversal of provision) for credit losses
 
1,409

 
1,055

 
748

 
(135
)
 
(12
)
 
(13
)
 
15

 
1

 
2,160

 
908

Noninterest expense
 
13,484

 
13,310

 
8,004

 
7,122

 
6,018

 
6,160

 
(1,612
)
 
(1,616
)
 
25,894

 
24,976

Net income (loss)
 
6,475

 
6,762

 
3,994

 
4,165

 
1,096

 
1,115

 
(545
)
 
(519
)
 
11,020

 
11,523

Average loans
 
$
485.0

 
472.3

 
440.6

 
383.1

 
65.4

 
58.1

 
(52.0
)
 
(46.6
)
 
939.0

 
866.9

Average deposits
 
693.3

 
649.1

 
426.9

 
432.1

 
183.5

 
169.2

 
(75.7
)
 
(70.3
)
 
1,228.0

 
1,180.1

(1)
Includes the elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for WIM customers served through Community Banking distribution channels.

Cross-sell We aspire to create deep and enduring relationships with our customers by providing them with an exceptional experience and by discovering their needs and delivering the most relevant products, services, advice, and guidance. An outcome of offering customers the products and services they need, want and value is that we earn more opportunities to serve them, or what we call cross-sell. Cross-sell is the result of serving our customers well, understanding their financial needs and goals over their lifetimes, and ensuring we innovate our products, services and channels so that we earn more of their business and help them succeed financially. Our customer-focused approach to cross-sell is needs-based as some customers will benefit from more products, and some may need fewer. We believe there is continued opportunity to meet our customers' financial needs as we build lifelong relationships with them. One way we track the degree to which we are satisfying our customers' financial needs is through our cross-sell metrics, which help us measure the depth of relationships we have formed with our Community Banking, Wholesale Banking and WIM customers. For additional information regarding our cross-sell metrics, see the "Earnings Performance – Operating Segments – Cross-sell" section in our 2015 Form 10-K.
The “Earnings Performance – Operating Segments – Cross-sell” section in our 2015 Form 10-K described our methodology for measuring and tracking cross-sell metrics. As described below, in second quarter 2016 we modified our methodology for Community Banking to better align our cross-sell metrics with ongoing changes in Community Banking’s business and products. For similar reasons, we are currently in the process of evaluating changes in our cross-sell methodology for Wholesale Banking and WIM.
 
During second quarter 2016, we changed how we determine retail banking households within Community Banking to include only those households that maintain a retail checking account, which we believe provides the foundation for long-term retail banking relationships. Previously, retail banking households were defined as a household that used 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. We continue to determine a retail banking household for Community Banking based on aggregating all accounts with the same address. During second quarter 2016 we also updated the products included in the Community Banking cross-sell metrics to capture the average number of business products, in addition to retail products, that 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, bill pay and direct deposit – are not included. We may periodically update the products included in our cross-sell metrics to account for changes in our product offerings.
Our Community Banking cross-sell metrics, as revised for prior periods to conform to the current period presentation, were 6.28, 6.32, 6.31, 6.37 and 6.36 as of February 2016, May 2015 and November 2015, 2014 and 2013, respectively, reflecting a one month reporting lag for each period.

Operating Segment Results
The following discussion provides a description of each of our operating segments, including cross-sell metrics and financial results. Operating segment results for 2016 reflect a shift in expenses between the personnel and other expense categories as


12
Earnings Performance ( continued )




a result of the movement of support staff from the Wholesale Banking and WIM segments into a consolidated organization within the Community Banking segment. Personnel expenses associated with the transferred support staff are now being allocated from Community Banking back to the Wholesale Banking and WIM segments through other expense.

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 automobile, 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. 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 (on the revised basis described above) was 6.27 products per household in May 2016 , compared with 6.32 in May 2015 . Table 4a provides additional financial information for Community Banking.

Table 4a: Community Banking
 
Quarter ended June 30,
 
 
 
 
Six months ended June 30,
 
 
 
(in millions, except average balances which are in billions)
2016

 
2015

 
% Change
 
2016

 
2015

 
% Change

Net interest income
$
7,379

 
7,277

 
1
 %
 
$
14,847

 
14,424

 
3
 %
Noninterest income:
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
773

 
747

 
3

 
1,526

 
1,439

 
6

Trust and investment fees:
 
 
 
 
 
 
 
 
 
 

Brokerage advisory, commissions and other fees (1)
455

 
523

 
(13
)
 
905

 
1,029

 
(12
)
Trust and investment management (1)
204

 
209

 
(2
)
 
409

 
423

 
(3
)
Investment banking (2)
(50
)
 
(24
)
 
NM

 
(69
)
 
(60
)
 
(15
)
Total trust and investment fees
609

 
708

 
(14
)
 
1,245

 
1,392

 
(11
)
Card fees
907

 
845

 
7

 
1,759

 
1,635

 
8

Other fees
366

 
363

 
1

 
738

 
722

 
2

Mortgage banking
1,325

 
1,575

 
(16
)
 
2,833

 
3,010

 
(6
)
Insurance
—

 
32

 
(100
)
 
2

 
63

 
(97
)
Net losses from trading activities
(60
)
 
(89
)
 
33

 
(87
)
 
(6
)
 
NM

Net gains on debt securities
394

 
68

 
479

 
613

 
274

 
124

Net gains from equity investments (3)
164

 
323

 
(49
)
 
339

 
613

 
(45
)
Other income of the segment
347

 
118

 
194

 
1,003

 
512

 
96

Total noninterest income
4,825

 
4,690

 
3

 
9,971

 
9,654

 
3

 
 
 
 
 
 
 
 
 
 
 

Total revenue
12,204

 
11,967

 
2

 
24,818

 
24,078

 
3

 
 
 
 
 
 
 
 
 
 
 

Provision for credit losses
689

 
397

 
74

 
1,409

 
1,055

 
34

Noninterest expense:
 
 
 
 
 
 
 
 
 
 

Personnel expense
4,662

 
4,398

 
6

 
9,280

 
8,916

 
4

Equipment
466

 
434

 
7

 
959

 
895

 
7

Net occupancy
521

 
514

 
1

 
1,031

 
1,041

 
(1
)
Core deposit and other intangibles
129

 
143

 
(10
)
 
257

 
287

 
(10
)
FDIC and other deposit assessments
148

 
128

 
16

 
294

 
258

 
14

Outside professional services
264

 
241

 
10

 
449

 
421

 
7

Operating losses
292

 
402

 
(27
)
 
699

 
628

 
11

Other expense of the segment
166

 
459

 
(64
)
 
515

 
864

 
(40
)
Total noninterest expense
6,648

 
6,719

 
(1
)
 
13,484

 
13,310

 
1

Income before income tax expense and noncontrolling interests
4,867

 
4,851

 
—

 
9,925

 
9,713

 
2

Income tax expense
1,667

 
1,620

 
3

 
3,364

 
2,910

 
16

Net income from noncontrolling interests (4)
21

 
16

 
31

 
86

 
41

 
110

Net income
$
3,179

 
3,215

 
(1
)
 
$
6,475

 
6,762

 
(4
)
Average loans
$
485.7

 
472.3

 
3

 
$
485.0

 
472.3

 
3

Average deposits
703.7

 
654.8

 
7

 
693.3

 
649.1

 
7

NM – Not meaningful
(1)
Represents income on products and services for WIM customers served through Community Banking distribution channels and is eliminated in consolidation.
(2)
Includes syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.
(3)
Predominantly represents gains resulting from venture capital investments.
(4)
Reflects results attributable to noncontrolling interests largely associated with the Company’s consolidated venture capital investments.
Community Banking reported net income of $3.2 billion, down $36 million, or 1%, from second quarter 2015, and $6.5 billion for the first half of 2016, down $287 million, or 4%, compared with the same period a year ago. First half 2015 results included a discrete tax benefit of $359 million. Revenue of $12.2 billion increased $237 million, or 2%, from second quarter 2015, and was $24.8 billion for the first half of 2016, an increase of $740 million, or 3%, compared with the same period last year. The increase in revenue was due to higher other income driven by gains on debt securities, positive hedge ineffectiveness related to our long term debt hedging results, net interest income, and revenue from debit and credit card volumes, partially offset by lower gains on equity investments, mortgage banking revenue,
 
and trust and investment fees. Average loans of $485.7 billion in second quarter 2016 increased $13.4 billion, or 3%, from second quarter 2015, and average loans of $485.0 billion in the first half of 2016 increased $12.7 billion, or 3%, from the first half of 2015. Average deposits increased $48.9 billion, or 7%, from second quarter 2015 and $44.2 billion, or 7%, from the first half of 2015. Primary consumer checking customers as of May 2016 (customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit) were up 4.7% from May 2015. Noninterest expense decreased 1% from second quarter 2015 and increased 1% from the first half of 2015. The decrease from second quarter 2015 was driven by lower operating losses and foreclosed assets


13

expense, partially offset by higher personnel expense. The increase from the first half of 2015 was due to higher personnel expense and operating losses, partially offset by lower foreclosed assets expense, data processing, and other expense. The provision for credit losses increased $292 million from second quarter 2015 and $354 million from the first half of 2015 substantially due to allowance releases in the prior year compared with an allowance build, reflecting loan growth in the automobile and credit card portfolios.
 
Wholesale Banking provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $5 million. Products and businesses include Business Banking, 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, and Asset Backed Finance. As previously mentioned, we are currently evaluating changes in our cross-sell methodology to better align our metrics with ongoing changes in Wholesale Banking's business and products. Table 4b provides additional financial information for Wholesale Banking.

Table 4b: Wholesale Banking
 
Quarter ended June 30,
 
 
 
 
Six months ended June 30,
 
 
 
(in millions, except average balances which are in billions)
2016

 
2015

 
% Change
 
2016

 
2015

 
% Change

Net interest income
$
3,919

 
3,591

 
9
 %
 
$
7,667

 
7,028

 
9
 %
Noninterest income:
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
563

 
541

 
4

 
1,118

 
1,064

 
5

Trust and investment fees:
 
 
 
 
 
 
 
 
 
 

Brokerage advisory, commissions and other fees
94

 
66

 
42

 
185

 
132

 
40

Trust and investment management
123

 
101

 
22

 
234

 
201

 
16

Investment banking
471

 
476

 
(1
)
 
821

 
960

 
(14
)
Total trust and investment fees
688

 
643

 
7

 
1,240

 
1,293

 
(4
)
Card fees
89

 
84

 
6

 
178

 
165

 
8

Other fees
538

 
743

 
(28
)
 
1,098

 
1,461

 
(25
)
Mortgage banking
90

 
130

 
(31
)
 
181

 
243

 
(26
)
Insurance
286

 
429

 
(33
)
 
711

 
827

 
(14
)
Net gains from trading activities
344

 
207

 
66

 
551

 
484

 
14

Net gains on debt securities
52

 
112

 
(54
)
 
77

 
184

 
(58
)
Net gains from equity investments
26

 
183

 
(86
)
 
92

 
258

 
(64
)
Other income of the segment
689

 
(53
)
 
NM

 
1,329

 
12

 
NM

Total noninterest income
3,365

 
3,019

 
11

 
6,575

 
5,991

 
10

 
 
 
 
 
 
 
 
 
 
 

Total revenue
7,284

 
6,610

 
10

 
14,242

 
13,019

 
9

 
 
 
 
 
 
 
 
 
 
 

Provision (reversal of provision) for credit losses
385

 
(84
)
 
558

 
748

 
(135
)
 
654

Noninterest expense:
 
 
 
 
 
 
 
 
 
 

Personnel expense
1,783

 
1,700

 
5

 
3,757

 
3,539

 
6

Equipment
16

 
23

 
(30
)
 
37

 
43

 
(14
)
Net occupancy
116

 
114

 
2

 
234

 
228

 
3

Core deposit and other intangibles
95

 
87

 
9

 
185

 
174

 
6

FDIC and other deposit assessments
88

 
79

 
11

 
174

 
175

 
(1
)
Outside professional services
276

 
188

 
47

 
490

 
357

 
37

Operating losses
38

 
34

 
12

 
75

 
43

 
74

Other expense of the segment
1,624

 
1,279

 
27

 
3,052

 
2,563

 
19

Total noninterest expense
4,036

 
3,504

 
15

 
8,004

 
7,122

 
12

Income before income tax expense and noncontrolling interests
2,863

 
3,190

 
(10
)
 
5,490

 
6,032

 
(9
)
Income tax expense
795

 
951

 
(16
)
 
1,514

 
1,768

 
(14
)
Net income (loss) from noncontrolling interests
(5
)
 
48

 
NM

 
(18
)
 
99

 
NM

Net income
$
2,073

 
2,191

 
(5
)
 
$
3,994

 
4,165

 
(4
)
Average loans
$
451.4

 
386.2

 
17

 
$
440.6

 
383.1

 
15

Average deposits
425.8

 
432.4

 
(2
)
 
426.9

 
432.1

 
(1
)
NM – Not meaningful
Wholesale Banking had net income of $2.1 billion in second quarter 2016, down $118 million, or 5%, from second quarter 2015. In the first half of 2016, net income of $4.0 billion decreased $171 million, or 4%, from the same period a year ago. The lower results for both the second quarter and first half of 2016 were driven by increased provision for credit losses. Revenue increased $674 million, or 10%, from second quarter 2015 and $1.2 billion, or 9%, from the first half of 2015 on both increased net interest income and noninterest income. Net interest income increased $328 million, or 9%, from second quarter 2015 and $639 million, or 9%, from the first half of 2015 driven by the GE Capital acquisition as well as broad based loan
 
growth. Noninterest income increased $346 million, or 11%, from second quarter 2015 on increased lease income related to the GE Capital acquisition, gain on the sale of the health benefit services business, higher customer accommodation trading, increased trust and investment management fees and higher treasury management fees, partially offset by lower insurance fees related to the first quarter 2016 sale of the crop insurance business, lower commercial real estate brokerage fees, lower gains on equity investments and debt securities, and deconsolidation of our merchant services joint venture in fourth quarter 2015, which resulted in recognizing a proportionate share of that fee income in all other income. Noninterest income increased $584 million,


14
Earnings Performance ( continued )




or 10%, from the first half of 2015 on increased lease income related to the GE Capital acquisition, the gains on sales of the crop insurance and health benefit services businesses, higher customer accommodation trading and higher treasury management fees, partially offset by lower insurance fees related to the sale of the crop insurance business, lower commercial real estate brokerage fees, lower gains on equity investments and debt securities, and deconsolidation of our merchant services joint venture. Average loans of $451.4 billion in second quarter 2016 increased $65.2 billion, or 17%, from second quarter 2015, driven by the GE Capital acquisition and broad based growth in asset-backed finance, commercial real estate, corporate banking, equipment finance and structured real estate. Average deposits of $425.8 billion decreased $6.6 billion, or 2%, from second quarter 2015 reflecting lower interest bearing deposits, primarily in the International business, driven by market volatility and the competitive rate environment. Noninterest expense increased $532 million, or 15%, from second quarter 2015 and $882 million, or 12%, from the first half of 2015, due to increased personnel and operating lease expense related to the GE Capital acquisition as well as increased expenses related to growth initiatives, compliance and regulatory requirements. The provision for credit losses increased $469 million from second
 
quarter 2015 and $883 million from the first half of 2015 driven by increased losses and credit deterioration in the oil and gas portfolio.

Wealth and Investment Management provides a full range of personalized wealth management, investment and retirement products and services to clients across U.S. based businesses including Wells Fargo Advisors, The Private Bank, Abbot Downing, Wells Fargo Institutional Retirement and Trust, and Wells Fargo Asset Management. We deliver financial planning, private banking, credit, investment management and fiduciary services to high-net worth and ultra-high-net worth individuals and families. We also serve clients’ brokerage needs, supply retirement and trust services to institutional clients and provide investment management capabilities delivered to global institutional clients through separate accounts and the Wells Fargo Funds. As previously mentioned, we are currently evaluating changes in our cross-sell methodology to better align our metrics with ongoing changes in WIM's business and products. Table 4c provides additional financial information for WIM.

Table 4c: Wealth and Investment Management
 
Quarter ended June 30,
 
 
 
 
Six months ended June 30,
 
 
 
(in millions, except average balances which are in billions)
2016

 
2015

 
% Change
 
2016

 
2015

 
% Change

Net interest income
$
932

 
832

 
12
 %
 
$
1,875

 
1,658

 
13
 %
Noninterest income:
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
5

 
6

 
(17
)
 
10

 
10

 
—

Trust and investment fees:
 
 
 
 
 
 
 
 
 
 
 
Brokerage advisory, commissions and other fees
2,208

 
2,334

 
(5
)
 
4,362

 
4,647

 
(6
)
Trust and investment management
718

 
767

 
(6
)
 
1,430

 
1,527

 
(6
)
Investment banking (1)
(1
)
 
(2
)
 
50

 
(1
)
 
(5
)
 
80

Total trust and investment fees
2,925

 
3,099

 
(6
)
 
5,791

 
6,169

 
(6
)
Card fees
2

 
1

 
100

 
3

 
2

 
50

Other fees
5

 
4

 
25

 
9

 
8

 
13

Mortgage banking
(2
)
 
(1
)
 
(100
)
 
(4
)
 
(3
)
 
(33
)
Insurance
—

 
—

 
NM

 
—

 
1

 
(100
)
Net gains from trading activities
44

 
15

 
193

 
64

 
63

 
2

Net gains on debt securities
1

 
1

 
—

 
1

 
1

 
—

Net gains (losses) from equity investments
(1
)
 
11

 
NM

 
2

 
16

 
(88
)
Other income of the segment
8

 
8

 
—

 
22

 
27

 
(19
)
Total noninterest income
2,987

 
3,144

 
(5
)
 
5,898

 
6,294

 
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue
3,919

 
3,976

 
(1
)
 
7,773

 
7,952

 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
Provision (reversal of provision) for credit losses
2

 
(10
)
 
NM

 
(12
)
 
(13
)
 
8

Noninterest expense:
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
1,911

 
1,965

 
(3
)
 
3,936

 
4,039

 
(3
)
Equipment
13

 
14

 
(7
)
 
28

 
28

 
—

Net occupancy
109

 
111

 
(2
)
 
221

 
222

 
—

Core deposit and other intangibles
75

 
82

 
(9
)
 
150

 
163

 
(8
)
FDIC and other deposit assessments
31

 
26

 
19

 
62

 
63

 
(2
)
Outside professional services
236

 
206

 
15

 
427

 
412

 
4

Operating losses
6

 
87

 
(93
)
 
18

 
149

 
(88
)
Other expense of the segment
595

 
547

 
9

 
1,176

 
1,084

 
8

Total noninterest expense
2,976

 
3,038

 
(2
)
 
6,018

 
6,160

 
(2
)
Income before income tax expense and noncontrolling interests
941

 
948

 
(1
)
 
1,767

 
1,805

 
(2
)
Income tax expense
358

 
359

 
—

 
672

 
683

 
(2
)
Net income (loss) from noncontrolling interests
(1
)
 
3

 
NM

 
(1
)
 
7

 
NM

Net income
$
584

 
586

 
—

 
$
1,096

 
1,115

 
(2
)
Average loans
$
66.7

 
59.3

 
12

 
$
65.4

 
58.1

 
13

Average deposits
182.5

 
168.2

 
9

 
183.5

 
169.2

 
8

NM – Not meaningful
(1)
Includes syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.
WIM reported net income of $584 million in second quarter 2016, down $2 million from second quarter 2015. Net income for the first half of 2016 was $1.1 billion, down $19 million, or 2%,
 
compared with the same period a year ago. The decrease in net income for both periods was driven by lower noninterest income, partially offset by higher net interest income and lower expenses.


15

Revenue was down $57 million, or 1%, from second quarter 2015 and down $179 million, or 2%, from the first half of 2015, driven by lower asset-based fees and lower brokerage transaction revenue, partially offset by growth in net interest income. Net interest income increased 12% from second quarter 2015, and was up 13% from the first half of 2015, due to growth in loan balances and investment portfolios. Average loan balances of $66.7 billion in second quarter 2016 increased 12% from second quarter 2015. Average loans in the first half of 2016 increased 13% from the same period a year ago. Average loan growth was driven by growth in non-conforming mortgage loans and securities-based lending. Average deposits in second quarter 2016 of $182.5 billion increased 9% from second quarter 2015. Average deposits in the first half of 2016 increased 8% from the same period a year ago. The increase in deposits was due to client repositioning of investment portfolio balances into bank deposits. Noninterest expense was down 2% from second quarter 2015 and the first half of 2015, driven by decreased broker commissions due to reduced sales revenue and lower non-personnel expenses. Total provision for credit losses increased $12 million from second quarter 2015 and $1 million from the first half of 2015.

 
The following discussions provide additional information for client assets we oversee in our retail brokerage advisory and trust and investment management business lines.

Retail Brokerage Client Assets Brokerage advisory, commissions and other fees are received for providing full-service and discount brokerage services predominantly to retail brokerage clients. Offering advisory account relationships to our brokerage clients is an important component of our broader strategy of meeting their financial needs. Although most of our retail brokerage client assets are in accounts that earn brokerage commissions, the fees from those accounts generally represent transactional commissions based on the number and size of transactions executed at the client’s direction. Fees earned from advisory accounts are asset-based and depend on changes in the value of the client’s assets as well as the level of assets resulting from inflows and outflows. A major portion of our brokerage advisory, commissions and other fee income is earned from advisory accounts. Table 4d shows advisory account client assets as a percentage of total retail brokerage client assets at June 30, 2016 and 2015 .

Table 4d: Retail Brokerage Client Assets
 
June 30,
 
(in billions)
2016

 
2015

Retail brokerage client assets
$
1,455.4

 
1,428.0

Advisory account client assets
443.7

 
433.6

Advisory account client assets as a percentage of total client assets
30
%
 
30

Retail Brokerage advisory accounts include assets that are financial advisor-directed and separately managed by third-party managers, as well as certain client-directed brokerage assets where we earn a fee for advisory and other services, but do not have investment discretion. These advisory accounts generate fees as a percentage of the market value of the assets, which vary across the account types based on the distinct services provided,
 
and are affected by investment performance as well as asset inflows and outflows. For the second quarter and first half of 2016 and 2015 , the average fee rate by account type ranged from 80 to 120 basis points. Table 4e presents retail brokerage advisory account client assets activity by account type for the second quarter and first half of 2016 and 2015 .

Table 4e: Retail Brokerage Advisory Account Client Assets
 
Quarter ended June 30, 2016
 
Six months ended June 30, 2016
(in billions)
Mar 31, 2016

Inflows (5)

Outflows (6)

Market impact (7)

Jun 30, 2016

 
Dec 31, 2015

Inflows (5)

Outflows (6)

Market impact (7)

Jun 30, 2016

Client directed (1)
$
155.3

9.3

(9.0
)
2.9

158.5

 
154.7

18.2

(18.2
)
3.8

158.5

Financial advisor directed (2)
97.4

7.8

(4.8
)
3.8

104.2

 
91.9

15.1

(8.8
)
6.0

104.2

Separate accounts (3)
113.5

7.3

(5.2
)
3.3

118.9

 
110.4

13.0

(10.0
)
5.5

118.9

Mutual fund advisory (4)
62.0

2.0

(2.9
)
1.0

62.1

 
62.9

3.9

(5.9
)
1.2

62.1

Total advisory client assets
$
428.2

26.4

(21.9
)
11.0

443.7

 
419.9

50.2

(42.9
)
16.5

443.7

 
 
 
 
 
 
 
 
 

 
 
 
Quarter ended June 30, 2015
 
Six months ended June 30, 2015
 
Mar 31, 2015

Inflows (5)

Outflows (6)

Market impact (7)

Jun 30, 2015

 
Dec 31, 2014

Inflows (5)

Outflows (6)

Market impact (7)

Jun 30, 2015

Client directed (1)
$
163.0

10.5

(10.2
)
(1.5
)
161.8

 
159.8

20.8

(18.9
)
0.1

161.8

Financial advisor directed (2)
89.9

5.2

(4.8
)
1.1

91.4

 
85.4

10.6

(8.4
)
3.8

91.4

Separate accounts (3)
113.6

5.6

(5.2
)
(1.0
)
113.0

 
110.7

11.6

(10.1
)
0.8

113.0

Mutual fund advisory (4)
68.0

2.7

(3.0
)
(0.3
)
67.4

 
66.9

5.6

(5.9
)
0.8

67.4

Total advisory client assets
$
434.5

24.0

(23.2
)
(1.7
)
433.6

 
422.8

48.6

(43.3
)
5.5

433.6

(1)
Investment advice and other services are provided to client, but decisions are made by the client and the fees earned are based on a percentage of the advisory account assets, not the number and size of transactions executed by the client.
(2)
Professionally managed portfolios with fees earned based on respective strategies and as a percentage of certain client assets.
(3)
Professional advisory portfolios managed by Wells Fargo asset management advisors or third-party asset managers. Fees are earned based on a percentage of certain client assets.
(4)
Program with portfolios constructed of load-waived, no-load and institutional share class mutual funds. Fees are earned based on a percentage of certain client assets.
(5)
Inflows include new advisory account assets, contributions, dividends and interest.
(6)
Outflows include closed advisory account assets, withdrawals, and client management fees.
(7)
Market impact reflects gains and losses on portfolio investments.

16

Trust and Investment Client Assets Under Management We earn trust and investment management fees from managing and administering assets, including mutual funds, institutional separate accounts, personal trust, employee benefit trust and agency assets through our asset management, wealth and retirement businesses. Our asset management business is conducted by Wells Fargo Asset Management (WFAM), which offers Wells Fargo proprietary mutual funds and manages institutional separate accounts. Our wealth business manages
assets for high net worth clients, and our retirement business
 
provides total retirement management, investments, and trust and custody solutions tailored to meet the needs of institutional clients. Substantially all of our trust and investment management fee income is earned from AUM where we have discretionary management authority over the investments and generate fees as a percentage of the market value of the AUM. Table 4f presents AUM activity for the second quarter and first half of 2016 and 2015 .

Table 4f: WIM Trust and Investment – Assets Under Management
 
Quarter ended June 30, 2016
 
Six months ended June 30, 2016
(in billions)
Mar 31, 2016

Inflows (4)

Outflows (5)

Market impact (6)

Jun 30, 2016

 
Dec 31, 2015

Inflows (4)

Outflows (5)

Market impact (6)

Jun 30, 2016

Assets managed by WFAM (1):
 
 
 
 


 

 
 
 

Money market funds (2)
$
113.9

—

(5.0
)
—

108.9

 
123.6

—

(14.7
)
—

108.9

Other assets managed
367.1

28.8

(26.4
)
5.4

374.9

 
366.1

55.9

(54.9
)
7.8

374.9

Assets managed by Wealth and Retirement (3)
163.4

8.2

(9.2
)
2.2

164.6

 
162.1

17.3

(18.0
)
3.2

164.6

Total assets under management
$
644.4

37.0

(40.6
)
7.6

648.4

 
651.8

73.2

(87.6
)
11.0

648.4

 
 
 
 
 
 
 

 
 
 
 
 
Quarter ended June 30, 2015
 
Six months ended June 30, 2015
 
Mar 31, 2015

Inflows (4)

Outflows (5)

Market impact (6)

Jun 30, 2015

 
Dec 31, 2014

Inflows (4)

Outflows (5)

Market impact (6)

Jun 30, 2015

Assets managed by WFAM (1):

 

 

 

 
 
 

Money market funds (2)
$
111.3

—

(3.0
)
—

108.3

 
123.1

—

(14.8
)
—

108.3

Other assets managed
381.4

25.9

(27.8
)
—

379.5

 
372.6

52.5

(51.0
)
5.4

379.5

Assets managed by Wealth and Retirement (3)
166.8

8.9

(8.7
)
(1.5
)
165.5

 
165.3

17.7

(17.9
)
0.4

165.5

Total assets under management
$
659.5

34.8

(39.5
)
(1.5
)
653.3

 
661.0

70.2

(83.7
)
5.8

653.3

(1)
Assets managed by Wells Fargo Asset Management consist of equity, alternative, balanced, fixed income, money market, and stable value, and include client assets that are managed or sub-advised on behalf of other Wells Fargo lines of business.
(2)
Money Market fund activity is presented on a net inflow or net outflow basis, because the gross flows are not meaningful nor used by management as an indicator of performance.
(3)
Includes $8.2 billion and $8.9 billion as of December 31, 2015 and 2014 and $7.6 billion and $7.8 billion as of June 30, 2016 and 2015 , respectively, of client assets invested in proprietary funds managed by WFAM.
(4)
Inflows include new managed account assets, contributions, dividends and interest.
(5)
Outflows include closed managed account assets, withdrawals and client management fees.
(6)
Market impact reflects gains and losses on portfolio investments.



17

Balance Sheet Analysis 
At June 30, 2016 , our assets totaled $1.9 trillion , up $101.6 billion from December 31, 2015 . The predominant areas of asset growth were in federal funds sold and other short-term investments, which increased $25.4 billion , investment securities, which increased $5.9 billion , and loans, which increased $40.6 billion (including $25.1 billion from the GE Capital transactions). Additionally, other assets increased $22.4 billion due to $5.9 billion in operating leases from the first quarter 2016 GE Capital transactions, higher receivables related to unsettled trading security transactions and higher fair values for derivative assets designated as hedging instruments due to decreasing interest rates. An increase of $44.4 billion in long-term debt (including debt issued to fund the GE Capital
 
transactions and debt issued that is expected to be eligible under proposed Total Loss Absorbing Capacity (TLAC) rules), deposit growth of $22.2 billion , an increase in short-term borrowings of $22.7 billion , and total equity growth of $8.8 billion from December 31, 2015 , were the predominant sources that funded our asset growth in the first half of 2016 . Equity growth benefited from $6.2 billion in earnings net of dividends paid.
The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and changes in our asset mix is included in the “Earnings Performance – Net Interest Income” and “Capital Management” sections and Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.


Investment Securities
Table 5: Investment Securities – Summary
 
June 30, 2016
 
 
December 31, 2015
 
(in millions)
Amortized Cost

 
Net
 unrealized
gain

 
Fair value

 
Amortized Cost

 
Net
unrealized
gain

 
Fair value

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
247,602

 
4,102

 
251,704

 
263,318

 
2,403

 
265,721

Marketable equity securities
868

 
434

 
1,302

 
1,058

 
579

 
1,637

Total available-for-sale securities
248,470

 
4,536

 
253,006

 
264,376

 
2,982

 
267,358

Held-to-maturity debt securities
100,420

 
3,657

 
104,077

 
80,197

 
370

 
80,567

Total investment securities (1)
$
348,890

 
8,193

 
357,083

 
344,573

 
3,352

 
347,925

(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 5 presents a summary of our investment securities portfolio, which increased $5.9 billion from December 31, 2015 , predominantly due to purchases of Federal agency mortgage-backed securities in our held-to-maturity portfolio. The increase in investment securities was partially offset by sales and pay-downs of Federal agency mortgage-backed securities and sales of U.S. Treasury securities in our available-for-sale portfolio.
The total net unrealized gains on available-for-sale securities were $4.5 billion at June 30, 2016 , up from $3.0 billion at December 31, 2015 , due to a decline in interest rates. For a discussion of our investment management objectives and practices, see the "Balance Sheet Analysis" section in our 2015 Form 10-K. Also, see the “Risk Management – Asset/Liability Management” section in this Report for information on our use of investments to manage liquidity and interest rate risk.
We analyze securities for other-than-temporary impairment (OTTI) quarterly or more often if a potential loss-triggering event occurs. Of the $328 million in OTTI write-downs recognized in earnings in the first half of 2016 , $91 million related to debt securities and $ 4 million related to marketable equity securities, which are included in available-for-sale securities. Another $233 million in OTTI write-downs were related to nonmarketable equity investments, which are included in other assets. OTTI write-downs recognized in earnings related to oil and gas investments totaled $153 million in the first half of 2016 , of which $51 million related to investment securities and $102 million related to nonmarketable equity investments. For a discussion of our OTTI accounting policies and underlying considerations and analysis see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2015 Form
 
10-K and Note 4 (Investment Securities) to Financial Statements in this Report.
At June 30, 2016 , investment securities included $56.2 billion of municipal bonds, of which 95.3% 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. The credit quality of 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 5.6 years at June 30, 2016 . Because 46% 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 6 .


18
Balance Sheet Analysis ( continued )

Table 6: Mortgage-Backed Securities Available for Sale
(in billions)
Fair value

 
Net unrealized gain (loss)

 
Expected remaining maturity
(in years)

At June 30, 2016
 
 
 
 
 
Actual
$
115.8

 
3.6

 
4.7

Assuming a 200 basis point:
 
 
 
 
 
Increase in interest rates
106.4

 
(5.8
)
 
6.7

Decrease in interest rates
117.6

 
5.4

 
2.8


 
The weighted-average expected maturity of debt securities held-to-maturity was 5.4 years at June 30, 2016 . See Note 4 (Investment Securities) to Financial Statements in this Report for a summary of investment securities by security type.
Loan Portfolios
Table 7 provides a summary of total outstanding loans by portfolio segment. Total loans increased $40.6 billion from December 31, 2015 , predominantly due to growth in commercial and industrial, real estate mortgage and lease financing loans within the commercial loan portfolio segment, which included $25.1 billion of commercial and industrial loans and capital leases acquired from GE Capital.

Table 7: Loan Portfolios
(in millions)
June 30, 2016

 
December 31, 2015

Commercial
$
494,538

 
456,583

Consumer
462,619

 
459,976

Total loans
$
957,157

 
916,559

Change from prior year-end
$
40,598

 
54,008


A discussion of average loan balances and a comparative detail of average loan balances is included in Table 1 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 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. 
 
Table 8 shows contractual loan maturities for loan categories normally not subject to regular periodic principal reduction and the contractual distribution of loans in those categories to changes in interest rates.
 

Table 8: Maturities for Selected Commercial Loan Categories
 
 
June 30, 2016
 
 
December 31, 2015
 
(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
 
$
101,026

 
197,113

 
25,719

 
323,858

 
91,214

 
184,641

 
24,037

 
299,892

Real estate mortgage
 
19,903

 
70,878

 
37,539

 
128,320

 
18,622

 
68,391

 
35,147

 
122,160

Real estate construction
 
8,454

 
13,626

 
1,307

 
23,387

 
7,455

 
13,284

 
1,425

 
22,164

Total selected loans
 
$
129,383

 
281,617

 
64,565

 
475,565

 
117,291

 
266,316

 
60,609

 
444,216

Distribution of loans to changes in interest
rates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans at fixed interest rates
 
$
19,814

 
30,478

 
24,703

 
74,995

 
16,819

 
27,705

 
23,533

 
68,057

Loans at floating/variable interest rates
 
109,569

 
251,139

 
39,862

 
400,570

 
100,472

 
238,611

 
37,076

 
376,159

Total selected loans
 
$
129,383

 
281,617

 
64,565

 
475,565

 
117,291

 
266,316

 
60,609

 
444,216



19

Deposits
Deposits increased $22.2 billion from December 31, 2015 , to $1.25 trillion , reflecting continued broad-based growth in our consumer and small business banking deposits. Table 9 provides additional information regarding deposits. Information regarding
 
the impact of deposits on net interest income and a comparison of average deposit balances is provided in the “Earnings Performance – Net Interest Income” section and Table 1 earlier in this Report. 

Table 9: Deposits
($ in millions)
Jun 30,
2016

 
% of
total
deposits

 
Dec 31,
2015

 
% of
total
deposits

 

% Change

Noninterest-bearing
$
361,934

 
29
%
 
$
351,579

 
29
%
 
3

Interest-bearing checking
41,316

 
3

 
40,115

 
3

 
3

Market rate and other savings
657,145

 
53

 
651,563

 
54

 
1

Savings certificates
25,589

 
2

 
28,614

 
2

 
(11
)
Other time and deposits
60,858

 
5

 
49,032

 
4

 
24

Deposits in foreign offices (1)
98,631

 
8

 
102,409

 
8

 
(4
)
Total deposits
$
1,245,473

 
100
%
 
$
1,223,312

 
100
%
 
2

(1)
Includes Eurodollar sweep balances of $63.5 billion and $71.1 billion at June 30, 2016 , and December 31, 2015 , respectively.

Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See our 2015 Form 10-K for a description of our critical accounting policy related to fair value of financial instruments and a discussion of our fair value measurement techniques.
Table 10 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information (collectively Level 1 and 2 measurements).
Table 10: Fair Value Level 3 Summary
 
June 30, 2016
 
 
December 31, 2015
 
($ in billions)
Total
balance

 
Level 3 (1)

 
Total
balance

 
Level 3 (1)

Assets carried
at fair value (2)
$
384.3

 
26.4

 
384.2

 
27.6

As a percentage
of total assets
20
%
 
1

 
21

 
2

Liabilities carried
at fair value
$
32.4

 
1.6

 
29.6

 
1.5

As a percentage of
total liabilities
2
%
 
*

 
2

 
* 

* Less than 1%.
(1)
Before derivative netting adjustments.
(2)
Level 3 assets at December 31, 2015, have been revised in accordance with our adoption of Accounting Standards Update 2015-07 ( Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent )). See Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional information.

See Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional information on fair value measurements and a description of the Level 1, 2 and 3 fair value hierarchy.
 
Equity
Total equity was $202.7 billion at June 30, 2016 compared with $193.9 billion at December 31, 2015 . The increase was predominantly driven by a $6.2 billion increase in retained earnings from earnings net of dividends paid, and a $2.6 billion increase in preferred stock, partially offset by a net reduction in common stock due to repurchases.




20


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 and purchase securities, 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 portion of these commitments is expected to expire without being used by the customer. For more information on lending commitments, see Note 5 (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 commitments to purchase securities under resale agreements, see Note 3 (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, limited liability companies 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 7 (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 and other types of guarantee arrangements.
For more information on guarantees and certain contingent arrangements, see Note 10 (Guarantees, Pledged Assets and Collateral) to Financial Statements in this Report.

Derivatives
We 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 volume 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 12 (Derivatives) to Financial Statements in this Report.
 
Other Commitments
We also have other off-balance sheet transactions, including obligations to make rental payments under noncancelable operating leases and commitments to purchase certain debt and equity securities. Our operating lease obligations are discussed in Note 7 (Premises, Equipment, Lease Commitments and Other Assets) to Financial Statements in our 2015 Form 10-K. For more information on commitments to purchase debt and equity securities, see the “Off-Balance Sheet Arrangements” section in our 2015 Form 10-K.



21

Risk Management
Wells Fargo manages a variety of risks that can significantly affect our financial performance and our ability to meet the expectations of our customers, stockholders, regulators and other stakeholders. Among the risks that we manage are operational risk, credit risk, and asset/liability management risk, which includes interest rate risk, market risk, 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 our customers’ financial needs and helping them succeed financially, our business practices and operating model must support prudent risk management practices. For more information about how we manage these risks, see the “Risk Management” section in our 2015 Form 10-K. The discussion that follows provides an update regarding these risks.
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.
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 our 2015 Form 10-K for additional information regarding the risks associated with a failure or breach of our operational or security systems or infrastructure, including as a result of cyber attacks.

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 11 presents our total loans outstanding by portfolio segment and class of financing receivable.
 
Table 11: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable
(in millions)
Jun 30, 2016

 
Dec 31, 2015

Commercial:
 
 
 
Commercial and industrial
$
323,858

 
299,892

Real estate mortgage
128,320

 
122,160

Real estate construction
23,387

 
22,164

Lease financing
18,973

 
12,367

Total commercial
494,538

 
456,583

Consumer:
 
 
 
Real estate 1-4 family first mortgage
277,162

 
273,869

Real estate 1-4 family junior lien mortgage
49,772

 
53,004

Credit card
34,137

 
34,039

Automobile
61,939

 
59,966

Other revolving credit and installment
39,609

 
39,098

Total consumer
462,619

 
459,976

Total loans
$
957,157

 
916,559


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.



22
Risk Management - Credit Risk Management ( continued )

Credit Quality Overview   Credit quality remained solid in second quarter 2016 as our loss rate remained low at 0.39%. We continued to benefit from improvements in the performance of our residential real estate portfolio, which was more than offset by losses in our oil and gas portfolio. In particular:
•
Nonaccrual loans were $12.0 billion at June 30, 2016 , up from $11.4 billion at December 31, 2015. Although commercial nonaccrual loans increased to $4.5 billion at June 30, 2016 , compared with $2.4 billion at December 31, 2015 , consumer nonaccrual loans declined to $7.5 billion at June 30, 2016 , compared with $9.0 billion at December 31, 2015 . The increase in commercial nonaccrual loans was largely driven by loans in our oil and gas portfolio. The decline in consumer nonaccrual loans, which reflects an improving housing market, partially offset the increase in commercial nonaccrual loans. Nonaccrual loans represented 1.25% of total loans at June 30, 2016 , compared with 1.24% at December 31, 2015 .
•
Net charge-offs (annualized) as a percentage of average total loans increased to 0.39% in both the second quarter and first half of 2016 , compared with 0.30% and 0.32% , respectively, for the same periods a year ago. Net charge-offs (annualized) as a percentage of our average commercial and consumer portfolios were 0.29% and 0.49% in second quarter and 0.25% and 0.53% in the first half of 2016 , respectively, compared with 0.06% and 0.53% in the second quarter and 0.05% and 0.56% in the first half of 2015 .
•
Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $58 million and $730 million in our commercial and consumer portfolios, respectively, at June 30, 2016 , compared with $114 million and $867 million at December 31, 2015 .
•
Our provision for credit losses was $1.1 billion and $2.2 billion in the second quarter and first half of 2016 , respectively, compared with $300 million and $908 million , for the same periods a year ago.
•
The allowance for credit losses increased to $12.7 billion , or 1.33% of total loans, at June 30, 2016 from $12.5 billion , or 1.37% , at December 31, 2015 .
 
Additional information on our loan portfolios and our credit quality trends follows.


 
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 at June 30, 2016 , which included $1.0 billion from the GE Capital acquisitions, totaled $19.3 billion , compared with $20.0 billion at December 31, 2015 , and $58.8 billion at December 31, 2008. Such loans are considered to be accruing due to the existence of the accretable yield amount, which represents the cash expected to be collected in excess of their carrying value, and not based on consideration given to contractual interest payments. The accretable yield at June 30, 2016 , was $15.7 billion .
A nonaccretable difference is established for PCI loans to absorb losses expected on the contractual amounts of those loans in excess of the fair value recorded at the date of acquisition. Amounts absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses. Since December 31, 2008, we have released $11.7 billion in nonaccretable difference, including $9.8 billion transferred from the nonaccretable difference to the accretable yield due to decreases in our initial estimate of loss on contractual amounts, 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 a $10.0 billion reduction from December 31, 2008, through June 30, 2016 , in our initial projected losses of $41.0 billion on all PCI loans acquired in the Wachovia acquisition. At June 30, 2016 , $2.2 billion in nonaccretable difference, which included $308 million from the GE Capital acquisitions, remained to absorb losses on PCI loans.
For additional information on PCI loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2015 Form 10-K, and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.



23

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 5 (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 $342.8 billion , or 36% of total loans, at June 30, 2016 . The annualized net charge-off rate for this portfolio was 0.45% and 0.40% in the second quarter and first half of 2016 , respectively, compared with 0.11% and 0.10% for the same periods a year ago. At June 30, 2016 , 1.04% of this portfolio was nonaccruing, compared with 0.44% at December 31, 2015 , an increase of $2.2 billion . Also, $28.2 billion of this portfolio was internally classified as criticized in accordance with regulatory guidance at June 30, 2016 , compared with $19.1 billion at December 31, 2015 . The increase in criticized loans, which also includes the increase in nonaccrual loans, was due to the initial classification of loans and capital leases acquired from GE Capital, and to deterioration in the oil and gas portfolio. Based on preliminary evaluation and refinement of our initial classification of the criticized loans and leases acquired from GE Capital, we expect continued classification improvement.
Most 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 12 provides a breakout of commercial and industrial loans and lease financing by industry, and includes $51.5 billion of foreign loans at June 30, 2016 . Foreign loans totaled $13.9 billion within the investor category, $16.6 billion within the financial institutions category and $2.2 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 on analysis of underlying credit risk and other factors such as asset duration and ongoing performance.
 
We provide financial institutions with a variety of relationship focused products and services, including loans supporting short-term trade finance and working capital needs. The $16.6 billion of foreign loans in the financial institutions category were predominantly originated by our Global Financial Institutions (GFI) business.
The oil and gas loan portfolio totaled $17.1 billion , or 2% of total outstanding loans at June 30, 2016 , compared with $17.4 billion , or 2% of total outstanding loans, at December 31, 2015. Unfunded loan commitments in the oil and gas loan portfolio totaled $22.0 billion at June 30, 2016 . Approximately half of our oil and gas loans were to businesses in the exploration and production (E&P) sector. Most 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 majority of the other oil and gas loans were to midstream companies. We proactively monitor our oil and gas loan portfolio and work with customers to address any emerging issues. Oil and gas nonaccrual loans increased to $2.6 billion at June 30, 2016 , compared with $844 million at December 31, 2015 , due to weaker borrower financial performance.
Table 12: Commercial and Industrial Loans and Lease Financing by Industry (1)
 
June 30, 2016
 
(in millions)
Nonaccrual
loans

 
Total
portfolio

 
(2)
 
% of
total
loans

Investors
$
8

 
53,861

 
 
 
6
%
Financial institutions
24

 
37,837

 
 
 
4

Cyclical retailers
61

 
24,572

 
 
 
2

Oil and gas
2,550

 
17,064

 
 
 
2

Healthcare
35

 
16,288

 
 
 
2

Industrial equipment
33

 
15,387

 
 
 
2

Food and beverage
98

 
15,005

 
 
 
2

Real estate lessor
—

 
14,884

 
 
 
1

Technology
61

 
11,999

 
 
 
1

Transportation
106

 
9,455

 
 
 
1

Public administration
8

 
9,188

 
 
 
1

Business services
33

 
8,772

 
 
 
1

Other
559

 
108,519

 
(3)
 
11

Total
$
3,576

 
342,831

 
 
 
36
%
(1)
Industry categories are based on the North American Industry Classification System and the amounts reported include foreign loans. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for a breakout of commercial foreign loans.
(2)
Includes $1.1 billion of 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 industry had total loans in excess of $6.8 billion . 


24
Risk Management - Credit Risk Management ( continued )

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 $8.7 billion of foreign CRE loans, totaled $151.7 billion , or 16% of total loans, at June 30, 2016 , and consisted of $128.3 billion of mortgage loans and $23.4 billion of construction loans.
Table 13 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 CRE loans are in California, Texas, New York and Florida, which combined represented 49% of the total CRE
 
portfolio. By property type, the largest concentrations are office buildings at 28% and apartments at 16% of the portfolio. CRE nonaccrual loans totaled 0.6% of the CRE outstanding balance at June 30, 2016 , compared with 0.7% at December 31, 2015 . At June 30, 2016 , we had $6.0 billion of criticized CRE mortgage loans, compared with $6.8 billion at December 31, 2015 , and $514 million of criticized CRE construction loans, compared with $549 million at December 31, 2015 .
At June 30, 2016 , the recorded investment in PCI CRE loans totaled $516 million , down from $12.3 billion when acquired at December 31, 2008, reflecting principal payments, loan resolutions and write-downs.

Table 13: CRE Loans by State and Property Type
 
June 30, 2016
 
 
Real estate mortgage
 
 
 
 
Real estate construction
 
 
 
 
Total
 
 
 
 
 
(in millions)
Nonaccrual
loans

 
Total
portfolio

 
(1)
 
Nonaccrual
loans

 
Total
portfolio

 
(1)
 
Nonaccrual
loans

 
Total
portfolio

 
(1)
 
% of
total
loans

By state:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
$
201

 
36,619

 
 
 
11

 
4,403

 
 
 
212

 
41,022

 
 
 
4
%
Texas
46

 
9,489

 
 
 
—

 
1,974

 
 
 
46

 
11,463

 
 
 
1

New York
34

 
9,145

 
 
 
1

 
2,148

 
 
 
35

 
11,293

 
 
 
1

Florida
110

 
8,559

 
 
 
1

 
2,039

 
 
 
111

 
10,598

 
 
 
1

North Carolina
50

 
3,844

 
 
 
10

 
964

 
 
 
60

 
4,808

 
 
 
1

Arizona
34

 
3,989

 
 
 
1

 
499

 
 
 
35

 
4,488

 
 
 
*

Washington
52

 
3,610

 
 
 
—

 
737

 
 
 
52

 
4,347

 
 
 
*

Georgia
36

 
3,604

 
 
 
6

 
563

 
 
 
42

 
4,167

 
 
 
*

Virginia
10

 
2,897

 
 
 
—

 
1,009

 
 
 
10

 
3,906

 
 
 
*

Illinois
26

 
3,300

 
 
 
—

 
400

 
 
 
26

 
3,700

 
 
 
*

Other
273

 
43,264

 
 
 
29

 
8,651

 
 
 
302

 
51,915

 
(2)
 
5

Total
$
872

 
128,320

 
 
 
59

 
23,387

 
 
 
931

 
151,707

 
 
 
16
%
By property:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office buildings
$
280

 
39,972

 
 
 
—

 
2,888

 
 
 
280

 
42,860

 
 
 
4
%
Apartments
28

 
15,405

 
 
 
3

 
8,474

 
 
 
31

 
23,879

 
 
 
2

Industrial/warehouse
135

 
15,033

 
 
 
—

 
1,311

 
 
 
135

 
16,344

 
 
 
2

Retail (excluding shopping center)
110

 
14,948

 
 
 
—

 
817

 
 
 
110

 
15,765

 
 
 
2

Shopping center
40

 
10,317

 
 
 
—

 
1,380

 
 
 
40

 
11,697

 
 
 
1

Hotel/motel
16

 
9,923

 
 
 
—

 
1,510

 
 
 
16

 
11,433

 
 
 
1

Real estate - other
95

 
8,498

 
 
 
—

 
198

 
 
 
95

 
8,696

 
 
 
1

Institutional
31

 
3,051

 
 
 
—

 
902

 
 
 
31

 
3,953

 
 
 
*

Agriculture
49

 
2,563

 
 
 
—

 
11

 
 
 
49

 
2,574

 
 
 
*

1-4 family structure
—

 
3

 
 
 
7

 
2,502

 
 
 
7

 
2,505

 
 
 
*

Other
88

 
8,607

 
 
 
49

 
3,394

 
 
 
137

 
12,001

 
 
 
1

Total
$
872

 
128,320

 
 
 
59

 
23,387

 
 
 
931

 
151,707

 
 
 
16
%
*
Less than 1%.
(1)
Includes a total of $516 million PCI loans, consisting of $446 million of real estate mortgage and $70 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 $3.7 billion .



25

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 June 30, 2016 , foreign loans totaled $60.7 billion , representing approximately 6% of our total consolidated loans outstanding, compared with $58.6 billion , or approximately 6% of total consolidated loans outstanding, at December 31, 2015 . Foreign loans were approximately 3%  of our consolidated total assets at June 30, 2016 and at December 31, 2015 .
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 based on our assessment of ultimate risk, which is normally based on the country of residence of the guarantor or collateral location, and may be different from the reporting based on the borrower’s primary address. Our largest single foreign country exposure on an ultimate risk basis at June 30, 2016 , was the United Kingdom, which totaled $27.1 billion , or approximately 1% of our total assets, and included $4.0 billion of sovereign claims. Our United Kingdom sovereign claims arise predominantly from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch. The Brexit vote did not have a material impact on our United Kingdom or other foreign exposure as of June 30, 2016. We will continue to monitor the relationship between the United Kingdom and the European Union and assess the related risks. Our exposure to Canada, our second largest foreign country exposure on an ultimate risk basis, totaled $17.9 billion at June 30, 2016 , up $2.9 billion from December 31, 2015, predominantly due to the GE Capital acquisitions.
 
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 14 provides information regarding our top 20 exposures by country (excluding the U.S.) and our Eurozone exposure, on an ultimate risk basis. Our exposure to Puerto Rico (considered part of U.S. exposure) is largely through automobile lending and was not material to our consolidated country risk exposure.


26
Risk Management - Credit Risk Management ( continued )

Table 14: Select Country Exposures
 
June 30, 2016
 
 
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

Top 20 country exposures:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United Kingdom
$
3,999

 
17,137

 
4

 
3,421

 
—

 
2,499

 
4,003

 
23,057

 
27,060

Canada
1

 
16,306

 
—

 
841

 
—

 
776

 
1

 
17,923

 
17,924

Cayman Islands
—

 
5,066

 
—

 
—

 
—

 
252

 
—

 
5,318

 
5,318

Germany
2,058

 
1,491

 
—

 
184

 
—

 
424

 
2,058

 
2,099

 
4,157

Ireland
17

 
3,530

 
—

 
154

 
—

 
118

 
17

 
3,802

 
3,819

Bermuda
—

 
3,374

 
—

 
81

 
—

 
181

 
—

 
3,636

 
3,636

Netherlands
—

 
1,935

 
—

 
422

 
—

 
95

 
—

 
2,452

 
2,452

Brazil
—

 
2,173

 
—

 
(7
)
 
—

 
5

 
—

 
2,171

 
2,171

India
—

 
1,904

 
—

 
198

 
—

 
9

 
—

 
2,111

 
2,111

Australia
—

 
1,067

 
—

 
874

 
—

 
96

 
—

 
2,037

 
2,037

France
—

 
790

 
—

 
953

 
—

 
194

 
—

 
1,937

 
1,937

China
—

 
1,662

 
(2
)
 
86

 
74

 
1

 
72

 
1,749

 
1,821

South Korea
—

 
1,515

 
(12
)
 
95

 
3

 
—

 
(9
)
 
1,610

 
1,601

Switzerland
—

 
1,512

 
—

 
4

 
—

 
38

 
—

 
1,554

 
1,554

Turkey
—

 
1,372

 
—

 
86

 
—

 
—

 
—

 
1,458

 
1,458

Chile
—

 
1,384

 
—

 
20

 
—

 
48

 
—

 
1,452

 
1,452

Guernsey
—

 
1,423

 
—

 
—

 
—

 
2

 
—

 
1,425

 
1,425

Mexico
257

 
1,025

 
—

 
12

 
—

 
5

 
257

 
1,042

 
1,299

Jersey, C.I.
—

 
772

 
—

 
214

 
—

 
29

 
—

 
1,015

 
1,015

Luxembourg
—

 
700

 
—

 
139

 
—

 
23

 
—

 
862

 
862

Total top 20 country exposures
$
6,332

 
66,138

 
(10
)
 
7,777

 
77

 
4,795

 
6,399

 
78,710

 
85,109

Eurozone exposure:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eurozone countries included in Top 20 above (5)
$
2,075

 
8,446

 
—

 
1,852

 
—

 
854

 
2,075

 
11,152

 
13,227

Austria
—

 
620

 
—

 
—

 
—

 
—

 
—

 
620

 
620

Spain
—

 
349

 
—

 
91

 
—

 
3

 
—

 
443

 
443

Belgium
—

 
300

 
—

 
38

 
—

 
1

 
—

 
339

 
339

Other Eurozone exposure (6)
22

 
93

 
—

 
59

 
—

 
8

 
22

 
160

 
182

Total Eurozone exposure
$
2,097

 
9,808

 
—

 
2,040

 
—

 
866

 
2,097

 
12,714

 
14,811

(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 $16 million in PCI loans, predominantly to customers in Germany and the Netherlands, and $1.1 billion in defeased leases secured primarily by U.S. Treasury and government agency securities, or government guaranteed.
(2)
Represents exposure on debt and equity securities of foreign issuers. Long and short positions are netted and net short positions are reflected as negative exposure.
(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 June 30, 2016 , the gross notional amount of our CDS sold that reference assets in the Top 20 or Eurozone countries was $2.1 billion , which was offset by the notional amount of CDS purchased of $2.2 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 $36.5 billion exposure to financial institutions and $43.8 billion to non-financial corporations at June 30, 2016 .
(5)
Consists of exposure to Germany, Ireland, Netherlands, France and Luxembourg included in Top 20.
(6)
Includes non-sovereign exposure to Italy, Greece and Portugal in the amount of $96 million , $29 million and $21 million respectively. We had no sovereign debt exposure to these countries at June 30, 2016 .

27

REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANS   Our real estate 1-4 family first and junior lien mortgage loans, as presented in Table 15 , include loans we have made to customers and retained as part of our asset/liability management strategy, 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 15: Real Estate 1-4 Family First and Junior Lien Mortgage Loans
 
June 30, 2016
 
 
December 31, 2015
 
(in millions)
Balance

 
% of
portfolio

 
Balance

 
% of
portfolio

Real estate 1-4 family first mortgage
$
277,162

 
85
%
 
$
273,869

 
84
%
Real estate 1-4 family junior lien mortgage
49,772

 
15

 
53,004

 
16

Total real estate 1-4 family mortgage loans
$
326,934

 
100
%
 
$
326,873

 
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 8% and 9% of total loans at June 30, 2016 , and December 31, 2015 , 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. 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 38% at June 30, 2016 , 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 in this Report.
We continue to modify real estate 1-4 family mortgage loans to assist homeowners and other borrowers experiencing financial difficulties. For more information on our participation in the U.S. Treasury’s Making Home Affordable (MHA) programs, see the “Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans” section in our 2015 Form 10-K.
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 second quarter 2016 on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at June 30, 2016 , totaled $6.7 billion , or 2% of total non-PCI mortgages, compared with $8.3 billion , or 3% , at December 31, 2015 . Loans with FICO scores lower than 640 totaled $18.9 billion , or 6% of total non-PCI mortgages at June 30, 2016 , compared with $21.1 billion , or 7% , at December 31, 2015 . Mortgages with a LTV/CLTV greater than 100% totaled $12.3 billion at June 30, 2016 , or 4% of total non-PCI mortgages, compared with $15.1 billion , or 5% , at December 31, 2015 . Information regarding credit quality indicators, including PCI credit quality indicators, can be found in Note 5 (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 16 . Our real estate 1-4 family mortgage loans to borrowers in California represented approximately 12% of total loans at June 30, 2016 , located mostly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 5% 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. Additional information about AVMs and our policy for their use can be found in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans” section in our 2015 Form 10-K.
Table 16: Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State
 
June 30, 2016
 
(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
$
91,494

 
13,570

 
105,064

 
11
%
New York
22,456

 
2,294

 
24,750

 
2

Florida
13,948

 
4,531

 
18,479

 
2

New Jersey
12,243

 
4,269

 
16,512

 
2

Virginia
7,364

 
2,848

 
10,212

 
1

Texas
8,319

 
810

 
9,129

 
1

Washington
7,287

 
1,149

 
8,436

 
1

Pennsylvania
5,682

 
2,615

 
8,297

 
1

North Carolina
6,021

 
2,275

 
8,296

 
1

Other (1)
64,078

 
15,360

 
79,438

 
8

Government insured/
guaranteed loans (2)
20,580

 
—

 
20,580

 
2

Real estate 1-4 family loans (excluding PCI)
259,472

 
49,721

 
309,193

 
32

Real estate 1-4 family PCI loans (3)
17,690

 
51

 
17,741

 
2

Total
$
277,162

 
49,772

 
326,934

 
34
%
(1)
Consists of 41 states; no state had loans in excess of $7.1 billion .
(2)
Represents loans whose repayments are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).
(3)
Includes $12.3 billion in real estate 1-4 family mortgage PCI loans in California.

First Lien Mortgage Portfolio   Our total real estate 1-4 family first lien mortgage portfolio increased $2.4 billion in second quarter 2016 and $3.3 billion in the first half of 2016 , as we


28
Risk Management - Credit Risk Management ( continued )

retained $16.2 billion and $28.0 billion in non-conforming originations, consisting of loans that exceed conventional conforming loan amount limits established by federal government-sponsored entities (GSEs), in the second quarter and first half of 2016 , respectively.
The credit performance associated with our real estate 1-4 family first lien mortgage portfolio continued to improve in second quarter 2016 , as measured through net charge-offs and nonaccrual loans. Net charge-offs (annualized) as a percentage of average real estate 1-4 family first lien mortgage loans improved to 0.02% and 0.05% in the second quarter and first half of 2016 , respectively, compared with 0.10% and 0.11% for the same
 
periods a year ago. Nonaccrual loans were $6.0 billion at June 30, 2016 , compared with $7.3 billion at December 31, 2015 . Improvement in the credit performance was driven by an improving housing environment. Real estate 1-4 family first lien mortgage loans originated after 2008, which generally utilized tighter underwriting standards, have resulted in minimal losses to date and were approximately 70% of our total real estate 1-4 family first lien mortgage portfolio as of June 30, 2016 .
Table 17 shows certain delinquency and loss information for the first lien mortgage portfolio and lists the top five states by outstanding balance.

Table 17: First Lien Mortgage Portfolio Performance
 
Outstanding balance
 
 
% of loans 30 days or more past due
 
Loss (recovery) rate (annualized) quarter ended
 
(in millions)
Jun 30,
2016

Dec 31,
2015

 
Jun 30,
2016

Dec 31,
2015
 
Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015

Jun 30,
2015

California
$
91,494

88,367

 
1.56
%
1.87
 
(0.09
)
(0.07
)
(0.05
)
(0.05
)
(0.02
)
New York
22,456

20,962

 
2.37

3.07
 
0.11

0.12

0.08

0.13

0.14

Florida
13,948

14,068

 
4.10

5.14
 
(0.19
)
0.03

0.02

0.16

0.23

New Jersey
12,243

11,825

 
4.51

5.68
 
0.42

0.44

0.33

0.38

0.27

Texas
8,319

8,153

 
2.42

2.80
 
0.09

0.10

0.02

—

0.02

Other
90,432

88,951

 
2.86

3.72
 
0.10

0.18

0.21

0.23

0.22

Total
238,892

232,326

 
2.46
%
3.11
 
0.02

0.08

0.09

0.11

0.12

Government insured/guaranteed loans
20,580

22,353

 
 
 
 
 
 
 
 
 
PCI
17,690

19,190

 
 
 
 
 
 
 
 
 
Total first lien mortgages
$
277,162

273,869

 
 
 
 
 
 
 
 
 
Pick‑a‑Pay Portfolio  The Pick-a-Pay portfolio was one of the consumer residential first lien 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 18 provides balances by types of loans as of June 30, 2016 , 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 $22.2 billion at June 30, 2016 , compared with $61.0 billion at acquisition. Due to loan modification and loss mitigation efforts, the adjusted unpaid principal balance of option payment PCI loans has declined to 14% of the total Pick-a-Pay portfolio at June 30, 2016 , compared with 51% at acquisition.

Table 18: Pick-a-Pay Portfolio – Comparison to Acquisition Date
 
 
 
December 31,
 
 
June 30, 2016
 
 
2015
 
 
2008
 
(in millions)
Adjusted
unpaid
principal
balance (1)

 
% of
total

 
Adjusted
unpaid
principal
balance (1)

 
% of
total

 
Adjusted
unpaid
principal
balance (1)

 
% of
total

Option payment loans
$
15,278

 
38
%
 
$
16,828

 
39
%
 
$
99,937

 
86
%
Non-option payment adjustable-rate
and fixed-rate loans
5,204

 
13

 
5,706

 
13

 
15,763

 
14

Full-term loan modifications
20,092

 
49

 
21,193

 
48

 
—

 
—

Total adjusted unpaid principal balance
$
40,574

 
100
%
 
$
43,727

 
100
%
 
$
115,700

 
100
%
Total carrying value
$
35,966

 
 
 
39,065

 
 
 
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.

  Table 19 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 evaluating 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


29

balance. For informational purposes, we have included both ratios for PCI loans in the following table.

Table 19: Pick-a-Pay Portfolio (1)
 
June 30, 2016
 
 
PCI loans
 
 
All other loans
 
(in millions)
Adjusted
unpaid
principal
balance (2)

 
Current
LTV
ratio (3)

 
Carrying
value (4)

 
Ratio of
carrying
value to
current
value (5)

 
Carrying
value (4)

 
Ratio of
carrying
value to
current
value (5)

California
$
15,462

 
67
%
 
$
12,246

 
53
%
 
$
8,858

 
49
%
Florida
1,757

 
78

 
1,327

 
57

 
1,849

 
62

New Jersey
726

 
81

 
546

 
59

 
1,223

 
68

New York
506

 
75

 
430

 
58

 
606

 
65

Texas
190

 
52

 
169

 
46

 
723

 
41

Other states
3,590

 
77

 
2,843

 
60

 
5,146

 
63

Total Pick-a-Pay loans
$
22,231

 
70

 
$
17,561

 
54

 
$
18,405

 
56

 
 
 
 
 
 
 
 
 
 
 
 
(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 2016 .
(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 does not reflect related allowance for loan losses but does reflect remaining purchase accounting adjustments and any charge-offs.
(5)
The ratio of carrying value to current value is calculated as the carrying value divided by the collateral value.

In second quarter 2016 , we completed over 900 proprietary and Home Affordability Modification Program (HAMP) Pick-a-Pay loan modifications. We have completed over 134,000 modifications since the Wachovia acquisition, resulting in over $6.1 billion of principal forgiveness to our Pick-a-Pay customers. There remains $12.7 million of conditional forgiveness, all of which has been charged off, that can be earned by borrowers through performance over a three-year period.
Due to better than expected performance observed on the PCI portion of the Pick-a-Pay portfolio compared with the original acquisition estimates, we have reclassified $7.1 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 11.5  years at June 30, 2016 . The weighted average remaining life decreased slightly from December 31, 2015 due to the passage of time. The accretable yield percentage at June 30, 2016 , was 6.68% , up from 6.21% at the end of 2015 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 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 our 2015 Form 10-K.
For further information on the Pick-a-Pay portfolio, including recast risk, deferral of interest and loan modifications, see the "Risk Management – Credit Risk Management – Pick-a-Pay Portfolio" section in our 2015 Form 10-K.


30
Risk Management - Credit Risk Management ( continued )

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. Substantially all 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 lien 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, our allowance process for junior lien mortgages considers the relative difference in loss experience for junior lien mortgages 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 lien mortgages that are current, but are in their revolving period, considers the inherent loss where the borrower is delinquent on the corresponding first lien mortgage loans.
Table 20 shows certain delinquency and loss information for the junior lien mortgage portfolio and lists the top five states by outstanding balance. The decrease in outstanding balances since December 31, 2015 , predominantly reflects loan paydowns. As of June 30, 2016 , 14% 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 lien mortgages with a CLTV ratio in excess of 100%, 2.59% were 30 days or more past due. CLTV means the ratio of the total loan balance of first lien 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 6% of the junior lien mortgage portfolio at June 30, 2016 .

Table 20: Junior Lien Mortgage Portfolio Performance
 
Outstanding balance
 
 
% of loans 30 days or more past due
 
Loss rate (annualized) quarter ended
 
(in millions)
Jun 30,
2016

 
Dec 31,
2015

 
Jun 30,
2016

 
Dec 31,
2015
 
Jun 30,
2016

 
Mar 31,
2016

 
Dec 31,
2015

 
Sep 30,
2015

 
Jun 30,
2015

California
$
13,570

 
14,554

 
1.83
%
 
2.03
 
0.07

 
0.27

 
0.12

 
0.21

 
0.27

Florida
4,531

 
4,823

 
2.23

 
2.45
 
0.76

 
0.79

 
0.51

 
1.02

 
0.82

New Jersey
4,269

 
4,462

 
2.77

 
3.06
 
1.10

 
0.84

 
0.77

 
1.23

 
1.02

Virginia
2,848

 
2,991

 
1.87

 
2.05
 
0.87

 
0.80

 
0.77

 
0.73

 
0.75

Pennsylvania
2,615

 
2,748

 
2.09

 
2.35
 
0.58

 
0.55

 
0.66

 
0.79

 
0.97

Other
21,888

 
23,357

 
1.97

 
2.24
 
0.53

 
0.63

 
0.68

 
0.70

 
0.76

 Total
49,721


52,935

 
2.02
%
 
2.27
 
0.49

 
0.57

 
0.52

 
0.64

 
0.66

PCI
51

 
69

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total junior lien mortgages
$
49,772

 
53,004

 
 
 
 
 
 
 
 
 
 
 
 
 
 


31

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 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.
On a monthly basis, we monitor the payment characteristics of borrowers in our junior lien portfolio. In June 2016 , approximately 48% of these borrowers paid only the minimum amount due and approximately 47% paid more than the minimum amount due. The rest were either delinquent or paid less than the minimum amount due. For the borrowers with an interest only payment feature, approximately 36% paid only the
 
minimum amount due and approximately 60% paid more than the minimum amount due.
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 21 reflects the outstanding balance of our portfolio of junior lien mortgages, including 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 $2.0 billion , because they are predominantly insured by the FHA, and it excludes PCI loans, which total $76 million , because their losses were generally reflected in our nonaccretable difference established at the date of acquisition.


Table 21: Junior Lien Mortgage Line and Loan and Senior Lien Mortgage Line Portfolios Payment Schedule
 
 
 
 
 
Scheduled end of draw / term
 
 
 
(in millions)
Outstanding balance
June 30, 2016

 
Remainder of 2016

 
2017

 
2018

 
2019

 
2020

 
2021 and
thereafter (1)

 
Amortizing

Junior lien lines and loans
$
49,721

 
1,969

 
4,612

 
2,671

 
1,075

 
964

 
25,546

 
12,884

First lien lines
15,728

 
258

 
688

 
825

 
374

 
345

 
11,274

 
1,964

Total (2)(3)
$
65,449

 
2,227

 
5,300

 
3,496

 
1,449

 
1,309

 
36,820

 
14,848

% of portfolios
100
%
 
3

 
8

 
5

 
2

 
2

 
56

 
24

(1)
Substantially all lines and loans are scheduled to convert to amortizing loans by the end of 2026, with annual scheduled amounts through that date ranging from $2.5 billion to $8.4 billion and averaging $6.1 billion per year.
(2)
Junior and first lien lines are mostly interest-only during their draw period. The unfunded credit commitments for junior and first lien lines totaled $67.2 billion at June 30, 2016 .
(3)
Includes scheduled end-of-term balloon payments for lines and loans totaling $82 million , $308 million , $388 million , $367 million , $395 million and $1.0 billion for 2016 2017 , 2018 , 2019 , 2020 , and 2021 and thereafter , respectively. Amortizing lines and loans include $127 million of end-of-term balloon payments, which are past due. At June 30, 2016 , $488 million , or 5% of outstanding lines of credit that are amortizing, are 30 days or more past due compared to $768 million or 2% for lines in their draw period.
CREDIT CARDS   Our credit card portfolio totaled $34.1 billion at June 30, 2016 , which represented 4% of our total outstanding loans. The net charge-off rate (annualized) for our credit card portfolio was 3.25% for second quarter 2016 , compared with 3.21% for second quarter 2015 and 3.20% for the first half of both 2016 and 2015.
 
AUTOMOBILE   Our automobile portfolio, predominantly composed of indirect loans, totaled $61.9 billion at June 30, 2016 . The net charge-off rate (annualized) for our automobile portfolio was 0.59% for second quarter 2016 , compared with 0.48% for second quarter 2015 and 0.72% and 0.60% for the first half of 2016 and 2015, respectively. The increase in net charge-offs in 2016 as compared with 2015 was consistent with trends in the automobile lending industry.

 
OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans totaled $39.6 billion at June 30, 2016 , and primarily included student and security-based loans. Student loans totaled $ 12.3 billion at June 30, 2016 . The net charge-off rate (annualized) for other revolving credit and installment loans was 1.32% for second quarter 2016 , compared with 1.26% for second quarter 2015 and 1.37% and 1.29% for the first half of 2016 and 2015, respectively.
 



32
Risk Management - Credit Risk Management ( continued )

NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 22 summarizes nonperforming assets (NPAs) for each of the last four quarters. Total NPAs decreased $433 million from first quarter 2016 to $13.1 billion . Nonaccrual loans decreased $271 million from first quarter to $12.0 billion as an $809 million decrease in consumer nonaccruals, which included the sale of certain nonaccrual loans during second quarter, was partially offset by a $651 million increase in oil and gas nonaccruals. Foreclosed assets of $1.1 billion were down $162 million from first quarter 2016.

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;
•
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
•
consumer real estate and automobile loans are discharged in bankruptcy, regardless of their delinquency status.



Table 22: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
 
 
June 30, 2016
 
 
March 31, 2016
 
 
December 31, 2015
 
 
September 30, 2015
 
($ in millions)
 
Balance

 
% of
total
loans

 
Balance

 
% of
total
loans

 
Balance

 
% of
total
loans

 
Balance

 
% of
total
loans

Nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
3,464

 
1.07
%
 
$
2,911

 
0.91
%
 
$
1,363

 
0.45
%
 
$
1,031

 
0.35
%
Real estate mortgage
 
872

 
0.68

 
896

 
0.72

 
969

 
0.79

 
1,125

 
0.93

Real estate construction
 
59

 
0.25

 
63

 
0.27

 
66

 
0.30

 
151

 
0.70

Lease financing
 
112

 
0.59

 
99

 
0.52

 
26

 
0.21

 
29

 
0.24

Total commercial
 
4,507

 
0.91

 
3,969

 
0.81

 
2,424

 
0.53

 
2,336

 
0.52

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage (1)
 
5,970

 
2.15

 
6,683

 
2.43

 
7,293

 
2.66

 
7,425

 
2.74

Real estate 1-4 family junior lien mortgage
 
1,330

 
2.67

 
1,421

 
2.77

 
1,495

 
2.82

 
1,612

 
2.95

Automobile
 
111

 
0.18

 
114

 
0.19

 
121

 
0.20

 
123

 
0.21

Other revolving credit and installment
 
45

 
0.11

 
47

 
0.12

 
49

 
0.13

 
41

 
0.11

Total consumer
 
7,456

 
1.61

 
8,265

 
1.80

 
8,958

 
1.95

 
9,201

 
2.02

Total nonaccrual loans (2)(3)(4)
 
11,963

 
1.25

 
12,234

 
1.29

 
11,382

 
1.24

 
11,537

 
1.28

Foreclosed assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government insured/guaranteed (5)
 
321

 
 
 
386

 
 
 
446

 
 
 
502

 
 
Non-government insured/guaranteed
 
796

 
 
 
893

 
 
 
979

 
 
 
1,265

 
 
Total foreclosed assets
 
1,117

 
 
 
1,279

 
 
 
1,425

 
 
 
1,767

 
 
Total nonperforming assets
 
$
13,080

 
1.37
%
 
$
13,513

 
1.43
%
 
$
12,807

 
1.40
%
 
$
13,304

 
1.47
%
Change in NPAs from prior quarter
 
$
(433
)
 
 
 
706

 
 
 
(497
)
 
 
 
(1,097
)
 
 
(1)
Includes MHFS of $155 million , $157 million , $177 million , and $96 million at June 30 and March 31, 2016 , and December 31 and September 30, 2015 , respectively.
(2)
Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.
(3)
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.
(4)
See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further information on impaired loans.
(5)
Consistent with regulatory reporting requirements, foreclosed real estate resulting from government insured/guaranteed loans are classified as nonperforming. Both principal and interest related to these foreclosed real estate assets are collectible because the loans were predominantly insured by the FHA or guaranteed by the VA. Foreclosure of certain government guaranteed residential real estate mortgage loans that meet criteria specified by Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure , effective as of January 1, 2014 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) to Financial Statements in our 2015 Form 10-K.



33

Table 23 provides an analysis of the changes in nonaccrual loans.

Table 23: Analysis of Changes in Nonaccrual Loans
 
Quarter ended
 
(in millions)
Jun 30,
2016

 
Mar 31,
2016

 
Dec 31,
2015

 
Sep 30,
2015

 
Jun 30,
2015

Commercial nonaccrual loans
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
3,969

 
2,424

 
2,336

 
2,522

 
2,192

Inflows
1,936

 
2,291

 
793

 
382

 
840

Outflows:
 
 
 
 
 
 
 
 
 
Returned to accruing
(32
)
 
(34
)
 
(44
)
 
(26
)
 
(20
)
Foreclosures
(6
)
 
(4
)
 
(72
)
 
(32
)
 
(11
)
Charge-offs
(420
)
 
(317
)
 
(243
)
 
(135
)
 
(117
)
Payments, sales and other (1)
(940
)
 
(391
)
 
(346
)
 
(375
)
 
(362
)
Total outflows
(1,398
)
 
(746
)
 
(705
)
 
(568
)
 
(510
)
Balance, end of period
4,507


3,969


2,424


2,336


2,522

Consumer nonaccrual loans
 
 
 
 
 
 
 
 
 
Balance, beginning of period
8,265

 
8,958

 
9,201

 
9,921

 
10,318

Inflows
829

 
964

 
1,226

 
1,019

 
1,098

Outflows:
 
 
 
 
 
 
 
 
 
Returned to accruing
(546
)
 
(584
)
 
(646
)
 
(676
)
 
(668
)
Foreclosures
(85
)
 
(98
)
 
(89
)
 
(99
)
 
(108
)
Charge-offs
(167
)
 
(203
)
 
(204
)
 
(228
)
 
(229
)
Payments, sales and other (1)
(840
)
 
(772
)
 
(530
)
 
(736
)
 
(490
)
Total outflows
(1,638
)
 
(1,657
)
 
(1,469
)
 
(1,739
)
 
(1,495
)
Balance, end of period
7,456


8,265


8,958


9,201


9,921

Total nonaccrual loans
$
11,963

 
12,234

 
11,382

 
11,537

 
12,443

(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 June 30, 2016 :
•
94% of total commercial nonaccrual loans and over 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 98% are secured by real estate and 77% have a combined LTV (CLTV) ratio of 80% or less.
•
losses of $560 million and $2.5 billion  have already been recognized on 17% of commercial nonaccrual loans and 49% 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.
•
86% of commercial nonaccrual loans were current on interest, but were on nonaccrual status because the full or
 
timely collection of interest or principal had become uncertain.
•
the risk of loss of all nonaccrual loans has been considered and we believe is adequately covered by the allowance for loan losses.
•
$1.8 billion of consumer loans discharged in bankruptcy and classified as nonaccrual were 60 days or less past due, of which $1.6 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.


34
Risk Management - Credit Risk Management ( continued )

Table 24 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.


Table 24: Foreclosed Assets
(in millions)
Jun 30,
2016

 
Mar 31,
2016

 
Dec 31,
2015

 
Sep 30,
2015

 
Jun 30,
2015

Summary by loan segment
 
 
 
 
 
 
 
 
 
Government insured/guaranteed
$
321

 
386

 
446

 
502

 
588

PCI loans:
 
 
 
 
 
 
 
 
 
Commercial
124

 
142

 
152

 
297

 
305

Consumer
91

 
97

 
103

 
126

 
160

Total PCI loans
215

 
239

 
255

 
423

 
465

All other loans:
 
 
 
 
 
 
 
 
 
Commercial
313

 
357

 
384

 
437

 
458

Consumer
268

 
297

 
340

 
405

 
447

Total all other loans
581

 
654

 
724

 
842

 
905

Total foreclosed assets
$
1,117

 
1,279

 
1,425

 
1,767

 
1,958

Analysis of changes in foreclosed assets
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
1,279

 
1,425

 
1,767

 
1,958

 
2,329

Net change in government insured/guaranteed (1)
(65
)
 
(60
)
 
(56
)
 
(86
)
 
(184
)
Additions to foreclosed assets (2)
281

 
290

 
327

 
325

 
300

Reductions:
 
 
 
 
 
 
 
 
 
Sales
(405
)
 
(390
)
 
(719
)
 
(468
)
 
(531
)
Write-downs and gains (losses) on sales
27

 
14

 
106

 
38

 
44

Total reductions
(378
)
 
(376
)
 
(613
)
 
(430
)
 
(487
)
Balance, end of period
$
1,117

 
1,279

 
1,425

 
1,767

 
1,958

(1)
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 , $61 million , $46 million , $38 million and $24 million for the quarters ended June 30 and March 31, 2016 , and December 31 , September 30, and June 30, 2015, respectively.
(2)
Predominantly include loans moved into foreclosure from nonaccrual status, PCI loans transitioned directly to foreclosed assets and repossessed automobiles.
Foreclosed assets at June 30, 2016 , included $656 million  of foreclosed residential real estate, of which 49% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining foreclosed assets balance of $461 million has been written down to estimated net realizable value. Foreclosed assets at June 30, 2016 decreased compared with December 31, 2015 . Of the $1.1 billion in foreclosed assets at June 30, 2016 , 50%  have been in the foreclosed assets portfolio one year or less.



35

TROUBLED DEBT RESTRUCTURINGS (TDRs)


Table 25: Troubled Debt Restructurings (TDRs)
(in millions)
Jun 30,
2016


Mar 31,
2016


Dec 31,
2015


Sep 30,
2015


Jun 30,
2015

Commercial:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
1,951

 
1,606

 
1,123

 
999

 
808

Real estate mortgage
1,324

 
1,364

 
1,456

 
1,623

 
1,740

Real estate construction
106

 
116

 
125

 
207

 
236

Lease financing
5

 
6

 
1

 
1

 
2

Total commercial TDRs
3,386

 
3,092

 
2,705

 
2,830

 
2,786

Consumer:
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
15,518

 
16,299

 
16,812

 
17,193

 
17,692

Real estate 1-4 family junior lien mortgage
2,214

 
2,261

 
2,306

 
2,336

 
2,381

Credit Card
291

 
295

 
299

 
307

 
315

Automobile
92

 
97

 
105

 
109

 
112

Other revolving credit and installment
86

 
81

 
73

 
63

 
58

Trial modifications
364

 
380

 
402

 
421

 
450

Total consumer TDRs (1)
18,565

 
19,413

 
19,997

 
20,429

 
21,008

Total TDRs
$
21,951

 
22,505

 
22,702

 
23,259

 
23,794

TDRs on nonaccrual status
$
6,404

 
6,484

 
6,506

 
6,709

 
6,889

TDRs on accrual status (1)
15,547

 
16,021

 
16,196

 
16,550

 
16,905

Total TDRs
$
21,951

 
22,505

 
22,702

 
23,259

 
23,794

(1)
TDR loans include $1.7 billion , $1.8 billion , $1.8 billion , $1.8 billion , and $1.9 billion at June 30 and March 31 , 2016 , and December 31, September 30, and June 30, 2015 , respectively, of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and accruing.
 
Table 25 provides information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $2.4 billion and $2.7 billion at June 30, 2016 , and December 31, 2015 , respectively. See Note 5 (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.
For more information on our nonaccrual policies when a restructuring is involved, see the "Risk Management – Credit Risk Management – Troubled Debt Restructurings (TDRs)" section in our 2015 Form 10-K.
 
Table 26 provides an analysis of the changes in TDRs. Loans 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.


36
Risk Management - Credit Risk Management ( continued )

Table 26: Analysis of Changes in TDRs
 
 
 
 
 
Quarter ended
 
(in millions)
Jun 30,
2016

 
Mar 31,
2016

 
Dec 31,
2015

 
Sep 30,
2015

 
Jun 30,
2015

Commercial:
 
 
 
 
 
 
 
 
 
Balance, beginning of quarter
$
3,092

 
2,705

 
2,830

 
2,786

 
2,866

Inflows (1)
797

 
866

 
474

 
573

 
372

Outflows
 
 
 
 
 
 
 
 
 
Charge-offs
(153
)
 
(124
)
 
(109
)
 
(86
)
 
(20
)
Foreclosures
—

 
(1
)
 
(64
)
 
(30
)
 
(5
)
Payments, sales and other (2)
(350
)
 
(354
)
 
(426
)
 
(413
)
 
(427
)
Balance, end of quarter
3,386

 
3,092

 
2,705

 
2,830

 
2,786

Consumer:
 
 
 
 
 
 
 
 
 
Balance, beginning of quarter
19,413

 
19,997

 
20,429

 
21,008

 
21,363

Inflows (1)
508

 
661

 
672

 
753

 
747

Outflows
 
 
 
 
 
 
 
 
 
Charge-offs
(38
)
 
(67
)
 
(73
)
 
(79
)
 
(71
)
Foreclosures
(217
)
 
(238
)
 
(226
)
 
(226
)
 
(242
)
Payments, sales and other (2)
(1,085
)
 
(917
)
 
(786
)
 
(998
)
 
(807
)
Net change in trial modifications (3)
(16
)
 
(23
)
 
(19
)
 
(29
)
 
18

Balance, end of quarter
18,565

 
19,413

 
19,997

 
20,429

 
21,008

Total TDRs
$
21,951

 
22,505

 
22,702

 
23,259

 
23,794

(1)
Inflows include loans that both modify and resolve within the period as well as advances on loans that modified in a prior period.
(2)
Other outflows include normal amortization/accretion of loan basis adjustments and loans transferred to held-for-sale. It also includes $6 million of loans refinanced or restructured at market terms and qualifying as new loans and removed from TDR classification for the quarter ended December 31 , 2015 , while no loans were removed from TDR classification for the quarters ended June 30 and March 31 , 2016 , and September 30 and June 30, 2015 .
(3)
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.


37

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 June 30, 2016 , were down $193 million , or 20% , from December 31, 2015 , due to payoffs, modifications and other loss mitigation activities and credit
 
stabilization. Also, fluctuations from quarter to quarter are influenced by seasonality.
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 $11.6 billion at June 30, 2016 , down from $13.4 billion at December 31, 2015 , due to seasonally lower delinquencies.
Table 27 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 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 27: Loans 90 Days or More Past Due and Still Accruing
(in millions)
Jun 30, 2016

 
Mar 31, 2016

 
Dec 31, 2015

 
Sep 30, 2015

 
Jun 30, 2015

Loans 90 days or more past due and still accruing:
 
 
 
 
 
 
 
 
 
Total (excluding PCI (1)):
$
12,385

 
13,060

 
14,380

 
14,405

 
15,161

Less: FHA insured/VA guaranteed (2)(3)
11,577

 
12,233

 
13,373

 
13,500

 
14,359

Less: Student loans guaranteed under the FFELP (4)
20

 
24

 
26

 
33

 
46

Total, not government insured/guaranteed
$
788

 
803

 
981

 
872

 
756

By segment and class, not government insured/guaranteed:
Commercial:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
36

 
24

 
97

 
53

 
17

Real estate mortgage
22

 
8

 
13

 
24

 
10

Real estate construction
—

 
2

 
4

 
—

 
—

Total commercial
58


34


114


77


27

Consumer:
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage (3)
169

 
167

 
224

 
216

 
220

Real estate 1-4 family junior lien mortgage (3)
52

 
55

 
65

 
61

 
65

Credit card
348

 
389

 
397

 
353

 
304

Automobile
64

 
55

 
79

 
66

 
51

Other revolving credit and installment
97

 
103

 
102

 
99

 
89

Total consumer
730

 
769


867


795


729

Total, not government insured/guaranteed
$
788

 
803


981


872


756

(1)
PCI loans totaled $2.4 billion , $2.7 billion , $2.9 billion , $3.2 billion , and $3.4 billion at June 30 and March 31 , 2016 and December 31, September 30, and June 30, 2015 , respectively.
(2)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(3)
Includes mortgage loans 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.



38
Risk Management - Credit Risk Management ( continued )

NET CHARGE-OFFS

Table 28: Net Charge-offs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended 
 
 
Jun 30, 2016
 
 
Mar 31, 2016
 
 
Dec 31, 2015
 
 
Sep 30, 2015
 
 
Jun 30, 2015
 
($ in millions)
Net loan
charge-
offs

 
% of 
avg. 
loans (1) 

 
Net loan
charge-
offs

 
% of avg. loans (1)

 
Net loan
charge-
offs

 
% of avg. loans (1)

 
Net loan
charge-offs

 
% of
avg. loans (1)

 
Net loan
charge-offs

 
% of
avg.
loans (1)

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
368

 
0.46
 %
 
$
273

 
0.36
 %
 
$
215

 
0.29
 %
 
$
122

 
0.17
 %
 
$
81

 
0.12
 %
Real estate mortgage
(20
)
 
(0.06
)
 
(29
)
 
(0.10
)
 
(19
)
 
(0.06
)
 
(23
)
 
(0.08
)
 
(15
)
 
(0.05
)
Real estate construction
(3
)
 
(0.06
)
 
(8
)
 
(0.13
)
 
(10
)
 
(0.18
)
 
(8
)
 
(0.15
)
 
(6
)
 
(0.11
)
Lease financing
12

 
0.27

 
1

 
0.01

 
1

 
0.01

 
3

 
0.11

 
2

 
0.06

Total commercial
357

 
0.29

 
237

 
0.20

 
187

 
0.16

 
94

 
0.08

 
62

 
0.06

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family
first mortgage
14

 
0.02

 
48

 
0.07

 
50

 
0.07

 
62

 
0.09

 
67

 
0.10

Real estate 1-4 family
junior lien mortgage
62

 
0.49

 
74

 
0.57

 
70

 
0.52

 
89

 
0.64

 
94

 
0.66

Credit card
270

 
3.25

 
262

 
3.16

 
243

 
2.93

 
216

 
2.71

 
243

 
3.21

Automobile
90

 
0.59

 
127

 
0.85

 
135

 
0.90

 
113

 
0.76

 
68

 
0.48

Other revolving credit and
installment
131

 
1.32

 
138

 
1.42

 
146

 
1.49

 
129

 
1.35

 
116

 
1.26

Total consumer
567

 
0.49

 
649

 
0.57

 
644

 
0.56

 
609

 
0.53

 
588

 
0.53

Total
$
924

 
0.39
 %
 
$
886

 
0.38
 %
 
$
831

 
0.36
 %
 
$
703

 
0.31
 %
 
$
650

 
0.30
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Quarterly net charge-offs (recoveries) as a percentage of average respective loans are annualized.

Table 28 presents net charge-offs for second quarter 2016 and the previous four quarters. Net charge-offs in second quarter 2016 were $924 million ( 0.39% of average total loans outstanding) compared with $650 million ( 0.30% ) in second quarter 2015 .
The increase in commercial and industrial net charge-offs reflected higher oil and gas portfolio losses. Our commercial real estate portfolios were in a net recovery position. Total consumer net charge-offs decreased slightly from the prior year.

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 5 (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. 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 defaults and losses after default within each credit risk rating. Our estimation approach for the consumer portfolio uses forecasted losses that represent our best estimate of inherent loss based on historical experience, quantitative and other mathematical techniques. For additional information on our allowance for credit losses, see the “Critical Accounting Policies – Allowance for Credit Losses” section in our 2015 Form 10-K and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Table 29 presents the allocation of the allowance for credit losses by loan segment and class for the most recent quarter end and last four year ends.


39

Table 29: Allocation of the Allowance for Credit Losses (ACL)
 
Jun 30, 2016
 
 
Dec 31, 2015
 
 
Dec 31, 2014
 
 
Dec 31, 2013
 
 
Dec 31, 2012
 
(in millions)
ACL

 
Loans
as %
of total
loans

 
ACL

 
Loans
as %
of total
loans

 
ACL

 
Loans
as %
of total
loans

 
ACL

 
Loans
as %
of total
loans

 
ACL

 
Loans
as %
of total
loans

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
4,809

 
34
%
 
$
4,231

 
33
%
 
$
3,506

 
32
%
 
$
3,040

 
29
%
 
$
2,789

 
28
%
Real estate mortgage
1,183

 
13

 
1,264

 
13

 
1,576

 
13

 
2,157

 
14

 
2,284

 
13

Real estate construction
1,258

 
3

 
1,210

 
3

 
1,097

 
2

 
775

 
2

 
552

 
2

Lease financing
191

 
2

 
167

 
1

 
198

 
1

 
131

 
1

 
89

 
2

Total commercial
7,441

 
52

 
6,872

 
50

 
6,377

 
48

 
6,103

 
46

 
5,714

 
45

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
1,543

 
29

 
1,895

 
30

 
2,878

 
31

 
4,087

 
32

 
6,100

 
31

Real estate 1-4 family
junior lien mortgage
980

 
5

 
1,223

 
6

 
1,566

 
7

 
2,534

 
8

 
3,462

 
10

Credit card
1,471

 
4

 
1,412

 
4

 
1,271

 
4

 
1,224

 
3

 
1,234

 
3

Automobile
662

 
6

 
529

 
6

 
516

 
6

 
475

 
6

 
417

 
6

Other revolving credit and installment
652

 
4

 
581

 
4

 
561

 
4

 
548

 
5

 
550

 
5

Total consumer
5,308

 
48

 
5,640

 
50

 
6,792

 
52

 
8,868

 
54

 
11,763

 
55

Total
$
12,749

 
100
%
 
$
12,512

 
100
%
 
$
13,169

 
100
%
 
$
14,971

 
100
%
 
$
17,477

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jun 30, 2016
 
 
Dec 31, 2015
 
 
Dec 31, 2014
 
 
Dec 31, 2013
 
 
Dec 31, 2012
 
Components:
 
 
 
 
 
 
 
 
 
Allowance for loan losses
$
11,664
 
 
11,545
 
 
12,319
 
 
14,502
 
 
17,060
 
Allowance for unfunded
credit commitments
1,085
 
 
967
 
 
850
 
 
469
 
 
417
 
Allowance for credit losses
$
12,749
 
 
12,512
 
 
13,169
 
 
14,971
 
 
17,477
 
Allowance for loan losses as a percentage of total loans
1.22
%
 
1.26
 
 
1.43
 
 
1.76
 
 
2.13
 
Allowance for loan losses as a percentage of total net charge-offs (1)
314
 
 
399
 
 
418
 
 
322
 
 
189
 
Allowance for credit losses as a percentage of total loans
1.33
 
 
1.37
 
 
1.53
 
 
1.82
 
 
2.19
 
Allowance for credit losses as a percentage of total nonaccrual loans
107
 
 
110
 
 
103
 
 
96
 
 
85
 
(1)
Total net charge-offs are annualized for quarter ended June 30, 2016 .

In addition to the allowance for credit losses, there was $2.2 billion at June 30, 2016 , and $1.9 billion at December 31, 2015 , of nonaccretable difference to absorb losses for PCI loans, which totaled $19.3 billion at June 30, 2016. 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. Additionally, loans purchased at fair value, including loans from the GE Capital acquisitions, generally reflect a lifetime credit loss adjustment and therefore do not initially require additions to the allowance as is typically associated with loan growth. For additional information on PCI loans, see the “Risk Management – Credit Risk Management – Purchased Credit-Impaired Loans” section and Note 5 (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. Our nonaccrual loans consisted
 
primarily of real estate 1-4 family first and junior lien mortgage loans at June 30, 2016 .
The allowance for credit losses increased $237 million , or 2%, from December 31, 2015 , due to an increase in our commercial allowance reflecting deterioration in the oil and gas portfolio, and loan growth in the commercial, automobile and credit card portfolios, partially offset by continued improvement in the residential real estate portfolios. Total provision for credit losses was $1.1 billion in second quarter 2016 , compared with $300 million in second quarter 2015 . The increase in the provision for credit losses reflected deterioration in the oil and gas portfolio as well as the growth in the loan portfolios mentioned above.
We believe the allowance for credit losses of $12.7 billion at June 30, 2016 , was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. Approximately $1.6 billion of the allowance at June 30, 2016 was allocated to our oil and gas portfolio, compared with $1.2 billion at December 31, 2015 . This represented 9.2% and 6.7% of total oil and gas loans outstanding at June 30, 2016 , and December 31, 2015 , respectively. However, the entire allowance is available to absorb credit losses inherent in the total loan


40
Risk Management - Credit Risk Management ( continued )

portfolio. 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 will be 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 our 2015 Form 10-K.
LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES 
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 substantially all 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 $1.6 trillion in the residential mortgage loan servicing portfolio at June 30, 2016 , 95% was current and less than 2% was subprime at origination. Our combined delinquency and foreclosure rate on this portfolio was 4.65% at June 30, 2016 , compared with 5.18% at December 31, 2015 . Two 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 June 30, 2016 , was $37 million , representing 185 loans, down from a year ago both in number of outstanding loans and in total dollar balances as we observed a decline in new demands and continued to work through the outstanding demands and mortgage insurance rescissions and resolve certain exposures.
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 liability was $255 million at June 30, 2016 , and $378 million at December 31, 2015 . In second quarter 2016 , we released $81 million , which increased net gains on mortgage loan origination/sales activities, compared with a release of $18 million in second quarter 2015 . The release in second quarter 2016 was predominantly due to resolution of certain exposures in the quarter. We incurred net losses on repurchased loans and investor reimbursements totaling $19 million in second quarter 2016 , compared with $11 million in second quarter 2015 .
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 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 exceeded our recorded liability by $179 million at June 30, 2016 , 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.
For additional information on our repurchase liability, see the “Risk Management – Credit Risk Management – Liability For Mortgage Loan Repurchase Losses” section in our 2015 Form 10-K and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.

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. 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, in June 2015, we entered into an amendment to an April 2011 Consent Order with the Office of the Comptroller of the Currency (OCC) to address 15 of the 98 actionable items contained in the April 2011 Consent Order that were still considered open. This amendment required that we remediate certain activities associated with our mortgage loan servicing practices and allowed for the OCC to take additional supervisory action, including possible civil money penalties, if we did not comply with the terms of this amended Consent Order. In addition, this amendment prohibited us from acquiring new mortgage servicing rights or entering into new mortgage servicing contracts, other than mortgage servicing associated with originating mortgage loans or purchasing loans from correspondent clients in our normal course of business. Additionally, this amendment prohibited any new off-shoring of new mortgage servicing activities and required OCC approval to outsource or sub-service any new mortgage servicing activities. On May 25, 2016, the OCC announced that it had terminated the amended Consent Order and the underlying April 2011 Consent Order after determining that we were in compliance with their requirements. The termination of the orders ends the business restrictions affecting Wells Fargo that the OCC mandated in June 2015. The OCC also assessed a $70 million civil money penalty against us for previous violations of the orders. This penalty was accrued for in our financial statements in third quarter 2015 and was paid in second quarter 2016.
For additional information about the risks and various settlements related to our servicing activities, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in our 2015 Form 10-K.




41

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.
 
INTEREST RATE RISK Interest rate risk, which potentially can have a significant earnings impact, is an integral part of being a financial intermediary.  
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, including refinancing activity, generally declines. And in response to lower rates, mortgage activity generally increases. Mortgage results in our simulations 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 measure a decline in interest rates versus our most likely scenario. Although the performance in these rate scenarios contain benefits 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.
For more information about the various causes of interest rate risk, see the "Risk Management–Asset/Liability Management–Interest Rate Risk" section in our 2015 Form 10-K.
As of June 30, 2016 , 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 30 , 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). 
Table 30: 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
1.89
%
0.25
1.64
 
2.09
 
5.25
10-year treasury (1)
3.12

1.80
2.62
 
3.62
 
6.10
Earnings relative to most likely
N/A

(2)-(3)
(1)-(2)
 
0-5
 
0-5
(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 June 30, 2016 , and December 31, 2015 , are presented in Note 12 (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. For more information on mortgage banking interest rate and market risk, see the "Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk" section in our 2015 Form 10-K.
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 on our economic hedges for the MSRs may not continue at recent levels if the spread between short-term and long-term rates decreases or there are


42
Asset/Liability Management ( continued )

other changes in the market for mortgage forwards that affect the implied carry.
The total carrying value of our residential and commercial MSRs was $11.7 billion at June 30, 2016 , and $13.7 billion at December 31, 2015. The weighted-average note rate on our portfolio of loans serviced for others was 4.32% at June 30, 2016 , and 4.37% at December 31, 2015. The carrying value of our total MSRs represented 0.68% of mortgage loans serviced for others at June 30, 2016 , and 0.77% at December 31, 2015 .
 
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 to accommodate the investment and risk management activities of our customers (which involves transactions that are recorded as trading assets and liabilities on our balance sheet), and to execute economic hedging to manage certain balance sheet risks. These activities largely occur within our Wholesale Banking businesses and to a lesser extent other divisions of the Company. 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 31 presents total revenue from trading activities.

Table 31: Net gains (losses) from Trading Activities
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
 
2016

 
2015

 
2016

 
2015

Interest income (1)
 
$
572

 
483

 
1,168

 
928

Less: Interest expense (2)
 
83

 
83

 
172

 
180

Net interest income
 
489

 
400

 
996

 
748

Noninterest income:
 
 
 
 
 
 
 
 
Net gains (losses) from trading activities (3):
 
 
 
 
 
 
 
 
Customer accommodation
 
380

 
258

 
599

 
555

Economic hedges and other (4)
 
(52
)
 
(125
)
 
(71
)
 
(14
)
Total net gains from trading activities
 
328

 
133

 
528

 
541

Total trading-related net interest and noninterest income
 
$
817

 
533

 
1,524

 
1,289

(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 and asset/liability management activities, for which hedge results (realized and unrealized) are reported with the respective hedged activities.
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.
 
In 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. Income earned on this type of market-making activity is reflected in the fair value changes of these positions recorded in net gains on trading activities.

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 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 have exited certain business activities as a result of the rule. 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 our 2015 Form 10-K.
 
Daily Trading-Related Revenue  Table 32 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


43

activity not representative of daily price changes driven by market factors.

Table 32: Distribution of Daily Trading-Related Revenues

Market risk is the risk of possible economic loss from adverse changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity, commodity prices, mortgage rates, and market liquidity. 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. VaR is a statistical risk measure used to estimate the potential loss from adverse moves in the financial markets.
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 33 shows the Company’s Trading General VaR by risk category. As presented in the table, average Trading General VaR was $21 million for the quarter ended June 30, 2016 , compared with $18 million for the quarter ended March 31, 2016 . The increase was primarily driven by changes in portfolio composition.

Table 33: Trading 1-Day 99% General VaR by Risk Category
 
 
 
Quarter ended
 
 
June 30, 2016
 
 
March 31, 2016
 
(in millions)
Period
end

 
Average

 
Low

 
High

 
Period
end

 
Average

 
Low

 
High

Company Trading General VaR Risk Categories
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit
$
16

 
15

 
12

 
18

 
16

 
16

 
14

 
18

Interest rate
15

 
10

 
5

 
19

 
11

 
11

 
6

 
19

Equity
14

 
15

 
11

 
19

 
14

 
14

 
11

 
16

Commodity
1

 
2

 
1

 
3

 
1

 
1

 
1

 
2

Foreign exchange
1

 
1

 
—

 
2

 
1

 
2

 
1

 
2

Diversification benefit (1)
(27
)
 
(22
)
 
 
 
 
 
(23
)
 
(26
)
 
 
 
 
Company Trading General VaR
$
20

 
21

 
 
 
 
 
20

 
18

 
 
 
 
(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.


44
Asset/Liability Management ( continued )

Regulatory Market Risk Capital   reflects U.S. regulatory agency risk-based capital regulations that are based on the Basel Committee Capital Accord of the Basel Committee on Banking Supervision. The Company must calculate regulatory capital under the Basel III market risk capital rule, which requires banking organizations with significant trading activities to adjust their capital requirements to reflect the market risks of those activities based on comprehensive and risk sensitive methods 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 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 resides. Wholesale Banking engages in the fixed income, traded credit, foreign exchange, equities, and commodities markets businesses. Other business segments hold smaller trading positions covered under the market risk capital rule.

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 RWAs. 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 holding period.
Table 34 shows the General VaR measure categorized by major risk categories. Average 10-day Company Regulatory General VaR was $27 million for the quarter ended June 30, 2016 , compared with $36 million for the quarter ended March 31, 2016 . The decrease was primarily driven by changes in portfolio composition.

Table 34: Regulatory 10-Day 99% General VaR by Risk Category
 
 
 
Quarter ended
 
 
June 30, 2016
 
 
March 31, 2016
 
(in millions)
Period
end

 
Average

 
Low

 
High

 
Period
end

 
Average

 
Low

 
High

Wholesale Regulatory General VaR Risk Categories
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit
$
31

 
25

 
18

 
35

 
19

 
31

 
19

 
44

Interest rate
42

 
27

 
18

 
56

 
21

 
29

 
17

 
48

Equity
6

 
4

 
1

 
8

 
4

 
7

 
4

 
12

Commodity
8

 
6

 
3

 
11

 
3

 
2

 
1

 
4

Foreign exchange
1

 
3

 
1

 
9

 
2

 
2

 
1

 
5

Diversification benefit (1)
(64
)
 
(38
)
 
 
 
 
 
(24
)
 
(37
)
 
 
 
 
Wholesale Regulatory General VaR
$
24

 
27

 
17

 
39

 
25

 
34

 
20

 
54

Company Regulatory General VaR
21

 
27

 
16

 
41

 
27

 
36

 
19

 
56

(1)
The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification benefit 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 holding period.
 
Total VaR (as presented in Table 35 ) is composed of General VaR and Specific Risk and uses the previous 12 months of historical market data in compliance with regulatory requirements.

Total Stressed VaR (as presented in Table 35 ) 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. 

Incremental Risk Charge (as presented in Table 35 ) captures 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 non-securitized credit-sensitive trading products.
The Company calculates Incremental Risk by generating a portfolio loss distribution using Monte Carlo simulation, which


45

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 35 provides information on Total VaR, Total Stressed VaR and the Incremental Risk Charge results for the quarter ended June 30, 2016 . For the Incremental Risk Charge, the required capital for market risk at quarter end equals the quarter end results.


Table 35: Market Risk Regulatory Capital Modeled Components
 
Quarter ended June 30, 2016
 
 
June 30, 2016
 
(in millions)
Average

 
Low

 
High

 
Period end

 
Risk-
based
capital (1)

 
Risk-
weighted
assets (1)

Total VaR
$
65

 
59

 
76

 
66

 
196

 
2,454

Total Stressed VaR
229

 
176

 
307

 
300

 
687

 
8,586

Incremental Risk Charge
261

 
216

 
299

 
276

 
276

 
3,449

(1)
Results represent the risk-based capital and RWAs based on the VaR and Incremental Risk Charge models.

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 36 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 June 30, 2016 , and December 31, 2015.
Table 36: Covered Securitization Positions by Exposure Type (Net Market Value)
(in millions)
ABS

 
CMBS

 
RMBS

 
CLO/CDO

June 30, 2016
 
 
 
 
 
 
 
Securitization exposure:
 
 
 
 
 
 
 
Securities
$
651

 
261

 
457

 
613

Derivatives
8

 
4

 
2

 
(12
)
Total
$
659

 
265

 
459

 
601

December 31, 2015
 
 
 
 
 
 
 
Securitization exposure:
 
 
 
 
 
 
 
Securities
$
962

 
402

 
571

 
667

Derivatives
15

 
6

 
2

 
(21
)
Total
$
977

 
408

 
573

 
646

 
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 seeks to provide an understanding of the features that would materially affect the performance of a securitization or re-securitization. The due diligence analysis is re-performed 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.
Table 37 summarizes the market risk-based capital requirements charge and market RWAs in accordance with the Basel III market risk capital rule as of June 30, 2016 , and December 31, 2015. The market RWAs are calculated as the sum of the components in the table below.



46
Asset/Liability Management ( continued )

Table 37: Market Risk Regulatory Capital and RWAs
 
June 30, 2016
 
 
December 31, 2015
 
(in millions)
Risk-
based
capital

 
Risk-
weighted
assets

 
Risk-
based
capital

 
Risk-
weighted
assets

Total VaR
$
196

 
2,454

 
188

 
2,350

Total Stressed VaR
687

 
8,586

 
773

 
9,661

Incremental Risk Charge
276

 
3,449

 
309

 
3,864

Securitized Products Charge
448

 
5,602

 
616

 
7,695

Standardized Specific Risk Charge
1,202

 
15,027

 
1,048

 
13,097

De minimis Charges (positions not included in models)
8

 
89

 
19

 
243

Total
$
2,817

 
35,207

 
2,953

 
36,910


RWA Rollforward   Table 38 depicts the changes in the market risk regulatory capital and RWAs under Basel III for the first half and second quarter of 2016 .
Table 38: Analysis of Changes in Market Risk Regulatory Capital and RWAs
(in millions)
Risk-
based
capital

 
Risk-
weighted
assets

Balance, December 31, 2015
$
2,953

 
36,910

Total VaR
8

 
104

Total Stressed VaR
(86
)
 
(1,075
)
Incremental Risk Charge
(33
)
 
(415
)
Securitized Products Charge
(167
)
 
(2,093
)
Standardized Specific Risk Charge
154

 
1,930

De minimis Charges
(12
)
 
(154
)
Balance, June 30, 2016
$
2,817

 
35,207

 
 
 
 
Balance, March 31, 2016
$
2,817

 
35,213

Total VaR
6

 
80

Total Stressed VaR
(6
)
 
(83
)
Incremental Risk Charge
(11
)
 
(137
)
Securitized Products Charge
(116
)
 
(1,447
)
Standardized Specific Risk Charge
147

 
1,842

De minimis Charges
(20
)
 
(261
)
Balance, June 30, 2016
$
2,817

 
35,207


The largest contributor to the changes to market risk regulatory capital and RWAs in second quarter and first half of 2016 were associated with changes in positions due to normal trading activity.

 
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 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 in addition to model performance and assumptions. 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.
Table 39 shows daily Total VaR (1-day, 99%) used for regulatory market risk capital backtesting for the 12 months ended June 30, 2016 . The Company’s average Total VaR for second quarter 2016 was $23 million with a low of $21 million and a high of $27 million.



47

Table 39: Daily Total 1-Day 99% VaR Measure (Rolling 12 Months)
Market Risk Governance,   Measurement, Monitoring and Model Risk Management We employ a well-defined and structured market risk governance process and market risk measurement process, which incorporates value-at-risk (VaR) measurements combined with sensitivity analysis and stress testing to help us monitor our market risk. These monitoring measurements require the use of market risk models, which we govern by our Corporate Model Risk policies and procedures. For more information on our governance, measurement, monitoring, and model risk management practices, see the "Risk Management – Asset/Liability Management – Market Risk – Trading Activities" section in our 2015 Form 10-K.

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.
In conjunction with the March 2008 initial public offering (IPO) of Visa, Inc. (Visa), we received approximately 20.7 million shares of Visa Class B common stock, the class which was apportioned to member banks of Visa at the time of the IPO. To manage our exposure to Visa and realize the value of the appreciated Visa shares, we incrementally sold these shares
 
through a series of sales over the past few years, thereby eliminating this position as of September 30, 2015. As part of these sales, we agreed to compensate the buyer for any additional contributions to a litigation settlement fund for the litigation matters associated with the Class B shares we sold. Our exposure to this retained litigation risk has been updated quarterly and is reflected on our balance sheet. See Note 11 (Legal Actions) to Financial Statements in this Report for more information about the status of the associated litigation matters.
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 and the Corporate Market Risk Committee. 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 40 provides information regarding our marketable and nonmarketable equity investments as of June 30, 2016 , and December 31, 2015.


48
Asset/Liability Management ( continued )

Table 40: Nonmarketable and Marketable Equity Investments
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Nonmarketable equity investments:
 
 
 
Cost method:
 
 
 
Federal bank stock
$
5,686

 
4,814

Private equity
1,481

 
1,626

Auction rate securities
558

 
595

Total cost method
7,725

 
7,035

Equity method:
 
 
 
LIHTC (1)
8,949

 
8,314

Private equity
3,521

 
3,300

Tax-advantaged renewable energy
1,538

 
1,625

New market tax credit and other
320

 
408

Total equity method
14,328

 
13,647

Fair value (2)
3,046

 
3,065

Total nonmarketable equity investments (3)
$
25,099

 
23,747

Marketable equity securities:
 
 
 
Cost
$
868

 
1,058

Net unrealized gains
434

 
579

Total marketable equity securities (4)
$
1,302

 
1,637

(1)
Represents low income housing tax credit investments.
(2)
Represents nonmarketable equity investments for which we have elected the fair value option. See Note 6 (Other Assets) and Note 13 (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 6 (Other Assets) to Financial Statements in this Report for additional information.
(4)
Included in available-for-sale securities. See Note 4 (Investment Securities) to Financial Statements in this Report for additional information.



49

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.

Liquidity Standards 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. A minimum LCR of 90 percent was required as of January 1, 2016, and will increase to 100 percent on January 1, 2017. These minimum requirements are applicable to the Company on a consolidated basis and to our insured depository institutions with total assets greater than $10 billion. In addition, the FRB finalized rules imposing enhanced liquidity management standards on large bank holding companies (BHC) such as Wells
 
Fargo, and has proposed a rule that would require large bank holding companies to publicly disclose on a quarterly basis certain quantitative and qualitative information regarding their LCR calculations.
The FRB, OCC and FDIC recently proposed a rule that would implement a stable funding requirement, the net stable funding ratio (NSFR), which would require large banking organizations, such as Wells Fargo, to maintain a sufficient amount of stable funding in relation to their assets, derivative exposures and commitments over a one-year horizon period. As proposed, the rule would become effective on January 1, 2018. The proposed rule is open for comments until August 5, 2016.

Liquidity Sources 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 41 . Our cash is predominantly 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 for these entities in consideration of such funds transfer restrictions.

Table 41: Primary Sources of Liquidity
 
June 30, 2016
 
 
December 31, 2015
 
(in millions)
Total

 
Encumbered

 
Unencumbered

 
Total

 
Encumbered

 
Unencumbered

Interest-earning deposits
$
231,210

 
—

 
231,210

 
$
220,409

 
—

 
220,409

Securities of U.S. Treasury and federal agencies
75,256

 
4,994

 
70,262

 
81,417

 
6,462

 
74,955

Mortgage-backed securities of federal agencies (1)
146,342

 
68,087

 
78,255

 
132,967

 
74,778

 
58,189

Total
$
452,808

 
73,081

 
379,727

 
$
434,793

 
81,240

 
353,553

(1)
Included in encumbered securities at June 30, 2016 , were securities with a fair value of $4.5 billion which were purchased in June 2016, but settled in July 2016.

In addition to our primary sources of liquidity shown in Table 41 , 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.
Deposits have historically provided a sizeable source of relatively low-cost funds. At June 30, 2016 , deposits were 130% of total loans compared with 133% at December 31, 2015 . Additional funding is provided by long-term debt and short-term borrowings.


50
Asset/Liability Management ( continued )

Table 42 shows selected information for short-term borrowings, which generally mature in less than 30 days.
 


Table 42: Short-Term Borrowings
 
Quarter ended
 
(in millions)
Jun 30
2016

 
Mar 31,
2016

 
Dec 31,
2015

 
Sep 30,
2015

 
Jun 30,
2015

Balance, period end
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
104,812

 
92,875

 
82,948

 
74,652

 
71,439

Commercial paper
154

 
519

 
334

 
393

 
621

Other short-term borrowings
15,292

 
14,309

 
14,246

 
13,024

 
10,903

Total
$
120,258

 
107,703

 
97,528

 
88,069

 
82,963

Average daily balance for period
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
97,702

 
93,502

 
88,949

 
79,445

 
72,429

Commercial paper
326

 
442

 
414

 
484

 
2,433

Other short-term borrowings
13,820

 
13,913

 
13,552

 
10,428

 
9,637

Total
$
111,848

 
107,857

 
102,915

 
90,357

 
84,499

Maximum month-end balance for period
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase (1)
$
104,812

 
98,718

 
89,800

 
80,961

 
71,811

Commercial paper (2)
451

 
519

 
461

 
510

 
2,713

Other short-term borrowings (3)
15,292

 
14,593

 
14,246

 
13,024

 
10,903

(1)
Highest month-end balance in each of the last five quarters was in June and February 2016, and October, August and May 2015.
(2)
Highest month-end balance in each of the last five quarters was in April and March 2016, and November, July and April 2015.
(3)
Highest month-end balance in each of the last five quarters was in June and February 2016, and December, September and June 2015.
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.

Long-Term Debt We issue long-term debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. Long-term debt of $243.9 billion at June 30, 2016, increased $44.4 billion from
 
December 31, 2015, including $15.2 billion in Parent issuances that are anticipated to be Total Loss Absorbing Capacity (TLAC) eligible. For more information regarding TLAC, see the "Capital Management – Other Regulatory Capital Matters" section in this Report. Table 43 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 2016 and the following years thereafter, as of June 30, 2016 .

Table 43: Maturity of Long-Term Debt
 
June 30, 2016
 
(in millions)
Remaining 2016

 
2017

 
2018

 
2019

 
2020

 
Thereafter

 
Total

Wells Fargo & Company (Parent Only)
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes
$
7,451

 
13,199

 
7,821

 
6,557

 
13,394

 
53,683

 
102,105

Subordinated notes
2,425

 
—

 
589

 
—

 
—

 
26,847

 
29,861

Junior subordinated notes
—

 
—

 
—

 
—

 
—

 
1,820

 
1,820

Total long-term debt - Parent
$
9,876

 
13,199

 
8,410

 
6,557

 
13,394

 
82,350

 
133,786

Wells Fargo Bank, N.A. and other bank entities (Bank)
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes
$
8,193

 
8,969

 
25,261

 
19,204

 
11,011

 
5,183

 
77,821

Subordinated notes
—

 
1,334

 
—

 
—

 
—

 
5,789

 
7,123

Junior subordinated notes
—

 
—

 
—

 
—

 
—

 
327

 
327

Securitizations and other bank debt
1,997

 
4,144

 
1,851

 
592

 
573

 
10,906

 
20,063

Total long-term debt - Bank
$
10,190

 
14,447

 
27,112

 
19,796

 
11,584

 
22,205

 
105,334

Other consolidated subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes
$
—

 
1,161

 
793

 
1,183

 
—

 
1,441

 
4,578

Junior subordinated notes
—

 
—

 
—

 
—

 
—

 
155

 
155

Securitizations and other bank debt
—

 
1

 
73

 
—

 
—

 
—

 
74

Total long-term debt - Other consolidated subsidiaries
$
—

 
1,162

 
866

 
1,183

 
—

 
1,596

 
4,807

Total long-term debt
$
20,066

 
28,808

 
36,388

 
27,536

 
24,978

 
106,151

 
243,927


51

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 June 30, 2016 , the Parent had available $40.9 billion in short-term debt issuance authority and $34.7 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 the first half of 2016 , the Parent issued $14.4 billion of senior notes, of which $9.7 billion were registered with the SEC. The Parent issued $2.0 billion of subordinated notes during the first half of 2016, all of which were registered with the SEC. In addition, in July 2016, the Parent issued $8.3 billion of senior notes, $4.8 billion of which were registered with the SEC.
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.

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 June 30, 2016 , Wells Fargo Bank, N.A. had available $100 billion in short-term debt issuance authority and $40.6 billion in long-term debt issuance authority. In April 2015, 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. At June 30, 2016 , Wells Fargo Bank, N.A. had remaining issuance capacity under the bank note program of $50.0 billion in short-term senior notes and $41.0 billion in long-term senior or subordinated notes. During the first half of 2016 , Wells Fargo Bank, N.A. issued $9.5 billion of unregistered senior notes under the bank note program. In addition, during the first half of 2016 , Wells Fargo Bank, N.A. executed advances of $21.9 billion with the Federal Home Loan Bank of Des Moines, and as of June 30, 2016 , Wells Fargo Bank, N.A. had outstanding advances of $59.0 billion across the Federal Home Loan Bank System. In July 2016, Wells Fargo Bank, N.A. executed an additional $4.7 billion in Federal Home Loan Bank advances.

Credit Ratings 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.
During second quarter 2016, DBRS confirmed all of the Company's ratings. 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” section in this Report and the "Risk Factors" section in our 2015 Form 10-K for additional information regarding our credit ratings and the potential impact a credit rating downgrade would have on our liquidity and operations, as well as Note 12 (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 June 30, 2016 , are presented in Table 44 .

Table 44: Credit Ratings as of June 30, 2016
 
Wells Fargo & Company
 
Wells Fargo Bank, N.A.
 
Senior debt
 
Short-term
borrowings 
 
Long-term
deposits 
 
Short-term
borrowings 
Moody's
 A2
 
 P-1
 
 Aa1
 
 P-1
S&P
 A
 
 A-1
 
 AA-
 
 A-1+
Fitch Ratings, Inc.
 AA-
 
 F1+
 
 AA+
 
 F1+
DBRS
 AA
 
 R-1*
 
 AA**
 
 R-1**
* middle ** high
 
 
 
 
 
 
 
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.



52
Capital Management ( continued )

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. We primarily fund our capital needs through the retention of earnings net of dividends as well as the issuance of preferred stock and long and short-term debt. Retained earnings increased $6.2 billion from December 31, 2015 , predominantly from Wells Fargo net income of $11.0 billion , less common and preferred stock dividends of $4.6 billion . During second quarter 2016 , we issued 17.4 million shares of common stock. We also issued 46 million Depositary Shares, each representing a 1/1,000th interest in a share of the Company’s newly issued Non-Cumulative Perpetual Class A Preferred Stock, Series X, for an aggregate public offering price of $1.2 billion. During second quarter 2016 , we repurchased 44.8 million shares of common stock in open market transactions, private transactions and from employee benefit plans, at a cost of $2.2 billion . We also entered into a $750 million forward repurchase contract with an unrelated third party in July 2016 that is expected to settle in fourth quarter 2016 for approximately 16 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 as discussed below.

RISK-BASED CAPITAL AND RISK-WEIGHTED ASSETS The Company is subject to final and interim final rules issued by federal banking regulators to implement Basel III capital requirements for U.S. banking organizations. These rules are based on international guidelines for determining regulatory capital issued by the Basel Committee on Banking Supervision (BCBS). The federal banking regulators’ capital rules, among other things, require on a fully phased-in basis:
•
a minimum Common Equity Tier 1 (CET1) ratio of 9.0%, comprised of a 4.5% minimum requirement plus a capital conservation buffer of 2.5% and for us, as a global systemically important bank (G-SIB), a capital surcharge to be calculated annually, which is 2.0% based on our year-end 2014 data;
•
a minimum tier 1 capital ratio of 10.5%, comprised of a 6.0% minimum requirement plus the capital conservation buffer of 2.5% and the G-SIB capital surcharge of 2.0%;
•
a minimum total capital ratio of 12.5%, comprised of a 8.0% minimum requirement plus the capital conservation buffer of 2.5% and the G-SIB capital surcharge of 2.0%;
•
a potential countercyclical buffer of up to 2.5% to be added to the minimum capital ratios, which is currently not in effect but could 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;
•
a minimum tier 1 leverage ratio of 4.0%; and
 
•
a minimum supplementary leverage ratio (SLR) of 5.0% (comprised of a 3.0% minimum requirement plus a supplementary leverage buffer of 2.0%) for large and internationally active bank holding companies (BHCs).

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 the end of 2021. The Basel III capital rules contain two frameworks for calculating capital requirements, a Standardized Approach, which replaced Basel I, and an Advanced Approach applicable to certain institutions, including Wells Fargo. Accordingly, in the assessment of our capital adequacy, we must report the lower of our CET1, tier 1 and total capital ratios calculated under the Standardized Approach and under the Advanced Approach.
Because the Company has been designated as a G-SIB, we will also be subject to the FRB’s rule implementing the additional capital surcharge of between 1.0-4.5% on G-SIBs. Under the rule, we must annually calculate our surcharge under two methods and use the higher of the two surcharges. The first method (method one) will consider our size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with a methodology developed by the BCBS and the Financial Stability Board (FSB). The second (method two) will use similar inputs, but will replace substitutability with use of short-term wholesale funding and will generally result in higher surcharges than the BCBS methodology. The phase-in period for the G-SIB surcharge began on January 1, 2016 and will become fully effective on January 1, 2019. Based on year-end 2014 data, our 2016 G-SIB surcharge under method two is 2.0% of the Company’s RWAs, which is the higher of method one and method two. Because the G-SIB surcharge is calculated annually based on data that can differ over time, the amount of the surcharge is subject to change in future years. Under the Standardized Approach (fully phased-in), our CET1 ratio of 10.61% exceeded the minimum of 9.0% by 161 basis points at June 30, 2016 .


53

The tables that follow provide information about our risk- based capital and related ratios as calculated under Basel III capital guidelines. For banking industry regulatory reporting purposes, we report our capital in accordance with Transition Requirements but are managing our capital based on a fully phased-in calculation. For information about our capital requirements calculated in accordance with Transition Requirements, see Note 19 (Regulatory and Agency Capital
 
Requirements) to Financial Statements in this Report.
Table 45 summarizes our CET1, tier 1 capital, total capital, risk-weighted assets and capital ratios on a fully phased-in basis at June 30, 2016 and December 31, 2015 . As of June 30, 2016 , our CET1 and tier 1 capital ratios were lower using RWAs calculated under the Standardized Approach.


Table 45: Capital Components and Ratios (Fully Phased-In) (1)
 
 
June 30, 2016
 
 
 
December 31, 2015
 
 
(in millions)
 
Advanced Approach

 
Standardized Approach

 
 
Advanced Approach

 
Standardized Approach

 
Common Equity Tier 1
(A)
$
145,644

 
145,644

 
 
142,367

 
142,367

 
Tier 1 Capital
(B)
168,377

 
168,377

 
 
162,810

 
162,810

 
Total Capital
(C)
197,393

 
208,579

 
 
190,374

 
200,750

 
Risk-Weighted Assets
(D)
1,341,146

 
1,372,940

 
 
1,282,849

 
1,321,703

 
Common Equity Tier 1 Capital Ratio
(A)/(D)
10.86
%
 
10.61

*
 
11.10

 
10.77

*
Tier 1 Capital Ratio
(B)/(D)
12.55

 
12.26

*
 
12.69

 
12.32

*
Total Capital Ratio
(C)/(D)
14.72

*
15.19

 
 
14.84

*
15.19

 
*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.
(1)
Fully phased-in regulatory capital amounts, ratios and RWAs are considered non-GAAP financial measures that are used by management, bank regulatory agencies, investors and analysts to assess and monitor the Company’s capital position. See Table 46 for information regarding the calculation and components of CET1, tier 1 capital, total capital and RWAs, as well as the corresponding reconciliation of our regulatory capital amounts to total equity.

54
Capital Management ( continued )

Table 46 provides information regarding the calculation and composition of our risk-based capital under the Advanced and Standardized Approaches at June 30, 2016 and December 31, 2015 .

Table 46: Risk-Based Capital Calculation and Components
 
 
June 30, 2016
 
 
December 31, 2015
 
(in millions)
 
Advanced Approach

 
Standardized Approach

 
Advanced Approach

 
Standardized Approach

Total equity
 
$
202,661

 
202,661

 
193,891

 
193,891

Adjustments:
 
 
 
 
 
 
 
 
Preferred stock
 
(24,830
)
 
(24,830
)
 
(22,214
)
 
(22,214
)
Additional paid-in capital on ESOP preferred stock
 
(150
)
 
(150
)
 
(110
)
 
(110
)
Unearned ESOP shares
 
1,868

 
1,868

 
1,362

 
1,362

Noncontrolling interests
 
(916
)
 
(916
)
 
(893
)
 
(893
)
Total common stockholders' equity

178,633

 
178,633

 
172,036

 
172,036

Adjustments:
 
 
 
 
 
 
 
 
Goodwill
 
(26,963
)
 
(26,963
)
 
(25,529
)
 
(25,529
)
Certain identifiable intangible assets (other than MSRs)
 
(3,356
)
 
(3,356
)
 
(3,167
)
 
(3,167
)
Other assets (1)
 
(2,110
)
 
(2,110
)
 
(2,074
)
 
(2,074
)
Applicable deferred tax liabilities (2)
 
1,906

 
1,906

 
2,071

 
2,071

Investment in certain subsidiaries and other
 
(2,466
)
 
(2,466
)
 
(970
)
 
(970
)
Common Equity Tier 1 (Fully Phased-In)

145,644

 
145,644

 
142,367

 
142,367

Effect of Transition Requirements
 
980

 
980

 
1,880

 
1,880

Common Equity Tier 1 (Transition Requirements)
 
$
146,624

 
146,624

 
144,247

 
144,247

 
 
 
 
 
 
 
 
 
Common Equity Tier 1 (Fully Phased-In)
 
$
145,644

 
145,644

 
142,367

 
142,367

Preferred stock
 
24,830

 
24,830

 
22,214

 
22,214

Additional paid-in capital on ESOP preferred stock
 
150

 
150

 
110

 
110

Unearned ESOP shares
 
(1,868
)
 
(1,868
)
 
(1,362
)
 
(1,362
)
Other
 
(379
)
 
(379
)
 
(519
)
 
(519
)
Total Tier 1 capital (Fully Phased-In)
(A)
168,377

 
168,377

 
162,810

 
162,810

Effect of Transition Requirements
 
910

 
910

 
1,774

 
1,774

Total Tier 1 capital (Transition Requirements)
 
$
169,287

 
169,287

 
164,584

 
164,584

 
 
 
 
 
 
 
 
 
Total Tier 1 capital (Fully Phased-In)
 
$
168,377

 
168,377

 
162,810

 
162,810

Long-term debt and other instruments qualifying as Tier 2
 
27,716

 
27,716

 
25,818

 
25,818

Qualifying allowance for credit losses (3)
 
1,563

 
12,749

 
2,136

 
12,512

Other
 
(263
)
 
(263
)
 
(390
)
 
(390
)
Total Tier 2 capital (Fully Phased-In)
(B)
29,016

 
40,202

 
27,564

 
37,940

Effect of Transition Requirements
 
1,822

 
1,822

 
3,005

 
3,005

Total Tier 2 capital (Transition Requirements)
 
$
30,838

 
42,024

 
30,569

 
40,945

 
 
 
 
 
 
 
 
 
Total qualifying capital (Fully Phased-In)
(A)+(B)
$
197,393

 
208,579

 
190,374

 
200,750

Total Effect of Transition Requirements
 
2,732

 
2,732

 
4,779

 
4,779

Total qualifying capital (Transition Requirements)
 
$
200,125

 
211,311

 
195,153

 
205,529

 
 
 
 
 
 
 
 
 
Risk-Weighted Assets (RWAs) (4)(5):
 
 
 
 
 
 
 
 
Credit risk
 
$
1,019,664

 
1,337,733

 
989,639

 
1,284,793

Market risk
 
35,207

 
35,207

 
36,910

 
36,910

Operational risk
 
286,275

 
 N/A

 
256,300

 
 N/A

Total RWAs (Fully Phased-In)
 
$
1,341,146

 
1,372,940

 
1,282,849

 
1,321,703

Credit risk
 
$
1,000,247

 
1,319,415

 
969,972

 
1,266,238

Market risk
 
35,207

 
35,207

 
36,910

 
36,910

Operational risk
 
286,275

 
 N/A

 
256,300

 
 N/A

Total RWAs (Transition Requirements)
 
$
1,321,729

 
1,354,622

 
1,263,182

 
1,303,148

(1)
Represents goodwill and other intangibles on nonmarketable equity investments, which are included in other assets.
(2)
Applicable deferred tax liabilities relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
(3)
Under the Advanced Approach the allowance for credit losses that exceeds expected credit losses is eligible for inclusion in Tier 2 Capital, to the extent the excess allowance does not exceed 0.6% of Advanced credit RWAs, and under the Standardized Approach, the allowance for credit losses is includable in Tier 2 Capital up to 1.25% of Standardized credit RWAs, with any excess allowance for credit losses being deducted from total RWAs.
(4)
RWAs calculated under the Advanced Approach utilize a risk-sensitive methodology, which relies upon the use of internal credit models based upon our experience with internal rating grades. Advanced Approach also includes an operational risk component, which reflects the risk of operating loss resulting from inadequate or failed internal processes or systems.
(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.

55

Table 47 presents the changes in Common Equity Tier 1 under the Advanced Approach for the six months ended June 30, 2016 .

Table 47: Analysis of Changes in Common Equity Tier 1
(in millions)
 
 
Common Equity Tier 1 (Fully Phased-In) at December 31, 2015
 
142,367

Net income
 
10,258

Common stock dividends
 
(3,834
)
Common stock issued, repurchased, and stock compensation-related items
 
(2,428
)
Goodwill
 
(1,434
)
Certain identifiable intangible assets (other than MSRs)
 
(189
)
Other assets (1)
 
(36
)
Applicable deferred tax liabilities (2)
 
(165
)
Investment in certain subsidiaries and other
 
1,105

Change in Common Equity Tier 1
 
3,277

Common Equity Tier 1 (Fully Phased-In) at June 30, 2016
 
145,644

(1)
Represents goodwill and other intangibles on nonmarketable equity investments, which are included in other assets.
(2)
Applicable deferred tax liabilities relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.

Table 48 presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the six months ended June 30, 2016 .

Table 48: Analysis of Changes in RWAs
(in millions)
Advanced Approach

Standardized Approach

RWAs (Fully Phased-In) at December 31, 2015
$
1,282,849

1,321,703

Net change in credit risk RWAs
30,025

52,940

Net change in market risk RWAs
(1,703
)
(1,703
)
Net change in operational risk RWAs
29,975

 N/A

Total change in RWAs
58,297

51,237

RWAs (Fully Phased-In) at June 30, 2016
1,341,146

1,372,940

Effect of Transition Requirements
(19,417
)
(18,318
)
RWAs (Transition Requirements) at June 30, 2016
$
1,321,729

1,354,622





56

TANGIBLE COMMON EQUITY We also evaluate our business based on certain ratios that utilize tangible common equity. Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, and goodwill and certain identifiable intangible assets (including goodwill and intangible assets associated with certain of our nonmarketable equity investments but excluding mortgage servicing rights), net of applicable deferred tax liabilities. These tangible common equity ratios are as follows:
•
Tangible book value per common share, which represents tangible common equity divided by common shares outstanding.
•
Return on average tangible common equity (ROTCE), which represents our annualized earnings contribution as a percentage of tangible common equity.
 

The methodology of determining tangible common equity may differ among companies. Management believes that tangible book value per common share and return on average tangible common equity, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company's use of equity.
Table 49 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.


Table 49: Tangible Common Equity
 
 
 
Balance at period end
 
Average balance
 
 
 
Quarter ended
 
Quarter ended
 
Six months ended
(in millions,
except ratios)
 
 
Jun 30,
2016

Mar 31,
2016

Jun 30,
2015

 
Jun 30,
2016

Mar 31,
2016

Jun 30,
2015

 
Jun 30,
2016

Jun 30,
2015

Total equity
 
 
$
202,661

198,504

190,676

 
201,003

196,586

190,382

 
198,795

189,520

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
(24,830
)
(24,051
)
(21,649
)
 
(24,091
)
(23,963
)
(21,847
)
 
(24,027
)
(21,316
)
Additional paid-in capital on ESOP preferred stock
 
 
(150
)
(182
)
(148
)
 
(168
)
(201
)
(166
)
 
(184
)
(140
)
Unearned ESOP shares
 
 
1,868

2,271

1,835

 
2,094

2,509

2,051

 
2,302

1,737

Noncontrolling interests
 
 
(916
)
(1,008
)
(1,118
)
 
(984
)
(904
)
(1,154
)
 
(944
)
(1,101
)
Total common stockholders' equity
(A)
 
178,633

175,534

169,596

 
177,854

174,027

169,266

 
175,942

168,700

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
(26,963
)
(27,003
)
(25,705
)
 
(27,037
)
(26,069
)
(25,705
)
 
(26,553
)
(25,705
)
Certain identifiable intangible assets (other than MSRs)
 
 
(3,356
)
(3,814
)
(3,807
)
 
(3,600
)
(3,407
)
(3,957
)
 
(3,503
)
(4,115
)
Other assets (1)
 
 
(2,110
)
(2,023
)
(1,829
)
 
(2,096
)
(2,065
)
(1,509
)
 
(2,081
)
(1,433
)
Applicable deferred tax liabilities (2)
 
 
1,906

1,985

2,265

 
1,934

2,014

2,297

 
1,974

2,345

Tangible common equity
(B)
 
$
148,110

$
144,679

$
140,520

 
147,055

144,500

140,392

 
145,779

139,792

Common shares outstanding
(C)
 
5,048.5

5,075.9

5,145.2

 
N/A

N/A

N/A

 
N/A

N/A

Net income applicable to common stock (3)
(D)
 
N/A

N/A

N/A

 
5,173

5,085

5,363

 
10,258

10,824

Book value per common share
(A)/(C)
 
$
35.38

34.58

32.96

 
N/A

N/A

N/A

 
N/A

N/A

Tangible book value per common share
(B)/(C)
 
29.34

28.50

27.31

 
N/A

N/A

N/A

 
N/A

N/A

Return on average common stockholders’ equity (ROE)
(D)/(A)
 
N/A

N/A

N/A

 
11.70
%
11.75

12.71

 
11.72

12.94

Return on average tangible common equity (ROTCE)
(D)/(B)
 
N/A

N/A

N/A

 
14.15

14.15

15.32

 
14.15

15.61

(1)
Represents goodwill and other intangibles on nonmarketable equity investments, which are included in other assets.
(2)
Applicable deferred tax liabilities relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
(3)
Quarter and six months ended net income applicable to common stock is annualized for the respective ROE and ROTCE ratios.


57

SUPPLEMENTARY LEVERAGE RATIO In April 2014, federal banking regulators finalized a rule that enhances the SLR requirements for BHCs, like Wells Fargo, and their insured depository institutions. The SLR consists of Tier 1 capital divided by the Company’s total leverage exposure. Total leverage exposure consists of the total average on-balance sheet assets, plus off-balance sheet exposures, such as undrawn commitments and derivative exposures, less amounts permitted to be deducted from Tier 1 capital. The rule, which becomes effective on January 1, 2018, will require a covered BHC to maintain a SLR of at least 5.0% (comprised of the 3.0% minimum requirement plus a supplementary leverage buffer of 2.0%) to avoid restrictions on capital distributions and discretionary bonus payments. The rule will also require that all of our insured depository institutions maintain a SLR of 6.0% under applicable regulatory capital adequacy guidelines. In September 2014, federal banking regulators finalized additional changes to the SLR 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 SLR, and will become effective on January 1, 2018. At June 30, 2016 , our SLR for the Company was 7.7% assuming full phase-in of the Advanced Approach capital framework. Based on our review, our current leverage levels would exceed the applicable requirements for each of our insured depository institutions as well. The fully phased-in SLR is considered a non-GAAP financial measure that is used by management, bank regulatory agencies, investors and analysts to assess and monitor the Company’s leverage exposure. See Table 50 for information regarding the calculation and components of the SLR.
Table 50: Fully Phased-In SLR
(in millions)
June 30, 2016

Tier 1 capital
$
168,377

Total average assets
1,862,084

Less: deductions from Tier 1 capital
31,145

Total adjusted average assets
1,830,939

Adjustments:
 
Derivative exposures
51,502

Repo-style transactions
7,015

Other off-balance sheet exposures
299,250

Total adjustments
357,767

Total leverage exposure
$
2,188,706

Supplementary leverage ratio
7.7
%
OTHER REGULATORY CAPITAL MATTERS In October 2015, the FRB proposed rules to address the amount of equity and unsecured long-term debt a U.S. G-SIB must hold to improve its resolvability and resiliency, often referred to as Total Loss Absorbing Capacity (TLAC). Under the proposed rules, U.S. G-SIBs would be required to have a minimum TLAC amount (consisting of CET1 capital and additional tier 1 capital issued directly by the top-tier or covered BHC plus eligible external long-term debt) equal to the greater of (i) 18% of RWAs and (ii) 9.5% of total leverage exposure (the denominator of the SLR calculation). Additionally, U.S. G-SIBs would be required to maintain a TLAC buffer equal to 2.5% of RWAs plus the firm’s applicable G-SIB capital surcharge calculated under method one plus any applicable countercyclical buffer that would be added to the 18% minimum in order to avoid restrictions on capital
 
distributions and discretionary bonus payments. The proposed rules would also require U.S. G-SIBs to have a minimum amount of eligible unsecured long-term debt equal to the greater of (i) 6.0% of RWAs plus the firm’s applicable G-SIB capital surcharge calculated under method two and (ii) 4.5% of the total leverage exposure. In addition, the proposed rules would impose certain restrictions on the operations and liabilities of the top-tier or covered BHC in order to further facilitate an orderly resolution, including prohibitions on the issuance of short-term debt to external investors and on entering into derivatives and certain other types of financial contracts with external counterparties. The proposed rules were open for comments until February 1, 2016. If the proposed rules are finalized as proposed, we may be required to issue additional long-term debt. We continue to evaluate the impact this proposal will have on our consolidated financial statements.
In addition, as discussed in the “Risk Management – Asset/ Liability Management – Liquidity and Funding – Liquidity Standards” section in this Report, federal banking regulators have issued a final rule regarding the U.S. implementation of the Basel III LCR and a proposed rule regarding the NSFR.

Capital Planning and Stress Testing
Our planned long-term capital structure is designed to meet regulatory and market expectations. We believe that our long-term targeted capital structure enables us to invest in and grow our business, satisfy our customers' financial needs in varying environments, access markets, and maintain flexibility to return capital to our shareholders. Our long-term targeted capital structure also considers capital levels sufficient to exceed capital requirements including the G-SIB surcharge. Accordingly, based on the final Basel III capital rules under the lower of the Standardized or Advanced Approaches CET1 capital ratios, we currently target a long-term CET1 capital ratio at or in excess of 10%, which includes a 2% G-SIB surcharge. Our capital targets are subject to change based on various factors, including changes to the regulatory capital framework and expectations for large banks promulgated by bank regulatory agencies, planned capital actions, changes in our risk profile and other factors.
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.
Our 2016 CCAR, which was submitted on April 4, 2016, included a comprehensive capital plan supported by an assessment of expected sources and uses 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 2015 CCAR. As part of the 2016 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 reviewed 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 published its supervisory stress test results as required under the Dodd-Frank Act on June 23, 2016. On June 29, 2016, the FRB notified us that it did not object to our capital plan included in the 2016 CCAR. On April 26, 2016, under the 2015


58

CCAR, the Company increased its quarterly common stock dividend to $0.38 per share, as approved by the Board.
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 rules also 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 must submit a mid-cycle stress test based on second quarter data and scenarios developed by the Company.

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 January 2016, the Board authorized the repurchase of 350 million shares of our common stock. At June 30, 2016 , we had remaining authority to repurchase approximately 330 million shares, subject to regulatory and legal conditions. For more information about share repurchases during second quarter 2016 , see Part II, Item 2 in this Report.
 
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 June 30, 2016 , there were 34,815,832 warrants outstanding, exercisable at $33.869 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.



59

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 supplements our discussion of the significant regulations and regulatory oversight initiatives that have affected or may affect our business contained in the "Regulatory Reform" and "Risk Factors" sections in our 2015 Form 10-K and the "Regulatory Reform" section in our 2016 First Quarter Report on Form 10-Q.

DEPOSIT INSURANCE ASSESSMENTS Our subsidiary banks, 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. To maintain the DIF, member institutions are assessed an insurance premium based on an assessment base and an assessment rate.
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%. 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, and, in March 2016, issued a final rule to meet this DRR
 
level. The final rule imposes on insured depository institutions with $10 billion or more in assets, such as Wells Fargo, a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments. The final rule is effective July 1, 2016, and the surcharge would be effective at that date or the first day of the calendar quarter after the DIF reserve ratio reaches 1.15% if the DIF reserve ratio has not reached 1.15% prior to July 1, 2016. The FDIC has not yet published the level of the DIF reserve ratio in order to determine if the surcharge will be effective in third quarter 2016. The surcharge is in addition to the base assessments paid by the affected institutions and could significantly increase the overall amount of their deposit insurance assessments. When this new surcharge becomes effective, based on our assessment base as of June 30, 2016, we estimate that, combined with the benefit of lower base assessment rates previously adopted by the FDIC, our overall deposit insurance assessment expense will temporarily increase by approximately $100 million per quarter. The FDIC expects the surcharge to be in effect for approximately two years, however, if the DIF reserve ratio does not reach 1.35% by December 31, 2018 (provided it is at least 1.15%), the final rule provides that the FDIC will impose a shortfall assessment on any bank that was subject to the surcharge. In addition to ensuring that the DIF reserve ratio reaches the statutory minimum of 1.35% by September 30, 2020, the FDIC Board has also finalized a comprehensive, long-range plan for DIF management, whereby the DRR has been targeted at 2%.



Critical Accounting Policies
Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2015 Form 10-K) 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 value of financial instruments; and
•
income taxes.

Management and the Board's Audit and Examination Committee have reviewed and approved these critical accounting policies. These policies are described further in the “Financial Review – Critical Accounting Policies” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2015 Form 10-K.


60
Current Accounting Developments ( continued )

Current Accounting Developments
Table 51 provides accounting pronouncements applicable to us that have been issued by the FASB but are not yet effective.


Table 51: Current Accounting Developments – Issued Standards
Standard
 
Description
 
Effective date and financial statement impact
Accounting Standards Update (ASU or Update) 2016-13 –  Financial Instruments – Credit Losses (Topic 326):   Measurement of Credit Losses on Financial Instruments
 
The Update changes the accounting for credit losses on loans and debt securities. For loans and held-to-maturity debt securities, the Update requires an expected credit loss model to determine the allowance for credit losses. The expected credit loss model estimates losses for the estimated life of the financial asset. In addition, the Update modifies the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods.
 
The guidance is effective for us in first quarter 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted beginning in first quarter 2019. We are evaluating the impact the Update will have on our consolidated financial statements.

ASU 2016-09 – Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

 
The Update simplifies the accounting for share-based payment awards issued to employees, including recognition and classification of excess tax benefits and tax deficiencies in the statement of income and the statement of cash flows. The guidance also allows entities to elect an accounting policy to either estimate the number of award forfeitures or account for forfeitures as they occur.
 
The guidance is effective for us in first quarter 2017 with application varying by provision within the Update. Early adoption is permitted. We are evaluating the impact the Update will have on our consolidated financial statements.
ASU 2016-07 –  Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
 
The Update eliminates the requirement for companies to retroactively apply the equity method of accounting for investments when increases in ownership interests or degree of influence result in the adoption of the equity method. Under the new guidance, the equity method should be applied prospectively in the period in which the ownership changes occur.
 
The guidance is effective for us in first quarter 2017 with prospective application. Early adoption is permitted. We are evaluating the impact the Update will have on our consolidated financial statements.
ASU 2016-06 – Derivatives and Hedging (Topic 815):   Contingent Put and Call Options in Debt Instruments
 
The Update clarifies the criteria entities should use when evaluating whether embedded contingent put and call options in debt instruments should be separated from the debt instrument and accounted for separately as derivatives. The Update clarifies that companies should not consider whether the event that triggers the ability to exercise put or call options is related to interest rates or credit risk.
 
The guidance is effective for us in first quarter 2017 with modified retrospective application to debt instruments existing as of the beginning of the adoption period. Early adoption is permitted. We are evaluating the impact the Update will have on our consolidated financial statements.
ASU 2016-05 – Derivatives and Hedging (Topic 815):   Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
 
The Update clarifies that a change in the counterparty to a derivative instrument that has been designated as an accounting hedge does not require the hedging relationship to be dedesignated as long as all other hedge accounting criteria continue to be met.
 
The guidance is effective for us in first quarter 2017 with prospective or modified retrospective application. Early adoption is permitted. We are evaluating the impact the Update will have on our consolidated financial statements.
ASU 2016-04 – Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products
 
The Update requires entities to recognize breakage for prepaid stored-value card liabilities (e.g. gift cards) provided the liabilities meet certain criteria.
 
The guidance is effective for us in first quarter 2018 with early adoption permitted. The guidance allows us to elect the transition method, permitting either a modified retrospective application with a cumulative-effect adjustment to the balance sheet as of the beginning of the adoption period or retrospective application to each period presented. We are evaluating the impact the Update will have on our consolidated financial statements.


61

Standard
 
Description
 
Effective date and financial statement impact
ASU 2016-02 – Leases (Topic 842)
 
The Update requires lessees to recognize leases on the balance sheet with lease liabilities and corresponding right-of-use assets based on the present value of lease payments. Lessor accounting is largely unchanged with lease financings and operating lease assets depending on the nature of the leases. The Update also eliminates leveraged lease accounting but allows existing leveraged leases to continue their current accounting until maturity or termination.
 
The guidance is effective for us in first quarter 2019 with modified retrospective application. Early adoption is permitted. We are evaluating the impact the Update will have on our consolidated financial statements.
ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
 
The Update amends the presentation and accounting for certain financial instruments, including liabilities measured at fair value under the fair value option and equity investments. The guidance also updates fair value presentation and disclosure requirements for financial instruments measured at amortized cost.
 
The Update is effective for us in first quarter 2018 with prospective application to changes in guidance related to nonmarketable equity investments. The remaining amendments should be applied with a cumulative-effect adjustment to the balance sheet as of the beginning of the adoption period. Early application is only permitted for changes related to liabilities measured at fair value under the fair value option. Early adoption is prohibited for the remaining amendments. We are evaluating the impact of the Update on our consolidated financial statements.
ASU 2014-09 – Revenue from Contracts With Customers (Topic 606) and subsequent related Updates
 
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.
 
In August 2015, the FASB issued ASU 2015-14 ( Revenue from Contracts with Customers (Topic 606):   Deferral of the Effective Date ), which defers the effective date of ASU 2014-09 to first quarter 2018. Early adoption is permitted in first quarter 2017. Our revenue is balanced between net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new guidance, and noninterest income. We continue to evaluate the impact of the Update to our noninterest income and on our presentation and disclosures. We expect to adopt the Update in first quarter 2018 with a cumulative-effect adjustment to opening retained earnings.



62
Forward-Looking Statements ( continued )

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 levels; (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 or targets 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 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, 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;
•
significant turbulence or a 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 our Annual Report on Form 10-K for the year ended December 31, 2015 .
 
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 our Annual Report on Form 10-K for the year ended December 31, 2015 , as


63

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. For a discussion of risk factors that
 
could adversely affect our financial results and condition, and the value of, and return on, an investment in the Company, we refer you to the “Risk Factors” section in our 2015 Form 10-K.


Controls and Procedures
Disclosure Controls and Procedures
The Company’s management evaluated the effectiveness, as of June 30, 2016 , 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 June 30, 2016 .

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 second quarter 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

64

Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income (Unaudited)
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions, except per share amounts)
2016

 
2015

 
2016

 
2015

Interest income
  
 
  
 
 
 
 
Trading assets
$
572

 
483

 
1,168

 
928

Investment securities
2,176

 
2,181

 
4,438

 
4,325

Mortgages held for sale
181

 
209

 
342

 
386

Loans held for sale
3

 
5

 
5

 
10

Loans
9,822

 
9,098

 
19,399

 
18,036

Other interest income
392

 
250

 
766

 
504

Total interest income
13,146

 
12,226

 
26,118

 
24,189

Interest expense
  
 
  
 
 
 
 
Deposits
332

 
232

 
639

 
490

Short-term borrowings
77

 
21

 
144

 
39

Long-term debt
921

 
620

 
1,763

 
1,224

Other interest expense
83

 
83

 
172

 
180

Total interest expense
1,413

 
956

 
2,718

 
1,933

Net interest income
11,733

 
11,270

 
23,400


22,256

Provision for credit losses
1,074

 
300

 
2,160

 
908

Net interest income after provision for credit losses
10,659

 
10,970

 
21,240

 
21,348

Noninterest income
  
 
  
 
 
 
 
Service charges on deposit accounts
1,336

 
1,289

 
2,645

 
2,504

Trust and investment fees
3,547

 
3,710

 
6,932

 
7,387

Card fees
997

 
930

 
1,938

 
1,801

Other fees
906

 
1,107

 
1,839

 
2,185

Mortgage banking
1,414

 
1,705

 
3,012

 
3,252

Insurance
286

 
461

 
713

 
891

Net gains from trading activities
328

 
133

 
528

 
541

Net gains on debt securities (1)
447

 
181

 
691

 
459

Net gains from equity investments (2)
189

 
517

 
433

 
887

Lease income
497

 
155

 
870

 
287

Other
482

 
(140
)
 
1,356

 
146

Total noninterest income
10,429

 
10,048

 
20,957

 
20,340

Noninterest expense
  
 
  
 
 
 
 
Salaries
4,099

 
3,936

 
8,135

 
7,787

Commission and incentive compensation
2,604

 
2,606

 
5,249

 
5,291

Employee benefits
1,244

 
1,106

 
2,770

 
2,583

Equipment
493

 
470

 
1,021

 
964

Net occupancy
716

 
710

 
1,427

 
1,433

Core deposit and other intangibles
299

 
312

 
592

 
624

FDIC and other deposit assessments
255

 
222

 
505

 
470

Other
3,156

 
3,107

 
6,195

 
5,824

Total noninterest expense
12,866

 
12,469

 
25,894

 
24,976

Income before income tax expense
8,222

 
8,549

 
16,303


16,712

Income tax expense
2,649

 
2,763

 
5,216

 
5,042

Net income before noncontrolling interests
5,573

 
5,786

 
11,087


11,670

Less: Net income from noncontrolling interests
15

 
67

 
67

 
147

Wells Fargo net income
$
5,558

 
5,719

 
11,020


11,523

Less: Preferred stock dividends and other
385

 
356

 
762

 
699

Wells Fargo net income applicable to common stock
$
5,173

 
5,363

 
10,258

 
10,824

Per share information
  
 
  
 
 
 
 
Earnings per common share
$
1.02

 
1.04

 
2.02

 
2.10

Diluted earnings per common share
1.01

 
1.03

 
2.00

 
2.07

Dividends declared per common share
0.380

 
0.375

 
0.755

 
0.725

Average common shares outstanding
5,066.9

 
5,151.9

 
5,071.3

 
5,156.1

Diluted average common shares outstanding
5,118.1

 
5,220.5

 
5,129.8

 
5,233.2

(1)
Total other-than-temporary impairment (OTTI) losses were $11 million and $10 million for second quarter 2016 and 2015 , respectively. Of total OTTI, losses of $26 million and $20 million were recognized in earnings, and reversal of losses of $(15) million and $(10) million were recognized as non-credit-related OTTI in other comprehensive income for second quarter 2016 and 2015 , respectively. Total OTTI losses were $87 million and $4 million for the first half of 2016 and 2015, respectively. Of total OTTI, losses of $91 million and $51 million were recognized in earnings, and reversal of losses of $(4) million and $(47) million were recognized as non-credit-related OTTI in other comprehensive income for the first half of 2016 and 2015 , respectively.
(2)
Includes OTTI losses of $104 million and $76 million for second quarter 2016 and 2015 , respectively, and $237 million and $118 million for the first half of 2016 and 2015 , respectively.

The accompanying notes are an integral part of these statements.

65

Wells Fargo & Company and Subsidiaries
 
 
 
 
 
 
 
 
Consolidated Statement of Comprehensive Income (Unaudited)
 
 
 
 
 
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
 
2016

 
2015

 
2016

 
2015

Wells Fargo net income
 
$
5,558

 
5,719

 
$
11,020

 
11,523

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
 
1,571

 
(1,969
)
 
2,366

 
(1,576
)
Reclassification of net gains to net income
 
(504
)
 
(218
)
 
(808
)
 
(518
)
Derivatives and hedging activities:
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
 
1,057

 
(488
)
 
3,056

 
464

Reclassification of net gains on cash flow hedges to net income
 
(265
)
 
(268
)
 
(521
)
 
(502
)
Defined benefit plans adjustments:
 
 
 
 
 
 
 
 
Net actuarial losses arising during the period
 
(19
)
 
—

 
(27
)
 
(11
)
Amortization of net actuarial loss, settlements and other to net income
 
39

 
30

 
76

 
73

Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
 
(6
)
 
10

 
37

 
(45
)
Other comprehensive income (loss), before tax
 
1,873

 
(2,903
)
 
4,179

 
(2,115
)
Income tax (expense) benefit related to other comprehensive income
 
(714
)
 
1,040

 
(1,571
)
 
812

Other comprehensive income (loss), net of tax
 
1,159

 
(1,863
)
 
2,608

 
(1,303
)
Less: Other comprehensive income (loss) from noncontrolling interests
 
(15
)
 
(154
)
 
(43
)
 
147

Wells Fargo other comprehensive income (loss), net of tax
 
1,174

 
(1,709
)
 
2,651

 
(1,450
)
Wells Fargo comprehensive income
 
6,732

 
4,010

 
13,671

 
10,073

Comprehensive income (loss) from noncontrolling interests
 
—

 
(87
)
 
24

 
294

Total comprehensive income
 
$
6,732

 
3,923

 
$
13,695

 
10,367


The accompanying notes are an integral part of these statements.

66

Wells Fargo & Company and Subsidiaries
 
 
 
Consolidated Balance Sheet
 
 
 
(in millions, except shares)
Jun 30,
2016

 
Dec 31,
2015

Assets
(Unaudited)

 
 
Cash and due from banks
$
20,407

 
19,111

Federal funds sold, securities purchased under resale agreements and other short-term investments
295,521

 
270,130

Trading assets
80,093

 
77,202

Investment securities:
 
 
 
Available-for-sale, at fair value 
253,006

 
267,358

Held-to-maturity, at cost (fair value $104,077 and $80,567) 
100,420

 
80,197

Mortgages held for sale (includes $20,241 and $13,539 carried at fair value) (1) 
23,930

 
19,603

Loans held for sale
220

 
279

Loans (includes $5,032 and $5,316 carried at fair value) (1)
957,157

 
916,559

Allowance for loan losses 
(11,664
)
 
(11,545
)
Net loans
945,493

 
905,014

Mortgage servicing rights: 
 
 
  
Measured at fair value 
10,396

 
12,415

Amortized 
1,353

 
1,308

Premises and equipment, net 
8,289

 
8,704

Goodwill 
26,963

 
25,529

Other assets (includes $3,046 and $3,065 carried at fair value) (1) 
123,144

 
100,782

Total assets (2) 
$
1,889,235

 
1,787,632

Liabilities 
 
 
  
Noninterest-bearing deposits 
$
361,934

 
351,579

Interest-bearing deposits 
883,539

 
871,733

Total deposits 
1,245,473

 
1,223,312

Short-term borrowings 
120,258

 
97,528

Accrued expenses and other liabilities
76,916

 
73,365

Long-term debt 
243,927

 
199,536

Total liabilities (3) 
1,686,574

 
1,593,741

Equity 
 
 
  
Wells Fargo stockholders' equity: 
 
 
  
Preferred stock 
24,830

 
22,214

Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares 
9,136

 
9,136

Additional paid-in capital 
60,691

 
60,714

Retained earnings 
127,076

 
120,866

 Cumulative other comprehensive income
2,948

 
297

Treasury stock – 433,317,519 shares and 389,682,664 shares 
(21,068
)
 
(18,867
)
Unearned ESOP shares 
(1,868
)
 
(1,362
)
Total Wells Fargo stockholders' equity 
201,745

 
192,998

Noncontrolling interests 
916

 
893

Total equity 
202,661

 
193,891

Total liabilities and equity
$
1,889,235

 
1,787,632

(1)
Parenthetical amounts represent assets and liabilities for which we have elected the fair value option.
(2)
Our consolidated assets at June 30, 2016 , and December 31, 2015 , 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, $172 million and $157 million ; Federal funds sold, securities purchased under resale agreements and other short-term investments, $135 million and $0 million ; Trading assets, $101 million and $1 million ; Investment securities, $303 million and $425 million ; Net loans, $12.9 billion and $4.8 billion ; Other assets, $447 million and $242 million ; and Total assets, $14.0 billion and $5.6 billion , respectively.
(3)
Our consolidated liabilities at June 30, 2016 , and December 31, 2015 , include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Accrued expenses and other liabilities, $85 million and $57 million ; Long-term debt, $4.0 billion and $1.3 billion ; and Total liabilities, $4.1 billion and $1.4 billion , respectively.  

The accompanying notes are an integral part of these statements.

67


Wells Fargo & Company and Subsidiaries
 
 
 
 
 
 
 
Consolidated Statement of Changes in Equity (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
Common stock
 
(in millions, except shares)
Shares

 
Amount

 
Shares

 
Amount

Balance January 1, 2015
11,138,818

 
$
19,213

 
5,170,349,198

 
$
9,136

Net income
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
Common stock issued
 
 
 
 
52,509,675

 
 
Common stock repurchased (1)
 
 
 
 
(84,705,380
)
 
 
Preferred stock issued to ESOP
826,598

 
826

 
 
 
 
Preferred stock released by ESOP
 
 
 
 
 
 
 
Preferred stock converted to common shares
(391,014
)
 
(390
)
 
7,081,764

 
 
Common stock warrants repurchased/exercised
 
 
 
 
 
 
 
Preferred stock issued
80,000

 
2,000

 
 
 
 
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
515,584


2,436


(25,113,941
)

—

Balance June 30, 2015
11,654,402


$
21,649


5,145,235,257


$
9,136

Balance December 31, 2015
11,259,917

 
$
22,214

 
5,092,128,810

 
$
9,136

Cumulative effect from change in consolidation accounting (2)
 
 
 
 
 
 
 
Balance January 1, 2016
11,259,917

 
$
22,214

 
5,092,128,810

 
$
9,136

Net income
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Noncontrolling interests
 
 
 
 
 
 
 
Common stock issued
 
 
 
 
38,655,156

 
 
Common stock repurchased (1)
 
 
 
 
(96,479,740
)
 
 
Preferred stock issued to ESOP
1,150,000

 
1,150

 
 
 
 
Preferred stock released by ESOP
 
 
 
 
 
 
 
Preferred stock converted to common shares
(684,244
)
 
(684
)
 
14,189,729

 
 
Common stock warrants repurchased/exercised
 
 
 
 
 
 
 
Preferred stock issued
86,000

 
2,150

 
 
 
 
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
551,756


2,616


(43,634,855
)

—

Balance June 30, 2016
11,811,673


$
24,830


5,048,493,955


$
9,136

(1)
We had no unsettled private share repurchase contracts at June 30, 2016. For the first six months of 2015, includes $750 million related to a private forward repurchase transaction entered into in second quarter 2015 that settled in third quarter 2015 for 13.6 million shares of common stock.
(2)
Effective January 1, 2016, we adopted changes in consolidation accounting pursuant to ASU 2015-02 ( Amendments to the Consolidation Analysis ). Accordingly, we recorded a $121 million increase to beginning noncontrolling interests as a cumulative-effect adjustment.

The accompanying notes are an integral part of these statements.


68


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  

 
  
 
  
 
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

60,537

 
107,040

 
3,518

 
(13,690
)
 
(1,360
)
 
184,394

 
868

 
185,262

 
 
11,523

 
 
 
 
 
 
 
11,523

 
147

 
11,670

 
 
 
 
(1,450
)
 
 
 
 
 
(1,450
)
 
147

 
(1,303
)


 
 
 
 
 
 
 
 
 
—

 
(44
)
 
(44
)
(397
)
 
—

 
 
 
2,226

 
 
 
1,829

 
 
 
1,829

—

 
 
 
 
 
(4,586
)
 
 
 
(4,586
)
 
 
 
(4,586
)
74

 
 
 
 
 
 
 
(900
)
 
—

 
 
 
—

(35
)
 
 
 
 
 
 
 
425

 
390

 
 
 
390

65

 
 
 
 
 
325

 
 
 
—

 
 
 
—

(32
)
 
 
 
 
 
 
 
 
 
(32
)
 
 
 
(32
)
(3
)
 
 
 
 
 
 
 
 
 
1,997

 
 
 
1,997

34

 
(3,771
)
 
 
 
 
 
 
 
(3,737
)
 
 
 
(3,737
)
 
 
(699
)
 
 
 
 
 
 
 
(699
)
 
 
 
(699
)
409

 
 
 
 
 
 
 
 
 
409

 
 
 
409

542

 
 
 
 
 
 
 
 
 
542

 
 
 
542

(1,040
)
 
 
 
 
 
18

 
 
 
(1,022
)
 
 
 
(1,022
)
(383
)

7,053


(1,450
)

(2,017
)

(475
)

5,164


250


5,414

60,154


114,093


2,068


(15,707
)

(1,835
)

189,558


1,118


190,676

60,714

 
120,866

 
297

 
(18,867
)
 
(1,362
)
 
192,998

 
893

 
193,891

 
 
 
 
 
 
 
 
 
 
 
 
121

 
121

60,714

 
120,866

 
297

 
(18,867
)
 
(1,362
)
 
192,998

 
1,014

 
194,012

 
 
11,020

 
 
 
 
 
 
 
11,020

 
67

 
11,087

 
 
 
 
2,651

 
 
 
 
 
2,651

 
(43
)
 
2,608

1

 
 
 
 
 
 
 
 
 
1

 
(122
)
 
(121
)
(184
)
 
(185
)
 
 
 
1,845

 
 
 
1,476

 
 
 
1,476

500

 
 
 
 
 
(4,743
)
 
 
 
(4,243
)
 
 
 
(4,243
)
99

 
 
 
 
 
 
 
(1,249
)
 
—

 
 
 
—

(59
)
 
 
 
 
 
 
 
743

 
684

 
 
 
684

—

 
 
 
 
 
684

 
 
 
—

 
 
 
—

—

 
 
 
 
 
 
 
 
 
—

 
 
 
—

(49
)
 
 
 
 
 
 
 
 
 
2,101

 
 
 
2,101

27

 
(3,861
)
 
 
 
 
 
 
 
(3,834
)
 
 
 
(3,834
)
 
 
(764
)
 
 
 
 
 
 
 
(764
)
 
 
 
(764
)
172

 
 
 
 
 
 
 
 
 
172

 
 
 
172

508

 
 
 
 
 
 
 
 
 
508

 
 
 
508

(1,038
)
 
 
 
 
 
13

 
 
 
(1,025
)
 
 
 
(1,025
)
(23
)

6,210


2,651


(2,201
)

(506
)

8,747


(98
)

8,649

60,691


127,076


2,948


(21,068
)

(1,868
)

201,745


916


202,661



69


Wells Fargo & Company and Subsidiaries
 
 
 
Consolidated Statement of Cash Flows (Unaudited)
 
 
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

Cash flows from operating activities:
 
 
 
Net income before noncontrolling interests
$
11,087

 
11,670

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
  

Provision for credit losses
2,160

 
908

Changes in fair value of MSRs, MHFS and LHFS carried at fair value
1,664

 
(90
)
Depreciation, amortization and accretion
2,233

 
1,558

Other net (gains) losses
1,107

 
(3,125
)
Stock-based compensation
1,176

 
1,178

Excess tax benefits related to stock incentive compensation
(178
)
 
(409
)
Originations of MHFS
(85,818
)
 
(94,133
)
Proceeds from sales of and principal collected on mortgages originated for sale
59,821

 
67,608

Proceeds from sales of and principal collected on LHFS
3

 
6

Purchases of LHFS
(3
)
 
(27
)
Net change in:
 
 
  

Trading assets
20,367

 
19,792

Deferred income taxes
(2,286
)
 
(364
)
Accrued interest receivable
(272
)
 
(382
)
Accrued interest payable
361

 
186

Other assets
(15,589
)
 
2,284

Other accrued expenses and liabilities
2,095

 
(5,796
)
Net cash provided (used) by operating activities
(2,072
)
 
864

Cash flows from investing activities:
 
 
 
Net change in:
  
 
  
Federal funds sold, securities purchased under resale agreements and other short-term investments
(25,492
)
 
26,044

Available-for-sale securities:
 
 
 
Sales proceeds
22,631

 
10,143

Prepayments and maturities
15,182

 
15,847

Purchases
(19,602
)
 
(34,968
)
Held-to-maturity securities:
 
 
 
Paydowns and maturities
2,951

 
2,821

Purchases
(19,217
)
 
(22,734
)
Nonmarketable equity investments:
 
 
 
Sales proceeds
1,060

 
1,894

Purchases
(1,998
)
 
(792
)
Loans:
 
 
 
Loans originated by banking subsidiaries, net of principal collected
(21,537
)
 
(22,290
)
Proceeds from sales (including participations) of loans held for investment
4,736

 
5,248

Purchases (including participations) of loans
(3,146
)
 
(10,873
)
Principal collected on nonbank entities’ loans
5,885

 
5,220

Loans originated by nonbank entities
(5,875
)
 
(6,452
)
Net cash paid for acquisitions
(28,987
)
 
—

Proceeds from sales of foreclosed assets and short sales
3,704

 
3,962

Net cash from purchases and sales of MSRs
(23
)
 
(45
)
Other, net
224

 
(1,151
)
Net cash used by investing activities
(69,504
)
 
(28,126
)
Cash flows from financing activities:
 
 
 
Net change in:
  

 
  

Deposits
22,161

 
17,756

Short-term borrowings
22,730

 
19,445

Long-term debt:
 
 
  

Proceeds from issuance
47,971

 
13,835

Repayment
(14,138
)
 
(18,104
)
Preferred stock:
 
 
  

Proceeds from issuance
2,101

 
1,997

Cash dividends paid
(764
)
 
(699
)
Common stock:
 
 
  

Proceeds from issuance
795

 
1,012

Repurchased
(4,243
)
 
(4,586
)
Cash dividends paid
(3,739
)
 
(3,647
)
Excess tax benefits related to stock incentive compensation
178

 
409

Net change in noncontrolling interests
(135
)
 
(84
)
Other, net
(45
)
 
44

Net cash provided by financing activities
72,872

 
27,378

Net change in cash and due from banks
1,296

 
116

Cash and due from banks at beginning of period
19,111

 
19,571

Cash and due from banks at end of period
$
20,407

 
19,687

Supplemental cash flow disclosures:
 
 
 
Cash paid for interest
$
2,357

 
1,747

Cash paid for income taxes
4,255

 
7,105


The accompanying notes are an integral part of these statements. See Note 1 (Summary of Significant Accounting Policies) for noncash activities.

70
Notes 1: Summary of Significant Accounting Policies ( continued )

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. For discussion of our significant accounting policies, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2015 ( 2015 Form 10-K). There were no material changes to these policies in the first half of 2016 . 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, 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 5 (Loans and Allowance for Credit Losses)), valuations of residential mortgage servicing rights (MSRs) (Note 7 (Securitizations and Variable Interest Entities) and Note 8 (Mortgage Banking Activities)) and financial instruments (Note 13 (Fair Values of Assets and Liabilities)), and income taxes. Actual results could differ from those estimates.
These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our 2015 Form 10-K.
 
Accounting Standards Adopted in 2016
In first quarter 2016, we adopted the following new accounting guidance:

•
Accounting Standards Update (ASU or Update) 2015-16 – Business Combinations ( Topic 805 ): Simplifying the Accounting for Measurement-Period Adjustments;
 
•
ASU 2015-07 – Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent);
•
ASU 2015-03 – Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs;
•
ASU 2015-02 – Consolidation (Topic 810): Amendments to the Consolidation Analysis;
•
ASU 2015-01 – Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items;
•
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 to Equity;
•
ASU 2014-13 – Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity; and
•
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.

ASU 2015-16 eliminates the requirement for companies to retrospectively adjust initial amounts recognized in business combinations when the accounting is incomplete at the acquisition date. Under the new guidance, companies should record adjustments in the same reporting period in which the amounts are determined. We adopted this accounting change in first quarter 2016 with prospective application. The Update did not have a material impact on our consolidated financial statements.

ASU 2015-07 eliminates the disclosure requirement to categorize investments within the fair value hierarchy that are measured at fair value using net asset value as a practical expedient. We adopted this change in first quarter 2016 with retrospective application. The Update did not affect our consolidated financial statements as it impacts only the fair value disclosure requirements for certain investments. For additional information, see Note 13 (Fair Values of Assets and Liabilities).

ASU 2015-03 changes the balance sheet presentation for debt issuance costs. Under the new guidance, debt issuance costs should be reported as a deduction from debt liabilities rather than as a deferred charge classified as an asset. We adopted this change in first quarter 2016, which resulted in a $180 million reclassification from Other assets to Long-term debt on January 1, 2016. Because the impact on prior periods was not material, we applied the guidance prospectively.

ASU 2015-02 requires companies to reevaluate all legal entities under new consolidation guidance. The new guidance 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 new guidance also amends the consolidation analysis for certain investment funds and excludes certain money market


71

funds. We adopted the accounting changes on January 1, 2016, which resulted in a net increase in assets and a corresponding cumulative-effect adjustment to noncontrolling interests of $121 million . There was no impact to consolidated retained earnings. For additional information, see Note 7 (Securitizations and Variable Interest Entities).

ASU 2015-01 removes the concept of extraordinary items from GAAP and eliminates the requirement for extraordinary items to be separately presented in the statement of income. We adopted this change in first quarter 2016 with prospective application. This Update did not have a material impact on our consolidated financial statements.

ASU 2014-16 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. We adopted this new requirement in first quarter 2016. This Update did not have a material impact on our consolidated financial statements.

ASU 2014-13 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. We adopted this accounting change in first quarter 2016. The Update did not have a material impact on our consolidated financial statements.

ASU 2014-12 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. We adopted this
 
change in first quarter 2016 with prospective application. The Update did not have a material effect on our consolidated financial statements, as our historical practice complies with the new requirements.

Private Share Repurchases
From time to time we enter into private forward repurchase 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 submitted annually under the Comprehensive Capital Analysis and Review (CCAR) and to provide an economic benefit to the Company.
Our payments to the counterparties for these 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 capital plans, which contemplate 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. Our total number of outstanding shares of common stock is not reduced until settlement of the private share repurchase contract.
We had no unsettled private share repurchase contracts at June 30, 2016 . At June 30, 2015 , we had a $750 million private repurchase contract outstanding that settled in July 2015 for 13.6 million shares of common stock.
 


SUPPLEMENTAL CASH FLOW INFORMATION   Significant noncash activities are presented below.


Table 1.1: Supplemental Cash Flow Information
 
Six months ended June 30,
 
(in millions)
2016

 
2015

Trading assets retained from securitization of MHFS
$
23,403

 
20,816

Transfers from loans to MHFS
3,309

 
4,757

Transfers from available-for-sale to held-to-maturity securities
—

 
4,972


SUBSEQUENT EVENTS   We have evaluated the effects of events that have occurred subsequent to June 30, 2016 , and there have been no material events that would require recognition in our second quarter 2016  consolidated financial statements or disclosure in the Notes to the consolidated financial statements.



72


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 10 (Guarantees, Pledged Assets and Collateral). We also periodically review existing businesses to ensure they remain strategically aligned with our operating business model and risk profile.
During the first half of 2016, we completed two acquisitions and refined the related purchase accounting adjustments.  On January 1, 2016 , we acquired $4.3 billion in assets associated with GE Railcar Services, which included 77,000 railcars and 1,000 locomotives. The acquired assets included $918 million of loans and capital leases and $3.2 billion of operating lease assets.
On March 1, 2016 , we acquired a total of $30.0 billion in assets associated with the North American portion of GE Capital’s Commercial Distribution Finance and Vendor Finance
 
businesses. The acquired assets included $24.2 billion of loans and capital leases, $2.7 billion of operating lease assets, and $2.2 billion of goodwill and intangible assets. The North American portion represented approximately 90% of the total assets to be acquired. The Asia portion was completed on July 1, 2016 , and the Australia and New Zealand portion was completed on August 1, 2016; these consisted of an additional $1.0 billion in acquired assets, with the balance of the international portion expected to close during the remainder of 2016.
We also completed two divestitures during the first half of 2016. On March 31, 2016 , we completed the divestiture of Rural Community Insurance, our crop insurance business. The transaction involved the sale of approximately $4 billion in assets, which resulted in a pre-tax gain of $381 million . On May 31, 2016, we sold our health benefit services business, which resulted in a pre-tax gain of $290 million .



Note 3:    Federal Funds Sold, Securities Purchased under Resale Agreements and Other   Short-Term Investments
Table 3.1 provides the detail of federal funds sold, securities purchased under short-term resale agreements (generally less than one year) and other short-term investments. Substantially all of the interest-earning deposits at June 30, 2016 , and December 31, 2015 , were held at the Federal Reserve. 
Table 3.1: Fed Funds Sold and Other Short-Term Investments
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Federal funds sold and securities purchased under resale agreements
$
54,593

 
45,828

Interest-earning deposits
231,210

 
220,409

Other short-term investments
9,718

 
3,893

Total
$
295,521

 
270,130


 
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 $3.3 billion and $2.2 billion as of June 30, 2016 , and December 31, 2015 , respectively.
We have classified securities purchased under long-term resale agreements (generally one year or more), which totaled $23.8 billion and $20.1 billion at June 30, 2016 , and December 31, 2015 , 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 in Note 10 (Guarantees, Pledged Assets and Collateral).





73

Note 4:  Investment Securities
Table 4.1 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.

Table 4.1: Amortized Cost and Fair Value
(in millions)
Amortized Cost

 
Gross
unrealized
gains

 
Gross
unrealized
losses

 
Fair
value

June 30, 2016
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
27,348

 
591

 
—

 
27,939

Securities of U.S. states and political subdivisions
53,960

 
1,165

 
(1,101
)
 
54,024

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal agencies
92,929

 
2,984

 
(45
)
 
95,868

Residential
7,698

 
605

 
(32
)
 
8,271

Commercial
11,580

 
155

 
(68
)
 
11,667

Total mortgage-backed securities
112,207

 
3,744

 
(145
)
 
115,806

Corporate debt securities
13,306

 
336

 
(262
)
 
13,380

Collateralized loan and other debt obligations (1) 
34,551

 
112

 
(382
)
 
34,281

Other (2)
6,230

 
99

 
(55
)
 
6,274

Total debt securities
247,602

 
6,047

 
(1,945
)
 
251,704

Marketable equity securities:
 
 
 
 
 
 
 
Perpetual preferred securities
650

 
87

 
(3
)
 
734

Other marketable equity securities
218

 
350

 
—

 
568

Total marketable equity securities
868

 
437

 
(3
)
 
1,302

Total available-for-sale securities
248,470

 
6,484

 
(1,948
)
 
253,006

Held-to-maturity securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
44,675

 
2,642

 
—

 
47,317

Securities of U.S. states and political subdivisions
2,181

 
151

 
—

 
2,332

Federal agency mortgage-backed securities
49,594

 
880

 
—

 
50,474

Collateralized loan obligations
1,406

 
—

 
(21
)
 
1,385

Other (2)
2,564

 
6

 
(1
)
 
2,569

Total held-to-maturity securities
100,420

 
3,679

 
(22
)
 
104,077

Total
$
348,890

 
10,163

 
(1,970
)
 
357,083

December 31, 2015
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
36,374

 
24

 
(148
)
 
36,250

Securities of U.S. states and political subdivisions
49,167

 
1,325

 
(502
)
 
49,990

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal agencies
103,391

 
1,983

 
(828
)
 
104,546

Residential
7,843

 
740

 
(25
)
 
8,558

Commercial
13,943

 
230

 
(85
)
 
14,088

Total mortgage-backed securities
125,177

 
2,953

 
(938
)
 
127,192

Corporate debt securities
15,548

 
312

 
(449
)
 
15,411

Collateralized loan and other debt obligations (1)
31,210

 
125

 
(368
)
 
30,967

Other (2)
5,842

 
115

 
(46
)
 
5,911

Total debt securities
263,318

 
4,854

 
(2,451
)
 
265,721

Marketable equity securities:
 
 
 
 
 
 
 
Perpetual preferred securities
819

 
112

 
(13
)
 
918

Other marketable equity securities
239

 
482

 
(2
)
 
719

Total marketable equity securities
1,058

 
594

 
(15
)
 
1,637

Total available-for-sale securities
264,376

 
5,448

 
(2,466
)
 
267,358

Held-to-maturity securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
44,660

 
580

 
(73
)
 
45,167

Securities of U.S. states and political subdivisions
2,185

 
65

 
—

 
2,250

Federal agency mortgage-backed securities
28,604

 
131

 
(314
)
 
28,421

Collateralized loan obligations
1,405

 
—

 
(24
)
 
1,381

Other (2)
3,343

 
8

 
(3
)
 
3,348

Total held-to-maturity securities
80,197

 
784

 
(414
)
 
80,567

Total
$
344,573

 
6,232

 
(2,880
)
 
347,925

(1)
The available-for-sale portfolio includes collateralized debt obligations (CDOs) with a cost basis and fair value of $713 million and $719 million , respectively, at June 30, 2016 , and $247 million and $257 million , respectively, at December 31, 2015 .
(2)
The “Other” category of available-for-sale securities largely includes asset-backed securities collateralized by credit cards, student loans, home equity loans and automobile leases or loans and cash. Included in the “Other” category of held-to-maturity securities are asset-backed securities collateralized by automobile leases or loans and cash with a cost basis and fair value of $1.5 billion each at June 30, 2016 , and $1.9 billion each at December 31, 2015 . Also included in the “Other” category of held-to-maturity securities are asset-backed securities collateralized by dealer floorplan loans with a cost basis and fair value of $1.1 billion each at June 30, 2016 , and $1.4 billion each at December 31, 2015 .

74
Note 4: Investment Securities ( continued )

Gross Unrealized Losses and Fair Value
Table 4.2 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 have 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.

Table 4.2: Gross Unrealized Losses and Fair Value
 
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

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
—

 
—

 
—

 
—

 
—

 
—

Securities of U.S. states and political subdivisions
(170
)
 
12,054

 
(931
)
 
13,194

 
(1,101
)
 
25,248

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 

Federal agencies
(4
)
 
2,003

 
(41
)
 
4,105

 
(45
)
 
6,108

Residential
(20
)
 
1,855

 
(12
)
 
492

 
(32
)
 
2,347

Commercial
(21
)
 
2,478

 
(47
)
 
2,157

 
(68
)
 
4,635

Total mortgage-backed securities
(45
)
 
6,336

 
(100
)
 
6,754

 
(145
)
 
13,090

Corporate debt securities
(63
)
 
2,061

 
(199
)
 
1,614

 
(262
)
 
3,675

Collateralized loan and other debt obligations
(219
)
 
15,850

 
(163
)
 
11,635

 
(382
)
 
27,485

Other
(20
)
 
2,193

 
(35
)
 
1,080

 
(55
)
 
3,273

Total debt securities
(517
)
 
38,494

 
(1,428
)
 
34,277

 
(1,945
)
 
72,771

Marketable equity securities:
 
 
 
 
 
 
 
 

 

Perpetual preferred securities
—

 
—

 
(3
)
 
65

 
(3
)
 
65

Other marketable equity securities
—

 
—

 
—

 
—

 
—

 
—

Total marketable equity securities
—

 
—

 
(3
)
 
65

 
(3
)
 
65

Total available-for-sale securities
(517
)
 
38,494

 
(1,431
)
 
34,342

 
(1,948
)
 
72,836

Held-to-maturity securities:
 
 
 
 
 
 
 
 

 

Securities of U.S. Treasury and federal agencies
—

 
—

 
—

 
—

 
—

 
—

Federal agency mortgage-backed securities
—

 
—

 
—

 
—

 
—

 
—

Collateralized loan obligations
(5
)
 
150

 
(16
)
 
1,181

 
(21
)
 
1,331

Other
(1
)
 
865

 
—

 
—

 
(1
)
 
865

Total held-to-maturity securities
(6
)
 
1,015

 
(16
)
 
1,181

 
(22
)
 
2,196

Total
$
(523
)
 
39,509

 
(1,447
)
 
35,523

 
(1,970
)
 
75,032

December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
(148
)
 
24,795

 
—

 
—

 
(148
)
 
24,795

Securities of U.S. states and political subdivisions
(26
)
 
3,453

 
(476
)
 
12,377

 
(502
)
 
15,830

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
(522
)
 
36,329

 
(306
)
 
9,888

 
(828
)
 
46,217

Residential
(20
)
 
1,276

 
(5
)
 
285

 
(25
)
 
1,561

Commercial
(32
)
 
4,476

 
(53
)
 
2,363

 
(85
)
 
6,839

Total mortgage-backed securities
(574
)
 
42,081

 
(364
)
 
12,536

 
(938
)
 
54,617

Corporate debt securities
(244
)
 
4,941

 
(205
)
 
1,057

 
(449
)
 
5,998

Collateralized loan and other debt obligations
(276
)
 
22,214

 
(92
)
 
4,844

 
(368
)
 
27,058

Other
(33
)
 
2,768

 
(13
)
 
425

 
(46
)
 
3,193

Total debt securities
(1,301
)
 
100,252

 
(1,150
)
 
31,239

 
(2,451
)
 
131,491

Marketable equity securities:
 
 
 
 
 
 
 
 
 
 
 
Perpetual preferred securities
(1
)
 
24

 
(12
)
 
109

 
(13
)
 
133

Other marketable equity securities
(2
)
 
40

 
—

 
—

 
(2
)
 
40

Total marketable equity securities
(3
)
 
64

 
(12
)
 
109

 
(15
)
 
173

Total available-for-sale securities
(1,304
)
 
100,316

 
(1,162
)
 
31,348

 
(2,466
)
 
131,664

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
(73
)
 
5,264

 
—

 
—

 
(73
)
 
5,264

Federal agency mortgage-backed securities
(314
)
 
23,115

 
—

 
—

 
(314
)
 
23,115

Collateralized loan obligations
(20
)
 
1,148

 
(4
)
 
233

 
(24
)
 
1,381

Other
(3
)
 
1,096

 
—

 
—

 
(3
)
 
1,096

Total held-to-maturity securities
(410
)
 
30,623

 
(4
)
 
233

 
(414
)
 
30,856

Total
$
(1,714
)
 
130,939

 
(1,166
)
 
31,581

 
(2,880
)
 
162,520



75

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 descriptions of the factors we consider when analyzing securities for impairment, see Note 1 (Summary of Significant Accounting Policies) and Note 5 (Investment Securities) to Financial Statements in our 2015 Form 10-K. There were no material changes to our methodologies for assessing impairment in the first half of 2016 . 
Table 4.3 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 $12 million and $3.4 billion , respectively, at June 30, 2016 , and $17 million and $3.7 billion , respectively, at December 31, 2015 . If an internal credit grade was not assigned, we categorized the security as non-investment grade. 

Table 4.3: Gross Unrealized Losses and Fair Value by Investment Grade
 
Investment grade
 
 
Non-investment grade
 
(in millions)
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

June 30, 2016
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
—

 
—

 
—

 
—

Securities of U.S. states and political subdivisions
(1,056
)
 
24,902

 
(45
)
 
346

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal agencies
(45
)
 
6,108

 
—

 
—

Residential
(15
)
 
1,264

 
(17
)
 
1,083

Commercial
(29
)
 
3,817

 
(39
)
 
818

Total mortgage-backed securities
(89
)
 
11,189

 
(56
)
 
1,901

Corporate debt securities
(74
)
 
1,780

 
(188
)
 
1,895

Collateralized loan and other debt obligations
(382
)
 
27,485

 
—

 
—

Other
(49
)
 
2,717

 
(6
)
 
556

Total debt securities
(1,650
)
 
68,073

 
(295
)
 
4,698

Perpetual preferred securities
(3
)
 
65

 
—

 
—

Total available-for-sale securities
(1,653
)

68,138


(295
)

4,698

Held-to-maturity securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
—

 
—

 
—

 
—

Federal agency mortgage-backed securities
—

 
—

 
—

 
—

Collateralized loan obligations
(21
)
 
1,331

 
—

 
—

Other
(1
)
 
865

 
—

 
—

Total held-to-maturity securities
(22
)
 
2,196

 
—

 
—

Total
$
(1,675
)
 
70,334

 
(295
)
 
4,698

December 31, 2015
 
 

 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
(148
)
 
24,795

 
—

 
—

Securities of U.S. states and political subdivisions
(464
)
 
15,470

 
(38
)
 
360

Mortgage-backed securities:
 
 
 
 
 
 
 
Federal agencies
(828
)
 
46,217

 
—

 
—

Residential
(12
)
 
795

 
(13
)
 
766

Commercial
(59
)
 
6,361

 
(26
)
 
478

Total mortgage-backed securities
(899
)
 
53,373

 
(39
)
 
1,244

Corporate debt securities
(140
)
 
4,167

 
(309
)
 
1,831

Collateralized loan and other debt obligations
(368
)
 
27,058

 
—

 
—

Other
(43
)
 
2,915

 
(3
)
 
278

Total debt securities
(2,062
)
 
127,778

 
(389
)
 
3,713

Perpetual preferred securities
(13
)
 
133

 
—

 
—

Total available-for-sale securities
(2,075
)
 
127,911

 
(389
)
 
3,713

Held-to-maturity securities:
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
(73
)
 
5,264

 
—

 
—

Federal agency mortgage-backed securities
(314
)
 
23,115


—

 
—

Collateralized loan obligations
(24
)
 
1,381

 
—

 
—

Other
(3
)
 
1,096


—

 
—

Total held-to-maturity securities
(414
)
 
30,856

 
—

 
—

Total
$
(2,489
)
 
158,767

 
(389
)
 
3,713


76
Note 4: Investment Securities ( continued )

Contractual Maturities
Table 4.4 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.
 

Table 4.4: Contractual Maturities
  
  
 
 
Remaining contractual maturity
 
  
Total

 
  

 
Within one year
 
 
After one year
through five years
 
 
After five years
through ten years
 
 
After ten years
 
(in millions)

amount

 
Yield

 
Amount

 
Yield

 
Amount

 
Yield

 
Amount

 
Yield

 
Amount

 
Yield

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale debt securities (1): 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
27,939

 
1.44
%
 
$
123

 
1.64
%
 
$
27,690

 
1.43
%
 
$
126

 
1.88
%
 
$
—

 
—
%
Securities of U.S. states and political subdivisions
54,024

 
5.90

 
1,439

 
2.06

 
8,657

 
2.33

 
2,812

 
5.50

 
41,116

 
6.81

Mortgage-backed securities:
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
95,868

 
3.20

 
—

 
—

 
135

 
2.61

 
2,374

 
3.50

 
93,359

 
3.19

Residential
8,271

 
4.00

 
—

 
—

 
30

 
5.18

 
39

 
4.23

 
8,202

 
3.99

Commercial
11,667

 
4.96

 
—

 
—

 
—

 
—

 
—

 
—

 
11,667

 
4.96

Total mortgage-backed securities
115,806

 
3.44

 
—

 
—

 
165

 
3.09

 
2,413

 
3.51

 
113,228

 
3.44

Corporate debt securities
13,380

 
4.76

 
2,953

 
3.27

 
4,313

 
5.47

 
4,868

 
4.85

 
1,246

 
5.45

Collateralized loan and other debt obligations
34,281

 
2.41

 
1

 
0.98

 
695

 
1.14

 
16,158

 
2.36

 
17,427

 
2.50

Other
6,274

 
2.04

 
48

 
3.06

 
1,056

 
2.40

 
1,116

 
1.91

 
4,054

 
1.98

Total available-for-sale debt securities at fair value
$
251,704

 
3.64
%
 
$
4,564

 
2.84
%
 
$
42,576

 
2.05
%
 
$
27,493

 
3.20
%
 
$
177,071

 
4.11
%
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale debt securities (1):
 
 
 
 
 
 
 
 
`
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
36,250

 
1.49
%
 
$
216

 
0.77
%
 
$
31,602

 
1.44
%
 
$
4,432

 
1.86
%
 
$
—

 
—
%
Securities of U.S. states and political subdivisions
49,990

 
5.82

 
1,969

 
2.09

 
7,709

 
2.02

 
3,010

 
5.25

 
37,302

 
6.85

Mortgage-backed securities:
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
104,546

 
3.29

 
3

 
6.55

 
373

 
1.58

 
1,735

 
3.84

 
102,435

 
3.29

Residential
8,558

 
4.17

 
—

 
—

 
34

 
5.11

 
34

 
6.03

 
8,490

 
4.16

Commercial
14,088

 
5.06

 
—

 
—

 
61

 
2.79

 
—

 
—

 
14,027

 
5.07

Total mortgage-backed securities
127,192

 
3.54

 
3

 
6.55

 
468

 
1.99

 
1,769

 
3.88

 
124,952

 
3.55

Corporate debt securities
15,411

 
4.57

 
1,960

 
3.84

 
6,731

 
4.47

 
5,459

 
4.76

 
1,261

 
5.47

Collateralized loan and other debt obligations
30,967

 
2.08

 
2

 
0.33

 
804

 
0.90

 
12,707

 
2.01

 
17,454

 
2.19

Other
5,911

 
2.05

 
68

 
2.47

 
1,228

 
2.57

 
953

 
1.94

 
3,662

 
1.89

Total available-for-sale debt securities at fair value
$
265,721

 
3.55
%
 
$
4,218

 
2.84
%
 
$
48,542

 
1.98
%
 
$
28,330

 
2.98
%
 
$
184,631

 
4.07
%
(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.


77

Table 4.5 shows the amortized cost and weighted-average yields of held-to-maturity debt securities by contractual maturity.

Table 4.5: Amortized Cost by Contractual Maturity
  
  
 
 
Remaining contractual maturity
 
  
Total

 
  

 
Within one year
 
 
After one year
through five years
 
 
After five years
through ten years
 
 
After ten years
 
(in millions)
amount

 
Yield

 
Amount

 
Yield

 
Amount

 
Yield

 
Amount

 
Yield

 
Amount

 
Yield

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities (1): 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortized cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
44,675

 
2.12
%
 
$
—

 
—
%
 
$
20,911

 
2.08
%
 
$
23,764

 
2.15
%
 
$
—

 
—
%
Securities of U.S. states and political subdivisions
2,181

 
5.97

 
—

 
—

 
—

 
—

 
119

 
7.53

 
2,062

 
5.88

Federal agency mortgage-backed securities
49,594

 
3.25

 
—

 
—

 
—

 
—

 
—

 
—

 
49,594

 
3.25

Collateralized loan obligations
1,406

 
2.36

 
—

 
—

 
—

 
—

 
239

 
2.28

 
1,167

 
2.37

Other
2,564

 
1.59

 
—

 
—

 
1,916

 
1.65

 
648

 
1.42

 
—

 
—

Total held-to-maturity debt securities at amortized cost
$
100,420

 
2.75
%
 
$
—

 
—
%
 
$
22,827

 
2.04
%
 
$
24,770

 
2.16
%
 
$
52,823

 
3.33
%
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortized cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
44,660

 
2.12
%
 
$
—

 
—
%
 
$
1,276

 
1.75
%
 
$
43,384

 
2.13
%
 
$
—

 
—
%
Securities of U.S. states and political subdivisions
2,185

 
5.97

 
—

 
—

 
—

 
—

 
104

 
7.49

 
2,081

 
5.89

Federal agency mortgage-backed securities
28,604

 
3.47

 
—

 
—

 
—

 
—

 
—

 
—

 
28,604

 
3.47

Collateralized loan obligations
1,405

 
2.03

 
—

 
—

 
—

 
—

 
—

 
—

 
1,405

 
2.03

Other
3,343

 
1.68

 
—

 
—

 
2,351

 
1.74

 
992

 
1.53

 
—

 
—

Total held-to-maturity debt securities at amortized cost
$
80,197

 
2.69
%
 
$
—

 
—
%
 
$
3,627

 
1.74
%
 
$
44,480

 
2.13
%
 
$
32,090

 
3.57
%
(1)
Weighted-average yields displayed by maturity bucket are weighted based on amortized cost and predominantly represent contractual coupon rates.

Table 4.6 shows the fair value of held-to-maturity debt securities by contractual maturity.
 


Table 4.6: Fair Value by Contractual Maturity
  
  

 
Remaining contractual maturity
 
  
Total

 
Within one year

 
After one year
through five years

 
After five years
through ten years

 
After ten years

(in millions)
amount

 
Amount

 
Amount

 
Amount

 
Amount

June 30, 2016
 
 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
Fair value:
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
47,317

 
—

 
22,089

 
25,228

 
—

Securities of U.S. states and political subdivisions
2,332

 
—

 
—

 
125

 
2,207

Federal agency mortgage-backed securities
50,474

 
—

 
—

 
—

 
50,474

Collateralized loan obligations
1,385

 
—

 
—

 
238

 
1,147

Other
2,569

 
—

 
1,919

 
650

 
—

Total held-to-maturity debt securities at fair value
$
104,077

 
—

 
24,008

 
26,241

 
53,828

December 31, 2015
  
 
 
 
 
 
 
 
 
Held-to-maturity securities:
  
 
 
 
 
 
 
 
 
Fair value:
  
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
45,167

 
—

 
1,298

 
43,869

 
—

Securities of U.S. states and political subdivisions
2,250

 
—

 
—

 
105

 
2,145

Federal agency mortgage-backed securities
28,421

 
—

 
—

 
—

 
28,421

Collateralized loan obligations
1,381

 
—

 
—

 
—

 
1,381

Other
3,348

 
—

 
2,353

 
995

 
—

Total held-to-maturity debt securities at fair value
$
80,567

 
—

 
3,651

 
44,969

 
31,947


78
Note 4: Investment Securities ( continued )

Realized Gains and Losses
Table 4.7 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 6 (Other Assets)).

Table 4.7: Realized Gains and Losses
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Gross realized gains
$
564

 
255

 
949

 
603

Gross realized losses
(31
)
 
(15
)
 
(44
)
 
(35
)
OTTI write-downs
(26
)
 
(21
)
 
(95
)
 
(52
)
Net realized gains from available-for-sale securities
507

 
219

 
810

 
516

Net realized gains from nonmarketable equity investments
129

 
479

 
314

 
830

Net realized gains from debt securities and equity investments
$
636

 
698

 
1,124

 
1,346


Other-Than-Temporary Impairment
Table 4.8 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 first half of 2016 and 2015 .

Table 4.8: OTTI Write-downs
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

OTTI write-downs included in earnings
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
  
 
  
Securities of U.S. states and political subdivisions
$
6

 
—

 
10

 
16

Mortgage-backed securities:
 
 
 
 
  

 
  

Residential
12

 
19

 
24

 
34

Commercial
—

 
—

 
1

 
—

Corporate debt securities
5

 
1

 
50

 
1

Other debt securities
3

 
—

 
6

 
—

Total debt securities
26

 
20

 
91

 
51

Equity securities:
 
 
 
 
  

 
  

Marketable equity securities:
 
 
 
 
  

 
 
Other marketable equity securities
—

 
1

 
4

 
1

Total marketable equity securities
—

 
1

 
4

 
1

Total investment securities (1)
26

 
21

 
95

 
52

Nonmarketable equity investments (1)
104

 
75

 
233

 
117

Total OTTI write-downs included in earnings (1)
$
130

 
96

 
328

 
169

(1)
The quarter ended June 30, 2016 , includes $29 million in OTTI write-downs of oil and gas investments, of which $5 million related to investment securities and $24 million related to nonmarketable equity investments. Oil and gas related OTTI for the first half of 2016 totaled $153 million , of which $51 million related to investment securities and $102 million related to nonmarketable equity investments.

79

Other-Than-Temporarily Impaired Debt Securities
Table 4.9 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.

Table 4.9: OTTI Write-downs Included in Earnings
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

OTTI on debt securities
 
 
 
 
  

 
  

Recorded as part of gross realized losses:
 
 
 
 
  

 
  

Credit-related OTTI
$
20

 
19

 
81

 
39

Intent-to-sell OTTI
6

 
1

 
10

 
12

Total recorded as part of gross realized losses
26

 
20

 
91

 
51

Changes to OCI for losses (reversal of losses) in non-credit-related OTTI (1):
 
 
 
 
  

 
 
Securities of U.S. states and political subdivisions
—

 
—

 
—

 
(1
)
Residential mortgage-backed securities
(5
)
 
(10
)
 
5

 
(31
)
Commercial mortgage-backed securities
(1
)
 
—

 
2

 
(15
)
Corporate debt securities
(9
)
 
—

 
(13
)
 
—

Other debt securities
—

 
—

 
2

 
—

Total changes to OCI for non-credit-related OTTI
(15
)
 
(10
)
 
(4
)
 
(47
)
Total OTTI losses recorded on debt securities
$
11

 
10

 
87

 
4

(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.
 
Table 4.10 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.

Table 4.10: Rollforward of OTTI Credit Loss
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Credit loss recognized, beginning of period
$
1,145

 
1,029

 
1,092

 
1,025

Additions:
 
 
 
 
  
 
  
For securities with initial credit impairments
—

 
—

 
38

 
—

For securities with previous credit impairments
20

 
19

 
43

 
39

Total additions
20

 
19

 
81

 
39

Reductions:
 
 
 
 
  
 
  
For securities sold, matured, or intended/required to be sold
(83
)
 
(52
)
 
(89
)
 
(66
)
For recoveries of previous credit impairments (1)
(2
)
 
(3
)
 
(4
)
 
(5
)
Total reductions
(85
)
 
(55
)
 
(93
)
 
(71
)
Credit loss recognized, end of period
$
1,080

 
993

 
1,080

 
993

(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.


80
Note 5: Loans and Allowance for Credit Losses ( continued )

Note 5:  Loans and Allowance for Credit Losses 
Table 5.1 presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net reduction of $4.8 billion and $3.8 billion at June 30, 2016 , and December 31, 2015 , respectively, for unearned income,
 
net deferred loan fees, and unamortized discounts and premiums. Outstanding balances at June 30, 2016 also reflect the acquisition of various loans and capital leases from GE Capital as described in Note 2 (Business Combinations).

Table 5.1: Loans Outstanding
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Commercial:
  

 
  

Commercial and industrial
$
323,858

 
299,892

Real estate mortgage
128,320

 
122,160

Real estate construction
23,387

 
22,164

Lease financing
18,973

 
12,367

Total commercial
494,538

 
456,583

Consumer:
 
 
 
Real estate 1-4 family first mortgage
277,162

 
273,869

Real estate 1-4 family junior lien mortgage
49,772

 
53,004

Credit card
34,137

 
34,039

Automobile
61,939

 
59,966

Other revolving credit and installment
39,609

 
39,098

Total consumer
462,619

 
459,976

Total loans
$
957,157

 
916,559


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. Table 5.2 presents total commercial foreign loans outstanding by class of financing receivable.

Table 5.2: Commercial Foreign Loans Outstanding
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Commercial foreign loans:
 
 
 
Commercial and industrial
$
50,515

 
49,049

Real estate mortgage
8,467

 
8,350

Real estate construction
246

 
444

Lease financing
987

 
274

Total commercial foreign loans
$
60,215

 
58,117



81

Loan Purchases, Sales, and Transfers
Table 5.3 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 also includes participating interests, whereby we receive or transfer a portion of a loan. The table excludes PCI
 
loans and loans for which we have elected the fair value option, including loans originated for sale because their loan activity normally does not impact the allowance for credit losses.
 

Table 5.3: Loan Purchases, Sales, and Transfers
  
2016
 
 
2015
 
(in millions)
Commercial (1)

 
Consumer (2)

 
Total

 
Commercial

 
Consumer (2)

 
Total

Quarter ended June 30,
 
 
 
 
  
 
  
 
  
 
  
Purchases
$
2,607

 
—

 
2,607

 
9,739

 
311

 
10,050

Sales
(385
)
 
(407
)
 
(792
)
 
(157
)
 
(1
)
 
(158
)
Transfers to MHFS/LHFS
(69
)
 
(1
)
 
(70
)
 
(45
)
 
(5
)
 
(50
)
Six months ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Purchases
$
27,253

 
—

 
27,253

 
10,830

 
311

 
11,141

Sales
(608
)
 
(679
)
 
(1,287
)
 
(363
)
 
(30
)
 
(393
)
Transfers to MHFS/LHFS
(101
)
 
(4
)
 
(105
)
 
(52
)
 
(7
)
 
(59
)
(1)
Purchases include loans and capital leases from the GE Capital acquisitions as described in Note 2 (Business Combinations).
(2)
Excludes 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, and manage and/or resell them in accordance with applicable requirements. These loans are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Accordingly, these loans have limited impact on the allowance for loan losses.
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 $78 billion at June 30, 2016 and $75 billion at December 31, 2015 .
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At June 30, 2016 , and December 31, 2015 , we had $1.2 billion and $1.1 billion , respectively, 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 10 (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 is 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 generally 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 assets, 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 credit 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 Table 5.4 . The table excludes the standby and commercial letters of credit and temporary advance arrangements described above.
Table 5.4: Unfunded Credit Commitments
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Commercial:
  

 
  

Commercial and industrial
$
303,407

 
296,710

Real estate mortgage
7,595

 
7,378

Real estate construction
19,290

 
18,047

Total commercial
330,292

 
322,135

Consumer:
 
 
 
Real estate 1-4 family first mortgage
39,392

 
34,621

Real estate 1-4 family
junior lien mortgage
42,589

 
43,309

Credit card
102,932

 
98,904

Other revolving credit and installment
27,869

 
27,899

Total consumer
212,782

 
204,733

Total unfunded
credit commitments
$
543,074

 
526,868



82
Note 5: Loans and Allowance for Credit Losses ( continued )

Allowance for Credit Losses
Table 5.5 presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.

Table 5.5: Allowance for Credit Losses
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Balance, beginning of period
$
12,668

 
13,013

 
12,512

 
13,169

Provision for credit losses
1,074

 
300

 
2,160

 
908

Interest income on certain impaired loans (1)
(51
)
 
(50
)
 
(99
)
 
(102
)
Loan charge-offs:
  
 
  
 
 
 
 
Commercial:
  
 
  
 
 
 
 
Commercial and industrial
(437
)
 
(154
)
 
(786
)
 
(287
)
Real estate mortgage
(3
)
 
(16
)
 
(6
)
 
(39
)
Real estate construction
(1
)
 
(1
)
 
(1
)
 
(2
)
Lease financing
(17
)
 
(3
)
 
(21
)
 
(6
)
Total commercial
(458
)
 
(174
)
 
(814
)
 
(334
)
Consumer:
  
 
  
 
 
 
 
Real estate 1-4 family first mortgage
(123
)
 
(119
)
 
(260
)
 
(249
)
Real estate 1-4 family junior lien mortgage
(133
)
 
(163
)
 
(266
)
 
(342
)
Credit card
(320
)
 
(284
)
 
(634
)
 
(562
)
Automobile
(176
)
 
(150
)
 
(387
)
 
(345
)
Other revolving credit and installment
(163
)
 
(151
)
 
(338
)
 
(305
)
Total consumer
(915
)
 
(867
)
 
(1,885
)
 
(1,803
)
Total loan charge-offs
(1,373
)
 
(1,041
)
 
(2,699
)
 
(2,137
)
Loan recoveries:
  
 
  
 
 
 
 
Commercial:
  
 
  
 
 
 
 
Commercial and industrial
69

 
73

 
145

 
142

Real estate mortgage
23

 
31

 
55

 
65

Real estate construction
4

 
7

 
12

 
17

Lease financing
5

 
1

 
8

 
4

Total commercial
101

 
112

 
220

 
228

Consumer:
  
 
  
 
 
 
 
Real estate 1-4 family first mortgage
109

 
52

 
198

 
99

Real estate 1-4 family junior lien mortgage
71

 
69

 
130

 
125

Credit card
50

 
41

 
102

 
80

Automobile
86

 
82

 
170

 
176

Other revolving credit and installment
32

 
35

 
69

 
71

Total consumer
348

 
279

 
669

 
551

Total loan recoveries
449

 
391

 
889

 
779

Net loan charge-offs
(924
)
 
(650
)
 
(1,810
)
 
(1,358
)
Other
(18
)
 
1

 
(14
)
 
(3
)
Balance, end of period
$
12,749

 
12,614

 
12,749

 
12,614

Components:
  
 
  
 
 
 
 
Allowance for loan losses
$
11,664

 
11,754

 
11,664

 
11,754

Allowance for unfunded credit commitments
1,085

 
860

 
1,085

 
860

Allowance for credit losses
$
12,749

 
12,614

 
12,749

 
12,614

Net loan charge-offs (annualized) as a percentage of average total loans
0.39
%
 
0.30

 
0.39

 
0.32

Allowance for loan losses as a percentage of total loans
1.22

 
1.32

 
1.22

 
1.32

Allowance for credit losses as a percentage of total loans
1.33

 
1.42

 
1.33

 
1.42

(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.



83

Table 5.6 summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.

Table 5.6: Allowance Activity by Portfolio Segment
  
  

 
  

 
2016

 
  

 
  

 
2015

(in millions)
Commercial

 
Consumer

 
Total

 
Commercial

 
Consumer

 
Total

Quarter ended June 30,
  

 
  

 
  

 
  

 
  

 
  

Balance, beginning of period
$
7,348

 
5,320

 
12,668

 
6,333

 
6,680

 
13,013

Provision for credit losses
478

 
596

 
1,074

 
11

 
289

 
300

Interest income on certain impaired loans
(10
)
 
(41
)
 
(51
)
 
(4
)
 
(46
)
 
(50
)
 
 
 
 
 
 
 
 
 
 
 
 
Loan charge-offs
(458
)
 
(915
)
 
(1,373
)
 
(174
)
 
(867
)
 
(1,041
)
Loan recoveries
101

 
348

 
449

 
112

 
279

 
391

Net loan charge-offs
(357
)
 
(567
)
 
(924
)
 
(62
)
 
(588
)
 
(650
)
Other
(18
)
 
—

 
(18
)
 
1

 
—

 
1

Balance, end of period
$
7,441

 
5,308

 
12,749

 
6,279

 
6,335

 
12,614

 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
  
 
  
 
  
 
  
 
  
 
  
Balance, beginning of period
$
6,872

 
5,640

 
12,512

 
6,377

 
6,792

 
13,169

Provision for credit losses
1,192

 
968

 
2,160

 
20

 
888

 
908

Interest income on certain impaired loans
(15
)
 
(84
)
 
(99
)
 
(9
)
 
(93
)
 
(102
)
 
 
 
 
 
 
 
 
 
 
 
 
Loan charge-offs
(814
)
 
(1,885
)
 
(2,699
)
 
(334
)
 
(1,803
)
 
(2,137
)
Loan recoveries
220

 
669

 
889

 
228

 
551

 
779

Net loan charge-offs
(594
)
 
(1,216
)
 
(1,810
)
 
(106
)
 
(1,252
)
 
(1,358
)
Other
(14
)
 
—

 
(14
)
 
(3
)
 
—

 
(3
)
Balance, end of period
$
7,441

 
5,308

 
12,749

 
6,279

 
6,335

 
12,614


Table 5.7 disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.

Table 5.7: Allowance by Impairment Methodology
 
Allowance for credit losses
 
 
Recorded investment in loans
 
(in millions)
Commercial

 
Consumer

 
Total

 
Commercial

 
Consumer

 
Total

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated (1)
$
6,233

 
3,450

 
9,683

 
487,062

 
426,302

 
913,364

Individually evaluated (2)
1,206

 
1,858

 
3,064

 
5,880

 
18,576

 
24,456

PCI (3)
2

 
—

 
2

 
1,596

 
17,741

 
19,337

Total
$
7,441

 
5,308

 
12,749

 
494,538

 
462,619

 
957,157

December 31, 2015
 
Collectively evaluated (1)
$
5,999

 
3,436

 
9,435

 
452,063

 
420,705

 
872,768

Individually evaluated (2)
872

 
2,204

 
3,076

 
3,808

 
20,012

 
23,820

PCI (3)
1

 
—

 
1

 
712

 
19,259

 
19,971

Total
$
6,872

 
5,640

 
12,512

 
456,583

 
459,976

 
916,559

(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 03-3) 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).We obtain FICO scores at loan origination and the scores are generally updated at least quarterly, except in limited circumstances, including compliance with the Fair Credit Reporting Act (FCRA). Generally, the LTV and CLTV indicators are updated in the second month of each quarter, with updates no older than March 31, 2016 . See the “Purchased Credit-Impaired Loans” section in this Note for credit quality information on our PCI portfolio.


84
Note 5: Loans and Allowance for Credit Losses ( continued )

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.
 
Table 5.8 provides a breakdown of outstanding commercial loans by risk category. Of the $25.7 billion in criticized commercial and industrial loans and $6.3 billion in criticized commercial real estate (CRE) loans at June 30, 2016 , $3.5 billion and $931 million , respectively, have been placed on nonaccrual status and written down to net realizable collateral value.


Table 5.8: Commercial Loans by Risk Category
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 
Total

June 30, 2016
 
 
 
 
 
 
 
 
 
By risk category:
 
 
 
 
 
 
 
 
 
Pass
$
297,032

 
122,078

 
22,817

 
17,331

 
459,258

Criticized
25,746

 
5,796

 
500

 
1,642

 
33,684

Total commercial loans (excluding PCI)
322,778

 
127,874

 
23,317

 
18,973

 
492,942

Total commercial PCI loans (carrying value)
1,080

 
446

 
70

 
—

 
1,596

Total commercial loans
$
323,858

 
128,320

 
23,387

 
18,973

 
494,538

December 31, 2015
 
 
 
 
 
 
 
 
 
By risk category:
 
 
 
 
 
 
 
 
 
Pass
$
281,356

 
115,025

 
21,546

 
11,772

 
429,699

Criticized
18,458

 
6,593

 
526

 
595

 
26,172

Total commercial loans (excluding PCI)
299,814

 
121,618

 
22,072

 
12,367

 
455,871

Total commercial PCI loans (carrying value)
78

 
542

 
92

 
—

 
712

Total commercial loans
$
299,892

 
122,160

 
22,164

 
12,367

 
456,583


Table 5.9 provides past due information for commercial loans, which we monitor as part of our credit risk management practices.
 
 

Table 5.9: Commercial Loans by Delinquency Status
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 
Total

June 30, 2016
 
 
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
 
 
Current-29 days past due (DPD) and still accruing
$
318,731

 
126,792

 
23,140

 
18,736

 
487,399

30-89 DPD and still accruing
547

 
188

 
118

 
125

 
978

90+ DPD and still accruing
36

 
22

 
—

 
—

 
58

Nonaccrual loans
3,464

 
872

 
59

 
112

 
4,507

Total commercial loans (excluding PCI)
322,778

 
127,874

 
23,317

 
18,973

 
492,942

Total commercial PCI loans (carrying value)
1,080

 
446

 
70

 
—

 
1,596

Total commercial loans
$
323,858

 
128,320

 
23,387

 
18,973

 
494,538

December 31, 2015
 
 
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
 
 
Current-29 DPD and still accruing
$
297,847

 
120,415

 
21,920

 
12,313

 
452,495

30-89 DPD and still accruing
507

 
221

 
82

 
28

 
838

90+ DPD and still accruing
97

 
13

 
4

 
—

 
114

Nonaccrual loans
1,363

 
969

 
66

 
26

 
2,424

Total commercial loans (excluding PCI)
299,814

 
121,618

 
22,072

 
12,367

 
455,871

Total commercial PCI loans (carrying value)
78

 
542

 
92

 
—

 
712

Total commercial loans
$
299,892

 
122,160

 
22,164

 
12,367

 
456,583



85

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. Table 5.10 provides the outstanding balances of our consumer portfolio by delinquency status.

Table 5.10: Consumer Loans 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

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
 
 
 
 
Current-29 DPD
$
233,153

 
48,712

 
33,403

 
60,697

 
39,257

 
415,222

30-59 DPD
1,916

 
298

 
227

 
947

 
133

 
3,521

60-89 DPD
746

 
163

 
159

 
223

 
97

 
1,388

90-119 DPD
317

 
91

 
123

 
68

 
80

 
679

120-179 DPD
341

 
109

 
224

 
4

 
21

 
699

180+ DPD
2,419

 
348

 
1

 
—

 
21

 
2,789

Government insured/guaranteed loans (1)
20,580

 
—

 
—

 
—

 
—

 
20,580

Total consumer loans (excluding PCI)
259,472

 
49,721

 
34,137

 
61,939

 
39,609

 
444,878

Total consumer PCI loans (carrying value)
17,690

 
51

 
—

 
—

 
—

 
17,741

Total consumer loans
$
277,162

 
49,772

 
34,137

 
61,939

 
39,609

 
462,619

December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
 
 
 
 
Current-29 DPD
$
225,195

 
51,778

 
33,208

 
58,503

 
38,690

 
407,374

30-59 DPD
2,072

 
325

 
257

 
1,121

 
175

 
3,950

60-89 DPD
821

 
184

 
177

 
253

 
107

 
1,542

90-119 DPD
402

 
110

 
150

 
84

 
86

 
832

120-179 DPD
460

 
145

 
246

 
4

 
21

 
876

180+ DPD
3,376

 
393

 
1

 
1

 
19

 
3,790

Government insured/guaranteed loans (1)
22,353

 
—

 
—

 
—

 
—

 
22,353

Total consumer loans (excluding PCI)
254,679

 
52,935

 
34,039

 
59,966

 
39,098

 
440,717

Total consumer PCI loans (carrying value)
19,190

 
69

 
—

 
—

 
—

 
19,259

Total consumer loans
$
273,869

 
53,004

 
34,039

 
59,966

 
39,098

 
459,976

(1)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA. Loans insured/guaranteed by the FHA/VA and 90+ DPD totaled $10.8 billion at June 30, 2016 , compared with $12.4 billion at December 31, 2015 .

Of the $4.2 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at June 30, 2016 , $730 million was accruing, compared with $5.5 billion past due and $867 million accruing at December 31, 2015 .
Real estate 1-4 family first mortgage loans 180 days or more past due totaled $2.4 billion , or 0.9% of total first mortgages (excluding PCI), at June 30, 2016 , compared with $3.4 billion , or 1.3% , at December 31, 2015 .
 
Table 5.11 provides a breakdown of our consumer portfolio by FICO. Most 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, substantially all of which are security-based loans originated through retail brokerage of $7.5 billion at June 30, 2016 , and $7.0 billion at December 31, 2015 .


86
Note 5: Loans and Allowance for Credit Losses ( continued )

Table 5.11: Consumer Loans by FICO
(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

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
By FICO:
 
 
 
 
 
 
 
 
 
 
 
< 600
$
7,842

 
2,614

 
3,048

 
9,782

 
943

 
24,229

600-639
6,253

 
2,184

 
2,893

 
6,999

 
1,056

 
19,385

640-679
12,538

 
4,127

 
5,326

 
10,335

 
2,378

 
34,704

680-719
24,250

 
7,147

 
6,937

 
11,188

 
4,367

 
53,889

720-759
38,140

 
10,360

 
7,201

 
8,528

 
5,987

 
70,216

760-799
99,093

 
15,752

 
5,836

 
7,923

 
8,260

 
136,864

800+
46,613

 
6,782

 
2,792

 
6,747

 
6,565

 
69,499

No FICO available
4,163

 
755

 
104

 
437

 
2,521

 
7,980

FICO not required
—

 
—

 
—

 
—

 
7,532

 
7,532

Government insured/guaranteed loans (1)
20,580

 
—

 
—

 
—

 
—

 
20,580

Total consumer loans (excluding PCI)
259,472

 
49,721

 
34,137

 
61,939

 
39,609

 
444,878

Total consumer PCI loans (carrying value)
17,690

 
51

 
—

 
—

 
—

 
17,741

Total consumer loans
$
277,162

 
49,772

 
34,137

 
61,939

 
39,609

 
462,619

December 31, 2015
 
 
 
 
 
 
 
 
 
 


By FICO:
 
 
 
 
 
 
 
 
 
 

< 600
$
8,716

 
3,025

 
2,927

 
9,260

 
965

 
24,893

600-639
6,961

 
2,367

 
2,875

 
6,619

 
1,086

 
19,908

640-679
13,006

 
4,613

 
5,354

 
10,014

 
2,416

 
35,403

680-719
24,460

 
7,863

 
6,857

 
10,947

 
4,388

 
54,515

720-759
38,309

 
10,966

 
7,017

 
8,279

 
6,010

 
70,581

760-799
92,975

 
16,369

 
5,693

 
7,761

 
8,351

 
131,149

800+
44,452

 
6,895

 
3,090

 
6,654

 
6,510

 
67,601

No FICO available
3,447

 
837

 
226

 
432

 
2,395

 
7,337

FICO not required
—

 
—

 
—

 
—

 
6,977

 
6,977

Government insured/guaranteed loans (1)
22,353

 
—

 
—

 
—

 
—

 
22,353

Total consumer loans (excluding PCI)
254,679

 
52,935

 
34,039

 
59,966

 
39,098

 
440,717

Total consumer PCI loans (carrying value)
19,190

 
69

 
—

 
—

 
—

 
19,259

Total consumer loans
$
273,869

 
53,004

 
34,039

 
59,966

 
39,098

 
459,976

(1)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
 
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.
 
Table 5.12 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 due to industry data availability and portfolios acquired from or serviced by other institutions.


87

Table 5.12: Consumer Loans by LTV/CLTV
  
June 30, 2016
 
 
December 31, 2015
 
(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%
$
114,333

 
16,043

 
130,376

 
109,558

 
15,805

 
125,363

60.01-80%
94,888

 
15,864

 
110,752

 
92,005

 
16,579

 
108,584

80.01-100%
23,065

 
10,217

 
33,282

 
22,765

 
11,385

 
34,150

100.01-120% (1)
3,603

 
4,673

 
8,276

 
4,480

 
5,545

 
10,025

> 120% (1)
1,607

 
2,397

 
4,004

 
2,065

 
3,051

 
5,116

No LTV/CLTV available
1,396

 
527

 
1,923

 
1,453

 
570

 
2,023

Government insured/guaranteed loans (2)
20,580

 
—

 
20,580

 
22,353

 
—

 
22,353

Total consumer loans (excluding PCI)
259,472

 
49,721

 
309,193

 
254,679

 
52,935

 
307,614

Total consumer PCI loans (carrying value)
17,690

 
51

 
17,741

 
19,190

 
69

 
19,259

Total consumer loans
$
277,162

 
49,772

 
326,934

 
273,869

 
53,004

 
326,873

(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   Table 5.13 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.
Table 5.13: Nonaccrual Loans
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Commercial:
  
 
  
Commercial and industrial
$
3,464

 
1,363

Real estate mortgage
872

 
969

Real estate construction
59

 
66

Lease financing
112

 
26

Total commercial
4,507

 
2,424

Consumer:
 
 
 
Real estate 1-4 family first mortgage (1)
5,970

 
7,293

Real estate 1-4 family junior lien mortgage
1,330

 
1,495

Automobile
111

 
121

Other revolving credit and installment
45

 
49

Total consumer
7,456

 
8,958

Total nonaccrual loans
(excluding PCI)
$
11,963

 
11,382

(1)
Includes MHFS of $155 million and $177 million at June 30, 2016 , and December 31, 2015 , 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 $9.4 billion and $11.0 billion at June 30, 2016 and December 31, 2015 , respectively, which included $5.3 billion and $6.2 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.



88
Note 5: 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 $2.4 billion at June 30, 2016 , and $2.9 billion at December 31, 2015 , 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.
Table 5.14 shows non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.
Table 5.14: Loans 90 Days or More Past Due and Still Accruing
(in millions)
Jun 30, 2016

 
Dec 31, 2015

Loans 90 days or more past due and still accruing:
 
 
 
Total (excluding PCI):
$
12,385

 
14,380

Less: FHA insured/guaranteed by the VA (1)(2)
11,577

 
13,373

Less: Student loans guaranteed under the FFELP (3)
20

 
26

Total, not government insured/guaranteed
$
788

 
981

By segment and class, not government insured/guaranteed:
 
 
 
Commercial:
 
 
 
Commercial and industrial
$
36

 
97

Real estate mortgage
22

 
13

Real estate construction
—

 
4

Total commercial
58

 
114

Consumer:
 
 
 
Real estate 1-4 family first mortgage (2)
169

 
224

Real estate 1-4 family junior lien mortgage (2)
52

 
65

Credit card
348

 
397

Automobile
64

 
79

Other revolving credit and installment
97

 
102

Total consumer
730

 
867

Total, not government insured/guaranteed
$
788

 
981

(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.


89

IMPAIRED LOANS Table 5.15 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. Table 5.15 includes trial modifications that totaled $364 million at June 30, 2016 , and $402 million at December 31, 2015 .
For additional information on our impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 2015 Form 10-K.

Table 5.15: Impaired Loans Summary
 
 
 
Recorded investment
 
 
 
(in millions)
Unpaid
principal
balance (1)

 
Impaired
loans

 
Impaired loans
with related
allowance for
credit losses

 
Related
allowance for
credit losses

June 30, 2016
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
Commercial and industrial
$
5,270

 
3,977

 
3,766

 
846

Real estate mortgage
2,141

 
1,681

 
1,669

 
310

Real estate construction
210

 
112

 
98

 
23

Lease financing
129

 
110

 
110

 
27

Total commercial
7,750

 
5,880

 
5,643

 
1,206

Consumer:
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
17,975

 
15,799

 
10,426

 
1,335

Real estate 1-4 family junior lien mortgage
2,567

 
2,306

 
1,757

 
409

Credit card
291

 
291

 
291

 
94

Automobile
157

 
92

 
34

 
5

Other revolving credit and installment
95

 
88

 
80

 
15

Total consumer (2)
21,085

 
18,576

 
12,588

 
1,858

Total impaired loans (excluding PCI)
$
28,835

 
24,456

 
18,231

 
3,064

December 31, 2015
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
Commercial and industrial
$
2,746

 
1,835

 
1,648

 
435

Real estate mortgage
2,369

 
1,815

 
1,773

 
405

Real estate construction
262

 
131

 
112

 
23

Lease financing
38

 
27

 
27

 
9

Total commercial
5,415

 
3,808

 
3,560

 
872

Consumer:
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
19,626

 
17,121

 
11,057

 
1,643

Real estate 1-4 family junior lien mortgage
2,704

 
2,408

 
1,859

 
447

Credit card
299

 
299

 
299

 
94

Automobile
173

 
105

 
41

 
5

Other revolving credit and installment
86

 
79

 
71

 
15

Total consumer (2)
22,888

 
20,012

 
13,327

 
2,204

Total impaired loans (excluding PCI)
$
28,303

 
23,820

 
16,887

 
3,076

(1)
Excludes the unpaid principal balance for loans that have been fully charged off or otherwise have zero recorded investment.
(2)
Periods ended June 30, 2016 and December 31, 2015 include the recorded investment of $1.7 billion and $1.8 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. Impaired loans may also have limited, if any, allowance when the recorded investment of the loan approximates estimated net realizable value as a result of charge-offs prior to a TDR modification.

90
Note 5: Loans and Allowance for Credit Losses ( continued )

Commitments to lend additional funds on loans whose terms have been modified in a TDR amounted to $198 million and $363 million at June 30, 2016 and December 31, 2015 , respectively.
 
Table 5.16 provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.

Table 5.16: Average Recorded Investment in Impaired Loans
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
(in millions)
Average
recorded
investment

 
Recognized
interest
income

 
Average
recorded
investment

 
Recognized
interest
income

 
Average
recorded
investment

 
Recognized
interest
income

 
Average
recorded
investment

 
Recognized
interest
income

Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
3,803

 
21

 
1,109

 
23

 
3,146

 
40

 
1,050

 
43

Real estate mortgage
1,695

 
34

 
2,280

 
31

 
1,730

 
66

 
2,331

 
74

Real estate construction
116

 
3

 
264

 
11

 
122

 
5

 
284

 
15

Lease financing
93

 
—

 
23

 
—

 
79

 
—

 
22

 
—

Total commercial
5,707

 
58

 
3,676

 
65

 
5,077

 
111

 
3,687

 
132

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
16,278

 
211

 
18,161

 
235

 
16,595

 
432

 
18,321

 
466

Real estate 1-4 family junior lien mortgage
2,325

 
33

 
2,507

 
34

 
2,354

 
67

 
2,514

 
69

Credit card
293

 
8

 
321

 
10

 
295

 
17

 
326

 
20

Automobile
94

 
3

 
118

 
4

 
98

 
6

 
121

 
8

Other revolving credit and installment
84

 
2

 
57

 
1

 
80

 
3

 
54

 
2

Total consumer
19,074

 
257

 
21,164

 
284

 
19,422

 
525

 
21,336

 
565

Total impaired loans (excluding PCI)
$
24,781

 
315

 
24,840

 
349

 
24,499

 
636

 
25,023

 
697

Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash basis of accounting
 
 
$
92

 
 
 
111

 
 
 
187

 
 
 
219

Other (1)
 
 
223

 
 
 
238

 
 
 
449

 
 
 
478

Total interest income
 
 
$
315

 
 
 
349

 
 
 
636

 
 
 
697

(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.


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, the balance of which totaled $22.0 billion and $22.7 billion at June 30, 2016 and December 31, 2015 , respectively. 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 primarily involve interest rate reductions; 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 Home 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 June 30, 2016 , the loans in trial modification period were $137 million under HAMP, $29 million under 2MP and $198 million under proprietary programs, compared with $130 million , $32 million and $240 million at December 31, 2015 , respectively. Trial modifications with a recorded investment of $128 million at June 30, 2016 , and $136 million at December 31, 2015 , were accruing loans and $236 million and $266 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.
Table 5.17 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. Loans that both modify and pay off within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.


91

Table 5.17: TDR Modifications
 
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)

Quarter ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
—

 
35

 
697

 
732

 
137

 
2.29
%
 
$
35

Real estate mortgage
—

 
29

 
135

 
164

 
—

 
1.30

 
28

Real estate construction
—

 
14

 
18

 
32

 
—

 
1.05

 
14

Lease financing
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
—

 
78

 
850

 
928

 
137

 
1.70

 
77

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
92

 
78

 
314

 
484

 
12

 
2.63

 
138

Real estate 1-4 family junior lien mortgage
6

 
27

 
33

 
66

 
11

 
3.11

 
33

Credit card
—

 
41

 
—

 
41

 
—

 
11.98

 
41

Automobile
1

 
3

 
14

 
18

 
8

 
6.40

 
3

Other revolving credit and installment
—

 
8

 
2

 
10

 
—

 
6.99

 
8

Trial modifications (6)
—

 
—

 
17

 
17

 
—

 
—

 
—

Total consumer
99

 
157

 
380

 
636

 
31

 
4.64

 
223

Total
$
99

 
235

 
1,230

 
1,564

 
168

 
3.88
%
 
$
300

Quarter ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
—

 
5

 
425

 
430

 
—

 
0.96
%
 
$
5

Real estate mortgage
4

 
49

 
271

 
324

 
—

 
1.73

 
49

Real estate construction
—

 
2

 
13

 
15

 
—

 
0.86

 
2

Lease financing
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
4

 
56

 
709

 
769

 
—

 
1.62

 
56

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
78

 
88

 
425

 
591

 
12

 
2.62

 
155

Real estate 1-4 family junior lien mortgage
10

 
21

 
39

 
70

 
8

 
3.21

 
28

Credit card
—

 
39

 
—

 
39

 
—

 
11.33

 
40

Automobile
—

 
1

 
17

 
18

 
7

 
9.00

 
1

Other revolving credit and installment
—

 
8

 
2

 
10

 
1

 
5.88

 
8

Trial modifications (6)
—

 
—

 
46

 
46

 
—

 
—

 
—

Total consumer
88

 
157

 
529

 
774

 
28

 
4.31

 
232

Total
$
92

 
213

 
1,238

 
1,543

 
28

 
3.79
%
 
$
288


92
Note 5: 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)

Six months ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
42

 
113

 
1,329

 
1,484

 
243

 
2.02
%
 
$
113

Real estate mortgage
—

 
53

 
294

 
347

 
—

 
1.22

 
52

Real estate construction
—

 
14

 
62

 
76

 
—

 
1.05

 
14

Lease financing
—

 
—

 
4

 
4

 
—

 
—

 
—

Total commercial
42

 
180

 
1,689

 
1,911

 
243

 
1.71

 
179

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
188

 
143

 
764

 
1,095

 
25

 
2.72

 
257

Real estate 1-4 family junior lien mortgage
12

 
56

 
60

 
128

 
21

 
3.01

 
67

Credit card
—

 
85

 
—

 
85

 
—

 
11.96

 
85

Automobile
1

 
7

 
29

 
37

 
16

 
6.47

 
7

Other revolving credit and installment
—

 
16

 
5

 
21

 
1

 
6.53

 
16

Trial modifications (6)
—

 
—

 
32

 
32

 
—

 
—

 
—

Total consumer
201

 
307

 
890

 
1,398

 
63

 
4.79

 
432

Total
$
243

 
487

 
2,579

 
3,309

 
306

 
3.88
%
 
$
611

Six months ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
—

 
15

 
649

 
664

 
2

 
0.83
%
 
$
15

Real estate mortgage
4

 
70

 
580

 
654

 
1

 
1.61

 
70

Real estate construction
11

 
3

 
57

 
71

 
—

 
0.62

 
3

Lease financing
—

 
—

 
—

 
—

 
—

 
—

 
—

Total commercial
15

 
88

 
1,286

 
1,389

 
3

 
1.45

 
88

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
182

 
171

 
941

 
1,294

 
27

 
2.54

 
320

Real estate 1-4 family junior lien mortgage
17

 
41

 
90

 
148

 
20

 
3.20

 
55

Credit card
—

 
84

 
—

 
84

 
—

 
11.31

 
84

Automobile
1

 
2

 
44

 
47

 
17

 
9.03

 
2

Other revolving credit and installment
—

 
13

 
4

 
17

 
1

 
5.85

 
13

Trial modifications (6)
—

 
—

 
44

 
44

 
—

 
—

 
—

Total consumer
200

 
311

 
1,123

 
1,634

 
65

 
4.29

 
474

Total
$
215

 
399

 
2,409

 
3,023

 
68

 
3.84
%
 
$
562

(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 $301 million and $566 million , for quarters ended June 30, 2016 and 2015 , and $649 million and $1.1 billion for the first half of 2016 and 2015 , 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 $19 million and $20 million for the quarters ended June 30, 2016 and 2015 , and $38 million and $46 million for the first half of 2016 and 2015 , respectively.
(5)
Reflects the effect of reduced interest rates on loans with an interest rate concession as one of their concession types, which includes loans reported as a principal primary modification type that also have an interest rate concession.
(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.

93

Table 5.18 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.
 



Table 5.18: Defaulted TDRs
 
Recorded investment of defaults
 
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Commercial:
 
 
 
 
 
 
 
Commercial and industrial
$
20

 
38

 
45

 
46

Real estate mortgage
31

 
49

 
51

 
72

Real estate construction
1

 
1

 
3

 
2

Total commercial
52

 
88

 
99

 
120

Consumer:
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
30

 
42

 
61

 
94

Real estate 1-4 family junior lien mortgage
4

 
4

 
9

 
8

Credit card
13

 
14

 
26

 
27

Automobile
3

 
3

 
6

 
6

Other revolving credit and installment
1

 
1

 
2

 
2

Total consumer
51

 
64

 
104

 
137

Total
$
103

 
152

 
203

 
257


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. Table 5.19 presents PCI loans net of any remaining purchase accounting adjustments. Commercial and industrial PCI loans at June 30, 2016 , included $1.0 billion from the GE Capital acquisitions. Real estate 1-4 family first mortgage PCI loans are predominantly Pick-a-Pay loans.
Table 5.19: PCI Loans
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Commercial:
 
 
 
Commercial and industrial
$
1,080

 
78

Real estate mortgage
446

 
542

Real estate construction
70

 
92

Total commercial
1,596

 
712

Consumer:
 
 
 
Real estate 1-4 family first mortgage
17,690

 
19,190

Real estate 1-4 family junior lien mortgage
51

 
69

Total consumer
17,741

 
19,259

Total PCI loans (carrying value)
$
19,337

 
19,971

Total PCI loans (unpaid principal balance)
$
27,391

 
28,278




94
Note 5: 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 is presented in Table 5.20 .
 

Table 5.20: Change in Accretable Yield
(in millions)
Quarter ended June 30, 2016

 
Six months ended June 30, 2016

Balance, beginning of period
$
15,978

 
16,301

Addition of accretable yield due to acquisitions
70

 
69

Accretion into interest income (1)
(329
)
 
(668
)
Accretion into noninterest income due to sales (2)
—

 
(9
)
Reclassification from nonaccretable difference for loans with improving credit-related cash flows  
24

 
58

Changes in expected cash flows that do not affect nonaccretable difference (3)
(16
)
 
(24
)
Balance, end of period 
$
15,727

 
15,727

(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.

COMMERCIAL PCI CREDIT QUALITY INDICATORS   Table 5.21 provides a breakdown of commercial PCI loans by risk category.
 
 

Table 5.21: Commercial PCI Loans by Risk Category
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Total

June 30, 2016
 
 
 
 
 
 
 
By risk category:
 
 
 
 
 
 
 
Pass
$
273

 
266

 
56

 
595

Criticized
807

 
180

 
14

 
1,001

Total commercial PCI loans
$
1,080

 
446

 
70

 
1,596

December 31, 2015
 
 
 
 
 
 
 
By risk category:
 
 
 
 
 
 
 
Pass
$
35

 
298

 
68

 
401

Criticized
43

 
244

 
24

 
311

Total commercial PCI loans
$
78

 
542

 
92

 
712




95

Table 5.22 provides past due information for commercial PCI loans.

Table 5.22: Commercial PCI Loans by Delinquency Status
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Total

June 30, 2016
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
Current-29 DPD and still accruing
$
1,073

 
425

 
70

 
1,568

30-89 DPD and still accruing
7

 
1

 
—

 
8

90+ DPD and still accruing
—

 
20

 
—

 
20

Total commercial PCI loans
$
1,080

 
446

 
70

 
1,596

December 31, 2015
 
 
 
 
 
 
 
By delinquency status:
 
 
 
 
 
 
 
Current-29 DPD and still accruing
$
78

 
510

 
90

 
678

30-89 DPD and still accruing
—

 
2

 
—

 
2

90+ DPD and still accruing
—

 
30

 
2

 
32

Total commercial PCI loans
$
78

 
542

 
92

 
712

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. Table 5.23 provides the delinquency status of consumer PCI loans.
 

Table 5.23: Consumer PCI Loans by Delinquency Status
  
June 30, 2016
 
 
December 31, 2015
 
(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
$
17,315

 
188

 
17,503

 
18,086

 
202

 
18,288

30-59 DPD and still accruing
1,525

 
7

 
1,532

 
1,686

 
7

 
1,693

60-89 DPD and still accruing
676

 
3

 
679

 
716

 
3

 
719

90-119 DPD and still accruing
254

 
2

 
256

 
293

 
2

 
295

120-179 DPD and still accruing
226

 
2

 
228

 
319

 
3

 
322

180+ DPD and still accruing
2,559

 
10

 
2,569

 
3,035

 
12

 
3,047

Total consumer PCI loans (adjusted unpaid principal balance)
$
22,555

 
212

 
22,767

 
24,135

 
229

 
24,364

Total consumer PCI loans (carrying value)
$
17,690

 
51

 
17,741

 
19,190

 
69

 
19,259


96
Note 5: Loans and Allowance for Credit Losses ( continued )

Table 5.24 provides FICO scores for consumer PCI loans.

Table 5.24: Consumer PCI Loans by FICO
 
June 30, 2016
 
 
December 31, 2015
 
(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
$
5,399

 
47

 
5,446

 
5,737

 
52

 
5,789

600-639
3,846

 
30

 
3,876

 
4,754

 
38

 
4,792

640-679
5,345

 
41

 
5,386

 
6,208

 
48

 
6,256

680-719
4,057

 
42

 
4,099

 
4,283

 
43

 
4,326

720-759
1,869

 
25

 
1,894

 
1,914

 
24

 
1,938

760-799
940

 
18

 
958

 
910

 
13

 
923

800+
254

 
3

 
257

 
241

 
3

 
244

No FICO available
845

 
6

 
851

 
88

 
8

 
96

Total consumer PCI loans (adjusted unpaid principal balance)
$
22,555

 
212

 
22,767

 
24,135

 
229

 
24,364

Total consumer PCI loans (carrying value)
$
17,690

 
51

 
17,741

 
19,190

 
69

 
19,259


Table 5.25 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.  

Table 5.25: Consumer PCI Loans by LTV/CLTV
 
June 30, 2016
 
 
December 31, 2015
 
(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%
$
6,747

 
38

 
6,785

 
5,437

 
32

 
5,469

60.01-80%
9,878

 
75

 
9,953

 
10,036

 
65

 
10,101

80.01-100%
4,475

 
64

 
4,539

 
6,299

 
80

 
6,379

100.01-120% (1)
1,109

 
24

 
1,133

 
1,779

 
36

 
1,815

> 120% (1)
340

 
10

 
350

 
579

 
15

 
594

No LTV/CLTV available
6

 
1

 
7

 
5

 
1

 
6

Total consumer PCI loans (adjusted unpaid principal balance)
$
22,555

 
212

 
22,767

 
24,135

 
229

 
24,364

Total consumer PCI loans (carrying value)
$
17,690

 
51

 
17,741

 
19,190

 
69

 
19,259

(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.


97

Note 6:    Other Assets
Table 6.1 presents the components of other assets.
Table 6.1: Other Assets
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Nonmarketable equity investments:
 
 
 
Cost method:
 
 
 
Federal bank stock
$
5,686

 
4,814

Private equity
1,481

 
1,626

Auction rate securities
558

 
595

Total cost method
7,725

 
7,035

Equity method:
 
 
 
LIHTC (1)
8,949

 
8,314

Private equity
3,521

 
3,300

Tax-advantaged renewable energy
1,538

 
1,625

New market tax credit and other
320

 
408

Total equity method
14,328

 
13,647

Fair value (2)
3,046

 
3,065

Total nonmarketable equity investments
25,099

 
23,747

Corporate/bank-owned life insurance
19,281

 
19,199

Accounts receivable (3)
35,056

 
26,251

Interest receivable
5,241

 
5,065

Core deposit intangibles
2,079

 
2,539

Customer relationship and other amortized intangibles
1,263

 
614

Foreclosed assets:
 
 
 
Residential real estate:
 
 
 
Government insured/guaranteed (3)
321

 
446

Non-government insured/guaranteed
335

 
414

Non-residential real estate
461

 
565

Operating lease assets
10,285

 
3,782

Due from customers on acceptances
222

 
273

Other (4)
23,501

 
17,887

Total other assets
$
123,144

 
100,782

(1)
Represents low income housing tax credit investments.
(2)
Represents nonmarketable equity investments for which we have elected the fair value option. See Note 13 (Fair Values of Assets and Liabilities) for additional information.
(3)
Certain government-guaranteed residential real estate mortgage loans upon foreclosure are included in Accounts receivable. Both principal and interest related to these foreclosed real estate assets are collectible because the loans were predominantly insured by the FHA or guaranteed by the VA. For more information on ASU 2014-14 and the classification of certain government-guaranteed mortgage loans upon foreclosure, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2015 10-K.
(4)
Includes derivatives designated as hedging instruments, derivatives not designated as hedging instruments, and derivative loan commitments, which are carried at fair value. See Note 12 (Derivatives) for additional information.

 
Table 6.2 presents income (expense) related to nonmarketable equity investments. 
Table 6.2: Nonmarketable Equity Investments
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Net realized gains from nonmarketable equity investments
$
129

 
479

 
$
314

 
830

All other
(135
)
 
(278
)
 
(321
)
 
(426
)
Total
$
(6
)
 
201

 
$
(7
)
 
404

Low Income Housing Tax Credit Investments We invest in affordable housing projects that qualify for the low income housing tax credit (LIHTC), which is designed to promote private development of low income housing. These investments generate a return mostly through realization of federal tax credits.
Total LIHTC investments were $8.9 billion and $8.3 billion at June 30, 2016 and December 31, 2015 , respectively. In second quarter and first half of 2016 , we recognized pre-tax losses of $199 million and $401 million , respectively, related to our LIHTC investments, compared with $178 million and $356 million , respectively, for the same periods a year ago. We also recognized total tax benefits of $304 million and $611 million in the second quarter and first half of 2016 , which included tax credits recorded in income taxes of $230 million and $460 million for the same periods, respectively. In the second quarter and first half of 2015 , total tax benefits were $274 million and $550 million , respectively, which included tax credits of $207 million and $416 million for the same periods, respectively. We are periodically required to provide additional financial support during the investment period. Our liability for these unfunded commitments was $3.3 billion at June 30, 2016 and $3.0 billion at December 31, 2015 . Predominantly all of this liability is expected to be paid over the next three years. This liability is included in long-term debt.



98
Note 7: Securitizations and Variable Interest Entities ( continued )

Note 7: 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 SPEs, which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions and are considered variable interest entities (VIEs). For further description of our involvement with SPEs, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 2015 Form 10-K.
 
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.
Table 7.1 provides the classifications of assets and liabilities in our balance sheet for our transactions with VIEs.

Table 7.1: Balance Sheet Transactions with VIEs
(in millions)
VIEs that we
do not
consolidate

 
VIEs
that we
consolidate

Transfers that
we account
for as secured
borrowings
 
 
Total

June 30, 2016
 
 
 
 
 
Cash
$
—

 
172

 
—

 
172

Federal funds sold, securities purchased under resale agreements and other short-term investments
—

 
135

 
—

 
135

Trading assets
2,540

 
101

 
203

 
2,844

Investment securities   (1)
10,205

 
303

 
1,185

 
11,693

Loans
7,707

 
12,868

 
4,400

 
24,975

Mortgage servicing rights
10,729

 
—

 
—

 
10,729

Other assets
9,538

 
447

 
15

 
10,000

Total assets
40,719

 
14,026

 
5,803

 
60,548

Short-term borrowings
—

 
—

 
1,199

 
1,199

Accrued expenses and other liabilities    
450

 
85

(2)
2

 
537

Long-term debt    
3,291

 
4,043

(2)
4,351

 
11,685

Total liabilities
3,741

 
4,128

 
5,552

 
13,421

Noncontrolling interests
—

 
149

 
—

 
149

Net assets
$
36,978

 
9,749

 
251

 
46,978

December 31, 2015
 
 
 
 
 
 
 
Cash
$
—

 
157

 
—

 
157

Federal funds sold, securities purchased under resale agreements and other short-term investments
—

 
—

 
—

 
—

Trading assets
1,340

 
1

 
203

 
1,544

Investment securities (1)
12,388

 
425

 
2,171

 
14,984

Loans
9,661

 
4,811

 
4,887

 
19,359

Mortgage servicing rights
12,518

 
—

 
—

 
12,518

Other assets
8,938

 
242

 
26

 
9,206

Total assets
44,845

 
5,636

 
7,287

 
57,768

Short-term borrowings
—

 
—

 
1,799

 
1,799

Accrued expenses and other liabilities
629

 
57

(2)
1

 
687

Long-term debt
3,021

 
1,301

(2)
4,844

 
9,166

Total liabilities
3,650

 
1,358

 
6,644

 
11,652

Noncontrolling interests
—

 
93

 
—

 
93

Net assets
$
41,195

 
4,185

 
643

 
46,023

(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)
There were no VIE liabilities with recourse to the general credit of Wells Fargo for the periods presented.

Transactions with Unconsolidated VIEs
Our transactions with unconsolidated VIEs include securitizations of residential mortgage loans, CRE loans, student loans, automobile loans and leases, certain dealer floorplan loans; investment and financing activities involving collateralized debt obligations (CDOs) backed by asset-backed and CRE
 
securities, tax credit structures, 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


99

unconsolidated VIEs are recorded on our balance sheet in trading assets, investment securities, loans, MSRs, other assets, other liabilities, and long-term debt, as appropriate.
Table 7.2 provides 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 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).

Table 7.2: Unconsolidated VIEs
 
 
 
Carrying value – asset (liability)
 
(in millions)
Total
VIE
assets

 
Debt and
equity
interests (1)

 
Servicing
assets

 
Derivatives

 
Other
commitments
and
guarantees

 
Net
assets

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loan securitizations:
 
 
 
 
 
 
 
 
 
 
 
Conforming (2)
$
1,181,463

 
3,431

 
9,829

 
—

 
(268
)
 
12,992

Other/nonconforming
22,132

 
1,125

 
115

 
—

 
(2
)
 
1,238

Commercial mortgage securitizations
173,135

 
5,185

 
785

 
324

 
(31
)
 
6,263

Collateralized debt obligations:
 
 
 
 
 
 
 
 
 
 
 
Debt securities
2,611

 
—

 
—

 
58

 
(39
)
 
19

Loans (3)
1,589

 
1,551

 
—

 
—

 
—

 
1,551

Asset-based finance structures
11,482

 
8,001

 
—

 
—

 
—

 
8,001

Tax credit structures
27,157

 
9,743

 
—

 
—

 
(3,320
)
 
6,423

Collateralized loan obligations
600

 
57

 
—

 
—

 
—

 
57

Investment funds
209

 
49

 
—

 
—

 
—

 
49

Other (4)
12,588

 
466

 
—

 
(81
)
 
—

 
385

Total
$
1,432,966

 
29,608

 
10,729

 
301

 
(3,660
)
 
36,978

 
 
 
Maximum exposure to loss
 
 
 
 
Debt and
equity
interests (1)

 
Servicing
assets

 
Derivatives

 
Other
commitments
and
guarantees

 
Total
exposure

Residential mortgage loan securitizations:
 
 
 
 
 
 
 
 
 
 
 
Conforming
 
 
$
3,431

 
9,829

 
—

 
1,074

 
14,334

Other/nonconforming
 
 
1,125

 
115

 
—

 
2

 
1,242

Commercial mortgage securitizations
 
 
5,185

 
785

 
324

 
8,699

 
14,993

Collateralized debt obligations:
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
—

 
—

 
58

 
39

 
97

Loans (3)
 
 
1,551

 
—

 
—

 
—

 
1,551

Asset-based finance structures
 
 
8,001

 
—

 
—

 
444

 
8,445

Tax credit structures
 
 
9,743

 
—

 
—

 
976

 
10,719

Collateralized loan obligations
 
 
57

 
—

 
—

 
—

 
57

Investment funds
 
 
49

 
—

 
—

 
—

 
49

Other (4)
 
 
466

 
—

 
119

 
—

 
585

Total
 
 
$
29,608

 
10,729

 
501

 
11,234

 
52,072


(continued on following page)

100
Note 7: 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, 2015
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loan securitizations:
 
 
 
 
 
 
 
 
 
 
 
Conforming (2)
$
1,199,225

 
2,458

 
11,665

 
—

 
(386
)
 
13,737

Other/nonconforming
24,809

 
1,228

 
141

 
—

 
(1
)
 
1,368

Commercial mortgage securitizations
184,959

 
6,323

 
712

 
203

 
(26
)
 
7,212

Collateralized debt obligations:
 
 
 
 
 
 
 
 
 
 
 
Debt securities
3,247

 
—

 
—

 
64

 
(57
)
 
7

Loans (3)
3,314

 
3,207

 
—

 
—

 
—

 
3,207

Asset-based finance structures
13,063

 
8,956

 
—

 
(66
)
 
—

 
8,890

Tax credit structures
26,099

 
9,094

 
—

 
—

 
(3,047
)
 
6,047

Collateralized loan obligations
898

 
213

 
—

 
—

 
—

 
213

Investment funds
1,131

 
47

 
—

 
—

 
—

 
47

Other (4)
12,690

 
511

 
—

 
(44
)
 
—

 
467

Total
$
1,469,435

 
32,037

 
12,518

 
157

 
(3,517
)
 
41,195

 
 
 
Maximum exposure to loss
 
 
 
 
Debt and
equity
interests (1)

 
Servicing
assets

 
Derivatives

 
Other
commitments
and
guarantees

 
Total
exposure

Residential mortgage loan securitizations:
 
 
 
 
 
 
 
 
 
 
 
Conforming
 
 
$
2,458

 
11,665

 
—

 
1,452

 
15,575

Other/nonconforming
 
 
1,228

 
141

 
—

 
1

 
1,370

Commercial mortgage securitizations
 
 
6,323

 
712

 
203

 
7,152

 
14,390

Collateralized debt obligations:
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
—

 
—

 
64

 
57

 
121

Loans (3)
 
 
3,207

 
—

 
—

 
—

 
3,207

Asset-based finance structures
 
 
8,956

 
—

 
76

 
444

 
9,476

Tax credit structures
 
 
9,094

 
—

 
—

 
866

 
9,960

Collateralized loan obligations
 
 
213

 
—

 
—

 
—

 
213

Investment funds
 
 
47

 
—

 
—

 
—

 
47

Other (4)
 
 
511

 
—

 
117

 
150

 
778

Total
 
 
$
32,037

 
12,518

 
460

 
10,122

 
55,137

(1)
Includes total equity interests of $9.5 billion and $8.9 billion at  June 30, 2016 , and December 31, 2015 , respectively. 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 $1.0 billion and $1.3 billion at June 30, 2016 , and December 31, 2015 , respectively, for certain delinquent loans that are eligible for repurchase 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)
Represents senior loans to trusts that are collateralized by asset-backed securities. The trusts invest predominantly in senior tranches from a diversified pool of U.S. asset securitizations, of which all are current and 100% and 70% were rated as investment grade by the primary rating agencies at June 30, 2016 , and December 31, 2015 , respectively. These senior loans are accounted for at amortized cost and are subject to the Company’s allowance and credit charge-off policies.
(4)
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.



101

In Table 7.2 , “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.
For complete descriptions of our types of transactions with unconsolidated VIEs with which we have a significant continuing involvement, but we are not the primary beneficiary, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 2015 Form 10-K.

INVESTMENT FUNDS In first quarter 2016, we adopted ASU 2015-02 ( Amendments to the Consolidation Analysis ) which changed the consolidation analysis for certain investment funds. We do not consolidate these investment funds because we do not hold variable interests that are considered significant to the funds.
We voluntarily waived a portion of our management fees for certain money market funds that are exempt from the consolidation analysis to ensure the funds maintained a minimum level of daily net investment income. The amount of fees waived in the second quarter and first half of 2016 was $26 million and $56 million , respectively, compared with $53 million and $109 million , respectively, in the same periods of 2015 .

OTHER TRANSACTIONS WITH VIEs  Other VIEs include certain entities that issue auction rate securities (ARS) which are debt instruments with long-term maturities, that re-price more frequently, and preferred equities with no maturity. At June 30, 2016 , we held $465 million of ARS issued by VIEs compared with $502 million at December 31, 2015 . 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 June 30, 2016 , and December 31, 2015 , we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $2.3 billion and $2.2 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.
 
Loan Sales and Securitization Activity
We periodically transfer consumer and CRE loans and other types of financial assets in securitization and whole loan sale transactions. We typically retain the servicing rights from these sales and may continue to hold other beneficial interests in the transferred financial assets. We may also provide liquidity to investors in the beneficial interests and credit enhancements in the form of standby letters of credit. Through these transfers we may be exposed to liability under limited amounts of recourse as well as standard representations and warranties we make to purchasers and issuers. Table 7.3 presents the cash flows for our transfers accounted for as sales.


102
Note 7: Securitizations and Variable Interest Entities ( continued )

Table 7.3: Cash Flows From Sales and Securitization Activity
 
2016
 
 
2015
 
(in millions)
Mortgage
loans

 
Other
financial
assets

 
Mortgage
loans

 
Other
financial
assets

Quarter ended June 30,
  

 
  

 
  

 
  

Proceeds from securitizations and whole loan sales
$
66,455

 
83

 
58,984

 
160

Fees from servicing rights retained
864

 
—

 
923

 
2

Cash flows from other interests held (1)
627

 
—

 
348

 
11

Repurchases of assets/loss reimbursements (2):
 
 
 
 
 
 
 
Non-agency securitizations and whole loan transactions
15

 
—

 
1

 
—

Agency securitizations (3)
35

 
—

 
76

 
—

Servicing advances, net of repayments
(39
)
 
—

 
(154
)
 
—

Six months ended June 30,
 
 
 
 
 
 
 
Proceeds from securitizations and whole loan sales
$
111,471

 
133

 
100,893

 
181

Fees from servicing rights retained
1,745

 
—

 
1,858

 
4

Cash flows from other interests held (1)
1,034

 
1

 
614

 
23

Repurchases of assets/loss reimbursements (2):
 
 
 
 
 
 
 
Non-agency securitizations and whole loan transactions
18

 
—

 
7

 
—

Agency securitizations (3)
82

 
—

 
138

 
—

Servicing advances, net of repayments
(107
)
 
—

 
(254
)
 
—

(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.
(2)
Consists of cash paid to repurchase loans from investors and cash paid to investors to reimburse them for losses on individual loans that are already liquidated.
(3)
Represent loans repurchased from GNMA, FNMA, and FHLMC under representation and warranty provisions included in our loan sales contracts. Second quarter and first half of 2016 exclude $2.0 billion and $ 4.9 billion respectively, in delinquent insured/guaranteed loans that we service and have exercised our option to purchase out of GNMA pools, compared with $2.7 billion and $ 6.0 billion , respectively, in the same periods of 2015 . These loans are predominantly insured by the FHA or guaranteed by the VA.

In the second quarter and first half of 2016 , we recognized net gains of $100 million and $295 million , respectively, from transfers accounted for as sales of financial assets, compared with $205 million and $316 million , respectively, in the same periods of 2015 . These net gains largely relate to commercial mortgage securitizations and residential mortgage securitizations where the loans were not already carried at fair value.
Sales with continuing involvement during the second quarter and first half of 2016 and 2015 largely related to securitizations of residential mortgages that are sold to the government-sponsored entities (GSEs), including FNMA, FHLMC and GNMA (conforming residential mortgage securitizations). During the second quarter and first half of 2016 , we transferred $65.0 billion and $102.3 billion , respectively, in fair value of residential mortgages to unconsolidated VIEs and third-party investors and recorded the transfers as sales, compared with $53.4 billion and $92.9 billion , respectively, in the same periods of 2015 . 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 the first half of 2016 , we recorded a $764 million servicing asset, measured at fair value using a Level 3 measurement technique, securities of $3.2 billion , classified as Level 2, and a $15 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 the first half of 2015 , we recorded a $736 million servicing asset, securities of $800 million , and a $23 million liability.
Table 7.4 presents the key weighted-average assumptions we used to measure residential mortgage servicing rights at the date of securitization.
 
Table 7.4: Residential Mortgage Servicing Rights
 
Residential mortgage
servicing rights
 
 
2016

 
2015

Quarter ended June 30,
  

 
  

Prepayment speed (1)
12.1
%
 
11.9

Discount rate
6.7

 
7.6

Cost to service ($ per loan) (2)
$
141

 
237

Six months ended June 30,
 
 
 
Prepayment speed (1)
12.5
%
 
12.4

Discount rate
6.8

 
7.6

Cost to service ($ per loan) (2)
$
143

 
237

(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 the second quarter and first half of 2016 , we transferred $1.8 billion and $9.9 billion , respectively, in carrying value of commercial mortgages to unconsolidated VIEs and third-party investors and recorded the transfers as sales, compared with $6.3 billion and $9.5 billion in the same periods of 2015 , respectively. These transfers resulted in gains of $58 million and $193 million in the second quarter and first half of 2016 , respectively, because the loans were carried at lower of cost of market value (LOCOM), compared with gains of $123 million and $200 million in the second quarter and first half of 2015 , respectively. In connection with these transfers, in the first half of 2016, we recorded a servicing asset of $135 million , initially measured at fair value using a Level 3 measurement technique, and securities of $86 million , classified as Level 2. In the first half of 2015, we recorded a servicing asset of $97 million and securities of $179 million .


103

Retained Interests from Unconsolidated VIEs
Table 7.5 provides key economic assumptions and the sensitivity of the current fair value of residential mortgage servicing rights and other interests held to immediate adverse changes in those assumptions. “Other interests held” relate 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.

Table 7.5: Retained Interests from Unconsolidated VIEs
 
 
 
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 June 30, 2016
$
10,396

 
33

 
1

 
303

 
698

Expected weighted-average life (in years)
5.2

 
3.6

 
9.1

 
1.2

 
5.9

Key economic assumptions:
  
 
  
 
  

 
  
 
  
Prepayment speed assumption (3)
13.6
%
 
19.1

 
15.0

 
  
 
  
Decrease in fair value from:
  
 
  
 
  

 
  
 
  
10% adverse change
$
595

 
1

 
—

 
  
 
  
25% adverse change
1,401

 
3

 
—

 
  
 
  
Discount rate assumption
6.2
%
 
13.1

 
9.8

 
7.0

 
2.5

Decrease in fair value from:
  
 
  
 
  

 
  
 
  
100 basis point increase
$
490

 
1

 
—

 
4

 
35

200 basis point increase
938

 
1

 
—

 
7

 
68

Cost to service assumption ($ per loan)
162

 
  
 
  

 
  
 
  
Decrease in fair value from:
  
 
  
 
  

 
  
 
  
10% adverse change
515

 
  
 
  

 
  
 
  
25% adverse change
1,289

 
  
 
  

 
  
 
  
Credit loss assumption
  
 
  
 
2.6
%
 
2.9

 
—

Decrease in fair value from:
  
 
  
 
  

 
  
 
  
10% higher losses
  
 
  
 
$
—

 
2

 
—

25% higher losses
  
 
  
 
—

 
5

 
—

Fair value of interests held at December 31, 2015
$
12,415

 
34

 
1

 
342

 
673

Expected weighted-average life (in years)
6.0

 
3.6

 
11.6

 
1.9

 
5.8

Key economic assumptions:
  
 
  
 
  

 
  
 
  
Prepayment speed assumption (3)
11.4
%
 
19.0

 
15.1

 
  
 
  
Decrease in fair value from:
  
 
  
 
  

 
  
 
  
10% adverse change
$
616

 
1

 
—

 
  
 
  
25% adverse change
1,463

 
3

 
—

 
  
 
  
Discount rate assumption
7.3
%
 
13.8

 
10.5

 
5.3

 
3.0

Decrease in fair value from:
  
 
  
 
  

 
  
 
  
100 basis point increase
$
605

 
1

 
—

 
6

 
33

200 basis point increase
1,154

 
1

 
—

 
11

 
63

Cost to service assumption ($ per loan)
168

 
  
 
  

 
  
 
  
Decrease in fair value from:
  
 
  
 
  

 
  
 
  
10% adverse change
567

 
  
 
  

 
  
 
  
25% adverse change
1,417

 
  
 
  

 
  
 
  
Credit loss assumption
  
 
  
 
1.1
%
 
2.8

 
—

Decrease in fair value from:
  
 
  
 
  

 
  
 
  
10% higher losses
  
 
  
 
$
—

 
—

 
—

25% higher losses
  
 
  
 
—

 
2

 
—

(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.

104
Note 7: Securitizations and Variable Interest Entities ( continued )

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 and $1.7 billion at June 30, 2016 , and December 31, 2015 , respectively. 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 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 June 30, 2016 , and December 31, 2015 , results in a decrease in fair value of $127 million and $150 million , respectively. See Note 8 (Mortgage Banking Activities) for further information on our commercial MSRs.
We also have a 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 June 30, 2016 , and December 31, 2015 . The carrying amount of the loan at June 30, 2016 , and December 31, 2015 , was $4.5 billion and $4.9 billion , respectively. 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 $75 million and $82 million at June 30, 2016 , and December 31, 2015 , respectively.
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
Table 7.6 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 (including 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.



Table 7.6: Off-Balance Sheet Loans Sold or Securitized
 
 
 
 
 
 
 
 
 
Net charge-offs
 
 
Total loans
 
 
Delinquent loans and foreclosed assets (1)
 
 
Six months ended June 30,
 
(in millions)
Jun 30, 2016

 
Dec 31, 2015

 
Jun 30, 2016

 
Dec 31, 2015

 
2016

 
2015

Commercial:
 
 
 
 
 
 
 
 
 
 
 
Real estate mortgage
$
110,135

 
110,815

 
2,622

 
6,670

 
156

 
196

Total commercial
110,135

 
110,815

 
2,622

 
6,670

 
156

 
196

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
1,192,910

 
1,235,662

 
18,294

 
20,904

 
534

 
428

Total consumer
1,192,910

 
1,235,662

 
18,294

 
20,904

 
534

 
428

Total off-balance sheet sold or securitized loans (2)
$
1,303,045

 
1,346,477

 
20,916

 
27,574

 
690

 
624

(1)
Includes $1.9 billion and $5.0 billion of commercial foreclosed assets and $2.1 billion and $2.2 billion of consumer foreclosed assets at June 30, 2016 , and December 31, 2015 , respectively.
(2)
At June 30, 2016 , and December 31, 2015 , the table includes total loans of $1.2 trillion at both dates, delinquent loans of $10.7 billion and $12.1 billion , and foreclosed assets of $1.5 billion and $1.7 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.

105

Transactions with Consolidated VIEs and Secured Borrowings
Table 7.7 presents a summary of financial assets and liabilities for asset transfers 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 the consolidated balance sheet, we separately disclose the consolidated assets of certain VIEs that can only be used to settle the liabilities of those VIEs.


Table 7.7: Transactions with Consolidated VIEs and Secured Borrowings
 
 
 
Carrying value
 
(in millions)
Total VIE
assets

 
Assets

 
Liabilities

 
Noncontrolling
interests

 
Net assets

June 30, 2016
 
 
 
 
 
 
 
 
 
Secured borrowings:
 
 
 
 
 
 
 
 
 
Municipal tender option bond securitizations
$
1,846

 
1,403

 
(1,200
)
 
—

 
203

Residential mortgage securitizations
4,264

 
4,400

 
(4,352
)
 
—

 
48

Total secured borrowings
6,110

 
5,803

 
(5,552
)
 
—

 
251

Consolidated VIEs:
 
 
 
 
 
 
 
 
 
Commercial and industrial loans and leases
8,841

 
8,841

 
(2,985
)
 
(12
)
 
5,844

Nonconforming residential mortgage loan securitizations
3,723

 
3,318

 
(1,122
)
 
—

 
2,196

Commercial real estate loans
1,207

 
1,207

 
—

 
—

 
1,207

Structured asset finance
29

 
16

 
(12
)
 
—

 
4

Investment funds
492

 
492

 
(8
)
 
(67
)
 
417

Other
165

 
152

 
(1
)
 
(70
)
 
81

Total consolidated VIEs
14,457

 
14,026

 
(4,128
)
 
(149
)
 
9,749

Total secured borrowings and consolidated VIEs
$
20,567

 
19,829

 
(9,680
)
 
(149
)
 
10,000

December 31, 2015
 
 
 
 
 
 
 
 
 
Secured borrowings:
 
 
 
 
 
 
 
 
 
Municipal tender option bond securitizations
$
2,818

 
2,400

 
(1,800
)
 
—

 
600

Residential mortgage securitizations
4,738

 
4,887

 
(4,844
)
 
—

 
43

Total secured borrowings
7,556

 
7,287

 
(6,644
)
 
—

 
643

Consolidated VIEs:
 
 
 
 
 
 
 
 
 
Nonconforming residential mortgage loan securitizations
4,134

 
3,654

 
(1,239
)
 
—

 
2,415

Commercial real estate loans
1,185

 
1,185

 
—

 
—

 
1,185

Structured asset finance
54

 
20

 
(18
)
 
—

 
2

Investment funds
482

 
482

 
—

 
—

 
482

Other
305

 
295

 
(101
)
 
(93
)
 
101

Total consolidated VIEs
6,160

 
5,636

 
(1,358
)
 
(93
)
 
4,185

Total secured borrowings and consolidated VIEs
$
13,716

 
12,923

 
(8,002
)
 
(93
)
 
4,828

COMMERCIAL AND INDUSTRIAL LOANS AND LEASES In conjunction with the GE Capital transactions, on March 1, 2016, we acquired certain consolidated SPE entities. The most significant of these SPEs is a revolving master trust entity that purchases dealer floorplan loans and issues senior and subordinated notes. The senior notes are held by third parties and the subordinated notes and residual equity interests are held by us. At June 30, 2016 , total assets held by the master trust were $7.2 billion and the outstanding senior notes were $2.7 billion . The other SPEs acquired include securitization term trust entities, which purchase vendor finance lease and loan assets and issue notes to investors, and a SPE that engages in leasing activities to specific vendors. At June 30, 2016 , total assets held by these SPEs were $1.5 billion , with outstanding debt of $239 million . We are the primary beneficiary of these acquired SPEs due to our ability to direct the significant activities of the SPEs, such as our role as servicer, and because we hold variable interests that are considered significant.
INVESTMENT FUNDS Our adoption of ASU 2015-02
 
( Amendments to the Consolidation Analysis ) changed the consolidation analysis for certain investment funds. We consolidate certain investment funds because we have both the power to manage fund assets and hold variable interests that are considered significant.

OTHER CONSOLIDATED VIE STRUCTURES In addition to the structure types included in the previous table, at both June 30, 2016 , and December 31, 2015 , 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 June 30, 2016 , we pledged approximately $481 million in loans (principal and interest eligible to be capitalized) and $5.8 billion in available-for-sale securities to collateralize the VIE’s borrowings, compared with $529 million and $5.9 billion , respectively, at December 31, 2015 . These assets were not transferred to the VIE, and accordingly we have excluded the VIE from the previous table.


106
Note 7: Securitizations and Variable Interest Entities ( continued )

For complete descriptions of our accounting for transfers accounted for as secured borrowings and involvements with consolidated VIEs, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 2015 Form 10-K.
 


Note 8:  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. Table 8.1 presents the changes in MSRs measured using the fair value method.

Table 8.1: Analysis of Changes in Fair Value MSRs
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Fair value, beginning of period
$
11,333

 
11,739

 
12,415

 
12,738

Servicing from securitizations or asset transfers (1)
477

 
428

 
843

 
736

Sales and other (2)
(22
)
 
(5
)
 
(22
)
 
(6
)
Net additions
455

 
423

 
821

 
730

Changes in fair value:
  
 
  
 
  
 
  
Due to changes in valuation model inputs or assumptions:
  
 
  
 
  
 
  
Mortgage interest rates (3)
(779
)
 
1,117

 
(1,863
)
 
545

Servicing and foreclosure costs (4)
(4
)
 
(10
)
 
23

 
(28
)
Prepayment estimates and other (5)
(41
)
 
(54
)
 
59

 
(237
)
Net changes in valuation model inputs or assumptions
(824
)
 
1,053

 
(1,781
)
 
280

Other changes in fair value (6)
(568
)
 
(554
)
 
(1,059
)
 
(1,087
)
Total changes in fair value
(1,392
)
 
499

 
(2,840
)
 
(807
)
Fair value, end of period
$
10,396

 
12,661

 
10,396

 
12,661

(1)
Includes impacts associated with exercising our right to repurchase delinquent loans from GNMA loan securitization pools.
(2)
Includes sales and transfers of MSRs.
(3)
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).
(4)
Includes costs to service and unreimbursed foreclosure costs.
(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 and other external factors that occur independent of interest rate changes.
(6)
Represents changes due to collection/realization of expected cash flows over time.
 
Table 8.2 presents the changes in amortized MSRs.
 
 

Table 8.2: Analysis of Changes in Amortized MSRs
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Balance, beginning of period
$
1,359

 
1,252

 
1,308

 
1,242

Purchases
24

 
29

 
45

 
51

Servicing from securitizations or asset transfers
38

 
46

 
135

 
96

Amortization
(68
)
 
(65
)
 
(135
)
 
(127
)
Balance, end of period (1)
$
1,353

 
1,262

 
1,353

 
1,262

Fair value of amortized MSRs:
  
 
  
 
  
 
  
Beginning of period
$
1,725

 
1,522

 
1,680

 
1,637

End of period
1,620

 
1,692

 
1,620

 
1,692

(1)
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.




107

We present the components of our managed servicing portfolio in Table 8.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.
 
 

Table 8.3: Managed Servicing Portfolio
(in billions)
Jun 30, 2016

 
Dec 31, 2015

Residential mortgage servicing:
  

 
  

Serviced for others
$
1,250

 
1,300

Owned loans serviced
349

 
345

Subserviced for others
4

 
4

Total residential servicing
1,603

 
1,649

Commercial mortgage servicing:
  
 
  
Serviced for others
478

 
478

Owned loans serviced
128

 
122

Subserviced for others
8

 
7

Total commercial servicing
614

 
607

Total managed servicing portfolio
$
2,217

 
2,256

Total serviced for others
$
1,728

 
1,778

Ratio of MSRs to related loans serviced for others
0.68
%
 
0.77

 
Table 8.4 presents the components of mortgage banking noninterest income.  

Table 8.4: Mortgage Banking Noninterest Income
  
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
 
2016

 
2015

 
2016

 
2015

Servicing income, net:
 
 
 
 
 
 
 
 
Servicing fees:
 
 
 
 
 
 
 
 
Contractually specified servicing fees
 
$
949

 
1,008

 
1,903

 
2,028

Late charges
 
42

 
46

 
90

 
99

Ancillary fees
 
54

 
81

 
115

 
152

Unreimbursed direct servicing costs (1)
 
(203
)
 
(109
)
 
(356
)
 
(243
)
Net servicing fees
 
842

 
1,026

 
1,752

 
2,036

Changes in fair value of MSRs carried at fair value:
 
 
 
 
 
 
 
 
Due to changes in valuation model inputs or assumptions (2)
(A)
(824
)
 
1,053

 
(1,781
)
 
280

Other changes in fair value (3)
 
(568
)
 
(554
)
 
(1,059
)
 
(1,087
)
Total changes in fair value of MSRs carried at fair value
 
(1,392
)
 
499

 
(2,840
)
 
(807
)
Amortization
 
(68
)
 
(65
)
 
(135
)
 
(127
)
Net derivative gains from economic hedges (4)
(B)
978

 
(946
)
 
2,433

 
(65
)
Total servicing income, net
 
360

 
514

 
1,210

 
1,037

Net gains on mortgage loan origination/sales activities
 
1,054

 
1,191

 
1,802

 
2,215

Total mortgage banking noninterest income
 
$
1,414

 
1,705

 
3,012

 
3,252

Market-related valuation changes to MSRs, net of hedge results (2)(4)
(A)+(B)
$
154

 
107

 
652

 
215

(1)
Includes costs associated with foreclosures, unreimbursed interest advances to investors, and other interest costs.
(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 12 (Derivatives Not Designated as Hedging Instruments) for additional discussion and detail.


108
Note 8: Mortgage Banking Activities ( continued )

Table 8.5 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 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 exceeded our recorded liability by $179 million at June 30, 2016 , 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 8.5: Analysis of Changes in Liability for Mortgage Loan Repurchase Losses
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Balance, beginning of period
$
355

 
586

 
378

 
615

Provision for repurchase losses:
 
 
 
 
 
 
 
Loan sales
8

 
13

 
15

 
23

Change in estimate (1)
(89
)
 
(31
)
 
(108
)
 
(57
)
Net reductions
(81
)
 
(18
)
 
(93
)
 
(34
)
Losses
(19
)
 
(11
)
 
(30
)
 
(24
)
Balance, end of period
$
255

 
557

 
255

 
557

(1)
Results from changes in investor demand and mortgage insurer practices, credit deterioration and changes in the financial stability of correspondent lenders.



109

Note 9:  Intangible Assets
Table 9.1 presents the gross carrying value of intangible assets and accumulated amortization.

Table 9.1: Intangible Assets
  
June 30, 2016
 
 
December 31, 2015
 
(in millions)
Gross
carrying
value

 
Accumulated
amortization

 
Net
carrying
value

 
Gross
carrying
value

 
Accumulated
amortization

 
Net
carrying
value

Amortized intangible assets (1):
 
 
 
 
 
 
 
 
 
 
 
MSRs (2)
$
3,408

 
(2,055
)
 
1,353

 
3,228

 
(1,920
)
 
1,308

Core deposit intangibles
12,834

 
(10,755
)
 
2,079

 
12,834

 
(10,295
)
 
2,539

Customer relationship and other intangibles
3,953

 
(2,690
)
 
1,263

 
3,163

 
(2,549
)
 
614

Total amortized intangible assets
$
20,195

 
(15,500
)
 
4,695

 
19,225

 
(14,764
)
 
4,461

Unamortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
MSRs (carried at fair value) (2)
$
10,396

 
 
 
 
 
12,415

 
 
 
 
Goodwill
26,963

 
 
 
 
 
25,529

 
 
 
 
Trademark
14

 
 
 
 
 
14

 
 
 
 
(1)
Excludes fully amortized intangible assets.
(2)
See Note 8 (Mortgage Banking Activities) for additional information on MSRs.

Table 9.2 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 June 30, 2016 . Future amortization expense may vary from these projections.

Table 9.2: Amortization Expense for Intangible Assets
(in millions)
 
Amortized MSRs

 
Core deposit
intangibles

 
Customer
relationship
and other
intangibles

 
Total

Six months ended June 30, 2016
(actual)
$
135

 
460

 
141

 
736

Estimate for the remainder of 2016
 
$
133

 
459

 
151

 
743

Estimate for year ended December 31,
 
 
 
 
 
 
 
2017
 
228

 
851

 
309

 
1,388

2018
 
190

 
769

 
305

 
1,264

2019
 
168

 
—

 
112

 
280

2020
 
153

 
—

 
93

 
246

2021
 
129

 
—

 
75

 
204


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 18 (Operating Segments) for further information on management reporting.
Table 9.3 shows the allocation of goodwill to our reportable operating segments for purposes of goodwill impairment testing.

Table 9.3: Goodwill
(in millions)
Community
Banking

 
Wholesale
Banking

 
Wealth and Investment Management

 
Consolidated
Company

December 31, 2014 and June 30, 2015
$
16,870

 
7,633

 
1,202


25,705

December 31, 2015
$
16,849

 
7,475

 
1,205

 
25,529

Reduction in goodwill related to divested businesses and other
—

 
(84
)
 
—

 
(84
)
Goodwill from business combinations
—

 
1,518

 
—

 
1,518

June 30, 2016
$
16,849

 
8,909

 
1,205

 
26,963




110
Note 10: Guarantees, Pledge Assets and Collateral ( continued )

Note 10:  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. For complete
 
descriptions of our guarantees, see Note 14 (Guarantees, Pledged Assets and Collateral) to Financial Statements in our 2015 Form 10-K. Table 10.1 shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.
 

Table 10.1: Guarantees – Carrying Value and Maximum Exposure to Loss
  
  

 
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

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Standby letters of credit (1)
$
40

 
16,261

 
10,407

 
3,731

 
798

 
31,197

 
10,374

Securities lending and other indemnifications (2)
—

 
—

 
—

 
—

 
1,770

 
1,770

 
—

Written put options (3)
234

 
8,919

 
7,348

 
4,314

 
1,563

 
22,144

 
11,506

Loans and MHFS sold with recourse (4)
64

 
115

 
709

 
739

 
7,842

 
9,405

 
6,382

Factoring guarantees (5)
—

 
740

 
—

 
—

 
—

 
740

 
740

Other guarantees
9

 
31

 
21

 
18

 
2,818

 
2,888

 
28

Total guarantees
$
347

 
26,066

 
18,485

 
8,802

 
14,791

 
68,144

 
29,030

December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Standby letters of credit (1)
$
38

 
16,360

 
9,618

 
4,116

 
642

 
30,736

 
8,981

Securities lending and other indemnifications (2)
—

 
—

 
—

 
—

 
1,841

 
1,841

 
—

Written put options (3)
371

 
7,387

 
6,463

 
4,505

 
1,440

 
19,795

 
9,583

Loans and MHFS sold with recourse (4)
62

 
112

 
723

 
690

 
6,434

 
7,959

 
4,864

Factoring guarantees (5)
—

 
1,598

 
—

 
—

 
—

 
1,598

 
1,598

Other guarantees
28

 
62

 
17

 
17

 
2,482

 
2,578

 
53

Total guarantees
$
499

 
25,519

 
16,821

 
9,328

 
12,839

 
64,507

 
25,079

(1)
Total maximum exposure to loss includes direct pay letters of credit (DPLCs) of $11.2 billion and $11.8 billion at June 30, 2016 , and December 31, 2015 , 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)
Includes indemnifications provided to certain third-party clearing agents. Outstanding customer obligations under these arrangements were $181 million and $352 million with related collateral of $1.6 billion and $1.5 billion at June 30, 2016 , and December 31, 2015 , respectively. Estimated maximum exposure to loss was $1.8 billion at both June 30, 2016 and December 31, 2015.
(3)
Written put options, which are in the form of derivatives, are also included in the derivative disclosures in Note 12 (Derivatives).
(4)
Represent recourse provided, predominantly to the GSEs, on loans sold under various programs and arrangements. Under these arrangements, we repurchased $1 million and $2 million respectively, of loans associated with these agreements in the second quarter and first half of 2016 , and $2 million and $3 million in the same periods of 2015 , respectively.
(5)
Consists of guarantees made under certain factoring arrangements to purchase trade receivables from third parties, generally upon their request, if receivable debtors default on their payment obligations.

“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 5 (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 Table 10.1 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.



111

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), securities lending arrangements, 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. Table 10.2 provides the total carrying amount of pledged assets by asset type. The table excludes
 
pledged consolidated VIE assets of $14.0 billion and $5.6 billion at June 30, 2016 , and December 31, 2015 , respectively, which can only be used to settle the liabilities of those entities. The table also excludes $5.8 billion and $7.3 billion in assets pledged in transactions accounted for as secured borrowings at June 30, 2016 , and December 31, 2015 , respectively. See Note 7 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and secured borrowings.
 

Table 10.2: Pledged Assets
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Trading assets and other (1)
$
104,793

 
73,396

Investment securities (2)
95,354

 
113,912

Mortgages held for sale and Loans (3)
497,364

 
453,058

Total pledged assets
$
697,511

 
640,366

(1)
Represent assets pledged to collateralize repurchase agreements and other securities financings. Balance includes $104.3 billion and $73.0 billion at June 30, 2016 , and December 31, 2015 , respectively, under agreements that permit the secured parties to sell or repledge the collateral.
(2)
Includes carrying value of $5.8 billion and $6.5 billion (fair value of $5.9 billion and $ 6.5 billion ) in collateral for repurchase agreements at June 30, 2016 , and December 31, 2015 , respectively, which are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Also includes $12.8 billion and $13.0 billion in collateral pledged under repurchase agreements at June 30, 2016 , and December 31, 2015 , respectively, that permit the secured parties to sell or repledge the collateral. All other pledged securities are pursuant to agreements that do not permit the secured party to sell or repledge the collateral.
(3)
Includes mortgages held for sale of $14.4 billion and $8.7 billion at June 30, 2016 , and December 31, 2015 , 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 $1.0 billion and $1.3 billion at June 30, 2016 , and December 31, 2015 , respectively, of pledged loans recorded on our balance sheet representing certain delinquent loans that are eligible for repurchase from GNMA loan securitizations. See Note 7 (Securitizations and Variable Interest Entities) for additional information.



112
Note 10: Guarantees, Pledge Assets and Collateral ( continued )

Securities Financing Activities
We enter into resale and repurchase agreements and securities borrowing and lending agreements (collectively, “securities financing activities”) typically to finance trading positions (including securities and derivatives), acquire securities to cover short trading positions, accommodate customers’ financing needs, and settle other securities obligations. These activities are conducted through our broker dealer subsidiaries and to a lesser extent through other bank entities. Most of our securities financing activities involve high quality, liquid securities such as U.S. Treasury securities and government agency securities, and to a lesser extent, less liquid securities, including equity securities, corporate bonds and asset-backed securities. We account for these transactions as collateralized financings in which we typically receive or pledge securities as collateral. We believe these financing transactions generally do not have material credit risk given the collateral provided and the related monitoring processes.

OFFSETTING OF RESALE AND REPURCHASE AGREEMENTS AND SECURITIES BORROWING AND LENDING AGREEMENTS Table 10.3 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 liability. Collateral we received includes securities or loans and is not recognized on our balance sheet. Collateral pledged or received 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 Table 10.3 , we also have balance sheet netting related to derivatives that is disclosed in Note 12 (Derivatives).
 

Table 10.3: Offsetting – Resale and Repurchase Agreements
(in millions)
Jun 30,
2016

 
Dec 31,
2015

Assets:
  
 
  
Resale and securities borrowing agreements
  
 
  
Gross amounts recognized
$
95,437

 
74,935

Gross amounts offset in consolidated balance sheet (1)
(17,150
)
 
(9,158
)
Net amounts in consolidated balance sheet (2)
78,287

 
65,777

Collateral not recognized in consolidated balance sheet (3)
(77,683
)
 
(65,035
)
Net amount (4)
$
604

 
742

Liabilities:
  
 
  
Repurchase and securities lending agreements
  
 
  
Gross amounts recognized (5)
$
121,276

 
91,278

Gross amounts offset in consolidated balance sheet (1)
(17,150
)
 
(9,158
)
Net amounts in consolidated balance sheet (6)
104,126

 
82,120

Collateral pledged but not netted in consolidated balance sheet (7)
(103,791
)
 
(81,772
)
Net amount (8)
$
335

 
348

(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 June 30, 2016 , and December 31, 2015 , includes $54.5 billion and $45.7 billion , respectively, classified on our consolidated balance sheet in federal funds sold, securities purchased under resale agreements and other short-term investments and $23.8 billion and $20.1 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 June 30, 2016 , and December 31, 2015 , we have received total collateral with a fair value of $107.6 billion and $84.9 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 $67.9 billion at June 30, 2016 , and $51.1 billion at December 31, 2015 .
(4)
Represents the amount of our exposure that is not collateralized and/or is not subject to an enforceable MRA or MSLA.
(5)
For additional information on underlying collateral and contractual maturities, see the "Repurchase and Securities Lending Agreements" section in this Note.
(6)
Amount is classified in short-term borrowings on our consolidated balance sheet.
(7)
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 June 30, 2016 , and December 31, 2015 , we have pledged total collateral with a fair value of $123.4 billion and $92.9 billion , respectively, of which, the counterparty does not have the right to sell or repledge $6.3 billion as of June 30, 2016 and $6.9 billion as of December 31, 2015 .
(8)
Represents the amount of our obligation that is not covered by pledged collateral and/or is not subject to an enforceable MRA or MSLA.


113

REPURCHASE AND SECURITIES LENDING AGREEMENTS Securities sold under repurchase agreements and securities lending arrangements are effectively short-term collateralized borrowings. In these transactions, we receive cash in exchange for transferring securities as collateral and recognize an obligation to reacquire the securities for cash at the transaction's maturity. These types of transactions create risks, including (1) the counterparty may fail to return the securities at maturity, (2) the fair value of the securities transferred may decline below the amount of our obligation to reacquire the securities, and therefore create an obligation for us to pledge additional amounts, and (3) the counterparty may accelerate the maturity
 
on demand requiring us to reacquire the security prior to contractual maturity. We attempt to mitigate these risks by the fact that most of our securities financing activities involve highly liquid securities, we underwrite and monitor the financial strength of our counterparties, we monitor the fair value of collateral pledged relative to contractually required repurchase amounts, and we monitor that our collateral is properly returned through the clearing and settlement process in advance of our cash repayment. Table 10.4 provides the underlying collateral types of our gross obligations under repurchase and securities lending agreements.

Table 10.4: Underlying Collateral Types of Gross Obligations
(in millions)
 
Jun 30,
2016

 
Dec 31,
2015

Repurchase agreements:
 
 
 
 
Securities of U.S. Treasury and federal agencies
 
$
52,177

 
32,254

Securities of U.S. States and political subdivisions
 
109

 
7

Federal agency mortgage-backed securities
 
43,001

 
37,033

Non-agency mortgage-backed securities
 
1,954

 
1,680

Corporate debt securities
 
5,298

 
4,674

Asset-backed securities
 
2,789

 
2,275

Equity securities
 
999

 
2,457

Other
 
1,138

 
1,162

Total repurchases
 
107,465

 
81,542

Securities lending:
 
 
 
 
Securities of U.S. Treasury and federal agencies
 
80

 
61

Federal agency mortgage-backed securities
 
148

 
76

Non-agency mortgage-backed securities
 
1

 
—

Corporate debt securities
 
924

 
899

Equity securities (1)
 
12,658

 
8,700

Total securities lending
 
13,811

 
9,736

Total repurchases and securities lending
 
$
121,276

 
91,278

(1)
Equity securities are generally exchange traded and either re-hypothecated under margin lending agreements or obtained through contemporaneous securities borrowing transactions with other counterparties.

Table 10.5 provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.

Table 10.5: Contractual Maturities of Gross Obligations
(in millions)
Overnight/continuous

 
Up to 30 days

 
30-90 days

 
>90 days

 
Total gross obligation

June 30, 2016
 
 
 
 
 
 
 
 
 
Repurchase agreements
$
83,097

 
15,454

 
7,023

 
1,891

 
107,465

Securities lending
11,718

 
220

 
1,873

 
—

 
13,811

Total repurchases and securities lending (1)
$
94,815

 
15,674

 
8,896

 
1,891

 
121,276

December 31, 2015
 
Repurchase agreements
$
58,021

 
19,561

 
2,935

 
1,025

 
81,542

Securities lending
7,845

 
362

 
1,529

 
—

 
9,736

Total repurchases and securities lending (1)
$
65,866

 
19,923

 
4,464

 
1,025

 
91,278

(1)
Repurchase and securities lending transactions are largely conducted under enforceable master lending agreements that allow either party to terminate the transaction on demand. These transactions have been reported as continuous obligations unless the MRA or MSLA has been modified with an overriding agreement that specifies an alternative termination date.



114


Note 11:  Legal Actions
The following supplements our discussion of certain matters previously reported in Note 15 (Legal Actions) to Financial Statements in our 2015 Form 10-K and Note 11 (Legal Actions) to Financial Statements in our 2016 first quarter Quarterly Report on Form 10-Q for events occurring during second quarter 2016 .

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 and certain rules 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 settlement payments to be made by all defendants in the consolidated class and individual actions totaled approximately $6.6 billion before reductions applicable to certain merchants opting out of the settlement. The class settlement also provided 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 District Court granted final approval of the settlement, which was appealed to the Second Circuit Court of Appeals by settlement objector merchants. Other merchants opted out of the settlement and are pursuing several individual actions. On June 30, 2016, the Second Circuit Court of Appeals vacated the settlement agreement and reversed and remanded the consolidated action to the U.S. District Court for the Eastern District of New York for further proceedings.

 
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 approximately $1.0 billion as of June 30, 2016 . 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.


115

Note 12:  Derivatives
We 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. For more information on our derivative activities, see Note 16 (Derivatives) to Financial Statements in our 2015 Form 10-K.
Table 12.1 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.

Table 12.1: Notional or Contractual Amounts and Fair Values of Derivatives
 
June 30, 2016
 
 
December 31, 2015
 
 
Notional or
contractual
amount

 
 
 
Fair value

 
Notional or
contractual
amount

 
 
 
Fair value

(in millions)
 
Derivative
assets

 
Derivative
liabilities

 
 
Derivative
assets

 
Derivative
liabilities

Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts (1)
$
225,772

 
14,893

 
4,456

 
191,684

 
7,477

 
2,253

Foreign exchange contracts (1)
26,670

 
1,000

 
1,658

 
25,115

 
378

 
2,494

Total derivatives designated as qualifying hedging instruments
 
 
15,893

 
6,114

 
 
 
7,855

 
4,747

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Economic hedges:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts (2)
243,492

 
1,134

 
1,006

 
211,375

 
195

 
315

Equity contracts
7,600

 
808

 
49

 
7,427

 
531

 
47

Foreign exchange contracts
15,945

 
455

 
231

 
16,407

 
321

 
100

Credit contracts – protection purchased
184

 
78

 
—

 
—

 
—

 
—

Subtotal
 
 
2,475

 
1,286

 
 
 
1,047

 
462

Customer accommodation, trading and
 
 
 
 
 
 
 
 
 
 
 
other derivatives:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
5,655,493

 
105,333

 
105,358

 
4,685,898

 
55,053

 
55,409

Commodity contracts
54,628

 
2,920

 
3,282

 
47,571

 
4,659

 
5,519

Equity contracts
161,398

 
6,542

 
5,445

 
139,956

 
7,068

 
4,761

Foreign exchange contracts
331,009

 
9,520

 
9,565

 
295,962

 
8,248

 
8,339

Credit contracts – protection sold
9,917

 
60

 
467

 
10,544

 
83

 
541

Credit contracts – protection purchased
20,765

 
455

 
97

 
18,018

 
567

 
88

Other contracts
983

 
—

 
88

 
1,041

 
—

 
58

Subtotal
 
 
124,830

 
124,302

 
 
 
75,678

 
74,715

Total derivatives not designated as hedging instruments
 
 
127,305

 
125,588

 
 
 
76,725

 
75,177

Total derivatives before netting
 
 
143,198

 
131,702

 
 
 
84,580

 
79,924

Netting (3)
 
 
(122,199
)
 
(116,219
)
 
 
 
(66,924
)
 
(66,004
)
Total
 
 
$
20,999

 
15,483

 
 
 
17,656

 
13,920

(1)
Notional amounts presented exclude $ 1.9 billion of interest rate contracts at both June 30, 2016 and December 31, 2015 , for certain derivatives that are combined for designation as a hedge on a single instrument. The notional amount for foreign exchange contracts at June 30, 2016 , and December 31, 2015 excludes $7.9 billion and $7.8 billion , respectively, 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)
Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Table 12.2 for further information.


116
Note 12: Derivatives ( continued )

Table 12.2 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 includes $126.8 billion and $124.0 billion of gross derivative assets and liabilities, respectively, at June 30, 2016 , and $69.9 billion and $74.0 billion , respectively, at December 31, 2015 , 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 $16.4 billion and $7.7 billion , respectively, at June 30, 2016 and $14.6 billion and $5.9 billion , respectively, at December 31, 2015 , 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 Table 12.2 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 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 10 (Guarantees, Pledged Assets and Collateral).


117

Table 12.2: Gross Fair Value of Derivative Assets and Liabilities
(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)

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
121,360

 
(110,736
)
 
10,624

 
(1,266
)
 
9,358

 
27
%
Commodity contracts
2,920

 
(905
)
 
2,015

 
(92
)
 
1,923

 
61

Equity contracts
7,350

 
(2,468
)
 
4,882

 
(469
)
 
4,413

 
54

Foreign exchange contracts
10,975

 
(7,647
)
 
3,328

 
(43
)
 
3,285

 
95

Credit contracts – protection sold
60

 
(53
)
 
7

 
—

 
7

 
81

Credit contracts – protection purchased
533

 
(390
)
 
143

 
(5
)
 
138

 
99

Total derivative assets
$
143,198

 
(122,199
)
 
20,999

 
(1,875
)
 
19,124

 
  
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
110,820

 
(103,357
)
 
7,463

 
(4,897
)
 
2,566

 
24
%
Commodity contracts
3,282

 
(781
)
 
2,501

 
(46
)
 
2,455

 
68

Equity contracts
5,494

 
(2,219
)
 
3,275

 
(294
)
 
2,981

 
82

Foreign exchange contracts
11,454

 
(9,440
)
 
2,014

 
(698
)
 
1,316

 
100

Credit contracts – protection sold
467

 
(373
)
 
94

 
(75
)
 
19

 
99

Credit contracts – protection purchased
97

 
(49
)
 
48

 
(5
)
 
43

 
48

Other contracts
88

 
—

 
88

 
—

 
88

 
100

Total derivative liabilities
$
131,702

 
(116,219
)
 
15,483

 
(6,015
)
 
9,468

 
  
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
62,725

 
(56,612
)
 
6,113

 
(749
)
 
5,364

 
39
%
Commodity contracts
4,659

 
(998
)
 
3,661

 
(76
)
 
3,585

 
35

Equity contracts
7,599

 
(2,625
)
 
4,974

 
(471
)
 
4,503

 
51

Foreign exchange contracts
8,947

 
(6,141
)
 
2,806

 
(34
)
 
2,772

 
98

Credit contracts – protection sold
83

 
(79
)
 
4

 
—

 
4

 
76

Credit contracts – protection purchased
567

 
(469
)
 
98

 
(2
)
 
96

 
100

Total derivative assets
$
84,580

 
(66,924
)
 
17,656

 
(1,332
)
 
16,324

 
  
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
57,977

 
(53,259
)
 
4,718

 
(3,543
)
 
1,175

 
35
%
Commodity contracts
5,519

 
(1,052
)
 
4,467

 
(40
)
 
4,427

 
84

Equity contracts
4,808

 
(2,241
)
 
2,567

 
(154
)
 
2,413

 
85

Foreign exchange contracts
10,933

 
(8,968
)
 
1,965

 
(634
)
 
1,331

 
100

Credit contracts – protection sold
541

 
(434
)
 
107

 
(107
)
 
—

 
100

Credit contracts – protection purchased
88

 
(50
)
 
38

 
(6
)
 
32

 
70

Other contracts
58

 
—

 
58

 
—

 
58

 
100

Total derivative liabilities
$
79,924

 
(66,004
)
 
13,920

 
(4,484
)
 
9,436

 
  
(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 $452 million and $375 million related to derivative assets and $104 million and $81 million related to derivative liabilities at June 30, 2016 and December 31, 2015 , respectively. Cash collateral totaled $10.4 billion and $4.8 billion , netted against derivative assets and liabilities, respectively, at June 30, 2016 , and $5.3 billion and $4.7 billion , respectively, at December 31, 2015 .
(2)
Net derivative assets of $8.5 billion and $12.4 billion are classified in Trading assets at June 30, 2016 and December 31, 2015 , respectively. $12.5 billion and $5.3 billion are classified in Other assets in the consolidated balance sheet at June 30, 2016 and December 31, 2015 , respectively. Net derivative liabilities are classified in Accrued expenses and other liabilities in the consolidated balance sheet.
(3)
Represents 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 that are 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.




118
Note 12: Derivatives ( continued )

Fair Value Hedges
We use derivatives to hedge against changes in fair value of certain financial instruments, including available-for-sale debt securities, mortgages held for sale, and long-term debt. For more information on fair value hedges, see Note 16 (Derivatives) to Financial Statements in our 2015 Form 10-K.
Table 12.3 shows the net gains (losses) recognized in the income statement related to derivatives in fair value hedging relationships. 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.
 

Table 12.3: 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

 
Quarter ended June 30, 2016
  

 
  

 
  

 
  

 
  

 
  
Net interest income (expense) recognized on derivatives
$
(170
)
 
(2
)
 
483

 
2

 
15

 
328

Gains (losses) recorded in noninterest income
 
 
  
 
  
 
  

 
  
 
  
Recognized on derivatives
(1,012
)
 
(5
)
 
1,983

 
134

 
(455
)
 
645

Recognized on hedged item
1,018

 
6

 
(1,762
)
 
(133
)
 
394

 
(477
)
Net recognized on fair value hedges (ineffective portion) (1) 
$
6

 
1

 
221

 
1

 
(61
)
 
168

Quarter ended June 30, 2015
  

 
  

 
  

 
  

 
  

 
  

Net interest income (expense) recognized on derivatives
$
(200
)
 
(4
)
 
479

 
(1
)
 
56

 
330

Gains (losses) recorded in noninterest income
  

 
  

 
  

 
  

 
  
 
  
Recognized on derivatives
1,352

 
19

 
(2,305
)
 
(116
)
 
264

 
(786
)
Recognized on hedged item
(1,357
)
 
(21
)
 
2,068

 
111

 
(302
)
 
499

Net recognized on fair value hedges (ineffective portion) (1)
$
(5
)
 
(2
)
 
(237
)
 
(5
)
 
(38
)
 
(287
)
Six months ended June 30, 2016
  

 
  

 
  

 
  

 
  

 
  
Net interest income (expense) recognized on derivatives
$
(351
)
 
(4
)
 
965

 
2

 
31

 
643

Gains (losses) recorded in noninterest income
  
 
  
 
  
 
  

 
  
 
  
Recognized on derivatives
(2,695
)
 
(42
)
 
5,086

 
68

 
1,163

 
3,580

Recognized on hedged item
2,709

 
39

 
(4,569
)
 
(74
)
 
(1,008
)
 
(2,903
)
Net recognized on fair value hedges (ineffective portion) (1)
$
14


(3
)

517


(6
)

155

 
677

Six months ended June 30, 2015
  

 
  

 
  

 
  

 
  

 
  

Net interest income (expense) recognized on derivatives
$
(386
)
 
(7
)
 
951

 
—

 
117

 
675

Gains (losses) recorded in noninterest income
  

 
  

 
  

 
  

 
  
 
  
Recognized on derivatives
686

 
6

 
(1,047
)
 
164

 
(1,623
)
 
(1,814
)
Recognized on hedged item
(696
)
 
(11
)
 
918

 
(158
)
 
1,647

 
1,700

Net recognized on fair value hedges (ineffective portion) (1)
$
(10
)
 
(5
)
 
(129
)
 
6

 
24

 
(114
)
(1)
The second quarter and first half of 2016 included $(3) million and $(7) million , respectively, and the second quarter and first half of 2015 included $(2) million and $(3) million , respectively, 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.
Cash Flow Hedges
We use derivatives to hedge certain financial instruments against future interest rate increases and to limit the variability of cash flows on certain financial instruments due to changes in the benchmark interest rate. For more information on cash flow hedges, see Note 16 (Derivatives) to Financial Statements in our 2015 Form 10-K.
Based upon current interest rates, we estimate that $1.1 billion (pre tax) of deferred net gains on derivatives in OCI at
 
June 30, 2016 , 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 .
Table 12.4 shows the net gains (losses) recognized related to derivatives in cash flow hedging relationships.
 

Table 12.4: Derivatives in Cash Flow Hedging Relationships
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Gains (losses) (pre tax) recognized in OCI on derivatives
$
1,057

 
(488
)
 
3,056

 
464

Gains (pre tax) reclassified from cumulative OCI into net income (1)
265

 
268

 
521

 
502

Gains (losses) (pre tax) recognized in noninterest income for hedge ineffectiveness (2)
—

 
—

 
1

 
1

  
(1)
See Note 17 (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. 

119

Derivatives Not Designated as Hedging Instruments
We use economic hedges 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, resulted in net derivative gains (losses) of $978 million and $2.4 billion in the second quarter and first half of 2016 , respectively and $(946) million and $(65) million in the second quarter and first half of 2015 , respectively, which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a net asset of $894 million at June 30, 2016 , and net liability of $3 million at December 31, 2015 . 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. The aggregate fair value of derivative loan commitments on the balance sheet was a net asset of $285 million and $56 million at June 30, 2016 , and December 31, 2015 , respectively, and is included in the caption “Interest rate contracts” under “Customer accommodation, trading and other derivatives” in Table 12.1 in this Note.
For more information on economic hedges and other derivatives, see Note 16 (Derivatives) to Financial Statements in our 2015 Form 10-K. Table 12.5 shows the net gains recognized in the income statement related to derivatives not designated as hedging instruments.
 

Table 12.5: Derivatives Not Designated as Hedging Instruments
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Net gains (losses) recognized on economic hedges derivatives:
 
 
 
 
 
 
 
Interest rate contracts
Recognized in noninterest income:
 
 
 
 
 
 
 
Mortgage banking (1)
$
566

 
(383
)
 
1,431

 
264

Other (2)
(117
)
 
114

 
(252
)
 
50

Equity contracts (3)
205

 
25

 
288

 
5

Foreign exchange contracts (2)
495

 
(670
)
 
329

 
(22
)
Subtotal
1,149

 
(914
)
 
1,796

 
297

Net gains (losses) recognized on customer accommodation, trading and other derivatives:
 
 
 
 
 
 
 
Interest rate contracts
Recognized in noninterest income:
 
 
 
 
 
 
 
Mortgage banking (4)
510

 
(23
)
 
975

 
364

Other (5)
(280
)
 
489

 
(730
)
 
396

Commodity contracts (5)
64

 
13

 
117

 
44

Equity contracts (5)
(315
)
 
(139
)
 
(295
)
 
50

Foreign exchange contracts (5)
276

 
215

 
498

 
325

Credit contracts (5)
(25
)
 
7

 
(41
)
 
(1
)
Other (2)
(9
)
 
15

 
(30
)
 
7

Subtotal
221

 
577

 
494

 
1,185

Net gains recognized related to derivatives not designated as hedging instruments
$
1,370

 
(337
)
 
2,290

 
1,482

(1)
Reflected in 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)
Included in other noninterest income.
(3)
Included in net gains (losses) from equity investments and other noninterest income.
(4)
Reflected in mortgage banking noninterest income including gains (losses) on interest rate lock commitments.
(5)
Included in net gains from trading activities in noninterest income.



120
Note 12: Derivatives ( continued )

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 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 sold 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.
Table 12.6 provides details of sold and purchased credit derivatives.

Table 12.6: Sold and Purchased Credit Derivatives
 
 
 
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
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
25

 
4,561

 
1,681

 
3,376

 
1,185

 
2,089

 
2016 - 2025
Structured products
233

 
493

 
395

 
333

 
160

 
123

 
2020 - 2047
Credit protection on:
 
 
 
 
 
 
 
 
 
 
 
 
  
Default swap index
—

 
1,610

 
240

 
1,226

 
384

 
2,662

 
2016 - 2021
Commercial mortgage-backed securities index
187

 
614

 
—

 
569

 
45

 
53

 
2047 - 2058
Asset-backed securities index
20

 
46

 
—

 
41

 
5

 
189

 
2045 - 2046
Other
2

 
2,593

 
2,593

 
—

 
2,593

 
10,288

 
2016 - 2025
Total credit derivatives
$
467

 
9,917

 
4,909

 
5,545

 
4,372

 
15,404

 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
44

 
4,838

 
1,745

 
3,602

 
1,236

 
2,272

 
2016 - 2025
Structured products
275

 
598

 
463

 
395

 
203

 
142

 
2017 - 2047
Credit protection on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Default swap index
—

 
1,727

 
370

 
1,717

 
10

 
960

 
2016 - 2020
Commercial mortgage-backed securities index
203

 
822

 
—

 
766

 
56

 
316

 
2047 - 2057
Asset-backed securities index
18

 
47

 
—

 
1

 
46

 
71

 
2045 - 2046
Other
1

 
2,512

 
2,512

 
—

 
2,512

 
7,776

 
2016 - 2025
Total credit derivatives
$
541

 
10,544

 
5,090

 
6,481

 
4,063

 
11,537

 
 

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.



121

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 $14.5 billion at June 30, 2016 , and $12.3 billion at December 31, 2015 , for which we posted $10.8 billion and $8.8 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 June 30, 2016 , or December 31, 2015 , we would have been required to post additional collateral of $3.7 billion or $3.6 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.



122
Note 13: Fair Values of Assets and Liabilities ( continued )

Note 13:  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 Table 13.2 in this Note. From time to time, we may be required to record fair value adjustments on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of LOCOM accounting or write-downs of individual assets. Assets recorded on a nonrecurring basis are presented in Table 13.14 in this Note.
See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2015 Form 10-K for discussion of how we determine fair value. For descriptions of the valuation methodologies we use for assets and liabilities recorded at fair value on a recurring or nonrecurring basis and for estimating fair value for financial instruments that are not recorded at fair value, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 2015 Form 10-K.
 
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 that are 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 accordance with new accounting guidance that we adopted effective January 1, 2016, we do not classify an investment in the fair value hierarchy if we use the non-published net asset value (NAV) per share (or its equivalent) that has been communicated to us as an investor as a practical expedient to measure fair value. We generally use NAV per share as the fair value measurement for certain nonmarketable equity fund investments. This guidance was required to be applied retrospectively. Accordingly, certain prior period fair value disclosures have been revised to conform with current period presentation. Marketable equity investments with published NAVs continue to be classified in the fair value hierarchy.
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 additional information, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 2015 Form 10-K. Table 13.1 . presents unadjusted fair value measurements provided by brokers or third-party pricing services by fair value hierarchy level. 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 excluded from Table 13.1 .


123

Table 13.1: Fair Value Measurements by Brokers or Third-Party Pricing Services
  
Brokers
 
 
Third party pricing services
 
(in millions)
Level 1

 
Level 2

 
Level 3

 
Level 1

 
Level 2

 
Level 3

June 30, 2016
  
 
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives)
$
—

 
—

 
—

 
—

 
55

 
—

Available-for-sale securities:
  
 
  
 
  
 
  
 
  
 
  
Securities of U.S. Treasury and federal agencies
—

 
—

 
—

 
24,788

 
3,151

 
—

Securities of U.S. states and political subdivisions
—

 
—

 
—

 
—

 
52,230

 
49

Mortgage-backed securities
—

 
222

 
—

 
—

 
115,117

 
95

Other debt securities (1)
—

 
624

 
832

 
—

 
49,948

 
238

Total debt securities
—

 
846

 
832

 
24,788

 
220,446

 
382

Total marketable equity securities
—

 
—

 
—

 
—

 
464

 
—

Total available-for-sale securities
—

 
846

 
832

 
24,788

 
220,910

 
382

Derivatives (trading and other assets)
—

 
—

 
—

 
—

 
210

 
—

Derivatives (liabilities)
—

 
—

 
—

 
—

 
(209
)
 
—

Other liabilities (2)
—

 
—

 
—

 
—

 
(1
)
 
—

December 31, 2015
  
 
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives)
$
—

 
—

 
—

 
—

 
5

 
—

Available-for-sale securities:
  
 
  
 
  
 
  
 
  
 
  
Securities of U.S. Treasury and federal agencies
—

 
—

 
—

 
32,868

 
3,382

 
—

Securities of U.S. states and political subdivisions
—

 
—

 
—

 
—

 
48,443

 
51

Mortgage-backed securities
—

 
226

 
—

 
—

 
126,525

 
73

Other debt securities (1)
—

 
503

 
409

 
—

 
48,721

 
345

Total debt securities
—

 
729

 
409

 
32,868

 
227,071

 
469

Total marketable equity securities
—

 
—

 
—

 
—

 
484

 
—

Total available-for-sale securities
—

 
729

 
409

 
32,868

 
227,555

 
469

Derivatives (trading and other assets)
—

 
—

 
—

 
—

 
224

 
—

Derivatives (liabilities)
—

 
—

 
—

 
—

 
(221
)
 
—

Other liabilities (2)
—

 
—

 
—

 
—

 
(1
)
 
—

(1)
Includes corporate debt securities, collateralized loan and other debt obligations, asset-backed securities, and other debt securities.
(2)
Includes short sale liabilities and other liabilities.

124
Note 13: Fair Values of Assets and Liabilities ( continued )

Assets and Liabilities Recorded at Fair Value on a Recurring Basis
 
Table 13.2 presents the balances of assets and liabilities recorded at fair value on a recurring basis.

Table 13.2: Fair Value on a Recurring Basis
(in millions)
Level 1

 
Level 2

 
Level 3

 
Netting

 
Total

June 30, 2016
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives)
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
$
17,551

 
4,439

 
—

  
—

  
21,990

Securities of U.S. states and political subdivisions
—

 
2,443

 
7

  
—

  
2,450

Collateralized loan obligations
—

 
380

 
249

  
—

  
629

Corporate debt securities
25

 
8,361

 
36

  
—

  
8,422

Mortgage-backed securities
—

 
20,690

 
—

  
—

 
20,690

Asset-backed securities
—

 
939

 
—

  
—

 
939

Equity securities
14,626

 
196

 
—

 
—

 
14,822

Total trading securities (1)
32,202

 
37,448

 
292

 
—

 
69,942

Other trading assets
—

 
1,582

 
33

  
—

 
1,615

Total trading assets (excluding derivatives)
32,202

 
39,030

 
325

 
—

 
71,557

Securities of U.S. Treasury and federal agencies
24,788

 
3,151

 
—

  
—

 
27,939

Securities of U.S. states and political subdivisions
—

 
52,231

 
1,793

(2)
—

 
54,024

Mortgage-backed securities:
  
 
 
 
  
  
  
 

Federal agencies
—

 
95,868

 
—

  
—

 
95,868

Residential
—

 
8,270

 
1

  
—

 
8,271

Commercial
—

 
11,573

 
94

  
—

 
11,667

Total mortgage-backed securities
—

 
115,711

 
95

 
—

 
115,806

Corporate debt securities
62

 
12,847

 
471

  
—

 
13,380

Collateralized loan and other debt obligations (3)
—

 
33,330

 
951

(2)
—

 
34,281

Asset-backed securities:
  
 
  
 
  
  
  
 

Automobile loans and leases
—

 
12

 
—

 
—

 
12

Home equity loans
—

 
387

 
—

  
—

 
387

Other asset-backed securities
—

 
4,750

 
1,117

(2)
—

 
5,867

Total asset-backed securities
—

 
5,149

 
1,117

  
—

 
6,266

Other debt securities
—

 
8

 
—

  
—

 
8

Total debt securities
24,850

 
222,427

 
4,427

  
—

 
251,704

Marketable equity securities:
  
 
  
 
  
  
  
 

Perpetual preferred securities
270

 
464

 
—

 
—

 
734

Other marketable equity securities
568

 
—

 
—

  
—

 
568

Total marketable equity securities
838

 
464

 
—

 
—

 
1,302

Total available-for-sale securities
25,688

 
222,891

 
4,427

 
—

 
253,006

Mortgages held for sale
—

 
19,157

 
1,084

  
—

 
20,241

Loans
—

 
—

 
5,032

  
—

  
5,032

Mortgage servicing rights (residential)
—

 
—

 
10,396

  
—

  
10,396

Derivative assets:
  
 
  
 
  
  
  
  

Interest rate contracts
32

 
120,614

 
714

  
—

  
121,360

Commodity contracts
—

 
2,892

 
28

  
—

  
2,920

Equity contracts
3,401

 
2,932

 
1,017

  
—

  
7,350

Foreign exchange contracts
48

 
10,927

 
—

  
—

  
10,975

Credit contracts
—

 
297

 
296

  
—

  
593

Netting
—

 
—

 
—

  
(122,199
)
(4)
(122,199
)
Total derivative assets   (5)
3,481

 
137,662

 
2,055

  
(122,199
)
 
20,999

Other assets – excluding nonmarketable equity investments at NAV
—

 
8

 
3,038

  
—

  
3,046

Total assets included in the fair value hierarchy
$
61,371

 
418,748

 
26,357

 
(122,199
)
 
384,277

Other assets – nonmarketable equity investments at NAV (6)


 
 
 
 
 
 
 
—

Total assets recorded at fair value


 


 
 
 


 
$
384,277

Derivative liabilities:
  
 
  
 
  
  
  
  

Interest rate contracts
$
(44
)
 
(110,752
)
 
(24
)
  
—

  
(110,820
)
Commodity contracts
—

 
(3,275
)
 
(7
)
  
—

  
(3,282
)
Equity contracts
(1,006
)
 
(3,219
)
 
(1,269
)
  
—

  
(5,494
)
Foreign exchange contracts
(50
)
 
(11,404
)
 
—

  
—

  
(11,454
)
Credit contracts
—

 
(329
)
 
(235
)
  
—

  
(564
)
Other derivative contracts
—

 
—

 
(88
)
  
—

  
(88
)
Netting
—

 
—

 
—

  
116,219

(4)
116,219

Total derivative liabilities (5)
(1,100
)
 
(128,979
)
 
(1,623
)
  
116,219

  
(15,483
)
Short sale liabilities:
  
 
  
 
  
  
  
  

Securities of U.S. Treasury and federal agencies
(9,340
)
 
(897
)
 
—

  
—

  
(10,237
)
Corporate debt securities
—

 
(4,777
)
 
—

  
—

  
(4,777
)
Equity securities
(1,808
)
 
(30
)
 
—

  
—

  
(1,838
)
Other securities
—

 
(97
)
 
—

  
—

  
(97
)
Total short sale liabilities
(11,148
)
 
(5,801
)
 
—

  
—

  
(16,949
)
Other liabilities (excluding derivatives)
—

 
—

 
(5
)
  
—

  
(5
)
Total liabilities recorded at fair value
$
(12,248
)
 
(134,780
)
 
(1,628
)
  
116,219

  
(32,437
)
(1)
Net gains (losses) from trading activities recognized in the income statement for the first half of June 30, 2016 and 2015 include $1.1 billion and $(470) million in net unrealized gains (losses) on trading securities held at June 30, 2016 and 2015 , respectively.
(2)
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.
(3)
Includes collateralized debt obligations of $719 million . 
(4)
Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 12 (Derivatives) for additional information.
(5)
Derivative assets and derivative liabilities include contracts qualifying for hedge accounting, economic hedges, and derivatives included in trading assets and trading liabilities, respectively.
(6)
Consists of certain nonmarketable equity investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
(continued on following page)

125

(continued from previous page)
(in millions)  
Level 1

 
Level 2

 
Level 3

 
Netting

 
Total

December 31, 2015
 
 
 
 
 
 
 
 
 
Trading assets (excluding derivatives)
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies  
$
13,357

 
3,469

 
—

 
—

 
16,826

Securities of U.S. states and political subdivisions  
—

 
1,667

 
8

 
—

 
1,675

Collateralized loan obligations
—

 
346

 
343

 
—

 
689

Corporate debt securities  
—

 
7,909

 
56

 
—

 
7,965

Mortgage-backed securities  
—

 
20,619

 
—

 
—

 
20,619

Asset-backed securities  
—

 
1,005

 
—

 
—

 
1,005

Equity securities  
15,010

 
101

 
—

 
—

 
15,111

Total trading securities (1)
28,367

 
35,116

 
407

 
—

 
63,890

Other trading assets  
—

 
891

 
34

 
—

 
925

Total trading assets (excluding derivatives)  
28,367

 
36,007

 
441

 
—

 
64,815

Securities of U.S. Treasury and federal agencies  
32,868

 
3,382

 
—

 
—

 
36,250

Securities of U.S. states and political subdivisions
—

 
48,490

 
1,500

(2)
—

 
49,990

Mortgage-backed securities:  
  
 
  
 
  
  
  
 

Federal agencies  
—

 
104,546

 
—

  
—

 
104,546

Residential  
—

 
8,557

 
1

  
—

 
8,558

Commercial  
—

 
14,015

 
73

  
—

 
14,088

Total mortgage-backed securities  
—

 
127,118

 
74

 
—

 
127,192

Corporate debt securities  
54

 
14,952

 
405

  
—

 
15,411

Collateralized loan and other debt obligations (3)
—

 
30,402

 
565

(2)
—

 
30,967

Asset-backed securities:  
  
 
  
 
  
  
  
 

Automobile loans and leases  
—

 
15

 
—

 
—

 
15

Home equity loans  
—

 
414

 
—

  
—

 
414

Other asset-backed securities  
—

 
4,290

 
1,182

(2)
—

 
5,472

Total asset-backed securities  
—

 
4,719

 
1,182

  
—

 
5,901

Other debt securities  
—

 
10

 
—

  
—

 
10

Total debt securities  
32,922

 
229,073

 
3,726

  
—

 
265,721

Marketable equity securities:  
  
 
  
 
  
  
  
 

Perpetual preferred securities
434

 
484

 
—

 
—

 
918

Other marketable equity securities  
719

 
—

 
—

  
—

 
719

Total marketable equity securities  
1,153

 
484

 
—

 
—

 
1,637

Total available-for-sale securities  
34,075

 
229,557

 
3,726

 
—

 
267,358

Mortgages held for sale   
—

 
12,457

 
1,082

 
—

 
13,539

Loans  
—

 
—

 
5,316

 
—

 
5,316

Mortgage servicing rights (residential)  
—

 
—

 
12,415

 
—

 
12,415

Derivative assets:  
  
 
  
 
  
 
  
 

Interest rate contracts  
16

 
62,390

 
319

 
—

 
62,725

Commodity contracts  
—

 
4,623

 
36

 
—

 
4,659

Equity contracts  
3,726

 
2,907

 
966

 
—

 
7,599

Foreign exchange contracts  
48

 
8,899

 
—

 
—

 
8,947

Credit contracts  
—

 
375

 
275

 
—

 
650

Netting  
—

 
—

 
—

 
(66,924
)
(4)
(66,924
)
Total derivative assets (5)
3,790

 
79,194

 
1,596

 
(66,924
)
 
17,656

Other assets – excluding nonmarketable equity investments at NAV
—

 
—

 
3,065

 
—

 
3,065

Total assets included in the fair value hierarchy
$
66,232

 
357,215

 
27,641

 
(66,924
)
 
384,164

Other assets – nonmarketable equity investments at NAV (6)
 
 
 
 
 
 
 
 
23

Total assets recorded at fair value


 


 


 


 
$
384,187

Derivative liabilities:  
  
 
  
 
  
 
  
 

Interest rate contracts  
$
(41
)
 
(57,905
)
 
(31
)
 
—

 
(57,977
)
Commodity contracts  
—

 
(5,495
)
 
(24
)
 
—

 
(5,519
)
Equity contracts  
(704
)
 
(3,027
)
 
(1,077
)
 
—

 
(4,808
)
Foreign exchange contracts  
(37
)
 
(10,896
)
 
—

 
—

 
(10,933
)
Credit contracts  
—

 
(351
)
 
(278
)
 
—

 
(629
)
Other derivative contracts  
—

 
—

 
(58
)
 
—

 
(58
)
Netting  
—

 
—

 
—

 
66,004

(4)
66,004

Total derivative liabilities (5)
(782
)
 
(77,674
)
 
(1,468
)
 
66,004

 
(13,920
)
Short sale liabilities:  
  
 
  
 
  
 
  
 


Securities of U.S. Treasury and federal agencies  
(8,621
)
 
(1,074
)
 
—

 
—

 
(9,695
)
Corporate debt securities  
—

 
(4,209
)
 
—

 
—

 
(4,209
)
Equity securities  
(1,692
)
 
(4
)
 
—

 
—

 
(1,696
)
Other securities  
—

 
(70
)
 
—

 
—

 
(70
)
Total short sale liabilities  
(10,313
)
 
(5,357
)
 
—

 
—

 
(15,670
)
Other liabilities (excluding derivatives)  
—

 
—

 
(30
)
 
—

 
(30
)
Total liabilities recorded at fair value  
$
(11,095
)
 
(83,031
)
 
(1,498
)
 
66,004

 
(29,620
)
(1)
Net gains (losses) from trading activities recognized in the income statement for the year ended December 31, 2015 , include $(1.0) billion in net unrealized gains (losses) on trading securities held at December 31, 2015 .
(2)
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.
(3)
Includes collateralized debt obligations of $257 million . 
(4)
Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 12 (Derivatives) for additional information.
(5)
Derivative assets and derivative liabilities include contracts qualifying for hedge accounting, economic hedges, and derivatives included in trading assets and trading liabilities, respectively.
(6)
Consists of certain nonmarketable equity investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.


126
Note 13: Fair Values of Assets and Liabilities ( continued )

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 are provided within Table 13.3 for the periods presented. The amounts reported as transfers represent the fair value as of the beginning of the quarter in which the transfer occurred.

Table 13.3: Transfers Between Fair Value Levels
  
Transfers Between Fair Value Levels
 
  
  
Level 1
 
Level 2
 
Level 3 (1)
 
  
(in millions)
In
 
Out
 
In
 
Out
 
In
 
Out
 
Total  
Quarter ended June 30, 2016
  
 
  
 
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives)
$
—

 
(4
)
 
4

 
—

 
—

 
—

 
—

Available-for-sale securities
—

 
—

 
16

 
—

 
—

 
(16
)
 
—

Mortgages held for sale
—

 
—

 
7

 
(25
)
 
25

 
(7
)
 
—

Net derivative assets and liabilities (2)
—

 
—

 
(12
)
 
(3
)
 
3

 
12

 
—

Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

Total transfers
$
—

 
(4
)
 
15

 
(28
)
 
28

 
(11
)
 
—

Quarter ended June 30, 2015
  
 
  
 
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives)
$
—

 
—

 
83

 
—

 
—

 
(83
)
 
—

Available-for-sale securities (3)
—

 
—

 
24

 
—

 
—

 
(24
)
 
—

Mortgages held for sale
—

 
—

 
386

 
(53
)
 
53

 
(386
)
 
—

Net derivative assets and liabilities (2)
—

 
—

 
18

 
—

 
—

 
(18
)
 
—

Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

Total transfers
$
—

 
—

 
511

 
(53
)
 
53

 
(511
)
 
—

Six months ended June 30, 2016
  
 
  
 
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives)
$
4

 
(4
)
 
15

 
(4
)
 
—

 
(11
)
 
—

Available-for-sale securities
—

 
—

 
16

 
(80
)
 
80

 
(16
)
 
—

Mortgages held for sale
—

 
—

 
9

 
(54
)
 
54

 
(9
)
 
—

Net derivative assets and liabilities (2)
—

 
—

 
50

 
(28
)
 
28

 
(50
)
 
—

Short sale liabilities
(1
)
 
—

 
—

 
1

 
—

 
—

 
—

Total transfers
$
3

 
(4
)
 
90

 
(165
)
 
162

 
(86
)
 
—

Six months ended June 30, 2015
  
 
  
 
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives)
$
16

 
(3
)
 
93

 
(16
)
 
1

 
(91
)
 
—

Available-for-sale securities (3)
—

 
—

 
76

 
—

 
—

 
(76
)
 
—

Mortgages held for sale
—

 
—

 
453

 
(95
)
 
95

 
(453
)
 
—

Net derivative assets and liabilities (2)
—

 
—

 
52

 
12

 
(12
)
 
(52
)
 
—

Short sale liabilities
(1
)
 
—

 
—

 
1

 
—

 
—

 
—

Total transfers
$
15

 
(3
)
 
674

 
(98
)
 
84

 
(672
)
 
—

(1)
All transfers in and out of Level 3 are disclosed within the recurring Level 3 rollforward tables in this Note.
(2)
Includes transfers of net derivative assets and net derivative liabilities between levels due to changes in observable market data.
(3)
Transfers out of Level 3 exclude $640 million in auction rate perpetual preferred equity securities that were transferred in second quarter 2015 from available-for-sale securities to nonmarketable equity investments in other assets.

127

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2016 , are presented in Table 13.4 .
Table 13.4: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended June 30, 2016
  
  

 
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)
Quarter ended June 30, 2016
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
  
Trading assets (excluding derivatives):
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
  
Securities of U.S. states and
political subdivisions
$
8

 
—

 
—

 
(1
)
 
—

 
—

 
7

 
—

  
Collateralized loan obligations
268

 
1

 
—

 
(20
)
 
—

 
—

 
249

 
(4
)
  
Corporate debt securities
33

 
(3
)
 
—

 
6

 
—

 
—

 
36

 
(2
)
  
Mortgage-backed securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Asset-backed securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Total trading securities
309

 
(2
)
 
—

 
(15
)
 
—

 
—

 
292

 
(6
)
  
Other trading assets
32

 
1

 
—

 
—

 
—

 
—

 
33

 
3

 
Total trading assets
(excluding derivatives)
341

 
(1
)
 
—

 
(15
)
 
—

 
—

 
325

 
(3
)
(3)
Available-for-sale securities:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Securities of U.S. states and
political subdivisions
1,457

 
3

 
1

 
348

 
—

 
(16
)
 
1,793

 
—

  
Mortgage-backed securities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Residential
1

 
—

 
—

 
—

 
—

 
—

 
1

 
—

  
Commercial
73

 
—

 
—

 
21

 
—

 
—

 
94

 
—

  
Total mortgage-backed securities
74

 
—

 
—

 
21

 
—

 
—

 
95

 
—

 
Corporate debt securities
453

 
3

 
9

 
6

 
—

 
—

 
471

 
—

  
Collateralized loan and other
debt obligations
813

 
8

 
4

 
126

 
—

 
—

 
951

 
—

  
Asset-backed securities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Automobile loans and leases
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Other asset-backed securities
1,240

 
2

 
(7
)
 
(118
)
 
—

 
—

 
1,117

 
(4
)
  
Total asset-backed securities
1,240

 
2

 
(7
)
 
(118
)
 
—

 
—

 
1,117

 
(4
)
  
Total debt securities
4,037

 
16

 
7

 
383

 
—

 
(16
)
 
4,427

 
(4
)
(4)
Marketable equity securities:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Perpetual preferred securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Other marketable equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Total marketable
equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

(5)
Total available-for-sale
securities
4,037

 
16

 
7

 
383

 
—

 
(16
)
 
4,427

 
(4
)
  
Mortgages held for sale
1,071

 
6

 
—

 
(11
)
 
25

 
(7
)
 
1,084

 
6

(6)
Loans
5,221

 
(3
)
 
—

 
(186
)
 
—

 
—

 
5,032

 
(4
)
(6)
Mortgage servicing rights (residential) (7)
11,333

 
(1,392
)
 
—

 
455

 
—

 
—

 
10,396

 
(824
)
(6)
Net derivative assets and liabilities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Interest rate contracts
501

 
660

 
—

 
(471
)
 
—

 
—

 
690

 
357

  
Commodity contracts
11

 
6

 
—

 
1

 
3

 
—

 
21

 
9

  
Equity contracts
(283
)
 
9

 
—

 
10

 
—

 
12

 
(252
)
 
(7
)
  
Credit contracts
—

 
(1
)
 
—

 
62

 
—

 
—

 
61

 
(4
)
  
Other derivative contracts
(77
)
 
(9
)
 
—

 
(2
)
 
—

 
—

 
(88
)
 
(10
)
  
Total derivative contracts
152

 
665

 
—

 
(400
)
 
3

 
12

 
432

 
345

(8)
Other assets
3,097

 
(181
)
 
—

 
122

 
—

 
—

 
3,038

 
(181
)
(5)
Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

(3)
Other liabilities (excluding derivatives)
(5
)
 
—

 
—

 
—

 
—

 
—

 
(5
)
 
—

(6)
(1)
See Table 13.5 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 8 (Mortgage Banking Activities).
(8)
Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.
 

(continued on following page)



(continued from previous page)
 

128

Table 13.5 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 quarter ended June 30, 2016 .
Table 13.5: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended June 30, 2016
(in millions)
Purchases

 
Sales

 
Issuances

 
Settlements

 
Net

Quarter ended June 30, 2016
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives):
  
 
  
 
  
 
  
 
  
Securities of U.S. states and political subdivisions
$
2

 
(2
)
 
—

 
(1
)
 
(1
)
Collateralized loan obligations
134

 
(154
)
 
—

 
—

 
(20
)
Corporate debt securities
10

 
(4
)
 
—

 
—

 
6

Mortgage-backed securities
—

 
—

 
—

 
—

 
—

Asset-backed securities
—

 
—

 
—

 
—

 
—

Equity securities
—

 
—

 
—

 
—

 
—

Total trading securities
146

 
(160
)
 
—

 
(1
)
 
(15
)
Other trading assets
—

 
—

 
—

 
—

 
—

Total trading assets (excluding derivatives)
146

 
(160
)
 
—

 
(1
)
 
(15
)
Available-for-sale securities:
  
 
  
 
  
 
  
 
  
Securities of U.S. states and political subdivisions
—

 
(7
)
 
459

 
(104
)
 
348

Mortgage-backed securities:
  
 
  
 
  
 
  
 
  
Residential
—

 
—

 
—

 
—

 
—

Commercial
22

 
—

 
—

 
(1
)
 
21

Total mortgage-backed securities
22

 
—

 
—

 
(1
)
 
21

Corporate debt securities
6

 
—

 
—

 
—

 
6

Collateralized loan and other debt obligations
188

 
(4
)
 
—

 
(58
)
 
126

Asset-backed securities:
  
 
  
 
  
 
  
 
  
Automobile loans and leases
—

 
—

 
—

 
—

 
—

Other asset-backed securities
—

 
(28
)
 
38

 
(128
)
 
(118
)
Total asset-backed securities
—

 
(28
)
 
38

 
(128
)
 
(118
)
Total debt securities
216

 
(39
)
 
497

 
(291
)
 
383

Marketable equity securities:
  
 
  
 
  
 
  
 
  
Perpetual preferred securities
—

 
—

 
—

 
—

 
—

Other marketable equity securities
—

 
—

 
—

 
—

 
—

Total marketable equity securities
—

 
—

 
—

 
—

 
—

Total available-for-sale securities
216

 
(39
)
 
497

 
(291
)
 
383

Mortgages held for sale
22

 
(152
)
 
164

 
(45
)
 
(11
)
Loans
8

 
—

 
84

 
(278
)
 
(186
)
Mortgage servicing rights (residential)
—

 
(22
)
 
477

 
—

 
455

Net derivative assets and liabilities:
  
 
  
 
  
 
  
 
  
Interest rate contracts
—

 
—

 
—

 
(471
)
 
(471
)
Commodity contracts
—

 
—

 
—

 
1

 
1

Equity contracts
16

 
1

 
—

 
(7
)
 
10

Credit contracts
—

 
(1
)
 
—

 
63

 
62

Other derivative contracts
—

 
—

 
—

 
(2
)
 
(2
)
Total derivative contracts
16

 
—

 
—

 
(416
)
 
(400
)
Other assets
122

 
—

 
—

 
—

 
122

Short sale liabilities
—

 
—

 
—

 
—

 
—

Other liabilities (excluding derivatives)
—

 
—

 
—

 
—

 
—



129

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2015 , are presented in Table 13.6 .
Table 13.6: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended June 30, 2015
  
Balance,
beginning
of period

 
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)
 
Net
income 

 
Other
compre-
hensive
income

 
 
Transfers
into
Level 3

 
Transfers
out of
Level 3

 
Balance,
end of
period

 
(2)
Quarter ended June 30, 2015
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Trading assets (excluding derivatives):
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Securities of U.S. states and
political subdivisions
$
6

 
—

 
—

 
2

 
—

 
—

 
8

 
—

  
Collateralized loan obligations
381

 
21

 
—

 
5

 
—

 
—

 
407

 
13

  
Corporate debt securities
31

 
—

 
—

 
4

 
—

 
(2
)
 
33

 
—

  
Mortgage-backed securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Asset-backed securities
81

 
—

 
—

 
—

 
—

 
(81
)
 
—

 
—

  
Equity securities
10

 
1

 
—

 
(10
)
 
—

 
—

 
1

 
—

  
Total trading securities
509

 
22

 
—

 
1

 
—

 
(83
)
 
449

 
13

  
Other trading assets
64

 
(1
)
 
—

 
(1
)
 
—

 
—

 
62

 
1

  
Total trading assets
(excluding derivatives)
573

 
21

 
—

 
—

 
—

 
(83
)
 
511

 
14

(3)
Available-for-sale securities:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Securities of U.S. states and
political subdivisions
1,980

 
4

 
(12
)
 
(59
)
 
—

 
(24
)
 
1,889

 
—

  
Mortgage-backed securities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Residential
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Commercial
104

 
—

 
(1
)
 
—

 
—

 
—

 
103

 
—

  
Total mortgage-backed securities
104

 
—

 
(1
)
 
—

 
—

 
—

 
103

 
—

  
Corporate debt securities
312

 
3

 
(3
)
 
22

 
—

 
—

 
334

 
2

  
Collateralized loan and other
debt obligations
1,053

 
32

 
5

 
(166
)
 
—

 
—

 
924

 
—

  
Asset-backed securities:
  
 
  
 
  
 
  
 
  
 
 
 
 
 
  
  
Automobile loans and leases
249

 
—

 
11

 
—

 
—

 
—

 
260

 
—

  
Other asset-backed securities
1,206

 
1

 
2

 
111

 
—

 
—

 
1,320

 
—

  
Total asset-backed securities
1,455

 
1

 
13

 
111

 
—

 
—

 
1,580

 
—

  
Total debt securities
4,904

 
40

 
2

 
(92
)
 
—

 
(24
)
 
4,830

 
2

(4)
Marketable equity securities:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Perpetual preferred securities
640

 
—

 
—

 
—

 
—

 
(640
)
 
—

 
—

  
Other marketable equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Total marketable equity securities
640

 
—

 
—

 
—

 
—

 
(640
)
 
—

 
—

(5)
Total available-for-sale
securities
5,544

 
40

 
2

 
(92
)
 
—

 
(664
)
 
4,830

 
2

  
Mortgages held for sale
2,098

 
(1
)
 
—

 
(141
)
 
53

 
(386
)
 
1,623

 
(8
)
(6)
Loans
5,730

 
(41
)
 
—

 
(38
)
 
—

 
—

 
5,651

 
(37
)
(6)
Mortgage servicing rights (residential) (7)
11,739

 
499

 
—

 
423

 
—

 
—

 
12,661

 
1,053

(6)
Net derivative assets and liabilities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Interest rate contracts
438

 
(57
)
 
—

 
(129
)
 
—

 
—

 
252

 
8

  
Commodity contracts
(2
)
 
3

 
—

 
2

 
—

 
—

 
3

 
3

  
Equity contracts
(186
)
 
57

 
—

 
(38
)
 
—

 
(18
)
 
(185
)
 
43

  
Credit contracts
(154
)
 
3

 
—

 
34

 
—

 
—

 
(117
)
 
(9
)
  
Other derivative contracts
(52
)
 
14

 
—

 
—

 
—

 
—

 
(38
)
 
14

  
Total derivative contracts
44

 
20

 
—

 
(131
)
 
—

 
(18
)
 
(85
)
 
59

(8)
Other assets
2,549

 
(9
)
 
—

 
96

 
—

 
—

 
2,636

 
(8
)
(5)
Short sale liabilities
(15
)
 
—

 
—

 
14

 
—

 
—

 
(1
)
 
—

(3)
Other liabilities (excluding derivatives)
(27
)
 
(3
)
 
—

 
—

 
—

 
—

 
(30
)
 
—

(6)
(1)
See Table 13.7 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 8 (Mortgage Banking Activities).
(8)
Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.
 
(continued on following page)





130

(continued from previous page)
 
Table 13.7 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 quarter ended June 30, 2015 .
Table 13.7: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended June 30, 2015
(in millions)
Purchases

 
Sales

 
Issuances

 
Settlements

 
Net

Quarter ended June 30, 2015
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives):
  
 
  
 
  
 
  
 
  
Securities of U.S. states and political subdivisions
$
3

 
(1
)
 
—

 
—

 
2

Collateralized loan obligations
508

 
(503
)
 
—

 
—

 
5

Corporate debt securities
12

 
(8
)
 
—

 
—

 
4

Mortgage-backed securities
—

 
—

 
—

 
—

 
—

Asset-backed securities
—

 
—

 
—

 
—

 
—

Equity securities
—

 
—

 
—

 
(10
)
 
(10
)
Total trading securities
523

 
(512
)
 
—

 
(10
)
 
1

Other trading assets
—

 
(1
)
 
—

 
—

 
(1
)
Total trading assets (excluding derivatives)
523

 
(513
)
 
—

 
(10
)
 
—

Available-for-sale securities:
  
 
  
 
  
 
  
 
  
Securities of U.S. states and political subdivisions
—

 
(21
)
 
239

 
(277
)
 
(59
)
Mortgage-backed securities:
  
 
  
 
  
 
  
 
 
Residential
—

 
—

 
—

 
—

 
—

Commercial
—

 
—

 
—

 
—

 
—

Total mortgage-backed securities
—

 
—

 
—

 
—

 
—

Corporate debt securities
36

 
(8
)
 
—

 
(6
)
 
22

Collateralized loan and other debt obligations
15

 
(99
)
 
—

 
(82
)
 
(166
)
Asset-backed securities:
  
 
  
 
  
 
  
 
 
Automobile loans and leases
—

 
—

 
—

 
—

 
—

Other asset-backed securities
—

 
—

 
179

 
(68
)
 
111

Total asset-backed securities
—

 
—

 
179

 
(68
)
 
111

Total debt securities
51

 
(128
)
 
418

 
(433
)
 
(92
)
Marketable equity securities:
  
 
  
 
  
 
  
 
  
Perpetual preferred securities
—

 
—

 
—

 
—

 
—

Other marketable equity securities
—

 
—

 
—

 
—

 
—

Total marketable equity securities
—

 
—

 
—

 
—

 
—

Total available-for-sale securities
51

 
(128
)
 
418

 
(433
)
 
(92
)
Mortgages held for sale
67

 
(332
)
 
226

 
(102
)
 
(141
)
Loans
1

 
—

 
99

 
(138
)
 
(38
)
Mortgage servicing rights (residential)
—

 
—

 
428

 
(5
)
 
423

Net derivative assets and liabilities:
  
 
  
 
  
 
  
 
 
Interest rate contracts
—

 
—

 
—

 
(129
)
 
(129
)
Commodity contracts
—

 
—

 
—

 
2

 
2

Equity contracts
15

 
(39
)
 
—

 
(14
)
 
(38
)
Credit contracts
4

 
(2
)
 
—

 
32

 
34

Other derivative contracts
—

 
—

 
—

 
—

 
—

Total derivative contracts
19

 
(41
)
 
—

 
(109
)
 
(131
)
Other assets
96

 
—

 
—

 
—

 
96

Short sale liabilities
14

 
—

 
—

 
—

 
14

Other liabilities (excluding derivatives)
—

 
—

 
—

 
—

 
—




131

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2016 , are presented in Table 13.8 .
Table 13.8: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Six months ended June 30, 2016
  
  

 
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)
Six months ended June 30, 2016
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
  
Trading assets (excluding derivatives):
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
  
Securities of U.S. states and
political subdivisions
$
8

 
—

 
—

 
(1
)
 
—

 
—

 
7

 
—

  
Collateralized loan obligations
343

 
(24
)
 
—

 
(59
)
 
—

 
(11
)
 
249

 
(25
)
  
Corporate debt securities
56

 
(8
)
 
—

 
(12
)
 
—

 
—

 
36

 
(6
)
  
Mortgage-backed securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Asset-backed securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Total trading securities
407

 
(32
)
 
—

 
(72
)
 
—

 
(11
)
 
292

 
(31
)
  
Other trading assets
34

 
(1
)
 
—

 
—

 
—

 
—

 
33

 
3

 
Total trading assets
(excluding derivatives)
441

 
(33
)
 
—

 
(72
)
 
—

 
(11
)
 
325

 
(28
)
(3)
Available-for-sale securities:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Securities of U.S. states and
political subdivisions
1,500

 
4

 
4

 
221

 
80

 
(16
)
 
1,793

 
—

  
Mortgage-backed securities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Residential
1

 
—

 
—

 
—

 
—

 
—

 
1

 
—

  
Commercial
73

 
—

 
—

 
21

 
—

 
—

 
94

 
—

  
Total mortgage-backed securities
74

 
—

 
—

 
21

 
—

 
—

 
95

 
—

 
Corporate debt securities
405

 
5

 
28

 
33

 
—

 
—

 
471

 
—

  
Collateralized loan and other
debt obligations
565

 
23

 
(20
)
 
383

 
—

 
—

 
951

 
—

  
Asset-backed securities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Automobile loans and leases
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Other asset-backed securities
1,182

 
2

 
(7
)
 
(60
)
 
—

 
—

 
1,117

 
(4
)
  
Total asset-backed securities
1,182

 
2

 
(7
)
 
(60
)
 
—

 
—

 
1,117

 
(4
)
  
Total debt securities
3,726

 
34

 
5

 
598

 
80

 
(16
)
 
4,427

 
(4
)
(4)
Marketable equity securities:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Perpetual preferred securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Other marketable equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Total marketable
equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

(5)
Total available-for-sale
securities
3,726

 
34

 
5

 
598

 
80

 
(16
)
 
4,427

 
(4
)
  
Mortgages held for sale
1,082

 
30

 
—

 
(73
)
 
54

 
(9
)
 
1,084

 
27

(6)
Loans
5,316

 
(4
)
 
—

 
(280
)
 
—

 
—

 
5,032

 
(6
)
(6)
Mortgage servicing rights (residential) (7)
12,415

 
(2,840
)
 
—

 
821

 
—

 
—

 
10,396

 
(1,781
)
(6)
Net derivative assets and liabilities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Interest rate contracts
288

 
1,259

 
—

 
(850
)
 
—

 
(7
)
 
690

 
458

  
Commodity contracts
12

 
8

 
—

 
(2
)
 
3

 
—

 
21

 
13

  
Equity contracts
(111
)
 
7

 
—

 
(130
)
 
25

 
(43
)
 
(252
)
 
(160
)
  
Credit contracts
(3
)
 
8

 
—

 
56

 
—

 
—

 
61

 
4

  
Other derivative contracts
(58
)
 
(30
)
 
—

 
—

 
—

 
—

 
(88
)
 
(30
)
  
Total derivative contracts
128

 
1,252

 
—

 
(926
)
 
28

 
(50
)
 
432

 
285

(8)
Other assets
3,065

 
(238
)
 
—

 
211

 
—

 
—

 
3,038

 
(239
)
(5)
Short sale liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

(3)
Other liabilities (excluding derivatives)
(30
)
 
—

 
—

 
25

 
—

 
—

 
(5
)
 
—

(6)
(1)
See Table 13.9 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 8 (Mortgage Banking Activities).
(8)
Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.
 

(continued on following page)


132
Note 13: Fair Values of Assets and Liabilities ( continued )

(continued from previous page)
 
Table 13.9 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 first half of 2016 .
Table 13.9: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Six months ended June 30, 2016
(in millions)
Purchases

 
Sales

 
Issuances

 
Settlements

 
Net

Six months ended June 30, 2016
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives):
  
 
  
 
  
 
  
 
  
Securities of U.S. states and political subdivisions
$
2

 
(2
)
 
—

 
(1
)
 
(1
)
Collateralized loan obligations
190

 
(249
)
 
—

 
—

 
(59
)
Corporate debt securities
13

 
(25
)
 
—

 
—

 
(12
)
Mortgage-backed securities
—

 
—

 
—

 
—

 
—

Asset-backed securities
—

 
—

 
—

 
—

 
—

Equity securities
—

 
—

 
—

 
—

 
—

Total trading securities
205

 
(276
)
 
—

 
(1
)
 
(72
)
Other trading assets
—

 
—

 
—

 
—

 
—

Total trading assets (excluding derivatives)
205

 
(276
)
 
—

 
(1
)
 
(72
)
Available-for-sale securities:
  
 
  
 
  
 
  
 
  
Securities of U.S. states and political subdivisions
28

 
(7
)
 
475

 
(275
)
 
221

Mortgage-backed securities:
  
 
  
 
  
 
  
 
  
Residential
—

 
—

 
—

 
—

 
—

Commercial
22

 
—

 
—

 
(1
)
 
21

Total mortgage-backed securities
22

 
—

 
—

 
(1
)
 
21

Corporate debt securities
34

 
—

 
—

 
(1
)
 
33

Collateralized loan and other debt obligations
489

 
(4
)
 
—

 
(102
)
 
383

Asset-backed securities:
  
 
  
 
  
 
  
 
  
Automobile loans and leases
—

 
—

 
—

 
—

 
—

Other asset-backed securities
—

 
(28
)
 
198

 
(230
)
 
(60
)
Total asset-backed securities
—

 
(28
)
 
198

 
(230
)
 
(60
)
Total debt securities
573

 
(39
)
 
673

 
(609
)
 
598

Marketable equity securities:
  
 
  
 
  
 
  
 
  
Perpetual preferred securities
—

 
—

 
—

 
—

 
—

Other marketable equity securities
—

 
—

 
—

 
—

 
—

Total marketable equity securities
—

 
—

 
—

 
—

 
—

Total available-for-sale securities
573

 
(39
)
 
673

 
(609
)
 
598

Mortgages held for sale
44

 
(311
)
 
282

 
(88
)
 
(73
)
Loans
12

 
—

 
172

 
(464
)
 
(280
)
Mortgage servicing rights (residential)
—

 
(22
)
 
843

 
—

 
821

Net derivative assets and liabilities:
  
 
  
 
  
 
  
 
  
Interest rate contracts
—

 
—

 
—

 
(850
)
 
(850
)
Commodity contracts
—

 
—

 
—

 
(2
)
 
(2
)
Equity contracts
29

 
(146
)
 
—

 
(13
)
 
(130
)
Credit contracts
3

 
(1
)
 
—

 
54

 
56

Other derivative contracts
—

 
—

 
—

 
—

 
—

Total derivative contracts
32

 
(147
)
 
—

 
(811
)
 
(926
)
Other assets
211

 
—

 
—

 
—

 
211

Short sale liabilities
—

 
—

 
—

 
—

 
—

Other liabilities (excluding derivatives)
—

 
—

 
—

 
25

 
25


133

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2015 , are presented in Table 13.10 .

Table 13.10: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Six months ended June 30, 2015
  
Balance,
beginning
of period

 
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)
 
Net
income 

 
Other
compre-
hensive
income

 
 
Transfers
into
Level 3

 
Transfers
out of
Level 3

 
Balance,
end of
period

 
(2)
Six months ended June 30, 2015
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Trading assets (excluding derivatives):
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Securities of U.S. states and
political subdivisions
$
7

 
—

 
—

 
1

 
—

 
—

 
8

 
—

  
Collateralized loan obligations
445

 
42

 
—

 
(80
)
 
—

 
—

 
407

 
7

  
Corporate debt securities
54

 
2

 
—

 
(14
)
 
—

 
(9
)
 
33

 
(1
)
  
Mortgage-backed securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Asset-backed securities
79

 
16

 
—

 
(14
)
 
—

 
(81
)
 
—

 
—

  
Equity securities
10

 
1

 
—

 
(10
)
 
—

 
—

 
1

 
—

  
Total trading securities
595

 
61

 
—

 
(117
)
 
—

 
(90
)
 
449

 
6

  
Other trading assets
55

 
5

 
—

 
2

 
1

 
(1
)
 
62

 
9

  
Total trading assets
(excluding derivatives)
650

 
66

 
—

 
(115
)
 
1

 
(91
)
 
511

 
15

(3)
Available-for-sale securities:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Securities of U.S. states and
political subdivisions
2,277

 
3

 
(15
)
 
(300
)
 
—

 
(76
)
 
1,889

 
(5
)
  
Mortgage-backed securities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Residential
24

 
4

 
(6
)
 
(22
)
 
—

 
—

 
—

 
—

  
Commercial
109

 
1

 
(2
)
 
(5
)
 
—

 
—

 
103

 
—

  
Total mortgage-backed securities
133

 
5

 
(8
)
 
(27
)
 
—

 
—

 
103

 
—

  
Corporate debt securities
252

 
3

 
(3
)
 
82

 
—

 
—

 
334

 
2

  
Collateralized loan and other
debt obligations
1,087

 
61

 
(11
)
 
(213
)
 
—

 
—

 
924

 
—

  
Asset-backed securities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Automobile loans and leases
245

 
—

 
15

 
—

 
—

 
—

 
260

 
—

  
Other asset-backed securities
1,372

 
2

 
(9
)
 
(45
)
 
—

 
—

 
1,320

 
—

  
Total asset-backed securities
1,617

 
2

 
6

 
(45
)
 
—

 
—

 
1,580

 
—

  
Total debt securities
5,366

 
74

 
(31
)
 
(503
)
 
—

 
(76
)
 
4,830

 
(3
)
(4)
Marketable equity securities:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
Perpetual preferred securities
663

 
3

 
(2
)
 
(24
)
 
—

 
(640
)
 
—

 
—

  
Other marketable equity securities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

  
Total marketable equity securities
663

 
3

 
(2
)
 
(24
)
 
—

 
(640
)
 
—

 
—

(5)
Total available-for-sale
securities
6,029

 
77

 
(33
)
 
(527
)
 
—

 
(716
)
 
4,830

 
(3
)
  
Mortgages held for sale
2,313

 
37

 
—

 
(369
)
 
95

 
(453
)
 
1,623

 
6

(6)
Loans
5,788

 
(47
)
 
—

 
(90
)
 
—

 
—

 
5,651

 
(37
)
(6)
Mortgage servicing rights (residential) (7)
12,738

 
(807
)
 
—

 
730

 
—

 
—

 
12,661

 
280

(6)
Net derivative assets and liabilities:
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
  
Interest rate contracts
293

 
425

 
—

 
(466
)
 
—

 
—

 
252

 
57

  
Commodity contracts
1

 
2

 
—

 
2

 
(2
)
 
—

 
3

 
1

  
Equity contracts
(84
)
 
50

 
—

 
(89
)
 
(10
)
 
(52
)
 
(185
)
 
(14
)
  
Credit contracts
(189
)
 
1

 
—

 
71

 
—

 
—

 
(117
)
 
(5
)
  
Other derivative contracts
(44
)
 
6

 
—

 
—

 
—

 
—

 
(38
)
 
6

  
Total derivative contracts
(23
)
 
484

 
—

 
(482
)
 
(12
)
 
(52
)
 
(85
)
 
45

(8)
Other assets
2,512

 
28

 
—

 
96

 
—

 
—

 
2,636

 
29

(5)
Short sale liabilities
(6
)
 
—

 
—

 
5

 
—

 
—

 
(1
)
 
—

(3)
Other liabilities (excluding derivatives)
(28
)
 
(2
)
 
—

 
—

 
—

 
—

 
(30
)
 
—

(6)
(1)
See Table 13.11 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 8 (Mortgage Banking Activities).
(8)
Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.
 
(continued on following page)

134
Note 13: Fair Values of Assets and Liabilities ( continued )

(continued from previous page)

Table 13.11 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 first half of 2015 .
Table 13.11: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Six months ended June 30, 2015
(in millions)
Purchases

 
Sales

 
Issuances

 
Settlements

 
Net

Six months ended June 30, 2015
  
 
  
 
  
 
  
 
  
Trading assets (excluding derivatives):
  
 
  
 
  
 
  
 
  
Securities of U.S. states and political subdivisions
$
3

 
(2
)
 
—

 
—

 
1

Collateralized loan obligations
908

 
(988
)
 
—

 
—

 
(80
)
Corporate debt securities
27

 
(41
)
 
—

 
—

 
(14
)
Mortgage-backed securities
—

 
—

 
—

 
—

 
—

Asset-backed securities
—

 
(5
)
 
—

 
(9
)
 
(14
)
Equity securities
—

 
—

 
—

 
(10
)
 
(10
)
Total trading securities
938

 
(1,036
)
 
—

 
(19
)
 
(117
)
Other trading assets
3

 
(1
)
 
—

 
—

 
2

Total trading assets (excluding derivatives)
941

 
(1,037
)
 
—

 
(19
)
 
(115
)
Available-for-sale securities:
  
 
  
 
  
 
  
 
  
Securities of U.S. states and political subdivisions
—

 
(41
)
 
294

 
(553
)
 
(300
)
Mortgage-backed securities:
  
 
  
 
  
 
  
 
 
Residential
—

 
(22
)
 
—

 
—

 
(22
)
Commercial
—

 
(5
)
 
—

 
—

 
(5
)
Total mortgage-backed securities
—

 
(27
)
 
—

 
—

 
(27
)
Corporate debt securities
96

 
(8
)
 
—

 
(6
)
 
82

Collateralized loan and other debt obligations
59

 
(102
)
 
—

 
(170
)
 
(213
)
Asset-backed securities:
 
 
 
 
 
 
 
 
 
Automobile loans and leases
—

 
—

 
—

 
—

 
—

Other asset-backed securities
—

 
(1
)
 
238

 
(282
)
 
(45
)
Total asset-backed securities
—

 
(1
)
 
238

 
(282
)
 
(45
)
Total debt securities
155

 
(179
)
 
532

 
(1,011
)
 
(503
)
Marketable equity securities:
  
 
  
 
  
 
  
 
  
Perpetual preferred securities
—

 
—

 
—

 
(24
)
 
(24
)
Other marketable equity securities
—

 
—

 
—

 
—

 
—

Total marketable equity securities
—

 
—

 
—

 
(24
)
 
(24
)
Total available-for-sale securities
155

 
(179
)
 
532

 
(1,035
)
 
(527
)
Mortgages held for sale
120

 
(623
)
 
346

 
(212
)
 
(369
)
Loans
67

 
—

 
194

 
(351
)
 
(90
)
Mortgage servicing rights (residential)
—

 
(1
)
 
736

 
(5
)
 
730

Net derivative assets and liabilities:
  
 
  
 
  
 
  
 
 
Interest rate contracts
—

 
—

 
—

 
(466
)
 
(466
)
Commodity contracts
—

 
—

 
—

 
2

 
2

Equity contracts
15

 
(71
)
 
—

 
(33
)
 
(89
)
Credit contracts
6

 
(2
)
 
—

 
67

 
71

Other derivative contracts
—

 
—

 
—

 
—

 
—

Total derivative contracts
21

 
(73
)
 
—

 
(430
)
 
(482
)
Other assets
96

 
—

 
—

 
—

 
96

Short sale liabilities
20

 
(15
)
 
—

 
—

 
5

Other liabilities (excluding derivatives)
—

 
—

 
—

 
—

 
—


Table 13.12 and Table 13.13 provide 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. 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. For information on how changes in significant unobservable inputs affect the fair values of Level 3 assets and liabilities, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 2015 Form 10-K. 


135

Table 13.12: Valuation Techniques – Recurring Basis – June 30, 2016
($ in millions, except cost to service amounts)
Fair Value
Level 3

  
Valuation Technique(s)
 
Significant
Unobservable Input
 
Range of Inputs 
 
Weighted
Average (1)
 
June 30, 2016
  
  
  
 
  
 
  

  
  

  
 
  

Trading and available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. states and
political subdivisions:
 
 
 
 
 
 
 
 
 
 
 
 
Government, healthcare and
other revenue bonds
$
1,538

 
Discounted cash flow
 
Discount rate
 
0.7

-
4.8

%
 
1.4

 
49

 
Vendor priced
 
 
 
  

 
  

 
 
  

Auction rate securities and other
municipal bonds
213

 
Discounted cash flow
 
Discount rate
 
0.9

-
4.8

 
 
2.8

 
 
 
 
 
Weighted average life
 
2.3

-
17.6

yrs
 
8.2

Collateralized loan and other debt
obligations (2)
249

 
Market comparable pricing
 
Comparability adjustment
 
(18.0
)
-
19.8

%
 
2.8

 
951

 
Vendor priced
 
 
 
  

 
  

 
 
  

Asset-backed securities:
  
 
 
 
 
 
  

 
  

 
 
  

Diversified payment rights (3)
499

 
Discounted cash flow
 
Discount rate
 
1.1

-
3.8

 
 
2.4

Other commercial and consumer
612

(4)
Discounted cash flow
 
Discount rate
 
2.5

-
5.4

 
 
3.0

 
  
 
 
 
Weighted average life
 
1.1

-
8.3

yrs
 
3.2

 
6

 
Vendor priced
 
 
 
  

 
  

 
 
  

Mortgages held for sale (residential)
1,045

 
Discounted cash flow
 
Default rate
 
0.5

-
11.5

%
 
2.2

 
  
 
 
 
Discount rate
 
1.1

-
6.6

 
 
4.7

 
  
 
 
 
Loss severity
 
0.0

-
39.8

 
 
21.3

 
  
 
 
 
Prepayment rate
 
8.3

-
15.5

 
 
10.9

 
39

 
Market comparable pricing
 
Comparability adjustment
 
(53.3
)
-
0.0

 
 
(33.9
)
Loans
5,032

(5)
Discounted cash flow
 
Discount rate
 
0.0

-
3.1

 
 
2.6

 
  
 
 
 
Prepayment rate
 
0.5

-
100.0

 
 
18.4

 
  
 
 
 
Utilization rate
 
0.0

-
0.8

 
 
0.3

Mortgage servicing rights (residential)
10,396

 
Discounted cash flow
 
Cost to service per loan (6)
 
$
70

-
572

 
 
162

 
  
 
 
 
Discount rate
 
5.7

-
10.8

%
 
6.2

 
  
 
 
 
Prepayment rate (7)
 
10.8

-
23.3

 
 
13.6

Net derivative assets and (liabilities):
  
 
 
 
 
 
  

 
  

 
 
  

Interest rate contracts
405

 
Discounted cash flow
 
Default rate
 
0.1

-
9.6

 
 
2.5

 
  
 
 
 
Loss severity
 
50.0

-
50.0

 
 
50.0

 
 
 
 
 
Prepayment rate
 
2.8

-
12.5

 
 
9.7

Interest rate contracts: derivative loan
commitments
285

 
Discounted cash flow
 
Fall-out factor
 
1.0

-
99.0

 
 
23.5

 
  
 
 
 
Initial-value servicing
 
(25.9
)
-
132.6

bps
 
63.6

Equity contracts
84

 
Discounted cash flow
 
Conversion factor
 
(10.8
)
-
0.0

%
 
(8.0
)
 
  
 
 
 
Weighted average life
 
2.0

-
3.5

yrs
 
2.4

 
(336
)
 
Option model
 
Correlation factor
 
(77.0
)
-
98.5

%
 
46.3

 
  
 
 
 
Volatility factor
 
6.5

-
100.0

 
 
26.8

Credit contracts
(25
)
 
Market comparable pricing
 
Comparability adjustment
 
(24.1
)
-
21.7

%
 
0.2

 
86

 
Option model
 
Credit spread
 
0.0

-
8.9

 
 
1.4

 
  
 
 
 
Loss severity
 
13.0

-
60.0

 
 
51.1

Other assets: nonmarketable equity investments
11

 
Discounted cash flow
 
Discount rate
 
5.0

 
10.3

 
 
6.0

 
3,027

 
Market comparable pricing
 
Comparability adjustment
 
(23.9
)
-
(7.1
)
 
 
(17.8
)
 
 

 
 
 
 
 
 
 
 
 
 
Insignificant Level 3 assets, net of liabilities
563

(8)
 
 
 
 
 
 
 
 
 
 
Total level 3 assets, net of liabilities
$
24,729

(9)
 
 
 
 
 
 
 
 
 
 
(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 $719 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 reverse mortgage loans.
(6)
The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $70 - $321 .
(7)
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.
(8)
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 trading assets, other liabilities and certain net derivative assets and liabilities, such as commodity contracts and other derivative contracts.
(9)
Consists of total Level 3 assets of $26.4 billion and total Level 3 liabilities of $1.6 billion , before netting of derivative balances.

136
Note 13: Fair Values of Assets and Liabilities ( continued )

Table 13.13: Valuation Techniques – Recurring Basis – December 31, 2015
($ 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, 2015
  
  
  
 
  
 
  

  
  

  
 
 

Trading and available-for-sale securities:
  
  
  
 
  
 
  

  
  

  
 
 

Securities of U.S. states and
political subdivisions:
  
  
  
 
  
 
  

  
  

  
 
 

Government, healthcare and
other revenue bonds
$
1,213

  
Discounted cash flow
 
Discount rate
 
0.8

-
5.6

%
 
1.9

 
51

  
Vendor priced
 
  
 
  

  
  

  
 
  

Auction rate securities and other
municipal bonds
244

  
Discounted cash flow
 
Discount rate
 
0.8

-
4.5

  
 
2.0

 
  
  
  
 
Weighted average life
 
1.0

-
10.0

yrs
 
4.7

Collateralized loan and other debt
obligations (2)
343

  
Market comparable pricing
 
Comparability adjustment
 
(20.0
)
-
20.3

%
 
2.9

 
565

  
Vendor priced
 
  
 
  

  
  

  
 
  

Asset-backed securities:
  
  
  
 
  
 
  

  
  

  
 
  

Diversified payment rights (3)
608

  
Discounted cash flow
 
Discount rate
 
1.0

-
5.0

 
 
3.2

Other commercial and consumer
508

(4)
Discounted cash flow
 
Discount rate
 
2.5

-
6.3

  
 
3.8

 
  
  
  
 
Weighted average life
 
1.0

-
9.4

yrs
 
4.3

 
66

  
Vendor priced
 
  
 
  

  
  

  
 
  

Mortgages held for sale (residential)
1,033

  
Discounted cash flow
 
Default rate
 
0.5

-
13.7

%
 
3.6

  
  
  
  
 
Discount rate
 
1.1

-
6.3

  
 
4.7

  
  
  
  
 
Loss severity
 
0.1

-
22.7

  
 
11.2

  
  
  
  
 
Prepayment rate
 
2.6

-
9.6

  
 
6.4

 
49

 
Market comparable pricing
 
Comparability adjustment
 
(53.3
)
-
0.0

 
 
(32.6
)
Loans
5,316

(5)
Discounted cash flow
 
Discount rate
 
0.0

-
3.9

  
 
3.1

 
  
  
  
 
Prepayment rate
 
0.2

-
100.0

  
 
14.6

 
  
  
  
 
Utilization rate
 
0.0

-
0.8

  
 
0.3

Mortgage servicing rights (residential)
12,415

  
Discounted cash flow
 
Cost to service per
loan (6)
 
$
70

-
599

  
 
168

 
  
  
  
 
Discount rate
 
6.8

-
11.8

%
 
7.3

 
  
  
  
 
Prepayment rate (7)
 
10.1

-
18.9

  
 
11.4

Net derivative assets and (liabilities):
  
  
  
 
  
 
  

  
  

  
 
  

Interest rate contracts
230

  
Discounted cash flow
 
Default rate
 
0.1

-
9.6

  
 
2.6

  
  
  
  
 
Loss severity
 
50.0

-
50.0

  
 
50.0

 
 
 
 
 
Prepayment rate
 
0.3

-
2.5

 
 
2.2

Interest rate contracts: derivative loan
commitments
58

(8)
Discounted cash flow
 
Fall-out factor
 
1.0

-
99.0

  
 
18.8

 
  
  
  
 
Initial-value servicing
 
(30.6
)
-
127.0

bps
 
41.5

Equity contracts
72

  
Discounted cash flow
 
Conversion factor
 
(10.6
)
-
0.0

%
 
(8.1
)
 
  
  
  
 
Weighted average life
 
0.5

-
2.0

yrs
 
1.5

 
(183
)
  
Option model
 
Correlation factor
 
(77.0
)
-
98.5

%
 
66.0

 
  
  
  
 
Volatility factor
 
6.5

-
91.3

  
 
24.2

Credit contracts
(9
)
  
Market comparable pricing
 
Comparability adjustment
 
(53.6
)
-
18.2

  
 
(0.6
)
 
6

  
Option model
 
Credit spread
 
0.0

-
19.9

  
 
1.6

 
  
  
  
 
Loss severity
 
13.0

-
73.0

  
 
49.6

 
 
 
 
 
 
 
 
 
 
 
 
 
Other assets: nonmarketable equity investments
3,065

  
Market comparable pricing
 
Comparability adjustment
 
(19.1
)
-
(5.5
)
  
 
(15.1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Insignificant Level 3 assets, net of liabilities
493

(9)
  
 
  
 
  

  
  

  
 
 

Total level 3 assets, net of liabilities
$
26,143

(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 $257 million of collateralized debt obligations.
(3)
Securities backed by specified sources of current and future receivables generated from foreign originators.
(4)
Consists largely 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 reverse mortgage loans.
(6)
The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $70 - $335 .
(7)
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.
(8)
Total derivative loan commitments were a net asset of $56 million , of which a $2 million derivative liability was classified as level 2 at December 31, 2015.
(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 trading 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 $27.6 billion and total Level 3 liabilities of $1.5 billion , before netting of derivative balances.



137

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.
•
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 that require significant adjustment to reflect differences in instrument characteristics.
•
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.
•
Vendor-priced  – Prices obtained from third party pricing vendors or brokers that are used to record the fair value of the asset or liability for 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 table.
 
•
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 Overnight Index Swap (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 calculate the present value of 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 estimated 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.


138
Note 13: 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. Table 13.14 provides the fair value hierarchy and carrying amount of all assets that were still held as of June 30, 2016 , and December 31, 2015 , and for which a nonrecurring fair value adjustment was recorded during the periods presented.

Table 13.14: Fair Value on a Nonrecurring Basis
 
June 30, 2016
 
 
December 31, 2015
 
(in millions)
Level 1

 
Level 2

 
Level 3

 
Total

 
Level 1

 
Level 2

 
Level 3

 
Total

Mortgages held for sale (LOCOM) (1)
$
—

 
1,476

 
1,246

 
2,722

 
—

 
4,667

 
1,047

 
5,714

Loans held for sale
—

 
197

 
—

 
197

 
—

 
279

 
—

 
279

Loans:
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
Commercial
—

 
605

 
—

 
605

 
—

 
191

 
—

 
191

Consumer
—

 
613

 
6

 
619

 
—

 
1,406

 
7

 
1,413

Total loans (2)
—

 
1,218

 
6

 
1,224

 
—

 
1,597

 
7

 
1,604

Other assets - excluding nonmarketable equity investments at NAV (3)
—

 
225

 
394

 
619

 
—

 
280

 
368

 
648

Total included in the fair value hierarchy
$
—

 
3,116

 
1,646

 
4,762

 
—

 
6,823

 
1,422

 
8,245

Other assets - nonmarketable equity investments at NAV (4)


 


 


 
31

 


 


 


 
286

Total assets at fair value on a nonrecurring basis


 


 


 
$
4,793

 


 


 


 
8,531

(1)
Consists of commercial mortgages and residential 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, operating lease assets and nonmarketable equity investments.
(4)
Consists of certain nonmarketable equity investments that are measured at fair value on a nonrecurring basis using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

Table 13.15 presents the increase (decrease) in value of certain assets held at the end of the respective reporting periods presented for which a nonrecurring fair value adjustment was recognized during the reporting period.
Table 13.15: Change in Value of Assets with Nonrecurring Fair Value Adjustment
 
Six months ended June 30,
 
(in millions)
2016

 
2015

Mortgages held for sale (LOCOM)
$
30

 
18

Loans held for sale
—

 
(1
)
Loans:
 
 
  
Commercial
(560
)
 
(74
)
Consumer
(431
)
 
(601
)
Total loans (1)
(991
)
 
(675
)
Other assets (2)
(259
)
 
(152
)
Total
$
(1,220
)
 
(810
)
(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. 


139

Table 13.16 provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets that are measured at fair value on a nonrecurring basis using an internal model. The table is limited to financial instruments that had nonrecurring fair value adjustments during the periods presented.

 
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 that 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.

 
Table 13.16: Valuation Techniques – Nonrecurring Basis
($ in millions)
Fair Value
Level 3

 
Valuation Technique(s)   (1)
 
Significant
Unobservable Inputs (1)
 
Range of inputs
 
Weighted
Average   (2)

June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages held for sale (LOCOM)
$
1,246

(3)
Discounted cash flow
 
Default rate
(4)
0.2
—
5.8
%
 
2.6
%
 
 
 
 
 
Discount rate
 
1.5
—
8.5

 
3.8

 
 
 
 
 
Loss severity
 
0.8
—
45.3

 
2.5

 
 
 
 
 
Prepayment rate
(5)
6.0
—
100.0

 
54.1

Other assets: nonmarketable equity investments
—

 
Market comparable pricing
 
Comparability adjustment
 
0.0
—
0.0

 
0.0

 
178

 
Discounted cash flow
 
Discount rate
 
7.0
—
9.0

 
8.0

Insignificant level 3 assets
222

 
 
 
 
 
 
 
 
 
 
Total
$
1,646

 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages held for sale (LOCOM)
$
1,047

(3)
Discounted cash flow
 
Default rate
(4)
0.5
—
5.0
%
 
4.2
%
 
 
 
 
 
Discount rate
 
1.5
—
8.5

 
3.5

 
 
 
 
 
Loss severity
 
0.0
—
26.1

 
2.9

 
 
 
 
 
Prepayment rate
(5)
2.6
—
100.0

 
65.4

Other assets: nonmarketable equity investments
228

 
Market comparable pricing
 
Comparability adjustment
 
5.0
—
9.2

 
8.5

 
—

 
Discounted cash flow
 
Discount rate
 
0.0
—
0.0

 
0.0

Insignificant level 3 assets
147

 
 
 
 
 
 
 
 
 
 
Total
$
1,422

 
 
 
 
 
 
 
 
 
 
(1)
Refer to the narrative following Table 13.13 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 approximately $1.2 billion and $1.0 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at June 30, 2016 , and December 31, 2015 , respectively, and $38 million and $41 million of other mortgage loans that are not government insured/guaranteed at June 30, 2016 and December 31, 2015 , respectively.
(4)
Applies only to non-government insured/guaranteed loans.
(5)
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.

Alternative Investments
We hold certain nonmarketable equity investments for which we use NAV per share (or its equivalent) as a practical expedient for fair value measurements, including estimated fair values for investments accounted for under the cost method. The funds predominantly consist of private equity funds that invest in equity and debt securities issued by private and publicly-held companies in connection with leveraged buyouts, recapitalizations and expansion opportunities. The fair values of these investments and related unfunded commitments totaled $148 million and $71 million , respectively, at June 30, 2016 , and $642 million and $144 million , respectively, at December 31, 2015 . The investments do not allow redemptions. We receive distributions as the underlying assets of the funds liquidate, which we expect to occur over the next 2 years .  



140
Note 13: Fair Values of Assets and Liabilities ( continued )

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. For more information, including the basis for our fair value option elections, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 2015 Form 10-K.
 

Table 13.17 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.

 

Table 13.17: Fair Value Option
  
June 30, 2016
 
 
December 31, 2015
 
(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
$
1,574

 
1,667

 
(93
)
 
886

 
935

 
(49
)
     Nonaccrual loans
19

 
27

 
(8
)
 
—

 
—

 
—

Mortgages held for sale:
 
 
 
 
 
 
 
 
 
 
 
Total loans
20,241

 
19,446

 
795

 
13,539

 
13,265

 
274

Nonaccrual loans
141

 
187

 
(46
)
 
161

 
228

 
(67
)
Loans 90 days or more past due and still accruing
15

 
19

 
(4
)
 
19

 
22

 
(3
)
Loans held for sale:
 
 
 
 
 
 
 
 
 
 
 
Total loans
—

 
6

 
(6
)
 
—

 
5

 
(5
)
Nonaccrual loans
—

 
6

 
(6
)
 
—

 
5

 
(5
)
Loans:
 
 
 
 
 
 
 
 
 
 
 
Total loans
5,032

 
4,909

 
123

 
5,316

 
5,184

 
132

Nonaccrual loans
262

 
277

 
(15
)
 
305

 
322

 
(17
)
Other assets (1)
3,046

 
N/A

 
N/A

 
3,065

 
N/A

 
N/A

(1)
Consists of nonmarketable equity investments carried at fair value. See Note 6 (Other Assets) for more information.


141

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 in Table 13.18 by income statement line item.

Table 13.18: Fair Value Option – Changes in Fair Value Included in Earnings
  
2016
 
 
2015
 
(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

Quarter ended June 30,
 
 
  

 
  

 
  

 
  

 
  

Trading assets - loans
$
—

 
16

 
1

 
—

 
4

 
1

Mortgages held for sale
611

 
—

 
—

 
316

 
—

 
—

Loans
—

 
—

 
(3
)
 
—

 
—

 
(39
)
Other assets
—

 
—

 
(176
)
 
—

 
—

 
(10
)
Other interests held (1)
—

 
1

 
—

 
—

 
(2
)
 
—

Six months ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Trading assets – loans
$
—

 
26

 
1

 
—

 
19

 
2

Mortgages held for sale
1,176

 
—

 
—

 
897

 
—

 
—

Loans
—

 
—

 
(4
)
 
—

 
—

 
(43
)
Other assets
—

 
—

 
(234
)
 
—

 
—

 
28

Other interests held (1)
—

 
(1
)
 
—

 
—

 
(2
)
 
—

(1)
Includes retained interests in securitizations.

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. Table 13.19 shows the estimated gains and losses from earnings attributable to instrument-specific credit risk related to assets accounted for under the fair value option.

Table 13.19: Fair Value Option – Gains/Losses Attributable to Instrument-Specific Credit Risk
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Gains (losses) attributable to instrument-specific credit risk:
  

 
  

 
 
 
 
Trading assets – loans
$
16

 
4

 
26

 
19

Mortgages held for sale
(1
)
 
31

 
(5
)
 
48

Total
$
15

 
35

 
21

 
67


Disclosures about Fair Value of Financial Instruments
Table 13.20 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 Table 13.2 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.
 


142
Note 13: Fair Values of Assets and Liabilities ( continued )

Table 13.20: Fair Value Estimates for Financial Instruments
  
  

 
Estimated fair value
 
(in millions)
Carrying amount

 
Level 1

 
Level 2

 
Level 3

 
Total

June 30, 2016
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
Cash and due from banks (1)
$
20,407

 
20,407

 
—

 
—

 
20,407

Federal funds sold, securities purchased under resale agreements and other short-term investments (1)
295,521

 
20,288

 
275,123

 
110

 
295,521

Held-to-maturity securities
100,420

 
47,317

 
54,191

 
2,569

 
104,077

Mortgages held for sale (2)
3,689

 
—

 
2,457

 
1,246

 
3,703

Loans held for sale
220

 
—

 
222

 
—

 
222

Loans, net (3)
921,679

 
—

 
60,732

 
879,352

 
940,084

Nonmarketable equity investments (cost method)
 
 
 
 
 
 
 
 
 
Excluding investments at NAV
7,624

 
—

 
18

 
8,205

 
8,223

Total financial assets included in the fair value hierarchy
1,349,560

 
88,012

 
392,743

 
891,482

 
1,372,237

Investments at NAV (4)
101

 
 
 
 
 
 
 
148

Total financial assets
$
1,349,661










 
1,372,385

Financial liabilities
 
 
 
 
 
 
 
 
 
Deposits
$
1,245,473

 
—

 
1,220,198

 
25,583

 
1,245,781

Short-term borrowings (1)
120,258

 
—

 
120,258

 
—

 
120,258

Long-term debt (5)
243,919

 
—

 
232,701

 
10,690

 
243,391

Total financial liabilities
$
1,609,650


—


1,573,157


36,273

 
1,609,430

December 31, 2015
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
Cash and due from banks (1)
$
19,111

 
19,111

 
—

 
—

 
19,111

Federal funds sold, securities purchased under resale agreements and other short-term investments (1)
270,130

 
14,057

 
255,911

 
162

 
270,130

Held-to-maturity securities
80,197

 
45,167

 
32,052

 
3,348

 
80,567

Mortgages held for sale (2)
6,064

 
—

 
5,019

 
1,047

 
6,066

Loans held for sale
279

 
—

 
279

 
—

 
279

Loans, net (3)
887,497

 
—

 
60,848

 
839,816

 
900,664

Nonmarketable equity investments (cost method)
 
 
 
 
 
 
 
 
 
Excluding investments at NAV
6,659

 
—

 
14

 
7,271

 
7,285

Total financial assets included in the fair value hierarchy
1,269,937

 
78,335

 
354,123

 
851,644

 
1,284,102

Investments at NAV (4)
376










 
619

Total financial assets
$
1,270,313










 
1,284,721

Financial liabilities
 
 
 
 
 
 
 
 
 
Deposits
$
1,223,312

 
—

 
1,194,781

 
28,616

 
1,223,397

Short-term borrowings (1)
97,528

 
—

 
97,528

 
—

 
97,528

Long-term debt (5)
199,528

 
—

 
188,015

 
10,468

 
198,483

Total financial liabilities
$
1,520,368


—


1,480,324


39,084

 
1,519,408

(1)
Amounts consist of financial instruments for which carrying value approximates fair value.
(2)
MHFS exclude balances for which we elected the fair value option.
(3)
Loans exclude balances for which we elected the fair value option and also exclude lease financing with a carrying amount of $19.0 billion and $12.4 billion at June 30, 2016 , and December 31, 2015 , respectively.
(4)
Consists of certain nonmarketable equity investments for which estimated fair values are determined using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
(5)
The carrying amount and fair value exclude obligations under capital leases of $8 million at both June 30, 2016 , and December 31, 2015 .
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 allowance for unfunded credit commitments, which totaled $1.2 billion and $1.0 billion at June 30, 2016 , and December 31, 2015 , respectively.
 




143

Note 14:  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.


Table 14.1: Preferred Stock Shares
  
June 30, 2016
 
 
December 31, 2015
 
  
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 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

 
25,000

 
80,000

Series T
 
 
 
 
 
 
 
6.000% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
32,200

 
25,000

 
32,200

Series U
 
 
 
 
 
 
 
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
80,000

 
25,000

 
80,000

Series V
 
 
 
 
 
 
 
6.000% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
40,000

 
25,000

 
40,000

Series W
 
 
 
 
 
 
 
5.700% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
40,000

 
—

 
—

Series X
 
 
 
 
 
 
 
5.500% Non-Cumulative Perpetual Class A Preferred Stock
25,000

 
46,000

 
—

 
—

ESOP
 
 
 
 
 
 
 
Cumulative Convertible Preferred Stock (1)
—

 
1,718,142

 
—

 
1,252,386

Total
 
 
12,220,852

 
 
 
11,669,096

(1)
See the ESOP Cumulative Convertible Preferred Stock section in this Note for additional information about the liquidation preference for the ESOP Cumulative Convertible Preferred Stock.

144
Note 14: Preferred Stock ( continued )

Table 14.2: Preferred Stock – Shares Issued and Carrying Value
  
June 30, 2016
 
 
December 31, 2015
 
(in millions, except shares)
Shares
issued and
outstanding

 
Liquidation preference
value

 
Carrying
value

 
Discount

 
Shares
issued and
outstanding

 
Liquidation preference
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

 
—

 
80,000

 
2,000

 
2,000

 
—

Series T  (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.000% Non-Cumulative Perpetual Class A Preferred Stock
32,000

 
800

 
800

 
—

 
32,000

 
800

 
800

 
—

Series U (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock
80,000

 
2,000

 
2,000

 
—

 
80,000

 
2,000

 
2,000

 
—

Series V  (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.000% Non-Cumulative Perpetual Class A Preferred Stock
40,000

 
1,000

 
1,000

 
—

 
40,000

 
1,000

 
1,000

 
—

Series W  (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.700% Non-Cumulative Perpetual Class A Preferred Stock
40,000

 
1,000

 
1,000

 
—

 
—

 
—

 
—

 
—

Series X (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.500% Non-Cumulative Perpetual Class A Preferred Stock
46,000

 
1,150

 
1,150

 
—

 
—

 
—

 
—

 
—

ESOP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative Convertible Preferred Stock
1,718,142

 
1,718

 
1,718

 
—

 
1,252,386

 
1,252

 
1,252

 
—

Total
11,811,673

 
$
26,229

 
24,830

 
1,399

 
11,259,917

 
$
23,613

 
22,214

 
1,399

(1)
Preferred shares qualify as Tier 1 capital.

In January 2016, we issued 40 million Depositary Shares, each representing a 1/1,000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series W, for an aggregate public offering price of $1.0 billion . In June 2016, we issued 46 million Depositary Shares, each representing a 1/1,000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series X, for an aggregate public offering price of $1.2 billion .
See Note 7 (Securitizations and Variable Interest Entities) for additional information on our trust preferred securities. We do not have a commitment to issue Series H preferred stock.


145

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.

Table 14.3: ESOP Preferred Stock
  
Shares issued and outstanding
 
 
Carrying value
 
 
Adjustable dividend rate
(in millions, except shares)
Jun 30,
2016

 
Dec 31,
2015

 
Jun 30,
2016

 
Dec 31,
2015

 
Minimum

 
Maximum
ESOP Preferred Stock
  
 
  
 
  
 
  
 
  
 
  
$1,000 liquidation preference per share
  
 
  
 
  
 
  
 
  
 
  
2016
637,489

 
—

 
$
637

 
—

 
9.30
%
 
10.30
2015
200,820

 
220,408

 
201

 
220

 
8.90

 
9.90
2014
255,413

 
283,791

 
255

 
284

 
8.70

 
9.70
2013
222,558

 
251,304

 
223

 
251

 
8.50

 
9.50
2012
144,072

 
166,353

 
144

 
166

 
10.00

 
11.00
2011
149,301

 
177,614

 
149

 
178

 
9.00

 
10.00
2010
90,775

 
113,234

 
91

 
113

 
9.50

 
10.50
2008
17,714

 
28,972

 
18

 
29

 
10.50

 
11.50
2007
—

 
10,710

 
—

 
11

 
10.75

 
11.75
Total ESOP Preferred Stock (1)
1,718,142

 
1,252,386

 
$
1,718

 
1,252

 
 
 
 
Unearned ESOP shares (2)
 
 
 
 
$
(1,868
)
 
(1,362
)
 
 
 
 
(1)
At June 30, 2016 and December 31, 2015 , additional paid-in capital included $150 million and $110 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.


146


Note 15: Employee Benefits
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.
Table 15.1 presents the components of net periodic benefit cost.
 



 


Table 15.1: Net Periodic Benefit Cost
  
2016
 
 
2015
 
  
Pension benefits
 
 
  

 
Pension benefits
 
 
  

(in millions)
Qualified

 
Non-qualified

 
Other
benefits

 
Qualified

 
Non-qualified

 
Other
benefits

Quarter ended June 30,
  
 
 
  
 
Service cost
$
1

 
—

 
—

 
1

 
—

 
2

Interest cost
109

 
6

 
10

 
107

 
7

 
10

Expected return on plan assets
(141
)
 
—

 
(7
)
 
(161
)
 
—

 
(9
)
Amortization of net actuarial loss (gain)
33

 
3

 
(1
)
 
27

 
4

 
(1
)
Amortization of prior service credit
—

 
—

 
—

 
—

 
—

 
—

Settlement loss
4

 
—

 
—

 
—

 
—

 
—

Net periodic benefit cost (income)
$
6

 
9

 
2

 
(26
)
 
11

 
2

Six months ended June 30,
  
 
 
  
 
Service cost
$
2

 
—

 
—

 
1

 
—

 
4

Interest cost
218

 
13

 
20

 
214

 
13

 
21

Expected return on plan assets
(283
)
 
—

 
(15
)
 
(322
)
 
—

 
(18
)
Amortization of net actuarial loss (gain)
66

 
6

 
(2
)
 
54

 
9

 
(2
)
Amortization of prior service credit
—

 
—

 
—

 
—

 
—

 
(1
)
Settlement loss
4

 
2

 
—

 
—

 
13

 
—

Net periodic benefit cost (income)
$
7

 
21

 
3

 
(53
)
 
35

 
4






147


Note 16:    Earnings Per Common Share
Table 16.1 shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations.

Table 16.1: Earnings Per Common Share Calculations
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions, except per share amounts)
2016

 
2015

 
2016

 
2015

Wells Fargo net income
$
5,558

 
5,719

 
$
11,020

 
11,523

Less: Preferred stock dividends and other
385

 
356

 
762

 
699

Wells Fargo net income applicable to common stock (numerator)
$
5,173

 
5,363

 
$
10,258

 
10,824

Earnings per common share
  
 
  
 
  
 
  
Average common shares outstanding (denominator)
5,066.9

 
5,151.9

 
5,071.3

 
5,156.1

Per share
$
1.02

 
1.04

 
$
2.02

 
2.10

Diluted earnings per common share
  
 
  
 
  
 
  
Average common shares outstanding
5,066.9

 
5,151.9

 
5,071.3

 
5,156.1

Add: Stock options
19.6

 
27.3

 
20.4

 
28.1

Restricted share rights
21.0

 
26.8

 
27.4

 
34.6

Warrants
10.6

 
14.5

 
10.7

 
14.4

Diluted average common shares outstanding (denominator)
5,118.1

 
5,220.5

 
5,129.8

 
5,233.2

Per share
$
1.01

 
1.03

 
$
2.00

 
2.07


Table 16.2 presents the outstanding options 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.
 

 

Table 16.2: Outstanding Anti-Dilutive Options
  
Weighted-average shares
 
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2016

 
2015

 
2016

 
2015

Options
2.7

 
5.6

 
3.7

 
6.3



148


Note 17:  Other Comprehensive Income
Table 17.1 provides the components of other comprehensive income (OCI), reclassifications to net income by income statement line item, and the related tax effects.
Table 17.1: Summary of Other Comprehensive Income
  
Quarter ended June 30,
 
 
Six months ended June 30,
 
  
2016
 
 
2015
 
 
2016
 
 
2015
 
(in millions)
Before
tax

 
Tax
effect

 
Net of
tax

 
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
$
1,571

 
(596
)
 
975

 
(1,969
)
 
678

 
(1,291
)
 
2,366

 
(906
)
 
1,460

 
(1,576
)
 
631

 
(945
)
Reclassification of net (gains) losses to net income:
 
 
 
 
 
 
 
 
 
 


 
  
 
  
 
 
 
 
 
 
 
 
Interest income on investment securities (1)
3

 
(1
)
 
2

 
1

 
—

 
1

 
3

 
(1
)
 
2

 
(2
)
 
1

 
(1
)
Net gains on debt securities
(447
)
 
168

 
(279
)
 
(181
)
 
68

 
(113
)
 
(691
)
 
259

 
(432
)
 
(459
)
 
173

 
(286
)
Net gains from equity investments
(60
)
 
23

 
(37
)
 
(38
)
 
14

 
(24
)
 
(119
)
 
45

 
(74
)
 
(57
)
 
21

 
(36
)
Other noninterest income
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
 
—

 
(1
)
 
—

 
—

 
—

Subtotal reclassifications to net income
(504
)

190


(314
)
 
(218
)
 
82

 
(136
)
 
(808
)
 
303

 
(505
)
 
(518
)
 
195

 
(323
)
Net change
1,067


(406
)

661

 
(2,187
)
 
760

 
(1,427
)
 
1,558

 
(603
)
 
955

 
(2,094
)
 
826

 
(1,268
)
Derivatives and hedging activities:
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
Net unrealized gains (losses) arising during the period
1,057

 
(399
)
 
658

 
(488
)
 
184

 
(304
)
 
3,056

 
(1,152
)
 
1,904

 
464

 
(175
)
 
289

Reclassification of net (gains) losses to net income:
 
 
 
 
 
 
  
 
  
 


 
  
 
  
 
 
 
 
 
 
 
 
Interest income on investment securities
—

 
—

 
—

 
(1
)
 
—

 
(1
)
 
—

 
—

 
—

 
(2
)
 
1

 
(1
)
Interest income on loans
(268
)
 
101

 
(167
)
 
(272
)
 
103

 
(169
)
 
(528
)
 
199

 
(329
)
 
(509
)
 
192

 
(317
)
Interest expense on long-term debt
3

 
(1
)
 
2

 
5

 
(2
)
 
3

 
7

 
(3
)
 
4

 
9

 
(3
)
 
6

Subtotal reclassifications to net income
(265
)

100


(165
)

(268
)

101


(167
)

(521
)

196


(325
)

(502
)

190


(312
)
Net change
792


(299
)

493

 
(756
)
 
285

 
(471
)
 
2,535


(956
)

1,579

 
(38
)

15


(23
)
Defined benefit plans adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
Net actuarial losses arising during the period
(19
)
 
7

 
(12
)
 
—

 
—

 
—

 
(27
)
 
10

 
(17
)
 
(11
)
 
4

 
(7
)
Reclassification of amounts to net periodic benefit costs (2):
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss
35

 
(14
)
 
21

 
30

 
(11
)
 
19

 
70

 
(27
)
 
43

 
61

 
(23
)
 
38

Settlements and other
4

 
(1
)
 
3

 
—

 
—

 
—

 
6

 
(2
)
 
4

 
12

 
(5
)
 
7

Subtotal reclassifications to net periodic benefit costs
39


(15
)

24

 
30

 
(11
)
 
19

 
76

 
(29
)
 
47

 
73

 
(28
)
 
45

Net change
20


(8
)

12

 
30

 
(11
)
 
19

 
49

 
(19
)
 
30

 
62

 
(24
)
 
38

Foreign currency translation adjustments:
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
Net unrealized gains (losses) arising during the period
(6
)
 
(1
)
 
(7
)
 
10

 
6

 
16

 
37

 
7

 
44

 
(45
)
 
(5
)
 
(50
)
Net change
(6
)

(1
)

(7
)
 
10

 
6

 
16

 
37

 
7

 
44

 
(45
)
 
(5
)
 
(50
)
Other comprehensive income (loss)
$
1,873


(714
)

1,159

 
(2,903
)

1,040


(1,863
)
 
4,179

 
(1,571
)
 
2,608

 
(2,115
)
 
812

 
(1,303
)
Less: Other comprehensive income (loss) from noncontrolling interests, net of tax
 
 
 
 
(15
)
 
 
 
 
 
(154
)
 
  
 
  
 
(43
)
 
 
 
 
 
147

Wells Fargo other comprehensive income (loss), net of tax
 
 
 
 
$
1,174

 
 
 
 
 
(1,709
)
 
  
 
  
 
2,651

 
 
 
 
 
(1,450
)
(1)
Represents net unrealized gains and losses 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 15 (Employee Benefits) for additional details).

149


Table 17.2: Cumulative OCI Balances
(in millions)
Investment
securities

 
Derivatives
and
hedging
activities

 
Defined
benefit
plans
adjustments

 
Foreign
currency
translation
adjustments

 
Cumulative
other
compre-
hensive
income

Quarter ended June 30, 2016
  

 
  

 
  

 
  

 
  

Balance, beginning of period
$
2,137

 
1,706

 
(1,933
)
 
(136
)
 
1,774

Net unrealized gains (losses) arising during the period
975

 
658

 
(12
)
 
(7
)
 
1,614

Amounts reclassified from accumulated other comprehensive income
(314
)
 
(165
)
 
24

 
—

 
(455
)
Net change
661

 
493

 
12

 
(7
)
 
1,159

Less: Other comprehensive loss from noncontrolling interests
(14
)
 
—

 
—

 
(1
)
 
(15
)
Balance, end of period
$
2,812

 
2,199

 
(1,921
)
 
(142
)
 
2,948

Quarter ended June 30, 2015
  

 
  

 
  

 
  

 
  

Balance, beginning of period
$
4,784

 
781

 
(1,684
)
 
(104
)
 
3,777

Net unrealized gains (losses) arising during the period
(1,291
)
 
(304
)
 
—

 
16

 
(1,579
)
Amounts reclassified from accumulated other comprehensive income
(136
)
 
(167
)
 
19

 
—

 
(284
)
Net change
(1,427
)
 
(471
)
 
19

 
16

 
(1,863
)
Less: Other comprehensive loss from noncontrolling interests
(152
)
 
—

 
—

 
(2
)
 
(154
)
Balance, end of period
$
3,509

 
310

 
(1,665
)
 
(86
)
 
2,068

Six months ended June 30, 2016
  

 
  

 
  

 
  

 
  

Balance, beginning of period
$
1,813

 
620

 
(1,951
)
 
(185
)
 
297

Net unrealized gains (losses) arising during the period
1,460

 
1,904

 
(17
)
 
44

 
3,391

Amounts reclassified from accumulated other comprehensive income
(505
)
 
(325
)
 
47

 
—

 
(783
)
Net change
955

 
1,579

 
30

 
44

 
2,608

Less: Other comprehensive income (loss) from noncontrolling interests
(44
)
 
—

 
—

 
1

 
(43
)
Balance, end of period
$
2,812

 
2,199

 
(1,921
)
 
(142
)
 
2,948

Six months ended June 30, 2015
  

 
  

 
  

 
  

 
  

Balance, beginning of period
$
4,926

 
333

 
(1,703
)
 
(38
)
 
3,518

Net unrealized gains (losses) arising during the period
(945
)
 
289

 
(7
)
 
(50
)
 
(713
)
Amounts reclassified from accumulated other comprehensive income
(323
)
 
(312
)
 
45

 
—

 
(590
)
Net change
(1,268
)
 
(23
)
 
38

 
(50
)
 
(1,303
)
Less: Other comprehensive income (loss) from noncontrolling interests
149

 
—

 
—

 
(2
)
 
147

Balance, end of period
$
3,509

 
310

 
(1,665
)
 
(86
)
 
2,068



150


Note 18:  Operating Segments
We have three reportable operating segments: Community Banking; Wholesale Banking; and Wealth and Investment Management. We define our operating segments by product type and customer segment and their results 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. If the management structure and/or the allocation process changes, allocations, transfers and assignments may change. For a description of our operating segments, including the underlying management accounting process, see Note 24 (Operating Segments) to Financial Statements in our 2015 Form 10-K.

Table 18.1: Operating Segments
 
Community
Banking 
 
 
Wholesale
Banking
 
 
Wealth and Investment Management
 
 
Other (1)
 
 
Consolidated
Company
 
(income/expense in millions, average balances in billions)
2016

 
2015

 
2016

 
2015

 
2016

 
2015

 
2016

 
2015

 
2016

 
2015

Quarter ended June 30,
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

Net interest income (2)
$
7,379

 
7,277

 
3,919

 
3,591

 
932

 
832

 
(497
)
 
(430
)
 
11,733

 
11,270

Provision (reversal of provision) for credit losses
689

 
397

 
385

 
(84
)
 
2

 
(10
)
 
(2
)
 
(3
)
 
1,074

 
300

Noninterest income
4,825

 
4,690

 
3,365

 
3,019

 
2,987

 
3,144

 
(748
)
 
(805
)
 
10,429

 
10,048

Noninterest expense
6,648

 
6,719

 
4,036

 
3,504

 
2,976

 
3,038

 
(794
)
 
(792
)
 
12,866

 
12,469

Income (loss) before income tax expense (benefit)
4,867

 
4,851

 
2,863

 
3,190

 
941

 
948

 
(449
)
 
(440
)
 
8,222

 
8,549

Income tax expense (benefit)
1,667

 
1,620

 
795

 
951

 
358

 
359

 
(171
)
 
(167
)
 
2,649

 
2,763

Net income (loss) before noncontrolling interests
3,200

 
3,231

 
2,068

 
2,239

 
583

 
589

 
(278
)
 
(273
)
 
5,573

 
5,786

Less: Net income (loss) from noncontrolling interests
21

 
16

 
(5
)
 
48

 
(1
)
 
3

 
—

 
—

 
15

 
67

Net income (loss) (3)
$
3,179

 
3,215

 
2,073

 
2,191

 
584

 
586

 
(278
)
 
(273
)
 
5,558

 
5,719

Average loans
$
485.7

 
472.3

 
451.4

 
386.2

 
66.7

 
59.3

 
(53.0
)
 
(47.4
)
 
950.8

 
870.4

Average assets
967.6

 
910.0

 
772.6

 
713.7

 
205.3

 
189.1

 
(83.4
)
 
(83.5
)
 
1,862.1

 
1,729.3

Average deposits
703.7

 
654.8

 
425.8

 
432.4

 
182.5

 
168.2

 
(75.3
)
 
(70.1
)
 
1,236.7

 
1,185.3

Six months ended June 30,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income (2)
$
14,847

 
14,424

 
7,667

 
7,028

 
1,875

 
1,658

 
(989
)
 
(854
)
 
23,400

 
22,256

Provision (reversal of provision) for credit losses
1,409

 
1,055

 
748

 
(135
)
 
(12
)
 
(13
)
 
15

 
1

 
2,160

 
908

Noninterest income
9,971

 
9,654

 
6,575

 
5,991

 
5,898

 
6,294

 
(1,487
)
 
(1,599
)
 
20,957

 
20,340

Noninterest expense
13,484

 
13,310

 
8,004

 
7,122

 
6,018

 
6,160

 
(1,612
)
 
(1,616
)
 
25,894

 
24,976

Income (loss) before income tax expense (benefit)
9,925

 
9,713

 
5,490

 
6,032

 
1,767

 
1,805

 
(879
)
 
(838
)
 
16,303

 
16,712

Income tax expense (benefit)
3,364

 
2,910

 
1,514

 
1,768

 
672

 
683

 
(334
)
 
(319
)
 
5,216

 
5,042

Net income (loss) before noncontrolling interests
6,561

 
6,803

 
3,976

 
4,264

 
1,095

 
1,122

 
(545
)
 
(519
)
 
11,087

 
11,670

Less: Net income (loss) from noncontrolling interests
86

 
41

 
(18
)
 
99

 
(1
)
 
7

 
—

 
—

 
67

 
147

Net income (loss) (3)
$
6,475

 
6,762

 
3,994

 
4,165

 
1,096

 
1,115

 
(545
)
 
(519
)
 
11,020

 
11,523

Average loans
$
485.0

 
472.3

 
440.6

 
383.1

 
65.4

 
58.1

 
(52.0
)
 
(46.6
)
 
939.0

 
866.9

Average assets
957.5

 
909.8

 
760.6

 
702.2

 
206.7

 
190.3

 
(83.8
)
 
(83.7
)
 
1,841.0

 
1,718.6

Average deposits
693.3

 
649.1

 
426.9

 
432.1

 
183.5

 
169.2

 
(75.7
)
 
(70.3
)
 
1,228.0

 
1,180.1

(1)
Includes the elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for Wealth and Investment Management customers served through Community Banking distribution channels. 
(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 and Investment Management segments and Wells Fargo net income for the consolidated company.


151


Note 19:  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 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).
Table 19.1 presents regulatory capital information for Wells Fargo & Company and the Bank using Basel III, which increased minimum required capital ratios, and introduced a minimum Common Equity Tier 1 (CET1) ratio. We must report the lower of our CET1, tier 1 and total capital ratios calculated under the Standardized Approach and under the Advanced Approach in the assessment of our capital adequacy. The information presented reflects risk-weighted assets (RWAs) under the Standardized and Advanced Approaches with Transition Requirements. The Standardized Approach applies assigned risk weights to broad risk categories, while the calculation of RWAs under the Advanced Approach differs by requiring applicable banks to
 
utilize a risk-sensitive methodology, which relies upon the use of internal credit models, and includes an operational risk component. The Basel III revised definition of capital, and changes are being phased-in effective January 1, 2014, through the end of 2021.
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 June 30, 2016 , 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.
 


Table 19.1: Regulatory Capital Information
 
Wells Fargo & Company
 
Wells Fargo Bank, N.A.
 
June 30, 2016
 
 
 
December 31, 2015
 
 
 
June 30, 2016
 
December 31, 2015
(in millions, except ratios)
Advanced Approach

 
Standardized
Approach

 
 
Advanced Approach

 
Standardized
Approach

 
 
Advanced Approach

 
Standardized
Approach

 
 
Advanced Approach

 
Standardized
Approach

 
Regulatory capital:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1
$
146,624

 
146,624

 
 
144,247

 
144,247

 
 
130,700

 
130,700

 
 
126,901

 
126,901

 
Tier 1
169,287

 
169,287

 
 
164,584

 
164,584

 
 
130,700

 
130,700

 
 
126,901

 
126,901

 
Total
200,125

 
211,311

 
 
195,153

 
205,529

 
 
143,686

 
154,068

 
 
140,545

 
149,969

 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk-weighted
$
1,321,729

 
1,354,622

 
 
1,263,182

 
1,303,148

 
 
1,173,316

 
1,239,031

 
 
1,100,896

 
1,197,648

 
Adjusted average (1)
1,830,527

 
1,830,527

 
 
1,757,107

 
1,757,107

 
 
1,653,380

 
1,653,380

 
 
1,584,297

 
1,584,297

 
Regulatory capital ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital
11.09
%
 
10.82

*
 
11.42

 
11.07

*
 
11.14

 
10.55

*
 
11.53

 
10.60

*
Tier 1 capital
12.81

 
12.50

*
 
13.03

 
12.63

*
 
11.14

 
10.55

*
 
11.53

 
10.60

*
Total capital
15.14

*
15.60

 
 
15.45

*
15.77

 
 
12.25

*
12.43

 
 
12.77

 
12.52

*
Tier 1 leverage (1)
9.25

 
9.25

 
 
9.37

 
9.37

 
 
7.91

 
7.91

 
 
8.01

 
8.01

 
*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.
(1)
The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items.
Table 19.2 presents the minimum required regulatory capital ratios under Transition Requirements to which the Company and the Bank were subject as of June 30, 2016 and December 31, 2015 .
 


Table 19.2: Minimum Required Regulatory Capital Ratios – Transition Requirements (1)
  
Wells Fargo & Company
 
Wells Fargo Bank, N.A.
 
June 30, 2016

 
December 31, 2015
 
June 30, 2016
 
December 31, 2015
Regulatory capital ratios:
 
 
 
 
  
 
 
Common equity tier 1 capital
5.625
%
 
4.500
 
5.125
 
4.500
Tier 1 capital
7.125

 
6.000
 
6.625
 
6.000
Total capital
9.125

 
8.000
 
8.625
 
8.000
Tier 1 leverage
4.000

 
4.000
 
4.000
 
4.000
(1)
At June 30, 2016 , under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements for Wells Fargo & Company include a capital conservation buffer of 0.625% and a global systemically important bank (G-SIB) surcharge of 0.5% . Only the 0.625% capital conservation buffer applies to the Bank at June 30, 2016 .


152


Glossary of Acronyms
  
  
  
  
ABS
Asset-backed security
HAMP
Home Affordability Modification Program
ACL
Allowance for credit losses
HUD
U.S. Department of Housing and Urban Development
ALCO
Asset/Liability Management Committee
LCR
Liquidity coverage ratio
ARM  
Adjustable-rate mortgage
LHFS
Loans held for sale
ASC  
Accounting Standards Codification
LIBOR
London Interbank Offered Rate
ASU
Accounting Standards Update
LIHTC
Low income housing tax credit
AUA
Assets under administration
LOCOM
Lower of cost or market value
AUM
Assets under management
LTV
Loan-to-value
AVM
Automated valuation model
MBS
Mortgage-backed security
BCBS
Basel Committee on Bank Supervision
MHA
Making Home Affordable programs
BHC
Bank holding company
MHFS
Mortgages held for sale
CCAR
Comprehensive Capital Analysis and Review
MSR
Mortgage servicing right
CD
Certificate of deposit
MTN
Medium-term note
CDO
Collateralized debt obligation
NAV
Net asset value
CDS
Credit default swaps
NPA
Nonperforming asset
CET1
Common Equity Tier 1
OCC
Office of the Comptroller of the Currency
CLO
Collateralized loan obligation
OCI
Other comprehensive income
CLTV
Combined loan-to-value
OTC
Over-the-counter
CMBS
Commercial mortgage-backed securities
OTTI
Other-than-temporary impairment
CPP
Capital Purchase Program
PCI Loans
Purchased credit-impaired loans
CRE
Commercial real estate
PTPP
Pre-tax pre-provision profit
DPD
Days past due
RBC
Risk-based capital
ESOP
Employee Stock Ownership Plan
RMBS
Residential mortgage-backed securities
FAS
Statement of Financial Accounting Standards
ROA
Wells Fargo net income to average total assets
FASB
Financial Accounting Standards Board
ROE
Wells Fargo net income applicable to common stock
FDIC
Federal Deposit Insurance Corporation
  
to average Wells Fargo common stockholders' equity
FFELP
Federal Family Education Loan Program
ROTCE
Return on average tangible common equity
FHA
Federal Housing Administration
RWAs
Risk-weighted assets
FHLB
Federal Home Loan Bank
SEC
Securities and Exchange Commission
FHLMC
Federal Home Loan Mortgage Corporation
S&P
Standard & Poor’s Ratings Services
FICO
Fair Isaac Corporation (credit rating)
SPE
Special purpose entity
FNMA
Federal National Mortgage Association
TARP
Troubled Asset Relief Program
FRB
Board of Governors of the Federal Reserve System
TDR
Troubled debt restructuring
GAAP
Generally accepted accounting principles
TLAC
Total Loss Absorbing Capacity
GNMA
Government National Mortgage Association
VA
Department of Veterans Affairs
GSE
Government-sponsored entity
VaR
Value-at-Risk
G-SIB
Globally systemic important bank
VIE
Variable interest entity

153


PART II – OTHER INFORMATION


Item 1.            Legal Proceedings
 
Information in response to this item can be found in Note 11 (Legal Actions) to Financial Statements in this Report which information is incorporated by reference into this item.

Item 1A.         Risk Factors
 
Information in response to this item can be found under the “Financial Review – Risk Factors” section in this Report which information is incorporated by reference into this item. 

Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table shows Company repurchases of its common stock for each calendar month in the quarter ended June 30, 2016 .
Calendar month
Total number
of shares
repurchased (1)

 
Weighted-average
price paid per share

 
Maximum number of
shares that may yet
be repurchased under
the authorizations

April
4,055,979

 
$
49.59

 
371,248,749

May (2)
29,673,157

 
49.29

 
341,575,592

June
11,076,060

 
49.65

 
330,499,532

Total
44,805,196

 
 
 
 
 
 
 
 
 
 
(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, or an authorization covering up to an additional 350 million shares of common stock approved by the Board of Directors and publicly announced by the Company on January 26, 2016. Unless modified or revoked by the Board, these authorizations do not expire.
(2)
May includes a private repurchase transaction of 15,287,403 shares at a weighted-average price paid per share of $49.06 .


The following table shows Company repurchases of the warrants for each calendar month in the quarter ended June 30, 2016 .
Calendar month
Total number
of warrants
repurchased (1)

 
Average price
paid per warrant

 
Maximum dollar value
of warrants that
may yet be repurchased

April
—

 
$
—

 
451,944,402

May
—

 
—

 
451,944,402

June
—

 
—

 
451,944,402

Total
—

 
 
 
 
 
 
 
 
 
 
(1)
Warrants are repurchased 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.

154


Item 6.
Exhibits
 
A list of exhibits to this Form 10-Q is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference.
 
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.
 

SIGNATURE
 
Pursuant to the requirements 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.
 
Dated: August 3, 2016                                                               WELLS FARGO & COMPANY
 
 
By:      /s/ RICHARD D. LEVY                                   
Richard D. Levy
Executive Vice President and Controller
(Principal Accounting Officer)

155


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 December 22, 2015.
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)
 
Amendments to Deferred Compensation Plan, effective August 1, 2016 and January 1, 2017.
 
Filed herewith.
10(b)
 
Amendment to Wachovia Corporation Savings Restoration Plan, effective August 1, 2016.
 
Filed herewith.
12(a)
 
Computation of Ratios of Earnings to Fixed Charges:
 
Filed herewith.
  
 
  
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
 
  
  
 
  
 
2016

 
2015

 
2016

 
2015

 
  
  
 
Including interest on deposits
 
6.41

 
9.03

 
6.55

 
8.77

 
  
  
 
Excluding interest on deposits
 
7.93

 
11.29

 
8.10

 
11.08

 
  
 
 
 
 
 
12(b)
 
Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends:
 
Filed herewith.
  
 
  
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
 
  
  
 
  
 
2016

 
2015

 
2016

 
2015

 
  
  
 
Including interest on deposits
 
4.66

 
6.03

 
4.73

 
5.96

 
  
  
 
Excluding interest on deposits
 
5.35

 
6.89

 
5.43

 
6.88

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
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(a)
 
Termination of Consent Order dated effective May 24, 2016, from the Comptroller of the Currency.
 
Filed herewith.
99(b)
 
Consent Order for Civil Money Penalty dated effective May 24, 2016, between Wells Fargo Bank, N.A. and the Comptroller of the Currency.
 
Filed herewith.
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.DEF
 
XBRL Taxonomy Extension Definitions Linkbase Document
 
Filed herewith.
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
Filed herewith.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
Filed herewith.


156
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 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, 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 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.

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, 2005, and 2006 ESOP Cumulative Convertible Preferred Stock (Exhibits A through J 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

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 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 (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.]


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.

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 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 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 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.

Dividend Adjustment Table

Closing Price on 11/30
First Target Price
Second Target Price
2009
33.444
37.899
2010
36.120
43.963
2011
39.009
50.997
2012
42.130
59.157
2013
45.500
68.622
2014
49.140
79.601
2015
53.072
92.338
2016
57.317
107.112
2017
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 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” 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 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 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 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 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.

(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 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
President and
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.]


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

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:
1. 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.
2.
     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.
“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.
“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 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.
3.
     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.
(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.
4.
     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.
5.
     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 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 Preferred Stock.
6.
     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.
7.
     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.
8.
     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.
9.
     Voting Rights . The holders of Series H Preferred Stock will have no voting rights except as expressly provided by applicable law.
10.
     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.
11.
     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.]

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).
“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 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 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 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.
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.]

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).
“ 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 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.
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.
(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;
(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 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.]

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).
“ 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 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 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 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 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
(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.
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.]

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).
“ 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 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 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 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.
“ 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 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 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 the 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:
(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.
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 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 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.
(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

0.0000

0.0000

0.0000

0.0000

0.0000

Thereafter
1.9153

1.6704

1.4275

1.0592

0.9119

0.5097

0.0916

0.0000

0.0000

0.0000

0.0000

0.0000


(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:
(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 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 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,
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 ]
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.
(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 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.
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 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).
(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.]

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

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 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.

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.

Dividend Adjustment Table

Closing Price on 11/30
First Target Price
Second Target Price
2011
35.445
41.275
2012
38.990
49.530
2013
42.889
59.436
2014
47.178
71.323
2015
51.895
85.588
2016
57.085
102.706
2017
62.793
123.247
2018
69.073
147.896
2019
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 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 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 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 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 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 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 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.
    
(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
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 March 23, 2010.]

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.

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.]


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 .

(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 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.

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.
Dividend Adjustment Table

Closing Price on 11/30
First Target Price
Second Target Price
2012
38.559
45.346
2013
42.705
55.095
2014
47.295
66.941
2015
52.380
81.333
2016
58.010
98.820
2017
64.247
120.066
2018
71.153
145.880
2019
78.802
177.244
2020
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.

(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.

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 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, 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 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 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 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.
    
(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.


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 March 17, 2011.]


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)
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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 .

(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 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.

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.

Dividend Adjustment Table

Closing Price on 11/30
First Target Price
Second Target Price
 
 
 
2013
28.424
30.617
2014
31.124
34.980
2015
34.081
39.964
2016
37.319
45.659
2017
40.864
52.166
2018
44.746
59.599
2019
48.997
68.092
2020
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.

(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.

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 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 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 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 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, 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 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.


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 10, 2012.]

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

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,

(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.

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 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.
(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).
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.
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.
(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.



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.]

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

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 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.

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 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.
(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).
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.
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.
(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



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.]

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.

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 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 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.

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

 
 
 
 
 
 
2014

$36.562


$39.174

2015

$39.761


$44.316

2016

$43.240


$50.132

2017

$47.023


$56.712

2018

$51.138


$64.156

2019

$55.612


$72.576

2020

$60.479


$82.102

2021

$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 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 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.

(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 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.
(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 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 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 “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.

(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

(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.]

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 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) 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,
(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.
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 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.
(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).
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.
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.
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.]

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 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.
“ 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 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 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 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 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. 
(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 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, 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, (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.]


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 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.
“ 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 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 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 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 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. 
(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 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, 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, (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.]



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.

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, 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 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.

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

 
 
 
 
 
 
2015

$50.366


$53.676

2016

$54.396


$60.117

2017

$58.747


$67.331

2018

$63.447


$75.411

2019

$68.523


$84.461

2020

$74.005


$94.596

2021

$79.925


$105.947

2022

$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 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 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.

(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 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.
(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 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 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 “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.

(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

(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.]




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 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.
“ 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 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 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 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 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 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 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 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.
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.]

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 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 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 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 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.
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, 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 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 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



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.]




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 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.
“ 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 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 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 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 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 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 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 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.

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.]


WELLS FARGO & COMPANY
___________________________________

CERTIFICATE OF DESIGNATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________

2015 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 March 20, 2015, 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.

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 March 20, 2015, 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:

2015 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 “2015 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2015 ESOP Preferred Stock”) and the number of authorized shares constituting the 2015 ESOP Preferred Stock is 826,598, based on an offering price for the 2015 ESOP Preferred Stock of $1,088.80 per share. Each share of 2015 ESOP Preferred Stock shall have a stated value of $1,000.00 per share. The number of authorized shares of 2015 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 2015 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 2015 ESOP Preferred Stock shall not be increased. All shares of the 2015 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 2015 ESOP Preferred Stock.

(b)  Shares of 2015 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 2015 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 2015 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2015 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 2015 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 2015 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2015 ESOP Preferred Stock shall be so converted. In the event of such a conversion, the transferee of the shares of 2015 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2015 ESOP Preferred Stock have been automatically converted as of the date of such transfer. Shares of 2015 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option. Certificates representing shares of 2015 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions. In the case of uncertificated 2015 ESOP Preferred Stock, the transfer agent for the 2015 ESOP Preferred Stock shall note the foregoing provisions on each 2015 ESOP Preferred Stock book entry account. The Company may require that, as a condition to transferring record ownership of any uncertificated 2015 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2015 ESOP Preferred Stock are subject to the foregoing provisions. Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock.

3.     Dividends .  (a)(i) Holders of shares of 2015 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 $89.00 (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, 2016 and on each December 1 thereafter until December 1, 2023, 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 2015 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $94.00 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 2015 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $99.00 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 2015 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

 
 
 
 
 
 
2016

$61.50


$64.98

2017

$65.80


$71.80

2018

$70.41


$79.34

2019

$75.34


$87.67

2020

$80.61


$96.87

2021

$86.25


$107.04

2022

$92.29


$118.28

2023

$98.75


$130.70

 
 
 

(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2016, the Current Market Price of one share of Common Stock is $62.00, then the cash dividend payable for the immediately following twelve month period per share of 2015 ESOP Preferred Stock would equal $94.00, with the first quarterly payment of such $94.00 dividend to be made on March 1, 2017. If on November 30, 2017, the Current Market Price of one share of Common Stock is $72.00, then the cash dividend payable for the immediately following twelve month period per share of 2015 ESOP Preferred Stock would equal $99.00, with the first quarterly payment of such $99.00 dividend to be made on March 1, 2018. If on November 30, 2018, the Current Market Price of one share of Common Stock is $65.00, then the cash dividend payable for the immediately following twelve month period per share of 2015 ESOP Preferred Stock would equal $89.00, with the first quarterly payment of such $89.00 dividend to be made on March 1, 2019.

(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 2015 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, 2015. Dividends on shares of the 2015 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2015 ESOP Preferred Stock, all dividends declared upon shares of 2015 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2015 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2015 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 2015 ESOP Preferred Stock and such other series of Preferred Stock bear to each other. Holders of shares of 2015 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 2015 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 2015 ESOP Preferred Stock which may be in arrears.

(ii)  So long as any shares of 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock or by any agent for conversion of the 2015 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.

(C)  For purposes of a conversion of shares of 2015 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 2015 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.

Each share of 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock by the Company or the transfer agent for the 2015 ESOP Preferred Stock, which Conversion Notice shall be accompanied by (a) in the case of certificated 2015 ESOP Preferred Stock, the certificate or certificates representing the shares of 2015 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 2015 ESOP Preferred Stock, duly executed assignment and transfer documents for the shares of 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock, for any shares of 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2015 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 2015 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2015 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2015 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 2015 ESOP Cumulative Convertible Preferred Stock Note Agreement dated on or about March 26, 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:
(1)  After such transaction each share of the 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock could have been converted at such time so that each share of 2015 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 2015 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 2015 ESOP Preferred Stock, then the shares of 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock, a cash payment per share of 2015 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 2015 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 2015 ESOP Preferred Stock shall have the right to convert shares of 2015 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 2015 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 2015 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 2015 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.

(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 2015 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2015 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 2015 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 2015 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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 2015 ESOP Preferred Stock;

(b)  on a parity with shares of 2015 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 2015 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 2015 ESOP Preferred Stock; and

(c)  junior to shares of 2015 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 2015 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 2015 ESOP Preferred Stock .  The shares of 2015 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 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, its 2013 ESOP Cumulative Convertible Preferred Stock, and its 2014 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 20th day of March, 2015.


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 March 25, 2015.]



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 V
(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 September 10, 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 Non-Cumulative Perpetual Class A Preferred Stock, Series V, with no par value and a liquidation preference amount of $25,000 per share (the “ Series V Preferred Stock ”). Each share of Series V Preferred Stock shall be identical in all respects to every other share of Series V Preferred Stock except with respect to the date from which dividends may accrue. Series V 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 V Preferred Stock shall be 40,000. 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 V 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 V Preferred Stock.

Section 3.    Definitions .  As used herein with respect to Series V 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 V 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 V 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 V 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 V 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 September 8, 2015; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after September 8, 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 September 8, 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 V 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 V Preferred Stock is outstanding.
“ Series V 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 V Preferred Stock.
Section 4.    Dividends.
(a)    Rate . Dividends on the Series V Preferred Stock will not be mandatory. Holders of Series V 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 V Preferred Stock, payable quarterly in arrears on the 15th day of March, June, September and December of each year (commencing on December 15, 2015); 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, September 15, 2015 to, but excluding, December 15, 2015. Dividends on each share of Series V Preferred Stock will accrue at a rate per annum equal to 6.00%. The record date for payment of dividends on the Series V 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 V Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series V 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 V 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 V 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 V 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 September 8, 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 V 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 September 8, 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 V 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 V 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 V 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 V 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 V 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 V 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 V 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 V 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 V 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 V Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series V Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series V Preferred Stock and all such Parity Stock.
(c)    Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series V 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.
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 V Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after December 15, 2020, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series V 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 V Preferred Stock at the time outstanding, prior to December 15, 2020, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series V 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 V 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 V Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series V Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series V 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 V 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 V Preferred Stock at the time outstanding, the shares of Series V Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series V Preferred Stock in proportion to the number of Series V 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 V 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 V 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 V 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 V 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 V 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 V 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 V 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 V 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 V 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 V 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 V 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 V Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series V 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 V 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 V 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 V 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 V 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 V Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series V Preferred Stock will have no right to vote under this section 7(c)(iv) if in each case (a) the shares of Series V 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 V 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 V Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series V 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 V Preferred Stock, and holders of the Series V 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 V 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 V Preferred Stock will have 25 votes per share on any matter on which holders of the Series V 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 V 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 V 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 V 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 V Preferred Stock is listed or traded at the time.
Section 8.    Preemption and Conversion . The holders of Series V Preferred Stock shall not have any rights of preemption or rights to convert such Series V Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9.    Reacquired Shares . Shares of Series V 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 V 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 V 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 V 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 V 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.
[Signature Page Follows]

US.98639891.01

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 10 th day of September, 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 September 11, 2015.]


WELLS FARGO & COMPANY
___________________________________

CERTIFICATE OF DESIGNATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________________

2016 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 4, 2016, 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:

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.

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 4, 2016, 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:

2016 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 “2016 ESOP Cumulative Convertible Preferred Stock” (hereinafter referred to as the “2016 ESOP Preferred Stock”) and the number of authorized shares constituting the 2016 ESOP Preferred Stock is 1,150,000, based on an offering price for the 2016 ESOP Preferred Stock of $1,086.00 per share. Each share of 2016 ESOP Preferred Stock shall have a stated value of $1,000.00 per share. The number of authorized shares of 2016 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 2016 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 2016 ESOP Preferred Stock shall not be increased. All shares of the 2016 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 f Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of 2016 ESOP Preferred Stock.
(b)  Shares of 2016 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 2016 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 2016 ESOP Preferred Stock to any person other than any successor trustee under the Plan, the shares of 2016 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 providing for the conversion of the shares of 2016 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 2016 ESOP Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of 2016 ESOP Preferred Stock shall be so converted. In the event of such a conversion, the transferee of the shares of 2016 ESOP Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of 2016 ESOP Preferred Stock have been automatically converted as of the date of such transfer. Shares of 2016 ESOP Preferred Stock may be certificated or uncertificated, at the Company’s option. Certificates representing shares of 2016 ESOP Preferred Stock shall bear a legend to reflect the foregoing provisions. In the case of uncertificated 2016 ESOP Preferred Stock, the transfer agent for the 2016 ESOP Preferred Stock shall note the foregoing provisions on each 2016 ESOP Preferred Stock book entry account. The Company may require that, as a condition to transferring record ownership of any uncertificated 2016 ESOP Preferred Stock, the proposed transferee acknowledge in writing that the shares of 2016 ESOP Preferred Stock are subject to the foregoing provisions. Notwithstanding the foregoing provisions of this paragraph (b) of Section 1, shares of 2016 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 2016 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 2016 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 2016 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 2016 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 a vote of the holders of such outstanding shares of 2016 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 2016 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 2016 ESOP Preferred Stock shall have been paid in full, at which time such right with respect to such shares of 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock.

3.     Dividends .  (a)(i) Holders of shares of 2016 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 $93.00 (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, 2017 and on each December 1 thereafter until December 1, 2024, 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 2016 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $98.00 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 2016 ESOP Preferred Stock will be entitled to receive a cash dividend for the immediately following twelve month period equal to $103.00 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 2016 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

 
 
 
 
 
 
2017

$63.00


$66.74

2018

$67.10


$73.25

2019

$71.46


$80.39

2020

$76.10


$88.23

2021

$81.05


$96.83

2022

$86.32


$106.27

2023

$91.93


$116.63

2024

$97.91


$128.00

 
 
 

(4)  As an example of the adjustments described in subparagraphs (1) through (3) above, if on November 30, 2017, the Current Market Price of one share of Common Stock is $64.00, then the cash dividend payable for the immediately following twelve month period per share of 2016 ESOP Preferred Stock would equal $98.00, with the first quarterly payment of such $98.00 dividend to be made on March 1, 2018. If on November 30, 2018, the Current Market Price of one share of Common Stock is $74.00, then the cash dividend payable for the immediately following twelve month period per share of 2016 ESOP Preferred Stock would equal $103.00, with the first quarterly payment of such $103.00 dividend to be made on March 1, 2019. If on November 30, 2019, the Current Market Price of one share of Common Stock is $68.00, then the cash dividend payable for the immediately following twelve month period per share of 2016 ESOP Preferred Stock would equal $93.00, with the first quarterly payment of such $93.00 dividend to be made on March 1, 2020.

(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 2016 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, 2016. Dividends on shares of the 2016 ESOP Preferred Stock will be cumulative from the date of initial issuance of such shares of 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2016 ESOP Preferred Stock, all dividends declared upon shares of 2016 ESOP Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with 2016 ESOP Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on 2016 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 2016 ESOP Preferred Stock and such other series of Preferred Stock bear to each other. Holders of shares of 2016 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 2016 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 2016 ESOP Preferred Stock which may be in arrears.

(ii)  So long as any shares of 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock or by any agent for conversion of the 2016 ESOP Preferred Stock designated as such pursuant to paragraph (d) of this Section 4.

(C)  For purposes of a conversion of shares of 2016 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 2016 ESOP Preferred Stock shall be the Average Current Market Price of one share of Common Stock.

Each share of 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock by the Company or the transfer agent for the 2016 ESOP Preferred Stock, which Conversion Notice shall be accompanied by (a) in the case of certificated 2016 ESOP Preferred Stock, the certificate or certificates representing the shares of 2016 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 2016 ESOP Preferred Stock, duly executed assignment and transfer documents for the shares of 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock, for any shares of 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock, the Company may not redeem fewer than all the outstanding shares of 2016 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 2016 ESOP Preferred Stock at the address shown on the books of the Company or any transfer agent for the 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock, whichever value will result in the issuance of the greater number of shares of Common Stock to the holder of the 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock, the independent appraiser shall assume (i) that all dividends on the 2016 ESOP Preferred Stock would have been paid when due, and (ii) that the mandatory conversion of shares of 2016 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 2016 ESOP Cumulative Convertible Preferred Stock Note Agreement dated on or about January 7, 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock had immediately prior to such transaction, subject to the following:
(1)  After such transaction each share of the 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock could have been converted at such time so that each share of 2016 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 2016 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 2016 ESOP Preferred Stock, then the shares of 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock, a cash payment per share of 2016 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 2016 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 2016 ESOP Preferred Stock shall have the right to convert shares of 2016 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 2016 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 2016 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 2016 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.

(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 2016 ESOP Preferred Stock of the full preferential amounts provided for in this Section 7, the holders of 2016 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 2016 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 2016 ESOP Preferred Stock upon such dissolution, liquidation, or winding up unless proportionate distributive amounts shall be paid on account of the shares of 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 ESOP Preferred Stock;

(b)  on a parity with shares of 2016 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 2016 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 2016 ESOP Preferred Stock; and

(c)  junior to shares of 2016 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 2016 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 2016 ESOP Preferred Stock .  The shares of 2016 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 2006 ESOP Cumulative 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, its 2013 ESOP Cumulative Convertible Preferred Stock, its 2014 ESOP Cumulative Convertible Preferred Stock, and its 2015 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 and Chief Executive Officer, and attested by Jeannine E. Zahn, its Assistant Secretary, on this 4th day of January, 2016.


WELLS FARGO & COMPANY



By     /s / John G. Stumpf        
John G. Stumpf
Chairman and
Chief Executive Officer


Attest:

/s/ Jeannine E. Zahn    
Jeannine E. Zahn
Assistant Secretary


[As filed with the Delaware Secretary of State on January 5, 2016.]

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 W
(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 27, 2016, 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 W, with no par value and a liquidation preference amount of $25,000 per share (the “ Series W Preferred Stock ”). Each share of Series W Preferred Stock shall be identical in all respects to every other share of Series W Preferred Stock except with respect to the date from which dividends may accrue. Series W 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 W Preferred Stock shall be 40,000. 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 W 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 W Preferred Stock.

Section 3.    Definitions .  As used herein with respect to Series W 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 W 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 W 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 W 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 W 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 19, 2016; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after January 19, 2016; 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 19, 2016, 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 W 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 W Preferred Stock is outstanding.
“ Series W 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 W Preferred Stock.
Section 4.    Dividends.
(a)    Rate . Dividends on the Series W Preferred Stock will not be mandatory. Holders of Series W 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 W Preferred Stock, payable quarterly in arrears on the 15th day of March, June, September and December of each year (commencing on March 15, 2016); 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, January 29, 2016 to, but excluding, March 15, 2016. Dividends on each share of Series W Preferred Stock will accrue at a rate per annum equal to 5.70%. The record date for payment of dividends on the Series W 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 W Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series W 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 W 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 W 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 W 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 19, 2016, (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 W 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 January 19, 2016, (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 W 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 W 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 W 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 W 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 W 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 W 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 W 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 W 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 W 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 W Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series W Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series W Preferred Stock and all such Parity Stock.
(c)    Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series W 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.
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 W Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after March 15, 2021, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series W 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 W Preferred Stock at the time outstanding, prior to March 15, 2021, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series W 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 W 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 W Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series W Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series W 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 W 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 W Preferred Stock at the time outstanding, the shares of Series W Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series W Preferred Stock in proportion to the number of Series W 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 W 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 W 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 W 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 W 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 W 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 W 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 W 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 W 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 W 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 W 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 W 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 W Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series W 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 W 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 W 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 W 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 W 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 W Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series W Preferred Stock will have no right to vote under this Section 7(c)(iv) if in each case (a) the shares of Series W 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 W 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 W Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series W 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 W Preferred Stock, and holders of the Series W 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 W 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 W Preferred Stock will have 25 votes per share on any matter on which holders of the Series W 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 W 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 W 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 W 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 W Preferred Stock is listed or traded at the time.
Section 8.    Preemption and Conversion . The holders of Series W Preferred Stock shall not have any rights of preemption or rights to convert such Series W Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9.    Reacquired Shares . Shares of Series W 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 W 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 W 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 W 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 W 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.
[Signature Page Follows]

US.103920609.06
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 28th day of January, 2016.

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 28, 2016.]
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 X
(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 June 14, 2016, 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 X, with no par value and a liquidation preference amount of $25,000 per share (the “ Series X Preferred Stock ”). Each share of Series X Preferred Stock shall be identical in all respects to every other share of Series X Preferred Stock except with respect to the date from which dividends may accrue. Series X 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 X Preferred Stock shall be 46,000. 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 X 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 X Preferred Stock.

Section 3.    Definitions .  As used herein with respect to Series X 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 X 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 X 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 X 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 X 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 June 8, 2016; (ii) proposed change in those laws or regulations that is announced or becomes effective on or after June 8, 2016; 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 June 8, 2016, 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 X 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 X Preferred Stock is outstanding.
“ Series X 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 X Preferred Stock.
Section 4.    Dividends.
(a)    Rate . Dividends on the Series X Preferred Stock will not be mandatory. Holders of Series X 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 X Preferred Stock, payable quarterly in arrears on the 15th day of March, June, September and December of each year (commencing on September 15, 2016); 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, June 15, 2016 to, but excluding, September 15, 2016. Dividends on each share of Series X Preferred Stock will accrue at a rate per annum equal to 5.50%. The record date for payment of dividends on the Series X 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 X Preferred Stock shall be non-cumulative.  To the extent that any dividends payable on the shares of Series X 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 X 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 X 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 X 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 June 8, 2016, (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 X 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 June 8, 2016, (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 X 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 X 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 X 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 X 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 X 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 X 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 X 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 X 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 X 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 X Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series X Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preference of Series X Preferred Stock and all such Parity Stock.
(c)    Residual Distributions .  If the Liquidation Preference has been paid in full to all holders of Series X 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.
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 X Preferred Stock at the time outstanding, at any time on any Dividend Payment Date on or after September 15, 2021, upon notice given as provided in Section 6(b) below.  The redemption price for shares of Series X 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 X Preferred Stock at the time outstanding, prior to September 15, 2021, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series X 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 X 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 X Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series X Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series X 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 X 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 X Preferred Stock at the time outstanding, the shares of Series X Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series X Preferred Stock in proportion to the number of Series X 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 X 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 X 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 X 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 X 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 X 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 X 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 X 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 X 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 X 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 X 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 X 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 X Preferred Stock remain outstanding, the vote or consent of the holders of the outstanding shares of Series X 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 X 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 X 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 By-laws that would adversely affect the rights, preferences, privileges or voting powers of the Series X Preferred Stock; (iii) any amendment or alteration of the Restated Certificate of Incorporation, including the Certificate of Designation, or By-laws 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 X 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 X Preferred Stock or a merger or consolidation with another corporation or other entity, except holders of the Series X Preferred Stock will have no right to vote under this Section 7(c)(iv) if in each case (a) the shares of Series X 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 X 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 X Preferred Stock, taken as a whole; provided, however , that any authorization, creation or increase in the authorized amount of or issuance of the Series X 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 X Preferred Stock, and holders of the Series X 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 X 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 X Preferred Stock will have 25 votes per share on any matter on which holders of the Series X 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 X 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 X 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 X 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 By-laws, applicable law and any national securities exchange or other trading facility in which the Series X Preferred Stock is listed or traded at the time.
Section 8.    Preemption and Conversion . The holders of Series X Preferred Stock shall not have any rights of preemption or rights to convert such Series X Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9.    Reacquired Shares . Shares of Series X 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 X 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 X 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 X 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 X 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.
[Signature Page Follows]

US.106566229.03

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 14th day of June, 2016.

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 June 14, 2016.]

1

Exhibit 10(a)

Amendments to Wells Fargo & Company Deferred Compensation Plan (“DCP”)


1.
Section 2(F) of the DCP is amended effective January 1, 2017 to revise subsection
(5) to read in full as follows:

(5)
bonus amounts payable after the March 1 immediately following the date the Employee incurs a Separation from Service, unless the Eligible Employee elected payment in annual installments and Section 9(I) does not apply.

2.
Section 2(L) of the DCP is amended effective August 1, 2016 to read in full as follows:

(L)
Fund Option . An earnings option based on a selection of registered investment companies, collective investment funds, private portfolios, or other comparable investment media chosen from time to time by the Company’s Employee Benefit Review Committee, unless or until the Plan Administrator appoints a different individual or committee to select all or some of the earnings options.

3    Section 2(P) of the DCP is amended effective August 1, 2016 to read in full as follows:

(P)
Plan Administrator . For purposes of Section 3(16)(A) of ERISA, the Human Resources Committee of the Company’s Board of Directors has designated that the Plan Administrator shall be the Company’s Director of Human Resources or the Director of Compensation and Benefits. Each of those officers, acting individually, can take action as the Plan Administrator.

Except as herein expressly amended, all the terms and provisions of the DCP shall continue in full force and effect.

Exhibit 10(b)


Amendments to Wachovia Corporation Savings Restoration Plan (“SRP”)

[Effective August 1, 2016]


1.
Section 2.1(f) of the SRP is deleted in its entirety and all references to the term “Committee” in the SRP shall be replaced with the term “Plan Administrator.”

2.
Section 2.1(g) of the SRP is amended to read in full as follows:

g.
“Company” shall mean Wells Fargo & Company. Prior to January 1, 2009, “Company” meant “Wachovia Corporation.”

3.
Section 2.1(k) of the SRP is amended by adding the words “or CD Option” at the end of the last sentence.

4.
Section 2.1(p) of the SRP is amended to read in full as follows:

p.
“Employer” means the Company and any Affiliated Company. Prior to January 1, 2009, “Employer” meant Wachovia Corporation and any of its Affiliated Companies.

5.
Section 2.1(q) of the SRP is amended to read in full as follows:
q.
“Investment Indexes” mean of or more mutual funds, investment return benchmarks, interest rate indexes or common trust funds designated as available under the Plan by the Company’s Employee Benefit Review Committee from time to time, unless and until the Plan Administrator appoints a different individual or committee to select all or some of the Investment Indexes.

6.
Section 2.1(r) of the SRP is deleted in its entirety.     

7.
Section 2.1(hh) of the SRP is deleted in its entirety.

8.
Section 2.1 of the SRP is amended by the additions of new subsections (ii) and (jj) to read in full as follows:

ai.
“CD Option” means an earnings option based on a certificate of deposit in such denomination and for such duration as is determined from time to time by the Plan Administrator.

aj.
“Plan Administrator” means the Director of Human Resources or the Director of Compensation and Benefits of the Company. Each of those officers, acting individually, can take action as the Plan Administrator.

9.
Each subsection under Section 5.1 is amended by adding the words “and CD Option” immediately after the words “Investment Indexes.”

10.
Section 8.1 of the SRP is amended to read in full as follows:

8.1 Administration. The Plan Administrator or its delegate shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan. The Plan Administrator’s powers and duties shall include, but shall not be limited to, the following: (a) responsibility for the compilation and maintenance of all records necessary in connection with the Plan; (b) discretionary authority to interpret the terms of the Plan; (c) authorizing the payment of all benefits and expenses of the Plan as they become payable under the Plan; (d) authority to engage such legal, accounting and other professional services as it may deem necessary; (e) authority to adopt rules and procedures for implementing the Plan; (f) discretionary authority to determine Participants’ eligibility for benefits under the Plan; and (g) to resolve all issues of fact and law in connection with such determinations. The decision of the Plan Administrator on any matter affecting the Plan or the rights and obligations arising under the Plan shall be final and binding upon all persons.

11.
Section 10.3 of the SRP is amended to read in full as follows:

10.3 Amendment or Termination . The Board of Directors of the Company or the Human Resources Committee of the Company’s Board of Directors may at any time amend this Plan in any manner. The Board of Directors of the Company or the Human Resources Committee of the Company’s Board of Directors may at any time suspend or terminate this Plan subject to the requirements of Code section 409A regarding plan terminations including the timing of distributions in the event of plan termination. Except for any modifications or amendments as may be otherwise required as a result of changes to the tax laws, ERISA and the regulations applicable to the Plan or to comply with Code section 409A, no such plan amendment or plan termination shall adversely affect the benefits accrued immediately prior to the effective date of such amendment or termination.

Except as herein expressly amended, all the terms and provisions of the SRP shall continue in full force and effect.








EXHIBIT 12(a)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
 
 
 
 
 
 
 
 
 
 
  
  
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
($ in millions)
 
2016

 
2015

 
2016

 
2015

Earnings including interest on deposits   (1):
 
 
 
 
 
 
 
 
  
Income before income tax expense
 
$
8,222

 
8,549

 
$
16,303

 
16,712

  
Less: Net income from noncontrolling interests
 
15

 
67

 
67

 
147

  
Income before income tax expense and after noncontrolling interests
 
8,207

 
8,482

 
16,236

 
16,565

  
Fixed charges
 
1,517

 
1,056

 
2,925

 
2,133

  
  
 
9,724

 
9,538

 
$
19,161

 
18,698

 
 
 
 
 
 
 
 
 
 
Fixed charges (1):
 
 
 
 
 
 
 
 
  
Interest expense
 
$
1,413

 
956

 
$
2,718

 
1,933

  
Estimated interest component of net rental expense
 
104

 
100

 
207

 
200

  
  
 
$
1,517

 
1,056

 
$
2,925

 
2,133

 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges (2)
 
6.41

 
9.03

 
6.55

 
8.77

 
 
 
 
 
 
 
 
 
Earnings excluding interest on deposits:
 
 
 
 
 
 
 
 
  
Income before income tax expense and after noncontrolling interests
 
$
8,207

 
8,482

 
$
16,236

 
16,565

  
Fixed charges
 
1,185

 
824

 
2,286

 
1,643

  
  
 
$
9,392

 
9,306

 
$
18,522

 
18,208

 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
  
Interest expense
 
$
1,413

 
956

 
$
2,718

 
1,933

  
Less: Interest on deposits
 
332

 
232

 
639

 
490

  
Estimated interest component of net rental expense
 
104

 
100

 
207

 
200

  
  
 
$
1,185

 
824

 
$
2,286

 
1,643

 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges (2)
 
7.93

 
11.29

 
8.10

 
11.08

 
 
(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
 
 
 
 
 
 
 
 
 
 
 
  
  
 
Quarter ended June 30,
 
 
 
Six months ended June 30,
 
(in millions)
 
2016

 
2015

 
 
2016

 
2015

Earnings including interest on deposits   (1): 
 
 
 
 
 
 
 
 
 
  
Income before income tax expense
 
$
8,222

 
8,549

 
 
$
16,303

 
16,712

  
Less: Net income from noncontrolling interests
 
15

 
67

 
 
67

 
147

  
Income before income tax expense and after noncontrolling interests
 
8,207

 
8,482

 
 
16,236

 
16,565

  
Fixed charges
 
1,517

 
1,056

 
 
2,925

 
2,133

  
  
 
9,724

 
9,538

 
 
19,161

 
18,698

 
 
 
 
 
 
 
 
 
 
 
Preferred dividend requirement
 
$
386

 
356

 
 
$
764

 
699

Tax factor (based on effective tax rate)    
 
1.48

 
1.48

 
 
1.47

 
1.44

 
 
 
 
 
 
 
 
 
 
Preferred dividends (2)
 
$
570

 
526

 
 
$
1,126

 
1,005

Fixed charges (1):
 
 
 
 
 
 
 
 
 
  
Interest expense
 
1,413

 
956

 
 
2,718

 
1,933

  
Estimated interest component of net rental expense
 
104

 
100

 
 
207

 
200

  
  
 
1,517

 
1,056

 
 
2,925

 
2,133

  
Fixed charges and preferred dividends
 
$
2,087

 
1,582

 
 
$
4,051

 
3,138

 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges and preferred dividends (3)
 
4.66

 
6.03

 
 
4.73

 
5.96

 
 
 
 
 
 
 
 
 
 
Earnings excluding interest on deposits:
 
 
 
 
 
 
 
 
 
  
Income before income tax expense and after noncontrolling interests
 
$
8,207

 
8,482

 
 
$
16,236

 
16,565

  
Fixed charges
 
1,185

 
824

 
 
2,286

 
1,643

  
  
 
9,392

 
9,306

 
 
18,522

 
18,208

 
 
 
 
 
 
 
 
 
 
 
Preferred dividends (2)
 
570

 
526

 
 
1,126

 
1,005

Fixed charges:
 
 
 
 
 
 
 
 
 
  
Interest expense
 
1,413

 
956

 
 
2,718

 
1,933

  
Less: Interest on deposits
 
332

 
232

 
 
639

 
490

  
Estimated interest component of net rental expense
 
104

 
100

 
 
207

 
200

  
  
 
1,185

 
824

 
 
2,286

 
1,643

  
Fixed charges and preferred dividends
 
$
1,755

 
1,350

 
 
$
3,412

 
2,648

 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges and preferred dividends (3)
 
5.35

 
6.89

 
 
5.43

 
6.88

 
 
 
 
 
 
 
 
 
 
 
(1)
As defined in Item 503(d) of Regulation S-K.
(2)
The preferred dividends were increased to amounts representing the pretax earnings that would be required to cover such dividend 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


Exhibit 31(a)
 
CERTIFICATION
 
I, John G. Stumpf, certify that:
 
1.        I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2016 , 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: August 3, 2016
/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 Quarterly Report on Form 10-Q for the period ended June 30, 2016 , 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: August 3, 2016
/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 Quarterly Report on Form 10-Q of Wells Fargo & Company (the “Company”) for the period ended June 30, 2016 , 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
August 3, 2016





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 Quarterly Report on Form 10-Q of Wells Fargo & Company (the “Company”) for the period ended June 30, 2016 , 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
August 3, 2016




Exhibit 99(a)


#2016-056
Terminates #2011-051; #2013-132; and #2015-067
UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY
OFFICE OF THE COMPTROLLER OF THE CURRENCY


In the Matter of:

Wells Fargo Bank, N.A. Sioux Falls, South Dakota
)
)
)
)
)

ORDER TERMINATING THE
2011 CONSENT ORDER, 2013 AMENDMENT TO CONSENT ORDER and
2015 AMENDED CONSENT ORDER

WHEREAS , in an effort to protect the depositors, other customers, and shareholders of Wells Fargo Bank, N.A., Sioux Falls, South Dakota (“Bank”), and to ensure the Bank’s safe and sound operation in accordance with all applicable laws, rules, and regulations, the Bank, by and through its duly elected and acting Board of Directors, and the Comptroller of the Currency (“Comptroller” or “OCC”) entered into a Consent Order, AA-EC-11-19, dated April 13, 2011 (“2011 Consent Order”);
WHEREAS , the Comptroller and the Bank entered into an Amendment to the Consent Order dated February 28, 2013 (“2013 ACO”), which superseded Article VII of the 2011 Consent Order and required the Bank to make a cash payment to a Qualified Settlement Fund (“QSF”) and to take other loss mitigation or foreclosure prevention action in amounts specified;
WHEREAS , the Comptroller and the Bank also entered into an Amendment to the Consent Order dated June 16, 2015 (“2015 ACO”);
WHEREAS , the Comptroller of the Currency believes that the protection of the depositors, other customers, and shareholders of the Bank, as well as its safe and sound operation, does not require the continued existence of the 2011 Consent Order, the 2013 ACO, or the 2015 ACO;

WHEREAS , notwithstanding this Termination Order, the OCC continues to retain oversight and jurisdiction of the Independent Foreclosure Review Qualified Settlement Fund 1 (“IFR QSF1”) established by the 2013 ACO for the administration of payments to borrowers of OCC regulated institutions until such time as the paying agent is directed to file a final return for IFR QSF1 and the IFR QSF1 is thereafter terminated; and
WHEREAS , the OCC has determined that uncashed payments to borrowers of OCC regulated institutions should remain available to such borrowers, or such borrowers’ rightful heirs, through the states’ escheatment processes, after IFR QSF1 is terminated.


NOW, THEREFORE , the Comptroller directs that the 2011 Consent Order, the 2013 ACO, and the 2015 ACO, be, and are hereby, TERMINATED and the Comptroller directs that any uncashed checks that have passed their stale date issued from IFR QSF1 to borrowers of OCC regulated institutions shall be escheated to the state of the borrower’s last known domestic address so that such borrower, or such borrower’s rightful heirs, will maintain their ability to claim such IFR QSF1 payment pursuant to that state’s processes for collecting unclaimed funds.


IN TESTIMONY WHEREOF , the undersigned, designated by the Comptroller as his authorized representative, has hereunto set his hand.




    /s/     

    May 24, 2016     


Greg J. Coleman    Date
Deputy Comptroller Large Bank Supervision



Exhibit 99(b)




UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY

#2016-055




In the Matter of:

Wells Fargo Bank, N.A. Sioux Falls, South Dakota
    
)
)
)
)
)
)


AA-EC-2016-30



CONSENT ORDER FOR A CIVIL MONEY PENALTY

The Comptroller of the Currency of the United States of America (“Comptroller”), through his national bank examiners and other staff of the Office of the Comptroller of the Currency (“OCC”), conducted an examination of Wells Fargo Bank, N.A., Sioux Falls, South Dakota (“Bank”). The OCC identified deficiencies in the Bank’s practices that resulted in violations of Consent Order, AA-EC-11-19, dated April 13, 2011 (“2011 Consent Order”), between the Comptroller and the Bank and has informed the Bank of the findings resulting from the examination.
The Bank, by and through its duly elected and acting Board of Directors, has executed a Stipulation and Consent to the Issuance of an Order for a Civil Money Penalty, dated May 24, 2016, that is accepted by the Comptroller (“Stipulation”). By this Stipulation, which is incorporated herein by reference, the Bank has consented to the issuance of this Consent Order for a Civil Money Penalty (“Order”) by the Comptroller.









1

ARTICLE I COMPTROLLER’S FINDINGS
The Comptroller finds, and the Bank neither admits nor denies, the following:

(1) The Bank violated the 2011 Consent Order from October 1, 2014, through August 31, 2015, by failing to achieve compliance in a timely manner with the 2011 Consent Order as detailed in the June 16, 2015 Amended Consent Order (“2015 ACO”).
(2) On May 24, 2016, the Comptroller terminated the 2011 Consent Order, the Amendment to the Consent Order dated February 28, 2013, and 2015 ACO, having found that the Bank had satisfied all requirements of the 2015 ACO as of August 31, 2015.
(3) Between December 1, 2011, and March 31, 2015, the Bank identified 84,480 active accounts for which a Payment Change Notice (“PCN”) was or should have been filed.
(4) Of the 84,480 active accounts, there were 54,837 for which the Bank filed an untimely PCN or missed filing a PCN altogether. Of the 54,837 active accounts, 42,756 accounts had an increase in the payments associated with the untimely filed or missed PCN.
(5)
The Bank’s untimely and missed PCN filing practices described in Paragraphs (3)

– (4) of this Article did not comply with Bankruptcy Rules, required the Bank to undertake operational enhancements to achieve compliance, and were unsafe and unsound practices. These practices also resulted in a settlement with the United States Trustee Program in the case In re Ernestine C.J. Greene , Case No. 11-33377 (Bankr. D. Md.) on November 19, 2015.
(6) Between March 2013 through October 2014, the Bank made escrow calculation errors in 76,720 accounts due to an error in a proprietary loan decisioning software tool.

(7) The escrow calculation errors led to escrow overages in 29% of the loan population and escrow shortages in 67% of the loan population. The escrow calculation errors also led to approximately 184 incorrect loan modification denials.
(8) The Bank’s escrow calculation errors described in Paragraphs (6) – (8) of this Article required the Bank to undertake operational enhancements to achieve compliance, and were unsafe and unsound practices. The Bank has since corrected the borrower escrow calculations and has provided, or is in the process of offering, remediation to borrowers who had received an incorrect loan modification denial.
ARTICLE II

ORDER FOR A CIVIL MONEY PENALTY

Pursuant to the authority vested in him by the Federal Deposit Insurance Act, 12 U.S.C.

§ 1818(i), the Comptroller orders, and the Bank consents to the following:

(1) The Bank shall make payment of a civil money penalty in the total amount of seventy million dollars ($70,000,000), which shall be paid upon the execution of this Order:
(a) If a check is the selected method of payment, the check shall be made payable to the Treasurer of the United States and shall be delivered to: Comptroller of the Currency, P.O. Box 979012, St. Louis, Missouri 63197-9000.
(b) If a wire transfer is the selected method of payment, it shall be sent in accordance with instructions provided by the Comptroller.
(c) The docket number of this case (AA-EC-2016-30) shall be entered on the payment document or wire confirmation and a photocopy of the payment document or confirmation of the wire transfer shall be sent immediately, by

overnight delivery, to the Director of Enforcement and Compliance, Office of the Comptroller of the Currency, 400 7th Street, S.W., Washington, D.C. 20219.
(2) This Order shall be enforceable to the same extent and in the same manner as an effective and outstanding order that has been issued and has become final pursuant to 12 U.S.C.
§ 1818(h) and (i).

ARTICLE III OTHER PROVISIONS
(1) This Order is intended to be, and shall be construed to be, a final order issued pursuant to 12 U.S.C. § 1818(i)(2), and expressly does not form, and may not be construed to form, a contract binding on the Comptroller or the United States.
(2) This Order constitutes a settlement of the civil money penalty proceeding against the Bank contemplated by the Comptroller, based on the practices and violations of law described in the Comptroller’s Findings set forth in Article I of this Order. The Comptroller releases and discharges the Bank and its subsidiaries from all potential liability for a civil money penalty that has been or might have been asserted by the Comptroller based on the practices and violations described in Article I of this Order, to the extent known to the Comptroller as of the effective date of this Order. Nothing in the Stipulation or this Order, however, shall prevent the Comptroller from:
(a)
instituting enforcement actions other than a civil money penalty against the Bank based on the findings set forth in Article I of this Order;
(b)
instituting enforcement actions against the Bank based on any other findings;

(c)
instituting enforcement actions against the Bank’s institution-affiliated parties based on the findings set forth in Article I of this Order, or any other findings; or
(d)
utilizing the findings set forth in Article I of this Order in future enforcement actions against the Bank or its institution-affiliated parties to establish a pattern or the continuation of a pattern.
Further, nothing in the Stipulation or this Order shall affect any right of the Comptroller to determine and ensure compliance with the terms and provisions of the Stipulation or this Order.
(3) The terms of this Order, including this paragraph, are not subject to amendment or modification by any extraneous expression, prior agreements, or prior arrangements between the parties, whether oral or written.

IT IS SO ORDERED , this _ 24 _ day of May, 2016.




    /s/      Greg J. Coleman Deputy Comptroller Large Bank Supervision


UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY


In the Matter of:

Wells Fargo Bank, N.A. Sioux Falls, South Dakota
    
)
)
)
)
)
)


AA-EC-2016-30



STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER FOR A CIVIL MONEY PENALTY


WHEREAS , the Comptroller of the Currency of the United States of America (“Comptroller”), based upon information derived from the exercise of his regulatory and supervisory responsibilities, intends to initiate a civil money penalty proceeding against Wells Fargo Bank, N.A., Sioux Falls, South Dakota (“Bank”), pursuant to 12 U.S.C. § 1818(i), for the Bank’s violation of Consent Order, AA-EC-11-19, dated April 13, 2011, (“2011 Consent Order”), between the Comptroller and the Bank.
WHEREAS , in the interest of cooperation and to avoid additional costs associated with administrative and judicial proceedings with respect to the above matter, the Bank, through its duly elected and acting Board of Directors, has agreed to execute this Stipulation and Consent to the Issuance of a Consent Order for a Civil Money Penalty (“Stipulation”), that is accepted by the Comptroller, through his duly authorized representative;
NOW, THEREFORE , in consideration of the above premises, it is stipulated by the

Bank that:

ARTICLE I JURISDICTION
(1) The Bank is a national banking association chartered and examined by the Comptroller pursuant to the National Bank Act of 1864, as amended, 12 U.S.C. § 1 et seq .
(2) The Comptroller is “the appropriate Federal banking agency” regarding the Bank pursuant to 12 U.S.C. §§ 1813(q) and 1818(b).
(3) The Bank is an “insured depository institution” within the meaning of 12 U.S.C. §§ 1813(c) and 1818(b)(1).
ARTICLE II CONSENT
(1) The Bank, without admitting or denying any wrongdoing, consents and agrees to issuance of the accompanying Consent Order for a Civil Money Penalty (“Consent Order”) by the Comptroller.
(2) The Bank consents and agrees that the Consent Order shall be deemed an “order issued with the consent of the depository institution” pursuant to 12 U.S.C. § 1818(h)(2), and consents and agrees that the Consent Order shall become effective upon its execution by the Comptroller through his authorized representative, and shall be fully enforceable by the Comptroller pursuant to 12 U.S.C. § 1818(i).
(3) Notwithstanding the absence of mutuality of obligation, or of consideration, or of a contract, the Comptroller may enforce any of the commitments or obligations herein undertaken by the Bank under his supervisory powers, including 12 U.S.C. § 1818(i), and not as a matter of contract law. The Bank expressly acknowledges that neither the Bank nor the Comptroller has any intention to enter into a contract.

(4) The Bank declares that no separate promise or inducement of any kind has been made by the Comptroller, or by his agents or employees, to cause or induce the Bank to consent to the issuance of the Consent Order and/or execute this Stipulation.
(5) The Bank expressly acknowledges that no officer or employee of the Comptroller has statutory or other authority to bind the United States, the United States Treasury Department, the Comptroller, or any other federal bank regulatory agency or entity, or any officer or employee of any of those entities to a contract affecting the Comptroller’s exercise of his supervisory responsibilities.
(6) The Consent Order constitutes a settlement of the civil money penalty proceeding against the Bank and its subsidiaries contemplated by the Comptroller, based on the practices and violations of law described in the Comptroller’s Findings set forth in Article I of the Consent Order. The Comptroller releases and discharges the Bank from all potential liability for a civil money penalty that has been or might have been asserted by the Comptroller based on the practices and violations described in Article I of the Consent Order, to the extent known to the Comptroller as of the effective date of the Consent Order. Nothing in this Stipulation or the Consent Order, however, shall prevent the Comptroller from:
(a) instituting enforcement actions other than a civil money penalty against the Bank based on the findings set forth in Article I of the Consent Order;
(b) instituting enforcement actions against the Bank based on any other findings;
(c) instituting enforcement actions against the Bank’s institution-affiliated parties based on the findings set forth in Article I of the Consent Order, or any other findings; or

(d) utilizing the findings set forth in Article I of the Consent Order in future enforcement actions against the Bank or its institution-affiliated parties to establish a pattern or the continuation of a pattern.
Further, nothing in this Stipulation or the Consent Order shall affect any right of the Comptroller to determine and ensure compliance with the terms and provisions of this Stipulation or the Consent Order.
ARTICLE III WAIVERS
(1) The Bank, by executing this Stipulation and consenting to the Consent Order, waives:
(a) Any and all rights to the issuance of a Notice of Charges pursuant to 12 U.S.C. § 1818(i);
(b) Any and all procedural rights available in connection with the issuance of the Consent Order;
(c) Any and all rights to a hearing and a final agency decision pursuant to 12 U.S.C. § 1818(i), 12 C.F.R. Part 19;
(d) Any and all rights to seek any type of administrative or judicial review of the Consent Order;
(e) Any and all claims for fees, costs or expenses against the Comptroller, or any of his agents or employees, related in any way to this enforcement matter or the Consent Order, whether arising under common law or under the terms of any statute, including, but not limited to, the Equal Access to Justice Act,
5 U.S.C. § 504 and 28 U.S.C. § 2412;

(f) Any and all rights to assert this proceeding, this Stipulation, consent to the issuance of the Consent Order, and/or the issuance of the Consent Order, as the basis for a claim of double jeopardy in any pending or future proceeding brought by the United States Department of Justice or any other governmental entity; and
(g) Any and all rights to challenge or contest the validity of the Consent Order.
ARTICLE IV CLOSING
(1) The provisions of this Stipulation and the Consent Order shall not inhibit, estop, bar, or otherwise prevent the Comptroller from taking any other action affecting the Bank if, at any time, he deems it appropriate to do so to fulfill the responsibilities placed upon him by the several laws of the United States of America.
(2) Nothing in this Stipulation or the Consent Order shall preclude any proceedings brought by the Comptroller to enforce the terms of the Consent Order, and nothing in this Stipulation or the Consent Order constitutes, nor shall the Bank contend that it constitutes, a release, discharge, compromise, settlement, dismissal, or resolution of any actions, or in any way affects any actions that may be or have been brought by any other representative of the United States or an agency thereof, including, without limitation, the United States Department of Justice.
(3) The terms of this Stipulation, including this paragraph, and of the Consent Order are not subject to amendment or modification by any extraneous expression, prior agreements or prior arrangements between the parties, whether oral or written.

IN TESTIMONY WHEREOF , the undersigned, as the duly elected and acting Board of Directors of Wells Fargo Bank, N.A., Sioux Falls, South Dakota, have hereunto set their hands on behalf of the Bank.


    /s/          May 17, 2016     
John G. Stumpf (Chair)    Date



    /s/          May 17, 2016     
Lloyd H. Dean    Date



    /s/          May 17, 2016     
Enrique Hernandez, Jr.    Date



    /s/          May 17, 2016     
Cynthia H. Milligan    Date



    /s/          May 17, 2016     
Federico F. Peña    Date



    /s/          May 17, 2016     
James H. Quigley    Date



    /s/          May 17, 2016     
Stephen W. Sanger    Date

Accepted by:

THE COMPTROLLER OF THE CURRENCY



        /s/              May 24, 2016      By:    Greg J. Coleman                Date
Deputy Comptroller Large Bank Supervision