Please find 1-5 based on the financial statements provided above.
1.Receivables and Off balance Sheet Securitizations - Wells Fargo, 2014 Attached please find Income Statement, Balance Sheet, Statement of Cash Flows, and excerpt from Note 8 on Securitizations from Wells Fargo's 2014 Annual Report (in the table in note 8, just focus on the Total loans columns). This table shows the balances of off-balance sheet securitized loans (i.e., loans sold to VIE's) at the balance sheet date(s). Answer the following questions. Note that the figures in the tables are in millions. Assume that Wells Fargo does not recognize any gains on sales of receivables. You can ignore the delinquent loans columns. 1. Calculate the firm's ratio of net loans to short-term borrowings. 2. Recalculate the ratio #1 assuming that the securitized loans were still owned by Wells Fargo, and the firm borrowed to get the comparable cash (short-term borrowings). 3. Calculate the firm's ratio of CFO to short term borrowings. 4. Recalculate the ratio #3 assuming that the securitized loans were still owned by Wells Fargo, and the firm borrowed to get the comparable cash (short-term borrowings). 5. True or False, and explain: if a firm securitizes receivables and the cash received is CFO (like Wells Fargo), the firm's CFO will be higher than if the firm retained the receivables (did not sell them). Wells Fargo & Company and Subsidiaries Consolidated Statement of Income Year ended December 31, 2013 2012 2014 $ 1,685 8,438 767 78 35,652 932 1,376 8,116 1,290 13 35,571 723 1,358 8,098 1,825 41 36,482 587 47,552 47,089 48,391 (In millions, except per share amounts) Interest income Trading assets Investment securities Mortgages held for sale Loans held for sale Loans Other interest income Total interest income Interest expense Deposits Short-term borrowings Long-term debt Other interest expense Total Interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses Noninterest income Service charges on deposit accounts Trust and investment fees Card fees Other fees Mortgage banking Insurance Net galns from trading activities Net gains (losses) on debt securities (1) Net gains from equity investments (2) Lease income Other 1,096 59 2,488 382 4,025 43,527 1,395 42,132 1,337 60 2,585 307 4,289 42,800 2,309 40,491 1,727 79 3,110 245 5,161 43,230 7,217 36,013 5,050 14,280 3,431 4,349 6,381 1,655 1,161 593 2,380 526 1,014 40,820 5,023 13,430 3,191 4,340 8,774 1,814 1,623 (29) 1,472 663 679 40,980 4,683 11,890 2,838 4,519 11,638 1,850 1,707 (128) 1,485 567 1,807 42,856 Total noninterest income Noninterest expense Salaries Commission and incentive compensation Employee benefits Equipment Net occupancy Core deposit and other intangibles FDIC and other deposit assessments Other Total noninterest expense Income before Income tax expense Income tax expense Net income before noncontrolling Interests Less: Net Income from noncontrolling interests Wells Fargo net income Less: Preferred stock dividends and other Wells Fargo net income applicable to common stock Per share Information Earnings per common share Diluted earnings per common share Dividends declared per common share Average common shares outstanding Diluted average common shares outstanding 15,375 9,970 4,597 1,973 2,925 1,370 928 11,899 49,037 33,915 10,307 23,608 551 23,057 1,236 21,821 15,152 9,951 5,033 1,984 2,895 1,504 961 11,362 48,842 32,629 10,405 22,224 346 21,878 14,689 9,504 4,611 2,068 2,857 1,674 1,356 13,639 50,398 28,471 9,103 19,368 471 18,897 898 $ 989 $ 20,889 17,999 $ 4.17 4.10 1.35 3.95 3.89 1.15 5,287.3 5,371.2 3.40 3.36 0.88 5,287.6 5,351.5 5,237.2 5,324.4 (1) Total other-than-temporary impairment (OTTI) losses were $18 million, $39 million and $3 million for the year ended December 31, 2014, 2013 and 2012, respectively. Of total OTTI, losses of $49 million, $158 million and $240 million were recognized in earnings, and reversal of losses of $(31) million, $(119) million and $(237) million were recognized as non-credit-related OTTI in other comprehensive income for the year ended December 31, 2014, 2013 and 2012, respectively. Includes OTTI losses of $273 million, $186 million and $176 million for the year ended December 31, 2014, 2013 and 2012, respectively. Wells Fargo & Company and Subsidiaries Consolidated Balance Sheet Dec 31, 2014 Dec 31, 2013 19,571 258,429 19,919 213,793 62,813 78,255 (In millions, except shares) Assets Cash and due from banks Federal funds sold, securities purchased under resale agreements and other short-term investments Trading assets Investment securities: Available-for-sale, at fair value Held-to-maturity, at cost (fair value $56,359 and $12,247) Mortgages held for sale (includes $15,565 and $13,879 carried at fair value) (1) Loans held for sale (includes $1 and $1 carried at fair value) (1) 257,442 55,483 19,536 722 252,007 12,346 16,763 133 862,551 (12,319) 850,232 822,286 (14,502) 807,784 Loans (includes $5,788 and $5,995 carried at fair value) (1)(2) Allowance for loan losses Net loans (2) Mortgage servicing rights: Measured at falr value Amortized Premises and equipment, net Goodwill Other assets (includes $2,512 and $1,386 carried at fair value) (1) Total assets (2)(3) Llabilities Noninterest-bearing deposits Interest-bearing deposits Total deposits Short-term borrowings Accrued expenses and other liabilities (2) Long-term debt Total liabilities (2)(4) 12,738 1,242 8,743 25,705 99,057 1,687,155 15,580 1,229 9,156 25,637 86,342 1,523,502 $ $ 321,963 846,347 1,168,310 63,518 86,122 183,943 1,501,893 288,117 791,060 1,079,177 53,883 66,436 152,998 1,352,494 19,213 16,267 Equity Wells Fargo stockholders' equity: Preferred stock Common stock - $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares and 5,481,811,474 shares Additional paid-in capital Retained earnings Cumulative other comprehensive income Treasury stock - 311,462,276 shares and 224,648,769 shares Unearned ESOP shares Total Wells Fargo stockholders' equity Noncontrolling interests Total equity Total liabilities and equity (2) 9,136 60,537 107,040 3,518 (13,690) (1,360) 184,394 868 185,262 1,687,155 9,136 60,296 92,361 1,386 (8,104) (1,200) 170,142 866 171,008 1,523,502 $ (1) Parenthetical amounts represent assets and liabilities for which we have elected the fair value option. (2) Financial information for certain periods prior to 2014 was revised to reflect our determination that certain factoring arrangements did not qualify as loans. See Note 1 (Summary of Significant Accounting Policies) for more information. (3) Our consolidated assets at December 31, 2014 and December 31, 2013, include the following assets of certain variable interest entities (VIES) that can only be used to settle the liabilities of those VIEs: Cash and due from banks, $117 million and $165 million; Trading assets, $0 million and $162 million; Investment securities, $875 million and $1.4 billion; Mortgages held for sale, $0 million and $38 million; Net loans, $4.5 billion and $6.1 billion; other assets, $316 million and $347 million, and Total assets, $5.8 billion and $8.1 billion, respectively. (4) Our consolidated liabilities at December 31, 2014 and December 31, 2013, include the following VIE liablilties for which the VIE creditors do not have recourse to Wells Fargo: Short-term borrowings, $0 million and $29 million; Accrued expenses and other liabilities, $49 million and $90 million; Long-term debt, $1.6 billion and $2.3 billion; and Total liabilities, $1.7 billion and $2.4 billion, respectively. The accompanying notes are an integral part of these statements. Consolidated Statement of Cash Flows Year ended December 31, 2013 2014 2012 23,608 22,224 19,368 2,309 (3,229) 3,293 1,395 1,820 2,515 (3,760) 1,912 (453) (144,812) 117,097 (9,384) 1,920 (271) (317,054) 311,431 7,217 (2,307) 2,807 (3,661) 1,698 (226) (483,835) 421,623 (15) 9,383 (7,975) 207 (154) 575 (291) 11,186 2,354 (372) 119 (10,681) 15,548 17,529 43,638 4,977 (13) (32) 105,440 (1,297) 293 (84) 2,064 (11,953) 58,540 (7,145) 57,641 (In millions) Cash flows from operating activities: Net Income before noncontrolling interests Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses Changes in fair value of MSRS, MHFS and LHFS carried at fair value Depreciation, amortization and accretion Other net gains Stock-based compensation Excess tax benefits related to stock Incentive compensation Originations of MHFS Proceeds from sales of and principal collected on mortgages originated for sale Originations of LHFS Proceeds from sales of and principal collected on LHFS Purchases of LHFS Net change in: Trading assets Deferred income taxes Accrued interest receivable Accrued interest payable Other assets Other accrued expenses and liabilities Net cash provided by operating activities Cash flows from investing activities: Net change in: Federal funds sold, securities purchased under resale agreements and other short-term investments Avallable-for-sale securities: Sales proceeds Prepayments and maturities Purchases Held-to-maturity securities: Paydowns and maturities Purchases Nonmarketable equity investments: Sales proceeds Purchases Loans: Loans originated by banking subsidiaries, net of principal collected Proceeds from sales (including participations) of loans originated for investment Purchases (including participations) of loans Principal collected on nonbank entities' loans Loans originated by nonbank entities Net cash paid for acquisitions Proceeds from sales of foreclosed assets and short sales (1) Net cash from purchases and sales of MSRS Other, net Net cash used by Investing activities (41,778) (78,184) (92,946) 6,089 37,257 (44,807) 2,837 50,737 (89,474) 5,210 59,712 (64,756) 5,168 (47,012) 30 (5,782) 3,161 (3,087) 2,577 (3,273) 2,279 (2,619) (43,744) 7,694 (11,563) 19,955 (17,311) (65,162) 21,564 (6,424) 13,589 (13,570) (174) 7,697 (150) (741) (128,380) (53,381) 6,811 (9,040) 25,080 (23,555) (4,322) 12,690 116 (1,169) (139,890) 11,021 407 581 (153,492) 89,133 8,035 76,342 (3,390) 82,762 7,699 42,154 (15,829) 53,227 (25,423) 27,695 (28,093) 2,775 (1,235) 3,145 (1,017) 1,377 (892) Cash flows from financing activities: Net change in: Deposits Short-term borrowings Long-term debt: Proceeds from Issuance Repayment Preferred stock: Proceeds from Issuance Cash dividends paid Common stock: Proceeds from issuance Repurchased Cash dividends paid Common stock warrants repurchased Excess tax benefits related to stock incentive compensation Net change in noncontrolling interests Other, net Net cash provided by financing activities Net change in cash due from banks Cash and due from banks at beginning of year Cash and due from banks at end of year Supplemental cash flow disclosures: Cash paid for interest Cash paid for income taxes 1,840 (9,414) (6,908) 2,224 (5,356) (5,953) 2,091 (3,918) (4,565) (1) 226 (611) 453 (552) 51 110,503 (348) 271 (296) 136 93,910 (1,941) 21,860 19,919 83,770 2,420 19,919 19,440 21,860 $ 19,571 3,906 4,321 7,132 5,245 8,024 8,808 Note 8: 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 a commercial MSRs with a fair value of $1.6 billion at both December 31, 2014 and 2013. The nature of our commercial MSRs, which are carried at LOCOM, is different from our residential MSRs. Prepayment activity on serviced loans does not significantly impact the value of commercial MSRs because, unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions, impacting the borrower's ability to prepay the mortgage. Additionally, for our commercial MSR portfolio, we are typically master/primary servicer, but not the special servicer, who is separately responsible for the servicing and workout of delinquent and foreclosed loans. It is the special servicer, similar to our role as servicer of residential mortgage loans, who is affected by higher servicing and foreclosure costs due to an increase in delinquent and foreclosed loans. Accordingly, prepayment speeds and costs to service are not key assumptions for commercial MSRs as they do not significantly impact the valuation. The primary economic driver impacting the fair value of our commercial MSRs is forward interest rates, which are derived from market observable yield curves used to price capital markets instruments. Market interest rates most significantly affect interest earned on custodial deposit balances. The sensitivity of the current fair value to an immediate adverse 25% change in the assumption about interest earned on deposit balances at December 31, 2014, and 2013, results in a decrease in fair value of $185 million and $175 million, respectively. See Note 9 (Mortgage Banking Activities) for further information on our commercial MSRs. We also have a $6.5 billion loan to an unconsolidated third party VIE that we extended in fourth quarter 2014 in conjunction with our sale of government guaranteed student loans. The loan is carried at amortized cost and approximates fair value at December 31, 2014. The estimated fair value of the loan is considered a Level 3 measurement that is determined using discounted cash flows that are based on changes in the discount rate due to changes in the risk premium component (credit spreads). The primary economic assumption impacting the fair value of our loan is the discount rate. Changes in the credit loss assumption are not expected to affect the estimated fair value of the loan due to the government guarantee of the underlying collateral. The sensitivity of the current fair value to an immediate adverse increase of 200 basis points in the risk premium component of the discount rate assumption is a decrease in fair value of $130 million at December 31, 2014. For more information on the student loan sale, see the discussion on Asset-Based Finance Structures earlier in this Note. The sensitivities in the preceding paragraphs and table are hypothetical and caution should be exercised when relying on this data. Changes in value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in value may not be linear. Also, the effect of a variation in a particular assumption on the value of the other interests held is calculated independently without changing any other assumptions. In reality, changes in one factor may result in changes in others (for example, changes in prepayment speed estimates could result in changes in the credit losses), which might magnify or counteract the sensitivities. Off-Balance Sheet Loans The following table presents information about the principal balances of off-balance sheet loans that were sold or securitized, including residential mortgage loans sold to FNMA, FHLMC, GNMA and other investors, for which we have some form of continuing involvement (primarily servicer). Delinquent loans include loans 90 days or more past due and loans in bankruptcy, regardless of delinquency status, For loans sold or securitized where servicing is our only form of continuing involvement, we would only experience a loss if we were required to repurchase a delinquent loan or foreclosed asset due to a breach in representations and warranties associated with our loan sale or servicing contracts. Net charge-offs Total loans Year ended December 31, Delinquent loans and foreclosed assets (1) December 31, 2014 2013 December 31, 2014 2013 2014 2013 8,808 621 617 114,081 114,081 119,346 119,346 7,949 7,949 8,808 621 617 (in millions) Commercial: Real estate mortgage Total commercial Consumer: Real estate 1-4 family first mortgage (2)(3) Real estate 1-4 family junior lien mortgage Other revolving credit and installment Total consumer Total off-balance sheet sold or securitized loans (4) 28,639 32,911 1,209 2,318 1,322,136 1 1,599 1,323,736 $ 1,437,817 1,387,822 1 1,790 1,389,613 1,508,959 75 99 1 28,714 36,663 33,010 41,818 1,210 1,831 2,318 2,935 (1) Includes $3.3 billion and $2.8 billion of commercial foreclosed assets and $2.7 billion and $3.9 billion of consumer foreclosed assets at December 31, 2014 and 2013, respectively. (2) Total loans in prior period have been revised to include whole loan sales for which we have some form of continuing involvement. 13) Delinquent loans and foreclosed assets In prior period have been revised to include whole loan sale delinquencies and transferred assets in foreclosure status for which we have risk of loss. The related net charge-offs have also been revised. (4) At December 31, 2014 and 2013, the table includes total loans of $1.3 trillion at both dates and delinquent loans of $16.5 billion and $17.9 billion, respectively for FNMA, FKLMC 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. 1.Receivables and Off balance Sheet Securitizations - Wells Fargo, 2014 Attached please find Income Statement, Balance Sheet, Statement of Cash Flows, and excerpt from Note 8 on Securitizations from Wells Fargo's 2014 Annual Report (in the table in note 8, just focus on the Total loans columns). This table shows the balances of off-balance sheet securitized loans (i.e., loans sold to VIE's) at the balance sheet date(s). Answer the following questions. Note that the figures in the tables are in millions. Assume that Wells Fargo does not recognize any gains on sales of receivables. You can ignore the delinquent loans columns. 1. Calculate the firm's ratio of net loans to short-term borrowings. 2. Recalculate the ratio #1 assuming that the securitized loans were still owned by Wells Fargo, and the firm borrowed to get the comparable cash (short-term borrowings). 3. Calculate the firm's ratio of CFO to short term borrowings. 4. Recalculate the ratio #3 assuming that the securitized loans were still owned by Wells Fargo, and the firm borrowed to get the comparable cash (short-term borrowings). 5. True or False, and explain: if a firm securitizes receivables and the cash received is CFO (like Wells Fargo), the firm's CFO will be higher than if the firm retained the receivables (did not sell them). Wells Fargo & Company and Subsidiaries Consolidated Statement of Income Year ended December 31, 2013 2012 2014 $ 1,685 8,438 767 78 35,652 932 1,376 8,116 1,290 13 35,571 723 1,358 8,098 1,825 41 36,482 587 47,552 47,089 48,391 (In millions, except per share amounts) Interest income Trading assets Investment securities Mortgages held for sale Loans held for sale Loans Other interest income Total interest income Interest expense Deposits Short-term borrowings Long-term debt Other interest expense Total Interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses Noninterest income Service charges on deposit accounts Trust and investment fees Card fees Other fees Mortgage banking Insurance Net galns from trading activities Net gains (losses) on debt securities (1) Net gains from equity investments (2) Lease income Other 1,096 59 2,488 382 4,025 43,527 1,395 42,132 1,337 60 2,585 307 4,289 42,800 2,309 40,491 1,727 79 3,110 245 5,161 43,230 7,217 36,013 5,050 14,280 3,431 4,349 6,381 1,655 1,161 593 2,380 526 1,014 40,820 5,023 13,430 3,191 4,340 8,774 1,814 1,623 (29) 1,472 663 679 40,980 4,683 11,890 2,838 4,519 11,638 1,850 1,707 (128) 1,485 567 1,807 42,856 Total noninterest income Noninterest expense Salaries Commission and incentive compensation Employee benefits Equipment Net occupancy Core deposit and other intangibles FDIC and other deposit assessments Other Total noninterest expense Income before Income tax expense Income tax expense Net income before noncontrolling Interests Less: Net Income from noncontrolling interests Wells Fargo net income Less: Preferred stock dividends and other Wells Fargo net income applicable to common stock Per share Information Earnings per common share Diluted earnings per common share Dividends declared per common share Average common shares outstanding Diluted average common shares outstanding 15,375 9,970 4,597 1,973 2,925 1,370 928 11,899 49,037 33,915 10,307 23,608 551 23,057 1,236 21,821 15,152 9,951 5,033 1,984 2,895 1,504 961 11,362 48,842 32,629 10,405 22,224 346 21,878 14,689 9,504 4,611 2,068 2,857 1,674 1,356 13,639 50,398 28,471 9,103 19,368 471 18,897 898 $ 989 $ 20,889 17,999 $ 4.17 4.10 1.35 3.95 3.89 1.15 5,287.3 5,371.2 3.40 3.36 0.88 5,287.6 5,351.5 5,237.2 5,324.4 (1) Total other-than-temporary impairment (OTTI) losses were $18 million, $39 million and $3 million for the year ended December 31, 2014, 2013 and 2012, respectively. Of total OTTI, losses of $49 million, $158 million and $240 million were recognized in earnings, and reversal of losses of $(31) million, $(119) million and $(237) million were recognized as non-credit-related OTTI in other comprehensive income for the year ended December 31, 2014, 2013 and 2012, respectively. Includes OTTI losses of $273 million, $186 million and $176 million for the year ended December 31, 2014, 2013 and 2012, respectively. Wells Fargo & Company and Subsidiaries Consolidated Balance Sheet Dec 31, 2014 Dec 31, 2013 19,571 258,429 19,919 213,793 62,813 78,255 (In millions, except shares) Assets Cash and due from banks Federal funds sold, securities purchased under resale agreements and other short-term investments Trading assets Investment securities: Available-for-sale, at fair value Held-to-maturity, at cost (fair value $56,359 and $12,247) Mortgages held for sale (includes $15,565 and $13,879 carried at fair value) (1) Loans held for sale (includes $1 and $1 carried at fair value) (1) 257,442 55,483 19,536 722 252,007 12,346 16,763 133 862,551 (12,319) 850,232 822,286 (14,502) 807,784 Loans (includes $5,788 and $5,995 carried at fair value) (1)(2) Allowance for loan losses Net loans (2) Mortgage servicing rights: Measured at falr value Amortized Premises and equipment, net Goodwill Other assets (includes $2,512 and $1,386 carried at fair value) (1) Total assets (2)(3) Llabilities Noninterest-bearing deposits Interest-bearing deposits Total deposits Short-term borrowings Accrued expenses and other liabilities (2) Long-term debt Total liabilities (2)(4) 12,738 1,242 8,743 25,705 99,057 1,687,155 15,580 1,229 9,156 25,637 86,342 1,523,502 $ $ 321,963 846,347 1,168,310 63,518 86,122 183,943 1,501,893 288,117 791,060 1,079,177 53,883 66,436 152,998 1,352,494 19,213 16,267 Equity Wells Fargo stockholders' equity: Preferred stock Common stock - $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares and 5,481,811,474 shares Additional paid-in capital Retained earnings Cumulative other comprehensive income Treasury stock - 311,462,276 shares and 224,648,769 shares Unearned ESOP shares Total Wells Fargo stockholders' equity Noncontrolling interests Total equity Total liabilities and equity (2) 9,136 60,537 107,040 3,518 (13,690) (1,360) 184,394 868 185,262 1,687,155 9,136 60,296 92,361 1,386 (8,104) (1,200) 170,142 866 171,008 1,523,502 $ (1) Parenthetical amounts represent assets and liabilities for which we have elected the fair value option. (2) Financial information for certain periods prior to 2014 was revised to reflect our determination that certain factoring arrangements did not qualify as loans. See Note 1 (Summary of Significant Accounting Policies) for more information. (3) Our consolidated assets at December 31, 2014 and December 31, 2013, include the following assets of certain variable interest entities (VIES) that can only be used to settle the liabilities of those VIEs: Cash and due from banks, $117 million and $165 million; Trading assets, $0 million and $162 million; Investment securities, $875 million and $1.4 billion; Mortgages held for sale, $0 million and $38 million; Net loans, $4.5 billion and $6.1 billion; other assets, $316 million and $347 million, and Total assets, $5.8 billion and $8.1 billion, respectively. (4) Our consolidated liabilities at December 31, 2014 and December 31, 2013, include the following VIE liablilties for which the VIE creditors do not have recourse to Wells Fargo: Short-term borrowings, $0 million and $29 million; Accrued expenses and other liabilities, $49 million and $90 million; Long-term debt, $1.6 billion and $2.3 billion; and Total liabilities, $1.7 billion and $2.4 billion, respectively. The accompanying notes are an integral part of these statements. Consolidated Statement of Cash Flows Year ended December 31, 2013 2014 2012 23,608 22,224 19,368 2,309 (3,229) 3,293 1,395 1,820 2,515 (3,760) 1,912 (453) (144,812) 117,097 (9,384) 1,920 (271) (317,054) 311,431 7,217 (2,307) 2,807 (3,661) 1,698 (226) (483,835) 421,623 (15) 9,383 (7,975) 207 (154) 575 (291) 11,186 2,354 (372) 119 (10,681) 15,548 17,529 43,638 4,977 (13) (32) 105,440 (1,297) 293 (84) 2,064 (11,953) 58,540 (7,145) 57,641 (In millions) Cash flows from operating activities: Net Income before noncontrolling interests Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses Changes in fair value of MSRS, MHFS and LHFS carried at fair value Depreciation, amortization and accretion Other net gains Stock-based compensation Excess tax benefits related to stock Incentive compensation Originations of MHFS Proceeds from sales of and principal collected on mortgages originated for sale Originations of LHFS Proceeds from sales of and principal collected on LHFS Purchases of LHFS Net change in: Trading assets Deferred income taxes Accrued interest receivable Accrued interest payable Other assets Other accrued expenses and liabilities Net cash provided by operating activities Cash flows from investing activities: Net change in: Federal funds sold, securities purchased under resale agreements and other short-term investments Avallable-for-sale securities: Sales proceeds Prepayments and maturities Purchases Held-to-maturity securities: Paydowns and maturities Purchases Nonmarketable equity investments: Sales proceeds Purchases Loans: Loans originated by banking subsidiaries, net of principal collected Proceeds from sales (including participations) of loans originated for investment Purchases (including participations) of loans Principal collected on nonbank entities' loans Loans originated by nonbank entities Net cash paid for acquisitions Proceeds from sales of foreclosed assets and short sales (1) Net cash from purchases and sales of MSRS Other, net Net cash used by Investing activities (41,778) (78,184) (92,946) 6,089 37,257 (44,807) 2,837 50,737 (89,474) 5,210 59,712 (64,756) 5,168 (47,012) 30 (5,782) 3,161 (3,087) 2,577 (3,273) 2,279 (2,619) (43,744) 7,694 (11,563) 19,955 (17,311) (65,162) 21,564 (6,424) 13,589 (13,570) (174) 7,697 (150) (741) (128,380) (53,381) 6,811 (9,040) 25,080 (23,555) (4,322) 12,690 116 (1,169) (139,890) 11,021 407 581 (153,492) 89,133 8,035 76,342 (3,390) 82,762 7,699 42,154 (15,829) 53,227 (25,423) 27,695 (28,093) 2,775 (1,235) 3,145 (1,017) 1,377 (892) Cash flows from financing activities: Net change in: Deposits Short-term borrowings Long-term debt: Proceeds from Issuance Repayment Preferred stock: Proceeds from Issuance Cash dividends paid Common stock: Proceeds from issuance Repurchased Cash dividends paid Common stock warrants repurchased Excess tax benefits related to stock incentive compensation Net change in noncontrolling interests Other, net Net cash provided by financing activities Net change in cash due from banks Cash and due from banks at beginning of year Cash and due from banks at end of year Supplemental cash flow disclosures: Cash paid for interest Cash paid for income taxes 1,840 (9,414) (6,908) 2,224 (5,356) (5,953) 2,091 (3,918) (4,565) (1) 226 (611) 453 (552) 51 110,503 (348) 271 (296) 136 93,910 (1,941) 21,860 19,919 83,770 2,420 19,919 19,440 21,860 $ 19,571 3,906 4,321 7,132 5,245 8,024 8,808 Note 8: 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 a commercial MSRs with a fair value of $1.6 billion at both December 31, 2014 and 2013. The nature of our commercial MSRs, which are carried at LOCOM, is different from our residential MSRs. Prepayment activity on serviced loans does not significantly impact the value of commercial MSRs because, unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions, impacting the borrower's ability to prepay the mortgage. Additionally, for our commercial MSR portfolio, we are typically master/primary servicer, but not the special servicer, who is separately responsible for the servicing and workout of delinquent and foreclosed loans. It is the special servicer, similar to our role as servicer of residential mortgage loans, who is affected by higher servicing and foreclosure costs due to an increase in delinquent and foreclosed loans. Accordingly, prepayment speeds and costs to service are not key assumptions for commercial MSRs as they do not significantly impact the valuation. The primary economic driver impacting the fair value of our commercial MSRs is forward interest rates, which are derived from market observable yield curves used to price capital markets instruments. Market interest rates most significantly affect interest earned on custodial deposit balances. The sensitivity of the current fair value to an immediate adverse 25% change in the assumption about interest earned on deposit balances at December 31, 2014, and 2013, results in a decrease in fair value of $185 million and $175 million, respectively. See Note 9 (Mortgage Banking Activities) for further information on our commercial MSRs. We also have a $6.5 billion loan to an unconsolidated third party VIE that we extended in fourth quarter 2014 in conjunction with our sale of government guaranteed student loans. The loan is carried at amortized cost and approximates fair value at December 31, 2014. The estimated fair value of the loan is considered a Level 3 measurement that is determined using discounted cash flows that are based on changes in the discount rate due to changes in the risk premium component (credit spreads). The primary economic assumption impacting the fair value of our loan is the discount rate. Changes in the credit loss assumption are not expected to affect the estimated fair value of the loan due to the government guarantee of the underlying collateral. The sensitivity of the current fair value to an immediate adverse increase of 200 basis points in the risk premium component of the discount rate assumption is a decrease in fair value of $130 million at December 31, 2014. For more information on the student loan sale, see the discussion on Asset-Based Finance Structures earlier in this Note. The sensitivities in the preceding paragraphs and table are hypothetical and caution should be exercised when relying on this data. Changes in value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in value may not be linear. Also, the effect of a variation in a particular assumption on the value of the other interests held is calculated independently without changing any other assumptions. In reality, changes in one factor may result in changes in others (for example, changes in prepayment speed estimates could result in changes in the credit losses), which might magnify or counteract the sensitivities. Off-Balance Sheet Loans The following table presents information about the principal balances of off-balance sheet loans that were sold or securitized, including residential mortgage loans sold to FNMA, FHLMC, GNMA and other investors, for which we have some form of continuing involvement (primarily servicer). Delinquent loans include loans 90 days or more past due and loans in bankruptcy, regardless of delinquency status, For loans sold or securitized where servicing is our only form of continuing involvement, we would only experience a loss if we were required to repurchase a delinquent loan or foreclosed asset due to a breach in representations and warranties associated with our loan sale or servicing contracts. Net charge-offs Total loans Year ended December 31, Delinquent loans and foreclosed assets (1) December 31, 2014 2013 December 31, 2014 2013 2014 2013 8,808 621 617 114,081 114,081 119,346 119,346 7,949 7,949 8,808 621 617 (in millions) Commercial: Real estate mortgage Total commercial Consumer: Real estate 1-4 family first mortgage (2)(3) Real estate 1-4 family junior lien mortgage Other revolving credit and installment Total consumer Total off-balance sheet sold or securitized loans (4) 28,639 32,911 1,209 2,318 1,322,136 1 1,599 1,323,736 $ 1,437,817 1,387,822 1 1,790 1,389,613 1,508,959 75 99 1 28,714 36,663 33,010 41,818 1,210 1,831 2,318 2,935 (1) Includes $3.3 billion and $2.8 billion of commercial foreclosed assets and $2.7 billion and $3.9 billion of consumer foreclosed assets at December 31, 2014 and 2013, respectively. (2) Total loans in prior period have been revised to include whole loan sales for which we have some form of continuing involvement. 13) Delinquent loans and foreclosed assets In prior period have been revised to include whole loan sale delinquencies and transferred assets in foreclosure status for which we have risk of loss. The related net charge-offs have also been revised. (4) At December 31, 2014 and 2013, the table includes total loans of $1.3 trillion at both dates and delinquent loans of $16.5 billion and $17.9 billion, respectively for FNMA, FKLMC 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
