Wells Fargo 2013 Annual Report Download - page 231

($ in millions, except cost to service amounts)
Fair Value
Level 3 Valuation Technique(s)
Significant
Unobservable Input
Range of
Inputs
Weighted
Average (1)
December 31, 2013
Trading and available-for-sale securities:
Securities of U.S. states and
political subdivisions:
Government, healthcare and
other revenue bonds $ 2,739 Discounted cash flow Discount rate 0.4 - 6.4 % 1.4
Auction rate securities and other municipal
bonds
63 Vendor priced
451 Discounted cash flow Discount rate 0.4 - 12.3 4.6
Weighted average life 1.4 - 13.0 yrs 4.4
Collateralized loan and other debt obligations (2) 612 Market comparable pricing Comparability adjustment (12.0) - 23.3 % 8.5
Asset-backed securities:
1,349 Vendor priced
Auto loans and leases 492 Discounted cash flow Discount rate 0.6 - 0.9 0.8
Weighted average life 1.4 - 1.6 yrs 1.5
Other asset-backed securities:
Diversified payment rights (3) 757 Discounted cash flow Discount rate 1.4 - 4.7 % 3.0
Other commercial and consumer 944 (4) Discounted cash flow Discount rate 0.6 - 21.2 4.0
Weighted average life 0.6 - 7.6 yrs 2.2
Marketable equity securities: perpetual
preferred
78
729 (5)
Vendor priced
Discounted cash flow Discount rate 4.8 - 8.3 % 7.4
Weighted average life 1.0 - 15.0 yrs 12.2
Mortgages held for sale (residential) 2,374 Discounted cash flow Default rate 0.6 - 12.4 % 2.8
Discount rate 3.8 - 7.9 5.5
Loss severity 1.3 - 32.5 21.5
Prepayment rate 2.0 - 9.9 5.4
Loans 5,723 (6) Discounted cash flow Discount rate 2.4 - 3.9 3.3
Prepayment rate 3.3 - 37.8 12.2
Utilization rate 0.0 - 2.0 0.8
Mortgage servicing rights (residential) 15,580 Discounted cash flow Cost to service per loan (7) $ 86 -773 191
Discount rate 5.4 -11.2 % 7.8
Prepayment rate (8) 7.5 - 19.4 10.7
Net derivative assets and (liabilities):
Interest rate contracts (14) Discounted cash flow Default rate 0.0 - 16.5 5.0
Loss severity 44.9 - 50.0 50.0
Prepayment rate 11.1 - 15.6 15.6
Interest rate contracts: derivative loan
commitments (26) Discounted cash flow Fall-out factor 1.0 - 99.0 21.8
Initial-value servicing (21.5) - 81.6 bps 32.6
Equity contracts 199 Discounted cash flow Conversion factor (18.4) - 0.0 % (14.1)
Weighted average life 0.3 - 3.3 yrs 1.8
(245) Option model Correlation factor (5.3) - 87.6 % 72.2
Volatility factor 6.8 - 81.2 25.4
Credit contracts (378) Market comparable pricing Comparability adjustment (31.3) - 30.4 (0.1)
3 Option model Credit spread 0.0 - 12.2 0.7
Loss severity 10.5 - 72.5 47.4
Other assets: nonmarketable equity investments 1,386 Market comparable pricing Comparability adjustment (30.6) - (5.4) (21.9)
Insignificant Level 3 assets,
net of liabilities 678 (9)
Total level 3 assets, net of liabilities $ 33,494 (10)
(1) Weighted averages are calculated using outstanding unpaid principal balance for cash instruments such as loans and securities, and notional amounts for derivative
instruments.
(2) Includes $695 million of collateralized debt obligations.
(3) Securities backed by specified sources of current and future receivables generated from foreign originators.
(4) Consists primarily of investments in asset-backed securities that are revolving in nature, in which the timing of advances and repayments of principal are uncertain.
(5) Consists of auction rate preferred equity securities with no maturity date that are callable by the issuer.
(6) Consists predominantly of reverse mortgage loans securitized with GNMA which were accounted for as secured borrowing transactions.
(7) The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $86 - $302.
(8) Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower
behavior.
(9) Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The
amount includes corporate debt securities, mortgage-backed securities, other marketable equity securities, other liabilities and certain net derivative assets and liabilities,
such as commodity contracts, foreign exchange contracts and other derivative contracts.
(10)Consists of total Level 3 assets of $37.2 billion and total Level 3 liabilities of $3.7 billion, before netting of derivative balances.
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