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 ~~September~~March 3031, ~~2018~~2019

Commission file number 1-36768

Wells Fargo Real Estate Investment Corporation

(Exact name of registrant as specified in its charter)



Delaware		56-1986428
(State of incorporation)		(I.R.S. Employer Identification No.)

90 South 7th Street

Minneapolis, Minnesota 55402

(Address of principal executive offices)

(Zip Code)

(855) 825-1437

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company' in Rule 12b-2 of the Exchange Act.



	Large accelerated filer o		Accelerated filer o

	Non-accelerated filer þ		Smaller reporting company o
			Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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

Securities registered pursuant to Section 12(b) of the Exchange Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
6.375% Cumulative Perpetual Series A Preferred Stock	WFE.PRA	New York Stock Exchange, Inc.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of ~~October~~April 29, ~~2018~~2019, there were 34,058,028 shares of the registrant’s common stock outstanding.

FORM 10-Q

CROSS-REFERENCE INDEX

PART I	Financial Information
Item 1.	Financial Statements			Page
	Statement of Income			2425
	Balance Sheet			2526
	Statement of Changes in Equity			2627
	Statement of Cash Flows			2728
	Notes to Financial Statements
	1	—	Summary of Significant Accounting Policies	2829
	2	—	Loans and Allowance for Credit Losses	2930
	3	—	Fair Values of Assets and Liabilities	41
	4	—	Common and Preferred Stock	42
	5	—	Transactions with Related Parties	43
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data			2
	Overview			3
	Earnings Performance			54
	Balance Sheet Analysis			86
	Risk Management			97
	Critical Accounting Policy			2120
	Current Accounting Developments			21
	Forward-Looking Statements			22
	Risk Factors			2223
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			1918
Item 4.	Controls and Procedures			2324
PART II	Other Information
Item 1.	Legal Proceedings			45
Item 1A.	Risk Factors			45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 6.	Exhibits			46
Signature				47

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW

Summary Financial Data
								% Change
	Quarter ended							~~September~~March 3031, ~~2018~~2019 from				~~Nine months ended~~
($ in thousands, except per share data)	~~Sep~~Mar 3031, ~~2018~~2019			~~Jun~~Dec 3031, 2018		~~Sep~~Mar 3031, ~~2017~~2018		~~Jun~~Dec 3031, 2018		~~Sep~~Mar 3031, ~~2017~~2018		~~Sep 30, 2018~~			~~Sep 30, 2017~~	~~% Change~~
For the period
Net income	$	~~301~~303,~~123~~439		~~307~~310,~~303~~153		~~326~~319,~~540~~032		(2	)%	(85	)	$	~~927,458~~		~~903,737~~	3	%
Net income applicable to common stock	~~296~~299,~~726~~042			~~302~~305,~~906~~756		~~322~~314,~~143~~635		(2	)	(85	)	~~914,267~~			~~890,546~~	3
Diluted earnings per common share	8.7178			8.8998		9.4624		(2	)	(85	)	~~26.84~~			~~26.15~~	3
Profitability ratios
Return on average assets	3.5949		%	3.5765		3.8764		1(4	)	(74	)	~~3.60~~		%	~~3.62~~	(1	)
Return on average stockholders’ equity	3.6879			3.7978		3.9998		(3—	)	(85	)	~~3.82~~			~~3.73~~	2
Average stockholders’ equity to average assets	9792.4214			9496.2857		9691.7849		3(5	)	1		~~94.35~~			~~97.28~~	(3	)
Common dividend payout ratio (1)	9698.1063			9794.4177		99103.3725		(14	)	(34	)	~~98.99~~			~~100.50~~	(2	)
Dividend coverage ratio (2)	76,~~064~~948			7,~~208~~037		67,~~837~~105		(21	)	3(2	)	~~7,064~~			~~6,837~~	3
Total revenue	$	~~330~~341,~~025~~468		333,~~504~~582		~~345~~343,~~155~~520		(12	)	(41	)	$	~~1,007,049~~		~~1,004,061~~	—
Average loans	3335,~~024~~003,~~229~~619			3433,~~234~~506,~~880~~663		3335,~~243~~326,~~173~~570		(4	)	(1	)	~~34,186,792~~			~~31,802,058~~	7
Average assets	3335,~~288~~230,~~067~~874			3433,~~499~~699,~~277~~611		3335,~~516~~569,~~352~~258		(45	)	(1	)	~~34,443,845~~			~~33,338,443~~	3
Net interest margin	3.9989		%	3.9088		3.9683		2—		12		~~3.90~~		%	~~3.87~~	1
Net loan charge-offs (recoveries)	$	(~~119~~626	)	(~~786~~513	)	~~1,156~~(506	)	~~(85~~22	)	NM24		$	~~(1,411~~	)	~~5,331~~	NM
As a percentage of average total loans (annualized)	—(0.01		)%	(0.01	)	(0.01	)	~~(100~~—	)	~~(100~~—	)	~~(0.01~~		)%	~~0.02~~	NM
At period end
Loans	$	3234,~~510~~564,~~311~~299		3335,~~599~~495,~~587~~068		3234,~~697~~824,~~065~~594		(3	)	(1	)	$	~~32,510,311~~		~~32,697,065~~	(1	)
Allowance for loan losses	~~104~~98,~~556~~158			~~112~~96,~~381~~743		~~129~~122,~~116~~863		(71	)	(1920	)	~~104,556~~			~~129,116~~	~~(19~~	)
As a percentage of total loans	0.3228		%	0.3327		0.3935		(34	)	(1820	)	~~0.32~~		%	~~0.39~~	~~(18~~	)
Assets	$	3234,~~589~~636,~~234~~027		3335,~~747~~493,~~152~~267		3234,~~738~~898,~~812~~519		(32	)	—(1	)	$	~~32,589,234~~		~~32,738,812~~	—
Total stockholders’ equity	32,~~399~~419,~~530~~328			32,~~387~~415,~~804~~286		32,~~389~~379,~~730~~898		—		—		~~32,399,530~~			~~32,389,730~~	—
Total nonaccrual loans and foreclosed assets	~~182~~181,~~513~~813			~~190~~180,~~136~~516		~~200~~199,~~896~~449		(41	)	(9	)	~~182,513~~			~~200,896~~	(9	)
As a percentage of total loans	0.5653		%	0.5751		0.6157		(24	)	(87	)	~~0.56~~		%	~~0.61~~	(8	)
Loans 90 days or more past due and still accruing (3)	$	63,~~118~~018		26,~~641~~527		68,~~174~~272		~~132~~(54	)	(164	)	$	~~6,118~~		~~6,174~~	(1	)

NM - Not meaningful


(1)	Dividends declared per common share as a percentage of earnings per common share.

(2)

The dividend coverage ratio is considered a non-GAAP financial measure. Management believes the dividend coverage ratio is a useful financial measure because the certificate of designation for the Series A preferred stock limits, among other matters, our ability to pay dividends on our common stock or make any payment of interest or principal on our line of credit with Wells Fargo Bank, National Association, if the dividend coverage ratio for the four prior fiscal quarters is less than 150%. The dividend coverage ratio is expressed as a percentage and calculated by dividing the four prior fiscal quarters' GAAP net income, excluding gains (or losses) from sales of property (consistent with the National Association of Real Estate Investment Trusts definition of “funds from operations”), by the amount that would be required to pay annual dividends on the Series A and Series B preferred stock.


(3)	The carrying value of purchased credit-impaired (PCI) loans contractually 90 days or more past due is excluded. 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.

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 forecasts and expectations due to several factors. Factors that could cause our 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” section in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 ( ~~2017~~2018 Form 10-K).

When we refer to “WFREIC,” the “Company,” “we,” “our,” and “us” in this Report, we mean Wells Fargo Real Estate Investment Corporation, and where relevant, Wells Fargo Bank, National Association, acting on our behalf; the “Bank” refers to Wells Fargo Bank, National Association; and “Wells Fargo” refers to Wells Fargo & Company.

Financial Review

OVERVIEW

The Company is engaged in acquiring, holding and managing domestic mortgage assets and other authorized investments that generate net income for distribution to our shareholders. We are classified as a real estate investment trust (REIT) for federal income tax purposes and are an indirect subsidiary of Wells Fargo and the Bank.

As of ~~September~~March 3031, ~~2018~~2019, we had $3234.6 billion in assets, consisting substantially of real estate loan participation interests (loans). Our interests in mortgage and other assets have been acquired from the Bank pursuant to loan participation and servicing and assignment agreements among the Bank, certain of its subsidiaries and us. The Bank originated the loans, purchased them from other financial institutions or acquired them as part of the acquisition of other financial institutions. Substantially all of our loans are serviced by the Bank.

REIT Tax Status

For the tax year ended December 31, ~~2017~~2018, we complied with the relevant provisions of the Internal Revenue Code of 1986, as amended (the Code) to be taxed as a REIT. These provisions for qualifying as a REIT for federal income tax purposes are complex, involving many requirements, including among others, distributing at least 90% of our REIT taxable income to shareholders and satisfying certain asset, income and stock ownership tests. To the extent we meet those provisions, we will not be subject to federal income tax on net income. We continue to monitor each of these complex tests. We believe that we continue to satisfy each of these requirements and therefore continue to qualify as a REIT.

In the event we do not continue to qualify as a REIT, earnings and cash provided by operating activities available for distribution to shareholders would be reduced by the amount of any applicable income tax obligation. Given the level of earning assets, we currently expect there would be sufficient earnings and ample cash to pay preferred dividends. The preferred and common dividends we pay as a REIT are ordinary investment income not eligible for the dividends-received deduction for corporate shareholders or for the favorable qualified dividend tax rate applicable to non-corporate taxpayers, however non-corporate shareholders may be able to deduct 20% of the preferred and common dividends as a deduction for qualified business income under the Tax Cuts and Jobs Act. If we were not a REIT, preferred and common dividends we pay generally would qualify for the dividends received deduction for corporate shareholders and the favorable qualified dividend tax rate applicable to non-corporate taxpayers.

Financial Performance

We earned net income and net income applicable to common stock of $~~301~~303.14 million and $~~296~~299.70 million, respectively, in ~~third~~first quarter ~~2018~~2019, or $8.7178 diluted earnings per common share, compared with $~~326~~319.50 million and $~~322~~314.16 million, respectively, in ~~third~~first quarter ~~2017~~2018, or $9.4624 diluted earnings per common share. For the first nine months of 2018, net income and net income applicable to common stock were $927.5 million and $914.3 million, respectively, or $26.84 diluted earnings per common share, compared with $903.7 million and $890.5 million, respectively, for the same period a year ago, or $26.15 diluted earnings per common share. The decrease in net income in the ~~third~~first quarter of ~~2018~~2019 was ~~due~~attributable to ~~lower~~a decrease in pledge fees, aand ~~lower~~increases ~~reversal~~in ofboth the provision for credit losses and ~~an increase in~~ noninterest expense~~. The increase in net income for the first nine months of 2018 was attributable to an increase in net interest income and reversal of provision for credit losses~~, partially offset by ~~a decrease in pledge fees and~~ an increase in ~~noninterest~~net ~~expense~~interest income.

Loans

Total loans were $3234.56 billion at ~~September~~March 3031, ~~2018~~2019, compared with $35.95 billion at December 31, ~~2017~~2018. ~~Net~~Loans, ~~loans~~net of allowance for loan losses, represented 99.5% of assets at ~~both September~~March 3031, ~~2018~~2019 and 99.7% at December 31, ~~2017~~2018.

Credit quality, as measured by net charge-offs, nonaccrual loans and delinquencies, remained strong during ~~third~~first quarter ~~2018~~2019. Net recoveries were $~~119~~626 thousand ~~and $1.4 million~~ in the ~~third~~first quarter ~~and first nine months~~ of ~~2018~~2019, compared with ~~net charge-offs of~~ $~~1.2 million~~506 ~~and~~thousand ~~$5.3 million~~ in the ~~third~~first quarter ~~and first nine months~~ of ~~2017~~2018. ~~These results reflect the benefit of continued improvement in the housing market driving favorable performance in our residential real estate portfolio.~~ Nonaccrual loans were $179.97 million at ~~September~~March 3031, ~~2018~~2019, compared with $~~197~~178.49 million at December 31, ~~2017~~2018. Loans 90 days or more past due and still accruing were $63.10 million at ~~September~~March 3031, ~~2018~~2019, compared with $126.95 million at December 31, ~~2017~~2018. Delinquencies remain a small percentage of our loan balances.

3Provision for credit losses was $1.7 million in the first quarter of 2019, compared with reversal of provision for credit losses of $5.9 million for the same period in 2018. The provision for credit losses was higher in the first quarter of 2019, as the continued portfolio improvement slowed combined with a higher probability of slightly less favorable economic conditions. First quarter 2018 reflected an improvement in our outlook for hurricane-related losses as well as strong performance in our residential real estate portfolio. Future allowance levels will be based on a variety of factors, including loan portfolio composition, size and performance, and the general economic environment, including housing market conditions.

Reversal of provision for credit losses was $6.8 million and $22.9 million in the third quarter and first nine months of 2018, compared with reversal of provision for credit losses of $11.5 million and provision for credit losses of $14.7 million for the same periods in 2017. The reversal of provision was lower in the third quarter of 2018 compared with a year ago due to a decrease in allowance release as continued portfolio improvement stabilizes. The reversal of provision in the first nine months of 2018 compared to the provision a year ago reflected continued improvement in the housing market driving favorable performance in our residential real estate portfolio. Future allowance levels will be based on a variety of factors, including loan portfolio composition, size and performance, and the general economic environment, including housing market conditions.

Capital Distributions

Dividends declared to holders of our Series A preferred stock totaled $4.4 million ~~and $13.1 million~~ in the ~~third~~first quarter ~~and first nine months, respectively,~~ of both ~~2018~~2019 and ~~2017~~2018. Dividends declared to holders of our Series B preferred stock totaled $14 thousand ~~and $42 thousand~~ in the ~~third~~first quarter ~~and first nine months, respectively,~~ of both ~~2018~~2019 and ~~2017~~2018.

Dividends declared to the holders of our common stock totaled $~~285~~295.0 million ~~and~~in first quarter 2019, compared with $~~905~~325.0 million ~~for~~in ~~the~~first ~~third~~ quarter ~~and~~2018. ~~first~~The ~~nine~~decrease ~~months~~in ofdividends ~~2018,~~declared ~~respectively,~~to ~~compared~~the ~~with~~holders ~~$320.0~~of ~~million~~our ~~and~~common ~~$895.0~~stock ~~million~~in ~~for~~ the ~~same~~first ~~periods~~quarter ~~in 2017.~~

of 2019 was attributable to a decrease in estimated REIT taxable income for federal income tax purposes before dividends paid deduction.

Earnings Performance

Net Income

We earned net income of $~~301~~303.14 million and $~~326~~319.50 million in ~~third~~first quarter ~~2018~~2019 and ~~2017~~2018, respectively. ~~For the first nine months of 2018, net income was $927.5 million, compared with $903.7 million for the same period a year ago.~~ The decrease in net income infor the ~~third~~first quarter of ~~2018~~2019 was ~~due~~attributable to ~~lower~~a decrease in pledge ~~fee~~fees ~~income,~~and aincreases ~~lower~~in ~~reversal~~both ofthe provision for credit losses, and ~~an increase in~~ noninterest expense~~. The increase in net income for the first nine months of 2018 was attributable to an increase in net interest income and reversal of provision for credit losses~~, partially offset by ~~a decrease in pledge fees and~~ an increase in ~~noninterest~~net ~~expense~~interest income.

Net Interest Income

Net interest income is the interest earned on loans and cash and cash equivalents less the interest paid on our Bank line of credit. Net interest ~~income~~margin ~~was~~is ~~$329.9~~the ~~million~~average ~~and~~yield ~~$1.0~~on ~~billion~~interest-earning inassets minus the ~~third~~average ~~quarter~~interest ~~and~~paid ~~first~~for ~~nine~~funding. ~~months~~Interest-earning assets predominantly consist of ~~2018,~~loans. ~~respectively,~~Net ~~compared~~interest ~~with~~income was $~~329~~339.67 million ~~and~~in first quarter 2019, compared with $~~959~~337.83 million for the same ~~periods~~period a year ago. ~~Third~~Net ~~quarter~~interest ~~2018~~margin ~~reflected~~was an3.89% ~~increase~~ in ~~commercial~~the ~~loan~~first ~~yield,~~quarter ~~offset~~of by2019 acompared ~~decrease~~with in3.83% ~~real~~for ~~estate~~the ~~1-4~~same ~~family~~period ~~mortgage loan yield compared with~~ a year ago. The increase in net interest income inand ~~the~~net ~~first~~interest ~~nine~~margin ~~months~~for offirst ~~2018~~quarter 2019 was ~~attributable~~due to an increase in yields on interest-earning ~~income~~assets, ~~resulting~~partially ~~from~~offset by an increase in interest expense, a result of higher rates. Interest income in the first quarter of 2019 included net accretion of adjustments on loans of $6.8 million, compared with $4.3 million a year ago. Loan paydowns and payoffs annualized represented 10.5% of average loan ~~balance~~balances ~~and~~for ~~higher~~first ~~yield,~~quarter ~~partially~~2019 ~~offset~~compared bywith an11.7% ~~increase~~during inthe ~~interest~~same ~~expense~~period a year ago.

Net interest margin is the average yield on interest-earning assets minus the average interest paid for funding. Interest-earning assets predominantly consist of loans. Net interest margin was 3.99% and 3.90% in the third quarter and first nine months of 2018, respectively, compared with 3.96% and 3.87% for the same periods a year ago. Interest income in the third quarter and first nine months of 2018 included net accretion of adjustments on loans of $5.0 million and $14.3 million, respectively, compared with $4.1 million and $10.4 million a year ago. Loan paydowns and payoffs annualized represented 12.9% of average loan balances for both the third quarter and first nine months of 2018, respectively, compared with 13.3% and 13.4% during the same periods a year ago.

Interest income in any one period can be affected by a variety of factors, including mix and size of the earning asset portfolio. See the “Risk Management - Asset/Liability Management - Interest Rate Risk” section in this Report for more information on interest rates and interest income.

The Company has a $5.0 billion line of credit with the Bank. Average borrowings for ~~third~~first quarter ~~2018~~2019 and ~~2017~~2018 were $~~757~~2.57 billion ~~million~~ and $~~968.~~3.0 ~~million~~billion, respectively, at weighted average interest rates of 2.4179% and 1.3093%, respectively. ~~Average~~Effective ~~borrowings~~March ~~for~~2019, the ~~first~~Company ~~nine~~renewed ~~months~~the line of ~~2018~~credit with the Bank and ~~2017~~the ~~were~~interest ~~$1.9~~rate ~~billion~~increased ~~and~~from ~~$352.0~~three-month ~~million,~~London ~~respectively,~~Interbank atOffered ~~weighted~~Rate ~~average~~(LIBOR) ~~interest~~plus ~~rates~~4.4 basis ofpoints 2(0.16044%) ~~and~~to 1three-month LIBOR plus 65.~~30%,~~0 basis ~~respectively~~points (0.650%). ~~Effective~~The ~~October~~change ~~2017,~~in ~~the~~interest rate ofwas ~~interest~~driven onby ~~the~~an ~~line~~increase ofin term, along with a change in underwriting which aligned our credit ~~was~~rating ~~changed~~with ~~from~~that ~~the~~of ~~average~~our ~~federal~~direct ~~funds~~parents ~~rate~~rather ~~plus~~than 12the Bank.~~5 basis~~ ~~points~~It ~~(0.125%)~~is toexpected ~~the~~that ~~three-month~~a ~~London~~transition ~~Interbank~~away ~~Offered~~from ~~Rate~~the (widespread use of LIBOR) ~~plus~~to ~~4.4 basis~~alternative ~~points~~benchmark (0rates will occur by the end of 2021.~~044%).~~

Table 1 presents the components of interest-earning assets and interest-bearing liabilities and related average yields to provide an analysis of year-over-year changes that influenced net interest income.

Table 1: Net Interest Income



	Quarter ended March 31,
					2019						2018
(in thousands)	Average balance		Interest income/expense		Yields/rates		Average balance		Interest income/expense		Yields/rates
Earning assets
Commercial loans	$	2,951,955	33,062		4.54	%	$	3,233,806	30,202		3.79	%
Real estate 1-4 family mortgage loans	32,051,664		325,051		4.06		32,092,764		321,462		4.01
Total interest-earning assets	$	35,003,619	358,113		4.10		$	35,326,570	351,664		3.99
Funding sources
Line of credit with Bank	$	2,667,934	18,387		2.79		$	3,021,064	14,402		1.93
Total interest-bearing liabilities	$	2,667,934	18,387		2.79		$	3,021,064	14,402		1.93
Net interest margin and net interest income			$	339,726	3.89	%			$	337,262	3.83	%

	Quarter ended September 30,
					2018						2017
(in thousands)	Averagebalance		Interestincome/expense		Yields/rates		Averagebalance		Interestincome/expense		Yields/rates
Earning assets
Commercial loans	$	2,763,794	29,401		4.22	%	$	3,554,112	30,397		3.39	%
Real estate 1-4 family mortgage loans	30,260,435		305,072		4.03		29,689,061		302,349		4.07
Interest-bearing deposits	2,243		12		2.07		474		2		1.17
Total interest-earning assets	$	33,026,472	334,485		4.04		$	33,243,647	332,748		4.00
Funding sources
Line of credit with Bank	$	757,455	4,604		2.41		$	968,313	3,173		1.30
Total interest-bearing liabilities	$	757,455	4,604		2.41		$	968,313	3,173		1.30
Net interest margin and net interest income			$	329,881	3.99	%			$	329,575	3.96	%
	Nine months ended September 30,
					2018						2017
(in thousands)	Averagebalance		Interestincome/expense		Yields/rates		Averagebalance		Interestincome/expense		Yields/rates
Earning assets
Commercial loans	$	3,008,863	90,250		4.01	%	$	3,717,154	85,726		3.08	%
Real estate 1-4 family mortgage loans	31,177,929		941,094		4.03		28,084,905		869,005		4.13
Interest-bearing deposits	756		12		2.07		1,313,619		8,498		0.86
Total interest-earning assets	$	34,187,548	1,031,356		4.02		$	33,115,678	963,229		3.88
Funding sources
Line of credit with Bank	$	1,907,366	30,866		2.16		$	352,017	3,423		1.30
Total interest-bearing liabilities	$	1,907,366	30,866		2.16		$	352,017	3,423		1.30
Net interest margin and net interest income			$	1,000,490	3.90	%			$	959,806	3.87	%

Provision for Credit Losses

~~Reversal~~First ofquarter 2019 provision for credit losses was $61.87 million ~~and $22.9 million in the third quarter and first nine months of 2018, respectively,~~ compared with a reversal of provision for credit losses of $~~11.~~5.9 million ~~and provision~~ for ~~credit losses of $14.7 million for~~ the same ~~periods~~period a year ago. The ~~reversal~~provision offor ~~provision~~credit losses was ~~lower~~higher in the ~~third~~first quarter of ~~2018~~2019 compared with a year ago, ~~due to a decrease in allowance release~~ as the continued portfolio improvement ~~stabilizes.~~slowed ~~The~~combined ~~reversal~~with ofa ~~provision~~higher inprobability ~~the first nine months~~ of ~~2018~~slightly ~~compared~~less tofavorable ~~the~~economic ~~provision~~conditions. aFirst ~~year~~quarter ~~ago~~2018 reflected ~~continued~~an improvement in ~~the~~our ~~housing~~outlook ~~market~~for ~~driving~~hurricane-related ~~favorable~~losses as well as strong performance in our residential real estate portfolio. ~~See the “Balance Sheet Analysis” and "Risk Management – Allowance for Credit Losses” sections in this Report for additional information on the allowance for credit losses.~~

6See the “Balance Sheet Analysis” and "Risk Management – Allowance for Credit Losses” sections in this Report for additional information on the allowance for credit losses.

Noninterest Income

Noninterest income ~~was $144 thousand and $6.6 million~~ in ~~the~~first ~~third~~ quarter ~~and~~2019 ~~first~~was ~~nine~~$1.7 ~~months of 2018~~million, ~~respectively,~~ compared with $~~15.~~6 ~~million and $44~~.3 million for the same ~~periods~~period a year ago. The decrease in the ~~third~~first quarter ~~and first nine months~~ of ~~2018~~2019 was attributable to a decrease in pledge fees~~, a result of having no loans pledged during second and third quarter 2018~~.

The certificate of designation for the Series A preferred stock limits our ability to pledge our loans to an aggregate amount not exceeding 80% of our total assets at any time as collateral on behalf of the Bank for the Bank’s access to secured borrowing facilities through the Federal Home Loan Banks or the discount window of Federal Reserve Banks. However, the Bank's borrowings will differ from loan balances pledged. In exchange for the pledge of our loan assets, the Bank pays us a fee that is consistent with market terms. We ~~did~~earned ~~not~~$1.4 ~~earn~~million ~~pledge fees~~ in ~~third~~pledge ~~quarter 2018. Pledge~~ fees ~~were $6.0 million~~ in the first ~~nine~~quarter ~~months~~ of ~~2018.~~2019 ~~Pledge~~compared ~~fees~~with ~~were~~ $156.9 0 million ~~and~~a ~~$44~~year ago.3 ~~million~~The decrease in ~~the~~first ~~third~~ quarter ~~and~~2019 ~~first~~was ~~nine~~attributable ~~months~~to ofa ~~2017,~~lower ~~respectively.~~average balance pledged.

See Note 5 (Transactions With Related Parties) to Financial Statements in this Report for more details.

Noninterest Expense

Noninterest expense ~~was $35.7 million and $102.5 million~~ in ~~the~~first ~~third~~ quarter ~~and~~2019 ~~first~~was ~~nine~~$36.3 ~~months of 2018~~million, ~~respectively,~~ compared with $30.23 million ~~and $85.7 million~~ for the same ~~periods~~period a year ago. Noninterest expense predominantly consists of loan servicing costs, management fees, and foreclosed assets expense.

The loans in our portfolio are predominantly serviced by the Bank pursuant to the terms of participation and servicing and assignment agreements. In limited instances, the Bank has delegated servicing responsibility to third parties that are not affiliated with us or the Bank. Depending on the loan type, the monthly servicing fee charges are based in part on (a) outstanding principal balances, (b) a flat fee per month, or (c) a total loan commitment amount. Loan servicing costs ~~were~~in ~~$20.6 million for both~~ the ~~third~~first quarter of ~~2018~~2019 ~~and 2017. Loan servicing costs~~ were $6321.85 million ~~in the first nine months of 2018, respectively,~~ compared with $5821.69 million for the same period a year ago. ~~The increase in the first nine months of 2018 was attributable to a higher average loan balance.~~

Management fees represent reimbursements made to the Bank for general overhead expenses, including allocations of technology support and a combination of finance and accounting, risk management and other general overhead expenses incurred on our behalf. Management fees include direct and indirect expense allocations. Indirect expenses are allocated based on ratios that use our proportion of expense activity drivers. The expense activity drivers and ratios may change from time to time. Management fees were $1110.07 million ~~and~~in first quarter 2019, compared with $296.0 3 million ina ~~the~~year ~~third~~ago. ~~quarter~~The ~~and~~increase in first ~~nine~~quarter ~~months~~2019 ofwas ~~2018,~~driven ~~compared~~by ~~with~~an ~~$6.4 million~~increase ~~and~~in ~~$19.2 million~~allocations for ~~the~~portfolio ~~same~~credit ~~periods~~monitoring aand ~~year ago~~oversight.

Foreclosed assets expense was $43.~~0 million and $~~9.2 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2018,~~2019 ~~respectively,~~ compared with $2.~~7 million and $7.~~1 million for the same ~~periods~~period a year ago. The increase in the first quarter of 2019 is attributable to an increase in property taxes. Substantially all of our foreclosed assets consist of residential 1-4 family real estate assets.

See Note 5 (Transactions With Related Parties) to Financial Statements in this Report for more details.

Balance Sheet Analysis

Total Assets

Our assets predominantly consist of commercial and consumer loans, although we have the authority to hold assets other than loans. Total assets were $3234.6 billion at ~~September~~March 3031, ~~2018~~2019, and $35.95 billion at December 31, ~~2017~~2018.

Loans

Loans were $3234.56 billion at ~~September~~March 3031, ~~2018~~2019, and $35.95 billion at December 31, ~~2017~~2018. WeThe ~~did~~decrease ~~not~~is ~~acquire~~attributable ~~loans~~to innet ~~the~~paydowns ~~third quarter~~ and ~~first~~no ~~nine months of 2018. We did not acquire~~ loans acquired in ~~the~~first ~~third~~ quarter ~~of 2017~~2019. ~~In the first nine months of 2017, we acquired $4.7 billion of consumer loans from the Bank at their estimated fair value.~~ At ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, consumer loans represented 92% and 91% of loans, respectively, and commercial loans represented the remaining balance of our loan portfolio.

Allowance for Loan Losses

The allowance for loan losses, ~~which~~increased ~~decreased~~ $241.85 million to $~~104~~98.62 million at ~~September~~March 3031, ~~2018~~2019, from $~~129~~96.47 million at December 31, ~~2017~~2018, ~~reflected~~as the continued portfolio improvement inslowed ~~the~~combined ~~housing~~with ~~market~~a ~~driving~~higher probability of slightly less favorable economic conditions. First quarter 2018 reflected an improvement in our outlook for hurricane-related losses as well as strong performance in our residential real estate portfolio.

At ~~September~~March 3031, ~~2018~~2019, the allowance for loan losses included $8274.5 million for consumer loans and $2223.17 million for commercial loans; however, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. The total allowance reflects management’s estimate of credit losses inherent in the loan portfolio at the balance sheet date. See the “Risk Management – Credit Risk Management – Allowance for Credit Losses” section in this Report for a description of how management estimates the allowance for loan losses and the allowance for unfunded credit commitments.

Accounts Payable and Receivable—Affiliates, Net

Accounts ~~receivable from or~~ payable toand ~~the~~receivable ~~Bank~~from ~~or its~~ affiliates result from intercompany transactions in the normal course of business related to loan paydowns and payoffs, interest receipts, servicing costs, management fees and other transactions with the Bank or its affiliates.

Line of Credit with Bank

We draw upon our $5.0 billion line of credit with the Bank to finance loan acquisitions. At ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, we had $~~182~~2.2 ~~million~~billion and $3.61 billion outstanding, respectively.

Retained Earnings (Deficit)

We expect to distribute annually an aggregate amount of dividends with respect to outstanding capital stock equal to approximately 100% of our REIT taxable income for federal income tax purposes before dividends paid deduction. Because our net income determined under GAAP may vary from the determination of REIT taxable income, due to recognition differences for items such as loan losses and purchase accounting adjustments, periodic distributions may exceed our GAAP net income.

The retained deficit included within our balance sheet results from cumulative distributions that have exceeded GAAP net income, predominantly due to the impact on REIT taxable income of purchase accounting adjustments attributable to the Company during the years 2009 through 2013, from the 2008 acquisition of Wachovia Corporation by Wells Fargo.

For further information on the differences between taxable income before dividends paid deduction reported on our income tax returns and net income as reported in our statement of income, see the “Balance Sheet Analysis” section in our ~~2017~~2018 Form 10-K.

Risk Management

Our board of directors has overall responsibility for overseeing the Company’s risk management structure. This oversight is accomplished through the Audit Committee of the Board of Directors and a management-level committee that reviews the allowance for credit losses and is supplemented by certain elements of Wells Fargo’s risk management framework. For more information about how we manage these risks, see the “Risk Management” section in our ~~2017~~2018 Form 10-K. The discussion that follows provides an update regarding these risks.

Credit Risk Management Our assets consist predominantly of loans, and their related credit risk is among the most significant risks we manage. We define credit risk as the risk to earnings associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms).

Table 2 represents loans by segment and class of financing receivable and the weighted average maturity for those loans calculated using contractual maturity dates.

Table 2: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable and Weighted Average Contractual Maturity

Loans outstanding

Weighted average maturity in years

(in thousands)

~~Sep~~Mar 3031, ~~2018~~2019

Dec 31, ~~2017~~2018

~~Sep~~Mar 3031, ~~2018~~2019

Dec 31, ~~2017~~2018

Total commercial

2,~~639~~895,~~772~~857

3,~~325~~055,~~939~~423

3.12

3.2

Consumer:

Real estate 1-4 family first mortgage

2931,~~162~~034,~~590~~572

31,~~683~~769,~~651~~813

24.5

2524.17

Real estate 1-4 family junior lien mortgage

~~707~~633,~~949~~870

~~855~~669,~~586~~832

15.10

15.40

Total consumer

2931,~~870~~668,~~539~~442

32,~~539~~439,~~237~~645

24.23

24.85

Total loans

3234,~~510~~564,~~311~~299

35,~~865~~495,~~176~~068

22.5

22.86

The discussion that follows provides analysis of the risk elements of our various loan portfolios and our credit risk management and measurement practices. See Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information.

In order to maintain our REIT status, the composition of our loan portfolio is highly concentrated in real estate.

We continually evaluate our credit policies and modify as necessary. 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.

LOAN PORTFOLIO BY GEOGRAPHY Table 3 is a summary of the geographical distribution of our loan portfolio for the top five states by loans outstanding.

Table 3: Loan Portfolio by Geography

	September 30, 2018
	March 31, 2019
(in thousands)	Commercial		Real estate1-4 familyfirstmortgage	Real estate1-4 familyjunior lienmortgage	Total	% oftotalloans
California	$	1,~~241~~318,~~468~~688	8,~~183~~260,~~514~~780	7,~~810~~196	9,~~432~~586,~~792~~664	2928	%
New York	910,~~332~~173		32,~~079~~977,~~324~~848	4439,~~425~~927	3,~~133~~027,~~081~~948	109
Washington	~~133~~126,~~048~~740		2,~~004~~302,~~212~~903	~~937~~877	2,~~138~~430,~~197~~520	7
Virginia	5049,~~844~~441		1,~~706~~920,~~072~~883	7264,~~453~~087	12,~~829~~034,~~369~~411	6
Texas	7179,~~030~~661		1,~~165~~317,~~982~~749	87,~~720~~392	1,~~245~~404,~~732~~802	4
All other states	1,134,050		13,023,486	573,604	14,731,140	44
Maryland	87,241		1,214,371	29,435	1,331,047	4
Total loans	$	2,639,772	29,162,590	707,949	32,510,311	100	%
Massachusetts	26,818		1,271,026	2,320	1,300,164	4
Pennsylvania	19,834		1,084,239	98,705	1,202,778	3
Illinois	2,994		1,158,468	954	1,162,416	3
Florida	268,164		746,235	83,863	1,098,262	3
Georgia	29,486		1,003,872	42,867	1,076,225	3
Minnesota	67,681		969,248	1,470	1,038,399	3
Oregon	147,209		884,475	490	1,032,174	3
Arizona	59,686		808,927	572	869,185	3
All other states (1)	602,041		5,113,548	253,715	5,969,304	17
Total loans	$	2,895,857	31,034,572	633,870	34,564,299	100	%

~~COMMERCIAL~~(1) ~~AND~~No ~~INDUSTRIAL~~state ~~LOANS~~is ~~(C&I)~~equal ~~C&I~~to ~~loans~~or ~~were~~greater ~~less~~ than 13% of total loans ~~at September 30, 2018~~. ~~Our credit risk management process for this portfolio focuses on a~~

~~customer's~~COMMERCIAL ~~ability~~AND toINDUSTRIAL ~~repay~~LOANS ~~the~~(C&I) ~~loan~~C&I ~~through~~loans ~~their~~were ~~cash~~less ~~flows.~~than ~~All~~1% of ~~the~~total loans inat ~~our~~March 31, 2019. We believe the C&I portfolio ~~were~~is ~~unsecured~~appropriately atunderwritten. ~~September 30,~~Our ~~2018.~~credit risk management process for this portfolio focuses on a customer's

10ability to repay the loan through their cash flows. Substantially all of the loans in our C&I portfolio were unsecured at March 31, 2019.

COMMERCIAL SECURED BY REAL ESTATE (CSRE) The CSRE portfolio consists of both mortgage loans and construction loans, where loans are secured by real estate. Table 4 summarizes CSRE loans by state and property type. To identify and manage newly emerging problem CSRE loans, we employ a high level of monitoring and regular customer interaction to understand and manage the risks associated with these loans,

including regular loan reviews and appraisal updates. We consider the creditworthiness of the customers and collateral valuations when selecting CSRE loans for acquisition. In future periods, we expect to consider acquisitions of CSRE loans in addition to other REIT qualifying assets such as real estate 1-4 family mortgage loans.

Table 4: CSRE Loans by State and Property Type

	September 30, 2018
	March 31, 2019
(in thousands)	TotalCSRE loans		% oftotalCSRE loans
By state:
California	$	1,~~241~~318,~~468~~688	4746	%
Florida	~~201~~267,~~411~~815		89
Utah	~~155~~153,~~733~~066		65
Oregon	~~145~~147,~~900~~209		65
Washington	~~133~~126,~~048~~740		54
All other states	738,519		28
Maryland	87,241		3
Total loans	$	2,616,079	100	%
New Jersey	81,583		3
Texas	79,661		3
Colorado	68,000		2
Minnesota	67,681		2
Arizona	59,686		2
Missouri	51,599		2
Washington DC	49,911		2
Virginia	47,634		2
All other states (1)	281,918		10
Total loans	$	2,888,432	100	%
By property type:
Office buildings	$	~~639~~710,~~648~~635	2425	%
Shopping centers	~~516~~520,~~226~~821		2018
Warehouses	394,413		15
5 + multifamily residences	457,176		16
Retail establishments (restaurants, stores)	332,973		13
Warehouses	427,926		15
5 + multifamily residences	332,918		13
Retail establishments (restaurants, stores)	302,325		10
Mini-storage	~~110~~162,~~369~~495		46
Commercial/industrial (non-residential)	91105,~~625~~194		4
Manufacturing plants	6361,~~847~~593		2
Motels/hotels	5960,~~075~~095		2
Research and development	4532,~~106~~624		21
Other	2947,~~879~~548		1
Total loans	$	2,~~616~~888,~~079~~432	100	%

11(1) No state is equal to or greater than 2% of CSRE loans.

REAL ESTATE 1-4 FAMILY MORTGAGE LOANS The concentrations of real estate 1-4 family mortgage loans by state and the related loan-to-value (LTV) ratio for real estate 1-4 family first mortgage and combined loan-to-value (CLTV) ratio for real estate 1-4 family junior lien mortgage loans are presented in combination in Table 5. CLTV means the ratio of the total loan balance of first and junior mortgages to property collateral value. 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 9

~~found~~REAL inESTATE ~~Note~~1-4 2FAMILY ~~(Loans~~MORTGAGE LOANS The concentrations of real estate 1-4 family mortgage loans by state and ~~Allowance~~the related loan-to-value (LTV) ratio for ~~Credit~~real ~~Losses~~estate 1-4 family first mortgage and combined loan-to-value (CLTV) ratio for real estate 1-4 family junior lien mortgage loans are presented in combination in Table 5. CLTV means the ratio of the total loan balance of first and junior mortgages to ~~Financial~~property ~~Statements~~collateral value. We monitor changes in ~~this~~real ~~Report~~estate values and ~~the~~underlying ~~“Risk~~economic ~~Management~~or -market ~~Credit~~conditions ~~Risk~~for ~~Management~~all -geographic ~~Real~~areas ~~Estate~~of our real estate 1-4 ~~Family~~family ~~Mortgage~~mortgage ~~Loans”~~portfolio ~~section~~as inpart of our ~~2017~~credit ~~Form~~risk 10management process. Our periodic review of loans secured by residential real estate collateral includes appraisals or estimates from automated valuation models (AVMs) to support property values. AVMs are computer-Kbased tools used to estimate the market value of homes. AVMs are a lower-cost alternative to appraisals and support valuations of large numbers of properties in a short period of time using market comparables and price trends for local market areas. The primary risk associated with the use of AVMs is that the value of an individual property may vary significantly from the average

Wefor ~~modify~~the ~~real~~market ~~estate~~area. ~~1-4~~We ~~family~~have ~~mortgage~~processes ~~loans~~ to ~~assist~~periodically ~~homeowners~~validate AVMs and ~~other~~specific ~~borrowers~~risk ~~experiencing~~management ~~financial~~guidelines ~~difficulties.~~addressing ~~For~~the ~~more~~circumstances when AVMs may be used. Additional information onabout AVMs and our ~~modification~~policy ~~programs,~~for ~~see~~their use can be found in Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management –- Credit Risk Management –- Real Estate 1-4 Family Mortgage Loans” section in our ~~2017~~2018 Form 10-K.

~~The~~We ~~credit~~modify ~~performance associated with our~~ real estate 1-4 family mortgage ~~portfolio~~loans ~~remained~~to ~~strong~~assist inhomeowners ~~third~~and ~~quarter~~other ~~2018~~borrowers experiencing financial difficulties. For more information on our modification programs, assee ~~measured~~the ~~through~~“Risk ~~net~~Management ~~charge~~– Credit Risk Management – Real Estate 1-~~offs,~~4 ~~nonaccrual~~Family ~~loans~~Mortgage ~~and~~Loans” ~~delinquencies.~~section in our 2018 Form 10-K.

	September 30, 2018
(in thousands)	Real estate1-4 familymortgage		CurrentLTV\CLTVratio (1)
California	$	8,191,324	44	%
New York	3,123,749		58
Washington	2,005,149		49
Virginia	1,778,525		61
Texas	1,174,702		56
All other states	13,597,090		59
Total loans	$	29,870,539	54

The credit performance associated with our real estate 1-4 family mortgage portfolio remained strong in first quarter 2019, as measured through net charge-offs, nonaccrual loans and delinquencies.

Table 5: Real Estate 1-4 Family Mortgage Loans LTV/CLTV by State

(1) Collateral values are generally determined using AVMs 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.



	March 31, 2019
(in thousands)	Real estate 1-4 family mortgage		Current LTV\CLTV ratio
California	$	8,267,976	44	%
New York	3,017,775		58
Washington	2,303,780		53
Virginia	1,984,970		62
Texas	1,325,141		58
Massachusetts	1,273,346		59
Maryland	1,243,806		64
Pennsylvania	1,182,944		61
Illinois	1,159,422		68
Georgia	1,046,739		60
Minnesota	970,718		63
Oregon	884,965		59
Florida	830,098		51
Arizona	809,499		59
All other states (1)	5,367,263		56
Total loans	$	31,668,442	55

~~REAL ESTATE 1-4 FAMILY FIRST MORTGAGE LOANS Net charge-offs~~ (~~recoveries~~1) ~~(annualized)~~No asstate ais ~~percentage~~equal ~~of average loans improved~~ to ~~(0.02)%~~or ingreater ~~both the third quarter and first nine months of 2018, compared with less~~ than ~~0.01~~3% ~~and~~of ~~0.01%~~real ~~for~~estate ~~the~~1-4 ~~same~~family ~~periods~~mortgage ~~a year ago. Nonaccrual~~ loans ~~were~~ .

~~$142.0 million at September 30, 2018, compared with $150.4 million at December 31, 2017.~~10

REAL ESTATE 1-4 FAMILY FIRST MORTGAGE LOANS Net charge-offs (recoveries) (annualized) as a percentage of average loans were 0.00% in first quarter 2019, compared with (0.01)% for the same period a year ago. Nonaccrual loans were $144.2 million at March 31, 2019, compared with $142.3 million at December 31, 2018.

Table 6 summarizes delinquency and loss rates by state for our real estate 1-4 family first mortgage portfolio.

Table 6: Real Estate 1-4 Family First Mortgage Portfolio Performance

	Outstanding balance			% of loans30 daysor more past due			Loss (recovery) rate (annualized) quarter ended
(in thousands)	~~Sep~~Mar 3031, ~~2018~~2019		Dec 31, ~~2017~~2018	~~Sep~~Mar 3031, ~~2018~~2019		Dec 31, ~~2017~~2018	~~Sep~~Mar 3031, ~~2018~~2019		~~Jun~~Dec 3031, 2018		~~Mar~~Sep 3130, 2018		~~Dec~~Jun 3130, ~~2017~~2018		~~Sep~~Mar 3031, ~~2017~~2018
California	$	8,~~183~~260,~~327~~775	8,~~852~~451,~~383~~050	0.11	%	0.1511	—		—		—		—		—
New York	32,~~078~~977,~~782~~274		3,~~268~~028,~~458~~854	0.5742		0.4554	0.0601		(0.0201	)	—0.06		0.02		~~0.01~~—
Washington	2,~~004~~302,~~212~~901		2,~~149~~348,~~416~~005	0.1117		0.0312	~~(0.01~~—	)	—(0.01	)	(0.01	)	—		(0.01	)
Virginia	1,~~705~~919,~~190~~995		1,~~818~~954,~~445~~719	0.4046		0.5147	(0.02	)	(0.0201	)	(0.02	)	(0.0102	)	(0.02	)
Texas	1,~~165~~317,~~947~~726		1,~~289~~351,~~611~~937	0.1720		0.4434	~~(0.01~~—	)	—0.01		(0.0201	)	~~(0.01~~—	)	0.0102
All other states	13,017,527		14,296,320	0.86		0.90	(0.04	)	(0.05	)	(0.03	)	0.01		—
Massachusetts	1,270,950		1,299,185	0.13		0.22	—		—		(0.02	)	0.01		—
Total	29,154,985		31,674,633	0.51		0.54	(0.02	)	(0.02	)	(0.01	)	0.01		—
Maryland	1,214,143		1,237,011	0.32		0.44	(0.02	)	—		0.01		0.02		—
PCI	7,605		9,018
Illinois	1,158,468		1,185,911	0.19		0.24	0.05		—		(0.04	)	—		(0.01	)
Total first mortgages	$	29,162,590	31,683,651
Pennsylvania	1,082,895		1,109,930	1.93		1.93	0.04		(0.03	)	(0.12	)	0.05		0.17
Georgia	1,003,311		1,030,320	0.32		0.33	(0.02	)	(0.05	)	(0.04	)	(0.15	)	(0.13	)
Minnesota	969,247		987,652	0.02		0.01	—		(0.01	)	(0.02	)	(0.01	)	—
Oregon	884,474		906,070	0.19		0.01	—		—		—		—		—
Arizona	808,926		835,533	0.31		0.21	—		—		—		—		(0.02	)
All other states (1)	5,856,460		6,036,480	1.08		1.09	(0.04	)	0.01		(0.06	)	(0.10	)	(0.07	)
Total	31,027,545		31,762,657	0.44		0.46	—		—		(0.02	)	(0.02	)	(0.01	)
PCI	7,027		7,156
Total first mortgages	$	31,034,572	31,769,813

12(1) No state is equal to or greater than 3% of real estate 1-4 family first mortgage loans.

REAL ESTATE 1-4 FAMILY JUNIOR LIEN MORTGAGE LOANS Our junior lien portfolio includes real estate 1-4 family junior lien mortgage loans secured by real estate. Predominantly all of our junior lien loans are amortizing payment loans with fixed interest rates and repayment periods between 5 to 30 years. Junior lien loans with balloon payments at the end of the repayment term represent less than 1% of our junior lien loans. We frequently monitor the credit performance of our junior lien mortgage portfolio for trends and factors that influence the

frequency and severity of loss. Net charge-offs (recoveries) (annualized) as a percentage of average loans were (0.5821)% ~~and 0.41%~~ in the ~~third~~first quarter ~~and first nine months~~ of ~~2018~~2019 compared with 0.4029% ~~and 0.33%~~ for the same ~~periods~~period a year ago. Nonaccrual loans were $3533.96 million at ~~September~~March 3031, ~~2018~~2019, compared with $4434.76 million at December 31, ~~2017~~2018.

Table 7 summarizes delinquency and loss rates by state for our junior lien portfolio.

Table 7: Real Estate 1-4 Family Junior Lien Portfolio Performance

	Outstanding balance			% of loans30 daysor more past due			Loss (recovery) rate (annualized) quarter ended
(in thousands)	~~Sep~~Mar 3031, ~~2018~~2019		Dec 31, ~~2017~~2018	~~Sep~~Mar 3031, ~~2018~~2019		Dec 31, ~~2017~~2018	~~Sep~~Mar 3031, ~~2018~~2019		~~Jun~~Dec 3031, 2018		~~Mar~~Sep 3130, 2018		~~Dec~~Jun 3130, ~~2017~~2018		~~Sep~~Mar 3031, ~~2017~~2018
New Jersey	$	~~155~~140,~~073~~957	~~183~~146,~~405~~787	35.6619	%	54.4283	1(0.4361	)	2(0.3153	)	01.7343		(02.1831	)	10.0673
Pennsylvania	~~111~~98,~~007~~705		~~133~~104,~~313~~882	43.6523		54.2916	(0.9218	)	01.4350		(0.6792	)	0.2143		(0.8667	)
Florida	9283,~~171~~863		~~112~~88,~~437~~122	3.3763		23.6521	(0.1444	)	(01.0813	)	(10.3114	)	(0.5108	)	(01.5631	)
Virginia	7264,~~453~~087		8868,~~017~~551	2.8584		52.2294	0.4143		(10.3088	)	20.5941		(01.8630	)	12.2659
Georgia	4842,~~804~~867		6045,~~259~~857	21.1647		2.7064	0(2.1645	)	(0.07	)	(0.7816	)	(10.4107	)	(10.9678	)
All other states	228,441		278,155	5.19		4.73	0.27		(0.14	)	0.63		(0.55	)	0.38
North Carolina	41,560		44,343	5.38		6.36	(0.41	)	(1.04	)	0.13		(0.14	)	(0.42	)
Total	707,949		855,586	4.08		4.60	0.58		0.37		0.29		(0.44	)	0.40
New York	39,927		42,528	3.89		5.56	2.37		0.10		(0.46	)	(0.53	)	0.70
Connecticut	30,847		32,132	3.61		4.40	1.53		(0.53	)	0.13		0.35		1.20
Maryland	29,435		31,099	3.79		4.46	(1.82	)	0.60		2.34		(0.78	)	2.27
All other states (1)	61,622		65,531	2.89		2.46	0.20		(0.01	)	(0.12	)	0.18		0.25
Total	633,870		669,832	3.76		4.05	(0.21	)	(0.18	)	0.58		0.37		0.29
PCI	—		—
Total junior lien mortgages	$	~~707~~633,~~949~~870	~~855~~669,~~586~~832

13(1) No state is equal to or greater than 3% of real estate 1-4 family junior lien loans.

~~NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 8 summarizes nonperforming assets (NPAs) for each of the last five quarters. We generally place loans on nonaccrual status when:~~ 12

•NONPERFORMING ~~the~~ASSETS ~~full~~(NONACCRUAL ~~and~~LOANS ~~timely~~AND ~~collection~~FORECLOSED ofASSETS) ~~interest~~Table or8 ~~principal~~summarizes ~~becomes~~nonperforming ~~uncertain~~assets (~~generally~~NPAs) ~~based~~for oneach ~~an assessment~~ of the ~~borrower's~~last ~~financial~~five ~~condition~~quarters. ~~and~~For ~~the~~information ~~adequacy~~about ofwhen ~~collateral~~we generally place loans on nonaccrual status, ifsee ~~any);~~

•Note ~~they~~1 ~~are~~(Summary ~~120~~of ~~days~~Significant ~~with~~Accounting ~~respect~~Policies) to ~~real~~Financial ~~estate~~Statements ~~1-4~~in ~~family~~our ~~first~~2018 ~~and~~Form ~~junior lien mortgages (90 days with respect to commercial) past due for interest~~10-K.

Table 8: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)

or principal, unless both well-secured and in the process of collection;



(in thousands)	Mar 31, 2019			Dec 31, 2018	Sep 30, 2018	Jun 30, 2018	Mar 31, 2018
Nonaccrual loans:
Total commercial	$	1,959		1,975	2,016	2,506	2,519
Consumer:
Real estate 1-4 family first mortgage	144,173			142,325	141,953	147,574	152,510
Real estate 1-4 family junior lien mortgage	33,587			34,625	35,948	37,553	42,161
Total consumer	177,760			176,950	177,901	185,127	194,671
Total nonaccrual loans (1)	179,719			178,925	179,917	187,633	197,190
Foreclosed assets	2,094			1,591	2,596	2,503	2,259
Total nonperforming assets	$	181,813		180,516	182,513	190,136	199,449
As a percentage of total loans	0.53		%	0.51	0.56	0.57	0.57

• 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 loans receive notification of bankruptcy, regardless of their delinquency status.

(in thousands)	Sep 30, 2018			Jun 30, 2018	Mar 31, 2018	Dec 31, 2017	Sep 30, 2017
Nonaccrual loans:
Total commercial	$	2,016		2,506	2,519	2,306	3,325
Consumer:
Real estate 1-4 family first mortgage	141,953			147,574	152,510	150,381	152,861
Real estate 1-4 family junior lien mortgage	35,948			37,553	42,161	44,703	42,237
Total consumer	177,901			185,127	194,671	195,084	195,098
Total nonaccrual loans (1)	179,917			187,633	197,190	197,390	198,423
Foreclosed assets	2,596			2,503	2,259	2,377	2,473
Total nonperforming assets	$	182,513		190,136	199,449	199,767	200,896
As a percentage of total loans	0.56		%	0.57	0.57	0.56	0.61


(1)	Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.

Total NPAs were $~~182~~181.58 million (0.5653% of total loans) at ~~September~~March 3031, ~~2018~~2019, and included $179.97 million of nonaccrual loans. Total NPAs were $~~199~~180.85 million (0.5651% of total loans) at December 31, ~~2017~~2018, and included $~~197~~178.49 million of nonaccrual loans.

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 while on nonaccrual status, sold, transferred to foreclosed properties, 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. Table 9 provides an analysis of the changes in nonaccrual loans.

Table 9: Analysis of Changes in Nonaccrual Loans

Quarter ended

(in thousands)

~~Sep~~Mar 3031, ~~2018~~2019

~~Jun~~Dec 3031, 2018

~~Mar~~Sep 3130, 2018

~~Dec~~Jun 3130, ~~2017~~2018

~~Sep~~Mar 3031, ~~2017~~2018

Commercial:

Balance, beginning of period

21,~~506~~975

2,~~519~~016

2,~~306~~506

32,~~325~~519

32,~~144~~306

Inflows

—2

~~241~~46

~~252~~—

~~140~~241

~~214~~252

Outflows

(~~490~~18

)

(~~254~~87

)

(39490

)

(~~1,159~~254

)

(3339

)

Balance, end of period

21,~~016~~959

21,~~506~~975

2,~~519~~016

2,~~306~~506

32,~~325~~519

Consumer:

Balance, beginning of period

~~185~~176,~~127~~950

~~194~~177,~~671~~901

~~195~~185,~~084~~127

~~195~~194,~~098~~671

~~200~~195,~~470~~084

Inflows

1928,~~111~~286

23,~~551~~517

3219,~~155~~111

3623,~~586~~551

3132,~~201~~155

Outflows:

Returned to accruing

(1215,~~164~~705

)

(149,~~291~~954

)

(1512,~~190~~164

)

(1814,~~388~~291

)

(1715,~~063~~190

)

Foreclosures

(31,~~278~~910

)

(2,~~326~~114

)

(43,~~899~~278

)

(2,~~596~~326

)

(24,~~286~~899

)

Charge-offs

(21,~~538~~501

)

(2,~~277~~963

)

(32,~~396~~538

)

(42,~~680~~277

)

(3,~~508~~396

)

Payment, sales and other

(8,~~357~~360

)

(149,~~201~~437

)

(98,~~083~~357

)

(1014,~~936~~201

)

(139,~~716~~083

)

Total outflows

(2627,~~337~~476

)

(3324,~~095~~468

)

(3226,~~568~~337

)

(3633,~~600~~095

)

(3632,~~573~~568

)

Balance, end of period

177,~~901~~760

~~185~~176,~~127~~950

~~194~~177,~~671~~901

~~195~~185,~~084~~127

~~195~~194,~~098~~671

Total nonaccrual loans (excluding PCI)

179,~~917~~719

~~187~~178,~~633~~925

~~197~~179,~~190~~917

~~197~~187,~~390~~633

~~198~~197,~~423~~190

1413

TROUBLED DEBT RESTRUCTURINGS (TDRs) The recorded investment of loans modified in TDRs is provided in Table 10. The allowance for loan losses for TDRs was $4538.9 million and $5637.8 million at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, respectively. See Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more information. Those loans discharged in bankruptcy and reported as TDRs have been written down to net realizable collateral value. In those situations where principal is forgiven, the entire amount of such principal forgiveness is immediately charged off ~~to the extent not done so prior to the modification~~. When we delay the timing on the repayment of a portion of principal (principal forbearance), we 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 of our ~~2017~~2018 Form 10-K.

Table 11 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, we may remove loans from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.

Table 10: Troubled Debt Restructurings (TDRs)

(in thousands)

~~Sep~~Mar 3031, ~~2018~~2019

~~Jun~~Dec 3031, 2018

~~Mar~~Sep 3130, 2018

~~Dec~~Jun 3130, ~~2017~~2018

~~Sep~~Mar 3031, ~~2017~~2018

Total commercial TDRs

2,~~509~~183

31,~~124~~958

32,~~152~~509

23,~~992~~124

3,~~035~~152

Consumer:

Real estate 1-4 family first mortgage

~~289~~283,~~563~~651

~~294~~278,~~171~~459

~~305~~289,~~212~~563

~~309~~294,~~678~~171

~~316~~305,~~831~~212

Real estate 1-4 family junior lien mortgage

7875,~~802~~902

8177,~~578~~386

8678,~~659~~802

8981,~~560~~578

9186,~~534~~659

Trial modifications

54,~~044~~530

5,~~980~~277

5,~~557~~044

75,~~498~~980

85,~~799~~557

Total consumer TDRs

~~373~~364,~~409~~083

~~381~~361,~~729~~122

~~397~~373,~~428~~409

~~406~~381,~~736~~729

~~417~~397,~~164~~428

Total TDRs

~~375~~366,~~918~~266

~~384~~363,~~853~~080

~~400~~375,~~580~~918

~~409~~384,~~728~~853

~~420~~400,~~199~~580

TDRs on nonaccrual status

~~113~~121,~~893~~279

~~115~~109,~~672~~713

~~118~~113,~~659~~893

~~116~~115,~~885~~672

~~119~~118,~~122~~659

TDRs on accrual status

~~262~~244,~~025~~987

~~269~~253,~~181~~367

~~281~~262,~~921~~025

~~292~~269,~~843~~181

~~301~~281,~~077~~921

Total TDRs

~~375~~366,~~918~~266

~~384~~363,~~853~~080

~~400~~375,~~580~~918

~~409~~384,~~728~~853

~~420~~400,~~199~~580

Table 11: Analysis of Changes in TDRs

Quarter ended

(in thousands)

~~Sep~~Mar 3031, ~~2018~~2019

~~Jun~~Dec 3031, 2018

~~Mar~~Sep 3130, 2018

~~Dec~~Jun 3130, ~~2017~~2018

~~Sep~~Mar 3031, ~~2017~~2018

Commercial:

Balance, beginning of period

31,~~124~~958

32,~~152~~509

23,~~992~~124

3,~~035~~152

32,~~078~~992

Inflows (1)

~~350~~233

—

~~203~~350

—

—203

Outflows (2)

(~~965~~8

)

(28551

)

(43965

)

(4328

)

(43

)

Balance, end of period

2,~~509~~183

31,~~124~~958

32,~~152~~509

23,~~992~~124

3,~~035~~152

Consumer:

Balance, beginning of period

~~381~~361,~~729~~122

~~397~~373,~~428~~409

~~406~~381,~~736~~729

~~417~~397,~~164~~428

~~429~~406,~~390~~736

Inflows (1)

516,~~872~~238

62,~~476~~978

75,~~520~~872

6,~~187~~476

57,~~539~~520

Outflows:

Charge-offs

(~~249~~305

)

(~~388~~376

)

(~~380~~249

)

(~~269~~388

)

(~~995~~380

)

Foreclosures

(~~1,298~~386

)

(~~2,734~~486

)

(~~825~~1,298

)

(~~640~~2,734

)

(~~657~~825

)

Payments, sales and other (2)

(11,~~710~~839

)

(1914,~~476~~635

)

(1311,~~682~~710

)

(1419,~~405~~476

)

(1413,~~747~~682

)

Net change in trial modifications (3)

(~~935~~747

)

~~423~~232

(~~1,941~~935

)

~~(1,301~~423

)

(1,~~366~~941

)

Balance, end of period

~~373~~364,~~409~~083

~~381~~361,~~729~~122

~~397~~373,~~428~~409

~~406~~381,~~736~~729

~~417~~397,~~164~~428

Total TDRs

~~375~~366,~~918~~266

~~384~~363,~~853~~080

~~400~~375,~~580~~918

~~409~~384,~~728~~853

~~420~~400,~~199~~580


(1)	Inflows include loans that modify, even if they 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. No loans were removed from TDR classification in the quarters ended ~~September~~March 3031, ~~June~~2019 30 and ~~March~~December 31, ~~2018~~September 30, ~~and~~June ~~December~~30 31 and ~~September~~March 3031, ~~2017~~2018, as a result of being refinanced or restructured at market terms and qualifying as new loans.


(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.

1514

Loans 90 days or more past due and still accruing were less than 1% of loans at both ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018.

Table 12 reflects non-PCI loans 90 days or more past due and still accruing.

Table 12: Loans 90 Days or More Past Due and Still Accruing (1)

(in thousands)

~~Sep~~Mar 3031, ~~2018~~2019

~~Jun~~Dec 3031, 2018

~~Mar~~Sep 3130, 2018

~~Dec~~Jun 3130, ~~2017~~2018

~~Sep~~Mar 3031, ~~2017~~2018

Total commercial

—

~~2,854~~—

~~990~~—

~~991~~2,854

Consumer:

Real estate 1-4 family first mortgage

42,~~640~~259

25,~~321~~819

34,~~999~~640

92,~~001~~321

3,~~685~~999

Real estate 1-4 family junior lien mortgage

~~1,478~~759

~~320~~708

1,~~419~~478

~~2,914~~320

1,~~498~~419

Total consumer

63,~~118~~018

26,~~641~~527

56,~~418~~118

112,~~915~~641

5,~~183~~418

Total past due (excluding PCI)

63,~~118~~018

26,~~641~~527

86,~~272~~118

122,~~905~~641

68,~~174~~272

(1) PCI loans of $~~422~~381 thousand, $~~504~~373 thousand, $~~529~~422 thousand, $~~699~~504 thousand and $~~853~~529 thousand at ~~September~~March 3031, ~~June~~2019 30 and ~~March~~December 31,~~2018,~~ ~~and~~September ~~December~~30, 31June 30 and ~~September~~March 3031, ~~2017~~2018, respectively, are excluded from this disclosure 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.

1615

NET CHARGE-OFFS Table 13 presents net charge-offs (recoveries) for ~~third~~first quarter ~~2018~~2019 and the previous four quarters. Substantially all net charge-offs (recoveries) were in ~~consumer real estate. Net charge-offs were in a net recovery position of $119 thousand in~~

~~third~~consumer ~~quarter~~real ~~2018,~~estate. ~~compared~~Net ~~with~~recoveries ~~net~~were ~~charge-offs~~$626 ofthousand and $~~1.2~~506 ~~million~~thousand in ~~third~~first quarter ~~2017~~2019 and 2018, respectively.

Table 13: Net Charge-offs (Recoveries)

						Quarter ended
	Sep 30, 2018					Jun 30, 2018					Mar 31, 2018					Dec 31, 2017					Sep 30, 2017
	Mar 31, 2019					Dec 31, 2018					Sep 30, 2018					Jun 30, 2018					Mar 31, 2018
(in thousands)	Net loancharge-offs			% of avg. loans (1)		Net loancharge-offs			% ofavg.loans (1)		Net loancharge-offs			% ofavg.loans (1)		Net loancharge-offs			% ofavg.loans (1)		Net loancharge-offs			% ofavg.loans (1)
Total commercial	$	(128	)	—	%	$	(13	)	—	%	$	(1512	)	—	%	$	(~~396~~13	)	~~(0.05~~—	)%	$	(5915	)	~~(0.01~~—	)%
Consumer:
Real estate 1-4 family first mortgage	(~~1,171~~277		)	~~(0.02~~—	)	(~~1,505~~181		)	~~(0.02~~—	)	(1,~~092~~171		)	(0.0102	)	(1,~~417~~505		)	(0.02	)	~~276~~(1,092		)	—(0.01	)
Real estate 1-4 family junior lien mortgage	~~1,064~~(341		)	(0.5821	)	~~732~~(319		)	(0.3718	)	~~601~~1,064			0.2958		~~(978~~732		)	(0.4437	)	~~939~~601			0.4029
Total consumer	(~~107~~618		)	—(0.01	)	(~~773~~500		)	(0.01	)	(~~491~~107		)	~~(0.01~~—	)	(~~2,395~~773		)	(0.0301	)	~~1,215~~(491		)	(0.0201	)
Total	$	(~~119~~626	)	—(0.01	)%	$	(~~786~~513	)	(0.01	)%	$	(~~506~~119	)	~~(0.01~~—	)%	$	(~~2,791~~786	)	(0.0301	)%	$	~~1,156~~(506	)	(0.01	)%


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

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 2 (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.

The ratio of the allowance for credit losses to total nonaccrual loans may fluctuate significantly from period to

period due to such factors as the mix of loan types in the portfolio, borrower credit strength and the value and marketability of collateral. Substantially all of our nonaccrual loans were real estate 1-4 family first and junior lien mortgage loans at ~~September~~March 3031, ~~2018~~2019.

The allowance for loan losses ~~which~~increased ~~decreased~~ $241.85 million to $~~104~~98.62 million at ~~September~~March 3031, ~~2018~~2019, from $~~129~~96.47 million at December 31, ~~2017~~2018, ~~reflected~~as the continued portfolio improvement inslowed ~~the~~combined ~~housing~~with ~~market~~a ~~driving~~higher probability of slightly less favorable economic conditions. First quarter 2018 reflected an improvement in our outlook for hurricane-related losses as well as strong performance in our residential real estate portfolio.

We believe the allowance for credit losses of $~~106~~99.27 million at ~~September~~March 3031, ~~2018~~2019, was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. The allowance for credit losses is subject to change and reflects existing factors as of the date of determination, including economic or market conditions and ongoing internal and external examination processes. Due to the sensitivity of the allowance for credit losses to changes in the economic and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date. Future allowance levels 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 Policy” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report and in our ~~2017~~2018 Form 10-K.

Table 14 presents an analysis of the allowance for credit losses.

1716

Table 14: Allocation of the Allowance for Credit Losses (ACL)

	Quarter ended
	Sep 30, 2018				Jun 30, 2018				Mar 31, 2018				Dec 31, 2017				Sep 30, 2017
	Mar 31, 2019				Dec 31, 2018				Sep 30, 2018				Jun 30, 2018				Mar 31, 2018
(in thousands)	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
Total commercial	$	2325,~~722~~220	810	%	$	2526,~~856~~281	910	%	$	2723,~~020~~722	98	%	$	2825,~~085~~856	9	%	$	2627,~~577~~020	119	%
Consumer:
Real estate 1-4 family first mortgage	5955,~~026~~034		9089		6151,~~702~~894		89		6759,~~780~~026		8990		7161,~~341~~702		8889		7267,~~941~~780		8689
Real estate 1-4 family junior lien mortgage	2319,~~454~~416		21		2620,~~178~~093		21		2923,~~266~~454		2		3126,~~235~~178		32		3029,~~905~~266		32
Total consumer	8274,~~480~~450		9290		8771,~~880~~987		9190		9782,~~046~~480		9192		~~102~~87,~~576~~880		91		~~103~~97,~~846~~046		8991
Total	$	~~106~~99,~~202~~670	100	%	$	~~113~~98,~~736~~268	100	%	$	~~124~~106,~~066~~202	100	%	$	~~130~~113,~~661~~736	100	%	$	~~130~~124,~~423~~066	100	%

Quarter ended

(in thousands)

~~Sep~~Mar 3031, ~~2018~~2019

~~Jun~~Dec 3031, 2018

~~Mar~~Sep 3130, 2018

~~Dec~~Jun 3130, ~~2017~~2018

~~Sep~~Mar 3031, ~~2017~~2018

Components:

Allowance for loan losses

~~104~~98,~~556~~158

~~112~~96,~~381~~743

~~122~~104,~~863~~556

~~129~~112,~~360~~381

~~129~~122,~~116~~863

Allowance for unfunded credit commitments

1,~~646~~512

1,~~355~~525

1,~~203~~646

1,~~301~~355

1,~~307~~203

Allowance for credit losses

~~106~~99,~~202~~670

~~113~~98,~~736~~268

~~124~~106,~~066~~202

~~130~~113,~~661~~736

~~130~~124,~~423~~066

Allowance for loan losses as a percentage of total loans

0.3228

0.3327

0.3532

0.3633

0.3935

Allowance for loan losses as a percentage of annualized net charge-offs

Allowance for credit losses as a percentage of total loans

0.3329

0.3428

0.3633

0.3634

0.4036

Allowance for credit losses as a percentage of total nonaccrual loans

5955.0346

6054.6292

6259.9203

6660.1962

6562.7392

NM – Not meaningful

1817

Asset/Liability Management

Asset/liability management involves the evaluation, monitoring and management of interest rate risk, market risk and liquidity and funding.

INTEREST RATE RISK Interest rate risk is the sensitivity of earnings to changes in interest rates. At ~~September~~March 3031, ~~2018~~2019, 1211% of our loans had variable interest rates. In a declining rate environment, we may experience a reduction in interest income on our loan portfolio and a corresponding decrease in funds available to be distributed to our shareholders. The reduction in interest income may result from downward adjustment of the indices upon which the interest rates on loans are based and from prepayments of loans with fixed interest rates, resulting in reinvestment of the proceeds in lower yielding assets. To manage interest rate risk, we monitor loan paydown rates, portfolio composition, and the rate sensitivity of loans acquired. Our loan acquisition process attempts to balance desirable yields with the quality of loans acquired.

At ~~September~~March 3031, ~~2018~~2019, approximately 8889% of our loans had fixed interest rates. Such loans increase our interest rate risk. Our methods for evaluating interest rate risk include an analysis of interest-rate sensitivity “gap,” which is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the amount of interest rate-sensitive assets. Our interest rate-sensitive liabilities are generally limited to our line of credit with the Bank.

During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution is perfectly matched in each maturity category.

At ~~September~~March 3031, ~~2018~~2019, 1211% of our assets had variable interest rates, and could be expected to reprice with changes in interest rates. At ~~September~~March 3031, ~~2018~~2019, our liabilities were 16% of our assets. This positive gap between our assets and liabilities indicates that an increase in interest rates would result in an increase in net interest income and a decrease in interest rates would result in a decrease in net interest income.

LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that we can meet customer loan requests and other cash commitments efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress. To achieve this objective, Wells Fargo’s Corporate Asset/Liability Management Committee establishes and monitors liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets.

Proceeds received from paydowns of loans are typically sufficient to fund existing lending commitments. Depending upon the timing of the loan acquisitions, we may draw on our $5.0 billion revolving line of credit we have with the Bank as a short-term liquidity source. At ~~September~~March 3031, ~~2018~~2019 there was $~~182~~2.2 ~~million~~billion outstanding on our Bank line of credit. ~~The~~Effective ~~rate~~March 2019, the Company renewed the line of credit with the Bank and the interest israte increased from three-month LIBOR plus 4.4 basis points (0.044%) to three-month LIBOR plus 65.0 basis points (0.650%). The change in interest rate was driven by an increase in term, along with a change in underwriting which aligned our credit rating with that of our direct parents rather than the Bank. It is expected that a transition away from the widespread use of LIBOR to alternative benchmark rates will occur by the end of 2021.

Our primary liquidity needs are to pay operating expenses, fund our lending commitments, acquire loans to replace existing loans that mature or repay, and pay dividends. The retained deficit included within our balance sheet results from cumulative distributions that have exceeded GAAP net income, predominantly due to the impact on REIT taxable income of purchase accounting adjustments attributable to the Company during the years 2009 through 2013, from the 2008 acquisition of Wachovia Corporation by Wells Fargo. The excess dividend distributions were funded by using cash provided by investing (generally principal payments received on our loans) and financing activities (generally draws on our Bank line of credit). As the remaining purchase accounting adjustments are not expected to cause a significant variance between GAAP net income and REIT taxable income in future years, operating expenses and dividends are expected to be funded through cash generated by operations or paid-in capital. Funding commitments and the acquisition of loans are intended to be funded with the proceeds obtained from repayment of principal balances by individual borrowers and our line of credit with the Bank.

On September 8, 2016, Wells Fargo reached agreements with the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), and the Office of the Los Angeles City Attorney, regarding allegations that some of its retail customers received products and services they did not request. On February 2, 2018, Wells Fargo entered into a consent order with the Board of Governors of the Federal Reserve System (FRB) related to governance oversight and compliance and operational risk management that imposes an asset cap on Wells Fargo until plans to enhance governance oversight and compliance and operational risk management are approved and implemented to the satisfaction of the FRB. On April 20, 2018 Wells Fargo reached agreement on consent orders issued by the CFPB and OCC to resolve matters regarding the compliance risk management program and past practices involving certain automobile collateral protection insurance policies and certain mortgage interest rate lock extensions. On August 1, 2018, Wells Fargo announced an agreement with the U.S. Department of Justice regarding the resolution of claims related to certain 2005-2007 residential mortgage-backed securities activities. Negative publicity or public opinion resulting from the settlements, consent orders, and related matters and other instances where the Bank’s customers may have experienced financial harm as well as from the resolution of other regulatory matters, litigation, or legal actions by Wells Fargo and the Bank may increase the risk of reputational harm to the business of Wells Fargo and the Bank, including the Bank’s ability to originate loans at the same volumes as we have historically acquired. If in future periods we do not reinvest loan paydowns at sufficient levels, management may request our board of directors to consider a return of capital to the holders of our common stock. Annually, we expect to distribute an aggregate amount of outstanding capital stock dividends equal to approximately 100% of our REIT taxable income for federal tax purposes. Such distributions may exceed net income determined under GAAP.

1918

paydowns at sufficient levels, management may request our board of directors to consider a return of capital to the holders of our common stock. Annually, we expect to distribute an aggregate amount of outstanding capital stock dividends equal to approximately 100% of our REIT taxable income for federal tax purposes. Such distributions may exceed net income determined under GAAP.

To the extent that we determine that additional funding is necessary or advisable, we could issue additional common or preferred stock, subject to Board of Directors approval, raise funds through debt financings, or a combination of these methods. Retention of operating cash flows does not represent a significant source of funding because any cash flow retention must be consistent with the provisions of the Investment Company Act and the Code, which requires the distribution by a REIT of at least 90% of its REIT taxable income, excluding capital gains, and must take into account taxes that would be imposed on undistributed income.

The certificate of designation for the Series A preferred stock contains a covenant in which we agree not to incur indebtedness for borrowed money, including any guarantees of indebtedness (which does not include any pledges of our assets on behalf of the Bank or our other affiliates), without the consent of the holders of two-thirds of the Series A preferred stock, voting as a separate class, provided that, we may incur indebtedness in an aggregate amount not exceeding 20% of our stockholders’ equity.

2019

Critical Accounting Policy

Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our ~~2017~~2018 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. We have identified the accounting policy covering allowance for credit losses as critical because it requires 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.

~~subjective~~Management and ~~complex~~the ~~judgments~~audit ~~about~~committee ~~matters~~of ~~that~~the ~~are~~board ~~inherently~~of ~~uncertain~~directors have reviewed and ~~because~~approved itthis iscritical ~~likely~~accounting ~~that~~policy. ~~materially~~This ~~different~~policy ~~amounts~~is ~~would~~described bein ~~reported~~the ~~under~~"Critical ~~different~~Accounting ~~conditions~~Policy" orsection ~~using~~in ~~different~~our ~~assumptions.~~2018 Form 10-K.

Management and the audit committee of the board of directors have reviewed and approved this critical accounting policy. This policy is described in the "Critical Accounting Policy" section in our 2017 Form 10-K.20

Current Accounting Developments

Table 15 provides accounting pronouncements applicable to us that have been issued by the FASB but are not yet effective.

Table 15: Current Accounting Developments - Issued Standards

Standard	Description	Effective date and financial statement impact
Accounting Standards Update (ASU or Update)ASU 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement	The Update provides for guidance to eliminate and modify current fair value disclosures, as well as add new fair value disclosures.	The guidance is effective in first quarter 2020. The eliminated, modified and new fair value disclosures can all be adopted individually. Subject to completion of our assessment, we are not expecting this Update to have a material impact on our financial statements.
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 measurement on loans by requiring a current expected credit loss (CECL) measurement to estimate the allowance for credit losses (ACL). CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. Also, the Update eliminates the existing guidance for PCI loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination.	We expect to adopt the guidance in first quarter 2020. Our implementation process includes loss forecasting model development, evaluation of technical accounting topics, updates to our allowance documentation, reporting processes and related internal controls, and overall operational readiness for our adoption of the Update, which will continue throughout 2019, including parallel runs for CECL alongside our current allowance process.We are in the process of developing, validating, and implementing models used to estimate credit losses under CECL. We have completed all of our loss forecasting models, and we expect to complete the validation process for our loan models during 2019.Our current planned approach for estimating expected life-time credit losses for loans includes the following key components:• An initial forecast period of one year for all portfolio segments and off-balance-sheet credit exposures. This period reflects management’s expectation of losses based on forward-looking economic scenarios over that time.• A historical loss forecast period covering the remaining contractual life, adjusted for prepayments, by portfolio segment and class of financing receivables based on the change in key historic economic variables during representative historical expansionary and recessionary periods.• A reversion period of up to 2 years connecting the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.• We will utilize discounted cash flow (DCF) methods to measure credit impairment for loans modified in a TDR, unless they are collateral dependent and measured at the fair value of collateral. The DCF methods would obtain estimated life-time credit losses using the conceptual components described above.Based on our portfolio composition as of March 31, 2019, and the current economic environment, we currently estimate an overall decrease in our ACL for loans in the range of $0 to $10 million. The reduction reflects an expected decrease for commercial loans, given their short contractual maturities and benign economic environment, partially offset by an expected increase for longer duration consumer loans. This expected reduction to our ACL does not include the impact of recently issued FASB guidance to consider subsequent increases in fair value of collateral for collateral dependent loans. Application of this guidance is expected to result in a further reduction to our ACL of approximately $50 million, related to residential mortgage loans that were previously written down below current recovery value estimates. We will continue to evaluate and refine the results of our loss estimates throughout 2019. The ultimate effect of CECL on our ACL will depend on the size and composition of our portfolio, the portfolio's credit quality and economic conditions at the time of adoption, as well as any refinements to our models, methodology and other key assumptions. At adoption, we will have a cumulative-effect adjustment to retained earnings for our change in the ACL.
ASU 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 by requiring a current expected credit loss (CECL) approach to determine the allowance for credit losses. CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. Also, the Update eliminates the existing guidance for purchased credit-impaired (PCI) loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination.	The guidance is effective in first quarter 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, we do not expect to elect that option. We are evaluating the impact of the Update on our financial statements, including the development and implementation of models to estimate losses. We expect the Update will result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments with an expected material impact from longer duration portfolios. The amount of the increase will be impacted by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

In addition to the list above, the following Updates are applicable to us but are not expected to have a material impact on our financial statements:


•	ASU 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

Forward-Looking Statements

This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Examples of forward-looking statements include, but are not limited to, statements we make about: future results of WFREIC; expectations for consumer and commercial credit performance and the appropriateness of our allowance for credit losses; our expectations regarding net interest income; expectations regarding loan acquisitions and paydowns; future capital expenditures; future dividends and other capital distributions; the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; the outcome of contingencies, such as legal proceedings; and our 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, 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:

• economic conditions that affect the general economy, housing prices, the job market, consumer confidence and spending habits, including our borrowers’ prepayment and repayment of our loans ~~(including the impact of the Tax Cuts & Jobs Act)~~;


•	losses related to natural disasters, including from damage or loss to our collateral for loans in our consumer and commercial loan portfolios and from the impact on the ability of our borrowers to repay their loans;


•	the effect of the interest rate environment or changes in interest rates on our net interest income;


•	the level and volatility of the capital markets, interest rates, currency values and other market indices that affect the value of our assets and liabilities;


•	the effect of political conditions and geopolitical events;


•	adverse developments in the availability of desirable investment opportunities, whether they are due to competition, regulation or otherwise;


•	the extent of loan modification efforts, as well as the effects of regulatory requirements or guidance regarding loan modifications;


•	the availability and cost of both credit and capital;


•	investor sentiment and confidence in the financial markets;

• our reputation and the reputation of Wells Fargo and the Bank, including negative effects from the Bank's retail banking sales practices matter and other instances where the Bank’s customers may have experienced financial harm and negative effects from the resolution of regulatory matters, litigation, or other legal actions by Wells Fargo and the Bank, which may result in, among other things, additional costs, fines, penalties, restrictions on Wells Fargo’s or the Bank’s business, reputational harm or other adverse consequences;


•	financial services reform and the impact of other current, pending and future legislation, regulation and legal actions applicable to us, the Bank or Wells Fargo, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and related regulations;


•	changes in accounting standards, rules and interpretations;


•	various monetary and fiscal policies and regulations of the U.S. and foreign governments;

• a failure in or breach of our, the Bank’s or Wells Fargo’s operational or security systems or infrastructure, or those of third party vendors and other security providers, including as a result of cyber -attacks; and

• the other factors described in “Risk Factors” in the ~~2017~~2018 Form 10-K.

In addition to the above factors, we also caution that our allowance for credit losses currently may not be appropriate to cover future credit losses, especially if housing prices decline, unemployment worsens, or general economic conditions deteriorate. Increases in loan charge-offs or in the allowance for credit losses and related provision expense could materially adversely affect our financial results and condition.

Any forward-looking statement made by us in this Report 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 Wells Fargo Real Estate Investment Corporation 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 WFREIC, refer to the “Risk Factors” section in our 2017 Form 10-K.

Risk Factors

Controls and Procedures



Disclosure Controls and Procedures

The Company's management evaluated the effectiveness, as of ~~September~~March 3031, ~~2018~~2019, of ~~our~~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 our disclosure controls and procedures were effective as of ~~September~~March 3031, ~~2018~~2019.



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 of directors, 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 ~~third~~first quarter ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

2324

Financial Statements

Wells Fargo Real Estate Investment Corporation

Statement of Income (Unaudited)

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(in thousands, except per share amounts)

~~2018~~2019

2018

~~2017~~

~~2018~~

~~2017~~

Interest income

$358,113

~~334,485~~

351,664

~~332,748~~

~~1,031,356~~

~~963,229~~

Interest expense

418,~~604~~387

14,402

~~3,173~~

~~30,866~~

~~3,423~~

Net interest income

~~329~~339,~~881~~726

337,262

~~329,575~~

~~1,000,490~~

~~959,806~~

Provision (reversal of provision) for credit losses

(61,~~824~~685

)

(5,854

~~(11,537~~)

)

~~(22,890~~

)

~~14,664~~

Net interest income after provision for credit losses

~~336~~338,~~705~~041

343,116

~~341,112~~

~~1,023,380~~

~~945,142~~

Noninterest income

Pledge fees

—1,411

6,037

~~15,864~~

~~6,037~~

~~44,338~~

Other

~~144~~331

221

~~(284~~

)

~~522~~

~~(83~~

)

Total noninterest income

~~144~~1,742

6,258

~~15,580~~

~~6,559~~

~~44,255~~

Noninterest expense

Loan servicing costs

2021,~~561~~545

21,922

~~20,614~~

~~63,843~~

~~58,602~~

Management fees

10,~~977~~699

6,260

~~6,384~~

~~28,987~~

~~19,155~~

Foreclosed assets

3,~~993~~925

2,053

~~2,713~~

~~9,167~~

~~7,124~~

Other

~~195~~175

107

~~441~~

~~484~~

~~779~~

Total noninterest expense

3536,~~726~~344

30,342

~~30,152~~

~~102,481~~

~~85,660~~

Net income

~~301~~303,~~123~~439

319,032

~~326,540~~

~~927,458~~

~~903,737~~

Comprehensive income

~~301~~303,~~123~~439

319,032

~~326,540~~

~~927,458~~

~~903,737~~

Dividends on preferred stock

4,397

~~4,397~~

~~13,191~~

Net income applicable to common stock

$299,042

~~296,726~~

314,635

~~322,143~~

~~914,267~~

~~890,546~~

Per common share information

Earnings per common share

$8.78

~~8.71~~

9.24

~~9.46~~

~~26.84~~

~~26.15~~

Diluted earnings per common share

8.7178

9.24

~~9.46~~

~~26.84~~

~~26.15~~

Average common shares outstanding

34,058

~~34,058~~

Diluted average common shares outstanding

34,058

~~34,058~~

The accompanying notes are an integral part of these statements.

Wells Fargo Real Estate Investment Corporation
Balance Sheet
(in thousands, except shares)	Sep 30, 2018			Dec 31, 2017
Assets	(Unaudited)
Cash and cash equivalents	$	—		—
Loans	32,510,311			35,865,176
Allowance for loan losses	(104,556		)	(129,360	)
Net loans	32,405,755			35,735,816
Accounts receivable - affiliates, net	94,146			113,755
Other assets	89,333			96,028
Total assets	$	32,589,234		35,945,599
Liabilities
Line of credit with Bank	$	182,207		3,551,426
Other liabilities	7,497			3,910
Total liabilities	189,704			3,555,336
Stockholders’ Equity
Preferred stock	110			110
Common stock – $0.01 par value, authorized 100,000,000 shares; issued and outstanding 34,058,028 shares	341			341
Additional paid-in capital	32,550,660			32,550,660
Retained earnings (deficit)	(151,581		)	(160,848	)
Total stockholders’ equity	32,399,530			32,390,263
Total liabilities and stockholders’ equity	$	32,589,234		35,945,599

The accompanying notes are an integral part of these statements.

Wells Fargo Real Estate Investment Corporation
Statement of Changes in Stockholders’ Equity (Unaudited)
Balance Sheet
Quarter ended September 30,
(in thousands, except shares)	Mar 31, 2019			Dec 31, 2018
(in thousands, except per share data)	Preferredstock				Commonstock	Additionalpaid-incapital	Retainedearnings(deficit)		Totalstockholders’equity
Assets	(Unaudited)
Balance, June 30, 2018	$	110			341	32,550,660	(163,307	)	32,387,804
Cash and cash equivalents	$	—		—
Net income	—				—	—	301,123		301,123
Loans	34,564,299			35,495,068
Cash dividends
Allowance for loan losses	(98,158		)	(96,743	)
Series A preferred stock at $0.40 per share	—				—	—	(4,383	)	(4,383	)
Net loans	34,466,141			35,398,325
Series B preferred stock at $21.25 per share	—				—	—	(14	)	(14	)
Accounts receivable - affiliates, net	74,053			—
Common stock at $8.37 per share	—				—	—	(285,000	)	(285,000	)
Other assets	95,833			94,942
Balance, September 30, 2018	$	110			341	32,550,660	(151,581	)	32,399,530
Total assets	$	34,636,027		35,493,267
Balance, June 30, 2017	$	110			341	32,550,660	(163,524	)	32,387,587
Liabilities
Net income	—				—	—	326,540		326,540
Line of credit with Bank	$	2,209,000		3,054,738
Cash dividends
Accounts payable - affiliates, net	—			13,798
Series A preferred stock at $0.40 per share	—				—	—	(4,383	)	(4,383	)
Other liabilities	7,699			9,445
Series B preferred stock at $21.25 per share	—				—	—	(14	)	(14	)
Total liabilities	2,216,699			3,077,981
Common stock at $9.40 per share	—				—	—	(320,000	)	(320,000	)
Stockholders’ Equity
Balance, September 30, 2017	$	110			341	32,550,660	(161,381	)	32,389,730
Preferred stock	110			110
Nine months ended September 30,
Common stock – $0.01 par value, authorized 100,000,000 shares; issued and outstanding 34,058,028 shares	341			341
(in thousands, except per share data)	Preferredstock				Commonstock	Additionalpaid-incapital	Retainedearnings(deficit)		Totalstockholders’equity
Additional paid-in capital	32,550,660			32,550,660
Balance, December 31, 2017	$	110			341	32,550,660	(160,848	)	32,390,263
Retained earnings (deficit)	(131,783		)	(135,825	)
Net income	—				—	—	927,458		927,458
Total stockholders’ equity	32,419,328			32,415,286
Cash dividends
Total liabilities and stockholders’ equity	$	34,636,027		35,493,267
Series A preferred stock at $1.20 per share	—				—	—	(13,149	)	(13,149	)
Series B preferred stock at $63.75 per share	—				—	—	(42	)	(42	)
Common stock at $26.57 per share	—				—	—	(905,000	)	(905,000	)
Balance, September 30, 2018	$	110			341	32,550,660	(151,581	)	32,399,530
Balance, December 31, 2016	$	110			341	32,550,660	(156,927	)	32,394,184
Net income	—				—	—	903,737		903,737
Cash dividends
Series A preferred stock at $1.20 per share	—				—	—	(13,149	)	(13,149	)
Series B preferred stock at $63.75 per share	—				—	—	(42	)	(42	)
Common stock at $26.28 per share	—				—	—	(895,000	)	(895,000	)
Balance, September 30, 2017	$	110			341	32,550,660	(161,381	)	32,389,730

The accompanying notes are an integral part of these statements.

Wells Fargo Real Estate Investment Corporation
Statement of Cash Flows (Unaudited)
Statement of Changes in Stockholders’ Equity (Unaudited)
	Nine months ended September 30,
(in thousands, except per share data)	Preferredstock			Commonstock		Additionalpaid-incapital	Retainedearnings(deficit)		Totalstockholders’equity
(in thousands)	2018			2017
Balance, December 31, 2018	$	110		341		32,550,660	(135,825	)	32,415,286
Cash flows from operating activities:
Net income	—			—		—	303,439		303,439
Net income	$	927,458		903,737
Cash dividends
Adjustments to reconcile net income to net cash provided by operating activities:
Series A preferred stock at $0.40 per share	—			—		—	(4,383	)	(4,383	)
Net accretion of adjustments on loans	(14,275		)	(10,392	)
Series B preferred stock at $21.25 per share	—			—		—	(14	)	(14	)
Provision (reversal of provision) for credit losses	(22,890		)	14,664
Common stock at $8.66 per share	—			—		—	(295,000	)	(295,000	)
Other operating activities, net	30,581			(162	)
Balance, March 31, 2019	$	110		341		32,550,660	(131,783	)	32,419,328
Net cash provided by operating activities	920,874			907,847
Balance, December 31, 2017	$	110		341		32,550,660	(160,848	)	32,390,263
Cash flows from investing activities:
Net income	—			—		—	319,032		319,032
Increase (decrease) in cash realized from
Cash dividends
Loans:
Series A preferred stock at $0.40 per share	—			—		—	(4,383	)	(4,383	)
Acquisitions	—			(4,707,964	)
Series B preferred stock at $21.25 per share	—			—		—	(14	)	(14	)
Proceeds from payments and sales	3,362,139			3,391,498
Common stock at $9.54 per share	—			—		—	(325,000	)	(325,000	)
Net cash provided (used) by investing activities	3,362,139			(1,316,466	)
Balance, March 31, 2018	$	110		341		32,550,660	(171,213	)	32,379,898
Cash flows from financing activities:
Increase (decrease) in cash realized from
Draws on line of credit with Bank	844,478			1,885,152
Repayments of line of credit with Bank	(4,213,697		)	(1,544,088	)
Cash dividends paid	(913,794		)	(903,794	)
Net cash used by financing activities	(4,283,013		)	(562,730	)
Net change in cash and cash equivalents	—			(971,349	)
Cash and cash equivalents at beginning of period	—			971,349
Cash and cash equivalents at end of period	$	—		—
Supplemental cash flow disclosures:
Change in noncash items:
Transfers from loans to foreclosed assets	$	10,448		9,124
Preferred dividends payable	4,397			4,397
Cash paid for interest	32,036			2,981

The accompanying notes are an integral part of these statements.



Wells Fargo Real Estate Investment Corporation
Statement of Cash Flows (Unaudited)
	Quarter ended March 31,
(in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	303,439		319,032
Adjustments to reconcile net income to net cash provided by operating activities:
Net accretion of adjustments on loans	(6,822		)	(4,278	)
Provision (reversal of provision) for credit losses	1,685			(5,854	)
Other operating activities, net	14,254			18,401
Net cash provided by operating activities	312,556			327,301
Cash flows from investing activities:
Increase (decrease) in cash realized from
Loans:
Acquisitions	—			—
Proceeds from payments and sales	828,182			1,042,451
Net cash provided by investing activities	828,182			1,042,451
Cash flows from financing activities:
Increase (decrease) in cash realized from
Draws on line of credit with Bank	319,831			337,358
Repayments of line of credit with Bank	(1,165,569		)	(1,382,110	)
Cash dividends paid	(295,000		)	(325,000	)
Net cash used by financing activities	(1,140,738		)	(1,369,752	)
Net change in cash and cash equivalents	—			—
Cash and cash equivalents at beginning of period	—			—
Cash and cash equivalents at end of period	$	—		—
Supplemental cash flow disclosures:
Change in noncash items:
Transfers from loans to foreclosed assets	$	2,132		2,457
Preferred dividends payable	4,397			4,397
Cash paid for interest	24,597			10,704

The accompanying notes are an integral part of these statements.

Note 1: Summary of Significant Accounting Policies

Wells Fargo Real Estate Investment Corporation (the Company, we, our or us) is an indirect subsidiary of both Wells Fargo & Company (Wells Fargo) and Wells Fargo Bank, National Association (the Bank). The Company, a Delaware corporation, has operated as a real estate investment trust (REIT) since its formation in 1996.

The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles (GAAP). 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, ~~2017~~2018 (~~2017~~2018 Form 10-K). There were no material changes to these policies in ~~third~~first quarter ~~2018~~2019. The preparation of the financial statements in accordance with GAAP requires management to make estimates based on assumptions about future economic and market conditions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual future conditions could be significantly different than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates related to the allowance for credit losses (Note 2 (Loans and Allowance for Credit Losses)). 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 ~~2017~~2018 Form 10-K.

Accounting Standards Adopted in ~~2018~~2019

In first quarter ~~2018~~2019, we ~~adopted~~did ~~the~~not ~~following~~adopt any new accounting ~~guidance:~~standards.

• Accounting Standards Update (ASU or Update) 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

• ASU 2014-09 – Revenue from Contracts With Customers (Topic 606) and subsequent related Updates.

• ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for reporting in the Statement of Cash Flows. The Update is effective for us in first quarter 2018 with retrospective application. We do not have any of the activities included in the ASU and there is no impact on our financial statements.

ASU 2014-09 modifies the guidance used 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 guidance. Our revenue is from net interest income on financial assets and pledge fees, which are both excluded from the scope of the guidance. Accordingly, there is no impact on our financial statements.

ASU 2016-01 changes the accounting for certain equity securities to record at fair value with unrealized gains or losses reflected in earnings, as well as improve the disclosures of equity securities and the fair value of financial instruments. We do not have equity securities. Accordingly, the impact to our financial statements is limited to our disclosure of the fair value of financial instruments. The valuation methodologies for estimating the fair value of financial instruments that are recorded at amortized cost, including loans, has been changed to conform with an exit price notion.

Subsequent Events

We have evaluated the effects of events that have occurred subsequent to ~~September~~March 3031, ~~2018~~2019. There were no material subsequent events requiring adjustment to the financial statements or disclosure in the Notes to Financial Statements.

2829

Note 2: Loans and Allowance for Credit Losses

The Company acquires loans originated or purchased by the Bank. In order to maintain our status as a REIT, the composition of the loans is highly concentrated in real estate. Underlying loans are concentrated primarily in California, New York, Washington, Virginia, Texas, Maryland and ~~Texas~~Massachusetts. These markets include approximately 5662% of our total loan balance at ~~September~~March 3031, ~~2018~~2019.

The following table presents total loans outstanding by portfolio segment and class of financing receivable. Total reductions and additions for unamortized premiums, discounts and other adjustments were less than 1% of outstanding balances at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018.

(in thousands)	~~Sep~~Mar 3031, ~~2018~~2019		Dec 31, ~~2017~~2018
Total commercial	$	2,~~639~~895,~~772~~857	3,~~325~~055,~~939~~423
Consumer:
Real estate 1-4 family first mortgage	2931,~~162~~034,~~590~~572		31,~~683~~769,~~651~~813
Real estate 1-4 family junior lien mortgage	~~707~~633,~~949~~870		~~855~~669,~~586~~832
Total consumer	2931,~~870~~668,~~539~~442		32,~~539~~439,~~237~~645
Total loans	$	3234,~~510~~564,~~311~~299	35,~~865~~495,~~176~~068

The following table summarizes the proceeds paid or received from the Bank for acquisitions and sales of loans, respectively.

	2018							2017
	2019							2018
(in thousands)	Commercial			Consumer		Total		Commercial	Consumer		Total
Quarter ended September 30,
Quarter ended March 31,
Loan acquisitions	$	—		—		—		—	—		—
Loan sales	~~(20,677~~—		)	—(11,682	)	(2011,~~677~~682	)	—	(433,641	)	(433,641	)
Nine months ended September 30,
Loan acquisitions	$	—		—		—		—	4,707,964		4,707,964
Loan sales	(20,677		)	(5,775	)	(26,452	)	—	(100,670	)	(100,670	)

Commitments to Lend

The contract or notional amount of commercial loan commitments to extend credit was $~~567~~489.69 million at ~~September~~March 3031, ~~2018~~2019 and $~~507~~462.82 million at December 31, ~~2017~~2018.

Pledged Loans

See Note 5 (Transactions With Related Parties) for additional details on our agreement with the Bank to pledge loans.

2930

Allowance for Credit Losses

The following table presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(in thousands)

~~2018~~2019

~~2017~~2018

~~2018~~

~~2017~~

Balance, beginning of period

~~113~~98,~~736~~268

~~144~~130,~~447~~661

~~130,661~~

~~125,029~~

Provision (reversal of provision) for credit losses

(61,~~824~~685

)

(115,~~537~~854

)

~~(22,890~~

)

~~14,664~~

Interest income on certain impaired loans (1)

(~~829~~909

)

(1,~~331~~247

)

~~(2,980~~

)

~~(3,939~~

)

Loan charge-offs:

Total commercial

—

~~(11~~

)

Consumer:

Real estate 1-4 family first mortgage

(1,~~461~~194

)

(21,~~320~~092

)

~~(4,215~~

)

~~(8,120~~

)

Real estate 1-4 family junior lien mortgage

(21,~~576~~379

)

(32,~~299~~798

)

~~(7,567~~

)

~~(11,266~~

)

Total consumer

(42,~~037~~573

)

(53,~~619~~890

)

~~(11,782~~

)

~~(19,386~~

)

Total loan charge-offs

(42,~~037~~573

)

(53,~~619~~890

)

~~(11,782~~

)

~~(19,397~~

)

Loan recoveries:

Total commercial

128

5915

Consumer:

Real estate 1-4 family first mortgage

21,~~632~~471

2,~~044~~184

~~7,983~~

~~5,197~~

Real estate 1-4 family junior lien mortgage

1,~~512~~720

2,~~360~~197

~~5,170~~

~~8,781~~

Total consumer

43,~~144~~191

4,~~404~~381

~~13,153~~

~~13,978~~

Total loan recoveries

43,~~156~~199

4,~~463~~396

~~13,193~~

~~14,066~~

Net loan recoveries (charge-offs)

119

(1,156

)

1,411

(5,331

)

Net loan recoveries

626

506

Balance, end of period

~~106~~99,~~202~~670

~~130~~124,~~423~~066

~~106,202~~

~~130,423~~

Components:

Allowance for loan losses

~~104~~98,~~556~~158

~~129~~122,~~116~~863

~~104,556~~

~~129,116~~

Allowance for unfunded credit commitments

1,~~646~~512

1,~~307~~203

~~1,646~~

~~1,307~~

Allowance for credit losses

~~106~~99,~~202~~670

~~130~~124,~~423~~066

~~106,202~~

~~130,423~~

Net loan (recoveries) charge-offs as a percentage of average total loans (2)

—(0.01

(0.01

)

~~(0.01~~

~~0.02~~

Allowance for loan losses as a percentage of total loans

0.3228

0.3935

~~0.32~~

~~0.39~~

Allowance for credit losses as a percentage of total loans

0.3329

0.4036

~~0.33~~

~~0.40~~


(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 changes in allowance attributable to the passage of time as interest income.


(2)	Quarterly net charge-offs (recoveries) as a percentage of average total loans are annualized.

3031

The following table summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.

	2018							2017
	2019							2018
(in thousands)	Commercial			Consumer		Total		Commercial		Consumer		Total
Quarter ended September 30,
Quarter ended March 31,
Balance, beginning of period	$	2526,~~856~~281		8771,~~880~~987		~~113~~98,~~736~~268		2728,~~375~~085		~~117~~102,~~072~~576		~~144~~130,~~447~~661
Reversal of provision for credit losses	(2,146		)	(4,678	)	(6,824	)	(857	)	(10,680	)	(11,537	)
Provision (reversal of provision) for credit losses	(1,069		)	2,754		1,685		(1,080	)	(4,774	)	(5,854	)
Interest income on certain impaired loans	—			(~~829~~909	)	(~~829~~909	)	—		(1,~~331~~247	)	(1,~~331~~247	)
Loan charge-offs	—			(42,~~037~~573	)	(42,~~037~~573	)	—		(53,~~619~~890	)	(53,~~619~~890	)
Loan recoveries	128			43,~~144~~191		43,~~156~~199		5915		4,~~404~~381		4,~~463~~396
Net loan recoveries (charge-offs)	128			~~107~~618		~~119~~626		5915		~~(1,215~~491	)	~~(1,156~~506	)
Balance, end of period	$	2325,~~722~~220		8274,~~480~~450		~~106~~99,~~202~~670		2627,~~577~~020		~~103~~97,~~846~~046		~~130~~124,~~423~~066
Nine months ended September 30,
Balance, beginning of period	$	28,085		102,576		130,661		29,644		95,385		125,029
Provision (reversal of provision) for credit losses	(4,403		)	(18,487	)	(22,890	)	(3,144	)	17,808		14,664
Interest income on certain impaired loans	—			(2,980	)	(2,980	)	—		(3,939	)	(3,939	)
Loan charge-offs	—			(11,782	)	(11,782	)	(11	)	(19,386	)	(19,397	)
Loan recoveries	40			13,153		13,193		88		13,978		14,066
Net loan recoveries (charge-offs)	40			1,371		1,411		77		(5,408	)	(5,331	)
Balance, end of period	$	23,722		82,480		106,202		26,577		103,846		130,423

The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.

Allowance for credit losses

Recorded investment in loans

(in thousands)

Commercial

Consumer

Total

Commercial

Consumer

Total

September 30, 2018

March 31, 2019

Collectively evaluated (1)

2324,~~267~~781

3635,~~996~~979

60,~~263~~760

2,~~637~~893,~~263~~674

2931,~~489~~297,~~525~~332

3234,~~126~~191,~~788~~006

Individually evaluated (2)

~~455~~439

4538,~~484~~471

4538,~~939~~910

2,~~509~~183

~~373~~364,~~409~~083

~~375~~366,~~918~~266

Purchased credit-impaired (PCI) (3)

—

7,~~605~~027

Total

2325,~~722~~220

8274,~~480~~450

~~106~~99,~~202~~670

2,~~639~~895,~~772~~857

2931,~~870~~668,~~539~~442

3234,~~510~~564,~~311~~299

December 31, 2017

December 31, 2018

Collectively evaluated (1)

2725,~~192~~839

4634,~~664~~581

7360,~~856~~420

3,~~322~~053,~~947~~465

32,~~123~~071,~~483~~367

35,~~446~~124,~~430~~832

Individually evaluated (2)

~~893~~442

5537,~~912~~406

5637,~~805~~848

21,~~992~~958

~~406~~361,~~736~~122

~~409~~363,~~728~~080

PCI (3)

—

97,~~018~~156

Total

2826,~~085~~281

~~102~~71,~~576~~987

~~130~~98,~~661~~268

3,~~325~~055,~~939~~423

32,~~539~~439,~~237~~645

35,~~865~~495,~~176~~068


(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.

3132

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 ~~June~~December 3031, 2018.

COMMERCIAL CREDIT QUALITY INDICATORS In addition to monitoring commercial loan concentration risk, we manage a consistent process for assessing commercial loan credit quality. Generally commercial loans are subject to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to Pass and Criticized categories. The Criticized category includes Special Mention, Substandard, and Doubtful categories which are defined by bank regulatory agencies.

The table below provides a breakdown of outstanding commercial loans by risk category.

(in thousands)	Total
September 30, 2018
March 31, 2019
By risk category:
Pass	$	2,~~603~~864,~~918~~170
Criticized	3531,~~854~~687
Total commercial loans	$	2,~~639~~895,~~772~~857
December 31, 2017
December 31, 2018
By risk category:
Pass	$	3,~~316~~016,~~604~~328
Criticized	939,~~335~~095
Total commercial loans	$	3,~~325~~055,~~939~~423

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

(in thousands)	Total
September 30, 2018
March 31, 2019
By delinquency status:
Current-29 days past due (DPD) and still accruing	$	2,~~635~~891,~~342~~156
30-89 DPD and still accruing	2,~~414~~742
90+ DPD and still accruing	—
Nonaccrual loans	21,~~016~~959
Total commercial loans	$	2,~~639~~895,~~772~~857
December 31, 2017
December 31, 2018
By delinquency status:
Current-29 DPD and still accruing	$	3,~~320~~044,~~666~~878
30-89 DPD and still accruing	18,~~977~~570
90+ DPD and still accruing	~~990~~—
Nonaccrual loans	21,~~306~~975
Total commercial loans	$	3,~~325~~055,~~939~~423

3233

CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique risks. Loan delinquency, FICO credit scores and LTV/CLTV for loan types are common credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the allowance for credit losses for the consumer portfolio segment.

Many of our loss estimation techniques used for the allowance for credit losses rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality and the establishment of our allowance for credit losses. The following table provides the outstanding balances of our consumer portfolio by delinquency status.

(in thousands)	Real estate1-4 familyfirstmortgage			Real estate1-4 familyjunior lienmortgage		Total
September 30, 2018
March 31, 2019
By delinquency status:
Current-29 DPD	$	2930,~~032~~900,~~668~~593		~~681~~609,~~616~~727		2931,~~714~~510,~~284~~320
30-59 DPD	5361,~~618~~738			1110,~~754~~484		6572,~~372~~222
60-89 DPD	1514,~~784~~688			35,~~600~~026		19,~~384~~714
90-119 DPD	8,~~061~~261			31,~~541~~985		1110,~~602~~246
120-179 DPD	69,~~684~~248			12,~~686~~901		812,~~370~~149
180+ DPD	5044,~~537~~319			86,~~752~~314		5950,~~289~~633
Remaining PCI accounting adjustments	(4,~~762~~275		)	(32,~~000~~567	)	(76,~~762~~842	)
Total consumer loans	$	2931,~~162~~034,~~590~~572		~~707~~633,~~949~~870		2931,~~870~~668,~~539~~442
December 31, 2017
December 31, 2018
By delinquency status:
Current-29 DPD	$	31,~~529~~627,~~774~~108		~~819~~642,~~000~~271		32,~~348~~269,~~774~~379
30-59 DPD	6360,~~591~~060			1311,~~663~~230		7771,~~254~~290
60-89 DPD	2015,~~770~~032			6,~~245~~934		2721,~~015~~966
90-119 DPD	1511,~~384~~435			51,~~462~~889		2013,~~846~~324
120-179 DPD	912,~~235~~846			32,~~648~~055		1214,~~883~~901
180+ DPD	5047,~~323~~935			108,~~917~~127		6156,~~240~~062
Remaining PCI accounting adjustments	(54,~~426~~603		)	(32,~~349~~674	)	(87,~~775~~277	)
Total consumer loans	$	31,~~683~~769,~~651~~813		~~855~~669,~~586~~832		32,~~539~~439,~~237~~645

The following table provides a breakdown of our consumer portfolio by FICO. 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.

(in thousands)	Real estate1-4 familyfirstmortgage			Real estate1-4 familyjunior lienmortgage		Total
September 30, 2018
By FICO:
< 600	$	151,476		55,092		206,568
600-639	117,253			40,768		158,021
640-679	280,241			66,260		346,501
680-719	853,587			123,089		976,676
720-759	2,166,566			136,381		2,302,947
760-799	5,146,191			107,141		5,253,332
800+	20,258,310			157,503		20,415,813
No FICO available	193,728			24,715		218,443
Remaining PCI accounting adjustments	(4,762		)	(3,000	)	(7,762	)
Total consumer loans	$	29,162,590		707,949		29,870,539
December 31, 2017
By FICO:
< 600	$	179,829		74,644		254,473
600-639	138,782			50,676		189,458
640-679	307,999			88,948		396,947
680-719	988,162			150,180		1,138,342
720-759	2,556,013			159,309		2,715,322
760-799	5,957,929			126,785		6,084,714
800+	21,359,614			191,851		21,551,465
No FICO available	200,749			16,542		217,291
Remaining PCI accounting adjustments	(5,426		)	(3,349	)	(8,775	)
Total consumer loans	$	31,683,651		855,586		32,539,237



(in thousands)	Real estate 1-4 family first mortgage			Real estate 1-4 family junior lien mortgage		Total
March 31, 2019
By FICO:
< 600	$	153,123		53,389		206,512
600-639	108,817			34,809		143,626
640-679	255,011			61,886		316,897
680-719	886,909			113,157		1,000,066
720-759	2,242,911			115,941		2,358,852
760-799	5,483,747			91,980		5,575,727
800+	21,732,241			141,741		21,873,982
No FICO available	176,088			23,534		199,622
Remaining PCI accounting adjustments	(4,275		)	(2,567	)	(6,842	)
Total consumer loans	$	31,034,572		633,870		31,668,442
December 31, 2018
By FICO:
< 600	$	154,020		54,681		208,701
600-639	109,783			39,374		149,157
640-679	264,931			67,341		332,272
680-719	883,451			114,961		998,412
720-759	2,346,168			122,706		2,468,874
760-799	5,753,691			100,921		5,854,612
800+	22,092,691			149,147		22,241,838
No FICO available	169,681			23,375		193,056
Remaining PCI accounting adjustments	(4,603		)	(2,674	)	(7,277	)
Total consumer loans	$	31,769,813		669,832		32,439,645

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 ratios. LTVs and CLTVs are updated quarterly using a cascade approach which first uses values provided by automated valuation models (AVMs) for the property. If an AVM is not available, then the value is estimated using the original appraised value adjusted by the change in Home Price Index (HPI) for the property location. If an HPI is not available, the original appraised value is used. The HPI value is normally the only method considered for high value properties, generally with an original value of $1 million or more, as the AVM values have proven less accurate for these properties.

The following table shows the most updated LTV and CLTV distribution of the real estate 1-4 family first and junior lien mortgage loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our allowance for credit losses. In the event of a default, any loss should be limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV due to industry data availability and portfolios acquired from or serviced by other institutions.

(in thousands)	Real estate1-4 familyfirstmortgageby LTV			Real estate1-4 familyjunior lienmortgage byCLTV		Total
September 30, 2018
March 31, 2019
By LTV/CLTV:
0-60%	$	1819,~~707~~100,~~298~~714		~~274~~262,~~136~~772		1819,~~981~~363,~~434~~486
60.01-80%	910,~~516~~816,~~050~~352			~~211~~185,~~385~~105		911,~~727~~001,~~435~~457
80.01-100%	~~791~~978,~~866~~537			~~148~~124,~~587~~188		~~940~~1,~~453~~102,725
100.01-120% (1)	9785,~~787~~910			5347,~~297~~602		~~151~~133,~~084~~512
> 120% (1)	4043,~~549~~916			2216,~~470~~031		6359,~~019~~947
No LTV/CLTV available	13,~~802~~418			~~1,074~~739		14,~~876~~157
Remaining PCI accounting adjustments	(4,~~762~~275		)	(32,~~000~~567	)	(76,~~762~~842	)
Total consumer loans	$	2931,~~162~~034,~~590~~572		~~707~~633,~~949~~870		2931,~~870~~668,~~539~~442
December 31, 2017
December 31, 2018
By LTV/CLTV:
0-60%	$	1719,~~500~~522,~~078~~839		~~307~~272,~~358~~946		1719,~~807~~795,~~436~~785
60.01-80%	1211,~~827~~273,~~337~~694			~~240~~196,~~888~~614		1311,~~068~~470,~~225~~308
80.01-100%	1837,~~153,304~~192			~~196~~135,~~456~~556		1972,~~349,760~~748
100.01-120% (1)	~~129~~83,~~637~~515			8049,~~636~~441		~~210~~132,~~273~~956
> 120% (1)	6443,~~239~~004			3217,~~224~~196		9660,~~463~~200
No LTV/CLTV available	14,~~482~~172			~~1,373~~753		1514,~~855~~925
Remaining PCI accounting adjustments	(54,~~426~~603		)	(32,~~349~~674	)	(87,~~775~~277	)
Total consumer loans	$	31,~~683~~769,~~651~~813		~~855~~669,~~586~~832		32,~~539~~439,~~237~~645


(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.

(in thousands)	Sep 30, 2018		Dec 31, 2017
Total commercial	$	2,016	2,306
Consumer:
Real estate 1-4 family first mortgage	141,953		150,381
Real estate 1-4 family junior lien mortgage	35,948		44,703
Total consumer	177,901		195,084
Total nonaccrual loans (excluding PCI)	$	179,917	197,390

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 $47.0 million and $41.7 million at September 30, 2018 and December 31, 2017, and none of these loans are government insured/guaranteed. We commence the foreclosure process on consumer real estate loans when a borrower becomes 120 days delinquent in accordance with the Bureau of Consumer Financial Protection (formerly known as the 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.

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 exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $422 thousand at September 30, 2018, and $699 thousand at December 31, 2017, are excluded from this disclosure even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

The following table shows non-PCI loans 90 days or more past due and still accruing.

(in thousands)	Sep 30, 2018		Dec 31, 2017
Total commercial	$	—	990
Consumer:
Real estate 1-4 family first mortgage	4,640		9,001
Real estate 1-4 family junior lien mortgage	1,478		2,914
Total consumer	6,118		11,915
Total past due (excluding PCI)	$	6,118	12,905

NONACCRUAL LOANS The following table provides loans on nonaccrual status. PCI loans are excluded from this table due to the existence of the accretable yield, independent of performance in accordance with their contractual terms.

Impaired Loans The table below summarizes key information for impaired loans. Our impaired loans include substantially all 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



(in thousands)	Mar 31, 2019		Dec 31, 2018
Total commercial	$	1,959	1,975
Consumer:
Real estate 1-4 family first mortgage	144,173		142,325
Real estate 1-4 family junior lien mortgage	33,587		34,625
Total consumer	177,760		176,950
Total nonaccrual loans (excluding PCI)	$	179,719	178,925

weLOANS doIN ~~not~~PROCESS ~~anticipate~~OF ~~additional~~FORECLOSURE ~~charge-offs~~Our orrecorded ~~losses~~investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $39.3 million and $46.4 million at March 31, or2019 ~~certain~~and December 31, 2018, and none of these loans are ~~currently~~government ~~performing~~insured/guaranteed. We commence the foreclosure process on consumer real estate loans when a borrower becomes 120 days delinquent in accordance with ~~their~~the ~~terms~~Bureau ~~and~~of ~~for~~Consumer ~~which~~Financial noProtection ~~loss~~(formerly ~~has~~known ~~been~~as ~~estimated.~~the ~~Impaired~~Consumer ~~loans~~Finance ~~exclude~~Protection ~~PCI~~Bureau) ~~loans~~Guidelines. ~~The~~Foreclosure ~~table~~procedures ~~below~~and ~~includes~~timelines ~~trial~~vary ~~modifications~~depending ~~that~~on ~~totaled~~whether $5the property address resides in a judicial or non-judicial state.0 ~~million~~Judicial atstates ~~September 30,~~require ~~2018~~the ~~and~~foreclosure $7to be processed through the state’s courts while non-judicial states are processed without court intervention.5 ~~million~~Foreclosure attimelines ~~December 31,~~vary ~~2017~~according to state law.

			Recorded investment
(in thousands)	Unpaidprincipalbalance		Impairedloans	Impaired loanswith relatedallowance forcredit losses	Relatedallowance forcredit losses
September 30, 2018
Total commercial	$	2,961	2,509	2,509	455
Consumer:
Real estate 1-4 family first mortgage	349,244		293,338	188,155	30,766
Real estate 1-4 family junior lien mortgage	89,336		80,071	61,738	14,718
Total consumer	438,580		373,409	249,893	45,484
Total impaired loans (excluding PCI)	$	441,541	375,918	252,402	45,939
December 31, 2017
Total commercial	$	3,714	2,992	2,992	893
Consumer:
Real estate 1-4 family first mortgage	377,877		315,529	215,109	37,090
Real estate 1-4 family junior lien mortgage	100,228		91,207	73,261	18,822
Total consumer	478,105		406,736	288,370	55,912
Total impaired loans (excluding PCI)	$	481,819	409,728	291,362	56,805

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 exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $381 thousand at March 31, 2019, and $373 thousand at December 31, 2018, are excluded from this disclosure even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

The following table shows non-PCI loans 90 days or more past due and still accruing.



(in thousands)	Mar 31, 2019		Dec 31, 2018
Total commercial	$	—	—
Consumer:
Real estate 1-4 family first mortgage	2,259		5,819
Real estate 1-4 family junior lien mortgage	759		708
Total consumer	3,018		6,527
Total past due (excluding PCI)	$	3,018	6,527

Impaired Loans The table below summarizes key information for impaired loans. Our impaired loans predominantly include loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans generally have estimated losses which are included in the allowance for credit losses. We have impaired loans with no allowance for credit losses when loss content has been previously recognized through charge-offs and

we do not anticipate additional charge-offs or losses, or certain loans are currently performing in accordance with their terms and for which no loss has been estimated. Impaired loans exclude PCI loans. The table below includes trial modifications that totaled $4.5 million at March 31, 2019 and $5.3 million at December 31, 2018.



			Recorded investment
(in thousands)	Unpaid principal balance		Impaired loans	Impaired loans with related allowance for credit losses	Related allowance for credit losses
March 31, 2019
Total commercial	$	2,629	2,183	1,950	439
Consumer:
Real estate 1-4 family first mortgage	339,633		286,810	151,392	24,326
Real estate 1-4 family junior lien mortgage	85,621		77,273	56,909	14,145
Total consumer	425,254		364,083	208,301	38,471
Total impaired loans (excluding PCI)	$	427,883	366,266	210,251	38,910
December 31, 2018
Total commercial	$	2,369	1,958	1,958	442
Consumer:
Real estate 1-4 family first mortgage	336,694		282,330	153,353	23,995
Real estate 1-4 family junior lien mortgage	87,941		78,792	59,509	13,411
Total consumer	424,635		361,122	212,862	37,406
Total impaired loans (excluding PCI)	$	427,004	363,080	214,820	37,848

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

2018

2017

2018

2017

2019

2018

(in thousands)

Averagerecordedinvestment

Recognizedinterestincome

~~Recognizedinterestincome~~

Averagerecordedinvestment

~~Averagerecordedinvestment~~

Recognizedinterestincome

~~Recognizedinterestincome~~

~~Averagerecordedinvestment~~

~~Recognizedinterestincome~~

~~Averagerecordedinvestment~~

~~Recognizedinterestincome~~

Total commercial

$2,186

~~2,903~~

3,021

~~4,030~~

~~2,996~~

~~3,791~~

Consumer:

Real estate 1-4 family first mortgage

~~295~~286,~~471~~421

4,536

~~4,660~~

313,170

~~329,054~~

4,960

~~5,174~~

~~304,118~~

~~14,414~~

~~338,040~~

~~15,927~~

Real estate 1-4 family junior lien mortgage

8178,~~597~~247

1,656

~~1,632~~

89,630

~~94,054~~

1,948

~~2,037~~

~~85,549~~

~~5,316~~

~~97,054~~

~~6,236~~

Total consumer

~~377~~364,~~068~~668

6,192

~~6,292~~

402,800

~~423,108~~

6,908

~~7,211~~

~~389,667~~

~~19,730~~

~~435,094~~

~~22,163~~

Total impaired loans

$366,854

~~379,971~~

6,207

~~6,308~~

405,821

~~427,138~~

6,920

~~7,221~~

~~392,663~~

~~19,773~~

~~438,885~~

~~22,196~~

Interest income:

Cash basis of accounting

1,997

~~1,911~~

1,897

~~1,947~~

~~5,818~~

~~6,262~~

Other (1)

4,210

~~4,397~~

5,023

~~5,274~~

~~13,955~~

~~15,934~~

Total interest income

6,207

~~6,308~~

6,920

~~7,221~~

~~19,773~~

~~22,196~~


(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 Restructuring (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 $~~375~~366.93 million and $~~409~~363.71 million at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, respectively. We do not consider loan resolutions, 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 following table summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that occurred during the period. 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.

	Primary modification type (1)							Financial effects of modifications
(in thousands)	Principal (2)		Interestratereduction	Otherconcessions (3)		Total		Charge-offs (4)	Weightedaverageinterestratereduction		Recordedinvestmentrelated tointerest ratereduction (5)
Quarter ended September 30, 2018
Total commercial	$	—	549	—		549		—	3.11	%	$	549
Consumer:
Real estate 1-4 family first mortgage	2,006		799	3,442		6,247		—	2.77		2,262
Real estate 1-4 family junior lien mortgage	27		603	1,030		1,660		39	2.53		603
Trial modifications (6)	—		—	(774	)	(774	)	—	—		—
Total consumer	2,033		1,402	3,698		7,133		39	2.72		2,865
Total	$	2,033	1,951	3,698		7,682		39	2.78	%	$	3,414
Quarter ended September 30, 2017
Total commercial	$	—	—	—		—		—	—	%	$	—
Consumer:
Real estate 1-4 family first mortgage	2,055		386	2,719		5,160		29	3.36		2,078
Real estate 1-4 family junior lien mortgage	33		841	1,889		2,763		363	3.60		842
Trial modifications (6)	—		—	(952	)	(952	)	—	—		—
Total consumer	2,088		1,227	3,656		6,971		392	3.43		2,920
Total	$	2,088	1,227	3,656		6,971		392	3.43	%	$	2,920

	Primary modification type (1)							Financial effects of modifications
(in thousands)	Principal (2)		Interestratereduction	Otherconcessions (3)		Total		Charge-offs (4)	Weightedaverageinterestratereduction		Recordedinvestmentrelated tointerest ratereduction (5)
Nine months ended September 30, 2018
Quarter ended March 31, 2019
Total commercial	$	—	549	2,067		2,616		—	3.11	%	$	549
Consumer:
Real estate 1-4 family first mortgage	5,414		971	14,571		20,956		156	2.59		4,749
Real estate 1-4 family junior lien mortgage	71		940	4,725		5,736		51	2.58		940
Trial modifications (6)	—		—	(1,766	)	(1,766	)	—	—		—
Total consumer	5,485		1,911	17,530		24,926		207	2.59		5,689
Total	$	5,485	2,460	19,597		27,542		207	2.63	%	$	6,238
Nine months ended September 30, 2017
Total commercial	$	—	—	—		—		—	—	%	$	—
Consumer:
Real estate 1-4 family first mortgage	81,~~499~~970		~~5,481~~—	714,~~875~~778		2116,~~855~~748		~~557~~25	31.4395		~~10,767~~844
Real estate 1-4 family junior lien mortgage	~~1,122~~405		~~2,604~~48	32,~~468~~714		73,~~194~~167		~~679~~45	42.2921		~~3,088~~410
Trial modifications (6)	—		—	(~~274~~469	)	(~~274~~469	)	—	—		—
Total consumer	92,~~621~~375		~~8,085~~48	1117,~~069~~023		2819,~~775~~446		~~1,236~~70	32.6304		131,~~855~~254
Total	$	92,~~621~~375	~~8,085~~48	1117,~~069~~023		2819,~~775~~446		~~1,236~~70	32.6304	%	$	131,~~855~~254
Quarter ended March 31, 2018
Total commercial	$	—	—	2,067		2,067		—	—	%	$	—
Consumer:
Real estate 1-4 family first mortgage	2,049		—	5,602		7,651		76	2.13		1,100
Real estate 1-4 family junior lien mortgage	44		82	1,977		2,103		11	2.28		82
Trial modifications (6)	—		—	(1,589	)	(1,589	)	—	—		—
Total consumer	2,093		82	5,990		8,165		87	2.14		1,182
Total	$	2,093	82	8,057		10,232		87	2.14	%	$	1,182

(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 $23.68 million and $2.4.2 million for the quarters ended ~~September~~March 3031, ~~2018~~2019 and ~~2017, and $9.4 million and $7.4 million for the first nine months of~~ 2018 ~~and 2017~~, 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 loans discharged in bankruptcy, loan renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the 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 $~~166~~197 thousand and $~~135~~112 thousand for the quarters ended ~~September~~March 3031, ~~2018~~2019 and ~~2017, and $484 thousand and $753 thousand for the first nine months of~~ 2018 ~~and 2017~~, 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.

The table below summarizes permanent modification TDRs that have defaulted in the current period within 12 months of their permanent modification date. We report these defaulted

TDRs based on a payment default definition of 90 days past due for the commercial portfolio segment and 60 days past due for the consumer portfolio segment.

Recorded investment of defaults

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(in thousands)

~~2018~~2019

2018

~~2017~~

~~2018~~

~~2017~~

Total commercial

$—

—

~~1,855~~

—

Consumer:

Real estate 1-4 family first mortgage

~~337~~350

730

~~1,187~~

~~1,454~~

~~2,257~~

Real estate 1-4 family junior lien mortgage

4475

~~269~~

~~623~~

Total consumer

~~381~~425

785

~~1,247~~

~~1,723~~

~~2,880~~

Total

$425

~~381~~

785

~~1,247~~

~~3,578~~

~~2,880~~

Note 3: Fair Values of Assets and Liabilities

We use fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. We did not elect the fair value option for any financial instruments as permitted in FASB ASC 825, Financial Instruments, which allows companies to elect to carry certain financial instruments at fair value with corresponding changes in fair value reported in the results of operations. As of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, assets measured at fair value on a nonrecurring basis were less than 1% of total assets. See Note 1 (Summary of Significant Accounting Policies) in our ~~2017~~2018 Form 10-K for additional information about our fair value measurement policies and methods.

Disclosures about Fair Value of Financial Instruments The table below is a summary of fair value estimates by level for financial instruments. In connection with the adoption of ASU 2016-01 in first quarter 2018, the valuation

methodologies for estimating the fair value of financial instruments that are recorded at amortized cost, including loans, has been changed, where necessary, to conform with an exit price notion. Under an exit price notion, fair value estimates are based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date. For certain loans the estimated fair values prior to adoption of ASU 2016-01 followed an entrance price notion that based fair values on recent prices offered to customers for loans with similar characteristics. The carrying amounts in the following table are recorded in the balance sheet under the indicated captions.

We have not included assets and liabilities that are not financial instruments in our disclosure, such as other assets 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.

Carryingamount

Estimated fair value

(in thousands)

Level 1

Level 2

Level 3

Total

September 30, 2018

March 31, 2019

Financial assets

Cash and cash equivalents (1)

—

Loans, net (2)

3234,~~405~~466,~~755~~141

—

3134,~~864~~154,~~200~~212

Financial liabilities

Line of credit with Bank (1)

~~182~~2,~~207~~209,000

—

~~182~~2,~~207~~209,000

December 31, 2017

December 31, 2018

Financial assets

Cash and cash equivalents (1)

—

Loans, net (2)

35,~~735~~398,~~816~~325

—

3634,~~407~~703,~~260~~481

Financial liabilities

Line of credit with Bank (1)

3,~~551~~054,~~426~~738

—

3,~~551~~054,~~426~~738


(1)	Amounts consist of financial instruments in which carrying value approximates fair value.


(2)	Carrying amount is net of allowance for loan losses.

Note 4: Common and Preferred Stock

The following table provides details of our authorized common and preferred stock.

				September 30, 2018 and December 31, 2017
				March 31, 2019 and December 31, 2018
	Liquidationpreference pershare		Sharesauthorized	Sharesissued andoutstanding	Par valueper share		Carryingvalue
Preferred stock:
Series A
6.375%, Cumulative, Perpetual Series A Preferred Stock	$	25	11,000,000	11,000,000	$	0.01	110,000
Series B
$85 Annual Dividend Per Share, Cumulative, Perpetual Series B Preferred Stock	1,000		1,000	667	0.01		7
Common stock			100,000,000	34,058,028	0.01		340,580
Total			111,001,000	45,058,695			$	450,587

In the event that the Company is liquidated or dissolved, the holders of the Series A and Series B preferred stock will be entitled to a liquidation preference for each security plus any authorized, declared and unpaid dividends that will be paid prior to any payments to common stockholders. With respect to the payment of dividends and liquidation preference, the Series A preferred stock ranks on parity with Series B preferred stock and senior to the Company’s common stock. The Company may issue additional shares of common stock to affiliates of Wells Fargo without further action by the Series A or Series B stockholders. Additional information related to Series A and B preferred stock, including the ability of the Company to redeem each series, is included in Note 5 (Common and Preferred Stock) to Financial Statements in our ~~2017~~2018 Form 10-K.

The certificate of designation for the Series A preferred stock limits our ability to pay dividends on our common stock or make any payment of interest or principal on our line of credit with the Bank if the dividend coverage ratio for the four prior fiscal quarters is less than 150%. The dividend coverage ratio, expressed as a percentage, is calculated by dividing the four prior fiscal quarters’ funds from operations, defined as GAAP net income excluding gains or losses from sales of property, by the amount that would be required to pay annual dividends on the Series A and Series B preferred stock. At ~~September~~March 3031, ~~2018~~2019, the dividend coverage ratio was 76,~~064~~948%.

Note 5: Transactions With Related Parties

The Company engages in various transactions and agreements with affiliated parties in the ordinary course of business. Due to the common ownership of the Company and the affiliated parties by Wells Fargo, these transactions and agreements may reflect circumstances and considerations that could differ from

those conducted with unaffiliated parties. The principal items related to transactions with affiliated parties included in the accompanying statement of income and balance sheet are described in the table and narrative below.

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(in thousands)

~~2018~~2019

2018

~~2017~~

~~2018~~

~~2017~~

Income statement data

Interest income:

Net accretion of adjustments on loans

$6,822

~~4,956~~

4,278

~~4,130~~

~~14,275~~

~~10,392~~

Interest on deposits

12—

—

~~8,498~~

Total interest income

46,~~968~~822

4,278

~~4,132~~

~~14,287~~

~~18,890~~

Pledge fees

—1,411

6,037

~~15,864~~

~~6,037~~

~~44,338~~

Interest expense

418,~~604~~387

14,402

~~3,173~~

~~30,866~~

~~3,423~~

Loan servicing costs

2021,~~561~~545

21,922

~~20,614~~

~~63,843~~

~~58,602~~

Management fees

10,~~977~~699

6,260

~~6,384~~

~~28,987~~

~~19,155~~

(in thousands)	~~Sep~~Mar 3031, ~~2018~~2019			Dec 31, ~~2017~~2018
Balance sheet related data
Cash and cash equivalents	$	—		—
Loan acquisitions (year-to-date)	—			93,~~162~~747,~~579~~820
Loan sales (book value) (year-to-date)	(2611,~~523~~553		)	(~~121~~27,~~210~~119	)
Pledged loans (carrying value) (1)	—3,182,831			243,~~323~~226,~~830~~825
Foreclosed asset sales (year-to-date)	(101,~~229~~629		)	(1112,~~495~~901	)
Line of credit with Bank	~~182~~2,~~207~~209,000			3,~~551~~054,~~426~~738
Accounts receivable - affiliates, net	9474,~~146~~053			~~113,755~~—
Accounts payable - affiliates, net	—			13,798

(1) ~~There were no pledged loans at September 30, 2018.~~ The fair value of pledged loans was approximately $243.82 billion at March 31, 2019 and December 31, ~~2017~~2018, respectively.

Loans We acquire and sell loans to and from the Bank. The acquisitions and sales are transacted at fair value resulting in acquisition discounts and premiums or gains and losses on sales. The net acquisition discount accretion or premium amortization is reported within interest income. Gains or losses on sales of loans are included within noninterest income.

The certificate of designation for the Series A preferred stock limits our ability to pledge loans to an aggregate amount not exceeding 80% of our total assets at any time as collateral on behalf of the Bank for the Bank’s access to secured borrowing facilities through the Federal Home Loan Banks or the discount window of Federal Reserve Banks. However, the Bank's borrowings will differ from loan balances pledged. In exchange for the pledge of our loan assets, the Bank pays us a fee that is consistent with market terms. At ~~September~~March 3031, ~~2018~~2019 and ~~September~~March 3031, ~~2017~~2018, the fee was equal to an annual rate of 1517 basis points (0.1517%) and 3415 basis points (0.3415%), respectively, as applied to the unpaid principal balance of pledged loans on a monthly basis. Such fee may be renegotiated by us and the Bank from time to time.

Loan Servicing Costs The loans in our portfolio are predominantly serviced by the Bank pursuant to the terms of participation and servicing and assignment agreements. In some instances, the Bank has delegated servicing responsibility to third parties that are not affiliated with us or the Bank. Depending on the loan type, the monthly servicing fee charges

are based in part on (a) outstanding principal balances, (b) a flat fee per month, or (c) a total loan commitment amount.

Management Fees We pay the Bank a management fee to reimburse for general overhead expenses, including allocations of technology support and a combination of finance and accounting, risk management and other general overhead expenses incurred on our behalf. Management fees include direct and indirect expense allocations. Indirect expenses are allocated based on ratios that use our proportion of expense activity drivers. The expense activity drivers and ratios may change from time to time. The increase in first quarter 2019 was driven by an increase in allocations for portfolio credit monitoring and oversight.

Deposits Interest income earned on deposits is included in interest income. Our cash management process includes applying operating cash flows to reduce any outstanding balance on our line of credit with the Bank. Operating cash flows are settled through our affiliate accounts receivable/payable process. Upon settlement cash received is either applied to reduce our line of credit outstanding or retained as a deposit with the Bank.

Foreclosed Assets We sell foreclosed assets back to the Bank from time to time at estimated fair value.

Line of Credit We have a revolving line of credit with the Bank, pursuant to which we can borrow up to $5.0 billion. atEffective aMarch ~~rate~~2019, the Company renewed the line of ~~interest~~credit ~~equal~~with tothe Bank and the ~~three-month~~interest ~~London~~rate ~~Interbank~~increased ~~Offered~~from ~~Rate~~three-month LIBOR plus 4.4 basis points (0.044%) to three-month LIBOR plus 65.0 basis points (0.650%). The change in interest rate was driven by an increase in term, along with a change in underwriting which aligned our credit rating with that of our direct parents rather than the Bank.

Accounts Payable and Receivable – Affiliates, Net Accounts payable and receivable from ~~or payable to~~ the Bank or its affiliates result from intercompany transactions which include net loan paydowns, interest receipts, and other transactions, including those transactions noted herein, which have not yet settled.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

WFREIC is not currently involved in nor, to our knowledge, currently threatened with any material litigation. From time to time we may become involved in routine litigation arising in the ordinary course of business. We do not believe that the eventual outcome of any such routine litigation will, in the aggregate, have a material adverse effect on our financial statements. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, could be material to our financial statements for any particular period.

Item 1A. Risk Factors

Information in response to this item can be found under the “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

Information required by this Item 2 pursuant to Item 703 of Regulation S-K regarding issuer repurchases of equity securities is not applicable since we do not have a program providing for the repurchase of our securities.

Item 6. Exhibits

A list of exhibits to this Form 10-Q is set forth below and is incorporated herein by reference.



Exhibit No.	Description	Location

(3)(a)	Amended and Restated Certificate of Incorporation.	Incorporated by reference to Exhibit (3)(a) to WFREIC’s Annual Report on Form 10-K for the year ended December 31, 2014.

(3)(b)	Bylaws.	Incorporated by reference to Exhibit 3.3 to WFREIC’s Registration Statement on Form S-11 No. 333-198948 filed November 18, 2014.

(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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

(32)(b)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	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.Lab)	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith.

(101.Pre)	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.

(101.Def)	XBRL Taxonomy Extension Definitions Linkbase Document	Filed herewith.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.



Wells Fargo Real Estate Investment Corporation

By:		/s/ RICHARD D. LEVY
		Richard D. Levy Executive Vice President and Controller (Principal Accounting Officer)

Dated: ~~November~~May 56, ~~2018~~2019

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