Wells Fargo Reports $5.2 Billion in Quarterly Net Income

Wells Fargo & Company (NYSE:WFC):

Financial results reported in this document are preliminary. Final
financial results and other disclosures will be reported in our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and
may differ materially from the results and disclosures in this document
due to, among other things, the completion of final review procedures,
the occurrence of subsequent events, or the discovery of additional
information.

Selected Financial Information

(a) Tangible common equity is a non-GAAP financial measure and
represents total equity less preferred equity, noncontrolling
interests, and goodwill and certain identifiable intangible assets
(including goodwill and intangible assets associated with certain
of our nonmarketable equity securities but excluding mortgage
servicing rights), net of applicable deferred taxes. The
methodology of determining tangible common equity may differ among
companies. Management believes that return on average tangible
common equity, which utilizes tangible common equity, is a useful
financial measure because it enables investors and others to
assess the Company’s use of equity. For additional information,
including a corresponding reconciliation to GAAP financial
measures, see the “Tangible Common Equity” tables on page 36.

(b) The efficiency ratio is noninterest expense divided by total
revenue (net interest income and noninterest income).

Wells Fargo & Company (NYSE:WFC) reported net income of $5.2 billion, or
$0.98 per diluted common share, for second quarter 2018, compared with
$5.9 billion, or $1.08 per share, for second quarter 2017, and
$5.1 billion, or $0.96 per share, for first quarter 2018.

Chief Executive Officer Tim Sloan said, “During the second quarter we
continued to transform Wells Fargo into a better, stronger company for
our customers, team members, communities and shareholders. Our progress
included making further improvements to our compliance and operational
risk management programs; hiring a new Chief Risk Officer; announcing
innovative new products including a digital application for Merchant
Services customers and our enhanced Propel® Card, one of the
richest no-annual-fee credit cards in the industry; launching our
‘Re-established’ marketing effort, the largest advertising campaign in
our history; announcing a new $200 billion commitment to financing
sustainable businesses and projects; and continuing to move forward on
our expense savings initiatives. I’m also pleased with our recent CCAR
results, which demonstrates the strength of our diversified business
model, our sound financial risk management practices, and our strong
capital position, and enables us to return more capital to our
shareholders in alignment with our goal of creating long-term
shareholder value.”

Chief Financial Officer John Shrewsberry said, “Wells Fargo reported
$5.2 billion of net income in the second quarter, which included net
discrete income tax expense of $481 million. Net interest income grew
both linked quarter and year-over-year in the second quarter, credit
performance and capital levels remained strong, and we are on track to
meet our expense reduction expectations. In addition, we received a
non-objection to our 2018 Capital Plan, which includes an increase in
our quarterly common stock dividend rate in third quarter 2018 to $0.43
per share, subject to board approval, as well as up to $24.5 billion of
gross common stock repurchases during the four-quarter period beginning
in third quarter 2018. The shareholder returns included in the capital
plan are approximately 70% higher than our previous four quarter capital
actions, demonstrating our commitment to returning more capital to
shareholders. Our ability to return this level of capital is a result of
capital built in recent years through continued stable earnings and a
lower level of risk-weighted assets.”

Net Interest Income

Net interest income in the second quarter was $12.5 billion, up $303
million compared with first quarter 2018, driven predominantly by a less
negative impact from hedge ineffectiveness accounting, the net benefit
of rate and spread movements, and one additional day in the quarter.

Net interest margin was 2.93 percent, up 9 basis points compared with
first quarter 2018. The increase was driven by a reduction in the
proportion of lower yielding assets, as well as a less negative impact
from hedge ineffectiveness accounting and the net benefit of rate and
spread movements.

Noninterest Income

Noninterest income in the second quarter was $9.0 billion, down $684
million compared with first quarter 2018. Second quarter noninterest
income included lower market sensitive revenue3, mortgage
banking fees and other income, partially offset by higher card fees on
stronger credit card and debit card activity.

Noninterest Expense

Noninterest expense in the second quarter declined $1.1 billion from the
prior quarter to $14.0 billion, primarily due to lower operating losses,
a decline in employee benefits and incentive compensation expense, which
were seasonally elevated in the first quarter, and lower equipment
expense. These decreases were partially offset by higher charitable
donations expense, contract services, advertising and promotion, and
outside professional services expense. The efficiency ratio was
64.9 percent in second quarter 2018, compared with 68.6 percent in the
first quarter.

Second quarter 2018 operating losses were $619 million, which included
typical operating losses, as well as non-litigation expense for
previously disclosed matters, including policies, practices and
procedures in our foreign exchange business; fee calculations within
certain fiduciary and custody accounts in our wealth management
business; practices in our automobile lending business, including
related insurance products; and mortgage interest rate lock extensions.
First quarter 2018 operating losses were $1.5 billion due to elevated
litigation accruals.

Income Taxes

The Company’s effective income tax rate was 25.9 percent for second
quarter 2018 and included net discrete income tax expense of $481
million mostly related to state income taxes. Discrete income tax
expenses in the second quarter were driven by the Company’s adjustment
to its state income tax reserves following the recent U.S. Supreme Court
decision in South Dakota v. Wayfair and by the true-up of certain
state income tax accruals. The effective income tax rate in first
quarter 2018 was 21.1 percent and included net discrete income tax
expense of $137 million, predominantly resulting from the non-deductible
treatment of a discrete litigation accrual. The Company currently
expects the effective income tax rate for the remainder of 2018 to be
approximately 19 percent, excluding the impact of any future discrete
items.

Loans

Total average loans were $944.1 billion in the second quarter, down $6.9
billion from the first quarter. Period-end loan balances were $944.3
billion at June 30, 2018, down $3.0 billion from March 31, 2018.
Commercial loans were down $291 million compared with March 31, 2018,
with a $2.5 billion decline in commercial real estate loans, partially
offset by $1.9 billion of growth in commercial and industrial loans and
a $321 million increase in lease financing loans. Consumer loans
decreased $2.8 billion from the prior quarter, driven by:

Additionally, $507 million of nonconforming mortgage loan originations
that would have otherwise been included in 1-4 family first mortgage
loan outstandings were designated as held for sale in anticipation of
the future issuance of residential mortgage-backed securities (RMBS),
and $112 million of loans were transferred to held for sale as a result
of previously announced branch divestitures.

Period-End Loan Balances

Debt and Equity Securities

Debt securities include available-for-sale and held-to-maturity debt
securities, as well as debt securities held for trading. Debt securities
were $475.5 billion at June 30, 2018, up $2.5 billion from the first
quarter, driven by:

Net unrealized losses on available-for-sale debt securities were $2.4
billion at June 30, 2018, compared with net unrealized losses of
$1.9 billion at March 31, 2018, primarily due to higher interest rates.

Equity securities include marketable and non-marketable equity
securities, as well as equity securities held for trading. Equity
securities were $57.5 billion at June 30, 2018, down $1.4 billion from
the first quarter, predominantly due to a decline in equity securities
held for trading.

Deposits

Total average deposits for second quarter 2018 were $1.3 trillion, down
$25.8 billion from the prior quarter. The decline was driven by a
decrease in commercial deposits, primarily from financial institutions,
including a $13.5 billion decline from actions the Company has taken in
response to the asset cap included in the consent order issued by the
Board of Governors of the Federal Reserve System on February 2, 2018.
Average consumer and small business banking deposits of $754.0 billion
for second quarter 2018 were down $1.4 billion from the prior quarter,
with growth in Community Banking deposits more than offset by lower
Wealth and Investment Management deposits, as customers allocated more
cash to alternative higher-rate liquid investments. The average deposit
cost for second quarter 2018 was 40 basis points, up 6 basis points from
the prior quarter and 19 basis points from a year ago, primarily driven
by an increase in commercial and Wealth and Investment Management
deposit rates.

Capital

Capital in the second quarter continued to exceed our internal target,
with a Common Equity Tier 1 ratio (fully phased-in) of 12.0 percent5,
flat compared with the prior quarter. In second quarter 2018, the
Company repurchased 35.8 million shares of its common stock, which
reduced period-end common shares outstanding by 24.8 million. The
Company paid a quarterly common stock dividend of $0.39 per share. In
addition, the Company received a non-objection to its 2018 Capital Plan
from the Federal Reserve. As part of this plan, the Company expects to
increase its third quarter 2018 common stock dividend to $0.43 per
share, subject to approval by the Company’s Board of Directors. The plan
also includes up to $24.5 billion of gross common stock repurchases,
subject to management discretion, for the four-quarter period from third
quarter 2018 through second quarter 2019.

Credit Quality

Net Loan Charge-offs

The quarterly loss rate in the second quarter was 0.26 percent
(annualized), compared with 0.32 percent in the prior quarter and 0.27
percent a year ago. Commercial and consumer losses were 0.05 percent and
0.49 percent, respectively. Total credit losses were $602 million in
second quarter 2018, down $139 million from first quarter 2018.
Commercial losses were down $11 million due to improvement in commercial
and industrial loans. Consumer losses decreased $128 million driven by
lower loss rates and higher recovery rates, including seasonal impacts
in automobile and credit card.

Net Loan Charge-Offs

(a) Quarterly net charge-offs (recoveries) as a percentage of
average loans are annualized. See explanation on page 33 of the
accounting for purchased credit-impaired (PCI) loans and the
impact on selected financial ratios.

Nonperforming Assets

Nonperforming assets decreased $305 million, or 4 percent, from first
quarter 2018 to $8.0 billion. Nonaccrual loans decreased $233 million
from first quarter 2018 to $7.5 billion predominantly driven by lower
consumer real estate nonaccruals.

Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)

Allowance for Credit Losses

The allowance for credit losses, including the allowance for unfunded
commitments, totaled $11.1 billion at June 30, 2018, down $203 million
from March 31, 2018. Second quarter 2018 included a $150 million reserve
release2, which reflected strong overall credit portfolio
performance and lower loan balances. The allowance coverage for total
loans was 1.18 percent, compared with 1.19 percent in first quarter
2018. The allowance covered 4.6 times annualized second quarter net
charge-offs, compared with 3.8 times in the prior quarter. The allowance
coverage for nonaccrual loans was 148 percent at June 30, 2018, compared
with 147 percent at March 31, 2018. The Company believes the allowance
was appropriate for losses inherent in the loan portfolio at June 30,
2018.

Business Segment Performance

Wells Fargo defines its operating segments by product type and customer
segment. Segment net income for each of the three business segments was:

Community Banking offers a
complete line of diversified financial products and services for
consumers and small businesses including checking and savings accounts,
credit and debit cards, and automobile, student, mortgage, home equity
and small business lending, as well as referrals to Wholesale Banking
and Wealth and Investment Management business partners. The Community
Banking segment also includes the results of our Corporate Treasury
activities net of allocations in support of the other operating segments
and results of investments in our affiliated venture capital
partnerships.

Selected Financial Information

Community Banking reported net income of $2.5 billion, up $583 million,
or 30 percent, from first quarter 2018. Second quarter 2018 results
included net discrete income tax expense of $481 million primarily
related to state income taxes. Revenue in the second quarter was
$11.8 billion, flat compared with first quarter 2018, as lower market
sensitive revenue and mortgage banking income were largely offset by
higher net interest income and card fees. Noninterest expense decreased
$1.4 billion, or 16 percent, from first quarter 2018, driven mainly by
lower operating losses and lower personnel expense that was down from a
seasonally elevated first quarter. The provision for credit losses
increased $266 million from the prior quarter primarily due to a lower
reserve release.

Net income was down $269 million, or 10 percent, from second quarter
2017, primarily due to lower revenue and net discrete income tax expense
of $481 million in second quarter 2018. Revenue declined $149 million,
or 1 percent, from a year ago due to lower mortgage banking income and
service charges on deposit accounts, partially offset by higher net
interest income and higher gains on the sales of PCI Pick-a-Pay mortgage
loans. Noninterest expense of $7.3 billion was stable from a year ago.
The provision for credit losses decreased $139 million from a year ago
due to improvement in the consumer real estate and automobile portfolios.

Retail Banking and Consumer Payments, Virtual Solutions and
Innovation

Consumer Lending

Wholesale Banking provides
financial solutions to businesses across the United States and globally
with annual sales generally in excess of $5 million. Products and
businesses include Business Banking, Commercial Real Estate, Corporate
Banking, Financial Institutions Group, Government and Institutional
Banking, Middle Market Banking, Principal Investments, Treasury
Management, Wells Fargo Commercial Capital, and Wells Fargo Securities.

Selected Financial Information

Wholesale Banking reported net income of $2.6 billion, down
$240 million, or 8 percent, from first quarter 2018. Revenue of
$7.2 billion decreased $82 million, or 1 percent, from the prior
quarter, primarily due to the gain on the sale of Wells Fargo Shareowner
Services recognized in the first quarter and lower market sensitive
revenue in the second quarter, partially offset by higher net interest
income and investment banking fees. Noninterest expense increased
$241 million, or 6 percent, from the prior quarter reflecting higher
operating losses and higher regulatory, risk and technology expense,
partially offset by seasonally lower personnel expense. Second quarter
2018 operating losses were $208 million and included $171 million of
non-litigation expense related to our foreign exchange business. The
provision for credit losses decreased $16 million from the prior quarter.

Net income decreased $107 million, or 4 percent, from second quarter
2017. Second quarter 2018 results benefited from a lower effective
income tax rate, while second quarter 2017 included a discrete income
tax benefit related to the sale of Wells Fargo Insurance Services USA
(WFIS). Revenue decreased $282 million, or 4 percent, from second
quarter 2017, primarily due to the impact of the sales of WFIS in fourth
quarter 2017 and Wells Fargo Shareowner Services in first quarter 2018,
as well as lower net interest income, operating lease income and
mortgage banking fees, partially offset by higher market sensitive
revenue. Noninterest expense increased $183 million, or 5 percent, from
a year ago as higher operating losses and higher regulatory, risk and
technology expense were partially offset by lower expense related to the
sales of WFIS and Wells Fargo Shareowner Services. The provision for
credit losses increased $29 million from a year ago.

Wealth and Investment Management (WIM)
provides a full range of personalized wealth management, investment
and retirement products and services to clients across U.S. based
businesses including Wells Fargo Advisors, The Private Bank, Abbot
Downing, Wells Fargo Institutional Retirement and Trust, and Wells Fargo
Asset Management. We deliver financial planning, private banking,
credit, investment management and fiduciary services to high-net worth
and ultra-high-net worth individuals and families. We also serve
clients’ brokerage needs, supply retirement and trust services to
institutional clients and provide investment management capabilities
delivered to global institutional clients through separate accounts and
the Wells Fargo Funds.

Selected Financial Information

Wealth and Investment Management reported net income of $445 million,
down $269 million, or 38 percent, from first quarter 2018. Revenue of
$4.0 billion decreased $291 million, or 7 percent, from the prior
quarter, primarily due to the impairment from the announced sale of
WFAM’s ownership stake in RockCreek, as well as lower transaction
revenue and asset-based fees. Noninterest expense increased $71 million,
or 2 percent, from the prior quarter, primarily driven by higher
operating losses and higher regulatory, risk and technology expense,
partially offset by lower personnel expense from a seasonally higher
first quarter and lower broker commissions. Second quarter 2018
operating losses were $127 million and included $114 million of
non-litigation expense related to fee calculations within certain
fiduciary and custody accounts in our wealth management business.

Net income was down $266 million, or 37 percent, from second quarter
2017. Second quarter 2018 results benefited from a lower effective
income tax rate. Revenue decreased $275 million from a year ago,
primarily driven by the impairment of WFAM’s ownership stake in
RockCreek, lower net interest income and transaction revenue, partially
offset by higher asset-based fees. Noninterest expense increased
$290 million, or 9 percent, from a year ago, primarily due to higher
regulatory, risk and technology expense, higher operating losses, higher
broker commissions and other personnel expense.

Retail Brokerage

Wealth Management

Asset Management

Retirement

Conference Call

The Company will host a live conference call on Friday, July 13, at 7:00
a.m. PT (10:00 a.m. ET). You may participate by dialing 866-872-5161
(U.S. and Canada) or 440-424-4922 (International). The call will also be
available online at https://www.wellsfargo.com/about/investor-relations/quarterly-earnings/
and https://engage.vevent.com/rt/wells_fargo_ao~9092328.

A replay of the conference call will be available beginning at 10:00
a.m. PT (1:00 p.m. ET) on Friday, July 13 through Friday, July 27.
Please dial 855-859-2056 (U.S. and Canada) or 404-537-3406
(International) and enter Conference ID #9092328. The replay will also
be available online at https://www.wellsfargo.com/about/investor-relations/quarterly-earnings/
and https://engage.vevent.com/rt/wells_fargo_ao~9092328.

End Notes

1 Tangible common equity is a non-GAAP financial measure and
represents total equity less preferred equity, noncontrolling interests,
and goodwill and certain identifiable intangible assets (including
goodwill and intangible assets associated with certain of our
nonmarketable equity securities but excluding mortgage servicing
rights), net of applicable deferred taxes. The methodology of
determining tangible common equity may differ among companies.
Management believes that return on average tangible common equity, which
utilizes tangible common equity, is a useful financial measure because
it enables investors and others to assess the Company’s use of equity.
For additional information, including a corresponding reconciliation to
GAAP financial measures, see the “Tangible Common Equity” tables on page
36.

2 Reserve build represents the amount by which the provision
for credit losses exceeds net charge-offs, while reserve release
represents the amount by which net charge-offs exceed the provision for
credit losses.

3 Market sensitive revenue represents net gains from trading
activities, debt securities, and equity securities.

4 Production margin represents net gains on residential
mortgage loan origination/sales activities divided by total residential
held-for-sale mortgage originations. See the Selected Five Quarter
Residential Mortgage Production Data table on page 42 for more
information.

5 See table on page 37 for more information on Common Equity
Tier 1. Common Equity Tier 1 (fully phased-in) is a preliminary estimate
and is calculated assuming the full phase-in of the Basel III capital
rules.

6 Customers who actively use their checking account with
transactions such as debit card purchases, online bill payments, and
direct deposit.

7 Data as of May 2018, comparisons with May 2017.

8 Combined consumer and business debit card purchase volume
dollars.

9 Primarily includes retail banking, consumer lending, small
business and business banking customers.

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. In addition, we
may make forward-looking statements in our other documents filed or
furnished with the SEC, and our management may make forward-looking
statements orally to analysts, investors, representatives of the media
and others. Forward-looking statements can be identified by words such
as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,”
“expects,” “target,” “projects,” “outlook,” “forecast,” “will,” “may,”
“could,” “should,” “can” and similar references to future periods. In
particular, forward-looking statements include, but are not limited to,
statements we make about: (i) the future operating or financial
performance of the Company, including our outlook for future growth;
(ii) our noninterest expense and efficiency ratio; (iii) future credit
quality and performance, including our expectations regarding future
loan losses and allowance levels; (iv) the appropriateness of the
allowance for credit losses; (v) our expectations regarding net interest
income and net interest margin; (vi) loan growth or the reduction or
mitigation of risk in our loan portfolios; (vii) future capital or
liquidity levels or targets and our estimated Common Equity Tier 1 ratio
under Basel III capital standards; (viii) the performance of our
mortgage business and any related exposures; (ix) the expected outcome
and impact of legal, regulatory and legislative developments, as well as
our expectations regarding compliance therewith; (x) future common stock
dividends, common share repurchases and other uses of capital; (xi) our
targeted range for return on assets, return on equity, and return on
tangible common equity; (xii) the outcome of contingencies, such as
legal proceedings; and (xiii) the Company’s plans, objectives and
strategies.

Forward-looking statements are not based on historical facts but instead
represent our current expectations and assumptions regarding our
business, the economy and other future conditions. Because
forward-looking statements relate to the future, they are subject to
inherent uncertainties, risks and changes in circumstances that are
difficult to predict. Our actual results may differ materially from
those contemplated by the forward-looking statements. We caution you,
therefore, against relying on any of these forward-looking statements.
They are neither statements of historical fact nor guarantees or
assurances of future performance. While there is no assurance that any
list of risks and uncertainties or risk factors is complete, important
factors that could cause actual results to differ materially from those
in the forward-looking statements include the following, without
limitation:

In addition to the above factors, we also caution that the amount and
timing of any future common stock dividends or repurchases will depend
on the earnings, cash requirements and financial condition of the
Company, market conditions, capital requirements (including under Basel
capital standards), common stock issuance requirements, applicable law
and regulations (including federal securities laws and federal banking
regulations), and other factors deemed relevant by the Company’s Board
of Directors, and may be subject to regulatory approval or conditions.

For more information about factors that could cause actual results to
differ materially from our expectations, refer to our reports filed with
the Securities and Exchange Commission, including the discussion under
“Risk Factors” in our Annual Report on Form 10-K for the year ended
December 31, 2017, as filed with the Securities and Exchange Commission
and available on its website at www.sec.gov.

Any forward-looking statement made by us speaks only as of the date on
which it is made. Factors or events that could cause our actual results
to differ may emerge from time to time, and it is not possible for us to
predict all of them. We undertake no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by law.

Forward-looking Non-GAAP Financial Measures.
From time to time management may discuss forward-looking non-GAAP
financial measures, such as forward-looking estimates or targets for
return on average tangible common equity. We are unable to provide a
reconciliation of forward-looking non-GAAP financial measures to their
most directly comparable GAAP financial measures because we are unable
to provide, without unreasonable effort, a meaningful or accurate
calculation or estimation of amounts that would be necessary for the
reconciliation due to the complexity and inherent difficulty in
forecasting and quantifying future amounts or when they may occur. Such
unavailable information could be significant to future results.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based
financial services company with $1.9 trillion in assets. Wells Fargo’s
vision is to satisfy our customers’ financial needs and help them
succeed financially. Founded in 1852 and headquartered in San Francisco,
Wells Fargo provides banking, investments, mortgage, and consumer and
commercial finance through 8,050 locations, 13,000 ATMs, the internet
(wellsfargo.com) and mobile banking, and has offices in 38 countries and
territories to support customers who conduct business in the global
economy. With approximately 265,000 team members, Wells Fargo serves one
in three households in the United States. Wells Fargo & Company was
ranked No. 26 on Fortune’s 2018 rankings of America’s largest
corporations.

Summary Information

Summary Financial Data

Income

Balance Sheet

Loans

Equity

Operating Segments

Other

Wells Fargo & Company and Subsidiaries

% Change

Jun 30, 2018 from

Mar 31,

(1) Tangible common equity is a non-GAAP financial measure and
represents total equity less preferred equity, noncontrolling
interests, and goodwill and certain identifiable intangible assets
(including goodwill and intangible assets associated with certain
of our nonmarketable equity securities but excluding mortgage
servicing rights), net of applicable deferred taxes. The
methodology of determining tangible common equity may differ among
companies. Management believes that return on average tangible
common equity and tangible book value per common share, which
utilize tangible common equity, are useful financial measures
because they enable investors and others to assess the Company’s
use of equity. For additional information, including a
corresponding reconciliation to GAAP financial measures, see the
“Tangible Common Equity” tables on page 36.

(2) The efficiency ratio is noninterest expense divided by total
revenue (net interest income and noninterest income).

(3) Pre-tax pre-provision profit (PTPP) is total revenue less
noninterest expense. Management believes that PTPP is a useful
financial measure because it enables investors and others to
assess the Company’s ability to generate capital to cover credit
losses through a credit cycle.

(4) Consumer and small business banking deposits are total
deposits excluding mortgage escrow and wholesale deposits.

(5) Financial information for the prior periods of 2017 has been
revised to reflect the impact of the adoption in first quarter
2018 of Accounting Standards Update (ASU) 2016-01 – Financial
Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities.

(6) Book value per common share is common stockholders’ equity
divided by common shares outstanding. Tangible book value per
common share is tangible common equity divided by common shares
outstanding.

Wells Fargo & Company and Subsidiaries

(1) Tangible common equity is a non-GAAP financial measure and
represents total equity less preferred equity, noncontrolling
interests, and goodwill and certain identifiable intangible assets
(including goodwill and intangible assets associated with certain
of our nonmarketable equity securities but excluding mortgage
servicing rights), net of applicable deferred taxes. The
methodology of determining tangible common equity may differ among
companies. Management believes that return on average tangible
common equity and tangible book value per common share, which
utilize tangible common equity, are useful financial measures
because they enable investors and others to assess the Company’s
use of equity. For additional information, including a
corresponding reconciliation to GAAP financial measures, see the
“Tangible Common Equity” tables on page 36.

(2) The efficiency ratio is noninterest expense divided by total
revenue (net interest income and noninterest income).

(3) Pre-tax pre-provision profit (PTPP) is total revenue less
noninterest expense. Management believes that PTPP is a useful
financial measure because it enables investors and others to
assess the Company’s ability to generate capital to cover credit
losses through a credit cycle.

(4) Consumer and small business banking deposits are total
deposits excluding mortgage escrow and wholesale deposits.

(5) Financial information for the prior quarters of 2017 has been
revised to reflect the impact of the adoption in first quarter
2018 of ASU 2016-01 – Financial Instruments – Overall
(Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities.

(6) Book value per common share is common stockholders’ equity
divided by common shares outstanding. Tangible book value per
common share is tangible common equity divided by common shares
outstanding.

Wells Fargo & Company and Subsidiaries

(1) Financial information for the prior periods of 2017 has been
revised to reflect the impact of the adoption in first quarter
2018 of ASU 2016-01 – Financial Instruments –
Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities.

 

Wells Fargo & Company and Subsidiaries

(1) Financial information for the prior quarters of 2017 has been
revised to reflect the impact of the adoption in first quarter
2018 of ASU 2016-01 – Financial Instruments –
Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

Income tax benefit (expense) related to other comprehensive income

NM – Not meaningful

(1) The quarter and six months ended June 30, 2017, includes net
unrealized gains (losses) arising during the period from equity
securities of $65 million and $126 million and reclassification of
net (gains) losses to net income related to equity securities of
$(101) million and $(217) million, respectively. With the adoption
in first quarter 2018 of ASU 2016-01, the quarter and six months
ended June 30, 2018, reflects net unrealized (gains) losses
arising during the period and reclassification of net (gains)
losses to net income from only debt securities.

FIVE QUARTER CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
TOTAL EQUITY

(1) The cumulative effect for the quarter ended March 31, 2018,
reflects the impact of the adoption in first quarter 2018 of ASU
2016-04, ASU 2016-01 and ASU 2014-09.

(2) For the quarter ended June 30, 2018, includes $1.0 billion
related to a private forward repurchase transaction expected to
settle in third quarter 2018.

Wells Fargo & Company and Subsidiaries

(1) Our average prime rate was 4.80% and 4.05% for the quarters
ended June 30, 2018 and 2017, respectively. The average
three-month London Interbank Offered Rate (LIBOR) was 2.34% and
1.21% for the same quarters, respectively.

(2) Yields/rates and amounts include the effects of hedge and risk
management activities associated with the respective asset and
liability categories.

(3) Financial information for the prior period has been revised to
reflect the impact of the adoption in first quarter 2018 of ASU
2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash
in which we changed the presentation of our cash and cash
equivalents to include both cash and due from banks as well as
interest-earning deposits with banks, which are inclusive of any
restricted cash.

(4) Yields and rates are based on interest income/expense amounts
for the period, annualized based on the accrual basis for the
respective accounts. The average balance amounts represent
amortized cost for the periods presented.

(5) Nonaccrual loans and related income are included in their
respective loan categories.

(6) Includes taxable-equivalent adjustments of $163 million and
$330 million for the quarters ended June 30, 2018 and 2017,
respectively, predominantly related to tax-exempt income on
certain loans and securities. The federal statutory tax rate was
21% and 35% for the quarters ended June 30, 2018 and 2017,
respectively.

(7) Financial information for the prior period has been revised to
reflect the impact of the adoption in fourth quarter 2017 of ASU
2017-12 – Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities.

(8) Financial information for the prior period has been revised to
reflect the impact of the adoption in first quarter 2018 of ASU
2016-01 – Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities.

Wells Fargo & Company and Subsidiaries

Total interest-bearing deposits (7)

(1) Our average prime rate was 4.66% and 3.92% for the first half
of 2018 and 2017, respectively. The average three-month London
Interbank Offered Rate (LIBOR) was 2.13% and 1.14% for the same
periods, respectively.

(2) Yields/rates and amounts include the effects of hedge and risk
management activities associated with the respective asset and
liability categories.

(3) Financial information for the prior period has been revised to
reflect the impact of the adoption in first quarter 2018 of ASU
2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash
in which we changed the presentation of our cash and cash
equivalents to include both cash and due from banks as well as
interest-earning deposits with banks, which are inclusive of any
restricted cash.

(4) Yields and rates are based on interest income/expense amounts
for the period, annualized based on the accrual basis for the
respective accounts. The average balance amounts represent
amortized cost for the periods presented.

(5) Nonaccrual loans and related income are included in their
respective loan categories.

(6) Includes taxable-equivalent adjustments of $330 million and
$648 million for the first half of 2018 and 2017, respectively,
predominantly related to tax-exempt income on certain loans and
securities. The federal statutory tax rate was 21% and 35% for the
first half of 2018 and 2017, respectively.

(7) Financial information for the prior period has been revised to
reflect the impact of the adoption in fourth quarter 2017 of ASU
2017-12 – Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities.

(8) Financial information for the prior period has been revised to
reflect the impact of the adoption in first quarter 2018 of ASU
2016-01 – Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities.

Wells Fargo & Company and Subsidiaries

(1) Our average prime rate was 4.80% for the quarter ended
June 30, 2018, 4.52% for the quarter ended March 31,2018, 4.30%
for the quarter ended December 31, 2017, 4.25% for the quarter
ended September 30, 2017 and 4.05% for the quarter ended June 30,
2017. The average three-month London Interbank Offered Rate
(LIBOR) was 2.34%, 1.93%, 1.46%, 1.31% and 1.21% for the same
quarters, respectively.

(2) Yields/rates include the effects of hedge and risk management
activities associated with the respective asset and liability
categories.

(3) Financial information for the prior quarters of 2017 has been
revised to reflect the impact of the adoption in first quarter
2018 of ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted
Cash in which we changed the presentation of our cash and cash
equivalents to include both cash and due from banks as well as
interest-earning deposits with banks, which are inclusive of any
restricted cash.

(4) Yields and rates are based on interest income/expense amounts
for the period, annualized based on the accrual basis for the
respective accounts. The average balance amounts represent
amortized cost for the periods presented.

(5) Financial information for the prior quarters of 2017 has been
revised to reflect the impact of the adoption in first quarter
2018 of ASU 2016-01 – Financial Instruments –
Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

(1) Financial information for the prior periods has been revised
to reflect the impact of the adoption in first quarter 2018 of ASU
2016-01 – Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities.

NONINTEREST EXPENSE

 

(1) The prior periods have been revised to conform with the
current period presentation whereby temporary help is included in
contract services rather than in all other noninterest expense.

Wells Fargo & Company and Subsidiaries

(1) Financial information for the prior quarters of 2017 has been
revised to reflect the impact of the adoption in first quarter
2018 of ASU 2016-01 – Financial Instruments –
Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities.

FIVE QUARTER NONINTEREST EXPENSE

(1) The prior quarters of 2017 have been revised to conform with
the current period presentation whereby temporary help is included
in contract services rather than in all other noninterest expense.

Wells Fargo & Company and Subsidiaries

(1) Financial information has been revised to reflect the impact
of the adoption in first quarter 2018 of ASU 2016-18 – Statement
of Cash Flows (Topic 230): Restricted Cash in which we
changed the presentation of our cash and cash equivalents to
include both cash and due from banks as well as interest-earning
deposits with banks, which are inclusive of any restricted cash.

(2) Financial information for the prior quarter has been revised
to reflect the impact of the adoption in first quarter 2018 of ASU
2016-01 – Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities.

Wells Fargo & Company and Subsidiaries

(1) Financial information has been revised to reflect the impact
of the adoption in first quarter 2018 of ASU 2016-18 – Statement
of Cash Flows (Topic 230): Restricted Cash in which we
changed the presentation of our cash and cash equivalents to
include both cash and due from banks as well as interest-earning
deposits with banks, which are inclusive of any restricted cash.

(2) Financial information for prior quarters has been revised to
reflect the impact of the adoption in first quarter 2018 of ASU
2016-01 – Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER TRADING ASSETS AND LIABILITIES

(1) Financial information for the prior quarters of 2017 has been
revised to reflect the impact of the adoption in first quarter
2018 of ASU 2016-01 and assets held as economic hedges for our
deferred compensation plan obligations have been reclassified as
marketable equity securities not held for trading.

(2) Represents balance sheet netting for trading derivative assets
and liability balances, and trading portfolio level counterparty
valuation adjustments.

FIVE QUARTER DEBT SECURITIES

Total mortgage-backed securities

(1) Predominantly consists of federal agency mortgage-backed
securities.

Wells Fargo & Company and Subsidiaries

(1) Includes $3.5 billion, $3.5 billion, $3.7 billion, $3.5
billion and $3.3 billion at June 30 and March 31, 2018, and
December 31, September 30, and June 30, 2017, respectively,
related to securities held as economic hedges of our deferred
compensation plan obligations.

(2) Includes $5.5 billion, $5.0 billion, $4.9 billion, $4.5
billion and $4.0 billion at June 30 and March 31, 2018, and
December 31, September 30, and June 30, 2017, respectively,
related to investments in which we elected the fair value option.

(3) Represents low-income housing tax credit investments.

(4) Includes $5.6 billion, $5.7 billion, $5.4 billion, $5.8
billion and $5.8 billion at June 30 and March 31, 2018, and
December 31, September 30, and June 30, 2017, respectively,
related to investments in Federal Reserve Bank and Federal Home
Loan Bank stock.

(5) Represents nonmarketable equity securities for which we have
elected to account for the security under the measurement
alternative.

Wells Fargo & Company and Subsidiaries

(1) Includes $9.0 billion, $10.7 billion, $12.8 billion, $13.6
billion, and $14.3 billion of purchased credit-impaired (PCI)
loans at June 30 and March 31, 2018, and December 31, September 30
and June 30, 2017, respectively.

Our foreign loans are reported by respective class of financing
receivable in the table above. Substantially all of our foreign loan
portfolio is commercial loans. Loans are classified as foreign primarily
based on whether the borrower’s primary address is outside of the United
States. The following table presents total commercial foreign loans
outstanding by class of financing receivable.

Wells Fargo & Company and Subsidiaries

(1) Includes nonaccrual mortgages held for sale and loans held for
sale in their respective loan categories.

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

(3) Real estate 1-4 family mortgage loans predominantly insured by
the Federal Housing Administration (FHA) or guaranteed by the
Department of Veterans Affairs (VA) are not placed on nonaccrual
status because they are insured or guaranteed.

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING

(1) PCI loans totaled $811 million, $1.0 billion, $1.4 billion,
$1.4 billion and $1.5 billion, at June 30 and March 31, 2018, and
December 31, September 30 and June 30, 2017, respectively.

(2) Represents loans whose repayments are predominantly insured by
the FHA or guaranteed by the VA.

(3) Includes mortgages held for sale 90 days or more past due and
still accruing.

Wells Fargo & Company and Subsidiaries

CHANGES IN ACCRETABLE YIELD RELATED TO PURCHASED CREDIT-IMPAIRED
(PCI) LOANS

Loans purchased with evidence of credit deterioration since origination
and for which it is probable that all contractually required payments
will not be collected are considered to be credit impaired. PCI loans
predominantly represent loans acquired from Wachovia that were deemed to
be credit impaired. Evidence of credit quality deterioration as of the
purchase date may include statistics such as past due and nonaccrual
status, recent borrower credit scores and recent LTV percentages. PCI
loans are initially measured at fair value, which includes estimated
future credit losses expected to be incurred over the life of the loan.
Accordingly, the associated allowance for credit losses related to these
loans is not carried over at the acquisition date.

As a result of PCI loan accounting, certain credit-related ratios cannot
be used to compare a portfolio that includes PCI loans against one that
does not, or to compare ratios across quarters or years. The ratios
particularly affected include the allowance for loan losses and
allowance for credit losses as percentages of loans, of nonaccrual loans
and of nonperforming assets; nonaccrual loans and nonperforming assets
as a percentage of total loans; and net charge-offs as a percentage of
loans.

The excess of cash flows expected to be collected over the carrying
value of PCI loans is referred to as the accretable yield and is
accreted into interest income over the estimated lives of the PCI loans
using the effective yield method. The accretable yield is affected by:

The change in the accretable yield related to PCI loans since the merger
with Wachovia is presented in the following table.

(1) Includes accretable yield released as a result of settlements
with borrowers, which is included in interest income.

(2) Includes accretable yield released as a result of sales to
third parties, which is included in noninterest income.

(3) At June 30, 2018, our carrying value for PCI loans totaled
$9.0 billion and the remainder of nonaccretable difference
established in purchase accounting totaled $313 million. The
nonaccretable difference absorbs losses of contractual amounts
that exceed our carrying value for PCI loans.

(4) Represents changes in cash flows expected to be collected due
to the impact of modifications, changes in prepayment assumptions,
changes in interest rates on variable rate PCI loans and sales to
third parties.

Wells Fargo & Company and Subsidiaries

(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.

Wells Fargo & Company and Subsidiaries

(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.

Wells Fargo & Company and Subsidiaries

preferred stock

(other than MSRs)

(1) Tangible common equity is a non-GAAP financial measure and
represents total equity less preferred equity, noncontrolling
interests, and goodwill and certain identifiable intangible assets
(including goodwill and intangible assets associated with certain
of our nonmarketable equity securities but excluding mortgage
servicing rights), net of applicable deferred taxes. The
methodology of determining tangible common equity may differ among
companies. Management believes that return on average tangible
common equity and tangible book value per common share, which
utilize tangible common equity, are useful financial measures
because they enable investors and others to assess the Company’s
use of equity.

(2) Represents goodwill and other intangibles on nonmarketable
equity securities, which are included in other assets.

(3) Applicable deferred taxes relate to goodwill and other
intangible assets. They were determined by applying the combined
federal statutory rate and composite state income tax rates to the
difference between book and tax basis of the respective goodwill
and intangible assets at period end.

Wells Fargo & Company and Subsidiaries

Additional paid-in capital on ESOP preferred stock

Total risk-weighted assets (RWAs) anticipated under Basel III
(4)(5)

Common Equity Tier 1 to total RWAs anticipated under Basel III
(Fully Phased-In) (5)

(1) Basel III capital rules, adopted by the Federal Reserve Board
on July 2, 2013, revised the definition of capital, increased
minimum capital ratios, and introduced a minimum Common Equity
Tier 1 (CET1) ratio. The rules are being phased in through the end
of 2021. Fully phased-in capital amounts, ratios and RWAs are
calculated assuming the full phase-in of the Basel III capital
rules. Beginning January 1, 2018, the requirements for calculating
CET1 and tier 1 capital, along with RWAs, became fully phased-in.

(2) Represents goodwill and other intangibles on nonmarketable
equity securities, which are included in other assets.

(3) Applicable deferred taxes relate to goodwill and other
intangible assets. They were determined by applying the combined
federal statutory rate and composite state income tax rates to the
difference between book and tax basis of the respective goodwill
and intangible assets at period end.

(4) The final Basel III capital rules provide for two capital
frameworks: the Standardized Approach, which replaced Basel I, and
the Advanced Approach applicable to certain institutions. Under
the final rules, we are subject to the lower of our CET1 ratio
calculated under the Standardized Approach and under the Advanced
Approach in the assessment of our capital adequacy. Because the
final determination of our CET1 ratio and which approach will
produce the lower CET1 ratio as of June 30, 2018, is subject to
detailed analysis of considerable data, our CET1 ratio at that
date has been estimated using the Basel III definition of capital
under the Basel III Standardized Approach RWAs. The capital ratio
for March 31, 2018, and December 31, September 30 and June 30,
2017, was calculated under the Basel III Standardized Approach
RWAs.

(5) The Company’s June 30, 2018, RWAs and capital ratio are
preliminary estimates.

Wells Fargo & Company and Subsidiaries

OPERATING SEGMENT RESULTS (1)

(income/expense in millions,average balances in billions)

CommunityBanking

WholesaleBanking

Wealth andInvestmentManagement

Other (2)

ConsolidatedCompany

(1) The management accounting process measures the performance of
the operating segments based on our management structure and is
not necessarily comparable with other similar information for
other financial services companies. We define our operating
segments by product type and customer segment. Effective first
quarter 2018, assets and liabilities receive a funding charge or
credit that considers interest rate risk, liquidity risk, and
other product characteristics on a more granular level. This
methodology change affects results across all three of our
reportable operating segments and results for all periods prior to
2018 have been revised to reflect this methodology change. Our
previously reported consolidated financial results were not
impacted by the methodology change; however, in connection with
the adoption of ASU 2016-01 in first quarter 2018, certain
reclassifications occurred within noninterest income.

(2) Includes the elimination of certain items that are included in
more than one business segment, most of which represents products
and services for Wealth and Investment Management customers served
through Community Banking distribution channels.

(3) Net interest income is the difference between interest earned
on assets and the cost of liabilities to fund those assets.
Interest earned includes actual interest earned on segment assets
as well as interest credits for any funding of a segment available
to be provided to other segments. The cost of liabilities includes
actual interest expense on segment liabilities as well as funding
charges for any funding provided from other segments.

Wells Fargo & Company and Subsidiaries

(1) The management accounting process measures the performance of
the operating segments based on our management structure and is
not necessarily comparable with other similar information for
other financial services companies. We define our operating
segments by product type and customer segment. Effective first
quarter 2018, assets and liabilities receive a funding charge or
credit that considers interest rate risk, liquidity risk, and
other product characteristics on a more granular level. This
methodology change affects results across all three of our
reportable operating segments and results for all periods prior to
2018 have been revised to reflect this methodology change. Our
previously reported consolidated financial results were not
impacted by the methodology change; however, in connection with
the adoption of ASU 2016-01 in first quarter 2018, certain
reclassifications occurred within noninterest income.

(2) Net interest income is the difference between interest earned
on assets and the cost of liabilities to fund those assets.
Interest earned includes actual interest earned on segment assets
as well as interest credits for any funding of a segment available
to be provided to other segments. The cost of liabilities includes
actual interest expense on segment liabilities as well as funding
charges for any funding provided from other segments.

(3) Includes the elimination of certain items that are included in
more than one business segment, most of which represents products
and services for Wealth and Investment Management customers served
through Community Banking distribution channels.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING

(1) Includes impacts associated with exercising our right to
repurchase delinquent loans from GNMA loan securitization pools.

(2) Includes sales and transfers of MSRs, which can result in an
increase of total reported MSRs if the sales or transfers are
related to nonperforming loan portfolios or portfolios with
servicing liabilities.

(3) Includes prepayment speed changes as well as other valuation
changes due to changes in mortgage interest rates (such as changes
in estimated interest earned on custodial deposit balances).

(4) Includes costs to service and unreimbursed foreclosure costs.

(5) Reflects discount rate assumption change, excluding portion
attributable to changes in mortgage interest rates.

(6) Represents changes driven by other valuation model inputs or
assumptions including prepayment speed estimation changes and
other assumption updates. Prepayment speed estimation changes are
influenced by observed changes in borrower behavior and other
external factors that occur independent of interest rate changes.

Wells Fargo & Company and Subsidiaries

(1) Includes contractually specified servicing fees, late charges
and other ancillary revenues, net of unreimbursed direct servicing
costs.

(2) Refer to the changes in fair value MSRs table on the previous
page for more detail.

(3) Represents results from economic hedges used to hedge the risk
of changes in fair value of MSRs.

(1) The components of our managed servicing portfolio are
presented at unpaid principal balance for loans serviced and
subserviced for others and at book value for owned loans serviced.

Wells Fargo & Company and Subsidiaries

(1) Predominantly includes the results of sales of modified
Government National Mortgage Association (GNMA) loans, interest
rate management activities and changes in estimate to the
liability for mortgag

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