Our roadoad aheadahead - Wells Fargo

Our road ahead

WELLS FARGO & COMPANY | 2018 ANNUAL REPORT

Cover: Wells Fargo customer Erik Gruber outside his new home in Philadelphia. Learn more on page 34.

Contents

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LETTER FROM CHAIR OF THE BOARD LETTER FROM CHIEF EXECUTIVE OFFICER AND PRESIDENT STORIES: OUR PROGRESS ON THE ROAD AHEAD OPERATING COMMITTEE AND OTHER CORPORATE OFFICERS BOARD OF DIRECTORS 2018 CORPORATE RESPONSIBILITY HIGHLIGHTS 2018 FINANCIAL REPORT STOCK PERFORMANCE

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Dear Fellow Shareholders

We are steadfast in our commitment to building and protecting the long-term value of the company.

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Looking back on my first year as chair of the

individually and the decentralized nature of

Wells Fargo Board of Directors, I am encouraged certain control functions. I believe this review

by the progress the company and our board

was necessary to help us serve our customers

have made as we build a better Wells Fargo for

better. In the past two years, we have centralized

the future.

many aspects of our organizational structure,

strengthened risk management, and improved

Before I talk about the board, I'd like to recognize

governance practices and oversight. Going

the tireless efforts of our management team.

forward, we believe maintaining a holistic view

Tim Sloan became CEO just over two years ago,

of the company and focusing on operational

and since then, with the full support of the board, excellence will result in continued positive change.

he has been driving transformational change

at the company.

Organizationally, Tim has pulled together a

strong management team that blends Wells Fargo

As CEO, Tim's first priority was to initiate an

veterans with experienced talent from elsewhere.

extensive review to identify, understand, and Three of his direct reports are from outside

resolve the problems of the past; to provide

the company, and two more -- the company's

appropriate remediation to customers who

new head of Technology and chief auditor -- will

were harmed; and to be transparent about our

join Wells Fargo in April. Most of his other direct

progress. We discovered a variety of issues, and reports are in new or expanded roles. Together,

even though the specific causes may have been

the leadership team is executing plans to

different, some common themes emerged, such streamline the company's operating structure,

as the company's history of running businesses

better define roles and responsibilities, fill key

ELIZABETH A. DUKE | Chair, Board of Directors, Wells Fargo & Company

positions, enhance the way we serve customers, regulatory expectations remains a top priority,

strengthen risk and compliance measures, and

as is continuing to serve our customers and help

instill our Vision, Values & Goals uniformly

them succeed financially.

into the culture of Wells Fargo. In addition, the

management team has redesigned the strategy,

OUR BOARD OF DIRECTORS

leadership, and incentive structure of the retail

The board operates very differently today than

bank and the Wells Fargo Auto business to align it did a year ago. Following our independent

with a more forward-looking consumer approach. board investigation into retail sales practices

One important early indicator of the success

and our 2017 board self-evaluation, we

of these efforts is that "Customer Loyalty" and

identified several areas in which we could

"Overall Satisfaction with Most Recent Visit"

enhance board oversight. As a result, we added

Community Bank branch survey scores reached more directors with expertise in financial

24-month highs in December 2018. At the same services; adjusted committee structures,

time, voluntary team member attrition in 2018

charters, and membership; enhanced agenda

improved to its lowest level in six years.

planning; and worked with management to

better focus materials provided to the board.

Early in 2018, we agreed to a consent order with Mary Jo White, a senior partner at the law firm

the Board of Governors of the Federal Reserve

of Debevoise & Plimpton LLP and former chair

System and consent orders with the Office of the of the Securities and Exchange Commission,

Comptroller of the Currency and the Consumer was engaged by the board to facilitate its 2017

Financial Protection Bureau. To make sure we are self-evaluation and work with the board on

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meeting our commitments under the consent

its 2018 self-evaluation to help assess our

orders, the board and senior management are

progress. Regular self-assessment provides us

engaged in regular dialogue with our regulators. a mechanism for continuous improvement.

Clear communication is necessary so that the

comprehensive changes we are making across With 13 directors, our board is smaller than in

the company will sufficiently strengthen our

the recent past. More than half of the current

governance and oversight, as well as operational directors joined the board in 2017 or later.

and compliance risk management. Although we

These new directors came ready to work and

are devoting a significant amount of resources

began to contribute immediately. The new

to these efforts, we also have been delivering on directors have brought important experience in

our ongoing cost-reduction initiatives. Expense several areas, including financial services, other

savings from simplifying and centralizing

highly regulated industries, and consumer brand

operations help fund our investments in areas

management. With board turnover, we have

such as risk management and technology.

also refreshed our board committee leadership.

Since September 2017, six of seven standing

We continue to have constructive dialogue

board committees have new committee chairs.

with the Federal Reserve on an ongoing basis

Today, the average tenure of our independent

to clarify expectations, receive feedback, and

directors is less than four years. Even as the

assess progress under the consent order, and

board and its committees have experienced much

we are now planning to operate under the

change, we remain focused on responding to

asset cap through the end of 2019. Making

stakeholders, enhancing oversight, and creating

the changes necessary to ensure we meet

long-term value for shareholders.

In January 2019, Wayne Hewett joined our

satisfying regulatory expectations. We

board. Throughout his career as a CEO and

are specifically focused on satisfying the

senior executive, Wayne has had a record of

requirements of the company's outstanding

success managing strategic priorities in complex

consent orders. But more broadly, we are

business environments. His background as an

enhancing our risk and reporting systems

industrial engineer and experience with data-

to meet the heightened regulatory

driven process improvement methodologies

expectations for systemically important

will be especially valuable as we focus on

financial institutions and our own goal of

operational excellence.

industry leadership in risk management.

We are engaging in frequent and open

Karen Peetz will retire from the board at our

communication with our regulators about

Annual Meeting of Shareholders in April

our progress.

2019. Karen has been effective at framing risk

management imperatives and insisting on

Enhancing risk management.

individual accountability, especially in her role

Wells Fargo has been and remains an

as chair of the Risk Committee. Since Karen

industry leader in credit, market, and

joined the Risk Committee, we have brought

liquidity risk management. Over the years,

on to our board and Risk Committee additional

the company has demonstrated an ability

expertise in risk management of financial

to manage through difficult economic

institutions. By announcing her retirement

conditions, including the 2008 financial

decision early, Karen has again demonstrated

crisis, but management of compliance and

her commitment to responsible governance

operational risks needed improvement.

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by ensuring a smooth transition of Risk

We have new leadership in the chief risk

Committee chair to Maria Morris, who will

officer, chief compliance officer, head of

continue the work Karen started.

Regulatory Relations, and chief operational

risk officer roles. They have developed and

OVERSIGHT

are busy implementing plans to continue

Our board oversight in 2018 focused heavily

building our operational and compliance

on identifying, understanding, and resolving

risk management systems to a level that

issues within the company, including

matches our business, structure, and

concerns identified by our regulators.

strategies. These plans include enhancing

We are also looking to the future. In his letter

management-level governance committee

to shareholders, Tim details management

structures, oversight, monitoring and

strategies to achieve our six company goals

controls, and escalation processes and

of becoming the financial services leader in

procedures. Our objective is to build an

customer service and advice, team member

industry-leading risk management program.

engagement, innovation, risk management,

corporate citizenship, and shareholder value.

Operational excellence. Many of our past

Going forward, board oversight of those

operational risk problems stemmed from

goals will emphasize the following:

weaknesses in underlying operations.

In 2018, management launched a project

Meeting regulatory expectations.

to inventory and map all our business

We recognize the importance of fully

processes. While identifying risk areas

will improve our control testing and

STAKEHOLDER INTERACTION

monitoring functions, reducing the number For the past several years, our independent

and complexity of our business processes

directors have participated in a shareholder

also offers the potential for improving

engagement program to help us better

the efficiency and effectiveness of core

understand our shareholders' views on key

operations. We expect this work to

corporate governance and other topics.

improve the customer and team member

The candid feedback of our shareholders

experience, reduce operating costs, and

helps us define priorities, assess progress,

enhance risk management.

and enhance our corporate governance

practices. In 2018, I met with shareholders

Oversight of culture and human capital

representing more than 35 percent of our

management. We continue to assess

company's common stock to discuss our

and shape the company's culture, with

governance approach.

an emphasis on such areas as ethics,

training and development, and diversity

Our board is also focused on corporate

and inclusion. One of the guiding values

citizenship, which is overseen by the board's

of Wells Fargo is "people as a competitive

Corporate Responsibility Committee.

advantage." We expect to devote a

The committee reviews environmental and

substantial amount of board attention to

social governance practices and policies.

talent management strategies, including

Following our 2018 Annual Meeting of

plans to attract, retain, reward, develop,

Shareholders, Corporate Responsibility

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and care for the very best people available. Committee members met with members

We recognize the importance of rewarding of our external Stakeholder Advisory Council

outstanding performance and holding

to seek feedback and insights on current

team members accountable.

and emerging issues important to them.

Tim and I continued to meet with the council

Technology. New generations of customers during the year to discuss such varied topics

and team members expect technology to

as mortgage lending, services for unbanked or

work seamlessly and intuitively. Thoughtful underbanked consumers, our efforts to help

use of emerging technologies can enable

customers avoid and reduce overdraft fees,

quantum leaps in innovation and efficiency. environmental commitments, human rights,

At the same time, cyber risk is at an all-time and reputational risk issues.

high. We want to make sure all our systems

operate on up-to-date platforms, are able to One of our most significant responses to

process and protect massive amounts of data, shareholder feedback was the publication of

and contribute to our vision of operational a Business Standards Report on our website

excellence and leadership in innovation.

in early 2019. The report was the culmination

of engagement with a group of stakeholders

We have already made progress in each

led by the Interfaith Center on Corporate

of these areas, and we will continue to focus

Responsibility, which requested the report.

on them in 2019.

The report discusses our business practices and

the many fundamental changes we have made --

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