Exhibit 13



 
 
 
 
Financial Review
 
 
 
 
 
 
 
 
 
Overview
 
 
5

 
Available-for-Sale and Held-to-Maturity Debt Securities
 
 
 
Earnings Performance
 
 
6

 
Loans and Allowance for Credit Losses
 
 
 
Balance Sheet Analysis
 
 
7

 
Leasing Activity
 
 
 
Off-Balance Sheet Arrangements
 
 
8

 
Equity Securities
 
 
 
Risk Management
 
 
9

 
Premises, Equipment and Other Assets
 
 
 
Capital Management
 
 
10

 
Securitizations and Variable Interest Entities
 
 
 
Regulatory Matters
 
 
11

 
Mortgage Banking Activities
 
 
 
Critical Accounting Policies
 
 
12

 
Intangible Assets
 
 
 
Current Accounting Developments
 
 
13

 
Deposits
 
 
 
Forward-Looking Statements
 
 
14

 
Short-Term Borrowings
 
 
 
Risk Factors
 
 
15

 
Long-Term Debt
 
 
 
 
 
 
 
16

 
Guarantees, Pledged Assets and Collateral, and Other Commitments
 
 
 
 
Controls and Procedures
 
 
17

 
Legal Actions
 
 
 
Disclosure Controls and Procedures
 
 
18

 
Derivatives
 
 
 
Internal Control Over Financial Reporting
 
 
19

 
Fair Values of Assets and Liabilities
 
 
 
Management’s Report on Internal Control over Financial Reporting
 
 
20

 
Preferred Stock
 
 
 
Report of Independent Registered Public Accounting Firm
 
 
21

 
Common Stock and Stock Plans
 
 
 
 
 
 
 
22

 
Revenue from Contracts with Customers
 
 
 
 
Financial Statements
 
 
23

 
Employee Benefits and Other Expenses
 
 
 
Consolidated Statement of Income
 
 
24

 
Income Taxes
 
 
 
Consolidated Statement of Comprehensive Income
 
 
25

 
Earnings and Dividends Per Common Share
 
 
 
Consolidated Balance Sheet
 
 
26

 
Other Comprehensive Income
 
 
 
Consolidated Statement of Changes in Equity
 
 
27

 
Operating Segments
 
 
 
Consolidated Statement of Cash Flows
 
 
28

 
Parent-Only Financial Statements
 
 
 
 
 
 
 
29

 
Regulatory and Agency Capital Requirements
 
 
 
 
Notes to Financial Statements
 
 
 
 
 
 
 
1

 
Summary of Significant Accounting Policies
 
 
 
 
 
 
 
2

 
Business Combinations
 
 
 
 
Report of Independent Registered Public Accounting Firm
 
3

 
Cash, Loan and Dividend Restrictions
 
 
 
 
Quarterly Financial Data
 
4

 
Trading Activities
 
 
 
 
Glossary of Acronyms

 
Wells Fargo & Company
29


Overview (continued)

This Annual 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 forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” and “Risk Factors” sections, and in the “Regulation and Supervision” section of our Annual Report on Form 10-K for the year ended December 31, 2019 (2019 Form 10-K).
 
When we refer to “Wells Fargo,” “the Company,” “we,” “our,” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company. See the Glossary of Acronyms for definitions of terms used throughout this Report. 
Financial Review
Overview
Wells Fargo & Company is a diversified, community-based financial services company with $1.9 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,400 locations, more than 13,000 ATMs, digital (online, mobile and social), and contact centers (phone, email and correspondence), and we have offices in 32 countries and territories to support customers who conduct business in the global economy. With approximately 260,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 29 on Fortune’s 2019 rankings of America’s largest corporations. We ranked fourth in assets and third in the market value of our common stock among all U.S. banks at December 31, 2019
On February 11, 2020, we announced a new organizational structure with five principal lines of business: Consumer and Small Business Banking; Consumer Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management.
Wells Fargo’s top priority remains meeting its regulatory requirements in order to build the right foundation for all that lies ahead. To do that, the Company is committing the resources necessary to ensure that we operate with the strongest business practices and controls, maintain the highest level of integrity, and have in place the appropriate culture.

Federal Reserve Board Consent Order Regarding Governance Oversight and Compliance and Operational Risk Management
On February 2, 2018, the Company entered into a consent order with the Board of Governors of the Federal Reserve System (FRB). As required by the consent order, the Company’s Board of Directors (Board) submitted to the FRB a plan to further enhance the Board’s governance and oversight of the Company, and the Company submitted to the FRB a plan to further improve the Company’s compliance and operational risk management program. The Company continues to engage with the FRB as the Company works to address the consent order provisions. The consent order also requires the Company, following the FRB’s acceptance and approval of the plans and the Company’s adoption and implementation of the plans, to complete an initial third-party review of the enhancements and improvements provided for in the plans. Until this third-party review is complete and the plans are approved and implemented to the satisfaction of the FRB, the Company’s total consolidated assets will be limited to the level as of December 31, 2017. Compliance with this asset cap will be measured on a two-quarter daily average basis to allow for management of
 
temporary fluctuations. As of the end of fourth quarter 2019, our total consolidated assets, as calculated pursuant to the requirements of the consent order, were below our level of total assets as of December 31, 2017. Additionally, after removal of the asset cap, a second third-party review must also be conducted to assess the efficacy and sustainability of the enhancements and improvements.

Consent Orders with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency Regarding Compliance Risk Management Program, Automobile Collateral Protection Insurance Policies, and Mortgage Interest Rate Lock Extensions
On April 20, 2018, the Company entered into consent orders with the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) to pay an aggregate of $1 billion in civil money penalties to resolve matters regarding the Company’s compliance risk management program and past practices involving certain automobile collateral protection insurance policies and certain mortgage interest rate lock extensions. As required by the consent orders, the Company submitted to the CFPB and OCC an enterprise-wide compliance risk management plan and a plan to enhance the Company’s internal audit program with respect to federal consumer financial law and the terms of the consent orders. In addition, as required by the consent orders, the Company submitted for non-objection plans to remediate customers affected by the automobile collateral protection insurance and mortgage interest rate lock matters, as well as a plan for the management of remediation activities conducted by the Company.

Retail Sales Practices Matters
In September 2016, we announced settlements with the CFPB, the OCC, and the Office of the Los Angeles City Attorney, and entered into related consent orders with the CFPB and the OCC, in connection with allegations that some of our retail customers received products and services they did not request. As a result, it remains a top priority to rebuild trust through a comprehensive action plan that includes making things right for our customers, team members, and other stakeholders, and building a better Company for the future. Our priority of rebuilding trust has included numerous actions focused on identifying potential financial harm to customers resulting from these matters and providing remediation.
For additional information regarding retail sales practices matters, including related legal matters, see the “Risk Factors”

30
Wells Fargo & Company
 


section and Note 17 (Legal Actions) to Financial Statements in this Report.

Other Customer Remediation Activities
Our priority of rebuilding trust has also included an effort to identify other areas or instances where customers may have experienced financial harm, provide remediation as appropriate, and implement additional operational and control procedures. We are working with our regulatory agencies in this effort. We have previously disclosed key areas of focus as part of our rebuilding trust efforts and are in the process of providing remediation for those matters. We have accrued for the reasonably estimable remediation costs related to our rebuilding trust efforts, which amounts may change based on additional facts and information, as well as ongoing reviews and communications with our regulators.
As our ongoing reviews continue, it is possible that in the future we may identify additional items or areas of potential concern. To the extent issues are identified, we will continue to assess any customer harm and provide remediation as appropriate. For more information, including related legal and regulatory risk, see the “Risk Factors” section and Note 17 (Legal Actions) to Financial Statements in this Report.

Financial Performance
In 2019, we generated $19.5 billion of net income and diluted earnings per common share (EPS) of $4.05, compared with $22.4 billion of net income and EPS of $4.28 for 2018. Financial performance items for 2019 (compared with 2018) included: 
revenue of $85.1 billion, down from $86.4 billion, with net interest income of $47.2 billion, down $2.8 billion, or 6%, and noninterest income of $37.8 billion, up $1.4 billion, or 4%;
the net interest margin was 2.73%, down 18 basis points;
noninterest expense of $58.2 billion, up $2.1 billion, or 4%;
an efficiency ratio of 68.4%, compared with 65.0%;
average loans of $951.0 billion, up $5.8 billion;
average deposits of $1.3 trillion, up $10.4 billion;
our credit results remained strong with a net charge-off rate of 0.29%, flat compared with a year ago;
nonaccrual loans of $5.3 billion, down $1.2 billion, or 18%;
$30.2 billion in capital returned to our shareholders through common stock dividends and net share repurchases, up 17% from $25.8 billion a year ago; and
return on assets (ROA) of 1.02% and return on equity (ROE) of 10.23%, down from 1.19% and 11.53%, respectively.

Table 1 presents a six-year summary of selected financial data and Table 2 presents selected ratios and per common share data.

Balance Sheet and Liquidity
Our balance sheet remained strong during 2019 with strong credit quality and solid levels of liquidity and capital. Our total assets were $1.9 trillion at December 31, 2019. Cash and other short-term investments decreased $10.1 billion from December 31, 2018, reflecting lower cash balances, partially offset by an increase in federal funds sold and securities purchased under resale agreements. Debt securities increased $12.4 billion from December 31, 2018, predominantly due to increases in trading and held-to-maturity debt securities. Loans increased $9.2 billion from December 31, 2018, driven by increases in commercial and industrial loans, commercial real estate mortgage loans, real estate 1-4 family first mortgage loans, automobile loans, credit card loans, and lease financing,
 
partially offset by decreases in commercial real estate construction loans, real estate 1-4 family junior lien mortgage loans, and other revolving credit and installment loans.
Average deposits in 2019 were $1.3 trillion, up $10.4 billion from 2018, reflecting higher other time deposits, mortgage escrow deposits and commercial deposits. Our average deposit cost in 2019 was 67 basis points, up 23 basis points from a year ago, driven by increased retail banking promotional pricing for new deposits and a continued deposit mix shift to higher cost products.
 
Credit Quality
Credit quality remained solid in 2019, as losses remained low and we continued to originate high-quality loans, reflecting our long-term risk focus. Net charge-offs were $2.8 billion, or 0.29% of average loans, in 2019, flat compared with 2018.
Our commercial portfolio net charge-offs were $652 million, or 13 basis points of average commercial loans, in 2019, compared with $429 million, or 9 basis points, in 2018, predominantly driven by increased losses in our commercial and industrial loan portfolio. Our consumer portfolio net charge-offs were $2.1 billion, or 48 basis points of average consumer loans, in 2019, compared with $2.3 billion, or 52 basis points, in 2018, predominantly driven by decreased losses in our automobile portfolio, partially offset by increased losses in our credit card portfolio.
The allowance for credit losses of $10.5 billion at December 31, 2019, decreased $251 million from the prior year. The allowance coverage for total loans was 1.09% at December 31, 2019, compared with 1.12% at December 31, 2018. The allowance covered 3.8 times net charge-offs in 2019, compared with 3.9 in 2018. Future amounts of the allowance for credit losses will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our provision for credit losses in 2019 was $2.7 billion, compared with $1.7 billion in 2018. The provision for credit losses in both 2019 and 2018 reflected continuing solid underlying credit performance. The provision for credit losses in 2018 also reflected a higher level of credit quality improvement compared with 2019, as well as an improvement in the outlook associated with 2017 hurricane-related losses.
Nonperforming assets (NPAs) at December 31, 2019, were $5.6 billion, down $1.3 billion from December 31, 2018. Nonaccrual loans decreased $1.2 billion from December 31, 2018, driven by improvement across all consumer loan categories, including a decrease in consumer nonaccruals from sales of residential real estate mortgage loans as well as the reclassification of real estate 1-4 family mortgage nonaccrual loans to mortgage loans held for sale (MLHFS) in 2019. Foreclosed assets were down $148 million from December 31, 2018.

Capital
Our financial performance in 2019 allowed us to maintain a solid capital position with total equity of $188.0 billion at December 31, 2019, compared with $197.1 billion at December 31, 2018. We returned $30.2 billion to shareholders in 2019 ($25.8 billion in 2018) through common stock dividends and net share repurchases, and our net payout ratio (which is the ratio of (i) common stock dividends and share repurchases less issuances and stock compensation-related items, divided by (ii) net income applicable to common stock) was 168%. During 2019, we increased our quarterly common stock dividend from $0.43 to $0.51 per share. We continued to reduce our common share count through the repurchase of 502.4 million common

 
Wells Fargo & Company
31


Overview (continued)

shares during the year. We expect our share count to continue to decline in 2020 as a result of anticipated net share repurchases.
We believe an important measure of our capital strength is our Common Equity Tier 1 (CET1) ratio, which was 11.14% as of December 31, 2019, down from 11.74% a year ago, but still well above our internal target of 10%. Likewise, our other regulatory capital ratios remained strong. As of December 31, 2019, our
 
eligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 23.28%, compared with the required minimum of 22.0%. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.
Table 1: Six-Year Summary of Selected Financial Data
(in millions, except per share amounts)
2019

 
2018

 
2017

 
2016

 
2015

 
2014

 
%
Change
2019/
2018

 
Five-year
compound
growth
rate 

Income statement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
47,231

 
49,995

 
49,557

 
47,754

 
45,301

 
43,527

 
(6
)%
 
2

Noninterest income
37,832

 
36,413

 
38,832

 
40,513

 
40,756

 
40,820

 
4

 
(2
)
Revenue
85,063

 
86,408


88,389


88,267


86,057


84,347

 
(2
)
 

Provision for credit losses
2,687

 
1,744

 
2,528

 
3,770

 
2,442

 
1,395

 
54

 
14

Noninterest expense
58,178

 
56,126

 
58,484

 
52,377

 
49,974

 
49,037

 
4

 
3

Net income before noncontrolling interests
20,041

 
22,876

 
22,460

 
22,045

 
23,276

 
23,608

 
(12
)
 
(3
)
Less: Net income from noncontrolling interests
492

 
483

 
277

 
107

 
382

 
551

 
2

 
(2
)
Wells Fargo net income
19,549

 
22,393


22,183


21,938


22,894


23,057

 
(13
)
 
(3
)
Earnings per common share
4.08

 
4.31

 
4.14

 
4.03

 
4.18

 
4.17

 
(5
)
 

Diluted earnings per common share
4.05

 
4.28

 
4.10

 
3.99

 
4.12

 
4.10

 
(5
)
 

Dividends declared per common share
1.920

 
1.640

 
1.540

 
1.515

 
1.475

 
1.350

 
17

 
7

Balance sheet (at year end)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold and securities purchased under resale agreements
$
102,140

 
80,207

 
80,025

 
65,725

 
49,721

 
39,210

 
27
 %
 
21

Debt securities
497,125

 
484,689

 
473,366

 
459,038

 
394,744

 
350,661

 
3

 
7

Loans
962,265

 
953,110

 
956,770

 
967,604

 
916,559

 
862,551

 
1

 
2

Allowance for loan losses
9,551

 
9,775

 
11,004

 
11,419

 
11,545

 
12,319

 
(2
)
 
(5
)
Goodwill
26,390

 
26,418

 
26,587

 
26,693

 
25,529

 
25,705

 

 
1

Equity securities
68,241

 
55,148

 
62,497

 
49,110

 
40,266

 
44,005

 
24

 
9

Assets
1,927,555

 
1,895,883

 
1,951,757

 
1,930,115

 
1,787,632

 
1,687,155

 
2

 
3

Deposits
1,322,626

 
1,286,170

 
1,335,991

 
1,306,079

 
1,223,312

 
1,168,310

 
3

 
3

Long-term debt
228,191

 
229,044

 
225,020

 
255,077

 
199,536

 
183,943

 

 
4

Wells Fargo stockholders’ equity
187,146

 
196,166

 
206,936

 
199,581

 
192,998

 
184,394

 
(5
)
 

Noncontrolling interests
838

 
900

 
1,143

 
916

 
893

 
868

 
(7
)
 
(1
)
Total equity
187,984

 
197,066

 
208,079

 
200,497

 
193,891

 
185,262

 
(5
)
 




32
Wells Fargo & Company
 


Table 2: Ratios and Per Common Share Data
 
Year ended December 31, 
 
 
2019

 
2018

 
2017

Profitability ratios
 
 
 
 
 
Wells Fargo net income to average assets (ROA)
1.02
%
 
1.19

 
1.15

Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders’ equity (ROE)
10.23

 
11.53

 
11.35

Return on average tangible common equity (ROTCE) (1)
12.20

 
13.73

 
13.55

Efficiency ratio (2)
68.4

 
65.0

 
66.2

Capital ratios (3)
 
 
 
 
 
At year end:
 
 
 
 
 
Wells Fargo common stockholders’ equity to assets
8.65

 
9.20

 
9.38

Total equity to assets
9.75

 
10.39

 
10.66

Risk-based capital (4):
 
 
 
 
 
Common Equity Tier 1
11.14

 
11.74

 
12.28

Tier 1 capital
12.76

 
13.46

 
14.14

Total capital
15.31

 
16.60

 
17.46

Tier 1 leverage
8.31

 
9.07

 
9.35

Average balances:
 
 
 
 
 
Average Wells Fargo common stockholders’ equity to average assets
9.16

 
9.50

 
9.37

Average total equity to average assets
10.33

 
10.77

 
10.64

Per common share data
 
 
 
 
 
Dividend payout (5)
47.4

 
38.3

 
37.6

Book value (6)
$
40.31

 
38.06

 
37.44

(1)
Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, goodwill, certain identifiable intangible assets (other than mortgage servicing rights) and goodwill and other intangibles on nonmarketable equity securities, 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 generally accepted accounting principles (GAAP) financial measures, see the “Capital Management – Tangible Common Equity” section in this Report.
(2)
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(3)
See the “Capital Management” section and Note 29 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
(4)
The risk-based capital ratios were calculated under the lower of the Standardized or Advanced Approach determined pursuant to Basel III. Beginning January 1, 2018, the requirements for calculating common equity tier 1 and tier 1 capital, along with risk-weighted assets, became fully phased-in. Accordingly, the information presented reflects fully phased-in common equity tier 1 capital, tier 1 capital and risk-weighted assets for the years ended December 31, 2019 and 2018, but reflects all other ratios still in accordance with Transition Requirements. See the “Capital Management” section and Note 29 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
(5)
Dividend payout ratio is dividends declared per common share as a percentage of diluted earnings per common share.
(6)
Book value per common share is common stockholders’ equity divided by common shares outstanding.



 
Wells Fargo & Company
33


Earnings Performance (continued)

Earnings Performance
Wells Fargo net income for 2019 was $19.5 billion ($4.05 diluted EPS), compared with $22.4 billion ($4.28 diluted EPS) for 2018. Net income decreased in 2019, compared with 2018, due to a $2.8 billion decrease in net interest income, a $943 million increase in provision for credit losses, and a $2.1 billion increase in noninterest expense, partially offset by a $1.4 billion increase in noninterest income, and a $1.5 billion decrease in income tax expense. Net income in 2019 included a net discrete income tax expense of $435 million, compared with a net discrete income tax expense of $627 million in 2018.
Revenue, the sum of net interest income and noninterest income, was $85.1 billion in 2019, compared with $86.4 billion in 2018. Revenue decreased $1.3 billion in 2019, compared with 2018, due to a decrease in net interest income, partially offset by an increase in noninterest income. Our diversified sources of revenue generated by our businesses continued to be balanced between net interest income and noninterest income. In 2019, net interest income of $47.2 billion represented 56% of revenue, compared with $50.0 billion (58%) in 2018. See later in this section for discussions of net interest income, noninterest income and noninterest expense.
 
Table 3 presents the components of net interest income on a tax-equivalent basis, noninterest income and noninterest expense as a percentage of revenue for year-over-year results. Net interest income is presented on a taxable-equivalent basis to consistently reflect income from taxable and tax-exempt loans and debt and equity securities based on a 21% federal statutory tax rate for the periods ended December 31, 2019 and 2018, and 35% for the period ended December 31, 2017.
For a discussion of our 2018 financial results compared with 2017, see the “Earnings Performance” section of our Annual Report on Form 10-K for the year ended December 31, 2018.

 
Wells Fargo & Company
34


Table 3: Net Interest Income, Noninterest Income and Noninterest Expense as a Percentage of Revenue
 
Year ended December 31, 
 
(in millions)
2019

 
% of revenue 

 
2018

 
% of revenue 

 
2017

 
% of revenue 

Interest income (on a taxable-equivalent basis)
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
15,456

 
18
 %
 
$
14,947

 
17
 %
 
$
14,084

 
16
 %
Mortgage loans held for sale (MLHFS)
813

 
1

 
777

 
1

 
786

 
1

Loans held for sale (LHFS)
79

 

 
140

 

 
50

 

Loans
44,253

 
52

 
44,086

 
51

 
41,551

 
47

Equity securities
966

 
1

 
999

 
1

 
821

 
1

Other interest income
5,129

 
7

 
4,359

 
6

 
2,941

 
3

Total interest income (on a taxable-equivalent basis)
66,696

 
79

 
65,308

 
76

 
60,233

 
68

Interest expense (on a taxable-equivalent basis)
 
 
 
 
 
 
 
 
 
 
 
Deposits
8,635

 
10

 
5,622

 
7

 
3,013

 
3

Short-term borrowings
2,317

 
3

 
1,719

 
2

 
761

 
1

Long-term debt
7,350

 
9

 
6,703

 
8

 
5,157

 
6

Other interest expense
551

 

 
610

 

 
424

 
1

Total interest expense (on a taxable-equivalent basis)
18,853

 
22

 
14,654

 
17

 
9,355

 
11

Net interest income (on a taxable-equivalent basis)
47,843

 
57

 
50,654

 
59

 
50,878

 
57

Taxable-equivalent adjustment
(612
)
 
(1
)
 
(659
)
 
(1
)
 
(1,321
)
 
(1
)
Net interest income (A) 
47,231

 
56

 
49,995

 
58

 
49,557

 
56

Noninterest income
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
4,798

 
6

 
4,716

 
5

 
5,111

 
6

Trust and investment fees (1)
14,072

 
17

 
14,509

 
17

 
14,495

 
16

Card fees
4,016

 
5

 
3,907

 
5

 
3,960

 
4

Other fees (1)
3,084

 
4

 
3,384

 
4

 
3,557

 
4

Mortgage banking (1)
2,715

 
3

 
3,017

 
3

 
4,350

 
5

Insurance
378

 

 
429

 

 
1,049

 
1

Net gains from trading activities
993

 
1

 
602

 
1

 
542

 
1

Net gains on debt securities
140

 

 
108

 

 
479

 
1

Net gains from equity securities
2,843

 
3

 
1,515

 
2

 
1,779

 
2

Lease income
1,612

 
2

 
1,753

 
2

 
1,907

 
2

Other (1)
3,181

 
3

 
2,473

 
3

 
1,603

 
2

Total noninterest income (B)
37,832

 
44

 
36,413

 
42

 
38,832

 
44

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Salaries
18,382

 
22

 
17,834

 
21

 
17,363

 
20

Commission and incentive compensation
10,828

 
13

 
10,264

 
12

 
10,442

 
12

Employee benefits
5,874

 
7

 
4,926

 
6

 
5,566

 
6

Technology and equipment
2,763

 
3

 
2,444

 
3

 
2,237

 
3

Net occupancy
2,945

 
3

 
2,888

 
3

 
2,849

 
3

Core deposit and other intangibles
108

 

 
1,058

 
1

 
1,152

 
1

FDIC and other deposit assessments
526

 
1

 
1,110

 
1

 
1,287

 
1

Operating losses
4,321

 
5

 
3,124

 
4

 
5,492

 
6

Outside professional services
3,198

 
4

 
3,306

 
4

 
3,813

 
4

Other (2)
9,233

 
10

 
9,172

 
10

 
8,283

 
10

Total noninterest expense
58,178

 
68

 
56,126

 
65

 
58,484

 
66

Revenue (A) + (B)
$
85,063

 
 
 
$
86,408

 
 
 
$
88,389

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
See Table 7 – Noninterest Income in this Report for additional detail.
(2)
See Table 8 – Noninterest Expense in this Report for additional detail.


 
Wells Fargo & Company
35


Earnings Performance (continued)

Net Interest Income
Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid on deposits, short-term borrowings and long-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding.
Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. In addition, variable sources of interest income, such as loan fees, periodic dividends, and collection of interest on nonaccrual loans, can fluctuate from period to period.
Net interest income on a taxable-equivalent basis was $47.8 billion in 2019, compared with $50.7 billion in 2018. Net interest margin on a taxable-equivalent basis was 2.73% in 2019, compared with 2.91% in 2018. The decrease in both net interest income and net interest margin in 2019, compared with 2018, was driven by unfavorable impacts of repricing due to a flattening yield curve and mix of earning assets and funding sources, including sales of high yielding Pick-a-Pay loans, as well as higher costs on promotional retail banking deposits.
 
Table 4 presents the components of earning assets and funding sources as a percentage of earning assets to provide a more meaningful analysis of year-over-year changes that influenced net interest income.
Deposits are an important low-cost source of funding and affect both net interest income and the net interest margin. Deposits include noninterest-bearing deposits, interest-bearing checking, market rate and other savings, savings certificates, other time deposits, and deposits in non-U.S. offices. Average deposits were $1.3 trillion in 2019, flat compared with 2018, and represented 135% of average loans in both 2019 and 2018. Average deposits were 73% of average earning assets in both 2019 and 2018. Our average deposit cost in 2019 was 67 basis points, up 23 basis points from a year ago, driven by increased retail banking promotional pricing for new deposits and a continued deposit mix shift to higher cost products.
Table 5 presents the individual components of net interest income and the net interest margin. Net interest income and the net interest margin are presented on a taxable-equivalent basis in Table 5 to consistently reflect income from taxable and tax-exempt loans and debt and equity securities based on a 21% federal statutory tax rate for the periods ended December 31, 2019 and 2018, and 35% for the period ended December 31, 2017.


36
Wells Fargo & Company
 


Table 4: Average Earning Assets and Funding Sources as a Percentage of Average Earning Assets
 
Year ended December 31,
 
 
Change from prior year

 
% Change from prior year

 
2019
 
 
2018
 
 
 
(in millions)
Average balance

 
% of earning assets

 
Average balance

 
% of earning assets

 
 
Earning assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning deposits with banks
$
135,741

 
8
%
 
$
156,366

 
9
%
 
$
(20,625
)
 
(13
)%
Federal funds sold and securities purchased under resale agreements
99,286

 
6

 
78,547

 
5

 
20,739

 
26

Debt securities:
 
 


 
 
 


 
 
 


Trading debt securities
93,655

 
5

 
83,526

 
5

 
10,129

 
12

Available-for-sale debt securities:
 
 


 
 
 


 
 
 


Securities of U.S. Treasury and federal agencies
15,293

 
1

 
6,618

 

 
8,675

 
131

Securities of U.S. states and political subdivisions
44,203

 
3

 
47,884

 
3

 
(3,681
)
 
(8
)
Mortgage-backed securities:
 
 


 
 
 


 
 
 


Federal agencies
154,160

 
9

 
156,052

 
9

 
(1,892
)
 
(1
)
Residential and commercial
5,363

 

 
7,769

 

 
(2,406
)
 
(31
)
Total mortgage-backed securities
159,523

 
9

 
163,821

 
9

 
(4,298
)
 
(3
)
Other debt securities
43,675

 
2

 
46,875

 
3

 
(3,200
)
 
(7
)
Total available-for-sale debt securities
262,694

 
15

 
265,198

 
15

 
(2,504
)
 
(1
)
Held-to-maturity debt securities:
 
 
 
 
 
 
 
 
 
 


Securities of U.S. Treasury and federal agencies
44,850

 
3

 
44,735

 
3

 
115

 

Securities of U.S. states and political subdivisions
8,644

 
1

 
6,253

 

 
2,391

 
38

Federal agency and mortgage-backed securities
95,559

 
5

 
94,216

 
5

 
1,343

 
1

Other debt securities
52

 

 
361

 

 
(309
)
 
(86
)
Total held-to-maturity debt securities
149,105

 
9

 
145,565

 
8

 
3,540

 
2

Total debt securities
505,454

 
29

 
494,289

 
28

 
11,165

 
2

Mortgage loans held for sale (1)
19,808

 
1

 
18,394

 
1

 
1,414

 
8

Loans held for sale (1)
1,708

 

 
2,526

 

 
(818
)
 
(32
)
Loans:
 
 
 
 
 
 
 
 
 
 


Commercial loans:
 
 


 
 
 


 
 
 


Commercial and industrial – U.S.
284,888

 
16

 
275,656

 
16

 
9,232

 
3

Commercial and industrial – Non-U.S.
64,274

 
4

 
60,718

 
4

 
3,556

 
6

Real estate mortgage
121,813

 
7

 
122,947

 
7

 
(1,134
)
 
(1
)
Real estate construction
21,183

 
1

 
23,609

 
1

 
(2,426
)
 
(10
)
Lease financing
19,302

 
1

 
19,392

 
1

 
(90
)
 

Total commercial loans
511,460

 
29

 
502,322

 
29

 
9,138

 
2

Consumer loans:
 
 


 
 
 


 
 
 


Real estate 1-4 family first mortgage
288,059

 
16

 
284,178

 
16

 
3,881

 
1

Real estate 1-4 family junior lien mortgage
31,989

 
2

 
36,687

 
2

 
(4,698
)
 
(13
)
Credit card
38,865

 
2

 
36,780

 
2

 
2,085

 
6

Automobile
45,901

 
3

 
48,115

 
3

 
(2,214
)
 
(5
)
Other revolving credit and installment
34,682

 
2

 
37,115

 
2

 
(2,433
)
 
(7
)
Total consumer loans
439,496

 
25

 
442,875

 
25

 
(3,379
)
 
(1
)
Total loans (1)
950,956

 
54

 
945,197

 
54

 
5,759

 
1

Equity securities
35,930

 
2

 
38,092

 
2

 
(2,162
)
 
(6
)
Other
5,579

 

 
5,071

 
1

 
508

 
10

Total earning assets
$
1,754,462

 
100
%
 
$
1,738,482

 
100
%
 
$
15,980

 
1
 %
Funding sources
 
 


 
 
 


 
 
 


Deposits:
 
 


 
 
 


 
 
 


Interest-bearing checking
$
59,121

 
4
%
 
$
63,243

 
4
%
 
$
(4,122
)
 
(7
)%
Market rate and other savings
705,957

 
40

 
684,882

 
39

 
21,075

 
3

Savings certificates
30,266

 
2

 
20,653

 
1

 
9,613

 
47

Other time deposits
93,368

 
5

 
84,822

 
5

 
8,546

 
10

Deposits in non-U.S. offices
53,438

 
3

 
63,945

 
4

 
(10,507
)
 
(16
)
Total interest-bearing deposits
942,150

 
54

 
917,545

 
53

 
24,605

 
3

Short-term borrowings
115,337

 
7

 
104,267

 
6

 
11,070

 
11

Long-term debt
232,491

 
13

 
224,268

 
13

 
8,223

 
4

Other liabilities
25,771

 
1

 
27,648

 
1

 
(1,877
)
 
(7
)
Total interest-bearing liabilities
1,315,749

 
75

 
1,273,728

 
73

 
42,021

 
3

Portion of noninterest-bearing funding sources
438,713

 
25

 
464,754

 
27

 
(26,041
)
 
(6
)
Total funding sources
$
1,754,462

 
100
%
 
$
1,738,482

 
100
%
 
$
15,980

 
1
 %
Noninterest-earning assets
 
 
 
 
 
 
 
 


 


Cash and due from banks
$
19,558

 
 
 
18,777

 
 
 
$
781

 
4
 %
Goodwill
26,409

 
 
 
26,453

 
 
 
(44
)
 

Other
113,015

 
 
 
105,180

 
 
 
7,835

 
7

Total noninterest-earning assets
$
158,982

 
 
 
150,410

 
 
 
$
8,572

 
6
 %
Noninterest-bearing funding sources
 
 
 
 
 
 
 
 


 


Deposits
$
344,111

 
 
 
358,312

 
 
 
$
(14,201
)
 
(4
)%
Other liabilities
55,963

 
 
 
53,496

 
 
 
2,467

 
5

Total equity
197,621

 
 
 
203,356

 
 
 
(5,735
)
 
(3
)
Noninterest-bearing funding sources used to fund earning assets
(438,713
)
 
 
 
(464,754
)
 
 
 
26,041

 
(6
)
Net noninterest-bearing funding sources
$
158,982

 
 
 
150,410

 
 
 
$
8,572

 
6
 %
Total assets
$
1,913,444

 
 
 
1,888,892

 
 
 
$
24,552

 
1
 %
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Nonaccrual loans are included in their respective loan categories.

 
Wells Fargo & Company
37


Earnings Performance (continued)

Table 5: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)
 
 
 
 
 
2019

 
 
 
 
 
2018

 
 
 
 
 
2017

(in millions) 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

Earning assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning deposits with banks
$
135,741

 
2.12
%
 
$
2,875

 
156,366

 
1.82
%
 
$
2,854

 
201,864

 
1.07
%
 
$
2,162

Federal funds sold and securities purchased under resale agreements
99,286

 
2.18

 
2,164

 
78,547

 
1.82

 
1,431

 
74,697

 
0.98

 
735

Debt securities (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading debt securities
93,655

 
3.36

 
3,149

 
83,526

 
3.42

 
2,856

 
74,475

 
3.16

 
2,356

Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
15,293

 
2.07

 
316

 
6,618

 
1.70

 
112

 
15,966

 
1.49

 
239

Securities of U.S. states and political subdivisions
44,203

 
3.87

 
1,709

 
47,884

 
3.77

 
1,806

 
52,658

 
3.95

 
2,082

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
154,160

 
2.85

 
4,397

 
156,052

 
2.79

 
4,348

 
145,310

 
2.60

 
3,782

Residential and commercial
5,363

 
4.19

 
225

 
7,769

 
4.62

 
358

 
11,839

 
5.33

 
631

Total mortgage-backed securities
159,523

 
2.90

 
4,622

 
163,821

 
2.87

 
4,706

 
157,149

 
2.81

 
4,413

Other debt securities
43,675

 
4.23

 
1,846

 
46,875

 
4.22

 
1,980

 
48,714

 
3.68

 
1,794

Total available-for-sale debt securities
262,694

 
3.23

 
8,493

 
265,198

 
3.24

 
8,604

 
274,487

 
3.11

 
8,528

Held-to-maturity debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
44,850

 
2.19

 
982

 
44,735

 
2.19

 
980

 
44,705

 
2.19

 
979

Securities of U.S. states and political subdivisions
8,644

 
3.97

 
343

 
6,253

 
4.34

 
271

 
6,268

 
5.32

 
334

Federal agency and other mortgage-backed securities
95,559

 
2.60

 
2,487

 
94,216

 
2.36

 
2,221

 
78,330

 
2.34

 
1,832

Other debt securities
52

 
3.71

 
2

 
361

 
4.00

 
15

 
2,194

 
2.50

 
55

Total held-to-maturity debt securities
149,105

 
2.56

 
3,814

 
145,565

 
2.40

 
3,487

 
131,497

 
2.43

 
3,200

Total debt securities
505,454

 
3.06

 
15,456

 
494,289

 
3.02

 
14,947

 
480,459

 
2.93

 
14,084

Mortgage loans held for sale (3)
19,808

 
4.10

 
813

 
18,394

 
4.22

 
777

 
20,780

 
3.78

 
786

Loans held for sale (3)
1,708

 
4.60

 
79

 
2,526

 
5.56

 
140

 
1,487

 
3.40

 
50

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial – U.S.
284,888

 
4.25

 
12,107

 
275,656

 
4.16

 
11,465

 
272,034

 
3.75

 
10,196

Commercial and industrial – Non-U.S.
64,274

 
3.71

 
2,385

 
60,718

 
3.53

 
2,143

 
57,198

 
2.86

 
1,639

Real estate mortgage
121,813

 
4.40

 
5,356

 
122,947

 
4.29

 
5,279

 
129,990

 
3.74

 
4,859

Real estate construction
21,183

 
5.17

 
1,095

 
23,609

 
4.94

 
1,167

 
24,813

 
4.10

 
1,017

Lease financing
19,302

 
4.52

 
873

 
19,392

 
4.74

 
919

 
19,128

 
3.74

 
715

Total commercial loans
511,460

 
4.27

 
21,816

 
502,322

 
4.18

 
20,973

 
503,163

 
3.66

 
18,426

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
288,059

 
3.81

 
10,974

 
284,178

 
4.04

 
11,481

 
277,751

 
4.03

 
11,206

Real estate 1-4 family junior lien mortgage
31,989

 
5.63

 
1,800

 
36,687

 
5.38

 
1,975

 
42,780

 
4.82

 
2,062

Credit card
38,865