Wells Fargo & Company Annual Report 2012

Wells Fargo & Company Annual Report 2012

The power of a conversation.

WELLS FARGO

THE POWER OF A CONVERSATION

WELLS FARGO & COMPANY 2012 ANNUAL REPORT

2 To Our Owners 10 Creating Conversations 22 Community 27 Board of Directors, Senior Leaders 29 2012 Financial Report $))$' 1$ 2 *)/-*'.)-* 0- . $))$'// ( )/. +*-/*! ) + ) )/ "$./ -

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THE POWER OF A CONVERSATION

At Wells Fargo, every conversation is important.

Like the conversation between small business customer Shua Xiong, owner of Golden Harvest Foods in St. Paul, Minnesota, and banker Abby Ward. Their talk eventually resulted in the remodeling of Xiong's store, which Wells Fargo financed. Conversations are also a beginning because they often lead to something more. A deeper relationship. A great idea. A way to solve a problem. That happened over the course of their relationship when Ward recommended treasury management and equipment finance services to help meet Xiong's needs. Relationships like these are a Wells Fargo staple because they help our customers succeed financially. Today, Wells Fargo serves one in three U.S. households and can provide just about any financial service an individual or business requires. We serve customers in communities across the country through our 9,097 stores, and we are the fourth largest in assets among U.S. banks. We got to this place because we continue to believe in the personal touch. And that starts with a conversation.

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To Our Owners,

Each morning, across the company, our day starts with conversations -- conversations about how best to serve our customers and help them succeed financially. We've been having those conversations at Wells Fargo for more than 160 years, and they are the cornerstone of our success. Today, we serve one in three U.S. households and employ one in 500 working Americans. We handle 5.5 billion customer interactions a year in our Community Bank alone -- these give us more than 10,000 opportunities a minute to be a hero for our customers.

John G. Stumpf, Chairman, President and Chief Executive Officer, Wells Fargo & Company

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Our focus on customers and serving them well drove another year of record results in 2012 for Wells Fargo and our stakeholders.

2012: Continued financial success We delivered net income of $18.9 billion in 2012, up 19 percent from 2011. This fourth consecutive year of record profit reflected the time-tested virtues of our diversified business model and our focus on growing revenue and managing costs and risks -- no matter how difficult the operating environment. We grew our core loans and deposits, despite an uneven economic recovery, and grew revenue in a low interest rate environment that pressured our margins. Each of our primary business segments grew its full-year segment net income year over year: Community Banking by 15 percent, Wholesale Banking by 11 percent, and Wealth, Brokerage and Retirement by 4 percent.

In 2012, Wells Fargo led in areas central to our customers' lives and our economy's vitality -- small business lending, home mortgage lending, auto lending, and private student lending. We provided a safe and sound place for our customers to hold and manage their financial assets, and served our customers efficiently and conveniently through the nation's most extensive network of banking stores, more than 12,000 ATMs, our 24-hour-a-day Wells Fargo Customer ConnectionSM, and our industry-leading online and mobile presence.

Just as important, we accomplished this with a crosssell strategy that continues to distinguish Wells Fargo as a leader in building customer relationships. It's as simple as this: The better we know our customers, the more opportunities we have to provide them with the products and services they need. In 2012, that mindset produced records in the average number of Wells Fargo products per customer. At the end of the fourth quarter, the average Retail Bank household had more than six products, our average Wholesale Bank customer had nearly seven products, and our average Wealth, Brokerage and Retirement customer had 10 products!

Another measure of our success: deposit and loan growth. Since completing our 2008 merger with Wachovia Corp., Wells Fargo has grown deposits by more than $221 billion and core loans by $31 billion. Frankly, there's no better proof of customer confidence in today's Wells Fargo and our unique opportunity to grow.

In 2012, we continued to produce value for our shareholders. Our return on assets was 1.41 percent, our return on equity was 12.95 percent, and our full-year earnings-per-share growth was 19 percent. In 2012, we also returned more capital to our shareholders, as we increased our regular quarterly dividend by 83 percent to 22 cents per share and purchased 119 million shares of the company's common stock. On Jan. 22, 2013, we raised our regular quarterly dividend again, an increase of 14 percent to 25 cents per share. Wells Fargo finished the year with an industry-leading market capitalization of $180 billion (our stock price multiplied by the number of shares outstanding).

Wells Fargo's full-year income was equally balanced between net interest income and noninterest income, a balance that has come to typify a core benefit of our business model that makes growth an attainable goal in a variety of interest rate environments. Indeed, in 2012, Wells Fargo's net interest income grew by $467 million, or 1 percent, to $43.2 billion. This was achieved despite low interest rates that put pressure on our margins, as we delivered more products and services to customers across our huge deposit base.

Meanwhile, we reduced credit losses to $9.0 billion, down $2.3 billion, or 20 percent, from $11.3 billion in 2011.

Our capital position also improved. Wells Fargo finished 2012 with Tier 1 common equity1 of $109.1 billion, up 15 percent from $95.1 billion a year ago, resulting in a Tier 1 common equity ratio of 10.12 percent under Basel I.

Helping an economy in transition In conversation after conversation last year -- across kitchen tables, as well as conference room tables -- we heard of signs of a strengthening U.S. economy. Still, we also observed the worries and uncertainty that influenced consumer and business behaviors in many areas of the country and the economy. Yes, low interest rates offered a compelling opportunity to get household balance sheets in order. And there were bright spots, such as energy, that reminded us of the advantages our U.S. economy still holds. But overall, our customers remained cautious given the economy's tepid growth and headlines about Washington gridlock, budget pressures, and higher taxes. So, while we remain optimistic for continued economic expansion in 2013, we do so guardedly, based on what we experienced in 2012.

1 Please see the "Financial Review ? Capital Management" section in this Report for more information.

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