Editor’s note: In a February 15, 2019, letter published in the 2018 Wells Fargo Annual Report, CEO Tim Sloan reports on the company’s progress toward achieving its six goals and reviews 2018 financial performance.
To Our Owners,
I am as optimistic as ever about the future of Wells Fargo. We have a clear vision and deeply held values. Our company continues to produce strong financial results, we have robust goals in place, and I believe we have the best team members in the business to execute on our goals for our 70 million customers.
We are building on a truly remarkable history. Wells Fargo has prospered for 166 years, an incredibly durable franchise. Our symbol, the stagecoach, was not only transformative in its time, it also signifies forward momentum. Today we are maintaining that momentum in many ways, including a new brand strategy inspired by human ingenuity and featuring a more modern version of the stagecoach.
In 2018, we further strengthened the foundation for our road ahead through new products and services, improvements in the customer experience, greater operational efficiency, and deepened commitments to our communities and our team members. We continued to make progress in our efforts to address past issues and rebuild trust with stakeholders. While we have more work to do, we have learned from our mistakes and are making fundamental changes as we transform Wells Fargo for the future.
The durability of the franchise
I believe Wells Fargo is prepared for the future — for evolving customer preferences, for emerging technologies, for new risks, and more — and I am confident that our underlying strengths provide a very strong foundation for success. These strengths include our diversified business model, which has enabled us to perform well through a variety of interest rate and economic cycles.
2018 Annual Report: Our Road Ahead
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- Inside the Stagecoach
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We also have industry-leading distribution, both physical and digital. We are a longtime leader in providing innovation for our customers, and our pace of innovation has increased.
We have a large customer base, serving one in three U.S. households, and our valuable low-cost deposit franchise includes $1.3 trillion in deposits. We offer a broad product set at scale, including being among the largest lenders in the U.S., and our outstanding team is committed to serving our customers.
Our strong credit discipline has enabled us to perform well through numerous credit cycles, and we currently have historically low charge-offs. We have delivered consistent shareholder returns and built a strong capital position, and we remain committed to returning more capital to shareholders.
In January 2019, we released a Business Standards Report detailing the actions we have taken to address past issues and outlining our business practices and areas of focus as we move forward. The report addresses how we are improving our culture, making things right for customers who were harmed, and strengthening our risk management and controls. Titled “Learning from the past, transforming for the future” (PDF), it represents our commitment to transparency as well as an important step in engaging and rebuilding trust with all of our stakeholders.
Every day I meet with people who have a stake in our success — including customers, team members, community leaders, investors, and government leaders. These conversations are the best part of my day! The feedback I hear is one way to affirm that we’ve made a lot of progress in transforming Wells Fargo. We have work ahead, and we are staying focused on our six company goals: becoming the financial services leader in customer service and advice, team member engagement, innovation, risk management, corporate citizenship, and shareholder value.
We are transforming for the future
The future of the financial services industry encompasses many different aspects, and I am confident that Wells Fargo is taking a comprehensive view.
This year, we have made significant progress on strengthening our risk management, especially operational and compliance risk. This is a top priority for the company and for me. To further our risk management capabilities, we’ve made a tremendous investment in people, technology, infrastructure, and cybersecurity.
We also continue to focus on our culture. It’s how we put our vision and values, the bedrock of our company, into practice. And that’s how we will achieve our goals. Culture also means that we work as a team to hold each other accountable. In order for Wells Fargo to fulfill its vision of helping our customers succeed financially, every team member needs to be living our values every day.
We made several leadership changes in 2018. For example, we welcomed a new chief risk officer, Mandy Norton, who brings nearly three decades of financial industry experience to the role. Mandy has immediately made her mark as an experienced and insightful leader who has driven our risk management work forward throughout the company.
“We are making changes to better serve our customers, as we continue to put them at the center of everything we do.”
— Tim Sloan
We announced that Saul Van Beurden, who has 25 years of financial services experience, will fill the new head of Technology role at our company, reflecting the importance of centralizing and elevating that work. And Julie Scammahorn will join Wells Fargo as chief auditor. Julie brings significant experience and a proven track record to this role, having led large audit functions for global financial services institutions. Saul and Julie will join our Operating Committee. I also elevated our head of Human Resources, David Galloreese, who joined the company in 2018, to the Operating Committee, reporting to me, and consolidated our Corporate Philanthropy and Community Relations work with the Stakeholder Relations function led by Jim Rowe, who also reports to me.
I am pleased that 2018 was another great year of innovation for our customers and clients. We prioritize innovation not in terms of what we can do, but based on what our customers tell us they want and need. That means the continued expansion of services such as Pay With Wells FargoSM, now in pilot; our online mortgage application; and Control TowerTM.
We are also focused on operational excellence, which we are driving through every corner of our business. This effort includes reducing the number of processes we have for any given task and assessing the efficiency of those processes. We are considering where there are risks in our operations and how we can mitigate them. We are evaluating the number of platforms and technology tools we use in our work and how we can combine and reduce them. And, finally, we are ensuring that we have the proper oversight and the proper testing for each of our processes. Some examples:
- Wells Fargo Auto, which serves more than 3 million auto loan customers and more than 11,000 auto dealers, centralized back-office business functions to create greater consistency and manage risk. A key component of the centralization process was the consolidation of 57 regional business centers into four regional hubs, which we completed in 2018. This transformation was designed to enable us to better serve our customers and improve our efficiency by simplifying change delivery, reducing operational risk, leveraging enterprise infrastructure and standards, improving consistency, increasing career development opportunities for team members, and creating economies of skill and scale by co-locating similar functions.
- Wealth Management’s Fiduciary Management Services team instituted a series of enhancements to its client service model in 2018, including moving to a single point of contact from a team-based model for serving affluent fiduciary and trust clients, having newly assigned relationship managers proactively reach out to each client, and implementing an automated workflow tool to provide front office partners with visibility into servicing requests. One result is that overall client loyalty and satisfaction increased more than 10 percentage points.
- We’re in the process of transforming our Wholesale Banking division to reduce duplicative processes and platforms and break down the silos that exist across our businesses so we can provide a more consistent and efficient customer and team member experience. That should allow us to do a better job of serving the customer’s existing and emerging needs. Since I spent many years of my career in the Wholesale Banking business, I know firsthand what an incredible difference these operational improvements can make for our team members and our customers.
- We have brought together more than 200 team members from 14 teams to create an Estate Care Center of Excellence, focused on simplifying the estate settlement process for survivors when a loved one passes away. When rollout is complete to all of our branches, survivors will no longer have to contact multiple lines of business to deal with finances. A dedicated team member will support them throughout the process, reducing required paperwork and providing access to new digital self-service capabilities to simplify settling an estate. In the wake of the tragic wildfires in Northern California, the Estate Care Center of Excellence developed special procedures to assist family members who lack traditional documentation.
- Finally, we’ve made good progress in making things right for our customers. We created a Customer Remediation Center of Excellence to establish a consistent approach to managing and executing remediation efforts across Wells Fargo. This includes strengthening internal governance and reporting processes to achieve greater accountability. It also includes investing in specialized teams dedicated to remediation efforts and providing them the resources they need to provide outstanding service to customers.
All of these elements are examples of the significant milestones we accomplished in 2018.
Our financial results in 2018 were solid. Wells Fargo generated $22.4 billion in net income in 2018, or $4.28 per diluted common share, the highest earnings per common share in the company’s history. We achieved our 2018 expense target. Expenses declined, driven by lower operating losses as well as the progress we’ve made to reduce expenses while reinvesting in the business. Revenue declined as growth in net interest income was more than offset by a decline in noninterest income.
Credit quality remained strong with our net charge-off rate near historic lows. Our capital levels also remained strong, and we returned a record $25.8 billion to shareholders in 2018, up 78 percent from 2017, including reducing our common shares outstanding by 6 percent in 2018.
With respect to the Federal Reserve consent order from February 2018, we continue to have constructive dialogue with the Federal Reserve on an ongoing basis to clarify expectations, receive feedback, and assess progress. In order to have enough time to incorporate this feedback into our plans in a thoughtful manner, adopt and implement the final plans as accepted by the Federal Reserve, and complete the required third-party reviews, we are planning to operate under the consent order’s asset cap through the end of 2019. Making the changes necessary to ensure we meet regulatory expectations remains a top priority, as is continuing to serve our customers and help them succeed financially. We believe that we can achieve both of these priorities while we operate under the asset cap.
Our company goals
More than a year ago, I introduced six company goals, so everyone at Wells Fargo would be clear on the most important things we need to do to continue to move forward. Our goals are rooted in our vision — to satisfy our customers’ financial needs and help them succeed financially — and our company values of doing what’s right for customers, people as a competitive advantage, ethics, diversity and inclusion, and leadership.
I am delighted that in 2018 we made very strong progress toward our goals.
Customer service and advice
We are making changes to better serve our customers, as we continue to put them at the center of everything we do. As a company, we have always emphasized working together as a team to provide the best service for all our customers — because no matter the role, our work affects them.
How we serve our customers’ needs is evolving. Our Consumer Strategy is a holistic approach designed to meet our customers’ financial needs by anticipating and serving every stage of their financial journey — and it extends across all of our consumer businesses.
When customers start their financial journey, they may rely on balance alerts so they can monitor their checking account status more closely. (We sent an average of 37 million monthly zero-balance and customer-specific balance alerts to our customers last year!) Or Overdraft Rewind®, which helped more than 2.3 million customers avoid overdraft charges in 2018. Eventually, customers might want an auto, mortgage, or small business loan; a retirement savings account; or the services of our wealth management team. Having one Consumer Strategy means we are with our customers at every step of their financial lives.
We are continuing to improve the customer and team member experience within Consumer Banking with speed, convenience, and new digital offerings. Our branch survey scores for “Customer Loyalty” and “Overall Satisfaction with Most Recent Visit” reached a 24-month high in December 2018.
The Customer Relationship View, a new customer relationship platform we developed, gives our team members a more holistic view of each customer and saves customers from rehashing interactions they’ve already had. For example, one of our bankers in Lubbock, Texas, phoned a longtime customer to thank him for his business, and in the course of their conversation, the banker reminded him that he had more than 64,000 unused credit card points. The customer was then advised that he could redeem the points through our Go Far® Rewards program. The customer redeemed the points for cash, which he used to buy plane tickets for family members so they could visit him and his wife.
Changes like these help our team members become better connected with their customers and maintain their focus on our customers’ needs. Between May and December 2018, our bankers reached out to 3.3 million customers to thank them for their business, respond to their questions, and make appointments for in-person consultations.
We are also transforming our Wealth and Investment Management businesses to make them more client-centric. The changes we are making are designed to make WIM faster, simpler, and better for clients, with a focus on the research, thought leadership, and advice that WIM clients value. An example is Envision Scenario, introduced in 2018, which allows clients to see how changing their investment decisions can impact their investment goals.
And as I stated earlier, putting the customer at the center of everything we do also means that we make things right for them. So we have worked to implement a consistent, companywide customer complaints strategy, using data and analytics so we can assist our customers with their concerns more proactively and, when necessary, direct them to a team member with expertise to understand their concerns and resolve them.
Team member engagement
I am privileged to meet regularly with our customers and community leaders, and I hear their appreciation and praise for our team members. I am proud of Wells Fargo’s 259,000 hardworking team members, who take care of customers every day and demonstrate great optimism about our future. Our voluntary team member attrition improved to its lowest level in six years in 2018. Team members are truly our greatest asset.
They are also the source of some of our best ideas! In 2018, we continued to gather their ideas and feedback through multiple channels, including surveys, focus groups, our internal team member portal, and town hall meetings. Our team members will tell you that I am the biggest cheerleader for our surveys, because I believe so strongly in the importance of their feedback. In fact, I think they get tired of me reminding them to take advantage of every opportunity to have their voices heard.
Our team members are the face of Wells Fargo, and they drive our company culture. In 2018, we introduced a set of clear and common behavioral expectations for all team members. These expectations describe how team members should conduct themselves at work, and this allows us to more consistently align individual actions with our Vision, Values & Goals. We help ensure accountability and measure performance against these expectations through a single leadership objective that all team members had as part of their 2018 performance plans. A common “One Wells Fargo” culture helps ensure that we are focused on the right things to drive our success.
“Team members are truly our greatest asset.”
— Tim Sloan
Diversity and inclusion, one of our five primary values, is essential to our success. In order to satisfy our customers’ financial needs and help them succeed financially, our team needs to reflect the diversity of our customers in the U.S., which is growing more diverse every day, and around the world. I also strongly believe that when you get people with different experiences in a room or working on a team together, you get better ideas and better problem solving. I’m proud that our efforts have been recognized externally by the Bloomberg Gender Equality Index, DiversityInc, the Human Rights Campaign, and the National Organization on Disability.
An example of our focus on diversity and inclusion in action is our commitment to military service members and veterans. At any one time, Wells Fargo has more than 250 team members on active duty. We support those team members through financial and other benefits. We value the leadership and skills of military veterans, and we have a number of recruiting programs in place to help us identify and hire veterans.
Our team members are our competitive advantage, and we continue to invest in them in many ways. In 2018, we increased the minimum base pay in the U.S. to $15 an hour, which benefited approximately 36,000 team members. We also reviewed pay for team members whose salaries were at or slightly above the new minimum wage and increased the base pay for approximately 50,000 team members. Our team members receive competitive salaries, training and development offerings, and leadership opportunities. And we spend approximately $13,000 annually per U.S. team member to provide affordable health care options, work-life balance programs, 401(k) matching contributions, a discretionary profit-sharing plan, and family leave. In 2018, approximately 250,000 team members worldwide were awarded restricted share rights equivalent to 50 shares of Wells Fargo stock to eligible full-time employees, and the equivalent of 30 shares to eligible part-time employees, with a two-year vesting period. This ties their success to what’s important to our shareholders. As I said above, we seek out team member feedback regularly so we can measure the effectiveness of what we offer, and we use team member ideas and opinions to drive our engagement efforts.
Most important, through their feedback, our team members remind me how important the work we do is, because they tell me how much they care about our customers.
At Wells Fargo, we are innovating because our customers are asking for it. They expect us to keep up with other technological advances they see in their daily lives. Convenience used to mean a bank branch on every corner, but now there are a variety of channels our customers can use to engage with us: a branch, their phones, online banking, and more. As customer engagement continues to grow, we are using customer feedback to drive new products and services.
“I am confident that our strong innovation program will allow us to continue to provide lasting value to customers.”
— Tim Sloan
An example is the new Wells Fargo Propel® American Express® Card. Propel offers one of the most compelling rewards programs for no-annual-fee credit cards, and we’re delighted with its success so far. It came to life because our customers and our team members told us what they wanted.
Our innovation program is focused on five areas that can help us deliver additional value to our customers.
- First, we are creating digital account opening experiences for many of our products so the experience is simple and fast and helps customers get the most out of their new accounts. An example is our online mortgage application. Usage of our online mortgage application saw a steady increase throughout 2018, with online applications representing 30 percent of our total retail applications in December.
- Second, we are enhancing our payments capabilities so customers can easily make payments as well as gain more visibility into and control over their accounts. For instance, ZelleSM allows customers to make real-time payments to friends and family, and later this year we plan to complete the rollout of Pay With Wells FargoSM, which displays customers’ most commonly used payment features on our mobile app home screen, making it quick and easy to send a payment, pay a bill, or make a transfer.
- Third, we are building personalized experiences for every customer. For example, Greenhouse®, our mobile banking app with cash management expertise for new-to-banking customers, offers personalized guidance to help customers save for monthly expenses and manage their money responsibly, and we expect its rollout in 2019.
- Fourth, we are building capabilities to allow us to seamlessly serve customers through multiple channels. We are bringing digital experiences to our branches to speed authentication and account opening, and we offer banking and payment services on non-Wells Fargo platforms.
- Finally, we are building capabilities and technologies that enable innovation, such as artificial intelligence, identity management, distributed ledger, and application programming interfaces.
Since we centralized our innovation work in 2016, we have increased the pace of innovation and new product development. I am confident that our strong innovation program will allow us to continue to provide lasting value to customers and maintain and strengthen our market leadership.
Risk management continues to be a priority for the company, and, to that end, in 2018 we continued to invest in technology, infrastructure, cybersecurity, and people. We have adopted and are implementing our new risk management framework. We have added a number of new leaders to the risk management team, through both internal and external hires, including more than 3,200 risk management team members hired from outside the company over the past three years. We now have more clarity of roles and responsibilities across the entire company, providing breadth to our risk management discipline.
We have historically been strong in many areas of risk management, including credit risk, market risk, and liquidity risk. We know we have work to do in compliance and operational risk, and under Chief Compliance Officer Mike Roemer’s leadership, most of the Compliance team is now part of one organization and, after centralization, numbers nearly 4,000 team members. Mike is focused on transforming our compliance function into a competitive advantage for the company and integrating and implementing best practices across the company. Our Operational Risk team, under the leadership of Chief Operational Risk Officer Mark Weintraub, oversees the management of operational risk exposures and the effectiveness of our operational risk management practices. This includes educating and empowering team members to identify and assess risks and help ensure we have the right controls in place to mitigate those risks.
Through our enhanced risk management framework, we have a greater ability to understand and manage our risks in a comprehensive and holistic manner. As a result, we can better drive and support effective decisions about risk management at all levels of the company. We continue to work very hard and through multiple avenues to strengthen risk management. We aren’t finished and continue to make progress, building on the changes we have made.
Hand in hand with the enhancements we have made to our risk management framework is our continued emphasis on our “raise your hand” culture, in which every team member is encouraged to speak up if they need help or see something that doesn’t look right. We’ve coupled that effort with enhanced escalation channels and processes to help ensure that any questions raised by team members are investigated thoroughly and confidentially. Every team member has personal accountability for managing risk.
I believe our commitment to corporate citizenship sets us apart. Our goal is clear: We want to help people and communities succeed financially in all of the places where we live and do business. We take a comprehensive approach to increasing access to economic opportunities and strengthening local neighborhoods, working with a range of public and private sector stakeholders to understand the most urgent problems and the solutions that can have the most impact.
“Our goal is clear: We want to help people and communities succeed financially in all of the places where we live and do business.”
— Tim Sloan
This problem-solving mindset was showcased in our October announcement of the Where We LiveSM program in Washington, D.C., which combines the power of philanthropy and our market-leading lending businesses with our deep community partnerships. We made a five-year commitment of $1.6 billion to help revitalize disadvantaged neighborhoods in the district. Through our collaboration with the National Community Reinvestment Coalition and nearly 20 other local community organizations, we plan to increase affordable housing, small business growth, and job skills for underserved residents in Ward 7 and Ward 8 through corporate philanthropy and our mortgage and small business lending businesses.
We continue to make progress in our efforts to address the negative consequences of climate change and other environmental challenges affecting our planet. In addition to reducing our company’s environmental footprint, in April 2018 we announced our commitment to provide $200 billion in financing to sustainable businesses and projects by 2030, with more than 50 percent focused on clean technology and renewable energy transactions to help accelerate the transition to a low-carbon economy. This commitment demonstrates how our products and services, operations and culture, and philanthropy can be harnessed toward a single goal. As an example, Wells Fargo committed capital in construction debt, as well as the tax-equity funding of $35 million for Origis Energy’s new solar generation facility in Orange County, Florida. This facility will include more than half a million solar panels, producing and transmitting enough renewable electricity to reduce greenhouse gas emissions by more than 57,000 tons per year.
One of my personal highlights this year was announcing and then surpassing our $400 million philanthropy target for 2018. Wells Fargo donated $444 million in 2018 to nearly 11,000 nonprofits to help communities and people in need. It is exciting to think of the positive change we can make in our communities and in people’s lives through the Wells Fargo Foundation, which is investing an average of more than $1 million a day toward important causes and into the communities we serve. Beginning in 2019, we are targeting 2 percent of our after-tax profits for corporate philanthropy. We were recognized in 2018 as the No. 2 most generous cash donor in the U.S., and the top financial institution in overall giving, by The Chronicle of Philanthropy (based on 2017 data).
We all have causes that are especially near and dear to our hearts, and the WE Care Fund is close to mine. The WE Care Fund, now in its 17th year, provides financial grants to help team members recover from natural disasters, accidents, and other life-changing events. Team member donations to the WE Care Fund are augmented by funding from the Wells Fargo Foundation. One team member found support and assistance when her husband was diagnosed with an aggressive form of amyotrophic lateral sclerosis, or ALS. With the help of a WE Care Fund grant, they were able to build a wheelchair ramp at their home, giving them one less expense to worry about. The WE Care Fund is just one of many ways our team members contribute their financial resources and volunteer hours to make our communities and our teams better. I am deeply moved by the care that our team members demonstrate for each other every day.
Our first five company goals all contribute to our final goal, which is to deliver long-term shareholder value through our diversified business model, a solid risk discipline, efficient execution, a strong balance sheet, and a world-class team dedicated to meeting the financial needs of our customers.
Wells Fargo has a solid base from which to achieve this goal, including strong levels of capital and liquidity. And historically, we have generated steady financial performance over time and through different economic cycles. We also remained disciplined regarding credit. Our net charge-off ratio in 2018 was near historic lows, and our nonperforming assets declined 16 percent from a year ago.
We returned $25.8 billion to our shareholders through common stock dividends and net share repurchases in 2018, up 78 percent from 2017. We reduced our common shares outstanding by 6 percent in 2018, the sixth year in a row we have reduced our common share count. In July 2018, we increased our quarterly common stock dividend to 43 cents per share, and in January 2019, we increased our quarterly common stock dividend to 45 cents per share.
Our efficiency initiatives contribute to our ability to provide long-term shareholder value. They are focused on three areas: further centralization and optimization to create a simpler and more collaborative Wells Fargo, realigning our businesses to more efficiently serve customers, and enhancing our governance and enforcement of controls and policies to drive down costs. We met our expense target in 2018, and we remain committed to meeting our expense targets for 2019 and 2020.
As planned, we completed 300 branch consolidations in 2018 and sold 52 branches in the fourth quarter. Following these changes, our physical distribution remains unparalleled in the industry; we have branches in more states and in twice the number of markets as our peers. We believe we have an opportunity to further reduce redundancies without meaningfully affecting our distribution, while having room to grow in many of our businesses. As an example, we streamlined the retail mortgage sales operation, eliminating layers and reengineering the mortgage fulfillment process. We will continue to look for ways to improve efficiency as we focus on creating long-term shareholder value.
I am confident that Wells Fargo is well-positioned for the future. In 2019, we will continue working to build the most customer-focused, efficient, and innovative Wells Fargo ever — characterized by a strong financial foundation, a leading presence in the markets we serve, focused growth within a strong risk management framework, operational excellence, and highly engaged team members.
As we look ahead, we won’t lose sight of our roots and our company’s history. We are building on an exceptionally strong foundation to transform Wells Fargo into a better bank for the future.
Coupled with the strong optimism I feel for the future of our company is a deep sense of gratitude. I am thankful for the leadership, guidance, and support of Betsy Duke, our board chair, and our other highly qualified, hard-working, and dedicated board members. I would like to especially recognize Karen Peetz, who is retiring from the board this year, for her contributions, and welcome Wayne Hewett, who joined the board this year and brings deep experience in business operations and processes.
I am also thankful for our customers, who are at the center of everything we do. And I am especially grateful for our 259,000 talented team members, who work hard every day to ensure we realize our vision of satisfying our customers’ financial needs. I am honored to lead them.
The future always brings both opportunities and challenges, and I feel optimistic about what lies ahead for Wells Fargo. I thank you, our shareholders, for your support of Wells Fargo during 2018 and as we travel our road ahead.
Timothy J. Sloan
Chief Executive Officer and President
Wells Fargo & Company
February 15, 2019