WELLS FARGO & COMPANY/MN (WFC) FY 2021 MD&A

Overview

Wells Fargo & Company is a leading financial services company that has approximately $1.9 trillion in assets, proudly serves one in three U.S. households and more than 10% of small businesses in the U.S., and is the leading middle market banking provider in the U.S. We provide a diversified set of banking, investment and mortgage products and services, as well as consumer and commercial finance, through our four reportable operating segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management. Wells Fargo ranked No. 37 on Fortune’s 2021 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, 2021.

Wells Fargo’s top priority remains building a risk and control infrastructure appropriate for its size and complexity. The Company is subject to a number of consent orders and other regulatory actions, which may require the Company, among other things, to undertake certain changes to its business, operations, products and services, and risk management practices. Addressing these regulatory actions is expected to take multiple years, and we are likely to experience issues or delays along the way in satisfying their requirements. Issues or delays with one regulatory action could affect our progress on others, and failure to satisfy the requirements of a regulatory action on a timely basis could result in additional penalties, enforcement actions, and other negative consequences, which could be significant. While we still have significant work to do, the Company is committed to devoting the resources necessary to operate with strong business practices and controls, maintain the highest level of integrity, and have an appropriate culture in place.

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 as defined under the consent order will be limited to the level as of December 31, 2017. Compliance with this asset cap is measured on a two-quarter daily average basis to allow for management of temporary fluctuations. Due to the COVID-19 pandemic, on April 8, 2020, the FRB amended the consent order to allow the Company to exclude from the asset cap any on-balance sheet exposure resulting from loans made by the Company in connection with the Small Business Administration’s Paycheck Protection Program and the FRB’s Main Street Lending Program. As required under the amendment to the consent order, to the extent the Company chooses to exclude these exposures from the asset cap, certain fees and other economic benefits received by the Company from loans made in connection with these programs shall be transferred to the U.S. Treasury or to nonprofit organizations approved by the FRB that support small businesses. As of December 31, 2021, the Company had not excluded these exposures from the asset cap. 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 (CPI) 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. The Company continues to work to address the provisions of the consent orders. The Company has not yet satisfied certain aspects of the consent orders, and as a result, we believe regulators may impose additional penalties or take other

enforcement actions. On September 9, 2021, the OCC assessed a $250 million civil money penalty against the Company related to insufficient progress in addressing requirements under the OCC’s April 2018 consent order and loss mitigation activities in the Company’s Home Lending business.

Consent Order with the OCC Regarding Loss Mitigation Activities

On September 9, 2021, the Company entered into a consent order with the OCC requiring the Company to improve the execution, risk management, and oversight of loss mitigation activities in its Home Lending business. In addition, the consent order restricts the Company from acquiring certain third-party residential mortgage servicing and limits transfers of certain mortgage loans requiring customer remediation out of the Company’s mortgage servicing portfolio until remediation is provided.

Retail Sales Practices Matters and Other Customer Remediation Activities

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 priority to rebuild trust through a comprehensive action plan that includes making things right for our customers, employees, and other stakeholders, and building a better Company for the future. On September 8, 2021, the CFPB consent order regarding retail sales practices expired.

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 probable and 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 and as we continue to strengthen our risk and control infrastructure, we have identified and may in the future 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 additional information regarding retail sales practices matters and other customer remediation activities, including related legal and regulatory risk, see the “Risk Factors” section and Note 15 (Legal Actions) to Financial Statements in this Report.

Recent Developments

COVID-19 Pandemic

In response to the COVID-19 pandemic, we have been working diligently to protect employee safety while continuing to carry out Wells Fargo’s role as a provider of essential services to the public. We have taken comprehensive steps to help customers, employees and communities.

We have strong levels of capital and liquidity, and we remain focused on delivering for our customers and communities to get through these unprecedented times.

PAYCHECK PROTECTION PROGRAM The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created funding for the Small Business Administration’s (SBA) loan program providing forgiveness of up to the full principal amount of qualifying loans guaranteed under a program called the Paycheck Protection Program (PPP). We funded approximately $14.0 billion in loans under the PPP. At December 31, 2021, we had $2.4 billion of PPP loans outstanding. We voluntarily committed to donate all of the gross processing fees received from PPP loans funded in 2020. In 2021, we fulfilled this approximately $420 million commitment.

LIBOR Transition

The London Interbank Offered Rate (LIBOR) is a widely referenced benchmark rate that seeks to estimate the cost at which banks can borrow on an unsecured basis from other banks. On March 5, 2021, the United Kingdom’s Financial Conduct Authority and ICE Benchmark Administration, the administrator of LIBOR, announced that certain settings of LIBOR would no longer be published on a representative basis after December 31, 2021, and the most commonly used U.S. dollar (USD) LIBOR settings would no longer be published on a representative basis after June 30, 2023. Central banks in various jurisdictions convened committees to identify replacement rates to facilitate the transition away from LIBOR. The committee convened by the Federal Reserve in the United States, the Alternative Reference Rates Committee (ARRC), recommended the Secured Overnight Financing Rate (SOFR) as the replacement rate for USD LIBOR. Additionally, the Federal Reserve, the OCC and the Federal Deposit Insurance Corporation (FDIC) have issued guidance strongly encouraging banking organizations to cease using USD LIBOR as a reference rate in new contracts.

In preparation for the cessation of the various LIBOR settings, we have undertaken a variety of activities. Among other things, we proactively implemented internal “stop-sell” dates to discontinue offering products referencing LIBOR except pursuant to limited exceptions consistent with regulatory guidance. At the same time, we expanded our suite of product offerings that are indexed to alternative reference rates.

We also continue to transition our legacy LIBOR contracts to alternative reference rates. We transitioned substantially all of our legacy contracts with LIBOR settings impacted by the December 31, 2021, cessation date to alternative reference rates, and we will continue to address contracts with LIBOR settings that are impacted by the June 30, 2023, cessation date.

•For USD LIBOR contracts that mature before June 30, 2023, those contracts that are renewed or replaced will be indexed to alternative reference rates.

•At December 31, 2021, the notional amount of our derivatives indexed to USD LIBOR, including bilateral contracts that mature after June 30, 2023, and centrally-cleared contracts that mature either before or after June 30, 2023, was over $6 trillion. We expect substantially all of these contracts to transition to SOFR either prior to or immediately after June 30, 2023, in accordance with existing fallback provisions.

•At December 31, 2021, we had over $350 billion of USD LIBOR commercial credit facilities that mature after June 30, 2023. These contracts generally do not contain appropriate fallback provisions. We are proactively engaging with our clients and contract parties to amend these contracts to replace LIBOR with an alternative reference rate or to include appropriate fallback provisions, if necessary.

•At December 31, 2021, we had approximately $30 billion of USD LIBOR consumer loans and lines secured by residential real estate that mature after June 30, 2023. We expect

Overview (continued)

these contracts to transition to alternative reference rates in accordance with existing fallback provisions.

•At December 31, 2021, we had approximately $45 billion of debt securities indexed to USD LIBOR that mature after June 30, 2023. Substantially all of these debt securities contain fallback provisions and are expected to transition to an alternative reference rate immediately after June 30, 2023.

Additionally, we continue to monitor legislative developments that would provide a statutory framework to replace LIBOR with a benchmark rate based on SOFR in contracts that do not have fallback provisions or that have fallback provisions resulting in a replacement rate based on LIBOR.

For information regarding the risks and potential impact of LIBOR or any other referenced financial metric being significantly changed, replaced, or discontinued, see the “Risk Factors” section in this Report.

Capital Matters

Effective October 1, 2021, through September 30, 2022, the Company’s stress capital buffer used to determine our minimum risk-based capital requirements under the Standardized Approach became 3.10%. Beginning January 1, 2022, our global systemically important bank (G-SIB) capital surcharge decreased by 50 basis points from 2.00% to 1.50%.

Effective January 1, 2022, we are required to use the Standardized Approach for Counterparty Credit Risk (SA-CCR) for calculating exposure amounts for credit risk-weighted assets (RWAs) on derivative contracts. The adoption of SA-CCR resulted in an increase of less than 1.00% in total RWAs under the Standardized Approach (which was our binding approach at December 31, 2021) and a decrease of less than 0.50% in total leverage exposure at January 1, 2022.

On January 25, 2022, the Board approved an increase to the Company’s first quarter 2022 common stock dividend to $0.25 per share. For additional information about capital planning, see the “Capital Management – Capital Planning and Stress Testing” section in this Report.

Business Divestitures

On November 1, 2021, we closed our previously announced agreement to sell our Corporate Trust Services business and our previously announced agreement to sell Wells Fargo Asset Management (WFAM). We recorded net gains of $674 million and $269 million, respectively, from these sales, which are subject to certain post-closing adjustments and earn-out provisions.

Financial Performance

In 2021, we generated $21.5 billion of net income and diluted earnings per common share (EPS) of $4.95, compared with $3.4 billion of net income and EPS of $0.43 in 2020. Financial performance for 2021, compared with 2020, included the following:

•total revenue increased due to higher net gains from equity securities, mortgage banking income, and investment advisory and other asset-based fee income, partially offset by lower net interest income;

•provision for credit losses decreased reflecting continued improvements in the economic environment, which led to lower charge-offs and better portfolio credit quality;

•noninterest expense decreased due to lower operating losses, restructuring charges, and professional and outside

services expense, partially offset by higher incentive and revenue-related compensation in personnel expense;

•average loans decreased due to paydowns exceeding originations in our residential mortgage loan portfolio, weak demand for commercial loans, and the reclassification of student loans (included in other consumer loans) to loans held for sale (LHFS); and

•average deposits increased driven by growth in the Consumer Banking and Lending, Commercial Banking, and Wealth and Investment Management (WIM) operating segments due to higher levels of liquidity and savings for consumer and commercial customers reflecting government stimulus programs and continued economic uncertainty associated with the COVID-19 pandemic, as well as the impact of payment deferral programs on consumer customers, partially offset by actions taken to manage under the asset cap which reduced deposits in the Corporate and Investment Banking operating segment and Corporate.

In second quarter 2021, we retroactively changed the accounting for certain tax-advantaged investments. These changes had a nominal impact on net income and retained earnings on an annual basis and did not impact historical trends or business drivers. Prior period financial statement line items have been revised to conform with the current period presentation. Prior period risk-based capital and certain other regulatory related metrics were not revised. For additional information, including the financial statement line items impacted by these changes, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

Capital and Liquidity

We maintained a strong capital position in 2021, with total equity of $190.1 billion at December 31, 2021, compared with $185.7 billion at December 31, 2020. Our liquidity and regulatory capital ratios remained strong at December 31, 2021, including:

•our Common Equity Tier 1 (CET1) ratio was 11.35% under the Standardized Approach (our binding ratio), which continued to exceed both the regulatory requirement of 9.60% and our current internal target;

•our eligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 23.03%, compared with the regulatory requirement of 21.50%; and

•our liquidity coverage ratio (LCR) was 118%, which continued to exceed the regulatory minimum of 100%.

See the “Capital Management” and the “Risk Management – Asset/Liability Management – Liquidity Risk and Funding” sections in this Report for additional information regarding our capital and liquidity, including the calculation of our regulatory capital and liquidity amounts.

Credit Quality

Credit quality reflected the improving economic environment.

•The allowance for credit losses (ACL) for loans of $13.8 billion at December 31, 2021, decreased $5.9 billion from December 31, 2020.

•Our provision for credit losses for loans was $(4.2) billion in 2021, down from $14.0 billion in 2020. The decrease in the ACL for loans and the provision for credit losses in 2021, compared with 2020, reflected continued improvements in the economic environment, which led to lower charge-offs and better portfolio credit quality.

•The allowance coverage for total loans was 1.54% at December 31, 2021, compared with 2.22% at December 31, 2020.

•Commercial portfolio net loan charge-offs were $295 million, or 6 basis points of average commercial loans, in 2021, compared with net loan charge-offs of $1.6 billion, or 31 basis points, in 2020, due to lower losses and higher recoveries in our commercial and industrial portfolio primarily driven by the oil, gas and pipelines industry, and in the real estate mortgage portfolio.

•Consumer portfolio net loan charge-offs were $1.3 billion, or 33 basis points of average consumer loans, in 2021, compared with net loan charge-offs of $1.7 billion, or 39 basis points, in 2020, predominantly driven by lower losses in our credit card portfolio as a result of government stimulus programs instituted in response to the COVID-19 pandemic, improvements in the economic environment and

better portfolio credit quality, partially offset by $152 million of residential mortgage loan charge-offs as a result of a change in practice to fully charge-off certain delinquent legacy residential mortgage loans.

•Nonperforming assets (NPAs) of $7.3 billion at December 31, 2021, decreased $1.6 billion, or 18%, from December 31, 2020, predominantly driven by decreases in our commercial and industrial portfolio as a result of paydowns in the oil, gas, and pipelines industry, partially offset by increases in our residential mortgage – first lien portfolio from certain borrowers exiting COVID-19 related accommodation programs. NPAs represented 0.82% of total loans at December 31, 2021.

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

share data.

Table 1: Summary of Selected Financial Data

NM – Not meaningful

Overview (continued)

Table 2: Ratios and Per Common Share Data

(1)Represents Wells Fargo net income divided by average assets.

(2)Represents Wells Fargo net income applicable to common stock divided by average common stockholders’ equity.

(3)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 management, 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.

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

(5)See the “Capital Management” section and Note 28 (Regulatory Capital Requirements and Other Restrictions) to Financial Statements in this Report for additional information.

(6)The information presented reflects fully phased-in CET1, tier 1 capital, and RWAs, but reflects total capital in accordance with transition requirements. For additional information, see the “Capital Management” section and Note 28 (Regulatory Capital Requirements and Other Restrictions) to Financial Statements in this Report.

(7)Represents TLAC divided by the greater of RWAs determined under the Standardized and Advanced Approaches, which is our binding TLAC ratio.

(8)Represents high-quality liquid assets divided by projected net cash outflows, as each is defined under the LCR rule.

(9)Dividend payout ratio is dividends declared per common share as a percentage of diluted earnings per common share.

(10)Book value per common share is common stockholders’ equity divided by common shares outstanding.

Earnings Performance

Wells Fargo net income for 2021 was $21.5 billion ($4.95 diluted EPS), compared with $3.4 billion ($0.43 diluted EPS) for 2020. Net income increased in 2021, compared with 2020, due to a $18.3 billion decrease in provision for credit losses, a $8.4 billion increase in noninterest income, and a $3.8 billion decrease in noninterest expense, partially offset by a $6.7 billion increase in income tax expense, a $4.2 billion decrease in net interest income, and a $1.4 billion increase in net income from noncontrolling interests.

For a discussion of our 2020 financial results, compared with 2019, see the “Earnings Performance” section of our Annual Report on Form 10-K for the year ended December 31, 2020.

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 and net interest margin decreased in 2021, compared with 2020, due to the impact of lower interest rates, lower loan balances reflecting soft demand, elevated prepayments and refinancing activity, the sale of our student loan portfolio in the first half of 2021, unfavorable hedge ineffectiveness accounting results, and higher securities premium amortization, partially offset by lower costs and balances of interest-bearing deposits and long-term debt. Net interest income in 2021 included interest income from PPP loans of $518 million. Additionally, in 2021, we had interest income associated with loans we purchased from Government National Mortgage Association (GNMA) loan securitization pools of $1.1 billion. For additional information about loans purchased from GNMA loan securitization pools, see the “Risk Management – Credit Risk Management – Mortgage Banking Activities” section in this Report.

Table 3 presents the individual components of net interest income and the net interest margin. Net interest income and net interest margin are presented on a taxable-equivalent basis in Table 3 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, 2021, 2020 and 2019.

Earnings Performance (continued)

Table 3: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)

(1)The average balance amounts represent amortized costs. The interest rates are based on interest income or expense amounts for the period and are annualized. Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

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

(3)Includes taxable-equivalent adjustments of $427 million, $494 million and $624 million for the years ended December 31, 2021, 2020 and 2019, respectively, predominantly related to tax-exempt income on certain loans and securities.

Table 4 allocates the changes in net interest income on a taxable-equivalent basis to changes in either average balances or average rates for both interest-earning assets and interest-bearing liabilities. Because of the numerous simultaneous volume and rate changes during any period, it is not possible to precisely

allocate such changes between volume and rate. For this table, changes that are not solely due to either volume or rate are allocated to these categories on a pro-rata basis based on the absolute value of the change due to average volume and average rate.

Table 4: Analysis of Changes in Net Interest Income

Earnings Performance (continued)

Noninterest Income

Table 5: Noninterest Income

NM – Not meaningful

Full year 2021 vs. full year 2020

Deposit-related fees increased driven by:

•higher consumer transaction volumes as 2020 included reduced volumes due to the economic slowdown associated with the COVID-19 pandemic;

•lower fee waivers and reversals as 2020 included elevated fee waivers due to our actions to support customers during the COVID-19 pandemic; and

•higher treasury management fees on commercial accounts driven by an increase in transaction service volumes and repricing, as well as a lower earnings credit rate due to the lower interest rate environment.

In January 2022, we announced enhancements and changes to help our consumer customers avoid overdraft-related fees. We expect this will lower certain deposit-related fees starting in 2022.

Lending-related fees increased reflecting higher loan commitment fees.

Investment advisory and other asset-based fees increased reflecting:

• higher market valuations on WIM advisory assets;

partially offset by:

•lower asset-based fees due to the sale of WFAM on November 1, 2021.

For additional information on certain client investment assets, see the “Earnings Performance – Operating Segment Results – Wealth and Investment Management – WIM Advisory Assets” and “Earnings Performance – Operating Segment Results – Corporate – Wells Fargo Asset Management (WFAM) Assets Under Management” sections in this Report.

Commission and brokerage services fees decreased driven by lower transactional revenue.

Investment banking fees increased driven by higher debt underwriting fees, including loan syndication fees, as well as higher advisory fees and equity underwriting fees.

Card fees increased reflecting:

•higher interchange fees driven by increased purchase and transaction volumes;

partially offset by:

•higher rewards, including promotional offers on our new Active CashSM card.

Net servicing income increased reflecting:

•negative mortgage servicing right (MSR) valuation adjustments in 2020 for higher expected servicing costs and higher prepayment estimates due to improved economic conditions in 2021;

partially offset by:

•lower servicing fees due to a lower balance of loans serviced for others.

Net gains on mortgage loan originations/sales increased

driven by:

•higher gains in 2021 related to the resecuritization of loans we purchased from GNMA loan securitization pools in 2020;

•losses in 2020 driven by the impact of interest rate volatility on hedging activities associated with our residential mortgage loans held for sale portfolio and pipeline, as well as valuation losses on certain residential and commercial loans held for sale due to the impact of the COVID-19 pandemic on market conditions; and

•a shift in production to more retail loans, which have a higher production margin compared with correspondent loans.

For additional information on servicing income and net gains on mortgage loan originations/sales, see Note 9 (Mortgage Banking Activities) to Financial Statements in this Report.

Net gains from trading activities decreased reflecting:

•lower volumes of interest rate products;

•lower client trading activity for equity products due to market volatility in 2020; and

•lower client trading activity for credit products, reflecting greater market liquidity in 2020 from government actions taken in response to the COVID-19 pandemic;

partially offset by:

•higher client trading activity for asset-backed finance products.

Net gains on debt securities decreased due to:

• lower gains on sales of agency mortgage-backed securities (MBS) and municipal bonds;

partially offset by:

•higher gains on sales of corporate and other debt securities.

Net gains from equity securities increased driven by:

•higher unrealized gains on nonmarketable equity securities from our affiliated venture capital and private equity businesses;

•higher realized gains on the sales of equity securities; and

•lower impairment of equity securities due to improved market conditions in 2021.

Lease income decreased driven by a $268 million impairment of certain rail cars in our rail car leasing business used for the transportation of coal products.

Other income increased due to gains in 2021 of:

•$674 million on the sale of our Corporate Trust Services business;

•$355 million on the sale of our student loan portfolio; and

•$269 million on the sale of WFAM;

partially offset by:

•lower gains on the sales of certain residential mortgage loans which were reclassified to held for sale;

•higher valuation losses related to the retained litigation risk, including the timing and amount of final settlement, associated with shares of Visa Class B common stock that we previously sold. For additional information, see the “Risk Management – Asset/Liability Management – Market Risk – Equity Securities” section in this Report; and

•lower income from our investments accounted for under the equity method.

Earnings Performance (continued)

Noninterest Expense

Table 6: Noninterest Expense

NM – Not meaningful

(1)Represents expenses for assets we lease to customers.

Full Year 2021 vs. full year 2020

Personnel expense increased driven by:

•higher revenue-related compensation expense;

•higher incentive compensation expense;

•higher market valuations on stock-based compensation; and

•higher deferred compensation expense;

partially offset by:

•lower salaries as a result of reduced headcount.

In second quarter 2020, we entered into arrangements to transition our economic hedges of the deferred compensation plan liabilities from equity securities to derivative instruments. As a result of this transition, changes in fair value of derivatives used to economically hedge the deferred compensation plan are reported in personnel expense rather than in net gains (losses) from equity securities within noninterest income. For additional information on the derivatives used in the economic hedges, see Note 16 (Derivatives) to Financial Statements in this Report.

Technology, telecommunications and equipment expense increased due to higher expense for technology contracts and the reversal of a software licensing liability accrual in 2020.

Occupancy expense decreased driven by:

•lower cleaning fees, supplies, and equipment expenses as 2020 included higher expenses due to the COVID-19 pandemic; and

•lower rent expense.

Operating losses decreased driven by lower expense for customer remediation accruals and litigation accruals, partially offset by a $250 million civil money penalty associated with the September 2021 OCC enforcement action.

Professional and outside services expense decreased driven by efficiency initiatives to reduce our spending on consultants and contractors.

Leases expense decreased driven by lower depreciation expense from the reduction in the size of our operating lease asset portfolio.

Restructuring charges decreased due to lower personnel costs related to our efficiency initiatives that began in third quarter 2020. For additional information on restructuring charges, see Note 22 (Restructuring Charges) to Financial Statements in this Report.

Other expenses increased driven by a write-down of goodwill in 2021 related to the sale of our student loan portfolio.

Income Tax Expense

Income tax expense was $5.6 billion in 2021, compared with an income tax benefit of $1.2 billion in 2020, driven by higher pre-tax income. The effective income tax rate was 20.6% for 2021, compared with (52.1)% for 2020. The effective income tax rate for 2021 reflected the impact of higher pre-tax income while the effective income tax rate for 2020 reflected both the impact of income tax benefits (including tax credits) on lower pre-tax income and income tax benefits related to the resolution and reevaluation of prior period matters with U.S. federal and state tax authorities. The income tax expense (benefit) and our effective income tax rate for both years reflected the impact of changes in accounting policy for certain tax-advantaged investments adopted in second quarter 2021. For additional information on income taxes, see Note 23 (Income Taxes) to Financial Statements in this Report.

Operating Segment Results

Our management reporting is organized into four reportable operating segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management. All other business activities that are not included in the reportable operating segments have been included in Corporate. For additional information, see Table 7. We define our reportable operating segments by type of product and customer segment, and their results are based on our management reporting process. The management reporting process measures the performance of the reportable operating segments based on the Company’s management structure, and the results are regularly reviewed by our Chief Executive Officer and Operating Committee. The management reporting process is based on U.S. GAAP and includes specific adjustments, such as funds transfer pricing for asset/liability management, shared revenues and expenses, and taxable-equivalent adjustments to consistently reflect income

from taxable and tax-exempt sources, which allows management to assess performance consistently across the operating segments.

In February 2021, we announced an agreement to sell WFAM, and in first quarter 2021, we moved the business from the Wealth and Investment Management operating segment to Corporate. In March 2021, we announced an agreement to sell our Corporate Trust Services business and, in second quarter 2021, we moved the business from the Commercial Banking operating segment to Corporate. Prior period balances have been revised to conform with the current period presentation. These changes did not impact the previously reported consolidated financial results of the Company. On November 1, 2021, we closed the sales of our Corporate Trust Services business and WFAM.

In second quarter 2021, we elected to change our accounting method for low-income housing tax credit (LIHTC) investments and elected to change the presentation of investment tax credits related to solar energy investments. These accounting policy changes had a nominal impact on reportable operating segment results. Prior period financial statement line items for the Company, as well as for the reportable operating segments, have been revised to conform with the current period presentation. Our LIHTC investments are included in the Corporate and Investment Banking operating segment and our solar energy investments are included in the Commercial Banking operating segment. For additional information, see the “Overview – Recent Developments” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

Funds Transfer Pricing Corporate treasury manages a funds transfer pricing methodology that considers interest rate risk, liquidity risk, and other product characteristics. Operating segments pay a funding charge for their assets and receive a funding credit for their deposits, both of which are included in net interest income. The net impact of the funding charges or credits is recognized in corporate treasury.

Revenue and Expense Sharing When lines of business jointly serve customers, the line of business that is responsible for providing the product or service recognizes revenue or expense with a referral fee paid or an allocation of cost to the other line of business based on established internal revenue-sharing agreements.

When a line of business uses a service provided by another line of business or enterprise function (included in Corporate), expense is generally allocated based on the cost and use of the service provided.

Taxable-Equivalent Adjustments Taxable-equivalent adjustments related to tax-exempt income on certain loans and debt securities are included in net interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and renewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.

Allocated Capital Reportable operating segments are allocated capital under a risk-sensitive framework that is primarily based on aspects of our regulatory capital requirements, and the assumptions and methodologies used to allocate capital are periodically assessed and revised. Management believes that return on allocated capital is a useful financial measure because it enables management, investors, and others to assess a reportable operating segment’s use of capital.

Selected Metrics We present certain financial and nonfinancial metrics that management uses when evaluating reportable operating segment results. Management believes that these metrics are useful to investors and others to assess the performance, customer growth, and trends of reportable operating segments or lines of business.

Table 7: Management Reporting Structure

Earnings Performance (continued)

Table 8 and the following discussion present our results by reportable operating segment. For additional information, see Note 26 (Operating Segments) to Financial Statements in this Report.

Table 8: Operating Segment Results – Highlights

(1)All other business activities that are not included in the reportable operating segments have been included in Corporate. For additional information, see the “Corporate” section below.

(2)Taxable-equivalent adjustments related to tax-exempt income on certain loans and debt securities are included in net interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and renewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.

Consumer Banking and Lending offers diversified financial products and services for consumers and small businesses with annual sales generally up to $5 million. These financial products and services include checking and savings accounts, credit and

debit cards, as well as home, auto, personal, and small business lending. Table 8a and Table 8b provide additional information for Consumer Banking and Lending.

Table 8a: Consumer Banking and Lending – Income Statement and Selected Metrics

(continued on following page)

Earnings Performance (continued)

(continued from previous page)

NM – Not meaningful

(1)Return on allocated capital is segment net income (loss) applicable to common stock divided by segment average allocated capital. Segment net income (loss) applicable to common stock is segment net income (loss) less allocated preferred stock dividends.

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

(3)Digital and mobile active customers is the number of consumer and small business customers who have logged on via a digital or mobile device, respectively, in the prior 90 days. Digital active customers includes both online and mobile customers.

(4)Deposit spread is (i) the internal funds transfer pricing credit on segment deposits minus interest paid to customers for segment deposits, divided by (ii) average segment deposits.

(5)Debit card purchase volume and transactions reflect combined activity for both consumer and business debit card purchases.

(6)Excludes residential mortgage loans subserviced for others.

(7)Excludes residential mortgage loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) and loans held for sale.

(8)Excludes nonaccrual loans.

(9)Beginning in second quarter 2020, customer payment deferral activities instituted in response to the COVID-19 pandemic may have delayed the recognition of delinquencies for those customers who would have otherwise moved into past due or nonaccrual status.

(10)Excludes certain private label new account openings.

Full year 2021 vs. full year 2020

Revenue increased driven by:

•higher mortgage banking noninterest income due to higher gains in 2021 related to the resecuritization of loans we purchased from GNMA loan securitization pools in 2020, losses in 2020 driven by the impact of interest rate volatility on hedging activities and valuation losses due to the impact of the COVID-19 pandemic on market conditions, and a shift in production to more retail loans, which have a higher production margin compared with correspondent loans;

•higher card fees reflecting higher interchange fees driven by increased purchase and transaction volumes, partially offset by higher rewards, including promotional offers on our new Active CashSM card; and

•higher deposit-related fees driven by higher consumer transaction volumes as 2020 included reduced volumes due to the economic slowdown associated with the COVID-19 pandemic;

partially offset by:

•lower net interest income reflecting a lower deposit spread and lower loan balances, partially offset by higher deposit balances; and

•lower other income driven by lower gains on the sales of certain residential mortgage loans which were reclassified to held for sale.

Provision for credit losses decreased driven by an improved economic environment.

Noninterest expense decreased driven by:

•lower operating losses due to lower expense for customer remediation accruals and litigation accruals;

•lower personnel expense reflecting additional payments made in 2020 to certain customer-facing and support employees and for back-up child care services, as well as lower branch staffing expense in 2021 related to efficiency initiatives in Consumer and Small Business Banking, partially

offset by higher revenue-related compensation in Home Lending;

•lower advertising and promotion expense; and

•lower occupancy expense related to lower cleaning fees, supplies, and equipment expenses as 2020 included higher expenses due to the COVID-19 pandemic;

partially offset by:

•higher charitable donations expense driven by the donation of PPP processing fees; and

•higher Federal Deposit Insurance Corporation (FDIC) deposit assessment expense driven by both a higher assessment rate and a higher deposit assessment base.

Table 8b: Consumer Banking and Lending – Balance Sheet