Wells Fargo

CEO Charlie Scharf opened the Q4 2023 review against the backdrop of a multi-year transformation that had produced the third consecutive year of operating expense reduction in absolute dollar terms and had moved the Common Equity Tier 1 ratio above eleven percent on a standardized basis. Management told the call that the Company had repurchased approximately $17 billion of common stock during 2023, had increased the common dividend by approximately sixteen percent and that the Federal Reserve had not objected to the 2023 capital plan authorising an incremental buyback program. CFO Mike Santomassimo walked analysts through the net interest income trajectory, indicating that the rate-driven tailwind was moderating as the asset sensitivity normalised and that the outlook for 2024 saw modest sequential declines in net interest income, partially offset by the operating leverage from the expense reduction and by the contribution from the credit card and the investment banking franchises. He flagged that the asset quality metrics remained within the historical range and that the credit loss provisions taken during the year were consistent with the long-run normalisation trajectory rather than with a cycle deterioration. On the Q&A, analysts pressed on whether the asset cap would be lifted in 2024. Scharf responded that the regulatory work was ongoing, that the Company had made material progress on the consent order remediation and that the asset cap was ultimately at the discretion of the Federal Reserve. He also pushed back on the suggestion that the franchise's growth potential was structurally limited by the asset cap, arguing that the operating leverage achieved under the constraint had actually positioned the Company for faster growth once the cap was lifted and that the credit card, investment banking and wealth management franchises had been the principal beneficiaries of the repositioning. The call closed with management reiterating the long-term framework of positive operating leverage, mid-teens return on tangible common equity and a return of essentially all of the operating earnings power to shareholders, and committing to continue the share repurchase pace through the cycle as the regulatory environment normalised.

!" Since #$%&, the Yale Corporation Investment Committee has been respon- sible for oversight of the Endowment, incorporating senior-level invest- ment experience into portfolio policy formulation. The Investment Committee consists of at least three Fellows of the Corporation and other persons who have particular investment expertise. The Committee meets quarterly, at which time members review asset allocation policies, Endowment performance and strategies proposed by Investments Office staff. The Committee approves guidelines for investment of the Endowment portfolio, specifying investment objectives, spending policy and approaches for the investment of each asset category. Investment Committee Michael J. Cavanagh ’((, Chair Senior Executive Vice President and !"# Comcast Corporation O. Francis Biondi, Jr. ’(% Founder and Former Managing Partner King Street Capital Management Matt Cohler ’"# Former General Partner Benchmark Capital Anne Glover ’%( MPPM !$# and Co-Founder Amadeus Capital Partners Charles W. Goodyear )* ’(" President Goodyear Investment Company Ben Inker ’$+ Partner %&# Peter Salovey ’(, PhD President Yale University John Shrewsberry ’$+ MPPM Former !"# Wells Fargo & Company Carter Simonds ’$$ Former Managing Director Blue Ridge Capital Josh L. Steiner ’(% Senior Advisor Bloomberg '.(. Michael Warren ’$" Global Managing Director Albright Stonebridge Group -./.01-1/2 ./3 4*156)072

The Wisdom of Investment – The Folly of Speculation Keynote Address by John C. Bogle, Founder and Former Chairman The Vanguard Group at The Sixth Superbowl of Indexing Phoenix, AZ December 5, 2001 Way back in 1968, the Stanley Kubrick-Arthur Clarke film 2001: A Space Odyssey—at once a story of human civilization, the space age, and the power of computer technology—put a durable imprint on this first year of the third millennium. But 2001 also marks a double anniversary year for indexing. Thirty years ago, in 1971 at Wells Fargo Bank, James Vertin, William Fouse, and John McQuown pioneered the effort by establishing the first indexed pension account for the Samsonite Corporation. And twenty-five years ago, in August 1976, the first index mutual fund, established by Vanguard eight months earlier, completed its initial public offering. In both cases, the starts were precarious. At Wells Fargo, the tiny $6 million index account was invested in an equal-weighted index of New York Stock Exchange equities. Its implementation proved to be a nightmare, and in 1976 it was replaced with the market-capitalization-weighted Standard & Poor’s 500 Common Stock Price Index. At Vanguard, we had earlier selected that same index as the standard for our newly-formed 500 Index Fund—known at the outset as First Index Investment Trust—and its offering raised but just $11 million.

and contentious start arose one of the most important and powerful investment ideas of the age, an age whose anniversary we celebrate at this Sixth Annual Superbowl of Indexing. Two Schools of Indexing—Quantitative and Pragmatic I think it’s fair to say that there were two principal schools of index development. I’ll call one the Quantitative School—the masters of mathematics led by Harry Markowitz, William F. Sharpe, and the Wells Fargo Financial Analysis Department, who reached their conclusions after doing complex equations and conducting exhaustive research on the financial markets. Princeton’s Burton Malkiel also deserves a share of the credit. In 1973, in the first edition of his persuasive and ever-popular A Random Walk Down Wall Street, he endorsed the efficient market hypothesis and called for a no-load, low-fee mutual fund that simply buys the market and does no trading. In essence, the Modern Portfolio Theory developed by the Quantitative School proved that a fully-diversified, unmanaged equity portfolio was the surest route to investment success. While the Quantitative School developed its profound theories, what I’ll call the Pragmatic School simply looked at the evidence. Dr. Paul A.

CEO Tim Sloan opened the Q4 2018 review against the backdrop of the February 2018 Federal Reserve enforcement action that had capped the Company's total assets at approximately $1.95 trillion until governance and risk management controls were certified as effective. Management told the call that the operating earnings power of the franchise had continued to grow despite the asset cap, that the Federal Reserve had conditionally approved the 2018 capital plan and that the Company had repurchased approximately $4.1 billion of common stock during the fourth quarter under the 2018 CCAR cycle. CFO John Shrewsberry walked analysts through the operating leverage achieved under the asset cap, indicating that net interest income had grown despite the constraint by repositioning the asset side of the balance sheet toward higher-yielding loans and away from lower-yielding securities. He flagged that the expense trajectory had been elevated by the regulatory remediation costs but that the underlying operating expense run-rate would compress once the remediation programs wound down. On the Q&A, analysts pressed on whether the Federal Reserve asset cap would be lifted in 2019. Sloan responded that the Company was executing against the consent order requirements, that an independent third-party review was under way and that the timeline for lifting the cap was ultimately at the discretion of the Federal Reserve. He also defended the operating framework, arguing that the asset cap had actually driven better capital allocation discipline by forcing the Company to grow only the highest-returning asset categories and to contract the lower-returning ones. The call closed with management framing 2019 as a transition year of expense discipline, regulatory remediation and selective asset growth, and reiterating the long-term objective of mid-teens return on tangible common equity and a return of essentially all of the operating earnings power to shareholders through the cycle.

Acceptance Remarks John C. Bogle 2017 CME Group Melamed-Arditti Innovation Award Naples, Florida November 14, 2017 I’m delighted to share this remarkable Innovation Award with my fellow Scotsman, the quantitative investment pioneer John “Mac” McQuown. I’m especially honored because the CME Group Melamed-Arditti Innovation Award is based, not only on the invention of a financial innovation that has “created significant change to markets, commerce, or trade,” but also on “the practical application of the idea . . . in improving the economic well-being of individuals, an industry, or a nation”—in the public interest. That’s always been the goal of my long career. Surely First Index Investment Trust (the original name of today’s Vanguard 500 Index Fund) was designed to do exactly that. I’m still sort of amazed that it fell to me to create this pioneering index mutual fund way back in 1975. How did it happen? But first, how did it not happen? First Index was not a product of complex algorithms, nor of Modern Portfolio Theory (MPT), nor of the Efficient Markets Hypothesis (EMH). For me, the uneven efficiency of the market makes the EMH an unreliable basis for indexing. Truth told, when I decided to start our index fund, I possessed neither the training nor the talent for applied statistics, and, embarrassingly, I had never even heard of the EMH. Nor was the first index mutual fund a product of the quantitative work done at the University of Chicago and at Wells Fargo.

9. August 31, 1976. The IPO. First Index was off to a bad—near-fatal—start. The initial public offering, led by Wall Street’s four largest retail brokers, was planned for $250 million. It produced $11.3 million, an abject failure. One of the Wall Street managers of that IPO recently asked: “How is it possible that the worst underwriting in Wall Street history became the greatest innovation in modern finance?” Answer: “It’s a long story.” Afterword The poster announcing this CME award for innovation shows photos of me and Mac McQuown—my friend and enormously deserving co-recipient of this award—with the title of this conference: “Taking the Long View and Never Looking Back.” But looking back, as I have done this afternoon, reminds us how fragile the path to an innovation can be, and yet somehow, against all odds, can result in an index fund, and ultimately an Index Revolution. Surely such a tortuous path to success— one that included a university thesis, a catastrophic merger, a firing, a journal article, a novel corporate structure, a fortuitous (perhaps even disingenuous) reading of an agreement, and yes, an unshakable determination—is an extreme example of what it took to turn a great idea into a reality that changed an industry and served investors. That 1976 First Index mutual fund, with its pathetic $11 million in assets, struggled to gain traction. It didn’t attract its first mutual fund competitor until 1984 (Wells Fargo).

Newly appointed CEO Tim Sloan opened the Q3 2016 review in the aftermath of the September 8 announcement of the $185 million settlement with the Consumer Financial Protection Bureau, the Los Angeles City Attorney and the Office of the Comptroller of the Currency over the cross-sell practices that had driven the creation of more than two million unauthorised customer accounts. Sloan had taken the chief executive role effective October 12, succeeding John Stumpf who had retired in the wake of the settlement; the earnings call on October 14 was his first public appearance as CEO. Management told the call that the Company had ended the product-sales goals that had driven the underlying behaviour, that an independent review was under way to identify affected customers and provide restitution and that the cross-sell model would be restructured around customer relationship metrics rather than around product-count targets. CFO John Shrewsberry walked analysts through the financial impact, indicating that the direct settlement and restitution costs were immaterial relative to the Company's earnings power, but that the indirect effects, including reputational damage, additional regulatory scrutiny and the suspension of the Branch Sales Incentive program, would weigh on the revenue trajectory through 2017. He flagged that the Common Equity Tier 1 ratio remained above the regulatory minima, that the asset quality remained pristine and that the Company's underlying operating earnings power was sufficient to absorb the reputational and regulatory costs. On the Q&A, analysts pressed on whether the cross-sell model that had defined the franchise for two decades could survive the regulatory reset. Sloan responded that the underlying customer relationships remained intact, that the cross-sell ratio would compress in the near term as the new metrics took hold and that the Company intended to rebuild the model around genuine customer outcomes rather than around product counts. He also apologised for the failures and committed to a board-led independent review, while defending the underlying unit economics of the cross-sell franchise. The call closed with management declining to provide formal quarterly guidance for the next several quarters given the unresolved regulatory uncertainty, and noting that the Board had announced the clawback of performance compensation from the senior leadership of the community banking division responsible for the cross-sell failures.

But I do think that the constant search for wisdom and the constant search for the right temperamental reaction to opportunity, I think that’ll never be obsolete. And you can apply that to your personal life too. Of course, most of you are not going to get five opportunities to marry some wonderful person. Most of you aren’t going to get one. You’re just going to have to make to with an ordinary result. The nature of ordinary results is that they’re ordinary. Questioner: You mentioned earlier about Wells Fargo. Other banks were failing, even Washington Mutual. Why was Wells Fargo [a good investment] at that time when other banks were failing? Charlie Munger: That’s a good question. I’ll take you back one time before. When Berkshire bought into Wells Fargo, the world was coming unglued in a banking panic. Again, real estate funding had been a sore subject. And Wells Fargo had been huge in the real estate market. This is back when Berkshire first bought into Wells Fargo. The answer was that we knew that the lending officers at Wells Fargo were not normal bank lending officers. They had come up a lot of them from the Garment District, they had a cynical view of human life, they were appropriately careful, and when they needed to intervene strongly they did so, because they’d learned that was the right way to run a garment . . . business. And they were just better.

-8- Number two, the Daily Journal Corporation: When the world was coming unglued, when Daily Journal bought its Wells Fargo stock, again we knew that the bankers at Wells Fargo were more rational than ordinary bankers. It was a different kind of superiority and rationality. It wasn’t this big real estate portfolio …but it was still a shrewder way of being in banking. I don’t think anybody should buy a bank who doesn’t have a feeling about how really shrewd the management is. Banking is a field where it’s real easy to delude yourself and report big numbers and it’s a very dangerous place for an investor. So without deep insight into banking, you shouldn’t [invest] Questioner: Two powerful mental models are the concept of specialization and the interdisciplinary approach. Do you have any advice on synthesizing the two models? Charlie Munger: Saying you’re in favor of synthesis is like saying you’re in favor of reality. Synthesis is reality, because we live in a world of multiple models, and of course we’ve got to have synthesis to understand the situation. And so of course you want to be good at synthesis, and it’s easy to say you want to be good at synthesis, but it’s not what the reward system of the world pays for. They want extreme specialization. And by the way, for most people, extreme specialization is a disease. Most people are way better off being a podiatrist than trying to understand a little bit of all the disciplines. You know.

He has to eat the same food, watch the same television, leave the money to something . . . Is he the main problem we have? He’s not really using the wealth very much. And most of these guys are not that interested in politics. People who like to talk about the [wealthy’s] terrible influence on politics. If you’re rich you realize how little influence the rich really have. You see a lot of people lay out a lot of money, who are rich, and get practically nowhere. So I think these people who are raging about inequality, like Warren and Sanders, are wrong; but I think the people who say the undeserved wealth deserves some attention, I think they’re right. And I think a huge source of the undeserved wealth is coming from finance. Questioner: You mentioned Wells Fargo and its culture, [as] the reason why you [got involved] back in the 80s. [You also own] Bank of America, and its culture is a little different. And I’m curious [about] the decision of buying Bank of America. Charlie Munger: The Bank of America was bought the way we used to buy securities . . . It was selling for less than a quarter, way less [than it was worth]. Questioner: I’m pretty excited about the prospects on self-driving cars in the next ten to twenty years. It seems like the technology is moving very quickly. But as a Berkshire shareholder I’m worried about the implications for the entire auto insurance industry if accidents, hopefully, become a thing of the past.

Kovacevich opened the Q4 2008 review against the backdrop of the early October announcement of the all-stock acquisition of Wachovia Corporation, completed at year-end at a deep discount to Wachovia's stand-alone book value. Management told the call that the merger would create the first coast-to-coast retail banking franchise in the United States, that the integration would be executed off the proven Norwest-Wells Fargo playbook and that the credit marks taken at acquisition accounted for the worst-case stress on the Wachovia loan portfolio, including the option-ARM portfolio inherited from Golden West Financial. CFO Howard Atkins walked analysts through the capital framework, indicating that the Company had issued $25 billion of preferred stock to the U.S. Treasury's Capital Purchase Program to bridge the closing of the Wachovia acquisition and that the operating earnings power of the combined franchise would generate enough internally generated capital to repay the Treasury investment within a few years. He flagged that the integration expenses would weigh on the near-term reported earnings but that the merger synergies were expected to exceed $5 billion annually once the integration was completed. On the Q&A, analysts pressed on whether the option-ARM portfolio represented a hidden credit risk that would force the Company to build reserves further. Kovacevich responded that the marks taken at acquisition had been sized for a severe housing price decline and that the early delinquency migration in the option-ARM portfolio was tracking inside the stress assumptions. He also pushed back on the suggestion that the Treasury investment implied a capital weakness, arguing that the Company had entered the Wachovia transaction from a position of strength and that the Treasury investment had been taken under regulatory pressure rather than out of necessity. The call closed with management framing the next phase as the largest integration in the history of U.S. banking and reaffirming the long-term objective of cross-sell-driven revenue growth, mid-teens return on equity and a sustained pace of share repurchases once the Treasury investment was repaid and the integration was complete.

63 billion at yearend 2008, including an aggregate of $650 million, at cost, invested in the common stocks of Wells Fargo & Company and US Bancorp. The timing of our recent investments could not have been much worse. During 2008, several crises affecting the financial system and capital markets of the U.S. resulted in very large price declines in the general stock market, and in the banking sector, in particular, due significantly to the ongoing liquidity crisis as well as the deterioration of asset quality and earnings reported by the banking industry. Wesco carries its investments at fair value, with unrealized appreciation or depreci- ation, after income tax effect, included as a component of shareholders’ equity, and related deferred taxes included in income taxes payable, on its consolidated balance sheet. As indicated in the accompanying consolidated financial statements, Wesco’s net worth, as accountants compute it under their conventions, decreased to $2.38 billion ($334 per Wesco share) at yearend 2008 from $2.53 billion ($356 per Wesco share) one year earlier. The principal cause of the decrease was the after-tax decline in fair value of Wesco’s investments in marketable equity securities. As a result of further declines in fair values of these investments subsequent to yearend 2008, Wesco’s shareholders’ equity has further declined, by $303 million ($43 per share), through February 24, 2009.

Chairman and CEO Dick Kovacevich opened the Q4 1999 review against the backdrop of the recently completed merger of equals between the old Wells Fargo and Norwest Corporation. Management told the call that the integration had been completed well ahead of schedule, that the cross-sell model inherited from Norwest was producing measurable revenue synergies across the combined retail banking footprint and that the Company was now positioned to drive a national consumer banking franchise out of the Minneapolis legacy platform. CFO Rod Jacobsen walked analysts through the operating leverage achieved during the year, indicating that the operating expense synergies were running ahead of the originally announced merger targets and that the revenue synergies, while harder to attribute precisely, were evidenced in the cross-sell ratios across the Western and Midwestern retail banking footprint. He flagged that the credit quality remained pristine, with net charge-offs running well below the peer group average, and that the Company intended to continue the share repurchase pace given the operating earnings power being generated. On the Q&A, analysts pressed on whether the cross-sell model, often described as the most aggressive in U.S. consumer banking, could be sustained without forcing mistakes at the branch level. Kovacevich responded that the cross-sell discipline was the central strategic advantage of the franchise, that the Company had built the incentive systems and the back-office capacity to support the model at scale and that the unit economics of the existing customer base argued for continuing to push the cross-sell ratios higher. He also defended the integration of the Norwest and Wells Fargo retail platforms, citing the early adoption of internet banking as a structural driver of the cross-sell evolution. The call closed with management reiterating the long-term framework of mid-teens earnings growth, return on equity above the peer group average and a continued pace of share repurchases given the operating earnings power and the unit economics of the cross-sell model.

Buffett wrote that during a banking recession, the reported earnings of banks are not to be trusted at face value, because loan-loss provisions lag the deterioration of the underlying credits. He argued that a bank's economic earnings in a downturn are far below its reported earnings, and that the reverse is true in recovery. The lesson generalizes: accounting reflects what has already happened, while economic value depends on what the business will distribute in the future.

On bank accounting during the 1990 recession, with Wells Fargo in view.