Executive Compensation Program Overview
Exhibit 1.2: Notes on Non-GAAP Financial Measures
We evaluate our business based on certain ratios that utilize tangible common equity. 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 investments in consolidated portfolio companies, net of applicable deferred taxes. One of these ratios is
return on average tangible common equity (ROTCE), which represents our annualized earnings as a percentage of tangible common equity. The
methodology of determining tangible common equity may differ among companies. Management believes that ROTCE is a useful financial measure
because it enables management, investors, and others to assess the Company's use of equity.
For purposes of measuring performance, as provided in our Long-Term Incentive Plan (LTIP) or the applicable form of award agreement, ROTCE may
be further adjusted by the Human Resources Committee, in its discretion, for the effect of (i) losses resulting from discontinued operations, (ii) the
cumulative effect of significant changes in generally accepted accounting principles, and (iii) any other unusual or infrequently occurring gain or loss
which is separately identified and quantified. Under the terms of Mr. Scharf's offer letter, ROTCE for purposes of his Performance Shares is adjusted to
exclude the impact of any penalties or other charges related to litigation, investigations or examinations arising out of retail sales practices of the
Company or other material regulatory matters related to the conduct of the Company during periods prior to his employment.
In addition, the HRC believed it was useful to consider certain notable items that occurred during 2022 and 2021 in order to better assess the
Company's underlying financial performance for 2022, including as compared with 2021. Adjusted Revenue, Adjusted Noninterest Expense, Adjusted
Pre-Tax Provision Profit, Adjusted Net Income, Adjusted Diluted EPS, Adjusted ROE, Adjusted ROTCE, and Adjusted Efficiency Ratio are non-GAAP
financial measures and represent our reported financial results adjusted for these notable items. We believe that these adjusted financial measures are
useful because they enabled the HRC as well as management, investors, and others to better assess the Company's underlying financial performance
for 2022, particularly for the purposes of analyzing 2022 compensation decisions.
2022 Notable Items
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Operating losses: litigation, regulatory, and customer remediation matters related to a variety of historical matters of $2.0 billion (pre-tax) and
$3.3 billion (pre-tax) in the third and fourth quarters of 2022, respectively
•
Change in allowance for credit losses: decrease of $75 million, excluding the impact of net charge-offs
2021 Notable Items
•
Change in allowance for credit losses: decrease of $5.7 billion, excluding the impact of net charge-offs
Divestitures: revenue (including gain on sales) of $3.0 billion and expenses of $1.3 billion associated with the sales of Wells Fargo Asset
Management, our Corporate Trust Services business, and our student loan portfolio
The tables on slide 13 provide a reconciliation of these non-GAAP financial measures to GAAP financial measures.
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