WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE
SAN FRANCISCO — October 17, 2000
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Third Quarter 2000 Highlights:
- Record Diluted Cash Earnings Per Share of $.74, up 14 percent from prior year
- Record Diluted Earnings Per Share of $.64, up 12 percent from prior year
- Record Net Income of $1.07 billion, up 11 percent from prior year
- Revenue growth of 14 percent from third quarter of 1999
- Cash Efficiency Ratio of 52.9 percent
|% Change from 1999||Year to Date|
|% Change from 1999|
|Diluted Cash Earnings per Common Share*||$ .74||14 %||$ 2.16||14 %|
|Diluted Earnings per Common Share||.64||12||1.89||15|
|Net Income (in millions)||1,070||11||3,119||12|
|Cash Return on Assets*||2.17 %||(3)||2.22 %||--|
|Return on Assets||1.81||(4)||1.86||1|
|Cash Return on Common Equity*||35.77||4||35.67||5|
|Return on Common Equity||18.37||2||18.54||5|
|Cash Efficiency Ratio*||52.9||(2)||53.4||(1)|
|Net Interest Margin||5.46||(5)||5.52||(3)|
*Cash earnings exclude goodwill and nonqualifying core deposit intangible amortization and balances.
Wells Fargo & Company (NYSE:WFC) today reported record net income of $1,070 million for the third quarter of 2000, compared with $962 million for the third quarter of 1999. Net income for the first nine months of 2000 was a record $3,119 million, compared with $2,777 million in the same period a year ago. Diluted cash earnings per common share were a record $.74 for the third quarter of 2000, up 14 percent from the $.65 per share reported in the third quarter of 1999, and a record $2.16 for the first nine months of 2000, up 14 percent from the $1.89 per share for the same period of 1999. Cash earnings are earnings before the amortization of goodwill and nonqualifying core deposit intangible. Cash return on average assets (ROA) was 2.17 percent for the third quarter of 2000 and 2.22 percent for the first nine months of 2000, compared with 2.24 percent and 2.22 percent for the same periods a year ago. Cash return on average common equity (ROE) was 35.77 percent for the third quarter of 2000 and 35.67 percent for the first nine months of 2000, compared with 34.33 percent and 34.04 percent for the same periods of 1999.
Diluted earnings per common share were a record $.64 for the third quarter of 2000, up 12 percent from the $.57 reported for the third quarter of 1999, and a record $1.89 for the first nine months of 2000, up 15 percent from $1.65 for the same period of 1999. ROA was 1.81 percent for the third quarter of 2000 and 1.86 percent for the first nine months of 2000, compared with 1.88 percent for the third quarter of 1999 and 1.85 percent for the first nine months of 1999. ROE was 18.37 percent for the third quarter of 2000, and 18.54 percent for the first nine months of 2000, compared with 17.97 percent and 17.60 percent for the same periods a year ago.
"Through the efforts of our 104,000 outstanding team members in all of our businesses, we've now achieved seven consecutive quarters of record net income and EPS since the Wells Fargo/Norwest merger in November 1998," said President and CEO Dick Kovacevich. "We remain confident that, on an originally reported basis (excluding the effect of pooling accounting treatment for the merger with First Security Corporation on historical results), we will meet our cash EPS target of $2.91 for this year, despite incurring over $600 million in expenses in 2000 above what we had anticipated at the time of the Wells Fargo/Norwest merger. These incremental expenses include higher Internet investment and conversion costs from additional acquisitions. The First Security merger was recently approved by the Federal Reserve and we expect to close it by the end of October."
Kovacevich added, "As our team members focus on earning all of our customers' business and giving them outstanding service, we continue to generate double digit revenue growth, up 14 percent over the third quarter of last year. Revenue year-to-date is up over 11 percent, with particularly strong trends in California. We also continue to pursue further opportunities for expense reduction as evidenced by an improved efficiency ratio. As we enter the final phase of our three-year Wells Fargo/Norwest merger integration, we now present ourselves to our customers as one Wells Fargo brand across our entire franchise. We've converted almost 80 percent of our systems with virtually flawless execution. Our California systems conversion has started successfully with no significant customer issues. We've added another 163,000 banking households through the acquisition of National Bancorp of Alaska, the largest bank in Alaska. We expect to add another 1.5 million banking households with the merger later this month with First Security Corporation, which will make us the largest banking operation in the four fast-growing states of Utah, Idaho, New Mexico and Nevada. In addition, our mortgage company has added more than 1 million new servicing customers through acquiring portfolios and sub-servicing rights, surpassing $400 billion in managed servicing to recapture the #1 position among all mortgage servicers. The marketplace continues to recognize our performance. Global Finance magazine this quarter named Wells Fargo the best and safest bank in the United States, which is especially satisfying since we're really a diversified financial services company, much more than a bank."
"Diluted cash earnings per share grew 14 percent over the same period a year ago," said Chief Financial Officer Ross Kari. "As in prior quarters, significant venture capital gains have allowed us to accelerate our investment in Internet banking and other growing businesses, restructure our bond portfolio and accelerate our integration process."
"Wells Fargo's Internet banking services continued to grow," said Clyde Ostler, group executive vice president of the Internet Services Group. "We reached 2.3 million online customers by the end of the quarter, adding new online banking customers at a rate of about 100,000 a month--more than two a minute--of which 20 percent were new to the bank. In addition we expanded our online offerings to small and middle market businesses, investors and consumers. In July we launched the Commercial Electronic Office, a comprehensive financial services portal that provides banking and non-banking services to mid-sized companies and large corporations. We aim to be the nation's number one trusted solutions provider and Internet financial portal of choice for all of our customers' financial needs, with more customers and more services than any competitor."
"Our Resource Center for Small Business Owners added more than 30,000 small business online customers in the quarter," continued Ostler. "In August, we launched a new person-to-person payment option through Billpoint, called Electronic Check, providing customers the ability to pay for Internet transactions directly from their checking accounts. Overall, Billpoint seller registrations more than doubled during thequarter. Our number of Internet merchants grew 17 percent in the quarter. Also in August, we announced an agreement with VerticalOne that will bring aggregation services to Wells Fargo's online banking customers."
Ostler added, "Together with Citigroup, Enron Broadband Services, i2 Technologies, Inc. and S1 Corporation we announced the formation of the FinancialSettlementMatrix.com, to streamline buying, selling and facilitating payment in B2B e-commerce. We have also enhanced our online brokerage service, lowered fees and introduced the Wells Fargo OTC Growth Fund, which provides investors a way to participate in new economy stocks. Our Internet site, wellsfargo.com, continues to be recognized as the industry leader for growth and innovation. During the quarter, Wells Fargo's online offering was selected as a winner by Forbes in the category of 'banks saving customers time' and Wells Fargo was recognized by Global Finance as one of the world's best Internet banks in both the retail and corporate banking categories."
Net Interest Income
Net interest income on a taxable-equivalent basis was $2,596 million in the third quarter of 2000, up 8 percent, compared with $2,399 million for the third quarter of 1999. Net interest income was $7,536 million in the first nine months of 2000, up 8 percent, compared with $7,007 million for the same period a year ago. The net interest margin was 5.46 percent for the third quarter of 2000 and 5.52 percent for the first nine months of 2000, compared with 5.74 percent and 5.68 percent for the same periods of 1999.
"The growth in net interest income continues to be driven by strong growth in loans," said Kari. "Most of this growth is internally generated, but is also due to the recent completion of the National Bancorp of Alaska and First Commerce acquisitions. The margin decline has been driven by loan growth exceeding growth in core deposits."
Noninterest income was $2,189 million in the third quarter of 2000, up 21 percent, and $6,192 million in the first nine months of 2000, up 16 percent, compared with $1,809 million and $5,350 million in the same periods of 1999. The increase in the third quarter of 2000 was largely due to increases in net venture capital gains of $373 million and trust and investment fee revenue of $58 million, partially offset by an increase in net losses of $177 million on securities in the available for sale portfolio.
Noninterest expense was $2,694 million in the third quarter of 2000 and $7,798 million in the first nine months of 2000, compared with $2,418 million and $7,124 million in the same periods a year ago. The cash efficiency ratio was 52.9 percent for the third quarter of 2000, compared with 54.1 percent for the same quarter of 1999. For the first nine months of 2000, the cash efficiency ratio was 53.4 percent, compared with 54.2 percent for the same period a year ago. The efficiency ratio was 56.5 percent for the third quarter of 2000 and 57.0 percent for the first nine months of 2000, compared with 57.7 percent and 57.9 percent for the same periods of 1999.
The effective tax rate was 40 percent for the third quarter of 2000, compared with 37 percent for the third quarter of 1999. The increase in the quarterly effective tax rate was primarily due to the accrual of deferred taxes of $36 million on undistributed earnings of a foreign subsidiary that the Company intends to repatriate.
The provision for loan losses was $288 million for the third quarter of 2000 and $240 million for third quarter of 1999. Net charge-offs totaled $267 million, or .78 percent of average loans (annualized), in the third quarter of 2000, compared with $241 million, or .85 percent of average loans (annualized), for the third quarter of 1999. For the nine months ended September 30, 2000, the loan loss provision was $803 million and net charge-offs totaled $767 million, or .80 percent of average loans (annualized), compared with a loan loss provision of $770 million and net charge-offs of $775 million, or .94 percent of average loans (annualized), for the same period of 1999.
At September 30, 2000, the allowance for loan losses of $3,417 million was 2.42 percent of total loans, compared with 2.65 percent at December 31, 1999 and 2.76 percent at September 30, 1999. Total nonaccrual and restructured loans were $902 million at September 30, 2000, compared with $669 million at December 31, 1999 and $698 million at September 30, 1999.
"Non-performing assets continue to remain at near-historic low levels--.75 percent of loans at September 30, 2000, up slightly from .72 percent in the second quarter," said Chief Credit Officer Ely Licht. "About $26 million of the $85 million increase in non-performing assets during the third quarter relate to acquisitions which closed during the quarter. Our allowance for loan losses of $3.4 billion was 2.42 percent of loans outstanding at September 30, 2000, one of the strongest ratios in the industry."
Wells Fargo has four lines of business for management reporting: Community Banking, Wholesale Banking, Wells Fargo Home Mortgage, and Wells Fargo Financial. Net income of the four business segments was:
|Wells Fargo Home Mortgage||72||68||201||200|
|Wells Fargo Financial||67||65||192||184|
More financial information on the business segments is on page 23.
Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including investment, insurance and trust services primarily in 23 midwestern and western states.
Community Banking reported earnings of $787 million in the third quarter of 2000, 15 percent above third quarter 1999 earnings of $684 million. For the first nine months of 2000, earnings were 15 percent higher than the same period in 1999.
"Community Banking has had strong revenue growth, which reflects the continued improvement in our sales and service processes," said Chief Operating Officer Les Biller. "An important part of our sales process is learning more about our customers so we can meet and satisfy all their financial needs. For example, recently in Texas, a Wells Fargo banker assessed a client's financial needs and made recommendations that led to the client and family members purchasing 55 products and depositing more than $3 million in Wells Fargo banking and brokerage accounts. Our cross-sell efforts resulted in a 65 percent increase in the sale of home equity products to our banking customers and a 72 percent improvement in California, from the third quarter of 1999. In California, which recently surpassed Italy as the 6th largest economy in the world, we continue to see strong sales performance with total product sales increasing 20 during the same period."
Biller added, "We continue to make progress toward our vision of being viewed as the premier financial services provider in each of our markets. Publications in Los Angeles, San Diego, Minneapolis and Des Moines recently ranked us #1 in their markets."
Wholesale Banking serves businesses with annual sales in excess of $10 million and maintains relationships with major corporations throughout the United States. Wholesale Banking provides a complete line of commercial and corporate banking and real estate services.
Wholesale Banking reported earnings of $239 million in the third quarter of 2000, 10 percent above third quarter 1999 earnings of $217 million. For the first nine months of 2000, earnings were 11 percent higher than the same period for 1999.
"Wholesale Banking continued to show steady growth through the third quarter," said Dave Hoyt, group executive vice president of Wholesale Banking. "Net income was up 10 percent over third quarter 1999, driven by strong growth in the middle market and large corporate customer base and in foreign exchange and asset-based lending. New customer growth remains strong at a 27 percent annual growth rate. By early November we will have completed all Wholesale Banking system conversions in the Wells Fargo/Norwest merger. This enables us to serve customers across all states using one common platform."
Wells Fargo Home Mortgage (formerly Norwest Mortgage)is the largest retail originator and a leading servicer of home mortgage loans in the United States.
Wells Fargo Home Mortgage reported earnings of $72 million in the third quarter of 2000, 6 percent above third quarter 1999 earnings of $68 million. For the first nine months of 2000, earnings were $201 million, compared with $200 million in the same period of 1999.
|(dollars in billions)||9/30/00||6/30/00||3/31/00||12/31/99||9/30/99|
|Quarter||$ 18||$ 18||$ 12||$ 13||$ 19|
|Year to date||48||30||12||82||69|
|Amortization of capitalized servicing rights (in millions):|
|Year to date||375||239||123||683||599|
|Weighted average coupon||7.48%||7.42%||7.37%||7.33%||7.30%|
|Capitalized servicing rights as a percentage of owned servicing portfolio||1.61||1.63||1.63||1.60||1.58|
*Includes $79 billion of sub-servicing rights.
"We saw momentum build during the third quarter as mortgage rates declined. As a result, our applications measured in dollars for the quarter increased 15 percent compared to the same period a year ago, which should translate into fundings during the fourth quarter," said Mark Oman, chairman and CEO of Wells Fargo Home Mortgage. "During the quarter, a number of our competitors either exited or down-sized their mortgage business. This has given us the opportunity to strengthen our franchise by adding experienced sales representatives and opportunistically growing our servicing portfolio."
Wells Fargo Financial (formerly Norwest Financial) offers consumer and commercial finance, leasing and technology services in 47 states, Canada, the Caribbean and Latin America.
Wells Fargo Financial reported earnings of $67 million in the third quarter of 2000, compared with $65 million in the third quarter 1999. For the first nine months of 2000, earnings were 4 percent higher than the same period for 1999.
"We are continuing to build on the momentum we established earlier in the year," said Dan Porter, chairman and CEO of Wells Fargo Financial. "We have had good growth, both internally and by acquisition."
Merger of Wells Fargo & Company and First Security Corporation
On October 10, 2000, Wells Fargo received approval from the Federal Reserve Board for the merger of Wells Fargo and First Security Corporation, which is expected to close by the end of October. The merger will be accounted for as a pooling of interests. Because the merger will occur after September 30, 2000, this news release does not include the results of First Security Corporation for the periods presented.
A recorded message reviewing Wells Fargo's third quarter 2000 results is available through October 20, 2000. Dial 800-633-8284 (domestic) or 858-812-6440 (international). Access code 16511173#. The call is also available on the Internet at www.wellsfargo.com/ir or www.vcall.com.
Wells Fargo & Company is a diversified financial services company with $241 billion in assets, providing banking, insurance, investments, mortgage and consumer finance from about 5,400 stores and the Internet (wellsfargo.com) across North America and elsewhere internationally.
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This news release (including information incorporated by reference in this news release) may contain forward-looking statements about the Company, including descriptions of plans or objectives of its management for future operations, products or services, and forecasts of its revenues, earnings or other measures of economic performance Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may."
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