WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE
SAN FRANCISCO — January 16, 2001
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Fourth Quarter Highlights:
- Record Diluted Cash Earnings Per Share of $.75, up 10 percent from prior year's $.68*
- Record Diluted Earnings Per Share of $.65, up 12 percent from prior year's $.58*
2000 Full Year Highlights:
- Record Diluted Cash Earnings Per Share of $2.91 (adjusted basis*), up 14 percent from prior year's $2.56*
- Record Earnings Per Share of $2.54 (adjusted basis*), up 14 percent from prior year's $2.23*
- Revenue of $19.1 billion (adjusted basis*), up 14 percent from prior year's $16.8 billion*
- Diluted Cash Earnings Per Share of $2.70 (including First Security)
- Earnings Per Share of $2.33 (including First Security)
*Represents Wells Fargo's originally reported results, as reported before the merger with First Security, for the prior year and for the nine months ended September 30, 2000, plus the current quarter results, which include First Security.
Note: On October 25, 2000, Wells Fargo completed its merger with First Security Corporation. The merger was accounted for under the pooling of interests method of accounting and, accordingly, except as otherwise noted, the information in this news release presents the financial results as if the merger with First Security had been in effect for all periods presented.
Wells Fargo & Company (NYSE:WFC) today reported record net income of $1,128 million for the fourth quarter of 2000, up 9 percent over fourth quarter of 1999, on revenue growth of 12 percent. Diluted cash earnings per common share were a record $.75 for the fourth quarter of 2000, up 10 percent from the $.68 per share originally reported in the fourth quarter of 1999. Cash earnings are earnings before the amortization of goodwill and nonqualifying core deposit intangible. Cash return on average assets (ROA) was 2.06 percent and cash return on average common equity (ROE) was 31.85 percent for the fourth quarter of 2000.
Wells Fargo completed its merger with First Security Corporation on October 25, 2000. The merger was accounted for under the pooling of interests method of accounting. This news release presents the financial results, except as otherwise noted, as if the merger with First Security had been in effect for all periods presented.
On an adjusted basis, without the impact of the restatement for First Security on Wells Fargo's prior quarters, full year diluted cash earnings per share for 2000 were $2.91, up 14 percent from $2.56 in 1999 and on track with the Company's targets established at the time of the Norwest/Wells Fargo merger. On this basis, full year diluted earnings per share were $2.54, up 14 percent from $2.23 in 1999, with revenue also growing by 14 percent.
Diluted earnings per common share were a record $.65 for the fourth quarter of 2000, up 10 percent from the $.59 reported for the fourth quarter of 1999, and a record $2.33 for the full year of 2000, up 2 percent from $2.29 for the same period of 1999. ROA was 1.73 percent for the fourth quarter of 2000 and 1.61 percent for the full year of 2000, compared with 1.78 percent for the fourth quarter and full year of 1999. ROE was 17.16 percent for the fourth quarter of 2000 and 16.31 percent for the full year of 2000, compared with 17.66 percent and 17.55 percent for the same periods a year ago.
"Thanks to the outstanding efforts of our 117,000 talented team members, the second full year of the Norwest/Wells Fargo merger has been a tremendous success and we’ve achieved our second consecutive year of record net income since the November 1998 merger," said President and CEO Dick Kovacevich. "We also achieved our ambitious diluted cash EPS goal of $2.91 on an adjusted basis, excluding First Security results for the first nine months of 2000 and including First Security results for the fourth quarter of 2000. Importantly, on this basis, revenues grew by 14 percent. It is a great tribute to our team members, and a first for the banking industry, that Wells Fargo team members were able to grow revenue at well over double digit rates in the midst of the largest and most complex systems conversion in our industry’s history.
"We begin 2001 after successfully completing our systems conversion, six months ahead of schedule, involving almost 15 million accounts and more than 2,700 banking stores in 22 states," added Kovacevich. "We also completed and converted 12 smaller acquisitions in 2000. This quarter’s results include the 1.3 million banking households and 333 banking stores of the former First Security Corporation. Last month, we completed the first of three phases of converting its systems to Wells Fargo and are scheduled to complete the last two phases by the middle of this year. As shown by the 2000 U.S. census, our banking franchise now spans the nation’s most populous region and we have a leading market share in 12 of the nation’s 20 fastest growing states: Nevada, Arizona, Colorado, Utah, Idaho, Texas, Washington, Oregon, New Mexico, Alaska, California and Montana."
"This year was a momentous one for Wells Fargo’s Internet Services," said Clyde Ostler, group executive vice president of the Internet Services Group, "because we increased our investment in our Internet businesses by approximately $250 million and continued to build our offerings for consumers, investors, small businesses and mid-sized to large corporations. On the consumer side, we reached 2.5 million online banking customers by the end of December and over the last three months we launched our new Wells Wireless pilot, which allows increased customer personalization, a new and used car purchasing section and online auto lending. We generated over $600 million in home equity loans over the Internet in 2000 and expect our Internet home equity business to be profitable, on a fully loaded basis, in 2001."
"Our online brokerage group spent the last year developing a service for the one-stop shopper, and we began cross-selling this service in the fourth quarter of 2000 with the launch of our new brokerage site," added Ostler. "As a result, online brokerage has seen accelerated growth. We now have approximately 150,000 online trading customers, up from just 50,000 in the beginning of the year. We have begun rolling out online access to our 800,000 full service brokerage customers – this will continue over the next six months. Also, we were recently ranked in the Top 10 of Gomez Advisors’ Online Brokerage scorecard in the category of one-stop shopping."
"We completed several partnership deals this quarter and reached 88,000 small business online customers following the launch of our online portal, the Resource Center for Small Business Owners, in the second quarter," continued Ostler. "In October, Wells Fargo and B3 announced an end-to-end solution that will allow small businesses to build an online store, sell online and take online payments through the Resource Center. In December, we announced, with InsureZone, that we would offer small business insurance through the Resource Center. We also processed more than $2 billion in Internet credit card payments last year for 10,500 Internet merchants. Sales volume of our person-to-person payment option through Billpoint increased 72 percent in the fourth quarter."
"Our Wholesale Group added more functions, including e-procurement, funds transfer and institutional brokerage services, to the Commercial Electronic Office portal for mid-sized and large corporate customers," said Ostler. "Since its launch in July, the Commercial Electronic Office had 2,248 corporations using it by the end of December. We also established FinancialSettlementMatrix.com with Citigroup and I2, a financial services portal aimed at delivering payment and financing services to B2B marketplaces."
Net Interest Income
Net interest income on a taxable-equivalent basis was $2,803 million in the fourth quarter of 2000, up 7 percent, compared with $2,623 million in the fourth quarter of 1999. Net interest income was $10,930 million in the full year of 2000, up 7 percent, compared with $10,185 million in the same period a year ago. The net interest margin was 5.30 percent for the fourth quarter of 2000 and 5.35 percent for the full year of 2000, compared with 5.46 percent and 5.47 percent for the same periods of 1999.
"The growth in net interest income continues to be driven by strong growth in loans," said Chief Financial Officer Ross Kari. "We saw particularly strong growth in home equity loans and commercial and real estate construction loans. The four basis point margin decline during the quarter was driven by loan growth exceeding growth in noninterest bearing core deposits and the impact of our recently completed acquisitions."
Noninterest income was $2,611 million in the fourth quarter of 2000, up 18 percent, and $8,843 million in the full year of 2000, up 11 percent, compared with $2,207 million and $7,975 million in the same periods of 1999. The increase in noninterest income for the fourth quarter of 2000 compared with the prior year was primarily due to higher net gains on sales of securities in the securities available for sale portfolio and higher net gains on sales of mortgages, predominantly offset by lower net venture capital gains. The increase in noninterest income for the full year 2000 compared with the prior year was largely due to higher net venture capital gains, increased trust and investment fees and service charges on deposit accounts, primarily offset by net losses on sales of securities in the securities available for sale portfolio related to the restructuring of that portfolio in the first nine months of 2000 and net losses on sales of loans and securitizations associated with First Security.
Noninterest expense was $3,218 million in the fourth quarter of 2000 and $11,830 million in the full year of 2000, compared with $2,879 million and $10,637 million in the same periods a year ago. "Fourth quarter 2000 expenses included $180 million in transition costs related to First Security and $114 million in transition and conversion costs for other acquisitions, including the Norwest/Wells Fargo merger," said Kari. "Transition and conversion costs for the full year 2000 totaled $643 million."
Noninterest expense in the fourth quarter of 2000 also included the reversal of $58 million of the remaining severance reserve associated with the Norwest/Wells Fargo merger. "Through our very successful Retain Initiative, informal networking, and the robust job market, we did a much better job than originally planned in retaining team members whose jobs were eliminated due to the merger," said Chief Operating Officer Les Biller. "New jobs are being created every day somewhere in Wells Fargo. We can take advantage of this natural growth and natural turnover to retain good people and their experience, loyalty, and skill."
The cash efficiency ratio was 56.1 percent for the fourth quarters of 2000 and 1999. For the full year of 2000, the cash efficiency ratio was 56.5 percent, compared with 55.2 percent for the same period a year ago. The deterioration in the efficiency ratio was due to over a billion dollars of increased Internet expenditures and the transition and conversion costs of the Norwest/Wells Fargo merger and other acquisitions.
The effective tax rate was 38.5 percent for 2000, compared with 37.8 percent for 1999. The increase in the effective tax rate was primarily due to the third quarter 2000 accrual of deferred taxes of $36 million on undistributed earnings of a foreign subsidiary that the Company now intends to repatriate.
The provision for loan losses was $352 million for the fourth quarter of 2000 and $294 million for fourth quarter of 1999. Net charge-offs totaled $352 million, or .90 percent of average loans (annualized), in the fourth quarter of 2000, $330 million, or .88 percent of average loans (annualized), for the third quarter of 2000 and $293 million, or .90 percent of average loans (annualized), for the fourth quarter of 1999. For the year ended December 31, 2000, the provision for loan losses was $1,329 million and net charge-offs totaled $1,219 million, or .84 percent of average loans, compared with a provision for loan losses of $1,104 million and net charge-offs of $1,115 million, or .90 percent of average loans, for the same period of 1999.
At December 31, 2000, the allowance for loan losses of $3,719 million was 2.31 percent of total loans, compared with 2.51 percent at December 31, 1999. Total nonaccrual and restructured loans were $1,195 million at December 31, 2000, $965 million at September 30, 2000 , and $728 million at December 31, 1999.
"We continue to see upward pressure on non-performing assets, which increased 20 percent over September levels," said Chief Credit Officer Ely Licht. "A little more than half of this increase, $122 million, was due to a single commercial finance customer in our banking territory. The Company’s exposure in this syndicated credit is unusually large for Wells Fargo and reflects the combination of lending relationships, and over 15 non-credit products and services generating over a million dollars in revenues, which existed with this customer at both the former Wells Fargo and the former Norwest. This borrower has been a customer of both the former Wells Fargo and the former Norwest since the 1970’s. The current credit exposure is about 30 percent less than what the combined exposure was at the time of the Norwest/Wells Fargo merger. The next largest non-performing asset in our credit portfolio is $29 million. Acquisitions accounted for $33 million of the increase in non-performing assets during the quarter. The remaining increase of $68 million, or 6 percent, from third quarter levels, was spread throughout the loan portfolio."
Nonaccrual and Restructured Loans and Other Assets
|September 30, 2000||$1,127|
|Fourth Quarter Changes:|
|Syndicated commercial loan (one borrower)||122|
|December 31, 2000||$1,350|
Licht added, "Net charge-offs were .84 percent of average loans outstanding for the year, compared with .90 percent for 1999. The impact of recent acquisitions, and internally generated loan growth, have raised losses in the portfolio to a higher level than prior quarters. Excluding First Security, net charge-offs increased $59 million from the third quarter of 2000. Seventeen million dollars of the increase came from wholesale lending and included several credits. The largest single wholesale charge-off this quarter was less than $10 million. Nineteen million dollars of the increase in charge-offs came from our consumer finance company, mostly from higher losses in recently acquired businesses and lower recoveries from Island Finance. The remaining $23 million increase was spread across the Company’s retail lending portfolios, where the rate of loss is still well below prior years."
According to Licht, "As the economy continues to slow, the Company expects increases in credit losses and non-performing loans in 2001 consistent with economic conditions."
Wells Fargo has four lines of business for management reporting: Community Banking, Wholesale Banking, Wells Fargo Home Mortgage, and Wells Fargo Financial. Net income of the four business segments was:
|Community Banking||$ 826||$ 776||$ 2,911||$ 2,978|
|Wells Fargo Home Mortgage||109||66||310||266|
|Wells Fargo Financial||66||60||258||243|
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 $826 million in the fourth quarter of 2000, compared with $776 million in the fourth quarter 1999. For the full year of 2000, earnings were 2 percent lower than the same period for 1999 due predominantly to $220 million of net losses sustained by First Security during the first nine months of 2000 and the related fourth quarter transition costs.
"During the quarter we completed system conversions which enables our banking stores to share the same systems, the same products, policies and procedures," said Biller. "Our goal was to make this a non-event for our customers and, thanks to the outstanding efforts of our team members, we were very successful. Now we're ready more than ever to focus on satisfying all our customers' needs and helping them succeed financially. For example, our systems integration now allows us to sell the full array of relationship-based products. In particular, our Wells Portfolio Management Account (PMA®) has proven to be highly popular with customers and encourages them to consolidate their financial relationships with Wells Fargo. The average number of products held by our PMA customers is 8.64 and the average balance per household, including brokerage relationships, is $170,000. We expect significantly higher balances from our PMA product in 2001 and the years ahead. The California market is a huge new opportunity for this product and, since its introduction in the fourth quarter, this product has generated in excess of $1 billion in customer relationships."
Biller added, "We accomplished the conversion milestone while maintaining sales and revenue momentum, which is almost unheard of in any industry. For example, our home equity product sales have grown strongly throughout the year as we focus on selling to both new and current customers. On average, we’re selling a home equity product to 30 percent of our new Wells Fargo mortgage customers, up from 20 percent in 1999. At year-end, 11 percent of all our bank customers who own a home have a Wells Fargo home equity product, compared to 8 percent a year ago. Home equity loan balances increased over 40 percent in 2000."
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 banking, corporate banking and real estate services.
Wholesale Banking reported earnings of $200 million in the fourth quarter of 2000, compared with $216 million in the fourth quarter 1999. For the full year of 2000, earnings were 6 percent higher than the same period for 1999.
"Our business focus on relationship banking and outstanding customer service is being well received by our customers," said Dave Hoyt, group executive vice president of Wholesale Banking. "As we have seen throughout 2000, Wholesale Banking continues to acquire new customers. Our loan growth is up 17 percent for the year overall. We’re also pleased with our progress in cross-selling products and services to our entire customer base."
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 $109 million in the fourth quarter of 2000, 65 percent above fourth quarter 1999 earnings of $66 million. For the full year of 2000, earnings were 17 percent higher than the same period for 1999.
|(dollars in billions)||12/31/00||9/30/00||6/30/00||3/31/00||12/31/99|
|Quarter||$ 19||$ 18||$ 18||$ 12||$ 13|
|Year to date||67||48||30||12||82|
|Amortization of capitalized|
servicing rights (in millions):
|Year to date||537||375||239||123||683|
|Weighted average coupon||7.52||7.48||7.42||7.37||7.33|
|Capitalized servicing rights as a percentage of owned servicing portfolio||1.52||1.61||1.63||1.63||1.60|
"The $310 million earned in 2000 is a record and our twelfth consecutive year of earnings growth," said Mark Oman, chairman and CEO of Wells Fargo Home Mortgage. "This achievement in a year when many of our competitors either downsized or exited the business due to earnings pressure is a tribute to the hard work of our Home Mortgage team members."
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 $66 million in the fourth quarter of 2000, 10 percent above fourth quarter 1999 earnings of $60 million.
"We continued in 2000 to meet and exceed earnings goals and expect that momentum to continue in 2001," said Dan Porter, chairman and CEO of Wells Fargo Financial. "Net earnings for the year were $258 million, up 6 percent over 1999. We had excellent receivables growth in 2000, up 20 percent or $2 billion. More than half of that growth was through acquisitions while store sales production accounted for nearly $900 million in new receivables, including $490 million from our U.S. consumer stores."
A recorded message reviewing Wells Fargo’s fourth quarter 2000 results is available through January 19, 2001. Dial 800-633-8284 (domestic) or 858-812-6440 (international). Access code 17309157#. 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 $272 billion in assets, providing banking, insurance, investments, mortgage and consumer finance from about 6,000 stores and the Internet (wellsfargo.com) across North America and elsewhere internationally.
The following appears in accordance with the Private Securities Litigation Reform Act of 1995:
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 including statements profitability of our internet home equity business and estimates of credit quality trends. 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."
Forward-looking statements, by their nature, are subject to risks and uncertainties. A number of factors—many of which are beyond the Company’s control—could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Some of these factors are described in this news release. The Company’s most recent annual and quarterly reports filed with the Securities and Exchange Commission, including the Company’s Form 10-Q for the quarter ended September 30, 2000 and Form 10-K for the year ended December 31, 1999, as supplemented by the Company's current report on d Form 8-K filed November 30, 2000 (exhibits 99(a) and 99(b)), describe some other factors, including certain credit, market, operational, liquidity and interest rate risks associated with the Company’s business and operations. Other factors described in these reports include changes in business and economic conditions, competition, fiscal and monetary policies, disintermediation, legislation including the Gramm-Leach-Bliley Act of 1999, the combination of the former Norwest Corporation and the former Wells Fargo & Company, and other mergers and acquisitions.
Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.