WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE
SAN FRANCISCO — April 17, 2001
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First Quarter Highlights:
- Record Diluted Cash Earnings Per Share of $.80, up 16% from prior year’s $.69
- Record Diluted Earnings Per Share of $.67, up 10% from prior year’s $.61
- Record Net Income of $1.2 billion, up 12% from prior year
- Revenue of $5.2 billion, up 12% from prior year’s $4.7 billion
- Cash Efficiency Ratio of 53.2%, improved from 55.1% in prior year
|2001||% Change from 2000|
|Diluted Cash Earnings per Common Share||$ .80||16 %|
|Diluted Earnings per Common Share||.67||10|
|Net Income (in billions)||1.2||12|
|Cash Return on Assets||2.18||5|
|Return on Assets||1.76||1|
|Cash Return on Common Equity||34.50||8|
|Return on Common Equity||17.95||3|
|Cash Efficiency Ratio||53.2||(3)|
|Net Interest Margin||5.21||(3)|
Wells Fargo & Company (NYSE:WFC) today reported record net income of $1,165 million for the first quarter of 2001, up 12% from the first quarter of 2000, on revenue growth of 12%. Diluted cash earnings per common share were a record $.80 for the first quarter of 2001, up 16% from $.69 per share in the first quarter of 2000. Cash earnings are earnings before goodwill and nonqualifying core deposit intangible amortization and the reduction of unamortized goodwill due to sales of assets. Cash return on average assets (ROA) was 2.18% and cash return on average common equity (ROE) was 34.50% for the first quarter of 2001, compared with 2.07% and 31.98%, respectively, for the prior year.
Diluted earnings per common share were a record $.67 for the first quarter of 2001, up 10% from the $.61 reported for the first quarter of 2000. ROA was 1.76% for the first quarter of 2001, compared with 1.75% for the first quarter of 2000. ROE was 17.95% for the first quarter of 2001, compared with 17.45% for the same period a year ago.
The difference between cash and reported earnings per share this quarter was greater than in prior quarters due to the impact of goodwill and core deposit intangibles from acquisitions completed recently. Goodwill and core deposit intangible amortization and the reduction of unamortized goodwill due to sales of assets related to acquisitions completed since the Wells Fargo/Norwest merger in November 1998, while not affecting cash earnings, reduced first quarter 2001 reported earnings by about $.05 per share and, together with the effect of pending acquisitions, are expected to reduce reported earnings for the full year by about $.13 per share under current accounting rules. The total difference between cash and reported earnings is expected to be $.43 per share in 2001 assuming no change in accounting rules.
"Thanks to the efforts of our 120,000 talented team members, we’ve now achieved nine consecutive quarters of record net income and EPS since the Wells Fargo/Norwest merger, as originally reported before the merger with First Security1," said President and CEO Dick Kovacevich. "Revenue was up a strong 12 percent from last year as we continue to earn more of our customers’ business. During the quarter, we strengthened our ability to earn more of our customers’ investment, insurance and trust business with agreements to acquire ACO Brokerage Holdings Corporation, one of the nation’s largest independent property-and-casualty insurance agencies, and H.D. Vest Inc., the nation’s largest provider of financial services delivered through 6,000 independent tax professionals. With the acquisition of ACO Brokerage, we will become the fifth largest insurance agency in the country, the largest owned by a banking organization. These acquisitions demonstrate our progress in evolving from banking to a diversified financial services company and they will bring us closer to our goal of having our insurance, trust and brokerage businesses contribute 25 percent of our income."
"While the full effect of the California energy crisis and the national economic downturn has not yet been realized, we believe the California economy is strong, diversified, on track for continued growth, and continues to benefit from low unemployment."
"The Internet Services Group made impressive strides this quarter," said Clyde Ostler, group EVP of the Internet Services Group. "The pace of customer sign ups is increasing and we ended the quarter with about three million active online customers. During the quarter, we launched WellsWireless and Wells OneLookSM, a free account aggregation service that provides customers with easy, single sign on access to their balances at multiple financial institutions through wellsfargo.com. Nearly 50,000 customers signed up for Wells OneLook in its first six weeks."
"We now have 120,000 online small business customers since we first launched the service in May of 2000, and we are up 36 percent from the end of 2000. In e-payments, we have seen a 94 percent increase in dollar volume of sales and a 300 percent increase in revenues this quarter over last quarter. For the middle market and corporate segment, we already have over 4,000 companies, with 12,000 unique users, using the Commercial Electronic OfficeSM launched last July. In online brokerage, we introduced Sharebuilder™ and Sharebuilder IRA™ and rolled out online viewing and access to nearly one million full service brokerage, trust and investment management clients. Gomez Advisors recently ranked Wells Fargo Online Brokerage 15th overall -- up from 43rd a year ago -- and number 6 in the One Stop Shoppers’ category."
"Revenue of $5.2 billion for the quarter grew 12 percent from the first quarter of 2000," said Chief Financial Officer Ross Kari. "The after-tax contribution to net income from the sale of 39 stores (required as a condition to the First Security merger) was approximately $40 million, more than offset by approximately $50 million (after-tax) of conversion costs for First Security, National Bancorp of Alaska and Brenton Banks. We anticipate approximately $87 million (after-tax) of additional integration costs, or $.05 per share, to complete these conversions, primarily during the second quarter. Given current stock market conditions, market-sensitive income such as venture capital gains will likely fall below our normalized level of $140 million (pre-tax), or $87 million (after-tax), per quarter and therefore will not offset these conversion costs, as was the case in 1999 and 2000. All of these acquisitions are going well and are at or better than plan."
Net Interest Income
Net interest income on a taxable-equivalent basis was $2,834 million in the first quarter of 2001, up 7%, compared with $2,649 million in the first quarter of 2000. The net interest margin was 5.21% for the first quarter of 2001, compared with 5.39% for the same period of 2000. Following the Federal Reserve interest rate reductions, loan rates have fallen faster than customer deposit rates. "This was also the reason why the margin declined from 5.30% in the fourth quarter of 2000 to 5.21% in the first quarter of 2001," said Kari. "We actually saw a slight increase in the margin on a month-to-month basis in the first quarter as our deposits were repriced at lower rates."
Average loans grew from $155.9 billion in the fourth quarter of 2000 to $159.9 billion in the first quarter, an annualized growth rate of approximately 10%. "After adjusting for the impact of acquisitions and loan divestitures and sales, we experienced an 11 percent annualized loan growth rate," said Kari. "As expected, the month-to-month trends during the quarter indicated a slowing of loan growth consistent with economic conditions."
"We also experienced strong deposit growth in the first quarter. Average core deposits, which exclude wholesale CDs and deposits in foreign offices, grew from $151.8 billion in the fourth quarter of 2000 to $156.9 billion in the first quarter of 2001, an annualized growth rate of 13 percent. After adjusting for acquisitions and off-balance sheet sweep products, core deposits grew at an 11 percent annualized rate during the first quarter 2001."
Noninterest income was $2,414 million in the first quarter of 2001, up 18%, compared with $2,043 million in the same period of 2000. The increase in noninterest income was due to higher net gains on sales of securities in the securities available for sale portfolio in 2001, a $160 million write-down of auto lease residuals in the first quarter of 2000 and a $96 million gain on divestitures (required as a condition to the First Security merger) of 39 stores in Idaho, New Mexico, Nevada and Utah in 2001. This gain includes a $54 million reduction of unamortized goodwill. The increase in noninterest income was primarily offset by a decrease in net venture capital gains.
Noninterest expense was $2,996 million in the first quarter of 2001, compared with $2,736 million in the same period a year ago, an increase of 10%. Salaries, incentive compensation and employee benefit expenses grew by almost 12% during this period due primarily to headcount growth of 13%. The 13,107 new team members came from companies acquired by Wells Fargo and from the expansion of existing businesses with unusually good growth opportunities such as Mortgage, the Internet, Investment Management, Commercial and Wholesale Banking, and Brokerage. "We continue to invest in the future to better serve our customers and provide 100 percent of their financial product and service needs," said Kari. The cash efficiency ratio was 53.2% for the first quarter of 2001, compared with 55.1% for the first quarter of 2000.
Noninterest expenses declined $222 million, or almost 7%, from the fourth quarter 2000. Most of the decrease was attributable to reduction in the integration charges for the Wells Fargo/Norwest and First Security mergers.
The provision for loan losses was $361 million for the first quarter of 2001 and $276 million for first quarter of 2000. Net charge-offs totaled $361 million, or .92% of average loans (annualized), in the first quarter of 2001, $352 million, or .90%, for the fourth quarter of 2000 and $275 million, or .82 %, for the first quarter of 2000.
"As we expected, we saw upward pressure on non-performing assets in the first quarter," said Chief Credit Officer Ely Licht. "Given the current economy, we expect non-performing assets and net charge-offs to continue to trend upward. However, we believe our prudent lending policies and well-diversified portfolio mitigates some of the risk of a weaker economy."
At March 31, 2001, the allowance for loan losses of $3,759 million was 2.32% of total loans, compared with 2.45% at March 31, 2000. Total nonaccrual and restructured loans were $1,364 million at March 31, 2001, $1,195 million at December 31, 2000, and $816 million at March 31, 2000. The increase in nonaccrual loans from December 31, 2000 included the impact of Wells Fargo’s exposure to a California utility that recently declared bankruptcy, plus $28 million due to nonaccrual loans from acquisitions closed during the quarter.
"We have long-standing relationships, involving credit and non-credit products, with both major California utilities but we are not their lead lenders and our credit exposure to their utility subsidiaries is relatively modest for a company our size," said Licht. "Higher rates for electricity usage should help provide cash flow to meet the utilities’ obligations and encourage conservation. We have little direct exposure to the collapse of dot-com stocks, including loans secured by such stocks and extensions of credit directly to such companies."
"The increase of $9 million in net charge-offs from the fourth quarter was primarily attributable to higher losses in businesses acquired by Wells Fargo Financial during the quarter. The wholesale lending portfolios, in the aggregate, experienced very little change in the rate of net charge-offs, while losses in Community Banking’s retail lending portfolios actually declined modestly."
Wells Fargo has three lines of business for management reporting: Community Banking, Wholesale Banking and Wells Fargo Financial. Net income of the three business segments was:
|Community Banking||$ 913||$ 827|
|Wells Fargo Financial||70||56|
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, and first and second mortgage products and services in all 50 states.
Community Banking reported earnings of $913 million in the first quarter of 2001, compared with $827 million in the first quarter 2000.
"For segment reporting, we are now including mortgage in our Community Banking results because of the continued integration of the mortgage company into Community Banking," said Chief Operating Officer Les Biller. "Over 70 percent of our mortgage locations and over 3,000 mortgage representatives are now located in our Community Banking states. Many of these locations and representatives now reside within the Community Banking stores. Home equity loans and other banking products are being sold by our mortgage sales team and our bankers are referring more of our banking customers to Wells Fargo Home Mortgage. Since the reorganization in late 1999 of Wells Fargo Home Mortgage as a subsidiary of Wells Fargo Bank, N.A., we have also taken advantage of the lower funding costs of the bank to fund our mortgage warehouse."
"Wells Fargo Home Mortgage had an outstanding quarter," said Mark Oman, group EVP of Mortgage and Home Equity. "We are seeing record customer response to historically low mortgage rates in both home purchases and refinancing. Mortgage contributed earnings of $106 million for the quarter, up 58 percent from the first quarter of last year. Mortgage applications were a record $55 billion in the first quarter. We set a new monthly record in March with originations exceeding $12 billion. Originations for the quarter, which lag applications, were $29 billion, an increase of 107 percent over first quarter last year, and our servicing portfolio is now $456 billion, up over 52 percent from last year. Our home equity business also continued to grow strongly with total home equity loan balances increasing over 30 percent from first quarter 2000. Based on January, 2001 originations, we are now the #1 home equity originator in 8 states, including our largest states of California, Minnesota, Colorado, Texas and Nevada."
"With what we believe was the largest and most complex banking system conversion complete, our team members are better able to focus on meeting all of the financial needs of our customers," said Biller. "We will complete the conversion of the First Security customers this month. Our team members are focusing more than ever on providing quality customer service. If you have read our annual report, you know our product is service. We cannot provide average service and expect to achieve superior financial performance."
"We believe more sales do not always lead to better service, but better service almost always leads to more sales. For example, Margaret Binyon, lead teller at our Bullhead City, Arizona store, turned a customer call for notary services into a sales opportunity that led to the transfer of $250,000 of estate funds to Wells Fargo. By recognizing each customer interaction as a service and sales opportunity, our customers and Wells Fargo benefit."
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 $253 million in the first quarter of 2001 and $252 million in the first quarter of 2000.
"During the quarter, loan balances continued to grow, but at a slower rate than in prior quarters, as one would expect with a slowing economy," said Dave Hoyt, group EVP of Wholesale Banking. "We continue to be pleased with the improvement in pricing and structure of commercial loans. This trend increases the likelihood that businesses will continue to have access to credit as the economy slows. The current competitive landscape provides Wells Fargo with the opportunity to continue to build market share, as well as benefit from more favorable terms on the new business."
Wells Fargo 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 $70 million in the first quarter of 2001, 25% above first quarter 2000 earnings of $56 million.
"Our first quarter earnings exceeded expectations," said Dan Porter, chairman and CEO of Wells Fargo Financial. "Loans outstanding are up 28 percent from first quarter 2000 thanks to recent acquisitions and strong core growth throughout 2000. Charge-offs, while higher when compared with last year, are within the expected ranges."
A recorded message reviewing Wells Fargo’s first quarter 2001 results is available through April 20, 2001. Dial 800-633-8284 (domestic) or 858-812-6440 (international). Access code 18272126#. The call is also available on the Internet at www.wellsfargo.com/ir or www.vcall.com.
1 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.
Wells Fargo & Company is a diversified financial services company with $280 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.
The following appears in accordance with the Private Securities Litigation Reform Act of 1995:
This news release contains forward-looking statements about the Company, including, generally, descriptions of plans or objectives for future operations, products or services, and/or forecasts of revenues, earnings or other measures of economic performance and, specifically · the anticipated impact on earnings per share for the full year 2001 of goodwill and core deposit intangible amortization from acquisitions · the expected difference between cash and reported earnings per share for the full year 2001 · the anticipated amount and anticipated timing of integration costs relating to the completion of the First Security, National Bancorp of Alaska and Brenton Banks conversions · the likely level of market-sensitive income (including future income from the Company’s venture capital investments) · the expected amount of non-performing assets and net charge-offs · the expected condition of and growth prospects for the California economy · the credit exposure to California utility companies and to dot-com companies · the mitigating effect of lending policies and loan portfolio diversity on the impact to the Company of a weaker economy. Forward-looking statements discuss matters that are not facts and often include the word: "believe," "expect," "anticipate," "intend," "plan," "estimate," "will," "can," "would," "should," "could" or "may." They give the Company’s expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update them to reflect changes that occur after that date.
There are several factors -- many of which are beyond the Company’s control -- that could cause results to differ significantly from the Company’s expectations. This release describes some of these factors, such as the California energy crisis (including the level of retail energy prices), the condition of the national economy and California economies, and the Company’s credit exposure to California utility companies and dot-com companies. The Company’s Annual Report on Form 10-K for the year ended December 31, 2000, including information incorporated by reference into the Form 10-K from the Company’s 2000 Annual Report to Stockholders (filed as Exhibit 13 to the Form 10-K), describes factors such as credit, market, operational, liquidity, interest rate and other risks. See, for example, "Financial Review—Balance Sheet Analysis" included in the 2000 Annual Report to Stockholders. The Form 10-K also describes industry-related factors such as · general business and economic conditions · fiscal and monetary policies · regulation · disintermediation · competition generally and specifically in light of the Gramm-Leach-Bliley Act, as well as Company-related factors such as · potential dividend restrictions · market acceptance and regulatory approval of new products and services · non-banking activities · integration of acquired companies · attracting and retaining key personnel · stock price volatility. See "Factors That May Affect Future Results" included in the 2000 Annual Report to Stockholders. Any factor described in this news release or in the Form 10-K or in information incorporated by reference into the Form 10-K could, by itself or together with one or more other factors, adversely affect the Company’s business, earnings and/or financial condition.