AFTER PREVIOUSLY ANNOUNCED NON-CASH IMPAIRMENT AND OTHER SPECIAL CHARGES, WELLS FARGO REPORTS LOSS OF $87 MILLION
SAN FRANCISCO — July 17, 2001
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Second Quarter Highlights:
- Net Loss of $87 million, a loss of 5 cents per share
- Cash Earnings of 5 cents per share
- Non-cash impairment and other special charges of $1.16 billion (after tax), or 67 cents per share, primarily due to impairment write-downs of publicly traded and private equity securities
- Integration and conversion costs for First Security, National Bank of Alaska and other acquisitions of $81 million (after tax), or approximately 5 cents per share
- Market-sensitive income, which includes venture capital gains, of $53 million (after tax), or 3 cents per share, 2 cents below normalized level of 5 cents per share
- Excluding non-cash impairment, other special charges and integration and conversion costs, EPS would have been 67 cents, cash EPS would have been 77 cents. Assuming normalized level of market-sensitive income of 5 cents per share, EPS would have been 69 cents, cash EPS would have been 79 cents.
- Core revenue growth (excludes revenue from acquisitions, non-cash impairment, other special charges and market-sensitive income) remains strong. Core revenue up 13% for the quarter compared with 2000 and 13% for first six months compared with same period last year. Core revenue increases were strong across the board with an 18% increase in core noninterest income and a 9% increase in core net interest income.
Wells Fargo & Company (NYSE:WFC) today reported a net loss of $87million for the second quarter of 2001, compared with net income of $1,037 million for the second quarter of 2000. Net income for the first six months of 2001 was $1,078 million, compared with $2,077 million in the same period a year ago. Diluted cash earnings per common share were $.05 for the second quarter of 2001, compared with $.70 in the second quarter of 2000, and $.85 for the first six months of 2001, compared with $1.39 for the same period 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. Diluted earnings per common share were a loss of $.05 for the second quarter of 2001 compared with earnings of $.61 for the second quarter of 2000, and $.62 for the first six months of 2001, compared with $1.21 for the same period of 2000.
The Company announced on June 6, 2001 that it expected to recognize non-cash and other special charges during the second quarter mainly related to impairment of publicly traded and private equity securities, primarily in the venture capital portfolio. Approximately $1.1 billion (after tax), or $.63 per share, was recorded in the second quarter of 2001 to reflect the other-than-temporary impairment in the valuation of securities, resulting from sustained declines in market values of the securities, particularly in the technology and telecommunication industries. "The Company has completed a thorough review of its equity securities portfolio of over 100 publicly traded and private equity securities, including investments in partnerships and joint ventures," said Chief Financial Officer Ross Kari. The other special charges of approximately $70 million (after tax), or $.04 per share, are related to auto finance portfolios acquired as part of the acquisition of First Security Corporation in October 2000, including adjustments to lease residual values in response to the continued deterioration in the used car market. In conjunction with this write-down, those remaining residuals were placed under a residual loss insurance policy.
"Despite the non-cash impairment and other special charges, our company’s core revenue growth engine is running very smoothly and thanks to successful partnering across business lines we continue to grow market share and satisfy more of our customers’ financial needs," said Chairman and CEO Dick Kovacevich. "Core revenue, which excludes revenue from acquisitions, non-cash impairment and other special charges, and market-sensitive income, increased 13 percent for the quarter and the first six months of this year compared with last year. Core revenue increases were strong across the board with an 18 percent increase in core noninterest income and a 9 percent increase in core net interest income. Excluding the non-cash impairment ($.63) and other special charges ($.04) and integration and conversion costs for First Security, National Bank of Alaska and other acquisitions ($.05), diluted earnings per share would have been $.67 and diluted cash earnings per share would have been $.77. Market-sensitive income, which includes venture capital gains, was $.03 per share, $.02 below normalized level of $.05 per share. Assuming a normalized level of market-sensitive income, diluted earnings per share would have been $.69 and diluted cash earnings per share would have been $.79."
"We successfully converted almost 2 million customer accounts and 258 banking stores in five western states from the former First Security, more than 320,000 accounts and 54 banking stores from the former National Bank of Alaska, and acquired Acordia, one of the nation's largest independent property-and-casualty insurance agencies, and in July, acquired H.D. Vest, Inc., the nation’s largest provider of financial services through tax professionals."
"Online enrollments and usage by our customers accelerated in the second quarter. We currently have over 3.3 million consumers online, 150,000 small businesses online and 7,800 middle market and corporate customers online with 28,000 unique users," said Clyde Ostler, EVP of the Internet Services Group. This quarter Worth magazine recognized Wells Fargo as the most popular Internet bank, citing the Company’s 'known innovation in the field,' and Credit Card Management magazine named Wells Fargo as the #1 e-commerce bank (July 2001).
"Our customers, who use multiple channels to conduct their business with Wells Fargo, continue to receive an ever-expanding range of products and services on the Internet," continued Ostler. "We're integrating services on the site with a single sign-on for brokerage and banking, while working across channels to provide a uniform customer experience. For example, with WellsChoice® a customer can trade and invest online or offline with the help of a trusted advisor. With Tax and Portfolio Trackers an investor can manage the tax consequences of trading with a service so completely integrated that customers never have to re-enter their data."
"This quarter we also launched account access for certificates of deposit, auto loans, home equity loans and personal loans and launched new online offerings for small business, including a new web-based online payroll," said Ostler. "With this quarter's Commercial Electronic Office (CEO) enhancements, created for the middle market and corporate segment, Wells Fargo became the nation’s first bank to offer commercial customers a way to manage credit transactions over the Internet, such as viewing loan details and transaction history and selecting new interest rates for loans with rate options. With more than a decade of online trailblazing to our credit, we’re taking anytime, anywhere banking to the next stage with added convenience and integration for our customers."
Net Interest Income
Net interest income on a taxable-equivalent basis was $3,029 million in the second quarter of 2001 and $5,863 million for the first six months of 2001, compared with $2,681million and $5,330 million in the same periods of 2000. The net interest margin was 5.31% for the second quarter of 2001 and 5.26% for the first six months of 2001, compared with 5.36% and 5.38% for the same periods of 2000.
Net interest income increased $188 million, or 6.7%, compared to the first quarter of 2001. The growth in net interest income is primarily attributable to a 4.4% increase in average earning assets and a 10 basis point improvement in the margin to 5.31%.
Noninterest income was $545 million in the second quarter of 2001 and $2,959million for the first six months of 2001, compared with $2,135 million and $4,177million in the same periods of 2000. Core noninterest income, which excludes revenue from acquisitions, non-cash impairment and other special charges and market-sensitive income, for the first half of 2001 was up 18% over the same period a year ago.
Noninterest expense was $ 3,255 million in the second quarter of 2001 and $6,251million for the first six months of 2001, compared with $2,852million and $5,588million in the same periods a year ago. The increase in noninterest income for the second quarter of 2001 was mostly due to an increase in salaries, due to an increase in full-equivalent staff, an increase in incentive compensation, due to high mortgage origination volume, and $130 million of integration and conversion costs for First Security, National Bank of Alaska and other acquisitions.
"As expected, consistent with the slowdown in the economy, we continue to experience pressure on asset quality," said Chief Credit Officer Ely Licht. "Though we expect this pressure to continue for the foreseeable future, we believe that our credit costs will remain manageable."
The provision for loan losses was $427million for the second quarter of 2001 compared with $275 million for the second quarter of 2000. Net charge-offs totaled $427million, or 1.06% of average loans (annualized), in the second quarter of 2001, compared with $262million, or .74%, for the second quarter of 2000. For the six months ended June30, 2001, the loan loss provision was $788 million and net charge-offs totaled $788million, or .99% of total loans (annualized), compared with a loan loss provision of $551million and net charge-offs of $537million, or .78% , for the same period of 2000.
"Two commercial credits accounted for $27 million of the $66 million increase in loan losses from the first quarter of 2001," said Licht. "Loan losses in the retail lending portfolio increased by $17 million from the first quarter of 2001 due primarily to higher bankruptcy filings affecting credit card and other unsecured consumer lending products."
At June 30, 2001, the allowance for loan losses of $3,760million was 2.28% of total loans, compared with 2.31% at December31,2000 and 2.37% at June30,2000. Total nonaccrual and restructured loans were $1,631million at June 30,2001, compared with $1,350million at December31,2000 and $1,051million at June30,2000.
Nonperforming assets rose $113 million, or 7% from March 31, 2001 to $1.6 billion. "The net increase in nonperforming loans was primarily due to the addition of three large credits," said Licht. "The increase was tempered in part by the sale of several assets that were on non-accrual status."
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, which excludes non-cash impairment and other special charges, was:
|Second Quarter||Year to Date|
|Wells Fargo Financial||71||69||141||125|
* Excludes non-cash impairment and other special charges of $1.16 billion (after tax)
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 $876 million in the second quarter of 2001, compared with $841million in the second quarter of 2000. Earnings for the first six months of 2001 were $1,788 million, compared with $1,668 million for the same period of 2000.
"We continue to increase sales while focusing on improving the quality of our customer service," said Chief Operating Officer Les Biller. "By offering our customers a way to buy a package of products they need from us in one simple step rather than having to buy each product separately, we're earning more of their business. Selling product packages is our most important sales objective for this year. Wells Fargo Packs - now being introduced across all 23 of our banking states - provide value and convenience to our customers with packages of related products and services. These packs help our bankers deliver a broader range of accounts and services to address our customers' financial needs. The multi-product packages account for a higher percentage of our total sales which continue to grow at double digit rates. For example, in California, multi-product sales have increased 12 percent since the introduction of Wells Fargo Packs in early April. Company-wide, product sales through May were up 17 percent and our core sales per banker, on a same store basis, are up 14 percent over last year."
"Home Mortgage established a new milestone during the quarter with record originations of $45 billion, significantly exceeding the previous record of $35 billion originated in the fourth quarter of 1998," said Mark Oman, group EVP of Mortgage and Home Equity. "While mortgage rates are up from the March 2001 lows, we established new application records in both the Home Mortgage and Home Equity businesses in the quarter and ended the quarter with a record pipeline."
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 $220 million in the second quarter of 2001, compared with $201million in the second quarter of 2000. Earnings for the first six months of 2001 were $473 million, compared with $453 million for the same period of 2000.
"Despite the sluggish economy, we continued to build market share by bringing in new customers and taking advantage of cross-sell opportunities with existing customers," said Dave Hoyt, group EVP of Wholesale Banking. "We also continued to benefit from more favorable terms on the new business, but our loan growth slowed, as expected, from the impact of a weaker economy."
Wells Fargo Financialoffers consumer and commercial finance, leasing and technology services in 47 states, Canada, the Caribbean and Latin America.
Wells Fargo Financial reported earnings of $71 million in the second quarter of 2001 and $69 million in the second quarter of 2000. Earning for the first six months of 2001 was $141 million, compared with $125 million for the same period of 2000.
"Wells Fargo Financial’s earnings continue to exceed expectations," said Dan Porter, chairman and CEO of Wells Fargo Financial. "Loans outstanding have grown over $1 billion this year and are up 23 percent from a year ago. The integration of businesses acquired in our auto and leasing operations continues on schedule. Credit losses are higher than we would like, but they are within expectations and are more than offset by lower funding costs resulting from rate decreases."
A recorded message reviewing Wells Fargo's second quarter 2001 results is available through July 20, 2001. Dial 800-633-8284 (domestic) or 858-812-6440 (international). Access code 19231016#. 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 $290 billion in assets, providing banking, insurance, investments, mortgage and consumer finance from more than 5,400 stores and the Internet (wellsfargo.com) across North America and elsewhere internationally.
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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 · forecasts of revenues, earnings or other measures of economic performance · assumptions underlying or relating to any of the foregoing, · expectations for credit losses and nonperforming assets · normalized level of market-sensitive income · core revenue trends
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. Some of these factors include · the future market values of the Company's publicly traded and private equity securities portfolio (including equity securities of companies in the technology and telecommunications industries) and the factors that may impact those future values (including the continued deterioration in capital spending on technology and telecommunications equipment) · the future condition of the used car market as it impacts the market value of the Company’s auto finance portfolios · whether there are any unexpected difficulties or unusual expenses in integrating the Company’s acquisitions.
The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and Annual Report on Form 10-K for the year ended December 31, 2000, including information incorporated into the Form 10-K from the Company's 2000 Annual Report to Stockholders, filed as Exhibit 13 to the Form 10-K, describe other factors such as credit, market, operational, liquidity, interest rate and other risks. See, for example, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis" in the Form 10-Q and "Financial Review—Balance Sheet Analysis" incorporated into the Form 10-K from the 2000 Annual Report to Stockholders.
Other factors described in the Forms 10-Q and 10-K include factors such as · business and economic conditions including, as described below, the energy crisis · fiscal and monetary policies · regulation · disintermediation · competition generally and in light of the Gramm-Leach-Bliley Act · 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 Form 10-Q and incorporated into the Form 10-K from the 2000 Annual Report to Stockholders and "Regulation and Supervision" included in the Form 10-K.
In recent months, California and other western states have experienced an energy crisis, including increased energy costs, repeated episodes of diminished or interrupted electrical power supply and the filing by a California utility for protection under bankruptcy laws. The Company cannot predict the duration or severity of this situation. Continuation of the situation, however, could disrupt the Company’s business and the businesses of its customers who have operations or facilities in those states. It could also trigger an economic slowdown in those states, decreasing the demand for the Company’s loans and other products and services and/or increasing the number of customers who fail to repay their loans. The energy crisis could impact other states in which the Company operates, creating the same or similar concerns for the Company in those states.
Any factor described in this news release or in the Forms 10-Q or 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.