WELLS FARGO REPORTS QUARTERLY EARNINGS PER SHARE OF $.67
SAN FRANCISCO — October 16, 2001
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Third Quarter Highlights:
Strong earnings -
- Cash earnings per share of $.78, up 37 percent from prior year’s $.57 per share
- Earnings per share of $.67, up 43 percent from prior year’s $.47 per share
- Net Income of $1.16 billion, up 42 percent from prior year’s $821 million
Consistent core earnings growth -
- Core earnings (which exclude market-sensitive income) of $.66 per share vs. $.64 per share in second quarter 2001, and up 12 percent from $.59 per share in third quarter 2000
Negligible market-sensitive income -
- Market-sensitive income of $.01 per share vs. $.03 per share in second quarter 2001 and $.05 per share in third quarter 2000
Double digit revenue growth -
- Revenue of $5.5 billion, up 14 percent from third quarter 2000’s $4.8 billion
Improved operating efficiency -
- Cash efficiency ratio of 54.6 percent, improved from 58.9 percent a year ago
Wells Fargo & Company (NYSE:WFC) today reported third quarter 2001 net income of $1.16 billion, up 42 percent from last year. Cash earnings per share were $.78, up 37 percent from last year, and up 5 percent excluding the impact of the merger with First Security Corporation last year. Earnings per share were $.67, up 43percent from last year, and up 5 percent excluding the impact of the First Security merger. Cash earnings are earnings before goodwill and nonqualifying core deposit intangible amortization and the reduction of unamortized goodwill due to sales of assets.
In the nine months ended September 30, 2001, net income was $2.24 billion, cash earnings per share were $1.62, and earnings per share were $1.29. Net income for the first nine months of 2001 included $1.16 billion after-tax of non-cash impairment and other special charges recorded in the second quarter.
"While we are very pleased with our financial results and particularly with our strong year-to-date 12 percent revenue growth, excluding market-sensitive income and acquisitions, the more important accomplishment in the aftermath of the tragic events of September 11 has been to provide uninterrupted service and support to our 20 million customers," said Chairman and CEO Dick Kovacevich. "Our team members did a great job, under very challenging conditions, to keep Wells Fargo and our customers ‘in business.’ The financial services industry is performing admirably during this period of social and economic uncertainty, and is providing the strength, security and stability our nation needs to build its confidence for the future. Wells Fargo, with its consistent customer focus, outstanding service across its diverse set of businesses, and strong financial capacity is uniquely positioned to play an important role to help our customers and our national economy get back on track. We have also been very focused on the needs of the communities we serve. The Company, its team members and customers have made significant charitable contributions, including $5 million to date to the American Red Cross Disaster Relief Fund."
Earnings (loss) per share
| ||Q3 2002||Q2 2001||Q3 2000|
|Add:|| || || |
|Impairment, other special charges and|
integration and conversion costs in Q2 2001
| ||.72|| |
|Impact of merger with First Security in Q3 2000|| || ||.17|
|Less: Market-sensitive Income(1)
|Core Cash Earnings||$.77||$.74||$.69|
(1) Market-sensitive income
includes net venture capital gains, limited partnership income and net
investment securities gains, except for impairment of publicly traded
and private equity securities of $.63 included in the $.72 adjustment
for second quarter 2001.
(2) Market-sensitive earnings per share in the third quarter of 2000 in
excess of $.05 a share were offset by non-core integration and
conversion expenses, and other special expenses.
Core earnings per share in the third quarter of 2001 were $.66 per share, compared with $.64 per share in the second quarter of 2001 and were up 12 percent from the $.59 per share earnings in the third quarter of 2000. On a cash basis, core earnings per share were $.77, up 12 percent from last year’s $.69.
Market-sensitive income (as defined in the table on the previous page) in the third quarter was $.01 per share, down from $.03 per share in the second quarter of 2001, and $.05 per share in the third quarter of 2000. "A detailed review of our venture capital portfolio, limited partnership investments and equity securities in the aftermath of September 11 resulted in a total of $97 million after-tax in write-downs for other-than-temporary impairment," according to Chief Financial Officer Howard Atkins. "While we continue to expect these investments to generate solid returns over time, it is unclear at this time whether any meaningful gains will be realized until the economy begins to recover." These writedowns were offset by $56 million in after-tax gains realized on the disposition of other equity investments and $55 million in after-tax securities gains from the sale of mortgage-backed securities that were deemed to have a high likelihood of accelerated prepayment.
Revenue of $5.5 billion for the quarter increased 14 percent from the third quarter of 2000. Excluding the effect of market-sensitive income and acquisitions completed after the third quarter of last year, revenue for third quarter 2001 increased 11 percent from third quarter 2000. On the same basis, revenue for the first nine months of 2001 increased 12 percent from the same period a year ago. The revenue growth was driven by balance sheet growth, a wider net interest margin and continued growth in noninterest income.
Loans averaged $164 billion for the third quarter 2001, 9 percent greater than a year ago. From second quarter 2001 to third quarter 2001, average loan growth has been at a more modest 7 percent annualized growth rate. "While consumer loan demand – especially mortgage and home equity loans – remains buoyant, commercial loan demand has tracked the slowing overall economy," said Atkins.
Average core deposits of $171 billion for third quarter 2001 have grown $23 billion, or 15percent, since last year, and $11 billion, or 7 percent, after adjusting for acquisitions and off-balance sheet sweep deposits. Core deposit growth was $3 billion, or 6 percent (annualized), since second quarter 2001.
Net Interest Income
Net interest income on a taxable equivalent basis was $3.22 billion in the third quarter, up 15 percent from the third quarter of last year. For the first nine months of 2001, net interest income was $9.09 billion, up 12 percent from the comparable period in 2000. The increase in net interest income was driven by the growth in loans and core deposits described above, as well as by a wider net interest income margin, which was 5.40 percent in the third quarter of 2001, compared with 5.31 percent in the second quarter of 2001 and 5.34 percent in the third quarter of 2000. "With the Federal Reserve progressively lowering interest rates during the third quarter, deposit and funding costs declined slightly faster than asset yields," said Atkins. Average funding costs declined by 47 basis points in the third quarter of 2001, while average net asset yields declined 38 basis points.
Noninterest income was $2.28 billion for the quarter, up 11 percent from $2.06 billion in the third quarter of last year. Excluding market-sensitive income and acquisitions, year-to-date noninterest income was up 13 percent from the comparable period a year ago, reflecting strong mortgage origination fees and continued growth in deposit service charges. Fee income from Acordia, the Company’s recently acquired insurance agency, would have added 2 percent to this 13 percent growth rate.
Noninterest expense was $3.19 billion in the third quarter of 2001, up 5 percent from the same period of last year. For the first nine months of 2001, noninterest expense was $9.44billion, up 10 percent from the comparable period of 2000. Adjusted for both integration costs and acquisitions, noninterest expense grew $167 million, or 6 percent, from last year and declined $13 million from the second quarter of 2001. As reported, the cash efficiency ratio improved from 58.9 percent a year ago to 54.6 percent in the third quarter.
"Our third quarter credit quality trends were consistent with our view
that there is continuing weakness in the overall economy," said Chief
Credit Officer Ely Licht. "Our credit costs increased in the third quarter
but remained within our expected range of results. In addition, we continue
to assess our exposure to those industries most impacted by the September
11th tragedy though our diversified loan portfolio mitigates
exposure to any one business sector."
The provision for loan losses was $455million for the third quarter of 2001, compared with $425 million for the third quarter of 2000. Net charge-offs totaled $454million, or 1.10percent of average loans (annualized), in the third quarter of 2001, compared with $330million, or .88 percent, for the third quarter of 2000 and $427 million, or 1.06 percent, for the second quarter of 2001. Two commercial agribusiness loans accounted for the increase in third quarter losses over the prior period. "Retail lending losses remained steady during the quarter due to our diversified real estate portfolio and careful attention to account management and collections," said Licht. For the nine months ended September30,2001, the loan loss provision was $1.24 billion and net charge-offs totaled $1.24billion, or 1.03 percent of total loans (annualized), compared with a loan loss provision of $976million and net charge-offs of $867million, or .81 percent, for the same period of 2000.
At September 30, 2001, the allowance for loan losses of $3.76billion was 2.23 percent of total loans, compared with 2.31 percent at December31,2000 and 2.38 percent at September30,2000.
Non-performing assets increased $155 million, or 9.5 percent, during the quarter, ending at $1.79 billion. "The increase was driven by broad-based economic weakness and, to a lesser extent, deteriorating collateral values in our asset-based lending units," said Licht. Total nonaccrual and restructured loans were $1.62 billion at September 30,2001, compared with $1.20billion at December31,2000 and $.97billion at September30,2000.
"Our Internet business continued to grow in the third quarter. We
currently have more than one-third of our retail checking account customers
online, 225,000 small businesses online, and over 10,000 middle market and
corporate customers online," said Clyde Ostler, group EVP of Internet
Services. "We launched our Single Sign-On service this quarter, allowing
one-stop access to banking and brokerage with a single user ID and
password. Leading technology analysts have said our Single Sign-On service
is the largest in terms of number of products available, and American
Banker cited the service as a model for the banking industry.
It’s this continued innovation that propelled Wells Fargo Online
Brokerage from number forty-three a year ago to number nine on Gomez
Advisor’s Discount Brokerage Scorecard, Fall 2001.
Small business online customers are up 92 percent this year, giving us, as of this quarter, the largest market share in small business online according to online research firm Cyber Dialogue.
In addition, more than 10,000 middle market customers and 40,000 employee users of those companies -- or one-third of our entire middle market customer base -- is now enrolled on our Commercial Electronic Office, just one year after its launch. The Commercial Electronic Office is the first of its kind in that it provides a single secure online point of entry for all commercial banking activities," concluded Ostler.
Business Segment Performance
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 second quarter 2001 non-cash impairment and other special charges, was:
|Wells Fargo Financial||73||67||214||192|
(1) Excludes second quarter 2001
non-cash impairment and other special charges of $1.16 billion (after
(2) Results for Community Banking and Wholesale Banking have been
restated for prior periods to reflect changes in management
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.
- Quarterly net income of $931 million
- First "Million Product Sales Month" in August
- Record quarterly mortgage originations of $48 billion
- Record growth in home equity with loan balances up 91 percent from third quarter 2000
"Our community banking group reached a milestone in August when team members sold over one million products to customers during the month, " said Chief Operating Officer Les Biller. "Team members sold 1,015,000 checking accounts, savings accounts, credit cards, CDs, consumer finance loans, online banking accounts, lines of credit, mutual funds, brokerage accounts, insurance, mortgages and student loans - up 17 percent over July and a 14 percent increase over the same month last year. Daily core sales per sales person reached 4.46, up from 4.10 in August of last year. This is a significant milestone in our sales and service history as we serve more customers in more geographies than ever before. Our team members have made outstanding progress in our company-wide service efforts during 2001. Our ability to grow sales and improve customer service shows our team members are taking the time to listen to our customers, profile their needs and offer them products and services that help satisfy their financial needs and help them succeed financially."
"In the third quarter, we established new records for applications, originations and servicing," said Mark Oman, group EVP of Mortgage and Home Equity. "We had $67 billion in applications and originated $48 billion, ending the quarter with a pipeline of $38 billion and a servicing portfolio of $476 billion. Year-to-date originations of $122 billion have already exceeded the full-year industry record we established in 1998 of $109 billion. With mortgage rates at historically low levels, we are seeing unprecedented levels of applications. Excluding subservicing for others, our owned portfolio of $405 billion passed the $400 billion milestone for the first time and is up $61 billion, or 18 percent, from a year ago. Our ability to continue to profitably grow our servicing portfolio throughout a period of decreasing interest rates and increased servicing payoffs is a result of our strong origination franchise. For many years we have emphasized the balance between originations and servicing in our business model. Our record origination performance resulted in this quarter’s total mortgage banking revenue, including net interest income from our mortgages held for sale, being up 46 percent from last year. This revenue growth occurred despite a $303 million reduction in net servicing fees due to significantly higher levels of amortization and loss provision on capitalized servicing rights recorded in anticipation of high prepayment levels."
Community Banking’s net income increased to $931 million in the third quarter of 2001 from $617million in the third quarter of 2000, an increase of 51 percent. Net income, excluding second quarter 2001 impairment and other special charges of $1,089 million (after tax), increased to $2,696million for the first nine months of 2001 from $2,208million for the first nine months of 2000, an increase of 22 percent. Net interest income increased to $2,306million in the third quarter of 2001 from $1,969million in the third quarter of 2000. Net interest income increased to $6,407million for the first nine months of 2001 from $5,641million in the first nine months of 2000. The increase in net interest income was due to increases in loans and core deposits, combined with an increase in the net interest margin. Average loans in Community Banking grew 10 percent and average core deposits grew 17 percent from a year ago. The provision for loan losses decreased by $16million and increased by $91million for the third quarter and first nine months of 2001, respectively. Noninterest income for the third quarter of 2001 increased by $86million over the same period in 2000. Primary contributors to the increase in noninterest income were growth in services charges on deposits, mortgage banking, and trust and investment fees associated with H.D.Vest.
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
- Wells Fargo was named the Best Bank in the United States by
Euromoney, considered one of the most authoritative international
banking magazines worldwide.
- Shareowner Services, serving 400 clients in 37 states, ranked number one in client satisfaction for the second straight year.
- One-third of the middle market customer base is enrolled on our Commercial Electronic Office.
"While we are pleased with the continued growth in new customers, the
weakening economy is impacting our results," said Dave Hoyt, group EVP of
Wholesale Banking. "As some business customers have curtailed spending and
reduced inventories in light of the current economic uncertainty, credit
usage and loan fees have been impacted. However, we continue to find
opportunities to strengthen relationships with our existing customers. We
believe our customers benefit the most if we are positioned to stay with
them for the long term, which we achieve by being consistent, reliable
providers of credit and other financial products and services during all
parts of the economic cycle. We also place a strong focus on the quality of
the services we provide. Wells Fargo Shareowner Services received top
honors for overall client satisfaction among its peer group in one of the
annual national surveys of transfer agent performance. This was the
Company’s second straight year in top place, which it has taken four
of the last five years. Wells Fargo was also ranked the "Best Bank" in the
U.S. by Euromoney magazine. This award reflects the respect with
which our company is viewed in the world market."
Wholesale Banking’s net income was $245million in the third quarter of 2001, compared with $240million in the third quarter of 2000. Net income, excluding second quarter 2001 impairment and other special charges of $62 million (after tax), was $742 million for the first nine months of 2001, compared with $770million for the first nine months of 2000. Net interest income was $489million in the third quarter of 2001 and $467million in the third quarter of 2000. Net interest income was $1,466million for the first nine months of 2001 and $1,450million in the first nine months of 2000. The slight increase in net interest income was due to higher loan volume offset by a slight decline in asset yields. Average outstanding loan balances grew to $50 billion in the third quarter of 2001 from $47billion in the third quarter of 2000. The provision for loan losses increased by $11million to $62million in the third quarter of 2001 and increased by $59million to $172million for the first nine months of 2001. Noninterest income increased to $548million and $1,528million in the third quarter and first nine months of 2001, respectively, from $439million and $1,307million in the same periods of 2000. The increase for both periods was primarily due to higher insurance revenue predominately from Acordia. Noninterest expense increased to $590million in the third quarter of 2001 and $1,754million for the first nine months of 2001 from $469million and $1,404million for the same periods in the prior year. The increase for the first nine months of 2001 was due to higher personnel costs as a result of the Acordia acquisition and increased sales and service staff.
Wells Fargo Financial offers consumer and commercial
finance, leasing and technology services in 47 states, Canada, the
Caribbean and Latin America.
"Our growth continues to meet and even exceed our expectations. The third quarter increase exceeded growth in both the second quarter of 2001 and the third quarter of 2000," said Dan Porter, Chairman and Chief Executive Officer of Wells Fargo Financial. "At the same time, credit losses continue to be somewhat higher than we would like, but they remain manageable and are offset by lower costs of funds."
Wells Fargo Financial’s net income was $73 million in the third quarter of 2001 and $67million for the same period in 2000. Net income increased to $214million for the first nine months of 2001 from $192 million for the same period in 2000, an increase of 11 percent. Net interest income increased 19 percent in the third quarter and 17 percent in the first nine months of 2001, compared with the same periods in 2000. The increase in net interest income was due to growth in average loans. The provision for loan losses increased by $35million and $116 million in the third quarter and first nine months of 2001, respectively, predominantly due to higher net write-offs in the loan portfolios. The increase in noninterest income of $18million in the third quarter of 2001 was primarily due to additional fee income originating from businesses acquired in the past year. Noninterest expense increased to $283million in the third quarter of 2001 and $814million for the first nine months of 2001 from $246 million and $743 million for the same periods in the prior year. Noninterest expense increased 10 percent in the first nine months of 2001 compared with the same period in 2000, primarily due to higher operating costs resulting from acquisitions in the last year.
A recorded message reviewing Wells Fargo’s third quarter 2001 results is available through October 20, 2001. Dial 800-633-8284 (domestic) or 858-812-6440 (international). Access code 19690325#. The call is also available on the Internet at www.wellsfargo.com/ir and www.vcall.com.
Wells Fargo & Company is a diversified financial services company with $298 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.
The following appears in accordance with the Private Securities Litigation Reform Act of 1995:
This news release contains forward-looking statements about the Company. Broadly speaking, forward-looking statements consist of descriptions of plans or objectives for future operations, products or services, forecasts of revenues, earnings or other measures of economic performance, and assumptions underlying or relating to any of the foregoing. Because forward-looking statements discuss future events or conditions and not historical facts, they often include words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" or similar expressions. Examples of forward-looking statements in this news release are the statements addressing the expected level of future market-sensitive income and the expected level of future credit losses.
Do not unduly rely on forward-looking statements. 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. The Company’s Quarterly Report on Form 10-Q for the quarter ended June30, 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 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/or 10-K include · business and economic conditions including the California 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.
The Company cannot predict at this time the severity or duration of the effects on the general economy or the Company of the September 11, 2001 terrorist attacks and any actions taken in response to the attacks. The most likely immediate impact will be decreased demand for air travel, which could adversely affect not only the airline industry but also other travel-related and leisure industries such as lodging, gaming and tourism. The impact of the attacks could spread beyond certain industries to the overall U.S. and global economies, further decreasing capital and consumer spending and increasing the risk of a U.S. and/or global recession. Decreased capital and consumer spending and other recessionary trends could adversely affect the Company in a number of ways including decreased demand for our products and services and increased credit losses.
Any factor described in this news release or in the Forms 10-Q or 10-K or in information incorporated by reference into those documents could, by itself or together with one or more other factors, adversely affect the Company’s business, earnings and/or financial condition.