WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE OF $.69
SAN FRANCISCO — January 15, 2002
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Fourth Quarter Highlights:
- Cash earnings per share of $.80, up 7 percent from prior year’s $.75 per share
- Earnings per share of $.69, up 6 percent from prior year’s $.65 per share
- Net income of $1.18 billion, up 5 percent from prior year’s $1.13 billion
- Core revenue (excluding market-sensitive revenue and acquisitions) up 16percent from prior year
- Cash efficiency ratio of 55.4 percent improved from 56.1 percent last year
Wells Fargo & Company (NYSE:WFC) reported record fourth quarter 2001 net income of $1.18 billion, up 5 percent from last year. Cash earnings per share were $.80, up 7 percent from last year and up 10 percent (annualized) from third quarter 2001. Earnings per share in the fourth quarter were $.69, up 6 percent from last year and up 12percent (annualized) from third quarter 2001. Cash earnings are earnings before goodwill and nonqualifying core deposit intangible amortization and the reduction of unamortized goodwill due to sales of assets.
For the full year 2001, net income was $3.42 billion, cash earnings per share were $2.41, and earnings per share were $1.97. Net income for the full year 2001 included $1.16billion after-tax, or $.67 per share, of non-cash impairment and other special charges recorded in the second quarter.
"Wells Fargo’s core revenue, which excludes market-sensitive revenue and acquisitions, grew 16 percent in the fourth quarter, compared with the fourth quarter of 2000. This, plus record earnings, represents an extraordinary accomplishment by our 120,000 team members who partnered successfully to earn more of our customers’ business and provide them with great service," said Chairman and Chief Executive Officer Dick Kovacevich. "For the full year 2001, excluding the second quarter non-cash impairment charge, earnings per share were $2.64, up 13 percent over last year, and core revenue increased 13 percent over 2000. Achieving these double-digit increases in the midst of a recession is remarkable.
We begin 2002, our 150th anniversary year, with determination and focus to earn more business from our customers, grow revenue faster than expenses, maintain credit quality and strong reserves and grow market share, especially in our increasingly diverse markets. We’re particularly pleased, as The Wall Street Journal reported last week, that our Mexican border bank, which spans from San Diego to Brownsville, Texas, is the largest U.S. financial services presence in that geography and is attracting new banking households at a rate twice as fast as the rest of our community banking franchise. We have tremendous opportunity for market share growth. Our brand - one of America’s oldest, continuous brands - attracts more customers because of the values it represents: trust, service, convenience, dependability and security. For 150 years, Wells Fargo has survived and prospered through all economic cycles and national crises by diversifying its revenue streams, and taking advantage of new technologies, from stagecoaches to railroads to the Internet, responding to changing customer needs, and connecting people with information and their wealth."
"Despite the impact of September 11, challenging economic and credit conditions, and turbulent financial markets, earnings per share trended higher in the fourth quarter, " said Chief Financial Officer Howard Atkins. "This strong performance was broad-based, reflecting the solid efforts of our team members and the breadth of the Company’s product line. During the fourth quarter, the Company realized gains of $154 million on available for sale securities. In addition, the venture capital portfolio had a net loss of $37 million, comprised of a small amount of realized gains offset by write-downs on several other investments. The net of the available for sale securities portfolio gains and venture portfolio losses was offset by $100million of integration, acquisition and other non-recurring charges."
Revenue of $5.88 billion for fourth quarter 2001 increased 9 percent from fourth quarter 2000. For the full year 2001, revenue was $20.15 billion, compared with $19.71billion in 2000. Excluding the effect of market-sensitive income and acquisitions completed in 2001, revenue for fourth quarter 2001 increased 16 percent from fourth quarter 2000. On the same basis, revenue for full year 2001 increased 13 percent from the prior year. The revenue growth was driven by continued strong loan growth, a wider net interest margin and continued growth in virtually all business sources of noninterest income.
Loans averaged $167 billion for fourth quarter 2001, 7 percent greater than a year ago. From third quarter 2001 to fourth quarter 2001, annualized average loan growth was 8 percent. "Consumer loan growth continued to be robust," said Atkins. "Although commercial loans declined modestly due to the challenging economy, the rate of decline slowed from the second quarter. Our wholesale banking group added 156 new credit facilities in excess of $5 million in 2001 and stayed active in the lending market as some of our competitors pulled back."
Average core deposits of $176 billion for fourth quarter 2001 grew $24 billion, or 16percent, since last year and $5 billion, or 12 percent (annualized), from third quarter 2001. After adjusting for acquisitions and off-balance sheet sweep deposits, core deposit growth was $6 billion, or 13 percent (annualized), since third quarter 2001. The growth in mortgage escrow accounts accounted for almost half of the increase from the third quarter.
Net Interest Income
Net interest income on a taxable equivalent basis was $3.45 billion in fourth quarter 2001, up 23 percent from the fourth quarter of last year. Net interest income was $12.54billion in the full year 2001, up 15 percent from 2000. The increase in net interest income was driven by the growth in loans and core deposits described above, and by a wider net interest income margin, 5.50 percent in fourth quarter 2001, compared with 5.40percent in third quarter 2001 and 5.30 percent in fourth quarter 2000. According to Atkins, "The margin expansion in the fourth quarter reflected a combination of higher yielding consumer loans and lower cost core and mortgage escrow deposits in our mix of assets and liabilities, continued disciplined pricing of our loan and deposit products and the decline in short term rates relative to longer term rates in the fourth quarter." Average funding costs declined by 70 basis points in fourth quarter 2001, while average net asset yields declined 60 basis points.
Noninterest income was $2.45 billion for fourth quarter 2001, down 6 percent from $2.61 billion in the fourth quarter of last year, and up 29 percent (annualized) from third quarter 2001. Noninterest income for the full year 2001 was $7.69 billion, a decrease of 13percent from 2000. Excluding market-sensitive income and acquisitions, full year 2001 noninterest income was up 6 percent from the same period a year ago and 32 percent (annualized) from the third quarter, reflecting across the board increases in fees from all operations, including deposit service charges, card usage fees and particularly, mortgage origination fees. "Despite the challenging markets early in the fourth quarter, trust and investment management fees continued to increase," said Atkins, "and we also benefited from strong fee growth at Acordia, our recently acquired insurance brokerage company."
Noninterest expense was $3.45 billion in fourth quarter 2001, up 7 percent from the same period of last year. Fourth quarter expenses included approximately $60 million of integration, acquisition and other non-recurring costs, including $30 million for settlement of long-standing litigation. Adjusted for integration, acquisition and other non-recurring expenses, noninterest expense grew 8 percent from fourth quarter last year, almost all of which was due to growth in the mortgage company. On a similar basis, fourth quarter expenses were up $252 million from the third quarter 2001, the majority of which was due to record mortgage originations. Fourth quarter 2001 expenses also included approximately $155 million in goodwill amortization that will be discontinued effective January 1, 2002 under the new accounting standard FAS 142, Goodwill and Other Intangible Assets. Full year 2001 noninterest expense increased 9 percent compared with last year. Cash efficiency ratio for the fourth quarter was 55.4 percent, an improvement from 56.1 percent last year.
"Our fourth quarter credit results remain consistent with current economic conditions," said Chief Credit Officer David Munio. "Our credit costs rose in the fourth quarter, in line with the weak economy, but remained in the expected range. To date, we have not had any material negative effect from industries affected most directly by September 11, but we will continue to closely monitor these segments."
The provision for loan losses was $536million for fourth quarter 2001, compared with $352 million for fourth quarter 2000. Net charge-offs totaled $536million, or 1.27 percent of average loans (annualized), in fourth quarter 2001, compared with $352 million, or .90 percent, for fourth quarter 2000 and $454 million, or 1.10 percent, for third quarter 2001. "The increase in credit losses was caused primarily by declining collateral and asset values and weakness in some retailing and manufacturing credits," said Munio. "We continued to benefit from a well-diversified portfolio, split nearly equally between consumer and commercial borrowers. Our consumer portfolio continued to perform solidly, in part due to its diversity and continued careful management." For the year ended December 31,2001, the loan loss provision was $1.78 billion and net charge-offs totaled $1.78billion, or 1.09 percent of total loans, compared with a loan loss provision of $1.33 billion and net charge-offs of $1.22 billion, or .84 percent, for the same period of 2000. The allowance for loan losses of $3.76billion was 2.18 percent of total loans at December 31, 2001, compared with 2.31 percent at December31,2000 and 2.23percent at September30,2001.
Non-performing assets increased $27 million, or 2 percent, during the quarter, ending at $1.81 billion. "The increase in non-performing assets was consistent with the economy and was driven by several medium sized credits representing various industries and geographies," said Munio. Total nonaccrual and restructured loans were $1.64 billion at December 31,2001, compared with $1.20 billion at December31,2000 and $1.62 billion at September30,2001.
Wells Fargo had no lending relationship with Enron Corp., which filed for Chapter 11 reorganization in the fourth quarter, and all direct exposure to Enron was fully provided for in the fourth quarter through a $7 million write-down. Wells Fargo Financial decided last year to wind down its small consumer finance operations in Argentina and began running off its loan portfolio in mid-2001. The effects of the currency devaluation that recently occurred in Argentina on the remaining $50 million of assets was provided for in the fourth quarter through a $21 million charge to earnings.
The Company has been assessing the effect of the required adoption of FAS 142 and any goodwill impairment that may be recognized under the transition rules. The Company expects to complete that assessment and record any transition adjustment under FAS 142 in first quarter 2002. At year-end 2001, the Company had $9.5 billion of goodwill, $5.5 billion of which relates to the 1996 purchase of First Interstate Bancorp. The Company has determined that impairment for the First Interstate goodwill is not permitted under FAS 142 since the remaining First Interstate operations must be combined with other similar banking operations for impairment testing.
"Our Internet business continued to accelerate in the fourth quarter," said Clyde Ostler, group EVP of Internet Services. "Middle market and large corporate customers who bank with us online reached nearly 12,000 this quarter, up from 2,250 at the end of 2000. We’re adding approximately 800 new customers every month.
The number of small businesses that bank online with us rose 138 percent to 275,000, giving us 20 percent market share nationally and number one market share in our footprint. Our Consumer Internet banking service reached 2.8 million active users based on a six-month measurement, up over 35 percent from year end 2000, and our Bill Pay customer base increased 44 percent year over year.
The revenue from our Discount Brokerage online accounts grew by over 24percent from a year ago and we were recognized by Gomez Advisors as the only financial services company to be in the top ten for both online banking and brokerage. Since introducing online service to full-service brokerage and Investment Management & Trust customers this year, we’ve had 50,000 full-service brokerage customers and 3,200 IM&T customers access their accounts on the Internet."
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:
|Community Banking (2)||962||898||3,657||3,106|
|Wholesale Banking (2)||248||237||990||1,007|
|Wells Fargo Financial||74||66||288||258|
- Excludes second quarter 2001 non-cash impairment and other special charges of $1.16 billion (after tax).
- Results for Community Banking and Wholesale Banking have been restated for prior periods to reflect changes in management structure.
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 mortgage and home equity loans in all 50 states.
- Core product sales up 27 percent over fourth quarter 2000
- Fourth quarter mortgage origination volume up 243 percent
- Home equity loan production increased 63 percent in 2001, with average loan balances up 35 percent from the previous year
- H.D. Vest acquisition adds product distribution in all 50 states
- Small business relationships up 12 percent in 2001
"As reflected in this solid performance, we’re selling more, growing revenue at an accelerated pace and doing it more efficiently," said Chief Operating Officer Les Biller. "Same store core sales rose 27 percent in the fourth quarter of 2001 over the fourth quarter of 2000. Daily core sales per salesperson on a same store basis increased from 3.2 to 4.0 – up 23percent. Sales effectiveness in the fourth quarter of 2000 was impacted by sales and system conversions in California. One key to our success is our new Wells Fargo Packs package of products, a way for our customers to buy the basic financial products they need in one simple step. The percent of our new retail customers who bought four or more core products from us rose to 17.4 percent at year-end from 10.6 percent in the first quarter of 2001, after we introduced the Packs.
Our team members also have made outstanding progress in our company-wide service efforts during 2001. They’ve met performance goals on seven of our Top 10 service issues and we’ve already announced a new Top 10 list for 2002. Our goal is to significantly reduce the annual rate at which we’re losing customers, which can deliver millions of dollars to the bottom line."
"Our home finance businesses both had exceptional years in 2001, reflecting historically low mortgage rates and continued strength in the housing sector," said Mark Oman, group EVP of the Mortgage and Home Equity Group. "Home Mortgage had unprecedented growth in 2001 as originations of $194 billion were up 155 percent from 2000 and up 78percent from the 1998 refi boom, when we set the previous industry record of $109billion. Driven by the record originations, the owned servicing portfolio grew by $57 billion to $425billion while the weighted average note rate on loans serviced declined by 34 basis points to 7.18 percent, the lowest rate since the second quarter of 1994. Reflecting increases in cross-sell to both mortgage and bank customers, the Home Equity loan portfolio increased by 40percent to end the year at $25.5 billion, with credit quality showing relatively stable trends from one year ago."
Wells Fargo completed its acquisition of H.D. Vest in July giving Wells Fargo’s Private Client Services (PCS) Group a presence in all 50 states through over 6,000 independent financial and tax professionals. "We recently introduced Wells Fargo products to H.D. Vest advisors at their national conference," said Dennis Mooradian, group EVP of PCS. "H.D. Vest advisors are enthusiastic about products and services that could help them expand their client relationships and further strengthen their roles as relationship managers. We also integrated seven brokerage businesses into a single platform enabling all clearing to be completed in-house and reducing our processing cost by 50 percent."
As the nation’s largest small business lender, we continued to grow during 2001. "Our total small business relationships grew by 12 percent during the year," said Mike James, group EVP of Business Banking. "17 percent of our customers now bank with us online, up from only 5 percent at the beginning of the year."
Community Banking’s net income increased to $962 million in fourth quarter 2001 from $898million in fourth quarter 2000, an increase of 7 percent. The increase in net interest income was primarily due to the increase in mortgages held for sale and an increase in the margin on loans. Income from credit card, trust and investment fees and service charges was up significantly. These increases in revenue were partially offset by a decrease in venture capital results and gains on securities held for sale. On the expense side, there were significant decreases in contract services, equipment expense and other lines, as integration costs declined. A number of other expense lines in the banking regions showed only modest increases. This improvement, however, was more than offset by a significant expense increase in mortgage banking, driven by record volumes. For the full year 2001, net income, excluding second quarter 2001 impairment and other special charges of $1.09 billion (after tax), increased 18percent to $3,657million from $3,106million in 2000.
Wholesale Banking provides businesses with annual sales in excess of $10 million across the United States with a complete line of commercial, corporate and real estate banking products and services.
- Customers with at least 8 products up 16 percent in 2001
- 11,539 customers banking online with our Commercial Electronic Office business portal
- Acquisition of Acordia provides insurance cross-sell opportunities
"While loan growth remained flat in the fourth quarter, we continued to gain market share by acquiring new customers and expanding our relationships with existing customers," said Dave Hoyt, group EVP of Wholesale Banking. "In 2001, our primary focus on cross-sell and partnering across business units resulted in a 16 percent increase from the prior year in the number of wholesale customers with at least eight Wells Fargo products.
The acquisition of Acordia, one of the largest insurance brokerage firms in the United States, with 3,800 insurance professionals, provides us with a significant opportunity to offer insurance products through a powerful distribution channel to our large commercial customer base. This additional insurance distribution capacity brings us closer to reaching our overall company-wide goal of having insurance, trust and brokerage business contribute 25 percent of our income."
Wholesale Banking’s net income was $248 million in fourth quarter 2001, compared with $237million in fourth quarter 2000. Net income, excluding second quarter 2001 impairment and other special charges of $62 million (after tax), was $990million for the full year 2001, compared with $1,007million for 2000, the reduction largely attributable to additional net credit costs in 2001.
Wells Fargo Financial offers consumer and commercial finance, leasing, private label credit cards and dealer financing in 47 states, Canada, the Caribbean and Latin America.
- 2001 net earnings up 12 percent and receivables up 17 percent over prior year
- Completed integration of acquisitions in Leasing and Auto financing
- Instituted or enhanced numerous initiatives to support business development, including initiatives around quality and Six Sigma, matrix pricing and product line additions
"We’re very pleased by our performance in 2001," said Dan Porter, Chairman and Chief Executive Officer of Wells Fargo Financial. "Net earnings increased 12 percent compared with the prior year and receivables grew 17 percent, or $2 billion, exceeding our expectations. Our credit losses were within our expected range and consistent with the economy."
Wells Fargo Financial’s net income increased 12 percent to $74 million in fourth quarter 2001, compared with $66 million for the same period in 2000. Net income increased to $288million for the full year 2001 from $258 million in 2000, an increase of 12 percent.
A recorded message reviewing Wells Fargo’s fourth quarter 2001 results is available through January 20, 2002. Dial 800-633-8284 (domestic) or 858-812-6440 (international). Access code 20088015#. 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 $308 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 about future credit losses, including those related to customers impacted by the events of September 11, 2001.
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. Factors such as credit, market, operational, liquidity, interest rate and other risks are described in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, as amended on Form 10-Q/A, and the Company’s Annual Report on Form 10-K for the year ended December31, 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. See, for example, "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Balance Sheet Analysis" in the Form 10-Q/A 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, 10-Q/A and/or 10-K include · the recent terrorist attacks · 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/A and incorporated into the Form 10-K from the 2000 Annual Report to Stockholders and "Regulation and Supervision" included in the Form 10-K.
Any factor described in this news release or in the Forms 10-Q, 10-Q/A 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.