WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE OF $.80*
SAN FRANCISCO — April 16, 2002
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First Quarter Highlights:
- Record diluted earnings per share of $.80*, up 19 percent from prior year's $.67 per share
- Record net income of $1.38 billion*, up 18 percent from prior year's $1.17 billion
- Return on assets of 1.78 percent*
- Return on equity of 20.01 percent*
- Core revenue (excludes market-sensitive revenue and acquisitions) up 18percent from prior year
- First improvement in credit quality since second quarter 2000
• Net credit losses declined 9 percent from fourth quarter 2001
• Non-performing assets flat compared with fourth quarter 2001
- Average consumer cross-sell surpasses 4 products for the first time
* Earnings are before the effect of change in accounting principle. Under FAS 142, Goodwill and Other Intangible Assets, the Company was required to assess goodwill for impairment and to discontinue amortization of goodwill as of January 1, 2002. In the first quarter of 2002, the Company recorded a $276 million (after tax) transitional goodwill impairment charge as a cumulative effect of a change in accounting principle.
Wells Fargo & Company (NYSE:WFC) reported record diluted earnings per share of $.80 in the first quarter 2002, before the effect of an accounting change related to FAS 142, Goodwill and Other Intangible Assets (see Accounting Change), up 19 percent from prior year's $.67 diluted earnings per share. On the same basis, net income was a record $1.38 billion, up 18 percent from prior year’s $1.17 billion.
"Our 18 percent growth from first quarter 2001 in core revenue, which excludes market-sensitive revenue and acquisitions, continues to be among the best in any industry and demonstrates the ability of our 130,000 team members to partner effectively across our more than 70 businesses to earn more of our customers' business and provide them with great service," said Chairman and CEO Dick Kovacevich. "Our team members continue to prove that our strategy for market share growth works whether the economy is growing or in a recession. It’s all about convincing customers to give us business they’re already giving someone else. It's all about share of wallet. During the quarter, we surpassed four products per banking household for the first time in our company’s 150-year history, and we’re now more than halfway toward our ambitious goal of eight products per household. Also, according to SMR Research, Wells Fargo is now the number one home equity portfolio lender in the United States, with $28 billion in loans outstanding, growing 25 percent faster than the industry as a whole since the November 1998 Norwest-Wells Fargo merger. To commemorate our 150th anniversary on March 18, 2002, and to recognize and thank our team members for our continued market share growth and improved service quality, we awarded stock option grants for 150 shares of Wells Fargo stock to virtually all full-time team members, our fifth company-wide stock option award in seven years."
With the adoption of FAS 142, effective January 1, 2002, amortization of goodwill is no longer in the income statement. In 2001, the Company incurred $144 million in the first quarter and $610 million for the full year in pretax expense for amortization of goodwill. Eliminating this expense would have increased net income in the first quarter of 2001 by $135million ($.08 per share) and by $571 million ($.34 per share) for the full year. Comparisons below between 2002 and comparable periods in 2001 are presented as if goodwill amortization expense was excluded from 2001 periods.
"We're very pleased with our financial performance in first quarter 2002," said Chief Financial Officer Howard Atkins. "Diluted earnings per share growth from $.75 per share in first quarter 2001 to $.80 per share in first quarter 2002 reflects an increase of more than $.09per share in earnings from businesses other than market-sensitive activities and a decline in market-sensitive earnings from $.05 a year ago to under $.01 in the first quarter of 2002. Pretax market-sensitive revenue in first quarter 2002 was $18 million and was offset by $25million in integration expenses, largely for the acquisitions of the Marquette banks and Texas Financial Bancorporation, which closed in February. We’re also very pleased with the quality of the $.80 per share earnings which reflect another quarter of solid year-over-year core revenue growth, continued improvements in expense efficiency, and encouraging signs of credit quality improvement."
Revenue of $5.96 billion for first quarter 2002 increased 14 percent from first quarter 2001. Excluding the effect of market-sensitive revenue and acquisitions, revenue for first quarter 2002 increased 18 percent from first quarter 2001. "Revenue growth from the first quarter of 2001 was driven by continued strong consumer loan growth, solid increases in consumer fee businesses, a higher net interest margin and good growth in core deposits," said Atkins. "On a sequential quarterly basis, the 6 percent annualized increase in revenue was due to those same growth factors, slightly dampened by flat investment management income due to the weak equity market, flat lending and loan-related transaction revenues in our commercial business in line with the first quarter economy, and typical first quarter seasonality."
Loans averaged $172 billion for first quarter 2002, up 8 percent over a year ago. Adjusting for acquisitions, average loans increased 6 percent from both a year ago and fourth quarter (on an annualized basis). "Commercial loans outstanding modestly declined in the first quarter in line with slow economic growth," said Atkins. "However, we are extremely pleased with the continued strong consumer loan growth largely driven by strong sales of our industry-leading home equity and home mortgage products." Consumer loans grew 17 percent annualized from December 31, 2001 to March 31, 2002. The Marquette banks and Texas Financial Bancorporation acquisitions completed during the first quarter added $3.5 billion of consumer and wholesale loans.
Average core deposits of $178 billion for first quarter 2002 grew $21 billion, or 13percent, since last year. After adjusting for acquisitions and money market sweep deposit accounts, core deposit growth was 7 percent. Average core deposits increased $2 billion, or 4percent annualized, from fourth quarter 2001. "We are particularly pleased with growth of almost $2 billion in core consumer checking and savings balances since these accounts typically are the first of several products purchased by new households," said Atkins.
Net Interest Income
Net interest income on a taxable-equivalent basis was $3.68 billion in first quarter 2002, up 30 percent from the first quarter of last year, and up 6 percent from the fourth quarter of 2001. The increase in net interest income was driven by the growth in consumer loans and mortgage loans held for sale, good core deposit growth and a higher net interest margin - 5.67percent in first quarter 2002, compared with 5.50percent in fourth quarter 2001 and 5.21percent in first quarter 2001. According to Atkins, "The margin strengthened in the first quarter due to a continued favorable loan and deposit mix and, to a lesser extent, the steep yield curve."
Noninterest income was $2.30 billion for first quarter 2002, down 5 percent from $2.41billion in the first quarter of last year. Excluding market-sensitive revenue and acquisitions, first quarter 2002 noninterest income was up 2 percent from the same period a year ago, reflecting increases in fees from most products and services, including deposit service charges and loan fees. The increase in insurance income was due to the acquisition of Acordia in the second quarter of 2001. Excluding market-sensitive revenue, noninterest income decreased by $75 million from the fourth quarter of 2001. Good trends in fee-based consumer deposit products and insurance were offset by lower commercial loan fees, flat trust and investment management fees due to the weak equity market, and first quarter seasonality. While down slightly from fourth quarter 2001, mortgage origination revenue remained high in first quarter 2002 due to continued solid demand for residential mortgages.
Noninterest expense was $3.33 billion in first quarter 2002, up 17 percent from the same period of last year, and up 10 percent excluding acquisitions. Expenses were basically flat compared to the fourth quarter of 2001 despite $25 million of merger and integration costs and seasonal increases in employee benefit costs for FICA and 401(k) programs. "We are continuing to invest in our team members and in revenue producing activities, while making a concerted effort to reduce expenditures on purchased goods and services," said Atkins. "In line with our effort to boost operating leverage, core expense growth of 10 percent was slightly more than half of core revenue growth of 18 percent since the first quarter of 2001."
"The extent and pace of the economic recovery and their effect on credit quality are uncertain, but we're very encouraged by the improved credit quality in the first quarter," said Chief Credit Officer David Munio. "Net charge-offs declined by $49 million, or 9 percent, from fourth quarter levels, while non-performing assets were essentially flat."
First quarter 2002 net charge-offs were $487 million, or 1.15 percent of average loans (annualized), down from $536 million, or 1.27 percent, in fourth quarter 2001. "First quarter 2002 credit losses decreased from the prior quarter due to lower losses in our asset based lending businesses as collateral values stabilized after declining throughout 2001 and stable trends in our consumer portfolios," said Munio. "We continued to benefit from a well diversified loan portfolio." The provision for loan losses was $490 million for first quarter 2002, compared with $536 million in fourth quarter 2001 and $361 million in the first quarter of 2001.
Non-performing assets of $1.81 billion at March 31, 2002 were unchanged from December 31, 2001, and were 1.02 percent of total loans outstanding.
The allowance for loan losses of $3.84 billion was 2.15 percent of total loans at March31, 2002, compared with 2.18 percent at December31,2001 and 2.32percent at March31,2001.
Accounting Change - FAS 142 Transition Adjustment
During the first quarter, the Company completed its initial goodwill impairment testing. All reporting units were evaluated using discounted cash flows. The process resulted in a $276million (after tax) transitional impairment charge reported as a cumulative effect of a change in accounting principle. The $276 million impairment is related to goodwill in certain reporting units in Wholesale Banking and Wells Fargo Financial, primarily Island Finance, a Puerto Rico based consumer finance company acquired in 1995. At December 31, 2001, the Company had $9.53 billion of goodwill, including $5.50 billion from the 1996 purchase of First Interstate Bancorp. Impairment of the remaining First Interstate goodwill is not permitted under FAS 142 since the former First Interstate operations must be combined with other similar banking operations for impairment testing. After the transitional impairment charge, remaining goodwill at March 31, 2002 was $9.7 billion, including goodwill from first quarter 2002 acquisitions.
"Wells Fargo attracted 5.2 million unique visitors to its web site in February 2002, up from 4.1 million in September 2001," said Clyde Ostler, group EVP of Internet Services. Wells Fargo's online offerings continue to receive recognition from business media and industry watchers, with Institutional Investor naming Wells Fargo the number two e-finance innovator - above all other banks. Gomez Advisors praised Wells Fargo for offering single sign-on to all products including mortgage and brokerage, the ability to link to bill pay, transfer and trading, and our new bill payment service. "The new Gomez scorecard awarded Wells Fargo Investments the number six ranking in its quarterly review of the nation’s leading full-service brokerages, and Speer & Associates selected Wells Fargo as the banking industry’s number one small business web site in North America."
"Revenues from middle market and large corporate customers through this channel grew nearly 20 percent over the last quarter. Wells Fargo also had 315,000 small business customers banking online, up 120 percent from a year ago. Wells Fargo's e-commerce processing was 8.5 percent of the nation’s $10 billion retail e-commerce sales in fourth quarter 2001, up from 6.7 percent in fourth quarter 2000."
Business Segment Performance
Wells Fargo has three lines of business for management reporting: Community Banking, Wholesale Banking and Wells Fargo Financial. Net income before the effect of accounting change of the three business segments was:
|(in millions)||First Quarter(1)|
|Community Banking||$ 980||$ 905|
|Wells Fargo Financial||84||81|
(1) Amounts in this table and in the following discussion are before the effect of accounting change for first quarter 2002 and have been restated to eliminate goodwill amortization for 2001.
(2) Results have been restated for prior periods to reflect changes in funds transfer pricing methodology to be consistent with first quarter 2002.
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.
- First quarter 2002 net income up 8 percent over first quarter 2001
- Average consumer cross-sell surpasses 4 products for the first time
- Same store sales up 16 percent over first quarter 2001
- First quarter mortgage origination volume of $68 billion, up 134 percent from first quarter 2001
- Home equity loan balances up 46 percent from the previous year
Net income was $980million in the first quarter, compared with $905million for the same period in 2001, an increase of 8 percent. Net interest income increased by $773million, or 40 percent, compared with first quarter 2001. The increase was primarily due to an increase in mortgages held for sale as well as lower borrowing costs. The provision for loan losses increased by $60million from 2001 due to the decline in the credit environment relative to last year. Noninterest income was down $243million in first quarter 2002 compared with 2001. Most of the decrease was due to a decline in market-sensitive income (securities available for sale gains and losses and equity investment income) and last year's gain on the sale of First Security branches. Noninterest expense increased by $330million over 2001 due primarily to mortgage origination volumes.
"Our average consumer household cross-sell ratio now exceeds four products, half way to our ambitious goal of eight," said Chief Operating Officer Les Biller. "We've focused on cross-sell for more than a decade. Improving our cross-sell ratio is key to achieving double digit profit growth. The more products we sell to a customer, the higher the profit because the added cost of selling another product to a customer often is only about ten percent of the cost of selling that same product to a new customer."
"To achieve our goal of an eight cross-sell, we must continue to sell more effectively. On a same store basis, store sales were up over 16 percent in the first quarter of 2002 over the first quarter of 2001. Daily core sales per salesperson averaged 4.02 in the first quarter of 2002 compared with 3.34 in the first quarter of 2001. This is a 20.4 percent increase in efficiency in our sales staff."
"Home Mortgage had an exceptional first quarter with originations of $68 billion, up 134 percent from the same period last year." said Mark Oman, group EVP for the Mortgage and Home Equity Group. "During the quarter, the mortgage servicing portfolio surpassed the half trillion dollar milestone, ending the quarter at $513 billion. Excluding subservicing, the servicing portfolio grew $32 billion or 7.6 percent, ending the quarter at $457 billion, with a weighted average note rate of 7.07 percent. This average note rate is the lowest in the last decade. The Home Equity portfolio continues to show very strong growth, ending the quarter at $28 billion, up 46 percent from March 31, 2001, and up 8 percent from year-end. According to SMR Research, Wells Fargo is now the number one home equity portfolio lender in the United States."
Wholesale Banking providesbusinesses across the United States with annual sales in excess of $10 million with a complete line of commercial, corporate and real estate banking products and services.
- Continue to attract new customers and focus on cross-sell
- Winner of NACHA's 2002 ACH Quality Award
- Over 13,000 customers banking online with our Commercial Electronic Office SMbusiness portal
"While loan growth remains challenging in light of the tentative recovery underway in the corporate sector, we continue to attract new commercial customers and have been successful in bringing the full array of products to our commercial relationships," said Dave Hoyt, group EVP of Wholesale Banking. "In 2002, our continued focus on cross-sell and partnering across business units resulted in a substantial increase in the average number of tracked referrals. In addition, we have developed tools internally to help streamline partnering across multiple business units. 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 was recently awarded NACHA's 2002 ACH Quality Award. This accomplishment recognizes Wells Fargo as an innovative leader in regard to not only ACH, but also our overall electronic services capabilities."
"We continue to see dramatic growth in the number of companies and their employees who use our Commercial Electronic Office (CEOSM) service," said Hoyt. "More than 13,000 companies and 62,000 employee users of those companies are now enrolled in the CEO service. Within our Commercial and Corporate Banking Group, a third of our customers have enrolled in the CEO service - the single secure online point of entry for all wholesale banking activities."
Wholesale Banking net income was $303million in the first quarter of 2002, up 7percent from $282 million in fourth quarter, 2001. Average loan balances and business deposits declined less than $1 billion from the fourth quarter 2001 in line with the overall sluggish economy. Loan outstandings and related transaction fees declined in the first quarter 2002, while insurance revenues and treasury management fees continued to experience double digit (annualized) growth. In line with the weak and volatile stock market, institutional investment assets under management and related fee income were relatively constant from the fourth quarter of 2001 to the first quarter of 2002.
Credit quality in the commercial and real estate lending businesses improved in the first quarter of 2002, with losses decreasing $21 million from $106 million in the fourth quarter of 2001 to the first quarter of 2002. "Portfolio risk management continues to be a key focus in our business," said Hoyt. "We are encouraged by these signs of improvement."
Under FAS 142, a transitional goodwill impairment charge of $98 million (after tax) was recognized in several reporting units. The remaining goodwill allocated to Wholesale Banking for FAS 142 purposes was about $2.5 billion. See Accounting Change for more information.
Wells Fargo Financial offers consumer and commercial finance, leasing, private label credit cards and dealer financing in 47 states, Canada, and the Caribbean.
- First quarter 2002 net earnings up 4 percent over first quarter 2001
- Receivables up 13 percent over prior year
"Good first quarter results have set the stage for solid performance in 2002," said Dan Porter, Chairman and Chief Executive Officer of Wells Fargo Financial. "Receivables growth was strong, particularly in loan portfolios secured by real estate and automobiles. Delinquency is improving across most business lines."
Wells Fargo Financial's net income was $84million in the first quarter of 2002, compared with $81million in the first quarter of 2001, an increase of 4 percent. Net interest income increased $49million, or 13 percent, due to lower interest costs combined with growth in average loans. The provision for loan losses increased $23million, or 22 percent, predominately due to growth in average loans and higher net write-offs in the loan portfolios.
Under FAS 142, a transitional goodwill impairment charge of $178 million (after tax) was recognized in certain international reporting units, substantially related to Island Finance, which provides consumer finance services in Puerto Rico. Wells Fargo Financial's remaining goodwill for FAS 142 purposes was $343 million. See Accounting Change for more information.
A recorded message reviewing Wells Fargo's first quarter 2002 results is available through April 19, 2002. Dial 800-633-8284 (domestic) or 858-812-6440 (international). Access code 20422388#. 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 $312 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.
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 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 Annual Report on Form 10-K for the year ended December31, 2001, including information incorporated into the Form 10-K from the Company’s 2001 Annual Report to Stockholders, filed as Exhibit 13 to the Form 10-K. See, for example, "Financial Review—Risk Management" included in the 2001 Annual Report to Stockholders and incorporated by reference into the Form 10-K.
Other factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 include ·business and economic conditions including the effects of the September 11, 2001 terrorist attacks and 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 "Regulation and Supervision" included in the Form 10-K and "Financial Review—Factors That May Affect Future Results" included in the 2001 Annual Report to Stockholders and incorporated by reference into the Form 10-K.
Any factor described in this news release, in the Company's Annual Report on Form 10-K for the year ended December31, 2001, or in the information incorporated by reference into the Form 10-K from the 2001 Annual Report to Stockholders could, by itself or together with one or more other factors, adversely affect the Company’s business, earnings and/or financial condition.