WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE OF $.82
SAN FRANCISCO — July 16, 2002
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In accordance with FAS 142, effective January 1, 2002, amortization of goodwill was discontinued. For comparability, all amounts for 2001 of this release have been adjusted to exclude goodwill amortization. For 2002, the first quarter transitional goodwill impairment charge of $276 million is excluded.
Second Quarter Highlights:
- Record diluted earnings per share of $.82, up 17 percent from prior year's $.70per share*
- Record net income of $1.42 billion, up 17 percent from prior year's $1.22billion*
- Return on assets of 1.83 percent
- Return on equity of 19.72 percent
- Core revenue (excludes market-sensitive revenue and acquisitions) up 15 percent from prior year
- Net credit losses down 21 percent from first quarter 2002 and down 9 percent from second quarter 2001
Wells Fargo & Company (NYSE:WFC) reported record diluted earnings per common share of $.82 for the second quarter of 2002, compared with $.70 in the second quarter of 2001, up 17 percent. Net income was a record $1.42 billion, up 17 percent from $1.22 billion in the second quarter of 2001. For the first six months of 2002, net income was a record $2.80 billion, or $1.62 per share, compared with $2.52 billion, or $1.45 per share, for the first six months of 2001, an increase in earnings per share of 12 percent. All net income and per share data for 2001 described above exclude the impairment and other special charges recorded in second quarter 2001 of $1.16 billion after tax, or $.67 per share.
|2001*||%change||Six months ended June 30,|
|Diluted EPS||$ .82||$ .70||17||$1.62||$1.45||12|
|Net Income (in millions)||1,419||1,216||17||2,797||2,516||11|
|Return on Assets||1.83||1.75||5||1.81||1.85||(2)|
|Return on Equity||19.72||18.40||7||19.86||19.21||3|
|Net Interest Margin||5.66||5.31||7||5.67||5.26||8|
*Excludes second quarter 2001 impairment and other special charges of $1.16 billion (after tax), or $.67 per share, predominantly related to other-than-temporary impairment of publicly traded and private equity securities, primarily in the venture capital portfolio
Now, about our outstanding performance. We've always believed, regardless of economic cycles, that the key to our bottom line really is the top line. Our 15 percent growth in core revenue compared with the same period last year, excluding market-sensitive revenue and acquisitions, shows Wells Fargo continues to focus successfully on its vision of satisfying all our customers' financial needs. The result is continued market share growth. We see ourselves as a financial services company, much more than a bank, in an industry five times larger than banking. Our continued double-digit revenue growth is the result of the outstanding efforts of our 134,000 team members to provide 'needs-based' selling, outstanding service, and valuable advice to help our customers achieve their financial goals. Our recent ranking by Jupiter Research as the USA's #1 internet bank further underscores our ability to serve our 20 million customers when, where and how they want to be served.
We're particularly proud of our progress during the quarter in satisfying the financial needs of our increasingly diverse communities, especially the estimated three million Mexican nationals who play such an indispensable role in our country's economy. As the USA's largest NAFTA bank and the first large financial services company to promote acceptance of the Matricula card, since last November Wells Fargo has enabled more than 30,000 Mexican nationals to open bank accounts, enter the mainstream of financial services and perhaps some day own a home of their own. Also during the quarter, we responded to the growing need for a cost-effective, safe and convenient way for customers to wire money to Mexico. We expanded our InterCuenta Express wire transfer service in this $9 billion a year segment by partnering with Bancomer, Mexico's largest bank, as the new receiving agent for our wire transfer business."
"We're very pleased with our solid financial performance in the second quarter of 2002," said CFO Howard Atkins. "On a comparable basis of accounting for goodwill, diluted earnings per share were $.82, up 17 percent from the second quarter 2001 $.70 per share (excluding second quarter 2001 non-cash impairment and other special charges), and have grown steadily each quarter since second quarter 2001. Our second quarter performance reflected a continuation of double-digit core revenue growth (up 15 percent), prudent expense growth (up 10 percent), and reductions in net credit losses," said Atkins. Second quarter results included a net loss of $13 million in market-sensitive revenue (fixed income and equity investments) compared with a net gain of $86 million, or $.03 per share, in the same period last year (excluding the second quarter 2001 non-cash impairment). On the same basis, year-to-date diluted earnings per share of $1.62 were up 12 percent over the previous year.
Excluding market-sensitive revenue and acquisitions, revenue increased 15 percent from second quarter 2001 and also 15 percent for the first six months of 2002 compared with the same 2001 period. "Growth in core revenue reflected a continuation of strong sales of consumer loans and core deposit products, solid net interest margin, and broad-based growth in fee income," said Atkins. Market-sensitive revenue for second quarter 2002 included $45million in gains realized on fixed income securities sold to shorten the duration of the bond portfolio, offset by a loss of $58 million, largely due to write-downs, net of realized gains, in private equity investments.
Loans averaged $179.2 billion for second quarter 2002 and $175.7 billion for the first six months of 2002, up 11 percent and 9 percent, respectively, over the same periods a year ago. Adjusting for acquisitions, average loans in second quarter 2002 increased 9 percent from a year ago and 14 percent (annualized) from the first quarter of 2002. "Led by continued strong sales of home equity and home mortgage products, our average consumer loans grew 21percent from the second quarter of 2001 and 22 percent (annualized) from the first quarter of 2002," said Atkins. "Although we saw an increase in loan applications from smaller middle market commercial customers, commercial loan demand in total was still essentially flat."
Average core deposits of $179.4 billion for second quarter 2002 grew $11.2 billion, or 7 percent, since second quarter last year. Interest and noninterest checking, market rate and other savings accounts grew in total $17.5 billion, or 13 percent, since last year and $2.5billion, or 7 percent (annualized), from the first quarter of 2002. Excluding the acquisition of Marquette Banks, growth in these deposit categories was 11 percent from last year and 5 percent (annualized) on a linked quarter basis.
"Growth in checking, market rate and other savings accounts reflected our successful efforts to build primary account relationships as well as the increase in escrow balances from our mortgage business," said Atkins.
Net Interest Income
Net interest income on a taxable equivalent basis was $3.67 billion in second quarter 2002, up 21 percent from second quarter of last year, largely due to solid growth in loans and increases in net interest margin from 5.31 percent a year ago to 5.66 percent in second quarter 2002. Net interest income was essentially flat on a linked quarter basis since the net interest margin and total average earning assets were both essentially the same in second quarter as in first quarter. A $7.1 billion increase in average consumer and commercial loans was offset in the second quarter by a $10.6 billion decline in average mortgage loans held for sale related to the first quarter moderate slowdown in the mortgage pipeline. "With the recent decline in longer term interest rates, mortgage applications once again surged late in the second quarter. The mortgage pipeline at June 30, 2002 was a quarter-end record and mortgage loans held for sale began to build again although at lower spreads due to a flattening in the yield curve," said Atkins.
Excluding market-sensitive income and acquisitions, noninterest income increased 9percent in second quarter 2002 from second quarter 2001 and 18 percent (annualized) from first quarter 2002. "Fee income growth was solid across all business lines in the second quarter, including increases in deposit service charges, credit card fees, trust and investment management and mortgage, reflecting the breadth of our product line," said Atkins. Based on claims experience and conservative projections for used car prices, the Company took a second quarter 2002 charge of $53 million for estimated auto residual losses over the remaining lease terms that are not expected to be covered under loss contingency provisions in its various residual insurance policies. The losses are primarily concentrated in one older, liquidating portfolio.
Noninterest expense was $3.40 billion in second quarter 2002 compared with $3.10billion in second quarter 2001 and $3.33 billion in first quarter 2002. Adjusted for acquisitions and merger-related expenses of $14 million, noninterest expense was up 10percent from a year ago and 8 percent (annualized) from first quarter 2002. Second quarter expenses also included one-time costs of $21 million for premises writedowns and sublease terminations on recently vacated buildings.
The efficiency ratio was 56.6 percent in the second quarter 2002 and 57.4 percent in the second quarter 2001 (excluding second quarter 2001 impairment and other special charges). Excluding market-sensitive revenue, the efficiency ratio was 56.5 percent in second quarter 2002 compared with 58.3 percent in second quarter 2001 and 56.0 percent in first quarter 2002.
"Our credit results continued to be encouraging. Losses have declined significantly in each of the last two quarters and for second quarter 2002 were below last year's second quarter," said chief credit officer David Munio. "However, due to the uncertain economy and the instability in the corporate environment, the potential for higher credit losses at some point remains."
Second quarter credit losses of $387 million, .87 percent of average loans (annualized), were down 28 percent from the high of $536 million (1.27 percent) in the fourth quarter of 2001, 21 percent lower than the $487 million (1.15 percent) recorded in the first quarter of 2002 and 9 percent lower than the $427 million (1.06 percent) in the same quarter last year.
"Second quarter losses declined in our middle market commercial business segments due to early problem recognition last year and more recently somewhat stabilized business conditions," said Munio. "In our consumer portfolios we continue to be encouraged by lower than projected bankruptcies and relatively stable loss rates. Our well diversified portfolio continued to contribute positively to our credit results. The provision for loan losses was $410million in the second quarter, $23 million in excess of net losses largely because the Company is adopting a loss recognition policy in certain consumer finance businesses under which loss recognition will be based primarily on contractual delinquency rather than a combination of contractual delinquency and recency. The total allowance for loan losses of $3.88 billion was 2.10 percent of total loans at June 30, 2002, compared with 2.15 percent at March 31, 2002 and 2.28 percent at June 30, 2001.
June 30, 2002 nonperforming assets of $1.86 billion, 1.01 percent of total loans outstanding, increased $51 million, or 3 percent, from March 31, 2002, and would have declined 3 percent excluding a single, large commercial credit transferred to nonperforming loans during the quarter.
Jupiter Research ranked wellsfargo.com the #1 internet banking site for its ability to attract, activate and retain customers and for the second quarter in a row, the business section of wellsfargo.com was named top small business banking site by Speer & Associates, a leading financial services consulting firm. The WellsTrade® online brokerage service maintained its Top 10 Gomez ranking and moved up to #3 in the one-stop shopper category.
"Wells Fargo has 3.2 million active consumer internet customers who continue to do more business with us online," said Clyde Ostler, Group EVP, Internet Services. "For example, the number of new WellsTrade IRA assets brought in during IRA season was up 326 percent over the prior year. Wells Fargo has 365,000 small business customers banking online, up 105 percent from a year ago. Approximately 75 percent are active. We recently introduced an enhanced small business bill payment service and more than 17,000 customers have enrolled already. Also, by the end of the quarter, more than 15,000 companies were using Wells Fargo's Commercial Electronic OfficeSM. This number of corporate internet customers represents a 100 percent increase from a year ago."
In June, Wells Fargo announced it was selected to provide secure internet payment-processing services for PayPal, a leading internet payment service for online auctions, e-commerce and person-to-person payment transactions between individuals or businesses.
Business Segment Performance
Wells Fargo has three lines of business for management reporting: Community Banking, Wholesale Banking and Wells Fargo Financial. Net income of the three business segments was:
|(in millions)||Second Quarter|
|2001(1)||Year to Date|
|Community Banking||$ 1,001||$ 872||$ 1,981||$ 1,777|
|Wells Fargo Financial||75||83||159||164|
(1) Results have been restated for 2001 to reflect changes in funds transfer pricing methodology to be consistent with 2002 and to eliminate goodwill amortization for 2001. Results for 2001 also exclude impairment and other special charges of $1.16 billion (after tax) recorded in the second quarter.
(2) Amounts in this column and in the following discussion exclude the transitional goodwill impairment charge of $276 million (after tax) taken in 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.
- Second quarter 2002 net income up 15 percent over second quarter 2001
- Same store core sales up 24 percent over second quarter 2001
- Second quarter mortgage origination volume of $60 billion, up 33 percent from second quarter 2001
- Home equity loan balances up 13 percent from March 31, 2002
"We continue to sell more to our existing customers and attract new customers thanks to the efforts of our team members and their focus on cross-selling and providing better service," said Chief Operating Officer Les Biller. "Benefiting in part from the 2001 First Security conversion, same store core sales increased 24 percent in the second quarter of 2002 over the second quarter of 2001. Daily core sales per salesperson on a same store basis increased from 3.5 to 4.6 - up 31 percent. California is still experiencing a stronger than normal increase due to the continued focus on leveraging new sales opportunities since the Norwest/Wells Fargo merger."
"Many core product categories had double-digit second quarter increases reflecting market share gains and a strong sales focus," said John Stumpf, Group EVP, Community Banking. "On a same store basis the number of checking accounts opened was up 13 percent, savings accounts were up 15 percent, and consumer credit sales were up 14 percent in the second quarter of 2002 compared with last year's second quarter."
"Reflecting the continued strength in the housing sector and low mortgage rates, both of our home finance businesses had another strong quarter," said Mark Oman, Group EVP, Mortgage and Home Equity. "Home equity loans increased in the second quarter a record $3.6billion or 13 percent, ending the quarter at $31.3 billion. Mortgage originations for the quarter were $60 billion, up 33 percent over the same quarter last year, bringing year-to-date originations to $128 billion. Driven by these strong originations, the owned servicing portfolio grew $26 billion in the quarter to $483 billion, while the weighted average note rate dropped to 7.01 percent. Reflecting a resurgence in applications during the quarter, the home mortgage pipeline ended the quarter at $47.9 billion, up $10.3 billion from March 31, 2002, and up $5.0billion from year end 2001."
Community Banking reported earnings of $1.0 billion in the second quarter 2002 compared with $872 million in second quarter 2001 (excluding second quarter 2001 impairment and other special charges), up 15 percent. On the same basis earnings were $1.98billion in the first six months of 2002 compared with $1.78 billion for the same period in 2001, up 11 percent. Community Banking revenue was up 10 percent from second quarter 2001, based on strength in consumer lending, deposit growth and net interest margin improvements. The 10 percent increase in total revenue was comprised of a 26 percent increase in net interest income and an 8 percent decline in noninterest income due primarily to $338 million increase in mortgage servicing rights impairment provision. Noninterest expense increased by $242 million, or 11 percent, due primarily to increased expense associated with strong mortgage origination growth. The provision for credit losses declined $54 million due to the improved credit environment.
Wholesale Banking provides businesses across the United States with annual sales in excess of $10 million with a complete line of commercial, corporate, treasury management, investment, insurance, capital markets and real estate banking products and services.
- Double-digit (14 percent) increase in net income from first quarter 2002
- Continued successful focus on cross-selling among business units
- Over 15,000 companies banking online with our Commercial Electronic Office business portal, up 15 percent over last quarter
"We're pleased with the results from this quarter, particularly given the uncertain economic environment," said Dave Hoyt, Group EVP, Wholesale Banking. "Net income increased 14percent from the first quarter 2002. We continue to attract new customers and expand relationships with existing customers, and continue to view the current economic environment as an opportunity to acquire new quality relationships."
"Loans outstanding remained flat during the quarter but we continue to actively pursue new quality lending opportunities and continue our focus on being consistent, reliable providers of credit and other financial products throughout the entire economic cycle. We're encouraged by a decrease in credit losses but continue to carefully monitor our portfolio and remain cautious due to uncertain economic conditions."
"Noninterest income growth continued to be strong. Our continued focus on cross-selling resulted in a significant increase in the number of booked referrals between business units. The average number of products sold to our commercial customers improved from 4.4 to 4.6 compared with second quarter of last year. The number of our commercial customers with eight or more products increased 14 percent, those with 12 or more increased 30 percent compared with second quarter of last year. We have developed tools internally to help facilitate effective partnering across multiple business units, and continue to provide our internal partners with the information and training they need to offer our customers the right products, at the right time, via the right channels."
"We continue to see strong growth in the number of companies who use our Commercial Electronic Office business portal. Over 15,000 companies and 75,000 of their employees are now enrolled in our CEOSM service, an increase of 100 percent from a year ago. We continue to add new and enhanced functionality to the CEO service -- the single, secure online point of entry for their banking."
Wholesale Banking earned $346 million in the second quarter 2002 compared with $273million in the second quarter 2001 (excluding second quarter 2001 impairment and other special charges), an increase of 27 percent. Net earnings on the same basis were $649 million in the first six months of 2002 compared with $575 million for the same period of 2001, an increase of 13 percent. Wholesale Banking revenue was up 14 percent from the second quarter 2001. Revenue growth was comprised of a $33 million (6 percent) increase in net interest income and a $126 million (22 percent) increase in noninterest income due primarily to higher insurance revenue, including the acquisition of Acordia in second quarter 2001, and treasury management services. Noninterest expense increased by $45 million, or 7 percent, due primarily to the Acordia acquisition along with increased personnel expenses related to increased sales and service staff. The provision for credit losses increased $2 million from the second quarter of 2001 and increased $48 million in the first six months of 2002 compared with the first six months of 2001.
Wells Fargo Financial offers consumer and commercial finance, leasing, private label credit cards and dealer financing in 47 states, Canada, and the Caribbean.
- Receivables up 16 percent over prior year
- Real-estate secured receivables in the U.S. consumer business up 17 percent or $500 million in the first six months, now total $3.5 billion
- Receivables in the U.S. automobile business rose 13 percent or $350 million in the first six months, now total $3.0 billion
"Our receivables growth remained strong, especially in the real-estate secured and U.S. automobile portfolios," said Dan Porter, chairman and CEO of Wells Fargo Financial. "Contractual delinquency continued to improve and credit losses remain within anticipated ranges."
Wells Fargo Financial's net income was $75million in the second quarter of 2002, compared with $83million in the second quarter of 2001. The decline in profitability was primarily due an increase in the provision for the adoption of a new loss recognition policy at our U.S. branches based primarily on a contractual delinquency method of loss recognition rather than a combination of recency and contractual delinquency. Net interest income increased $44million, or 11 percent, due to lower funding costs combined with growth in average loans. Reflecting the provision for a new loss recognition policy and growth in average loans, provision for loan losses increased $35 million.
A recorded message reviewing Wells Fargo's results is available through July 19, 2002. Dial 800-642-1687 (domestic) or 706-645-9291 (international). Access code 4733604. 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 $315 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 and 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, Items 2 and 3 of the Form 10-Q and "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 Form 10-Q and Form 10-K include · business and economic conditions · 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, for example, "Factors That May Affect Future Results" in the Form 10-Q and "Regulation and Supervision" in the Form 10-K.
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