WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE OF $.84
SAN FRANCISCO — October 15, 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 in the text and tables of this release have been adjusted to exclude goodwill amortization. For 2002, the first quarter transitional goodwill impairment charge of $276 million is excluded.
Third Quarter Highlights:
Third Quarter Highlights:
- Record diluted earnings per share of $.84, up 12 percent from prior year’s $.75per share
- Record net income of $1.44 billion, up 10 percent from prior year’s $1.31billion
- Return on assets of 1.78 percent
- Return on equity of 19.38 percent
- Revenue, excluding market-sensitive income* and acquisitions, up 10percent from prior year
- Non-performing assets down $126 million, or 7 percent, from second quarter 2002
|Diluted EPS||$ .84||$ .75||12 %||$ 2.46||$ 2.20||12 %|
|Net Income (in millions)||1,444||1,310||10||4,244||3,826||11|
|Return on Assets||1.78 %||1.80 %||(1)||1.80 %||1.83 %||(2)|
|Return on Equity||19.38||19.27||1||19.69||19.23||2|
|Net Interest Margin||5.52||5.40||2||5.62||5.31||6|
*Market-sensitive income is net gains and
losses on debt securities available for sale and equity
** 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.
Wells Fargo & Company (NYSE:WFC) reported record diluted earnings per common share of $.84 for the third quarter of 2002, compared with $.75 in the third quarter of 2001, up 12 percent. Net income was a record $1.44 billion, up 10 percent from $1.31billion in the third quarter of 2001. For the first nine months of 2002, net income was a record $4.24 billion, or $2.46 per share, compared with $3.83 billion, or $2.20 per share, for the first nine months of 2001, an increase in earnings per share of 12 percent. All net income and per share data for the first nine months of 2001, described above, exclude the non-cash impairment and other special charges recorded in second quarter 2001 of $1.16 billion after tax, or $.67 per share.
"Wells Fargo achieved double-digit revenue growth for the sixth consecutive quarter, a remarkable achievement given the slow economy," said Chairman and Chief Executive Officer Dick Kovacevich. "Our ten percent growth in revenue, excluding market-sensitive income and acquisitions, compared with the same period last year, makes Wells Fargo the only large financial institution that I’m aware of that grew both revenue and profits at double-digit rates, while credit losses and non-performing loans declined compared with last year. Our earnings are on track for a record year in 2002 as we remain focused on our vision of satisfying all our customers’ financial needs and helping them succeed financially.
Our industry-leading performance was due to the diversity within and consistency of our business model and, most importantly, to the talent, experience and partnering of our 134,000 team members. They remain customer-focused. They’re gaining market share by understanding customers’ needs, selling them additional products that better satisfy those needs, and serving them when, where and how they want to be served. They’re working as one team bringing to customers the best experts in Wells Fargo to help customers become financially successful. Our people remain disciplined risk takers relative to loan pricing and underwriting, which is why our credit quality, overall, has behaved reasonably well despite the weak economy. Our people have stayed focused on doing the right thing for our customers, not what is fashionable or expedient. We are earning more of our customers’ business and gaining market share from our competitors not just in traditional banking, but in every segment of the broad-based financial services industry in which we compete. We believe we’re well positioned to continue to grow market share in the years ahead.
The diversity of our revenue sources, loan portfolio and geography enables us to grow in any economic cycle, since money never decreases, it simply moves. Our credit quality stabilized because of our disciplined lending and conservative financial position."
"We’re pleased with another quarter of solid financial performance, achieved in a challenging economic and financial market environment," said Chief Financial Officer Howard Atkins. "Diluted earnings per share were $.84, up 12percent from $.75 per share in the third quarter of 2001, the fifth consecutive quarter of record earnings. Our third quarter performance reflected a continuation of broad-based, double-digit revenue growth, excluding market-sensitive income and acquisitions, improved credit quality and well-controlled expenses," said Atkins. Third quarter results included a net loss of $31 million in market-sensitive income compared with a net gain of $39 million, or $.01 per share, in the same period last year. Year-to-date diluted earnings per share of $2.46 were up 12 percent over the previous year, as adjusted for last year’s impairment and other special charges of $1.16 billion.
Excluding market-sensitive income and acquisitions, revenue increased 10 percent from third quarter 2001 and 13 percent for the first nine months of 2002 compared with the same period in 2001. "Growth in revenue, excluding market-sensitive income and acquisitions, reflected strong sales of consumer loans, home mortgages and core deposit products," said Atkins. Due to the decline in longer-term interest rates during the third quarter, the Company realized $121million in gains on certain longer-maturity mortgage-backed securities subject to prepayment risk. The Company also recorded $152 million of net writedowns in equity investments, the majority of which were in publicly-traded equity securities. At quarter end, the Company had net unrealized gains of $1.71 billion on bond and equity investments available for sale.
Loans averaged $181.8 billion for third quarter 2002 and $177.7 billion for the first nine months of 2002, up 11 percent and 10 percent, respectively, over the same periods a year ago. Adjusted for acquisitions, average loans in third quarter 2002 increased 9 percent from a year ago and 6 percent (annualized) from second quarter 2002. "We saw strong consumer loan growth, led by robust sales of home equity and home mortgage products," said Atkins. "Our average consumer loans increased 24 percent from the third quarter of 2001 and 27 percent (annualized) from the second quarter of 2002. Due to the ongoing strong mortgage refinancing activity, mortgage loans held for sale increased $11.8 billion from an average of $26.6 billion in the second quarter of 2002 to an average of $38.4 billion in the third quarter of 2002. Although we added new business customers, commercial loan demand remained essentially flat."
Average core deposits of $184.5 billion for third quarter 2002 grew $13.7 billion, or 8percent, since the third quarter of last year and $5.1 billion, or 11.3 percent (annualized), from second quarter 2002. Excluding acquisitions, average core deposits grew 6 percent since the third quarter of last year and 12 percent (annualized) from second quarter 2002. Interest and noninterest checking, market rate and other savings accounts grew in total $18.7billion, or 13 percent, from last year, and $6.1 billion, or 15 percent (annualized), from second quarter 2002. "These results reflected our success in growing primary account relationships in both Community Banking and Wholesale Banking as well as the increase in mortgage escrow balances," said Atkins.
Net Interest Income
Net interest income on a taxable equivalent basis was $3.7 billion in third quarter 2002, up 15 percent from third quarter of last year, largely due to solid growth in loans and mortgages held for sale, and increases in net interest margin from 5.40 percent a year ago to 5.52 percent in third quarter 2002. On a linked quarter basis, net interest income increased $55million, or 6 percent (annualized), due to a $9.9 billion increase in average earning assets, partly offset by a 14 basis point decline in the net interest margin. The earning asset growth of $9.9 billion included an increase of $11.8 billion in mortgages held for sale and $4.1 billion in consumer loans, offset by a $4.5 billion decline in the securities portfolio.
"The single largest driver of both the increase in earning assets and the decline in the margin during the quarter was the extraordinary volume we experienced with mortgage refinancing activity," said Atkins. As fundings built in the quarter, mortgage loans held for sale grew to $42.3 billion at September 30, 2002 from $24.7 billion at June 30, 2002. While the increase in mortgage loans held for sale had a positive impact on income, it was also a principal factor for the reduction in net interest margin since the loans in the warehouse during the third quarter yielded 45 basis points less on average than the second quarter due to the decline in mortgage interest rates. "Mortgage loans held for sale grew throughout the quarter as we processed a quarterly record $158 billion in applications. Based on our record quarter-end mortgage pipeline at September 30, 2002, of $89 billion, we expect mortgage loans held for sale to remain high throughout the fourth quarter 2002," said Atkins.
Excluding market-sensitive income and acquisitions, noninterest income increased 4percent in third quarter 2002 from third quarter 2001. "We experienced solid fee growth in many of our businesses, including deposit service charges, credit card fees, mortgage banking, and home equity lines and loans," said Atkins. "However, the weak stock market compared with the second quarter of 2002 negatively impacted trust and investment fees. Insurance revenue was down $35 million from the second quarter primarily due to normal seasonality in that business."
Noninterest expense was $3.41 billion in third quarter 2002 compared with $3.03billion in third quarter 2001 and $3.41 billion in second quarter 2002. "Most of the increase in noninterest expense from last year was attributable to the robust growth of Wells Fargo mortgage and home equity businesses," said Atkins. "Apart from mortgage and home equity, expenses were up 2.6 percent from third quarter 2001 and were down $93 million, or 3.5percent, from second quarter 2002. Despite the upward pressure on costs for health care and other employee benefits year over year, expenses have been contained due to our disciplined and focused expense management across the Company. The decline in expenses from the second quarter of 2002 to the third quarter was also in part due to the seasonality of our insurance business," said Atkins. Merger-related and integrated related expenses totaled $8 million in the third quarter of 2002.
The efficiency ratio of 56.4 percent in third quarter 2002 (54.6 percent excluding market-sensitive income and acquisitions) improved slightly from second quarter 2002.
"Third quarter credit results were in line with our expectations," said Chief Credit Officer David Munio. "While all of our credit metrics improved in the quarter, we continue to witness an uncertain economy that is growing at a slower pace than we would all like."
Third quarter credit losses were $415 million, or .91 percent of average loans outstanding (annualized), including $21 million of charges already provided for in the second quarter of 2002. As disclosed last quarter, these charges were due to the adoption of a new delinquency and loss recognition policy in the consumer finance businesses. Excluding these charges, third quarter credit losses of $394 million were essentially flat compared with the second quarter 2002, were equal to the quarterly provision of $395 million, and were well below the $454 million of losses recorded in the third quarter 2001. For the first nine months of 2002, the provision of $1.30 billion approximately equaled charge-offs.
"The improvement in third quarter losses from the prior year reflected our balanced and diversified loan portfolio," said Munio. "Wholesale losses were spread across a number of portfolios. Consumer losses remained stable compared to previous quarters and we believe our loss rates compared favorably to industry benchmarks. The consumer portfolios benefited from prudent credit standards and well managed collection efforts. At September 30, 2002, our allowance for loan losses was $3.86 billion, or 2.07percent of total loans outstanding."
September 30, 2002 non-performing assets of $1.74 billion, .9 percent of total loans outstanding, fell $126 million, or 7 percent, from the prior quarter and for the first time since the second quarter of 2001 are below 1 percent of total loans outstanding. "While we are pleased with the decline in non-performing assets, we remain cautious given the uncertain economy," said Munio.
"This quarter, wellsfargo.com was named the world’s best
commercial internet bank in terms of site design by Global Finance,"
said Clyde Ostler, Group EVP, Internet Services. "As of the end of the
quarter, Wells Fargo had more than 16,500 companies using the Commercial
, our online portal providing a
single point-of-entry for all wholesale services. Revenue from
middle-market and large corporate internet customers continued to grow, up
nearly 45 percent over year-end 2001."
"Wells Fargo online full-service brokerage also moved up to #5 on
Gomez's Summer 2002 scorecard," added Ostler, "and in a very difficult
market the number of WellsTrade®
accounts increased by 26 percent this quarter. In addition, we launched the
Wells Fargo Portfolio AnalyzerSM service, which gives
customers real-time information and guidance on their asset
"Wells Fargo was ranked the nation’s #1 consumer web site by Speer & Associates, and had a record month of more than 50,000 consumers signing up for bill pay in July alone. We reached 3.3 million active consumer customers this quarter, nearly 1 million of them using online bill pay."
"Wells Fargo was also rated the #1 small business site by Speer &
Associates. We reached nearly 275,000 active small business customers this
quarter, and rolled out our enhanced Wells Fargo Business Online Banking
PlusSM service, which allows different user access levels
for small businesses. According to the U.S. Department of Commerce, Wells
Fargo’s national market share of payments for retail e-commerce was
nearly 11 percent in the second quarter."
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)||Third Quarter|
||Year to Date|
|Community Banking||$ 1,068||$ 930||$ 3,049||$ 2,707|
|Wells Fargo Financial||92||85||251||249|
(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) recorded in first quarter
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
- Third quarter 2002 net income up 15 percent over third quarter 2001
- Same store core sales up 16 percent over third quarter 2001
- Third quarter mortgage origination volume of $89 billion, up
78 percent from third quarter 2001
- Home equity loan balances up 43 percent from September 30, 2001
"By satisfying all of our customers financial needs and helping them succeed financially, we continue to increase sales and better serve our customers," said John Stumpf, Group EVP, Community Banking. "On a same store basis, core sales were up 16 percent in the third quarter of 2002 compared with last year’s third quarter. In August alone, our team members sold one million total products across our broad product line. Sales of consumer checking and savings products continued to be strong, with third quarter results up 14 percent over the prior year, and consumer credit sales were up more than 11 percent on a same store basis. These strong sales results during a period of slow economic growth reflect the talent, motivation and energy of all of our team members."
"Last year, Wells Fargo set the mortgage industry record for originations at $202 billion. It took only nine months to break that record with 2002 year-to-date originations of $221 billion," said Mark Oman, Group EVP, Home and Consumer Finance. "Originations for the third quarter 2002 were a record $89 billion, up $27 billion over second quarter 2002 and the mortgage pipeline ended the quarter at a record $89 billion, up $41 billion from June 30, 2002. The business model continued to perform very well, as we have been able to continue to grow the servicing portfolio throughout this period of decreasing mortgage interest rates. The owned servicing portfolio now exceeds half-a-trillion dollars, ending the quarter at $510 billion, up $85 billion from year-end 2001. The portfolio’s weighted average note rate dropped to 6.87 percent, down from 7.18 percent at December 31, 2001. Reflecting the historically low rates, mortgage servicing rights were carried on the balance sheet at $4.4billion on September 30, 2002, down $1.8 billion from December 31, 2001.
We also experienced excellent growth in home equity loans, which increased to $34.1billion at September 30, up $10.2 billion, or 43 percent from one year ago, and up $2.8billion, or 35 percent annualized, from June 30, 2002. The credit quality of this portfolio continued to be very good."
Community Banking reported net income of $1,068million in the third quarter, compared with $930million for the same period in 2001, up 15 percent. Year-to-date earnings were $3,049 million, compared with $2,707 million in 2001, up 13 percent. Community Banking revenue was up 13 percent from the third quarter of last year. Net interest income increased by $405million, or 18 percent, compared with third quarter 2001, due primarily to growth in consumer loans, mortgages held for sale and deposits. Noninterest income was up $94million in third quarter 2002 compared with 2001, or 6 percent. Noninterest expense increased by $349million, or 16 percent, over 2001 due primarily to increased mortgage originations. The provision for loan losses decreased by $86million from 2001 due to the improvement in the credit environment relative to last year.
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
- Continued gains in banking relationships
- Commercial loan demand remained flat
- 8 percent increase in average deposits year-to-date
- Recognized by Global Finance magazine as "Best
Corporate/Institutional Integrated Web Site"
"In our commercial and wholesale business, we continued to focus on building high quality relationships, said Dave Hoyt, Group EVP, Wholesale Banking. "The amount of booked referrals between business units continued to increase as a result of our cross-sell initiatives, although our overall revenue and earnings growth slowed in the third quarter due to weaker economic and market conditions. The average number of products sold to our commercial and large corporate customers increased from 4.6 to 4.8 compared with the third quarter of last year. The number of commercial customers buying eight or more products increased 13 percent," according to Hoyt.
Wholesale Banking year-to-date earnings were up 8 percent compared with a year ago. Third quarter 2002 earnings were $290 million, basically flat to the third quarter of 2001 and down 16 percent from second quarter 2002. Revenue of $1.11billion was also relatively flat compared with a year ago and down 12 percent from second quarter 2002, primarily due to lower income from the capital markets and seasonal declines in third quarter insurance revenues. Third quarter expenses were up 5 percent from a year ago and down 9 percent from second quarter 2002, again due in large part to capital markets activities and the seasonality of the insurance business. Provision for credit losses declined $2 million from a year ago and by $13 million from the second quarter 2002. In addition, non-performing assets declined $63 million, from $876 million as of June 30, 2002 to $813 million as of September 30, 2002.
Wells Fargo Financial
offers consumer and
commercial finance, leasing, private label credit cards and dealer
financing in 47 states, Canada, and the Caribbean.
- U.S. consumer real estate secured receivables grew $240
million in the quarter, $747 million year to date
- U.S. auto group receivables grew $221 million this
"Wells Fargo Financial achieved good results in the third quarter with net earnings of $92million, up 8 percent from $85 million in the third quarter of 2001," said Dan Porter, chairman and chief executive officer of Wells Fargo Financial. Net interest income increased $48million, or 11 percent, due to lower funding costs combined with growth in average loans. "Year-to-date, our receivables grew nearly $2 billion. Both our U.S. consumer business and our auto finance group have had strong years through September 30, 2002. At the same time, we saw solid improvement in delinquency, down almost 2 percent from last year and well within our anticipated levels."
A recorded message reviewing Wells Fargo’s results is available through October 18, 2002. Dial 800-642-1687 (domestic) or 706-645-9291 (international). Access code 5981107.
Wells Fargo & Company is a diversified financial services company with $334 billion in assets, providing banking, insurance, investments, mortgage and consumer finance from more than 5,600 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 release include the statement that our earnings are on track for a record year in 2002 and the statement that we expect mortgage loans held for sale to remain high throughout the fourth quarter 2002.
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 June 30, 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 · legislation and 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 · reliance on other companies for infrastructure components · 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.
Any factor described in this news release, in the Form 10-Q or in the Form 10-K, or in any information incorporated by reference therein, could, by itself or together with one or more other factors, adversely affect the Company’s business, earnings and/or financial condition.