WELLS FARGO REPORTS RECORD QUARTERLY AND ANNUAL EARNINGS PER SHARE
SAN FRANCISCO — January 21, 2003
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Year 2002 Highlights:
- Record diluted earnings per share of $3.32, up 12 percent from prior year's $2.97
- Record net income of $5.7 billion, up 11 percent from prior year's $5.2 billion
- Return on assets of 1.77 percent
- Return on equity of 19.6 percent
- Revenue, excluding market-sensitive income* and acquisitions, up 13 percent from prior year
- Non-performing assets down $116 million, or 6 percent, from December 31, 2001
Fourth Quarter 2002 Highlights:
- Record diluted earnings per share of $.86, up 12 percent from prior year's $.77
- Record net income of $1.5 billion, up 10 percent from prior year's $1.3 billion
- Return on assets of 1.71 percent
- Return on equity of 19.34 percent
- Revenue, excluding market-sensitive income* and acquisitions, up 11 percent from prior year
- Non-performing assets down $40 million, or 2 percent, from September 30, 2002
|Diluted EPS||$ .86||$ .77||12%||$ 3.32||$ 2.97||12%|
|Net Income (in millions)||1,466||1,328||10||5,710||5,151||11|
|Return on Assets||1.71%||1.73%||(1)||1.77%||1.80%||(2)|
|Return on Equity||19.34||19.47||(1)||19.60||19.28||2|
|Net Interest Margin||5.44||5.50||(1)||5.57||5.36||4|
*Market-sensitive income is net gains and losses on debt securities available for sale and equity investments.
** 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 $.86 for the fourth quarter of 2002, compared with $.77 in the fourth quarter of 2001, up 12 percent. Net income was a record $1.5 billion, up 10 percent from $1.3 billion in the fourth quarter of 2001. For the full year 2002, net income was a record $5.7 billion, or $3.32 per share, compared with $5.2 billion, or $2.97 per share, for the full year 2001, an increase in earnings per share of 12 percent. All net income and per share data for 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.
"It was a year of outstanding, industry-leading performance for Wells Fargo, despite the uncertain economy and the global war on terrorism," said Chairman and CEO Dick Kovacevich. "Our 13 percent growth in revenue for the year, excluding market-sensitive income and acquisitions, was among the best, if not the best, of all large financial institutions in the United States - the result of our unwavering commitment to our vision, values and time-tested business model and the outstanding efforts of our 134,000 talented team members who are achieving industry-leading results regardless of the economic environment. Our record earnings per share were up 12 percent for the year, excluding the transitional accounting charge for goodwill impairment of $276 million, recorded in the first quarter of 2002, and the $1.16 billion impairment and other special charges recorded in last year's second quarter. In a year when many of our peer companies took special charges for losses, our non-performing loans and net charge-offs both declined, a tribute to our team's credit discipline and to the diversity of our revenue sources, loan portfolio and geography.
So we can continue offering financial products and services that save our customers time and money, it's absolutely critical that the promise of one-stop financial shopping - as intended by the Gramm-Leach-Bliley Act - not be eroded by a patchwork of differing local ordinances and state laws. That would be expensive and confusing for customers who live and work in a highly mobile society. What's needed is a national solution that protects the ability of financial services companies to use technology to help customers by storing, analyzing and sharing customer information within a family of companies, such as Wells Fargo, while permitting customers the choice to 'opt-out' for some marketing practices. Our customers trust us to protect information about them and use it to offer them the best products and services for their needs as they move through their financial life cycle. Our customers see us as one brand, not separate businesses, and they come to us because they expect our businesses to work together to help them with all their financial needs."
"Despite the challenges of a soft economy and volatile markets, our financial performance was once again very solid," said Chief Financial Officer Howard Atkins. "Diluted earnings per share were $.86, up 12 percent from $.77 in the fourth quarter of 2001. This was the sixth consecutive quarter of record earnings per share, and the seventh consecutive quarter of double-digit revenue growth, excluding market-sensitive income and acquisitions. Credit quality was stable and expenses well-managed." Full year 2002 earnings per share of $3.32 were up 12 percent over 2001, as adjusted for last year's non-cash impairment and other special charges of $1.16 billion after tax.
Excluding market-sensitive income and acquisitions, revenue increased 11 percent from the fourth quarter 2001 and 13 percent for the full year 2002 compared with 2001. Total revenue (unadjusted) for the full year 2002 increased by 22 percent from a year ago. "Revenue growth reflected solid, broad-based sales of core deposit, consumer loan and mortgage products and a modest improvement in trust and investment fees and income from capital markets activities," said Atkins.
In line with the decline in long-term interest rates during the quarter, the Company realized $91 million in gains on sales of certain mortgage-backed securities. The Company also recorded $96 million of net write-downs on equity investments during the quarter, most of which was for private equity investments. At December 31, 2002, the Company had net unrealized gains of $1.7 billion on equity and debt securities available for sale.
Loans averaged $183.8 billion for fourth quarter 2002 and $179.3 billion for the full year 2002, up 10 percent over the same periods a year ago. Adjusted for acquisitions, average loans in fourth quarter 2002 increased 8 percent from a year ago and 5 percent (annualized) from third quarter 2002.
"Excluding mortgage loans held for sale, which increased $18.7 billion in the quarter, average consumer loans increased $13 billion, or 24 percent, from the fourth quarter of 2001 and $3 billion, or 19 percent (annualized), from the third quarter of 2002," said Atkins. "The growth in consumer loans was driven by continued strong demand for home equity loans and lines, as well as solid growth in credit card balances and consumer finance receivables. For the first time in many quarters, commercial loans increased in the fourth quarter. Average commercial loans were up $144 million, or 1 percent. At year-end, commercial loans of $47.3 billion were up 4 percent (annualized) from September 30, 2002."
Average core deposits of $194.9 billion for fourth quarter 2002 grew $19.1 billion, or 11 percent, from the fourth quarter of last year and $10.4 billion, or 23 percent (annualized), from third quarter 2002. Excluding acquisitions, average core deposits grew 9 percent since the fourth quarter of last year and about 20 percent (annualized) from third quarter 2002. Average interest- and noninterest-bearing checking accounts and market rate and other savings accounts grew $23.0 billion, or 15 percent, from last year, and $11.4 billion, or 28 percent (annualized), from third quarter 2002. "We saw strong commercial and consumer deposit growth from new primary account relationships in Wholesale Banking and Community Banking, and increases in mortgage escrow balances from growth in our mortgage servicing portfolio and from mortgage refinancing activities," said Atkins.
Net Interest Income
Net interest income on a taxable equivalent basis was $3.89 billion in fourth quarter 2002, up 13 percent from fourth quarter of last year. This increase reflected a 14 percent growth in average earning assets, largely due to solid growth in loans and mortgages held for sale, offset by a modest decline in the net interest margin from 5.50 percent in fourth quarter 2001 to 5.44 percent in the fourth quarter 2002. On a linked-quarter basis, net interest income rose 18 percent (annualized). The principal driver was an $18.7 billion increase in average mortgage loans held for sale which followed the record $89 billion mortgage origination pipeline at the start of the quarter. The 8 basis point reduction in the net interest margin on a linked-quarter basis was primarily due to the additional mortgage warehouse loans originated at lower yields in the fourth quarter than in the third quarter. "Based on a mortgage pipeline of $69 billion at December 31, 2002, we believe that mortgages held for sale balances will remain high in the first quarter of 2003," said Atkins.
Excluding market-sensitive income and acquisitions, noninterest income in fourth quarter 2002 increased 10 percent from fourth quarter 2001 and 11 percent from third quarter 2002. "Virtually all of our businesses achieved solid fee income growth in 2002. In addition to mortgage banking, business growth contributed solidly to increases in deposit service charges, trust and investment fees, credit card fees, capital markets activities, foreign exchange and insurance fees from Acordia, our commercial insurance brokerage," said Atkins.
Noninterest expense was $3.8 billion in fourth quarter 2002 compared with $3.5 billion in fourth quarter 2001 and $3.4 billion in third quarter 2002. "The majority of the expense growth from last year and on a linked-quarter basis came from strong volumes in our mortgage and home equity businesses," said Atkins. "On a linked-quarter basis, expenses were up 11 percent, or $363 million. About half of this increase related to processing mortgage and home equity volume growth and approximately $100 million related to expenses in the fourth quarter to enhance revenue and reduce operating costs, including a new, regional banking systems platform, business line restructuring, corporate property and equipment write-downs, and internet initiatives. Due to growth in mortgage volume and the additional expenses listed above, the efficiency ratio was 58.1 in fourth quarter 2002 compared with 56.4 in third quarter 2002."
"Fourth quarter 2002 credit results reflected slightly lower non-performing assets and slightly higher losses than in the third quarter, but were well below the credit losses and non-performing asset levels of the fourth quarter of 2001. The results were within our expected range and consistent with our view of the economy," said Chief Credit Officer Dave Munio. "All consumer lines of business showed strong and stable performance. Wholesale losses for the period were slightly above those of the third quarter and were spread over several lines of business and geographies."
Fourth quarter credit losses were $438 million, or .95 percent of average loans outstanding (annualized), compared with $415 million, or .91 percent, in the third quarter of 2002 and significantly improved from $536 million, or 1.27 percent, in the fourth quarter 2001. Full year 2002 net credit losses were $1.73 billion, or .96 percent of average loans outstanding, compared with $1.78 billion, or 1.09 percent, in 2001. "The full year 2002 results demonstrated the positive impact of our diversified loan portfolio and were aided by good underwriting, well-managed collections and a sound credit culture," said Munio.
The fourth quarter provision expense was $438 million, equal to actual charge-offs. Full year provision expense of $1.73 billion also approximately equaled full year losses. "Our year-end 2002 allowance of $3.86 billion represented more than two times coverage of non-performing assets. While our allowance to total loans ratio was lower than a year ago, most of our loan growth during 2002 came from home equity loans and residential first mortgages, loan categories that have historically involved lower risk."
Non-performing assets at December 31, 2002 were $1.70 billion, .9 percent of total loans, down $40 million from the prior quarter and down $116 million from fourth quarter 2001. "While we are comfortable with our year-over-year improvement in net losses and non-performing assets, we remain cautious about future loan losses and non-performing assets because of the uncertain economy," said Munio.
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)||Fourth Quarter|
|Wells Fargo Financial||109||85||360||334|
(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 2002.
Community Bankingoffers 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.
- Net income up 11 percent in 2002
- Same store sales up 16 percent in 2002
- checking accounts up 12 percent in fourth quarter
- consumer credit sales up 17 percent in fourth quarter
- Loan balances up 15 percent in 2002
- Industry record mortgage originations of $333 billion in 2002
- named "Best of the Web" for banking, bill pay and brokerage
services by Forbes.com
- reached 1 million online bill pay customers
- grew new WellsTrade® accounts 24 percent in 2002
"By focusing on our vision of satisfying all of our customers' financial needs, we achieved outstanding sales results in 2002 during a challenging economic environment," said John Stumpf, Group EVP, Community Banking. "On a same store basis, core sales were up 16 percent in 2002 compared with 2001. We realized strong sales in both deposits and loans during the fourth quarter with same store sales of checking accounts up 12 percent and consumer credit sales up 17 percent compared with the fourth quarter of 2001. We also improved overall sales productivity during the year. Daily sales per salesperson were up 23 percent in 2002, with 18 of 27 regions selling more than four products per salesperson per day compared with only six regions achieving that level in 2001. Our sales improvement reflects the talent, motivation and energy of all of our team members. They're simply the best."
"The home finance businesses saw exceptional growth in 2002, with total originations of $333 billion surpassing our 2001 industry record of $202 billion," said Mark Oman, Group EVP, Home and Consumer Finance. "Our team members did an outstanding job of serving customers and capturing market share during this period. According to Inside Mortgage Finance, Wells Fargo grew market share of 1-4 family residential mortgage originations from 9 percent in 2001 to 13 percent in the first three quarters of 2002.
For many years, we've emphasized the balance between originations and servicing. In 2002, despite significant payoffs in our portfolios due to record refinancings, we were able to grow both our mortgage servicing portfolio and our portfolio of home equity lines and loans because of our industry-leading origination capabilities.
Our owned servicing portfolio grew 26 percent during 2002 to $535 billion and our home equity portfolio grew 41 percent during the year to $36 billion. The weighted average note rate for our servicing portfolio declined to 6.65 percent from 7.18 percent at December 31, 2001. The book value of our mortgage servicing rights ended the year at $4.5 billion, down from $6.2 billion at December 31, 2001."
Community Banking reported net income of $1,039 million in the fourth quarter of 2002, compared with $983 million for the same period in 2001, up 6 percent. Full year 2002 earnings were $4,088 million, compared with $3,689 million in 2001, up 11 percent. Community Banking revenue was up 11 percent from the fourth quarter of last year. Net interest income increased by $321 million, or 13 percent, compared with fourth quarter 2001, due primarily to growth in consumer loans, mortgages held for sale and deposits. Noninterest income was up $128 million, or 7 percent, in fourth quarter 2002 compared with 2001. Noninterest expense increased by $377 million in fourth quarter 2002, or 15 percent, compared with the same period of 2001, due primarily to increased mortgage originations. The provision for loan losses decreased by $20 million in fourth quarter 2002, compared with fourth quarter 2001, due to the improvement in the credit environment relative to last year.
businesses across the United States predominantly 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.
- Net income up 9 percent in 2002
- Continued successful focus on new relationships and cross-sell
- cross-sell reaches 4.9 products
- average core deposits up 9 percent in fourth quarter
- Strategic acquisitions in asset management and commercial mortgage banking
- e-commerce payment processing sales volume up 145 percent over
fourth quarter 2001
"In a year where we faced a difficult economic climate and where our industry faced some significant credit challenges, we are pleased to report 9 percent growth in net income," said Dave Hoyt, Group EVP, Wholesale Banking. "Our formula for success across all of our businesses has remained the same for many years; our team members focus on providing our customers relationship-based solutions for their credit and other financial needs. We strive to do this consistently throughout economic cycles.
We are pleased with the performance of our credit portfolio. However we remain cognizant of the uncertainties in the current economic environment. We continue to actively seek good quality, new credit opportunities. We're encouraged by the modest increase in commercial loans in the fourth quarter, but it remains to be seen if a trend is emerging.
We continue to be pleased with our rate of new customer acquisition. In addition, we are intensely engaged in deepening our existing relationships through actively cross-selling products and services across all our business units. For example, over 50 percent of our commercial and corporate customers now use our Commercial Electronic Office® internet portal to support their business processes. More remarkably, since introducing our foreign exchange online service, 27 percent of the revenue generated through this online system has been to customers new to our foreign exchange capabilities. We are providing our team members with the tools, training and the products they need in order to offer our customers the right products, at the right time, via the right channels.
During the past quarter, strategic acquisitions increased our overall product breadth and diversity. Our acquisition of certain commercial mortgage loan origination and servicing businesses of Towle Financial Services, as well our agreement to acquire certain business lines of Montgomery Asset Management, will enable us to make continued progress toward our goal of satisfying all of our customers' financial needs, while helping them to succeed financially. Our focus on developing relationships and providing solutions continues to serve as the foundation of our successful strategy."
Wholesale Banking 2002 earnings were up 9 percent compared with a year ago. Fourth quarter 2002 earnings were $320 million, an increase of 13 percent from fourth quarter 2001 and 10 percent from third quarter 2002. Fourth quarter revenue of $1.21 billion was up 8 percent from a year ago and up 9 percent from third quarter 2002. Growth in revenue on both a year over year and linked-quarter basis was attributable to higher income from asset-based lending, real estate investment banking, insurance brokerage, trust, foreign exchange services and trade financing provided to our commercial customers. Fourth quarter expenses were up 13 percent from a year ago and up 8 percent from third quarter 2002. Provision for credit losses in the fourth quarter declined $46 million from a year ago and was flat from third quarter 2002. Non-performing assets declined $115 million, from $867 million at December 31, 2001 to $751 million at December 31, 2002 and decreased $62 million, from $813 million at September 30, 2002.
Wells Fargo Financialoffers
consumer and commercial finance, leasing, private label credit cards and
dealer financing in 47 states, Canada, and the Caribbean.
- Net income up 8 percent in 2002
- Loans grew 20 percent in 2002
"In a challenging economy, Wells Fargo Financial achieved records in 2002 in both assets and earnings. Earnings for 2002 were a record $360 million, up 8 percent from 2001, and loans increased by $2.8 billion, or 20 percent, over year-end 2001," said Dan Porter, chairman and chief executive officer of Wells Fargo Financial. "This performance validates the strategic moves we have made over the past few years. We remain focused on credit quality."
A recorded message reviewing Wells Fargo's results is available through January 31, 2003. Dial 800-642-1687 (domestic) or 706-645-9291 (international). Access code 7306156. 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 $349 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 we expect mortgage loans held for sale to remain high throughout the first quarter 2003 and various statements about future loan losses and credit quality.
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 September 30, 2002 and Annual Report on Form 10-K for the year ended December 31, 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.