WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE
SAN FRANCISCO — April 15, 2003
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- Record diluted earnings per share of $.88, up 10 percent from prior year's $.80*
- Record net income of $1.49 billion, up 8 percent from prior year's $1.38 billion**
- Return on assets of 1.70 percent
- Return on equity of 19.77 percent
- Record revenue up 9.3 percent from prior year
- Net charge-offs down $62 million, or 13 percent, from prior year
*Diluted earnings per share before the effect
of change in accounting principle
**Net income before the effect of change in accounting principle
For 2002, the first quarter transitional
goodwill impairment charge of $276 million, accounted for as a
cumulative effect of change in accounting principle, is excluded
above and in the text and tables of this release.
Wells Fargo & Company (NYSE:WFC) reported record diluted earnings per common share of $.88 for the first quarter of 2003, compared with $.80 in the first quarter of 2002, up 10 percent. Net income was a record $1.49 billion, up 8 percent from $1.38 billion in the first quarter of 2002.
"Wells Fargo continues to be one of the handful of companies that is generating both strong revenue growth and earnings per share growth irrespective of the economic environment," said Chairman and CEO Dick Kovacevich. "Our revenue growth demonstrates that our customers are voting with their pocketbooks. Earning more of their business is a tribute to the sales and service skills of our 134,000 talented team members, to their ability to earn 100 percent of our customers' business and to our diversified, time-tested business model.
During the past five calendar years, Wells Fargo's total revenue has grown at an annual compound rate of 10 percent, one of the highest growth rates in financial services, with annual compound diluted earnings per share growth of 16 percent over the same period. As a result of our growth, Wells Fargo has become one of the top 50 companies in the U.S. based on revenue, according to the Fortune 500 rankings. Forbes ranks Wells Fargo 12th among all companies in all industries in a composite ranking of revenue, profits, assets and market value and Wells Fargo is ranked among BusinessWeek's top 25 performing companies. We continue to be optimistic about the future because of our proven business model and because we compete in the broad financial services market, the world's most dynamic industry."
Diluted earnings per share were $.88, up 10 percent from $.80 in first quarter 2002. This was the seventh consecutive quarter of record earnings per share. Total revenue (net interest income and noninterest income) grew 9.3 percent from first quarter 2002, the seventh consecutive quarter of record revenue. "Once again we are very pleased with our financial results," said Chief Financial Officer Howard Atkins. "The breadth and diversity of our businesses continued to allow us to achieve strong and consistent growth despite the uncertain economic and geopolitical conditions."
Revenue increased 9.3 percent from first quarter 2002. Revenue growth was broad based, reflecting both strong net interest income (up 7 percent) as well as strong fee-based income (up 12 percent). "Most business lines continued to exhibit strong sales during the quarter, including sales of consumer loans, mortgages, deposits and credit cards," said Atkins. Investment securities (debt securities and equity investments) results for the quarter were a net loss of $80 million, $.03 per share (after tax), compared with a net gain of $18 million a year ago. At March 31, 2003, the Company had net unrealized gains of $1.5 billion on equity and debt securities available for sale.
Loans averaged $199 billion for first quarter 2003, up 16 percent from $172 billion in first quarter 2002. "The strong loan growth continued to be driven by the consumer," said Atkins. Average consumer loans increased $12 billion, or 23 percent, from the first quarter of 2002. Average commercial loans were essentially flat relative to a year ago, but were up $540 million, or 5 percent (annualized), from the fourth quarter of 2002.
"Average core deposits of $197 billion for first quarter 2003 grew $19 billion, or 11 percent, from first quarter 2002. Average interest- and noninterest-bearing checking accounts and market rate and other savings accounts grew $23 billion, or 15 percent, from first quarter 2002, reflecting continued strong sales of both commercial and consumer accounts and increases in mortgage escrow balances in line with growth in the residential servicing portfolio," said Atkins.
Net Interest Income
"We continued to achieve strong growth in earning assets and core deposits, although at somewhat lower spreads," said Atkins. "As a result, net interest income continued to grow at a solid and steady pace - up 7 percent from a year ago and up 6 percent (annualized) from fourth quarter 2002 - even though the net interest margin declined slightly during this period. In line with near-record originations, the mortgage warehouse increased $11.5 billion from fourth quarter, but average yields on warehouse loans were down 22 basis points. With application volumes at record levels at the end of first quarter 2003, we expect the mortgage warehouse to remain high in second quarter 2003.
During the past several quarters, the Company has shortened the duration of its investment portfolio through sales and prepayments of longer-term mortgage-backed securities. While this has had a modest adverse impact on net interest margin, it will provide flexibility to add securities in the event that interest rates rise and the mortgage warehouse begins to decline."
Noninterest income in first quarter 2003 increased 12 percent from first quarter 2002. "Virtually all of our businesses continued to achieve solid noninterest income growth, including mortgage banking fees, deposit service charges, credit card fees and other fees and commissions, including capital markets activities, treasury management services, asset-based lending and ATM fees," said Atkins. First quarter 2003 residential mortgage originations were $103 billion, which almost matched the Company's industry record of $112 billion in fourth quarter 2002.
On a linked-quarter basis, the $35 million decline in noninterest income primarily reflected fee revenue reduction due to higher net securities losses, offset by stronger mortgage fee income and seasonally higher insurance revenue.
Noninterest expense was $3.8 billion in first quarter 2003, compared with $3.3 billion in first quarter 2002 and flat to the $3.8 billion in fourth quarter 2002. "The vast majority of the expense growth from first quarter 2002 related to continued strong growth in our home equity and mortgage businesses," said Atkins. "We continued to manage expenses very tightly to ensure that savings opportunities were realized and expense growth is aligned with the revenue opportunities in each of our businesses. Expenses were essentially flat on a linked-quarter basis despite higher pension and health care costs, additional matching 401(k) expenses and traditionally higher first quarter employee-based expenses, including FICA and other payroll taxes." The efficiency ratio of 57.9 percent improved modestly from 58.1 percent in fourth quarter 2002.
"First quarter 2003 credit results were consistent with our expectations," said Chief Credit Officer Dave Munio. First quarter credit losses were $425 million, or .87 percent of average loans outstanding (annualized), compared with $438 million, or .95 percent, in fourth quarter 2002 and $487 million, or 1.15 percent, in first quarter 2002. "We are pleased that our portfolio continued to display stable credit performance in an unsettled economy. Wholesale credit losses declined slightly from the fourth quarter and were broadly dispersed among industries and geographic locations in several business units. Our consumer business continued to show strong growth in residential real estate, with losses within expected and manageable ranges. Our loan loss reserve remained strong and continued to provide coverage of over two times nonperforming assets and annualized charge-offs," said Munio.
Nonperforming assets at March 31, 2003 were $1.77 billion, or .86 percent of total loans, and were down 2 percent from a year ago. "While nonperforming assets were up moderately on a linked-quarter basis, the size of the increase was within the expected range of normal quarterly variances and was primarily attributable to several well collaterized asset-based lending credits," 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:
|Wells Fargo Financial||102||84|
(1) Amounts in this column and in the following discussion exclude the transitional goodwill impairment charge of $276 million (after tax), accounted for as a cumulative effect of change in accounting principle, recorded in first quarter 2002.
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 8 percent from a year ago
- Home equity sales up 25 percent from a year ago
- Checking account attrition improved 4 percent from a year
- Residential mortgage originations of $103 billion, 2nd
highest quarter ever
- Wells Fargo rated #1 internet bank by
- Wells Fargo #2 in e-finance innovation for 2002 - above
all other banks (Institutional Investor's March 2003
- 4 million active online consumer customers (36 percent
penetration of checking account base)
- Active small business online customers up 53 percent from
- New WellsTrade®
accounts increased 15
percent this quarter from a year ago
Community Banking reported net income of $1,055 million in first quarter 2003, compared with $977 million for the same period in 2002, up 8 percent. Community Banking revenue was up 11 percent from the first quarter of last year. Net interest income increased by $205 million, or 8 percent, compared with first quarter 2002, primarily due to growth in consumer loans, mortgages held for sale and deposits. Noninterest income was up $259 million, or 17 percent, in first quarter 2003, compared with 2002. Noninterest expense increased by $380 million in first quarter 2003, or 16 percent, compared with the same period of 2002, due primarily to increased mortgage originations. The provision for loan losses decreased by $45 million in first quarter 2003, compared with first quarter 2002.
"Despite the uncertainties in the economy, our sales team continued to sell more and better serve our customers," said John Stumpf, Group EVP, Community Banking. "We saw strong gains in the sales of home equity and credit cards, which increased by 25 percent and 20 percent, respectively, compared with the same period last year. Core product sales for the first quarter were up 6 percent, including a 7 percent increase in checking account sales. And while improving sales is important, keeping customers is even more important. During the first quarter we reduced checking account attrition by 4 percent compared with the same period last year."
"The response of American homeowners to the lowest mortgage rates in forty years generated a record $157 billion in applications for the quarter," said Mark Oman, Group EVP, Home and Consumer Finance. "Driven by a monthly record $62 billion of applications in March, Home Mortgage ended the quarter with a record pipeline of $89 billion, up 29 percent from year-end.
Mortgage originations were very strong for the quarter at $103 billion. The owned mortgage servicing portfolio ended the quarter at $552 billion. Since March 31, 2002, the owned servicing portfolio is up $95 billion, the weighted average note for the portfolio has declined 62 basis points to 6.45 percent, and the value of the residential and commercial mortgage servicing rights have been reduced by over $2.9 billion to $4.2 billion."
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 13 percent from a year ago
- Provision for credit losses down $32 million from a year ago, a 38 percent improvement
- Received ACH Quality Award from NACHA
- Completed acquisition of Montgomery Asset Management businesses
Wholesale Banking reported earnings of $350 million in first quarter 2003, up 13 percent compared with a year ago. First quarter revenue of $1.3 billion was up 4 percent from first quarter 2002 and up 7 percent from fourth quarter 2002. Growth in revenue on both a year-over-year and linked-quarter basis was attributable to higher income from asset-based lending, commercial mortgage origination, insurance and institutional brokerage. First quarter expenses were up 4 percent from first quarter 2002 and up 4 percent from fourth quarter 2002. Provision for credit losses in the first quarter declined $32 million from a year ago and $7 million from fourth quarter 2002.
"While the overall business environment remained weak in the first quarter, and finding attractive loan growth opportunities continued to be a challenge, we are pleased with the results our businesses delivered," said Dave Hoyt, Group EVP, Wholesale Banking. "Wholesale Banking grew net income 13 percent compared with first quarter 2002 and 16 percent on a linked-quarter basis. We believe our success in this challenging economy is attributable to our consistent focus on building relationships, acquiring new customers, cross selling more products to existing customers and providing outstanding customer service. Several of our businesses were particularly strong this quarter, including asset-based lending and commercial mortgage origination.
One of the best ways we can help our customers be more successful is to deliver services that help them reduce risk and save them time and money in their day to day operations. We are pleased to announce that Wells Fargo has won the ACH Quality Award for the second consecutive year from the National Automated Clearing House Association (NACHA) - the first financial institution to win the award back to back. Wells Fargo received the 2003 award for taking the lead in protecting our customers' accounts from ACH fraud. By helping prevent fraudulent electronic transactions from posting to business and consumer customer accounts, it's a win-win solution.
To extend and deepen the investment solutions we can provide our customers, we have acquired the majority of the businesses of Montgomery Asset Management. This brings us expertise and broader capabilities in three key areas: Core Fixed Income, Small Cap Growth Equity and Emerging Markets Equity. Over the past ten years, the Core Fixed Income group has consistently topped the returns of the Lehman Brothers Aggregate Bond Index and was ranked by Nelson Information in the top 2 percent of its class for performance over the past 5 years. The Small Cap Growth Equity group has outperformed the Russell 2000® Growth Index 9 of the last 12 years."
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 21 percent from the prior year
- Strong loan growth in the first quarter
- real estate secured receivables up over $600 million
- auto receivables up $400 million
"Wells Fargo Financial showed strong results in the first quarter," said Dan Porter, chairman and chief executive officer of Wells Fargo Financial. "Net earnings were $102 million in the first quarter, up 21 percent from $84 million in the first quarter of 2002. In addition, receivables outstanding increased a record $1.7 billion, or 10 percent, from year-end. Our growth in real estate secured receivables and automobile receivables accelerated and we continued to grow by acquisitions where appropriate. Real estate secured receivables grew by over $600 million while auto receivables increased by $400 million. Leasing receivables also increased over $600 million as a result of an acquisition."
A recorded message reviewing Wells Fargo's results will be available at 9:00 a.m. Eastern time through April 18, 2003. Dial 800-642-1687 (domestic) or 706-645-9291 (international). Access code 9426275.
Wells Fargo & Company is a diversified financial services company with $370 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.
Certain amounts for prior quarters have been reclassified to conform with the current financial statement presentation.
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 second 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 Annual Report on Form 10-K for the year ended December 31, 2002, including information incorporated into the Form 10-K from the Company's 2002 Annual Report to Stockholders, filed as Exhibit 13 to the Form 10-K. See, for example, "Financial Review—Risk Management" included in the 2002 Annual Report to Stockholders and incorporated by reference into the Form 10-K.
Other factors described in the 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 2002 Annual Report to Stockholders and incorporated by reference into the Form 10-K and "Regulation and Supervision" in the Form 10-K.
Any factor described in this news release, 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.