WELLS FARGO REPORTS RECORD QUARTERLY AND ANNUAL EARNINGS PER SHARE AND REVENUE
SAN FRANCISCO — January 20, 2004
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Year 2003 Highlights:
- Record diluted earnings per share of $3.65, up 10 percent from prior year’s $3.32
- Record net income of $6.2 billion, up 9 percent from prior year’s $5.7 billion
- Return on equity of 19.4 percent
- Record revenue of $28.4 billion, up 12 percent from prior year
Fourth Quarter 2003 Highlights:
- Record diluted earnings per share of $.95, up 10 percent from prior year’s $.86
- Record revenue up 12 percent from prior year
- Strong balance sheet growth
- Average loans up 31 percent from prior year
- Average core deposits up 8 percent from prior year
- Improved asset quality
- Nonperforming assets declined $57 million from prior quarter, and improved to .66 percent of total loans from .88 percent in prior year
- Net charge-offs as a percentage of average total loans declined to .78 percent from .94 percent in prior year
|Earnings||Fourth Quarter 2003||Fourth Quarter 2002||% Change||Full Year 2003||Full Year 2002||% Change|
|Diluted earning per share||$ .95||$ .86||10||$ 3.65||$ 3.32||10|
|Net Income (in millions)||1,624||1,472||10||6,202||5,710||9|
|Net charge-offs (in millions)||465||424||10||1,719||1,675||3|
|Nonperforming assets (annualized) as % of total loans||.66||.88||(25)||.66||.88||(25)|
|Nonperforming assets (in millions)||$ 1,662||$ 1,691||(2)||$ 1,662||$ 1,691||(2)|
|Revenue (in millions)||7,445||6,665||12||28,389||25,249||12|
|Average loans (in billions)||236.0||179.5||31||213.1||174.5||22|
|Average core deposits (in billions)||210.0||194.9||8||207.0||184.1||12|
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 on pages 1-9 of this release.
Wells Fargo & Company (NYSE:WFC) reported record diluted earnings per common share of $.95 for fourth quarter 2003, compared with $.86 in fourth quarter 2002, up 10 percent. Net income was a record $1.6 billion, up 10 percent from $1.5 billion in fourth quarter 2002. For the full year 2003, net income was a record $6.2 billion, or $3.65 per share, compared with $5.7 billion, or $3.32 per share, for the full year 2002, an increase in earnings per share of 10 percent.
“This was another terrific quarter and another terrific year for our company as our team achieved record revenue and record profits for the tenth consecutive quarter,” said Chairman and CEO Dick Kovacevich. “The key to the bottom line – profit – continues to be the top line – revenue. For the quarter and full year, our revenue increased an impressive 12 percent. But this isn’t the first time. Over the past ten years both our revenue and earnings per share have grown at an annual compound rate of 13 percent. Our financial performance, across more than 80 businesses, continues to be among the very best in our industry or any industry. Once again our 143,000 talented team members and our business model – diversified across all of financial services and centered on satisfying all the financial needs of our 23 million diverse customers – demonstrated that they can deliver outstanding results regardless of the economic environment. The total return of our stock for 2003 was 29 percent. During the quarter, our stock price hit a record closing high and for the first time in history our market capitalization exceeded $100 billion, a level achieved by only about 20 other U.S. companies in all industries. We begin our company’s 152nd year with optimism. We believe that all the pieces are in place for a national economic recovery that will create jobs and fuel continued economic growth and prosperity.”
Diluted earnings per share were $.95 for fourth quarter 2003, up 10 percent from $.86 in fourth quarter 2002, the tenth consecutive quarter of double-digit growth in EPS. Fourth quarter results included $143 million of net realized gains from equity investments, including the Company’s first meaningful gains on private equity investments in three years. The Company took a number of actions which reduced fourth quarter 2003 pre-tax earnings by $129 million, or $.05 per share after tax. “We took advantage of financial market opportunities to reposition the bond portfolio for higher yield, sell a sub-prime credit card portfolio and donate appreciated securities to the Wells Fargo Foundation,” said Chief Financial Officer Howard Atkins. “As part of our effort to streamline operations, we also incurred integration, consolidation and severance costs in the quarter, largely to adjust the mortgage business for lower volumes, and we consolidated Company-owned properties to reduce future occupancy costs. These fourth quarter actions reduced pre-tax revenues by $14 million and increased pre-tax noninterest and provision expense by $115 million for the quarter. Also during the quarter, the Company changed the way it accounts for income on interest rate lock commitments on mortgage loans held for sale to recognize its business margin at time of sale instead of at funding. This resulted in a one-time reduction in revenue of $77 million.”
Revenue of $7.4 billion grew $.8 billion, or 12 percent, from fourth quarter 2002, and 6 percent (annualized) on a linked-quarter basis. Excluding residential mortgage banking, the combined revenue of our other businesses grew 13 percent from fourth quarter 2002 and 32 percent (annualized) on a linked-quarter basis.
Average loans of $236 billion for fourth quarter 2003 increased $56.5 billion, or 31 percent, from fourth quarter 2002, and $19.8 billion, or 37 percent (annualized), on a linked-quarter basis. “The double-digit growth in loans was generated by continued strong consumer demand for credit including home equity, residential first mortgage products, credit cards, revolving credit and installment loans,” said Atkins. On a combined basis, average consumer loans and residential mortgage loans increased $53 billion, or 56 percent, from fourth quarter 2002 and $17.5 billion, or 54 percent (annualized), on a linked-quarter basis.
Average commercial, other real estate mortgage and real estate construction loans increased $2.2 billion from third quarter 2003. Approximately $1.1 billion of this increase in average loans was attributable to the acquisition of Pacific Northwest Bancorp. “Although it’s too early to call a rebound in commercial loan demand, we’re encouraged to see this modest growth in commercial loans,” said Atkins. “The ‘same-store’ increase in commercial loans reflected continued strong growth in asset-based lending and some modest increase in lending activity at our commercial real estate, middle market and small business direct businesses.”
Average core deposits grew $15 billion, or 8 percent, from fourth quarter 2002, and declined $6 billion on a linked-quarter basis due to a $10 billion decline in mortgage escrow deposits attributable to lower mortgage refinance activity. Excluding mortgage escrow deposits, average core deposits grew $20 billion, or 11 percent, from fourth quarter 2002 and $6 billion, or 11 percent (annualized), on a linked-quarter basis, driven primarily by a 13 percent increase in consumer and business noninterest-bearing checking account balances and a 15 percent increase in interest-bearing checking and market rate account balances from fourth quarter 2002. Approximately $1.2 billion of the growth in average core deposits was attributable to Pacific Northwest Bancorp. “We continued to see good growth in consumer and commercial deposits from new customer account generation,” said Atkins.
Net Interest Income
Net interest income grew $259 million, or 7 percent, from fourth quarter 2002, due to a $45 billion, or 16 percent, increase in average earning assets and an 8 percent increase in average core deposits, offset by a 44 basis point decline in the net interest margin. The $45 billion increase in average earning assets was driven by a $56 billion growth in average loans, primarily consumer, offset by a $16 billion decline in mortgages held for sale balances due to a decline in residential mortgage refinance activity.
On a linked-quarter basis, net interest income declined $98 million due primarily to a $29 billion reduction in average mortgages held for sale, partially offset by $20 billion growth in average loans. The net interest margin was 4.97 percent for fourth quarter 2003, compared with 5.01 percent in third quarter 2003.
Noninterest income in fourth quarter 2003 increased $521 million, or 18 percent, from a year ago and 26 percent (annualized) on a linked-quarter basis. “The growth in fee income was once again very broad-based,” said Atkins. “Deposit service fees, other fees and commissions, insurance income, and trust and investment fees increased due to customer growth and product cross-sell. The strength in the equity and debt markets drove gains in private and public equity investments, trading, foreign exchange and other capital markets activities. Residential mortgage fee income increased $121 million from fourth quarter 2002, primarily reflecting growth in mortgage servicing fees due to an increase in the size and average life of the servicing portfolio. On a linked-quarter basis, mortgage banking revenue declined $137 million, largely reflecting the $77 million reduction in revenue due to the accounting change. Lower revenues from a decline in mortgage refinancing activity were partially offset by an improvement in servicing revenue.
Noninterest expense was $4.5 billion in fourth quarter 2003, up $546 million, or 14 percent, from a year ago. The actions taken during the quarter added $86 million to noninterest expense. “We continue to manage expenses very tightly to ensure savings opportunities are realized and that expenses are aligned with revenue opportunities in each of our businesses,” said Atkins. “In line with the decline in mortgage originations, residential mortgage noninterest expenses were $181 million less on a linked-quarter basis due to a decline in commissions paid to loan originators and a reduction in the use of temporary help. The strategic actions taken this quarter will help improve our operating efficiency by reducing future growth in labor, equipment and occupancy costs.”
“Credit quality continued to improve in the fourth quarter with a $57 million reduction in nonperforming assets and stable loss rates,” said Chief Credit Officer Dave Munio. Nonperforming assets totaled $1.66 billion, or .66 percent of total loans, at December 31, 2003, down from $1.72 billion (.75 percent) from the prior quarter and $1.69 billion (.88 percent) at year-end 2002. Net credit losses were $465 million, including a $30 million loss on sale of a sub-prime credit card portfolio. Fourth quarter credit losses were .78 percent of average loans (annualized), compared with $424 million (.78%) in third quarter 2003 and $424 million (.94 percent) in fourth quarter 2002. Full year 2003 net losses were $1.72 billion, or .81 percent of average loans, compared with $1.68 billion (.96 percent) in 2002 and $1.73 billion (1.10 percent) in 2001. “Dollar losses have remained relatively consistent the last three years due to sound underwriting, well-managed collections, and a strong credit culture. As our retail portfolios continue to grow and season, we may see some increase in our dollar losses which we believe would be consistent with our credit profile,” said Munio.
The fourth quarter provision expense of $465 million was equal to quarterly net losses. The full year 2003 provision expense of $1.72 billion also equaled total full year losses. The allowance of $3.89 billion continued to provide over two times coverage of nonperforming assets and annualized loan losses.
Business Segment Performance
Wells Fargo has three lines of business for management reporting: Community Banking, Wholesale Banking and Wells Fargo Financial. More financial information about the business segments is on pages 19 and 28.
Community Bankingoffers a complete line of diversified financial products and services for consumers and small businesses including investment, insurance and trust services primarily in 23 midwestern and western states, and mortgage and home equity loans in all 50 states.
|(in millions)||Fourth Quarter 2003||Fourth Quarter 2002||% Change||Full Year 2003||Full Year 2002||% Change|
|Total revenue||$ 5,408||$ 4,937||10||$ 20,713||$ 18,457||12|
|Provision for loan losses||236||254||(7)||892||865||3|
|Average loans (in billions)||162.7||114.1||43||143.2||109.9||30|
|Average assets (in billions)||278.5||243.3||14||273.5||227.7||20|
- Net income up 6 percent in 2003
- Core product sales of 2.85 million, up 15 percent in 2003
- Consumer checking attrition down 12 percent from 2001
- Net consumer checking account growth of 5 percent in 2003
- Average loan balances up 30 percent in 2003
- Industry record mortgage originations of $470 billion in 2003
- Pacific Northwest Bancorp acquisition closed in fourth quarter 2003
- Internet highlights:
- 4.8 million active online consumers, up 35 percent from a year ago
- 1.5 million bill pay customers at year end, up 35 percent from a year ago
- 415,000 active online small business customers, up 40 percent from a year ago
- Nearly $12 billion in internet merchant payments in 2003, up 100 percent from a year ago
- Wells Fargo named "Websmart 50" Company, Business Week, November 2003
“Our dedicated team continued to achieve strong results in the fourth quarter,” said John Stumpf, Group EVP, Community Banking. “Core sales were 2.85 million, up 15 percent from the same period last year and sales per platform banker rose 13 percent compared with the same period last year. Our emphasis on improved customer service is working: our consumer checking attrition was down 12 percent from levels of two years ago and net growth in consumer checking accounts for 2003 was a strong 5 percent.”
“We’ve seen the crest of this refinancing wave as residential mortgage originations in the quarter of $71 billion were down from $161 billion in the third quarter,” said Mark Oman, EVP, Home and Consumer Finance Group. “The purchase mortgage market continued to be strong. While originations for the quarter were down from the prior year, full year originations of $470 billion eclipsed the industry record of $333 billion we set last year. Our team members have done an outstanding job of managing through unprecedented interest rate volatility while continuing to provide outstanding customer service and growing the business. To meet the home financing needs of our customers we have originated over one trillion dollars in residential real estate loans over the last three years.
The cyclical nature of the origination business is not new to us, and we’ve structured the business model with a dynamic cost structure through use of a commissioned sales force and use of temporary and contract labor to meet the peaks in demand. The servicing business also provides a natural hedge because its profitability increases with the associated reduction in prepayments.”
The owned servicing portfolio grew 22 percent in 2003 to $710 billion. The weighted- average note rate for the portfolio declined to a record low 5.90 percent at year-end, down from 6.67 percent at December 31, 2002. The carrying value of this portfolio was $6.9 billion (1.15 percent of loans serviced for others) compared with $4.5 billion (.92 percent) at December 31, 2002.
Community Banking reported net income of $1,182 million in fourth quarter 2003, compared with $1,062 million for the same period in 2002, up 11 percent. Full year 2003 earnings were $4,364 million, compared with $4,116 million in 2002, up 6 percent. Community Banking revenue was up 10 percent from the fourth quarter of last year. Net interest income increased by $137 million, or 5 percent, compared with fourth quarter 2002, due primarily to growth in consumer loans, mortgages held for sale and deposits. Noninterest income was up $334 million, or 15 percent, in fourth quarter 2003 compared with 2002. For the year, Community Banking revenue increased 12 percent. Noninterest expense increased by $340 million in fourth quarter 2003, or 11 percent, compared with the same period of 2002, due primarily to increased mortgage originations and other actions taken in the third and fourth quarters. The provision for loan losses decreased by $18 million in fourth quarter 2003, compared with fourth quarter 2002.
Wholesale Bankingprovides businesses across the United States predominantly with annual sales in excess of $10 million with a complete line of commercial, corporate, treasury management, investment, insurance, capital markets and real estate banking products and services.
|(in millions)||Fourth Quarter 2003||Fourth Quarter 2002||% Change||Full Year 2003||Full Year 2002||% Change|
|Total revenue||$ 1,311||$ 1,153||14||$ 4,994||$ 4,573||9|
|Provision for loan losses||23||60||(62)||177||278||(36)|
|Average loans (in billions)||49.8||49.1||1||49.5||49.4||--|
|Average assets (in billions)||74.8||72.4||3||75.8||70.8||7|
- Net income up 17 percent in 2003
- Noninterest income up 19 percent in 2003, reflecting cross-sell efforts
- Improvement in credit quality
- Nonperforming assets down $144 million from $751 million in prior year
- Net charge-offs down $101 million, or 36 percent from prior year
“We are very pleased to reach record earning levels once again,” said Dave Hoyt, Group EVP, Wholesale Banking. “For the year, net income grew 17 percent despite a challenging economic environment and relatively flat loan growth. Over the five years since the Wells Fargo/Norwest merger, we have delivered a double-digit compound annual growth rate in net income, a testament to our team members’ continued focus on customer acquisition, cross sell and customer service.
As a leader in delivering electronic solutions, we continue to focus on ways to make it easier for our customers to do business with Wells Fargo. On November 25, Wells Fargo processed its one billionth Automated Clearing House (ACH) electronic payment transaction for 2003. This is the first time we’ve exceeded one billion ACH transactions in a single year. The number of active customers on our CEO® internet portal increased 31 percent for the year and revenue from Wholesale customers using the internet increased 53 percent. In 2003, over $5.9 trillion in payments were processed on the CEO portal.”
Wholesale Banking earnings were $382 million for fourth quarter 2003, up 26 percent from fourth quarter 2002 and up 17 percent compared with a year ago. Fourth quarter revenue of $1.3 billion was up 14 percent from a year ago and up 4 percent from third quarter 2003. Growth in revenue on both a year-over-year and linked-quarter basis was attributable to higher income from investment-related businesses. Fourth quarter expenses were up 12 percent from a year ago and up 10 percent from third quarter 2003. The provision for loan losses in the fourth quarter declined $37 million from a year ago and declined $31 million from third quarter 2003. Nonperforming assets declined $144 million, from $751 million at December 31, 2002 to $607 million at December 31, 2003 and decreased $85 million, from $692 million at September 30, 2003.
Wells Fargo Financialoffers consumer and commercial finance, leasing, private label credit cards and dealer financing in 47 states, Canada, and the Caribbean.
|(in millions)||Fourth Quarter 2003||Fourth Quarter 2002||% Change||Full Year 2003||Full Year 2002||% Change|
|Total revenue||$ 734||$ 576||27||$ 2,689||$ 2,220||21|
|Provision for loan losses||176||112||57||623||541||15|
|Average loans (in billions)||23.5||16.3||44||20.4||15.2||34|
|Average assets (in billions)||25.3||18.3||38||22.2||17.0||31|
- Net income up 25 percent in 2003
- Loans increased $8 billion, or 47 percent
- Real estate secured receivables up $3.5 billion
- Auto receivables up $2.6 billion
- U.S. Consumer business sales force up 1,400 in 2003
- Sound credit quality
“Fueled by growth in the loan portfolio, Wells Fargo Financial had record earnings of $451 million in 2003,” said Mark Oman, EVP Home and Consumer Finance Group. “In 2003, we saw strong loan growth in real estate secured receivables up $3.5 billion, or 87 percent, due in part to an increase of 1,400 sales staff in the U.S. consumer business. Auto receivables increased $2.6 billion, or 57 percent. Credit quality remained solid, with losses within predicted ranges amid accelerated growth.”
A recorded message reviewing Wells Fargo’s results is available through January 23, 2004. Dial 800-642-1687 (domestic) or 706-645-9291 (international). Access code 4765614. The call is also available at www.vcall.com.
Certain prior period amounts presented in this release and in the corresponding tables have been updated to reflect the Company’s implementation of guidance set forth in Emerging Issues Task Force Topic D-107 and to conform with the current financial statement presentation, as more fully described in the Company’s reports on Form 10-K/A and 10-Q/A filed January 16, 2004
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 statements about the expected benefits of actions taken in the quarter and various statements about future credit 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 Reports on Form 10-Q and Form 10-Q/A for the quarter ended September 30, 2003 and Annual Reports on Form 10-K and Form 10-K/A for the year ended December 31, 2002. See, for example, Part I, Item 2 of the Form 10-Q/A and Part I, Items 1 and 7 of the Form 10-K/A.
Other factors described in the Forms 10-Q, 10-Q/A, 10-K and 10-K/A 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 Part I, Item 2 of the Form 10-Q/A and “Regulation and Supervision” in Part I, Item 1 of the Form 10-K/A.
Any factor described in this news release, in the Forms 10-Q, 10-Q/A, 10-K or 10K/A, 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.
Wells Fargo & Company is a diversified financial services company with $388 billion in assets, providing banking, insurance, investments, mortgage and consumer finance from more than 5,900 stores and the internet (wellsfargo.com) across North America and elsewhere internationally. Wells Fargo Bank, N.A. is the only “Aaa”- rated bank in the United States.