WELLS FARGO REPORTS RECORD QUARTERLY EARNINGS PER SHARE AND NET INCOME
SAN FRANCISCO — April 20, 2004
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First Quarter 2004 Highlights:
- Record diluted earnings per share of $1.03, up 17 percent from prior year’s $.88
- Record net income of $1.8 billion, up 18 percent from prior year’s $1.5 billion
- Return on equity of 20.31 percent, highest since Norwest-Wells Fargo merger
- Revenue up 7 percent from prior year; 15 percent revenue growth in businesses other than Wells Fargo Home Mortgage
- Strong balance sheet growth
- Average loans up 31 percent from prior year
- Average core deposits up 8 percent from prior year
- Improved asset quality
- Net charge-offs down $61 million, or 13 percent, from prior quarter
- Nonperforming assets down $51 million from prior quarter
- Improved operating efficiency
- Revenue up 7 percent; expenses up 2 percent from prior year
- Efficiency ratio improved to 56.4 percent from 60.5 percent in prior quarter
|Earnings||First Quarter 2004||First Quarter 2003||% Change|
|Diluted earning per share||$ 1.03||$ .88||17%|
|Net Income (in millions)||1,767||1,492||18|
|Net charge-offs (in millions)||404||415||(3)|
|Nonperforming assets (annualized) as % of total loans||.61 %||.87%||(30)|
|Nonperforming assets (in millions)||$1,611||$ 1,761||(9)|
|Revenue (in millions)||7,147||6,682||7|
|Average loans (in billions)||256.4||195.1||31|
|Average core deposits (in billions)||213.1||196.8||8|
SAN FRANCISCO – Wells Fargo & Company (NYSE:WFC) reported record diluted earnings per common share of $1.03 for first quarter 2004, compared with $.88 in first quarter 2003, up 17 percent. Net income was a record $1.8 billion, up 18 percent from $1.5 billion in first quarter 2003.
“We’ve now achieved eleven consecutive quarters of record profits and earnings per share – further proof that our business model – time-tested, customer-centric and diversified across virtually all of financial services – can deliver outstanding results regardless of the economic cycle,” said Chairman and CEO Dick Kovacevich. “This was an outstanding, record-breaking quarter, with revenues growing over three times faster than our expenses from a year ago– better than our long-term goal of growing revenue twice as fast as expenses. Our 143,000 talented team members continue to increase market share and wallet share by satisfying the financial needs of our 23 million customers and earning more of their business. Our credit quality remained among the very best in our industry, with continued declines in nonperforming assets and net charge-offs despite a 31 percent increase in loans. We believe we’re well positioned for even more growth in part because we continue to reinvest in our businesses. During the past three years, for example, we added 8,700 more sales people in Community Banking, Wholesale Banking and Wells Fargo Financial. Wells Fargo was one of three companies among the S&P100 that for the past five years grew earnings per share 13 percent or more, grew revenue 12 percent or more, and achieved a return on equity of more than 19 percent. And, we’re the only one whose principal subsidiary is rated ‘Aaa’ by Moody’s.”
Diluted earnings per share were $1.03, up 17 percent from $.88 in first quarter 2003. “This was a truly outstanding first quarter,” said Chief Financial Officer Howard Atkins. “Operating leverage improved this quarter, with revenue growing at seven percent and expenses at only two percent. Business trends accelerated with revenue growth of 15 percent in businesses other than Wells Fargo Home Mortgage; loan losses declined to $404 million despite the continued growth in our loan portfolio; return on assets increased to 1.84 percent and return on equity increased to 20.31 percent, the best returns we’ve had since the Norwest-Wells Fargo merger.”
Revenue of $7.1 billion grew $465 million, or 7 percent, year-over-year and declined $298 million, or 4 percent, on a linked-quarter basis. Due to the increase in mortgage interest rates late in 2003, Home Mortgage revenue declined from $1.2 billion in first quarter 2003 to $.8 billion in first quarter 2004. Combined revenue of all the businesses other than Home Mortgage grew 15 percent from $5.5 billion to $6.3 billion year-over-year. “Revenue growth in the quarter was broad-based, led by year-over-year double-digit growth in consumer deposits and loans, consumer finance, asset-based lending, trade finance, small business lending, private client services and capital markets-related activities,” said Atkins.
Average loans of $256.4 billion in first quarter 2004 increased $61.4 billion, or 31 percent, from first quarter 2003 and $20.5 billion, or 35 percent (annualized), on a linked-quarter basis. “Loan growth continued to be driven by strong demand for consumer credit, including home equity, credit card, home mortgage, revolving credit and installment loan products,” said Atkins. On a combined basis, these consumer loans increased $57 billion, or 52 percent, from first quarter 2003, and $19 billion, or 52 percent (annualized), on a linked-quarter basis.
Average commercial and commercial real estate loans increased $1,399 million, or 6 percent (annualized), from fourth quarter 2003. Approximately $550 million of this increase was due to the acquisition of Pacific Northwest Bancorp in fourth quarter 2003. “We’re encouraged by small business loan growth in our Business Direct and SBA lending groups and the generally improving confidence of our commercial customers,” said Atkins.
Average core deposits, which provide a relatively stable source of funds, of $213.1 billion for first quarter 2004 grew $16.3 billion, or 8 percent, from first quarter 2003, and increased $3.1 billion, or 6 percent (annualized), on a linked-quarter basis. Average mortgage escrow deposits were $12.5 billion for first quarter 2004, down $1.6 billion from fourth quarter 2003 and down $4.9 billion from first quarter 2003. Excluding mortgage escrow deposits, total average core deposits grew $21 billion, or 12 percent, from first quarter 2003 and $5 billion, or 10 percent (annualized), on a linked-quarter basis.
“Our core deposit growth reflected strong sales of both commercial and consumer accounts,” said Atkins. Excluding mortgage escrow deposits, Community Banking grew average core deposits 11 percent from first quarter 2003 and 8 percent (annualized) from fourth quarter 2003. Average consumer checking account balances grew 12 percent both from first quarter 2003 and on a linked-quarter basis (annualized), reflecting a 5.1 percent increase in net consumer checking accounts from a year ago and higher average balances. Wholesale Banking’s average core deposits increased 21 percent from first quarter 2003 and 20 percent (annualized) from fourth quarter 2003.
Net Interest Income
Net interest income increased 5 percent year-over-year on 12 percent earning asset growth, offset by a decline in the net interest margin. On a linked-quarter basis, net interest income was essentially flat. The $33 billion reduction in average mortgage loans held for sale from record levels last year was offset by a $61 billion increase in average total loans, which grew 31 percent year-over-year and 35 percent (annualized) on a linked-quarter basis. Net interest margin was essentially unchanged (down 3 basis points) from fourth quarter 2003 to first quarter 2004, with the benefit of the strategic actions taken in the second half of last year offsetting the impact of continued low interest rates on the margin.
Noninterest income increased $264 million, or 9 percent, from first quarter 2003, 22 percent excluding mortgage banking fee income. “The substantial growth in fee income in our non-mortgage banking activities reflected improved business conditions and broad-based growth across the Company, with particular strength in deposit service fees, insurance income, trust and investment fees, credit card fees and other fees and commissions,” said Atkins. During the quarter, the Company realized $95 million in equity gains. “Given the strength of the equity markets and the significant actions we have taken in the last two years to write down our equity portfolios, we are encouraged by the quality of the portfolio and expect additional gains going forward, although not necessarily the same amount we realized this quarter.”
Noninterest income declined $304 million on a linked-quarter basis, due entirely to the decline in mortgage banking income. The quarter included $400 million of provision for temporary impairment of mortgage servicing rights and a $169 million permanent write-down of mortgage servicing rights. Due to the decline in mortgage interest rates during March, Home Mortgage applications rose substantially, with total applications in the quarter of $119 billion, an increase of $48 billion from fourth quarter 2003. “With an application pipeline of $72 billion at quarter end, we would expect originations and average mortgage loans held for sale in second quarter 2004 to be higher than first quarter,” said Atkins.
Noninterest expense was $4.03 billion in first quarter 2004, up $72 million, or 2 percent, from first quarter 2003. Home Mortgage expenses declined approximately $115 million from first quarter 2003 reflecting lower production and staffing costs.
On a linked-quarter basis, noninterest expense decreased $471 million. Approximately $250 million of the reduction in noninterest expense was attributable to lower Home Mortgage production in the quarter. The remainder of the expense reduction reflected the ongoing benefit of the strategic actions in the second half of 2003, as well as efforts to reduce purchased goods and services and facilities costs. Total merger integration and charter consolidation expenses in first quarter 2004 were $13 million. The efficiency ratio improved to 56.4 percent in first quarter 2004 from 59.2 percent in first quarter 2003 and 60.5 percent in fourth quarter 2003.
“Credit quality continued to improve, with nonperforming assets, charge-offs and charge-off ratios all declining,” said Chief Credit Officer Dave Munio. “First quarter losses of $404 million (.63 percent of loans outstanding annualized) were down $61 million, or 13 percent from $465 million (.78 percent of loans outstanding annualized) in fourth quarter 2003 and down from $415 million (.86 percent of loans outstanding annualized) a year ago. Our credit results reflected low loss rates in our commercial portfolios and continued satisfactory performance in retail, which tracked national and regional trends. Housing values across the U.S. continued to be stable to improving, which moderated losses in our real estate portfolios. Our consumer bankruptcy results mirrored the national year-over-year decline of approximately 3 percent and delinquencies remained at the lower end of expected results. Given the substantial growth in our consumer loan portfolios, we would expect consumer loan losses and loss rates to increase at some point as these portfolios season.”
Nonperforming assets were $1.61 billion, or .61 percent of total loans, down 3 percent from $1.66 billion (.66 percent) last quarter and down 9 percent from $1.76 billion (.87 percent) in first quarter 2003. “Commercial nonperforming loans continued to decline modestly, partially offset by the growth and seasoning of our home mortgage real estate portfolio,” said Munio. The allowance of $3.89 billion continued to provide over two times coverage of annualized losses and nonperforming assets.
Business Segment Performance
Wells Fargo has three lines of business for management reporting: Community Banking, Wholesale Banking and Wells Fargo Financial. Net income for each of the three business segments was:
|(in millions)||First Quarter 2004||First Quarter 2003||% Change|
|Community Banking||$1,167||$1,058||10 %|
|Wells Fargo Financial||136||102||33|
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)||First Quarter 2004||First Quarter 2003||% Change|
|Total revenue||$4,986||$ 4,886||2%|
|Provision for loan losses||214||217||(1)|
|Average loans (in billions)||180.3||128.3||41|
|Average assets (in billions)||277.4||255.4||9|
- Record core product sales of 3.24 million for the quarter, up 23 percent from prior year
- 1,000 additional platform bankers from prior year
- Banker productivity of 4.88 core sales per day, up 10 percent from prior year
- Core deposits up 7 percent from prior year
- Loans up 41 percent from prior year
- Mortgage application pipeline of $72 billion, up $26 billion from December 31, 2003
- Net consumer checking account growth of 5.1 percent from prior year
- 5.2 million active online customers, up 33 percent from prior year
- 1.8 million bill pay customers at quarter end, up 34 percent prior year
- 450,000 active online small business customers, up 44 percent from prior year
- Online merchant transactions totaled $3.8 billion in the quarter, up 49 percent from prior year
Community Banking reported net income of $1,167 million in first quarter 2004, compared with $1,058 million for the same period of 2003, up 10 percent. First quarter revenue grew 2 percent compared with the same period of 2003, but was adversely affected by the 33 percent decline in mortgage banking revenue. Net interest income increased by $69 million, compared with first quarter 2003, primarily due to growth in consumer and 1-4 family loans and deposits, which offset the decrease in mortgages held for sale, with the increase in interest income partially offset by a decline in the net interest margin. Noninterest income was up $31 million in first quarter 2004, compared with 2003. Noninterest expense decreased by $32 million in first quarter 2004, or 1 percent, compared with the same period of 2003, due primarily to a decline in mortgage origination volumes. The provision for loan losses decreased by $3 million in first quarter 2004 compared with first quarter 2003.
“We achieved record sales this quarter, thanks to the dedication and hard work of our team,” said John Stumpf, Group EVP, Community Banking. “Core product sales were 3.24 million, up 23 percent from the same period last year. The number of retail bankers increased 10 percent from a year ago, while our sales per platform banker also rose 10 percent. We continued to enjoy strong net growth in consumer checking accounts, a core product for building customer relationships, up 5 percent from a year ago.”
“We continued to see good levels of home mortgage sales with $65 billion of originations in the quarter,” said Mark Oman, Group EVP, Home and Consumer Finance. “The solid origination levels resulted in strong growth in the first mortgage and home equity portfolios, which were up 8 percent, and 10 percent, respectively, in the quarter.
With the drop in mortgage interest rates during the quarter, we saw a pick up in activity, taking $119 billion in applications in the quarter, up $48 billion from fourth quarter 2003. Reflecting this increase in activity, the mortgage application pipeline ended the quarter at $72 billion, up $26 billion from year-end. The owned servicing portfolio grew to $725 billion, up $116 billion, or 19 percent, from the same period last year. The weighted-average note rate declined to 5.84 percent from 5.90 percent at year-end. The carrying value of mortgage servicing rights at March 31, 2004 was $6.1 billion, 1.00 percent of loans serviced for others, compared with $6.9 billion, 1.15 percent of loans served for others, at year-end.”
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 $10 million with a complete line of commercial, corporate, treasury management, investment, insurance, capital markets and real estate banking products and services.
|(in millions)||First Quarter 2004||First Quarter 2003||% Change|
|Total revenue||$ 1,390||$ 1,203||16|
|Provision for loan losses||23||53||(57)|
|Average loans (in billions)||50.3||49.3||2|
|Average assets (in billions)||75.7||74.1||2|
- Record revenue of $1.4 billion, up 16 percent from prior year
- Noninterest income up 27 percent from prior year
- Net income up 29 percent from prior year
- Received George Mitchell Payments System Excellence Award from NACHA
Wholesale Banking reported earnings of $448 million in first quarter 2004, up 29 percent compared with a year ago and up 17 percent on a linked-quarter basis. First quarter revenue of $1.4 billion was up 16 percent from first quarter 2003 and up 6 percent from fourth quarter 2003. Growth in revenue on both a year-over-year and linked-quarter basis was attributable to higher income in asset-based lending, insurance brokerage, fees and commissions and capital markets-related business. First quarter expenses were up 8 percent from a year ago, primarily due to higher personnel expense resulting from merit increases and the rise in benefit costs. On a linked-quarter basis, expenses were down 4 percent. The provision for loan losses in first quarter 2004 declined $30 million from a year ago.
“We are extremely pleased to report strong increases in earnings across Wholesale Banking, compared with the same period last year,” said Dave Hoyt, Group EVP, Wholesale Banking. “We experienced solid growth across all of our wholesale businesses this quarter, with especially strong results from our asset-based lending and capital markets businesses. We continued to focus on building new relationships, deepening relationships through cross-sell, and improving customer satisfaction.
Customer feedback collected by firms such as Phoenix-Hecht, Greenwich Associates, and JD Powers over the last three years indicates high and continually improving levels of customer satisfaction. These results are attributable to the high quality of our people and our focus to collect customer input throughout our businesses processes to build products and services that match our customers' needs. In March, we received the George Mitchell Payments Systems Excellence Award from the National ACH Association (NACHA) for our work delivering the electronic consumer payments system for Wells Fargo Home Mortgage. We continue to focus on making it easier for our customers to do business with us, by giving our team members better access to information so they can serve our customers more effectively and by providing more user-friendly tools to our customers.”
Wells Fargo Financialoffers consumer and commercial finance, leasing, private label credit cards and dealer financing in 47 states, Canada, and the Caribbean.
|(in millions)||First Quarter 2004||First Quarter 2003||% Change|
|Total revenue||$ 746||$ 614||21|
|Provision for loan losses||167||141||18|
|Average loans (in billions)||25.8||17.5||47|
|Average assets (in billions)||27.4||19.4||41|
- Net income up 33 percent from prior year
- Assets increased $2.1 billion during the quarter, topping $27 billion, driven by real estate lending and auto financing
- Real estate secured receivables up $1.5 billion, or 20 percent, to $8.9 billion
- Auto finance receivables up $.8 billion, or 14 percent, to $6.5 billion
- Sound credit quality, with losses within predicted ranges amid strong growth
“Our record quarterly earnings of $136 million reflected the benefits of the changes made to our business model over the last several years to focus on consumer secured lending,” said Mark Oman, Group EVP, Home and Consumer Finance. “We continued to have strong receivables growth in the U.S. consumer and auto businesses. The consumer business continued to expand its sales force with the addition of 521 sales team members in the quarter.”
A recorded message reviewing Wells Fargo's results will be available at 5:30 a.m. Pacific Time through April 23, 2004. Dial 800-642-1687 (domestic) or 706-645-9291 (international). Access code 6102151. The call is also available on the internet at www.wellsfargo.com/ir and www.vcall.com.
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 future equity gains, expected second quarter 2004 mortgage originations and average mortgage loans held for sale, 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 Annual Report on Form 10-K for the year ended December 31, 2003, including information incorporated into the Form 10-K from the Company’s 2003 Annual Report to Stockholders, filed as Exhibit 13 to the Form 10-K. See, for example, “Financial Review—Risk Management” included in the 2003 Annual Report to Stockholders and incorporated by reference into the Form 10–K.
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.
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 2003 Annual Report to stockholders and incorporated by reference into the Form 10-K.
Any factor described in this news release, in the Form10-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.
Wells Fargo & Company is a diversified financial services company with $397 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.