WELLS FARGO REPORTS 29 PERCENT INCREASE IN NET INCOME
SAN FRANCISCO — July 19, 1999
Wells Fargo's 2nd quarter Financial Statements are available in Adobe Acrobat format. Click here to begin downloading. To receive a copy of this Release by mail, call 415-396-0560.
Second Quarter 1999 Highlights:
- Record Net Income up 29 percent from prior year
- Record Diluted Earnings Per Share up 28 percent from prior year
- Return on Assets (ROA) of 1.86 percent, Cash ROA of 2.23 percent
- Return on Common Equity (ROE) of 17.50 percent, Cash ROE of 33.43 percent
- Record Earnings for Norwest Mortgage
Wells Fargo & Company (NYSE:WFC) today reported record net income of $931 million for the second quarter of 1999, compared with $719 million for the second quarter of 1998, an increase of 29 percent. Net income for the first six months of 1999 was a record $1,815 million, an increase of 29 percent over the same period a year ago. Diluted earnings per common share were a record $.55 for the second quarter of 1999 and a record $1.08 for the first six months of 1999, compared with $.43 and $.85 for the same periods of 1998. Return on average assets was 1.86 percent for the second quarter of 1999 and 1.83 percent for the first six months of 1999, compared with 1.55 percent and 1.53 percent for the same periods a year ago. Return on average common equity was 17.50 percent for the second quarter of 1999 and 17.42 percent for the first six months of 1999, compared with 14.72 percent and 14.46 percent for the same periods of 1998.
|Net Income (in millions)||$ 931||29 %||$ 1,815||29 %|
|Diluted Earnings per Common Share||0.55||28||1.08||27|
|Diluted Cash Earnings per Common Share*||0.63||21||1.24||22|
|Return on Assets||1.86 %||20||1.83 %||20|
|Return on Common Equity||17.50||19||17.42||20|
|Net Interest Margin||5.68||(3)||5.64||(4)|
Diluted cash earnings were a record $.63 per share for the second quarter of 1999 and a record $1.24 per share for the first half of 1999, compared with $.52 per share and $1.02 per share for the same periods of 1998. Cash return on average assets was 2.23 percent for the second quarter of 1999 and 2.20 percent for the first half of 1999, compared with 1.95 percent and 1.94 percent for the same periods a year ago. Cash return on average tangible common equity was 33.43 percent for the second quarter of 1999 and 33.89 percent for the first half of 1999, compared with 32.49 percent and 32.33 percent for the same periods of 1998. Cash earnings are earnings before the amortization of goodwill and nonqualifying core deposit intangible (related primarily to the 1996 acquisition of First Interstate Bancorp).
"Our earnings momentum continues to be strong across all our major businesses," said Dick Kovacevich, Wells Fargo's president and chief executive officer. "We're pleased with the progress of our merger integration to date and we continue to be on schedule for systems conversions, which will begin later this year in the overlapping banking states of New Mexico, Nevada and Arizona. The credit goes to thousands of our team members who've shown outstanding dedication and customer focus in preparing for these conversions."
During the quarter, the company formed a new division - the Wells Fargo Internet Services Group - to coordinate all Wells Fargo online and Internet activity across all business segments and geographies. Clyde Ostler, formerly head of the company's Investments and Online Financial Services Groups, has been named to head the new division.
"Our goal is to fully leverage the sales and service opportunities that the Internet offers customers," said Ostler. "We want to be the best provider of online financial products and services across all of our business lines. We need to offer value-added, integrated, multi-channel solutions to build relationships that last over time with households and businesses." Wells Fargo, the oldest and largest Internet financial services provider, is fast approaching one million online customers. It is signing up an average of 70,000 customers a month, or more than one a minute, and has begun marketing the service to Norwest banking customers.
Net Interest Income
Net interest income on a taxable-equivalent basis was $2,328 million in the second quarter of 1999, compared with $2,247 million for the same quarter a year ago and $4,608 million for the first six months of 1999, compared with $4,456 million for the same period a year ago. Wells Fargo and Company and its subsidiaries' (The Company's) net interest margin was 5.68 percent for the second quarter of 1999 and 5.64 percent for the first six months of 1999, compared with 5.88 percent and 5.89 percent in the same periods of 1998. The decrease in the net interest margin for both the second quarter and the first six months was primarily due to lower yields on consumer and commercial loans as well as higher balances of lower yielding investment securities, partially offset by decreased rates on consumer deposits.
Noninterest income in the second quarter of 1999 was $1,814 million, compared with $1,715 million in the same quarter of 1998. For the first half of 1999, noninterest income was $3,541 million, compared with $3,249 million in the same period of 1998. The increase for the first half of 1999 was primarily due to higher trust and investment fees and commissions and net gains on sales of mortgages.
Noninterest expense was $2,364 million in the second quarter of 1999, a decrease from $2,452 million in the same quarter of 1998. In the first six months of 1999, noninterest expense was $4,706 million, a decrease from $4,749 million in the same period of 1998. The efficiency ratio improved to 57.3 percent for the second quarter of 1999 and 58.0 percent for the first half of 1999, compared with 62.1 percent and 61.9 percent for the same periods a year ago.
The loan loss provision was $260 million for the second quarter of 1999, compared with $309 million for the same period in 1998. Net charge-offs totaled $261 million, or .96 percent of average loans (annualized), in the second quarter of 1999. Net charge-offs totaled $303 million, or 1.16 percent of average loans (annualized), for the second quarter of 1998. For the six months ended June 30, 1999 the loan loss provision was $530 million and net charge-offs totaled $534 million, or .99 percent of average loans (annualized), compared with a loan loss provision of $614 million and net charge-offs of $613 million, or 1.17 percent of average loans (annualized) for the same period of 1998.
At June 30, 1999, the allowance for loan losses of $3,165 million was 2.83 percent of total loans, compared with 2.90 percent at December 31, 1998 and 2.91 percent at June 30, 1998. Total nonaccrual and restructured loans were $688 million at June 30, 1999, down from $710 million at December 31, 1998 and $733 million at June 30, 1998.
The Company has four lines of business for management reporting: Community Banking, Wholesale Banking, Norwest Mortgage, and Norwest Financial (Consumer Finance). The net income of the four business segments is shown in the following table:
|Community Banking||$ 710||$ 485||$ 1,357||$ 936|
Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including retail and trust services primarily in 21 midwestern and western states.
Community Banking reported earnings of $710 million in the second quarter of 1999, 46 percent above second quarter 1998 earnings of $485 million. For the first half of 1999, earnings were 45 percent higher than the corresponding period for 1998.
"We're very encouraged by early signs of progress in propagating the strengths of each merger partner - the Norwest sales and cross-sell culture and the efficiency and store productivity of the former Wells Fargo," said Les Biller, the company's chief operating officer. "In California, for example, our mortgage origination volume from January to June was up 223 percent and our core products sold per banker per day increased 24 percent. Our home equity sales for the entire company grew rapidly, with outstanding balances up almost 5 percent from March 31, 1999."
"We also believe we can operate our Norwest banking stores more efficiently while still maintaining great customer service and retaining talented team members. We've begun applying the teller staffing models of the former Wells Fargo to Norwest banking stores. As planned, in many of these Norwest stores, we should be able to operate with one less full-time equivalent teller, saving an estimated $25 million annually. Because of relatively high teller turnover rates across the industry, we should be able to achieve these savings while retaining as many talented team members as possible."
Wholesale Bankingserves businesses with annual sales in excess of $5 million and maintains relationships with major corporations throughout the United States. Wholesale Banking provides a complete line of commercial and corporate banking and real estate services.
Wholesale Banking reported earnings of $186 million in the second quarter of 1999, 16 percent below second quarter 1998 earnings of $221 million. For the first half of 1999, earnings were 7 percent lower than the corresponding period for 1998. The decline in earnings between the first half of 1998 and the first half of 1999 is primarily attributable to a higher provision for loan losses in the later period. The 1998 provision was unusually low resulting from continued recoveries on real estate loans which had been charged off in the early 1990's.
"The fundamentals for cross-sell and attracting new customers remain strong in Wholesale Banking", said Dave Hoyt, group executive vice president. "We continue to have good performance in Equipment Finance and our two asset-based lending businesses, Foothill Capital and Wells Fargo Business Credit. We're also attracting a number of new middle market customers, particularly in California, Texas and elsewhere in the Southwest. The number of new middle market relationships is up 33% over the same period last year. We look forward to a strong second half."
Norwest Mortgageis the largest originator of home mortgage loans in the United States and the second largest servicer of mortgage loans.
For the second quarter of 1999, Norwest Mortgage earned $70 million, 30 percent above second quarter 1998 earnings of $54 million. For the first half of 1999, earnings were 30 percent higher than the corresponding period for 1998. Selected quarterly Norwest Mortgage information follows:
|(dollars in billions)||6/30/99||3/31/99||12/31/98||6/30/98|
|Quarter||$ 23||$ 28||$ 35||$ 26|
|Year to date||50||28||109||47|
|Amortization of capitalized servicing rights (in millions):|
|Year to date||460||294||786||328|
|Weighted average coupon||7.30 %||7.34 %||7.42 %||7.61 %|
|Capitalized servicing rights as a percentage of servicing portfolio||1.53||1.41||1.26||1.32|
"The continued growth in mortgage earnings, despite a decline in originations from the first quarter of 1999, reflects the balance we have built between our origination and servicing businesses," said Mark Oman, group executive vice president of mortgage and home equity. "The counter-cyclical nature of these two businesses is extremely important. A balanced presence in both businesses reduces the likelihood of earnings volatility due to changes in interest rates."
In California, the nation's largest housing market, and in Washington, Oregon, Utah, Idaho, Nevada and Arizona, a growing number of Wells Fargo's banking stores now are staffed with Norwest Mortgage sales representatives on the sales floor serving the needs of customers. Oman said, "We're making significant progress in mortgage-bank cross-sell. Since the merger, we've hired 362 new mortgage sales people for our banking stores in the 10 western banking states that make up the former Wells Fargo. As a result, we have seen a significant increase in first mortgage volume through the former Wells Fargo banking stores."
Norwest Financialoffers consumer finance and auto finance in 47 states, Canada, the Caribbean and Latin America.
Norwest Financial reported earnings of $66 million in the second quarter of 1999, 22 percent above the second quarter 1998 earnings of $54 million. For the first half of 1999, earnings were 13 percent higher than the corresponding period for 1998.
"Our earnings growth of 22 percent for the quarter, compared with the second quarter of 1998, and 13 percent for the first half of the year is very encouraging," said David Wood, chairman and chief executive officer of Norwest Financial. "In our U.S. businesses, we have made steady improvements in credit quality and receivables growth has been strong."
"To better serve our customers across the entire company, we have implemented this year many cross-sell initiatives with other Wells Fargo affiliates. California, Norwest Financial's largest market, offers significant cross-sell opportunities with Wells Fargo's more than 1,000 banking stores in that state."
Wells Fargo & Company is a $205 billion diversified financial services company providing banking, insurance, investments, mortgage and consumer finance through about 6,000 stores, the Internet and other distribution channels across North America, including all 50 states, and elsewhere internationally.
On November 2, 1998, Wells Fargo & Company (the former Wells Fargo) merged with WFC Holdings Corporation (WFC Holdings), a wholly-owned subsidiary of Norwest Corporation. In connection with the merger, Norwest Corporation changed its name to "Wells Fargo & Company." The merger was accounted for as a pooling of interests and, accordingly, the information included in this release presents the combined results of Wells Fargo & Company and its subsidiaries as if the merger had been in effect for all periods presented.Back to Top
The following appears in accordance with the Securities Litigation Reform Act:
This press release (including information incorporated by reference in this press release) includes forward-looking statements about the Company's financial condition, results of operations, plans, objectives and future performance and business. These statements generally include the words "believe," "expect," "anticipate," "estimate," "may," "will" or similar expressions that suggest the statements are forward looking in nature.
These forward-looking statements involve inherent risks and uncertainties. The Company cautions readers that a number of factors-many of which are beyond the control of the Company-could cause actual results to differ materially from those in the forward-looking statements. Among these factors are changes in political and economic conditions, interest rate fluctuations, technological changes (including the "Year 2000" data systems compliance issue), customer disintermediation, competitive product and pricing pressures in the Company's geographic and product markets, equity and fixed income market fluctuations, personal and commercial customers' bankruptcies, inflation, changes in law, changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations, credit quality and credit risk management, mergers and acquisitions, the integration of merged and acquired companies, and success in gaining regulatory approvals when required.
Also, actual results may differ materially from those in the forward-looking statements because of factors relating to the combination of the former Wells Fargo and the former Norwest Corporation, including the following: expected cost savings from the merger are not fully realized within the expected time frame or additional or unexpected costs are incurred; and costs or difficulties related to the integration of the former Wells Fargo and the former Norwest Corporation are greater than expected.