WELLS FARGO REPORTS RECORD SECOND QUARTER NET INCOME OF OVER $1 BILLION
SAN FRANCISCO — July 18, 2000
Wells Fargo's 2nd quarter Financial Statements are available in Adobe Acrobat format. Click here to begin downloading.
Second Quarter 2000 Highlights:
- Record Net Income of $1.04 billion, up 12 percent from prior year
- Record Diluted Earnings Per Share of $.63, up 15 percent from prior year
- Record Return on Assets (ROA) of 1.89 percent, Cash ROA of 2.26 percent
- Record Return on Common Equity (ROE) of 19.04 percent, Cash ROE of 37.16 percent
- Total Revenue up 11 percent from second quarter of 1999
- Cash Efficiency Ratio of 53.9 percent
|Net Income (in millions)||$1,039||12%||$2,049||13%|
|Diluted Earnings per|
|Diluted Cash Earnings|
per Common Share*
|Return on Assets||1.89||2||1.88||3|
|Return on Common Equity||19.04||9||18.63||7|
|Cash Efficiency Ratio||53.9||--||53.7||(1)|
|Net Interest Margin||5.55||(2)||5.56||(2)|
*Cash earnings exclude goodwill and nonqualifying core deposit intangible amortization and balances.
SAN FRANCISCO Wells Fargo & Company (NYSE:WFC) today reported record net income of $1,039 million for the second quarter of 2000, compared with $931 million in the second quarter of 1999. Net income for the first six months of 2000 was a record $2,049 million, compared with $1,815 million in the same period a year ago. Diluted earnings per common share were a record $.63 for the second quarter of 2000, up 15 percent from the $.55 reported for the second quarter of 1999, and a record $1.25 for the first six months of 2000, up 16 percent from $1.08 for the same period of 1999. Return on average assets (ROA) was a record 1.89 percent for the second quarter of 2000 and 1.88 percent for the first six months of 2000, compared with 1.86 percent for the second quarter of 1999 and 1.83 percent for the first six months of 1999. Return on average common equity (ROE) was a record 19.04 percent for the second quarter of 2000, and 18.63 percent for the first six months of 2000, compared with 17.50 percent and 17.42 percent for the same periods a year ago.
Diluted cash earnings per share were a record $.73 for the second quarter of 2000 and a record $1.42 for the first half of 2000, compared with $.63 per share and $1.24 per share for the same periods of 1999. Cash earnings are earnings before the amortization of goodwill and nonqualifying core deposit intangible. Cash ROA was 2.26 percent for the second quarter of 2000 and 2.25 percent for the first half of 2000, compared with 2.23 percent and 2.20 percent for the same periods a year ago. Cash ROE was 37.16 percent for the second quarter of 2000 and 35.62 percent for the first half of 2000, compared with 33.43 percent and 33.89 percent for the same periods of 1999.
"Thanks to the outstanding effort of our team members in all our businesses, we've now achieved six consecutive quarters of records for net income and EPS since the Norwest-Wells Fargo merger, and are on track to achieve our aggressive cash earnings per share targets established at the time of the merger," said President and CEO Dick Kovacevich. "We are still comfortable with our ability to at least meet our cash EPS target of $2.91 for this year. However, GAAP earnings per share are expected to be reduced by approximately 6 cents per share as a result of over 20 acquisitions since the merger that have increased goodwill as a result of using purchase accounting. Also important is the fact that we are already reaching our ambitious goal of double-digit revenue growth, as total revenues increased 11 percent from the second quarter of 1999 and 10 percent from the first half of 1999 as a result of continuing strong loan growth and product sales. With the successful completion of conversions in three more banking states this month, weve converted almost 70 percent of our products and systems in our merger integration without any significant customer issues. This achievement is the result of the hard work, dedication and customer focus of thousands of our team members. They've made it possible for us to keep customers, attract new ones, earn more business from current customers, and improve customer service throughout this integration. In addition, our pending merger with First Security Corporation is on track and expected to be completed early in the fourth quarter of this year with product and systems integration beginning shortly thereafter. We also closed the National Bancorp of Alaska acquisition, the largest bank in Alaska, on July 14."
"The $.73 diluted cash earnings per share reported for the second quarter of 2000 is an increase of about 16 percent over the same period a year ago," said Chief Financial Officer Ross Kari. "We continue to benefit from large venture capital gains which have allowed us to accelerate our investment in our Internet and other growing businesses and to fund ongoing integration expenses, including those of acquisitions made since the merger."
"During the quarter we expanded our offering of integrated online products and services for our diverse customer segments, including consumers, investors, small businesses and commercial enterprises," said Clyde Ostler, group EVP, Internet Services Group. "We continued to add about 100,000 new online consumer customers per month and surpassed 2 million online customers on June 30. It took us four years to reach the first million customers but less than one year to reach the second million."
"As the largest small business lender, we launched the Resource center for Small Business Owners," Ostler added. "We also enhanced our alliance with eBay and Billpoint and our Internet payments capabilities through our joint rollout of the Electronic Check service. We plan to provide this capability to other sites and businesses on the Internet. In addition, we launched Wells Fargo EasyOrderSM to simplify online shopping. EasyOrder customers enter their payment and shipping information only once and can shop at any online store, paying with a single click."
Net Interest Income
Net interest income on a taxable-equivalent basis was a record $2,485 million in the second quarter of 2000 and $4,941 million in the first half of 2000, compared with $2,328 million and $4,608 million for the same periods a year ago. The net interest margin was 5.55 percent for the second quarter of 2000 and 5.56 percent for the first six months of 2000, compared with 5.69 percent and 5.65 percent for the same periods of 1999.
"The margin was relatively stable at 5.55 percent during the quarter with the impact of funding strong loan growth with higher costing short-term borrowings offset in large part by the improved yield of the investment securities portfolio from the restructuring program during the prior two quarters," said Kari.
Noninterest income in the second quarter of 2000 was $2,092 million and $4,002 million for the first six months of 2000, compared with $1,814 million and $3,541 million in the same periods of 1999. The increase in the second quarter and first six months of 2000 was primarily due to increases in net venture capital gains and trust and investment fee income, partially offset by net losses on securities in the available for sale portfolio and a decrease in mortgage banking income.
Noninterest expense was $2,626 million in the second quarter of 2000 and $5,103 million for the first six months of 2000, compared with $2,364 million and $4,706 million for the same periods a year ago. The efficiency ratio was 57.6 percent for the second quarter of 2000, compared with 57.3 percent for the same quarter of 1999. For the first six months of 2000, the efficiency ratio was 57.3 percent, compared with 58.0 percent for the same period a year ago. On a cash basis, this ratio was 53.9 percent for the second quarter of 2000 and 53.7 percent for the first half of 2000, compared with 53.7 percent and 54.3 percent for the same periods of 1999.
"Compared to the first quarter of 2000, noninterest expense increased by $147 million, largely due to increased integration costs from the acceleration of conversions, the impact of other acquisitions that occurred during the latter part of the first quarter and the second quarter and higher expenditures in our Internet banking initiatives," said Kari.
The provision for loan losses was $260 million for both the second quarter of 2000 and the second quarter of 1999. Net charge-offs totaled $246 million, or .78 percent of average loans (annualized) in the second quarter of 2000, compared with $261 million, or .96 percent of average loans (annualized) for the second quarter of 1999. For the six months ended June 30, 2000, the loan loss provision was $515 million and net charge-offs totaled $500 million, or .81 percent of average loans (annualized), compared with a loan loss provision of $530 million and net charge-offs of $534 million, or .99 percent of average loans (annualized) for the same periods of 1999.
At June 30, 2000, the allowance for loan losses of $3,349 million was 2.48 percent of total loans, compared with 2.65 percent at December 31, 1999 and 2.83 percent at June 30, 1999. Total nonaccrual and restructured loans were $804 million at June 30, 2000, compared with $669 million at December 31, 1999 and $688 million at June 30, 1999.
"Total non-performing assets, including nonaccrual and restructured loans and other assets, remained low, by historical standards, at .72 percent of total loans," said Chief Credit Officer Ely Licht.
Wells Fargo has four lines of business for management reporting: Community Banking, Wholesale Banking, Wells Fargo Home Mortgage, and Wells Fargo Financial. Net income of the four business segments was:
|Wells Fargo Home Mortgage||62||67||129||133|
|Wells Fargo Financial||69||65||125||119|
Community Bankingoffers a complete line of diversified financial products and services for consumers and small businesses including investment, insurance and trust services primarily in 22 midwestern and western states.
Community Banking reported earnings of $772 million in the second quarter of 2000, 13 percent above second quarter 1999 earnings of $684 million. For the first half of 2000, earnings were 14 percent higher than the same period in 1999.
"Were particularly pleased with the continued improvement in our team members sales efforts as we seek to earn 100 percent of our customers business," said Chief Operating Officer, Les Biller. "Teller referrals are a good example of our success. Through training and motivation programs, our outstanding tellers in some of our banking regions have generated product sales from referrals that have more than doubled the past six months. Our bankers also are generating more sales and are helping us keep more high-value customers by calling them with product offers tailored to their needs. In Phoenix recently, two of our bankers not only retained $240,000 of a customers balances but earned another $293,000 in new business from the customer and earned the business of several other members of the customers family. Home equity product sales also continue to grow strongly, with loan balances up 9.5 percent during the quarter and up 32 percent from last years second quarter. Home equity sales via wellsfargo.com more than doubled, average loan balances rose 56 percent compared with the first quarter and home equity originations via the Internet more than tripled from the previous year."
Wholesale Bankingserves businesses with annual sales in excess of $10 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 $201 million in the second quarter of 2000, 8 percent above second quarter 1999 earnings of $186 million. For the first half of 2000, earnings were 11 percent higher than the same period for 1999.
"Wholesale Banking continued to show steady performance in the second quarter," said Dave Hoyt, group EVP, Wholesale Banking. "As we did in the first quarter, our core businesses grew as a result of cross selling and attracting new customers. Total loan volume is up 15 percent over last year. On the operating services side we are seeing strong growth in institutional investments and foreign exchange as we focus on the cross-sell opportunities in our wholesale customer base. So far this year we have attracted 12 percent more new middle market customers than the first half of last year."
Wells Fargo Home Mortgage (formerly Norwest Mortgage) is the largest retail originator and a leading servicer of home mortgage loans in the United States.
Wells Fargo Home Mortgage reported earnings of $62 million in the second quarter of 2000, compared with second quarter 1999 earnings of $67 million. For the first half of 2000, earnings were $129 million compared with $133 million in the same period of 1999.
|(dollars in billions)||6/30/00||3/31/00||12/31/99||9/30/99||6/30/99|
|Quarter||$ 18||$ 12||$ 13||$ 19||$ 23|
|Year to date||30||12||82||69||50|
|Amortization of capitalized|
|servicing rights (in millions):|
|Year to date||239||123||683||599||460|
|Weighted average coupon||7.42||7.37||7.33||7.30||7.30|
|Capitalized servicing rights as a|
|percentage of servicing portfolio||1.63||1.63||1.60||1.58||1.53|
"The lower earnings for the quarter show the impact of the gap between originations of $18 billion and $11 billion of sales into the secondary market," said Mark Oman, group EVP and chairman of Wells Fargo Home Mortgage. "Originations are the key driver of production costs while secondary market sales are the key driver of production revenues. The seasonal nature of the home purchase market and our decision to portfolio on our balance sheet some of our ARM loans, including our new relationship product, resulted in the unusually wide gap between originations and deliveries. Our reported results don't reflect the full economic value which we created in the second quarter; this value will be reflected in future periods as we either deliver the loans or earn a spread on our portfolio."
Wells Fargo Financial (formerly Norwest Financial) offers consumer and commercial finance, leasing and technology services in 47 states, Canada, the Caribbean and Latin America.
Wells Fargo Financial reported earnings of $69 million in the second quarter of 2000, 6 percent above second quarter 1999 earnings of $65 million. For the first half of 2000, earnings were 5 percent higher than the same period for 1999.
"Wells Fargo Financial is on target for solid performance in 2000," said Dan Porter, chairman and CEO of Wells Fargo Financial. "We slightly exceeded our expectations during the first two quarters and we are well positioned for future growth. At the end of the second quarter, receivables totaled $10 billion, up more than $1 billion over June 30, 1999. About $400 million of the increase reflects the purchase of bank credit card receivables from Conseco Finance Corp., which occurred on the final day of the quarter."
Porter added, "Historically, our strongest growth performance occurs in the second half of the year and we expect that will occur again this year."
A recorded message reviewing Wells Fargos second quarter 2000 results is available through July 21, 2000. Dial 800-633-8284 (domestic) or 858-812-6440 (international). Access code 15635451#. The call is also available on the Internet at www.wellsfargo.com/invest_relations/ or www.vcall.com.
Wells Fargo & Company is a diversified financial services company with $234 billion in assets, providing banking, insurance, investments, mortgage and consumer finance from about 5,300 stores and the Internet (wellsfargo.com) across North America and elsewhere internationally.
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