|
Article Excerpt
SAN FRANCISCO -- Wells Fargo & Company (NYSE:WFC):
A[micro] 2005 Highlights: A[micro] -- Record diluted earnings per share of $4.50, up 10 percent A[micro] -- Record net income of $7.7 billion, up 9 percent A[micro] -- Return on equity of 19.6 percent A[micro] -- Record revenue of $33 billion, up 10 percent A[micro] -- Noninterest expense up 8 percent A[micro] Fourth Quarter 2005 Highlights: A[micro] -- Diluted earnings per share of $1.14, up 10 percent from prior year A[micro] -- Net income of $1.9 billion, up 8 percent A[micro] -- Revenue of $8.5 billion, up 4 percent; 7 percent revenue growth in businesses other than Wells Fargo Home Mortgage (Home Mortgage) A[micro] -- Noninterest expense down 2 percent A[micro] -- Strong loan and deposit growth A[micro] -- Average loans up 9 percent despite sale of $48 billion of adjustable rate mortgages (ARMs) in 2005 A[micro] -- Average commercial and commercial real estate loans up 13 percent A[micro] -- Average core deposits up 10 percent A[micro] -- Solid asset quality A[micro] -- Nonperforming assets down $41 million, or 3 percent A[micro] -- Net charge-offs of $703 million, up $238 million, including $171 million from incremental consumer bankruptcy filings nationwide due to change in bankruptcy law in October 2005 Selected Financial Information Full Year Fourth Quarter --------- -------------- % % Earnings 2005 2004 Change 2005 2004 Change ---- ---- ------ ---- ---- ------ Diluted earnings per share $4.50 $4.09 10% $1.14 $1.04 10% Net income (in billions) 7.67 7.01 9 1.93 1.79 8 Asset Quality Net charge-offs as % of avg. total loans .77% .62% 24 .91% .66% 38 Nonperforming assets as % of total loans .49 .55 (11) .49 .55 (11) Other Revenue (in billions) $32.9 $30.1 10 $8.5 $8.2 4 Average loans (in billions) 296.1 269.6 10 305.7 281.2 9 Average core deposits (in billions) 242.8 223.4 9 253.4 230.2 10
Wells Fargo & Company (NYSE:WFC) reported record diluted earnings per common share of $4.50 for 2005, compared with $4.09 in 2004, up 10 percent. Net income was a record $7.7 billion, up 9 percent from $7.0 billion in 2004. For fourth quarter 2005, net income was $1.9 billion, or $1.14 per share, compared with $1.8 billion, or $1.04 per share, for fourth quarter 2004, an increase in earnings per share of 10 percent.
"Our outstanding team has done it again -- another terrific year of exceptional, broad-based performance across our more than 80 businesses," said Chairman and CEO Dick Kovacevich. "The double-digit growth we achieved in revenue and earnings per share is all the more remarkable because -- guided by our vision, values and time-tested business model -- our team has been producing industry-leading, double-digit annual growth not just for one year, but for the past five, ten, 15 and 20-year periods. Our total shareholder return the past five years was ten times that of the S&P 500(R), and almost double the S&P 500 for the past ten, 15 and 20 years. These periods included almost every economic cycle and economic condition a financial institution can experience. High and low interest rates. High and low unemployment. Bubbles and recessions. All types of yield curves -- steep, flat and inverted. For Wells Fargo to achieve double-digit growth, it doesn't make much difference what the economy is doing because our primary strategy, consistent for 20 years, is to satisfy all our customers' financial needs, help them succeed financially, and through cross-selling, gain market share, wallet share and earn 100 percent of their business. At year-end, our average cross-sell set new records for the company -- 4.8 products per consumer household and 5.7 products per commercial customer.
"As we have for the past 20 years, we continued to make significant reinvestments in the company to benefit future growth, including opening 92 banking stores, 7 commercial banking offices, 47 mortgage stores and 20 consumer finance stores. During the quarter we agreed to acquire a real estate investment banking firm, Secured Capital Corp., and banks in Colorado and Minnesota. We continue to be #1 in many categories nationally including retail mortgage originations, home equity lending, small business lending, agricultural lending, consumer internet banking, and provider of financial services to middle market companies in the western U.S."
Financial Performance
"We achieved record results for 2005, another year of double-digit earnings growth driven, once again, by double-digit revenue growth and single-digit expense growth -- positive operating leverage," said Chief Financial Officer Howard Atkins. Diluted earnings per share were $1.14, up 10 percent from $1.04 in fourth quarter 2004. As previously disclosed, the incremental personal bankruptcy filings nationwide immediately before the October 17, 2005 change in bankruptcy law, increased fourth quarter charge-offs by $171 million, or $.07 per share. Atkins said this law should be a net positive for Wells Fargo long-term as it will likely reduce the rate of consumer bankruptcy filings. "Despite the $.07 reduction in earnings per share due to incremental consumer bankruptcies, the Company once again achieved double-digit earnings growth, reflecting the strength of our diversified business model," he said. "While mortgage earnings declined from fourth quarter 2004, most of our other businesses achieved double-digit earnings growth, including regional banking, commercial banking, corporate banking, private client services, corporate trust, our home equity and personal credit businesses, asset management, asset-based lending, student lending, commercial real estate and international trade services."
Revenue
Full year 2005 revenue of $33 billion -- a new record -- grew 10 percent from 2004 revenue of $30 billion. Revenue of $8.5 billion for fourth quarter 2005 grew $324 million, or 4 percent, from a year ago. Revenue growth was offset by a $77 million decline in equity gains and a $127 million increase in losses on the sale of debt securities from fourth quarter 2004. Home Mortgage revenue declined $178 million from $1.32 billion in fourth quarter 2004 to $1.15 billion in fourth quarter 2005. Combined revenue of businesses other than Home Mortgage grew 7 percent from fourth quarter 2004 to fourth quarter 2005.
On a linked-quarter basis, Home Mortgage revenue declined $276 million from $1.43 billion in third quarter 2005 to $1.15 billion in fourth quarter 2005. Combined revenue of businesses other than Home Mortgage grew 15 percent (annualized) from third quarter 2005 to fourth quarter 2005. "This revenue growth was broad based across most of our businesses, which had solid growth in both net interest income and noninterest income," said Atkins.
Loans
Average loans of $305.7 billion in fourth quarter 2005 increased 9 percent from $281.2 billion in fourth quarter 2004, and $10.1 billion, or 14 percent (annualized), on a linked-quarter basis. Excluding real estate 1-4 family first mortgage -- the loan category impacted by ARM sales throughout the year -- total average loans grew by $34.7 billion, or 18 percent, from fourth quarter 2004.
Average commercial and commercial real estate loans increased $12.4 billion, or 13 percent, from fourth quarter 2004 and increased $2.6 billion, or 10 percent (annualized), on a linked-quarter basis -- the fifth consecutive quarter of double-digit, linked-quarter growth. Commercial loan growth was broad based across virtually all of our businesses, including small business direct, middle market, commercial real estate, leasing, trade finance and asset-based lending.
Atkins said there was continued strong demand for consumer credit. Average consumer loans increased $10.8 billion, or 6 percent, from fourth quarter 2004 (up 22 percent excluding real estate 1-4 family first mortgages), and $7.2 billion, or 15 percent (annualized), on a linked-quarter basis. First mortgage, home equity, credit card, and other revolving credit and installment loans grew at double-digit rates on a linked-quarter basis (annualized).
Deposits
Average core deposits of $253.4 billion for fourth quarter 2005 grew $23.1 billion, or 10 percent, from fourth quarter 2004, and increased $6.2 billion, or 10 percent (annualized), on a linked-quarter basis. Average mortgage escrow deposits were $17.7 billion for fourth quarter 2005, up $3.2 billion from fourth quarter 2004 and down $1.3 billion from third quarter 2005. Excluding mortgage escrow balances, total average core deposits grew 9 percent from fourth quarter 2004 and 13 percent (annualized) from third quarter 2005. Average retail core deposits grew $20.9 billion, or 11 percent, from fourth quarter 2004 and increased $5.7 billion, or 11 percent (annualized), on a linked-quarter basis. Average consumer checking account balances for fourth quarter 2005 grew 11 percent from fourth quarter 2004. "The continued strong growth in checking accounts and core deposits and our gains in market share reflect our exceptional sales and service culture and improving customer retention rates," said Atkins.
Net Interest Income
Net interest income for fourth quarter 2005 increased 9 percent from a year ago and 14 percent (annualized) on a linked-quarter basis. "During a year in which the Fed raised rates eight times and the yield curve became 'non-existent,' our net interest margin remained essentially flat -- declining by only 4 basis points -- and at 4.84 percent remained the highest margin among large bank holding companies," said Atkins. "In part, our margin performance reflected the benefit of selling $48 billion of the lowest-yielding ARMs on our balance sheet throughout 2005 to further improve our earning asset yield, also the highest among large bank holding companies. During fourth quarter 2005, additional balance sheet repositioning actions included a $124 million loss on the sale of $11 billion of debt securities and $16 million of losses related to the sale of $4.5 billion of ARMs. Net interest margin has also performed better than our peers due to our ability to grow transaction and savings deposits while maintaining our deposit pricing discipline."
Noninterest Income
Noninterest income decreased $59 million from fourth quarter 2004. Atkins said the decrease was due to three factors:
First, fourth quarter 2005 results included $55 million in mortgage servicing rights (MSRs) valuation allowance release, down from a release of $234 million in fourth quarter 2004.
Second, the losses totaling $124 million in fourth quarter 2005 related to the sale of debt securities for balance sheet repositioning compared with gains of $3 million in fourth quarter 2004.
Third, while equity investment gains remained strong at $93 million, they were down from last year's exceptionally high $170 million.
The remaining balance of noninterest income increased 10 percent with fee income growth across our businesses, with particular strength in service charges on deposit accounts, trust, investment and IRA fees, and card fees.
Noninterest Expense
Noninterest expense was down 2 percent, or $88 million, from fourth quarter 2004, which included a $217 million contribution to the Wells Fargo Foundation. On a linked-quarter basis noninterest expense was down $6 million, or 1 percent (annualized). Fourth quarter 2005 expenses included $13 million of integration expense. Though overall expenses declined on a year-over-year and linked-quarter basis, the Company continued to invest in future growth. During the quarter, the Company opened 43 new banking stores, renovated 115 banking stores and added 599 new retail bankers. The efficiency ratio improved to 57.5 percent in fourth quarter 2005 from 60.9 percent in fourth quarter 2004.
As required under FAS 123R, the Company began expensing stock options on January 1, 2006. Assuming the Company's February 2006 option grant will vest over a three year period and the valuation and number of options will be the same as the February 2005 grant, the Company expects this expense to reduce 2006 earnings per share by approximately $.06.
Credit Quality
"Fourth quarter net credit losses were significantly impacted, as previously disclosed, by the nationwide consumer bankruptcy filing increases in mid-October, immediately prior to legislative changes," said Chief Credit Officer Dave Munio. Fourth quarter net credit losses were $703 million (.91 percent of average loans outstanding, annualized), which included $171 million (.22 percent) related to incremental bankruptcies above normalized levels, compared with $541 million (.73 percent) during third quarter 2005 and $465 million (.66 percent) one year ago. Without this nationwide increase in personal bankruptcy filings, fourth quarter losses would have been consistent with prior periods, demonstrating continued strong credit performance in the Company's loan portfolios. Although negative for the fourth quarter, the change in law should be a net positive for the Company in the long-term as it will likely reduce the rate of consumer bankruptcy filings. Absent the incremental bankruptcy filings, consumer loan portfolios continued to perform at or...
|
