How did Wells Fargo perform in 1999 compared with 1998?

Net income nearly doubled to $3.747 billion, and diluted EPS rose to $2.23 from $1.17. The comparison is distorted by 1998 Merger-related charges of about $600 million, so the improvement overstates underlying growth. Excluding goodwill and core deposit intangible amortization, diluted 'cash' EPS was $2.56 versus $1.50 in 1998.

How much of 1999 earnings came from one-time or volatile sources?

Net venture capital gains of $1.008 billion were a major contributor, including about $560 million from the Cerent investment. The filing states that such gains depend on timing and market conditions and are unpredictable, so investors should not assume they recur at this level. Partly offsetting this, the Company took a $241 million net loss on securities available for sale, mainly from its Q4 1999 portfolio restructuring.

Is the bank's credit quality deteriorating?

Based on this filing, no. Net charge-offs fell to $1.049 billion (0.94% of average loans) from $1.617 billion (1.52%), and nonaccrual loans declined. The allowance for loan losses was $3.170 billion, which management considers adequate. Management does expect the provision to roughly match net charge-offs in 2000, and the filing notes that economic downturns or higher rates could raise delinquencies.

How will the Gramm-Leach-Bliley Act affect Wells Fargo?

The Act, effective March 13, 2000, lets bank holding companies that elect financial holding company status affiliate with securities firms and insurers and engage in other financial activities. Wells Fargo elected this status effective that date. The filing expects the change to increase competition, since securities and insurance firms may now acquire banks, and it also supports the Company's continued acquisition strategy.

What is the Company's capital position and shareholder return policy?

Capital ratios exceeded regulatory minimums: total risk-based capital was 10.50% (8% minimum), Tier 1 was 8.07% (4% minimum), and leverage was 6.77% (3% minimum). The Company paid dividends of $0.785 per share in 1999, a 35% payout ratio. In February 2000 the board authorized repurchase of up to 81 million additional shares, though about 35 million remaining shares were expected to go toward announced acquisitions.

WFC 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 17, 2000. Cited figures are marked; the original filing is the authoritative source.

Wells Fargo & Company's 1999 Form 10-K, filed March 17, 2000, describes a $218 billion^a diversified financial services company (seventh-largest U.S. bank holding company by assets) formed by the November 1998 merger of Norwest and the former Wells Fargo, accounted for as a pooling of interests.

Results were strong in 1999: net income rose 92% to $3,747 million^b, diluted EPS was $2.23 (versus $1.17), and ROA and ROE were 1.85% and 17.66%. Much of the jump reflects the absence of 1998 Merger-related charges and a $1,008 million in net venture capital gains, including roughly $560 million from the Cerent Corporation investment, which management notes are inherently unpredictable. Excluding goodwill and nonqualifying core deposit intangible amortization, 'cash' EPS was $2.56 and cash ROE was 34.08%.

Core banking metrics were mixed. Net interest margin compressed to 5.66%^c from 5.79%, driven by growth in lower-yielding securities and lower consumer loan yields, though management expects the Q4 1999 securities restructuring to help beginning in Q1 2000. Credit quality remained sound: net charge-offs fell to 0.94% of average loans from 1.52%, the allowance covered 2.65% of loans, and nonaccrual loans were 0.6% of total loans.

Capital was solid, with a total risk-based capital ratio of 10.50% and Tier 1 of 8.07%, both above regulatory minimums. Deposits declined 3% to $132.7 billion^d while total loans grew 11% to $119.5 billion. Looking ahead, the filing flags the Gramm-Leach-Bliley Act (effective March 13, 2000), which lets the Company become a financial holding company and affiliate with securities and insurance firms.

The Company elected this status, and the filing expects more competition as a result. The filing also notes a February 2000 board authorization to repurchase up to 81 million additional shares, and that Year 2000 remediation cost about $320 million with no significant issues reported as of January 2000.

02—Key points

Key Highlights

Net income rose 92% to $3.747 billion in 1999 from $1.950 billion in 1998; diluted EPS was $2.23 versus $1.17, with 1998 depressed by Merger-related charges.
Net venture capital gains reached $1.008 billion in 1999 (vs. $113 million in 1998), including roughly $560 million from the Cerent Corporation investment; management cautions these gains are unpredictable.
Net interest margin fell to 5.66% from 5.79%, while net interest income rose to $9.355 billion from $8.990 billion as earning assets grew.
Credit quality improved: net charge-offs were 0.94% of average loans (vs. 1.52%), the allowance was $3.170 billion (2.65% of loans), and nonaccrual plus restructured loans were 0.6% of total loans.
Total assets reached $218.1 billion, making Wells Fargo the seventh-largest U.S. bank holding company; total loans grew 11% to $119.5 billion while deposits fell 3% to $132.7 billion.
Capital remained strong, with a total risk-based capital ratio of 10.50%, Tier 1 of 8.07%, and a leverage ratio of 6.77%, all above regulatory minimums.
The Company elected financial holding company status effective March 13, 2000 under the Gramm-Leach-Bliley Act and authorized repurchase of up to 81 million additional shares in February 2000.

03—Questions

Frequently Asked Questions

How did Wells Fargo perform in 1999 compared with 1998?
Net income nearly doubled to $3.747 billion, and diluted EPS rose to $2.23 from $1.17. The comparison is distorted by 1998 Merger-related charges of about $600 million, so the improvement overstates underlying growth. Excluding goodwill and core deposit intangible amortization, diluted 'cash' EPS was $2.56 versus $1.50 in 1998.
How much of 1999 earnings came from one-time or volatile sources?
Net venture capital gains of $1.008 billion were a major contributor, including about $560 million from the Cerent investment. The filing states that such gains depend on timing and market conditions and are unpredictable, so investors should not assume they recur at this level. Partly offsetting this, the Company took a $241 million net loss on securities available for sale, mainly from its Q4 1999 portfolio restructuring.
Is the bank's credit quality deteriorating?
Based on this filing, no. Net charge-offs fell to $1.049 billion (0.94% of average loans) from $1.617 billion (1.52%), and nonaccrual loans declined. The allowance for loan losses was $3.170 billion, which management considers adequate. Management does expect the provision to roughly match net charge-offs in 2000, and the filing notes that economic downturns or higher rates could raise delinquencies.
How will the Gramm-Leach-Bliley Act affect Wells Fargo?
The Act, effective March 13, 2000, lets bank holding companies that elect financial holding company status affiliate with securities firms and insurers and engage in other financial activities. Wells Fargo elected this status effective that date. The filing expects the change to increase competition, since securities and insurance firms may now acquire banks, and it also supports the Company's continued acquisition strategy.
What is the Company's capital position and shareholder return policy?
Capital ratios exceeded regulatory minimums: total risk-based capital was 10.50% (8% minimum), Tier 1 was 8.07% (4% minimum), and leverage was 6.77% (3% minimum). The Company paid dividends of $0.785 per share in 1999, a 35% payout ratio. In February 2000 the board authorized repurchase of up to 81 million additional shares, though about 35 million remaining shares were expected to go toward announced acquisitions.

04—Continue

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