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WELLS FARGO & COMPANY/MN Annual Report, Year Ended Dec 31, 2003

Filing Date
Filed March 12, 2004
Period End
December 31, 2003
In the record · 2016–202610-K410-Q128-K584

WFC filed 4 annual reports (10-K), 12 quarterly reports (10-Q) and 584 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Apr ’17Apr ’17
  2. Leadership change8-K · Apr ’19Apr ’19

01—Abstract

Summary

Summary of the 10-K filed March 12, 2004. Cited figures are marked; the original filing is the authoritative source.

Wells Fargo & Company's 2003 Form 10-K shows a company at record scale and profitability: net income of $6.2 billiona ($3.65 diluted EPS, up 10% from $3.32 before the accounting change), revenue of about $28.4 billion (up 12%), and total assets of $387.8 billion, making it the fifth-largest U.S. bank holding company by assets.

Growth was driven by lending and deposits. Average loans rose 22% to $213.1 billionb, average core deposits rose 12%, and mortgage originations jumped 41% to a record $470 billion. ROE was 19.36% and ROA 1.64%, though the net interest margin compressed to 5.08% from 5.53% as new loans were priced at lower yields.

Credit quality improved on most measures. Net charge-offs fell to 0.81% of average loans from 0.96%, and nonaccrual loans declined to 0.58% of total loans from 0.78%. The allowance for loan losses was $3.89 billionc, or 1.54% of loans, down from 1.98%, mainly because the loan mix shifted toward lower-loss residential real estate and consumer loans.

Some items deserve attention. Noninterest expense rose 17% to $17.2 billiond, partly from mortgage-driven growth and a large charitable stock donation. Mortgage servicing rights carry a $1.9 billion valuation allowance, and net servicing fees were a $954 million loss.

The company also has a sizable interest-rate sensitivity in its mortgage business. Capital remained strong. The Tier 1 RBC ratio was 8.42% and total RBC was 12.21%, both above regulatory minimums, and the Tier 1 leverage ratio was 6.93%.

The dividend was raised sharply during 2003, to $0.45 per quarter from $0.28, and the company repurchased about 31 million shares. Overall, the filing presents a company with strong earnings momentum, a high-quality balance sheet, and a rising dividend, with margin pressure and mortgage-related volatility as the main risks to monitor.

02—Key points

Key Highlights

  1. Record 2003 net income of $6.2 billion; diluted EPS of $3.65, up 10% before the FAS 142 accounting change, with revenue up 12% to about $28.4 billion.
  2. Average loans grew 22% to $213.1 billion, and average core deposits grew 12%, supporting low-cost funding.
  3. Net interest margin fell to 5.08% from 5.53% as lower-yielding new loans replaced higher-yielding assets.
  4. Credit quality improved: net charge-offs fell to 0.81% of average loans from 0.96%, and nonaccrual loans fell to 0.58% of total loans from 0.78%.
  5. Allowance for loan losses was $3.89 billion (1.54% of loans), down from 1.98%, reflecting a shift toward lower-loss consumer and residential mortgage lending.
  6. Capital ratios were strong: Tier 1 RBC 8.42%, total RBC 12.21%, and Tier 1 leverage 6.93%, all above regulatory minimums.
  7. Quarterly dividend was raised to $0.45 from $0.28 during 2003, and about 31 million shares were repurchased.

03—Questions

Frequently Asked Questions

  1. How profitable was Wells Fargo in 2003 and how did returns compare with 2002?

    Net income was $6.2 billion, or $3.65 diluted EPS, compared with $5.4 billion ($3.16) in 2002 after the goodwill accounting charge. Before that charge, 2002 EPS was $3.32, so 2003 EPS grew about 10%. ROE was 19.36% and ROA was 1.64%, both roughly flat to slightly lower than the pre-charge 2002 figures.

  2. Is the company's loan book growing, and where is the growth coming from?

    Yes. Total loans rose 31% year over year to $253.1 billion, and average loans rose 22%. Most growth came from home mortgages and home equity loans, along with credit card balances and consumer finance receivables. Commercial loans were roughly flat at $48.7 billion.

  3. What are the main risks to earnings that investors should watch?

    Key risks include margin compression (the net interest margin fell 45 basis points), mortgage servicing rights volatility (the MSR valuation allowance was $1.9 billion and net servicing fees were a $954 million loss), and rising noninterest expense, which increased 17%. Interest-rate changes also affect mortgage origination and the value of securities and servicing assets. Credit losses could rise if economic conditions weaken, since the allowance fell as a percentage of loans.

  4. How strong is the company's capital position and how is it returning capital to shareholders?

    Capital is strong and above all regulatory minimums. Tier 1 RBC was 8.42% (minimum 4%) and total RBC was 12.21% (minimum 8%). The Tier 1 leverage ratio was 6.93%. The company paid $2.5 billion in common dividends, raised the quarterly dividend to $0.45 from $0.28, repurchased about 31 million shares, and completed $1.4 billion in acquisitions.

04—Continue

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