Wells Fargo 2008 Annual Report Download - page 77

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While the $2.7 billion in additional provisions reduced
consolidated net income after tax by 18%, consolidated full-
year earnings per share declined only 4% to $2.38 per share, a
strong overall result given the external environment and
higher credit costs.
Our results were as strong as they were because we largely
avoided or had negligible exposure to many of the problem
areas that resulted in significant costs and write-downs at
other large financial institutions and because we continued to
build our diversified franchise throughout 2007, once again
achieving growth rates, operating margins, and returns at or
near the top of the financial services industry, while at the same
time maintaining strong capital levels and strong liquidity.
We continued to make investments in 2007 by opening 87
regional banking stores and converting 42 stores acquired
from Placer Sierra Bancshares and National City Bank to our
network. We grew our sales and service force by adding 1,755
team members (full-time equivalents) in 2007, including 578
retail platform bankers. In fourth quarter 2007, we completed
the acquisition of Greater Bay Bancorp, with $7.4 billion in
assets, adding to our community banking, commercial insur-
ance brokerage, specialty finance and trust businesses.
Revenue, the sum of net interest income and noninterest
income, grew 10.4% to a record $39.4 billion in 2007 from
$35.7 billion in 2006. The breadth and depth of our business
model resulted in very strong and balanced growth in loans,
deposits and fee-based products. Many of our businesses con-
tinued to post double-digit, year-over-year revenue growth,
including business direct, wealth management, credit and
debit card, global remittance services, personal credit man-
agement, home mortgage, asset-based lending, asset manage-
ment, specialized financial services and international.
Among the many products and services that grew in 2007,
we achieved the following results:
• average loans grew 12%;
• average core deposits grew 13%;
• assets under management were up 14%;
• mortgage servicing fees were up 14%;
• insurance premiums were up 14%; and
• total noninterest income rose 17%, reflecting the breadth
of our cross-sell efforts.
ROA was 1.55% and ROE was 17.12% in 2007, compared
with 1.73% and 19.52%, respectively, in 2006. Both ROA and
ROE were, once again, at or near the top of our large bank
peers.
Net interest income on a taxable-equivalent basis was
$21.1 billion in 2007, up from $20.1 billion a year ago, reflect-
ing strong growth in earning assets. Average earning assets
grew 7% from 2006. Our net interest margin was 4.74% for
2007, compared with 4.83% in 2006, primarily due to earning
assets increasing at a slightly faster rate than core deposits.
Noninterest income increased 17% to $18.4 billion in 2007
from $15.7 billion in 2006. The increase was across our busi-
nesses, with double-digit increases in debit and credit card
fees (up 22%), deposit service charges (up 13%), trust and
investment fees (up 15%), and insurance revenue (up 14%).
Capital markets and equity investment results were also
strong. Mortgage banking noninterest income increased $822
million (36%) from 2006 because net servicing fee income
increased due to growth in loans serviced for others.
During 2007, noninterest income was affected by changes
in interest rates, widening credit spreads, and other credit
and housing market conditions, including:
• $(803) million – $479 million write-down of the mortgage
warehouse/pipeline, and $324 million write-down, primari-
ly due to mortgage loans repurchased, and an increase in
the repurchase reserve for projected early payment
defaults.
• $583 million – Increase in mortgage servicing income
reflecting a $571 million reduction in the value of MSRs
due to the decline in mortgage rates during the year, off-
set by a $1.15 billion gain on the financial instruments
hedging the MSRs. The ratio of MSRs to related loans ser-
viced for others at December 31, 2007, was 1.20%, the low-
est ratio in 10 quarters.
Noninterest expense was $22.8 billion in 2007, up 9.5%
from $20.8 billion in 2006, primarily due to continued invest-
ments in new stores and additional sales and service-related
team members. We grew our sales and service force by
adding 1,755 team members (full-time equivalents), including
578 retail platform bankers. The acquisition of Greater Bay
Bancorp added $87 million of expenses in 2007. Despite these
investments and the acquisition of Greater Bay Bancorp and
related integration expense, our efficiency ratio improved to
57.9% in 2007 from 58.4% in 2006. We obtained concurrence
from the staff of the SEC regarding our accounting for certain
transactions related to the restructuring of Visa, and record-
ed a litigation liability and corresponding expense, included
in operating losses, of $203 million for 2007 and $95 million
for 2006. In addition, expenses in 2007 included $433 million
in origination costs that, prior to the adoption of FAS 159,
would have been deferred and recognized as a reduction of
net gains on mortgage loan origination/sales activities at the
time of sale.
During 2007, net charge-offs were $3.54 billion (1.03% of
average total loans), up $1.3 billion from $2.25 billion (0.73%)
during 2006. Commercial and commercial real estate net
charge-offs increased $239 million in 2007 from 2006, of
which $162 million was from loans originated through our
Business Direct channel. Business Direct consists primarily
of unsecured lines of credit to small firms and sole propri-
etors that tend to perform in a manner similar to credit cards.
Total wholesale net charge-offs (excluding business direct)
were $103 million (0.08% of average loans). The remaining
balance of commercial and commercial real estate (other real
estate mortgage, real estate construction and lease financing)
continued to have low net charge-off rates in 2007.
National Home Equity Group portfolio net charge-offs
totaled $595 million (0.73% of average loans) in 2007, com-
pared with $110 million (0.14%) in 2006. Because the majority
of the Home Equity net charge-offs were concentrated in the
indirect or third party origination channels, which have a
higher percentage of 90% or greater combined loan-to-value
portfolios, we have discontinued third party activities not