How did earnings change in 1993 and what drove the improvement?

Net income rose 79.5% to a record $653.6 million. The main drivers were a 47.5% lower provision for credit losses, a 13.9% increase in tax-equivalent net interest income, and a 25.5% increase in non-interest income, mostly from mortgage banking and $59.5 million of venture capital gains. Expense growth of 16.6% partly offset these gains.

Is the company's credit quality improving?

Yes. Non-performing assets and 90-day past-due loans fell to $285.5 million from $372.7 million, and net credit losses dropped to 0.70% of average loans from 1.00% in 1992. The allowance for credit losses was $744.9 million, or 2.76% of loans, and covered non-performing assets about 261% over.

What are the main risks for investors?

The filing points to interest-rate sensitivity in mortgage banking and consumer finance, the possibility of higher FDIC premiums or a special assessment that could hurt earnings, and dependence on acquisitions for growth, including the pending First United deal and eight other pending acquisitions with about $1.3 billion in assets. Credit-card receivable repurchases also reduced fee income in 1993.

How well capitalized is the company?

All of its banking subsidiaries were well capitalized under FDICIA as of December 31, 1993. The consolidated Tier 1 risk-based ratio was 9.84%, the total risk-based ratio was 12.60%, and the leverage ratio was 6.60%, all comfortably above the regulatory minimums of 4%, 8%, and 3%. Common equity rose 15.3% to $3.2 billion.

What shareholder returns did the company provide?

The board doubled the share count through a two-for-one stock split in June 1993 and raised the quarterly dividend from 14.5 cents to 16.5 cents during 1993. In January 1994 it raised the dividend another 12.1% to 18.5 cents, with a target payout ratio of 30% to 35%. The board also authorized the repurchase of up to 8 million additional common shares, bringing total authority to 12.2 million shares.

WFC 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 8, 1994. Cited figures are marked; the original filing is the authoritative source.

Norwest Corporation (the filing registrant, labeled in the request as Wells Fargo & Company/MN, WFC, though the document itself is Norwest's 1993 10-K) reported record 1993 net income of $653.6 million^a, up 79.5% from $364.1 million in 1992, with primary EPS of $2.13 versus $1.16 (or $1.42 excluding the 1992 FAS 106 accounting charge).

Return on common equity rose to 20.9% and return on assets to 1.38%. Growth was driven by a sharp fall in the provision for credit losses to $140.1 million^b (from $266.7 million), a 13.9% rise in tax-equivalent net interest income to $2,408.7 million, and a 25.5% jump in non-interest income to $1,542.5 million, led by mortgage banking and venture capital gains. Those gains were partly offset by a 16.6% rise in non-interest expenses to $2,840.8 million, which reflected acquisition charges, writedowns, and higher salaries.

Credit quality improved meaningfully. Non-performing assets and 90-day past-due loans fell to $285.5 million^c (0.6% of total assets) from $372.7 million, and net credit losses dropped to 0.70% of average loans from 1.00%. The allowance for credit losses stood at 2.76% of loans.

Capital remained strong, with a Tier 1 risk-based ratio of 9.84%, a total capital ratio of 12.60%, and a leverage ratio of 6.60%, all above regulatory minimums. Total assets reached $50.8 billion^d, up from $46.7 billion, with growth supported by acquisitions, including the pending First United Bank Group deal (completed January 1994), and by mortgage banking, where fundings reached $33.7 billion and the servicing portfolio grew to $45.7 billion.

The main risks flagged are the rising interest-rate sensitivity of the mortgage banking and consumer finance franchises, possible future FDIC premium increases or special assessments, and reliance on acquisitions for growth. Management also disclosed a dividend increase of 12.1% to $0.185 per quarter in January 1994 and a rating upgrade from S&P, which signal confidence in the earnings trajectory.

02—Key points

Key Highlights

Record 1993 net income of $653.6 million, up 79.5% year over year; primary EPS $2.13 vs. $1.16 in 1992 (reported) and $1.42 excluding the 1992 FAS 106 charge
Return on common equity of 20.9% and return on assets of 1.38%, up from 12.4% and 0.85% in 1992
Provision for credit losses fell 47.5% to $140.1 million; net credit losses were 0.70% of average loans, down from 1.00%
Non-performing assets and 90-day past-due loans declined to $285.5 million (0.6% of total assets) from $372.7 million
Mortgage banking fundings of $33.7 billion (up 60% from $21.0 billion), with the servicing portfolio growing to $45.7 billion; mortgage banking net income rose 5.5% to $56.3 million
Capital strengthened: Tier 1 risk-based ratio 9.84%, total risk-based 12.60%, leverage 6.60%, all well above minimums; S&P upgraded senior debt to AA- in January 1994
Non-interest expenses rose 16.6% to $2,840.8 million, driven by acquisition charges, asset writedowns, and higher salaries tied to mortgage volume

03—Questions

Frequently Asked Questions

How did earnings change in 1993 and what drove the improvement?
Net income rose 79.5% to a record $653.6 million. The main drivers were a 47.5% lower provision for credit losses, a 13.9% increase in tax-equivalent net interest income, and a 25.5% increase in non-interest income, mostly from mortgage banking and $59.5 million of venture capital gains. Expense growth of 16.6% partly offset these gains.
Is the company's credit quality improving?
Yes. Non-performing assets and 90-day past-due loans fell to $285.5 million from $372.7 million, and net credit losses dropped to 0.70% of average loans from 1.00% in 1992. The allowance for credit losses was $744.9 million, or 2.76% of loans, and covered non-performing assets about 261% over.
What are the main risks for investors?
The filing points to interest-rate sensitivity in mortgage banking and consumer finance, the possibility of higher FDIC premiums or a special assessment that could hurt earnings, and dependence on acquisitions for growth, including the pending First United deal and eight other pending acquisitions with about $1.3 billion in assets. Credit-card receivable repurchases also reduced fee income in 1993.
How well capitalized is the company?
All of its banking subsidiaries were well capitalized under FDICIA as of December 31, 1993. The consolidated Tier 1 risk-based ratio was 9.84%, the total risk-based ratio was 12.60%, and the leverage ratio was 6.60%, all comfortably above the regulatory minimums of 4%, 8%, and 3%. Common equity rose 15.3% to $3.2 billion.
What shareholder returns did the company provide?
The board doubled the share count through a two-for-one stock split in June 1993 and raised the quarterly dividend from 14.5 cents to 16.5 cents during 1993. In January 1994 it raised the dividend another 12.1% to 18.5 cents, with a target payout ratio of 30% to 35%. The board also authorized the repurchase of up to 8 million additional common shares, bringing total authority to 12.2 million shares.

04—Continue

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