01—Abstract
Summary
Summary of the 10-K filed March 16, 1995. Cited figures are marked; the original filing is the authoritative source.
Norwest Corporation (the filing names the registrant WELLS FARGO & COMPANY/MN in the request, but the document itself is Norwest Corporation's 1994 annual report, the Minneapolis-based regional bank holding company that later merged with Wells Fargo in 1998) reported record 1994 net income of $800.4 milliona, up 30.6% from $613.1 million in 1993.
Primary earnings per share rose to $2.45b from $1.89, and return on realized common equity improved to 21.4% from 18.2%. Growth was driven by a 17.1% increase in banking-group tax-equivalent net interest income, a 25.9% rise in mortgage banking earnings to $70.8 million, and an 11.2% increase in consumer finance earnings at Norwest Financial to $222.5 million. Total assets reached $59.3 billion, up from $54.7 billion, and acquisitions (including First United Bank Group, accounted for as a pooling of interests) contributed to the expansion.
Asset quality improved meaningfully. Net credit losses were 0.64% of average loans versus 0.67% in 1993, the allowance for credit losses stood at 2.42% of loans, and non-performing assets fell to $218.3 millionc from $319.8 million. Capital remained strong, with a Tier 1 ratio of 9.89%, a total capital ratio of 12.23%, and a leverage ratio of 6.94%, all well above regulatory minimums, and all subsidiary banks were classified as well capitalized.
Key risks noted by management include a $560 milliond net unrealized loss on available-for-sale securities at year-end 1994 (after adoption of FAS 115), a one-year cumulative gap of negative $2.6 billion, and a pending $15 billion BarclaysAmerican servicing acquisition plus other acquisitions adding roughly $4.2 billion in assets. For investors, the filing points to a company with rising earnings, improving credit quality, a dividend payout ratio of about 31%, and an active acquisition strategy supported by a strong capital base. The principal watch items are mortgage banking sensitivity to interest rates (fundings fell from $33.7 billion to $24.9 billion) and the securities losses recorded in 1994.
02—Key points
Key Highlights
- Record 1994 net income of $800.4 million, up 30.6% from $613.1 million; primary EPS of $2.45 versus $1.89
- Return on realized common equity rose to 21.4% from 18.2%; return on assets improved to 1.45% from 1.20%
- Net interest income grew 11.7% to $2.83 billion (tax-equivalent), with net interest margin widening to 5.66% from 5.50%
- Credit quality improved: net credit losses 0.64% of average loans (vs. 0.67%), non-performing assets down to $218.3 million from $319.8 million
- Mortgage banking earnings rose 25.9% to $70.8 million on a $71.5 billion servicing portfolio, though fundings fell to $24.9 billion from $33.7 billion
- Capital strong: Tier 1 ratio 9.89%, total capital ratio 12.23%, leverage ratio 6.94%; all subsidiary banks well capitalized
- Dividend increased to 21 cents quarterly in December 1994; payout policy targets 30-35% and a 10 million share buyback was authorized in January 1995
03—Questions
Frequently Asked Questions
How did Norwest's 1994 earnings compare with prior years?
Net income reached a record $800.4 million in 1994, up 30.6% from $613.1 million in 1993 and about 103% above the $394.0 million reported in 1992 (which included a $76.0 million accounting charge). Primary EPS was $2.45, compared with $1.89 in 1993 and $1.19 in 1992, with 1993 and 1992 figures restated for the First United pooling acquisition and the 1993 two-for-one stock split.
What drove the increase in profitability?
The main driver was net interest income, up 11.7%, supported by an 8.2% increase in average earning assets and a 16 basis point gain in net interest margin. The banking group's earnings rose 42.1% to $507.1 million, consumer finance earnings rose 11.2%, and mortgage banking earnings rose 25.9%. Offsetting these were $79 million of net investment securities losses in 1994 and a 1.5% increase in non-interest expenses.
Are there any material risks or weaknesses investors should note?
Available-for-sale securities carried a net unrealized loss of about $560 million before taxes at year-end 1994, versus a $482 million gain in 1993, reflecting rising interest rates. Mortgage fundings declined sharply, and the one-year cumulative interest sensitivity gap was negative $2.6 billion (4.4% of assets). Management reports that the company is well within its policy limits and that its earnings are largely insensitive to rate changes. Legal proceedings are described as not material.
How strong is the company's capital position and dividend capacity?
Capital ratios are well above regulatory minimums: Tier 1 at 9.89%, total capital at 12.23%, and leverage at 6.94%, compared with minimums of 4%, 8%, and 3%. Stockholders' equity was $3.85 billion, and book value per common share was $10.79. The quarterly dividend was raised to 21 cents in December 1994, and the payout ratio was 31.2%. Subsidiary banks could declare about $361 million in dividends without regulatory approval, and non-bank subsidiaries about $1.14 billion.
What acquisitions are pending or have been completed?
In 1994 Norwest completed the First United Bank Group acquisition ($3.9 billion in assets, accounted for as a pooling of interests) and about a dozen smaller bank and servicing deals, including Michigan National's $8.6 billion servicing portfolio. Fifteen additional pending acquisitions, with about $4.2 billion in combined assets, were expected to close in 1995 and would require about $966 million in cash plus roughly 18.2 million shares. Announced deals include the $15 billion BarclaysAmerican/Mortgage servicing portfolio and Directors Mortgage's $13 billion servicing portfolio.
04—Continue