01—Abstract
Summary
Summary of the 10-K filed March 7, 1996. Cited figures are marked; the original filing is the authoritative source.
Norwest Corporation (the filing's registrant, which the request labels Wells Fargo & Company/MN, WFC; the two merged in 2000) reported record 1995 net income of $956.0 milliona, up 19.4% from $800.4 million in 1994, with fully diluted EPS of $2.73 (up 13.3%) and return on realized common equity of 22.3%.
Growth was driven by a 16.6% rise in tax-equivalent net interest income to $3.30 billionb, on 18.7% growth in average earning assets, and by the Mortgage Banking and Norwest Financial segments, which posted records of $104.9 million and $248.9 million. Non-interest income rose 13.8% to $1.87 billion, while non-interest expense rose 9.8% to $3.40 billion, so efficiency was broadly maintained even as acquisitions added costs. Credit costs rose meaningfully.
The provision for credit losses increased 89% to $312.4 millionc, and net charge-offs were 0.86% of average loans versus 0.64% in 1994, driven mainly by consumer and credit card losses at Norwest Financial and Norwest Card Services. The allowance for credit losses stood at 2.54% of loans, and non-performing assets were modest at $297.9 million (0.4% of total assets). Management judged all banking subsidiaries well capitalized, though the consolidated Tier 1 risk-based ratio fell to 8.11% from 9.89% and the leverage ratio to 5.65% from 6.94%, largely reflecting intangibles from purchase acquisitions completed in 1995.
The company remained acquisitive, completing 25 transactions in 1995 (including Island Finance from ITT, The Foothill Group and Directors Mortgage), with 11 more pending at year-end representing about $6.6 billiond in assets. Total assets grew 21.6% to $72.1 billion, funded by a 42% increase in long-term debt to $13.7 billion. Investors should weigh the strong earnings momentum and acquisition-driven growth against rising credit losses, thinner capital ratios, and reliance on the mortgage and consumer finance cycle.
02—Key points
Key Highlights
- Record net income of $956.0 million in 1995, up 19.4%; fully diluted EPS of $2.73 versus $2.41 in 1994
- Return on realized common equity of 22.3% and return on assets of 1.44%, both improved from 1994
- Net interest income rose 16.6% to $3.30 billion on an 18.7% increase in average earning assets; net interest margin eased to 5.58%
- Provision for credit losses jumped 89% to $312.4 million; net charge-offs reached 0.86% of average loans, led by consumer and credit card losses
- Mortgage Banking earned a record $104.9 million on $33.9 billion in fundings; servicing portfolio reached $107.4 billion
- Tier 1 capital ratio fell to 8.11% from 9.89% and leverage ratio to 5.65% from 6.94%, though all banks were well capitalized
- Total assets grew to $72.1 billion, with 11 pending acquisitions representing about $6.6 billion in assets, including Victoria Bankshares and entry into Nevada
03—Questions
Frequently Asked Questions
How strong were Norwest's 1995 earnings and profitability?
Net income was a record $956.0 million, up 19.4% from $800.4 million in 1994. Fully diluted EPS was $2.73 versus $2.41, and return on realized common equity improved to 22.3% from 21.4%. Growth came from a larger balance sheet and higher net interest income, partly offset by higher credit costs.
What is driving the increase in credit losses, and is it a concern?
The provision for credit losses rose to $312.4 million from $164.9 million, and net charge-offs rose to 0.86% of average loans from 0.64%. Most of the increase came from consumer and credit card lending: Norwest Card Services' net charge-off ratio reached 4.77%, and Norwest Financial's 2.52%. Management attributed part of this to portfolio growth and the Island Finance acquisition, and noted $49.2 million of card losses tied to suspended direct-mail programs. Non-performing assets remained low at 0.4% of total assets, and the allowance covered 2.54% of loans.
How did the company's capital position change?
Capital ratios declined. The Tier 1 risk-based ratio was 8.11% (9.89% in 1994), total capital was 10.18% (12.23%), and the leverage ratio was 5.65% (6.94%). Management attributed the decline mainly to intangibles from 1995 purchase acquisitions. All banking subsidiaries were rated well capitalized, above the regulatory minimums of 4.0% Tier 1 and 8.0% total capital, and common equity grew to $5.0 billion from $3.3 billion.
What acquisitions and growth opportunities are ahead?
In 1995 the company completed about 25 acquisitions, including ITT Financial's Island Finance business, The Foothill Group, Independent Bancorp of Arizona and Directors Mortgage Loan Corporation. At year-end, 11 pending acquisitions had about $6.6 billion in assets and were expected to close in 1996. These include AMFED Financial and PriMerit Bank, which would make Nevada the company's 16th banking state, and Victoria Bankshares. In January 1996 Norwest Mortgage also agreed to acquire substantially all the assets of Prudential Home Mortgage, including a $40 billion servicing portfolio.
Does the expected end of FDIC premiums and the SAIF special assessment affect earnings?
Yes, favorably in the near term. The FDIC approved rules that would substantially eliminate deposit insurance premiums for the banks in 1996, after 1995 assessments fell to about 4 cents per $100 of deposits, and 1995 FDIC expense was $69.9 million net of $20.6 million in refunds. A proposed one-time SAIF special assessment was accrued at $23.5 million. Management does not expect it to be material to results.
04—Continue