SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 of 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 14, 1998
NORWEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-2979 41-0449260
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612-667-1234
ITEM 5. Other Events.
(a) Recent Operating Results
Norwest Corporation's ("Norwest") net income for the quarter ended
June 30, 1998 was $382.1 million, or 49 cents per diluted common share,
an increase of 15.3 percent and 14.0 percent, respectively, over the
$331.4 million or 43 cents per diluted common share, earned in the
second quarter of 1997. Basic earnings per share increased 16.3
percent to 50 cents per common share in the second quarter of 1998
from 43 cents a year earlier. Return on realized common equity was
23.1 percent and return on assets was 1.65 percent for the second
quarter of 1998, compared with 22.1 percent and 1.61 percent,
respectively, in the same period of 1997.
For the first six months of 1998, net income was $749.8 million, or
96 cents per diluted common share, an increase of 14.8 percent and
12.9 percent, respectively, over the $653.3 million, or $0.85 per
diluted common share, earned in the first six months of 1997.
Return on realized common equity was 23.0 percent and return on assets
was 1.67 percent for the first six months of 1998 compared with 22.4
percent and 1.62 percent, respectively, in the same period a year ago.
Consolidated net interest income in the second quarter of 1998 was
$1,081.1 million, compared with $999.8 million in the second quarter
of 1997, an increase of 8.1 percent. The increase from the second
quarter of 1997 was principally due to an 11.6 percent growth in average
earning assets, partially offset by a 15 basis point decrease in net
interest margin. The decrease in net interest margin is due to a
higher mix of mortgages held for sale, which have lower yields than
other interest-earning assets, and a decrease in the yield on investment
securities. Net interest income increased 9.7 percent to $2,147.7
million for the first six months of 1998, compared with the same period
of 1997. The improvement from the first half of 1997 was principally
due to a 10.3 percent increase in average earning assets.
Norwest provided $139.4 million for credit losses in the second quarter
of 1998, or 130 basis points of average loans and leases on an
annualized basis. This compares with $122.8 million, or 122 basis
points, in the same period a year ago. Net credit losses totaled
$139.6 million in the second quarter of 1998, up from $114.8 million
in the second quarter of 1997 principally due to higher levels of
consumer credit charge-offs. As a percent of average loans
and leases, net credit losses were 131 basis points in the second
quarter of 1998, compared with 114 basis points in the same period a
year ago. For the first six months of 1998, Norwest's provision for
credit losses amounted to $263.9 million, or 125 basis points of average loans
and leases on an annualized basis, compared to $231.8 million or 117
basis points for the same period of 1997. Net credit losses as a percent of
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average loans and leases were 128 basis points in the first half of
1998, compared with 114 basis points in the same period of 1997.
Consumer past-due delinquencies were as follows:
_______Quarter Ended________
6/30/98 12/31/97 6/30/97
Banking Group 30 days past due 1.66% 2.02 1.83
Norwest Financial 60 days past due 3.56 3.58 3.69
Credit card 30 days past due 3.76 3.92 3.75
Non-performing assets totaled $264.8 million at June 30, 1998, an increase
of $36.3 million from year-end 1997. As a percent of loans, leases and
other real estate owned, non-performing assets were 0.61 percent at
June 30, 1998, compared with 0.57 percent at the same time last year.
Reserve coverage of non-performing loans was 585.6 percent at June 30,
1998, and the allowance for credit losses was 2.91 percent of loans
and leases.
Consolidated non-interest income was $950.2 million in the second
quarter of 1998, an increase of $193.8 million, or 25.6 percent, from
the second quarter of 1997. For the first six months of 1998,
consolidated non-interest income increased $319.5 million to $1,760.5
million, an increase of 22.2 percent over the same period in 1997.
Contributing to these increases was continued growth in virtually all
categories, including mortgage banking revenues, trust and investment
fees and commissions, service charges and fees, credit card fee
revenue and insurance.
Consolidated non-interest expenses were $1,324.5 million in the second
quarter of 1998, an increase of 18.3 percent over the second quarter of
1997. For the six months ended June 30, 1998, non-interest expenses
increased $373.3 million, or 17.3 percent, over the six months ended
June 30, 1997. The increase in non-interest expense reflects increased
Mortgage Banking expenses due to higher volume and additional operating
expenses related to acquisitions.
Norwest's Banking Group reported earnings of $274.4 million in
the second quarter of 1998, 19.5 percent above second quarter 1997
earnings of $229.7 million. The increased earnings were attributed
to growth in virtually all categories including trust and investment
fees and commissions, service charges and fees, credit card fee revenue,
and insurance, partially offset by lower net venture capital gains.
Norwest Venture Capital had net unrealized appreciation in its
investment portfolio of $160.6 million at June 30, 1998. For the first
six months of 1998, the Banking Group's earnings were $538.3 million, an
increase of 18.0 percent over the $456.2 million earned in the first half
of 1997.
For the second quarter of 1998, Mortgage Banking earned $54.0 million on
record originations and volume. This compares with $35.3 million in
the second quarter of 1997. Combined gains on sales of mortgages and
servicing rights in the second quarter of 1998 amounted to $115.1 million,
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compared with $11.9 million in the same quarter last year. The pipeline
of unclosed mortgage loans was $19.4 billion at June 30, 1898, compared
with $11.0 billion at June 30, 1997 and 19.6 billion at December 31, 1997.
Mortgage loan originations were $26.0 billion in the second quarter of 1998,
compared with $12.6 billion in the second quarter of 1997. The servicing
portfolio increased $29.2 billion from the second quarter of 1997 and
$14.5 billion from year-end 1997, and at June 30, 1998, totaled $220.3
billion with a weighted average interest rate of 7.61 percent. Capitalized
mortgage servicing rights amounted to $2.9 billion, or 132 basis points
of the mortgage servicing portfolio at June 30, 1998. Amortization of
capitalized mortgage servicing rights was $175.2 million for the quarter
ended June 30, 1998, compared with $132.8 million for the quarter ended June
30, 1997, due to a larger servicing portfolio and the low interest rate
environment. For the first six months of 1998, Mortgage Banking's earnings
were $105.9 million, an increase of 53.1 percent over the $69.1 million
earned in the first half of 1997.
Norwest Financial reported second quarter 1998 net income of $53.7 million,
a decrease of 19.0 percent from second quarter 1997 earnings of $66.4
million. For the first six months of 1998, Norwest Financial's net earnings
were $105.6 million, down 17.5 percent from the $128.0 million earned in the
first half of 1997. The quarter and year-to-date decreases primarily reflect
higher consumer credit losses, partially offset by increased net interest
income. Norwest Financial's net charge-offs were $91.8 million in the second
quarter of 1998, compared with $58.6 million in the comparable period of 1997,
and reflects the acquisition of Fidelity Acceptance Corporation in August last
year and higher bankruptcy levels in Puerto Rico.
At June 30, 1998, consolidated total assets were $93.2 billion, compared
with $88.5 billion at December 31, 1997. Consolidated loans and leases,
net of unearned discount, were $43.4 billion at June 30, 1998, compared
with $42.5 billion at December 31, 1997. Consolidated total deposits
were $56.8 billion at June 30, 1998, compared with $55.5 billion at
December 31, 1997. Consolidated long-term debt at June 30, 1998 was
$12.3 billion, compared with $12.8 billion at year-end 1997.
Consolidated stockholders' equity was $7.3 billion at June 30, 1998
compared with $7.0 billion at December 31, 1997. Tier 1 and total
capital ratios were 8.84 percent and 10.64 percent, respectively, at
June 30, 1998, compared with 9.09 percent and 11.01 percent,
respectively, at December 31, 1997. The leverage ratio was 6.44 percent
at June 30, 1998 and 6.63 percent at December 31, 1997. Dividends
declared per common share were 16.5 cents for the first quarter of 1998,
compared with 15 cents for the same period of 1997. The dividend payout
ratio was 33.0 percent and 34.9 percent for the three months ended
June 30, 1998 and 1997, respectively.
On June 8, 1998, Norwest and Wells Fargo & Company announced they had
signed a definitive agreement for a merger of equals in a transaction
valued at approximately $34 billion. In accordance with the agreement,
common stockholders of Wells Fargo will receive ten shares of Norwest common
stock in exchange for each share of Wells Fargo common stock. The
transaction is subject to customary stockholder and regulatory approval and
is expected to close in the fourth quarter of 1998.
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(b). Abridged Presentation Materials.
Exhibit 99 to this report contains a copy of materials concerning the
proposed merger of Norwest and Wells Fargo that have been used by Norwest
in presentation to analysts. These materials are an abridged version of
presentation materials included as exhibits to Norwest's current reports on
Form 8-K filed on June 8, 1998 and June 9, 1998. To the extent of
differences, the information in the materials filed with this report supercedes
the information in the earlier filed reports.
Exhibit 99 to this current report on Form 8-K contains forward looking
statements with respect to the financial conditions, results of operations
and businesses of each of Norwest and Wells Fargo and, assuming the
consummation of the merger, a combined Norwest/Wells Fargo including
statements relating to: (a) the cost savings and accretion to reported
earnings that will be realized from the merger; (b) the impact on revenues of
the merger, and (c) the restructuring charges expected to be incurred in
connection with the merger. These forward looking statements involve certain
risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward looking statements
include, among others, the following possibilities: (1) expected cost savings
from the merger cannot be fully realized or realized within the expected
timeframe; (2) revenues following the merger are lower than expected; (3)
competitive pressure among financial services companies increases
significantly; (4) costs or difficulties related to the integration
of the businesses of Norwest and Wells Fargo are greater than expected; (5)
changes in the interest rate environment reduce interest margins; (6) general
economic conditions, either internationally or nationally or in the states in
which the combined company will be doing business, are less favorable than
expected; or (7) legislation or regulatory requirements or changes adversely
affect the businesses in which the combined company would be engaged.
Such forward-looking statements speak only as of the date on which such
statements were made, and Norwest undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which any such statement is made to reflect the occurrence of unanticipated
events.
Item 7. Exhibits.
99. Abridged Analyst Presentation Materials, dated June 8, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Norwest Corporation
(Registrant)
Dated: July 22, 1998 By: \s\ Michael A. Graf
Senior Vice President and
Controller
(Principal Accounting Officer)
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Wells Fargo and Norwest
"Creating ... The Premier Financial Services Company"
June 8, 1998
<PAGE>
Pro Forma Financial Results
1999E 2000E 2001E
Cash EPS $2.56 $2.91 $3.35
% Accretion 7.6% 9.4% 12.8%
GAAP EPS $2.23 $2.59 $3.03
% Accretion -- 3.2% 7.4%
% Change from prior yr. 13.2%(1) 16.1% 17.0%
(1) Based on analyst estimates of $1.97 GAAP EPS for 1998.
Note: Estimates exclude one-time merger related costs
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Premier Banking Franchise in the West and Midwest
[Map]
Deposit Rank # of States Total $
1 5 20.1
2 5 73.3
3 2 10.1
4 4 16.9
5+ 5 4.6
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Total 21 $125
($ in billions)
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Leadership in Retail Distribution
o #1 in total stores (5,777)
o #3 Bank network (2,800 stores)
o #1 Retail mortgage network (741 stores)
o Largest mortgage banking originator (1 out of 15 mortgages)
o Largest mortgage banking servicer (2,000,000 customers)
o #1 Premier, U.S. Consumer finance company (1,425 stores)
o #3 ATM network in U.S. (6,500 ATMs)
o #1 Internet bank for consumers (460,000 customers)
o #1 Supermarket bank (900 stores)
o Leader in telephone banking functionality
o Leading NAFTA bank
o #1 Mexican border
o #1 Canadian border
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The New Wells Fargo
o #1, 2, or 3 Bank Deposit Share in 73 MSA's
o #1 Mortgage Originator and Servicer
o #1 Bank Commercial Real Estate Lender
o #1 Bank-Owned Insurance Agency
o #1 Agricultural Bank
o #2 Small Business Lender
o #4 Middle Market Lender
o #4 Bank Mutual Fund Manager
o #1 Internet Bank
o Premier Consumer Finance Company
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Significant Customer Base
=============================================================================
Norwest Wells Fargo Combined
----------------------------------------------
Retail Banking 3mm 6.1mm 9.1mm households
Mortgage 2.1mm - 2.1mm customers
Consumer Finance 3.2mm - 3.2mm customers
Small Business 284k 750k 1.0mm customers
Middle Market 10k 13k 23k customers
Large Corporate 1.2k 1.5k 2.7k customers
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Leveraging Complementary Strengths
o Norwest
o Exceptional sales and service culture
o Strong revenue generation
o Wells Fargo
o Alternative delivery leader
o Outstanding expense efficiency
<PAGE>
Expense Savings
Amount
Source of Savings ($mm) Comments
Systems $200 o Conversion to one system platform
o Elimination of duplicate systems
development and maintenance
Operations 120 o Consolidation of operations
Branch Consolidations 175 o Based on states with market place
overlap
General Administration 155 o Elimination of duplicate overhead
--- functions
Total Cost Saves $650
% of combined expenses 8%
Note: Expenses excluding intangible amortization
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Expense Savings Projected in
Recent Major Bank Transactions
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($ in Millions) Cost Saves as
a % of Smaller Pre-Tax
Non-Interest Non-Interest
Merger Partners Expense Base Expense Savings
- --------------- -------------- ---------------
Norwest/Wells Fargo 17% $ 650
In-Market
Corestates/First Union 46% $ 723
First Interstate/Wells Fargo 37 800
Chase/Chemical 41 1,800
Market Extension
BankAmerica/NationsBank 27% $2,000
First Chicago NBD/Banc One 28 930
First America/National City 31 243
US Bancorp/First Banks 30 340
First Chicago/NBD Bancorp 16 200
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Opportunities Not Included in Financial Model
Annual Pre-Tax
Income Potential
($mm)
----------------
o Increase Wells Fargo's current products per
household to Norwest average $700
o Improve Norwest banking efficiency ratio to
level of Wells Fargo 400
o Other cross-business integration revenue
opportunities 150
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