Norwest Corp. breaks out profits from its mortgage division in its earnings statements. Not many large banks do that. Then again, Norwest is one of the few banks that may want to showcase their mortgage units' performance.

Profit has been tough to come by in the highly competitive mortgage banking industry. But in 1996, net income from Norwest's mortgage unit increased 19%, reaching $125 million, a record for the division. The mortgage unit accounted for 11% of the Minneapolis-based banking company's total profits.

But revenues for the unit soared 53% in 1996, largely due to Norwest's acquisition of Prudential Home Mortgage Co. Why didn't net income increase even more?

Mark Oman, president and chief executive of Norwest Mortgage Inc., the bank's Des Moines subsidiary, said one-time charges from the Prudential acquisition had some impact. But he added that Norwest uses conservative accounting standards for reporting servicing income.

Analysts agree. Ben Crabtree, an analyst at Dain Bosworth Inc., Minneapolis, said the mortgage unit was more profitable than appears from income statements.

"Norwest uses mortgage banking as a balance wheel for the rest of the company," he said. "There is a lot of flexibility in when you can recognize profits."

Sandra J. Flannigan, an analyst at Merrill Lynch & Co., said that Norwest Mortgage's mix of servicing and originations helps buffer it from interest rate volatility. Norwest, the nation's largest mortgage servicer, finished the year with an owned portfolio of $179.7 billion. With subservicing included, Norwest's portfolio exceeds $200 billion.

Ms. Flannigan said she expects Norwest Mortgage, also the largest originator, to earn $140 million to $145 million this year and to post annual profit gains of at least 15% for the foreseeable future.

Norwest originated $51.5 billion of mortgages, more than any other mortgage bank in any calendar year. Countrywide Credit Industries, the second-largest originator and servicer, originated $52.4 billion in its 1994 fiscal year, March 1993 through February 1994.

Although many economists are predicting that overall originations will be down from 1996's total of $792 billion, Mr. Oman said Norwest's origination volume should remain steady.

"We'll have Prudential for the whole 12 months," he said. The Prudential deal closed in May, so its originations for the first four months were not included.

"The reality is that, although Prudential played a part, our core Norwest mortgage channels have increased their production as well," he said.

Retail production accounted for about half of Norwest's volume. Ms. Flannigan said that this is a plus for Norwest because a more stable revenue stream is generated from retail production than from wholesale.

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