<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993 Commission file number 1-6214
-------------------------
WELLS FARGO & COMPANY
(Exact name of Registrant as specified in its charter)
Delaware No. 13-2553920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 477-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, par value $5 New York Stock Exchange
Pacific Stock Exchange
Adjustable Rate Cumulative Preferred Stock New York Stock Exchange
Series A and B
9% Preferred Stock, Series C New York Stock Exchange
8 7/8% Preferred Stock, Series D New York Stock Exchange
Indicate by check mark whether there are delinquent filers pursuant to
Item 405 of Regulation S-K that, to the best of the registrant's knowledge,
will be in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes X No
----- -----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
As of February 18, 1994, the latest practicable date, 55,827,132 shares
of common stock were outstanding. The aggregate market value (based on the
closing price on the New York Stock Exchange Composite Transaction Reporting
System on February 18, 1994) of common stock of Wells Fargo & Company held by
nonaffiliates was approximately $7,450 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1993 Annual Report to Shareholders - Incorporated into Parts
I, II and IV.
Portions of the Proxy Statement dated March 15, 1994 for the 1994 Annual
Meeting of Shareholders - Incorporated into Part III.
<PAGE>
FORM 10-K CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
Page
------------------------------------------
FORM Annual Proxy
10-K Report (1) Statement (2)
---- ------ ---------
<S> <C> <C> <C>
PART I
Item 1. Business
Description of Business 2-10 11-71
Statistical Disclosure:
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates
and Interest Differential 11-12 13-16 --
Investment Portfolio 13 19-21, 46, 49-50 --
Loan Portfolio 13-15 21-31, 47, 51-52 --
Summary of Loan Loss Experience 16-18 31-33, 47, 52 --
Deposits 18 14-15 --
Return on Equity and Assets -- 11-12 --
Short-Term Borrowings 19 -- --
Item 2. Properties 19 -- --
Item 3. Legal Proceedings -- 67 --
Item 4. Submission of Matters to a Vote of Security-
Holders (in fourth quarter 1993) (3) -- -- --
Executive Officers of the Registrant 20 --
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters -- 41, 48 --
Item 6. Selected Financial Data -- 13 --
Item 7. Management's Discussion and Analysis of Finan-
cial Condition and Results of Operations -- 11-41 --
Item 8. Financial Statements and Supplementary Data -- 42-71 --
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure (3) -- -- --
PART III
Item 10. Directors and Executive Officers of the
Registrant 20 -- 5-8
Item 11. Executive Compensation -- -- 3-4,9-13
Item 12. Security Ownership of Certain Beneficial
Owners and Management -- -- 4-5
Item 13. Certain Relationships and Related Transactions -- -- 16-17
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 21-23 42-71 --
SIGNATURES 24 -- --
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) 1993 Annual Report to Shareholders, portions of which are incorporated by
reference into this Form 10-K.
(2) Proxy Statement dated March 15, 1994 for the 1994 Annual Meeting of
Shareholders, portions of which are incorporated by reference into this
Form 10-K.
(3) None.
</TABLE>
1
<PAGE>
DESCRIPTION OF BUSINESS
GENERAL
Wells Fargo & Company (Parent) is a bank holding company registered
under the Bank Holding Company Act of 1956, as amended. Based on assets at
December 31, 1993, it was the 12th largest bank holding company in the United
States. Its principal subsidiary is Wells Fargo Bank, N.A. (Bank), the
seventh largest bank in the U.S. Wells Fargo & Company and its subsidiaries
are hereinafter referred to as the Company.
THE BANK
HISTORY AND GROWTH
The Bank is the successor to the banking portion of the business
founded by Henry Wells and William G. Fargo in 1852. That business later
operated the westernmost leg of the Pony Express and ran stagecoach lines in
the western part of the United States. The California banking business was
separated from the express business in 1905 and was merged in 1960 with
American Trust Company, another of the oldest banks in the Western United
States. The Bank became Wells Fargo Bank, N.A., a national banking
association, in 1968. Its head office is located in San Francisco,
California.
In 1986, the Company acquired from Midland Bank plc all the common
stock of Crocker National Corporation, a bank holding company whose principal
subsidiary was Crocker National Bank, the 17th largest bank in the U.S. at
the time. In 1988, the Company acquired Barclays Bank of California with
assets of $1.3 billion.
In 1990, the Company completed the purchase of 92 Southern
California branches from Great American Bank (GA), a Federal Savings Bank, in
the first phase of a two-phase purchase of the California branch network of
GA. The second phase of the GA acquisition was completed in 1991 and
included GA's remaining 38 California branches. The Company acquired assets
with a GA book value of $5.8 billion in this two-phase purchase.
Also during 1990, the Company completed the acquisition of four
California banking companies with combined assets of $1.9 billion: Valley
National Bank of Glendale, Central Pacific Corporation of Bakersfield, the
Torrey Pines Group of Solana Beach and Citizens Holdings and its two banking
subsidiaries in Orange County.
2
<PAGE>
The following table shows selected information for the Bank:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
December 31,
----------------------------------------------
(in billions) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities $12.7 $ 9.0 $ 3.6 $ 1.3 $ 1.5
Loans $32.4 $36.0 $43.0 $47.3 $39.2
Assets $50.7 $50.7 $51.6 $53.7 $45.3
Deposits $42.4 $43.1 $44.5 $42.7 $36.5
Staff (full-time equivalent) 19,600 21,300 21,000 21,600 19,200
Branches (domestic, all California) 624 626 612 574 455
- -------------------------------------------------------------------------------------
</TABLE>
RETAIL BANKING
Retail Banking includes Branch Banking, Consumer Checking, 7/24
Banking, Credit Card/Consumer Loans, Mortgage Banking and Auto Finance.
BRANCH BANKING. Branch banking activities constitute the largest
portion of the Bank's business. The Bank through its branch network provides
a broad range of consumer banking services in California, including savings
and time deposits, checking accounts, credit card services, consumer loans,
home mortgage loans, small business loans, mutual funds and safe deposit
facilities. The operating hours of the branches are generally 9 a.m. to
6 p.m. on weekdays and 9 a.m. to 2 p.m. on Saturdays.
CONSUMER CHECKING. Consumer Checking offers a variety of checking
account plans and related transaction services for consumers. Approximately
30% of all consumer checking accounts receive electronic deposits,
approximately 65% have overdraft protection (either through a linked savings
account or credit card) and over 84% have their checking accounts linked to
an automated teller machine card. At December 31, 1993, the Bank had 2.7
million consumer checking accounts and 1.4 million savings accounts linked to
checking accounts for overdraft protection. Balances were $4 billion on
interest-bearing checking accounts, $3 billion on noninterest-bearing
checking accounts and $2.8 billion on savings accounts linked to checking for
overdraft protection at the end of 1993.
7/24 BANKING. 7/24 Banking provides banking services 24 hours a
day, seven days a week through Customer Service Centers (telephone banking)
and Wells Fargo Express-R- automated teller machines (ATMs). At December 31,
1993, there were over 1,800 Wells Fargo Express ATMs statewide, processing
approximately 15 million transactions per month. In addition, the Bank is a
member of the STAR SYSTEM-R- and PLUS-R- shared ATM networks that have over
100,000 ATMs throughout the U.S. and in foreign countries, including over
15,000 ATMs in the Western states. These systems provide the Bank's
customers the ability to withdraw cash at any STAR SYSTEM or PLUS ATM. The
Bank's Express ATMs also accept STAR SYSTEM, PLUS, CIRRUS-R-, Visa-R- and
MasterCard-R- network cards and American Express-R- cards.
3
<PAGE>
The Bank is also a member of the INTERLINK-R- network (a membership
corporation and subsidiary of Visa). INTERLINK, which provides point-of-sale
electronic funds transfer services, is the largest debit card network in the
nation. The Bank issues point-of-sale cards with INTERLINK access to its
demand deposit account customers. The Bank's merchant processing area is
also a member of Explore-R-, a point-of-sale network related to the
STAR SYSTEM. Explore is one of the largest regional electronic funds
transfer networks in the West with more than 700 member institutions. The
Bank is one of the largest providers of on-line debit services in the nation
(i.e., electronic funds transfer processing at participating supermarkets and
retailers in California).
CREDIT CARD/CONSUMER LOANS. The Credit Card/Consumer Loans
Division provides unsecured revolving lines of credit to approximately 2
million Visa and MasterCard accountholders. At December 31, 1993, Credit
Card outstandings totaled $2.6 billion. During 1993, there were 52.4 million
transactions generating $4.2 billion in purchases and advances on Visa and
MasterCard accounts. The Division also provides other consumer loan
products, predominantly unsecured lines of credit. At December 31, 1993, the
Division's consumer loans (excluding credit card loans) totaled $1.1 billion.
MORTGAGE BANKING. Mortgage Banking provides real estate mortgage
loan products that are secured by a first mortgage or junior lien on 1-4
family residential properties. Mortgage Banking products include home equity
lines of credit, fixed-rate mortgage loans, adjustable-rate mortgage loans
and fixed-initial-rate mortgage (FIRM-R-) loans, which carry fixed-rates
during an initial period of the loan term and carry adjustable rates
thereafter. Some of the first mortgage loans originated by Mortgage Banking
are sold through secondary markets (Federal National Mortgage Association
(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)), while the
remainder are retained in the Bank's loan portfolio. At December 31, 1993,
Mortgage Banking's loan portfolio consisted of $7.0 billion of real estate
1-4 family first mortgage loans and $3.4 billion of real estate 1-4 family
junior lien mortgage loans. Mortgage Banking also services mortgage loans
owned by third parties, which totaled approximately $4.4 billion at
December 31, 1993.
AUTO FINANCE. Auto Finance provides indirect financing for the
purchase or lease of automobiles through dealerships, as well as direct
automobile loans through the branches. At December 31, 1993, the Auto
Finance loan portfolio, which was substantially comprised of auto lease
financing and monthly payment loans, totaled $1.7 billion.
WHOLESALE BANKING
Wholesale Banking includes Commercial Banking, Real Estate and
Capital Markets.
COMMERCIAL BANKING. The Commercial Banking Group consists of four
divisions. The first, the Commercial Banking Division, generally services
those firms with annual sales volume from $5 million to $250 million that are
headquartered and doing business in California, as well as high-net-worth
individuals with commercial financing needs. The Division concentrates on
providing credit and non-credit services to the manufacturing, distribution,
retail and agribusiness industries. The Division provides revolving lines of
credit, term loans, project
4
<PAGE>
financing, trade facilities, deposit, cash management and other business
services through commercial banking regional offices located in key market
areas throughout California. At December 31, 1993, the Division's loan
portfolio totaled $5.9 billion.
The Corporate Banking Division generally services those
corporations with annual sales over $250 million that are headquartered and
doing business in California, and corporations with annual sales of over $100
million that are headquartered and doing business outside of California. The
Division provides commercial loans, demand deposit accounts, remittance and
exchange, and cash management. Operations are conducted from the Division's
San Francisco office and its loan production office in Dallas. At
December 31, 1993, the Division's loan portfolio totaled $1.8 billion.
The Wholesale Services Division offers a broad array of operating
and cash management products to businesses throughout the United States. The
Division's electronic product lines help customers collect and disburse funds
efficiently and safely and deliver important cash flow and accounting
information to business customers to optimize the use of their funds.
Products include Account Reconcilement, Automated Clearinghouse, Wire
Transfer, Lockbox and Balance Reporting, in addition to other services widely
used by business clients.
The International Division is responsible for providing
international financial products and advisory services to the Bank's domestic
customers. The Division provides trade finance products (such as import and
export letters of credit, documentary collections, standby letters of credit
and bankers' acceptances), foreign exchange products and advisory services.
The Division conducts substantially all of its activities from its offices in
San Francisco and the City of Industry, California. In 1989, the Company
reached a cooperative agreement with The Hongkong and Shanghai Banking
Corporation Ltd. (HSBC), a unit of HSBC Holdings plc. The agreement
provides the Company and its domestic customers access to HSBC's network of
nearly 3,000 offices outside the U.S. HSBC, which in 1992 acquired Midland
Bank plc of the U.K., provides such services as international trade
financing, local currency lending and international cash management, as well
as trade, credit and country information.
REAL ESTATE GROUP. The Real Estate Group provides commercial and
residential construction loans to builders and developers, throughout the
United States. In addition, the Group provides a variety of real estate
products and services, including land acquisition and development loans,
secured and unsecured lines of credit, interim financing arrangements on
completed buildings, rehabilitation loans, affordable housing loans and
letters of credit. The Group's commercial loan portfolio principally
consists of lines of credit and short-term loans to developers and selected
real estate investment trusts. The Group has loan production offices in six
cities in Northern and Southern California and four offices outside of
California. At December 31, 1993, the Group's loan portfolio totaled $6.4
billion.
CAPITAL MARKETS. The Capital Markets Group provides a wide range
of product lines for Wholesale Banking and third party clients. The Group
offers loan syndications and asset sales, private placements, real estate
pension fund advisory services, mortgage banking, investment property sales,
securitization, rate risk management and the origination and distribution of
small commercial, industrial and multifamily mortgages. The Capital Markets
5
<PAGE>
Group also services mortgage loans owned by third parties, which totaled
approximately $1.7 billion at December 31, 1993.
WHOLESALE BANKING AND FEE-BASED INCOME STRATEGIES. Over the past
several years, the Company has shifted its focus of operations. The effects
of this have been to reduce concentrations from historical levels in
commercial real estate and large company, corporate lending and to redirect
those assets towards consumer mortgage and small/middle market business
lending.
The Company is currently focusing its Wholesale Banking operation
to sell its full array of credit and non-credit products to its existing
customer base and to develop new relationships. In addition, potential new
products and services that are tailored to customers' current and future
needs will be evaluated and introduced in the coming years.
Concentration levels in commercial real estate and large company,
corporate lending have declined over the last several years as the recession
reduced borrower needs and low rates accelerated traditional prepayment
patterns. These assets have been redeployed into investment securities,
resulting in total earning assets remaining at approximately the same level.
The maturities within the securities portfolio have been kept short so that
runoff will accommodate loan growth, primarily in 1-4 family first mortgage
loans, consumer loans and small business and middle market loans, as the
recovery takes hold. While lending opportunities to existing and new
commercial real estate and large company, corporate customers are being
pursued, loan concentrations are not expected to approach the levels of prior
years. This reduction is not anticipated to have a material effect on the
Company's overall performance.
The Company's other main strategic focus has been in the area of
fee-based services. Noninterest income from these sources are likely to
continue to increase in the foreseeable future. The major contributors to
this growth will be the value added pricing of services provided to customers
and identifying new customer needs, especially in the retail area, and the
continued growth of trust and investment management businesses, including
mutual funds. Other contributors to noninterest income include fees
anticipated to be earned by an originations/servicing business. This value
added business is expected to increase income without corresponding needs for
increased asset balances.
BUSINESS AND INVESTMENT GROUP
The Business and Investment Group includes Business Banking,
Savings and Investments, and Investment Management and Retirement Programs.
BUSINESS BANKING. The divisions of Business Banking are focused on
providing loans and a variety of other products and services for small
businesses in California. At December 31, 1993, Business Banking's loan
portfolio totaled $1.7 billion.
The Business Services Division provides payroll and tax services
used by over 12,000 business customers headquartered in California.
6
<PAGE>
The Merchant Card Services Division provides bankcard services to
merchants who accept credit and debit cards throughout California and several
other states. The Bank provides credit card services for approximately
29,000 merchant locations; in addition, it provides debit card processing for
merchants as well as check guarantee services. In November 1993, the Bank
formed an alliance for merchant credit card and debit card services with Card
Establishment Services, Inc. (CES). Under this agreement, the Bank is
responsible for marketing and sales, initial merchant credit analysis and
customer service; CES provides technology and processing operations.
The Business Deposit Division offers a wide range of deposit-
related products, including checking, savings, market rate and time deposit
accounts and investment-related products for small businesses. At December
31, 1993, the Division had deposits of approximately $6.4 billion, consisting
of 445,000 accounts, of which 320,000 were checking accounts.
The Business Benefits Division offers Simplified Employee Pension
(SEP) plans and KEOGH retirement plans to small businesses. At December 31,
1993, the Division was administering approximately $460 million in SEP and
KEOGH assets, including $190 million invested in Stagecoach Funds, for more
than 25,000 small business customers.
SAVINGS AND INVESTMENTS. The Savings and Investments Group (SIG)
provides consumer products, such as mutual funds, individual retirement
accounts (IRA) and savings accounts, as well as services, such as personal
computer banking and brokerage services.
The Bank's mutual fund products, which have been a growing area,
are comprised of three families of mutual funds: Overland Express,
Stagecoach Funds and WellsFunds. In November 1990, the Bank introduced the
Overland Express family of funds, which are sold through brokers around the
country. At December 31, 1993, the Overland Express family of 13 funds had
$3.9 billion of assets under management. In 1992, the Bank increased its
focus on selling financial products in the branches by establishing a
Personal Financial Officer (PFO) Program and by introducing a new family of
mutual funds, the Stagecoach Funds, which are sold by the PFOs through the
branch network. By December 31, 1993, the Bank had approximately 210 PFOs
and the Stagecoach family of 12 funds had grown to $3.8 billion of assets
under management. In mid-1993, the Bank introduced a third family of mutual
funds, the WellsFunds, which are offered to selected groups of investors,
such as participants in certain employee benefit plans, certain IRA investors
and certain corporations, partnerships and other business entities. The
WellsFunds family of 7 funds had assets under management of $530 million at
December 31, 1993.
At December 31, 1993, SIG was administering IRA accounts for
approximately 275,000 customers. IRA assets totaled $4.1 billion at
December 31, 1993, including $1.2 billion invested in Stagecoach Funds.
The Division's personal computer banking service, Wells Fargo ON-
LINE, provides access to account balances and transaction information and
allows customers to transfer money among their Wells Fargo accounts. ON-LINE
users may also pay bills electronically.
7
<PAGE>
By the end of 1993, customers were executing over 540,000 transactions per
month through the ON-LINE service.
INVESTMENT MANAGEMENT AND RETIREMENT PROGRAMS. Investment
Management and Retirement Programs (IMRP) provide personal trust, investment
management and custody services principally to taxable (i.e., non-ERISA)
clients. IMRP also provides trustee and investment services for defined
benefit and defined contribution plans, which include plans qualifying under
Section 401(K) of the Internal Revenue Code. At December 31, 1993, IMRP
managed or maintained approximately $42 billion in personal trust, employee
benefit trust and agency assets. IMRP also provides to high net worth
individuals, banking and credit services consisting primarily of commercial
loans and real estate 1-4 family first mortgage loans, which totaled $503
million at December 31, 1993.
WELLS FARGO NIKKO INVESTMENT ADVISORS
The Company operates a joint venture, Wells Fargo Nikko Investment
Advisors (WFNIA), with Nikko Securities Co., Ltd. of Tokyo. At December 31,
1993, WFNIA managed or was advisor for approximately $155 billion of
investment funds for pension plans, endowments, institutions and foundations,
making it the nation's largest manager of index and other quantitatively
structured or process-driven funds.
In 1992, three companies were formed to facilitate WFNIA's global
expansion into Europe, Canada and Japan: WFNIA Limited, WFNIA (Canada)
Limited and WFNIA (Japan) Limited, respectively. These companies are owned
by WFNIA International, a California general partnership owned by Wells Fargo
& Company and The Nikko Securities Co., Ltd. The international subsidiaries
are providing marketing and client services for WFNIA and advisory services
for certain European, Japanese and Canadian clients.
In 1993, three additional companies were formed to further WFNIA's
global expansion into Australia and Europe: WFNIA Australia Holdings PTY
Limited, WFNIA Australia Limited and WFNIA Guernsey Limited.
NONBANK SUBSIDIARIES
The Company has wholly-owned subsidiaries that provide various
banking-related services. In the aggregate, these subsidiaries are not
material to the Company's assets or net income.
COMPETITION
The Company competes for deposits, loans and other banking services
in its principal geographic market in California, as well as in selected
national markets as opportunities arise. The banking business is highly
competitive and has become increasingly so in recent years; the industry
continues to consolidate and strong, unregulated competitors have entered
core banking markets with focused products targeted at highly profitable
customer segments. These unregulated competitors, such as investment
companies, specialized lenders and multinational financial services
companies, compete across geographic boundaries and provide
8
<PAGE>
customers increasing access to meaningful alternatives to banking services in
nearly all significant products. These competitive trends are likely to
continue.
Within the banking industry, ongoing consolidation has increased
pressure on the Company from its most significant competitor in California,
Bank of America, now the second largest bank holding company in the United
States. Moreover, federal and state legislation adopted in recent years has
increased competition by allowing banking organizations from other parts of
the country to enter the Company's core geographic market (see "Supervision
and Regulation" for further discussion of such legislation and the
competitive environment in which the Company operates).
Within banking products, the Company is presently the second
largest holder of customer bank deposits in California. There is no
meaningful measure of overall market share within the broadly defined
financial services industry.
MONETARY POLICY
The earnings of the Company are affected not only by general
economic conditions, but also by the policies of various governmental
regulatory authorities in the U.S. and abroad. In particular, the Federal
Reserve System exerts a substantial influence on interest rates and credit
conditions, primarily through open market operations in U.S. Government
securities, varying the discount rate on member bank borrowings and setting
reserve requirements against deposits. Federal Reserve monetary policies
have had a significant effect on the operating results of financial
institutions in the past and are expected to continue to do so in the future.
SUPERVISION AND REGULATION
Under the Bank Holding Company Act, the Company is required to file
reports of its operations with the Board of Governors of the Federal Reserve
System and is subject to examination by it. Further, the Act restricts the
activities in which the Company may engage and the nature of any company in
which the Parent may own more than 5% of the voting shares. Generally,
permissible activities are limited to banking, the business of managing and
controlling banks, and activities so closely related to banking as determined
by the Board of Governors to be proper incidents thereto.
Under the Act, the acquisition of substantially all of the assets
of any domestic bank or savings association or the ownership or control of
more than 5% of its voting shares by a bank holding company is subject to
prior approval by the Board of Governors. In no case, however, may the Board
approve the acquisition by the Parent of the voting shares of, or
substantially all assets of, any bank located outside of California unless
such acquisition is specifically authorized by the laws of the state in which
the bank to be acquired is located or the Federal Deposit Insurance
Corporation (FDIC) arranges the acquisition under its authority to aid
financially troubled banks.
The Bank is subject to certain restrictions under the Federal
Reserve Act, including restrictions on the terms of transactions between the
Bank and its affiliates and on any extension
9
<PAGE>
of credit to its affiliates. For more information regarding restrictions on
loans by the Bank to its affiliates, see Note 2 to the Financial Statements
in the 1993 Annual Report to Shareholders.
There are various requirements and restrictions in the laws of the
U.S. and California affecting the Bank and its operations, including
restrictions on the amount of its loans and the nature and amount of its
investments, its activities as an underwriter of securities, its opening of
branches and its acquisition of other banks or savings associations. The
Bank, as a national bank, is subject to regulation and examination by the
Office of the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System and the FDIC. Dividends payable by the Bank to the
Parent without the express approval of the Office of the Comptroller of the
Currency are limited by a formula described in Note 2 to the Financial
Statements in the 1993 Annual Report to Shareholders.
Major regulatory changes affecting the Bank, banking and the
financial services industry in general have occurred in the last several
years and can be expected to occur increasingly in the future. Federal
banking legislation since 1980 has deregulated interest rate ceilings on
deposits at banks and thrift institutions, has increased the types of
accounts that can be offered and has increased the cost of FDIC insurance of
deposits. Generally, the effect of these changes has been to increase the
Bank's cost of its traditionally important sources of consumer deposits. In
addition, federal banking legislation has narrowed the functional
distinctions among financial institutions. The consumer and commercial
banking powers of thrift institutions have expanded, and state-chartered
banks are authorized to engage in all activities which are permissible for
national banks and in certain cases may, with approval of the FDIC, engage in
activities, such as insurance underwriting, which are not authorized for
national banks.
Non-depository institutions can be expected to increase the extent
to which they act as financial intermediaries, particularly in the area of
consumer credit services. Large institutional users and sources of credit
may also increase the extent to which they interact directly, meeting
business credit needs outside the banking system. Furthermore, the
geographic constraints on portions of the financial services industry can be
expected to continue to erode.
These changes create significant opportunities for the Company, as
well as the financial services industry, to compete in financial markets on a
less-regulated basis. They also suggest that the Company and particularly
the Bank will face new and major competitors in geographic and product
markets in which their operations historically have been protected by banking
laws and regulations.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) was enacted on December 19, 1991. FDICIA contains numerous
provisions, including a risk-based FDIC premium assessment system, new
reporting requirements, termination of the "too big to fail" doctrine (except
in special cases) and revised regulatory standards for real estate lending
and capital adequacy. For further information, see the Noninterest Expense
and Capital Adequacy/Ratios sections of the Financial Review in the 1993
Annual Report to Shareholders.
10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) - DOMESTIC AND FOREIGN OPERATIONS (1)
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
-------------------------- ------------------------- --------------------------
INTEREST Interest Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/ Average Yields/ income/
(in millions) BALANCE RATES EXPENSE balance rates expense balance rates expense
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC OPERATIONS
Earning assets:
Investment securities:
At cost:
U.S. Treasury securities $ 2,283 5.03% $ 115 $ 1,562 5.80 % $ 91 $ 631 6.59 % $ 41
Securities of U.S. government
agencies and corporations 7,974 6.41 511 4,197 7.38 309 1,231 7.85 96
Obligations of states and political
subdivisions 22 7.36 2 32 7.15 2 50 7.31 4
Private collateralized mortgage
obligations 864 4.16 36 -- -- -- -- -- --
Other securities 76 5.85 4 46 6.31 4 143 8.79 13
------- ------ ------- ------ ------- ------
Total investment securities at cost 11,219 5.96 668 5,837 6.94 406 2,055 7.51 154
At lower of cost or market -- -- -- 108 8.73 9 -- -- --
------- ------ ------- ------ ------- ------
Total investment securities 11,219 5.96 668 5,945 7.15 415 2,055 7.51 154
Federal funds sold and securities
purchased under resale agreements 734 3.17 23 919 3.62 33 303 5.42 16
Loans:
Commercial 7,154 9.36 670 9,702 8.50 825 12,974 9.64 1,252
Real estate 1-4 family first mortgage 6,787 7.92 538 7,628 9.27 707 9,367 10.16 952
Other real estate mortgage 9,467 8.20 776 10,634 8.21 873 10,773 9.58 1,033
Real estate construction 1,303 8.50 111 1,837 8.47 156 2,232 10.10 225
Consumer:
Real estate 1-4 family junior lien
mortgage 3,916 6.97 273 4,585 8.14 373 5,135 10.10 519
Credit card 2,587 15.62 404 2,771 15.93 441 2,758 16.25 448
Other revolving credit and monthly
payment 1,893 9.45 179 2,083 9.85 205 2,323 11.11 258
------- ------ ------- ------ ------- ------
Total consumer 8,396 10.19 856 9,439 10.81 1,019 10,216 11.99 1,225
Lease financing 1,190 9.83 117 1,165 10.36 121 1,167 11.34 132
------- ------ ------- ------ ------- ------
Total loans (2)(3) 34,297 8.94 3,068 40,405 9.16 3,701 46,729 10.31 4,819
Other -- -- -- 1 -- -- 17 8.43 1
------- ------ ------- ------ ------- ------
Total domestic earning assets $46,250 8.13 3,759 $47,270 8.77 4,149 $49,104 10.17 4,990
======= ------ ======= ------ ======= ------
Funding sources:
Interest-bearing liabilities:
Deposits:
Interest-bearing checking $ 4,626 1.18 55 $ 4,597 1.77 81 $ 4,379 3.72 163
Savings deposits 2,741 2.19 60 3,250 2.81 91 3,398 4.88 166
Market rate savings 16,592 2.28 378 15,284 2.89 442 12,699 5.04 640
Savings certificates 7,948 4.37 347 10,763 4.94 532 13,758 6.57 905
Certificates of deposit 219 7.99 18 316 8.41 27 570 8.12 46
Other time deposits 112 5.62 6 128 5.32 7 149 7.89 12
------- ------ ------- ------ ------- ------
Total interest-bearing deposits 32,238 2.68 864 34,338 3.44 1,180 34,953 5.53 1,932
Federal funds purchased and
securities sold under repurchase
agreements 1,051 2.79 29 1,299 3.16 41 3,092 5.50 170
Commercial paper and other short-term
borrowings 207 2.90 6 252 3.54 9 1,243 6.29 78
Senior debt 2,174 4.75 103 2,175 5.77 126 1,681 7.53 126
Subordinated debt 1,958 5.23 103 1,872 4.99 93 1,832 6.15 113
Funds transferred from (to) foreign
operations (91) (3.04) (3) 10 7.89 1 393 7.38 29
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities 37,537 2.93 1,102 39,946 3.63 1,450 43,194 5.66 2,448
Portion of noninterest-bearing funding
sources 8,713 -- -- 7,324 -- -- 5,910 -- --
------- ------ ------- ------ ------- ------
Total domestic funding sources $46,250 2.38 1,102 $47,270 3.07 1,450 $49,104 4.99 2,448
======= ------ ======= ------ ======= ------
Domestic net interest margin and net
interest income on a taxable-equivalent
basis 5.75% $2,657 5.70 % $2,699 5.19 % $2,542
===== ====== ===== ====== ===== ======
FOREIGN OPERATIONS (4)
Earning assets:
Investment securities $ 91 5.12% $ 5 $ 32 4.95 % $ 1 $ -- -- % $ --
Loans (3) 7 -- -- 1 -- -- 7 23.86 2
------- ------ ------- ------ ------- ------
Total foreign earning assets $ 98 5.04 5 $ 33 4.97 1 $ 7 23.86 2
======= ------ ======= ------ ======= ------
Funding sources:
Deposits in foreign offices $ 7 -- -- $ 43 7.89 3 $ 400 7.62 31
Funds transferred from (to) domestic
operations 91 3.04 3 (10) (7.89) (1) (393) (7.38) (29)
------- ------ ------- ------ ------- ------
Total foreign funding sources $ 98 3.04 3 $ 33 7.89 2 $ 7 23.86 2
======= ------ ======= ------ ======= ------
Foreign net interest margin and net
interest income (expense) on a
taxable-equivalent basis 2.00% $ 2 (2.92)% $ (1) -- % $ --
===== ====== ===== ====== ==== ======
Domestic and foreign earning assets, net
interest margin and net interest income
on a taxable-equivalent basis $46,348 5.74% $2,659 $47,303 5.70 % $2,698 $49,111 5.18 % $2,542
======= ===== ====== ======= ===== ====== ======= ==== ======
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The average prime rate of the Bank was 6.00%, 6.25% and 8.47% for the
years ended 1993, 1992 and 1991, respectively. The average three-month
London Interbank Offered Rate (LIBOR) was 3.29%, 3.83% and 5.99% for the
same years, respectively.
(2) Interest income included loan fees, net of deferred costs, of
approximately $41 million, $57 million and $63 million in 1993, 1992 and
1991, respectively. Substantially all of the loan fees related to
domestic operations.
(3) Nonaccrual loans and related income are included in their respective
loan categories.
(4) For Securities and Exchange Commission purposes, foreign operations are
transactions with customers who are domiciled outside of the
United States.
</TABLE>
11
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS
The following table allocates the changes in net interest income on
a taxable-equivalent basis to changes in either average balances or average
rates for both interest-earning assets and interest-bearing liabilities,
segregated between domestic and foreign operations. Because of the numerous
simultaneous volume and rate changes during any period, it is not possible to
precisely allocate such changes between volume and rate. For this table,
changes that are not solely due to either volume or rate are allocated to
these categories in proportion to the percentage changes in average volume
and average rate.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------------------------
1993 OVER 1992 1992 over 1991
-------------------------- --------------------------
(in millions) VOLUME RATE TOTAL Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Investment securities:
At cost:
Domestic:
U.S. Treasury securities $ 37 $ (13) $ 24 $ 55 $ (5) $ 50
Securities of U.S. government
agencies and corporations 248 (46) 202 219 (6) 213
Obligations of states and political
subdivisions -- -- -- (2) -- (2)
Private collateralized mortgage obligations 24 12 36 -- -- --
Other securities -- -- -- (6) (3) (9)
Foreign 4 -- 4 1 -- 1
At lower of cost or market (5) (4) (9) 9 -- 9
Federal funds sold and securities
purchased under resale agreements (6) (4) (10) 24 (7) 17
Loans:
Domestic:
Commercial (232) 77 (155) (291) (136) (427)
Real estate 1-4 family first mortgage (73) (96) (169) (166) (79) (245)
Other real estate mortgage (96) (1) (97) (13) (147) (160)
Real estate construction (46) 1 (45) (36) (33) (69)
Consumer:
Real estate 1-4 family junior lien mortgage (50) (50) (100) (52) (94) (146)
Credit card (28) (9) (37) 2 (9) (7)
Other revolving credit and monthly payment (18) (8) (26) (25) (28) (53)
Lease financing 2 (6) (4) -- (11) (11)
Foreign -- -- -- (1) (1) (2)
Other -- -- -- -- (1) (1)
------ ------ ------ ------ ------ ------
Total decrease in interest income (239) (147) (386) (282) (560) (842)
------ ------ ------ ------ ------ ------
Increase (decrease) in interest expense:
Deposits:
Domestic:
Interest-bearing checking 1 (27) (26) 8 (90) (82)
Savings deposits (13) (18) (31) (7) (68) (75)
Market rate savings 35 (99) (64) 112 (310) (198)
Savings certificates (129) (56) (185) (174) (199) (373)
Certificates of deposit (8) (1) (9) (21) 2 (19)
Other time deposits (1) -- (1) (2) (3) (5)
Foreign (1) (2) (3) (29) 1 (28)
Federal funds purchased and securities
sold under repurchase agreements (8) (4) (12) (74) (55) (129)
Commercial paper and other short-term borrowings (1) (2) (3) (45) (24) (69)
Senior debt -- (23) (23) 33 (33) --
Subordinated debt 5 5 10 2 (22) (20)
Funds transferred from foreign operations (4) -- (4) (30) 2 (28)
Funds transferred to domestic operations 4 -- 4 30 (2) 28
------ ------ ------ ------ ------ ------
Total decrease in interest expense (120) (227) (347) (197) (801) (998)
------ ------ ------ ------ ------ ------
Increase (decrease) in net interest income
on a taxable-equivalent basis $ (119) $ 80 $ (39) $ (85) $ 241 $ 156
====== ====== ====== ====== ====== ======
Domestic operations $ (120) $ 78 $ (42) $ (84) $ 241 $ 157
====== ====== ====== ====== ====== ======
Foreign operations $ 1 $ 2 $ 3 $ (1) $ -- $ (1)
====== ====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
Unless otherwise indicated, each of the above interest-earning assets and
interest-bearing liabilities is primarily related to domestic operations.
</TABLE>
12
<PAGE>
INVESTMENT SECURITIES
At December 31, 1993, there were no investment securities issued by a single
issuer (excluding the U.S. government and its agencies and corporations) that
exceeded 10% of stockholders' equity, except for private collateralized
mortgage obligations issued by The Prudential Home Mortgage Securities
Company, Inc. These securities had a cost basis and fair value of $903
million and $901 million, respectively, and were distributed among 41 series
of mortgage pass-through certificates; each series was collateralized by
separate trusts. The largest series had both a cost basis and fair value of
approximately $48 million.
ANALYSIS OF LOAN PORTFOLIO
At December 31, 1993, the Company did not have loan concentrations
that exceeded 10% of total loans, except as shown below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
--------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
------------------ -----------------
FLOATING FLOATING
OR OR December 31,
ONE YEAR FIXED ADJUSTABLE FIXED ADJUSTABLE -------------------------------------
(in millions) OR LESS RATE RATE RATE RATE TOTAL 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected loan maturities (1):
Commercial $3,912 $ 397 $ 2,093 $ 46 $ 464 $ 6,912 $ 8,214 $11,270 $14,639 $14,490
Real estate 1-4 family first
mortgage (2) 250 843 149 4,957 1,259 7,458 6,836 8,612 9,865 7,628
Other real estate mortgage (3) 2,677 2,418 1,760 596 835 8,286 10,128 10,751 10,505 6,019
Real estate construction (3) 911 72 63 40 24 1,110 1,600 2,055 2,669 4,088
Foreign 16 -- 2 -- -- 18 5 2 9 50
------ ------ ------- ------ ------ ------- ------- ------- ------- -------
Total selected loan
maturities $7,766 $3,730 $ 4,067 $5,639 $2,582 23,784 26,783 32,690 37,687 32,275
====== ====== ======= ====== ====== ------- ------- ------- ------- -------
Other loan categories:
Real estate 1-4 family
junior lien mortgage 3,583 4,157 5,053 5,178 3,946
Credit card 2,600 2,807 2,900 2,788 2,504
Other revolving credit and
monthly payment 1,920 1,979 2,286 2,163 1,949
------- ------- ------- ------- -------
Total consumer 8,103 8,943 10,239 10,129 8,399
Lease financing 1,212 1,177 1,170 1,161 1,053
------- ------- ------- ------- -------
Total loans $33,099 $36,903 $44,099 $48,977 $41,727
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Based on remaining contractual principal maturities.
(2) Includes approximately $137 million of fixed-initial-rate mortgage (FIRM)
loans in the over 1 year through 5 year fixed rate category and $2.2
billion of FIRM loans in the over 5 year fixed rate category. FIRM loans
carry fixed rates during the first 3, 5, 7 or 10 years (based on the period
selected by the borrower) of the loan term and carry adjustable rates
thereafter.
(3) During the fourth quarter of 1990, loans were reclassified from the real
estate construction loan category to the other real estate mortgage loan
category so that the real estate construction loan category consists solely
of properties where construction is not complete. Prior period balances
have not been reclassified as complete information is not available.
</TABLE>
13
<PAGE>
UNDERWRITING POLICIES AND PRACTICES
It is the policy of the Company to grant credit for lawful and
productive purposes in accordance with the principles of sound risk management
and the Company's business strategy. The Company obtains and analyzes
sufficient information to ensure that the borrower is able to repay as
scheduled. Credit is structured in a manner consistent with such supporting
analysis and is monitored to detect changes in quality. The Company's credit
policies establish the fundamental credit principles which guide the Company in
granting loans, lines of credit, standby and commercial letters of credit,
acceptances and commitments ("direct credit") to customers on an unsecured,
partially secured or fully secured basis. The credit product line for both
businesses and individuals includes standardized products as well as customized,
individual accommodations. In addition, the Company provides products and
services which could become direct credit exposure unless such products are
offered on a "cash only" basis. These include: automated clearing house
services, controlled disbursement, wire services, foreign exchange services,
interest rate protection products, fed funds lines to banks, cash letters and
deposit accounts which create exposure by allowing use of funds
advanced/uncollected funds ("operating credit"). Standardized documentation and
underwriting and a study of the requirements of the secondary market are an
explicit consideration in credit product development.
The Company requires some degree of background check into character
and credit history of its customers. Extensions of credit must be supported by
current financial information on the borrower (and guarantor) which is
appropriate to the size and type of credit being offered; it can denote any
information which serves to inform the Company about the financial health of its
credit customers. A credit analysis includes, at a minimum, an evaluation of
the customer's financial strength and probability of repayment. Due
consideration is given to the negative factors which may affect a borrower's
ability to repay as scheduled. Collateral is valued in accordance with Company
appraisal standards and, where applicable, appraisal regulations issued under
FIRREA and other applicable law. For commercial real estate transactions, the
recommending officer reviews and evaluates the key assumptions supporting the
appraised value.
In addition to a broad range of laws and regulations and the Company's
credit policies, the Company has established minimum underwriting standards
which establish criteria for sources of repayment, financial strength and
enhancements such as guarantees. With the exception of loans secured by cash
and marketable securities, the primary source of repayment will be recurring
cash flow of the borrower or cash flow from the real estate project being
financed. Such standards include: minimum financial condition and cash flow
hurdles for unsecured credit; maximum loan to collateral value ratios for
secured products; minimum cash flow coverage of debt service, or debt to income
ratios, for term products; and minimum liquidity and maximum financial leverage
requirements and policies for identification of and lending to highly leveraged
borrowers and for products which employ credit scoring criteria and methodology.
Prudent credit practice will permit credit extensions which are an exception to
the minimum underwriting standards; procedures for approval of exceptions are
included in Company policy; and certain exceptions are reported to the Board of
Directors.
Generally, the Company's minimum underwriting standards for commercial
real estate include various maximum loan-to-value ("LTV") ratios ranging from
50% to 80% depending on the type of collateral and the size and purpose of the
loan; minimum debt service (stabilized net income divided by debt service cost)
ranging from 1.10 to 1.30 depending on the type of property financed; and for
maximum terms ranging from 2 to 15 years for certain
14
<PAGE>
commercial property loans depending on the same loan/collateral characteristics.
For example, a typical owner-occupied commercial real estate loan would most
often have a maximum LTV of 80%, debt service coverage of 1.25 and a term of 4
to 15 years. For community reinvestment projects, the Company applies special
underwriting criteria to its financing of construction of affordable multi-
family housing in California built by nonprofit as well as for-profit
developers.
Real estate 1-4 family loans (including equity lines) are generally
made with maximum LTVs of 50% to 95% depending on the amount and term of the
loan, debt service coverage and whether or not the property is owner-occupied;
private mortgage insurance is required on loans with LTVs greater than 80%.
Generally, commercial loan categories include unsecured loans and
lines of credit with minimum debt service coverage of 1.30 or higher depending
on the specific credit analysis and with maximum terms of 1 to 7 years; loans
and lines of credit secured by accounts receivable, inventories, equipment,
marketable securities and cash or equivalent most often have minimum debt
service requirements ranging from 1.30 to 1.50, maximum terms of 1 to 7 years
and advance rates based on an analysis of the collateral pledged.
The above underwriting practices are general standards that are
subject to change; the actual terms and conditions of a specific credit
transaction are dependent on an analysis of the specific transaction.
15
<PAGE>
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $2,067 $1,646 $ 885 $738 $752
Allowance related to acquisitions (dispositions) -- -- (2) 33 (11)
Provision for loan losses 550 1,215 1,335 310 362
Loan charge-offs:
Commercial (110) (238) (402) (75) (116)
Real estate 1-4 family first mortgage (25) (17) (11) (5) --
Other real estate mortgage (1) (197) (290) (88) (25) (16)
Real estate construction (1) (68) (93) (29) (19) (17)
Consumer:
Real estate 1-4 family junior lien mortgage (28) (28) (7) (6) (3)
Credit card (177) (189) (161) (107) (85)
Other revolving credit and monthly payment (41) (41) (42) (26) (20)
------ ------ ------ ---- ----
Total consumer (246) (258) (210) (139) (108)
Lease financing (18) (19) (19) (17) (12)
------ ------ ------ ---- ----
Total domestic loan charge-offs (664) (915) (759) (280) (269)
Foreign -- -- -- -- (118)
------ ------ ------ ---- ----
Total loan charge-offs (664) (915) (759) (280) (387)
------ ------ ------ ---- ----
Loan recoveries:
Commercial 71 59 98 40 41
Real estate 1-4 family first mortgage 2 2 -- -- --
Other real estate mortgage (1) 47 9 2 7 4
Real estate construction (1) 4 3 3 1 13
Consumer:
Real estate 1-4 family junior lien mortgage 3 1 -- -- 1
Credit card 21 21 19 17 16
Other revolving credit and monthly payment 12 12 11 12 13
------ ------ ------ ---- ----
Total consumer 36 34 30 29 30
Lease financing 9 9 5 5 5
------ ------ ------ ---- ----
Total domestic loan recoveries 169 116 138 82 93
Foreign -- 1 49 30 27
------ ------ ------ ---- ----
Total loan recoveries 169 117 187 112 120
------ ------ ------ ---- ----
Total net loan charge-offs (495) (798) (572) (168) (267)
Recoveries (losses) on the sale or swap of
developing country loans -- 4 -- (28) (98)
------ ------ ------ ---- ----
Balance, end of year $2,122 $2,067 $1,646 $885 $738
====== ====== ====== ==== ====
Domestic net loan charge-offs as a percentage
of average domestic loans 1.44% 1.97% 1.33% .45% .45%
====== ====== ====== ==== ====
Total net loan charge-offs as a percentage of
average total loans 1.44% 1.97% 1.22% .38% .67%
====== ====== ====== ==== ====
Allowance as a percentage of total loans 6.41% 5.60% 3.73% 1.81% 1.77%
====== ====== ====== ==== ====
<FN>
- ----------------------------------------------------------------------------------------------------------------------------------
(1) During the fourth quarter of 1990, loans were reclassified from the real estate construction loan category to the other real
estate mortgage loan category so that the real estate construction loan category consists solely of properties where
construction is not complete. Prior period balances have not been reclassified as complete information is not available.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Changes in the allowance for loan losses allocated to foreign loans were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ -- $ -- $ 6 $ -- $ 6
Provision for loan losses (1) -- (5) (55) 4 183
Gross charge-offs (2) -- -- -- -- (118)
Recoveries -- 1 49 30 27
----- ----- ----- ----- -----
Net loan recoveries (charge-offs) -- 1 49 30 (91)
Recoveries (losses) on the sale or swap
of developing country loans -- 4 -- (28) (98)
----- ----- ----- ----- -----
Balance, end of year $ -- $ -- $ -- $ 6 $ --
===== ===== ===== ===== =====
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The 1992 amount represents effects of recoveries from prior years' charge-offs and from losses on loan sales; the 1991 amount
represents a reversal of the unused portion of the allowance for loan losses.
(2) In 1989, the Company charged off its remaining medium- and long-term loans to developing countries of $107 million.
</TABLE>
The Securities and Exchange Commission requires the Company to present the
ratio of the allowance for loan losses to total nonaccrual loans. This ratio
was 178% and 97% at December 31, 1993 and 1992, respectively. This ratio may
fluctuate significantly from period to period due to such factors as the
prospects of borrowers and the value and marketability of collateral as well as,
for the nonaccrual portfolio taken as a whole, wide variances from period to
period in terms of delinquency and relationship of book to contractual principal
balance. (For example, at December 31, 1993 and 1992, the percentages of
nonaccrual loan balances that were current as to payment of principal and
interest were 50% and 55%, respectively, and the ratios of book to contractual
balance were 66% and 79%, respectively.) Classification of a loan as nonaccrual
does not necessarily indicate that the principal of a loan is uncollectible in
whole or in part. Consequently, the ratio of the allowance for loan losses to
nonaccrual loans, taken alone and without taking into account numerous
additional factors, is not a reliable indicator of the adequacy of the allowance
for loan losses. Indicators of the credit quality of the Company's loan
portfolio and the method of determining the allowance for loan losses are
discussed in the 1993 Annual Report to Shareholders.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The table on the following page provides a breakdown of the allowance for
loan losses by loan category. The allocated component of the allowance reflects
inherent losses resulting from the analysis of individual loans and is developed
through specific credit allocations for individual loans and historical loss
experience for each loan category and degree of criticism within each category.
The total of these allocations is then supplemented by the unallocated component
of the allowance for loan losses, which includes adjustments to the historical
loss experience for the various loan categories to reflect any current
conditions that could affect loss recognition. The unallocated component
includes management's judgmental determination of the amounts necessary for
concentrations, economic uncertainties (particularly in Southern California) and
other subjective factors. Although management has allocated the allowance to
specific loan categories, the adequacy of the allowance must be considered in
its entirety.
17
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
----------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Commercial $ 152 $ 373 $ 417 $177 $104
Real estate 1-4 family
first mortgage 39 37 33 32 12
Other real estate mortgage (1) 357 589 350 63 24
Real estate construction (1) 92 181 121 36 34
Consumer:
Credit card (2) 96 107 239 193 158
Other consumer 87 58 51 32 43
------ ------ ------ ---- ----
Total consumer 183 165 290 225 201
Lease financing 19 17 15 13 14
Foreign -- -- -- 6 --
Unallocated component of
the allowance (3) 1,280 705 420 333 349
------ ------ ------ ---- ----
Total $2,122 $2,067 $1,646 $885 $738
====== ====== ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------------- ---------------- ---------------- ---------------- ---------------
ALLOC. LOAN Alloc. Loan Alloc. Loan Alloc. Loan Alloc. Loan
ALLOW. CATGRY allow. catgry allow. catgry allow. catgry allow. catgry
AS % AS % as % as % as % as % as % as % as % as %
OF LOAN OF TOTAL of loan of total of loan of total of loan of total of loan of total
CATGRY LOANS catgry loans catgry loans catgry loans catgry loans
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 2.20% 21% 4.54% 22% 3.70% 25% 1.21% 31% .72% 35%
Real estate 1-4 family
first mortgage .52 23 .54 19 .38 20 .32 20 .16 18
Other real estate mortgage (1) 4.31 25 5.82 27 3.26 24 .60 21 .40 14
Real estate construction (1) 8.29 3 11.31 4 5.89 5 1.35 5 .83 10
Consumer:
Credit card (2) 3.69 8 3.81 8 8.24 7 6.92 6 6.31 6
Other consumer 1.58 16 .95 17 .69 16 .44 15 .73 14
--- --- --- --- ---
Total consumer 2.26 24 1.85 25 2.83 23 2.22 21 2.39 20
Lease financing 1.57 4 1.44 3 1.28 3 1.12 2 1.33 3
Foreign -- -- -- -- -- -- 66.67 -- -- --
--- --- --- --- ---
Total 6.41% 100% 5.60% 100% 3.73% 100% 1.81% 100% 1.77% 100%
==== === ===== === ==== === ===== === ==== ===
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) During the fourth quarter of 1990, loans were reclassified from the real estate construction loan category to the other real
estate mortgage loan category so that the real estate construction loan category consists solely of properties where
construction is not complete. Prior period balances have not been reclassified as complete information is not available.
(2) In 1992, the calculation method for the allocation of the allowance for loan losses for credit card loans was changed in
order to better conform to industry practice, whereby the allocation now approximates 7 months (formerly, 18 to 21 months)
of projected losses. Based on the revised method, the estimated allocation for credit card loans would have been reduced
(and, correspondingly, the unallocated portion of the allowance would have been increased) by about $140 million, $130
million and $110 million at December 31, 1991, 1990 and 1989, respectively.
(3) This amount and any unabsorbed portion of the allocated allowance are also available for any of the above listed loan
categories.
</TABLE>
DEPOSITS
At December 31, 1993, the contractual principal maturities of time
certificates of deposit and other time deposits issued in amounts of $100,000 or
more were as follows (based on time remaining until maturity): $714 million
maturing in 3 months or less; $221 million over 3 through 6 months; $168 million
over 6 through 12 months and $508 million over 12 months.
18
<PAGE>
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Outstanding amounts of selected short-term borrowings were as follows:
- ------------------------------------------------------------------------------
Year ended December 31,
--------------------------------
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL FUNDS PURCHASED
Average amount outstanding $ 574 $ 722 $2,608
Daily average rate 2.78% 3.12% 5.53%
Highest month-end balance $ 567 $1,462 $5,445
Year-end balance $ 453 $ 562 $ 349
Weighted average rate on
outstandings at year end 2.56% 2.03% 2.42%
SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS
Average amount outstanding $ 477 $ 577 $ 484
Daily average rate 2.79% 3.21% 5.36%
Highest month-end balance $ 911 $ 892 $ 769
Year-end balance $ 626 $ 749 $ 602
Weighted average rate on
outstandings at year end 2.75% 2.75% 3.83%
COMMERCIAL PAPER
Average amount outstanding $ 161 $ 211 $ 989
Daily average rate 2.75% 3.31% 6.15%
Highest month-end balance $ 211 $ 226 $2,285
Year-end balance $ 136 $ 165 $ 217
Weighted average rate on
outstandings at year end 2.70% 2.73% 4.13%
</TABLE>
- ------------------------------------------------------------------------------
Federal funds purchased and securities sold under repurchase agreements
generally mature in less than 30 days. Commercial paper obligations have
original maturities not exceeding 115 days.
PROPERTIES
The Company owns and leases various properties primarily in the downtown
financial district of San Francisco and other locations throughout California.
The Company owns its 12-story headquarters building in downtown
San Francisco and a four-story administrative building and a five-story data
processing center, both in El Monte, California. The Company is also a joint
venture partner in a 54-story office building in downtown Los Angeles, of which
approximately 200,000 square feet is occupied by administrative staff and 60,000
square feet is sublet. In addition, the Company leases approximately 2,500,000
square feet of office space for data processing support and various
administrative departments in four major buildings in San Francisco, two other
major locations in the San Francisco Bay area and four major locations in
Southern California.
At December 31, 1993, the Bank operated 624 domestic branch offices, of
which 321 were in Northern California and 303 in Southern California. The
Company owns the land and buildings occupied by 242 of the branch offices and
leases 382 branch offices. The leases are generally for terms not exceeding 30
years.
19
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Date from
Name Office held which held Age
- ------------------- ------------------------ -------------- ---
<S> <C> <C> <C>
Carl E. Reichardt Chairman and Chief January 1983 62
Executive Officer
Paul Hazen President and Chief July 1984 52
Operating Officer
William F. Aldinger III Vice Chairman July 1992 46
Michael J. Gillfillan Vice Chairman January 1992 45
Charles M. Johnson Vice Chairman January 1992 52
Clyde W. Ostler Vice Chairman January 1990 47
William F. Zuendt Vice Chairman October 1986 47
Rodney L. Jacobs Vice Chairman and Chief January 1990 53
Financial Officer
Stuart V.M. Campbell Executive Vice President April 1991 40
and General Auditor
Patricia R. Callahan Executive Vice President March 1993 40
and Personnel Director
Elizabeth A. Evans Executive Vice President September 1993 38
and Director of Corporate
Planning and Asset Strategy
Frank A. Moeslein Executive Vice President April 1991 50
and Controller
Michael M. Patriarca Executive Vice President March 1992 43
and Risk Control Officer
Guy Rounsaville, Jr. Executive Vice President, March 1985 50
Chief Counsel and
Secretary
</TABLE>
The principal occupation of each of the executive officers during the past
five years has been in the position reported above or in other positions as an
officer with the Company, with the following exceptions: Stuart V. M. Campbell
has been with the Company since June 1990; prior to that, he was a partner with
KPMG Peat Marwick. Michael M. Patriarca joined the Company in March 1992; prior
to that, he was Western Regional Director of the Office of Thrift Supervision
and, preceding that, served with the Office of the Comptroller of the Currency.
There is no family relationship among the above officers. All executive
officers serve at the pleasure of the Board of Directors.
20
<PAGE>
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits:
(1) The consolidated financial statements and related notes, the
independent auditors' report thereon and supplementary data that
appear on pages 42 through 71 of the 1993 Annual Report to
Shareholders are incorporated herein by reference.
(2) Financial Statement Schedules:
All schedules are omitted, because the conditions requiring their
filing do not exist.
(3) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
3(a) Restated Certificate of Incorporation
(b) Certificate of the Voting Powers, Designation, Preferences and
Relative, Participating, Optional or Other Special Rights, and
the Qualifications, Limitations or Restrictions Thereof, Which
Have Not Been Set Forth in the Certificate of Incorporation or
in any Amendment Thereto, of the Adjustable Rate Cumulative
Preferred Stock, Series A
(c) Certificate of the Voting Powers, Designation, Preferences and
Relative, Participating, Optional or Other Special Rights, and
the Qualifications, Limitations or Restrictions Thereof, Which
Have Not Been Set Forth in the Certificate of Incorporation or
in any Amendment Thereto, of the Adjustable Rate Cumulative
Preferred Stock, Series B
(d) Certificate of the Voting Powers, Designation, Preferences and
Relative, Participating, Optional or Other Special Rights, and
the Qualifications, Limitations or Restrictions Thereof, Which
Have Not Been Set Forth in the Certificate of Incorporation or
in any Amendment Thereto, of the 9% Preferred Stock, Series C,
incorporated by reference to Exhibit 3 of Form 8-K filed
October 24, 1991
(e) Certificate of the Voting Powers, Designation, Preferences and
Relative, Participating, Optional or Other Special Rights, and
the Qualifications, Limitations or Restrictions Thereof, Which
Have Not Been Set Forth in the Certificate of Incorporation or
in any Amendment Thereto, of the 8 7/8% Preferred Stock, Series
D, incorporated by reference to Exhibit 3 of Form 8-K filed
March 5, 1992
(f) By-Laws
4(a) The Company hereby agrees to furnish upon request to the
Commission a copy of each instrument defining the rights of
holders of senior and subordinated debt of the Company.
21
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
(b) Deposit Agreement dated as of October 24, 1991 among Wells
Fargo & Company, Marine Midland Bank, N.A. as Depositary and
the holders from time to time of the Depositary Shares
representing one-twentieth of a share of 9% Preferred Stock,
Series C, incorporated by reference to Exhibit 4(a) of Form 8-K
filed October 24, 1991
(c) Specimen of certificate for the 9% Preferred Stock, Series C,
incorporated by reference to Exhibit 4(b) of Form 8-K filed
October 24, 1991
(d) Specimen of Depositary Receipt for the Depositary Shares, each
representing a one-twentieth interest in a share of the 9%
Preferred Stock, Series C, incorporated by reference to Exhibit
4(c) of Form 8-K filed October 24, 1991
(e) Deposit Agreement dated as of March 5, 1992 among Wells Fargo &
Company, Marine Midland Bank, N.A. as Depositary and the
holders from time to time of the Depositary Shares representing
one-twentieth of a share of 8 7/8% Preferred Stock, Series D,
incorporated by reference to Exhibit 4(a) of Form 8-K filed
March 5, 1992
(f) Specimen of certificate for the 8 7/8% Preferred Stock, Series
D, incorporated by reference to Exhibit 4(b) of Form 8-K filed
March 5, 1992
(g) Specimen of Depositary Receipt for the Depositary Shares, each
representing a one-twentieth interest in a share of the 8 7/8%
Preferred Stock, Series D, incorporated by reference to Exhibit
4(c) of Form 8-K filed March 5, 1992
10(a) Benefits Restoration Program, incorporated by reference to
Exhibit 10(a) of Form 10-K for the year ended December 31,
1990*
(b) Deferral Plan for Directors, as amended through November 19,
1991, incorporated by reference to Exhibit 10(b) of Form 10-K
for the year ended December 31, 1991*
(c) 1990 Director Option Plan, as amended through November 19,
1991, incorporated by reference to Exhibit 10(c) of Form 10-K
for the year ended December 31, 1991*
(d) 1987 Director Option Plan, as amended through November 19,
1991, incorporated by reference to Exhibit 10(d) of Form 10-K
for the year ended December 31, 1991*
(e) Director Retirement Plan*
(f) 1990 Equity Incentive Plan, incorporated by reference to
Exhibit 10(f) of Form 10-K for the year ended December 31,
1990*
(g) 1982 Equity Incentive Plan, as amended through November 15,
1988.
(h) Executive Incentive Pay Plan, incorporated by reference to
Exhibit 10(h) of Form 10-K for the year ended December 31,
1990*
(i) Executive Loan Plan, incorporated by reference to Exhibit 10(g)
of Form 10-K for the year ended December 31,1990*
(j) Passivity Agreement dated July 31, 1991 between the Company and
Berkshire Hathaway Inc., including the form of proxy granted in
connection therewith, incorporated by reference to Exhibit 19
of Form 10-Q for the quarter ended June 30, 1991
* Compensatory Plan or Arrangement.
22
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
11 Computation of Earnings Per Common Share
12 Computation of Ratios of Earnings to Fixed Charges -- the ratios
of earnings to fixed charges, including interest on deposits, were
1.90, 1.33, 1.02, 1.43 and 1.36 for the years ended December 31,
1993, 1992, 1991, 1990 and 1989, respectively. The ratios of
earnings to fixed charges, excluding interest on deposits, were -
4.53, 2.56, 1.10, 2.42 and 2.05 for the years ended December 31,
1993, 1992, 1991, 1990 and 1989, respectively.
13 1993 Annual Report to Shareholders -- only those sections of the
Annual Report to Shareholders referenced in the index on page 1
are incorporated in the Form 10-K.
22 Subsidiaries of the Registrant -- Wells Fargo & Company's only
significant subsidiary, as defined, is Wells Fargo Bank, N.A., a
national banking association organized under the laws of the
United States.
23 Consent of Independent Accountants
(b) The Company filed the following reports on Form 8-K during the fourth
quarter of 1993 and through the date hereof in 1994:
(1) October 20, 1993 under Item 5, containing the Press Release that
announced the Company's financial results for the quarter and nine
months ended September 30, 1993
(2) October 21, 1993 under Item 5, containing the Press Release that
announced the increase in the Company's common stock dividend
(3) January 20, 1994 under Item 5, containing the Press Releases that
announced the Company's financial results for the quarter and year
ended December 31, 1993 and the increase in the Company's common
stock dividend
STATUS OF PRIOR DOCUMENTS
The Wells Fargo & Company Annual Report on Form 10-K for the year ended
December 31, 1993, at the time of filing with the Securities and Exchange
Commission, shall modify and supersede all prior documents filed pursuant to
Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 for purposes of
any offers or sales of any securities after the date of such filing pursuant to
any Registration Statement or Prospectus filed pursuant to the Securities Act of
1933 which incorporates by reference such Annual Report on Form 10-K.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 15, 1994.
WELLS FARGO & COMPANY
By: FRANK A. MOESLEIN
----------------------------------------
Frank A. Moeslein
(Executive Vice President and Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 15, 1994:
<TABLE>
<S> <C> <C> <C>
CARL E. REICHARDT Chairman and Chief PAUL HAZEN Director
- ----------------------- Executive Officer (Principal -----------------------
(Carl E. Reichardt) Executive Officer) (Paul Hazen)
ROBERT K. JAEDICKE Director
-----------------------
RODNEY L. JACOBS Vice Chairman and Chief (Robert K. Jaedicke)
- ----------------------- Financial Officer (Principal
(Rodney L. Jacobs) Financial Officer) PAUL A. MILLER Director
------------------------
(Paul A. Miller)
FRANK A. MOESLEIN Executive Vice President
- ----------------------- and Controller (Principal ELLEN M. NEWMAN Director
(Frank A. Moeslein) Accounting Officer) ------------------------
(Ellen M. Newman)
H. JESSE ARNELLE Director DONALD B. RICE Director
- ----------------------- ------------------------
(H. Jesse Arnelle) (Donald B. Rice)
WILLIAM R. BREUNER Director CHANG-LIN TIEN Director
- ----------------------- ------------------------
(William R. Breuner) (Chang-Lin Tien)
WILLIAM S. DAVILA Director JOHN A. YOUNG Director
- ----------------------- ------------------------
(William S. Davila) (John A. Young)
RAYBURN S. DEZEMBER Director
- -----------------------
(Rayburn S. Dezember)
</TABLE>
24
<PAGE>
Exhibit 3(a)
RESTATED
CERTIFICATE OF INCORPORATION
OF
WELLS FARGO & COMPANY
The undersigned, Paul Hazen and Guy Rounsaville, Jr., certify that
they are the President and the Secretary, respectively, of Wells Fargo &
Company, a corporation organized and existing under the laws of the State of
Delaware, and do hereby further certify as follows:
1. The name of the corporation is Wells Fargo & Company. The name
under which it was originally incorporated was Wells Fargo Company.
2. The original certificate of incorporation of the corporation was
filed in the Office of the Secretary of State of Delaware on March 2, 1966.
3. This Restated Certificate of Incorporation was duly adopted by
the written consent of the sole stockholder of the corporation in
accordance with Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware.
4. The text of the certificate of incorporation of the corporation
as amended hereby is restated to read in its entirety, as follows:
ARTICLE I
The name of the corporation is Wells Fargo & Company.
ARTICLE II
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE>
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
A. The corporation is authorized to issue two classes of stock to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares that the corporation is authorized to issue is 175,000,000 with a par
value of $5.00 per share. The number of shares of Preferred Stock which the
corporation is authorized to issue is 25,000,000 shares. The number of shares
of Common Stock which the corporation is authorized to issue is 150,000,000
shares.
B. The shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors is authorized to determine or alter
the powers, preferences and rights, and the qualifications, limitations or
restrictions to be granted to or imposed upon the Preferred Stock or any series
thereof with respect to any wholly unissued class or series of Preferred Stock,
and to fix the number of shares constituting any such series and the designation
thereof, or any of them. Within the limits and restrictions, if any, stated in
any resolution of the Board of Directors originally fixing the number of shares
constituting any series, the Board of Directors is authorized to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of such
series. In case the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status which they had prior
to the adoption of the resolution originally fixing the number of shares of such
series.
ARTICLE V
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or modification of this Article by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
<PAGE>
ARTICLE VI
In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to adopt, amend or
repeal the bylaws of the corporation.
IN WITNESS WHEREOF, Wells Fargo & Company has caused this Restated
Certificate of Incorporation to be executed by its officers thereunto duly
authorized as of this third day of March 1987.
WELLS FARGO & COMPANY
By: /s/ PAUL HAZEN
----------------------------------
Paul Hazen
President
Attest:
/s/ GUY ROUNSAVILLE, JR.
- --------------------------------------
Guy Rounsaville, Jr.
Secretary
<PAGE>
Exhibit 3(b)
CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE
CERTIFICATE OF INCORPORATION OR
IN ANY AMENDMENT THERETO, OF THE
ADJUSTABLE RATE CUMULATIVE PREFERRED STOCK, SERIES A
OF
WELLS FARGO & COMPANY
WE, THE UNDERSIGNED, Paul Hazen and Guy Rounsaville, Jr., the
President and the Secretary, respectively, of Wells Fargo & Company, a Delaware
corporation (the "Corporation"), DO HEREBY CERTIFY that the following resolution
was duly adopted by the Board of Directors of the Corporation by unanimous
written consent dated as of March 5, 1987:
RESOLVED that, pursuant to authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the Corporation,
the Board of Directors hereby authorizes the issuance of a series of
Preferred Stock of the Corporation to consist of 3,000,000 shares, the
voting powers, designation, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, in addition to those set forth in the Restated
Certificate of Incorporation, are hereby fixed as follows:
1. DESIGNATION.
3,000,000 shares of the Preferred Stock of the Corporation are hereby
constituted as a series of Preferred Stock with a par value of $5.00 per
share, designated as Adjustable Rate Cumulative Preferred Stock, Series A
(hereinafter called "Series A Preferred Stock"). The number of shares of
Series A Preferred Stock may not be increased but may be decreased by a
resolution duly adopted by the Financing Committee of the Board of
Directors, but not below the number of shares of Series A Preferred Stock
then outstanding.
2. DIVIDENDS.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive cash dividends, when and as declared by the Board of
Directors out of funds legally available for the purpose, from the date of
original
<PAGE>
issuance to and including June 30, 1983, and for each dividend period
commencing on January 1, April 1, July 1 and October 1 in each year after
June 30, 1983, and ending on and including the day next preceding the first
day of the next dividend period (such period ending June 30, 1983, and each
of such other periods herein referred to as a "Dividend Period") at a rate
as follows: (i) for the Dividend Periods from the date of original
issuance of the Series A Preferred Stock to and including March 31, 1984
(the "Fixed Dividend Periods"), the rate shall be 10% per annum applied
against $50.00 per share and (ii) for each Dividend Period commencing after
March 31, 1984 (the "Adjustable Dividend Periods") at a rate per annum
applied against $50.00 per share equal to the Applicable Rate (as defined
in Section 3) in respect of such Adjustable Dividend Period. The amount of
dividend per share payable for the portion of the Fixed Dividend Periods
from the date of original issuance of the Series A Preferred Stock to and
including June 30, 1983, and for any Dividend Period less than a full
Dividend Period shall be computed on the basis of a 360-day year of twelve
30-day months and the actual number of days elapsed in the period for which
payable. The amount of dividend per share payable for each full Dividend
Period commencing after June 30, 1983 shall be computed by dividing the
annual dividend rate for each Dividend Period by four and applying such
resulting rate against $50.00 per share. Dividends shall be payable when
and as declared by the Board of Directors, out of funds legally available
therefor, on March 31, June 30, September 30 and December 31 of each year,
commencing June 30, 1983, to holders of record on such respective dates not
exceeding 30 days preceding the payment date thereof as may be determined
by the Board of Directors in advance of such payment date. Dividends on
account of arrears for any past Dividend Periods may be declared and paid
at any time, without reference to any regular dividend payment date, to
holders of record on such date not exceeding 30 days preceding the payment
date thereof as may be fixed by the Board of Directors. No dividends shall
be declared on any other series or class or classes of preferred stock
ranking on a parity (as that term is defined in Section 8(d)) with the
Series A Preferred Stock as to dividends in respect of any dividend period
unless there shall likewise be or have been declared on all shares of
Series A Preferred Stock at the time outstanding like dividends for all
Dividend Periods coinciding with or ending before such dividend period,
ratably in proportion to the respective dividend rates fixed for all such
other series or class or classes of preferred stock and the Series A
Preferred Stock. Dividends shall be cumulative and will accrue on each
share of Series A Preferred Stock from the date of original issuance
thereof. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments which may be in
arrears.
-2-
<PAGE>
(b) If dividends at the rate per share set out in Section 2(a) for
any Dividend Period shall not have been declared and paid or set apart for
payment on all outstanding shares of Series A Preferred Stock for such
Dividend Period and all preceding Dividend Periods from and after the date
of issue thereof, then, until the aggregate deficiency shall be declared
and fully paid or set apart for payment, the Corporation shall not (i)
declare or pay or set apart for payment any dividends or make any other
distribution on the Common Stock, $5.00 par value, of the Corporation
("Common Stock") or any other capital stock of the Corporation ranking
junior to the Series A Preferred Stock with respect to the payment of
dividends or distribution of assets on liquidation, dissolution or winding
up of the Corporation (which for all purposes of this resolution shall mean
any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary) (the Common Stock and such other stock being
herein referred to as "Junior Stock"), other than dividends or
distributions paid in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Junior Stock, or (ii) make any payment
on account of the purchase, redemption or other retirement of any Junior
Stock.
3. APPLICABLE RATE.
Except as provided below in this paragraph, the "Applicable Rate" for
any Adjustable Dividend Period shall be (a) 2.75% less than (b) the highest
of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the
Twenty Year Constant Maturity Rate (each as hereinafter defined) for the
Adjustable Dividend Period. If the Corporation determines in good faith
that for any reason one or more of such rates cannot be determined for any
Adjustable Dividend Period, then the Applicable Rate for such Dividend
Period shall be 2.75% less than the higher of whichever of such rates can
be so determined. If the Corporation determines in good faith that none of
such rates can be determined for any Adjustable Dividend Period, then the
Applicable Rate in effect for the preceding Dividend Period shall be
continued for such Dividend Period. Anything herein to the contrary
notwithstanding, the Applicable Rate for any Adjustable Dividend Period
shall in no event be less than 6% per annum or greater than 12% per annum.
Except as provided below in this paragraph, the "Treasury Bill Rate"
for each Adjustable Dividend Period shall be the arithmetic average of the
two weekly per annum market discount rates (or the one weekly per annum
market discount rate, if only one such rate shall be published during the
relevant Calendar Period as provided below) for three-month U.S. Treasury
bills, published by the Federal Reserve Board during the Calendar Period
immediately prior to the ten calendar days immediately preceding the
March 31,
-3-
<PAGE>
June 30, September 30 and December 31, as the case may be, prior to the
Adjustable Dividend Period for which the dividend rate on the Series A
Preferred Stock is being determined. If the Federal Reserve Board does not
publish such a weekly per annum market discount rate during such Calendar
Period, then the Treasury Bill Rate for such Dividend Period shall be the
arithmetic average of the two weekly per annum market discount rates (or
the one weekly per annum market discount rate, if only one such rate shall
be published during the relevant Calendar Period as provided below) for
three-month U.S. Treasury bills, published during such Calendar Period by
any Federal Reserve Bank or by any U.S. Government department or agency
selected by the Corporation. If a per annum market discount rate for
three-month U.S. Treasury bills shall not be published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Treasury Bill
Rate for such Adjustable Dividend Period shall be the arithmetic average of
the two weekly per annum market discount rates (or the one weekly per annum
market discount rate, if only one such rate shall be published during the
relevant Calendar Period as provided below) for all the U.S. Treasury bills
then having maturities of not less than 80 nor more than 100 days, finally
published during such Calendar Period by the Federal Reserve Board or, if
the Federal Reserve Board shall not publish such rates, by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
Corporation. If the Corporation determines in good faith that for any
reason no such U.S. Treasury bill rates are published as provided above
during such Calendar Period, then the Treasury Bill Rate for such
Adjustable Dividend Period shall be the arithmetic average of the per annum
market discount rates based upon the closing bids during such Calendar
Period for each of the issues of marketable non-interest bearing U.S.
Treasury securities with a maturity of not less than 80 nor more than 100
days from the date of each such quotation, as chosen and quoted daily for
each business day in New York City (or less frequently if daily quotations
shall not be generally available) to the Corporation by at least three
recognized U.S. Government securities dealers selected by the Corporation.
If the Corporation determines in good faith that for any reason the
Corporation cannot determine the Treasury Bill Rate for any Adjustable
Dividend Period as provided above in this paragraph, the Treasury Bill Rate
for such Adjustable Dividend Period shall be the arithmetic average of the
per annum market discount rates based upon the closing bids during such
Calendar Period for each of the issues of marketable, interest-bearing U.S.
Treasury securities with a maturity of not less than 80 nor more than 100
days from the date of each such quotation, as chosen and quoted daily for
each business day in New York City (or less frequently if daily quotations
shall not be generally available) to the
-4-
<PAGE>
Corporation by at least three recognized U.S. Government securities dealers
selected by the Corporation.
Except as provided below in this paragraph, the "Ten Year Constant
Maturity rate" for each Adjustable Dividend Period shall be the arithmetic
average of the two weekly per annum Ten Year Average Yields (or the one
weekly per annum Ten Year Average Yield, if only one such Yield shall be
published during the relevant Calendar Period as provided below), published
by the Federal Reserve Board during the Calendar Period immediately prior
to the ten calendar days immediately preceding the March 31, June 30,
September 30 and December 31, as the case may be, prior to the Adjustable
Dividend Period for which the dividend rate on the Series A Preferred Stock
is being determined. If the Federal Reserve Board does not publish such a
weekly per annum Ten Year Average Yield during such Calendar Period, then
the Ten Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two weekly per annum Ten Year Average Yields (or
the one weekly per annum Ten Year Average Yield, if only one such Yield
shall be published during the relevant Calendar Period as provided below),
published during such Calendar Period by any Federal Reserve Bank or by any
U.S. Government department or agency selected by the Corporation. If a per
annum Ten Year Average Yield shall not be published by the Federal Reserve
Board or by any Federal Reserve Bank or by any U.S. Government department
or agency during such Calendar Period, then the Ten Year Constant Maturity
Rate for such Adjustable Dividend Period shall be the arithmetic average of
the two weekly per annum average yields to maturity (or the one weekly
average yield to maturity, if only one such yield shall be published during
the relevant Calendar Period as provided below) for all of the actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) then having maturities of not less than eight nor more
than twelve years, finally published during such Calendar Period by the
Federal Reserve Board or, if the Federal Reserve Board shall not publish
such yields, by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the Corporation. If the Corporation
determines in good faith that for any reason the Corporation cannot
determine the Ten Year Constant Maturity Rate for any Adjustable Dividend
Period as provided above in this paragraph, then the Ten Year Constant
Maturity Rate for such Adjustable Dividend Period shall be the arithmetic
average of the per annum average yields to maturity based upon the closing
bids during such Calendar Period for each of the issues of actively traded
marketable U.S. Treasury fixed interest rate securities (other than Special
Securities) with a final maturity date not less than eight nor more than
twelve years from the date of each such quotation, as chosen and quoted
daily for each business day in New York City (or less frequently if daily
quotations shall not be generally
-5-
<PAGE>
available) to the Corporation by at least three recognized U.S. Government
securities dealers selected by the Corporation.
Except as provided below in this paragraph, the "Twenty Year Constant
Maturity Rate" for each Adjustable Dividend Period shall be the arithmetic
average of the two weekly per annum Twenty Year Average Yields (or the one
weekly per annum Twenty Year Average Yield, if only one such Yield shall be
published during the relevant Calendar Period as provided below), published
by the Federal Reserve Board during the Calendar Period immediately prior
to the ten calendar days immediately preceding the March 31, June 30,
September 30 and December 31, as the case may be, prior to the Adjustable
Dividend Period for which the dividend rate on the Series A Preferred Stock
is being determined. If the Federal Reserve Board does not publish such a
weekly per annum Twenty Year Average Yield during such Calendar Period,
then the Twenty Year Constant Maturity Rate for such Dividend Period shall
be the arithmetic average of the two weekly per annum Twenty Year Average
Yields (or the one weekly per annum Twenty Year Average Yield, if only one
such Yield shall be published during the relevant Calendar Period as
provided below), published during such Calendar Period by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the Corporation. If a per annum Twenty
Year Average Yield shall not be published by the Federal Reserve Board or
by any Federal Reserve Bank or by any U.S. Government department or agency
during such Calendar Period, then the Twenty Year Constant Maturity Rate
for such Adjustable Dividend Period shall be the arithmetic average of the
two weekly per annum average yields to maturity (or the one weekly average
yield to maturity, if only one such yield shall be published during the
relevant Calendar Period as provided below) for all of the actively traded
marketable U.S. Treasury fixed interest rate securities (other than Special
Securities) then having maturities of not less than eighteen nor more than
twenty-two years, finally published during such Calendar Period by the
Federal Reserve Board or, if the Federal Reserve Board shall not publish
such yields, by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the Corporation. If the Corporation
determines in good faith that for any reason the Corporation cannot
determine the Twenty Year Constant Maturity Rate for any Adjustable
Dividend Period as provided above in this paragraph, then the Twenty Year
Constant Maturity Rate for such Adjustable Dividend Period shall be the
arithmetic average of the per annum average yields to maturity based upon
the closing bids during such Calendar Period for each of the issues of
actively traded marketable U.S. Treasury fixed interest rate securities
(other than Special Securities) with a final maturity date not less than
eighteen nor more than twenty-two years from the date of
-6-
<PAGE>
each such quotation, as chosen and quoted daily for each business day in
New York City (or less frequently if daily quotations shall not be
generally available) to the Corporation by at least three recognized U.S.
Government securities dealers selected by the Corporation.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the
Twenty Year Constant Maturity Rate shall each be rounded to the nearest
five hundredths of a percentage point.
The Applicable Rate with respect to each Adjustable Dividend Period
will be calculated as promptly as practicable by the Corporation according
to the appropriate method described herein. The Corporation will cause
each Applicable Rate to be published in a newspaper of general circulation
in New York City prior to the commencement of the new Adjustable Dividend
Period to which it applies and will cause notice of such Applicable Rate to
be included with the dividend payment checks next mailed to the holders of
the Series A Preferred Stock.
For purposes of this Section, the term
(i) "Calendar Period" shall mean 14 calendar days;
(ii) "Special Securities" shall mean securities which can, at the
option of the holder, be surrendered at face value in payment of any
Federal estate tax or which provide tax benefits to the holder and are
priced to reflect such tax benefits or which were originally issued at
a deep or substantial discount;
(iii) The weekly per annum market discount rate for three month
U.S. Treasury bills shall be the secondary market rate;
(iv) "Ten Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest
rate securities (adjusted to constant maturities of ten years); and
(v) "Twenty Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest
rate securities (adjusted to constant maturities of twenty years).
4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, before any payment or distribution of the assets of the
Corporation shall be made to or set apart for the holders of any Junior
Stock, the
-7-
<PAGE>
holders of the shares of Series A Preferred Stock shall be entitled to
receive $50.00 per share plus an amount equal to all dividends (whether or
not earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. If, upon any liquidation, dissolution or winding up of
the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the shares of the Series A Preferred
Stock shall be insufficient to pay in full the preferential amount
aforesaid and liquidating payments on any other preferred stock ranking, as
to liquidation, dissolution or winding up, on a parity with the Series A
Preferred Stock, then such assets, or the proceeds thereof, shall be
distributed among the holders of Series A Preferred Stock and any such
other preferred stock ratably in accordance with the respective amounts
which would be payable on such shares of Series A Preferred Stock and any
such other preferred stock if all amounts payable thereon were paid in
full. For the purposes of this Section 4, a consolidation or merger of the
Corporation with or into one or more corporations shall not be deemed to be
a liquidation, dissolution or winding up.
(b) Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or prior to the Series A
Preferred Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after payment
shall have been made in full to the Series A Preferred Stock as provided in
this Section 4, but not prior thereto, any Junior Stock shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled
to receive any and all assets remaining to be paid or distributed, and the
Series A Preferred Stock shall not be entitled to share therein.
5. REDEMPTION.
(a) The Corporation may not redeem the Series A Preferred Stock prior
to April 1, 1988. The Series A Preferred Stock shall be redeemable, at the
option of the Corporation, in whole or in part, on or after April 1, 1988
through March 31, 1993 at a redemption price of $51.50 per share plus
accrued and unpaid dividends thereon to the date fixed for redemption.
Thereafter the Series A Preferred Stock shall be redeemable, at the option
of the Corporation, in whole or in part, at a redemption price of $50.00
per share plus accrued and unpaid dividends thereon to the date fixed for
redemption.
(b) In the event the Corporation shall redeem shares of Series A
Preferred Stock pursuant to Section 5(a), notice of such redemption shall
be given by first class mail, postage prepaid, mailed not less than 30 nor
more than 60
-8-
<PAGE>
days prior to the redemption date, to each holder of record of the shares
to be redeemed, at such holder's address as the same appears on the stock
register of the Corporation. Each such notice shall state: (1) the
redemption date; (2) the number of shares of Series A Preferred Stock to be
redeemed and, if less .than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (3)
the redemption price and the manner in which such redemption price is to be
paid and delivered; (4) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (5)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date. Notice having been mailed as aforesaid, from and after
the redemption date (unless default shall be made by the Corporation in
providing funds for the payment of the redemption price), dividends on the
shares of Series A Preferred Stock so called for redemption shall cease to
accrue, and said shares shall no longer be deemed to be outstanding, and
all rights of the holders thereof as shareholders of the Corporation
(except the right to receive from the Corporation the redemption price)
shall cease. The Corporation's obligation to provide funds in accordance
with the preceding sentence shall be deemed fulfilled if, on or before the
redemption date, the Corporation shall deposit with a bank or trust company
(which may be an affiliate of the Corporation), having an office or agency
in the City and County of San Francisco, State of California, having a
capital and surplus of at least $50,000,000, or with any other such bank or
trust company located in the continental United States as may be designated
from time to time by the Corporation, funds necessary for such redemption,
in trust, with irrevocable instructions that such funds be applied to the
redemption of the shares of Series A Preferred Stock so called for
redemption. Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any funds so deposited and unclaimed at the
end of six years from such redemption date shall be repaid or released to
the Corporation, after which the holder or holders of such shares of
Series A Preferred Stock so called for redemption shall look only to the
Corporation for payment of the redemption price.
(c) Upon surrender in accordance with said notice of the certificates
for any shares redeemed pursuant to Section 5(a) (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall
so require and the notice shall so state), such shares shall be redeemed by
the Corporation at the redemption price. If less than all the outstanding
shares of Series A Preferred Stock are to be redeemed, shares to be
redeemed shall be selected by the Corporation from outstanding shares of
Series A Preferred Stock not previously called for redemption by lot or pro
rata (as nearly as may be) or by
-9-
<PAGE>
any other method determined by the Board of Directors of the Corporation in
its sole discretion to be equitable.
(d) In no event shall the Corporation redeem less than all the
outstanding shares of Series A Preferred Stock pursuant to Section 5(a)
unless full cumulative dividends shall have been paid or declared and set
apart for payment upon all outstanding shares of Series A Preferred Stock
for all past Dividend Periods.
6. SHARES TO BE RETIRED.
All shares of Series A Preferred Stock redeemed or purchased by the
Corporation shall be retired and cancelled and shall be restored to the
status of authorized but unissued shares of Preferred Stock, without
designation as to series, and may thereafter be issued, but not as shares
of Series A Preferred Stock.
7. CONVERSION OR EXCHANGE.
The holders of shares of Series A Preferred Stock shall not have any
rights herein to convert such shares into or exchange such shares for
shares of any other class or classes or any other series of any class or
classes of capital stock (or any other security) of the Corporation.
8. VOTING.
(a) Except as hereinafter in this Section 8 expressly provided for
and as otherwise from time to time required by the laws of the State of
Delaware, the Series A Preferred Stock shall have no voting rights.
Whenever, at any time or times, dividends payable on the Series A Preferred
Stock shall be in arrears in an amount equal to at least six full quarterly
dividends on the Series A Preferred Stock at the time outstanding, whether
or not consecutive, the holders of the outstanding Series A Preferred Stock
shall have the exclusive right, voting separately as a class with holders
of shares of any one or more other series of preferred stock ranking on a
parity with the Series A Preferred Stock either as to dividends or the
distribution of assets upon liquidation, dissolution or winding up and upon
which like voting rights have been conferred and are exercisable, to elect
two (2) of the authorized number of members of the Board of Directors of
the Corporation at the Corporation's next annual meeting of shareholders
and at each subsequent annual meeting of shareholders. At elections for
such directors, each holder of Series A Preferred Stock shall be entitled
to one vote for each share held (the holders of shares of any other series
of preferred stock ranking on such a parity and having like voting rights
being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them). The right of the
-10-
<PAGE>
holders of Series A Preferred Stock, voting separately as a class, to elect
(either alone or together with the holders of shares of any one or more other
series of preferred stock ranking on such a parity and having like voting
rights) members of the Board of Directors of the Corporation as aforesaid shall
continue until such time as all dividends accumulated on the Series A Preferred
Stock shall have been fully paid or set apart for payment, at which time such
right shall terminate, except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent default of the character
above mentioned.
Upon any termination of the right of the holders of the Series A Preferred
Stock as a class to vote for directors as herein provided, the term of office
of all directors then in office elected by the Series A Preferred Stock shall
terminate immediately. Any director who shall have been so elected pursuant to
this paragraph may be removed at any time, either with or without cause, and
any vacancy thereby created may be filled, only by the affirmative vote of the
holders of Series A Preferred Stock voting separately as a class (either alone
or together with the holders of shares of any one or more other series of
preferred stock ranking on such a parity and having like voting rights). If
the office of any director elected by the holders of Series A Preferred Stock
voting as a class becomes vacant for any reason other than removal from office
as aforesaid, the remaining director may choose a successor who shall hold
office for the unexpired term in respect of which such vacancy occurred.
(b) So long as any shares of Series A Preferred Stock remain outstanding,
the consent of the holders of at least two-thirds of the shares of Series A
Preferred Stock outstanding at the time (voting separately as a class together
with all other series of preferred stock ranking on a parity with the Series A
Preferred Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights have
been conferred and are exercisable) given in person or by proxy, either in
writing or at any special or annual meeting called for the purpose, shall be
necessary to permit, effect or validate any one or more of the following:
(i) the authorization, creation or issuance of a new class or
series of shares having rights, preferences or privileges prior (as
that term is defined in Section 8(d) to the shares of the Series A
Preferred Stock, or any increase in the number of authorized shares of
any class or series having rights, preferences or privileges prior to
the shares of Series A Preferred Stock; or
-11-
<PAGE>
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Restated
Certificate of Incorporation of the Corporation or of this resolution
which would materially and adversely affect any right, preference,
privilege or voting power of the Series A Preferred Stock or of the
holders thereof; provided, however, that any increase in the amount of
authorized common stock or authorized preferred stock or the creation
and issuance of other series of common stock or preferred stock, in
each case ranking on a parity with or junior to the Series A Preferred
Stock with respect to the payment of dividends and the distribution of
assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
(c) The foregoing voting provisions shall not apply if, at or prior
to the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series A Preferred
Stock shall have been redeemed or called for redemption and sufficient
funds shall have been deposited in trust to effect such redemption.
(d) Any class or classes of stock of the Corporation shall be deemed
to rank:
(i) prior to the Series A Preferred Stock as to dividends or as
to distribution of assets upon liquidation, dissolution or winding up
if the holders of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders
of Series A Preferred Stock; and
(ii) on a parity with the Series A Preferred Stock as to dividends
or as to distribution of assets upon liquidation, dissolution or winding
up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof are different from
those of the Series A Preferred Stock, if the holders of such class of
stock and of the Series A Preferred Stock shall be entitled to the receipt
of dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in proportion to their respective dividend
rates or liquidation prices, without preference or priority one over the
other.
-12-
<PAGE>
IN WITNESS WHEREOF, Wells Fargo & Company has caused this Certificate
to be executed by its officers thereunto duly authorized as of this fifth day of
March 1987.
WELLS FARGO & COMPANY
By: /s/ PAUL HAZEN
------------------------
Paul Hazen
President
Attest:
/s/ GUY ROUNSAVILLE, JR.
- -------------------------------
Guy Rounsaville, Jr.
Secretary
-13-
<PAGE>
Exhibit 3(c)
CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE
CERTIFICATE OF INCORPORATION OR
IN ANY AMENDMENT THERETO, OF THE
ADJUSTABLE RATE CUMULATIVE PREFERRED STOCK, SERIES B
OF
WELLS FARGO & COMPANY
WE, THE UNDERSIGNED, Paul Hazen and Guy Rounsaville, Jr., the
President and the Secretary, respectively, of Wells Fargo & Company, a Delaware
corporation (the "Corporation"), DO HEREBY CERTIFY that the following resolution
was duly adopted by the Board of Directors of the Corporation by unanimous
written consent dated as of March 5, 1987:
RESOLVED that, pursuant to authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the Corporation,
the Board of Directors hereby authorizes the issuance of a series of
Preferred Stock of the Corporation to consist of 1,500,000 shares, the
voting powers, designation, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, in addition to those set forth in the Restated
Certificate of Incorporation, are hereby fixed as follows:
1. DESIGNATION.
1,500,000 shares of the Preferred Stock of the Corporation are hereby
constituted as a series of Preferred Stock with a par value of $5.00 per
share, designated as Adjustable Rate Cumulative Preferred Stock, Series B
(hereinafter called "Series B Preferred Stock"). The number of shares of
Series B Preferred Stock may not be increased but may be decreased by a
resolution duly adopted by the Financing Committee of the Board of
Directors, but not below the number of shares of Series B Preferred Stock
then outstanding.
2. DIVIDENDS.
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive cash dividends, when and as declared by the Board of
Directors out of funds legally available for the purpose, from the date of
original issuance to and including May 15, 1986, and for each
<PAGE>
dividend period commencing on February 16, May 16, August 16 and
November 16 in each year after May 15, 1986, and ending on and including
the day next preceding the first day of the next dividend period (such
period ending May 15, 1986, and each of such other periods herein referred
to as a "Dividend Period") at a rate as follows: (i) for the Dividend
Period from the date of original issuance of the Series B Preferred Stock
to and including May 15, 1986 (the "Fixed Dividend Period"), the rate shall
be 6.08% per annum applied against $50.00 per share and (ii) for each
Dividend Period commencing after May 15, 1986 (the "Adjustable Dividend
Periods") at a rate per annum applied against $50.00 per share equal to the
Applicable Rate (as defined in Section 3) in respect of such Adjustable
Dividend Period. The amount of dividend per share payable for the Fixed
Dividend Period and for any portion of a Dividend Period less than a full
Dividend Period shall be computed on the basis of a 360-day year of twelve
30-day months and the actual number of days elapsed in the period for which
payable. The amount of dividend per share payable for each full Dividend
Period commencing after May 15, 1986 shall be computed by dividing the
annual dividend rate for each Dividend Period by four and applying such
resulting rate against $50.00 per share. Dividends shall be payable when
and as declared by the Board of Directors, out of funds legally available
therefor, on February 15, May 15, August 15 and November 15 of each year,
commencing May 15, 1986, to holders of record on such respective dates not
exceeding 30 days preceding the payment date thereof as may be determined
by the Board of Directors in advance of such payment date. Dividends on
account of arrears for any past Dividend Periods may be declared and paid
at any time, without reference to any regular dividend payment date, to
holders of record on such date not exceeding 30 days preceding the payment
date thereof as may be fixed by the Board of Directors. No dividends shall
be declared on any other series or class or classes of preferred stock
ranking on a parity (as that term is defined in Section 8(d)) with the
Series B Preferred Stock as to dividends in respect of any dividend period
unless there shall likewise be or have been declared on all shares of
Series B Preferred Stock at the time outstanding like dividends for all
Dividend Periods coinciding with or ending before such dividend period,
ratably in proportion to the respective dividend rates fixed for all such
other series or class or classes of preferred stock and the Series B
Preferred Stock. Dividends shall be cumulative and will accrue on each
share of Series B Preferred Stock from the date of original issuance
thereof. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments which may be in
arrears.
(b) If dividends at the rate per share set out in Section 2(a) for
any Dividend Period shall not have been declared and paid or set apart for
payment on all
-2-
<PAGE>
outstanding shares of Series B Preferred Stock for such Dividend Period
and all preceding Dividend Periods from and after the date of issue
thereof, then, until the aggregate deficiency shall be declared and fully
paid or set apart for payment, the Corporation shall not (i) declare or
pay or set apart for payment any dividends or make any other distribution
on the Common Stock, $5.00 par value, of the Corporation ("Common Stock")
or any other capital stock of the Corporation ranking junior to the Series
B Preferred Stock with respect to the payment of dividends or distribution
of assets on liquidation, dissolution or winding up of the Corporation
(which for all purposes of this resolution shall mean any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary) (the Common Stock and such other stock being herein referred
to as "Junior Stock"), other than dividends or distributions paid in
shares of, or options, warrants or rights to subscribe for or purchase
shares of, Junior Stock, or (ii) make any payment on account of the
purchase, redemption or other retirement of any Junior Stock.
3. APPLICABLE RATE.
Except as provided below in this paragraph, the Applicable Rate"
for any Adjustable Dividend Period shall be (a) 76% of (b) the highest
of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the
Twenty Year Constant Maturity Rate (each as hereinafter defined) for
the Adjustable Dividend Period. If the Corporation determines in good
faith that for any reason one or more of such rates cannot be
determined for any Adjustable Dividend Period, then the Applicable
Rate for such Dividend Period shall be 76% of the higher of whichever
of such rates can be so determined. If the Corporation determines in
good faith that none of such rates can be determined for any
Adjustable Dividend Period, then the Applicable Rate in effect for the
preceding Dividend Period shall be continued for such Dividend Period.
Anything herein to the contrary notwithstanding, the Applicable Rate
for any Adjustable Dividend Period shall in no event be less than
5.50% per annum or greater than 10.50% per annum.
Except as provided below in this paragraph, the "Treasury Bill
Rate" for each Adjustable Dividend Period shall be the arithmetic
average of the two weekly per annum market discount rates (or the one
weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period as provided below) for
three-month U.S. Treasury bills, published by the Federal Reserve
Board during the Calendar Period immediately prior to the ten calendar
days immediately preceding the February 15, May 15, August 15 and
November 15, as the case may be,
-3-
<PAGE>
prior to the Adjustable Dividend Period for which the dividend rate on
the Series B Preferred Stock is being determined. If the Federal
Reserve Board does not publish such a weekly per annum market discount
rate during such Calendar Period, then the Treasury Bill Rate for such
Dividend Period shall be the arithmetic average of the two weekly per
annum market discount rates (or the one weekly per annum market
discount rate, if only one such rate shall be published during the
relevant Calendar Period as provided below) for three-month U.S.
Treasury bills, published during such Calendar Period by any Federal
Reserve Bank or by any U.S. Government department or agency selected
by the Corporation. If a per annum market discount rate for
three-month U.S. Treasury bills shall not be published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Treasury
Bill Rate for such Adjustable Dividend Period shall be the arithmetic
average of the two weekly per annum market discount rates (or the one
weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period as provided below) for
all the U.S. Treasury bills then having maturities of not less than 80
nor more than 100 days, finally published during such Calendar Period
by the Federal Reserve Board or, if the Federal Reserve Board shall
not publish such rates, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Corporation. If the
Corporation determines in good faith that for any reason no such U.S.
Treasury bill rates are published as provided above during such
Calendar Period, then the Treasury Bill Rate for such Adjustable
Dividend Period shall be the arithmetic average of the per annum
market discount rates based upon the closing bids during such Calendar
Period for each of the issues of marketable non-interest bearing U.S.
Treasury securities with a maturity of not less than 80 nor more than
100 days from the date of each such quotation, as chosen and quoted
daily for each business day in New York City (or less frequently if
daily quotations shall not be generally available) to the Corporation
by at least three recognized U.S. Government securities dealers
selected by the Corporation. If the Corporation determines in good
faith that for any reason the Corporation cannot determine the
Treasury Bill Rate for any Adjustable Dividend Period as provided
above in this paragraph, the Treasury Bill Rate for such Adjustable
Dividend Period shall be the arithmetic average of the per annum
market discount rates based upon the closing bids during such Calendar
Period for each of the issues of marketable, interest-bearing U.S.
Treasury securities with a maturity of not less than 80 nor more than
100
-4-
<PAGE>
days from the date of each such quotation, as chosen and quoted daily
for each business day in New York City (or less frequently if daily
quotations shall not be generally available) to the Corporation by at
least three recognized U.S. Government securities dealers selected by
the Corporation.
Except as provided below in this paragraph, the "Ten Year
Constant Maturity Rate" for each Adjustable Dividend Period shall be
the arithmetic average of the two weekly per annum Ten Year Average
Yields (or the one weekly per annum Ten Year Average Yield, if only
one such Yield shall be published during the relevant Calendar Period
as provided below), published by the Federal Reserve Board during the
Calendar Period immediately prior to the ten calendar days immediately
preceding the February 15, May 15, August 15 and November 15, as the
case may be, prior to the Adjustable Dividend Period for which the
dividend rate on the Series B Preferred Stock is being determined. If
the Federal Reserve Board does not publish such a weekly per annum Ten
Year Average Yield during such Calendar Period, then the Ten Year
Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two weekly per annum Ten Year Average Yields
(or the one weekly per annum Ten Year Average Yield, if only one such
Yield shall be published during the relevant Calendar Period as
provided below), published during such Calendar Period by any Federal
Reserve Bank or by any U.S. Government department or agency selected
by the Corporation. If a per annum Ten Year Average Yield shall not
be published by the Federal Reserve Board or by any Federal Reserve
Bank or by any U.S. Government department or agency during such
Calendar Period, then the Ten Year Constant Maturity Rate for such
Adjustable Dividend Period shall be the arithmetic average of the two
weekly per annum average yields to maturity (or the one weekly
average yield to maturity, if only one such yield shall be published
during the relevant Calendar Period as provided below) for all of the
actively traded marketable U.S. Treasury fixed interest rate
securities (other than Special Securities) then having maturities
of not less than eight nor more than twelve years, finally published
during such Calendar Period by the Federal Reserve Board or, if the
Federal Reserve Board shall not publish such yields, by any Federal
Reserve Bank or by any U.S. Government department or agency selected
by the Corporation. If the Corporation determines in good faith that
for any reason the Corporation cannot determine the Ten Year Constant
Maturity Rate for any Adjustable Dividend Period as provided above in
this paragraph, then the Ten Year Constant Maturity Rate for such
Adjustable Dividend Period shall be the arithmetic
-5-
<PAGE>
average of the per annum average yields to maturity based upon the
closing bids during such Calendar Period for each of the issues of
actively traded marketable U.S. Treasury fixed interest rate
securities (other than Special Securities) with a final maturity date
not less than eight nor more than twelve years from the date of each
such quotation, as chosen and quoted daily for each business day in
New York City (or less frequently if daily quotations shall not be
generally available) to the Corporation by at least three recognized
U.S. Government securities dealers selected by the Corporation.
Except as provided below in this paragraph, the "Twenty Year
Constant Maturity Rate" for each Adjustable Dividend Period shall be
the arithmetic average of the two weekly per annum Twenty Year Average
Yields (or the one weekly per annum Twenty Year Average Yield, if only
one such Yield shall be published during the relevant Calendar Period
as provided below), published by the Federal Reserve Board during the
Calendar Period immediately prior to the ten calendar days immediately
preceding the February 15, May 15, August 15 and November 15, as the
case may be, prior to the Adjustable Dividend Period for which the
dividend rate on the Series B Preferred Stock is being determined. If
the Federal Reserve Board does not publish such a weekly per annum
Twenty Year Average Yield during such Calendar Period, then the Twenty
Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two weekly per annum Twenty Year Average
Yields (or the one weekly per annum Twenty Year Average Yield, if only
one such Yield shall be published during the relevant Calendar Period
as provided below), published during such Calendar Period by the
Federal Reserve Board or by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Corporation. If a per
annum Twenty Year Average Yield shall not be published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Twenty Year
Constant Maturity Rate for such Adjustable Dividend Period shall be
the arithmetic average of the two weekly per annum average yields to
maturity (or the one weekly average yield to maturity, if only one
such yield shall be published during the relevant Calendar Period as
provided below) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special
Securities) then having maturities of not less than eighteen nor more
than twenty-two years, finally published during such Calendar Period
by the Federal Reserve Board or, if the Federal Reserve Board shall
not publish such yields, by any Federal Reserve Bank or
-6-
<PAGE>
by any U.S. Government department or agency selected by the
Corporation. If the Corporation determines in good faith that for any
reason the Corporation cannot determine the Twenty Year Constant
Maturity Rate for any Adjustable Dividend Period as provided above in
this paragraph, then the Twenty Year Constant Maturity Rate for such
Adjustable Dividend Period shall be the arithmetic average of the per
annum average yields to maturity based upon the closing bids during
such Calendar Period for each of the issues of actively traded
marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) with a final maturity date not less than eighteen
nor more than twenty-two years from the date of each such quotation,
as chosen and quoted daily for each business day in New York City (or
less frequently if daily quotations shall not be generally available)
to the Corporation by at least three recognized U.S. Government
securities dealers selected by the Corporation.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and
the Twenty Year Constant Maturity Rate shall each be rounded to the
nearest five hundredths of a percentage point.
The Applicable Rate with respect to each Adjustable Dividend
Period will be calculated as promptly as practicable by the
Corporation according to the appropriate method described herein. The
Corporation will cause each Applicable Rate to be published in a
newspaper of general circulation in New York City prior to the
commencement of the new Adjustable Dividend Period to which it applies
and will cause notice of such Applicable Rate to be included with the
dividend payment checks next mailed to the holders of the Series B
Preferred Stock.
For purposes of this Section, the term
(i) "Calendar Period" shall mean 14 calendar days;
(ii) "Special Securities" shall mean securities which can, at the
option of the holder, be surrendered at face value in payment of any
Federal estate tax or which provide tax benefits to the holder and are
priced to reflect such tax benefits or which were originally issued at
a deep or substantial discount;
(iii) The weekly per annum market discount rate for three month
U.S. Treasury bills shall be the secondary market rate;
-7-
<PAGE>
(iv) "Ten Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest
rate securities (adjusted to constant maturities of ten years); and
(v) "Twenty Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest
rate securities (adjusted to constant maturities of twenty years).
4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, before any payment or distribution of the assets of the
Corporation shall be made to or set apart for the holders of any Junior
Stock, the holders of the shares of Series B Preferred Stock shall be
entitled to receive $50.00 per share plus an amount equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date
of final distribution to such holders; but such holders shall not be
entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the shares of the Series B
Preferred Stock shall be insufficient to pay in full the preferential
amount aforesaid and liquidating payments on any other preferred stock
ranking, as to liquidation, dissolution or winding up, on a parity with the
Series B Preferred Stock, then such assets, or the proceeds thereof, shall
be distributed among the holders of Series B Preferred Stock and any such
other preferred stock ratably in accordance with the respective amounts
which would be payable on such shares of Series B Preferred Stock and any
such other preferred stock if all amounts payable thereon were paid in
full. For the purposes of this Section 4, a consolidation or merger of the
Corporation with or into one or more corporations shall not be deemed to be
a liquidation, dissolution or winding up.
(b) Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or prior to the Series B
Preferred Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after payment
shall have been made in full to the Series B Preferred Stock as provided in
this Section 4, but not prior thereto, any Junior Stock shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled
to receive any and all assets remaining to be paid or distributed, and the
Series B Preferred Stock shall not be entitled to share therein.
-8-
<PAGE>
5. REDEMPTION.
(a) The Corporation may not redeem the Series B Preferred Stock prior
to May 15, 1991. The Series B Preferred Stock shall be redeemable, at the
option of the Corporation, in whole or in part, on or after May 15, 1991
through May 14, 1996 at a redemption price of $51.50 per share plus accrued
and unpaid dividends thereon to the date fixed for redemption. Thereafter
the Series B Preferred Stock shall be redeemable, at the option of the
Corporation, in whole or in part, at a redemption price of $50.00 per share
plus accrued and unpaid dividends thereon to the date fixed for redemption.
(b) In the event the Corporation shall redeem shares of Series B
Preferred Stock pursuant to Section 5(a), notice of such redemption shall
be given by first class mail, postage prepaid, mailed not less than 30 nor
more than 60 days prior to the redemption date, to each holder of record of
the shares to be redeemed, at such holder's address as the same appears on
the stock register of the Corporation. Each such notice shall state: (1)
the redemption date; (2) the number of shares of Series B Preferred Stock
to be redeemed and, if less than all the shares held by such holder are to
be redeemed, the number of such shares to be redeemed from such holder; (3)
the redemption price and the manner in which such redemption price is to be
paid and delivered; (4) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (5)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date. Notice having been mailed as aforesaid, from and after
the redemption date (unless default shall be made by the Corporation in
providing funds for the payment of the redemption price), dividends on the
shares of Series B Preferred Stock so called for redemption shall cease to
accrue, and said shares shall no longer be deemed to be outstanding, and
all rights of the holders thereof as shareholders of the Corporation
(except the right to receive from the Corporation the redemption price)
shall cease. The Corporation's obligation to provide funds in accordance
with the preceding sentence shall be deemed fulfilled if, on or before the
redemption date, the Corporation shall deposit with a bank or trust company
(which may be an affiliate of the Corporation), having an office or agency
in the City and County of San Francisco, State of California, having a
capital and surplus of at least $50,000,000, or with any other such bank
or trust company located in the continental United States as may be
designated from time to time by the Corporation, funds necessary for such
redemption, in trust, with irrevocable instructions that such funds be
applied to the redemption of the shares of Series B Preferred Stock so
called for redemption. Any interest accrued on such funds shall be paid to
the Corporation from time to time. Any
-9-
<PAGE>
funds so deposited and unclaimed at the end of six years from such
redemption date shall be repaid or released to the Corporation, after which
the holder or holders of such shares of Series B Preferred Stock so called
for redemption shall look only to the Corporation for payment of the
redemption price.
(c) Upon surrender in accordance with said notice of the certificates
for any shares redeemed pursuant to Section 5(a) (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall
so require and the notice shall so state), such shares shall be redeemed by
the Corporation at the redemption price. If less than all the outstanding
shares of Series B Preferred Stock are to be redeemed, shares to be
redeemed shall be selected by the Corporation from outstanding shares of
Series B Preferred Stock not previously called for redemption by lot or pro
rata (as nearly as may be) or by any other method determined by the Board
of Directors of the Corporation in its sole discretion to be equitable.
(d) In no event shall the Corporation redeem less than all the
outstanding shares of Series B Preferred Stock pursuant to Section 5(a)
unless full cumulative dividends shall have been paid or declared and set
apart for payment upon all outstanding shares of Series B Preferred Stock
for all past Dividend Periods.
6. SHARES TO BE RETIRED.
All shares of Series B Preferred Stock redeemed or purchased by the
Corporation shall be retired and cancelled and shall be restored to the
status of authorized but unissued shares of Preferred Stock, without
designation as to series, and may thereafter be issued, but not as shares
of Series B Preferred Stock.
7. CONVERSION OR EXCHANGE.
The holders of shares of Series B Preferred Stock shall not have any
rights herein to convert such shares into or exchange such shares for
shares of any other class or classes or any other series of any class or
classes of capital stock (or any other security) of the Corporation.
8. VOTING.
(a) Except as hereinafter in this Section 8 expressly provided for
and as otherwise from time to time required by the laws of the State of
Delaware, the Series B Preferred Stock shall have no voting rights. .
Whenever, at any time or times, dividends payable on the Series B Preferred
Stock shall be in arrears in an amount equal to at least six full quarterly
dividends on the Series B Preferred Stock at the
-10-
<PAGE>
time outstanding, whether or not consecutive, the holders of the
outstanding Series B Preferred Stock shall have the exclusive right, voting
separately as a class with holders of shares of any one or more other
series of preferred stock ranking on a parity with the Series B Preferred
Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights
have been conferred and are exercisable, to elect two (2) of the authorized
number of members of the Board of Directors of the Corporation at the
Corporation's next annual meeting of shareholders and at each subsequent
annual meeting of shareholders. At elections for such directors, each
holder of Series B Preferred Stock shall be entitled to one vote for each
share held (the holders of shares of any other series of preferred stock
ranking on such a parity and having like voting rights being entitled to
such number of votes, if any, for each share of such stock held as may be
granted to them). The right of the holders of Series B Preferred Stock,
voting separately as a class, to elect (either alone or together with the
holders of shares of any one or more other series of preferred stock
ranking on such a parity and having like voting rights) members of the
Board of Directors of the Corporation as aforesaid shall continue until
such time as all dividends accumulated on the Series B Preferred Stock
shall have been fully paid or set apart for payment, at which time such
right shall terminate, except as herein or by law expressly provided,
subject to revesting in the event of each and every subsequent default of
the character above mentioned. Upon any termination of the right of the
holders of the Series B Preferred Stock as a class to vote for directors as
herein provided, the term of office of all directors then in office elected
by the Series B Preferred Stock shall terminate immediately. Any director
who shall have been so elected pursuant to this paragraph may be removed at
any time, either with or without cause, and any vacancy thereby created may
be filled, only by the affirmative vote of the holders of Series B
Preferred Stock voting separately as a class (either alone or together with
the holders of shares of any one or more other series of preferred stock
ranking on such a parity and having like voting rights). If the office of
any director elected by the holders of Series B Preferred Stock voting as a
class becomes vacant for any reason other than removal from office as
aforesaid, the remaining director may choose a successor who shall hold
office for the unexpired term in respect of which such vacancy occurred.
(b) So long as any shares of Series B Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of the
shares of Series B Preferred Stock outstanding at the time (voting
separately as a class together with all other series of preferred stock
ranking on a parity with the Series B Preferred Stock either as to
-11-
<PAGE>
dividends or the distribution of assets upon liquidation, dissolution or
winding up and upon which like voting rights have been conferred and are
exercisable) given in person or by proxy, either in writing or at any
special or annual meeting called for the purpose, shall be necessary to
permit, effect or validate any one or more of the following:
(i) the authorization, creation or issuance of a new class or
series of shares having rights, preferences or privileges prior (as
that term is defined in Section 8(d) to the shares of the Series B
Preferred Stock, or any increase in the number of authorized shares of
any class or series having rights, preferences or privileges prior to
the shares of Series B Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Restated
Certificate of Incorporation of the Corporation or of this resolution
which would materially and adversely affect any right, preference,
privilege or voting power of the Series B Preferred Stock or of the
holders thereof; provided, however, that any increase in the amount of
authorized common stock or authorized preferred stock or the creation
and issuance of other series of common stock or preferred stock, in
each case ranking on a parity with or junior to the Series B Preferred
Stock with respect to the payment of dividends and the distribution of
assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
(c) The foregoing voting provisions shall not apply if, at or prior
to the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series B Preferred
Stock shall have been redeemed or called for redemption and sufficient
funds shall have been deposited in trust to effect such redemption.
(d) Any class or classes of stock of the Corporation shall be deemed
to rank:
(i) prior to the Series B Preferred Stock as to dividends or as
to distribution of assets upon liquidation, dissolution or winding up
if the holders of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of Series B Preferred Stock; and
-12-
<PAGE>
(ii) on a parity with the Series B Preferred Stock as to
dividends or as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof
are different from those of the Series B Preferred Stock, if the
holders of such class of stock and of the Series B Preferred Stock
shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case
may be, in proportion to their respective dividend rates or
liquidation prices, without preference or priority one over the other.
IN WITNESS WHEREOF, Wells Fargo & Company has caused this Certificate
to be executed by its officers thereunto duly authorized as of this fifth day of
March 1987.
WELLS FARGO & COMPANY
By: /S/ PAUL HAZEN
-----------------------------
Paul Hazen
President
Attest:
/S/ GUY ROUNSAVILLE, JR.
- --------------------------------------
Guy Rounsaville, Jr.
Secretary
-13-
<PAGE>
Exhibit 3(F)
BY-LAWS
OF
WELLS FARGO & COMPANY,
A DELAWARE CORPORATION
(AS AMENDED MAY 18, 1993)
______________
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of stockholders
of Wells Fargo & Company (the "corporation") shall be held on the third
Tuesday of April in each year at such time of day as may be fixed by the Board
of Directors, at the principal office of the corporation, if not a bank
holiday, and if a bank holiday then on the next succeeding business day at the
same hour and place, or at such other time, date or place, within or without
the State of Delaware, as may be determined by the Board of Directors. At
such meeting, Directors shall be elected, reports of the affairs of the
corporation may be considered, and any other proper business may be
transacted.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
stockholders, unless otherwise regulated by statute, for any purpose or
purposes whatsoever, may be called at any time by the Board of Directors, the
Chairman of the Board, the President, the Chief Executive Officer (if other
than the Chairman of the Board or the President), or one or more stockholders
holding not less than 10 percent of the voting power of the corporation. Such
meetings may be held at any place within or without the State of Delaware
designated by the Board of Directors of the corporation.
SECTION 3. NOTICE OF MEETINGS. Notice of all meetings of the
stockholders, both annual and special, shall be given by the Secretary in
writing to stockholders entitled to vote. A notice may be given either
personally or by mail or other means of written communication, charges
prepaid, addressed to any stockholder at his address appearing on the books of
the corporation or at the address given by such stockholder to the corporation
for the purpose of notice. Notice of any meeting of stockholders shall be
sent to each stockholder entitled thereto not less than 10 nor more than 60
days prior to such meeting. Such notice shall state the place, date and hour
of the meeting
- 1 -
<PAGE>
and shall also state (i) in the case of a special meeting, the general nature
of the business to be transacted and that no other business may be transacted,
(ii) in the case of an annual meeting, those matters which the Board of
Directors intends at the time of the mailing of the notice to present for
stockholder action and that any other proper matter may be presented for
stockholder action to the meeting, and (iii) in the case of any meeting at
which Directors are to be elected, the names of the nominees which the
management intends at the time of the mailing of the notice to present for
election.
SECTION 4. QUORUM. Except as otherwise provided by law, the
presence of the holders of a majority of the stock issued and outstanding
present in person or represented by proxy and entitled to vote is requisite
and shall constitute a quorum for the transaction of business at all meetings
of the stockholders, and the vote of a majority of such stock present and
voting at a duly held meeting at which there is a quorum present shall decide
any question brought before such meeting.
SECTION 5. VOTING. Unless otherwise provided in the Certificate
of Incorporation, every stockholder shall be entitled to one vote for every
share of stock standing in his name on the books of the corporation, and may
vote either in person or by proxy.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER, TERM. The property, business and affairs of
the corporation shall be managed and all corporate power shall be exercised by
or under the direction of the Board of Directors as from time to time
constituted. The number of Directors of this corporation shall be not less
than 10 nor more than 20, the exact number within the limits so specified to
be fixed from time to time by a By-Law adopted by the stockholders or by the
Board of Directors. Until some other number is so fixed, the number of
Directors shall be 14. The term of office of each Director shall be from the
time of his election until the annual meeting next succeeding his election and
until his successor shall have been duly elected, or until his death,
resignation or lawful removal pursuant to the provisions of the General
Corporation Law of Delaware.
SECTION 2. POWERS. In addition to the powers expressly
conferred by these By-Laws, the Board of Directors may exercise all corporate
powers and do such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these By-Laws required to be exercised or
approved by the stockholders.
SECTION 3. COMPENSATION. Directors and Advisory
- 2 -
<PAGE>
Directors (as provided in Section 12 of this Article) as such may receive such
compensation, if any, as the Board of Directors by resolution may direct,
including salary or a fixed sum plus expenses, if any, for attendance at
meetings of the Board of Directors or of its committees.
SECTION 4. ORGANIZATIONAL MEETING. An organizational meeting of
the Board of Directors shall be held each year immediately following the
adjournment of the annual meeting of stockholders of the corporation for the
purpose of electing officers, the members of the Formal Committees provided in
Section 11 of this Article and the Advisory Directors provided in Section 12
of this Article, and for the transaction of any other business. Said
organizational meeting shall be held without any notice other than this
By-Law.
SECTION 5. PLACE OF MEETINGS. The Board of Directors shall hold
its meetings at the main office of the corporation or at such other place as
may from time to time be designated by the Board of Directors or by the chief
executive officer.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors will be held on the third Tuesday of each month (except for the
months of August and December) at the later of the following times: (i) 10:30
a.m. or (ii) immediately following the adjournment of any regular meeting of
the Board of Directors of Wells Fargo Bank, National Association, held on the
same day. If the day of any regular meeting shall fall upon a bank holiday,
the meeting shall be held at the same hour on the first day following which is
not a bank holiday. No call or notice of a regular meeting need be given
unless the meeting is to be held at a place other than the main office of the
corporation.
SECTION 7. SPECIAL MEETINGS. Special meetings shall be held
when called by the chief executive officer or at the written request of four
Directors.
SECTION 8. QUORUM; ADJOURNED MEETINGS. A majority of the
authorized number of Directors shall constitute a quorum for the transaction
of business. A majority of the Directors present, whether or not a quorum,
may adjourn any meeting to another time and place, provided that, if the
meeting is adjourned for more than 30 days, notice of the adjournment shall be
given in accordance with these By-Laws.
SECTION 9. NOTICE, WAIVERS OF NOTICE. Notice of special
meetings and notice of regular meetings held at a place other than the head
office of the corporation shall be given to each Director, and notice of the
adjournment of a meeting adjourned for more than 30 days shall be given prior
to the adjourned meeting to all Directors not present at the time of the
- 3 -
<PAGE>
adjournment. No such notice need specify the purpose of the meeting. Such
notice shall be given four days prior to the meeting if given by mail or on
the day preceding the day of the meeting if delivered personally or by
telephone, facsimile, telex or telegram. Such notice shall be addressed or
delivered to each Director at such Director's address as shown upon the
records of the corporation or as may have been given to the corporation by the
Director for the purposes of notice. Notice need not be given to any Director
who signs a waiver of notice (whether before or after the meeting) or who
attends the meeting without protesting the lack of notice prior to its
commencement. All such waivers shall be filed with and made a part of the
minutes of the meeting.
SECTION 10. TELEPHONIC MEETINGS. A meeting of the Board of
Directors or of any Committee thereof may be held through the use of
conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation in
such a meeting shall constitute presence at such meeting.
SECTION 11. WRITTEN CONSENTS. Any action required or permitted
to be taken by the Board of Directors may be taken without a meeting, if all
members of the Board of Directors shall individually or collectively consent
in writing to such action. Such written consent or consents shall be filed
with the minutes of the proceedings of the Board of Directors. Such action by
written consent shall have the same force and effect as the unanimous vote of
the Directors.
SECTION 12. RESIGNATIONS. Any Director may resign his position
as such at any time by giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors. Such resignation shall
take effect as of the time such notice is given or as of any later time
specified therein and the acceptance thereof shall not be necessary to make it
effective.
SECTION 13. VACANCIES. Vacancies in the membership of the Board
of Directors shall be deemed to exist (i) in case of the death, resignation or
removal of any Director, (ii) if the authorized number of Directors is
increased, or (iii) if the stockholders fail, at a meeting of stockholders at
which Directors are elected, to elect the full authorized number of Directors
to be elected at that meeting. Vacancies in the membership of the Board of
Directors may be filled by a majority of the remaining Directors, though less
than a quorum, or by a sole remaining Director, and each Director so elected
shall hold office until his successor is elected at an annual or a special
meeting of the stockholders. The stockholders may elect a Director at any
time to fill any vacancy not filled by the Directors.
- 4 -
<PAGE>
SECTION 14. COMMITTEES OF THE BOARD OF DIRECTORS. By resolution
adopted by a majority of the authorized number of Directors, the Board of
Directors may designate one or more Committees to act as or on behalf of the
Board of Directors. Each such Committee shall consist of one or more
Directors designated by the Board of Directors to serve on such Committee at
the pleasure of the Board of Directors. The Board of Directors may designate
one or more Directors as alternate members of any Committee, which alternate
members may replace any absent member at any meeting of such Committee. In
the absence or disqualification of a member of a Committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
such absent or disqualified member. Any Committee, to the extent provided in
the resolution of the Board of Directors, these By-Laws or the Certificate of
Incorporation, may have all the authority of the Board of Directors, except
with respect to: (i) amending the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of
Directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other
class or classes of stock of the corporation or fix the number of shares of
any series of stock or authorize the increase or decrease of the shares of any
series), (ii) adopting an agreement of merger or consolidation under Section
251 or 252 of the General Corporation Law of Delaware, (iii) recommending to
the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, (iv) recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v)
amending these By-Laws.
Included among the Committees shall be the following:
(a) EXECUTIVE COMMITTEE. There shall be an Executive Committee
consisting of its ex officio member and such additional Directors, in no event
less than seven, as the Board of Directors may from time to time deem
appropriate, elected by the Board of Directors at its organizational meeting
or otherwise. Subject to such limitations as may from time to time be imposed
by the Board of Directors or as are imposed by these By-Laws, the Executive
Committee shall have the fullest authority to act for and on behalf of the
corporation, and it shall have all of the powers of the Board of Directors
which, under the law, it is possible for a Board of Directors to delegate to
such a committee, including the supervision of the general management,
direction and
- 5 -
<PAGE>
superintendance of the business and affairs of the corporation and the power
to declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
(b) COMMITTEE ON EXAMINATIONS AND AUDITS. There shall be a
Committee on Examinations and Audits consisting of not less than three
Directors who are not officers of the corporation and who shall be elected by
the Board of Directors at its organizational meeting or otherwise. It shall
be the duty of this Committee (i) to make, or cause to be made, in accordance
with the procedures from time to time approved by the Board of Directors,
internal examinations and audits of the affairs of the corporation and the
affairs of any subsidiary which by resolution of its board of directors has
authorized the Committee on Examinations and Audits to act hereunder, (ii) to
make recommendations to the Board of Directors of the corporation and of each
such subsidiary with respect to the selection of and scope of work for the
independent auditors for the corporation and for each subsidiary, (iii) to
review, or cause to be reviewed in accordance with procedures from time to
time approved by the Board of Directors, all reports of internal examinations
and audits, all audit-related reports made by the independent auditors for the
corporation and each such subsidiary and all reports of examination of the
corporation and of any subsidiary made by regulatory authorities, (iv) from
time to time, to review and discuss with the management, and independently
with the General Auditor, the Risk Control Officer and the independent
auditors, the accounting and reporting principles, policies and practices
employed by the corporation and its subsidiaries and the adequacy of their
accounting, financial, operating and administrative controls, including the
review and approval of any policy statements relating thereto, and (v) to
perform such other duties as the Board of Directors may from time to time
assign to it. The Committee on Examinations and Audits shall submit reports
of its findings, conclusions and recommendations, if any, to the Board of
Directors.
(c) MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE. There
shall be a Management Development and Compensation Committee consisting of not
less than six directors, who shall be elected by the Board of Directors at its
organizational meeting or otherwise and none of whom shall be eligible to
participate in either the Wells Fargo & Company Stock Appreciation Rights
Plan, the Wells Fargo & Company Stock Option Plan the Wells Fargo & Company
Employee Stock Purchase Plan or any similar employee stock plan (or shall have
been so eligible within the year next preceding the date of becoming a member
of the Management Development and Compensation Committee). It shall be the
duty of the Management Development and Compensation Committee, and it shall
have authority, (i) to advise the Chief Executive Officer concerning the
corporation's salary policies, (ii) to administer
- 6 -
<PAGE>
such compensation programs as from time to time are delegated to it by the
Board of Directors, (iii) to accept or reject the recommendations of the Chief
Executive Officer with respect to all salaries in excess of such dollar amount
or of officers of such grade or grades as the Board of Directors may from time
to time by resolution determine to be appropriate and (iv) upon the request of
any subsidiary which by resolution of its board of directors has authorized
the Management Development and Compensation Committee to act hereunder, to
advise its chief executive officer concerning such subsidiary's salary
policies and compensation programs.
(d) NOMINATING COMMITTEE. There shall be a Nominating Committee
consisting of not less than three Directors, who shall be elected by the Board
of Directors at its organizational meeting or otherwise. It shall be the duty
of the Nominating Committee, annually and in the event of vacancies on the
Board of Directors, to nominate candidates for election to the Board of
Directors.
The Chairman of the Board, or in the absence of the Chairman of the
Board, the acting chief executive officer, if a Director, shall be an EX
OFFICIO member of all the Committees except the Committee on Examinations
and Audits, the Management and Development and Compensation Committee, the
Nominating Committee and such other Committees which by resolution the Board
of Directors expressly limit membership to non-officer Directors.
Each Committee member shall serve until the organizational meeting
of the Board of Directors immediately following the adjournment of the annual
meeting of stockholders next following his election and until his successor
shall have been elected, but any such member may be removed at any time by the
Board of Directors. Vacancies in any of said committees, however created,
shall be filled by the Board of Directors. A majority of the members of any
such committee shall be necessary to constitute a quorum and sufficient for
the transaction of business, and any act of a majority present at a meeting of
any such committee at which there is a quorum present shall be the act of such
committee. Subject to these By-Laws and the authority of the Board of
Directors, each committee shall have the power to determine the form of its
organization. The provisions of these By-Laws governing the calling, notice
and place of special meetings of the Board of Directors shall apply to all
meetings of any Committee unless such committee fixes a time and place for
regular meetings, in which case notice for such meeting shall be unnecessary.
The provisions of these By-Laws regarding actions taken by the Board of
Directors, however called or noticed, shall apply to all meetings of any
Committee. Each committee shall cause to be kept a full and
complete record of its proceedings, which shall be available for inspection by
any Director. There shall be presented at each
- 7 -
<PAGE>
meeting of the Board of Directors a summary of the minutes of all proceedings
of each committee since the preceding meeting of the Board of Directors.
SECTION 15. ADVISORY DIRECTORS. There shall be not more than 10
Advisory Directors, who shall be elected by the Board of Directors at its
organizational meeting. An Advisory Director shall serve until the
organizational meeting of the Board of Directors immediately following the
adjournment of the annual meeting of stockholders next following his election.
Any Advisory Director may be removed at any time by the Board of Directors.
Vacancies may, but need not be, filled by the Board of Directors. Advisory
Directors may attend meetings of the Board of Directors and, if appointed
thereto as an advisor by the Board of Directors, meetings of Formal Committees
with the privilege of participating in all discussions but without the right
to vote.
SECTION 16. DIRECTORS EMERITI. There shall be not more than ten
(10) Directors Emeriti who shall be elected by the Board of Directors at its
organizational meeting. A Director Emeritus shall serve until the next
following organizational meeting of the Board of Directors. No person may be
elected a Director Emeritus unless at some time prior thereto such person has
been a Director of the corporation. Any Director Emeritus may be removed at
any time by the Board of Directors. Vacancies, however created, may, but need
not, be filled by the Board of Directors. Directors Emeriti may attend
meetings of the Board of Directors and, if appointed thereto as an advisor by
the Board of Directors, meetings of Committees with the privilege of
participating in all discussions but without the right to vote.
ARTICLE III
OFFICERS
SECTION 1. ELECTION OF EXECUTIVE OFFICERS. The corporation
shall have (i) a Chairman of the Board, (ii) a President, (iii) a Secretary
and (iv) a Chief Financial Officer. The Corporation also may have a Vice
Chairman of the Board, one or more Vice Chairmen, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Controller, a Treasurer, one or more Assistant Vice Presidents, one or more
Assistant Treasurers, one or more Assistant Secretaries, a General Auditor, a
Risk Control Officer, and such other officers as the Board of Directors, or
the Chief Executive Officer or any officer or committee whom he may authorize
to perform this duty, may from time to time deem necessary or expedient for
the proper conduct of business by the corporation. The Chairman of the Board,
the Vice Chairman of the Board, if
- 8 -
<PAGE>
any, and the President shall be elected from among the members of the Board of
Directors. The following offices shall be filled only pursuant to election by
the Board of Directors: Chairman of the Board, Vice Chairman of the Board,
President, Vice Chairman, Executive Vice President, Senior Vice President,
Secretary, Controller, Treasurer, General Auditor and Risk Control Officer.
Other officers may be appointed by the Chief Executive Officer or by any
officer or committee whom he may authorize to perform this duty. All officers
shall hold office at will, at the pleasure of the Board of Directors, the
Chief Executive Officer, the officer or committee having the authority to
appoint such officers, and the officer or committee authorized by the Chief
Executive Officer to remove such officers, and may be removed at any time,
with or without notice and with or without cause. No authorization by the
Chief Executive Officer to perform such duty of appointment or removal shall
be effective unless done in writing and signed by the Chief Executive Officer.
Two or more offices may be held by the same person.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall, when present, preside at all meetings of the stockholders and of the
Board of Directors and shall be the Chief Executive Officer of the
corporation. As Chief Executive Officer, he shall (i) exercise, and be
responsible to the Board of Directors for, the general supervision of the
property, affairs and business of the corporation, (ii) report at each meeting
of the Board of Directors upon all matters within his knowledge which the
interests of the corporation may require to be brought to its notice, (iii)
prescribe, or to the extent he may deem appropriate designate an officer or
committee to prescribe, the duties, authority and signing power of all other
officers and employees of the corporation and (iv) exercise, subject to these
By-Laws, such other powers and perform such other duties as may from time to
time be prescribed by the Board of Directors.
SECTION 3. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board shall, subject to these By-Laws, exercise such powers and perform such
duties as may from time to time be prescribed by the Board of Directors. In
the absence of the Chairman of the Board and the President, the Vice Chairman
of the Board shall preside over the meetings of the stockholders and the Board
of Directors.
SECTION 4. PRESIDENT. The President shall, subject to these
By-Laws, be the chief operating officer of the corporation and shall exercise
such other powers and perform such other duties as may from time to time be
prescribed by the Board of Directors. In the absence of the Chairman of the
Board, the President shall preside over the meetings of the stockholders and
the Board of Directors.
SECTION 5. ABSENCE OR DISABILITY OF CHIEF EXECUTIVE OFFICER.
In the absence or disability of the Chairman
- 9 -
<PAGE>
of the Board, the President shall act as Chief Executive Officer. In the
absence or the disability of both the Chairman of the Board and the President,
the Vice Chairman of the Board shall act as Chief Executive Officer. In the
absence of the Chairman of the Board, the President and the Vice Chairman of
the Board, the officer designated by the Board of Directors, or if there be no
such designation the officer designated by the Chairman of the Board, shall
act as Chief Executive Officer. The Chairman of the Board shall at all times
have on file with the Secretary his written designation of the officer from
time to time so designated by him to act as Chief Executive Officer in his
absence or disability and in the absence or disability of the President and
the Vice Chairman of the Board.
SECTION 6. EXECUTIVE VICE PRESIDENTS; SENIOR VICE PRESIDENTS;
VICE PRESIDENTS. The Executive Vice Presidents, the Senior Vice Presidents
and the Vice Presidents shall have all such powers and duties as may be
prescribed by the Board of Directors or by the Chief Executive Officer.
SECTION 7. SECRETARY. The Secretary shall keep a full and
accurate record of all meetings of the stockholders and of the Board of
Directors, and shall have the custody of all books and papers belonging to the
corporation which are located in its principal office. He shall give, or
cause to be given, notice of all meetings of the stockholders and of the Board
of Directors, and all other notices required by law or by these By-Laws. He
shall be the custodian of the corporate seal or seals. In general, he shall
perform all duties ordinarily incident to the office of a secretary of a
corporation, and such other duties as from time to time may be assigned to him
by the Board of Directors or the Chief Executive Officer.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have charge of and be responsible for all funds, securities, receipts
and disbursements of the corporation, and shall deposit, or cause to be
deposited, in the name of the corporation all moneys or other valuable effects
in such banks, trust companies, or other depositories as shall from time to
time be selected by the Board of Directors. He shall render to the Chief
Executive Officer and the Board of Directors, whenever requested, an account
of the financial condition of the corporation. In general, he shall perform
all duties ordinarily incident to the office of a chief financial officer of a
corporation, and such other duties as may be assigned to him by the Board of
Directors or the Chief Executive Officer.
SECTION 9. GENERAL AUDITOR. The General Auditor shall be
responsible to the Board of Directors for evaluating the ongoing operation,
and the adequacy, effectiveness and efficiency, of the system of control
within the corporation and of each subsidiary which has authorized the
Committee on
- 10 -
<PAGE>
Examinations and Audits to act under Section 14(b) of Article II of these
By-Laws. He shall make, or cause to be made, such internal audits and reports
of the corporation and each such subsidiary as may be required by the Board of
Directors or by the Committee on Examinations and Audits. He shall coordinate
the auditing work performed for the corporation and its subsidiaries by public
accounting firms and, in connection therewith, he shall determine whether the
internal auditing functions being performed within the subsidiaries are
adequate. He shall also perform such other duties as the Chief Executive
Officer may prescribe, and shall report to the Chief Executive Officer on all
matters concerning the safety of the operations of the corporation and of any
subsidiary which he deems advisable or which the Chief Executive Officer may
request. Additionally, the General Auditor shall have the duty of reporting
independently of all officers of the corporation to the Committee on
Examinations and Audits at least quarterly on all matters concerning the
safety of the operations of the corporation and its subsidiaries which should
be brought in such manner through such committee to the attention of the Board
of Directors. Should the General Auditor deem any matter to be of especial
immediate importance, he shall report thereon forthwith through the Committee
on Examinations and Audits to the Board of Directors.
SECTION 10. RISK CONTROL OFFICER. The Risk Control Officer
shall report to the Board of Directors through its Committee on Examinations
and Audits. The Risk Control Officer shall be responsible for directing a
number of control related activities principally affecting the Company's
credit function and shall have such other duties and responsibilities as shall
be prescribed from time to time by the chief executive officer and the
Committee on Examinations and Audits. Should the Risk Control Officer deem
any matter to be of special importance, the Risk Control Officer shall report
thereon forthwith through the Committee to the Board of Directors.
ARTICLE IV
INDEMNIFICATION
SECTION 1. ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding or investigation, whether civil, criminal
or administrative, and whether external or internal to the corporation (other
than a judicial action or suit brought by or in the right of the corporation),
by reason of the fact that he or she is or was an Agent (as hereinafter
defined) against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement
- 11 -
<PAGE>
actually and reasonably incurred by the Agent in connection with such action,
suit or proceeding, or any appeal therein, if the Agent acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful. The
termination of any action, suit or proceeding -- whether by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent --
shall not, of itself, create a presumption that the Agent did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, that the Agent had reasonable cause to believe
that his or her conduct was unlawful. For purposes of this Article, an
"Agent" shall be any director, officer of employee of the corporation, or any
person who, being or having been such a director, officer or employee, is or
was serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
SECTION 2. ACTION, ETC. BY OR IN THE RIGHT OF THE CORPORATION.
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed judicial
action or suit brought by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or was an
Agent (as defined above) against expenses (including attorneys' fees) and
amounts paid in settlement actually and reasonably incurred by such person in
connection with the defense, settlement or appeal of such action or suit if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnify for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 3. DETERMINATION OF RIGHT OF INDEMNIFICATION OR
CONTRIBUTION. Unless otherwise ordered by a court, any indemnification under
Section 1 or 2, and any contribution under Section 6, of this Article shall be
made by the corporation to an Agent unless a determination is reasonably and
promptly made, either (i) by the Board of Directors acting by a majority vote
of a quorum consisting of Directors who were not party to such action, suit or
proceeding, or (ii) if such a quorum is not
- 12 -
<PAGE>
obtainable, or if obtainable and such quorum so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders, that such Agent
acted in bad faith and in a manner that such Agent did not believe to be in or
not opposed to the best interests of the corporation or, with respect to any
criminal proceeding, that such Agent believed or had reasonable cause to
believe that his or her conduct was unlawful.
SECTION 4. ADVANCES OF EXPENSES. Except as limited by Section 5
of this Article, costs, charges and expenses (including attorneys' fees)
incurred by an Agent in defense of any action, suit, proceeding or
investigation of the nature referred to in Section 1 or 2 of this Article or
any appeal therefrom shall be paid by the corporation in advance of the final
disposition of such matter; provided, however, that if the General Corporation
Law of Delaware then so requires, such payment shall be made only if the Agent
shall undertake to reimburse the corporation for such payment in the event
that it is ultimately determined, as provided herein, that such person is not
entitled to indemnification.
SECTION 5. RIGHT OF AGENT TO INDEMNIFICATION OR ADVANCE UPON
APPLICATION; PROCEDURE UPON APPLICATION. Any indemnification under Section 1
or 2, or advance under Section 4, of this Article shall be made promptly and
in any event within 90 days, upon the written request of the Agent, unless
with respect to an application under said Sections 1 or 2 an adverse
determination is reasonably and promptly made pursuant to Section 3 of this
Article or unless with respect to an application under said Section 4 an
adverse determination is made pursuant to said Section 4. The right to
indemnification or advances as granted by this Article shall be enforceable by
the Agent in any court of competent jurisdiction if the Board of Directors or
independent legal counsel improperly denies the claim, in whole or in part, or
if no disposition of such claim is made within 90 days. It shall be a defense
to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any action, suit or proceeding in advance of
its final disposition where any required undertaking has been tendered to the
corporation) that the Agent has not met the standards of conduct which would
require the corporation to indemnify or advance the amount claimed, but the
burden of proving such defense shall be on the corporation. Neither the
failure of the corporation (including the Board of Directors, independent
legal counsel and the stockholders) to have made a determination prior to the
commencement of such action that indemnification of the Agent is proper in the
circumstances because he or she has met the applicable standard of conduct,
nor an actual determination by the corporation (including the Board of
Directors, independent legal counsel and the stockholders) that the Agent had
not met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the Agent had not met the
- 13 -
<PAGE>
applicable standard of conduct. The Agent's costs and expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such proceeding shall also be indemnified by the
corporation.
SECTION 6. CONTRIBUTION. In the event that the indemnification
provided for in this Article is held by a court of competent jurisdiction to
be unavailable to an Agent in whole or in part, then in respect of any
threatened, pending or completed action, suit or proceeding in which the
corporation is jointly liable with the Agent (or would be if joined in such
action, suit or proceeding), to the extent permitted by the General
Corporation Law of Delaware the corporation shall contribute to the amount of
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by the Agent
in such proportion as is appropriate to reflect (i) the relative benefits
received by the corporation on the one hand and the Agent on the other from
the transaction from which such action, suit or proceeding arose and (ii) the
relative fault of the corporation on the one hand and of the Agent on the
other in connection with the events which resulted in such expenses,
judgments, fines or settlement amounts, as well as any other relevant
equitable considerations. The relative fault of the corporation on the one
hand and of the Agent on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent the circumstances resulting in such
expenses, judgments, fines or settlement amounts.
SECTION 7. OTHER RIGHTS AND REMEDIES. Indemnification under
this Article shall be provided regardless of when the events alleged to
underlie any action, suit or proceeding may have occurred, shall continue as
to a person who has ceased to be an Agent and shall inure to the benefit of
the heirs, executors and administrators of such a person. All rights to
indemnification and advancement of expenses under this Article shall be deemed
to be provided by a contract between the corporation and the Agent who serves
as such at any time while these By-Laws and other relevant provisions of the
General Corporation Law of Delaware and other applicable law, if any, are in
effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing.
SECTION 8. INSURANCE. Upon resolution passed by the Board of
Directors, the corporation may purchase and maintain insurance on behalf of
any person who is or was an Agent against any liability asserted against such
person and incurred by him or her in any such capacity, or arising out of his
or her status as such, regardless of whether the corporation would have the
power to indemnify such person against such liability under the provisions of
this Article. The corporation may create a trust
- 14 -
<PAGE>
fund, grant a security interest or use other means, including without
limitation a letter of credit, to ensure the payment of such sums as may
become necessary to effect indemnification as provided herein.
SECTION 9. CONSTITUENT CORPORATIONS. For the purposes of this
Article, references to "the corporation" include all constituent corporations
(including any constituent of a constituent) absorbed in a consolidation or
merger as well as the resulting or surviving corporation, so that any person
who is or was a director, officer or employee of such a constituent
corporation or who, being or having been such a director, officer or employee,
is or was serving at the request of such constituent corporation as a
director, officer, employee or trustee of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article with respect to the resulting or
surviving corporation as such person would if he or she had served the
resulting or surviving corporation in the same capacity.
SECTION 10. OTHER ENTERPRISES, FINES, AND SERVING AT
CORPORATION'S REQUEST. For purposes of this Article, references to "other
enterprise" in Sections 1 and 9 shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service by an Agent as director,
officer, employee, trustee or agent of the corporation which imposes duties
on, or involves services by, such Agent with respect to any employee benefit
plan, its participants, or beneficiaries. A person who acted in good faith
and in a manner he or she reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interest of the corporation"
for purposes of this Article.
SECTION 11. SAVINGS CLAUSE. If this Article or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the corporation shall nevertheless indemnify each Agent as
to expenses (including attorneys' fees, judgments, finds and amounts paid in
settlement with respect to any action, suit, appeal, proceeding or
investigation, whether civil, criminal or administrative, and whether internal
or external, including a grand jury proceeding and an action or suit brought
by or in the right of the corporation, to the full extent permitted by the
applicable portion of this Article that shall not have been invalidated, or by
any other applicable law.
SECTION 12. ACTIONS INITIATED BY AGENT. Anything to the
contrary in this Article notwithstanding, the corporation shall indemnify any
Agent in connection with an action, suit or proceeding initiated by such Agent
(other than actions, suits, or proceedings commenced pursuant to Section 5 of
this Article) only
- 15 -
<PAGE>
if such action, suit or proceeding was authorized by the Board of Directors.
SECTION 13. STATUTORY AND OTHER INFORMATION. Notwithstanding
any other provision of this Article, the corporation shall indemnify any Agent
and advance expenses incurred by such Agent in any action, suit or proceeding
of the nature referred to in Section 1 or 2 of this Article to the fullest
extent permitted by the General Corporation Law of Delaware, as the same may
be amended from time to time, except that no amount shall be paid pursuant to
this Article in the event of an adverse determination pursuant to Section 3 of
this Article or in respect of remuneration to the extent that it shall be
determined to have been paid in violation of law or in respect of amounts
owing under Section 16(b) of the Securities Exchange Act of 1934. The rights
to indemnification and advancement of expenses provided by any provision of
this Article, including without limitation those rights conferred by the
preceding sentence, shall not be deemed exclusive of, and shall not affect, any
other rights to which an Agent seeking indemnification or advancement of
expenses may be entitled under any provision of any law, certificate of
incorporation, by-law, agreement or by any vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while serving as an Agent. The
corporation may, by action of the Board of Directors, provide indemnification
and advancement of expenses to agents of the corporation to the extent deemed
appropriate, not to exceed the scope and effect provided under this Article to
directors, officers and employees.
ARTICLE V
MISCELLANEOUS
SECTION 1. FISCAL YEAR. The fiscal year of the corporation
shall be the calendar year.
SECTION 2. STOCK CERTIFICATES. Each stockholder shall be
entitled to a certificate representing the number of shares of the stock of
the corporation owned by such stockholder and the class or series of such
shares. Each certificate shall be signed in the name of the corporation by
(i) the Chairman of the Board, the Vice Chairman of the Board, the President,
an Executive Vice President, a Senior Vice President, or a Vice President, and
(ii) the Treasurer, an Assistant Treasurer, the Secretary, or an Assistant
Secretary. Any of the signatures on the certificate may be facsimile. Prior
to due presentment for registration of transfer in the stock transfer book of
the corporation, the registered owner for any share of stock of the
corporation shall be treated as the person exclusively entitled to vote, to
receive notice, and to exercise all other rights and receive all other
- 16 -
<PAGE>
entitlements of a stockholder with respect to such share, except as may be
provided otherwise by law.
SECTION 3. EXECUTION OF WRITTEN INSTRUMENTS. All written
instruments shall be binding upon the corporation if signed on its behalf by
(i) any two of the following officers: the Chairman of the Board, the
President, the Vice Chairman of the Board, the Vice Chairmen or the Executive
Vice Presidents; or (ii) any one of the foregoing officers signing jointly
with any Senior Vice President. Whenever any other officer or person shall be
authorized to execute any agreement, document or instrument by resolution of
the Board of Directors, or by the Chief Executive Officer, or by any two of
the officers identified in the immediately preceding sentence, such execution
by such other officer or person shall be equally binding upon the corporation.
SECTION 4. SUBSIDIARY. As used in these By-Laws the term
"subsidiary" or "subsidiaries" means any corporation 25 percent or more of
whose voting shares is directly or indirectly owned or controlled by the
corporation, or any other affiliate of the corporation designated in writing
as a subsidiary of the corporation by the Chief Executive Officer of the
corporation. All such written designations shall be filed with the Secretary
of the corporation.
SECTION 5. AMENDMENTS. These By-Laws may be altered, amended or
repealed by a vote of the stockholders entitled to exercise a majority of the
voting power of the corporation, by written consent of such stockholders or by
the Board of Directors.
SECTION 6. ANNUAL REPORT. The Board of Directors shall cause an
annual report to be sent to the stockholders not later than 120 days after the
close of the fiscal year and at least 15 days prior to the annual meeting of
stockholders to be held during the ensuing fiscal year.
SECTION 7. CONSTRUCTION. Unless the context clearly requires
it, nothing in these By-Laws shall be construed as a limitation on any powers
or rights of the corporation, its Directors or its officers provided by the
General Corporation Law of Delaware. Unless the context otherwise requires,
the General Corporation Law of Delaware shall govern the construction of these
By-Laws.
SECTION 8. LOANS TO OFFICERS. The corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiary, including any officer or
employee who is a director of the corporation or its subsidiary, whenever, in
the judgment of the Board of Directors or any committee thereof, such loan,
guaranty or assistance may reasonably be expected to benefit the
- 17 -
<PAGE>
corporation. The loan, guaranty or other assistance may be with or without
interest, and may be unsecured, or secured in such manner as the Board of
Directors or such committee shall approve, including, without limitation, a
pledge of shares of stock of the corporation. This Section shall not be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
SECTION 9. NOTICES; WAIVERS. Whenever, under any provision of
the General Corporation Law of Delaware, the Certificate of Incorporation or
these By-Laws, notice is required to be given to any director or stockholder,
such provision shall not be construed to mean personal notice, but such notice
may be given in writing, by mail, addressed to such Director or stockholder,
at his address as it appears on the records of the corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to directors
may also be given by facsimile, telex or telegram. A waiver in writing of any
such required notice, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
- 18 -
<PAGE>
WELLS FARGO & COMPANY
DIRECTORS' RETIREMENT PLAN
I. PURPOSE OF THE PLAN
The purpose of this Plan is to improve the ability of
Wells Fargo & Company (the "Company") to attract, retain and
motivate capable individuals who will serve as Directors and who
will contribute to the success of the Company, to recognize the
value of Directors' past, present and future service to the
Company, and to compensate Directors for their availability after
retirement as a resource to the Company.
II. EFFECTIVE DATE:
January 1, 1988.
III. ADMINISTRATION OF THE PLAN
The Plan will be administered by the Company's Board of
Directors ("Board") or its delegate, which will have sole
authority to interpret and construe the provisions of the Plan
and to adopt rules and regulations for administering the Plan.
Decisions of the Board or its delegate will be final and binding
on all parties who have an interest in the Plan.
IV. ELIGIBILITY
Any member of the Company's Board of Directors who is not
a full-time employee of the Company or one of its subsidiaries
("Outside Director") and who has served in such capacity for at
least five years will be eligible to participate in this Plan.
V. RETIREMENT BENEFITS
A Director who is a participant in the Plan will be
entitled to an annual retirement benefit equal to the annual
retainer in effect for Outside Directors at the time he or she
retires from the Board (not including any additional retainer
paid for holding the position of member
<PAGE>
or chairman of a Board committee), payable for the lesser of
ten years or the number of full years of service as an Outside
Director. Payment will commence on any date following retirement
elected by the participant, but not earlier than the date the
participant attains age 65. If a participant is an Outside
Director on January 1, 1988, the election must be filed by
March 31, 1988. If a participant first becomes an Outside
Director after January 1, 1988, the election must be filed within
90 days of the date he or she becomes an Outside Director. If no
election is filed, payment will commence on the later of the date
the participant retires or the date the participant attains age 65.
VI. SURVIVOR BENEFITS
In the event of the death of a participant prior to
retirement, the participant's designated beneficiary will receive
an annual benefit equal to the annual benefit to which the
participant would have been entitled if the participant had
retired on the date of his or her death, payable for the lesser
of ten years or the number of full years of service as an Outside
Director. Payment of the survivor benefit will commence the
month following the Director's death. However, a Director may
elect for benefits to commence on any date following his or her
death. If participant is an Outside Director on January 1, 1988,
any such election must be filed by March 31, 1988. If a
participant first becomes an Outside Director after January 1,
1988, the election must be filed within 90 days of the date he or
she becomes an Outside Director.
VII. GENERAL PROVISIONS
(A) The obligation to pay retirement or survivor benefits
will at all times be an unfunded and unsecured obligation of the
Company. The Company will not establish any trust, escrow
arrangement or other fiduciary relationship for the purpose of
segregating funds for the payment of such retirement or survivor
benefits, nor will the Company be under any obligation to invest
any portion of its general assets in mutual funds, stocks, bonds,
securities or other
<PAGE>
similar investments in order to accumulate funds for the
satisfaction of its obligations under the Plan. The participant
and his beneficiary must look solely and exclusively to the
general assets of the Company for the payment of the participant's
benefits.
(B) The Board may at any time amend, suspend or terminate
the Plan; provided, however, that such action may not adversely
affect rights previously vested and non-forfeitable under the
Plan.
(C) A participant will have no right to alienate, pledge
or encumber his interest in his or her benefits, nor will such
benefits be subject in any way to the claims of a participant's
creditors or to attachment, execution or other process of law.
(D) In the event of a participant's death following
retirement, the balance of his or her retirement benefits, if
any, will be paid to the participant's designated beneficiary or,
in the absence of such designation, in accordance with the
participant's will or the laws of descent and distribution. In
the event of a beneficiary's death, the balance of his or her
benefits, if any, will be paid in accordance with the
beneficiary's will or the laws of descent and distribution. A
participant may from time to time revoke his or her beneficiary
designation and file a new beneficiary designation with the
Board. All beneficiary designations must be on the form
prescribed by the Board or its delegate.
<PAGE>
WELLS FARGO & COMPANY
EQUITY INCENTIVE PLAN
I. PURPOSES OF THE PLAN
This Equity Incentive Plan (the "Plan") is intended to promote the
interests of Wells Fargo & Company (the "Corporation") and its subsidiaries by
providing a method whereby employees of the Corporation and its subsidiaries who
are largely responsible for the management, growth and success of the business
may be offered incentives and rewards which will encourage them to continue in
the employ of the Corporation or its subsidiaries.
II. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee of the Board of Directors
of the Corporation (the "Committee"). The Committee shall consist of at least
three members, none of whom while serving as such shall be, or during the
one-year period prior to such service shall have been, eligible to participate
in the Plan or any other stock option, stock appreciation, stock bonus or other
stock plan of the Corporation or any of its subsidiaries. The Committee shall
have full authority to administer the Plan, including authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all persons who have an interest in the Plan.
III. ELIGIBILITY FOR AWARDS
The persons who shall be eligible to receive awards under the Plan
shall be such key employees of the Corporation and its subsidiaries (including
officers, whether or not they are directors) as the Committee shall from time to
time select.
IV. STOCK SUBJECT TO THE PLAN
(a) CLASS. The stock which is to be made the subject of awards
granted under the Plan shall be the Corporations's authorized but unissued
Common Stock, par value $5 per share ("Common Stock"). In connection with the
issuance of shares of Common Stock under the Plan, the Corporation may
repurchase shares in the open market or otherwise.
(b) AGGREGATE AMOUNT.
(1) The total number of shares issuable under the Plan shall
not exceed 1,750,000 shares (subject to adjustment under Section
IV(d)). No limitation shall exist on the aggregate amount of cash
payments the Corporation
C-3
<PAGE>
may make in connection with share rights pursuant to Section VII(b) or
the surrender of options pursuant to Article VI(c).
(2) If any outstanding option under the Plan expires or is
terminated for any reason or is surrendered pursuant to Section VI(c),
then the Common Stock allocable to the unexercised or surrendered
portion of such option shall not be charged against the limitation of
Section IV(b)(1) and may again become the subject of a stock option
granted under the Plan.
(3) If (i) any outstanding share rights under the Plan
terminate for any reason prior to the issuance of the total number of
shares subject to the share rights, or (ii) any outstanding share
rights are paid in the form of cash in lieu of the issuance of Common
Stock under the Plan, then the number of unissued shares of Common
Stock under such share rights shall not be charged against the
limitation of Section IV(b)(1) and may again be made the subject of
subsequent share rights granted under the Plan.
(c) ANNUAL LIMITATIONS ON GRANTS. The maximum number of shares for
which options or share rights may be granted in any one calendar year shall not
exceed 350,000 shares (subject to adjustment under Section IV(d)). For
purposes of this Article IV(c) a share right shall be deemed to be granted for
the maximum number of shares which could be issued thereunder; provided that,
upon and following the occurrence, if any, of circumstances which, under the
terms of the share right, reduce the number of shares which can be issued
thereunder, the share right shall be deemed to be granted for such reduced
number of shares.
(d) ADJUSTMENTS. In the event any change is made to the Common Stock
subject to the Plan or subject to any outstanding award granted under the Plan
(whether by reason of merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, combination of shares, exchange of shares, change
in corporate structure or otherwise), then appropriate adjustments shall be made
to the maximum number of shares subject to the Plan, the maximum number of
shares for which options or share rights may be granted in any one calendar
year, the number of shares and price per share of stock subject to outstanding
options, and the number of shares subject to share rights.
V. FORM AND GRANT OF AWARDS
The Committee shall have the authority to grant to eligible employees
one or more awards under the Plan. An award shall be in the form of a stock
option meeting the specifications of Article VI or a share right meeting the
specifications of Article VII or a combination thereof, as the Committee shall
determine.
C-4
<PAGE>
VI. STOCK OPTIONS
Stock options granted under the Plan may be either incentive stock
options qualifying under Section 422A of the Internal Revenue Code of 1954, as
amended ("Incentive Options"), or nonstatutory options, and shall be
appropriately designated. The options shall be evidenced by instruments in
such form as the Committee may from time to time approve. Such instruments
shall conform to the following terms and conditions:
(a) OPTION PRICE. The option price per share shall be the fair
market value of a share of Common Stock on the day the option is granted.
(b) NUMBER OF SHARES, TERM AND EXERCISE.
(1) Each option granted under the Plan shall be exercisable on
such date or dates, during such period and for such number of shares as
shall be determined by the Committee and set forth in the instrument
evidencing such option. No option granted under the Plan, however, shall
become exercisable during the first six months of the option term, except
in the event of the optionee's death or disability; nor shall any option
have an expiration date which is more than 10 years after the date of the
option grant.
(2) Any option granted under the Plan may be exercised by
notice to the Corporation at any time prior to the termination of such
option. Except as authorized by the Committee in accordance with Section
VIII, the option price for the number of shares of Common Stock for which
the option is exercised shall become immediately due and payable upon
exercise.
(3) The option price shall be payable in cash or by personal
check (or, if authorized by the Committee in accordance with Section
VIII, a promissory note payable in installments in cash or by personal
check), provided that, if and to the extent determined by the Committee
and set forth in the instrument evidencing the option, all or a portion
of the option price may be payable in shares of Common Stock. Shares of
Common Stock delivered to the Corporation as payment of all or a portion
of the option price shall be valued at their fair market value on the
date of exercise of the option.
(c) APPRECIATION DISTRIBUTION.
(1) Any instrument evidencing an option granted under the Plan
may provide that the option-holder is entitled, by notice of the
Corporation at any time while the option is
C-5
<PAGE>
exercisable, to surrender the option, in whole or in part to the extent
it is then exercisable, for an appreciation distribution by the
Corporation in an amount equal to the difference between the fair market
value, on the date of the option surrender, of the Common Stock subject
to the surrendered option (or the surrendered portion thereof) and the
aggregate option price for such Common Stock. An instrument evidencing an
option may contain such further restrictions on the right of surrender as
the Committee shall determine and, if the option is not intended to be an
Incentive Option, may provide that the option may be surrendered, in
whole or in part and under such specified circumstances as the Committee
shall determine, at a time or times when the option is not exercisable;
provided that in no event shall the option be surrendered during the
first six months of the option term, except in the event of the
optionee's death or disability.
(2) If the option is surrendered in whole or in part, the
appreciation distribution to which the option-holder is entitled shall
be made in the form of Common Stock and cash in accordance with the
percentages of each designated by the option-holder on his
surrender-notification form, subject to the provisions of Section
VI(c)(3); provided, however, that at least 50% of the distribution must
be made in whole shares of Common Stock. For purposes of computing the
number of shares to be distributed, the Common Stock shall be valued as
of the date the option is surrendered.
(3) If (i) the option-holder is at the time of the option
surrender considered an officer or director of the Corporation for
purposes of Section 16(b) of the Securities Exchange Act of 1934, or was
such an officer or director at any time during the six-month period
immediately preceding the option surrender and made any purchase or sale
of Common Stock during such six-month period, and (ii) the option is
being surrendered in part for cash, then the following additional terms
and conditions shall apply to the surrender of the option:
(A) The option can only be surrendered during the
so-called "window period" commencing on the third and ending on
the twelfth business day following the day on which the
Corporation's quarterly or annual summaries of income and
earnings are released to the public; and
(B) The Committee, which shall have sole discretion in
the matter, shall determine the percentages of Common Stock and
cash in which the appreciation distribution shall be made;
provided,
C-6
<PAGE>
however, that at least 50% of the distribution must be made in
whole shares of Common Stock.
(d) TERMINATION OF EMPLOYMENT.
(1) If any optionee ceases to be employed by the Corporation
or any of its subsidiaries other than by reason of death or termination
for gross and willful misconduct, then any outstanding option granted
such optionee under the Plan may be exercised, to the extent such option
was exercisable on the date of the optionee's cessation of employment,
at any time prior to the earlier of (i) the end of the three-month
period following the date of his cessation of employment (OR, IF
TERMINATION OCCURS BY REASON OF DISABILITY OR RETIREMENT, SUCH LONGER
PERIOD, NOT EXCEEDING THREE YEARS, AS THE COMMITTEE DETERMINES) or (ii)
the specified expiration date of the option. However, if Section
VI(c)(3) would still be applicable to the surrender of any such option
after the date of the optionee's cessation of employment, such option
shall not cease to be exercisable before the earlier of (i) the end of
the window period immediately following the window period within which
or immediately prior to which occurs the optionee's cessation of
employment or (ii) the specified expiration date of the option.
(2) Should the optionee's employment be terminated for gross
and willful misconduct during the course of his employment, including
(without limitation) the wrongful appropriation of employer funds or
the commission of a felony, then any outstanding options granted such
optionee under the Plans may be terminated by the Committee as of the
date of such misconduct.
(e) DEATH OF OPTIONEE. Any option granted the optionee under the
Plan and outstanding on the date of his death may be exercised, to the extent
such option was exercisable on the date of his death, by the personal
representative of the optionee's estate or by the person or persons to whom
the option is transferred pursuant to the optionee's will or in accordance
with the laws of descent and distribution, at any time prior to the earlier of
(i) A SPECIFIED DATE, NOT LATER THAN THE THIRD ANNIVERSARY OF THE OPTIONEE'S
DEATH, DETERMINED BY THE COMMITTEE or (ii) the specified expiration date of such
option. Upon the occurrence of the earlier event, the option shall then
terminate.
(f) INCENTIVE OPTIONS. Options granted under the Plan which are
intended to be Incentive Options shall be subject to the following additional
terms and conditions:
(1) PRIOR OUTSTANDING OPTION. Under no circumstances may an
Incentive Option granted before January 1, 1987 be
C-7
<PAGE>
exercised while there remains outstanding any other Incentive Option
which was granted at an earlier date to the optionee to purchase stock in
the Corporation, his employer corporation or any other corporation which
is on the date of grant of the later option either a parent or subsidiary
corporation of his employer corporation or in a predecessor corporation
of any such corporation. Solely for purposes of this Section VI(f)(1),
an Incentive Option shall be treated as outstanding until such option is
exercised in full or expires by lapse of time.
(2) DOLLAR LIMITATIONS.
(A) INCENTIVE OPTIONS GRANTED AFTER DECEMBER 31, 1986.
To the extent that the aggregate fair market value (determined as
of the respective date or dates of grant) of shares with respect to
which options granted after December 31, 1986 that would otherwise
be Incentive Stock Options are exercisable for the first time by
any individual during any calendar year under the Plan (or any
other plan of the Corporation, a parent or subsidiary corporation
or predecessor thereof) exceeds the sum of $100,000, whether by
reason of acceleration or otherwise, such options shall be treated
as "nonstatutory" options. Such options shall be taken into account
in the order in which they were granted.
(B) INCENTIVE OPTIONS GRANTED BEFORE JANUARY 1, 1987.
The aggregate fair market value (determined as of the respective
date or dates of grant) of the Common Stock which may be made the
subject of Incentive Options granted to any employee under the Plan
(or any other plan of the Corporation or his employer corporation
or its parent or subsidiary corporation or a predecessor of any
such corporation) in any one calendar year before January 1, 1987
shall not exceed the sum of One Hundred Thousand Dollars
($100,000), plus any unused Carryover from each of the three
immediately preceding calendar years after 1980. For purposes of
the preceding limitation, the term "Carryover" means, with respect
to each calendar year after 1980, one-half (1/2) the amount by
which the sum of One Hundred Thousand Dollars ($100,000) exceeds
the aggregate fair market value (determined as of the respective
date or dates of grant) of the Common Stock for which the optionee
is granted Incentive Options under the Plan (or any other option
plan of the Corporation, his employer corporation and its parent
and subsidiary corporation) in such calendar year. Incentive
Options granted during any calendar year shall first be applied
against the basic $100,000
C-8
<PAGE>
limitation in effect for such calendar year and then applied
against any unused Carryovers to such calendar year in the order
of the calendar years in which the Carryovers arose.
(3) 10% SHAREHOLDER. If any employee to whom an Incentive
Option is to be granted pursuant to the provisions of the Plan is on the
date of grant the owner of stock (determined with application of the
ownership attribution rules of Section 425(d) of the Internal Revenue
Code) possessing more than 10% of the total combined voting power of all
classes of stock of his employer Corporation or of its parent or
subsidiary corporation, then the following special provisions shall be
applicable to the option granted to such individual:
(i) The option price per share of the Common Stock
subject to such Incentive Option shall not be less than 110% of the
fair market value of one share of Common Stock on the date of
grant; and
(ii) The Option shall not have a term in excess of five
(5) years from the date of grant.
(4) PARENT; SUBSIDIARY. For purposes of this Section VI(f)
"parent and subsidiary corporation" and "parent or subsidiary
corporation" shall have the meaning attributed to those terms under
Section 422A(b) of the Internal Revenue Code.
(g) WITHHOLDING ON NONSTATUTORY OPTIONS.
(1) In the event that an optionee is required to pay to the
Corporation an amount with respect to income and employment tax
withholding obligations in connection with exercise of a nonstatutory
option, the Committee may, in its discretion and subject to such rules
as it may adopt, permit the optionee to satisfy the obligation, in whole
or in part, by making an irrevocable election that a portion of the
total value of the shares of Common Stock subject to the nonstatutory
option be paid in the form of cash in lieu of the issuance of Common
Stock and that such cash payment be applied to the satisfaction of the
withholding obligations. The amount to be withheld shall not exceed the
statutory minimum Federal and State income and employment tax liability
arising from the option exercise transaction.
(2) If the optionee is subject to the trading restrictions of
Section 16(b) of the Securities Exchange Act of 1934 (the "1934 Act")
at the time of exercise of an option, any election under this
subparagraph (g) by such
C-9
<PAGE>
individual shall be made either (i) at least six months prior to the date
the amount of withholding tax due with respect to the exercise is
calculated (the "Tax Date") or (ii) on or prior to the Tax Date, within a
"window period" as defined in Rule 16b-3(e)(3)(iii) under the 1934 Act;
and shall apply only to options exercised six months or more after the
date of grant (unless the option holder dies or becomes disabled prior to
the expiration of such six-month period). Should the Tax Date be deferred
for six months following the exercise date, the full amount of shares
purchased under the exercised option shall be issued to the officer or
director upon exercise, but such individual shall be obligated
unconditionally, upon approval of his withholding election, to tender
back to the Corporation on the Tax Date the requisite number of shares of
Common Stock (plus cash for any fractional amount) needed to satisfy the
designated percentage of his minimum Federal and State income and
employment tax withholding liability.
VII. RESTRICTED SHARE RIGHTS
(a) NATURE OF RIGHTS. Share rights granted under the Plan shall provide
an employee with the restricted right to receive shares of Common Stock under
the Plan. The right to receive shares (together with cash dividend equivalents
if so determined by the Committee) pursuant to any share rights shall be subject
to such terms, conditions and restrictions (whether based on performance
standards or periods of service or otherwise) as the Committee shall determine.
However, in no event shall any share rights entitle the holder to receive shares
under the Plan free of all restrictions on transfer at any time prior to the
expiration of two (2) years of service after the grant date of such share rights
except, if the Committee shall so determine, in the case of death, disability or
retirement. The Committee shall have the absolute discretion to determine
whether any consideration (other than the services of the employee) is to be
received by the Corporation or its subsidiaries as a condition precedent to the
issuance of shares pursuant to share rights. The terms, conditions and
restrictions to which share rights are subject may vary from grant to grant.
(b) FORM; CASH PAYMENTS. All share rights granted under the Plan shall
be evidenced by instruments in such form as the Committee may from time to time
approve. The Committee shall have the absolute discretion to incorporate into
one or more of such instruments provisions for the payment of share rights
partly in shares of Common Stock and partly in cash in accordance with the
following terms and conditions:
(i) The Committee may require that a designated
percentage of the total value of the shares of Common Stock
subject to the share
C-10
<PAGE>
rights held by one or more employees be paid in the form of
cash in lieu of the issuance of Common Stock and that such
cash payment be applied to the satisfaction of the federal
and state income tax withholding obligations that arise at
the time the share rights become free of all restrictions
under the Plan. The designated percentage shall be equal to
the income tax withholding rate in effect at the time under
federal and applicable state law.
(ii) The Committee may provide one or more employees
whose share rights are subject to the mandatory cash payment
under clause (i) with an election to receive an additional
percentage of the total value of the Common Stock subject to
their share rights in the form of a cash payment in lieu of
the issuance of Common Stock. The additional percentage
shall not exceed the difference between 50% and the
designated percentage under clause (i). If any employee to
whom an election under this clause (ii) is granted is, at
the time such election is to be exercised, considered an
officer or director of the Corporation for purposes of
Section 16(b) of the Securities Exchange Act of 1934, or was
such an officer or director at any time during the six-month
period immediately preceding the date of the election and
made any purchase or sale of Common Stock during such
six-month period, then the following provisions shall be
applicable to the exercise of his election under this clause
(ii):
(A) The election can be exercised only during
one of the so-called "window periods," through and
including the window period which ends immediately
prior to the date the share rights are to become free
of all restrictions under the Plan. Each window period
shall commence on the third and end on the twelfth
business day following the day on which the
Corporation's quarterly or annual summaries of income
and earnings are released to the public.
(B) The Committee shall have absolute
discretion to approve or disapprove the election.
(c) MODIFICATION OF RIGHTS. The Committee shall have full power and
authority to modify or waive any or all of the terms,
C-11
<PAGE>
conditions or restrictions applicable to any outstanding share rights;
provided, however, that (i) no such modification or waiver shall, without the
consent of the holder of the share rights, adversely affect the holder's
rights thereunder and (ii) no such modification or waiver shall reduce the
service requirement specified in subparagraph VII(a) to less than two (2)
years, except in the event of the holder's death, disability or retirement.
VIII. LOANS, LOAN GUARANTEES AND INSTALLMENT PAYMENTS
In order to assist an employee (including an employee who is an officer
or director of the Corporation) in the acquisition of shares of Common Stock
pursuant to an award granted under the Plan, the Committee may authorize, at
either the time of the grant of an award or the time of the acquisition of
Common Stock pursuant to the award, (i) the extension of a loan to the employee
by the Corporation, (ii) the payment by the employee of the purchase price, if
any, of the Common Stock in installments, or (iii) the guarantee by the
Corporation of a loan obtained by the employee from a third party. The terms of
any loans, guarantees or installment payments, including the interest rate and
terms of repayment, will be subject to the discretion of the Committee. Loans,
installment payments and guarantees may be granted without security, the maximum
credit available being the purchase price, if any, of the Common Stock acquired
plus the maximum federal and state income and employment tax liability which may
be incurred in connection with the acquisition.
IX. ASSIGNABILITY
No option or share right granted under the Plan shall be assignable or
transferable by the optionee other than by will or by the laws of descent and
distribution, and during the lifetime of the optionee options granted under
the Plan shall be exercisable only by him.
X. SHAREHOLDER RIGHTS
No person shall have any rights as a shareholder with respect to the
shares of Common Stock subject to an option or share right granted under the
Plan until he shall have been issued a stock certificate for such shares.
XI. VALUATION OF COMMON STOCK
For all valuation purposes under the Plan, the fair market value of a
share of Common Stock shall be its closing price, as quoted on the New York
Stock Exchange Composite Tape, on the day immediately prior to the date in
question. If there is no quotation available for such day, then the closing
price on the next preceding day for which there does exist such a quotation
C-12
<PAGE>
shall be determinative of fair market value. If, however, the Committee
determines that, as a result of circumstances existing on any date, the use of
such price is not a reasonable method of determining fair market value on that
date, the Committee may use such other method as, in its judgment, is
reasonable.
XII. EFFECTIVE DATE AND TERM OF PLAN
(a) EFFECTIVE DATE. The Plan shall become effective on the
date it is adopted by the Board of Directors of the Corporation, but no
shares of Common Stock shall be issued under the Plan and no options
granted under the Plan shall be exercisable before the Plan is approved
by the holders of at least a majority of the Corporation's outstanding
voting stock represented and voting at a duly-held meeting at which a
quorum is present, provided the shares voting for approval also
constitute at least a majority of the required quorum. If such
shareholder approval is not obtained, then any options or share rights
previously granted under the Plan shall terminate and no further options
or share rights shall be granted. Subject to such limitation, the
Committee may grant options and share rights under the Plan at any time
after the adoption of the Plan by the Board of Directors of the
Corporation and before the date fixed herein for termination of the Plan.
(b) TERM. The Plan shall terminate on the 10th anniversary of
the date of the Plan's adoption by the Board of Directors of the
Corporation. Any option or share right outstanding under the Plan at
the time of its termination shall continue to have full force and
effect in accordance with the provisions set forth in the instruments
evidencing such option or share right.
XIII. AMENDMENT OR DISCONTINUANCE BY BOARD ACTION
The Board of Directors of the Corporation may amend, suspend or
discontinue the Plan in whole or in part at any time; provided, however, that,
except to the extent necessary to qualify as Incentive Options any or all
options granted under the Plan which are intended to so qualify, such action
shall not adversely affect rights and obligations with respect to options or
share rights at the time outstanding under the Plan; and provided, further, that
no modification of the Plan by the Board of Directors of the Corporation without
the approval of the Corporation's shareholders shall (i) change the number of
shares of Common Stock which may be issued under the Plan (unless necessary to
effect the adjustments required under subparagraph IV(d)), (ii) materially
increase the benefits accruing to participants in the Plan, (iii) materially
modify the eligibility requirements for awards under the Plan or (iv) render any
member
C-13
<PAGE>
of the Committee eligible to receive awards under the Plan at any time while
serving on the Committee.
XIV. CONSTRUCTION
Whenever used in the Plan, the masculine gender shall include the
feminine gender and the singular shall include the plural.
C-14
<PAGE>
EXHIBIT 11
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
- -------------------------------------------------------------------------------
Year ended December 31,
-------------------------
(in millions) 1993 1992 1991
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER COMMON SHARE
<S> <C> <C> <C>
Net income $ 612 $ 283 $ 21
Less preferred dividends 50 48 19
------ ----- ----
Net income for calculating primary
earnings per common share $ 562 $ 235 $ 2
====== ===== ====
Average common shares outstanding 56 53 52
====== ===== ====
PRIMARY EARNINGS PER COMMON SHARE $10.10 $4.44 $.04
====== ===== ====
FULLY DILUTED EARNINGS PER COMMON SHARE (1)
Net income $ 612 $ 283 $ 21
Less preferred dividends 50 48 19
------ ----- ----
Net income for calculating fully
diluted earnings per common share $ 562 $ 235 $ 2
====== ===== ====
Average common shares outstanding 56 53 52
Add exercise of options, warrants and
share rights, reduced by the number
of shares that could have been
purchased with the proceeds from
such exercise 1 1 1
------ ----- ----
Average common shares outstanding as adjusted 57 54 53
====== ===== ====
FULLY DILUTED EARNINGS PER COMMON SHARE $ 9.88 $4.38 $.04
====== ===== ====
- -------------------------------------------------------------------------------
<FN>
(1) This presentation is submitted in accordance with Item 601(b)(11) of
Regulation S-K. This presentation is not required by APB Opinion No. 15,
because it results in dilution of less than 3%.
</TABLE>
<PAGE>
EXHIBIT 12
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings, including interest on deposits (1):
Income before income tax expense $1,038 $ 500 $ 54 $1,196 $1,001
Fixed charges 1,157 1,505 2,504 2,784 2,759
------ ------ ------ ------ ------
$2,195 $2,005 $2,558 $3,980 $3,760
====== ====== ====== ====== ======
Fixed charges (1):
Interest expense $1,104 $1,454 $2,452 $2,737 $2,712
Estimated interest component of net rental expense 53 51 52 47 47
------ ------ ------ ------ ------
$1,157 $1,505 $2,504 $2,784 $2,759
====== ====== ====== ====== ======
Ratio of earnings to fixed charges (2) 1.90 1.33 1.02 1.43 1.36
====== ====== ====== ====== ======
Earnings, excluding interest on deposits:
Income before income tax expense $1,038 $ 500 $ 54 $1,196 $1,001
Fixed charges 294 320 539 839 949
------ ------ ------ ------ ------
$1,332 $ 820 $ 593 $2,035 $1,950
====== ====== ====== ====== ======
Fixed charges:
Interest expense $1,104 $1,454 $2,452 $2,737 $2,712
Less interest on deposits (863) (1,185) (1,965) (1,945) (1,810)
Estimated interest component of net rental expense 53 51 52 47 47
------ ------ ------ ------ ------
$ 294 $ 320 $ 539 $ 839 $ 949
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 4.53 2.56 1.10 2.42 2.05
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) As defined in Item 503(d) of Regulation S-K.
(2) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there were no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there were no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the level
of interest rates or, conversely, they would increase if interest income and
interest expense decrease by the same amount due to a decrease in the level
of interest rates.
</TABLE>
<PAGE>
Financial Review
- -------------------- WELLS FARGO & COMPANY AND SUBSIDIARIES --------------------
- --------------------------------------------------------------------------------
----------------------------------------
----------------------------------------
Overview
----------------------------------------
----------------------------------------
Wells Fargo & Company (Parent) is a bank holding company whose principal
subsidiary is Wells Fargo Bank, N.A. (Bank). In this Annual Report, Wells Fargo
& Company and its subsidiaries are referred to as the Company.
Net income in 1993 was $612 million, compared with $283 million in 1992.
Net income per share was $10.10, compared with $4.44 in 1992.
Return on average assets (ROA) was 1.20% and return on average common equity
(ROE) was 16.74% in 1993, compared with .54% and 7.93%, respectively, in 1992.
The increase in earnings in 1993 compared with 1992 was substantially due to
a $665 million, or 55%, decrease in the loan loss provision to $550 million.
During 1993, net charge-offs were $495 million, or 1.44% of average total loans,
compared with $798 million, or 1.97%, during 1992. The allowance for loan losses
was $2,122 million, or 6.41% of total loans, at December 31, 1993, compared with
$2,067 million, or 5.60%, at December 31, 1992.
At December 31, 1993, total nonaccrual and restructured loans were
$1,200 million, or 3.6% of total loans, compared with $2,142 million, or 5.8%,
at December 31, 1992. Loans new to nonaccrual in 1993 were $821 million,
compared with $2,166 million in 1992. At December 31, 1993, an estimated $704
million, or 59%, of nonaccrual loans were less than 90 days past due, compared
with an estimated $1,294 million, or 61%, at December 31, 1992. Foreclosed
assets were $348 million at December 31, 1993, compared with $510 million at
December 31, 1992.
Net interest income on a taxable-equivalent basis decreased to $2,659 million
in 1993 from $2,698 million a year ago, while the net interest
margin increased to 5.74% from 5.70%.
Average earning assets declined to $46.3 billion in 1993 from $47.3 billion
in 1992. This decrease was substantially due to loan runoff, predominantly
offset by purchases of investment securities. Total average loans were $34.3
billion at December 31, 1993, a 15% decrease from $40.4 billion at December 31,
1992. Total average investment securities increased to $11.3 billion in 1993
from $6.0 billion in 1992. The decrease in average total loans reflects loan
repayments, weak loan demand and the Company's emphasis in 1993 on reducing
the commercial real estate portfolio. Currently, the Company expects its loan
portfolio to grow in 1994, particularly real estate 1-4 family first mortgages,
consumer loans and small business and middle market loans.
Noninterest income increased from $1,059 million in 1992 to $1,093
million in 1993, an increase of 3%. Substantially all of the growth was in
service charges on deposit accounts and trust and investment services income.
Noninterest expense increased from $2,035 million in 1992 to $2,162 million in
1993, an increase of 6%. The increase in noninterest expense was substantially
due to higher expenses for salaries and benefits.
The Company's effective tax rate of 41% for 1993 decreased from 43% for 1992.
A significant portion of this decrease was due to a net $9 million reduction of
income tax expense related to the impact of the Omnibus Budget Reconciliation
Act of 1993.
In 1993, economic conditions continued to strengthen in many parts of the
country. However, the California economy, the Company's primary market, remained
sluggish along a broad group of industries and job losses con-
[Graph]
[Graph]
11
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
RATIOS AND PER COMMON SHARE DATA
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------
1993 1992 1991
<S> <C> <C> <C>
PROFITABILITY RATIOS
Net income to average total assets (ROA) 1.20% .54% .04%
Net income applicable to common stock
to average common stockholders'
equity (ROE) 16.74 7.93 .07
Net income to average
stockholders' equity 15.32 7.92 .63
CAPITAL RATIOS
At year end:
Common stockholders' equity
to assets 7.00% 6.03% 5.24%
Stockholders' equity to assets 8.22 7.25 6.11
Risk-based capital (1)
Tier 1 capital (core capital) 10.48 8.22 5.78
Total capital 15.12 13.15 10.19
Leverage (1) 7.39 6.36 5.00
Average balances:
Common stockholders' equity to assets 6.57 5.65 5.58
Stockholders' equity to assets 7.82 6.81 6.09
PER COMMON SHARE DATA
Dividend payout (2) 22% 34% -%
Book value $65.87 $57.44 $53.99
Market prices (3):
High $133 $ 86 3/8 $ 97 3/4
Low 75 1/2 59 48 1/4
Year end 129 3/8 76 3/8 58
- ------------------------------------------------------------------------------
<FN>
(1) See the Capital Adequacy/Ratios section for additional information.
(2) Dividends declared per common share as a percentage of net income per
common share.
(3) Based on daily closing prices reported on the New York Stock Exchange
Composite Transaction Reporting System.
</TABLE>
tinued. Still, there are some signs of stability, mainly as a result of
widespread financial restructuring. Corporations and consumers have reduced
and/or refinanced their debt, much of it at lower interest rates.
Southern California has been particularly burdened by severe cutbacks in the
defense and aerospace industries and by the excess in commercial real estate,
especially office buildings. The ripple effect from these and other forces
spread to a large number of closely related industries, especially retailing,
business services and financial activities. The region has also suffered from
natural disasters, especially the earthquake in January 1994. Since mid-1990,
Southern California is estimated to have lost 525,000 jobs, or 80% of the total
jobs lost in the whole state. Higher unemployment has led to greater consumer
delinquencies, personal bankruptcies and larger credit card charge-offs than in
Northern California. Also, as a result of these difficulties in the Southern
California economy, many of the Company's commercial real estate borrowers in
the region have experienced falling collateral values due to the substantial
oversupply of properties and the resultant reduced rental and occupancy rates.
At December 31, 1993, an estimated $3,356 million, or 36%, of the Company's
other real estate mortgage and real estate construction loans were in Southern
California and an estimated $386 million, or 12%, of that amount was on
nonaccrual. The ability of certain real estate developers to support their
projects has been impaired. It may take years to absorb the surplus office
capacity in the Southern California markets where the Company has $870 million
of commercial office building loans. It is difficult to predict when current
economic conditions will show significant improvement, but many corporations and
households are continuing to restructure and refinance, thus creating favorable
conditions for a potential improvement in the economy.
Northern California has been affected by the recession but to a lesser extent
than Southern California. One of Northern California's advantages is its higher
concentration of service-oriented companies and its somewhat broader economic
base. At December 31, 1993, an estimated $2,764 million, or 29%, of the
Company's other real estate mortgage and real estate construction loans were in
Northern California and an estimated $65 million, or 2%, of that amount was on
nonaccrual. Although Northern California has had difficulties in commercial real
estate similar to Southern California, these difficulties have been much less
severe than in Southern California. In all likelihood, this region has better
prospects of coming out of the recession earlier than Southern California.
At December 31, 1993, the ratio of common equity to total assets was 7.00%,
compared with 6.03% at December 31, 1992. The Company's total risk-based capital
(RBC) ratio at December 31, 1993 was 15.12% and its Tier 1 RBC ratio was 10.48%,
exceeding the minimum guidelines of 8.00% and 4.00%, respectively. The ratios at
December 31, 1992 were 13.15% and 8.22%, respectively. The leverage ratios were
7.39% and 6.36% at December 31, 1993 and 1992, respectively. A discussion of RBC
and leverage ratio guidelines is in the Capital Adequacy/Ratios section.
In October 1993, the Board of Directors approved an increase in the common
stock quarterly dividend from $.50 per share to $.75 per share. The quarterly
dividend was increased again in January 1994 to $1.00 per share.
12
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989 1988 % Change Five-year
1993/ compound
1992 growth rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 2,657 $ 2,691 $ 2,520 $ 2,314 $ 2,159 $ 1,972 (1)% 6 %
Provision for loan losses 550 1,215 1,335 310 362 300 (55) 13
Noninterest income 1,093 1,059 889 909 779 682 3 10
Noninterest expense 2,162 2,035 2,020 1,717 1,575 1,519 6 7
Net income 612 283 21 712 601 513 116 4
Per common share
Net income $ 10.10 $ 4.44 $ .04 $ 13.39 $ 11.02 $ 9.20 127 2
Dividends declared 2.25 1.50 3.50 3.90 3.30 2.45 50 (2)
BALANCE SHEET
(at year end)
Investment securities $13,058 $ 9,338 $ 3,833 $ 1,387 $ 1,738 $ 3,970 40 % 27 %
Loans 33,099 36,903 44,099 48,977 41,727 37,670 (10) (3)
Allowance for loan losses 2,122 2,067 1,646 885 738 752 3 23
Assets 52,513 52,537 53,547 56,199 48,737 46,617 - 2
Core deposits 41,291 41,879 42,941 41,840 35,607 33,042 (1) 5
Senior debt 2,256 2,159 2,537 529 695 923 4 20
Subordinated debt 1,965 1,881 1,683 1,888 1,846 1,994 4 -
Stockholders' equity 4,315 3,809 3,271 3,360 2,861 2,580 13 11
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------------------------------------
----------------------------------------
Earnings Performance
----------------------------------------
----------------------------------------
The Bank generated net income of $632 million and $337 million in 1993 and 1992,
respectively. This income was partially offset by net losses of the Parent
(excluding its equity in earnings of subsidiaries) and its nonbank subsidiaries
totaling $20 million and $54 million in 1993 and 1992, respectively.
Net Interest Income
- --------------------------------------------------------------------------------
-------------------
Net interest income is the difference between interest income (which includes
yield-related loan fees) and interest expense. Net interest income on a
taxable-equivalent basis was $2,659 million in 1993, compared with $2,698
million in 1992.
Net interest income on a taxable-equivalent basis expressed as a percentage
of average total earning assets is referred to as the net interest margin, which
represents the average net effective yield on earning assets. For 1993, the net
interest margin was 5.74%, compared with 5.70%
[Graph]
13
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS)(1)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992
------------------------------------ ------------------------------------
AVERAGE YIELDS/ INTEREST Average Yields/ Interest
BALANCE RATES INCOME/ balance rates income/
EXPENSE expense
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Investment securities (2):
At cost:
U.S. Treasury securities $ 2,283 5.03% $ 115 $ 1,562 5.80% $ 91
Securities of U.S. government agencies
and corporations 7,974 6.41 511 4,197 7.38 309
Obligations of states and political subdivisions 22 7.36 2 32 7.15 2
Private collateralized mortgage obligations 864 4.16 36 - - -
Other securities 167 5.45 9 78 5.76 5
------- ------ ------- ------
Total investment securities at cost 11,310 5.95 673 5,869 6.93 407
At lower of cost or market - - - 108 8.73 9
------- ------ ------- ------
Total investment securities 11,310 5.95 673 5,977 6.97 416
Federal funds sold and securities purchased
under resale agreements 734 3.17 23 919 3.62 33
Loans:
Commercial 7,154 9.36 670 9,702 8.50 825
Real estate 1-4 family first mortgage 6,787 7.92 538 7,628 9.27 707
Other real estate mortgage (3) 9,467 8.20 776 10,634 8.21 873
Real estate construction (3) 1,303 8.50 111 1,837 8.47 156
Consumer:
Real estate 1-4 family junior lien mortgage 3,916 6.97 273 4,585 8.14 373
Credit card 2,587 15.62 404 2,771 15.93 441
Other revolving credit and monthly payment 1,893 9.45 179 2,083 9.85 205
------- ------ ------- ------
Total consumer 8,396 10.19 856 9,439 10.81 1,019
Lease financing 1,190 9.83 117 1,165 10.36 121
Foreign 7 - - 1 - -
------- ------ ------- ------
Total loans (4) 34,304 8.94 3,068 40,406 9.16 3,701
Other - - - 1 - -
------- ------ ------- ------
Total earning assets $46,348 8.12 3,764 $47,303 8.77 4,150
======= ------ ======= ------
FUNDING SOURCES
Interest-bearing liabilities:
Deposits:
Interest-bearing checking $ 4,626 1.18 55 $ 4,597 1.77 81
Savings deposits 2,741 2.19 60 3,250 2.81 91
Market rate savings 16,592 2.28 378 15,284 2.89 442
Savings certificates 7,948 4.37 347 10,763 4.94 532
Certificates of deposit 219 7.99 18 316 8.41 27
Other time deposits 112 5.62 6 128 532 7
Deposits in foreign offices 7 - - 43 7.89 3
------- ------ ------- ------
Total interest-bearing deposits 32,245 2.68 864 34,381 3.44 1,183
Federal funds purchased and securities
sold under repurchase agreements 1,051 2.79 29 1,299 3.16 41
Commercial paper and other short-term borrowings 207 2.90 6 252 3.54 9
Senior debt 2,174 4.75 103 2,175 5.77 126
Subordinated debt 1,958 5.23 103 1,872 4.99 93
------- ------ ------- ------
Total interest-bearing liabilities 37,635 2.93 1,105 39,979 3.63 1,452
Portion of noninterest-bearing funding sources 8,713 - - 7,324 - -
------- ------ ------- ------
Total funding sources $46,348 2.38 1,105 $47,303 3.07 1,452
======= ------ ======= ------
NET INTEREST MARGIN AND NET INTEREST INCOME
ON A TAXABLE-EQUIVALENT BASIS (5) 5.74% $2,659 5.70% $2,698
===== ====== ===== ======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 2,456 $ 2,536
Other 2,306 2,658
------- -------
Total noninterest-earning assets $ 4,762 $ 5,194
======= =======
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 8,482 $ 7,885
Other liabilities 997 1,060
Preferred stockholders' equity 639 608
Common stockholders' equity 3,357 2,965
Noninterest-bearing funding sources used to
fund earning assets (8,713) (7,324)
------- -------
Net noninterest-bearing funding sources $ 4,762 $ 5,194
======= =======
TOTAL ASSETS $51,110 $52,497
======= =======
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The average prime rate of the Bank was 6.00%, 6.25%, 8.47%, 10.01% and 10.87% for 1993, 1992, 1991, 1990 and 1989,
respectively. The average three-month London Interbank Offered Rate (LIBOR) was 3.29%, 3.83%, 5.99%, 8.28% and 9.29% for the
same years, respectively.
(2) There was no average balance or related interest income earned on investment securities carried at fair value since FAS 115 was
adopted on December 31, 1993.
(3) During the fourth quarter of 1990, loans were reclassified from the real estate construction loan category to the other real
estate mortgage loan category so that the real estate construction loan category consists solely of properties where
construction is not complete. Prior period balances have not been reclassified as complete information is not available.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
1991 1990 1989
- -------------------------------- -------------------------------- --------------------------------
Average Yields/ Interest Average Yields/ Interest Average Yields/ lnterest
balance rates income/ balance rates income/ balance rates income/
expense expense expense
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 631 6.59% $ 41 $ 338 6.82% $ 23 $ 709 7.43% $ 53
1,231 7.85 96 998 8.95 89 2,253 8.81 198
50 7.31 4 68 7.76 5 70 7.51 5
- - - - - - - - -
143 8.79 13 238 9.92 24 315 10.63 34
------- ------ ------- ------ ------- ------
2,055 7.51 154 1,642 8.60 141 3,347 8.67 290
- - - - - - - - -
------- ------ ------- ------ ------- ------
2,055 7.51 154 1,642 8.60 141 3,347 8.67 290
303 5.42 16 45 8.61 4 31 9.33 3
12,974 9.64 1,252 14,382 10.92 1,570 14,154 11.66 1,650
9,367 10.16 952 8,268 10.47 866 5,953 10.51 626
10,773 9.58 1,033 7,022 10.62 746 5,714 11.06 632
2,232 10.10 225 4,271 10.83 463 4,385 11.70 513
5,135 10.10 519 4,321 11.50 497 3,701 12.19 451
2,758 16.25 448 2,566 16.24 416 2,040 16.66 339
2,323 11.11 258 2,072 11.95 248 1,895 12.41 235
------- ------ ------- ------ ------- ------
10,216 11.99 1,225 8,959 12.96 1,161 7,636 13.44 1,025
1,167 11.34 132 1,129 10.63 120 1,339 9.55 128
7 23.86 2 30 8.41 3 245 8.61 21
------- ------ ------- ------ ------- ------
46,736 10.31 4,821 44,061 11.19 4,929 39,426 11.66 4,595
17 8.43 1 5 - - 49 7.70 4
------- ----- ------- ------ ------- ------
$49,111 10.17 4,992 $45,753 11.09 5,074 $42,853 11.42 4,892
======= ------ ======= ------ ======= ------
$ 4,379 3.72 163 $ 3,835 3.93 151 $ 3,593 3.92 141
3,398 4.88 166 3,508 5.01 176 4,064 4.97 202
12,699 5.04 640 9,788 6.32 619 8,155 6.67 544
13,758 6.57 905 11,905 7.74 921 10,161 7.91 804
570 8.12 46 418 8.72 36 436 8.99 39
149 7.89 12 177 8.23 15 159 8.76 14
400 7.76 31 261 8.84 23 654 9.02 59
------- ------ ------- ------ ------- ------
35,353 5.55 1,963 29,892 6.49 1,941 27,222 6.62 1,803
3,092 5.50 170 4,522 7.95 359 4,147 9.19 381
1,243 6.29 78 2,871 7.90 227 2,892 9.13 264
1,681 7.53 126 587 9.02 53 815 9.11 74
1,832 6.15 113 1,864 8.23 153 1,943 9.36 182
------- ------ ------- ------ ------- ------
43,201 5.67 2,450 39,736 6.88 2,733 37,019 7.31 2,704
5,910 - - 6,017 - - 5,834 - -
------- ------ ------- ------ ------- ------
$49,111 4.99 2,450 $45,753 5.97 2,733 $42,853 6.31 2,704
======= ------ ======= ------ ======= ------
5.18% $2,542 5.12% $2,341 5.11% $2,188
===== ====== ===== ====== ===== ======
$ 2,604 $ 2,616 $ 2,623
3,307 2,740 2,287
------- ------- -------
$ 5,911 $ 5,356 $ 4,910
======= ======= =======
$ 7,289 $ 7,183 $ 6,877
1,180 1,053 1,120
279 405 405
3,073 2,732 2,342
(5,910) (6,017) (5,834)
------- ------- -------
$ 5,911 $ 5,356 $ 4,910
======= ======= =======
$55,022 $51,109 $47,763
======= ======= =======
- ----------------------------------------------------------------------------------------------------------------
<FN>
(4) Nonaccrual loans and related income are included in their respective loan categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that
is exempt from federal and applicable state income taxes. The federal statutory tax rate was 35% for 1993
and 34% for the other years presented.
</TABLE>
15
<PAGE>
in 1992. This increase was substantially due to lower rates paid on
interest-bearing checking and savings accounts, wider spreads between Prime- and
LIBOR-based loans and their funding sources and recoveries on loans where
interest had been previously applied to principal. These improvements were
partially offset by a change in the mix of earning assets from higher-yielding
loans to lower-yielding investment securities and lower income from derivative
contracts used to hedge mismatches in the rate maturity of loans and their
funding sources. Individual components of net interest income and net interest
margin are presented in Table 3.
Hedging income from derivative contracts decreased $32 million in 1993,
resulting in a 7 basis point decline in the net interest margin due to the
maturity of contracts. The maturity of certain hedging contracts is expected to
result in lower hedging income in 1994 of about $95 million, or about a 20 basis
point decline in the net interest margin, assuming interest rates remain stable.
The interest rate derivative contracts that are maturing, primarily purchased
interest rate floor contracts and interest rate swaps in which the Company
receives a fixed rate, were entered into during a higher interest rate
environment and have benefited from the subsequent decline in rates. These
maturing contracts may be replaced by new derivative contracts based on the
Company's ongoing assessment of its overall interest rate sensitivity position.
However, any new replacement contracts are not expected to result in the same
hedging income as the maturing contracts due to the lower rate environment.
The decrease in earning assets was substantially due to a $6.1 billion
decrease in average loans, primarily in commercial loans and other real estate
mortgage loans, partially offset by a $5.3 billion increase in average invest-
ment securities, predominantly mortgage-backed securities. For further
discussion of significant changes in earning assets and funding sources, see the
Balance Sheet Analysis section.
Net interest income and the net interest margin are expected to decline in
1994 due to the change in mix of assets and the resulting lower yields on
investment securities as well as a decline in hedging income. However, this
decline may be partially offset by the payoff of loans where interest had been
previously applied to principal.
Noninterest Income
- --------------------------------------------------------------------------------
------------------
Table 4 shows the major components of noninterest income.
TABLE 4
NONINTEREST INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31, % Change
------------------------ ------------
1993 1992 1991 1993/ 1992/
1992 1991
<S> <C> <C> <C> <C> <C>
Service charges on
deposit accounts $423 $394 $337 7 % 17 %
Fees and commissions:
Debit and credit card
merchant fees 80 87 89 (8) (2)
Credit card membership
and other credit
card fees 68 72 73 (6) (1)
Charges and fees on loans 48 49 47 (2) 4
Mutual fund and annuity
sales fees 43 29 4 48 625
Shared ATM network fees 38 32 23 19 39
All other 99 94 107 5 (12)
------ ------ ----
Total fees and
commissions 376 363 343 4 6
Trust and investment
services income:
Asset management and
custody fees 125 124 118 1 5
Mutual fund
management fees 37 19 3 95 533
All other 28 22 17 27 29
------ ------ ----
Total trust and
investment
services income 190 165 138 15 20
Investment securities
gains (losses):
At cost - - (6) - (100)
At lower of cost or market - 45 - (100) -
------ ------ ----
Total investment
securities
gains (losses) - 45 (6) (100) -
Income from equity
investments accounted
for by the:
Cost method 42 17 18 147 (6)
Equity method 24 24 23 - 4
Check printing charges 38 36 28 6 29
Gains on sales of loans 12 20 23 (40) (13)
Losses from dispositions
of operations (28) (8) (3) 250 167
Real estate investment losses (6) (19) (4) (68) 375
All other 22 22 (8) - -
------ ------ ----
Total $1,093 $1,059 $889 3 % 19 %
====== ====== ==== ==== ====
- --------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
The growth in service charges on deposit accounts in 1993 compared with 1992
was primarily due to increased service charges on individual and business
checking accounts.
The increase in total fees and commissions in 1993 compared with 1992
predominantly resulted from sales fees on mutual funds and annuities as well as
increased shared ATM network income.
The decrease in debit and credit card merchant fees was due to a decline in
sales volume and an alliance that the Company entered into in November 1993. The
agreement with Card Establishment Services Inc. (CES) formed an alliance for
merchant credit card and debit card processing services. Under this agreement,
the Company will be responsible for marketing and sales, initial merchant credit
analysis and customer service; CES will provide technology and processing
operations. The Company retains an interest in the net revenues from processing
the transactions which are now reported as income from equity investments
accounted for by the equity method, rather than reported as income from debit
and credit card merchant fees. Consequently, approximately $30 million of
merchant fees recorded in 1993 will not be reported as such in 1994. The impact
of this agreement was not material to 1993 earnings.
Shared ATM network income increased to $38 million from $32 million in 1992,
primarily due to a fee increase implemented in mid-1992 and a 7% increase in
the volume of transactions processed through the ATM network. The increase in
"all other" fees and commissions was predominantly due to a decrease in
amortization expense for purchased mortgage servicing rights of $16 million for
1993, compared with $22 million in 1992. At December 31, 1993, the remaining
balance of purchased mortgage servicing rights was $15 million.
In 1993, the Company continued its emphasis on marketing mutual fund products
through the Personal Financial Officer (PFO) Program by selling Stagecoach Funds
throughout the branches. Sales of Stagecoach Funds, which were introduced in
1992, contributed to fees and commissions income through sales fee revenues and
also contributed to trust and investment services income through investment
management fees.
The increase in trust and investment services income in 1993 compared with
1992 was mostly due to greater mutual fund investment management fees,
reflecting growth in the funds' net assets. The Overland Express family of
13 funds, which had $3.9 billion of assets under management at
December 31, 1993, compared with $4.1 billion at December 31, 1992, is sold
through brokers around the country. The decline in the assets under management
from 1992 was substantially in the Variable Rate Government Fund, the largest
Overland Fund, reflecting the existence of other competing adjustable rate
mortgage funds and slower growth in this segment of the mutual fund market than
in 1992. The Stagecoach family of 12 funds had $3.8 billion of assets under
management at December 31, 1993, compared with $2.2 billion at December 31,1992.
In mid-1993, the Company introduced a new family of mutual funds, the
WellsFunds, which are offered to selected groups of investors, such as
participants in certain employee benefit plans, certain IRA investors and
certain corporations, partnerships and other business entities. The WellsFunds
family of 7 funds had assets under management of $530 million at
December 31, 1993. In addition to managing Overland Express Funds, Stagecoach
Funds and WellsFunds, the Company also managed or maintained personal trust,
employee benefit trust and agency assets of approximately $45 billion at
December 31, 1993, compared with approximately $37 billion at December 31,
1992. Mutual fund management fees are expected to continue to increase in 1994.
In 1992, the Company realized gains of $45 million from the sale of all of its
30-year mortgage-backed securities. These securities were previously designated
as held for sale and carried at the lower of cost or market.
The increase in income from cost method equity investments in 1993 was
substantially due to $23 million in net gains on sales of and distributions from
investments in highly leveraged transactions.
The increase in losses from disposition of operations was due to a $36 million
accrual made in the third quarter of 1993 primarily related to the disposition
of owned and leased premises expected to result from reduced space requirements;
for example, downsizing some full service branches into supermarket locations
and into other smaller, mid-sized branches.
Real estate investment (contingent interest loans accounted for as
investments) losses in 1992 were substantially due to a $17 million write-down
on land for development in Southern California.
"All other" noninterest income in 1993 included $18 million of interest income
received as a result of the settlement of California Franchise Tax Board audits
related to the appropriate years for claiming deductions applicable to the 1976
through 1986 tax returns. "All other" noninterest income in 1992 included
$14 million of interest income due to the settlement of Internal Revenue Service
audits related to the appropriate years for claiming certain deductions and
credits applicable to the 1978 through 1986 tax years.
Noninterest income is expected to increase in 1994, reflecting a currently
anticipated income growth of more than 10% from fee-based products, such as
mutual funds and deposit-related services, due to the Company's focus on
cross-selling.
17
<PAGE>
Noninterest Expense
- --------------------------------------------------------------------------------
-------------------
Table 5 shows the major components of noninterest expense.
TABLE 5
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31, % Change
-------------------------- ------------
1993 1992 1991 1993/ 1992/
1992 1991
<S> <C> <C> <C> <C> <C>
Salaries $ 784 $ 714 $ 680 10 % 5 %
Employee benefits 222 184 165 21 12
Net occupancy 224 222 218 1 2
Equipment 148 141 143 5 (1)
Federal deposit insurance 114 106 98 8 8
Certain identifiable
intangibles 77 71 69 8 3
Contract services 61 48 40 27 20
Foreclosed assets 60 93 105 (35) (11)
Advertising and
promotion 59 47 57 26 (18)
Operating losses 52 45 81 16 (44)
Telecommunications 44 44 42 - 5
Postage 43 42 40 2 5
Outside professional
services 42 45 46 (7) (2)
Goodwill 37 37 35 - 6
Check printing 34 33 34 3 (3)
Stationery and supplies 31 31 34 - (9)
Travel and entertainment 28 24 25 17 (4)
Escrow and collection
agency fees 24 26 23 (8) 13
Security 19 18 18 6 -
Outside data processing 16 18 20 (11) (10)
All other 43 46 47 (7) (2)
------ ------ ------
Total $2,162 $2,035 $2,020 6 % 1 %
====== ====== ====== === ===
- --------------------------------------------------------------------------------
</TABLE>
The Company's full-time equivalent (FTE) staff, including hourly employees,
averaged approximately 20,800 in 1993 and approximately 21,100 in 1992; it was
19,700 and 21,300 at December 31, 1993 and 1992, respectively. Despite the
decline in FTE, salaries expense increased in 1993 compared with 1992
predominantly due to increases in incentive bonus payments (including the
Company-wide employee appreciation program announced in December 1993), merit
pay increases and severance accruals primarily related to the reorganization of
the Retail Banking group.
Employee benefits expense increased in 1993 primarily due to the adoption on
January 1, 1993 of Statement of Financial Accounting Standards No. 106
(FAS 106), Employers' Accounting for Postretirement Benefits Other Than Pensions
and the adoption in the third quarter of 1993 of Statement of Financial
Accounting Standards No. 112 (FAS 112), Employers' Accounting for Postemployment
Benefits. The adoption of FAS 106 resulted in an incremental expense in 1993 of
approximately $11 million. The adoption of FAS 112 resulted in an accrual of
$12 million. (See further discussion of FAS 106 and 112 in Note 9 to the
Financial Statements.)
The increase in federal deposit insurance expense in 1993 compared with 1992
was mostly due to an increase in the federal deposit insurance rate. Pursuant to
the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), the
FDIC adopted on January 1, 1993 a risk-based assessment system under which the
assessment rate for an insured depository institution varies according to the
level of risk incurred in its activities. The FDIC bases an institution's
assessment risk classification partly upon whether the institution is "well
capitalized," "adequately capitalized" or "less than adequately capitalized." In
addition, each insured depository institution is assigned to one of three
subgroups. Institutions in Subgroup A are financially sound institutions with
only a few minor weaknesses; institutions in Subgroup B demonstrate weaknesses
which, if not corrected, could result in significant deterioration and increased
risk of loss to the FDIC; and institutions in Subgroup C are those for which
there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken. Based on the
semi-annual assessment risk evaluation performed by the FDIC, the Bank is
assigned an annualized assessment rate between .230% and .310%. This rate is
subject to change on January 1 and July 1
each year. Based on this risk-based assessment rate system, the Bank expects
federal deposit insurance expense to decrease in 1994.
A significant portion of the increase in contract services expense for 1993
compared with 1992 was due to services related to computer programming for
system upgrades throughout the Company.
Table 6 shows the major components of foreclosed assets expense.
TABLE 6
FORECLOSED ASSETS EXPENSE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31,
------------------------
1993 1992 1991
<S> <C> <C> <C>
Operating expenses $ 67 $ 80 $ 70
Operating revenues (40) (47) (53)
Net losses from write-downs/sales 33 60 88
---- ---- ----
Total $ 60 $ 93 $105
==== ==== ====
- --------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
The 35% decrease in foreclosed assets expense in 1993 compared with 1992 was
primarily due to a decline in write-downs of office buildings and land and
increased gains on sales. Write-downs in 1993 were primarily appraisal driven,
related to office buildings and land in Southern California and out-of-state
markets. In 1993, the Company continued its efforts to sell foreclosed assets,
as evidenced by an increase in sales of foreclosed assets from approximately
$294 million in 1992 to approximately $328 million in 1993. The Company intends
to continue to emphasize disposing of its foreclosed assets.
The increase in advertising and promotion expense compared with 1992 was
primarily due to the marketing efforts associated with the introduction of the
California Advantage credit card during 1993.
The increase in operating losses in 1993 compared with 1992 was primarily due
to a loss arising from the Company's role as an agent in a loan participation
and losses from litigation.
The Company currently expects total noninterest expense in 1994 to be lower
than 1993 primarily due to expected decreases in personnel-related expense and
FDIC expense.
Income Taxes
- --------------------------------------------------------------------------------
------------
The Company's effective income tax rate was 41 % for 1993 and 43% for 1992. The
decrease in the effective tax rate for 1993 compared with 1992 was primarily due
to reductions of income tax expense of a net $9 million related to the impact of
the Omnibus Budget Reconciliation Act of 1993 ("Act") and $4 million related to
the revaluation of the state deferred tax asset due to a California tax rate
increase.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. FAS 109
changed the method of computing income taxes for financial statement purposes by
adopting the liability (or balance sheet) method under which the net deferred
tax asset or liability is determined based on the tax effects of the differences
between the book and tax bases of the various balance sheet assets and
liabilities. Under this method, the computation of the net deferred tax asset
or liability gives current recognition to changes in tax rates and laws. As a
result, when the Act was signed into law in August of 1993, raising the
corporate tax rate from 34% to 35%, effective January 1, 1993, an adjustment
was made that increased the Company's deferred tax asset and, correspondingly,
decreased income tax expense by approximately $18 million. Because the deferred
tax asset was originally recorded at a lower tax rate, the higher tax rate now
in effect increased the value of the asset. The decreased income tax expense was
partially offset by a $9 million increase to reflect the application of the
higher tax rate to 1993 earnings. A further discussion of FAS 109 is in Note 10
to the Financial Statements. In 1994, the effective tax rate is currently
expected to be about 44%.
----------------------------------------
----------------------------------------
Balance Sheet Analysis
----------------------------------------
----------------------------------------
A comparison between the year-end 1993 and 1992 balance sheets is presented
below. The Bank's assets of $50.7 billion at December 31, 1993 and 1992
represented substantially all of the Company's consolidated assets at year-end
1993 and 1992.
Investment Securities
- --------------------------------------------------------------------------------
---------------------
The Company adopted Statement of Financial Accounting Standards No. 115
(FAS 115), Accounting for Certain Investments in Debt and Equity Securities, on
December 31, 1993. This Statement addresses the accounting and reporting for
certain investments in debt and marketable equity securities.
FAS 115 classifies securities into three categories: held-to-maturity,
trading and available-for-sale. Debt securities that a company has the positive
intent and ability to hold to maturity are considered held-to-maturity
securities and reported at cost. Debt and marketable equity securities, if any,
that are bought and held principally for the purpose of selling them in the near
term are considered trading securities and reported at fair value, with
unrealized gains and losses included in earnings. Debt and marketable equity
securities not considered either held-to-maturity securities or trading
securities are considered available-for-sale securities and reported at fair
value, with unrealized gains and losses, after applicable taxes, reported as a
separate component of stockholders' equity.
19
<PAGE>
Total investment securities averaged $11.3 billion in 1993, an 89% increase
from $6.0 billion in 1992. Total investment securities were $13.1 billion at
December 31, 1993, a 40% increase from $9.3 billion at December 31, 1992. The
investment securities portfolio at December 31, 1993 was comprised of $9.9
billion securities at cost and $3.2 billion securities at fair value. There were
no trading securities at December 31, 1993. The Company's classification of
securities at fair value was influenced by accounting and regulatory
requirements related to certain mortgage-backed securities. The increase in the
investment securities portfolio was due to the cash provided by loan repayments
which was used to purchase securities in light of continued weak loan demand and
the Company's emphasis on reducing commercial real estate concentrations. Most
of the increases in the portfolio were in mortgage-backed securities. Additional
purchases of investment securities are likely to continue, although not at 1993
levels, until loan demand recovers.
Table 7 provides expected remaining maturities and yields
(taxable-equivalent basis) of debt securities within the investment portfolio.
The yield to maturity, or expected running rate, of the held-to-maturity and
available-for-sale securities at December 31, 1993 was approximately 5.76% and
5.68%, respectively. Expected remaining maturities will differ from remaining
contractual maturities because borrowers may have the right to prepay certain
obligations with or without penalties. For asset/liability management purposes,
it is more appropriate to monitor investment security maturities and yields
using prepayment assumptions since this better reflects what the Company can
expect to occur. (Note 3 to the Financial Statements shows the remaining
contractual principal maturities and yields of debt securities.)
<TABLE>
<CAPTION>
TABLE 7
INVESTMENT SECURITIES
EXPECTED REMAINING MATURITIES AND YIELDS
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1993
------------------------------------------------------------------------------------------------------
Total Weighted Weighted Within one year After one year After five years After ten years
amount average average through five years through ten years
yield expected --------------- ------------------ ----------------- ---------------
remaining Amount Yield Amount Yield Amount Yield Amount Yield
maturity (in
yrs.-mos.)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES:
U.S. Treasury securities $2,365 4.85% 1-2 $1,209 5.21% $1,156 4.48% $ - -% $ - -%
Securities of U.S.
government agencies
and corporations 6,570 6.23 3-0 1,886 6.09 3,721 6.03 769 6.77 194 7.29
Obligations of states and
political subdivisions 18 6.49 4-6 3 6.42 11 6.53 2 6.44 2 6.39
Securities issued by
foreign governments 90 5.17 1-11 21 4.48 69 5.38 - - - -
Private collateralized
mortgage obligations 815 4.68 2-2 314 3.46 480 5.44 21 5.52 - -
Corporate debt securities 29 6.14 2-1 11 6.36 18 6.01 - - - -
------- ------ ------ ------ ----
Total cost $ 9,887 5.76% 2-6 $3,444 5.53% $5,455 5.64% $ 792 6.74% $196 7.28%
======= ===== ====== ===== ====== ===== ====== ===== ==== ====
ESTIMATED FAIR VALUE $ 9,978 $3,476 $5,492 $ 809 $201
======= ====== ====== ====== ====
AVAILABLE-FOR-SALE
SECURITIES (1):
Securities of U.S.
government agencies
and corporations $ 1,747 6.00% 2-9 $ 357 7.13% $1,293 5.67% $ 97 6.30% $ - -%
Private collateralized
mortgage obligations 1,340 5.15 2-7 548 4.25 606 5.69 186 6.02 - -
Corporate debt securities 31 11.00 7-0 - - - - 31 11.00 - -
------- ------ ------ ------ ----
Total cost $ 3,118 5.68% 2-9 $ 905 5.39% $1,899 5.68% $ 314 6.60% $ - -%
======= ===== ====== ===== ====== ===== ====== ===== ===== ====
ESTIMATED FAIR VALUE $ 3,131 $ 910 $1,893 $ 328 $ -
======= ====== ====== ====== ====
TOTAL COST OF
DEBT SECURITIES $13,005 5.74% 2-7 $4,349 5.50% $7,354 5.65% $1,106 6.70% $196 7.28%
======= ===== === ====== ===== ====== ===== ====== ===== ==== ====
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The weighted average yield is computed using the amortized cost of available-for-sale investment securities carried at fair
value. See Note 3 to the Financial Statements for fair value of available-for-sale securities by type of security.
</TABLE>
20
<PAGE>
At December 31, 1993, the held-to-maturity securities at cost portfolio had an
estimated unrealized net gain of $91 million (which reflected estimated
unrealized gross losses of $23 million), or.9% of the cost of the portfolio. At
December 31, 1992, the investment securities at cost portfolio had an estimated
unrealized net gain of $90 million (which reflected estimated unrealized gross
losses of $43 million), or 1.0% of the cost of the portfolio.
At December 31, 1993, the available-for-sale securities at fair value
portfolio had unrealized net gains of $21 million, net of tax, reported as a
separate component of stockholders' equity. This was comprised of unrealized
gross pretax gains of $35 million and unrealized gross pretax losses of $22
million on debt securities and unrealized gross pretax gains of $24 million and
unrealized gross pretax losses of $1 million on marketable equity securities.
During 1992, the Company classified all 30-year mortgage-backed securities as
held for sale and carried them at the lower of cost or market. These securities
had a total cost basis of $809 million and were sold for a $45 million gain
during 1992. (Note 3 to the Financial Statements shows the cost and fair value
of investment securities carried at cost and at fair value.)
Loan Portfolio
- --------------------------------------------------------------------------------
---------------
A comparative schedule of average loan balances is presented in Table 3;
year-end balances are presented in Note 4 to the Financial Statements.
Loans averaged $34.3 billion in 1993, a decrease of 15% from 1992. Most of the
26% decrease in average commercial loans was due to loan repayments combined
with a slowdown in commercial lending. The 11% decrease in average real estate
1-4 family first mortgage loans was substantially due to loan repayments, which
were partially a result of refinancings. The majority of the 11% decrease in
average consumer loans was mostly due to a decrease in real estate 1-4 family
junior lien mortgage loans, reflecting the trend toward consumer refinancing in
response to declining interest rates in 1993. The Company expects growth during
1994 in total outstanding loans. Substantially all of this growth will be from
1-4 family first mortgage loans, consumer loans and small business and middle
market loans.
Total loans at December 31, 1993 were $33.1 billion, a decrease of 10%
compared with year-end 1992, predominandy due to declines of 18% in other real
estate mortgage loans and 16% in commercial loans. The Company's commercial real
estate loan portfolio was $9.9 billion at December 31, 1993, compared with $12.5
billion at December 31, 1992, a 21 % decrease. This decrease was due
[Graph]
to reduced lending, payments received, charge-offs and transfers to foreclosed
assets. Net charge-offs for commercial real estate loans were $232 million, $406
million and $202 million in 1993, 1992 and 1991, respectively. During 1994, it
is anticipated that the commercial real estate loan portfolio will have lower
runoff than experienced in 1993.
Included in the commercial portfolio were agricultural loans of $643 million
and $660 million at December 31, 1993 and 1992, respectively. Agricultural
loans consist of loans to finance agricultural production and other loans to
farmers. Agricultural loans that are primarily secured by real estate are
included in other real estate mortgage loans; such loans were $225 million and
$261 million at December 31, 1993 and 1992, respectively.
Table 8 presents comparative period-end commercial real estate loans.
<TABLE>
<CAPTION>
TABLE 8
COMMERCIAL REAL ESTATE LOANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) December 31, % Change
---------------------------- -------------
1993 1992 1991 1993/ 1992/
1992 1991
<S> <C> <C> <C> <C> <C>
Commercial loans
to real estate
developers (1) $ 505 $ 731 $ 1,137 (31)% (36)%
Other real estate
mortgage 8,286 10,128 10,751 (18) (6)
Real estate
construction 1,110 1,600 2,055 (31) (22)
------ ------- -------
Total $9,901 $12,459 $13,943 (21)% (11)%
====== ======= ======= === ===
- --------------------------------------------------------------------------------
<FN>
(1) Included in commercial loans.
</TABLE>
21
<PAGE>
Over the years, the Company has prospered as an active commercial real estate
lender. However, as a result of the current recession and overbuilt real estate
markets, the Company's earnings during the past three years have been
significantly affected by its relatively high levels of commercial real estate
loans. The Company's real estate borrowers with properties located in Southern
California have been particularly affected. At December 31, 1993, $3,356
million, or 36%, of the Company's combined other real estate mortgage and real
estate construction loans were in Southern California and $386 million, or 12%,
of that amount were on nonaccrual. The Company has responded to the recession
and the commercial real estate slump by strengthening its lending practices and
working to limit the degree of the portfolio concentration in any product type
or location, or to any individual borrower.
The U.S. (particularly California) is still suffering from an oversupply of
commercial real estate which could last for a number of years. However, there
are signs that some liquidity is returning to the real estate markets, mostly in
shopping centers and apartments. An increasing number of developers are
successfully financing acquisition or development programs through the capital
markets and some banks are showing interest in financing certain product types.
In the fourth quarter of 1993, $76 million of nonaccrual loans and an additional
$349 million of accruing commercial real estate loans were repaid through the
formation of third party real estate investment trusts (REITs). The Company
expects REIT activity to continue in 1994, although at lower levels than in the
fourth quarter of 1993.
Table 9 summarizes the other real estate mortgage loans by state and property
type. Most of the other real estate mortgage loans are secured by properties
located in California, representing 78% of the portfolio at December 31, 1993,
compared with 76% at December 31, 1992. No other state comprised more than 2% of
the portfolio at December 31, 1993. The largest property type was office
buildings, representing 28% of the portfolio at December 31, 1993 and 1992.
Table 10 summarizes other real estate mortgage loans in California by region
(North, South and Central) and property type. The Company's Southern California
real estate loans are mostly located in Los Angeles and Orange counties; its
Northern California loans are predominantly located in the San Francisco Bay
Area; and its Central California real estate loans are mostly in Sacramento.
Table 11 summarizes the real estate construction loans by state and project
type. The Company's real estate construction loans were predominantly in
California, representing 82% of the portfolio at December 31, 1993 and 1992. No
other state comprised more than 6% of the portfolio at December 31, 1993. The
largest project type was 1-4 family land, representing 43% of the portfolio at
December 31, 1993, compared with 32% at December 31, 1992. Table 12 summarizes
real estate construction loans in California by region (South, North and
Central) and project type.
22
<PAGE>
<TABLE>
<CAPTION>
TABLE 9
REAL ESTATE MORTGAGE LOANS BY STATE AND TYPE
(EXCLUDING 1-4 FAMILY FIRST MORTGAGE LOANS)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
(in millions)
---------------------------------------------------------------
New
California Hampshire Arizona Minnesota
------------------- --------- ---------------- ---------
Total Non- Total Total Non- Total
loans accrual loans (2) loans accrual loans (2)
<S> <C> <C> <C> <C> <C> <C>
Office buildings $1,989 $166 $ - $21 $ - $47
Industrial 1,201 48 - 7 - 29
Shopping centers 610 68 144 32 - -
Apartments 919 31 - 33 3 -
Hotels/motels 326 24 - 31 - -
Retail buildings (other
than shopping centers) 428 29 - 1 - 3
Institutional 323 18 - 1 1 1
Land 182 28 - 3 - -
Agricultural 224 24 - 1 - -
1-4 family (1):
Structures 50 - - 1 - -
Land 43 - - - - -
Other 176 9 - 9 - 10
------ ---- ---- ---- -- ---
Total by state $6,471 $445 $144 $140 $4 $90
====== ==== ==== ==== == ===
% of total loans 78% 2% 2% 1%
====== ==== ==== ===
Nonaccruals as a % of
total by state 7% 3%
==== ==
- ------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
December 31, 1993
- ----------------------------------------------------------------------------------------------------------------
Total % of Non- Non-
Texas Other states (3) by type total accrual accruals
---------------- ---------------- loans loans as a %
Total Non- Total Non- by type of total
loans accrual loans accrual by type
<C> <C> <C> <C> <C> <C> <C> <C>
Office buildings $29 $10 $ 233 $ 5 $2,319 28% $181 8%
Industrial 7 - 47 3 1,291 16 51 4
Shopping centers 35 15 461 23 1,282 15 106 8
Apartments 2 - 97 - 1,051 13 34 3
Hotels/motels 11 - 133 40 501 6 64 13
Retail buildings (other
than shopping centers) - - 11 - 443 5 29 7
Institutional - - 8 - 333 4 19 6
Land - - 66 21 251 3 49 20
Agricultural - - - - 225 3 24 11
1-4 family (1):
Structures - - - - 51 1 - -
Land - - - - 43 - - -
Other - - 301(4) 12 496 6 21 4
--- --- ------ ---- ------ ---- ----
Total by state $84 $25 $1,357 $104(5) $8,286 100% $578 7%
=== === ====== ==== ====== === ==== ==
% of total loans 1% 16% 100%
=== ====== ======
Nonaccruals as a % of
total by state 30% 8%
=== ======
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents loans to real estate developers secured by 1-4 family residential developments.
(2) There were no loans on nonaccrual status at December 31, 1993.
(3) Consists of 27 states; no state had loans in excess of $74 million at December 31, 1993.
(4) Includes loans secured by collateral pools of approximately $177 million (where the pool is a mixture of various
real estate property types located in various states, non real estate-related assets and other guarantees).
(5) Includes $17 million and $14 million in Ohio and Washington, D.C., respectively. Total loans in these two states
were $44 million and $74 million, respectively.
</TABLE>
<TABLE>
<CAPTION>
TABLE 10
CALIFORNIA REAL ESTATE MORTGAGE LOANS BY REGION AND TYPE
(EXCLUDING 1-4 FAMILY FIRST MORTGAGE LOANS)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1993
------------------------------------------------------------------------------------------------------
Southern Northern Central Total % of Nonaccrual Nonaccruals
California California California California total loans as a %
----------------- ------------------ --------------- by type California by type of total
Total Non- Total Non- Total Non- loans by type
loans accrual loans accrual loans accrual
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office buildings $ 854 $123 $ 884 $19 $ 251 $24 $1,989 31% $166 8%
Industrial 543 30 394 9 264 9 1,201 19 48 4
Shopping centers 306 33 171 23 133 12 610 9 68 11
Apartments 541 26 337 4 41 1 919 14 31 3
Hotels/motels 121 21 149 2 56 1 326 5 24 7
Retail buildings (other
than shopping centers) 170 25 176 - 82 4 428 7 29 7
Institutional 141 8 130 4 52 6 323 5 18 6
Land 126 26 37 1 19 1 182 3 28 15
Agricultural 41 3 29 - 154 21 224 3 24 11
1-4 family (1):
Structures 26 - 24 - - - 50 1 - -
Land 33 - 10 - - - 43 - - -
Other 89 5 67 3 20 1 176 3 9 5
------ ---- ------ --- ------ --- ------ --- ----
Total by region $2,991 $300 $2,408 $65 $1,072 $80 $6,471 100% $445 7%
====== ==== ====== === ====== === ====== === ==== ==
% of total
California loans 46% 37% 17% 100%
====== ====== ====== ======
Nonaccruals as a % of
total by region 10% 3% 7%
==== === ===
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents loans to real estate developers secured by 1-4 family residential developments.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
TABLE 11
REAL ESTATE CONSTRUCTION LOANS BY STATE AND TYPE
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1993
-----------------------------------------------------------------------------------------------
California Nevada Virginia Other states (2) Total % Of Non- Non-
-------------- --------- -------------- ---------------- by type total accrual accruals
Total Non- Total Total Non- Total Non- loans loans as a %
loans accrual loans (1) loans accrual loans accrual by type of total
by type
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family:
Land $391 $129 $55 $ - $ - $29 $ - $ 475 43% $129 27%
Structures 195 20 1 - - - - 196 18 20 10
Land (excluding 1-4 family) 115 15 7 48 48 31 15 201 18 78 39
Shopping centers 89 1 - - - 21 - 110 10 1 1
Office buildings 49 1 - - - - - 49 4 1 2
Apartments 39 4 - 2 2 - - 41 4 6 16
Industrial 15 - 2 - - - - 17 2 - -
Retail buildings (other
than shopping centers) 5 - - 1 - - - 6 1 - -
Agricultural 5 - - - - - - 5 - - -
Institutional 5 - - - - - - 5 - - -
Hotels/motels 3 - - - - - - 3 - - -
Other 2 - - - - - - 2 - - -
---- ---- --- --- --- --- --- ------ --- ----
Total by state $913 $170 $65 $51 $50 $81 $15 $1,110 100% $235 21 %
==== ==== === === === === === ====== === ==== ===
% of total loans 82% 6% 5% 7% 100%
==== === === === ======
Nonaccruals as a % of
total by state 19% 97% 20%
==== === ===
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) There were no loans on nonaccrual status at December 31, 1993.
(2) Consists of nine states; no state had loans in excess of $26 million at December 31, 1993.
</TABLE>
<TABLE>
<CAPTION>
TABLE 12
CALIFORNIA REAL ESTATE CONSTRUCTION LOANS BY REGION AND TYPE
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1993
------------------------------------------------------------------------------------------------
Southern Northern Central Total % of Nonaccrual Nonaccruals
California California California California total loans as a %
--------------- -------------- ---------------- by type California by type of total
Total Non- Total Total Non- loans by type
loans accrual loans (1) loans accrual
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family:
Land $147 $52 $121 $123 $77 $391 42% $129 33%
Structures 124 14 56 15 6 195 21 20 10
Land (excluding 1-4 family) 42 15 53 20 - 115 13 15 13
Shopping centers 13 - 58 18 1 89 10 1 1
Office buildings 16 1 31 2 - 49 5 1 2
Apartments 10 4 23 6 - 39 4 4 10
Industrial 11 - 1 3 - 15 2 - -
Retail buildings (other
than shopping centers) - - 3 2 - 5 1 - -
Agricultural - - 3 2 - 5 1 - -
Institutional - - 4 1 - 5 1 - -
Hotels/motels - - 3 - - 3 - - -
Other 2 - - - - 2 - - -
---- --- ---- ---- --- ---- --- ----
Total by region $365 $86 $356 $192 $84 $913 100% $170 19%
==== === ==== ==== === ==== === ==== ==
% of total
California loans 40% 39% 21% 100%
==== ==== ==== ====
Nonaccruals as a % of
total by region 23% 44%
=== ===
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) There were no loans on nonaccrual at December 31, 1993.
</TABLE>
24
<PAGE>
HIGHLY LEVERAGED TRANSACTIONS
The Company's loan portfolio includes loans made to companies involved in highly
leveraged transactions (HLTs). HLT outstandings are presented on a comparative
basis in Table 13.
<TABLE>
<CAPTION>
TABLE 13
HIGHLY LEVERAGED TRANSACTIONS
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(in millions) December 31,
1993 1992
------------------
<S> <C> <C>
Senior loans (including working
capital loans) (1):
Loans in connection with:
Buyouts $292 $ 668
Acquisitions 177 268
Recapitalizations 35 122
---- ------
Total (2) $504 $1,058
==== ======
Number of transactions 38 48
Largest single loan $ 52 $ 88
Average loan outstanding 13 22
Loans in largest single industry 102 209
Average loans per industry 27 48
Nonaccrual loans 53 152
Number of transactions 4 10
Net charge-offs (recoveries) $ (9) $ 58
Senior unfunded commitments 380 444
Subordinated loans (1) $ 9 $ 31
Nonaccrual loans - 22
Nonmarketable equity investments
(included in other assets): 247 236
Largest single investment 25 9
Write-downs 7 2
Gains on sales and distributions 23 10
- ----------------------------------------------------------------------------
<FN>
(1) There were no HLT loans on restructured status, no loans 90 days or more
past due and still accruing and no foreclosed assets resulting from HLT
loans at December 31, 1993 and 1992. There were no net charge-offs on
subordinated loans in 1993 and 1992.
(2) Includes California asset-based, secured lending of $55 million and $129
million at December 31,1993 and 1992, respectively. California asset-based,
secured lending consists of middle-market companies whose loans are collat-
eralized by receivables, inventories, plant and equipment in conformity
with the Company's borrowing requirements.
</TABLE>
Nonaccrual and Restructured Loans
and Other Assets
- --------------------------------------------------------------------------------
---------------------------------
Table 14 presents comparative data for nonaccrual and restructured loans and
other assets. Management's classification of a loan as nonaccrual or
restructured does not necessarily indicate that the principal of the loan is
uncollectible in whole or in part. (Notes 1 and 5 to the Financial Statements
describe the Company's accounting policies relating to nonaccrual and
restructured loans and foreclosed assets, respectively.)
Table 15 summarizes the approximate changes during 1993 and 1992 in nonaccrual
loans by loan category. Table 16 summarizes the quarterly trend, for the last
eight quarters, of the approximate changes in nonaccrual loans. The general
decline of nonaccrual loans over the last five quarters, with nonaccruals
peaking in September 1992, largely resulted from loan payments and loans
returned to accrual, together with a reduction in new loans placed on
nonaccrual. This trend is expected to continue in 1994. The placement of
commercial and real estate loans on nonaccrual, as well as transfers to
foreclosed assets, are likely to continue to occur, although at a declining
rate, until, and for a period after, the current economic environment improves
and the substantial oversupply of properties is reduced with resulting increases
in occupancy and rental rates. It may take years to absorb the surplus office
capacity in certain geographic markets (particularly in Southern California)
where the Company has commercial real estate outstandings.
25
<PAGE>
<TABLE>
<CAPTION>
TABLE 14
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions)
December 31,
------------------------------------------------------------------
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial (1)(2) $ 252 $ 560 $ 871 $ 603 $ 390
Real estate 1-4 family first mortgage 99 96 73 24 13
Other real estate mortgage (3)(4) 578 1,207 778 284 171
Real estate construction (3) 235 235 226 82 171
Consumer:
Real estate 1-4 family junior lien mortgage 27 29 23 14 11
Other revolving credit and monthly payment 3 7 6 - 3
Lease financing - - - - 1
------ ------ ------ ------ ------
Total nonaccrual loans 1,194 2,134 1,977 1,007 760
Restructured loans 6 8 4 6 4
------ ------ ------ ------ ------
Nonaccrual and restructured loans 1,200 2,142 1,981 1,013 764
As a percentage of total loans 3.6% 5.8% 4.5% 2.1% 1.8%
Foreclosed assets (5)(6) 348 510 404 416 390
Real estate investments (7) 15 40 20 - -
------ ------ ------ ------ ------
Total nonaccrual and restructured loans and other assets $1,563 $2,692 $2,405 $1,429 $1,154
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes loans to real estate developers of $91 million, $86 million, $199 million, $12 million and $16 million at December
31,1993, 1992, 1991, 1990 and 1989, respectively.
(2) Includes agricultural loans of $9 million, $18 million, $13 million, $18 million and $56 million at December
31,1993, 1992, 1991, 1990 and 1989, respectively.
(3) During the fourth quarter of 1990, loans were reclassified from the real estate construction loan category to the other real
estate mortgage loan category so that the real estate construction loan category consists solely of properties where
construction is not complete. Prior period balances have not been reclassified as complete information is not available.
However, if 1989 balances were reclassified, the Company estimates that other real estate mortgage nonaccruals would have
been approximately $255 million at December 31, 1989 and that real estate construction nonaccruals would have been
approximately $85 million.
(4) Includes agricultural loans secured by real estate of $24 million, $28 million, $13 million, $21 million and $27 million at
December 31, 1993, 1992, 1991, 1990 and 1989, respectively.
(5) Includes agricultural properties of $26 million, $55 million, $66 million, $67 million and $86 million at December 31, 1993,
1992, 1991, 1990 and 1989, respectively.
(6) Excludes in-substance foreclosures (ISFs) of $99 million reclassified to nonaccrual loans at June 30, 1993 due to
clarification of criteria used in determining when a loan is in-substance foreclosed. Complete information is not available
for prior periods; however, any ISFs that would be reclassified in prior periods would not be materially higher than
$99 million.
(7) Represents the amount of real estate investments (contingent interest loans accounted for as investments) that would be
classified as nonaccrual if such assets were loans. Real estate investments totaled $34 million, $93 million and
$124 million at December 31, 1993, 1992 and 1991, respectively.
</TABLE>
[Graph]
26
<PAGE>
<TABLE>
<CAPTION>
TABLE 15
CHANGES IN NONACCRUAL LOANS BY LOAN CATEGORY
=================================================================================================================================
(in millions) Commercial Real estate Other real Real estate Consumer Total
1-4 family estate construction
first mortgage mortgage
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
BALANCE, BEGINNING OF YEAR $ 560 $ 96 $ 1,207 $ 235 $ 36 $ 2,134
New loans placed on nonaccrual (1) 278 47 326 156 14 821
Charge-offs (97) (1) (167) (54) (6) (325)
Payments:
Principal (293) (20) (269) (77) (14) (673)
Interest applied to principal (42) (1) (67) (14) - (124)
Transfers to foreclosed assets (2) (20) (166) (53) - (241)
Transfers from foreclosed assets (2) 7 - 48 44 - 99
Loans returned to accrual (3) (66) (2) (383) (6) (1) (458)
Loans sold (22) - (11) - - (33)
Other additions (deductions) (4) (71) - 60 4 1 (6)
----- ------ ------- ------ ------ -------
BALANCE, END OF YEAR $ 252 $ 99 $ 578 $ 235 $ 30 $ 1,194
===== ====== ======= ====== ====== =======
YEAR ENDED DECEMBER 31, 1992
Balance, beginning of year $ 871 $ 73 $ 778 $ 226 $ 29 $ 1,977
New loons placed on nonaccrual (5) 534 70 1,280 251 31 2,166
Charge-offs (213) (6) (218) (49) (7) (493)
Payments:
Principal (249) (14) (174) (73) (15) (525)
Interest applied to principal (54) - (57) (11) - (122)
Transfers to foreclosed assets (23) (7) (371) (79) (2) (482)
Loans returned to accrual (6) (309) (7) (55) (4) - (375)
Other additions (deductions) (7) 3 (13) 24 (26) - (12)
----- ----- ------- ------ ------ -------
Balance, end of year $ 560 $ 96 $ 1,207 $ 235 $ 36 $ 2,134
===== ====== ======= ====== ====== =======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Additions to commercial loans include $68 million for loans to financial companies and $50 million for HLT loans. Additions
to other real estate mortgage loans include $113 million for commercial buildings and $62 million for commercial land.
Additions to real estate construction loans include $127 million for single family land.
(2) Reclassification due to clarification of criteria used in determining when a loan is in-substance foreclosed. Complete
information is not available for prior periods; however, any ISFs that would be reclassified in prior periods would not be
materially higher than $99 million.
(3) Other real estate mortgage loans returned to accrual were the result of loans restructured at market interest rates and the
improvement of the credit quality of loans.
(4) Includes transfers of restructured loans from commercial to other real estate mortgage loans of approximately $52 million.
(5) Additions to commercial loans include approximately $123 million for HLT loans, $54 million for California hotel operating
companies, $64 million for manufacturing companies and $47 million for real estate developers, predominantly in California.
Additions to other real estate mortgage loans include approximately $363 million for commercial buildings and $273 million
for shopping centers.
(6) Most commercial loans returned to accrual were a result of the Company's ongoing effort to collateralize unsecured loans to
real estate developers and in borrowers' improved credit quality.
(7) Includes transfers of completed properties from real estate construction to other real estate mortgage loans of approximately
$43 million.
</TABLE>
<TABLE>
<CAPTION>
TABLE 16
QUARTERLY TREND OF CHANGES IN NONACCRUAL LOANS
==============================================================================================================================
(in millions) Quarter ended
- ------------------------------------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
1993 1993 1993 1993 1992 1992 1992 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $1,696 $1,898 $1,966 $2,134 $2,399 $2,326 $2,051 $1,977
New loans placed on nonaccrual 113 195 264 249 328 649 756 433
Charge-offs (55) (90) (71) (109) (127) (171) (115) (80)
Payments (309) (188) (144) (156) (225) (166) (124) (132)
Transfers to foreclosed assets (64) (32) (104) (41) (114) (89) (189) (90)
Transfers from foreclosed assets (1) - - 99 - - - - -
Loans returned to accrual (188) (81) (107) (82) (120) (146) (50) (59)
Loans sold - (2) (5) (26) - - - -
Other additions (deductions) 1 (4) - (3) (7) (4) (3) 2
------ ------ ------ ------ ------ ------ ------ ------
BALANCE, END OF QUARTER $1,194 $1,696 $1,898 $1,966 $2,134 $2,399 $2,326 $2,051
====== ====== ====== ====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Reclassification due to clarification of criteria used in determining when a loan is in-substance foreclosed. Complete
information is not available for prior periods; however, any ISFs that would be reclassified in prior periods would not
be materially higher than $99 million.
</TABLE>
27
<PAGE>
================================================================================
Foreclosed assets at December 31, 1993 decreased to $348 million from $510
million at December 31, 1992 primarily due to a $196 million decrease in
additions and a transfer of $99 million from foreclosed assets to nonaccrual
loans due to a clarification of criteria used in determining when a loan is
in-substance foreclosed. The majority of foreclosed asset sales of $328 million
consisted of 1-4 family properties and office buildings. Approximately 71 % of
foreclosed assets at December 31, 1993 have been in the portfolio less than one
year, with land and agricultural properties representing most of the amount
greater than one year old. Table 17 summarizes the approximate changes during
1993 and 1992 in foreclosed assets. Table 18 summarizes the quarterly trend in
foreclosed assets for the past eight quarters. Table 19 summarizes foreclosed
assets at December 31, 1993 by state and type and Table 20 summarizes California
foreclosed assets at December 31, 1993 by region and type.
<TABLE>
<CAPTION>
TABLE 17
CHANGES IN FORECLOSED ASSETS
====================================================================================================================================
(in millions) Beginning Additions Sales Charge-offs (1) Write-downs Transfers to Other Ending
balance nonaccrual balance
loans (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Land (excluding 1-4 family) $122 $105 $ (18) $(12) $(13) $(34) $(31) $119
1-4 family 111 128 (109) (16) (18) (41) 14 69
Office buildings 119 51 (96) (6) (10) (5) (2) 51
Industrial buildings 44 24 (26) (2) (7) - (6) 27
Shopping centers 12 56 (27) (2) (2) (7) (3) 27
Agricultural 54 7 (21) (1) (5) (5) (3) 26
Apartments 23 20 (22) (4) (4) - 2 15
Hotels/motels 10 9 (7) (6) - - - 6
Other 15 5 (2) - (2) (7) (1) 8
---- ---- ----- ---- ---- ---- ---- ----
Total $510 $405 $(328) $(49) $(61) $(99) $(30) $348
==== ==== ===== ==== ==== ==== ==== ====
YEAR ENDED DECEMBER 31, 1992
Land (excluding 1-4 family) $ 98 $ 72 $ (18) $ (8) $(22) $ - $ - $122
1-4 family 48 157 (56) (24) (9) - (5) 111
Office buildings 118 134 (84) (35) (19) - 5 119
Industrial buildings 32 59 (22) (20) (5) - - 44
Shopping centers 12 45 (16) (26) (3) - - 12
Agricultural 65 24 (25) - (10) - - 54
Apartments 3 83 (51) (9) (3) - - 23
Hotels/motels 26 16 (21) (1) (5) - (5) 10
Other 2 11 (1) (3) - - 6 15
---- ---- ----- ----- ---- ----- --- -----
Total $404 $601 $(294) $(126) $(76) $ - $ 1 $510
==== ==== ===== ===== ==== ===== === ====
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Commencing October 1992, charge-offs to the allowance for loan losses may only occur up to 90 days (previously, 120 days)
after foreclosed assets have been transferred from loans.
(2) Reclassification due to clarification of criteria used in determining when a loan is in-substance foreclosed. Complete
information is not available for prior periods; however, any ISFs that would be reclassified in prior periods would not
be materially higher than $99 million.
</TABLE>
28
<PAGE>
================================================================================
<TABLE>
<CAPTION>
TABLE 18
QUARTERLY TREND OF CHANGES IN FORECLOSED ASSETS
=================================================================================================================================
(in millions) Quarter ended
---------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
1993 1993 1993 1993 1992 1992 1992 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $357 $391 $ 510 $510 $535 $555 $434 $404
Additions 100 65 150 90 145 117 206 133
Sales (89) (76) (117) (46) (125) (58) (46) (65)
Charge-offs (10) (8) (23) (8) (20) (52) (28) (26)
Write-downs (7) (10) (18) (26) (22) (25) (15) (14)
Transfers to nonaccrual loans (1) - - (99) - - - - -
Other additions (deductions) (3) (5) (12) (10) (3) (2) 4 2
---- ---- ----- ---- ---- ---- ---- ----
BALANCE, END OF QUARTER $348 $357 $ 391 $510 $510 $535 $555 $434
==== ==== ===== ==== ==== ==== ==== ====
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Reclassification due to clarification of criteria used in determining when a loan is in-substance foreclosed. Complete
information is not available for prior periods; however, any ISFs that would be reclassified in prior periods would not
be materially higher than $99 million.
</TABLE>
<TABLE>
<CAPTION>
TABLE 19
FORECLOSED ASSETS BY STATE AND TYPE
=======================================================================================================================
(in millions) December 31, 1993
----------------------------------------------------------------------------------------
California Washington, Arizona Texas Other Total % of total
D.C. states (1) by type foreclosed
assets
<S> <C> <C> <C> <C> <C> <C> <C>
Land (excluding 1-4 family) $ 66 $12 $15 $ 6 $20 $119 34%
1-4 Family 61 - 3 1 4 69 19
Office buildings 50 - - - 1 51 15
Industrial buildings 27 - - - - 27 8
Shopping centers 11 8 - 8 - 27 8
Agricultural 26 - - - - 26 8
Apartments 13 - - 2 - 15 4
Hotels/motels 3 - - - 3 6 2
Other 6 - - - 2 8 2
---- --- --- --- --- ---- ----
Total by state $263 $20 $18 $17 $30 $348 100%
==== === === === === ==== ====
% of total foreclosed assets 76% 6% 5% 5% 8% 100%
==== === === === === ====
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Consists of 13 states; foreclosed assets in each of these states was less than $11 million at December 31, 1993.
</TABLE>
<TABLE>
<CAPTION>
TABLE 20
CALIFORNIA FORECLOSED ASSETS BY REGION AND TYPE
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1993
----------------------------------------------------------------------
Southern Northern Central Total % of total
California California California California California
by type foreclosed
assets
<S> <C> <C> <C> <C> <C>
Land (excluding 1-4 family) $ 53 $ 7 $ 6 $ 66 26%
1-4 family 46 8 7 61 23
Office buildings 34 10 6 50 19
Industrial buildings 17 9 1 27 10
Shopping centers 7 4 - 11 4
Agricultural 1 5 20 26 10
Apartments 13 - - 13 5
Hotels/motels 3 - - 3 1
Other 3 3 - 6 2
---- --- --- ---- ---
Total by region $177 $46 $40 $263 100%
==== === === ==== ===
% of total California foreclosed assets 66% 18% 16% 100%
==== === === ====
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
================================================================================
NONACCRUAL LOANS BY PERFORMANCE CATEGORY
Table 21 presents the amount of nonaccrual loans that were contractually past
due and those that were contractually current at December 31, 1993 and 1992.
Both book and contractual balances are presented in the table, the difference
reflecting charge-offs and interest applied to principal.
At December 31, 1993, an estimated $704 million, or 59%, of nonaccrual loans
were less than 90 days past due, including an estimated $595 million, or 50%,
that were current (less than 30 days past due) as to payment of principal and
interest. This compares with an estimated $1,294 million, or 61%, of nonaccrual
loans that were less than 90 days past due at December 31, 1992, including an
estimated $1,170 million, or 55%, that were current.
The ratio of book to contractual principal balance was 66% at December 31,
1993, compared with 79% at December 31, 1992.
For all loans on nonaccrual during 1993 and 1992 (including loans no longer on
nonaccrual at December 31, 1993 and 1992), cash interest payments of
$137 million and $143 million were received while the loans were on nonaccrual
status in 1993 and 1992, respectively. Of the $137 million received in 1993,
$19 million was recognized as interest income and $118 million was applied to
principal. Of the $143 million received in 1992, $23 million was recognized as
interest income and $120 million was applied to principal. The average
nonaccrual book principal loan balances (net of charge-offs and interest applied
to principal) were $1,800 million and $2,232 million during 1993 and 1992,
respectively.
<TABLE>
<CAPTION>
TABLE 21
NONACCRUAL LOANS BY PERFORMANCE CATEGORY (ESTIMATED)(1)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31,
------------------------------------------------------------------------------------------------------
1993 1992
--------------------------------------------------- -------------------------------------------------
BOOK CUMULATIVE CUMULATIVE CONTRACTUAL Book Cumulative Cumulative Contractual
PRINCIPAL CHARGE-OFFS CASH INTEREST PRINCIPAL principal charge-offs cash interest principal
BALANCE (7) APPLIED TO BALANCE balance (7) applied to balance
PRINCIPAL principal
(7) (7)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contractually past due (2):
Payments not made (3):
90 days or more past due $ 161 $ 22 $ - $ 183 $ 283 $ 15 $ - $ 298
Less than 90 days past due 23 - - 23 29 2 - 31
----- ----- ---- ----- ----- ---- ---- ----
184 22 - 206 312 17 - 329
----- ----- ---- ----- ----- ---- ---- ----
Payments made (4):
90 days or more past due 329 171 41 541 557 148 53 758
Less than 90 days past due 86 29 16 131 95 69 8 172
----- ----- ---- ----- ----- ---- ---- ----
415 200 57 672 652 217 61 930
----- ----- ---- ----- ----- ---- ---- ----
Total past due 599 222 57 878 964 234 61 1,259
Contractually current (5) 595 214 120 929 1,170 150 129 1,449
----- ----- ---- ----- ----- ---- ---- -----
Total nonaccrual loans (6) $1,194 $436 $177 $1,807 $2,134 $384 $190 $2,708
====== ==== ==== ====== ====== ==== ==== ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) There can be no assurance that individual borrowers will continue to perform at the level indicated or that the performance
characteristics will not change significantly.
(2) Contractually past due is defined as a borrower whose loan principal or interest payment is 30 days or more past due.
(3) Borrower has made no payment since being placed on nonaccrual.
(4) Borrower has made some payments since being placed on nonaccrual. Approximately $314 million and $453 million of these loans
had some payments made on them during the fourth quarter of 1993 and 1992, respectively.
(5) Contractually current is defined as a loan for which principal and interest are being paid in accordance with the terms of
the loan. Approximately $113 million and $328 million of loans, both current and past due, were placed on nonaccrual in
the fourth quarter of 1993 and 1992, respectively, of which approximately $15 million and $120 million were contractually
current at December 31, 1993 and 1992, respectively. All of the contractually current loans were placed on nonaccrual due
to uncertainty of receiving full timely collection of interest or principal.
(6) Interest payments received in the fourth quarter of 1993 on year-end 1993 nonaccruals totaled $23 million, of which
$1 million was recognized as interest income and $22 million was applied to principal. Interest payments
received in the fourth quarter of 1992 on year-end 1992 nonaccruals totaled $35 million, all of which was applied to
principal. Such interest payments include only those received subsequent to a borrower being placed on nonaccrual.
Therefore, these amounts do not include interest received before these loans were placed on nonaccrual. There were no
interest payments received that were recorded as recoveries on partially charged-off loans because payments on such
loans were applied as a reduction of loan principal or recognized as interest income.
(7) Cumulative amounts recorded since inception of the loan.
</TABLE>
30
<PAGE>
================================================================================
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Table 22 shows loans contractually past due 90 days or more as to interest or
principal, but not included in the nonaccrual or restructured categories. All
loans in this category are both well-secured and in the process of collection or
are consumer loans or real estate 1-4 family first mortgage loans that are
exempt under regulatory rules from being classified as nonaccrual.
TABLE 22
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING
<TABLE>
<CAPTION>
================================================================================
(in millions) December 31,
-------------------------------------------------
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Commercial $ 4 $ 4 $ 26 $21 $ 46
Real estate
1-4 family first
mortgage (1) 19 29 38 19 -
Other real estate
mortgage (1)(2) 14 22 28 46 29
Real estate
construction (2) 8 11 3 10 2
Consumer:
Real estate
1-4 family junior
lien mortgage 6 9 13 12 16
Credit card 43 55 50 42 25
Other revolving
credit and
monthly
payment 1 2 3 8 7
--- ---- ---- ---- ----
Total consumer 50 66 66 62 48
Lease financing - 1 1 1 2
--- ---- ---- ---- ----
Total $95 $133 $162 $159 $127
=== ==== ==== ==== ====
- --------------------------------------------------------------------------------
<FN>
(1) In years prior to 1990, real estate 1-4 family first mortgage loans were
included in the other real estate mortgage loan category. Balances for 1989
have not been reclassified as complete information is not available.
(2) During the fourth quarter of 1990, loans were reclassified from the real
estate construction loan category to the other real estate mortgage loan
category so that the real estate construction loan category consists solely
of properties where construction is not complete. Prior period balances
have not been reclassified as complete information is not available.
</TABLE>
Allowance for Loan Losses
- --------------------------------------------------------------------------------
-------------------------
An analysis of the changes in the allowance for loan losses, including
charge-offs and recoveries by loan category, is presented in Note 4 to the
Financial Statements. At December 31, 1993, the allowance for loan losses was
$2,122 million, or 6.41% of total loans, compared with $2,067 million, or 5.60%,
at December 31, 1992. The provision for loan losses declined to $550 million
from $1,215 million in 1992, due to the continued improvement of the Company's
loan portfolio. Net charge-offs in 1993 were $495 million, or 1.44% of average
total loans, compared with $798 million, or 1.97%, in 1992. Loan loss recoveries
were $169 million in 1993, an increase of $52 million, or 44%, over 1992. Table
23 summarizes net charge-offs by loan category.
TABLE 23
NET CHARGE-OFFS BY LOAN CATEGORY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31,
----------------------------------------------
1993 1992
---------------------- ---------------------
AMOUNT % OF Amount % of
AVERAGE average
LOANS loans
<S> <C> <C> <C> <C>
Commercial $ 39 .54% $179 1.83 %
Real estate 1-4 family
first mortgage 23 .34 15 .19
Other real estate mortgage 150 1.58 281 2.64
Real estate construction 64 4.85 90 4.91
Consumer:
Real estate 1-4 family
junior lien mortgage 25 .62 27 .57
Credit card 156 6.06 168 6.06
Other revolving credit
and monthly payment 29 1.60 29 1.42
--- ----
Total consumer 210 2.52 224 2.37
Lease financing 9 .82 10 .89
Foreign recoveries - - (1) (1.18)
--- ----
Total net loan
charge-offs $495 1.44% $798 1.97 %
=== ==== ==== ====
- ------------------------------------------------------------------------------
</TABLE>
The majority of net charge-offs in 1993 was in credit card loans and other
real estate mortgage loans. The high level of credit card charge-offs was mostly
due to bankruptcies and the current economic environment (particularly in
Southern California). The other real estate mortgage loan net charge-offs
largely reflected appraisals received during the year that were below the book
value of these real estate-secured loans. The majority of other real estate
mortgage loan net charge-offs was related to land and office buildings. Despite
the high level in relation to other
31
<PAGE>
================================================================================
loan categories, other real estate mortgage loan net charge-offs were $131
million, or 47%, lower than 1992, partially as a result of an increase in
recoveries from $9 million in 1992 to $47 million in 1993.
The large decrease in commercial loan net charge-offs was primarily due to a
$128 million, or 54%, decline in gross charge-offs resulting from loans in the
manufacturing industry.
Although net charge-offs in 1993 were higher than historical norms, they were
38% lower than 1992 and are expected to continue to decline.
Any loan that is past due as to principal or interest and that is not both
well-secured and in the process of collection is generally charged off (to the
extent that it exceeds the fair value of any related collateral) after a
predetermined period of time that is based on loan category. Additionally, loans
are charged off when classified as a loss by either internal loan examiners or
regulatory examiners.
The Company has an established process to determine the adequacy of the
allowance for loan losses that assesses the risk and losses inherent in its
portfolio. This process provides an allowance consisting of two components,
allocated and unallocated. The allocated component reflects inherent losses
resulting from the analysis of individual loans and is developed through
specific credit allocations for individual loans and historical loss experience
for each loan category and degree of criticism within each category. The total
of these allocations is then supplemented by the unallocated component of the
allowance, which includes adjustments to the historical loss experience for the
various loan categories to reflect any current conditions that could affect
losses inherent in the portfolio. The unallocated component includes
management's judgmental determination of the amounts necessary for
concentrations, economic uncertainties and other subjective factors.
The Company's determination of the level of the allowance and,
correspondingly, the provision for loan losses rests upon various judgments and
assumptions, including general (particularly California's) economic conditions,
loan portfolio composition, prior loan loss experience and the Company's ongoing
examination process and that of its regulators. The Company has an internal risk
analysis and review staff that reports to the Board of Directors and con-
tinuously reviews loan quality. Such reviews also assist management in
establishing the level of the allowance. Similar to a number of other large
national banks, the Bank has been for several years and continues to be examined
by its primary regulator, the Office of the Comptroller of the Currency (OCC),
and has OCC examiners in residence. These examinations occur throughout the year
and target various activities of the Bank, including specific segments of the
loan portfolio (for example, commercial real estate and shared national
credits). In addition to the Bank being examined by the OCC, the Parent and its
nonbank subsidiaries are examined by the Federal Reserve.
The Company considers the allowance for loan losses of $2,122 million adequate
to cover losses inherent in loans, loan commitments and standby letters of
credit at December 31, 1993. However, no assurance can be given that the Company
will not, in any particular period, sustain loan losses that are sizable in
relation to the amount reserved, or that subsequent evaluations of the loan
portfolio, in light of the factors then prevailing, including economic condi-
tions and the Company's ongoing examination process and that of its regulators,
will not require significant increases in the allowance for loan losses.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114 (FAS 114), Accounting by Creditors for Impairment of a Loan. This Statement
addresses the accounting treatment of certain impaired loans and amends FASB
Statements No. 5 and 15; however, it does not address the overall adequacy of
the allowance for loan losses. The Statement is effective January 1, 1995, and
can only be applied prospectively.
A loan is considered impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement.
Once a loan is determined to be impaired, FAS 114 requires that the impairment
be measured based on the present value of the expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, the impairment may be measured by using the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent
(i.e., repayment is expected to be provided solely by the underlying
collateral). The choice of a measurement method may be made on a loan-by-loan
basis.
If the measurement of the impaired loan is less than the recorded investment
in the loan (including accrued interest, net deferred loan fees or costs, and
unamortized premium or discount), an impairment is to be recognized
by creating a valuation allowance with a corresponding charge to the provision
for loan losses or by adjusting an existing valuation allowance for the impaired
loan with a corresponding charge or credit to the provision for loan losses.
(Alternatively, the loan may be written down by the amount of the impairment.)
32
<PAGE>
================================================================================
The change in estimated present value of the expected future cash flows is to
be reported in future periods either entirely as an adjustment to the provision
for loan losses or by separately increasing interest income for the amount of
the present value change attributable to the passage of time. For impaired loans
which are measured by using an observable market price or the fair value of
collateral, the change, if any, in market price or fair value is to be reported
in future periods as an adjustment of the valuation allowance and,
correspondingly, the provision for loan losses.
The FASB is currently proposing to eliminate the above requirement related to
the accounting for the change in estimated present value. Instead, it will
propose expanded disclosures, which have yet to be determined.
The Company does not currently intend to implement the Statement before its
effective date. A preliminary assessment of the complex analysis required to
determine the impact on the Company's allowance for loan losses has been
completed. Based on the information available at December 31, 1993 and the
Company's current interpretations of FAS 114, the allowance will not increase as
a result of adopting this Statement.
Other Assets
- --------------------------------------------------------------------------------
------------
The components of other assets are shown in Note 5 to the Financial Statements.
Other assets were $2.4 billion at December 31, 1993, a 10% decrease from $2.7
billion at December 31, 1992. The $269 million decrease was primarily due to a
decline in the foreclosed assets balance, which was $348 million at December 31,
1993, compared with $510 million at December 31, 1992. The decrease in other
assets also included a $59 million decrease in real estate investments
(contingent interest loans accounted for as investments), which totaled $34
million at December 31, 1993, compared with $93 million at December 31, 1992.
At December 31, 1993 and 1992, certain identifiable intangible assets of $373
million and $401 million, respectively, were included in other assets and are
generally amortized using an accelerated method.
As required by FAS 109 (see Income Taxes section), the adjustment on January
1, 1993 of the remaining balances for acquired assets and liabilities from their
net-of-tax amounts to their pretax amounts caused the net deferred tax asset
balance of $804 million to decrease by $79 million and the certain identifiable
intangible asset balance of $401 million to increase by $67 million. The
remaining $12 million net increase caused immaterial adjustments to several
other asset and liability categories.
Deposits
- --------------------------------------------------------------------------------
--------
Comparative detail of average deposit balances is presented in Table 3. Average
core deposits decreased 3% and average total deposits decreased 4% in 1993
compared with 1992. Average core deposits funded 79% and 80% of the Company's
average total assets in 1993 and 1992, respectively.
Year-end deposit balances are presented in Table 24. Core deposits and total
deposits decreased 1% at December 31, 1993 compared with 1992. Substantially all
of these decreases resulted from a $1.9 billion decrease in savings
certificates, primarily offset by growth in market rate savings of $1.2 billion.
This shift reflects efforts by customers to increase liquidity while seeking
alternatives with higher yields.
TABLE 24
DEPOSITS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions) December 31,
-----------------------
1993 1992
<S> <C> <C>
Noninterest-bearing $ 9,719 $ 9,190
Interest-bearing checking 4,789 4,845
Savings 2,544 2,948
Market rate savings 17,084 15,874
Savings certificates 7,155 9,022
------ -------
Core deposits 41,291 41,879
Other 353 365
------- ------
Total deposits $41,644 $42,244
======= =======
- ------------------------------------------------------------------------
</TABLE>
[Graph]
33
<PAGE>
================================================================================
Certain Fair Value Information
- --------------------------------------------------------------------------------
------------------------------
Effective December 31, 1992, the Company adopted Statement of Financial
Accounting Standards No. 107 (FAS 107), Disclosures About Fair Value of
Financial Instruments. FAS 107 requires that the Company disclose estimated fair
values for certain financial instruments. Quoted market prices, when available,
are used to reflect fair values. If market quotes are not available, which is
the case for most of the Company's financial instruments, management has
provided its best estimate of the calculation of the fair values using
discounted cash flows. Fair value amounts differ from book balances because fair
values attempt to capture the effect of current market conditions (for example,
interest rates) on the Company's financial instruments.
There was an increase in the excess (premium) of the estimated fair value over
the carrying value of the Company's financial instruments at December 31, 1993
compared with December 31, 1992. The increase was substantially due to improved
credit quality and a lower interest rate environment than the previous year. The
Company's FAS 107 disclosures are presented in Note 14 to the Financial
Statements.
Capital Adequacy/Ratios
- --------------------------------------------------------------------------------
-----------------------
The Company uses a variety of measures to evaluate capital adequacy. Management
reviews the various capital measures monthly and takes appropriate action to
ensure that they are within established internal and external guidelines.
Management believes that the Company's current capital position, which exceeds
current minimum guidelines established by industry regulators, is adequate to
support its various businesses.
Federal banking agencies have proposed regulations that would revise the
existing risk-based capital standards in order to account for interest rate
risk. The proposal would require banks to measure and monitor their interest
rate risk and maintain adequate capital for that risk. The Company believes that
this modification, if adopted, would not have an impact on its capital position
since it does not have excessive interest rate risk.
RISK-BASED CAPITAL RATIOS
The Federal Reserve Board (FRB) and the OCC issue risk-based capital (RBC)
guidelines for bank holding companies and national banks, respectively. The FRB
is the primary regulator for the Parent and the OCC is the primary regulator for
the Bank. RBC guidelines establish a risk-adjusted ratio relating capital to
different categories of assets and off-balance sheet exposures.
There are two categories of capital under the guidelines. Tier 1 capital
includes common stockholders' equity and qualifying preferred stock, less
goodwill and certain other deductions (including the unrealized net gains, after
applicable taxes, on available-for-sale investment securities carried at fair
value, as currently required by the federal regulatory agencies); Tier 2 capital
includes preferred stock not qualifying as Tier 1 capital, mandatory convertible
debt, subordinated debt, certain unsecured senior debt and the allowance for
loan losses, subject to limitation by the guidelines. Tier 2 capital is limited
to the amount of Tier 1 capital (i.e., at least half of the total capital must
be in the form of Tier 1 capital). The Company's Tier 1 and Tier 2 capital
components are shown in Table 25.
Under the guidelines, one of four risk weights is applied to the different
balance sheet assets, primarily based on the relative credit risk of the
counterparty (for example, qualifying 1-4 family first mortgage loans are
risk-weighted at 50%). Off-balance sheet items, such as loan commitments and
interest rate derivatives, are also applied a risk weight after calculating
balance sheet equivalent amounts. One of four credit conversion factors are
assigned to loan commitments based on the likelihood of the off-balance sheet
item becoming an asset. (For example, certain loan commitments are converted at
50% and then risk-weighted at 100%.) Interest rate derivatives are converted to
balance sheet equivalents based on notional values, replacement costs and
remaining contractual terms. The credit conversion factors and risk weights are
0%, 20%, 50% and 100%. (Refer to Note 13 to the Financial Statements for further
discussion of off-balance sheet items.)
The Company's total RBC ratio at December 31, 1993 was 15.12% and its Tier 1
RBC ratio was 10.48%, exceeding the minimum guidelines of 8.00% and 4.00%,
respectively. The ratios at December 31, 1992 were 13.15%
and 8.22%, respectively.
34
<PAGE>
================================================================================
The increase in the Company's Tier 1 RBC ratio at December 31, 1993 compared
with 1992 was primarily due to an increase in Tier 1 capital. Contributing to
the increase in Tier 1 capital during 1993 was the accumulation of $437 million
in retained earnings. Tier 1 capital also increased due to the issuance of $53
million of common stock, of which $20 million was issued under the dividend
reinvestment plan (DRIP) and $33 million was issued under employee benefit
plans. The Company's Tier 1 and total RBC ratios also benefitted due to a shift
from higher risk-weighted assets (mostly loans) to lower risk-weighted assets
(primarily investment securities).
As currently required by the federal regulatory agencies, the risk-based
capital and leverage ratios do not include unrealized net gains ($21 million,
net of tax) on available-for-sale investment securities carried at fair value
resulting from the adoption of FAS 115. The Tier 1, total capital and leverage
ratios at December 31, 1993 would have been higher by 5, 5 and 4 basis points,
respectively, had the unrealized net gains been included.
In December 1993, $437 million of subordinated debt was called for redemption
in February 1994. This debt was excluded from Tier 2 capital at year end,
resulting in a negative impact of 31 basis points on the December 31, 1993 total
capital ratio. In February 1994, the Company called $150 million in preferred
stock, Series A. This call would have reduced the Company's Tier 1, total
capital and leverage ratios by 41, 41, and 29 basis points, respectively, had
the call been made by December 31, 1993.
The Company's risk-weighted assets are calculated as shown in Table 25.
Risk-weighted balance sheet assets were $16.4 billion and $13.4 billion less
than total assets on the consolidated balance sheet of $52.5 billion at December
31, 1993 and 1992, respectively, as a result of weighting certain types of
assets at less than 100%; such assets, for both December 31, 1993 and 1992,
substantially consisted of claims on or guarantees by the U.S. government or its
agencies (risk-weighted at 0% to 20%), 1-4 family first mortgage loans (50%),
private collateralized mortgage obligations backed by 1-4 family first mortgage
loans (50%) and cash and due from banks (O% to 20%). The $3.0 billion decrease
in risk-weighted balance sheet assets in 1993 compared with 1992 was primarily
due to a decrease in loans (primarily commercial and other real estate mortgage
loans) and a corresponding increase in investment securities, which are lower
risk-weighted assets.
[GRAPH]
TABLE 25
RISK-BASED CAPITAL RATIOS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in billions) December 31,
---------------------
1993 1992
<S> <C> <C>
Tier 1:
Common stockholders' equity $ 3.7 $ 3.2
Preferred stock .6 .6
Less goodwill and other deductions (1) (.5) (.5)
----- -----
Total Tier 1 capital 3.8 3.3
----- -----
Tier 2:
Mandatory convertible debt (2) .1 .1
Subordinated debt and unsecured senior debt (3) 1.1 1.4
Allowance for loan losses allowable in Tier 2 .4 .5
----- -----
Total Tier 2 capital 1.6 2.0
----- -----
Total risk-based capital $ 5.4 $ 5.3
===== =====
Risk-weighted balance sheet assets $36.1 $39.1
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans 1.3 1.8
Standby letters of credit .6 .8
Other .2 .3
----- -----
Total risk-weighted off-balance sheet items 2.1 2.9
----- -----
Goodwill and other deductions (1) (.5) (.5)
Allowance for loan losses not included in Tier 2 (1.7) (1.5)
----- -----
Total risk-weighted assets $36.0 $40.0
===== =====
Risk-based capital ratios:
Tier 1 capital (4.00% minimum requirement) 10.48% 8.22%
Total capital (8.00% minimum requirement) 15.12% 13.15%
- ----------------------------------------------------------------------------
<FN>
(1) Other deductions includes the unrealized net gain ($21 million, net of tax)
on available-for-sale investment securities carried at fair value resulting
from the adoption of FAS 115, as currently required by federal regulatory
agencies.
(2) Net of note fund and designated stockholders' equity.
(3) Discounted based on remaining maturity. In December 1993, $437 million of
subordinated debt was called for redemption in February 1994. This debt was
excluded from Tier 2 capital at year-end, resulting in a negative impact of
31 basis points on the December 31, 1993 total capital ratio.
</TABLE>
35
<PAGE>
LEVERAGE RATIO
To supplement the RBC guidelines, the FRB established a leverage ratio
guideline. The leverage ratio consists of Tier 1 capital divided by quarterly
average total assets, excluding goodwill and certain other items. The minimum
leverage ratio guideline is 3% for banking organizations that do not anticipate
significant growth and that have well-diversified risk, excellent asset quality,
high liquidity, good earnings and, in general, are considered top-rated, strong
banking organizations. Other banking organizations are expected to have ratios
of at least 4% to 5%, depending upon their particular condition and growth
plans. Higher leverage ratios could be required by the particular circumstances
or risk profile of a given banking organization. The Company's leverage ratios
were 7.39% and 6.36% at December 31, 1993 and 1992, respectively. The increase
in the leverage ratio at December 31, 1993 compared with December 31, 1992 was
mostly due to an increase in Tier 1 capital.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA)
In addition to adopting a risk-based assessment system, FDICIA required that the
federal regulatory agencies adopt regulations defining five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly under-
capitalized and critically undercapitalized. Under the regulations, a "well
capitalized" institution must have a Tier 1 RBC ratio of at least 6%, a combined
Tier 1 and Tier 2 RBC ratio of at least 10% and a leverage ratio of at least 5%
and not be subject to a capital directive order. An "adequately capitalized"
institution must have a Tier 1 RBC ratio of at least 4%, a combined Tier 1 and
Tier 2 RBC ratio of at least 8% and a leverage ratio of at least 4%, or 3% in
some cases. Under the regulations, the regulators can reduce the capital status
of an institution to the next lower tier if the institution is determined to be
in an unsafe or unsound condition or if it receives, and has not corrected, a
less than satisfactory examination rating for any of the following: asset
quality, management, earnings or liquidity. The Bank had a Tier 1 RBC ratio of
10.36%, a combined Tier 1 and Tier 2 ratio of 13.99% and a leverage ratio of
7.30% at December 31, 1993, compared with 7.23%, 11.03% and 5.58% at December
31, 1992, respectively.
Asset/Liability Management
- -------------------------------------------------------------------------------
--------------------------
The principal objectives of asset/liability management are to manage the
sensitivity of net interest spreads to potential changes in interest rates and
to enhance profitability in ways that promise sufficient reward for understood
and controlled risk. Management chooses asset/liability strategies to achieve an
appropriate trade-off between average spreads and spreads variability. Funding
positions are kept within predetermined limits designed to ensure that
risk-taking is not excessive and that liquidity is properly managed.
The Company's prime-based loans are funded by market rate savings; the
majority of the Company's LIBOR-based loan portfolio is funded by savings
certificates. The Company hedges primarily to reduce mismatches in the rate
maturity of loans and their funding sources through the use of certain
off-balance sheet financial contracts including swaps, futures and options. The
off-balance sheet contracts provide more stable and more profitable spreads
between loan yields and the rates on their funding sources. For example, the
Company uses interest rate futures to shorten the rate maturity of market rate
savings to better match the rate maturity of prime-based loans. For a further
discussion of off-balance sheet commitments, refer to Note 13 to the Financial
Statements.
One way to measure the impact that future changes in interest rates will have
on net interest income is through a cumulative gap measure. The gap represents
the net position of assets and liabilities subject to repricing in specified
time periods. Table 26 shows the Company's interest rate sensitivity based on
expected interest rate repricings in specific time frames for the balance sheet
(including noninterest-earning assets, noninterest-bearing liabilities and
stockholders' equity) as of December 31, 1993. Off-balance sheet contracts are
shown as a separate line item in the table. Interest rate sensitivity measures
the interval of time before interest-earning assets and interest-bearing
liabilities respond to changes in market rates of interest. Generally, an asset
sensitivity gap indicates that there would be a net positive impact on the net
interest margin of the Company over the next year in a rising interest rate
environment since the Company's assets would reprice to higher market interest
rates before its liabilities would. A net negative impact would result from a
decreasing interest rate environment. In managing its exposure to interest rate
fluctuations, the Company attempts to restrict its exposure to a 30 basis point
change in the quarterly net
36
<PAGE>
TABLE 26
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1993
--------------------------------------------------------------------------------
Prime 0-3 >3-6 >6-12 >1-5 >5 Non- Total
loans and months months months years years market
funding
source
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities (1) $ - $ 553 $ 711 $ 3,085 $ 7,354 $ 1,315 $ 40 $13,058
Federal funds sold and securities purchased under
resale agreements - 1,668 - - - - - 1,668
Loans:
Commercial 4,015 1,747 316 125 222 66 421 6,912
Real estate 1-4 family first mortgage 115 1,565 1,223 913 2,519 1,024 99 7,458
Other real estate mortgage 2,572 2,171 591 537 1,478 359 578 8,286
Real estate construction 732 112 1 12 18 - 235 1,110
Consumer 729 4,071 226 303 628 93 2,053 8,103
Lease financing - 85 94 175 850 8 - 1,212
Foreign - 18 - - - - - 18
------- ------- ------- ------- ------- ------- ------- -------
Total loans (2) 8,163 9,769 2,451 2,065 5,715 1,550 3,386 33,099
------- ------- ------- ------- ------- ------- ------- -------
Other earning assets (3) - - - - - - 52 52
------- ------- ------- ------- ------- ------- ------- -------
Total earning assets 8,163 11,990 3,162 5,150 13,069 2,865 3,478 47,877
Noninterest-earning assets - - - - - - 4,636 4,636
------- ------- ------- ------- ------- ------- ------- -------
Total assets 8,163 11,990 3,162 5,150 13,069 2,865 8,114 52,513
------- ------- ------- ------- ------- ------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing checking $ - $ - $ - $ - $ - $ - $ 4,789 $ 4,789
Savings deposits - - - - - - 2,544 2,544
Market rate savings 8,163 5,905 1,005 2,011 - - - 17,084
Savings certificates - 2,128 1,357 1,069 2,437 150 14 7,155
Other time deposits - 65 13 31 191 13 2 315
Deposits in foreign offices - 38 - - - - - 38
------- ------- ------- ------- ------- ------- -------- -------
Total interest-bearing deposits 8,163 8,136 2,375 3,111 2,628 163 7,349 31,925
Federal funds purchased and securities sold
under repurchase agreements - 1,079 - - - - - 1,079
Commercial paper and other
short-term borrowings - 188 - - - - - 188
Senior debt - 1,527 26 318 343 42 - 2,256
Subordinated debt (4) - 1,895 - - - - 70 1,965
------- ------- ------- ------- ------- ------- -------- -------
Total interest-bearing liabilities 8,163 12,825 2,401 3,429 2,971 205 7,419 37,413
Noninterest-bearing liabilities - - - - - - 10,785 10,785
Stockholders' equity (5) - - - - - - 4,315 4,315
------- ------- ------- ------- ------- ------- -------- -------
Total liabilities and stockholders' equity 8,163 12,825 2,401 3,429 2,971 205 22,519 52,513
------- ------- ------- ------- ------- ------- -------- -------
Gap before interest rate financial contracts - (835) 761 1,721 10,098 2,660 (14,405) -
Interest rate swaps - (652) 193 214 245 - - -
------- ------- ------- ------- ------- ------- -------- -------
Gap adjusted for interest rate financial contracts $ - $(1,487) $ 954 $ 1,935 $10,343 $ 2,660 $(14,405) $ -
======= ======= ======= ======= ======= ======= ======== =======
Cumulative gap $ - $(1,487) $ (533) $ 1,402 $11,745 $14,405 $ -
======= ======= ======= ======= ======= ======= ========
Adjustments:
Exclude noninterest-earning assets, noninterest-
bearing liabilities and stockholders' equity - - - - - - 10,464
Move interest-bearing checking and savings deposits
from nonmarket to shortest maturity - (7,333) - - - - 7,333
------- ------- ------- ------- ------- ------- --------
Adjusted cumulative gap $ - $(8,820) $(7,866) $(5,931) $ 4,412 $ 7,072 $ 10,464
======= ======= ======= ======= ======= ======= ========
<FN>
- ----------------------------------------------------------------------------------------------------------------------------------
(1) The nonmarket column consists of marketable equity securities.
(2) The nonmarket column consists of nonaccrual loans of $1,194 million, fixed-rate credit card loans of $2,062 million (including
$39 million in commercial credit card loans) and overdrafts of $130 million.
(3) The nonmarket column consists of Federal Reserve Bank stock.
(4) The nonmarket column substantially consists of foreign currency transaction adjustments to subordinated notes issued in German
marks and British pounds.
(5) The nonmarket column includes $225 million of adjustable rate preferred stock, which is not expected to reprice in the near term
due to the current interest rate environment and the minimum dividend rate embedded in these preferred stock issues.
</TABLE>
37
<PAGE>
interest margin, based on pre-specified rate scenarios and excluding unusual
items, such as interest recoveries on loans where interest had been previously
applied to principal. This limit is subject to periodic review by the Asset/
Liability Management Committee. The under-one-year net asset position was
$1,402 million at December 31, 1993 (2.7% of total assets), compared with the
under-one-year net liability position of $983 million at December 31, 1992 (1.9%
of total assets). The shift to a net asset position in 1993 from a net liability
position in 1992 was predominantly due to a shortening in the expected maturity
of mortgage-backed investment securities and 1-4 family first mortgage loans and
a decrease in savings certificates. This decline was substantially offset by an
increase in market rate savings and the under-one-year balances of senior and
subordinated debt and decreases in commercial loans and real estate mortgage
loans (excluding 1-4 family first mortgage loans).
In categorizing assets and liabilities according to expected repricing time
frames, management makes certain judgments and approximations. For example, a
new three-year loan with a rate that is adjusted every 30 days would be included
in the "0-3 months" category rather than the "over 1-5 years" category. For
instruments with indeterminate contractual maturities and rates that exhibit
little or no change as market interest rates vary, the Company uses the
"nonmarket" category. For instance, the revolving credit feature of fixed-rate
credit card loans differentiates these loans from fixed-rate loans with
specified contractual maturities; these fixed-rate credit card loans have
therefore been placed in the nonmarket category (floating-rate credit card loans
are included in the "prime loans" category).
The maturities of certain mortgage-backed investment securities and fixed-rate
loans in the real estate 1-4 family first mortgage, other real estate mortgage
and consumer loan categories are based on projected prepayment patterns using
current interest rates and prepayment experience over the last three months
rather than on contractual maturity. Nonmarket assets include
noninterest-earning assets, fixed-rate credit card loans, nonaccrual loans and
equity securities. Nonmarket liabilities and stockholders' equity include
savings deposits, interest-bearing checking accounts, noninterest-bearing
deposits, other noninterest-bearing liabilities, common stockholders' equity and
fixed-rate perpetual preferred stock.
The two adjustments to the cumulative gap amount shown on Table 26 provide
comparability with those bank holding companies that present interest rate
sensitivity information in this manner. However, management does not believe
that these adjustments necessarily depict its interest rate risk. The first
adjustment line excludes noninterest-earning assets, noninterest-bearing
liabilities and stockholders' equity from the cumulative gap calculation so that
only earning assets, interest-bearing liabilities and interest rate financial
contracts are reported. The second adjustment line moves interest-bearing
checking and savings deposits from the "nonmarket" liability category to the
shortest rate maturity category. This second adjustment reflects the
availability of these deposits for immediate withdrawal. The resulting adjusted
under-one-year cumulative gap (net liability position) was $5.9 billion and
$8.6 billion at December 31, 1993 and 1992, respectively.
Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot be
used to evaluate the Company's interest rate sensitivity position. To supplement
traditional gap analysis, the Company uses simulation modeling to estimate
the potential effects of changing interest rates. This process allows the
Company to fully explore the complex relationships within the gap over time and
various interest rate environments.
38
<PAGE>
Liquidity Management
- -------------------------------------------------------------------------------
--------------------
Liquidity refers to the Company's ability to maintain a cash flow adequate to
fund operations and meet obligations and other commitments on a timely and
cost-effective basis.
In recent years, core deposits have provided the Company with a sizable source
of relatively stable and low-cost funds. The Company's average core deposits and
stockholders' equity funded 87% and 86% of its average total assets in 1993 and
1992, respectively.
A majority of the remaining funding of average total assets was provided by
senior and subordinated debt. Senior and subordinated debt averaged $4.1 billion
and $4.0 billion in 1993 and 1992, respectively. The Company has entered into
interest rate swap contracts to exchange fixed-rate interest payments for
floating-rate interest payments for most of the fixed-rate senior debt issued.
Refer to the Consolidated Statement of Cash Flows for further information.
The weighted average expected remaining maturity of the investment
securities portfolio is 2 years and 7 months, based on amortized cost at
December 31, 1993. Of the $13.0 billion debt securities at December 31, 1993,
$4.3 billion, or 33%, is expected to mature or be prepaid in 1994 and an
additional $3.2 billion, or 25%, is expected to mature or be prepaid in 1995.
The Company has purchased shorter-term debt securities to maintain asset
liquidity and to fund potential loan growth.
Other sources of liquidity include maturity extensions of short-term
borrowings and sale or runoff of assets. Commercial and real estate loans
totaled $23.8 billion at December 31, 1993. Of these loans, $7.8 billion matures
in one year or less, $7.8 billion matures in over one year through five years
and $8.2 billion matures in over five years. Of the $16.0 billion that matures
in over one year, $6.6 billion has floating or adjustable rates and $9.4 billion
has fixed rates. Of the $9.4 billion of fixed-rate loans, approximately $2.4
billion represents fixed initial-rate mortgage (FIRM) loans. FIRM loans carry
fixed rates during the first 3 through 10 years of the loan term and carry
adjustable rates thereafter. The estimated net income impact of fixed-rate
mortgage loans maturing beyond one year that carry rates below market on
December 31, 1993 is not material.
The Company believes that liquidity is further provided by its ability to
raise funds in a variety of domestic and international money and capital
markets. A shelf registration statement filed with the Securities and Exchange
Commission became effective in January 1994. The shelf registration allows the
issuance of up to $1.5 billion of senior or subordinated debt or preferred
stock. (Refer to Note 6 to the Financial Statements for a schedule of
outstanding senior and subordinated debt as of December 31, 1993 and 1992.)
Dividends payable by a national bank to its parent without the express
approval of the OCC are limited to the bank's retained net profits for the
preceding two calendar years plus retained net profits up to the date of any
dividend declaration in the current calendar year. Retained net profits are
defined by the OCC as net income, based on regulatory accounting principles,
less dividends declared during the period. Based on this definition, the Bank
can declare dividends of approximately $880 million of its retained net profits
at December 31, 1993 plus retained net profits up to the date of any such
dividend declaration. There were no dividends declared by the Bank to the Parent
in 1993. As such, the Parent Company was funded mostly by the issuance of senior
and subordinated debt in 1993. In January 1994, the Bank's Board of Directors
declared a quarterly dividend of $78 million. (Note 12 to the Financial
Statements shows the Parent Company's financial statements.)
To accommodate future growth and current business needs, the Company has a
capital expenditure program. Capital expenditures for 1994 are estimated at $150
million for additional automation equipment for branches and offices, relocation
and remodeling of Company facilities and routine replacement of furniture and
equipment. The Company will fund these expenditures from various sources,
including retained earnings of the Company and borrowings of various maturities.
39
<PAGE>
--------------------------------------
--------------------------------------
- -------------------------Comparison of 1992 Versus 1991------------------------
--------------------------------------
--------------------------------------
Net income in 1992 was $283 million, compared with $21 million in 1991. Net
income per share was $4.44, compared with $.04 in 1991. Return on average assets
(ROA) was .54% and return on average common equity (ROE) was 7.93% in 1992,
compared with .04% and .07% respectively, in 1991.
During the fourth quarter of 1991, the Company reduced its quarterly dividend
from $1.00 to $.50 per share in order to improve capital ratios.
The increase in earnings in 1992 compared with 1991 reflected a $170 million
increase in noninterest income. In addition, net interest income on a
taxable-equivalent basis rose 6% to $2,698 million in 1992 and the net interest
margin increased 52 basis points to 5.70%. The 1992 earnings also reflected a
$120 million decrease in the provision for loan losses.
Noninterest income was $1,059 million in 1992, compared with $889 million in
1991. Service charges on deposit accounts increased 17% to $394 million,
primarily due to fee increases made in late 1991. The increase in service
charges also reflected an increase in the number of checking accounts, which
averaged 2.9 million in 1992, compared with 2.8 million in 1991. Fees and
commissions increased 6% to $363 million predominantly resulting from sales fees
on mutual funds and annuities as well as increased shared ATM network income.
Sales fee revenues on mutual funds and other financial products increased from
$4 million in 1991 to $29 million in 1992 due to the introduction of the PFO
program in the branches. Shared ATM network income increased to $32 million from
$23 million in 1991, primarily due to a fee increase implemented in mid-1992 as
well as an 18% increase in the volume of transactions processed through the ATM
network. Trust and investment services income increased 20% to $165 million,
primarily due to greater mutual fund investment management fees, reflecting
growth in the funds' net assets. These fees amounted to $19 million in 1992,
compared with $3 million in 1991. In 1992, the Company realized gains of $45
million from the sale of all of its 30-year mortgage-backed securities.
Noninterest expense totaled $2,035 million in 1992, relatively unchanged
compared with $2,020 million in 1991.
The 6% increase in net interest income on a taxable-equivalent basis was due
to a 10% increase in the net interest margin, partially offset by a 4% decrease
in average earning assets.
The increase in the net interest margin was substantially due to lower rates
paid on interest-bearing checking and savings accounts, wider spreads between
Prime- and LIBOR-based loans and their funding sources, and income from
derivative contracts used to hedge mismatches in the rate maturity of loans and
their funding sources.
The decrease of $1.8 billion in average earning assets to $47.3 billion was
substantially due to a $6.3 billion decrease in average loans, mostly in
commercial loans and real estate 1-4 family first mortgage loans, partially
offset by a $3.9 billion increase in average investment securities.
Total loans were $36.9 billion at December 31, 1992, a 16% decrease from
December 31, 1991. This decrease reflected loan repayments, weak loan demand and
continued emphasis on reducing the Company's HLT and commercial real estate loan
portfolios. However, small business lending saw growth despite recent slow
business activity. In addition, the Company continued to focus on building other
fee-based businesses, particularly mutual fund products and deposit accounts.
The provision for loan losses in 1992 was $1,215 million, compared with $1,335
million in 1991. Net charge-offs in 1992 were $798 million, or 1.97% of average
total loans, compared with $572 million, or 1.22%, in 1991. Loan loss recoveries
were $117 million in 1992, compared with $187 million in 1991. The allowance for
loan losses was 5.60% of total loans at December 31, 1992, compared with 3.73%
at December 31, 1991. The high provision for loan losses and the increase in net
loan charge-offs reflected the effects of continuing economic conditions in
California (particularly in Southern California) on the loan portfolio as well
as the Company's ongoing examination process and that of its regulators.
Total nonaccrual and restructured loans were $2,142 million, or 5.8% of total
loans, at December 31, 1992, compared with $1,981 million, or 4.5% of total
loans, at December 31, 1991. At December 31, 1992, an estimated $1,294 million,
or 61%, of nonaccrual loans were less than 90 days past due, compared with an
estimated $1,277 million, or 65%, at December 31, 1991. Foreclosed assets
were $510 million at December 31, 1992, compared with $404 million at December
31, 1991.
The average volume of core deposits in 1992 was $41.8 billion, 1% higher than
1991. Core deposits funded 80% of the Company's average total assets in 1992,
compared with 75% in 1991.
40
<PAGE>
------------------------------
------------------------------
- -----------------------------Additional Information----------------------------
------------------------------
------------------------------
Common stock of the Company is traded on the New York Stock Exchange, the
Pacific Stock Exchange, the London Stock Exchange and the Frankfurt Stock
Exchange. The high, low and end-of-period annual and quarterly closing prices of
the Company's stock as reported on the New York Stock Exchange Composite
Transaction Reporting System are presented in the graphs. The number of hold-
ers of record of the Company's common stock was 27,013 as of January 31, 1994.
Common dividends declared per share totaled $2.25 in 1993, $1.50 in 1992 and
$3.50 in 1991. The common stock quarterly dividend was reduced in the fourth
quarter of 1991 from $1.00 to $.50 per share. Beginning with the fourth quarter
of 1992, the Company changed its dividend declaration schedule. Quarterly
dividends are now considered at the Board of Directors meeting the month follow-
ing quarter end. Accordingly, no dividend was declared (recorded) in the fourth
quarter of 1992. The dividend was increased in the fourth quarter of 1993 from
$0.50 to $0.75 per share and increased again in the first quarter of 1994 to
$1.00 per share. The Company, with the approval of the Board Of Directors,
intends to continue its present policy of paying quarterly cash dividends to
stockholders. The level of future dividends will be determined by the Board of
Directors in light of the earnings and financial condition of the Company.
The Company may repurchase common stock from time to time pursuant to
authorizations from the Board of Directors that allow shares to be repurchased
in relation to the number of shares issued or expected to be issued under
various benefit plans and the Company's dividend reinvestment plan, and that
allow shares to be repurchased for other corporate purposes.
In 1991, the FRB approved an application by Berkshire Hathaway, Inc.
(Berkshire) to purchase additional shares of the Company's common stock in the
open market, up to a total of 22%. Berkshire entered into a passivity agreement
with the Company, in which it agrees not to exercise any control over the
Company's management or policies. Accordingly, Berkshire granted its proxy to
the Company to vote Berkshire's shares in accordance with the recommendations of
the Board of Directors of the Company. Berkshire owned 12.2% and 11.6% of the
Company's common stock at December 31, 1993 and 1992, respectively.
[GRAPH]
[GRAPH]
41
<PAGE>
Consolidated Statement of Income
- --------------------WELLS FARGO & COMPANY AND SUBSIDIARIES---------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions) Year ended December 31,
---------------------------------
1993 1992 1991
<S> <C> <C> <C>
INTEREST INCOME
Loans $3,066 $3,697 $4,803
Investment securities 672 415 152
Federal funds sold and securities purchased under resale agreements 23 33 16
Other - - 1
------ ------ ------
Total interest income 3,761 4,145 4,972
------ ------ ------
INTEREST EXPENSE
Deposits 863 1,185 1,965
Federal funds purchased and securities sold under repurchase agreements 29 41 170
Commercial paper and other short-term borrowings 6 9 78
Senior and subordinated debt 206 219 239
------ ------ ------
Total interest expense 1,104 1,454 2,452
------ ------ ------
NET INTEREST INCOME 2,657 2,691 2,520
Provision for loan losses 550 1,215 1,335
------ ------ ------
Net interest income after provision for loan losses 2,107 1,476 1,185
------ ------ ------
NONINTEREST INCOME
Service charges on deposit accounts 423 394 337
Fees and commissions 376 363 343
Trust and investment services income 190 165 138
Investment securities gains (losses) - 45 (6)
Other 104 92 77
------ ------ ------
Total noninterest income 1,093 1,059 889
------ ------ ------
NONINTEREST EXPENSE
Salaries 784 714 680
Employee benefits 222 184 165
Net occupancy 224 222 218
Equipment 148 141 143
Federal deposit insurance 114 106 98
Other 670 668 716
------ ------ ------
Total noninterest expense 2,162 2,035 2,020
------ ------ ------
INCOME BEFORE INCOME TAX EXPENSE 1,038 500 54
Income tax expense 426 217 33
------ ------ ------
NET INCOME $ 612 $ 283 $ 21
====== ====== ======
NET INCOME APPLICABLE TO COMMON STOCK $ 562 $ 235 $ 2
====== ====== ======
PER COMMON SHARE
Net income $10.10 $ 4.44 $ .04
====== ====== ======
Dividends declared $ 2.25 $ 1.50 $ 3.50
====== ====== ======
Average common shares outstanding 56 53 52
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE>
Consolidated Balance Sheet
- ---------------------WELLS FARGO & COMPANY AND SUBSIDIARIES--------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions) December 31,
----------------------
1993 1992
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,644 $ 2,690
Investment securities:
At cost (estimated fair value $9,978 and $9,428) 9,887 9,338
At fair value 3,171 -
------- -------
Total investment securities 13,058 9,338
Federal funds sold and securities purchased under resale agreements 1,668 1,183
Loans 33,099 36,903
Allowance for loan losses 2,122 2,067
------- -------
Net loans 30,977 34,836
------- -------
Due from customers on acceptances 70 97
Accrued interest receivable 297 301
Premises and equipment, net 898 876
Goodwill 477 523
Other assets 2,424 2,693
------- -------
Total assets $52,513 $52,537
======= =======
LIABILITIES
Noninterest-bearing deposits $ 9,719 $ 9,190
Interest-bearing deposits 31,925 33,054
------- -------
Total deposits 41,644 42,244
Federal funds purchased and securities sold under repurchase agreements 1,079 1,311
Commercial paper and other short-term borrowings 188 202
Acceptances outstanding 70 97
Accrued interest payable 63 88
Other liabilities 933 746
Senior debt 2,256 2,159
Subordinated debt 1,965 1,881
------- -------
Total liabilities 48,198 48,728
------- -------
STOCKHOLDERS' EQUITY
Preferred stock 639 639
Common stock-$5 par value, authorized 150,000,000 shares;
issued and outstanding 55,812,592 shares and 55,191,173 shares 279 276
Additional paid-in capital 551 506
Retained earnings 2,829 2,392
Cumulative foreign currency translation adjustments (4) (4)
Investment securities valuation allowance 21 -
------- -------
Total stockholders' equity 4,315 3,809
------- -------
Total liabilities and stockholders' equity $52,513 $52,537
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
43
<PAGE>
Consolidated Statement of Changes in Stockholders' Equity
- ---------------------WELLS FARGO & COMPANY AND SUBSIDIARIES--------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions) Preferred Common Additional Retained Foreign Investment Total
stock stock paid-in earnings currency securities stock-
capital translation valuation holders'
adjustments allowance equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31,1990 $ 405 $ 257 $ 287 $2,415 $(4) $ - $3,360
----- ----- ----- ------ --- ----- ------
Net income-1991 21 21
Preferred stock issued, net of
issuance costs 238 (7) 231
Common stock issued under
employee benefit and
dividend reinvestment plans 3 38 41
Preferred stock redeemed (180) (180)
Common stock repurchased (2) (2)
Preferred stock dividends (19) (19)
Common stock dividends (181) (181)
----- ----- ----- ------ --- ----- ------
Net change 58 3 29 (179) - - (89)
----- ----- ----- ------ --- ----- ------
BALANCE DECEMBER 31,1991 463 260 316 2,236 (4) - 3,271
----- ----- ----- ------ --- ----- ------
Net income-1992 283 283
Preferred stock issued, net of
issuance costs 176 (7) 169
Common stock issued under
employee benefit and
dividend reinvestment plans 16 197 213
Preferred stock dividends (48) (48)
Common stock dividends (79) (79)
----- ----- ----- ------ --- ----- ------
Net change 176 16 190 156 - - 538
----- ----- ----- ------ --- ----- ------
BALANCE DECEMBER 31,1992 639 276 506 2,392 (4) - 3,809
----- ----- ----- ------ --- ----- ------
Net income-1993 612 612
Common stock issued under
employee benefit and
dividend reinvestment plans 3 50 53
Common stock repurchased (5) (5)
Preferred stock dividends (50) (50)
Common stock dividends (125) (125)
Cumulative unrealized net gains,
after applicable taxes, at
December 31, 1993 21 21
----- ----- ----- ------ --- ----- ------
Net change - 3 45 437 - 21 506
----- ----- ----- ------ --- ----- ------
BALANCE DECEMBER 31,1993 $639 $279 $551 $2,829 $(4) $21 $4,315
===== ===== ===== ====== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
44
<PAGE>
Consolidated Statement of Cash Flows
- ---------------------WELLS FARGO & COMPANY AND SUBSIDIARIES--------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions) Year ended December 31,
-----------------------------------------
1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 612 $ 283 $ 21
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 550 1,215 1,335
Depreciation and amortization 266 268 246
Deferred income tax benefit (145) (188) (318)
Net decrease in net deferred loan fees (2) (7) (45)
Net decrease in accrued interest receivable 4 25 90
Net increase (decrease) in accrued interest payable (25) (58) 55
Other, net 273 126 84
------- ------- -------
Net cash provided by operating activities 1,533 1,664 1,468
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
At cost:
Proceeds from sales - - 70
Proceeds from prepayments and maturities 2,492 1,605 760
Purchases (6,168) (7,919) (3,282)
At lower of cost or market:
Proceeds from sales - 809 -
Net decrease in loans resulting from collections and originations 2,754 3,991 3,005
Proceeds from sales (including participations) of loans 264 1,936 1,341
Purchases (including participations) of loans (36) (31) (178)
Cash and cash equivalents from acquisitions, net of cash paid - - 1,615
Proceeds from sales of foreclosed assets 353 311 108
Net (increase) decrease in federal funds sold and securities purchased
under resale agreements (485) (1,174) 1
Other, net (59) (109) (114)
------- ------- --------
Net cash provided (used) by investing activities (885) (581) 3,326
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (600) (1,475) (734)
Net increase (decrease) in short-term borrowings (246) 296 (5,506)
Proceeds from issuance of senior debt 980 508 2,043
Proceeds from issuance of subordinated debt 399 350 -
Repayment of senior debt (884) (882) (33)
Repayment of subordinated debt (300) (116) (200)
Proceeds from issuance of preferred stock - 169 231
Proceeds from issuance of common stock 53 213 41
Redemption of preferred stock - - (180)
Repurchase of common stock (5) - (2)
Payment of cash dividends (175) (153) (227)
Other, net 84 (61) 22
------- ------- -------
Net cash used by financing activities (694) (1,151) (4,545)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS) (46) (68) 249
Cash and cash equivalents at beginning of year 2,690 2,758 2,509
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,644 $ 2,690 $ 2,758
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,129 $ 1,512 $ 2,393
======= ======= =======
Income taxes $ 481 $ 370 $ 350
Noncash investing activities:
Transfers from investment securities at cost to investment securities at
lower of cost or market $ - $ 809 $ -
======= ======= =======
Transfers from investment securities at cost to investment securities at fair value $ 3,077 $ - $ -
======= ======= =======
Transfers from foreclosed assets to nonaccrual loans $ 99 $ - $ -
======= ======= =======
Transfers from loans to foreclosed assets $ 404 $ 600 $ 225
======= ======= =======
In connection with acquisition (Great American Bank-Phase 2):
Fair value of assets acquired $ - $ - $ 1,785
======= ======= =======
Fair value of liabilities assumed $ - $ - $ 1,785
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
45
<PAGE>
Notes to Financial Statements
- -------------------- WELLS FARGO & COMPANY AND SUBSIDIARIES --------------------
- --------------------------------------------------------------------------------
NOTE
1
----------------------------------------------------
----------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------
----------------------------------------------------
The accounting and reporting policies of Wells Fargo & Company and Subsidiaries
(Company) conform with generally accepted accounting principles and prevailing
practices within the banking industry. Certain amounts in the financial
statements for prior years have been reclassified to conform with the current
financial statement presentation. The following is a description of the
significant accounting policies of the Company.
Consolidation
- --------------------------------------------------------------------------------
-------------
The consolidated financial statements of the Company include the accounts of
Wells Fargo & Company (Parent), Wells Fargo Bank, N.A. (Bank) and the nonbank
subsidiaries of the Parent.
Significant majority-owned subsidiaries are consolidated on a line-by-line
basis. Significant intercompany accounts and transactions are eliminated in
consolidation. Other subsidiaries and affiliates in which there is at least 20%
ownership are generally accounted for by the equity method; less than 20%
ownership are generally carried at cost. Subsidiaries and affiliates that are
accounted for by either the equity or cost method are included in other assets.
Securities
- --------------------------------------------------------------------------------
----------
Securities are accounted for according to their purpose and holding period.
INVESTMENT SECURITIES
Securities generally acquired to meet long-term investment objectives, including
yield and liquidity management purposes, are classified as investment
securities. Realized gains and losses are recorded in noninterest income using
the identified certificate method.
SECURITIES AT COST Debt securities acquired with the positive intent and ability
to hold to maturity are classified as securities carried at historical cost,
adjusted for amortization of premium and accretion of discount, where
appropriate. For certain debt securities (for example, Government National
Mortgage Association securities), the Company anticipates prepayments of
principal in the calculation of the effective yield. If it is probable that the
carrying value of any debt security will not be realized due to
other-than-temporary impairment, the estimated loss is recorded in noninterest
income as a loss on investment securities. If a decision is made to dispose of
securities at cost or should the Company become unable to hold securities until
maturity, they would be reclassified to securities at fair value.
SECURITIES AT FAIR VALUE Upon the adoption of Statement of Financial Accounting
Standards No. 115 (FAS 115), Accounting for Certain Investments in Debt and
Equity Securities, on December 31, 1993, debt securities that may not be held
until maturity and marketable equity securities are considered
available-for-sale and, as such, are classified as securities carried at fair
value, with unrealized gains and losses, after applicable taxes, reported in a
separate component of stockholders' equity. Declines in the value of debt
securities and marketable equity securities that are considered other than
temporary are recorded in noninterest income as a loss on investment
securities.
SECURITIES AT LOWER OF COST OR MARKET Prior to December 31, 1993, securities
that were not held on a long-term basis or until maturity were classified as
securities carried at the lower of cost or market.
TRADING SECURITIES
Securities, if any, acquired for short-term appreciation or other trading
purposes are recorded in a trading portfolio and are carried at fair value, with
unrealized gains and losses recorded in noninterest income.
NONMARKETABLE EQUITY SECURITIES
Nonmarketable equity securities are acquired for various purposes, such as
troubled debt restructurings and as a regulatory requirement (for example,
Federal Reserve Bank stock). These securities are accounted for at cost and are
included in other assets as they do not fall within the scope of FAS 115 since
there are restrictions on their sale or liquidation. The asset value is reduced
when declines in value are considered to be other than temporary.
46
<PAGE>
Premises and Equipment
- --------------------------------------------------------------------------------
----------------------
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Capital leases are included in premises and equipment, at the
capitalized amount less accumulated amortization.
Depreciation and amortization are computed primarily using the straight-line
method. Estimated useful lives range up to 40 years for buildings, 2-10 years
for furniture and equipment, and up to the lease term for leasehold
improvements. Capitalized leased assets are amortized on a straight-line basis
over the lives of the respective leases, which generally range from 20-35 years.
Loans
- --------------------------------------------------------------------------------
-----
Loans are reported at the principal amount outstanding, net of unearned income.
Unearned income, which includes deferred fees net of deferred direct incremental
loan origination costs, is amortized to interest income generally over the
contractual life of the loan using an interest method or the straight-line
method if it is not materially different.
Loans identified as held for sale are carried at the lower of cost or market
value. Nonrefundable fees and related direct loan origination costs, if any, are
deferred and recognized as a component of the gain or loss on sale recorded in
noninterest income.
NONACCRUAL LOANS Loans, other than consumer loans for which no portion of the
principal has been charged off, are placed on nonaccrual status upon becoming 90
days past due as to interest or principal (unless both well-secured and in the
process of collection), when the full timely collection of interest or principal
becomes uncertain or when a portion of the principal balance has been charged
off. Real estate 1-4 family loans (both first liens and junior liens) are placed
on nonaccrual status within 150 days of becoming past due as to interest or
principal, regardless of security. Consumer loans not secured by real estate are
only placed on nonaccrual status when a portion of the principal has been
charged off. Such loans are entirely charged off within 180 days of becoming
past due.
When a loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is reversed and the loan is accounted for on the cash or cost
recovery method thereafter, until qualifying for return to accrual status.
Generally, a loan may be returned to accrual status when all delinquent interest
and principal become current in accordance with the terms of the loan agreement
or when the loan is both well-secured and in the process of collection.
RESTRUCTURED LOANS In cases where a borrower experiences financial difficulties
and the Company makes certain concessionary modifications to contractual terms,
the loan is classified as a restructured loan, unless the effective yield is
equivalent to that of a new loan. If the borrower's ability to meet the revised
payment schedule is uncertain, the loan is classified as a nonaccrual loan.
ALLOWANCE FOR LOAN LOSSES The Company's determination of the level of the
allowance for loan losses rests upon various judgments and assumptions,
including general economic conditions, loan portfolio composition, prior loan
loss experience, evaluation of credit risk related to certain individual
borrowers and the Company's ongoing examination process and that of its
regulators. The Company considers the allowance for loan losses adequate to
cover losses inherent in loans, loan commitments and standby letters of credit.
Goodwill and Identifiable
Intangible Assets
- --------------------------------------------------------------------------------
-----------------
Goodwill, representing the excess of purchase price over the fair value of net
assets acquired, results from acquisitions made by the Company. Most of the
Company's goodwill is being amortized using the straight-line method over 20
years. The remaining period of amortization, on a weighted average basis,
approximated 14 years at December 31, 1993.
Identifiable intangible assets that are included in other assets are generally
amortized using an accelerated method over 5 to 15 years. Approximately 48% of
the December 31, 1993 remaining balance will be amortized in 3 years.
Income Taxes
- --------------------------------------------------------------------------------
------------
The Company files a consolidated federal income tax return. Consolidated or
combined state tax returns are filed in certain states, including California.
Income taxes are generally allocated to individual subsidiaries as if each had
filed a separate return. Payments are made to the Parent by those subsidiaries
with net tax liabilities on a separate return basis. Subsidiaries with net tax
losses and excess tax credits receive payment for these benefits from the
Parent.
47
<PAGE>
Effective January 1, 1993, deferred income tax assets and liabilities are
determined in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, which uses the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is determined
based on the tax effects of the differences between the book and tax bases of
the various balance sheet assets and liabilities and gives current recognition
to changes in tax rates and laws. FAS 109 supersedes Accounting Principles Board
Opinion No. 11 (APB 11), Accounting for Income Taxes, which was used prior to
1993 to determine the deferred tax assets and liabilities. Under APB 11, the
net deferred tax asset or liability was an accumulation of annual adjustments
based on the tax effects of the book and tax income statement differences and
was not adjusted for subsequent changes in the tax rates and laws.
Interest Rate Derivative Contracts
- --------------------------------------------------------------------------------
----------------------------------
The Company enters into interest rate derivative contracts, such as futures,
swaps, caps and floors, primarily to hedge mismatches in the rate maturity of
loans and their funding sources. Gains and losses on interest rate futures are
deferred and amortized as a component of the interest income or expense reported
on the asset or liability hedged. Amounts payable or receivable for swaps, caps
and floors are accrued with the passage of time, the effect of which is included
in the interest income or expense reported on the asset or liability hedged;
fees on these financial contracts are amortized over their contractual life as a
component of the interest reported on the asset or liability hedged.
Net Income Per Common Share
- --------------------------------------------------------------------------------
---------------------------
Net income per common share is computed by dividing net income (after
deducting dividends on preferred stock) by the average number of common shares
outstanding during the year. The impact of common stock equivalents, such as
stock options, and other potentially dilutive securities is not material;
therefore, they are not included in the computation.
NOTE
2
--------------------------------------------------
--------------------------------------------------
CASH, LOAN AND DIVIDEND RESTRICTIONS
--------------------------------------------------
--------------------------------------------------
Federal Reserve Board regulations require reserve balances on deposits to be
maintained by the Bank with the Federal Reserve Bank. The average required
reserve balance was approximately $1.2 billion in both 1993 and 1992.
The Bank is subject to certain restrictions under the Federal Reserve Act,
including restrictions on extensions of credit to its affiliates. In particular,
the Bank is prohibited from lending to the Parent and its nonbank subsidiaries
unless the loans are secured by specified collateral. Such secured loans and
other regulated transactions made by the Bank (including its subsidiaries) are
limited in amount as to each of its affiliates, including the Parent, to 10% of
the Bank's capital stock and surplus (as defined, which for this purpose
includes the allowance for loan losses on an after-tax basis) and, in the
aggregate to all of its affiliates, to 20% of the Bank's capital stock and
surplus. The Bank's capital stock and surplus at December 31, 1993 was $6
billion.
Dividends payable by the Bank to the Parent without the express approval of
the Office of the Comptroller of the Currency (OCC) are limited to the Bank's
retained net profits for the preceding two calendar years plus retained net
profits up to the date of any dividend declaration in the current calendar year.
Retained net profits are defined by the OCC as net income, based on regulatory
accounting principles, less dividends declared during the period. Based on this
definition, the Bank can declare dividends of approximately $880 million of its
retained net profits at December 31, 1993 plus retained net profits up to the
date of any such dividend declaration. There were no dividends declared by the
Bank to the Parent in 1993. In January 1994, the Bank's Board of Directors
declared a quarterly dividend of $78 million.
48
<PAGE>
NOTE
3
--------------------------------------------------
--------------------------------------------------
INVESTMENT SECURITIES
--------------------------------------------------
--------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 115 (FAS
115), Accounting for Certain Investments in Debt and Equity Securities, on
December 31, 1993. FAS 115 addresses the accounting and reporting for certain
investments in debt and marketable equity securities.
FAS 115 establishes three classifications of securities, each of which
receives different accounting treatment. Held-to-maturity investment securities
are reported at cost. Available-for-sale investment securities are reported at
fair value, with unrealized gains and losses, after applicable taxes, reported
as a separate component of stockholders' equity. Trading securities are reported
at fair value, with unrealized gains and losses included in earnings. The esti-
mated fair value of investments is determined based on current quotations, where
available. Where current quotations are not available, the estimated fair value
is determined based primarily on the present value of future cash flows,
adjusted for the quality rating of the securities, prepayment assumptions and
other factors. The Company had no trading securities in 1993, 1992 or 1991.
The following table provides the major components Of investment securities at
cost and at fair value:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
(in millions) December 31,
---------------------------------------------------
1993
---------------------------------------------------
COST ESTIMATED ESTIMATED ESTIMATED
UNREALIZED UNREALIZED FAIR
GROSS GAINS GROSS LOSSES VALUE
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES AT COST:
U.S. Treasury securities $2,365 $ 18 $ - $2,383
Securities of U.S.
government agencies
and corporations (1) 6,570 91 17 6,644
Obligations of states and
political subdivisions 18 - - 18
Securities issued by
foreign governments 90 1 - 91
Private collateralized
mortgage obligations 815 4 6 813
Corporate debt securities 29 - - 29
------ ---- --- ------
Total debt securities 9,887 114 23 9,978
Corporate and Federal
Reserve Bank stock (2) - - - -
------ ---- --- ------
Total $9,887 $114 $23 $9,978
====== ===== ==== ======
AVAILABLE-FOR-SALE
SECURITIES AT
FAIR VALUE:
Securities of U.S.
government agencies
and corporations (1) $1,747 $ 13 $11 $1,749
Private collateralized
mortgage obligations 1,340 5 11 1,334
Corporate debt securities 31 17 - 48
------ ---- --- ------
Total debt securities 3,118 35 22 3,131
Marketable equity securities 17 24 1 40
------ ---- --- ------
Total $3,135 $ 59 $23 $3,171
====== ==== === ======
- -------------------------------------------------------------------------------------
December 31,
---------------------------------------------------------------------------------
1992 1991
----------------------------------------------------- -----------------------
Cost Estimated Estimated Estimated Cost Estimated
unrealized unrealized fair fair
gross gains gross losses value value
<S> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES AT COST:
U.S. Treasury securities $1,964 $ 24 $ 5 $1,983 $1,107 $1,139
Securities of U.S.
government agencies
and corporations (1) 7,206 109 37 7,278 2,643 2,765
Obligations of states and
political subdivisions 24 - - 24 41 40
Securities issued by
foreign governments 93 - 1 92 - -
Private collateralized
mortgage obligations - - - - - -
Corporate debt securities 1 - - 1 3 3
------ ---- --- ------ ------ ------
Total debt securities 9,288 133 43 9,378 3,794 3,947
Corporate and Federal
Reserve Bank stock (2) 50 - - 50 39 39
------ ---- --- ------ ------ ------
Total $9,338 $133 $43 $9,428 $3,833 $3,986
====== ==== === ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) All securities of U.S. government agencies and corporations are mortgage-backed securities.
(2) Federal Reserve Bank stock was reclassified at December 31, 1993 to other assets due to the implementation of FAS 115.
</TABLE>
49
<PAGE>
The following table provides the remaining contractual principal maturities
and yields (taxable-equivalent basis) of debt securities within the investment
portfolio. The remaining contractual principal maturity for mortgage-backed
securities were allocated assuming no prepayments.
Expected remaining maturities will differ from contractual maturities because
borrowers may have the right to prepay obligations with or without penalties.
(See the Investment Securities section of the Financial Review for expected
remaining maturities and yields.)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
- ----------------------------------------------------------------
(in millions) December 31, 1993
- ----------------------------------------------------------------
Total Weighted Weighted
amount average average
yield remaining
maturity (in
yrs.-mos.)
<S> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES:
U.S. Treasury securities $ 2,365 4.85% 1-2
Securities of U.S.
government agencies
and corporations 6,570 6.23 5-10
Obligations of states and
political subdivisions 18 6.49 4-6
Securities issued by
foreign governments 90 5.17 1-11
Private collateralized
mortgage obligations 815 4.68 7-8
Corporate debt securities 29 6.14 2-0
-------
Total cost $ 9,887 5.76% 4-10
======= =====
ESTIMATED FAIR
VALUE $ 9,978
=======
AVAILABLE-FOR-SALE
SECURITIES (1):
Securities of U.S.
government agencies
and corporations $ 1,747 6.00% 10-1
Private collateralized
mortgage obligations 1,340 5.15 10-10
Corporate debt securities 31 11.00 7-0
-------
Total cost $ 3,118 5.68% 10-4
======= =====
ESTIMATED FAIR
VALUE $ 3,131
=======
TOTAL COST OF
DEBT SECURITIES $13,005 5.74% 6-2
======= ===== ===
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1993
------------------------------------------------------------------------------------------------
Remaining contractual principal maturity
------------------------------------------------------------------------------------------------
Within one year After one year After five years After ten years
through five years through ten years
------------------ ------------------ ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES:
U.S. Treasury securities $1,209 5.21% $1,156 4.48% $ - -% $ - -%
Securities of U.S.
government agencies
and corporations 673 5.99 2,523 5.95 2,203 6.30 1,171 6.85
Obligations of states and
political subdivisions 3 6.42 11 6.53 2 6.44 2 6.39
Securities issued by
foreign governments 21 4.48 69 5.38 - - - -
Private collateralized
mortgage obligations 38 4.60 225 4.59 335 4.87 217 4.49
Corporate debt securities 9 5.84 18 6.15 2 7.27 - -
------ ------ ------ ------
Total cost $1,953 5.46% $4,002 5.44% $2,542 6.11% $1,390 6.48%
====== ===== ====== ===== ====== ===== ====== =====
ESTIMATED FAIR
VALUE $1,970 $4,027 $2,567 $1,414
====== ====== ====== ======
AVAILABLE-FOR-SALE
SECURITIES (1):
Securities of U.S.
government agencies
and corporations $ 56 7.00% $ 122 6.77% $ 426 5.97% $1,143 5.89%
Private collateralized
mortgage obligations 51 5.48 78 4.19 425 5.08 786 5.27
Corporate debt securities - - - - 31 11.00 - -
------ ------ ------ ------
Total cost $ 107 6.28% $ 200 5.76% $ 882 5.72% $1,929 5.64%
====== ===== ====== ===== ====== ===== ====== =====
ESTIMATED FAIR
VALUE $ 107 $ 201 $ 898 $1,925
====== ====== ====== ======
TOTAL COST OF
DEBT SECURITIES $2,060 5.51% $4,202 5.46% $3,424 6.01% $3,319 5.99%
====== ===== ====== ===== ====== ===== ====== =====
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The weighted average yield is computed using the amortized cost of available-for-sale investment securities carried at fair
value.
</TABLE>
Dividend income of $3 million, $2 million and $6 million in 1993, 1992 and
1991, respectively, is included in interest income on investment securities in
the consolidated statement of income. Substantially all income on investment
securities is taxable.
The cost of investment securities pledged to secure trust and public deposits
and for other purposes as required or permitted by law was $2,197 million,
$1,880 million and $1,520 million at December 31, 1993, 1992 and 1991,
respectively.
Proceeds from the sales of debt securities in the securities at cost portfolio
totaled $284 thousand in 1993, resulting in a $10 thousand gain. Proceeds from
the sales of debt securities totaled $34 million in 1991. Gross gains of $1
million and gross losses of $6 million were realized on these sales. There were
no sales from the securities at cost portfolio in 1992.
In 1992, 30-year mortgage-backed securities were reclassified from securities
at cost to securities held for sale and carried at the lower of cost or market.
Proceeds from the subsequent sales of these securities totaled $828 million.
Gross gains of $45 million were realized on the sales.
50
<PAGE>
NOTE
4
--------------------------------------------------
--------------------------------------------------
LOANS AND ALLOWANCE FOR LOAN LOSSES
--------------------------------------------------
--------------------------------------------------
A summary of the major categories of the loan portfolio at the end of the last
two years is shown in the table below. The Company also has commitments to
extend credit related to these loan categories. Commitments to extend credit
under credit card lines were $6.0 billion and $5.3 billion at December 31, 1993
and 1992, respectively. Other commitments to extend credit were $10.0 billion
and $11.6 billion at December 31, 1993 and 1992, respectively, of which a
significant portion related to commercial loans. Of the commitments to extend
credit, those secured by real estate (primarily real estate 1-4 family junior
lien mortgage loans) were $3.9 billion and $3.6 billion at December 31, 1993 and
1992, respectively. At December 31, 1993 and 1992, the commercial loan category
and related commitments did not have an industry concentration that exceeded 10%
of total loans and commitments. Tables 9 through 12 in the Loan Portfolio
section of the Financial Review summarize real estate mortgage (excluding 1-4
family mortgage loans) and real estate construction loans by state and project
type. Substantially all of the Company's real estate 1-4 family first mortgage
and consumer loans are with customers located in California.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(in millions) December 31,
---------------------
1993 1992
<S> <C> <C>
Commercial (1) $ 6,912 $ 8,214
Real estate 1-4 family first mortgage 7,458 6,836
Other real estate mortgage 8,286 10,128
Real estate construction 1,110 1,600
Consumer:
Real estate 1-4 family junior
lien mortgage 3,583 4,157
Credit card 2,600 2,807
Other revolving credit and
monthly payment 1,920 1,979
------- -------
Total consumer 8,103 8,943
Lease financing 1,212 1,177
Foreign 18 5
------- -------
Total loans (net of unearned income,
including net deferred loan fees,
of $336 and $314) $33,099 $36,903
======= =======
- --------------------------------------------------------------------------------
<FN>
(1) Includes loans to real estate developers of $505 million and $731 million at
December 31, 1993 and 1992, respectively.
</TABLE>
The Company determines the amount of collateral needed, if any, based on
management's credit evaluation of the customer. The type of collateral held
varies, but may include accounts receivable, inventory, land, buildings,
equipment, income-producing commercial properties and residential real estate.
The Company has the same collateral policy for commitments as for loans. See
Note 13 for a further discussion of commitments to extend credit.
Loans held for sale are included in their respective loan categories and
recorded at lower of cost or market. At December 31, 1993 and 1992, loans held
for sale were $125 million and $178 million.
Certain directors, executive officers and a principal shareholder of the
Company; certain entities to which they are related; and certain of their
relatives are loan customers of the Company. Such loans, which were made in the
ordinary course of business, were $19 million and $20 million at December 31,
1993 and 1992, respectively; none were on nonaccrual status, restructured, or 90
days past due and still accruing or charged off during 1993. In 1993, additional
loans of $4 million were made and payments of $5 million were received.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114 (FAS 114), Accounting by Creditors for Impairment of a Loan. This Statement
addresses the accounting treatment of certain impaired loans and amends FASB
Statements No. 5 and 15. The Statement is effective January 1, 1995. A further
discussion of FAS 114 is in the Allowance for Loan Losses section of the
Financial Review.
51
<PAGE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(in millions) Year ended December 31,
------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Balance, beginning of year $2,067 $1,646 $ 885
Allowance related to dispositions - - (2)
Provision for loan losses 550 1,215 1,335
Loan charge-offs:
Commercial (1) (110) (238) (402)
Real estate 1-4 family first
mortgage (25) (17) (11)
Other real estate mortgage (197) (290) (88)
Real estate construction (68) (93) (29)
Consumer:
Real estate 1-4 family junior
lien mortgage (28) (28) (7)
Credit card (177) (189) (161)
Other revolving credit and
monthly payment (41) (41) (42)
------ ------ ------
Total consumer (246) (258) (210)
Lease financing (18) (19) (19)
------ ------ ------
Total loan charge-offs (664) (915) (759)
------ ------ ------
Loan recoveries:
Commercial (2) 71 59 98
Real estate 1-4 family first
mortgage 2 2 -
Other real estate mortgage 47 9 2
Real estate construction 4 3 3
Consumer:
Real estate 1-4 family junior
lien mortgage 3 1 -
Credit card 21 21 19
Other revolving credit and
monthly payment 12 12 11
------ ------ ------
Total consumer 36 34 30
Lease financing 9 9 5
Foreign - 1 49
------ ------ ------
Total loan recoveries 169 117 187
------ ------ ------
Total net loan
charge-offs (495) (798) (572)
Recoveries on the sale of
developing country loans - 4 -
------ ------ ------
Balance, end of year $2,122 $2,067 $1,646
====== ====== ======
Total net loan charge-offs as
a percentage of average
total loans 1.44% 1.97% 1.22%
====== ====== ======
Allowance as a percentage
of total loans 6.41% 5.60% 3.73%
====== ====== ======
- --------------------------------------------------------------------------------
<FN>
(1) Includes charge-offs of loans to real estate developers of $21 million, $41
million and $93 million in 1993, 1992 and 1991, respectively.
(2) Includes recoveries from real estate developers of $3 million, $6 million
and $3 million in 1993, 1992 and 1991, respectively.
</TABLE>
Nonaccrual and restructured loans were $1,200 million and $2,142 million at
December 31, 1993 and 1992, respectively. Related commitments to lend additional
funds were approximately $143 million and $125 million at December 31, 1993 and
1992, respectively.
Nonaccrual loans with a remaining recorded investment totaling $117 million
and $9 million were restructured at market interest rates and returned to fully
performing accrual status during 1993 and 1992, respectively.
If interest due on the book balances of all nonaccrual and restructured loans
(including loans no longer nonaccrual or restructured at year end) had been
accrued under their original terms, it is estimated that income before income
tax expense would have been greater by the amounts shown in the table below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(in millions) Year ended December 31,
----------------------------------
1993 1992 1991
<S> <C> <C> <C>
Estimated interest that would have been
recorded under original terms $140 $189 $137
Gross interest recorded 19 23 29
---- ---- ----
Reduction in interest income $121 $166 $108
==== ==== ====
- --------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
NOTE
5
--------------------------------------------------
--------------------------------------------------
PREMISES, EQUIPMENT AND OTHER ASSETS
--------------------------------------------------
--------------------------------------------------
The following table presents comparative data for premises and equipment:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(in millions) December 31,
---------------------
1993 1992
<S> <C> <C>
Land $ 148 $ 138
Buildings 546 473
Furniture and equipment 571 554
Leasehold improvements 251 250
Premises leased under capital leases 71 76
------ ------
Total 1,587 1,491
Less accumulated depreciation and
amortization 689 615
------ ------
Net book value $ 898 $ 876
====== ======
- -------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense was $140 million, $136 million and $129
million for the years ended December 31, 1993, 1992 and 1991, respectively.
The components of other assets at December 31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(in millions) December 31,
---------------------
1993 1992
<S> <C> <C>
Net deferred tax asset (1) $ 884 $ 804
Nonmarketable equity investments (2) 396 352
Certain identifiable intangible assets 373 401
Foreclosed assets 348 510
Other 423 626
------ ------
Total other assets $2,424 $2,693
====== ======
- -------------------------------------------------------------------------------
<FN>
(1) See Note 10 to the Financial Statements.
(2) Includes Federal Reserve Bank stock of $52 million at December 31, 1993.
</TABLE>
Income from nonmarketable equity investments was $42 million, $17 million and
$18 million for the years ended December 31, 1993, 1992 and 1991, respectively.
This amount excludes income from Federal Reserve Bank stock as this was
reclassified to nonmarketable equity investments on December 31, 1993.
The largest identifiable intangible asset was core deposit intangibles of $257
million and $262 million at December 31, 1993 and 1992, respectively.
Amortization expense for core deposit intangibles was $61 million, $57 million
and $56 million for the years ended December 31, 1993, 1992 and 1991,
respectively.
Foreclosed assets consist of assets (substantially real estate) acquired in
satisfaction of troubled debt and are carried at the lower of fair value (less
estimated costs to sell) or cost. Foreclosed assets expense, including disposi-
tion gains and losses, was $60 million, $93 million and $105 million in 1993,
1992 and 1991, respectively.
53
<PAGE>
NOTE
6
----------------------------------------
----------------------------------------
SENIOR AND SUBORDINATED DEBT
----------------------------------------
----------------------------------------
The following is a summary of senior and subordinated debt (reflecting
unamortized debt discounts and premiums, where applicable) owed by the Parent
and its subsidiaries:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31,
Maturity Interest ---------------------
date rate 1993 1992
<S> <C> <C> <C> <C>
SENIOR
Parent: Notes (1) 1993 8.35% $ - $ 125
Notes (1) 1993 8% - 100
Notes (1) 1994 8.5% 100 100
Notes (1) 1994 7 5/8% 175 175
Floating Rate Notes 1994 Various 150 150
Floating Rate Medium-Term Notes 1993-95 Various 1,258 543
Notes (1) 1996 8.2% 200 200
Medium-Term Notes (1) 1993-96 4.7-9.1% 254 488
Other notes (2) 1993-2002 Various - 105
Debentures (2)(3) 2002 8.6% - 54
Notes payable by subsidiaries 59 58
Obligations of subsidiaries under capital leases (Note 13) 60 61
------ ------
Total senior debt 2,256 2,159
------ ------
SUBORDINATED
Parent: Floating Rate Notes (U.K. pounds sterling denominated
L60 face amount) (4)(5)(6) 1994 Various 89 91
Floating Rate Notes (2) 1994 Various - 100
German Mark Floating Rate Notes (DM 300 face amount) (4)(7) 1995 Various 173 185
Notes (2) 1996 8.75% - 100
Floating Rate Notes (5)(8)(9) 1996 Various 100 100
Floating Rate Capital Notes (5)(9)(10) 1996 Various 150 150
Floating Rate Notes (4)(5)(9) 1997 Various 187 187
Floating Rate Notes ($100 face amount) (5)(11) 1997 Various 101 102
Floating Rate Notes (4)(5)(12) 1997 Various 100 100
Floating Rate Capital Notes (2)(10) 1997 Various - 100
Floating Rate Capital Notes (4)(5)(10) 1998 Various 200 200
Floating Rate Notes (4)(5) 2000 Various 118 118
Notes 2002 8.75% 199 199
Notes 2002 8 3/8% 149 149
Notes 2003 6 7/8% 150 -
Notes 2003 6 1/8% 249 -
------ ------
Total subordinated debt 1,965 1,881
------ ------
Total senior and subordinated debt $4,221 $4,040
====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The Company has entered into interest rate swap agreements whereby the Company receives fixed-rate interest payments
approximately equal to interest on the Notes and makes interest payments based on a floating rate.
(2) These notes and debentures were called in 1993 prior to maturity.
(3) Assumed from Crocker National Corporation.
(4) May be redeemed in whole, at par, at any time in the event withholding taxes are imposed by the United States.
(5) Redeemable in whole or in part, at par.
(6) The Company has entered into a swap agreement whereby the Company receives pounds sterling sufficient to cover floating-rate
interest and principal on the Notes and makes payments in U.S. dollars covering principal and interest. The transaction amount
at the date of issue and swap was $74 million. The differences of $15 million and $17 million at December 31, 1993 and 1992,
respectively, were due to the foreign currency transaction adjustment.
(7) These Notes are subject to a maximum interest rate of 8%. The Company has sold this interest rate cap under an agreement
whereby it receives fixed payments in German marks and makes payments based on the amount by which a floating rate exceeds 8%.
The Company has also entered into a swap agreement whereby the Company receives German marks approximately equal to principal
and interest on the Notes and makes payments in U.S. dollars. The transaction amount at the date of issue and swap was $118
million. The differences of $55 million and $67 million at December 31, 1993 and 1992, respectively, were due to the foreign
currency transaction adjustment.
(8) Equity Commitment Notes.
(9) These Notes have been called for redemption in February 1994, prior to maturity.
(10) Mandatory Equity Notes.
(11) Subject to a maximum interest rate of 13% due to the purchase of an interest rate cap.
(12) Subject to a maximum interest rate of 13%.
</TABLE>
54
<PAGE>
The principal payments, including sinking fund payments, on senior and
subordinated debt are due as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(in millions) Parent Company
<S> <C> <C>
1994 $1,412 $1,416
1995 879 883
1996 475 489
1997 200 204
1998 200 204
Thereafter 868 956
------ ------
Total $4,034 $4,152
====== ======
- -------------------------------------------------------------------------------
</TABLE>
The interest rates on floating rate notes are determined periodically by
formulas based on certain money market rates, subject, on certain notes, to
minimum or maximum interest rates.
The Company's mandatory convertible debt, which is identified by notes (8) and
(10) to the table on the preceding page, qualifies as Tier 2 capital but is
subject to discounting and note fund restrictions under the risk-based capital
rules. The terms of the Equity Commitment Notes, which totaled $100 million at
December 31, 1993, require the Company to deposit proceeds from the issuance of
capital securities into a note fund. As of December 31, 1993, $100 million had
been deposited in the note fund. The Equity Commitment Notes have been called
for redemption in February 1994, prior to maturity.
In 1993, $100 million of Mandatory Equity Notes, due in 1997, were called
prior to maturity. The terms of the Mandatory Equity Notes, which totaled
$350 million at December 31, 1993, require the Company to sell or exchange with
the noteholder the Company's common stock, perpetual preferred stock or other
capital securities at maturity or earlier redemption of the Notes. The terms of
the Mandatory Equity Notes, due in 1996, which equaled $150 million at
December 31, 1993, provide that the Company may redeem Notes, if called prior to
maturity, from proceeds from the issuance of capital securities deposited into a
voluntary note fund. As of December 31, 1993, $150 million had been deposited
into a voluntary note fund and all Mandatory Equity Notes, due in 1996, were
called for redemption in February 1994. As of December 31, 1993, $72 million of
stockholders' equity had been designated for the retirement or redemption of
$200 million of Mandatory Equity Notes, due in 1998, not currently subject to
redemption prior to maturity.
Certain of the agreements under which debt has been issued contain provisions
that may limit the merger or sale of the Bank and the issuance of its capital
stock or convertible securities. The Company was in compliance with the
provisions of the borrowing agreements at December 31, 1993.
55
<PAGE>
NOTE
7
--------------------------------------------------
--------------------------------------------------
PREFERRED STOCK
--------------------------------------------------
--------------------------------------------------
At December 31, 1993 and 1992, 25,000,000 shares of preferred stock were
authorized and 5,327,500 shares were issued and outstanding. All preferred
shares rank senior to common shares both as to dividends and liquidation
preference but have no general voting rights.
The following is a summary of Preferred Stock (Adjustable and Fixed):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1993 and 1992 Dividend rate Dividends declared
----------------------------- -------------------- (in millions)
Shares Carrying Minimum Maximum -----------------------------
issued and amount Year ended December 31,
outstanding (in millions) -----------------------------
1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Adjustable Rate Cumulative, Series A 3,000,000 $150 6.0% 12.0% $ 9 $ 9 $ 9
(Liquidation preference $50)
Adjustable Rate Cumulative, Series B 1,500,000 75 5.5 10.5 4 5 5
(Liquidation preference $50)
9% Cumulative, Series C 477,500 238 - - 21 21 4
(Liquidation preference $500)
8 7/8% Cumulative, Series D 350,000 176 - - 16 13 -
(Liquidation preference $500)
Market Auction Preferred Stock (1) - - - - - - 1
--------- ---- --- --- ---
Total 5,327,500 $639 $50 $48 $19
========= ==== === === ===
--------------------------------------------------------------------------------------------------------------------
<FN>
(1) In January 1991, the Company redeemed all $180 million of its Market Auction Preferred Stock.
</TABLE>
ADJUSTABLE RATE CUMULATIVE PREFERRED STOCK, SERIES A
These shares are redeemable at the option of the Company at a price of $50 per
share plus accrued and unpaid dividends. Dividends are cumulative and payable on
the last day of each calendar quarter. For each quarterly period, the dividend
rate is 2.75% less than the highest of the three-month Treasury bill discount
rate, 10-year constant maturity Treasury security yield or 20-year constant
maturity Treasury bond yield, but limited to a minimum of 6% and a maximum of
12% per year. The average dividend rate was 6.0% during 1993 and 1992 and 6.1%
during 1991.
ADJUSTABLE RATE CUMULATIVE PREFERRED STOCK, SERIES B
These shares are redeemable at the option of the Company through May 14, 1996 at
a price of $51.50 per share and, thereafter, at $50 per share plus accrued and
unpaid dividends. Dividends are cumulative and payable quarterly on the 15th of
February, May, August and November. For each quarterly period, the dividend rate
is 76% of the highest of the three-month Treasury bill discount rate, 10-year
constant maturity Treasury security yield or 20-year constant maturity Treasury
bond yield, but limited to a minimum of 5.5% and a maximum of 10.5% per year.
The average dividend rate was 5.6%, 6.2% and 6.6% during 1993, 1992 and 1991,
respectively.
9% PREFERRED STOCK, SERIES C
This class of preferred stock has been issued as depositary shares each
representing one-twentieth of a share of the Series C preferred stock. These
shares are redeemable at the option of the Company on and after October 24, 1996
at a price of $500 per share plus accrued and unpaid dividends. Dividends of
$11.25 per share (9% annualized rate) are cumulative and payable on the last day
of each calendar quarter.
8 7/8% PREFERRED STOCK, SERIES D
This class of preferred stock has been issued as depositary shares each
representing one-twentieth of a share of the Series D preferred stock. These
shares are redeemable at the option of the Company on and after March 5, 1997 at
a price of $500 per share plus accrued and unpaid dividends. Dividends of $11.09
per share (8 7/8% annualized rate) are cumulative and payable on the last day of
each calendar quarter.
56
<PAGE>
NOTE
8
--------------------------------------------------
--------------------------------------------------
COMMON STOCK AND EMPLOYEE STOCK PLANS
--------------------------------------------------
--------------------------------------------------
Common Stock
- --------------------------------------------------------------------------------
------------
The following table summarizes common stock authorized, reserved, issued and
outstanding as of December 31, 1993:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number of shares
<S> <C>
Tax Advantage and Retirement Plan 2,718,228
Equity Incentive Plans 3,275,509
Dividend Reinvestment and Common Stock Purchase Plan 4,279,297
Employee Stock Purchase Plan 718,348
Director Option Plans 169,099
Stock Bonus Plan 15,570
-----------
Total shares reserved 11,176,051
Shares not reserved 83,011,357
Shares issued and outstanding 55,812,592
-----------
Total shares authorized 150,000,000
===========
- --------------------------------------------------------------------------------
</TABLE>
Under the terms of mandatory convertible debt, the Company must exchange with
the noteholder, or sell, various capital securities of the Company as described
in Note 6 to the Financial Statements.
Director Option Plans
- --------------------------------------------------------------------------------
---------------------
The 1987 Director Option Plan (1987 DOP) allows participating directors to file
an irrevocable election to receive stock options in lieu of their retainer to be
earned in any one calendar year. The options may be exercised until the tenth
anniversary of the date of receipt; options become exercisable after one year at
an exercise price of $1 per share. At December 31, 1993, 3,220 options were
outstanding and 2,820 options were exercisable under the plan. During 1993, 429
options were exercised. Compensation expense for the 1987 DOP is measured as the
difference between the quoted market price of the stock at the date of grant
less the option exercise price. This expense is accrued as retainers are earned.
The 1990 Director Option Plan (1990 DOP) provides for annual grants of
options to purchase 500 shares of common stock to each non-employee director
elected or re-elected at the annual meeting of shareholders. Non-employee
directors who join the board between annual meetings receive options on a
prorated basis. The options may be exercised until the tenth anniversary of the
date of grant; they become exercisable after one year at an exercise price equal
to the fair market value of the stock at the time of grant. The maximum total
number of shares of common stock issuable under the 1990 DOP is 100,000 in the
aggregate and 20,000 in any one calendar year. At December 31, 1993, 20,938
options were outstanding and 15,844 options were exercisable under the plan.
During 1993, 1,650 options were exercised. As the exercise price of the option
is equal to the quoted market price of the stock at the time of grant, no
compensation expense is recorded for the 1990 DOP.
Employee Stock Plans
- --------------------------------------------------------------------------------
--------------------
EQUITY INCENTIVE PLANS
The 1990 Equity Incentive Plan (1990 EIP) is the successor to the 1982 Equity
Incentive Plan (1982 EIP). The 1990 EIP is similar to the 1982 EIP in all
material respects, except that the 1990 EIP sets a higher limit on total yearly
grants and provides greater flexibility to the committee that administers the
Plan. The 1990 EIP provides for the granting to key employees of incentive stock
options as defined under current tax laws, nonqualified stock options and
restricted share rights. The options may be exercised until the tenth
anniversary of the grant date; they generally become fully exercisable over
three years from the grant date at the quoted market price at time of grant.
Upon termination of employment, the option period is reduced or the options are
canceled. The total number of shares of common stock issuable under the 1990 EIP
is 2,500,000 in the aggregate and 800,000 in any one calendar year. No
additional awards or grants will be issued under the 1982 EIP. As the exercise
price is equal to the quoted market price of the stock at the time of grant, no
compensation expense is recorded for the stock options under the 1990 and 1982
EIPs.
57
<PAGE>
Transactions involving options of the EIPs are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Number of shares
---------------------------------------------------------------
1990 EIP 1982 EIP
---------------------------- ---------------------------
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 960,000 383,000 955,690 1,196,104
Granted 400,400 623,500 - -
Canceled (54,840) (36,505) (6,670) (16,680)
Exercised (79,862) (9,929) (156,080) (218,738)
Share/tax withholding (2,338) (66) (8,900) (4,996)
--------- --------- -------- ---------
Options outstanding, end of year 1,223,360 960,000 784,040 955,690
========= ========= ======== =========
Options exercisable, end of year 340,245 117,110 784,040 854,820
Shares available for grant, end of year 755,147 1,172,875 - -
Price range of options:
Outstanding $68.75-110.75 $68.75-79.38 $29.56-71.00 $29.56-71.00
Exercised $68.75- 78.63 $ 72.50 $29.56-71.00 $ 9.44-71.00
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Loans may be made, at the discretion of the Company, to assist the
participants of the EIPs in the acquisition of shares under options. The total
of such loans were $7 million and $6 million at December 31, 1993 and 1992,
respectively.
The holders of restricted share rights that were granted prior to 1991 under
the 1990 and 1982 EIPs are entitled at no cost to 30% of the shares of common
stock represented by the restricted share rights held three years after the
restricted share rights were granted, an additional 30% after four years and the
final 40% after five years. The holders of the restricted share rights granted
in 1991 or later under the 1990 EIP are entitled at no cost to the shares of
common stock represented by the restricted share rights held by each person five
years after the restricted share rights were granted. Upon receipt of the
restricted share rights, holders are entitled to receive quarterly cash payments
equal to the cash dividends that would be paid on the number of common shares
equal to the number of restricted share rights. Except in limited circumstances,
restricted share rights are canceled upon termination of employment. As of
December 31, 1993, the 1990 EIP and the 1982 EIP had 406,853 and 106,109
restricted share rights outstanding to 920 and 450 employees or their
beneficiaries, respectively. The compensation expense for the restricted share
rights equals the market price at the time of grant and is accrued on a
straight-line basis over the vesting period of three to five years. The amount
of expense accrued for the restricted share rights under the 1990 and 1982 EIPs
was $7 million, $7 million and $8 million in 1993, 1992 and 1991, respectively.
EMPLOYEE STOCK PURCHASE PLAN
Options to purchase up to 1,100,000 shares of common stock may be granted under
the Employee Stock Purchase Plan (ESPP). Employees of the Company with at least
one year of service, except hourly employees, are eligible to participate.
Certain highly compensated employees may be excluded from participation at the
discretion of the Management Development and Compensation Committee of the Board
of Directors. The plan provides for an option price of the lower of market value
at grant date or 85% to 100% (as determined by the Board of Directors for each
option period) of fair market value at the end of the option period (12 months
after the grant date for the current period). For the current option period
ending July 31, 1994, the Board approved a closing option price of 85% of fair
market value. The plan is noncompensatory and results in no expense to the
Company. Transactions involving the ESPP are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number of options
-----------------------
1993 1992
<S> <C> <C>
Options outstanding, beginning of year 206,185 187,113
Granted 173,270 216,040
Canceled (103,240) (62,029)
Exercised (at $69.05 in 1993 and
$58.56 in 1992) (115,739) (134,939)
-------- --------
Options outstanding, end of year 160,476 206,185
======== ========
Options available for grant, end of year 557,872 627,902
======== ========
- --------------------------------------------------------------------------------
</TABLE>
For information on employee stock ownership through the Tax Advantage and
Retirement Plan, see Note 9.
58
<PAGE>
DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment and Common Stock Purchase and Share Custody Plan
allows holders of the Company's common stock to purchase additional shares
either by reinvesting all or part of their dividends, or by making optional cash
payments. Currently, up to $6 thousand of dividends per quarter may be used to
purchase shares at a 3% discount. Dividends in excess of $6 thousand per quarter
and between $150 and $2 thousand per month in optional cash payments may be used
to purchase shares at fair market value. Shares may also be held in custody
under the Plan even without the reinvestment of dividends. During 1993 and 1992,
222,679 and 2,553,270 shares, respectively, were issued under the plan.
NOTE
9
--------------------------------------------------
--------------------------------------------------
EMPLOYEE BENEFITS AND OTHER EXPENSES
--------------------------------------------------
--------------------------------------------------
Retirement Plan
- --------------------------------------------------------------------------------
---------------
The Company's retirement plan is known as the Tax Advantage and Retirement Plan
(TAP), a defined contribution plan. As part of TAP, the Company makes basic
retirement contributions of 4% of the total of employee base salary plus
payments from certain bonus plans (covered compensation). The Company also makes
special transition contributions related to the termination of a prior defined
benefit plan of the Company ranging from .5% to 3% of covered compensation for
certain employees. The plan covers salaried employees with at least one year of
service and contains a vesting schedule graduated from three to seven years of
service.
In addition, the Company makes supplemental retirement contributions of 2% of
employee-covered compensation. All salaried employees with at least one year of
service are eligible to receive these Company contributions, which are
immediately vested.
Salaried employees who have at least one year of service are eligible to
contribute to TAP up to 10% of their pretax covered compensation through salary
deductions under Section 401(k) of the Internal Revenue Code, although a lower
contribution limit may be applied to certain employees in order to maintain the
qualified status of the plan. The Company makes matching contributions of up to
4% of an employee's covered compensation for those who have at least three years
of service and who elect to contribute under the plan. The Company's con-
tributions are immediately vested and are tax deductible by the Company.
Employees direct the investment of their TAP funds and may elect to invest in
the Company's common stock.
Expenses related to TAP for the years ended December 31, 1993, 1992 and 1991
were $53 million, $50 million and $46 million, respectively.
Health Care and Life Insurance
- --------------------------------------------------------------------------------
------------------------------
The Company provides health care and life insurance benefits for certain active
and retired employees. The Company reserves its right to terminate these
benefits at any time. The health care benefits for active and retired employees
are self-funded by the Company with the Point-of-Service Managed Care Plan or
provided through health maintenance organizations (HMOs). Effective January 1,
1993, the health care and life insurance benefits for retirees changed. The
amount of subsidized health care coverage for retired employees is now based
upon Medicare eligibility as of January 1, 1993. The amount of subsidized health
care coverage for active employees is based upon their eligibility to retire as
of January 1, 1993 and their years of service at the time of retirement. For
those active employees with an adjusted service date after September 30, 1992,
there are no medical or dental benefits upon retirement. Additionally, those
employees who retire after January 1, 1993 are no longer eligible for the
nominal Company-paid life insurance benefit. Effective January 1, 1994, newly
hired employees are not eligible for Company-paid life insurance benefits.
The Company recognized the cost of health care benefits for active eligible
employees by expensing contributions totaling $49 million, $47 million and $46
million in 1993, 1992 and 1991, respectively. Life insurance benefits for active
eligible employees are provided through an insurance company. The Company
recognizes the cost of these benefits by expensing the annual insurance
premiums, which were $2 million, $3 million and $1 million in 1993, 1992 and
1991, respectively. At December 31, 1993, the Company had approximately 20,700
active eligible employees and 6,100 retirees.
59
<PAGE>
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 (FAS 106), Employers' Accounting for Postretirement
Benefits Other Than Pensions. This Statement changed the method of accounting
for postretirement benefits other than pensions from a cash to an accrual basis.
Under FAS 106, the determination of the accrued liability requires a
calculation of the accumulated postretirement benefit obligation (APBO). The
APBO represents the actuarial present value of postretirement benefits other
than pensions to be paid out in the future (e.g., health benefits to be paid for
retirees) that have been earned as of the end of the year. The unrecognized APBO
at the time of adoption of FAS 106 (initial APBO) of $142 million for
postretirement health care benefits is being amortized over 20 years.
The following table sets forth the net periodic cost for postretirement health
care benefits for 1993:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Amount
<S> <C>
Interest cost on APBO $11.2
Amortization of initial APBO 7.2
Service cost (benefits attributed to service
during the period) 1.0
-----
Total $19.4
=====
- --------------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status for postretirement health
care benefits and provides an analysis of the accrued postretirement benefit
cost included in the Company's consolidated balance sheet at December 31, 1993.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Amount
<S> <C>
Accumulated postretirement benefit obligation (1):
Retirees $ 99.9
Fully eligible active employees 21.4
Other active employees 15.7
------
137.0
Plan assets at fair value -
------
Accumulated postretirement benefit obligation in
excess of plan assets 137.0
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions 10.4
Unrecognized transition obligation (135.0)
------
Accrued postretirement benefit cost (included in
other liabilities) $ 12.4
======
- --------------------------------------------------------------------------------
<FN>
(1) Based on a discount rate of 6.45%.
</TABLE>
The incremental 1993 pretax expense related to adopting FAS 106 for
postretirement health care benefits was $11 million.
For measurement purposes, a health care cost trend rate was used to recognize
the effect of expected changes in future health care costs due to medical
inflation, utilization changes, technological changes, regulatory requirements
and Medicare cost shifting. An average 9% annual increase in the per capita cost
of covered health care benefits was assumed for 1994. The rate was assumed to
decrease gradually to 5.5% in 2001 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care trend by
1 percentage point in each year would increase the APBO as of December 31, 1993
by $7.6 million and the aggregate of the interest cost and service cost
components of the net periodic cost for 1993 by $.6 million.
The Company also provides postretirement life insurance to certain existing
retirees. The APBO and expenses related to these benefits were not material.
Effective July 1, 1993, the Company also adopted Statement of Financial
Accounting Standards No. 112 (FAS 112), Employers' Accounting for
Postemployment Benefits. This Statement requires employers to recognize the
obligation to provide benefits to former or inactive employees after employment
but before retirement. The adoption of FAS 112 resulted in an accrual of $12
million.
Other Expenses
- --------------------------------------------------------------------------------
--------------
Contract services expense was $61 million, $48 million and $40 million for the
years ended December 31, 1993, 1992 and 1991, respectively.
Advertising and promotion expense was $59 million, $47 million and $57 million
for the years ended December 31, 1993, 1992 and 1991, respectively.
60
<PAGE>
NOTE
10
--------------------------------------------------
--------------------------------------------------
INCOME TAXES
--------------------------------------------------
--------------------------------------------------
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. FAS 109 changed the
method of computing income taxes for financial statement purposes from the
deferred method of accounting for income taxes of Accounting Principles Board
Opinion No. 11 (APB 11) to the liability (or balance sheet) method. Under the
liability method, the net deferred tax asset or liability is determined based
upon the effects of the differences between the book and tax bases of the vari-
ous balance sheet assets and liabilities. Under FAS 109, deferred tax assets or
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be
recovered or settled. Computation of the net deferred tax asset or liability
gives current recognition to changes in tax rates and laws. The effect of
applying FAS 109 was a one-time adjustment that decreased income tax expense for
the year by approximately $1 million. As a result of applying FAS 109 in 1993,
income before income tax expense was decreased $5 million due to the effects of
adjustments for prior purchase business combinations.
Total income taxes for the year ended December 31, 1993 were recorded as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31, 1993
<S> <C>
Income taxes applicable to income before income tax expense $426
Goodwill for tax benefits related to acquired assets (8)
----
Subtotal 418
Stockholders' equity for compensation expense for
tax purposes in excess of amounts recognized
for financial reporting purposes (8)
Stockholders' equity for tax effect of unrealized
net gain on investment securities 15
----
Total income taxes $425
====
- --------------------------------------------------------------------------------
</TABLE>
The following is a summary of the components of income tax expense (benefit)
applicable to income before income taxes:
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31,
-------------------------
1993 1992 1991
<S> <C> <C> <C>
Current:
Federal $ 450 $ 290 $ 255
State and local 121 91 96
----- ----- -----
571 381 351
----- ----- -----
Deferred:
Federal (129) (135) (230)
State and local (16) (29) (88)
----- ----- -----
(145) (164) (318)
----- ----- -----
Total $ 426 $ 217 $ 33
===== ===== =====
- -------------------------------------------------------------------------------
</TABLE>
Amounts for the current year are based upon estimates and assumptions as of
the date of this report and could vary significantly from amounts shown on the
tax returns as filed. Accordingly, the variances from the amounts previously
reported for 1992 are primarily as a result of adjustments to conform to tax
returns as filed.
The Company's income tax expense for 1993, 1992 and 1991 included less than $1
million, $18 million and $3 million, respectively, related to investment
securities transactions.
The Company had net deferred tax assets of $884 million, $804 million and $640
million at December 31, 1993, 1992 and 1991, respectively. The tax effect of
temporary differences that gave rise to significant portions of deferred tax
assets and liabilities at December 31, 1993 are presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31, 1993
<S> <C>
Deferred Tax Assets
Allowance for loan losses $ 879
Net tax-deferred expenses 223
Foreclosed assets 68
State tax expense 32
Investments 6
Other 5
------
1,213
Valuation allowance (2)
------
Total deferred tax assets, less valuation allowance 1,211
------
Deferred Tax Liabilities
Leasing 254
Certain identifiable intangibles 47
Depreciation 26
------
Total deferred tax liabilities 327
------
Net Deferred Tax Asset $ 884
======
- --------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
The Company's $884 million net deferred tax asset at December 31, 1993
includes a valuation allowance of $2 million representing the net deferred tax
effect of a $27 million California capital loss carryforward, which is only
available to offset future California capital gains, if any, through 1996. The
January 1, 1993 valuation allowance of $5 million was reduced by $3 million due
to the current utilization of a portion of the California capital loss
carryforward. Substantially all of the Company's net deferred tax asset of $884
million at December 31, 1993 related to net expenses (the largest of which was
the provision for loan losses), which have been reflected in the financial
statements, but which will reduce future taxable income. At December 31, 1993,
the Company did not have any net operating loss carryforwards. The Company
estimates that approximately $774 million of the $884 million net deferred tax
asset at December 31, 1993 could be realized by the recovery of previously paid
federal taxes; however, the Company expects to actually realize the federal net
deferred tax asset by claiming deductions against future taxable income. The
balance of approximately $110 million relates to approximately $1.6 billion of
net deductions that are expected to reduce future California taxable income
(California tax law does not permit recovery of previously paid taxes). The
Company's California taxable income has averaged approximately $1 billion for
each of the last three years. The Company believes that it is more likely than
not that it will have sufficient future California taxable income to fully
utilize these deductions.
The significant components of deferred income tax (benefits) for the year
ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended
December 31,1993
<S> <C>
Deferred tax benefit (exclusive of
the other components below) $(120)
Adjustments to deferred tax assets and liabilities for
enacted changes in rates and laws (22)
Decrease in valuation allowance (3)
-----
Total $(145)
=====
- --------------------------------------------------------------------------------
</TABLE>
Under APB 11, the components of the deferred income tax (benefits) for the
years ended December 31, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31,
----------------------
1992 1991
<S> <C> <C>
Lower loan loss deduction for
tax return purposes $(180) $(335)
Lower income for tax return purposes
resulting from the net change in
deferred income and expenses 20 22
Lower depreciation for tax return purposes (13) (7)
Higher state tax deduction for
tax return purposes 13 41
Lower (higher) lease financing income for
tax return purposes (7) 11
Lower (higher) income on financial
contracts for tax return purposes 7 (7)
Higher income from investments for
tax return purposes (4) (14)
Higher (lower) loss from foreclosed assets for
tax return purposes 9 (40)
Other (9) 11
----- -----
Total $(164) $(318)
===== =====
- --------------------------------------------------------------------------------
</TABLE>
The Company has not recognized a deferred tax liability of $45 million on $124
million of undistributed earnings of a foreign subsidiary and an affiliate
because such earnings are indefinitely reinvested in those companies and are not
taxable under current law. A tax liability would be recognized if the Company
recovered those undistributed earnings in a taxable manner, such as through the
receipt of dividends or sales of the entities, or if the tax law changed.
62
<PAGE>
The following is a reconciliation of the statutory federal income tax expense
and rate to the effective income tax expense and rate:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
(in millions) Year ended December 31,
------------------------------------------------------------------
1993 1992 1991
------------------ ------------------ ------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax expense and rate $363 35.0 % $170 34.0 % $18 34.0 %
Change in tax rate resulting from:
State and local taxes on income, net of
federal income tax benefit 75 7.2 39 7.8 4 7.6
Adjustment to deferred tax assets and
liabilities for enacted changes in
tax rates and laws (22) (2.1) - - - -
Amortization of certain intangibles not
deductible for tax return purposes 18 1.7 14 2.9 14 25.1
Income and expense related to acquired
assets and liabilities accounted for
net of tax - - 5 1.0 4 8.4
Tax-exempt interest and dividend income (5) (.5) (4) (.9) (9) (17.3)
Other (3) (.3) (7) (1.4) 2 3.5
---- ---- ---- ---- --- -----
Effective income tax expense and rate $426 41.0 % $217 43.4 % $33 61.3 %
==== ==== ==== ==== === =====
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE
11
--------------------------------------------------
--------------------------------------------------
FOREIGN ACTIVITIES
--------------------------------------------------
--------------------------------------------------
Selected financial data by geographic area at December 31, 1993, 1992 and 1991
and for the years then ended was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Total Income Net Assets
revenue before income at year end
income tax
expense
<S> <C> <C> <C> <C> <C>
Latin America 1993 $ 2 $ 1 $ 1 $ 16
(including 1992 1 1 1 4
Mexico) 1991 - 23 14 -
- --------------------------------------------------------------------------------
Other 1993 10 7 4 121
1992 8 8 5 128
1991 8 2 1 35
- --------------------------------------------------------------------------------
Total foreign (1) 1993 12 8 5 137
1992 9 9 6 132
1991 8 25 15 35
- --------------------------------------------------------------------------------
Domestic 1993 4,842 1,030 607 52,376
1992 5,195 491 277 52,405
1991 5,853 29 6 53,512
- --------------------------------------------------------------------------------
Total foreign 1993 $4,854 $1,038 $612 $52,513
and domestic 1992 5,204 500 283 52,537
1991 5,861 54 21 53,547
- --------------------------------------------------------------------------------
<FN>
(1) The 1991 income before income tax expense reflects a $55 million reversal of
the unused portion of the allowance for loan losses allocated to foreign
loans.
</TABLE>
Foreign activities were insignificant to the Company's results of operations
in 1993 and 1992. In 1991, the reversal of the unused portion of the allowance
for loan losses attributed to foreign loans contributed significantly to the
Company's unusually low consolidated results of operations.
Changes in the allowance for loan losses allocated to foreign loans were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31,
---------------------------------
1993 1992 1991
<S> <C> <C> <C>
Balance, beginning of year $- $ - $ 6
Provision for loan losses - (5) (55)
Recoveries - 1 49
Recoveries on the sale of
developing country loans - 4 -
-- --- ----
Balance, at end of year $- $ - $ -
== === ====
- --------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
NOTE
12
--------------------------------------------------
--------------------------------------------------
PARENT COMPANY
--------------------------------------------------
--------------------------------------------------
Condensed financial information of Wells Fargo & Company (Parent) is presented
below. For information regarding the Parent's long-term debt and commitments and
contingent liabilities, see Notes 6 and 13, respectively.
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31,
-------------------------
1993 1992 1991
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries:
Wells Fargo Bank $ - $117 $ 313
Nonbank subsidiaries 3 1 5
Interest income from:
Wells Fargo Bank 97 109 139
Nonbank subsidiaries 22 32 62
Other 56 60 65
Noninterest income 45 9 10
---- ---- -----
Total income 223 328 594
---- ---- -----
EXPENSE
Interest on:
Commercial paper and other
short-term borrowings 5 8 62
Senior and subordinated debt 195 207 227
Provision for loan losses 9 39 11
Noninterest expense 39 42 43
---- ---- -----
Total expense 248 296 343
---- ---- -----
Income (loss) before income tax
benefit and undistributed
income of subsidiaries (25) 32 251
Income tax (expense) benefit (5) 36 30
Equity in undistributed
income (loss) of
subsidiaries (1):
Wells Fargo Bank 632 220 (225)
Nonbank subsidiaries 10 (5) (35)
---- ---- -----
NET INCOME $612 $283 $ 21
==== ==== =====
- --------------------------------------------------------------------------------
<FN>
(1) The 1991 amount represents dividends distributed by Wells Fargo Bank in
excess of its 1991 net income of $88 million. The amount for the nonbank
subsidiaries represents a 1991 net loss of $30 million and dividends of $5
million.
</TABLE>
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) December 31,
-------------------------
1993 1992
<S> <C> <C>
ASSETS
Cash and due from Wells Fargo Bank
(includes interest-earning deposits
of $723 and $800) $ 733 $ 818
Investment securities:
At cost (estimated fair value $341 million
and $361 million) 337 352
At fair value 50 -
----- -----
Total investment securities 387 352
Securities purchased under resale
agreements 250 -
Loans 359 455
Allowance for loan losses 60 60
------ ------
Net loans 299 395
------ ------
Loans and advances to subsidiaries:
Wells Fargo Bank 1,682 1,682
Nonbank subsidiaries 303 406
Investment in subsidiaries:
Wells Fargo Bank 4,479 3,733
Nonbank subsidiaries 95 88
Other assets 552 645
------ ------
Total assets $8,780 $8,119
====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Commercial paper and other
short-term borrowings $ 138 $ 168
Other liabilities 225 221
Senior debt 2,137 2,040
Subordinated debt 1,965 1,881
------ ------
Total liabilities 4,465 4,310
Stockholders' equity 4,315 3,809
------ ------
Total liabilities and stockholders'
equity $8,780 $8,119
====== ======
- --------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Year ended December 31,
------------------------------
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 612 $ 283 $ 21
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 9 39 11
Deferred income tax expense (benefit) 30 (15) (7)
Equity in undistributed (income)
loss of subsidiaries (642) (215) 260
Other, net (32) 2 9
----- ----- ------
Net cash provided by operating activities (23) 94 294
----- ----- ------
Cash flows from investing activities:
Investment securities:
At cost:
Proceeds from sales - - 70
Proceeds from prepayments and
maturities 13 2 276
Purchases (25) (127) (491)
Net decrease in loans 87 32 93
Net decrease in loans and
advances to subsidiaries 103 257 360
Investment in subsidiaries (111) (299) (61)
Net (increase) in securities purchased
under resale agreements (250) - -
Other, net 92 66 93
----- ----- ------
Net cash provided (used) by
investing activities (91) (69) 340
----- ----- ------
Cash flows from financing activities:
Net decrease in short-term borrowings (30) (58) (1,534)
Proceeds from issuance of senior debt 980 508 2,031
Proceeds from issuance of
subordinated debt 399 350 -
Repayment of senior debt (884) (882) (33)
Repayment of subordinated debt (300) (116) (200)
Net decrease in indebtedness
to subsidiaries - - (2)
Proceeds from issuance of preferred stock - 169 231
Proceeds from issuance of common stock 53 213 41
Redemption of preferred stock - - (180)
Repurchase of common stock (5) - (2)
Payments of cash dividends (175) (153) (227)
Other, net (9) (26) 28
----- ----- ------
Net cash provided by
financing activities 29 5 153
----- ----- ------
Net change in cash and cash
equivalents (due from
Wells Fargo Bank) (85) 30 787
Cash and cash equivalents at
beginning of year 818 788 1
----- ----- ------
Cash and cash equivalents at
end of year $ 733 $818 $ 788
===== ===== ======
Noncash investing activities:
Transfers from investment securities
at cost to investment securities
at fair value $ 25 - -
===== ===== ======
- --------------------------------------------------------------------------------
</TABLE>
NOTE
13
----------------------------------------
----------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
----------------------------------------
----------------------------------------
In the normal course of business, the Company makes commitments and assumes
contingent liabilities for various purposes, such as meeting the financing needs
of its customers and reducing its own exposure to fluctuations in interest
rates.
Financial Instruments
with Off-Balance Sheet Risk
- --------------------------------------------------------------------------------
----------------------------
Off-balance sheet commitments, which are properly not reflected in the financial
statements, involve various types and degrees of risk to the Company, including
credit, interest rate and liquidity risk, and are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) December 31,
----------------------
1993 1992
<S> <C> <C>
Commitments to extend credit under
credit card lines (1) $ 6,000 $ 5,300
Other commitments to extend credit (1) 10,000 11,600
Standby letters of credit (1) 900 1,000
Commercial and similar letters of credit (1) 100 100
Commitments related to nonmarketable
equity investments (1) 100 100
Interest rate futures contracts (2) 4,900 5,000
Interest rate forward contracts (2) 100 100
Interest rate floor contracts purchased (3) 3,700 4,400
Interest rate cap contracts purchased (3) 1,500 1,500
Interest rate cap contracts written (2) 1,200 1,100
Interest rate swap contracts (3)(4) 2,100 3,400
Cross currency swap contracts (3)(5) 200 200
Foreign exchange contracts (3)(6) 300 300
When-issued securities (3) 500 300
- --------------------------------------------------------------------------------
<FN>
(1) Financial instruments for which contract amounts represent credit risk.
(2) Financial instruments for which credit risk is DE MIMMIS.
(3) Financial instruments for which the credit risk is substantially less than
the notional or contract amounts. The Company anticipates performance by
substantially all of the counterparties for these financial contracts.
(4) The Parent's share of the notional principal amount of interest rate swaps
outstanding was $100 million and $400 million at December 31, 1993 and 1992,
respectively.
(5) Replacement cost for those contracts in a gain position was $67 million and
$85 million at December 31, 1993 and 1992, respectively. These are off-balance
sheet commitments of the Parent.
(6) Replacement cost for those contracts in a gain position was $5 million and
$10 million at December 31, 1993 and 1992, respectively.
</TABLE>
COMMITMENTS
A commitment to extend credit is a legally binding agreement to lend funds to a
customer and is usually for a specified interest rate and purpose. These
commitments have fixed expiration dates and generally require a fee.
65
<PAGE>
The Company uses the same credit policies in making commitments to extend
credit as it does in making loans. The extension of a commitment gives rise to
credit risk when it is drawn upon. The actual liquidity needs or the credit risk
that the Company will experience will be lower than the contractual amount of
commitments to extend credit shown in the table on the preceding page because a
significant portion of these commitments is expected to expire without being
drawn upon. Certain commitments are subject to a loan agreement containing
covenants regarding the financial performance of the customer that must be met
before the Company is required to fund the commitment.
In addition, the Company manages the potential credit risk in commitments to
extend credit by limiting the total amount of arrangements, both by individual
customer and in the aggregate; by monitoring the size and maturity structure of
these portfolios; and by applying the same credit standards maintained for all
of its credit activities. The credit risk associated with these commitments is
considered in management's determination of the allowance for loan losses.
STANDBY LETTERS OF CREDIT
Standby letters of credit are issued on behalf of customers in connection with
contracts between the customers and third parties. Under a standby letter of
credit, the Company assures that the third party will receive specified funds if
a customer fails to meet his contractual obligation. The liquidity risk to the
Company arises from its obligation to make payment in the event of a customer's
contractual default. The credit risk involved in issuing letters of credit and
the Company's management of that credit risk is the same as for loans and is
considered in management's determination of the allowance for loan losses. At
December 31, 1993 and 1992, standby letters of credit included approximately
$100 million and $200 million, respectively, of participations purchased and
were net of approximately $100 million and $100 million, respectively, of
participations sold. Approximately 60% of the Company's year-end 1993 standby
letters of credit had maturities of one year or less and substantially all had
maturities of seven years or less.
Included in standby letters of credit are those which back financial
instruments (financial guarantees). Substantially all fees received from the
issuance of financial guarantees are deferred and amortized on a straight-line
basis over the term of the guarantee. At December 31, 1993, the Company had
issued or purchased participations in financial guarantees of approximately $500
million. Currently, as well as historically, losses on standby letters of credit
have been immaterial.
INTEREST RATE DERIVATIVE CONTRACTS
The Company enters into a variety of financial contracts, which include interest
rate futures contracts, interest rate floors and caps, and interest rate swap
agreements. The contract or notional amounts do not represent exposure to
liquidity risk. The Company is not a dealer but an end-user of these instruments
and does not use them speculatively. The contracts are used primarily to hedge
mismatches in interest rate maturities and, therefore, serve to reduce rather
than increase the Company's exposure to movements in interest rates. The Company
controls the credit risk of its financial contracts (except futures contracts
and interest rate cap contracts written, which do not have credit risk) through
credit approvals, limits and monitoring procedures. Currently, as well as
historically, losses associated with counterparty nonperformance on interest
rate derivative contracts have been immaterial.
Interest rate futures contracts are contracts in which the buyer agrees to
purchase and the seller agrees to make delivery of a specific money market
instrument at a predetermined date for a specific price. Gains and losses are
settled daily based on a notional (underlying) principal value and do not
involve an actual transfer of the specific instrument. Futures contracts are
standardized and are traded on exchanges. The exchange assumes the risk that a
counterparty will not pay and generally requires margin payments to minimize
such risk. Market risks arise from movements in interest rates and security
values. The deferred gains related to interest rate futures contracts were $4
million at December 31, 1993. This amount will be fully amortized by December
31, 1994. There were no deferred interest rate losses on related futures
contracts in 1993.
Interest rate floors and caps are interest rate protection instruments that
involve the payment from the seller to the buyer of an interest differential.
This differential represents the difference between current interest rates and
an agreed-upon rate applied to a notional principal amount. The Company also
offers these contracts to its customers and will either hedge the contracts with
other capital market instruments or use the contracts for asset/liability
management. For such instruments written by the Company, market risks arise from
movements in interest rates. For those contracts in a gain position, the
replacement cost in the event of nonperformance by counterparties for purchased
interest rate floors and caps was approximately $141 million and $249 million at
December 31, 1993 and 1992, respectively.
Interest rate swap contracts are entered into primarily as an asset/liability
management strategy to reduce interest rate risk. Similar to interest rate
floors and caps, the Company also offers swap contracts to its customers. Inter-
est rate swap contracts are exchanges of interest payments, such as fixed-rate
payments for floating-rate payments,
66
<PAGE>
based on a notional principal amount. The primary risk associated with swaps is
the exposure to movements in interest rates and the ability of the
counterparties to meet the terms of the contract. For those contracts in a gain
position, the replacement cost in the event of nonperformance by counterparties
for the Company's interest rate swaps was approximately $86 million and
$155 million at December 31, 1993 and 1992, respectively.
Lease Commitments
- --------------------------------------------------------------------------------
-----------------
The Company is obligated under a number of noncancelable operating leases for
premises (including vacant premises) and equipment with terms ranging from 1-25
years, many of which provide for periodic adjustment of rentals based on changes
in various economic indicators. The following table shows future minimum
payments under noncancelable operating leases and capital leases with terms in
excess of one year as of December 31, 1993:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(in millions) Operating leases Capital leases
<S> <C> <C>
Year ended December 31,
1994 $128 $ 11
1995 121 11
1996 108 10
1997 92 9
1998 79 9
Thereafter 419 99
---- ----
Total minimum lease payments $947 149
====
Executory costs (5)
Amounts representing interest (84)
----
Present value of net minimum lease payments $ 60
====
- --------------------------------------------------------------------------------
</TABLE>
Total future minimum payments to be received under noncancelable operating
subleases at December 31, 1993 were approximately $264 million; these payments
are not reflected in the above table.
Rental expense, net of rental income, for all operating leases was
$99 million, $100 million and $103 million for the years ended
December 31, 1993, 1992 and 1991, respectively.
Legal Actions
- --------------------------------------------------------------------------------
-------------
In the normal course of business, the Company is at all times subject to
numerous pending and threatened legal actions, some for which the relief or
damages sought are substantial. After reviewing pending and threatened actions
with counsel, management considers that the outcome of such actions will not
have a material adverse effect on stockholders' equity of the Company; the
Company is not able to predict whether the outcome of such actions may or may
not have a material adverse effect on results of operations in a particular
future period. Losses resulting from litigation are included in operating
losses, which is a component of noninterest expense. Total operating losses were
$52 million, $45 million and $81 million for the years ended December 31, 1993,
1992 and 1991, respectively.
NOTE
14
------------------------------------------------
------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
------------------------------------------------
------------------------------------------------
Statement of Financial Accounting Standards No. 107 (FAS 107), Disclosures about
Fair Value of Financial Instruments, requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods and assumptions, set forth below for the Company's financial
instruments, are made solely to comply with the requirements of FAS 107 and
should be read in conjunction with the financial statements and footnotes in
this Annual Report.
Fair values are based on estimates or calculations at the transaction level
using present value techniques in instances where quoted market prices are not
available. Because broadly traded markets do not exist for most of the Company's
financial instruments, the fair value calculations attempt to incorporate the
effect of current market conditions at a specific time. Fair valuations are
management's estimates of the values, and they are often calculated based on
current pricing policy, the economic and competitive environment, the
characteristics of the financial instruments, expected losses and other such
factors. These calculations are subjective in nature, involve uncertainties and
matters of significant judgment and do not include tax ramifications; therefore,
the results cannot be determined with precision, substantiated by comparison to
independent markets and may not be realized in an actual sale or immediate
settlement of the instruments. The Company has not included certain material
items in its disclosure, such as the value of the long-term relationships with
the Company's deposit, credit card and trust customers, since these intangibles
are not financial instruments. There may be inherent weaknesses in any
calculation technique, and changes in the underlying assumptions used, including
discount rates and estimates of future cash flows, could significantly affect
the results. For all of these reasons, the aggregation of the fair value
calculations presented herein do not represent, and should not be construed to
represent, the underlying value of the Company.
67
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The following table presents a summary of the Company's financial instruments,
as defined by FAS 107:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions) Carrying Estimated Carrying Estimated
amount fair value amount fair value
DECEMBER 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL ASSETS FINANCIAL LIABILITIES
Cash and due from banks $ 2,644 $ 2,644 Deposits (3) $41,642 $41,863
Investment securities: Federal funds purchased and securities
At cost 9,887 9,978 sold under repurchase agreements 1,079 1,079
At fair value 3,171 3,171 Commercial paper and other
------- ------- short-term borrowings 188 188
Total investment securities 13,058 13,149 Acceptances outstanding 70 70
Federal funds sold and securities purchased Senior debt (4) 2,196 2,244
under resale agreements 1,668 1,668 Subordinated debt (5) 1,965 2,008
Loans (1):
Commercial 6,912 6,829 OFF-BALANCE SHEET
Real estate 1-4 family first mortgage 7,458 7,534 FINANCIAL INSTRUMENTS
Other real estate mortgage 8,286 8,127 Interest rate futures contracts $ (4) $ -
Real estate construction 1,110 1,046 Interest rate forward contracts - -
Consumer 8,103 7,973 Interest rate floor contracts purchased 11 136
Lease financing (2) 1,060 1,073 Interest rate cap contracts purchased 13 5
Foreign 18 17 Interest rate cap contracts written (8) (3)
------- ------- Interest rate swap contracts - 82
32,947 32,599 Cross currency swap contracts (5) 67 67
Less: Allowance for loan losses (1) 2,122 - Foreign exchange contracts 1 1
Net deferred fees on off-balance
sheet instruments 14 -
------- -------
Net loans 30,811 32,599
Due from customers on acceptances 70 70
Nonmarketable equity investments 396 562
Other financial assets 73 73
DECEMBER 31,1992
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS FINANCIAL LIABILITIES
Cash and due from banks $ 2,690 $ 2,690 Deposits (6) $42,196 $42,499
Investment securities 9,338 9,428 Federal funds purchased and securities
Federal funds sold and securities purchased sold under repurchase agreements 1,311 1,311
under resale agreements 1,183 1,183 Commercial paper and other
Loans (net of allowance) (1)(6)(7) 34,709 35,162 short-term borrowings 202 202
Due from customers on acceptances 97 97 Acceptances outstanding 97 97
Nonmarketable equity investments 352 469 Senior debt (6)(7) 2,098 2,172
Other financial assets 223 220 Subordinated debt (7) 1,881 1,807
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) At December 31, 1993, the Company used variable discount rates which incorporate relative credit quality to reflect the credit
risk on the fair value calculation. At December 31, 1992, the allowance for loan losses represented a reasonable estimate of the
credit risk component of the fair value of loans.
(2) The carrying amount and fair value exclude equipment leases of $152 million.
(3) The carrying amount excludes deferred gains on off-balance sheet financial instruments of $2 million.
(4) The carrying amount and fair value exclude obligations under capital leases of $60 million.
(5) The Company has entered into cross currency swap agreements to hedge floating rate subordinated debt issued in German marks and
British pounds.
(6) The carrying amounts and fair values exclude nonfinancial instruments that equal $127 million for loans, $48 million for
deposits and $61 million for senior debt.
(7) The fair value of loans and senior debt includes amounts for fair values of off-balance sheet interest rate contracts that
qualify as accounting hedges.
</TABLE>
68
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Financial Assets
- --------------------------------------------------------------------------------
----------------
SHORT-TERM FINANCIAL ASSETS
This category includes cash and due from banks, federal funds sold and
securities purchased under resale agreements and due from customers on
acceptances. The carrying amount is a reasonable estimate of fair value because
of the relatively short period of time between the origination of the instrument
and its expected realization.
INVESTMENT SECURITIES
Investment securities at cost and fair value at December 31, 1993 and 1992 are
set forth in Note 3.
LOANS
The fair valuation calculation process differentiates loans based on their
financial characteristics, such as product classification, loan category,
pricing features and remaining maturity. Prepayment estimates are evaluated by
product and loan rate. Discount rates presented in the paragraphs below have a
wide range due to the Company's mix of fixed and variable rate products. At
December 31, 1993, the Company used variable discount rates which incorporate
relative credit quality to reflect the credit risk on the fair value
calculation. In initially applying FAS 107 at December 31, 1992, the Company
utilized its allowance for loan losses to estimate the credit risk component of
fair value. This approach was deemed appropriate in light of depressed economic
conditions and the credit quality of the Company's loan portfolio, particularly
the high level of nonaccrual loans that needed separate credit evaluation. In
1993, economic conditions improved, some liquidity returned to the real estate
market and the Company's nonaccrual loans declined. Consequently, in 1993, the
Company incorporated credit spreads in its discounted cash flow approach in
calculating fair value. The improved conditions and lower interest rate
environment have resulted in an increase of fair value at December 31, 1993
compared with December 31, 1992.
The fair value of commercial loans, other real estate mortgage loans and real
estate construction loans is calculated by discounting contractual cash flows
using discount rates that reflect the Company's current pricing for loans with
similar characteristics and remaining maturity. Most of the discount rates
applied to this portfolio are between 5.5% and 9.5% at December 31, 1993 and
6.0% and 8.0% at December 31, 1992. Most of the discount rates for commercial
loans, other real estate mortgage loans and real estate construction loans are
between 8.2% and 9.5%, 5.5% and 9.3%, and 6.0% and 8.0% at December 31, 1993,
respectively.
For real estate 1-4 family first and junior lien mortgages, fair value is
calculated by discounting contractual cash flows, adjusted for prepayment
estimates, using discount rates based on the Company's current pricing for loans
of similar size, type, remaining maturity and repricing characteristics. Most of
the discount rates applied to this portfolio are between 5.7% and 7.3% at
December 31, 1993 and 5.2% and 9.0% at December 31, 1992.
For credit card loans, the portfolio's yield is equal to the Company's current
pricing and, therefore, the fair value is equal to book value.
For other consumer loans, the fair value is calculated by discounting the
contractual cash flows, adjusted for prepayment estimates, based on the current
rates offered by the Company for loans with similar characteristics. Most of the
discount rates applied to this portfolio are between 8.5% and 9.5% at
December 31, 1993 and 9.5% and 10.5% at December 31, 1992.
For auto lease financing, the fair value is calculated by discounting the
contractual cash flows at the Company's current pricing for items of similar
remaining term, without including any tax benefits. Most of the discount rates
applied to this portfolio are between 8.0% and 9.3% at December 31, 1993 and
9.7% and 10.0% at December 31, 1992.
NONMARKETABLE EQUITY INVESTMENTS
The Company's nonmarketable equity investments, including securities, are
carried at cost and have a book value of $396 million and $352 million and an
estimated fair value of $562 million and $469 million at December 31, 1993 and
1992, respectively. There are restrictions on the sale and/or liquidation of the
Company's interest, which is generally in the form of limited partnerships; and
the Company has no direct control over the investment decisions of the limited
partnerships. To estimate fair value, a significant portion of the underlying
limited partnerships' investments are valued based on market quotes.
Financial Liabilities
- --------------------------------------------------------------------------------
---------------------
DEPOSIT LIABILITIES
FAS 107 states that the fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, interest-bearing checking and savings
deposits and market rate savings, is equal to the amount payable on demand at
the measurement date. Although FASB's requirement for these categories is not
consistent with the market practice of using prevailing interest rates to value
these amounts, the amount included for these deposits in
69
<PAGE>
the previous table is their carrying value at December 31, 1993 and 1992. The
fair value of certificates of deposit and other time deposits is calculated
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for like deposits with similar
remaining maturities.
SHORT-TERM FINANCIAL LIABILITIES
This category includes federal funds purchased and securities sold under
repurchase agreements, commercial paper and other short-term borrowings. The
carrying amount is a reasonable estimate of fair value because of the relatively
short period of time between the origination of the instrument and its expected
realization.
SENIOR AND SUBORDINATED DEBT
The fair value of the Company's underwritten senior and subordinated debt is
estimated based on the quoted market prices of the instruments. The fair value
of the medium-term note programs, which are part of senior debt, is calculated
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for new notes with similar remaining
maturities.
Off-Balance Sheet
Financial Instruments
- --------------------------------------------------------------------------------
---------------------
Commitments and standby letters of credit, not included in the previous table,
have contractual values of $15,995 million and $890 million at December 31, 1993
and $16,870 million and $1,030 million at December 31, 1992. These instruments
generate ongoing fees at the Company's current pricing levels.
Derivative contracts are fair valued based on the replacement cost
(mark-to-market value) of the contracts.
Limitations
- --------------------------------------------------------------------------------
-----------
These fair value disclosures are made solely to comply with the requirements of
FAS 107. The calculations represent management's best estimates; however, due to
the lack of broad markets and the significant items excluded from this
disclosure, the calculations do not represent the underlying value of the
Company. The information presented in this footnote is based on market quotes
and fair value calculations as of December 31, 1993 and 1992. These amounts have
not been updated since year end; therefore, the valuations may have changed
significantly since that point in time.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Board of Directors
and Stockholders of
Wells Fargo & Company:
We have audited the accompanying consolidated balance sheet of Wells Fargo &
Company and Subsidiaries as of December 31, 1993 and 1992 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1993.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Wells Fargo & Company and Subsidiaries as of December 31, 1993 and 1992, and
the results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick
KPMG Peat Marwick
Certified Public Accountants
San Francisco, California
January 18, 1994
70
<PAGE>
Quarterly Financial Data
- -------------------- WELLS FARGO & COMPANY AND SUBSIDIARIES --------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF INCOME-QUARTERLY
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992
QUARTER ENDED Quarter ended
-------------------------------------- --------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 970 $ 936 $ 925 $ 930 $1,091 $1,050 $1,013 $ 992
INTEREST EXPENSE 292 278 270 264 412 381 345 316
----- ----- ----- ----- ------ ------ ------ -----
NET INTEREST INCOME 678 658 655 666 679 669 668 676
Provision for loan losses 210 140 120 80 215 300 400 300
----- ----- ----- ----- ------ ------ ------ -----
Net interest income after
provision for loan losses 468 518 535 586 464 369 268 376
----- ----- ----- ----- ------ ------ ------ -----
NONINTEREST INCOME
Service charges on deposit accounts 100 105 106 112 95 97 101 102
Fees and commissions 88 99 98 91 84 92 91 95
Trust and investment services income 46 48 48 48 39 41 42 44
Investment securities gains - - - - - - 45 -
Other 25 23 12 44 27 41 6 17
----- ----- ----- ----- ------ ------ ------ -----
Total noninterest income 259 275 264 295 245 271 285 258
----- ----- ----- ----- ------ ------ ------ -----
NONINTEREST EXPENSE
Salaries 183 198 193 210 173 177 182 184
Employee benefits 55 54 63 50 48 46 46 43
Net occupancy 53 57 56 58 57 55 55 56
Equipment 34 34 36 44 34 35 34 37
Federal deposit insurance 32 26 28 28 27 26 26 26
Other 182 162 159 167 156 167 165 181
----- ----- ----- ----- ------ ------ ------ -----
Total noninterest expense 539 531 535 557 495 506 508 527
----- ----- ----- ----- ------ ------ ------ -----
INCOME BEFORE INCOME TAX
EXPENSE 188 262 264 324 214 134 45 107
Income tax expense 80 113 99 134 95 52 21 49
----- ----- ----- ----- ------ ------ ------ -----
NET INCOME $ 108 $ 149 $ 165 $ 190 $ 119 $ 82 $ 24 $ 58
===== ===== ===== ===== ====== ====== ====== =====
NET INCOME APPLICABLE TO
COMMON STOCK $ 95 $ 137 $ 152 $ 178 $ 109 $ 70 $ 11 $ 45
===== ===== ===== ===== ====== ====== ====== =====
PER COMMON SHARE
Net income $1.72 $2.46 $2.74 $3.18 $ 2.09 $ 1.33 $ .21 $ .83
===== ===== ===== ===== ====== ====== ====== =====
Dividends declared (1) $ .50 $ .50 $ .50 $ .75 $ .50 $ .50 $ .50 $ -
===== ===== ===== ===== ====== ====== ====== =====
Average common shares outstanding 55 56 56 56 52 52 53 54
===== ===== ===== ===== ====== ====== ====== =====
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Beginning with the fourth quarter of 1992, the Company changed its dividend declaration schedule. Quarterly dividends are
now considered at the Board of Directors' meeting the month following quarter end. Accordingly, no dividend was declared
(recorded) in the fourth quarter of 1992. In January 1994, the Board of Directors declared a first quarter dividend of
$1.00 per common share.
</TABLE>
71
<PAGE>
EXHIBIT 23
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Wells Fargo & Company
We consent to the incorporation by reference in the December 31,
1993 Annual Report on Form 10-K and in the Prospectuses constituting part of the
following Registration Statements of Wells Fargo & Company of our report dated
January 18, 1994 relating to the consolidated balance sheet of Wells Fargo &
Company and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1993.
<TABLE>
<CAPTION>
Registration
Statement Number Form Description
- ---------------- ---- -----------
<S> <C> <C>
33-34969 S-8 Employee Stock Purchase Plan
33-7274, 33-40781 S-8 Equity Incentive Plans
33-26052, 33-41731 S-8 Director Option Plans
2-93338 S-8 Tax Advantage Plan and Tax Advantage Plan Sales by
Wells Fargo Bank
2-88534, 33-47434 S-3 Dividend Reinvestment and Common Stock Purchase
and Share Custody Plan
33-45066 S-3 Shelf registration of convertible preferred stock
33-53514, 33-51227 S-3 Shelf registrations of senior or subordinated debt
securities or preferred stock
33-42273, 33-39045 S-3 Shelf registrations of senior or subordinated debt
securities
KPMG PEAT MARWICK
</TABLE>
San Francisco, California
March 15, 1994
<PAGE>
WELLS FARGO & COMPANY
APPENDIX TO
EXHIBIT 13
PAGE
DESCRIPTION NUMBER
- ----------- ------
1. Line graph of Return on Average Total Assets (ROA) for 1993, 1992,
1991, 1990 and 1989 (shown in %).
1993- 1.20
1992- 0.54
1991- 0.04
1990- 1.39
1989- 1.26 11
2. Line graph of Return on Common Stockholders' Equity (ROE) for 1993,
1992, 1991, 1990 and 1989 (shown in %).
1993- 16.74
1992- 7.93
1991- 0.07
1990- 25.07
1989- 24.49 11
3. Line graph of Net Interest Margin for 1993, 1992 and 1991, (shown in %).
Also presented is the yield on total earning assets and the rate on
total Funding sources for 1993, 1992 and 1991. See information
presented in Table 3-AVERAGE BALANCES YIELDS AND RATES PAID on pages 14
and 15. 13
4. Bar graph of the Loan Mix at Year End shown as a percentage of total
loans at December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C> <C>
Commercial 21% 22% 25%
Real estate 1-4
family first
mortgage 23% 19% 20%
Other real estate
mortgage 25% 28% 24%
Real estate construction 3% 4% 5%
Consumer 24% 24% 23%
Lease Financing 4% 3% 3% 21
---- ---- ----
Total 100% 100% 100%
</TABLE>
<PAGE>
5. Line graphs of Nonaccrual Loans and New Loans Placed on Nonaccrual for
the past eight quarters (shown in billions). See information presented
in Table 16-QUARTERLY TREND OF CHANGES IN NONACCRUAL LOANS on page
27. 26
6. Bar graph of Core Deposits At Year End at December 31, 1993, 1992
and 1991 (shown in billions).
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C> <C>
Noninterest-bearing $9.7 $9.2 $8.2
Interest-bearing
checking 4.8 4.8 4.7
Savings 2.5 2.9 3.5
Market rate savings 17.1 16.0 14.2
Saving certificates 7.2 9.0 12.3
---- ---- ----
Total Core Deposits $41.3 $41.9 $42.9 33
</TABLE>
7. Line graph of Risk-Based Capital Ratios at Year End
at December 31, 1993, 1992 and 1991. See the information
presented in Table 1 - RATIOS AND PER COMMON SHARE DATA on
page 12. 35
8. Bar graph of the Price Range of Common Stock on an annual basis for
1993, 1992 and 1991 (shown in dollars). See information presented in
Table 1-RATIOS AND PER COMMON SHARE DATA on page 12. 41
9. Bar graph of the Price Range of Common Stock on a quarterly basis for
the past eight quarters (shown in dollars).
<TABLE>
<CAPTION>
HIGH LOW AT QTR
END
1993
----
<C> <S> <C> <C> <C>
1Q $109 1/2 $75 1/2 $108 5/8
2Q 120 95 3/4 110 1/4
3Q 127 3/8 107 1/4 126 3/8
4Q 133 105 7/8 129 3/8
1992
----
1Q 72 3/4 59 70
2Q 86 3/8 64 1/8 74 5/8
3Q 75 1/2 66 1/8 68 1/4
4Q 79 61 5/8 76 3/8 41
</TABLE>
