<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995 Commission file number 1-6214
-------------------------
WELLS FARGO & COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 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
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
July 31, 1995
------------------
Common stock, $5 par value 48,259,136
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Consolidated Statement of Income . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Changes in Stockholders' Equity. . . . . 4
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Summary Financial Data . . . . . . . . . . . . . . . . . . . . . . 7
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Line of Business Results . . . . . . . . . . . . . . . . . . . . . 10
Earnings Performance . . . . . . . . . . . . . . . . . . . . . . . 14
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . 14
Noninterest Income. . . . . . . . . . . . . . . . . . . . . . . . 18
Noninterest Expense . . . . . . . . . . . . . . . . . . . . . . . 20
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Balance Sheet Analysis . . . . . . . . . . . . . . . . . . . . . . 21
Investment Securities . . . . . . . . . . . . . . . . . . . . . . 21
Loan Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Commercial real estate. . . . . . . . . . . . . . . . . . . . . 24
Nonaccrual and Restructured Loans and Other Assets. . . . . . . . 25
Quarterly trend of changes in nonaccrual loans. . . . . . . . . 27
Changes in nonaccrual loans by loan category. . . . . . . . . . 27
Quarterly trend of changes in foreclosed assets . . . . . . . . 28
Nonaccrual loans by performance category. . . . . . . . . . . . 28
Loans 90 days past due and still accruing . . . . . . . . . . . 30
Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . 31
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Capital Adequacy/Ratios . . . . . . . . . . . . . . . . . . . . . 34
Asset/Liability Management. . . . . . . . . . . . . . . . . . . . 36
Derivative Financial Instruments. . . . . . . . . . . . . . . . . 37
Liquidity Management. . . . . . . . . . . . . . . . . . . . . . . 38
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 39
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
===============================================================================
The information furnished in these interim statements reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for such periods. Such adjustments are of a normal recurring nature,
unless otherwise disclosed in this Form 10-Q. The results of operations in the
interim statements are not necessarily indicative of the results that may be
expected for the full year. The interim financial information should be read
in conjunction with the Company's 1994 Annual Report on Form 10-K.
1
<PAGE>
PART I - FINANCIAL INFORMATION
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
=====================================================================================================
Quarter Six months
ended June 30, ended June 30,
------------------ ------------------
(in millions) 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Federal funds sold and securities
purchased under resale agreements $ 1 $ 1 $ 2 $ 5
Investment securities 152 197 317 382
Mortgage loans held for sale 54 -- 54 --
Loans 823 733 1,681 1,438
Other 1 1 2 2
------ ------ ------ ------
Total interest income 1,031 932 2,056 1,827
------ ------ ------ ------
INTEREST EXPENSE
Deposits 254 210 496 406
Federal funds purchased and securities sold under
repurchase agreements 59 18 115 26
Commercial paper and other short-term borrowings 9 2 19 3
Senior and subordinated debt 50 47 102 95
------ ------ ------ ------
Total interest expense 372 277 732 530
------ ------ ------ ------
NET INTEREST INCOME 659 655 1,324 1,297
Provision for loan losses -- 60 -- 120
------ ------ ------ ------
Net interest income after provision for loan losses 659 595 1,324 1,177
------ ------ ------ ------
NONINTEREST INCOME
Service charges on deposit accounts 119 119 236 236
Fees and commissions 103 92 204 177
Trust and investment services income 57 50 112 100
Investment securities gains (losses) -- 3 (15) 7
Other 31 35 14 79
------ ------ ------ ------
Total noninterest income 310 299 551 599
------ ------ ------ ------
NONINTEREST EXPENSE
Salaries 177 165 349 328
Incentive compensation 33 34 60 62
Employee benefits 48 49 101 103
Net occupancy 53 53 106 108
Equipment 45 41 92 80
Federal deposit insurance 24 25 47 51
Other 180 159 341 317
------ ------ ------ ------
Total noninterest expense 560 526 1,096 1,049
------ ------ ------ ------
INCOME BEFORE INCOME TAX EXPENSE 409 368 779 727
Income tax expense 177 162 314 319
------ ------ ------ ------
NET INCOME $ 232 $ 206 $ 465 $ 408
====== ====== ====== ======
NET INCOME APPLICABLE TO COMMON STOCK $ 222 $ 195 $ 444 $ 385
====== ====== ====== ======
PER COMMON SHARE
Net income $ 4.51 $ 3.57 $ 8.92 $ 6.98
====== ====== ====== ======
Dividends declared $ 1.15 $ 1.00 $ 2.30 $ 2.00
====== ====== ====== ======
Average common shares outstanding 49.1 54.8 49.8 55.2
====== ====== ====== ======
=====================================================================================================
</TABLE>
2
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
==========================================================================================
JUNE 30, December 31, June 30,
(in millions) 1995 1994 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 2,848 $ 2,974 $ 2,653
Federal funds sold and securities
purchased under resale agreements 375 260 55
Investment securities:
At cost (estimated fair value
$7,602, $8,185 and $9,996) 7,662 8,619 10,261
At fair value 2,473 2,989 3,067
------- ------- -------
Total investment securities 10,135 11,608 13,328
Mortgage loans held for sale 1,336 -- --
Loans 33,896 36,347 34,172
Allowance for loan losses 1,947 2,082 2,120
------- ------- -------
Net loans 31,949 34,265 32,052
------- ------- -------
Due from customers on acceptances 71 77 69
Accrued interest receivable 300 328 316
Premises and equipment, net 863 886 886
Goodwill 399 416 459
Other assets 2,655 2,560 2,469
------- ------- -------
Total assets $50,931 $53,374 $52,287
======= ======= =======
LIABILITIES
Noninterest-bearing deposits $ 9,600 $10,145 $ 9,475
Interest-bearing deposits 29,184 32,187 31,730
------- ------- -------
Total deposits 38,784 42,332 41,205
Federal funds purchased and securities
sold under repurchase agreements 3,693 3,022 2,331
Commercial paper and other short-term borrowings 532 189 195
Acceptances outstanding 71 77 69
Accrued interest payable 89 60 68
Other liabilities 933 930 848
Senior debt 1,485 1,393 1,990
Subordinated debt 1,482 1,460 1,455
------- ------- -------
Total liabilities 47,069 49,463 48,161
------- ------- -------
STOCKHOLDERS' EQUITY
Preferred stock 489 489 489
Common stock - $5 par value,
authorized 150,000,000 shares;
issued and outstanding 48,473,804 shares,
51,251,648 shares and 54,255,187 shares 242 256 271
Additional paid-in capital 407 871 330
Retained earnings 2,737 2,409 3,103
Cumulative foreign currency translation adjustments (4) (4) (4)
Investment securities valuation allowance (9) (110) (63)
------- ------- -------
Total stockholders' equity 3,862 3,911 4,126
------- ------- -------
Total liabilities and stockholders' equity $50,931 $53,374 $52,287
======= ======= =======
==========================================================================================
</TABLE>
3
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
=====================================================================================
Six months ended June 30,
------------------------
(in millions) 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, beginning of period $ 489 $ 639
Preferred stock redeemed -- (150)
------ ------
Balance, end of period 489 489
------ ------
COMMON STOCK
Balance, beginning of period 256 279
Common stock issued under employee benefit and
dividend reinvestment plans 3 1
Common stock repurchased (17) (9)
------ ------
Balance, end of period 242 271
------ ------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 871 551
Common stock issued under employee benefit and
dividend reinvestment plans 58 12
Common stock repurchased (522) (233)
------ ------
Balance, end of period 407 330
------ ------
RETAINED EARNINGS
Balance, beginning of period 2,409 2,829
Net income 465 408
Preferred stock dividends (21) (23)
Common stock dividends (116) (111)
------ ------
Balance, end of period 2,737 3,103
------ ------
CUMULATIVE FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS
Balance, beginning and end of period (4) (4)
------ ------
INVESTMENT SECURITIES VALUATION ALLOWANCE
Balance, beginning of period (110) 21
Change in unrealized net gain (loss), after applicable taxes 101 (84)
------ ------
Balance, end of period (9) (63)
------ ------
Total stockholders' equity $3,862 $4,126
====== ======
=====================================================================================
</TABLE>
4
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
=====================================================================================================
Six months ended June 30,
------------------------
(in millions) 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 465 $ 408
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- 120
Depreciation and amortization 131 120
Deferred income tax provision (benefit) (47) 5
Decrease in net deferred loan fees (15) (2)
Net (increase) decrease in accrued interest receivable 28 (19)
Write-down on mortgage loans held for sale 83 --
Net increase in accrued interest payable 29 5
Other, net (207) (47)
------ ------
Net cash provided by operating activities 467 590
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
At cost:
Proceeds from prepayments and maturities 983 2,066
Purchases (26) (2,440)
At fair value:
Proceeds from sales 670 17
Proceeds from prepayments and maturities 64 494
Purchases (60) (545)
Proceeds from sales of mortgage loans held for sale 2,580 --
Net increase in loans resulting from originations and collections (1,655) (1,244)
Proceeds from sales (including participations) of loans 238 61
Purchases (including participations) of loans (179) (154)
Proceeds from sales of foreclosed assets 109 121
Net (increase) decrease in federal funds sold and securities
purchased under resale agreements (115) 1,613
Other, net (142) (19)
------ ------
Net cash provided (used) by investing activities 2,467 (30)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (3,548) (439)
Net increase in short-term borrowings 1,014 1,259
Proceeds from issuance of senior debt 815 --
Repayment of senior debt (705) (261)
Repayment of subordinated debt -- (526)
Proceeds from issuance of common stock 61 13
Redemption of preferred stock -- (150)
Repurchase of common stock (539) (242)
Payment of cash dividends on preferred stock (31) (23)
Payment of cash dividends on common stock (116) (111)
Other, net (11) (71)
------ ------
Net cash used by financing activities (3,060) (551)
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS) (126) 9
Cash and cash equivalents at beginning of period 2,974 2,644
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,848 $2,653
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $ 703 $ 525
====== ======
Income taxes $ 299 $ 346
====== ======
Noncash investing activities:
Transfers from loans to foreclosed assets $ 61 $ 125
====== ======
Transfers from loans to mortgage loans held for sale $4,023 $ --
====== ======
=====================================================================================================
</TABLE>
5
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
FINANCIAL REVIEW
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA
===================================================================================================================================
% Change
Quarter ended June 30, 1995 from Six months ended
----------------------------- ------------------ ------------------
JUNE 30, Mar. 31, June 30, Mar. 31, June 30, JUNE 30, June 30, %
(in millions) 1995 1995 1994 1995 1994 1995 1994 Change
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Net income $ 232 $ 233 $ 206 --% 13% $ 465 $ 408 14%
Per common share
Net income $ 4.51 $ 4.41 $ 3.57 2 26 $ 8.92 $ 6.98 28
Dividends declared 1.15 1.15 1.00 -- 15 2.30 2.00 15
Average common shares outstanding 49.1 50.5 54.8 (3) (10) 49.8 55.2 (10)
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.81% 1.80% 1.59% 1 14 1.80% 1.59% 13
Net income applicable to common stock to
average common stockholders' equity (ROE) 26.71 26.89 21.67 (1) 23 26.80 21.38 25
Efficiency ratio (1) 57.8% 59.1% 55.2% (2) 5 58.5% 55.3% 6
Average loans $ 33,202 $ 36,334 $ 33,630 (9) (1) $ 34,759 $ 33,242 5
Average assets 51,491 52,390 52,013 (2) (1) 51,938 51,619 1
Average core deposits 36,226 36,699 40,232 (1) (10) 36,462 40,309 (10)
Net interest margin 5.66% 5.59% 5.56% 1 2 5.63% 5.56% 1
Average staff (full-time equivalent) 19,403 19,493 19,532 -- (1) 19,448 19,483 --
AT PERIOD END
Investment securities $ 10,135 $ 10,576 $ 13,328 (4) (24) $ 10,135 $ 13,328 (24)
Loans (2) 33,896 32,737 34,172 4 (1) 33,896 34,172 (1)
Allowance for loan losses 1,947 2,017 2,120 (3) (8) 1,947 2,120 (8)
Assets 50,931 52,324 52,287 (3) (3) 50,931 52,287 (3)
Core deposits 37,026 36,975 40,249 -- (8) 37,026 40,249 (8)
Common stockholders' equity 3,373 3,351 3,637 1 (7) 3,373 3,637 (7)
Stockholders' equity 3,862 3,840 4,126 1 (6) 3,862 4,126 (6)
Tier 1 capital (3) 3,418 3,437 3,711 (1) (8) 3,418 3,711 (8)
Total capital (Tiers 1 and 2) (3) 4,959 5,034 5,372 (1) (8) 4,959 5,372 (8)
Capital ratios
Common stockholders' equity to assets 6.62% 6.40% 6.96% 3 (5) 6.62% 6.96% (5)
Stockholders' equity to assets 7.58 7.34 7.89 3 (4) 7.58 7.89 (4)
Risk-based capital (3)
Tier 1 capital 8.60 8.73 10.06 (1) (15) 8.60 10.06 (15)
Total capital 12.48 12.78 14.56 (2) (14) 12.48 14.56 (14)
Leverage (3) 6.69 6.61 7.20 1 (7) 6.69 7.20 (7)
Book value per common share $ 69.59 $ 67.59 $ 67.04 3 4 $ 69.59 $ 67.04 4
COMMON STOCK PRICE
High $185-7/8 $160-5/8 $159-1/2 16 17 $185-7/8 $159-1/2 17
Low 157 143-3/8 136-5/8 10 15 143-3/8 127-5/8 12
Period end 180-1/4 156-3/8 150-3/8 15 20 180-1/4 150-3/8 20
===================================================================================================================================
<FN>
(1) The efficiency ratio is defined as noninterest expense divided by the total of net interest income and noninterest income.
(2) Loans exclude mortgage loans held for sale of $1,336 million and $3,940 million at June 30, 1995 and March 31, 1995,
respectively.
(3) See the Capital Adequacy/Ratios section for additional information.
</TABLE>
7
<PAGE>
OVERVIEW
Wells Fargo & Company (Parent) is a bank holding company whose principal
subsidiary is Wells Fargo Bank N.A. (Bank). In this Form 10-Q, Wells Fargo &
Company and its subsidiaries are referred to as the Company.
Net income in the second quarter of 1995 was $232 million, compared with $206
million in the second quarter of 1994, an increase of 13%. Per share earnings
for the second quarter of 1995 were $4.51 per share, compared with $3.57 per
share in the second quarter of 1994, an increase of 26%. The percentage increase
in per share earnings was greater than the percentage increase in net income due
to the Company's continuing stock repurchase program. Net income for the first
six months of 1995 was $465 million, or $8.92 per share, compared with $408
million, or $6.98 per share, in the first six months of 1994.
The higher second quarter 1995 results were primarily due to a zero loan loss
provision, compared with $60 million in the second quarter of 1994.
Return on average assets (ROA) was 1.81% and 1.80% in the second quarter and
first half of 1995, respectively, compared with 1.59% in the same periods of
1994. Return on average common equity (ROE) was 26.71% and 26.80% in the second
quarter and first half of 1995, respectively, compared with 21.67% and 21.38%,
respectively, in the same periods of 1994.
Net interest income on a taxable-equivalent basis was $659 million and
$656 million in the second quarter of 1995 and 1994, respectively. The
Company's net interest margin was 5.66% for the second quarter of 1995, compared
with 5.56% in the same quarter of 1994. The increase in the margin was partly
attributable to the sale of real estate 1-4 family first mortgage loans from the
mortgage loans held for sale category.
Noninterest income in the second quarter of 1995 was $310 million, compared with
$299 million in the same quarter of 1994.
Noninterest expense in the second quarter of 1995 was $560 million, up 6% from
$526 million. A major portion of the increase was due to higher contract
services related to new product development and marketing initiatives.
During the second quarter of 1995, net charge-offs totaled $70 million, or .84%
of average loans (annualized). This compared with $65 million, or .72%, during
the first quarter of 1995 and $61 million, or .73%, during the second quarter of
1994. The allowance for loan losses was 5.74% of total loans (excluding
mortgage loans held for sale) at June 30, 1995, compared with 6.16% at March
31, 1995 and 6.20% at June 30, 1994.
Total nonaccrual and restructured loans were $644 million at June 30, 1995,
compared with $581 million at March 31, 1995 and $717 million at June 30, 1994.
Foreclosed assets amounted to $224 million at June 30, 1995, $273 million at
March 31, 1995 and $344 million at June 30, 1994.
8
<PAGE>
Common stockholders' equity to total assets was 6.62% at June 30, 1995,
compared with 6.40% and 6.96% at March 31, 1995 and June 30, 1994,
respectively. The Company's total risk-based capital ratio at June 30, 1995
was 12.48% and its Tier 1 risk-based capital ratio was 8.60%, exceeding
minimum guidelines of 8% and 4%, respectively, for bank holding companies and
the "well capitalized" guidelines for banks of 10% and 6%, respectively. At
March 31, 1995, the risk-based capital ratios were 12.78% and 8.73%,
respectively; at June 30, 1994, these ratios were 14.56% and 10.06%,
respectively. The decrease in total and Tier 1 risk-based capital ratios
between March 31, 1995 and June 30, 1995 resulted primarily from the
repurchase of 1.2 million shares of common stock during the second quarter.
The Company's leverage ratios were 6.69%, 6.61% and 7.20% at June 30, 1995,
March 31, 1995 and June 30, 1994, respectively, exceeding the minimum
regulatory guideline of 3% for bank holding companies and the well
capitalized guideline of 5% for banks.
Business activity in California improved along a broad front during the second
quarter of 1995, reflecting an improved job market and increased home sales.
However, the pace of this growth was still below optimum. Business continued
very strong in high tech and international export industries. The retail
business, however, was disappointing with sales barely ahead of a year ago. New
home construction was still sluggish, in part reflecting a cautious approach by
builders. Signs of improvement were evident in commercial real estate as rents
appeared to firm and vacancy rates continued to drop in nearly all parts of the
state.
9
<PAGE>
LINE OF BUSINESS RESULTS (ESTIMATED)
<TABLE>
<CAPTION>
==============================================================================================================
(income/expense in millions, average balances in billions)
--------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994 1995 1994
------------ ------------- ------------- -------------
Retail Business
Distribution Banking Investment Real Estate
Group Group Group Group
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
QUARTER ENDED JUNE 30,
Net interest income (1) $114 $ 103 $ 90 $ 70 $ 118 $ 91 $ 62 $ 52
Provision for loan losses (2) (3) -- -- 8 6 -- -- 7 7
Noninterest income (4) 157 156 34 30 72 72 3 5
Noninterest expense (4) 241 227 75 67 120 106 21 16
---- ----- ---- ---- ----- ----- ----- -----
Income before income
tax expense 30 32 41 27 70 57 37 34
Income tax expense (5) 14 14 18 12 31 25 16 15
---- ----- ---- ---- ----- ----- ----- -----
Net income $ 16 $ 18 $ 23 $ 15 $ 39 $ 32 $ 21 $ 19
==== ===== ==== ==== ===== ===== ===== =====
Average loans (6) (7) (8) $ -- $ -- $2.3 $1.8 $ .5 $ .5 $ 6.3 $ 6.2
Average assets 1.2 1.2 3.5 3.0 1.0 1.0 6.7 6.6
Average core deposits 9.7 10.5 6.4 7.3 17.7 20.1 .1 .1
Return on equity (9) (10) 19% 22% 27% 20% 36% 27% 13% 13%
Risk-adjusted efficiency ratio (10) (11) 95% 93% 79% 87% 74% 79% 88% 89%
SIX MONTHS ENDED JUNE 30,
Net interest income (1) $225 $ 202 $177 $133 $ 237 $ 173 $ 119 $ 107
Provision for loan losses (2) (3) -- -- 16 13 1 1 14 14
Noninterest income (4) 317 309 66 69 145 139 10 12
Noninterest expense (4) 470 451 140 133 234 206 34 41
---- ----- ---- ---- ----- ----- ----- -----
Income before income
tax expense (benefit) 72 60 87 56 147 105 81 64
Income tax expense (benefit) (5) 33 28 38 26 65 48 34 27
---- ----- ---- ---- ----- ----- ----- -----
Net income $ 39 $ 32 $ 49 $ 30 $ 82 $ 57 $ 47 $ 37
==== ===== ==== ==== ===== ===== ===== =====
Average loans (6) (7) (8) $ -- $ -- $2.2 $1.7 $ .5 $ .5 $ 6.3 $ 6.3
Average assets 1.2 1.2 3.4 2.9 1.0 1.0 6.7 6.7
Average core deposits 9.8 10.4 6.4 7.3 17.9 20.2 .1 .1
Return on equity (9) (10) 24% 22% 30% 21% 38% 26% 14% 12%
Risk-adjusted efficiency ratio (10) (11) 92% 94% 75% 85% 72% 80% 83% 95%
==============================================================================================================
<FN>
(1) Net interest income is the difference between actual interest earned on assets (and interest paid on
liabilities) owned by a group and a funding charge (and credit) based on the Company's cost of funds.
Groups are charged a cost to fund any assets (e.g., loans) and are paid a funding credit for any funds
provided (e.g., deposits). The interest spread is the difference between the interest rate earned on an
asset or paid on a liability and the Company's cost of funds rate.
(2) The provision allocated to the line groups is based on management's current assessment of the normalized
net charge-off ratio for each line of business. In any particular year, the actual net charge-offs can
be higher or lower than the normalized provision allocated to the lines of business. The difference
between the normalized provision and the Company provision is included in Other.
(3) Consumer Lending includes a provision for credit card loan losses of $43 million and $33 million for the
quarters ended June 30, 1995 and 1994, respectively, and $81 million and $64 million for the six months
ended June 30, 1995 and 1994, respectively.
(4) Retail Distribution Group's charges to the product groups are shown as noninterest income to the branches
and noninterest expense to the product groups. They amounted to $54 million and $46 million for the
quarters ended June 30, 1995 and 1994, respectively, and $102 million and $92 million for the six months
ended June 30, 1995 and 1994, respectively. These charges are eliminated in the Other category in
arriving at the Consolidated Company totals for noninterest income and expense.
(5) Businesses are taxed at the Company's marginal (statutory) tax rate, adjusted for any nondeductible
expenses. Any differences between the marginal and effective tax rates are in Other.
(6) The Real Estate Group's average loans include commercial loans to real estate developers of $.5 billion
and $.4 billion, other real estate loans of $4.9 billion and $5.0 billion and real estate construction
loans of $.9 billion and $.8 billion for the quarters ended June 30, 1995 and 1994, respectively. The
Group's average loans include commercial loans to real estate developers of $.5 billion and $.4 billion,
other real estate loans of $4.9 billion and $5.0 billion and real estate construction loans of $.9
billion and $.9 billion for the six months ended June 30, 1995 and 1994, respectively.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
--------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
------------ ------------- ------------- ------------ --------------
Wholesale
Products Consumer Mortgage Consolidated
Group Lending Lending Other Company
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
QUARTER ENDED JUNE 30,
Net interest income (1) $ 100 $ 91 $ 154 $133 $ 20 $ 25 $ 1 $ 90 $ 659 $ 655
Provision for loan losses (2) (3) 10 9 55 43 1 2 (81) (7) -- 60
Noninterest income (4) 38 31 48 36 (1) 4 (41) (35) 310 299
Noninterest expense (4) 48 45 74 65 10 21 (29) (21) 560 526
----- ---- ----- ---- ----- ----- ----- ----- ------ ------
Income before income
tax expense 80 68 73 61 8 6 70 83 409 368
Income tax expense (5) 33 29 31 26 3 2 31 39 177 162
----- ---- ----- ---- ----- ----- ----- ----- ------ ------
Net income $ 47 $ 39 $ 42 $ 35 $ 5 $ 4 $ 39 $ 44 $ 232 $ 206
===== ==== ===== ==== ===== ===== ===== ===== ====== ======
Average loans (6) (7) (8) $ 9.1 $8.0 $10.6 $9.2 $ 4.2 $ 7.6 $ .2 $ .3 $ 33.2 $ 33.6
Average assets 10.0 8.9 10.7 9.3 7.2 7.7 11.2 14.3 51.5 52.0
Average core deposits 2.1 2.1 .1 -- .1 .1 -- -- 36.2 40.2
Return on equity (9) (10) 24% 23% 25% 24% --% --% --% --% 27% 22%
Risk-adjusted efficienty ratio (10) (11) 67% 68% 72% 74% --% --% --% --% --% --%
SIX MONTHS ENDED JUNE 30,
Net interest income (1) $ 201 $171 $ 301 $267 $ 42 $ 49 $ 22 $ 195 $1,324 $1,297
Provision for loan losses (2) (3) 20 18 105 84 4 5 (160) (15) -- 120
Noninterest income (4) 84 66 88 69 (80) 8 (79) (73) 551 599
Noninterest expense (4) 96 89 143 130 24 43 (45) (44) 1,096 1,049
----- ---- ----- ---- ----- ----- ----- ----- ------ ------
Income before income
tax expense (benefit) 169 130 141 122 (66) 9 148 181 779 727
Income tax expense (5) 71 56 60 51 (28) 4 41 79 314 319
----- ---- ----- ---- ----- ----- ----- ----- ------ ------
Net income $ 98 $ 74 $ 81 $ 71 $ (38) $ 5 $ 107 $ 102 $ 465 $ 408
===== ==== ===== ==== ===== ===== ===== ===== ====== ======
Average loans (6) (7) (8) $ 9.0 $7.9 $10.3 $9.1 $ 6.1 $ 7.3 $ .4 $ .4 $ 34.8 $ 33.2
Average assets 9.9 8.7 10.5 9.3 7.8 7.4 11.4 14.4 51.9 51.6
Average core deposits 2.1 2.2 .1 -- .1 .1 -- -- 36.5 40.3
Return on equity (9) (10) 26% 22% 25% 25% --% --% --% --% 27% 21%
Risk-adjusted efficiency ratio (10) (11) 63% 70% 72% 73% --% --% --% --% --% --%
===================================================================================================================================
<FN>
(7) The Wholesale Products Group's average loans include commercial real estate loans of $2.3 billion and $2.2 billion, and other
commercial loans of $6.8 billion and $5.8 billion for the quarters ended June 30, 1995 and 1994, respectively. The Group's
average loans include commercial real estate loans of $2.3 billion and $2.2 billion and other commercial loans of $6.7 billion
and $5.7 billion for the six months ended June 30, 1995 and 1994, respectively. These loans were originated largely by the
Company's Commercial Banking Group which deals mostly with middle market borrowers.
(8) Mortgage Lending's average loans include real estate 1-4 family first mortgage loans of $4.1 billion and $7.5 billion and
other loans of $.1 billion and $.1 billion for the quarters ended June 30, 1995 and 1994, respectively. Mortgage Lending's
average loans include real estate 1-4 family first mortgage loans of $6.0 billion and $7.2 billion and other loans of $.1
billion and $.1 billion for the six months ended June 30, 1995 and 1994, respectively.
(9) Equity is allocated to the lines of business based on an assessment of the inherent risk associated with each business so that
the returns on allocated equity are on a risk-adjusted basis and comparable across business lines.
(10) Ratios for the Mortgage Lending Division are not meaningful at this time due to ongoing organizational changes.
(11) The risk-adjusted efficiency ratio is defined as noninterest expense plus the cost of capital divided by revenues (net
interest income and noninterest income) less normalized loan losses.
</TABLE>
11
<PAGE>
The line of business results show financial performance of the major business
units comparing the quarter and six months ended June 30, 1995 with the same
periods of 1994. Changes in management structure and/or the allocation process
may result in changes in allocations, transfers and assignments. In that case,
results for prior periods would be restated to allow comparability from one
period to the next.
The Retail Distribution Group's net income for the second quarter decreased $2
million, or 11%. Net income for the six months ended June 30, 1995 increased $7
million, or 22%. Net interest income for both periods increased due to wider
spreads on core deposits, of which a major portion was offset by lower balances.
Noninterest income for both periods increased from higher ATM shared network and
point of sale interchange income. Noninterest expense for both periods
increased substantially due to higher expenditures on alternative distribution
channels including supermarket banking centers.
The Business Banking Group's net income for the quarter and six months ended
June 30, 1995 increased $8 million, or 53%, and $19 million, or 63%,
respectively. Net interest income for both periods increased due to wider
spreads on core deposits and higher loan balances, of which a major portion was
offset by lower core deposit balances. Noninterest income for the second
quarter of 1995 increased due to higher sweep account balances and activity, and
increased mass market lending volumes. For the six months ending June 30, 1995,
noninterest income decreased due to a gain recognized in 1994 resulting from the
CES alliance which was offset primarily by higher sweep account balances and
activity. Noninterest expense for both periods increased due to higher expenses
associated with increased mass market lending volumes that were partially offset
by savings from the CES alliance.
The Investment Group's net income for the quarter and six months ended June 30,
1995 increased $7 million, or 22%, and $25 million, or 44%, respectively. Net
interest income for both periods increased due to wider spreads on core
deposits, of which a major portion was offset by a decline in deposit balances.
Noninterest expense for both periods increased primarily from higher personnel
costs (including incentive compensation) and branch distribution costs from
higher sales of time deposits.
In June 1995, the Company, together with The Nikko Securities Co., LTD (Nikko),
signed a definitive agreement to sell their joint venture interest in Wells
Fargo Nikko Investment Advisors (WFNIA) to Barclays PLC of the U.K. Under the
terms of the sale, the Company and Nikko will receive about $440 million. The
Company expects to realize an estimated after-tax gain of approximately $100
million from this sale. As part of the sale, Barclays will also acquire the
Investment Group's MasterWorks division. This transaction is subject to
regulatory approval and to a number of contingencies that may affect both the
total proceeds and the gain. The sale is expected to close in the fourth quarter
of 1995. The combined contribution to the Company's net income for the first
six months of 1995 and 1994 from WFNIA and MasterWorks was less than $5 million
for each of these periods.
12
<PAGE>
The Real Estate Group's net income for the quarter and six months ended June 30,
1995 increased $2 million, or 11%, and $10 million, or 27%, respectively. Net
interest income for both periods increased primarily due to the recoveries on
loans where interest had been previously applied to principal. For the second
quarter of 1995, noninterest expense increased due to gains on foreclosed assets
recognized in 1994 and higher costs from the continued expansion of the Real
Estate Capital Markets area in 1995. Noninterest expense for the six months
ended June 30, 1995 decreased due to gains on the sale of foreclosed assets
during the first quarter of 1995.
The Wholesale Products Group's net income for the quarter and six months ended
June 30, 1995 increased $8 million, or 21%, and $24 million, or 32%,
respectively. Net interest income for both periods increased due to wider core
deposit spreads and higher loan balances, primarily offset by lower loan
spreads. In the second quarter of 1995, noninterest income increased due to
higher cash management revenue and gains on the sale of leases. Noninterest
income in the first half of 1995 also reflected gains from loan sales.
Consumer Lending's net income for the quarter and six months ended June 30, 1995
increased $7 million, or 20%, and $10 million, or 14%, respectively. The
increase in net interest income for both periods was due to higher credit card
balances. A significant portion of the increase was offset by lower spreads.
Noninterest income for both periods increased primarily due to higher credit
card fee income. Noninterest expense for both periods increased primarily due
to the cost of servicing a higher number of open accounts. The responsibility
for managing the home equity lending business (1-4 family junior lien mortgages)
has been assumed by Consumer Lending from the Mortgage Lending Division in the
second quarter of 1995. Both current and prior periods reflect this
organizational change.
Mortgage Lending decided at year-end 1994 to cease the origination of 1-4 family
first mortgage loans due to concerns regarding the long-run economics of the
first mortgage origination business. In April 1995, the Company agreed in
principle to form an alliance with Norwest Mortgage Inc. Under the terms of the
alliance, Norwest Mortgage Inc. will underwrite and fund residential mortgages
for the Company's customers and the Company expects to be the primary servicer
of the loans. This alliance is subject to regulatory approval, which is expected
in the third quarter of 1995.
In the first quarter of 1995, as a result of reevaluating its asset/liability
management strategies in light of Mortgage Lending's decision to cease the
origination of first mortgages, the Company decided to sell certain types of
products within the real estate 1-4 family first mortgage portfolio.
Accordingly, approximately $4 billion of first mortgages were reclassified on
March 31, 1995 to a held for sale category and an $83 million write-down to the
lower of cost or estimated market was recorded as a loss on sale of loans in
noninterest income. The Company purchased derivative financial instruments to
hedge against a significant decline in the estimated fair value of these loans
prior to sale. During the second quarter of 1995, $2.6 billion of these loans
were sold. The remaining balance of $1.4 billion, net of an estimated $50
million write-down to the lower of cost or estimated market, is expected to be
substantially sold in the third quarter of 1995.
13
<PAGE>
The Other category includes the Company's investment securities portfolio, the
difference between the normalized loan loss provision for the line groups and
the Company provision, the net impact of transfer pricing loan and deposit
balances, the cost of external debt, the elimination of intergroup noninterest
income and expense, and any residual effects of unallocated systems and other
support groups. It also includes the impact of asset/liability strategies the
Company has put in place to manage the sensitivity of net interest spreads.
Net income for the Other category for the quarter ended June 30, 1995 decreased
$5 million, or 11%. Net income for the six months ended June 30, 1995 increased
$5 million, or 5%. The decrease in net interest income for both periods was due
to lower hedging income and higher funding costs. This decrease was primarily
offset by a higher loan loss provision credit. The first half of 1995 also
reflects a reduction in tax expense related to the settlement with the Internal
Revenue Service of certain audit issues pertaining to auto leases.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $659 million in the second
quarter of 1995, compared with $656 million in the second quarter of 1994. The
Company's net interest margin was 5.66% in the second quarter of 1995, compared
with 5.56% in the second quarter of 1994. Net interest income on a taxable-
equivalent basis was $1,324 million in the first six months of 1995, compared
with $1,298 million in the first six months of 1994. The Company's net interest
margin was 5.63% in the first six months of 1995, compared with 5.56% in the
first six months of 1994.
The increase in the margin in the second quarter and first half of 1995 compared
with the same periods of 1994 was partly attributable to the sale of low margin
real estate 1-4 family first mortgage loans from the mortgage loans held for
sale category.
The spread between loans and deposits increased in the second quarter and first
half of 1995 compared with the same periods of 1994 as loan yields climbed and
deposit rates were slow to react. The increasing loan/deposit spread, which
added approximately 60 basis points to the net interest margin in the second
quarter and first half of 1995, was offset by a reduction in hedging income
and a change in the mix of funding sources.
The reduction in hedging income resulted primarily from the maturing interest
rate floor and swap hedges put in place in 1989. Hedging income from derivative
contracts decreased $31 million and $88 million in the second quarter and first
half of 1995 compared with the same periods of 1994, reducing the margin by 27
and 38 basis points, respectively. Additionally, the Company experienced some
run-off in its core deposits since the second quarter and first half of 1994,
reducing the margin by 35 and 22 basis points in the comparable periods of 1995,
respectively.
Loans averaged $33.2 billion in the second quarter of 1995, compared with $33.6
billion in the second quarter of 1994, and $34.8 billion in the first six months
of 1995, compared with $33.2 billion in the first six months of 1994. The
largest increase occurred in commercial loans. This increase was substantially
in middle market and small business loans resulting from ongoing marketing
efforts.
14
<PAGE>
Investment securities averaged $10.3 billion during the second quarter of 1995,
compared with $13.4 billion in the second quarter of 1994. Investment securities
averaged $10.7 billion in the first six months of 1995, compared with $13.1
billion in the first six months of 1994. A major portion of the decrease in both
periods was due to the maturity of investment securities. Investment securities
are expected to continue to decrease as the cash received from their maturities
is used to fund loan growth.
Average core deposits were $36.2 billion and $40.2 billion in the second quarter
of 1995 and 1994, respectively, and funded 70% and 77% of the Company's average
total assets in the same quarter of 1995 and 1994, respectively. For the first
six months of 1995 and 1994, average core deposits were $36.5 billion and $40.3
billion, respectively, and funded 70% and 78% of the Company's average total
assets in the same periods of 1995 and 1994, respectively.
Individual components of net interest income and the net interest margin are
presented in the rate/yield table on pages 16 and 17.
In the third quarter of 1995, net interest income should decline modestly,
assuming the remaining mortgage loans held for sale are sold. However, as these
low margin loans are sold and the level of earning assets decreases, the net
interest margin is likely to increase.
15
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)
<TABLE>
<CAPTION>
==================================================================================================================================
Quarter ended June 30,
----------------------------------------------------------------------------------------------------------------------------------
1995 1994
---------------------------- -----------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
(in millions) BALANCE RATES EXPENSE balance rates expense
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold and securities purchased
under resale agreements $ 66 6.18% $ 1 $ 60 4.03% $ 1
Investment securities:
At cost:
U.S. Treasury securities 1,469 4.85 18 2,734 4.84 33
Securities of U.S. government agencies
and corporations 4,996 6.04 75 6,155 6.02 93
Private collateralized mortgage obligations 1,249 5.85 18 1,337 6.14 21
Other securities 156 6.85 3 136 5.73 2
------- ----- ------- -----
Total investment securities at cost 7,870 5.80 114 10,362 5.72 149
At fair value (2):
U.S. Treasury securities 426 6.70 7 97 6.84 2
Securities of U.S. government agencies
and corporations 998 5.38 14 1,594 5.79 24
Private collateralized mortgage obligations 956 6.41 16 1,230 6.91 22
Other securities 62 14.42 1 72 13.77 1
------- ----- ------- -----
Total investment securities at fair value 2,442 6.16 38 2,993 6.40 49
------- ----- ------- -----
Total investment securities 10,312 5.89 152 13,355 5.87 198
Mortgage loans held for sale (2) 2,884 7.33 54 -- -- --
Loans:
Commercial 8,436 10.01 211 6,854 9.26 157
Real estate 1-4 family first mortgage 5,063 7.42 94 8,463 6.76 143
Other real estate mortgage 8,058 9.49 190 8,089 8.52 172
Real estate construction 1,070 10.20 27 910 8.92 20
Consumer:
Real estate 1-4 family junior lien mortgage 3,356 8.55 72 3,385 7.59 64
Credit card 3,433 15.62 134 2,614 15.27 100
Other revolving credit and monthly payment 2,353 10.56 62 2,016 9.27 47
------- ----- ------- -----
Total consumer 9,142 11.73 268 8,015 10.52 211
Lease financing 1,405 9.22 32 1,261 9.21 29
Foreign 28 7.98 1 38 4.72 1
------- ----- ------- -----
Total loans 33,202 9.93 823 33,630 8.74 733
Other 61 5.30 1 52 6.00 1
------- ----- ------- -----
Total earning assets $46,525 8.86 1,031 $47,097 7.91 933
======= ----- ======= -----
FUNDING SOURCES
Interest-bearing liabilities:
Deposits:
Interest-bearing checking $ 4,210 1.00 11 $ 4,679 .98 11
Market rate and other savings 15,170 2.54 96 19,574 2.29 112
Savings certificates 7,948 5.27 104 7,022 4.18 73
Other time deposits 442 7.21 8 310 7.27 6
Deposits in foreign offices 2,309 6.06 35 780 4.06 8
------- ----- ------- -----
Total interest-bearing deposits 30,079 3.38 254 32,365 2.60 210
Federal funds purchased and securities sold
under repurchase agreements 3,924 6.02 59 1,876 3.86 18
Commercial paper and other short-term borrowings 621 5.95 9 176 3.78 2
Senior debt 1,511 6.85 26 2,034 5.05 26
Subordinated debt 1,484 6.54 24 1,449 5.87 21
------- ----- ------- -----
Total interest-bearing liabilities 37,619 3.96 372 37,900 2.93 277
Portion of noninterest-bearing funding sources 8,906 -- -- 9,197 -- --
------- ----- ------- -----
Total funding sources $46,525 3.20 372 $47,097 2.35 277
======= ----- ======= -----
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (3) 5.66% $ 659 5.56% $ 656
==== ===== ==== =====
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 2,602 $ 2,613
Other 2,364 2,303
------- -------
Total noninterest-earning assets $ 4,966 $ 4,916
======= =======
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 8,898 $ 8,957
Other liabilities 1,157 1,049
Preferred stockholders' equity 489 489
Common stockholders' equity 3,328 3,618
Noninterest-bearing funding sources used to
fund earning assets (8,906) (9,197)
------- -------
Net noninterest-bearing funding sources $ 4,966 $ 4,916
======= =======
TOTAL ASSETS $51,491 $52,013
======= =======
==================================================================================================================================
<FN>
(1) The average prime rate of Wells Fargo Bank was 9.00% and 6.90% for the quarters ended June 30, 1995 and 1994, respectively and
8.91% and 6.46% for the six months ended June 30, 1995 and 1994, respectively. The average three-month London Interbank
Offered Rate (LIBOR) was 6.12% and 4.46% for the quarters ended June 30, 1995 and 1994, respectively, and 6.21% and 4.02% for
the six months ended June 30, 1995 and 1994 respectively.
(2) Yields are based on amortized cost balances. The average balance for investment securities at fair value totaled
$2,492 million and $3,079 million for the quarters ended June 30, 1995 and 1994, respectively, and $2,685 million and $3,059
million for the six months ended June 30, 1995 and 1994, respectively. The average balance for mortgage loans held for sale
totaled $2,925 million and $1,470 million for the quarter and six months ended June 30, 1995, respectively.
(3) 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 all periods presented.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
========================================================================================
Six months ended June 30,
----------------------------------------------------------------------------------------
1995 1994
--------------------------------------- -----------------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
BALANCE RATES EXPENSE balance rates expense
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 57 5.93% $ 2 $ 316 3.24% $ 5
1,557 4.84 38 2,655 4.86 64
5,114 6.03 154 6,159 6.08 187
1,267 5.89 37 1,144 5.76 33
160 6.76 5 136 5.71 4
------- ------ ------- ------
8,098 5.79 234 10,094 5.71 288
406 6.70 14 49 6.84 2
1,104 5.59 32 1,637 5.91 49
1,022 6.38 34 1,259 6.18 40
64 14.49 3 78 13.94 3
------- ------ ------- ------
2,596 6.21 83 3,023 6.15 94
------- ------ ------- ------
10,694 5.90 317 13,117 5.82 382
1,450 7.29 54 -- -- --
8,246 9.89 405 6,742 9.09 303
7,042 7.24 255 8,117 6.84 278
8,090 9.54 383 8,124 8.45 341
1,045 10.18 53 984 8.60 42
3,339 8.60 143 3,439 7.43 128
3,280 15.69 257 2,577 15.31 197
2,311 10.49 121 1,978 9.27 91
------- ------ ------- ------
8,930 11.70 521 7,994 10.43 416
1,378 9.19 63 1,245 9.29 58
28 7.46 1 36 4.54 1
------- ------ ------- ----- ------
34,759 9.72 1,681 33,242 8.69 1,439
60 5.44 2 52 6.00 2
------- ------ ------- ----- ------
$47,020 8.76 2,056 $46,727 7.84 1,828
======= ------ ======= ------
$ 4,287 1.00 21 $ 4,695 .98 23
15,643 2.55 198 19,648 2.24 219
7,649 5.09 193 7,032 4.16 145
400 5.10 10 311 7.32 11
2,486 5.96 74 420 4.01 8
------- ------ ------- ------
30,465 3.28 496 32,106 2.55 406
3,905 5.92 115 1,478 3.57 26
654 5.92 19 163 3.42 3
1,575 6.89 54 2,118 4.77 50
1,477 6.57 48 1,563 5.72 45
------- ------ ------- ------
38,076 3.87 732 37,428 2.85 530
8,944 -- -- 9,299 -- --
------- ------ ------- ------
$47,020 3.13 732 $46,727 2.28 530
======= ------ ======= ------
5.63% $1,324 5.56% $1,298
===== ====== ===== ======
$ 2,595 $ 2,585
2,323 2,307
------- -------
$ 4,918 $ 4,892
======= =======
$ 8,883 $ 8,934
1,149 1,067
489 554
3,341 3,636
(8,944) (9,299)
------- -------
$ 4,918 $ 4,892
======= =======
$51,938 $51,619
======= =======
========================================================================================
</TABLE>
17
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
=========================================================================================================================
Quarter Six months
ended June 30, % ended June 30, %
-------------- ----------------
(in millions) 1995 1994 Change 1995 1994 Change
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $119 $119 -- % $236 $236 -- %
Fees and commissions:
Credit card membership and other credit card fees 23 15 53 42 31 35
Debit and credit card merchant fees 17 13 31 30 25 20
Mortgage loan servicing fees 15 5 200 25 8 213
Shared ATM network fees 13 11 18 24 20 20
Charges and fees on loans 12 11 9 23 21 10
Mutual fund and annuity sales fees 8 12 (33) 18 21 (14)
All other 15 25 (40) 42 51 (18)
---- ---- ---- ----
Total fees and commissions 103 92 12 204 177 5
Trust and investment services income:
Asset management and custody fees 32 32 -- 63 63 --
Mutual fund management fees 17 11 55 31 22 41
All other 8 7 14 18 15 20
---- ---- ---- ----
Total trust and investment services income 57 50 14 112 100 12
Investment securities gains (losses) -- 3 (100) (15) 7 --
Income from equity investments accounted for by the:
Cost method 13 9 44 32 17 88
Equity method 12 7 71 20 16 25
Check printing charges 9 10 (10) 20 20 --
Gains (losses) from dispositions of operations (9) -- -- (9) 10 --
Gains (losses) on sales of loans 1 1 -- (66) 2 --
All other 5 8 (38) 17 14 21
---- ---- ---- ----
Total $310 $299 4 % $551 $599 (8)%
==== ==== ==== ==== ==== ====
=========================================================================================================================
</TABLE>
The increase in credit card membership and other credit card fees in the second
quarter and first half of 1995 compared with the same periods of 1994 was
predominantly due to late fees and other transaction fees charged to customers.
The increase in mortgage loan servicing fees for the second quarter and first
half of 1995 resulted from additional purchases of mortgage servicing rights
throughout 1994 and 1995. The balance of purchased mortgage servicing rights
was $169 million and $38 million at June 30, 1995 and 1994, respectively. The
mortgage loan servicing portfolio totaled $19 billion at June 30, 1995.
Amortization expense for purchased mortgage servicing rights (included in all
other fees and commissions) was $11 million and $2 million for the second
quarter of 1995 and 1994, respectively, and $17 million and $3 million for the
first half of 1995 and 1994, respectively.
The increase in trust and investment services income for the second quarter and
first half of 1995 was predominantly due to an increase in mutual fund
management fees reflecting the overall growth in the fund families' net assets.
The Stagecoach family of 28 funds had $8.0 billion of assets under management at
June 30, 1995, compared with $4.8 billion at June 30, 1994. The
18
<PAGE>
Stagecoach family consists of both retail and institutional funds. The
retail funds are primarily distributed through the branch network. These
funds had $6.6 billion under management at June 30, 1995, compared with $4.1
billion at June 30, 1994. The institutional funds are offered primarily to
selected groups of investors and certain corporations, partnerships and other
business entities. At June 30, 1995, these funds had $1.4 billion of assets
under management, compared with $700 million at June 30, 1994. The Overland
Express family of 12 funds, which had $2.9 billion of assets under management
at June 30, 1995, compared with $3.7 billion at June 30, 1994, is sold
through brokers around the country. In addition to managing Stagecoach and
Overland Express Funds, the Company also managed or maintained personal
trust, employee benefit trust and agency assets of approximately $51 billion
and $45 billion at June 30, 1995 and 1994, respectively.
Investment securities losses in the first half of 1995 resulted from the first
quarter sale of $685 million in debt securities from the available-for-sale
portfolio.
In the second quarter of 1995, losses from the disposition of operations
included an $8 million accrual related to the disposition of premises and, to
a lesser extent, severance associated with scheduled branch closures.
Additional accruals may be made in the second half of 1995 for branch
closures or relocations as the Company continues to open more supermarket
branches and banking centers. The opening of the supermarket branches is part
of the Company's ongoing effort to provide higher-convenience, lower-cost
service to its customers. These branches are a more efficient delivery
channel for a full line of retail banking services.
Gains and losses on sales of loans for the first half of 1995 included a first
quarter $83 million write-down to the lower of cost or estimated market
resulting from the reclassification of certain types of products within the real
estate 1-4 family first mortgage loan portfolio to mortgage loans held for sale.
(See Line of Business Results - Mortgage Lending section for further
information.)
Noninterest income from fee-based products and mutual fund management fees
is expected to continue to be higher in 1995 than 1994.
19
<PAGE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
=================================================================================================================
Quarter Six months
ended June 30, % ended June 30, %
------------- ----------------
(in millions) 1995 1994 Change 1995 1994 Change
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $177 $165 7 % $349 $328 6 %
Incentive compensation 33 34 (3) 60 62 (3)
Employee benefits 48 49 (2) 101 103 (2)
Net occupancy 53 53 -- 106 108 (2)
Equipment 45 41 10 92 80 15
Contract services 38 25 52 64 44 45
Federal deposit insurance 24 25 (4) 47 51 (8)
Advertising and promotion 17 18 (6) 31 33 (6)
Certain identifiable intangibles 14 16 (13) 28 32 (13)
Telecommunications 15 12 25 28 23 22
Operating losses 11 11 -- 27 25 8
Postage 14 11 27 26 22 18
Outside professional services 11 10 10 20 19 5
Stationery and supplies 9 8 13 18 15 20
Goodwill 9 9 -- 17 18 (6)
Travel and entertainment 10 8 25 17 15 13
Check printing 6 7 (14) 12 15 (20)
Security 5 5 -- 10 10 --
Escrow and collection agency fees 4 5 (20) 8 10 (20)
Outside data processing 3 2 50 5 5 --
Foreclosed assets 2 -- -- (2) 6 --
All other 12 12 -- 32 25 28
---- ---- ------ ------ ----
Total $560 $526 6% $1,096 $1,049 4 %
==== ==== ==== ====== ====== ====
=================================================================================================================
</TABLE>
The increases in salaries expense in the second quarter and first half of 1995
compared with the same periods of 1994 was partly attributable to increased
temporary help expense and higher salary levels. The Company's full-time
equivalent staff, including hourly employees, averaged approximately 19,403 in
the second quarter of 1995, compared with approximately 19,532 in the second
quarter of 1994.
Increases in equipment expense in the second quarter and first half of 1995
compared with the same periods in 1994 were related to a higher level of
spending on software and technology for product development as well as system
upgrades throughout the Company.
The majority of the increase in contract services in the second quarter and
first half of 1995 compared with the same periods of 1994 was related to new
product development and marketing initiatives.
Federal deposit insurance expense remained relatively flat in the second
quarter of 1995 compared with the same period of 1994. The FDIC Board of
Directors voted on August 8, 1995 to significantly reduce the deposit
insurance premiums paid by most banks. Under the new rate structure, the
best-rated institutions insured by the Bank Insurance Fund (BIF) will pay
four cents per $100 of domestic deposits, down from the current rate of 23
cents per $100. The new assessment rates will apply from the first day of
the month after the BIF is recapitalized. The latest FDIC projections
indicate that the BIF was recapitalized during the second quarter of 1995,
20
<PAGE>
although this cannot be confirmed until early September. Using this
assumption, BIF members that have overpaid their assessments based on the new
rate schedule will receive a refund with interest.
Excluding FDIC expense, the Company expects total noninterest expense to
continue to be higher in 1995 compared with 1994, reflecting expenditures on
new business initiatives.
INCOME TAXES
The Company's effective tax rate was 43% and 40% for the second quarter and
first half of 1995, respectively. The effective tax rate was 44% for the same
periods of 1994. The decrease in the effective tax rate for the first half of
1995 was due to a $22 million reduction of income tax expense during the first
quarter of 1995 related to the settlement with the Internal Revenue Service of
certain audit issues pertaining to auto leases for the years 1987 through 1992.
BALANCE SHEET ANALYSIS
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
==============================================================================================================================
JUNE 30, December 31, June 30,
1995 1994 1994
----------------- ------------------- ---------------------
ESTIMATED Estimated Estimated
FAIR fair fair
(in millions) COST VALUE Cost value Cost value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
AT COST:
U.S. Treasury securities $1,372 $1,361 $1,772 $1,720 $ 2,684 $ 2,646
Securities of U.S. government
agencies and corporations (1) 4,902 4,870 5,394 5,101 6,053 5,886
Private collateralized mortgage obligations (2) 1,236 1,217 1,306 1,221 1,388 1,330
Other 152 154 147 143 136 134
------ ------ ------ ------ ------- -------
Total debt securities $7,662 $7,602 $8,619 $8,185 $10,261 $ 9,996
====== ====== ====== ====== ======= =======
AVAILABLE-FOR-SALE SECURITIES
AT FAIR VALUE:
U.S. Treasury securities $423 $ 431 $ 372 $ 362 $ 197 $ 197
Securities of U.S. government
agencies and corporations (1) 1,036 1,008 1,476 1,380 1,611 1,552
Private collateralized mortgage obligations (2) 990 972 1,290 1,178 1,328 1,252
Other 25 34 24 38 24 37
------ ------ ------ ------ ------- -------
Total debt securities 2,474 2,445 3,162 2,958 3,160 3,038
Marketable equity securities 16 28 16 31 16 29
------ ------ ------ ------ ------- -------
Total $2,490 $2,473 $3,178 $2,989 $ 3,176 $ 3,067
====== ====== ====== ====== ======= =======
====================================================================================================================================
<FN>
(1) All securities of U.S. government agencies and corporations are mortgage-backed securities.
(2) Substantially all private collateralized mortgage obligations (CMOs) are AAA rated bonds collateralized by 1-4 family
residential first mortgages.
</TABLE>
21
<PAGE>
At June 30, 1995, the held-to-maturity securities portfolio had an estimated
unrealized net loss of $60 million (estimated unrealized gross gains were
$26 million), or 1% of the cost of the portfolio. At December 31, 1994, the
held-to-maturity portfolio had an estimated unrealized net loss of $434 million
(estimated unrealized gross gains were zero), or 5% of the cost of the
portfolio. At June 30, 1994, the held-to-maturity securities portfolio had an
estimated unrealized net loss of $265 million (which reflected estimated
unrealized gross gains of $10 million), or 3% of the cost of the portfolio.
The available-for-sale portfolio includes both debt and marketable equity
securities. At June 30, 1995, the available-for-sale securities portfolio had
an unrealized net loss of $17 million, comprised of unrealized gross losses of
$55 million and unrealized gross gains of $38 million. At
December 31, 1994, the available-for-sale securities portfolio had an
unrealized net loss of $189 million, comprised of unrealized gross losses of
$221 million and unrealized gross gains of $32 million. At June 30, 1994,
the available-for-sale securities portfolio had an unrealized net loss of
$109 million, comprised of unrealized gross losses of $143 million and
unrealized gross gains of $34 million. The unrealized net gain or loss on
available-for-sale securities is reported on an after-tax basis as a separate
component of stockholders' equity. At June 30, 1995, the unrealized net
after-tax loss amounted to $9 million, compared with unrealized net after-tax
losses of $110 million and $63 million at December 31, 1994 and June 30,
1994, respectively.
The unrealized net loss in both the held-to-maturity and available-for-sale
portfolios was predominantly due to investments in mortgage-backed
securities. These unrealized net losses reflect current interest rates that are
higher than those at the time the securities were purchased. The decline in the
fair value of the investment securities portfolio is not considered to be an
other-than-temporary impairment. For the held-to-maturity securities, the full
amount of principal and interest is expected to be collected. The Company may
decide to sell certain of the available-for-sale securities to manage the level
of earning assets (for example, to offset loan growth that may exceed expected
maturities and prepayments of securities), which may result in the recognition
of losses.
During the first half of 1995, realized losses on the sale of investment
securities totaled $15 million. These losses resulted from the sale of $397
million of securities of U.S. government agencies and corporations, $288 million
of private collateralized mortgage obligations and $2 million of marketable
equity securities from the available-for-sale portfolio for asset/liability
purposes.
During the first half of 1994, realized gains and losses resulting from the sale
of available-for-sale securities were $8 million and $1 million, respectively.
Of the $8 million, $5 million resulted from the sale of corporate debt
securities and $3 million resulted from the sale of marketable equity
securities. The $1 million realized gross loss resulted from a write-down due
to other-than-temporary impairment in the fair value of certain debt securities.
Investment securities are expected to continue to decrease in the future as the
cash received from their maturities is used to fund loan growth.
22
<PAGE>
The following table provides the expected remaining maturities and yields
(taxable-equivalent basis) of debt securities within the investment portfolio.
<TABLE>
<CAPTION>
========================================================================================================
June 30, 1995
------------------------------------------------------------------
Expected remaining principal maturity
------------------------------------------------------------------
Weighted
average
expected
Weighted remaining One year or less
Total average maturity --------------------
(in millions) amount yield (in yrs.-mos.) Amount Yield
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES:
U.S. Treasury securities $ 1,372 4.82% 1-1 $ 798 4.59%
Securities of U.S. government
agencies and corporations 4,902 6.16 2-10 1,284 5.76
Private collateralized mortgage
obligations 1,236 6.12 2-3 242 5.90
Other 152 6.79 1-11 39 5.61
------- ------
Total cost $ 7,662 5.93% 2-5 $2,363 5.38%
======= ==== ====== ====
Estimated fair value $ 7,602 $2,350
======= ======
AVAILABLE-FOR-SALE SECURITIES (1):
U.S. Treasury securities $423 6.68% 2-5 $ -- --%
Securities of U.S. government
agencies and corporations 1,036 5.43 2-6 26 5.20
Private collateralized mortgage
obligations 990 6.44 4-1 68 6.10
Other 25 22.40 5-5 -- --
------- ------
Total cost $ 2,474 6.22% 3-2 $ 94 5.85%
======= ===== ====== ====
Estimated fair value $ 2,445 $ 92
======= ======
TOTAL COST OF DEBT SECURITIES $10,136 6.00% 2-7 $2,457 5.39%
======= ===== ==== ====== ====
<CAPTION>
After one year After five years
through five years through ten years After ten years
-------------------- -------------------- --------------------
(in millions) Amount Yield Amount Yield Amount Yield
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES:
U.S. Treasury securities $ 574 5.14% $ -- --% $ -- --%
Securities of U.S. government
agencies and corporations 2,754 6.03 724 7.14 140 7.43
Private collateralized mortgage
obligations 960 6.17 34 6.20 -- --
Other 111 7.22 -- -- 2 6.37
------ ----
Total cost $4,399 5.97% $ 758 7.10% $142 7.42%
====== ==== ====== ===== ==== =====
Estimated fair value $4,356 $ 755 $141
====== ====== ====
AVAILABLE-FOR-SALE SECURITIES (1):
U.S. Treasury securities $ 423 6.68% $ -- --% $ -- --%
Securities of U.S. government
agencies and corporations 998 5.43 12 5.84 -- --
Private collateralized mortgage
obligations 642 6.25 270 6.41 10 21.59
Other -- -- 25 22.40 -- --
------ ------ ----
Total cost $2,063 5.94% $ 307 7.69% $ 10 21.59%
====== ==== ====== ==== ==== =====
Estimated fair value $2,032 $ 310 $ 11
====== ====== ====
TOTAL COST OF DEBT SECURITIES $6,462 5.96% $1,065 7.27% $152 8.35%
====== ==== ====== ===== ==== =====
=======================================================================================================================
<FN>
(1) The weighted average yield is computed using the amortized cost of available-for-sale investment securities
carried at fair value.
</TABLE>
The weighted average expected remaining maturity of the debt securities
portfolio was 2 years and 7 months at June 30, 1995, compared with 2 years and
10 months at March 31, 1995 and December 31, 1994. The short-term debt
securities portfolio serves to maintain asset liquidity and to fund loan growth.
23
<PAGE>
LOAN PORTFOLIO
<TABLE>
<CAPTION>
===================================================================================================================
% Change
June 30, 1995 from
--------------------
JUNE 30, Dec. 31, June 30, Dec. 31, June 30,
(in millions) 1995 1994 1994 1994 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial (1)(2) $ 8,872 $ 8,162 $ 7,184 9 % 23 %
Real estate 1-4 family first mortgage (3) 5,051 9,050 8,681 (44) (42)
Other real estate mortgage (4) 7,973 8,079 7,965 (1) --
Real estate construction 1,110 1,013 985 10 13
Consumer:
Real estate 1-4 family junior lien mortgage 3,373 3,332 3,355 1 1
Credit card 3,628 3,125 2,706 16 34
Other revolving credit and monthly payment 2,409 2,229 1,998 8 21
------- ------- -------
Total consumer 9,410 8,686 8,059 8 17
Lease financing 1,451 1,330 1,267 9 15
Foreign 29 27 31 7 (6)
------- ------- -------
Total loans (net of unearned income,
including net deferred loan fees,
of $407, $361 and $337) $33,896 $36,347 $34,172 (7)% (1)%
======= ======= ======= ===== =====
====================================================================================================================
<FN>
(1) Includes loans to real estate developers of $467 million, $525 million and $415 million at June 30, 1995,
December 31, 1994 and June 30, 1994, respectively.
(2) Includes agricultural loans (loans to finance agricultural production and other loans to farmers) of $838
million, $822 million and $673 million at June 30, 1995, December 31, 1994 and June 30, 1994, respectively.
(3) Excludes mortgage loans held for sale at June 30, 1995 of $1,336 million, net of an estimated $50 million
write-down to the lower of cost or estimated market.
(4) Includes agricultural loans that are secured by real estate of $258 million, $256 million and $236 million at
June 30, 1995, December 31, 1994 and June 30, 1994, respectively.
</TABLE>
The commercial loan portfolio grew by $710 million in the first six months of
1995. This increase predominantly reflects growth in middle market and small
business loans resulting from ongoing marketing efforts. This growth is
expected to continue for the remainder of 1995.
The increase in the credit card loan portfolio during the first half of 1995 was
due to new accounts resulting from nationwide direct mail campaigns as well as
increased loan balances from the Company's existing cardholders.
In addition to originating new commercial real estate loans, the Company has
also purchased loans at a discount from other financial institutions totaling
$41 million, including $14 million that was classified as nonaccrual on the date
of purchase, in the first six months of 1995. The Company expects to collect
the full purchase price of these loans.
24
<PAGE>
The table below presents comparative period-end commercial real estate loans.
<TABLE>
<CAPTION>
==========================================================================================================
% Change
June 30, 1995 from
--------------------
JUNE 30, Dec. 31, June 30, Dec. 31, June 30,
(in millions) 1995 1994 1994 1994 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans to
real estate developers (1) $ 467 $ 525 $ 415 (11)% 13 %
Other real estate mortgage 7,973 8,079 7,965 (1) --
Real estate construction 1,110 1,013 985 10 13
------ ------ ------
Total $9,550 $9,617 $9,365 (1)% 2 %
====== ====== ====== === ===
Nonaccrual loans $ 458 $ 416 $ 523 10 % (12)%
====== ====== ====== === ===
Nonaccrual loans as a % of total 4.8 % 4.3 % 5.6 %
====== ====== ======
==========================================================================================================
<FN>
(1) Included in commercial loans.
</TABLE>
<TABLE>
<CAPTION>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
=============================================================================================================
JUNE 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions) 1995 1995 1994 1994 1994
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial (1)(2) $121 $ 79 $ 88 $109 $ 121
Real estate 1-4 family first mortgage 64 71 81 76 88
Other real estate mortgage (3) 373 324 328 334 410
Real estate construction 58 77 58 101 72
Consumer:
Real estate 1-4 family junior lien mortgage 12 12 11 14 19
Other revolving credit and monthly payment 3 3 1 3 2
---- ---- ---- ---- ------
Total nonaccrual loans (4) 631 566 567 637 712
Restructured loans 13 15 15 4 5
---- ---- ---- ---- ------
Nonaccrual and restructured loans 644 581 582 641 717
As a percentage of total loans (5) 1.9% 1.8% 1.6% 1.8% 2.1%
Foreclosed assets (6) 224 273 272 306 344
Real estate investments (7) 14 17 17 12 11
---- ---- ---- ---- ------
Total nonaccrual and restructured loans
and other assets $882 $871 $871 $959 $1,072
==== ==== ==== ==== ======
=============================================================================================================
<FN>
(1) Includes loans to real estate developers of $27 million, $28 million, $30 million, $38 million and $41
million at June 30, 1995, March 31, 1995, December 31, 1994, September 30, 1994 and June 30, 1994,
respectively.
(2) Includes agricultural loans of $2 million or less for all periods presented.
(3) Includes agricultural loans secured by real estate of $1 million or less for all periods presented.
(4) Of the total nonaccrual loans at June 30, 1995 and March 31, 1995. $516 million and $442 million,
respectively, were considered impaired under FAS 114 (Accounting by Creditors for Impairment of a
Loan). There were no other impaired loans at those dates.
(5) Total loans exclude mortgage loans held for sale at June 30, 1995 and March 31, 1995.
(6) Includes agricultural properties of approximately $25 million for all periods presented.
(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 $75 million, $64 million, $54 million, $26 million and $28 million at June 30, 1995,
March 31, 1995, December 31, 1994, September 30, 1994 and June 30, 1994, respectively.
</TABLE>
25
<PAGE>
As indicated in earlier periods, the overall credit quality of the loan
portfolio has improved since 1992, however, the total nonaccrual balance could
fluctuate from quarter to quarter. The $65 million, or 11%, increase in the
total nonaccrual balance at June 30, 1995 from March 31, 1995 was largely due to
an increase of $48 million in new commercial loans placed on nonaccrual in the
second quarter of 1995 compared with the first quarter. The Company anticipates
normal influxes of nonaccrual loans as it further increases its lending activity
as well as resolutions of loans in the nonaccrual portfolio. The performance of
any individual loan can be impacted by external factors such as the interest
rate environment or factors particular to a borrower such as actions taken by a
borrower's management. In addition, from time to time, the Company purchases
loans from other financial institutions that may be classified as nonaccrual
based on its policies.
26
<PAGE>
The table below summarizes the quarterly trend of the changes in
total nonaccrual loans.
<TABLE>
<CAPTION>
=====================================================================================================================
JUNE 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions) 1995 1995 1994 1994 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $566 $567 $637 $712 $895
New loans placed on nonaccrual 173 127 71 93 124
Loans purchased 1 13 25 -- 9
Charge-offs (18) (28) (25) (38) (27)
Payments (49) (55) (61) (71) (91)
Transfers to foreclosed assets (19) (36) (18) (14) (27)
Loans returned to accrual (23) (24) (62) (45) (172)
Other additions -- 2 -- -- 1
---- ---- ---- ---- ----
BALANCE, END OF QUARTER $631 $566 $567 $637 $712
==== ==== ==== ==== ====
=====================================================================================================================
</TABLE>
The table below summarizes the changes in nonaccrual loans by loan category for
the quarters ended June 30, 1995 and March 31, 1995.
<TABLE>
<CAPTION>
=====================================================================================================================
Real estate
1-4 family Other real
first estate Real estate
(in millions) Commercial mortgage mortgage construction Consumer Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED JUNE 30, 1995
BALANCE, BEGINNING OF QUARTER $ 79 $ 71 $324 $ 77 $15 $566
New loans placed on nonaccrual (1) (2) 61 24 83 1 4 173
Loans purchased -- -- 1 -- -- 1
Charge-offs (6) -- (11) (1) -- (18)
Payments:
Principal (8) (4) (8) (17) (2) (39)
Interest applied to principal (2) -- (6) (2) -- (10)
Transfers to foreclosed assets -- (15) (3) -- (1) (19)
Loans returned to accrual (3) (12) (7) -- (1) (23)
---- ---- ---- ---- --- ----
BALANCE, END OF QUARTER $121 $ 64 $373 $ 58 $15 $631
==== ==== ==== ==== === ====
QUARTER ENDED MARCH 31, 1995
Balance, beginning of quarter $ 88 $ 81 $328 $ 58 $12 $567
New loans placed on nonaccrual (2) 13 27 60 24 3 127
Loans purchased -- -- 13 -- -- 13
Charge-offs (3) (1) (22) (2) -- (28)
Payments:
Principal (16) (8) (18) (1) (1) (44)
Interest applied to principal (3) -- (7) (1) -- (11)
Transfers to foreclosed assets -- (11) (24) -- (1) (36)
Loans returned to accrual -- (17) (6) -- (1) (24)
Other additions (deductions) -- -- -- (1) 3 2
---- ---- ---- ---- --- ----
Balance, end of quarter $ 79 $ 71 $324 $ 77 $15 $566
==== ==== ==== ==== === ====
=====================================================================================================================
<FN>
(1) No commercial loan placed on nonaccrual status during the second quarter of 1995 exceeded $26 million. Most of
these loans are located in Central and Southern California.
(2) No other real estate mortgage loan placed on nonaccrual status in the first and second quarters of 1995 exceeded
$15 million. The majority of these loans are located in Southern California.
</TABLE>
27
<PAGE>
The table below summarizes the quarterly trend of the changes in foreclosed
assets.
<TABLE>
<CAPTION>
=======================================================================================================
JUNE 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions) 1995 1995 1994 1994 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $273 $272 $306 $344 $354
Additions 19 42 19 30 63
Sales (62) (29) (37) (64) (63)
Charge-offs (2) (2) (11) (1) (3)
Write-downs (1) (3) (2) (2) (3)
Other deductions (3) (7) (3) (1) (4)
---- ---- ---- ---- ----
BALANCE, END OF QUARTER $224 $273 $272 $306 $344
==== ==== ==== ==== ====
=======================================================================================================
</TABLE>
Approximately 56% of the foreclosed assets at June 30, 1995 have been in the
Company's portfolio less than two years.
Nonaccrual Loans by Performance Category
----------------------------------------
At June 30, 1995, an estimated $299 million, or 47%, of nonaccrual loans were
either current or less than 90 days past due, compared with an estimated
$262 million, or 46%, at March 31, 1995.
For all loans on nonaccrual during the second and first quarters of 1995
(including loans no longer on nonaccrual at June 30, 1995 and March 31, 1995),
cash interest payments of $16 million and $14 million, respectively, were
received while the loans were on nonaccrual status. Of the $16 million received
in the second quarter of 1995, $6 million was recognized as interest income and
$10 million was applied to principal. Of the $14 million received in the fourth
quarter of 1994, $5 million was recognized as interest income and $9 million was
applied to principal. The average nonaccrual book principal loan balances (net
of charge-offs and interest applied to principal) were $592 million and
$554 million for the quarters ended June 30, 1995 and March 31, 1995,
respectively.
The table on the following page presents the estimated amount of nonaccrual
loans that were contractually past due and those that were contractually current
at the end of the second and first quarters of 1995. 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. Both book
and contractual principal balances are presented in the table, the difference
reflecting charge-offs and interest applied to principal. The ratio of book to
contractual principal balance
28
<PAGE>
was 68% at June 30, 1995, compared with 69% at March 31, 1995.
<TABLE>
<CAPTION>
====================================================================================================
Cumulative
cash
Book interest Contractual
principal Cumulative applied to principal
(in millions) balance charge-offs(5) principal(5) balance
----------------------------------------------------------------------------------------------------
JUNE 30, 1995
=====================================================================
<S> <C> <C> <C> <C>
Contractually past due (1):
Payments not made (2):
90 days or more past due $117 $ 3 $ -- $120
Less than 90 days past due 1 -- -- 1
---- ---- ---- ----
118 3 -- 121
---- ---- ---- ----
Payments made (3):
90 days or more past due 215 62 33 310
Less than 90 days past due 83 58 22 163
---- ---- ---- ----
298 120 55 473
---- ---- ---- ----
Total past due 416 123 55 594
Contractually current (4) 215 67 51 333
---- ---- ---- ----
Total nonaccrual loans $631 $190 $106 $927
==== ==== ==== ====
<CAPTION>
----------------------------------------------------------------------------------------------------
March 31, 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contractually past due (1):
Payments not made (2):
90 days or more past due $152 $ 3 $ -- $155
Less than 90 days past due 15 -- -- 15
---- ---- ---- ----
167 3 -- 170
---- ---- ---- ----
Payments made (3):
90 days or more past due 152 53 27 232
Less than 90 days past due 80 12 13 105
---- ---- ---- ----
232 65 40 337
---- ---- ---- ----
Total past due 399 68 40 507
Contractually current (4) 167 100 52 319
---- ---- ---- ----
Total nonaccrual loans $566 $168 $ 92 $826
==== ==== ==== ====
====================================================================================================
<FN>
(1) Past due is defined as a borrower whose loan principal or interest payment is 30 days or more
past due.
(2) Borrower has made no payments since being placed on nonaccrual.
(3) Borrower has made some payments since being placed on nonaccrual. Approximately $259 million
and $194 million of these loans had some payments made on them during the second and first
quarters of 1995, respectively.
(4) Current is defined as a loan for which principal and interest are being paid in accordance with
the terms of the loan or is less than 30 days past due. All of the contractually current loans
were placed on nonaccrual due to uncertainty of receiving full timely collection of interest or
principal.
(5) Cumulative amounts recorded since inception of the loan.
</TABLE>
29
<PAGE>
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
The following table 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 real estate 1-4 family first mortgage loans or consumer
loans that are exempt under regulatory rules from being classified as nonaccrual
because they are automatically charged off after being past due for a prescribed
period. Notwithstanding, real estate 1-4 family loans (first liens and junior
liens) are placed on nonaccrual within 150 days of becoming past due.
<TABLE>
<CAPTION>
====================================================================================================================
JUNE 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions) 1995 1995 1994 1994 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 1 $ 9 $ 6 $ 7 $ 7
Real estate 1-4 family first mortgage 8 14 18 19 25
Other real estate mortgage 66 58 47 45 53
Real estate construction -- 1 -- 1 4
Consumer:
Real estate 1-4 family junior lien mortgage 5 4 4 5 7
Credit card 54 46 42 31 33
Other revolving credit and monthly payment 1 -- 1 5 2
---- ---- ---- ---- ----
Total consumer 60 50 47 41 42
---- ---- ---- ---- ----
Total $135 $132 $118 $113 $131
==== ==== ==== ==== ====
===================================================================================================================
</TABLE>
30
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
=======================================================================================================================
Quarter ended Six months ended
------------------------------------ ---------------------------------
JUNE 30, March 31, June 30, JUNE 30, June 30,
(in millions) 1995 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $2,017 $2,082 $2,121 $2,082 $2,122
Provision for loan losses -- -- 60 -- 120
Loan charge-offs:
Commercial (1) (10) (7) (5) (17) (30)
Real estate 1-4 family first mortgage (3) (3) (6) (6) (11)
Other real estate mortgage (12) (22) (22) (34) (35)
Real estate construction (1) (2) (1) (4) (5)
Consumer:
Real estate 1-4 family junior lien mortgage (4) (3) (7) (7) (15)
Credit card (46) (38) (35) (83) (75)
Other revolving credit and monthly payment (13) (10) (10) (23) (18)
------ ------ ------ ------ ------
Total consumer (63) (51) (52) (113) (108)
Lease financing (3) (4) (4) (7) (8)
------ ------ ------ ------ ------
Total loan charge-offs (92) (89) (90) (181) (197)
------ ------ ------ ------ ------
Loan recoveries:
Commercial (2) 6 9 12 14 20
Real estate 1-4 family first mortgage 1 1 1 2 4
Other real estate mortgage 7 6 2 13 12
Real estate construction -- -- 2 1 7
Consumer:
Real estate 1-4 family junior lien mortgage 1 1 1 2 2
Credit card 3 3 7 6 12
Other revolving credit and monthly payment 3 2 2 5 5
------ ------ ------ ------ ------
Total consumer 7 6 10 13 19
Lease financing 1 2 2 3 13
------ ------ ------ ------ ------
Total loan recoveries 22 24 29 46 75
------ ------ ------ ------ ------
Total net loan charge-offs (70) (65) (61) (135) (122)
------ ------ ------ ------ ------
BALANCE, END OF QUARTER $1,947 $2,017 $2,120 $1,947 $2,120
====== ====== ====== ====== ======
Total net loan charge-offs as a percentage
of average loans (annualized) .84% .72% .73% .78% .74%
====== ====== ====== ====== ======
Allowance as a percentage of total loans (3) 5.74% 6.16% 6.20% 5.74% 6.20%
====== ====== ====== ====== ======
=======================================================================================================================
<FN>
(1) There were no charge-offs of commercial loans to real estate developers for any of the periods presented, except
for $10 million in the six months ended June 30, 1994.
(2) There were no recoveries from commercial loans to real estate developers for any of the periods presented, except
for $1 million in the quarter and six months ended June 30, 1995.
(3) Total loans exclude mortgage loans held for sale at June 30, 1995 and March 31, 1995.
</TABLE>
31
<PAGE>
The table below presents net charge-offs by loan category.
<TABLE>
<CAPTION>
=================================================================================================================================
Quarter ended
-------------------------------------------------------------------------------
JUNE 30, 1995 March 31, 1995 June 30, 1994
------------------- ------------------- ---------------------
% OF % of % of
AVERAGE average average
(in millions) AMOUNT LOANS(1) Amount loans(1) Amount loans(1)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 4 .22 % $ (2) (.12)% $ (7) (.41) %
Real estate 1-4 family first mortgage 2 .14 2 .10 5 .24
Other real estate mortgage 5 .24 16 .82 20 1.00
Real estate construction 1 .33 2 .90 (1) (.57)
Consumer:
Real estate 1-4 family junior lien mortgage 3 .42 2 .26 6 .71
Credit card 43 4.95 35 4.52 28 4.49
Other revolving credit and monthly payment 10 1.65 8 1.40 8 1.39
---- ---- ----
Total consumer 56 2.44 45 2.08 42 2.11
Lease financing 2 .60 2 .43 2 .68
---- ---- ----
Total net loan charge-offs $ 70 .84 % $ 65 .72 % $ 61 .73 %
==== ==== ==== ==== ==== ====
=================================================================================================================================
<FN>
(1) Calculated on an annualized basis.
</TABLE>
Net charge-offs in the second half of 1995 are expected to increase modestly
over the first half levels, reflecting growth in the loan portfolio.
The largest category of net charge-offs in the first two quarters of 1995 was
credit card loans, comprising more than 50% of total net charge-offs in each
period. The total amount of credit card charge-offs and the percentage of net
charge-offs to average credit card loans is expected to continue to increase in
1995, reflecting a 34% increase in the portfolio since the second quarter of
1994.
The Company considers the allowance for loan losses of $1,947 million adequate
to cover losses inherent in loans, loan commitments and standby letters of
credit at June 30, 1995. 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) economic
conditions, loan portfolio composition, prior loan loss experience and the
Company's ongoing examination process and that of its regulators. There was no
provision for loan losses in the first half of 1995, compared with $120 million
in the same period a year ago. Assuming the economic recovery in California
continues and there is no material adverse change in the Company's credit
quality, there is likely to be no provision for the remainder of 1995.
32
<PAGE>
OTHER ASSETS
<TABLE>
<CAPTION>
==============================================================================
JUNE 30, December 31, June 30,
(in millions) 1995 1994 1994
------------------------------------------------------------------------------
<S> <C> <C> <C>
Net deferred tax asset (1) $ 972 $ 998 $ 942
Nonmarketable equity investments 412 407 399
Certain identifiable intangible assets 431 388 361
Foreclosed assets 224 272 344
Other 616 495 423
------ ------ ------
Total other assets $2,655 $2,560 $2,469
====== ====== ======
==============================================================================
<FN>
(1) Net of a valuation allowance of $2 million for all periods presented.
</TABLE>
The Company estimates that approximately $829 million of the $972 million net
deferred tax asset at June 30, 1995 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 $143 million relates to approximately
$1.9 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
$1.1 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.
Certain identifiable intangible assets include purchased mortgage servicing
rights of $169 million, $96 million and $38 million at June 30, 1995,
December 31, 1994 and June 30, 1994, respectively. The identifiable intangible
assets are generally amortized using an accelerated method, which is based on
estimated useful lives ranging from 5 to 15 years. Amortization expense was
$26 million, $18 million and $19 million for the quarters ended June 30, 1995,
December 31, 1994 and June 30, 1994, respectively.
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121 (FAS 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
In May 1995, the FASB issued FAS 122, Accounting for Mortgage Servicing Rights.
This Statement amends FAS 65, Accounting for Certain Mortgage Banking
Activities, to require that, for mortgage loans originated for sale, rights to
service those loans be recognized as separate assets, similar to purchased
mortgage servicing rights. This Statement also requires that mortgage servicing
rights be assessed for impairment based on the fair value of those rights.
33
<PAGE>
These Statements are effective January 1, 1996; earlier implementation is
encouraged. The Company has not yet determined when it will implement these
Statements; however, it is expected that, upon adoption, the Statements will
not have a material effect on its financial statements.
DEPOSITS
<TABLE>
<CAPTION>
==============================================================================
JUNE 30, December 31, June 30,
(in millions) 1995 1994 1994
------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $ 9,600 $10,145 $ 9,475
Interest-bearing checking 4,108 4,518 4,498
Market rate and other savings 15,083 16,713 19,240
Savings certificates 8,235 7,132 7,036
------- ------- -------
Core deposits 37,026 38,508 40,249
Other time deposits 244 284 300
Deposits in foreign offices (1) 1,514 3,540 656
------- ------- -------
Total deposits $38,784 $42,332 $41,205
======= ======= =======
===============================================================================
<FN>
(1) Short-term (under 90 days) interest-bearing deposits used to fund
short-term borrowing needs.
</TABLE>
CAPITAL ADEQUACY/RATIOS
Risk-based capital (RBC) guidelines issued by the Federal Reserve Board (FRB)
establish a risk-adjusted ratio relating capital to different categories of
assets and off-balance sheet exposures. The Company's Tier 1 and Tier 2 capital
components are presented on the following page. The guidelines require a
minimum total RBC ratio of 8%, with at least half of the total capital in the
form of Tier 1 capital. To supplement the RBC guidelines, the FRB established a
minimum leverage ratio guideline of 3% of Tier 1 capital to average total
assets.
The decrease in the Company's RBC and leverage ratios at June 30, 1995 compared
with December 31, 1994 resulted primarily from the repurchases of 2.1 million
shares of common stock in the first quarter of 1995 and 1.2 million shares of
common stock in the second quarter of 1995.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a "well
capitalized" bank must have a Tier 1 RBC ratio of at least 6%, a combined Tier 1
and Tier 2 ratio of at least 10% and a leverage ratio of at least 5%. At June
30, 1995, the Bank had a Tier 1 RBC ratio of 9.41%, a combined Tier 1 and
Tier 2 ratio of 12.45% and a leverage ratio of 7.29%.
34
<PAGE>
The table below presents the Company's risk-based capital and leverage ratios.
<TABLE>
<CAPTION>
=========================================================================================================
JUNE 30, December 31, June 30,
(in billions) 1995 1994 1994
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1:
Common stockholders' equity $ 3.4 $ 3.4 $ 3.6
Preferred stock .5 .5 .5
Less goodwill and other deductions (1) (.5) (.3) (.4)
------ ------ ------
Total Tier 1 capital 3.4 3.6 3.7
------ ------ ------
Tier 2:
Mandatory convertible debt .1 .1 .1
Subordinated debt and unsecured senior debt 1.0 1.0 1.1
Allowance for loan losses allowable in Tier 2 .5 .5 .5
------ ------ ------
Total Tier 2 capital 1.6 1.6 1.7
------ ------ ------
Total risk-based capital $ 5.0 $ 5.2 $ 5.4
====== ====== ======
Risk-weighted balance sheet assets $ 38.2 $ 38.3 $ 36.6
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans 2.4 1.9 1.6
Standby letters of credit .6 .6 .6
Other .4 .3 .1
------ ------ ------
Total risk-weighted off-balance sheet items 3.4 2.8 2.3
------ ------ ------
Goodwill and other deductions (1) (.5) (.3) (.4)
Allowance for loan losses not included in Tier 2 (1.4) (1.6) (1.6)
------ ------ ------
Total risk-weighted assets $ 39.7 $ 39.2 $ 36.9
====== ====== ======
Risk-based capital ratios:
Tier 1 capital (4% minimum requirement) 8.60% 9.09% 10.06%
Total capital (8% minimum requirement) 12.48 13.16 14.56
Leverage ratio (3% minimum requirement) (2) 6.69% 6.89% 7.20%
=========================================================================================================
<FN>
(1) Other deductions include the unrealized net loss on available-for-sale investment securities carried
at fair value.
(2) Tier 1 capital divided by quarterly average total assets (excluding goodwill and other items which
were deducted to arrive at Tier 1 capital).
</TABLE>
35
<PAGE>
ASSET/LIABILITY MANAGEMENT
As is typical in the banking industry, most of the Company's assets and
liabilities are sensitive to fluctuation in interest rates. Accordingly, an
essential objective of asset/liability management is to control interest rate
risk.
Interest rate risk occurs when assets and liabilities reprice at different times
as interest rates change. For example, if fixed-rate assets are funded with
floating-rate debt, the spread between the two will decline or turn negative if
rates increase. The Company refers to this type of risk as "term structure
risk." Another source of interest rate risk, "basis risk," results from
changing spreads between loan and deposit rates. More difficult to quantify and
manage, this type of risk is not highly correlated to changes in the level of
interest rates, and is driven by other market conditions.
The Company employs various asset/liability strategies, including the use of
interest rate derivative products, to ensure that exposure to interest rate
fluctuations is limited within Company guidelines of acceptable levels of risk-
taking. The Company uses interest rate derivatives as an asset/liability
management tool to hedge mismatches in interest rate maturities. For example,
futures are used to shorten the rate maturity of market rate savings to better
match the maturity of prime-based loans.
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. Generally, a liability sensitive gap indicates that there would be a
net negative impact on the net interest margin from an increasing rate
environment. At June 30, 1995, the under-one-year cumulative gap was a
$293 million (.6% of total assets) net liability position, compared with net
liability positions of $762 million (1.5% of total assets) at March 31, 1995 and
$520 million (1.0% of total assets) at December 31, 1994. The decrease in the
net liability position at June 30, 1995 compared with March 31, 1995 was largely
due to an increase in total loans and a decrease in federal funds purchased and
securities sold under repurchase agreements, significantly offset by an increase
in savings certificates.
Two adjustments to the cumulative gap provide comparability with those bank
holding companies that present interest rate sensitivity in an alternative
manner. However, management does not believe that these adjustments depict its
interest rate risk. The first adjustment excludes noninterest-earning assets,
noninterest-bearing liabilities and stockholders' equity from the reported
cumulative gap. The second adjustment moves interest-bearing checking, savings
deposits and Wells Extra Savings (included in market rate savings) from the
nonmarket category to the shortest possible maturity category. The second
adjustment reflects the availability of the deposits for immediate withdrawal.
The resulting adjusted under-one-year cumulative gap (net liability position)
was $8.9 billion, $10.0 billion and $10.1 billion at June 30, 1995, March 31,
1995 and December 31, 1994, respectively.
36
<PAGE>
The gap analysis provides a useful framework to measure the term structure risk.
To more fully explore the complex relationships within the gap over time and
interest rate environments, the Company performs simulation modeling to estimate
the potential effects of changing interest rates.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into a variety of financial contracts, which include interest
rate futures and forward contracts, interest rate floors and caps and interest
rate swap agreements. The contract or notional amounts of interest rate
derivatives do not represent amounts exchanged by the parties and therefore are
not a measure of exposure through the use of derivatives. The amounts exchanged
are determined by reference to the notional amounts and the other terms of the
derivatives. The contract or notional amounts do not represent exposure to
liquidity risk. 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 is not a
dealer in these instruments and does not use them speculatively. The Company
also offers contracts to its customers, but hedges such contracts by purchasing
other financial contracts or uses the contracts for asset/liability management.
The Company also enters into foreign exchange positions, such as forward, spot
and option contracts, primarily as customer accommodations.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The Company controls the credit risk
of its financial contracts (except futures contracts and interest rate cap
contracts written, for which credit risk is DE MINIMUS) through credit
approvals, limits and monitoring procedures. Credit risk related to derivative
financial instruments is considered and, if material, provided for separately
from the allowance for loan losses. As the Company generally enters into
transactions only with high quality institutions, losses associated with
counterparty nonperformance on derivative financial instruments have been
immaterial.
37
<PAGE>
The following table summarizes the aggregate notional or contractual amounts,
credit risk amount and net fair value for the Company's derivative financial
instruments at June 30, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
==============================================================================================================================
JUNE 30, 1995 December 31, 1994
----------------------------------------- -------------------------------------------
NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated
CONTRACTUAL RISK FAIR contractual risk fair
(in millions) AMOUNT AMOUNT (3) VALUE amount amount (3) value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT HEDGES
Interest rate contracts:
Futures contracts $ 5,695 $ -- $ -- $ 5,009 $ -- $ --
Forward contracts 418 -- -- 8 -- --
Floors purchased (1) 16,050 192 192 14,355 25 25
Caps purchased (1) 236 4 4 244 6 6
Futures options purchased 454 1 1 -- -- --
Swap contracts (1) 5,156 99 74 3,103 3 (65)
Foreign exchange contracts:
Cross currency swaps (1) 118 98 98 118 76 76
Forward contracts (1) 25 -- -- 25 -- --
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Futures contracts 28 -- -- -- -- --
Floors written 6 -- -- -- -- --
Caps written 1,065 -- (14) 1,039 -- (15)
Floors purchased (1) 6 -- -- -- -- --
Caps purchased (1) 1,095 14 14 1,016 15 15
Swap contracts (1) 176 -- -- 176 1 --
Foreign exchange contracts (2):
Forward and spot contracts (1) 757 9 1 590 7 --
Option contracts purchased 229 7 7 319 -- --
Option contracts written 226 -- (7) 318 -- --
==============================================================================================================================
<FN>
(1) The Company anticipates performance by substantially all of the counterparties for these financial instruments.
(2) The Company has immaterial trading positions in certain of these contracts.
(3) Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance
by counterparties.
</TABLE>
LIQUIDITY MANAGEMENT
Liquidity for the Parent Company and its subsidiaries is generated through
its ability to raise funds in a variety of domestic and international money
and capital markets, dividends from subsidiaries and lines of credit. The
Company filed a shelf registration, effective August 8, 1995, with the
Securities and Exchange Commission that allows for the issuance of up to $2.3
billion of senior or subordinated debt or preferred stock. The proceeds from
the sale of any securities will be used for general corporate purposes.
No securities have been issued under this shelf registration.
38
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4 The Company hereby agrees to furnish upon request to the
Commission a copy of each instrument defining the rights of
holders of securities of the Company.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
99(a) Computation of Ratios of Earnings to Fixed Charges -- the
ratios of earnings to fixed charges, including interest on
deposits, were 2.05 and 2.26 for the quarters ended June
30, 1995 and 1994, respectively, and 2.02 and 2.30 for the
six months ended 1995 and 1994, respectively. The ratios
of earnings to fixed charges, excluding interest on
deposits, were 4.05 and 5.54 for the quarters ended June
30, 1995 and 1994, respectively, and 3.91 and 5.78 for the
six months ended June 30, 1995 and 1994, respectively.
(b) Computation of Ratios of Earnings to Fixed Charges and
Preferred Dividends -- the ratios of earnings to fixed
charges and preferred dividends, including interest on
deposits, were 1.96 and 2.12 for the quarters ended June
30, 1995 and 1994, respectively, and 1.93 and 2.15 for the
six months ended June 30, 1995 and 1994, respectively. The
ratios of earnings to fixed charges and preferred
dividends, excluding interest on deposits were 3.57 and
4.45 for the quarters ended June 30, 1995 and 1994,
respectively, and 3.46 and 4.55 for the six months ended
June 30, 1995 and 1994, respectively.
(b) The Company filed the following reports on Form 8-K during the
second quarter of 1995 and through the date hereof:
(1) April 18, 1995, under Item 5, containing the Press Releases
that announced the Company's financial results for the
quarter ended March 31, 1995, the share repurchase program
and the quarterly common stock dividend
(2) June 22, 1995, under Item 5, containing the Press Release
announcing a signed definitive agreement in which the
Company and Nikko Securities Co., Ltd. will sell their
joint venture interest in Wells Fargo Nikko Investment
Advisors to Barclays PLC of the U.K.
(3) July 18, 1995, under Item 5, containing the Press Release
that announced the Company's financial results for the
quarter ended June 30, 1995
39
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 9, 1995.
WELLS FARGO & COMPANY
By: /S/ FRANK A. MOESLEIN
------------------------------------
Frank A. Moeslein
Executive Vice President and Controller
(Principal Accounting Officer)
40
<PAGE>
EXHIBIT 11
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
===============================================================================================================
Quarter Six months
ended June 30, ended June 30,
--------------------- ---------------------
(in millions) 1995 1994 1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Net income $ 232 $ 206 $ 465 $ 408
Less preferred dividends 10 11 21 23
------ ------ ------ ------
Net income for calculating primary
earnings per common share $ 222 $ 195 $ 444 $ 385
====== ====== ====== ======
Average common shares outstanding 49.1 54.8 49.8 55.2
====== ====== ====== ======
PRIMARY EARNINGS PER COMMON SHARE $ 4.51 $ 3.57 $ 8.92 $ 6.98
====== ====== ====== ======
FULLY DILUTED EARNINGS PER COMMON SHARE (1)
Net income $ 232 $ 206 $ 465 $ 408
Less preferred dividends 10 11 21 23
------ ------ ------ ------
Net income for calculating fully
diluted earnings per common share $ 222 $ 195 $ 444 $ 385
====== ====== ====== ======
Average common shares outstanding 49.1 54.8 49.8 55.2
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 1.4 1.1 1.4
------ ------ ------ ------
Average common shares outstanding as adjusted 50.2 56.2 50.9 56.6
====== ====== ====== ======
FULLY DILUTED EARNINGS PER COMMON SHARE $ 4.42 $ 3.48 $ 8.73 $ 6.80
====== ====== ====== ======
===============================================================================================================
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10Q
DATED AUGUST 9, 1995 FOR THE PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,848
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 375
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,473
<INVESTMENTS-CARRYING> 7,662
<INVESTMENTS-MARKET> 7,602
<LOANS> 33,896
<ALLOWANCE> 1,947
<TOTAL-ASSETS> 50,931
<DEPOSITS> 38,784
<SHORT-TERM> 4,225
<LIABILITIES-OTHER> 1,022
<LONG-TERM> 2,967
0
489
<COMMON> 242
<OTHER-SE> 3,131
<TOTAL-LIABILITIES-AND-EQUITY> 50,931
<INTEREST-LOAN> 1,681
<INTEREST-INVEST> 317
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 2,056
<INTEREST-DEPOSIT> 496
<INTEREST-EXPENSE> 732
<INTEREST-INCOME-NET> 1,324
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (15)
<EXPENSE-OTHER> 1,096
<INCOME-PRETAX> 779
<INCOME-PRE-EXTRAORDINARY> 465
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 465
<EPS-PRIMARY> 8.92
<EPS-DILUTED> 8.73
<YIELD-ACTUAL> 5.63
<LOANS-NON> 631
<LOANS-PAST> 0
<LOANS-TROUBLED> 13
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,082
<CHARGE-OFFS> 181
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 1,947
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99(A)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
=============================================================================================================================
Quarter Six months
ended June 30, ended June 30,
---------------------- ----------------------
(in millions) 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 409 $ 368 $ 779 $ 727
Fixed charges 388 291 764 558
------- ------- ------- -------
$ 797 $ 659 $ 1,543 $ 1,285
======= ======= ======= =======
Fixed charges (1):
Interest expense $ 372 $ 277 $ 732 $ 530
Estimated interest component of net rental expense 16 14 32 28
------- ------- ------- -------
$ 388 $ 291 $ 764 $ 558
======= ======= ======= =======
Ratio of earnings to fixed charges (2) 2.05 2.26 2.02 2.30
======= ======= ======= =======
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 409 $ 368 $ 779 $ 727
Fixed charges 134 81 268 152
------- ------- ------- -------
$ 543 $ 449 $ 1,047 $ 879
======= ======= ======= =======
Fixed charges:
Interest expense $ 372 $ 277 $ 732 $ 530
Less interest on deposits (254) (210) (496) (406)
Estimated interest component of net rental expense 16 14 32 28
------- ------- ------- -------
$ 134 $ 81 $ 268 $ 152
======= ======= ======= =======
Ratio of earnings to fixed charges 4.05 5.54 3.91 5.78
======= ======= ======= =======
=============================================================================================================================
<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 was 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 was 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>
EXHIBIT 99(B)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
=============================================================================================================================
Quarter Six months
ended June 30, ended June 30,
--------------------- ---------------------
(in millions) 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $409 $368 $ 779 $ 727
Fixed charges 388 291 764 558
---- ---- ------ ------
$797 $659 $1,543 $1,285
==== ==== ====== ======
Preferred dividend requirement $ 10 $ 11 $ 21 $ 23
Ratio of income before income tax expense to net income 1.76 1.79 1.68 1.78
---- ---- ------ ------
Preferred dividends (2) $ 18 $ 20 $ 35 $ 41
---- ---- ------ ------
Fixed charges (1):
Interest expense 372 277 732 530
Estimated interest component of net rental expense 16 14 32 28
---- ---- ------ ------
388 291 764 558
---- ---- ------ ------
Fixed charges and preferred dividends $406 $311 $ 799 $ 599
==== ==== ====== ======
Ratio of earnings to fixed charges and preferred dividends (3) 1.96 2.12 1.93 2.15
==== ==== ====== ======
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $409 $368 $ 779 $ 727
Fixed charges 134 81 268 152
---- ---- ------ ------
$543 $449 $1,047 $ 879
==== ==== ====== ======
Preferred dividends (2) $ 18 $ 20 $ 35 $ 41
---- ---- ------ ------
Fixed charges:
Interest expense 372 277 732 530
Less interest on deposits (254) (210) (496) (406)
Estimated interest component of net rental expense 16 14 32 28
---- ---- ------ ------
134 81 268 152
---- ---- ------ ------
Fixed charges and preferred dividends $152 $101 $ 303 $ 193
==== ==== ====== ======
Ratio of earnings to fixed charges and preferred dividends 3.57 4.45 3.46 4.55
==== ==== ====== ======
=============================================================================================================================
<FN>
(1) As defined in Item 503(d) of Regulation S-K.
(2) The preferred dividends were increased to amounts representing the pretax earnings that would be required to cover such
dividend requirements.
(3) 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 was 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 was 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>
