<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the year ended December 31, 1994 Commission file number 1-6214
------------------------------------------
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
Delaware No. 13-2553920
(State of incorporation) (I.R.S. Employer
Identification No.)
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 477-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, par value $5 New York Stock Exchange
Pacific Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series B New York Stock Exchange
9% Preferred Stock, Series C New York Stock Exchange
8 7/8% Preferred Stock, Series D New York Stock Exchange
Indicate by check mark whether 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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is contained herein, or will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes X No
----- -----
As of February 17, 1995 (the latest practicable date), 50,921,627 shares of
common stock were outstanding. On the same date, the aggregate market value of
common stock held by nonaffiliates was approximately $7,810 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders - Incorporated into Parts I,
II and IV.
Portions of the Proxy Statement for the 1995 Annual Meeting of Shareholders -
Incorporated into Part III.
<PAGE>
FORM 10-K CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
Page
--------------------------------------------
FORM Annual Proxy
10-K Report (1) Statement (2)
---- ------ ---------
PART I
<S> <C> <C> <C>
Item 1. Business
Description of Business 2-5 6-68 --
Statistical Disclosure:
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates
and Interest Differential 6 11-13 --
Investment Portfolio 7 16-17, 43, 46-47 --
Loan Portfolio 7 18-27, 44, 48-49 --
Summary of Loan Loss Experience 8-10 27-28, 44, 49 --
Deposits 10 12-13, 28-29 --
Return on Equity and Assets -- 6-7 --
Short-Term Borrowings 11 -- --
Item 2. Properties 11 -- --
Item 3. Legal Proceedings -- 61 --
Item 4. Submission of Matters to a Vote of Security-
Holders (in fourth quarter 1994) (3) -- -- --
Executive Officers of the Registrant 12 -- --
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters -- 38, 45 --
Item 6. Selected Financial Data -- 8 --
Item 7. Management's Discussion and Analysis of Finan-
cial Condition and Results of Operations -- 6-38 --
Item 8. Financial Statements and Supplementary Data -- 39-68 --
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure (3) -- -- --
PART III
Item 10. Directors and Executive Officers of the
Registrant 12 -- 6-9
Item 11. Executive Compensation -- -- 3-4, 10-15
Item 12. Security Ownership of Certain Beneficial
Owners and Management -- -- 5-6
Item 13. Certain Relationships and Related Transactions -- -- 17-19
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 13-15 39-68 --
SIGNATURES 16 -- --
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The 1994 Annual Report to Shareholders, portions of which are incorporated by reference into this Form 10-K.
(2) The Proxy Statement dated March 13, 1995 for the 1995 Annual Meeting of Shareholders, portions of which are incorporated
by reference into this Form 10-K.
(3) None.
</TABLE>
1
<PAGE>
DESCRIPTION OF BUSINESS
GENERAL
Wells Fargo & Company (Parent) is a bank holding company registered
under the Bank Holding Company Act of 1956, as amended. Based on assets at
December 31, 1994, it was the 15th largest bank holding company in the United
States. Its principal subsidiary is Wells Fargo Bank, N.A. (Bank), the seventh
largest bank in the U.S. Wells Fargo & Company and its subsidiaries are
hereinafter referred to as the Company.
THE BANK
HISTORY AND GROWTH
The Bank is the successor to the banking portion of the business
founded by Henry Wells and William G. Fargo in 1852. That business later
operated the westernmost leg of the Pony Express and ran stagecoach lines in the
western part of the United States. The California banking business was
separated from the express business in 1905 and was merged in 1960 with American
Trust Company, another of the oldest banks in the Western United States. The
Bank became Wells Fargo Bank, N.A., a national banking association, in 1968.
Its head office is located in San Francisco, California.
In 1986, the Company acquired from Midland Bank plc all the common
stock of Crocker National Corporation, a bank holding company whose principal
subsidiary was Crocker National Bank, the 17th largest bank in the U.S. at the
time. In 1988, the Company acquired Barclays Bank of California with assets of
$1.3 billion.
In 1990 and 1991, the Company completed the two-phase purchase of the
130-branch California network of Great American Bank (GA), a Federal Savings
Bank. The Company acquired assets with a GA book value of $5.8 billion.
Also during 1990, the Company completed the acquisition of four
California banking companies with combined assets of $1.9 billion: Valley
National Bank of Glendale, Central Pacific Corporation of Bakersfield, the
Torrey Pines Group of Solana Beach and Citizens Holdings and its two banking
subsidiaries in Orange County.
For further information, see the Line of Business Results section of
the 1994 Annual Report to Shareholders.
2
<PAGE>
The following table shows selected information for the Bank:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
December 31,
------------------------------------------------
(in billions) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities $11.2 $12.7 $ 9.0 $ 3.6 $ 1.3
Loans $35.7 $32.4 $36.0 $43.0 $47.3
Assets $51.9 $50.7 $50.7 $51.6 $53.7
Deposits $42.4 $42.4 $43.1 $44.5 $42.7
Staff (full-time equivalent) 19,522 19,644 21,276 20,954 21,635
Branches (domestic, all California) 634 624 626 612 574
- ----------------------------------------------------------------------------------------------
</TABLE>
NONBANK SUBSIDIARIES
The Company has wholly-owned subsidiaries that provide various
banking-related services. In the aggregate, these subsidiaries are not material
to the Company's assets or net income.
COMPETITION
The Company competes for deposits, loans and other banking services in
its principal geographic market in California, as well as in selected national
markets as opportunities arise. The banking business is highly competitive and
has become increasingly so in recent years; the industry continues to
consolidate and strong, unregulated competitors have entered core banking
markets with focused products targeted at highly profitable customer segments.
These unregulated competitors, such as investment companies, specialized lenders
and multinational financial services companies, compete across geographic
boundaries and provide customers increasing access to meaningful alternatives to
banking services in nearly all significant products. These competitive trends
are likely to continue.
Within the banking industry, ongoing consolidation has increased
pressure on the Company from its most significant competitor in California, Bank
of America, now the second largest bank holding company in the United States.
Moreover, federal and state legislation adopted in recent years has increased
competition by allowing banking organizations from other parts of the country to
enter the Company's core geographic market (see "Supervision and Regulation" for
further discussion of such legislation and the competitive environment in which
the Company operates).
Among commercial banks, the Bank is presently the second largest
holder of customer deposits in California. There is no meaningful measure of
overall market share within the broadly defined financial services industry.
3
<PAGE>
MONETARY POLICY
The earnings of the Company are affected not only by general economic
conditions, but also by the policies of various governmental regulatory
authorities in the U.S. and abroad. In particular, the Federal Reserve System
exerts a substantial influence on interest rates and credit conditions,
primarily through open market operations in U.S. Government securities, varying
the discount rate on member bank borrowings and setting reserve requirements
against deposits. Federal Reserve monetary policies have had a significant
effect on the operating results of financial institutions in the past and are
expected to continue to do so in the future.
SUPERVISION AND REGULATION
Under the Bank Holding Company Act, the Company is required to file
reports of its operations with the Board of Governors of the Federal Reserve
System and is subject to examination by it. Further, the Act restricts the
activities in which the Company may engage and the nature of any company in
which the Parent may own more than 5% of the voting shares. Generally,
permissible activities are limited to banking, the business of managing and
controlling banks, and activities so closely related to banking as determined by
the Board of Governors to be proper incidents thereto.
Under the Act, the acquisition of substantially all of the assets of
any domestic bank or savings association or the ownership or control of more
than 5% of its voting shares by a bank holding company is subject to prior
approval by the Board of Governors. In no case, however, may the Board approve
the acquisition by the Parent of the voting shares of, or substantially all
assets of, any bank located outside of California unless such acquisition is
specifically authorized by the laws of the state in which the bank to be
acquired is located or the Federal Deposit Insurance Corporation (FDIC) arranges
the acquisition under its authority to aid financially troubled banks. Federal
legislation enacted in 1994 will remove many of the remaining barriers to
interstate expansion and acquisition. Effective September 29, 1995, bank
holding companies which are adequately capitalized and adequately managed will
be permitted to make interstate acquisitions of banks without regard to state
law restrictions. Beginning in 1997, the merger of commonly owned banks in
different states will also be permitted, except in states which have passed
legislation to prohibit such mergers. The new statute will also permit banks to
establish branches outside their home state in states which pass legislation to
permit such interstate branching.
The Bank is subject to certain restrictions under the Federal Reserve
Act, including restrictions on the terms of transactions between the Bank and
its affiliates and on any extension of credit to its affiliates. Dividends
payable by the Bank to the Parent without the express approval of the Office of
the Comptroller of the Currency are limited by a formula. For more information
regarding restrictions on loans and dividends by the Bank to its affiliates, see
Note 2 to the Financial Statements in the 1994 Annual Report to Shareholders.
There are various requirements and restrictions in the laws of the
U.S. and California affecting the Bank and its operations, including
restrictions on the amount of its loans and the nature and amount of its
investments, its activities as an underwriter of securities, its opening of
branches and its acquisition of other banks or savings associations. The Bank,
as a
4
<PAGE>
national bank, is subject to regulation and examination by the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System and the FDIC.
Major regulatory changes affecting the Bank, banking and the financial
services industry in general have occurred in the last several years and can be
expected to occur increasingly in the future. Federal banking legislation since
1980 has deregulated interest rate ceilings on deposits at banks and thrift
institutions, has increased the types of accounts that can be offered and has
increased the cost of FDIC insurance of deposits. Generally, the effect of
these changes has been to increase the Bank's cost of its traditionally
important sources of consumer deposits. In addition, federal banking
legislation has narrowed the functional distinctions among financial
institutions. The consumer and commercial banking powers of thrift institutions
have expanded, and state-chartered banks are authorized to engage in all
activities which are permissible for national banks and in certain cases may,
with approval of the FDIC, engage in activities, such as insurance underwriting,
which are not authorized for national banks.
Non-depository institutions can be expected to increase the extent to
which they act as financial intermediaries, particularly in the area of consumer
credit services. Large institutional users and sources of credit may also
increase the extent to which they interact directly, meeting business credit
needs outside the banking system. Furthermore, the geographic constraints on
portions of the financial services industry can be expected to continue to
erode.
These changes create significant opportunities for the Company, as
well as the financial services industry, to compete in financial markets on a
less-regulated basis. They also suggest that the Company and, particularly, the
Bank will face new and major competitors in geographic and product markets in
which their operations historically have been protected by banking laws and
regulations.
5
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table allocates the changes in net interest income on a
taxable-equivalent basis to changes in either average balances or average rates
for both interest-earning assets and interest-bearing liabilities. Because of
the numerous simultaneous volume and rate changes during any period, it is not
possible to precisely allocate such changes between volume and rate. For this
table, changes that are not solely due to either volume or rate are allocated to
these categories in proportion to the percentage changes in average volume and
average rate.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
1994 OVER 1993 1993 over 1992
------------------------------ ----------------------------
(in millions) VOLUME RATE TOTAL Volume Rate Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Investment securities:
At cost:
U.S. Treasury securities $ 4 $ (6) $ (2) $ 37 $ (13) $ 24
Securities of U.S. government agencies
and corporations (127) (27) (154) 248 (46) 202
Private collateralized mortgage obligations 19 16 35 24 12 36
Other securities (3) -- (3) 4 -- 4
At fair value:
U.S. Treasury Securities 13 -- 13 -- -- --
Securities of U.S. government agencies
and corporations 93 -- 93 -- -- --
Private collateralized mortgage obligations 80 -- 80 -- -- --
Other securities 6 -- 6 -- -- --
At lower of cost or market -- -- -- (5) (4) (9)
Federal funds sold and securities
purchased under resale agreements (18) 2 (16) (6) (4) (10)
Loans:
Commercial (6) (12) (18) (232) 77 (155)
Real estate 1-4 family first mortgage 122 (79) 43 (73) (96) (169)
Other real estate mortgage (119) 43 (76) (96) (1) (97)
Real estate construction (30) 10 (20) (46) 1 (45)
Consumer:
Real estate 1-4 family junior lien mortgage (39) 28 (11) (50) (50) (100)
Credit card 18 (6) 12 (28) (9) (37)
Other revolving credit and monthly payment 12 3 15 (18) (8) (26)
Lease financing 7 (8) (1) 2 (6) (4)
Foreign 2 -- 2 -- -- --
Other 3 -- 3 -- -- --
----- ---- ----- ----- ----- ----
Total increase (decrease) in interest income 37 (36) 1 (239) (147) (386)
----- ---- ----- ----- ----- ----
Increase (decrease) in interest expense:
Deposits:
Interest-bearing checking -- (10) (10) 1 (27) (26)
Savings deposits (4) (5) (9) (13) (18) (31)
Market rate savings (5) 18 13 35 (99) (64)
Savings certificates (39) (7) (46) (129) (56) (185)
Certificates of deposit (1) (1) (2) (8) (1) (9)
Other time deposits (1) 1 -- (1) -- (1)
Deposits in foreign offices 44 -- 44 (1) (2) (3)
Federal funds purchased and securities
sold under repurchase agreements 45 25 70 (8) (4) (12)
Commercial paper and other short-term borrowings 1 3 4 (1) (2) (3)
Senior debt (12) 11 (1) -- (23) (23)
Subordinated debt (26) 13 (13) 5 5 10
----- ---- ----- ----- ----- ----
Total increase (decrease) in interest expense 2 48 50 (120) (227) (347)
----- ---- ----- ----- ----- ----
Increase (decrease) in net interest income
on a taxable-equivalent basis $ 35 $(84) $ (49) $(119) $ 80 $(39)
===== ==== ===== ===== ===== ====
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
INVESTMENT SECURITIES
At December 31, 1994, there were no investment securities issued by a
single issuer (excluding the U.S. government and its agencies and corporations)
that exceeded 10% of stockholders' equity, except for private collateralized
mortgage obligations issued by The Prudential Home Mortgage Securities Company,
Inc. and Countrywide Mortgage Backed Securities, Inc. The securities issued by
The Prudential Home Mortgage Securities Company, Inc. had a cost basis and fair
value of $974 million and $897 million, respectively, and were distributed among
42 series of mortgage pass-through certificates; each series was collateralized
by separate trusts. The largest series had a cost basis and fair value of
$51 million and $46 million, respectively. The securities issued by Countrywide
Mortgage Backed Securities, Inc. had a cost basis and fair value of $452 million
and $417 million, respectively, and were distributed among 17 series of mortgage
pass-through certificates; each series was collateralized by separate trusts.
The largest series had a cost basis and fair value of $42 million and
$38 million, respectively.
LOAN PORTFOLIO
The following table presents the remaining contractual principal
maturities of selected loan categories at December 31, 1994 and a summary of the
major categories of loans outstanding at the end of the last five years. At
December 31, 1994, the Company did not have loan concentrations that exceeded
10% of total loans, except as shown below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
----------------------------------------------------------
Over One Year
Through Five Years Over Five Years
------------------ ---------------
Floating Floating
or or
One Year Fixed Adjustable Fixed Adjustable December 31,
-----------------------------------
(in millions) or less rate rate rate rate total 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected loan maturities:
Commercial $4,267 $ 250 $2,874 $ 62 $ 709 $ 8,162 $ 6,912 $ 8,214 $11,270 $14,639
Real estate 1-4 family first
mortgage (1) 24 74 35 5,197 3,720 9,050 7,458 6,836 8,612 9,865
Other real estate mortgage 2,060 1,046 3,236 613 1,124 8,079 8,286 10,128 10,751 10,505
Real estate construction 628 43 309 5 28 1,013 1,110 1,600 2,055 2,669
Foreign 27 -- -- -- -- 27 18 5 2 9
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total selected loan
maturities $7,006 $1,413 $6,454 $5,877 $5,581 26,331 23,784 26,783 32,690 37,687
====== ====== ====== ====== ====== ------ ------ ------ ------ ------
Other loan categories:
Real estate 1-4 family
junior lien mortgage 3,332 3,583 4,157 5,053 5,178
Credit card 3,125 2,600 2,807 2,900 2,788
Other revolving credit and
monthly payment 2,229 1,920 1,979 2,286 2,163
------ ------ ------ ------ ------
Total consumer 8,686 8,103 8,943 10,239 10,129
Lease financing 1,330 1,212 1,177 1,170 1,161
------ ------ ------ ------ ------
Total loans $36,347 $33,099 $36,903 $44,099 $48,977
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)
Includes approximately $2.7 billion of fixed-initial-rate mortgage (FIRM)
loans in the over 5 year fixed rate category. FIRM loans carry fixed rates
during the first 3, 5, 7 or 10 years (based on the period selected by the
borrower) of the loan term and carry adjustable rates thereafter.
</TABLE>
7
<PAGE>
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
------------------------------------------------------------
(in millions) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $2,122 $2,067 $1,646 $ 885 $ 738
Allowance related to acquisitions (dispositions) -- -- -- (2) 33
Provision for loan losses 200 550 1,215 1,335 310
Loan charge-offs:
Commercial (54) (110) (238) (402) (75)
Real estate 1-4 family first mortgage (18) (25) (17) (11) (5)
Other real estate mortgage (66) (197) (290) (88) (25)
Real estate construction (19) (68) (93) (29) (19)
Consumer:
Real estate 1-4 family junior lien mortgage (24) (28) (28) (7) (6)
Credit card (138) (177) (189) (161) (107)
Other revolving credit and monthly payment (36) (41) (41) (42) (26)
------ ------ ------ ------ -----
Total consumer (198) (246) (258) (210) (139)
Lease financing (14) (18) (19) (19) (17)
------ ------ ------ ------ -----
Total loan charge-offs (369) (664) (915) (759) (280)
------ ------ ------ ------ -----
Loan recoveries:
Commercial 37 71 59 98 40
Real estate 1-4 family first mortgage 6 2 2 -- --
Other real estate mortgage 22 47 9 2 7
Real estate construction 15 4 3 3 1
Consumer:
Real estate 1-4 family junior lien mortgage 4 3 1 -- --
Credit card 18 21 21 19 17
Other revolving credit and monthly payment 11 12 12 11 12
------ ------ ------ ------ -----
Total consumer 33 36 34 30 29
Lease financing 16 9 9 5 5
Foreign -- -- 1 49 30
------ ------ ------ ------ -----
Total loan recoveries 129 169 117 187 112
------ ------ ------ ------ -----
Total net loan charge-offs (240) (495) (798) (572) (168)
Recoveries (losses) on the sale or swap of
developing country loans -- -- 4 -- (28)
------ ------ ------ ------ -----
Balance, end of year $2,082 $2,122 $2,067 $1,646 $ 885
====== ====== ====== ====== =====
Total net loan charge-offs as a percentage of
average total loans .70% 1.44% 1.97% 1.22% .38%
====== ====== ====== ====== =====
Allowance as a percentage of total loans 5.73% 6.41% 5.60% 3.73% 1.81%
====== ====== ====== ====== =====
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
The Securities and Exchange Commission requires the Company to present
the ratio of the allowance for loan losses to total nonaccrual loans. This
ratio was 367% and 178% at December 31, 1994 and 1993, respectively. This ratio
may fluctuate significantly from period to period due to such factors as the
prospects of borrowers and the value and marketability of collateral as well as,
for the nonaccrual portfolio taken as a whole, wide variances from period to
period in terms of delinquency and relationship of book to contractual principal
balance. (For example, at December 31, 1994 and 1993, the percentage of
nonaccrual loan balances that were current as to payment of principal and
interest were 32% and 50%, respectively.) Classification of a loan as
nonaccrual does not necessarily indicate that the principal of a loan is
uncollectible in whole or in part. Consequently, the ratio of the allowance for
loan losses to nonaccrual loans, taken alone and without taking into account
numerous additional factors, is not a reliable indicator of the adequacy of the
allowance for loan losses. Indicators of the credit quality of the Company's
loan portfolio and the method of determining the allowance for loan losses are
discussed in the 1994 Annual Report to Shareholders.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The table on the following page provides a breakdown of the allowance
for loan losses by loan category. The allocated component of the allowance
reflects inherent losses resulting from the analysis of individual loans and is
developed through specific credit allocations for individual loans and
historical loss experience for each loan category and degree of criticism within
each category. The total of these allocations is then supplemented by the
unallocated component of the allowance for loan losses, which includes
adjustments to the historical loss experience for the various loan categories to
reflect any current conditions that could affect loss recognition. The
unallocated component includes management's judgmental determination of the
amounts necessary for concentrations, economic uncertainties and other
subjective factors; correspondingly, the relationship of the unallocated
component to the total allowance for loan losses may fluctuate significantly
from period to period. Although management has allocated the allowance to
specific loan categories, the adequacy of the allowance must be considered in
its entirety.
9
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------------------------------------------------------------------------------------------
December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 109 $ 152 $ 373 $ 417 $177
Real estate 1-4 family first mortgage 41 39 37 33 32
Other real estate mortgage 212 357 589 350 63
Real estate construction 45 92 181 121 36
Consumer:
Credit card (1) 87 96 107 239 193
Other consumer 70 87 58 51 32
------ ------ ------ ------ ----
Total consumer 157 183 165 290 225
Lease financing 21 19 17 15 13
Foreign -- -- -- -- 6
Unallocated component of
the allowance (2) 1,497 1,280 705 420 333
------ ------ ------ ------ ----
Total $2,082 $2,122 $2,067 $1,646 $885
====== ====== ====== ====== ====
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------------- ---------------- ---------------- ---------------- ----------------
ALLOC. LOAN Alloc. Loan Alloc. Loan Alloc. Loan Alloc. Loan
ALLOW. CATGRY allow. catgry allow. catgry allow. catgry allow. catgry
AS % AS % as % as % as % as % as % as % as % as %
OF LOAN OF TOTAL of loan of total of loan of total of loan of total of loan of total
CATGRY LOANS catgry loans catgry loans catgry loans catgry loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 1.34% 22% 2.20% 21% 4.54% 22% 3.70% 25% 1.21% 31%
Real estate 1-4 family first mortgage .45 25 .52 23 .54 19 .38 20 .32 20
Other real estate mortgage 2.62 22 4.31 25 5.82 27 3.26 24 .60 21
Real estate construction 4.44 3 8.29 3 11.31 4 5.89 5 1.35 5
Consumer:
Credit card (1) 2.78 9 3.69 8 3.81 8 8.24 7 6.92 6
Other consumer 1.26 15 1.58 16 .95 17 .69 16 .44 15
--- --- --- --- ---
Total consumer 1.81 24 2.26 24 1.85 25 2.83 23 2.22 21
Lease financing 1.58 4 1.57 4 1.44 3 1.28 3 1.12 2
Foreign -- -- -- -- -- -- -- -- 66.67 --
--- --- --- --- ---
Total 5.73% 100% 6.41% 100% 5.60% 100% 3.73% 100% 1.81% 100%
==== === ==== === ==== === ==== === ==== ===
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) In 1992, the calculation method for the allocation of the allowance for loan losses for credit card loans was changed in order
to better conform to industry practice, whereby the allocation now approximates 7 months (formerly, 18 to 21 months) of
projected losses. Based on the revised method, the estimated allocation for credit card loans would have been reduced (and,
correspondingly, the unallocated portion of the allowance would have been increased) by about $140 million and $130 million at
December 31, 1991 and 1990, respectively.
(2) This amount and any unabsorbed portion of the allocated allowance are also available for any of the above listed loan
categories.
</TABLE>
DEPOSITS
At December 31, 1994, the contractual principal maturities of domestic
time certificates of deposit and other time deposits issued in amounts of
$100,000 or more were as follows (based on time remaining until maturity):
$522 million maturing in 3 months or less; $227 million over 3 through 6 months;
$396 million over 6 through 12 months and $471 million over 12 months.
Time certificates of deposit and other time deposits issued by foreign
offices in amounts of $100,000 or more represent substantially all of the
foreign deposit liabilities of $3,540 million at December 31, 1994.
10
<PAGE>
SHORT-TERM BORROWINGS
The following table shows selected information for those short-term
borrowings that exceed 30% of stockholders' equity:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Year ended December 31,
----------------------------------
(in millions) 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL FUNDS PURCHASED AND
SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS (1)
Average amount outstanding $2,223 $1,051 $1,299
Daily average rate 4.45% 2.79% 3.16%
Highest month-end balance $3,887 $1,378 $2,164
Year-end balance $3,022 $1,079 $1,311
Weighted average rate on
outstandings at year end 5.24% 2.67% 2.56%
- ------------------------------------------------------------------------------
<FN>
(1) These borrowings generally mature in less than 30 days.
</TABLE>
PROPERTIES
The Company owns and leases various properties, primarily in the
financial district of San Francisco and other locations throughout California.
The Company owns its 12-story headquarters building in San Francisco
and a four-story administrative building and a five-story data processing
center, both in El Monte, California. The Company is also a joint venture
partner in a 54-story office building in downtown Los Angeles, of which
approximately 200,000 square feet is occupied by administrative staff and 60,000
square feet is sublet. In addition, the Company leases approximately 2,600,000
square feet of office space for data processing support and various
administrative departments in four major buildings in San Francisco, two other
major locations in the San Francisco Bay area and four major locations in
Southern California.
At December 31, 1994, the Bank operated 634 domestic branch offices
(including 23 banking centers), of which 344 were in Northern California and 290
in Southern California. The Company owns the land and buildings occupied by 230
of the branch offices and leases 404 branch offices (including 23 banking
centers). The leases are generally for terms not exceeding 30 years.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Date from
Name Office held which held Age
- ---------------------- --------------------------- -------------- ---
Paul Hazen Chairman and Chief January 1995 53
Executive Officer
William F. Zuendt President and Chief January 1995 48
Operating Officer
Michael J. Gillfillan Vice Chairman January 1992 46
Charles M. Johnson Vice Chairman January 1992 53
Clyde W. Ostler Vice Chairman January 1990 48
Rodney L. Jacobs Vice Chairman and Chief January 1990 54
Financial Officer
Patricia R. Callahan Executive Vice President March 1993 41
and Personnel Director
Frank A. Moeslein Executive Vice President April 1991 51
and Controller
Guy Rounsaville, Jr. Executive Vice President, March 1985 51
Chief Counsel and
Secretary
Ross J. Kari Senior Vice President January 1995 36
and General Auditor
Carl E. Reichardt, former Chairman and Chief Executive Officer,
retired from the Company effective December 31, 1994. He remains on the Board
of Directors. Accordingly, as of January 1, 1995, Paul Hazen, former President
and Chief Operating Officer, became Chairman and Chief Executive Officer.
William F. Zuendt, a former Vice Chairman, became President and Chief Operating
Officer, and joined the Board of Directors at that time. William F. Aldinger
III, a former Vice Chairman, and Stuart V.M. Campbell, former Executive Vice
President and General Auditor, resigned from the Company in August 1994 and
January 1995, respectively.
The principal occupation of each of the executive officers during the
past five years has been in the position reported above or in other positions as
an officer with the Company.
There is no family relationship among the above officers. All
executive officers serve at the pleasure of the Board of Directors.
12
<PAGE>
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits:
(1) The consolidated financial statements and related notes, the
independent auditors' report thereon and supplementary data that
appear on pages 39 through 68 of the 1994 Annual Report to
Shareholders are incorporated herein by reference.
(2) Financial Statement Schedules:
All schedules are omitted, because the conditions requiring their
filing do not exist.
(3) Exhibits:
Exhibit
number Description
------ -----------
3(a) Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3(a) of Form 10-K filed March 21, 1994
(b) Certificate of the Voting Powers, Designation, Preferences
and Relative, Participating, Optional or Other Special
Rights, and the Qualifications, Limitations or Restrictions
Thereof, Which Have Not Been Set Forth in the Certificate of
Incorporation or in any Amendment Thereto, of the Adjustable
Rate Cumulative Preferred Stock, Series B, incorporated by
reference to Exhibit 3(c) of Form 10-K filed March 21, 1994
(c) Certificate of the Voting Powers, Designation, Preferences
and Relative, Participating, Optional or Other Special
Rights, and the Qualifications, Limitations or Restrictions
Thereof, Which Have Not Been Set Forth in the Certificate of
Incorporation or in any Amendment Thereto, of the 9%
Preferred Stock, Series C, incorporated by reference to
Exhibit 3 of Form 8-K filed October 24, 1991
(d) Certificate of the Voting Powers, Designation, Preferences
and Relative, Participating, Optional or Other Special
Rights, and the Qualifications, Limitations or Restrictions
Thereof, Which Have Not Been Set Forth in the Certificate of
Incorporation or in any Amendment Thereto, of the 8 7/8%
Preferred Stock, Series D, incorporated by reference to
Exhibit 3 of Form 8-K filed March 5, 1992
(e) By-Laws
4(a) The Company hereby agrees to furnish upon request to the
Commission a copy of each instrument defining the rights of
holders of senior and subordinated debt of the Company.
(b) Deposit Agreement dated as of October 24, 1991 among Wells
Fargo & Company, Marine Midland Bank, N.A. as Depositary and
the holders from time to time of the Depositary Shares
representing one-twentieth of a share of 9% Preferred Stock,
Series C, incorporated by reference to Exhibit 4(a) of Form
8-K filed October 24, 1991
(c) Specimen of certificate for the 9% Preferred Stock, Series
C, incorporated by reference to Exhibit 4(b) of Form 8-K
filed October 24, 1991
(d) Specimen of Depositary Receipt for the Depositary Shares,
each representing a one-twentieth interest in a share of the
9% Preferred Stock, Series C, incorporated by reference to
Exhibit 4(c) of Form 8-K filed October 24, 1991
13
<PAGE>
Exhibit
number Description
------ -----------
(e) Deposit Agreement dated as of March 5, 1992 among Wells
Fargo & Company, Marine Midland Bank, N.A. as Depositary and
the holders from time to time of the Depositary Shares
representing one-twentieth of a share of 8 7/8% Preferred
Stock, Series D, incorporated by reference to Exhibit 4(a)
of Form 8-K filed March 5, 1992
(f) Specimen of certificate for the 8 7/8% Preferred Stock,
Series D, incorporated by reference to Exhibit 4(b) of Form
8-K filed March 5, 1992
(g) Specimen of Depositary Receipt for the Depositary Shares,
each representing a one-twentieth interest in a share of the
8 7/8% Preferred Stock, Series D, incorporated by reference
to Exhibit 4(c) of Form 8-K filed March 5, 1992
10(a) Benefits Restoration Program, incorporated by reference to
Exhibit 10(a) of Form 10-K for the year ended December 31,
1990
(b) Deferral Plan for Directors, as amended through November 19,
1991, incorporated by reference to Exhibit 10(b) of Form 10-
K for the year ended December 31, 1991
(c) 1990 Director Option Plan, as amended through November 19,
1991, incorporated by reference to Exhibit 10(c) of Form 10-
K for the year ended December 31, 1991
(d) 1987 Director Option Plan, as amended through November 19,
1991, incorporated by reference to Exhibit 10(d) of Form 10-
K for the year ended December 31, 1991
(e) Director Retirement Plan, incorporated by reference to
Exhibit 10(e) of Form 10-K for the year ended December 31,
1993
(f) 1990 Equity Incentive Plan, incorporated by reference to
Exhibit 10(f) of Form 10-K for the year ended December 31,
1990
(g) 1982 Equity Incentive Plan, as amended through November 15,
1988, incorporated by reference to Exhibit 10(g) of Form 10-
K for the year ended December 31, 1993
(h) Executive Incentive Pay Plan, incorporated by reference to
Exhibit 10(h) of Form 10-K for the year ended December 31,
1990
(i) Executive Loan Plan
(j) Passivity Agreement dated July 31, 1991 between the Company
and Berkshire Hathaway Inc., including the form of proxy
granted in connection therewith, incorporated by reference
to Exhibit 19 of Form 10-Q for the quarter ended June 30,
1991
(k) Long-Term Incentive Plan, incorporated by reference to
Exhibit A of the Proxy Statement filed March 14, 1994
(l) Senior Executive Performance Plan, incorporated by reference
to Exhibit B of the Proxy Statement filed March 14, 1994
11 Computation of Earnings Per Common Share
12 Computation of Ratios of Earnings to Fixed Charges -- the
ratios of earnings to fixed charges, including interest on
deposits, were 2.20, 1.90, 1.33, 1.02 and 1.43 for the years
ended December 31, 1994, 1993, 1992, 1991 and 1990,
respectively. The ratios of earnings to fixed charges,
excluding interest on deposits, were 5.04, 4.53, 2.56, 1.10
and 2.42 for the years ended December 31, 1994, 1993, 1992,
1991 and 1990, respectively.
14
<PAGE>
Exhibit
number Description
------ -----------
13 1994 Annual Report to Shareholders -- only those sections of
the Annual Report to Shareholders referenced in the index on
page 1 are incorporated in the Form 10-K.
21 Subsidiaries of the Registrant -- Wells Fargo & Company's
only significant subsidiary, as defined, is Wells Fargo
Bank, N.A.
23 Consent of Independent Accountants
27 Financial Data Schedule
(b) The Company filed the following reports on Form 8-K during the fourth
quarter of 1994 and through the date hereof in 1995:
(1) October 18, 1994 under Item 5, containing the Press Release that
announced the Company's financial results for the quarter and nine
months ended September 30, 1994
(2) January 17, 1995 under Item 5, containing the Press Releases that
announced the Company's financial results for the quarter and year
ended December 31, 1994 and the increase in the Company's common stock
dividend
STATUS OF PRIOR DOCUMENTS
The Wells Fargo & Company Annual Report on Form 10-K for the year
ended December 31, 1994, at the time of filing with the Securities and Exchange
Commission, shall modify and supersede all prior documents filed pursuant to
Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 for purposes of
any offers or sales of any securities after the date of such filing pursuant to
any Registration Statement or Prospectus filed pursuant to the Securities Act of
1933 which incorporates by reference such Annual Report on Form 10-K.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 21, 1995.
WELLS FARGO & COMPANY
By: FRANK A. MOESLEIN
----------------------------------------
Frank A. Moeslein
(Executive Vice President and Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 21, 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
PAUL HAZEN Chairman and Chief ROBERT K. JAEDICKE Director
- ------------------- Executive Officer ----------------------
(Paul Hazen) (Principal Executive (Robert K. Jaedicke)
Officer)
PAUL A. MILLER Director
----------------------
(Paul A. Miller)
RODNEY L. JACOBS Vice Chairman and Chief ELLEN M. NEWMAN Director
- -------------------- Financial Officer ----------------------
(Rodney L. Jacobs) (Principal Financial (Ellen M. Newman)
Officer)
PHILIP J. QUIGLEY Director
----------------------
(Philip J. Quigley)
FRANK A. MOESLEIN Executive Vice President CARL E. REICHARDT Director
- ------------------- and Controller (Principal -----------------------
(Frank A. Moeslein) Accounting Officer) (Carl E. Reichardt)
DONALD B. RICE Director
-----------------------
(Donald B. Rice)
H. JESSE ARNELLE Director SUSAN G. SWENSON Director
- ------------------- -----------------------
(H. Jesse Arnelle) (Susan G. Swenson)
WILLIAM R. BREUNER Director CHANG-LIN TIEN Director
- ------------------- -----------------------
(William R. Breuner) (Chang-Lin Tien)
Director JOHN A. YOUNG Director
- ------------------- -----------------------
(William S. Davila) (John A. Young)
RAYBURN S. DEZEMBER Director WILLIAM F. ZUENDT Director
- ------------------- -----------------------
(Rayburn S. Dezember) (William F. Zuendt)
</TABLE>
16
<PAGE>
BY-LAWS
OF
WELLS FARGO & COMPANY
(A DELAWARE CORPORATION),
AS AMENDED JANUARY 1, 1995
______________
ARTICLE I
MEETINGS OF STOCKHOLDER
SECTION 1. ANNUAL MEETINGS. The annual meeting of stockholders of
Wells Fargo & Company (the "corporation") shall be held on the third Tuesday of
April in each year at such time of day as may be fixed by the Board of
Directors, at the principal office of the corporation, if not a bank holiday,
and if a bank holiday then on the next succeeding business day at the same hour
and place, or at such other time, date or place, within or without the State of
Delaware, as may be determined by the Board of Directors. At such meeting,
Directors shall be elected, reports of the affairs of the corporation may be
considered, and any other proper business may be transacted.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders,
unless otherwise regulated by statute, for any purpose or purposes whatsoever,
may be called at any time by the Board of Directors, the Chairman of the Board,
the President, the Chief Executive Officer (if other than the Chairman of the
Board or the President), or one or more stockholders holding not less than 10
percent of the voting power of the corporation. Such meetings may be held at
any place within or without the State of Delaware designated by the Board of
Directors of the corporation.
SECTION 3. NOTICE OF MEETINGS. Notice of all meetings of the
stockholders, both annual and special, shall be given by the Secretary in
writing to stockholders entitled to vote. A notice may be given either
personally or by mail or other means of written communication, charges prepaid,
addressed to any
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<PAGE>
stockholder at his address appearing on the books of the corporation or at the
address given by such stockholder to the corporation for the purpose of notice.
Notice of any meeting of stockholders shall be sent to each stockholder entitled
thereto not less than 10 nor more than 60 days prior to such meeting. Such
notice shall state the place, date and hour of the meeting and shall also state
(i) in the case of a special meeting, the general nature of the business to be
transacted and that no other business may be transacted, (ii) in the case of an
annual meeting, those matters which the Board of Directors intends at the time
of the mailing of the notice to present for stockholder action and that any
other proper matter may be presented for stockholder action to the meeting, and
(iii) in the case of any meeting at which Directors are to be elected, the names
of the nominees which the management intends at the time of the mailing of the
notice to present for election.
SECTION 4. QUORUM. Except as otherwise provided by law, the presence
of the holders of a majority of the stock issued and outstanding present in
person or represented by proxy and entitled to vote is requisite and shall
constitute a quorum for the transaction of business at all meetings of the
stockholders, and the vote of a majority of such stock present and voting at a
duly held meeting at which there is a quorum present shall decide any question
brought before such meeting.
SECTION 5. VOTING. Unless otherwise provided in the Certificate of
Incorporation, every stockholder shall be entitled to one vote for every share
of stock standing in his name on the books of the corporation, and may vote
either in person or by proxy.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER, TERM. The property, business and affairs of the
corporation shall be managed and all corporate power shall be exercised by or
under the direction of the Board of Directors as from time to time constituted.
The number of Directors of this corporation shall be not less than 10 nor more
than 20, the exact number within the limits so specified to be fixed from time
to time by a By-Law adopted by the stockholders
-2-
<PAGE>
or by the Board of Directors. Until some other number is so fixed, the number
of Directors shall be 15. The term of office of each Director shall be from the
time of his election until the annual meeting next succeeding his election and
until his successor shall have been duly elected, or until his death,
resignation or lawful removal pursuant to the provisions of the General
Corporation Law of Delaware.
SECTION 2. POWERS. In addition to the powers expressly conferred by
these By-Laws, the Board of Directors may exercise all corporate powers and do
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or approved by the
stockholders.
SECTION 3. COMPENSATION. Directors and Advisory Directors (as
provided in Section 12 of this Article) as such may receive such compensation,
if any, as the Board of Directors by resolution may direct, including salary or
a fixed sum plus expenses, if any, for attendance at meetings of the Board of
Directors or of its committees.
SECTION 4. ORGANIZATIONAL MEETING. An organizational meeting of the
Board of Directors shall be held each year immediately following the adjournment
of the annual meeting of stockholders of the corporation for the purpose of
electing officers, the members of the Formal Committees provided in Section 11
of this Article and the Advisory Directors provided in Section 12 of this
Article, and for the transaction of any other business. Said organizational
meeting shall be held without any notice other than this By-Law.
SECTION 5. PLACE OF MEETINGS. The Board of Directors shall hold its
meetings at the main office of the corporation or at such other place as may
from time to time be designated by the Board of Directors or by the chief
executive officer.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors will be held on the third Tuesday of each month (except for the months
of August and December) at the later of the following times: (i) 10:30 a.m. or
(ii) immediately following the adjournment of any regular meeting of the Board
of Directors of Wells Fargo Bank, National Association, held on the same day.
If the day of any regular meeting shall fall upon a bank holiday, the meeting
shall be held at the same hour on the
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<PAGE>
first day following which is not a bank holiday. No call or notice of a regular
meeting need be given unless the meeting is to be held at a place other than the
main office of the corporation.
SECTION 7. SPECIAL MEETINGS. Special meetings shall be held when
called by the chief executive officer or at the written request of four
Directors.
SECTION 8. QUORUM; ADJOURNED MEETINGS. A majority of the authorized
number of Directors shall constitute a quorum for the transaction of business.
A majority of the Directors present, whether or not a quorum, may adjourn any
meeting to another time and place, provided that, if the meeting is adjourned
for more than 30 days, notice of the adjournment shall be given in accordance
with these By-Laws.
SECTION 9. NOTICE, WAIVERS OF NOTICE. Notice of special meetings and
notice of regular meetings held at a place other than the head office of the
corporation shall be given to each Director, and notice of the adjournment of a
meeting adjourned for more than 30 days shall be given prior to the adjourned
meeting to all Directors not present at the time of the adjournment. No such
notice need specify the purpose of the meeting. Such notice shall be given four
days prior to the meeting if given by mail or on the day preceding the day of
the meeting if delivered personally or by telephone, facsimile, telex or
telegram. Such notice shall be addressed or delivered to each Director at such
Director's address as shown upon the records of the corporation or as may have
been given to the corporation by the Director for the purposes of notice.
Notice need not be given to any Director who signs a waiver of notice (whether
before or after the meeting) or who attends the meeting without protesting the
lack of notice prior to its commencement. All such waivers shall be filed with
and made a part of the minutes of the meeting.
SECTION 10. TELEPHONIC MEETINGS. A meeting of the Board of Directors
or of any Committee thereof may be held through the use of conference telephone
or similar communications equipment, so long as all members participating in
such meeting can hear one another. Participation in such a meeting shall
constitute presence at such meeting.
-4-
<PAGE>
SECTION 11. WRITTEN CONSENTS. Any action required or permitted to be
taken by the Board of Directors may be taken without a meeting, if all members
of the Board of Directors shall individually or collectively consent in writing
to such action. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board of Directors. Such action by written
consent shall have the same force and effect as the unanimous vote of the
Directors.
SECTION 12. RESIGNATIONS. Any Director may resign his position as
such at any time by giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors. Such resignation shall take
effect as of the time such notice is given or as of any later time specified
therein and the acceptance thereof shall not be necessary to make it effective.
SECTION 13. VACANCIES. Vacancies in the membership of the Board of
Directors shall be deemed to exist (i) in case of the death, resignation or
removal of any Director, (ii) if the authorized number of Directors is
increased, or (iii) if the stockholders fail, at a meeting of stockholders at
which Directors are elected, to elect the full authorized number of Directors to
be elected at that meeting. Vacancies in the membership of the Board of
Directors may be filled by a majority of the remaining Directors, though less
than a quorum, or by a sole remaining Director, and each Director so elected
shall hold office until his successor is elected at an annual or a special
meeting of the stockholders. The stockholders may elect a Director at any time
to fill any vacancy not filled by the Directors.
SECTION 14. COMMITTEES OF THE BOARD OF DIRECTORS. By resolution
adopted by a majority of the authorized number of Directors, the Board of
Directors may designate one or more Committees to act as or on behalf of the
Board of Directors. Each such Committee shall consist of one or more Directors
designated by the Board of Directors to serve on such Committee at the pleasure
of the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of any Committee, which alternate members may
replace any absent member at any meeting of such Committee. In the absence or
disqualification of a member of a Committee, the member or members thereof
present at any meeting and not disqualified from
-5-
<PAGE>
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any Committee, to the extent provided
in the resolution of the Board of Directors, these By-Laws or the Certificate of
Incorporation, may have all the authority of the Board of Directors, except with
respect to: (i) amending the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), (ii) adopting
an agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law of Delaware, (iii) recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, (iv) recommending to the stockholders a dissolution of the corporation
or a revocation of a dissolution, or (v) amending these By-Laws.
Included among the Committees shall be the following:
(a) EXECUTIVE COMMITTEE. There shall be an Executive Committee
consisting of its ex officio member and such additional Directors, in no event
less than seven, as the Board of Directors may from time to time deem
appropriate, elected by the Board of Directors at its organizational meeting or
otherwise. Subject to such limitations as may from time to time be imposed by
the Board of Directors or as are imposed by these By-Laws, the Executive
Committee shall have the fullest authority to act for and on behalf of the
corporation, and it shall have all of the powers of the Board of Directors
which, under the law, it is possible for a Board of Directors to delegate to
such a committee, including the supervision of the general management, direction
and superintendence of the business and affairs of the corporation and the power
to declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
-6-
<PAGE>
(b) COMMITTEE ON EXAMINATIONS AND AUDITS. There shall be a Committee
on Examinations and Audits consisting of not less than three Directors who are
not officers of the corporation and who shall be elected by the Board of
Directors at its organizational meeting or otherwise. It shall be the duty of
this Committee (i) to make, or cause to be made, in accordance with the
procedures from time to time approved by the Board of Directors, internal
examinations and audits of the affairs of the corporation and the affairs of any
subsidiary which by resolution of its board of directors has authorized the
Committee on Examinations and Audits to act hereunder, (ii) to make
recommendations to the Board of Directors of the corporation and of each such
subsidiary with respect to the selection of and scope of work for the
independent auditors for the corporation and for each subsidiary, (iii) to
review, or cause to be reviewed in accordance with procedures from time to time
approved by the Board of Directors, all reports of internal examinations and
audits, all audit-related reports made by the independent auditors for the
corporation and each such subsidiary and all reports of examination of the
corporation and of any subsidiary made by regulatory authorities, (iv) from time
to time, to review and discuss with the management, and independently with the
General Auditor, the Risk Control Officer and the independent auditors, the
accounting and reporting principles, policies and practices employed by the
corporation and its subsidiaries and the adequacy of their accounting,
financial, operating and administrative controls, including the review and
approval of any policy statements relating thereto, and (v) to perform such
other duties as the Board of Directors may from time to time assign to it. The
Committee on Examinations and Audits shall submit reports of its findings,
conclusions and recommendations, if any, to the Board of Directors.
(c) MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE. There shall
be a Management Development and Compensation Committee consisting of not less
than six directors, who shall be elected by the Board of Directors at its
organizational meeting or otherwise and none of whom shall be eligible to
participate in either the Wells Fargo & Company Stock Appreciation Rights Plan,
the Wells Fargo & Company Stock Option Plan the Wells Fargo & Company Employee
Stock Purchase Plan or any similar employee stock plan (or shall have been so
eligible within the year next preceding the date of becoming a member of the
Management Development and Compensation Committee). It shall be the duty of
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<PAGE>
the Management Development and Compensation Committee, and it shall have
authority, (i) to advise the Chief Executive Officer concerning the
corporation's salary policies, (ii) to administer such compensation programs as
from time to time are delegated to it by the Board of Directors, (iii) to accept
or reject the recommendations of the Chief Executive Officer with respect to all
salaries in excess of such dollar amount or of officers of such grade or grades
as the Board of Directors may from time to time by resolution determine to be
appropriate and (iv) upon the request of any subsidiary which by resolution of
its board of directors has authorized the Management Development and
Compensation Committee to act hereunder, to advise its chief executive officer
concerning such subsidiary's salary policies and compensation programs.
(d) NOMINATING COMMITTEE. There shall be a Nominating Committee
consisting of not less than three Directors, who shall be elected by the Board
of Directors at its organizational meeting or otherwise. It shall be the duty
of the Nominating Committee, annually and in the event of vacancies on the Board
of Directors, to nominate candidates for election to the Board of Directors.
The Chairman of the Board, or in the absence of the Chairman of the
Board, the acting chief executive officer, if a Director, shall be an EX OFFICIO
member of all the Committees except the Committee on Examinations and Audits,
the Management and Development and Compensation Committee, the Nominating
Committee and such other Committees which by resolution the Board of Directors
expressly limit membership to non-officer Directors.
Each Committee member shall serve until the organizational meeting of
the Board of Directors immediately following the adjournment of the annual
meeting of stockholders next following his election and until his successor
shall have been elected, but any such member may be removed at any time by the
Board of Directors. Vacancies in any of said committees, however created, shall
be filled by the Board of Directors. A majority of the members of any such
committee shall be necessary to constitute a quorum and sufficient for the
transaction of business, and any act of a majority present at a meeting of any
such committee at which there is a quorum present shall be the act of such
committee. Subject to these By-Laws and the authority of the Board of
Directors, each committee shall have
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<PAGE>
the power to determine the form of its organization. The provisions of these
By-Laws governing the calling, notice and place of special meetings of the Board
of Directors shall apply to all meetings of any Committee unless such committee
fixes a time and place for regular meetings, in which case notice for such
meeting shall be unnecessary. The provisions of these By-Laws regarding actions
taken by the Board of Directors, however called or noticed, shall apply to all
meetings of any Committee. Each committee shall cause to be kept a full and
complete record of its proceedings, which shall be available for inspection by
any Director. There shall be presented at each meeting of the Board of
Directors a summary of the minutes of all proceedings of each committee since
the preceding meeting of the Board of Directors.
SECTION 15. ADVISORY DIRECTORS. There shall be not more than 10
Advisory Directors, who shall be elected by the Board of Directors at its
organizational meeting. An Advisory Director shall serve until the
organizational meeting of the Board of Directors immediately following the
adjournment of the annual meeting of stockholders next following his election.
Any Advisory Director may be removed at any time by the Board of Directors.
Vacancies may, but need not be, filled by the Board of Directors. Advisory
Directors may attend meetings of the Board of Directors and, if appointed
thereto as an advisor by the Board of Directors, meetings of Formal Committees
with the privilege of participating in all discussions but without the right to
vote.
SECTION 16. DIRECTORS EMERITI. There shall be not more than ten (10)
Directors Emeriti who shall be elected by the Board of Directors at its
organizational meeting. A Director Emeritus shall serve until the next
following organizational meeting of the Board of Directors. No person may be
elected a Director Emeritus unless at some time prior thereto such person has
been a Director of the corporation. Any Director Emeritus may be removed at any
time by the Board of Directors. Vacancies, however created, may, but need not,
be filled by the Board of Directors. Directors Emeriti may attend meetings of
the Board of Directors and, if appointed thereto as an advisor by the Board of
Directors, meetings of Committees with the privilege of participating in all
discussions but without the right to vote.
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ARTICLE III
OFFICERS
SECTION 1. ELECTION OF EXECUTIVE OFFICERS. The corporation shall
have (i) a Chairman of the Board, (ii) a President, (iii) a Secretary and (iv) a
Chief Financial Officer. The Corporation also may have a Vice Chairman of the
Board, one or more Vice Chairmen, one or more Executive Vice Presidents, one or
more Senior Vice Presidents, one or more Vice Presidents, a Controller, a
Treasurer, one or more Assistant Vice Presidents, one or more Assistant
Treasurers, one or more Assistant Secretaries, a General Auditor, a Risk Control
Officer, and such other officers as the Board of Directors, or the Chief
Executive Officer or any officer or committee whom he may authorize to perform
this duty, may from time to time deem necessary or expedient for the proper
conduct of business by the corporation. The Chairman of the Board, the Vice
Chairman of the Board, if any, and the President shall be elected from among the
members of the Board of Directors. The following offices shall be filled only
pursuant to election by the Board of Directors: Chairman of the Board, Vice
Chairman of the Board, President, Vice Chairman, Executive Vice President,
Senior Vice President, Secretary, Controller, Treasurer, General Auditor and
Risk Control Officer. Other officers may be appointed by the Chief Executive
Officer or by any officer or committee whom he may authorize to perform this
duty. All officers shall hold office at will, at the pleasure of the Board of
Directors, the Chief Executive Officer, the officer or committee having the
authority to appoint such officers, and the officer or committee authorized by
the Chief Executive Officer to remove such officers, and may be removed at any
time, with or without notice and with or without cause. No authorization by the
Chief Executive Officer to perform such duty of appointment or removal shall be
effective unless done in writing and signed by the Chief Executive Officer. Two
or more offices may be held by the same person.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall,
when present, preside at all meetings of the stockholders and of the Board of
Directors and shall be the Chief Executive Officer of the corporation. As Chief
Executive Officer, he shall (i) exercise, and be responsible to the Board of
Directors for, the general supervision of the property,
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affairs and business of the corporation, (ii) report at each meeting of the
Board of Directors upon all matters within his knowledge which the interests of
the corporation may require to be brought to its notice, (iii) prescribe, or to
the extent he may deem appropriate designate an officer or committee to
prescribe, the duties, authority and signing power of all other officers and
employees of the corporation and (iv) exercise, subject to these By-Laws, such
other powers and perform such other duties as may from time to time be
prescribed by the Board of Directors.
SECTION 3. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board shall, subject to these By-Laws, exercise such powers and perform such
duties as may from time to time be prescribed by the Board of Directors. In the
absence of the Chairman of the Board and the President, the Vice Chairman of the
Board shall preside over the meetings of the stockholders and the Board of
Directors.
SECTION 4. PRESIDENT. The President shall, subject to these By-Laws,
be the chief operating officer of the corporation and shall exercise such other
powers and perform such other duties as may from time to time be prescribed by
the Board of Directors. In the absence of the Chairman of the Board, the
President shall preside over the meetings of the stockholders and the Board of
Directors.
SECTION 5. ABSENCE OR DISABILITY OF CHIEF EXECUTIVE OFFICER. In the
absence or disability of the Chairman of the Board, the President shall act as
Chief Executive Officer. In the absence or the disability of both the Chairman
of the Board and the President, the Vice Chairman of the Board shall act as
Chief Executive Officer. In the absence of the Chairman of the Board, the
President and the Vice Chairman of the Board, the officer designated by the
Board of Directors, or if there be no such designation the officer designated by
the Chairman of the Board, shall act as Chief Executive Officer. The Chairman
of the Board shall at all times have on file with the Secretary his written
designation of the officer from time to time so designated by him to act as
Chief Executive Officer in his absence or disability and in the absence or
disability of the President and the Vice Chairman of the Board.
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SECTION 6. EXECUTIVE VICE PRESIDENTS; SENIOR VICE PRESIDENTS; VICE
PRESIDENTS. The Executive Vice Presidents, the Senior Vice Presidents and the
Vice Presidents shall have all such powers and duties as may be prescribed by
the Board of Directors or by the Chief Executive Officer.
SECTION 7. SECRETARY. The Secretary shall keep a full and accurate
record of all meetings of the stockholders and of the Board of Directors, and
shall have the custody of all books and papers belonging to the corporation
which are located in its principal office. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
all other notices required by law or by these By-Laws. He shall be the
custodian of the corporate seal or seals. In general, he shall perform all
duties ordinarily incident to the office of a secretary of a corporation, and
such other duties as from time to time may be assigned to him by the Board of
Directors or the Chief Executive Officer.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have charge of and be responsible for all funds, securities, receipts and
disbursements of the corporation, and shall deposit, or cause to be deposited,
in the name of the corporation all moneys or other valuable effects in such
banks, trust companies, or other depositories as shall from time to time be
selected by the Board of Directors. He shall render to the Chief Executive
Officer and the Board of Directors, whenever requested, an account of the
financial condition of the corporation. In general, he shall perform all duties
ordinarily incident to the office of a chief financial officer of a corporation,
and such other duties as may be assigned to him by the Board of Directors or the
Chief Executive Officer.
SECTION 9. GENERAL AUDITOR. The General Auditor shall be responsible
to the Board of Directors for evaluating the ongoing operation, and the
adequacy, effectiveness and efficiency, of the system of control within the
corporation and of each subsidiary which has authorized the Committee on
Examinations and Audits to act under Section 14(b) of Article II of these
By-Laws. He shall make, or cause to be made, such internal audits and reports
of the corporation and each such subsidiary as may be required by the Board of
Directors or by the Committee on Examinations and Audits. He shall coordinate
the auditing work performed for the corporation and its subsidiaries
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by public accounting firms and, in connection therewith, he shall determine
whether the internal auditing functions being performed within the subsidiaries
are adequate. He shall also perform such other duties as the Chief Executive
Officer may prescribe, and shall report to the Chief Executive Officer on all
matters concerning the safety of the operations of the corporation and of any
subsidiary which he deems advisable or which the Chief Executive Officer may
request. Additionally, the General Auditor shall have the duty of reporting
independently of all officers of the corporation to the Committee on
Examinations and Audits at least quarterly on all matters concerning the safety
of the operations of the corporation and its subsidiaries which should be
brought in such manner through such committee to the attention of the Board of
Directors. Should the General Auditor deem any matter to be of especial
immediate importance, he shall report thereon forthwith through the Committee on
Examinations and Audits to the Board of Directors.
SECTION 10. RISK CONTROL OFFICER. The Risk Control Officer shall
report to the Board of Directors through its Committee on Examinations and
Audits. The Risk Control Officer shall be responsible for directing a number of
control related activities principally affecting the Company's credit function
and shall have such other duties and responsibilities as shall be prescribed
from time to time by the chief executive officer and the Committee on
Examinations and Audits. Should the Risk Control Officer deem any matter to be
of special importance, the Risk Control Officer shall report thereon forthwith
through the Committee to the Board of Directors.
ARTICLE IV
INDEMNIFICATION
SECTION 1. ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding or investigation, whether civil, criminal or
administrative, and whether external or internal to the corporation (other than
a judicial action or suit brought by or in the right of the corporation), by
reason of the fact that he or she is or was an
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Agent (as hereinafter defined) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Agent in connection with such action, suit or proceeding, or any appeal
therein, if the Agent acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe such conduct was unlawful. The termination of any action, suit or
proceeding -- whether by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent -- shall not, of itself, create a
presumption that the Agent did not act in good faith and in a manner which he or
she reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, that the
Agent had reasonable cause to believe that his or her conduct was unlawful. For
purposes of this Article, an "Agent" shall be any director, officer of employee
of the corporation, or any person who, being or having been such a director,
officer or employee, is or was serving at the request of the corporation as a
director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
SECTION 2. ACTION, ETC. BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed judicial action or suit
brought by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was an Agent (as defined above)
against expenses (including attorneys' fees) and amounts paid in settlement
actually and reasonably incurred by such person in connection with the defense,
settlement or appeal of such action or suit if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent the Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to
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indemnify for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. DETERMINATION OF RIGHT OF INDEMNIFICATION OR CONTRIBUTION.
Unless otherwise ordered by a court, any indemnification under Section 1 or 2,
and any contribution under Section 6, of this Article shall be made by the
corporation to an Agent unless a determination is reasonably and promptly made,
either (i) by the Board of Directors acting by a majority vote of a quorum
consisting of Directors who were not party to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or if obtainable and such quorum so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders, that such Agent acted in bad faith and in a manner that such Agent
did not believe to be in or not opposed to the best interests of the corporation
or, with respect to any criminal proceeding, that such Agent believed or had
reasonable cause to believe that his or her conduct was unlawful.
SECTION 4. ADVANCES OF EXPENSES. Except as limited by Section 5 of
this Article, costs, charges and expenses (including attorneys' fees) incurred
by an Agent in defense of any action, suit, proceeding or investigation of the
nature referred to in Section 1 or 2 of this Article or any appeal therefrom
shall be paid by the corporation in advance of the final disposition of such
matter; provided, however, that if the General Corporation Law of Delaware then
so requires, such payment shall be made only if the Agent shall undertake to
reimburse the corporation for such payment in the event that it is ultimately
determined, as provided herein, that such person is not entitled to
indemnification.
SECTION 5. RIGHT OF AGENT TO INDEMNIFICATION OR ADVANCE UPON
APPLICATION; PROCEDURE UPON APPLICATION. Any indemnification under Section 1 or
2, or advance under Section 4, of this Article shall be made promptly and in any
event within 90 days, upon the written request of the Agent, unless with respect
to an application under said Sections 1 or 2 an adverse determination is
reasonably and promptly made pursuant to Section 3 of this Article or unless
with respect to an application under said Section 4 an adverse determination is
made pursuant to said Section 4. The right to indemnification or advances as
granted by this Article shall be enforceable by the Agent in any court of
competent jurisdiction if the Board of Directors or independent
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legal counsel improperly denies the claim, in whole or in part, or if no
disposition of such claim is made within 90 days. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any action, suit or proceeding in advance of its final
disposition where any required undertaking has been tendered to the corporation)
that the Agent has not met the standards of conduct which would require the
corporation to indemnify or advance the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including the Board of Directors, independent legal counsel and the
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the Agent is proper in the circumstances because
he or she has met the applicable standard of conduct, nor an actual
determination by the corporation (including the Board of Directors, independent
legal counsel and the stockholders) that the Agent had not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Agent had not met the applicable standard of conduct. The Agent's
costs and expenses incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such proceeding shall
also be indemnified by the corporation.
SECTION 6. CONTRIBUTION. In the event that the indemnification
provided for in this Article is held by a court of competent jurisdiction to be
unavailable to an Agent in whole or in part, then in respect of any threatened,
pending or completed action, suit or proceeding in which the corporation is
jointly liable with the Agent (or would be if joined in such action, suit or
proceeding), to the extent permitted by the General Corporation Law of Delaware
the corporation shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by the Agent in such proportion as is appropriate
to reflect (i) the relative benefits received by the corporation on the one hand
and the Agent on the other from the transaction from which such action, suit or
proceeding arose and (ii) the relative fault of the corporation on the one hand
and of the Agent on the other in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of the corporation on the
one hand and of the Agent on the other shall be determined by
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reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such expenses, judgments, fines or settlement amounts.
SECTION 7. OTHER RIGHTS AND REMEDIES. Indemnification under this
Article shall be provided regardless of when the events alleged to underlie any
action, suit or proceeding may have occurred, shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs, executors
and administrators of such a person. All rights to indemnification and
advancement of expenses under this Article shall be deemed to be provided by a
contract between the corporation and the Agent who serves as such at any time
while these By-Laws and other relevant provisions of the General Corporation Law
of Delaware and other applicable law, if any, are in effect. Any repeal or
modification thereof shall not affect any rights or obligations then existing.
SECTION 8. INSURANCE. Upon resolution passed by the Board of
Directors, the corporation may purchase and maintain insurance on behalf of any
person who is or was an Agent against any liability asserted against such person
and incurred by him or her in any such capacity, or arising out of his or her
status as such, regardless of whether the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article. The corporation may create a trust fund, grant a security interest or
use other means, including without limitation a letter of credit, to ensure the
payment of such sums as may become necessary to effect indemnification as
provided herein.
SECTION 9. CONSTITUENT CORPORATIONS. For the purposes of this
Article, references to "the corporation" include all constituent corporations
(including any constituent of a constituent) absorbed in a consolidation or
merger as well as the resulting or surviving corporation, so that any person who
is or was a director, officer or employee of such a constituent corporation or
who, being or having been such a director, officer or employee, is or was
serving at the request of such constituent corporation as a director, officer,
employee or trustee of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving
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corporation as such person would if he or she had served the resulting or
surviving corporation in the same capacity.
SECTION 10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S
REQUEST. For purposes of this Article, references to "other enterprise" in
Sections 1 and 9 shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service by an Agent as director, officer, employee, trustee or
agent of the corporation which imposes duties on, or involves services by, such
Agent with respect to any employee benefit plan, its participants, or
beneficiaries. A person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interest of the corporation" for purposes of this Article.
SECTION 11. SAVINGS CLAUSE. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each Agent as to expenses
(including attorneys' fees, judgments, finds and amounts paid in settlement with
respect to any action, suit, appeal, proceeding or investigation, whether civil,
criminal or administrative, and whether internal or external, including a grand
jury proceeding and an action or suit brought by or in the right of the
corporation, to the full extent permitted by the applicable portion of this
Article that shall not have been invalidated, or by any other applicable law.
SECTION 12. ACTIONS INITIATED BY AGENT. Anything to the contrary in
this Article notwithstanding, the corporation shall indemnify any Agent in
connection with an action, suit or proceeding initiated by such Agent (other
than actions, suits, or proceedings commenced pursuant to Section 5 of this
Article) only if such action, suit or proceeding was authorized by the Board of
Directors.
SECTION 13. STATUTORY AND OTHER INFORMATION. Notwithstanding any
other provision of this Article, the corporation shall indemnify any Agent and
advance expenses incurred by such Agent in any action, suit or proceeding of the
nature referred to in Section 1 or 2 of this Article to the
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fullest extent permitted by the General Corporation Law of Delaware, as the same
may be amended from time to time, except that no amount shall be paid pursuant
to this Article in the event of an adverse determination pursuant to Section 3
of this Article or in respect of remuneration to the extent that it shall be
determined to have been paid in violation of law or in respect of amounts owing
under Section 16(b) of the Securities Exchange Act of 1934. The rights to
indemnification and advancement of expenses provided by any provision of this
Article, including without limitation those rights conferred by the preceding
sentence, shall not be deemed exclusive of, and shall not affect, any other
rights to which an Agent seeking indemnification or advancement of expenses may
be entitled under any provision of any law, certificate of incorporation,
by-law, agreement or by any vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while serving as an Agent. The corporation may, by action of
the Board of Directors, provide indemnification and advancement of expenses to
agents of the corporation to the extent deemed appropriate, not to exceed the
scope and effect provided under this Article to directors, officers and
employees.
ARTICLE V
MISCELLANEOUS
SECTION 1. FISCAL YEAR. The fiscal year of the corporation shall be
the calendar year.
SECTION 2. STOCK CERTIFICATES. Each stockholder shall be entitled to
a certificate representing the number of shares of the stock of the corporation
owned by such stockholder and the class or series of such shares. Each
certificate shall be signed in the name of the corporation by (i) the Chairman
of the Board, the Vice Chairman of the Board, the President, an Executive Vice
President, a Senior Vice President, or a Vice President, and (ii) the Treasurer,
an Assistant Treasurer, the Secretary, or an Assistant Secretary. Any of the
signatures on the certificate may be facsimile. Prior to due presentment for
registration of transfer in the stock transfer book of the corporation, the
registered owner for any share of stock of the corporation shall be treated as
the person exclusively entitled to vote, to receive notice, and to exercise all
other rights and receive all other
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entitlements of a stockholder with respect to such share, except as may be
provided otherwise by law.
SECTION 3. EXECUTION OF WRITTEN INSTRUMENTS. All written instruments
shall be binding upon the corporation if signed on its behalf by (i) any two of
the following officers: the Chairman of the Board, the President, the Vice
Chairman of the Board, the Vice Chairmen or the Executive Vice Presidents; or
(ii) any one of the foregoing officers signing jointly with any Senior Vice
President. Whenever any other officer or person shall be authorized to execute
any agreement, document or instrument by resolution of the Board of Directors,
or by the Chief Executive Officer, or by any two of the officers identified in
the immediately preceding sentence, such execution by such other officer or
person shall be equally binding upon the corporation.
SECTION 4. SUBSIDIARY. As used in these By-Laws the term
"subsidiary" or "subsidiaries" means any corporation 25 percent or more of whose
voting shares is directly or indirectly owned or controlled by the corporation,
or any other affiliate of the corporation designated in writing as a subsidiary
of the corporation by the Chief Executive Officer of the corporation. All such
written designations shall be filed with the Secretary of the corporation.
SECTION 5. AMENDMENTS. These By-Laws may be altered, amended or
repealed by a vote of the stockholders entitled to exercise a majority of the
voting power of the corporation, by written consent of such stockholders or by
the Board of Directors.
SECTION 6. ANNUAL REPORT. The Board of Directors shall cause an
annual report to be sent to the stockholders not later than 120 days after the
close of the fiscal year and at least 15 days prior to the annual meeting of
stockholders to be held during the ensuing fiscal year.
SECTION 7. CONSTRUCTION. Unless the context clearly requires it,
nothing in these By-Laws shall be construed as a limitation on any powers or
rights of the corporation, its Directors or its officers provided by the General
Corporation Law of Delaware. Unless the context otherwise requires, the General
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Corporation Law of Delaware shall govern the construction of these By-Laws.
SECTION 8. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiary, including any officer or employee who
is a director of the corporation or its subsidiary, whenever, in the judgment of
the Board of Directors or any committee thereof, such loan, guaranty or
assistance may reasonably be expected to benefit the corporation. The loan,
guaranty or other assistance may be with or without interest, and may be
unsecured, or secured in such manner as the Board of Directors or such committee
shall approve, including, without limitation, a pledge of shares of stock of the
corporation. This Section shall not be deemed to deny, limit or restrict the
powers of guaranty or warranty of the corporation at common law or under any
statute.
SECTION 9. NOTICES; WAIVERS. Whenever, under any provision of the
General Corporation Law of Delaware, the Certificate of Incorporation or these
By-Laws, notice is required to be given to any director or stockholder, such
provision shall not be construed to mean personal notice, but such notice may be
given in writing, by mail, addressed to such Director or stockholder, at his
address as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Notice to directors may also be
given by facsimile, telex or telegram. A waiver in writing of any such required
notice, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
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WELLS FARGO & COMPANY
EXECUTIVE LOAN PLAN
PURPOSE: Wells Fargo & Company ("Company") hereby establishes this
Executive Loan Plan ("Plan") pursuant to Article IV, Section 8 of its By-Laws
and Section 315(b) of the California Corporations Code in order to enable the
Company to attract and retain outstanding executives in key management positions
with the Company and its subsidiaries by offering such individuals financial
assistance, either through direct loans from the Company or through Company
guarantees of third-party loans, for such purposes as are described herein.
ADMINISTRATION: The Plan shall be administered by the Management
Development and Compensation Committee ("Committee") of the Board of Directors
of the Company ("Board"). The Committee shall have full authority to adopt
rules, regulations, and guidelines for the proper administration of the Plan and
may appoint one or more officers of the Company or Wells Fargo Bank, N.A.
(collectively, "Administrators") who shall each have the authority to authorize
extensions or guarantees of loans pursuant to the terms of the Plan and any
rules, regulations, or guidelines adopted hereunder by the Committee. In no
event, however, shall any individual Administrator participate in the
authorization of the extension or guarantee of any loan in which he or she has
an interest.
ELIGIBILITY FOR FINANCIAL ASSISTANCE: Executives of the Company and its
subsidiaries, including officers (whether or not they are directors), may from
time to time request financial assistance from the Company in accordance with
the provisions of this Plan.
Loans extended or guaranteed may be either mortgage loans or general
purpose loans. A mortgage loan shall be for the purpose of purchasing or
constructing the executive's principal residence, improving his or her principal
residence, refinancing outstanding indebtedness on his or her principal
residence (including an indebtedness to the Company or one of its subsidiaries),
or a combination thereof. A general purpose loan shall be for the purpose of
personal household expenses, education or support of dependents, extraordinary
medical or dental expenses of the individual or dependents, expenses relating to
the executive's principal residence, income taxes, or such other purposes as an
Administrator shall deem appropriate; provided that no general purpose loan
shall be made solely for investment purposes. Loans to acquire shares of common
stock under a stock option plan or similar plan of the Company shall be made
solely in accordance with the terms of such plan and not pursuant to this Plan.
No financial assistance shall be provided to an executive under the Plan,
unless an Administrator determines that the purpose for which such assistance is
requested is one of the purposes authorized under the Plan and that a Company
loan or guarantee under the Plan on behalf of such executive would be in the
best interests of the
<PAGE>
Company. The Administrators shall make semiannual reports to the Committee of
loans extended or guaranteed under the Plan.
EXTENSION OR GUARANTEE OF LOANS: The Company shall, in accordance with
the authorization of an Administrator, extend a loan to an executive or shall
guarantee a third-party loan to such individual, provided that any such Company
loan or guarantee shall be subject to the following terms and conditions:
1. The principal balance of a mortgage loan extended or guaranteed
under the Plan shall not exceed the lesser of one million five hundred
thousand dollars ($1,500,000) or, when aggregated with all other
outstanding indebtedness secured by the residence with respect to
which the loan is made, one hundred percent (100%) of the fair market
value of such residence.
2. The principal balance of a general purpose loan extended or
guaranteed under the Plan shall not, when aggregated with any
outstanding general purpose loan extended or guaranteed under the Plan
to the same executive, exceed the lesser of two hundred fifty thousand
dollars ($250,000) or one hundred fifty percent (150%) of the
executive's annual base salary.
3. The term of the extended loan or guarantee shall not exceed
thirty (30) years for a mortgage loan or ten (10) years for a general
purpose loan.
If an executive with an outstanding loan under the Plan
voluntarily terminates employment with Wells Fargo or is discharged
for gross and willful misconduct, the term of such loan shall end (and
the entire remaining principal balance and any accrued, unpaid
interest under such loan shall become payable) on the earlier of (i)
the end of the original term of the loan or (ii) 120 days following
termination of employment, unless the Committee determines, in its
sole discretion and based on extraordinary circumstances, that an
extension of the term is appropriate. "Gross and willful misconduct"
shall include (without limitation) the wrongful appropriation of funds
of Wells Fargo or the commission of a felony.
4. If a direct Company loan is made, the loan shall be evidenced by
the executive's promissory note made payable to the Company's order.
Such note shall bear interest at the applicable federal rate in effect
at the time the loan is made under section 1274(d) of the Internal
Revenue code of 1954, as amended ("Code"), (or such higher rate as
shall be necessary to avoid imputation of foregone interest under
section 7872 of the Code or any successor provision); PROVIDED THAT,
upon authorization of an Administrator, the interest rate may be
reduced by up to five (5) percentage points during the period that the
borrowing executive remains in the employ of the Company or one of its
subsidiaries. Principal and interest (if any) on the note may provide
for payment either in full upon the expiration of the term or
<PAGE>
from time to time during such term; and the note may be secured or
nonsecured.
5. Such other terms and conditions as the Committee shall specify by
rule, regulation, or guideline.
The remaining terms of a loan or loan guarantee under the Plan shall be
determined by the authorizing Administrator, provided that such terms shall not
be inconsistent with the terms and conditions set forth above. All direct
Company loans shall be made from the general funds of the Company.
EFFECTIVE DATE, AMENDMENT AND TERMINATION: This Plan shall become
effective upon adoption by the Board and may be amended from time to time by
action of the Committee. The Plan shall remain in effect until terminated by
action of the Board or the Committee.
<PAGE>
EXHIBIT 11
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year ended December 31,
--------------------------
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Net income $ 841 $ 612 $283
Less preferred dividends 43 50 48
------ ------ ----
Net income for calculating primary
earnings per common share $ 798 $ 562 $235
====== ====== ====
Average common shares outstanding 53.9 55.6 52.9
====== ====== ====
PRIMARY EARNINGS PER COMMON SHARE $14.78 $10.10 $4.44
====== ====== ====
FULLY DILUTED EARNINGS PER COMMON SHARE (1)
Net income $ 841 $ 612 $283
Less preferred dividends 43 50 48
------ ------ ----
Net income for calculating fully
diluted earnings per common share $ 798 $ 562 $235
====== ====== ====
Average common shares outstanding 53.9 55.6 52.9
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 1.4 1.2 .7
------ ------ ----
Average common shares outstanding, as adjusted 55.3 56.8 53.6
====== ====== ====
FULLY DILUTED EARNINGS PER COMMON SHARE $14.42 $ 9.88 $4.38
====== ====== ====
- -------------------------------------------------------------------------------
<FN>
(1) This presentation is submitted in accordance with Item 601(b)(11) of
Regulation S-K. This presentation is not required by APB Opinion No. 15,
because it results in dilution of less than 3%.
</TABLE>
<PAGE>
EXHIBIT 12
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------
(in millions) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings, including interest on deposits (1):
Income before income tax expense $1,454 $1,038 $ 500 $ 54 $1,196
Fixed charges 1,214 1,157 1,505 2,504 2,784
------ ------ ------ ------ ------
$2,668 $2,195 $2,005 $2,558 $3,980
====== ====== ====== ====== ======
Fixed charges (1):
Interest expense $1,155 $1,104 $1,454 $2,452 $2,737
Estimated interest component of net rental expense 59 53 51 52 47
------ ------ ------ ------ ------
$1,214 $1,157 $1,505 $2,504 $2,784
====== ====== ====== ====== ======
Ratio of earnings to fixed charges (2) 2.20 1.90 1.33 1.02 1.43
====== ====== ====== ====== ======
Earnings, excluding interest on deposits:
Income before income tax expense $1,454 $1,038 $ 500 $ 54 $1,196
Fixed charges 360 294 320 539 839
------ ------ ------ ------ ------
$1,814 $1,332 $ 820 $ 593 $2,035
====== ====== ====== ====== ======
Fixed charges:
Interest expense $1,155 $1,104 $1,454 $2,452 $2,737
Less interest on deposits (854) (863) (1,185) (1,965) (1,945)
Estimated interest component of net rental expense 59 53 51 52 47
------ ------ ------ ------ ------
$ 360 $ 294 $ 320 $ 539 $ 839
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 5.04 4.53 2.56 1.10 2.42
====== ====== ====== ====== ======
<FN>
(1) As defined in Item 503(d) of Regulation S-K.
(2) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there were no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there were no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the
level of interest rates or, conversely, they would increase if interest
income and interest expense decrease by the same amount due to a decrease
in the level of interest rates.
</TABLE>
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW
OVERVIEW
- --------------------------------------------------------------------------------
Wells Fargo & Company (Parent) is a bank holding company whose principal
subsidiary is Wells Fargo Bank, N.A. (Bank). In this Annual Report, Wells Fargo
& Company and its subsidiaries are referred to as the Company.
Net income in 1994 was $841 million, compared with $612 million in 1993, an
increase of 37%. Net income per share was $14.78, compared with $10.10 in 1993,
an increase of 46%. The increase in earnings from a year ago was largely due to
a lower loan loss provision. 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.
[RETURN ON AVERAGE TOTAL ASSETS (ROA) (GRAPH) (%)] SEE APPENDIX
[RETURN ON COMMON STOCKHOLDERS' EQUITY (GRAPH) (ROE) (%)] SEE APPENDIX
Return on average assets (ROA) was 1.62% and return on average common
equity (ROE) was 22.41% in 1994, compared with 1.20% and 16.74%, respectively,
in 1993.
Net interest income on a taxable-equivalent basis was $2,610 million in
1994, compared with $2,659 million a year ago. The Company's net interest margin
was 5.55% for 1994, down from 5.74% in 1993. This decrease was substantially due
to lower hedging income, largely offset by an increase in the rate spread
between loans and deposits.
Noninterest income increased from $1,093 million in 1993 to $1,200 million
in 1994, an increase of 10%. The growth was primarily due to higher service
charges on deposit accounts and increases in trust and investment services
income.
Noninterest expense decreased from $2,162 million in 1993 to $2,156 million
in 1994. A major portion of the decrease in noninterest expense was due to a
decrease in foreclosed assets expense, largely offset by higher levels of
incentive compensation.
The Company's provision for loan losses was $200 million in 1994, compared
with $550 million in 1993. During 1994, net charge-offs were $240 million, or
.70% of average total loans, compared with $495 million, or 1.44%, during 1993.
The allowance for loan losses was $2,082 million, or 5.73% of total loans, at
December 31, 1994, compared with $2,122 million, or 6.41%, at December 31, 1993.
Total loan balances increased 10% since December 31, 1993, rising to $36.3
billion at December 31, 1994.
At December 31, 1994, total nonaccrual and restructured loans were $582
million, or 1.6% of total loans, compared with $1,200 million, or 3.6%, at
December 31, 1993. Loans new to nonaccrual in 1994 were $340 million, compared
with $821 million in 1993. At December 31, 1994, an estimated $246 million, or
43%, of nonaccrual loans were less than 90 days past due, compared with an
estimated $704 million, or 59%, at December 31, 1993. Foreclosed assets were
$272 million at December 31, 1994, compared with $348 million at December 31,
1993.
At December 31, 1994, the ratio of common stockholders' equity to total
assets was 6.41%, compared with 7.00% at December 31, 1993. The Company's total
risk-based capital (RBC) ratio at December 31, 1994 was 13.16% and its Tier 1
RBC ratio was 9.09%, exceeding the minimum regulatory guidelines of 8% and 4%,
respectively, for bank holding companies and the "well capitalized" guidelines
for banks of 10% and 6%, respectively. The Company's ratios at
6
<PAGE>
December 31, 1993 were 15.12% and 10.48%, respectively. The Company's leverage
ratios were 6.89% and 7.39% at December 31, 1994 and 1993, respectively,
exceeding the minimum regulatory guideline of 3% for bank holding companies and
the well capitalized guideline for banks of 5%.
The decreases in the risk-based capital and leverage ratios resulted
primarily from the repurchase of 5,122,597 shares of common stock during 1994.
The Company has bought in the past, and will continue to buy, shares to offset
stock issued or expected to be issued under the Company's employee benefit and
dividend reinvestment plans. In addition to these shares, the Board of Directors
authorized in July 1994 the repurchase of up to 5.4 million shares of the
Company's outstanding common stock. This action reflects the Company's strong
capital position and will allow the Company to effectively manage its overall
capital position in the best interest of its shareholders. There is no scheduled
date for completion of the program; the Company will repurchase shares from time
to time, subject to market conditions. It is the Company's current intention,
assuming continued Board authorization, to repurchase shares until the Company
can find investment opportunities that provide sufficient returns. A discussion
of RBC and leverage ratio guidelines is in the Capital Adequacy/Ratios section.
In the first quarter of 1994, the Board of Directors approved an increase
in the common stock quarterly dividend from $.75 to $1.00 per share. The
quarterly dividend was increased again in January 1995 to $1.15 per share.
A general economic recovery, of moderate proportions, has taken hold in
California. The Company is directly affected by this recovery due to the fact it
operates predominately in California markets. More industries are reporting
higher sales and profits, the unemployment rate has dropped and confidence
levels have improved. During much of 1994, sales at department stores
strengthened, confirming the favorable results of a recent survey on small
business. New jobs created in 1994 are estimated to be between 150,000 and
200,000, the best showing in four years.
Business conditions varied widely, reflecting the different economic make-
up of each region.
Economic activity was strongest in California's Central Valley. This region
has an agribusiness base that continued to prosper and expand during 1994.
Yields and prices remained favorable, while a soft U.S. dollar in overseas
markets helped the exports of fresh and processed foods. The Central Valley also
continued to attract new business and capital from other regions of the state
(and elsewhere) because of its favorable business climate.
In Southern California, economic activity also improved following a long
and deep recession. However, business conditions were somewhat hesitant and
spotty, but, for the first time since 1990, the region added new jobs. In
<TABLE>
<CAPTION>
TABLE 1 RATIOS AND PER COMMON SHARE DATA
===========================================================================
Year ended December 31,
--------------------------------
1994 1993 1992
<S> <C> <C> <C>
PROFITABILITY RATIOS
Net income to average total assets (ROA) 1.62% 1.20% .54%
Net income applicable to common stock
to average common stockholders'
equity (ROE) 22.41 16.74 7.93
Net income to average
stockholders' equity 20.61 15.32 7.92
EFFICIENCY RATIO (1) 56.6% 57.7% 54.3%
CAPITAL RATIOS
At year end:
Common stockholders' equity to assets 6.41% 7.00% 6.03%
Stockholders' equity to assets 7.33 8.22 7.25
Risk-based capital (2)
Tier 1 capital 9.09 10.48 8.22
Total capital 13.16 15.12 13.15
Leverage (2) 6.89 7.39 6.36
Average balances:
Common stockholders' equity to assets 6.86 6.57 5.65
Stockholders' equity to assets 7.87 7.82 6.81
PER COMMON SHARE DATA
Dividend payout (3) 27% 22% 34%
Book value $ 66.77 $ 65.87 $ 57.44
Market prices (4):
High $160-3/8 $ 133 $86-3/8
Low 127-5/8 75-1/2 59
Year end 145 129-3/8 76-3/8
- ---------------------------------------------------------------------------
<FN>
(1) The efficiency ratio is defined as noninterest expense divided by the total
of net interest income and noninterest income.
(2) See the Capital Adequacy/Ratios section for additional information.
(3) Dividends declared per common share as a percentage of net income per common
share.
(4) Based on daily closing prices reported on the New York Stock Exchange
Composite Transaction Reporting System.
</TABLE>
addition, department stores reported better sales as incomes improved. The
region's important tourist-entertainment sectors also were stronger. Defense
cuts continued, but at a more moderate pace, while the demand for office space
rose a little resulting in slightly lower vacancy rates.
The Northern California region also recovered during much of 1994. Home
sales remained buoyant, although by year end, they started to weaken because of
rising mortgage rates. A major improvement took place in the Silicon Valley as
the demand for computer chips and other high-tech products rose sharply. The
area's economy was particularly strengthened by important international
business trade with the Pacific Rim and Mexico that continued to fuel exports.
7
<PAGE>
<TABLE>
<CAPTION>
TABLE 2 SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA
==================================================================================================================================
(in millions) 1994 1993 1992 1991 1990 1989 % Change Five-year
1994/ compound
1993 growth rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 2,610 $ 2,657 $ 2,691 $ 2,520 $ 2,314 $ 2,159 (2)% 4 %
Provision for loan losses 200 550 1,215 1,335 310 362 (64) (11)
Noninterest income 1,200 1,093 1,059 889 909 779 10 9
Noninterest expense 2,156 2,162 2,035 2,020 1,717 1,575 -- 6
Net income 841 612 283 21 712 601 37 7
PER COMMON SHARE
Net income $ 14.78 $ 10.10 $ 4.44 $ .04 $ 13.39 $ 11.02 46 6
Dividends declared 4.00 2.25 1.50 3.50 3.90 3.30 78 4
BALANCE SHEET
(at year end)
Investment securities $11,608 $13,058 $ 9,338 $ 3,833 $ 1,387 $ 1,738 (11)% 46 %
Loans 36,347 33,099 36,903 44,099 48,977 41,727 10 (3)
Allowances for loan losses 2,082 2,122 2,067 1,646 885 738 (2) 23
Assets 53,374 52,513 52,537 53,547 56,199 48,737 2 2
Core deposits 38,508 41,291 41,879 42,941 41,840 35,607 (7) 2
Senior/Subordinated debt 2,853 4,221 4,040 4,220 2,417 2,541 (32) 2
Stockholders' equity 3,911 4,315 3,809 3,271 3,360 2,861 (9) 6
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE 3 LINE OF BUSINESS RESULTS (ESTIMATED)
==================================================================================================================================
(income/expense in millions, Retail Business
average balances in billions) Distribution Group Banking Group Investment Group Real Estate Group
------------------ ------------------ ------------------ --------------------
1994 1993 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 417 $432 $293 $249 $ 386 $ 359 $213 $256
Provision for loan losses (1) 1 1 27 23 1 1 28 36
Noninterest income (2) 612 546 131 136 303 276 24 12
Noninterest expense (2) 914 939 273 272 445 366 67 140
----- ---- ---- ---- ----- ----- ---- ----
Income before income
tax expense (benefit) 114 38 124 90 243 268 142 92
Income tax expense (benefit)(3) 54 16 55 39 107 118 60 39
----- ---- ---- ---- ----- ----- ---- ----
Net income $ 60 $ 22 $ 69 $ 51 $ 136 $ 150 $ 82 $ 53
===== ==== ==== ==== ===== ===== ==== ====
Average loans (4)(5)(6) $ -- $ -- $1.8 $1.6 $ 0.5 $ 0.6 $6.2 $8.0
Average assets 1.2 1.1 3.0 2.7 1.0 1.1 6.6 8.6
Average core deposits 10.3 9.8 7.2 7.2 19.6 20.9 0.1 0.2
Return on equity (7) 17% 6% 22% 17% 30% 31% 13% 7%
Risk-adjusted efficiency ratio (8) 96% 103% 84% 91% 78% 72% 90% 127%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) 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.
(2) Retail branch charges to the product groups are shown as noninterest income to the branches and noninterest expense to the
product groups. They amounted to $178 million and $184 million in 1994 and 1993, respectively. These charges are eliminated
in the Other category in arriving at the Consolidated Company totals for noninterest income and expense.
(3) Businesses are taxed at the Company's marginal (statutory) tax rate, adjusted for any nondeductible expenses. Any differences
between the marginal and effective tax rate are in Other.
(4) The Real Estate Group's average loans include loans to real estate developers of $.4 billion and $.6 billion for 1994 and 1993,
respectively, and other commercial real estate loans of $5.8 billion and $7.4 billion for 1994 and 1993, respectively.
</TABLE>
8
<PAGE>
LINE OF BUSINESS RESULTS
- --------------------------------------------------------------------------------
The Company has identified seven distinct lines of business for the purposes of
management reporting, as shown in Table 3.
The line of business results show the financial performance of the major
business units. Line of business results are determined based on the Company's
management accounting process, which assigns balance sheet and income statement
items to each responsible business unit. This process is dynamic and somewhat
subjective. Unlike financial accounting, there is no comprehensive,
authoritative body of guidance for management accounting equivalent to generally
accepted accounting principles. The management accounting process measures the
performance of the business lines based on the management structure of the
Company and is not necessarily comparable with similar information for any other
financial institution. 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 year to the next.
The provision for loan losses is allocated based on management's current
assessment of the long-term, normalized net charge-off ratio for each business.
Internal expense allocations are independently negotiated between business units
and, where possible, service and price is measured against comparable services
available in the external marketplace. Equity is allocated based on an
assessment of the inherent risk of each business unit. The ROEs are comparable
across business lines and are measured against the Company's market required
return.
The following describes the major business units.
THE RETAIL DISTRIBUTION GROUP sells and services a complete line of retail
financial products for consumers and small businesses. It encompasses a branch
network (including supermarket branches and banking centers), the 24-hour
Customer Sales and Service Centers (telephone banking), the ATM network and
Wells Fargo ON-LINE, the Company's personal computer banking service. In
addition, Retail Distribution includes product management for the consumer
checking business, which primarily uses the branches as a source of new
customers.
As part of the ongoing effort to provide higher-convenience, lower-cost
service to customers, the Company opened supermarket branches, which are a more
efficient delivery channel for a full line of retail banking services, and
banking centers in California in 1994. The supermarket banking centers
(modularly designed kiosks equipped
<TABLE>
<CAPTION>
TABLE 3 LINE OF BUSINESS RESULTS (ESTIMATED) (Continued)
==================================================================================================================================
Wholesale
Products Group Consumer Lending Mortgage Lending Other Consolidated Company
--------------- ---------------- ---------------- ---------------- --------------------
1994 1993 1994 1993 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $352 $323 $458 $439 $ 203 $ 225 $ 288 $ 374 $2,610 $2,657
Provision for loan losses (1) 37 37 176 168 15 14 (85) 270 200 550
Noninterest income (2) 135 109 139 137 11 21 (155) (144) 1,200 1,093
Noninterest expense (2) 178 169 228 211 122 126 (71) (61) 2,156 2,162
---- ---- ---- ---- ----- ----- ----- ----- ------ ------
Income before income
tax expense (benefit) 272 226 193 197 77 106 289 21 1,454 1,038
Income tax expense (benefit) (3) 116 94 82 83 32 44 107 (7) 613 426
---- ---- ---- ---- ----- ----- ----- ----- ------ ------
Net income $156 $132 $111 $114 $ 45 $ 62 $ 182 $ 28 $ 841 $ 612
==== ==== ==== ==== ===== ===== ===== ===== ====== ======
Average loans (4)(5)(6) $8.2 $8.2 $5.9 $5.6 $11.4 $10.2 $ -- $ 0.1 $ 34.0 $ 34.3
Average assets 9.0 8.9 6.0 5.8 11.5 10.3 13.5 12.6 51.8 51.1
Average core deposits 1.9 1.7 0.3 0.5 0.1 0.1 0.1 -- 39.6 40.4
Return on equity (7) 23% 19% 28% 30% 7% 12% --% --% 22% 17%
Risk-adjusted efficiency ratio (8) 69% 77% 72% 69% 120% 98% --% --% --% --%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(5) The Wholesale Products Group's average loans include commercial real estate loans of $2.3 billion and $2.4 billion for 1994 and
1993, respectively, and other commercial loans of $5.9 billion and $5.8 billion for 1994 and 1993, respectively. These loans
were originated largely by the Company's Commercial Banking Group which deals mostly with middle market borrowers.
(6) Mortgage Lending's average loans include real estate 1-4 family first mortgage loans of $8.1 billion and $6.4 billion for 1994
and 1993, respectively, and junior mortgages and other loans of $3.3 billion and $3.8 billion for 1994 and 1993, respectively.
(7) Equity is allocated to the lines of business based on an assessment of the inherent risk associated with each business so the
returns on allocated equity are on a risk-adjusted basis and comparable across business lines.
(8) 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>
9
<PAGE>
with ATMs, a customer service telephone and staffed by a banking officer) are
capable of providing substantially all consumer services.
Pretax income in 1994 for this group increased $76 million to $114 million.
The 1994 results reflect higher deposit service charges and lower net interest
income from lower spreads on checking deposits that were partially offset by
higher balances. Lower occupancy and personnel expenses from reductions in
branch space and the results of reengineering efforts in consumer checking were
partially offset by systems investments in alternative distribution (non-branch)
channels. Noninterest income in 1994 and 1993 included a $14 million and a $36
million accrual, respectively, related to the disposition of owned and leased
premises associated with branch closures. (See Noninterest Income section for
further information.)
THE BUSINESS BANKING GROUP provides a full range of financial services to small
businesses, including credit, deposits, investments, payroll services,
retirement programs, and credit and debit card services. Business Banking
customers include small businesses with annual sales up to $10 million in which
the owner of the business is also the principal financial decision maker.
Pretax income in 1994 increased $34 million to $124 million due to higher
net interest income resulting from increased lending volumes and higher spreads
on business checking. In addition, the group completed the formation in late
1993 of an alliance with Card Establishment Services (CES) to perform the
processing of the credit and debit card services. The alliance resulted in lower
noninterest income and noninterest expense, but did not result in a material
impact on pretax income. (See Noninterest Income section for further information
regarding CES.)
THE INVESTMENT GROUP is responsible for the sales and management of savings and
investment products, investment management and brokerage services. This includes
the Stagecoach and Overland Express Funds and personal trust, employee benefit
trust and agency assets. It also includes product management for market rate
accounts, savings deposits, Individual Retirement Accounts (IRAs) and time
deposits. The Investment Group also includes the Wells Fargo Nikko Investment
Advisors (WFNIA) joint venture and Wells Fargo Insurance Services.
The Investment Group's pretax income in 1994 declined $25 million to $243
million, resulting from higher incentive compensation expense due to an increase
in sales of approximately $800 million through the Personal Finance Officer
(PFO) program. The increase in compensation was partially offset by higher
annuity sales fees, management fees and net interest income. Fee income did not
keep pace with compensation in 1994 as a higher percentage of the PFO sales were
in no-load funds. No-load funds do not charge a sales fee; revenue is generated
from management fees collected on assets under management. The growth in net
interest income was due to widening spreads on market rate accounts, which
offset a year-over-year decline in balances.
THE REAL ESTATE GROUP provides a complete line of services supporting the
commercial real estate market. Products and services include construction loans
for commercial and residential development, land acquisition and development
loans, secured and unsecured lines of credit, interim financing arrangements for
completed buildings, rehabilitation loans, affordable housing loans and letters
of credit. Secondary market services are provided through the Real Estate
Capital Markets area. Its business includes purchases of distressed loans at a
discount, mezzanine financing, acquisition financing, origination of permanent
loans for securitization, syndications, commercial real estate loan servicing
and real estate pension fund advisory services.
Pretax income in 1994 increased $50 million to $142 million due to the
improvement in credit quality that resulted in lower credit-related expenses,
including lower foreclosed assets expense.
Average loans were $6.2 billion in 1994, down from $8.0 billion in 1993.
The decline was primarily due to payments. The current portfolio primarily
consists of construction, other real estate mortgage loans and lines of credit
to developers and to selected real estate investment trusts throughout the
United States.
THE WHOLESALE PRODUCTS GROUP includes the Commercial Banking Group, which serves
businesses headquartered in California with annual sales of $5 to $250 million,
and the Corporate Banking Group, which maintains relationships with major
corporations throughout the United States. The group is responsible for
soliciting and maintaining credit and noncredit relationships with businesses by
offering a variety of products and services including traditional commercial
loans and lines, letters of credit, trade facilities and cash management.
The improvement in credit quality and an ongoing emphasis on cross-selling
fee-based products contributed to an increase in pretax income of $46 million to
$272 million in 1994.
CONSUMER LENDING offers a full array of consumer loan products. In 1994, this
included $2.7 billion in credit card loans, $1.7 billion in auto financing and
leases, and $1.5 billion in other installment loans and lines of credit.
Pretax income decreased $4 million in 1994 to $193 million, primarily due
to higher noninterest expense from credit card marketing and costs related to
opening and maintaining a higher number of credit card accounts. This was
partially offset by higher net interest income from wider spreads and higher
credit card balances.
MORTGAGE LENDING provides products in the residential marketplace for home
purchases, refinancing and home equity financing. These products include home
equity
10
<PAGE>
lines of credit, fixed-rate, adjustable-rate (ARM) and fixed initial-rate (FIRM)
mortgage loans.
In 1994, pretax income for this area decreased by $29 million to $77
million. This was primarily due to lower net interest income resulting from low
start rates on adjustable-rate mortgages and a net runoff of $.5 billion in
junior mortgages and other loans. First mortgage balances grew $1.7 billion
primarily due to a shift in consumer preferences away from 30-year fixed-rate
loans into ARMs, which have generally been held for portfolio purposes. Because
of concerns about the long-run economics of the 1-4 family first mortgage
business, Mortgage Lending has decided to no longer directly offer this product
after the second quarter of 1995. Instead, it is currently expected that
customers will be referred to another financial institution partner who will
originate these loans. A $10 million accrual was made in the fourth quarter of
1994 for the disposition of premises and severance associated with this
decision. Mortgage Lending will continue to originate real estate 1-4 family
junior lien mortgages.
THE OTHER category includes the Company's investment securities portfolio, the
difference between the normalized 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 effect 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.
The increase in pretax income in the Other category was primarily due to a
lower Company loan loss provision. This was partially offset by a decline in net
interest income from lower hedging income from maturing interest rate floor and
swap hedges put in place in 1989 to protect the Company against lower
loan/deposit spreads in a declining rate environment. (For further information,
refer to the Asset/Liability Management section.)
EARNINGS PERFORMANCE
- --------------------------------------------------------------------------------
The Bank generated net income of $863 million and $632 million in 1994 and 1993,
respectively. The Parent (excluding its equity in earnings of subsidiaries) and
its nonbank subsidiaries had net losses of $22 million and $20 million for 1994
and 1993, respectively.
NET INTEREST INCOME
................................................................................
Net interest income is the difference between interest income (which includes
yield-related loan fees) and interest expense. Net interest income on a taxable-
equivalent basis was $2,610 million in 1994, compared with $2,659 million in
1993.
Net interest income on a taxable-equivalent basis expressed as a percentage
of average total earning assets is referred to at the net interest margin, which
represents the average net effective yield on earning assets. For 1994, the net
interest margin was 5.55%, compared with 5.74% in 1993.
Hedging income from derivative contracts decreased $179 million in 1994
compared with 1993, reducing the net interest margin by 39 basis points,
primarily due to maturing interest rate derivative contracts. This was largely
offset by the increase in the rate spread between loans and deposits, which
added 30 basis points to the net interest margin. The additional decline in the
net interest margin was attributed to the lower rates on investment securities
relative to their funding sources. (For further information, refer to the
Asset/Liability Management section.)
The net interest margin in 1995 is expected to decline modestly, assuming
deposit rates will gradually increase in response to rising market interest
rates. However, net interest income is not currently expected to change
significantly in 1995.
[NET INTEREST MARGIN (GRAPH) (%)] SEE APPENDIX
11
<PAGE>
<TABLE>
<CAPTION>
TABLE 4 AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)
==================================================================================================================================
(in millions) 1994 1993
--------------------------- ---------------------------
Average Yields/ Interest Average Yields/ Interest
balance rates income/ balance rates income/
expense expense
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Investment securities:
At cost:
U.S. Treasury securities $ 2,376 4.77% $ 113 $ 2,283 5.03% $ 115
Securities of U.S. government agencies
and corporations 5,902 6.05 357 7,974 6.41 511
Private collateralized mortgage obligations 1,242 5.74 71 864 4.16 36
Other securities 133 5.75 8 189 5.67 11
------- ------ ------- ------
Total investment securities at cost 9,653 5.69 549 11,310 5.95 673
At fair value (2):
U.S. Treasury securities 190 6.66 13 -- -- --
Securities of U.S. government agencies
and corporations 1,547 5.82 93 -- -- --
Private collateralized mortgage obligations 1,240 6.14 80 -- -- --
Other securities 76 14.13 6 -- -- --
------- ------ ------- ------
Total investment securities at fair value 3,053 6.12 192 -- -- --
At lower of cost or market -- -- -- -- -- --
------- ------ ------- ------
Total investment securities 12,706 5.79 741 11,310 5.95 673
Federal funds sold and securities purchased
under resale agreements 189 3.51 7 734 3.17 23
Loans:
Commercial 7,092 9.19 652 7,154 9.36 670
Real estate 1-4 family first mortgage 8,484 6.85 581 6,787 7.92 538
Other real estate mortgage 8,071 8.68 700 9,467 8.20 776
Real estate construction 977 9.29 91 1,303 8.50 111
Consumer:
Real estate 1-4 family junior lien mortgage 3,387 7.75 262 3,916 6.97 273
Credit card 2,703 15.39 416 2,587 15.62 404
Other revolving credit and monthly payment 2,023 9.60 194 1,893 9.45 179
------- ------ ------- ------
Total consumer 8,113 10.75 872 8,396 10.19 856
Lease financing 1,271 9.16 116 1,190 9.83 117
Foreign 31 5.06 2 7 -- --
------- ------ ------- ------
Total loans (3)(4) 34,039 8.85 3,014 34,304 8.94 3,068
Other 54 5.89 3 -- -- --
------- ------ ------- ------
Total earning assets $46,988 8.00 3,765 $46,348 8.12 3,764
======= ------ ======= ------
FUNDING SOURCES
Interest-bearing liabilities:
Deposits:
Interest-bearing checking $ 4,622 .98 45 $ 4,626 1.18 55
Savings deposits 2,541 1.99 51 2,741 2.19 60
Market rate savings 16,380 2.39 391 16,592 2.28 378
Savings certificates 7,030 4.28 301 7,948 4.37 347
Certificates of deposit 206 7.70 16 219 7.99 18
Other time deposits 98 6.61 6 112 5.62 6
Deposits in foreign offices 925 4.75 44 7 -- --
------- ------ ------- ------
Total interest-bearing deposits 31,802 2.69 854 32,245 2.68 864
Federal funds purchased and securities sold
under repurchase agreements 2,223 4.45 99 1,051 2.79 29
Commercial paper and other short-term borrowings 224 4.25 10 207 2.90 6
Senior debt 1,930 5.29 102 2,174 4.75 103
Subordinated debt 1,510 5.94 90 1,958 5.23 103
------- ------ ------- ------
Total interest-bearing liabilities 37,689 3.06 1,155 37,635 2.93 1,105
Portion of noninterest-bearing funding sources 9,299 -- -- 8,713 -- --
------- ------ ------- ------
Total funding sources $46,988 2.45 1,155 $46,348 2.38 1,105
======= ------ ======= ------
NET INTEREST MARGIN AND NET INTEREST INCOME
ON A TAXABLE-EQUIVALENT BASIS (5) 5.55% $2,610 5.74% $2,659
===== ====== ===== ======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 2,618 $ 2,456
Other 2,243 2,306
------- -------
Total noninterest-earning assets $ 4,861 $ 4,762
======= =======
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 9,019 $ 8,482
Other liabilities 1,062 997
Preferred stockholders' equity 521 639
Common stockholders' equity 3,558 3,357
Noninterest-bearing funding sources
used to fund earning assets (9,299) (8,713)
------- -------
Net noninterest-bearing funding sources $ 4,861 $ 4,762
======= =======
TOTAL ASSETS $51,849 $51,110
======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The average prime rate of the Bank was 7.14%, 6.00%, 6.25%, 8.47% and 10.01% for 1994, 1993, 1992, 1991 and 1990, respectively.
The average three-month London Interbank Offered Rate (LIBOR) was 4.75%, 3.29%, 3.83%, 5.99% and 8.28% for the same years,
respectively.
(2) Yields are based on amortized cost balances, which totaled $3,131 million for the year ended December 31, 1994.
(3) Interest income includes loan fees, net of deferred costs, of approximately $40 million, $41 million, $57 million, $63 million
and $71 million in 1994, 1993, 1992, 1991 and 1990, respectively.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
TABLE 4 AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (continued)
==================================================================================================================================
(in millions) 1992 1991 1990
------------------------- ------------------------- -------------------------
Average Yields/ Interest Average Yields/ Interest Average Yields/ Interest
balance rates income/ balance rates income/ balance rates income/
expense expense expense
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Investment securities:
At cost:
U.S. Treasury securities $ 1,562 5.80% $ 91 $ 631 6.59% $ 41 $ 338 6.82% $ 23
Securities of U.S. government agencies
and corporations 4,197 7.38 309 1,231 7.85 96 998 8.95 89
Private collateralized mortgage obligations -- -- -- -- -- -- -- -- --
Other securities 110 6.16 7 193 8.41 17 306 9.44 29
------- ------ ------- ------ ------- ------
Total investment securities at cost 5,869 6.93 407 2,055 7.51 154 1,642 8.60 141
At fair value (2):
U.S. Treasury securities -- -- -- -- -- -- -- -- --
Securities of U.S. government agencies
and corporations -- -- -- -- -- -- -- -- --
Private collateralized mortgage obligations -- -- -- -- -- -- -- -- --
Other securities -- -- -- -- -- -- -- -- --
------- ------ ------- ------ ------- ------
Total investment securities at fair value -- -- -- -- -- -- -- -- --
At lower of cost or market 108 8.73 9 -- -- -- -- -- --
------- ------ ------- ------ ------- ------
Total investment securities 5,977 6.97 416 2,055 7.51 154 1,642 8.60 141
Federal funds sold and securities purchased
under resale agreements 919 3.62 33 303 5.42 16 45 8.61 4
Loans:
Commercial 9,702 8.50 825 12,974 9.64 1,252 14,382 10.92 1,570
Real estate 1-4 family first mortgage 7,628 9.27 707 9,367 10.16 952 8,268 10.47 866
Other real estate mortgage 10,634 8.21 873 10,773 9.58 1,033 7,022 10.62 746
Real estate construction 1,837 8.47 156 2,232 10.10 225 4,271 10.83 463
Consumer:
Real estate 1-4 family junior lien mortgage 4,585 8.14 373 5,135 10.10 519 4,321 11.50 497
Credit card 2,771 15.93 441 2,758 16.25 448 2,566 16.24 416
Other revolving credit and monthly payment 2,083 9.85 205 2,323 11.11 258 2,072 11.95 248
------- ------ ------- ------ ------- ------
Total consumer 9,439 10.81 1,019 10,216 11.99 1,225 8,959 12.96 1,161
Lease financing 1,165 10.36 121 1,167 11.34 132 1,129 10.63 120
Foreign 1 -- -- 7 23.86 2 30 8.41 3
------- ------ ------- ------ ------- ------
Total loans (3)(4) 40,406 9.16 3,701 46,736 10.31 4,821 44,061 11.19 4,929
Other 1 -- -- 17 8.43 1 5 -- --
------- ------ ------- ------ ------- ------
Total earning assets $47,303 8.77 4,150 $49,111 10.17 4,992 $45,753 11.09 5,074
======= ------ ======= ------ ======= ------
FUNDING SOURCES
Interest-bearing liabilities:
Deposits:
Interest-bearing checking $ 4,597 1.77 81 $ 4,379 3.72 163 $ 3,835 3.93 151
Savings deposits 3,250 2.81 91 3,398 4.88 166 3,508 5.01 176
Market rate savings 15,284 2.89 442 12,699 5.04 640 9,788 6.32 619
Savings certificates 10,763 4.94 532 13,758 6.57 905 11,905 7.74 921
Certificates of deposit 316 8.41 27 570 8.12 46 418 8.72 36
Other time deposits 128 5.32 7 149 7.89 12 177 8.23 15
Deposits in foreign offices 43 7.89 3 400 7.76 31 261 8.84 23
------- ------ ------- ------ ------- ------
Total interest-bearing deposits 34,381 3.44 1,183 35,353 5.55 1,963 29,892 6.49 1,941
Federal funds purchased and securities sold
under repurchase agreements 1,299 3.16 41 3,092 5.50 170 4,522 7.95 359
Commercial paper and other short-term
borrowings 252 3.54 9 1,243 6.29 78 2,871 7.90 227
Senior debt 2,175 5.77 126 1,681 7.53 126 587 9.02 53
Subordinated debt 1,872 4.99 93 1,832 6.15 113 1,864 8.23 153
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities 39,979 3.63 1,452 43,201 5.67 2,450 39,736 6.88 2,733
Portion of noninterest-bearing funding sources 7,324 -- -- 5,910 -- -- 6,017 -- --
------- ------ ------- ------ ------- ------
Total funding sources $47,303 3.07 1,452 $49,111 4.99 2,450 $45,753 5.97 2,733
======= ------ ======= ------ ======= -----
NET INTEREST MARGIN AND NET INTEREST INCOME
ON A TAXABLE-EQUIVALENT BASIS (5) 5.70% $2,698 5.18% $2,542 5.12% $2,341
===== ====== ===== ====== ===== ======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 2,536 $ 2,604 $ 2,616
Other 2,658 3,307 2,740
------- ------- -------
Total noninterest-earning assets $ 5,194 $ 5,911 $ 5,356
======= ======= =======
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 7,885 $ 7,289 $ 7,183
Other liabilities 1,060 1,180 1,053
Preferred stockholders' equity 608 279 405
Common stockholders' equity 2,965 3,073 2,732
Noninterest-bearing funding sources
used to fund earning assets (7,324) (5,910) (6,017)
------- ------- -------
Net noninterest-bearing funding sources $ 5,194 $ 5,911 $ 5,356
======= ======= =======
TOTAL ASSETS $52,497 $55,022 $51,109
======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(4) Nonaccrual loans and related income are included in their respective loan categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from
federal and applicable state income taxes. The federal statutory tax rate was 35% for 1994 and 1993 and 34% for the other years
presented.
</TABLE>
13
<PAGE>
NONINTEREST INCOME
..............................................................................
Table 5 shows the major components of noninterest income.
<TABLE>
<CAPTION>
TABLE 5 NONINTEREST INCOME
==============================================================================
(in millions) Year ended December 31, % Change
------------------------ ---------------
1994 1993 1992 1994/ 1993/
1993 1992
<S> <C> <C> <C> <C> <C>
Service charges on
deposit accounts $ 473 $ 423 $ 394 12 % 7 %
Fees and commissions:
Credit card membership
and other credit card fees 64 68 72 (6) (6)
Mutual fund and
annuity sales fees 64 43 29 49 48
Debit and credit card
merchant fees 55 80 87 (31) (8)
Shared ATM network fees 43 38 32 13 19
Charges and fees on loans 42 48 49 (13) (2)
All other 119 99 94 20 5
------ ------ ------
Total fees and
commissions 387 376 363 3 4
Trust and investment
services income:
Asset management
and custody fees 124 125 124 (1) 1
Mutual fund
management fees 46 37 19 24 95
All other 33 28 22 18 27
------ ------ ------
Total trust and investment
services income 203 190 165 7 15
Investment securities gains 8 -- 45 -- (100)
Income from equity
investments accounted
for by the:
Equity method 31 24 24 29 --
Cost method 31 42 17 (26) 147
Check printing charges 40 38 36 5 6
Losses from dispositions
of operations (5) (28) (8) (82) 250
All other 32 28 23 14 22
------ ------ ------
Total $1,200 $1,093 $1,059 10 % 3 %
====== ====== ====== === ====
- ------------------------------------------------------------------------------
</TABLE>
The growth in service charges on deposit accounts in 1994 compared with
1993 was predominantly due to increased service fees for overdrafts as well as
increased cash management-related fee income earned on wholesale accounts.
The increase in mutual fund and annuity sales fees was due to a $40 million
growth in annuity sales fees from $17 million in 1993 to $57 million in 1994,
primarily offset by a $19 million decrease in mutual fund sales fees from $26
million in 1993 to $7 million in 1994. Sales volume of annuities grew from $387
million in 1993 to $1,091 million in 1994. The change in the mix of products
sold, from bond-oriented mutual funds to fixed-rate annuities, reflected a
combination of influences, including a shift in investor preferences due to
rising interest rates and the introduction of new noncommission retail products
such as no-load Lifepath Funds. Sales of mutual funds and annuities contributed
to fees and commissions income through sales fees and to trust and investment
services income through mutual fund management fees.
Substantially all of the decrease in debit and credit card merchant fees
was due to an alliance with Card Establishment Services (CES) that the Company
entered into in November 1993 for merchant credit card and debit card processing
services. Under this agreement, the Company is responsible for marketing, sales
and initial merchant credit analysis; CES provides technology, processing
operations and customer service. The Company retains an interest in the net
revenues from processing the transactions that are now reported as income from
equity investments accounted for by the equity method, rather than reported as
income from debit and credit card merchant fees. As a result, income from the
alliance contributed $7 million to income from equity investments in 1994. In
October 1994, it was announced that CES would be purchased by First Data
Resources in 1995. The purchase is not expected to have a material impact on the
alliance.
The increase in "all other" fees and commissions was primarily due to a
decrease in amortization expense for purchased mortgage servicing rights and
increased loan servicing fees. Amortization expense for purchased mortgage
servicing rights totaled $8 million in 1994, compared with $16 million in 1993.
At December 31, 1994, the balance of purchased mortgage servicing rights was $96
million, compared with $15 million at December 31, 1993. In 1994, the Company
purchased an additional $89 million ($64 million of which was purchased in the
fourth quarter of 1994) in servicing rights.
The increase in trust and investment services income in 1994 compared with
1993 was primarily due to greater mutual fund investment management fees,
reflecting the overall growth in the fund families' net assets. The Stagecoach
family of 24 funds had $6.4 billion of assets under management at December 31,
1994, compared with $4.3 billion at December 31, 1993. The Stagecoach family
consists of both retail and institutional funds. The retail funds, first
introduced in 1992, are primarily distributed through the branch network. These
funds had $5.4 billion under management at December 31, 1994, compared with $3.8
billion at December 31, 1993. The institutional funds, first introduced in mid-
1993, are offered primarily to selected groups of investors and certain
corporations, partnerships and other business entities. At December 31, 1994,
these funds had $1.0 billion of assets under management compared with $530
million at December 31, 1993. The Overland Express family of 16 funds, which had
$3.4
14
<PAGE>
billion of assets under management at December 31, 1994, compared with $3.9
billion at December 31, 1993, is sold nationwide through brokers. The decline in
the Overland Express Fund assets under management was mostly in the Variable
Rate Government Fund, the largest Overland Express Fund, reflecting a shift of
investor preferences away from bond-oriented funds due to the rising interest
rate environment. In addition to managing Overland Express Funds and all the
funds in the Stagecoach family, the Company also managed or maintained personal
trust, employee benefit trust and agency assets of approximately $47 billion,
compared with $45 billion at December 31, 1993.
The investment securities gains in 1994 reflected the sale of both
corporate debt and marketable equity securities from the available-for-sale
portfolio.
In 1994, losses from the disposition of operations included fourth quarter
accruals for the disposition of premises and, to a lesser extent, severance of
$14 million associated with scheduled branch closures and $10 million associated
with ceasing the direct origination of 1-4 family first mortgage loans by the
Company's mortgage lending unit. (See Line of Business Results--Mortgage Lending
section for further information.)
Partially offsetting these accruals was an $8 million payment received in
the first quarter of 1994 that was contingent on performance in relation to the
alliance formed with CES. Additional payments from the CES agreement are also
contingent upon future performance. In 1993, losses from disposition of
operations included a $36 million accrual related to the disposition of owned
and leased premises resulting from reduced space requirements; for example,
downsizing some full service branches into supermarket locations and into other
smaller, mid-sized branches. Additional accruals may be made in 1995 for branch
closures or relocations depending on the success of the Company's alternative
distribution channels, particularly supermarket banking.
"All other" noninterest income in 1993 included $18 million of interest
income received as a result of the settlement of California Franchise Tax Board
audits related to the appropriate years for claiming deductions applicable to
the 1976 through 1986 tax returns.
Noninterest income is expected to increase in 1995, reflecting growth from
fee-based products, mutual fund management fees and deposit-related services.
NONINTEREST EXPENSE
..............................................................................
Table 6 shows the major components of noninterest expense.
<TABLE>
<CAPTION>
TABLE 6 NONINTEREST EXPENSE
==============================================================================
(in millions) Year ended December 31, % Change
------------------------ ---------------
1994 1993 1992 1994/ 1993/
1993 1992
<S> <C> <C> <C> <C> <C>
Salaries $ 671 $ 684 $ 650 (2)% 5 %
Incentive compensation 155 109 73 42 49
Employee benefits 201 213 175 (6) 22
Net occupancy 215 224 222 (4) 1
Equipment 174 148 141 18 5
Federal deposit insurance 101 114 106 (11) 8
Contract services 101 61 48 66 27
Advertising and promotion 65 59 47 10 26
Certain identifiable
intangibles 62 77 71 (19) 8
Operating losses 62 52 45 19 16
Telecommunications 49 44 44 11 --
Postage 44 43 42 2 2
Goodwill 36 37 37 (3) --
Outside professional services 33 42 45 (21) (7)
Stationery and supplies 30 31 31 (3) --
Travel and entertainment 30 28 24 7 17
Check printing 29 34 33 (15) 3
Security 20 19 18 5 6
Escrow and collection
agency fees 19 24 26 (21) (8)
Outside data processing 10 16 18 (38) (11)
Foreclosed assets -- 60 93 (100) (35)
All other 49 43 46 14 (7)
------ ------ ------
Total $2,156 $2,162 $2,035 -- % 6 %
====== ====== ====== ==== ===
- ------------------------------------------------------------------------------
</TABLE>
The decrease in salaries expense was due to a decline in the Company's
full-time equivalent (FTE) staff. The Company's FTE staff, including hourly
employees, averaged 19,558 in 1994 and 20,766 in 1993; it was 19,598 at December
31, 1994.
Incentive compensation is comprised of sales and discretionary bonuses,
senior and executive incentive performance bonuses and certain stock-based
incentive bonuses. Substantially all of the increase in incentive compensation
from 1993 to 1994 was due to various sales programs, of which a significant
portion related to annuities and mutual funds.
Employee benefits expense for 1993 included an incremental expense of $11
million related to the adoption of Statement of Financial Accounting Standards
No. 106 (FAS 106), Employers' Accounting for Postretirement Benefits Other than
Pensions. During 1993, the Company also adopted Statement of Financial
Accounting Standards
15
<PAGE>
No. 112 (FAS 112), Employers' Accounting for Postemployment Benefits, which
resulted in an accrual of $12 million. (See a further discussion of FAS 106 and
112 in Note 9 to the Financial Statements.)
Increases in equipment expense and contract services in 1994 were primarily
related to system upgrades throughout the Company and the development of new
products and services, including software programming.
The decrease in federal deposit insurance expense in 1994 compared with
1993 was mostly due to a decrease in the federal deposit insurance rate in 1994.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), the FDIC uses a risk-based assessment system under which the
assessment rate for an insured depository institution varies according to the
level of risk incurred in its activities. Based on semi-annual assessment risk
evaluations performed by the FDIC, the Bank is assigned an annualized assessment
rate between .230% and .310%. The FDIC is proposing to lower the assessment rate
for certain institutions, which, if adopted, will reduce this expense in 1995
compared with 1994.
The decrease in certain identifiable intangibles expense was largely due to
lower amortization expense for core deposit intangibles. Amortization expense
for core deposit intangibles was $49 million in 1994, compared with $61 million
in 1993. At December 31, 1994, the balance of core deposit intangibles was $208
million.
Table 7 shows the major components of foreclosed assets expense.
<TABLE>
<CAPTION>
TABLE 7 FORECLOSED ASSETS EXPENSE
==============================================================================
(in millions) Year ended December 31,
-----------------------------
1994 1993 1992
<S> <C> <C> <C>
Operating expenses $ 50 $ 67 $ 80
Operating revenues (29) (40) (47)
Net (gains) losses from write-downs/sales (21) 33 60
---- ---- ----
Total $ -- $ 60 $ 93
==== ==== ====
- ------------------------------------------------------------------------------
</TABLE>
The 100% decrease in foreclosed assets expense in 1994 compared with 1993
was largely due to a decline in write-downs from $60 million in 1993 to $13
million in 1994 and increased gains on sales.
The Company expects total noninterest expense to increase modestly in 1995
compared with 1994, reflecting expenditures to help generate new customer
revenue.
BALANCE SHEET ANALYSIS
- --------------------------------------------------------------------------------
A comparison between the year-end 1994 and 1993 balance sheets is presented
below. The Bank's assets of $51.9 billion and $50.7 billion at December 31, 1994
and 1993, respectively, represented substantially all of the Company's
consolidated assets at year-end 1994 and 1993.
INVESTMENT SECURITIES
................................................................................
The Company adopted Statement of Financial Accounting Standards No. 115 (FAS
115), Accounting for Certain Investments in Debt and Equity Securities, on
December 31, 1993. This Statement addresses the accounting and reporting for
certain investments in debt and marketable equity securities. (For further
discussion of FAS 115, see Note 3 to the Financial Statements.)
Total investment securities averaged $12.7 billion in 1994, a 12% increase
from $11.3 billion in 1993. Investment securities totaled $11.6 billion at
December 31, 1994, down 11% from $13.1 billion at December 31, 1993. The
investment securities portfolio at December 31, 1994 was comprised of $8.6
billion held-to-maturity securities at cost and $3.0 billion available-for-sale
securities at fair value. Investment securities are expected to continue to
decrease in the future as the cash received from their maturities is used to
fund loan growth.
Table 8 provides expected remaining maturities and yields (taxable-
equivalent basis) of debt securities within the investment portfolio. The
weighted average expected remaining maturity of the debt securities portfolio
was 2 years and 10 months at December 31, 1994, compared with 2 years and 7
months at December 31, 1993. The increase in the expected remaining maturity
reflects a higher interest rate environment, in which prepayments are likely to
slow down. Expected remaining maturities will differ from remaining contractual
maturities because borrowers may have the right to prepay certain obligations
with or without penalties. It is more appropriate to monitor investment security
maturities and yields using prepayment assumptions since this better reflects
what the Company expects to occur. (Note 3 to the Financial Statements shows the
remaining contractual principal maturities and yields of debt securities.)
At December 31, 1994, the held-to-maturity securities portfolio had an
estimated unrealized loss of $434 million
16
<PAGE>
<TABLE>
<CAPTION>
TABLE 8 INVESTMENT SECURITIES
EXPECTED REMAINING MATURITIES AND YIELDS
==================================================================================================================================
(in millions) December 31, 1994
--------------------------------------------------------------------------------------------------------
Total Weighted Weighted Within one year After one year After five years After ten years
amount average average through five years through ten years
yield expected --------------- ------------------ ----------------- ---------------
remaining Amount Yield Amount Yield Amount Yield Amount Yield
maturity (in
yrs.--mos.)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES:
U.S. Treasury securities $ 1,772 4.79% 1-3 $ 899 4.63% $ 873 4.95% $ -- --% $ -- --%
Securities of U.S.
government agencies
and corporations 5,394 6.17 3-2 1,067 5.73 3,252 6.00 850 7.05 225 7.37
Private collateralized
mortgage obligations 1,306 6.09 2-7 242 5.78 1,014 6.16 50 6.14 -- --
Other 147 6.36 2-2 35 5.32 110 6.69 -- -- 2 6.37
------- ------ ------ ----- ----
Total cost $ 8,619 5.88% 2-8 $2,243 5.29% $5,249 5.87% $ 900 7.00% $227 7.36%
======= ===== ====== ==== ====== ==== ===== ===== ==== =====
ESTIMATED FAIR VALUE $ 8,185 $2,186 $4,948 $ 839 $212
======= ====== ====== ===== ====
AVAILABLE-FOR-SALE
SECURITIES (1):
U.S. Treasury securities $ 372 6.62% 3-1 $ -- --% $ 372 6.62% $ -- --% $ -- --%
Securities of U.S.
government agencies
and corporations 1,476 5.54 2-9 133 6.67 1,256 5.42 87 5.60 -- --
Private collateralized
mortgage obligations 1,290 6.38 4-3 166 5.98 795 6.38 316 6.37 13 12.27
Other 24 22.46 5-8 -- -- -- -- 24 22.46 -- --
------- ------ ------ ----- ----
Total cost $ 3,162 6.14% 3-5 $ 299 6.29% $2,423 5.92% $ 427 7.12% $ 13 12.27%
======= ===== ====== ==== ====== ==== ===== ===== ==== =====
ESTIMATED FAIR VALUE $ 2,958 $ 286 $2,259 $ 400 $ 13
======= ====== ====== ===== ====
TOTAL COST OF
DEBT SECURITIES $11,781 5.95% 2-10 $2,542 5.41% $7,672 5.89% $1,327 7.04% $240 7.63%
======= ===== ==== ====== ==== ====== ==== ===== ===== ==== =====
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The weighted average yield is computed using the amortized cost of available-for-sale investment securities carried at fair
value. See Note 3 to the Financial Statements for fair value of available-for-sale securities by type of security.
</TABLE>
(estimated unrealized gross gains were zero), or 5.0% of the cost of the
portfolio. At December 31, 1993, the held-to-maturity securities portfolio had
an estimated unrealized net gain of $91 million (which reflected estimated
unrealized gross losses of $23 million), or .9% of the cost of the portfolio.
The available-for-sale portfolio includes both debt and marketable equity
securities. 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 December 31, 1993,
the available-for-sale securities portfolio had an unrealized net gain of $36
million, comprised of unrealized gross gains of $59 million and unrealized gross
losses of $23 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 December 31, 1994, the investment securities valuation
allowance amounted to an unrealized net loss of $110 million, compared with an
unrealized net gain of $21 million at December 31, 1993.
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 reflected an increasing interest rate environment.
As interest rates rise, the Company expects the unrealized losses to grow and
prepayments to decline. 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), resulting in the realization of losses. (See Note 3
to the Financial Statements for investment securities at cost and at fair value
by security type.)
17
<PAGE>
LOAN PORTFOLIO
................................................................................
A comparative schedule of average loan balances is presented in Table 4; year-
end balances are presented in Note 4 to the Financial Statements.
Loans averaged $34.0 billion in 1994, compared with $34.3 billion in 1993.
Total loans at December 31, 1994 increased to $36.3 billion, or 10% compared
with year-end 1993, reflecting the fourth consecutive quarter of growth. A
significant portion of this increase was due to increases in the real estate 1-4
family first mortgage portfolio. The Company anticipates an increase in its loan
portfolio for 1995 as well as a shift in loan growth from 1-4 family mortgages
to higher yielding consumer and commercial loans. The Company's total unfunded
loan commitments grew 31% to $20.9 billion at December 31, 1994, from $16.0
billion at December 31, 1993, including a 39% increase in unfunded credit card
commitments from $5.6 billion at December 31, 1993 to $7.8 billion at December
31, 1994.
Commercial loans grew 19% to $8.2 billion at year-end 1994, from $6.9
billion at December 31, 1993. This growth primarily occurred in middle market
loans, resulting from increased marketing efforts, and is expected to continue
in 1995. Total unfunded commercial loan commitments grew from $5.1 billion at
December 31, 1993 to $6.6 billion at December 31, 1994. Included in the
commercial loan portfolio are agricultural loans of $822 million and $643
million at December 31, 1994 and 1993, respectively. Agricultural loans consist
of loans to finance agricultural production and other loans to farmers.
The Company's 1-4 family first mortgage loan portfolio increased 21% from
$7.5 billion at December 31, 1993 to $9.1 billion at December 31, 1994. Most of
the increase occurred in the first half of 1994. As a result of a rising
interest rate environment in 1994, demand within the Company's 1-4 family first
mortgage portfolio shifted from traditional fixed-rate loan products to
adjustable-rate loan products, which have generally been held for portfolio
purposes. Approximately 58% of the 1-4 family first mortgage loans outstanding
at December 31, 1994 were at a fixed rate, a majority of which are FIRM loans
that convert to ARMs at the end of an initial fixed period. Due to the recent,
gradual increase in mortgage rates, the portfolio is expected to experience
slower prepayments in 1995 than in the previous two years. (See Line of Business
Results--Mortgage Lending section for further information.)
Of the Company's 1-4 family first mortgage portfolio, 97% is located in
California, of which 50% is located in Southern California. The portfolio has
maintained relatively low nonaccrual levels. Of the total outstanding at
December 31, 1994, loans made prior to 1989, which have seasoned to a greater
extent than the rest of the portfolio, totaled $1.2 billion, with $22.4 million,
or 1.9%, on nonaccrual. Loan originations from 1989 and 1990 have experienced
the greatest decline in property values in the portfolio due to the peak of
California housing prices in those years and, therefore, make up the largest
component of loans on nonaccrual. Loans originated in 1989 and 1990 totaled $1.4
billion, with $49.0 million, or 3.5%, on nonaccrual. Loans originated from 1991
through 1994 totaled $6.5 billion, with only $9.3 million, or .1%, on
nonaccrual.
The Company's commercial real estate loan portfolio was $9.6 billion at
December 31, 1994, compared with $9.9 billion at December 31, 1993, a 3%
decrease. This decrease was primarily due to payments received. Net charge-offs
for commercial real estate loans were $60 million in 1994, down from $232
million in 1993 and $406 million at their peak in 1992.
Table 9 presents comparative period-end commercial real estate loans.
<TABLE>
<CAPTION>
TABLE 9 COMMERCIAL REAL ESTATE LOANS
==============================================================================
(in millions) December 31, % Change
------------------------- ---------------
1994 1993 1992 1994/ 1993/
1993 1992
<S> <C> <C> <C> <C> <C>
Commercial loans to
real estate developers (1) $ 525 $ 505 $ 731 4 % (31)%
Other real estate
mortgage (2) 8,079 8,286 10,128 (2) (18)
Real estate construction 1,013 1,110 1,600 (9) (31)
------ ------ -------
Total $9,617 $9,901 $12,459 (3)% (21)%
====== ====== ======= === ===
Nonaccrual loans $ 416 $ 904 $ 1,528 (54)% (41)%
====== ====== ======= === ===
Nonaccrual loans as a
% of total 4.3% 9.1% 12.3%
====== ====== =======
- ------------------------------------------------------------------------------
<FN>
(1) Included in commercial loans.
(2) Agricultural loans that are primarily secured by real estate are included in
other real estate mortgage loans; such loans were $256 million, $225 million
and $261 million at December 31, 1994, 1993 and 1992, respectively.
</TABLE>
Over the years, the Company has prospered as an active commercial real
estate lender. However, as a result of the recent recession and overbuilt real
estate markets, the Company's earnings during 1993, 1992 and 1991 were
significantly affected by its relatively high levels of commercial real estate
loans. The Company's real estate borrowers with properties located in Southern
California
18
<PAGE>
were particularly affected. There is still an oversupply of certain types of
commercial real estate in the U.S. (particularly California) that could last for
a number of years. However, a substantial amount of liquidity has returned to
the real estate markets, mostly in apartments and shopping centers and, to a
lesser degree, in other property types. Many developers are successfully
financing acquisition or development programs through the capital markets and
many banks are showing interest in financing certain product types. This
liquidity has contributed significantly to the Company's progress in reducing
its nonaccrual loans and foreclosed assets. As a result of this liquidity in the
marketplace, nonaccrual commercial real estate loans have declined to 4.3% of
the commercial real estate portfolio at December 31, 1994, down from 9.1% at
December 31, 1993 and 12.3% at its peak at December 31, 1992. The Company has
begun to see growth in its out-of-state commercial real estate loan portfolio
and expects continued growth during 1995, as evidenced by an 80% increase in
commitments from $929 million at December 31, 1993 to $1,672 million at December
31, 1994. In addition to originating new commercial real estate loans in 1994,
the Company began purchasing loans at a discount from other financial
institutions totaling $170 million, including $32 million that was classified as
nonaccrual on the date of purchase. The Company expects to collect the full
purchase price of these loans.
Table 10 summarizes the other real estate mortgage loans by state and
property type. Substantially all of the other real estate mortgage loans are
secured by properties located in California, representing 81% of the portfolio
at December 31, 1994, compared with 78% at December 31, 1993. No other state
comprised more than 1% of the portfolio at December 31, 1994. The largest
property type was office buildings, representing 29% and 28% of the portfolio at
December 31, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
TABLE 10 REAL ESTATE MORTGAGE LOANS BY STATE AND TYPE
(EXCLUDING 1-4 FAMILY FIRST MORTGAGE LOANS)
===================================================================================================================================
(in millions) December 31, 1994
----------------------------------------------------------------------------------------------------------------
Washington, Other Total % of Non- Non-
California Texas Florida Oregon D.C. states (3) by total accrual accruals
-------------- ------------- ------------- -------- ----------- -------------- type loans loans as a %
Total Non- Total Non- Total Non- Total Total Total Non- by type of total
loans accrual loans accrual loans accrual loans (2) loans (2) loans accrual by type
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office buildings $2,086 $111 $ 27 $ 9 $19 $-- $ 9 $39 $ 206 $ 1 $2,386 29% $121 5%
Industrial 1,275 24 8 -- 4 -- 3 -- 47 -- 1,337 17 24 2
Shopping centers 553 37 52 -- 37 -- 42 -- 396 2 1,080 13 39 4
Apartments 870 29 9 -- -- -- 16 -- 123 1 1,018 13 30 3
Hotels/motels 334 18 8 -- 25 25 8 -- 155 -- 530 7 43 8
Retail buildings
(other than
shopping centers) 437 18 11 -- 2 -- -- -- 12 1 462 6 19 4
Institutional 353 8 -- -- -- -- 1 -- 9 -- 363 4 8 2
Agricultural 254 3 -- -- -- -- -- -- 1 -- 255 3 3 1
Land 163 26 2 1 1 -- -- 33 22 -- 221 3 27 12
1-4 family (1):
Land 11 -- -- -- -- -- -- -- -- -- 11 -- -- --
Structures 7 -- -- -- -- -- -- -- -- -- 7 -- -- --
Other 132 7 -- -- -- -- -- -- 277(4) 7 409 5 14 3
------ ---- ---- --- --- --- --- --- ------ --- ------ --- ----
Total by state $6,475 $281 $117 $10 $88 $25 $79 $72 $1,248 $12 $8,079 100% $328 4%
====== ==== ==== === === === === === ====== === ====== === ==== ==
% of total loans 81% 1% 1% 1% 1% 15% 100%
====== ==== === === === ====== ======
Nonaccruals as
a % of total
by state 4% 9% 28% 1%
==== === === ===
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents loans to real estate developers secured by 1-4 family residential developments.
(2) There were no loans on nonaccrual status at December 31, 1994.
(3) Consists of 30 states; no state had loans in excess of $71 million at December 31, 1994.
(4) Includes loans secured by collateral pools of approximately $158 million (where the pool is a mixture of various real estate
property types located in various states, non real estate-related assets and other guarantees).
</TABLE>
19
<PAGE>
[LOAN MIX AT YEAR END (GRAPH) (%)] SEE APPENDIX
Table 11 summarizes other real estate mortgage loans in California by
region (South, North and Central) and property type. The Company's Southern
California real estate loans are primarily located in Los Angeles and Orange
Counties; its Northern California loans are predominantly located in the San
Francisco Bay Area; and its Central California real estate loans are mostly in
Sacramento.
Table 12 summarizes the real estate construction loans by state and
project type. The Company's real estate construction loans were predominantly
in California, representing 77% of the portfolio at December 31, 1994, compared
with 82% at December 31, 1993. No other state comprised more than 6% of the
portfolio at December 31, 1994. The largest project type was 1-4 family land,
representing 51% of the portfolio at December 31, 1994, compared with 43% at
December 31, 1993.
Table 13 summarizes real estate construction loans in California by region
(South, North and Central) and project type.
<TABLE>
<CAPTION>
TABLE 11 CALIFORNIA REAL ESTATE MORTGAGE LOANS BY REGION AND TYPE
(EXCLUDING 1-4 FAMILY FIRST MORTGAGE LOANS)
==================================================================================================================================
(in millions) December 31, 1994
-------------------------------------------------------------------------------------------------------
Southern Northern Central Total % of Nonaccrual Nonaccruals
California California California California total loans as a %
--------------- --------------- --------------- by type California by type of total
Total Non- Total Non- Total Non- loans by type
loans accrual loans accrual loans accrual
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office buildings $ 884 $ 88 $ 909 $ 3 $ 293 $20 $2,086 32% $111 5%
Industrial 631 22 410 -- 234 2 1,275 20 24 2
Shopping centers 251 23 194 14 108 -- 553 9 37 7
Apartments 529 25 301 3 40 1 870 13 29 3
Hotels/motels 124 17 153 1 57 -- 334 5 18 5
Retail buildings
(other than
shopping centers) 170 15 173 1 94 2 437 7 18 4
Institutional 156 6 151 -- 46 2 353 5 8 2
Agricultural 49 2 39 1 166 -- 254 4 3 1
Land 89 24 35 1 39 1 163 3 26 16
1-4 family (1):
Land 11 -- -- -- -- -- 11 -- -- --
Structures 7 -- -- -- -- -- 7 -- -- --
Other 71 5 46 1 15 1 132 2 7 5
------ ---- ------ --- ------ --- ------ --- ----
Total by region $2,972 $227 $2,411 $25 $1,092 $29 $6,475 100% $281 4%
====== ==== ====== === ====== === ====== === ==== ==
% of total
California loans 46% 37% 17% 100%
====== ====== ====== ======
Nonaccruals as
a % of total
by region 8% 1% 3%
==== === ===
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents loans to real estate developers secured by 1-4 family residential developments.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
TABLE 12 REAL ESTATE CONSTRUCTION LOANS BY STATE AND TYPE
==================================================================================================================================
(in millions) December 31, 1994
----------------------------------------------------------------------------------------------------
California Nevada Hawaii Other states (2) Total % of Non- Non-
-------------- -------- -------- --------------- by type total accrual accruals
Total Non- Total Total Total Non- loans loans as a %
loans accrual loans (1) loans (1) loans accrual by type of total
by type
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family:
Land $417 $ 7 $43 $43 $ 4 $-- $ 507 51% $ 7 1%
Structures 138 6 5 -- -- -- 143 14 6 4
Land (excluding 1-4 family) 45 -- 11 -- 62 44 118 12 44 37
Apartments 48 -- -- -- 24 -- 72 7 -- --
Office buildings 26 1 -- -- 17 -- 43 4 1 2
Shopping centers 41 -- -- -- -- -- 41 4 -- --
Retail buildings
(other than
shopping centers) 17 -- -- -- 16 -- 33 3 -- --
Hotels/motels 29 -- -- -- -- -- 29 3 -- --
Industrial 11 -- -- -- 4 -- 15 1 -- --
Institutional 6 -- -- -- -- -- 6 1 -- --
Agricultural 4 -- -- -- -- -- 4 -- -- --
Other 2 -- -- -- -- -- 2 -- -- --
---- --- --- --- ---- --- ------ --- ---
Total by state $784 $14 $59 $43 $127 $44 $1,013 100% $58 6%
==== === === === ==== === ====== === === ==
% of total loans 77% 6% 4% 13% 100%
==== === === ==== ======
Nonaccruals as a % of
total by state 2% 35%
=== ===
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) There were no loans on nonaccrual status at December 31, 1994.
(2) Consists of 13 states; no state had loans in excess of $31 million at December 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
TABLE 13 CALIFORNIA REAL ESTATE CONSTRUCTION LOANS BY REGION AND TYPE
==================================================================================================================================
(in millions) December 31, 1994
----------------------------------------------------------------------------------------------------
Southern Northern Central Total % of total Nonaccrual Nonaccruals
California California California California California loans as a %
-------------- ---------- --------------- by type loans by type of total
Total Non- Total Total Non- by type
loans accrual loans (1) loans accrual
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family:
Land $157 $ 4 $130 $130 $ 3 $417 53% $ 7 2%
Structures 85 2 39 14 4 138 18 6 4
Land (excluding 1-4 family) 3 -- 35 7 -- 45 6 -- --
Apartments 9 -- 35 4 -- 48 6 -- --
Office buildings 15 1 11 -- -- 26 3 1 4
Shopping centers 33 -- 7 1 -- 41 5 -- --
Retail buildings (other
than shopping centers) 4 -- 10 3 -- 17 2 -- --
Hotels/motels -- -- 29 -- -- 29 4 -- --
Industrial 3 -- 6 2 -- 11 1 -- --
Institutional 1 -- 3 2 -- 6 1 -- --
Agricultural -- -- 3 1 -- 4 1 -- --
Other -- -- 2 -- -- 2 -- -- --
---- --- ---- ---- --- ---- --- ---
Total by region $310 $ 7 $310 $164 $ 7 $784 100% $14 2%
==== === ==== ==== === ==== === === ==
% of total
California loans 40% 40% 20% 100%
==== ==== ==== ====
Nonaccruals as a % of
total by region 2% 4%
=== ===
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) There were no loans on nonaccrual status at December 31, 1994.
</TABLE>
21
<PAGE>
[NONACCRUAL LOANS ($ BILLIONS) (GRAPH)] SEE APPENDIX
[NEW LOANS PLACED ON NONACCRUAL ($ BILLIONS) (GRAPH)] SEE APPENDIX
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
................................................................................
Table 14 presents comparative data for nonaccrual and restructured loans and
other assets. Management's classification of a loan as nonaccrual or
restructured does not necessarily indicate that the principal of the loan is
uncollectible in whole or in part. (Notes 1 and 5 to the Financial Statements
describe the Company's accounting policies relating to nonaccrual and
restructured loans and foreclosed assets, respectively.)
Table 15 summarizes the approximate changes during 1994 and 1993 in
nonaccrual loans by loan category. Table 16 summarizes the quarterly trend, for
the last eight quarters, of the approximate changes in nonaccrual loans. The
general decline of nonaccrual loans over the last nine quarters, with
nonaccruals peaking at $2,399 million on September 30, 1992, largely resulted
from loan payments and loans returned to accrual, together with a reduction in
new loans placed on nonaccrual. While the overall credit quality of the loan
portfolio has improved, and is expected
<TABLE>
<CAPTION>
TABLE 14 NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
==================================================================================================================================
(in millions) December 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial (1)(2) $ 88 $ 252 $ 560 $ 871 $ 603
Real estate 1-4 family first mortgage 81 99 96 73 24
Other real estate mortgage (3) 328 578 1,207 778 284
Real estate construction 58 235 235 226 82
Consumer:
Real estate 1-4 family junior lien mortgage 11 27 29 23 14
Other revolving credit and monthly payment 1 3 7 6 --
---- ------ ------ ------ ------
Total nonaccrual loans 567 1,194 2,134 1,977 1,007
Restructured loans 15 6 8 4 6
---- ------ ------ ------ ------
Nonaccrual and restructured loans 582 1,200 2,142 1,981 1,013
As a percentage of total loans 1.6% 3.6% 5.8% 4.5% 2.1%
Foreclosed assets (4)(5) 272 348 510 404 416
Real estate investments (6) 17 15 40 20 --
---- ------ ------ ------ ------
Total nonaccrual and restructured loans and other assets $871 $1,563 $2,692 $2,405 $1,429
==== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes loans to real estate developers of $30 million, $91 million, $86 million, $199 million and $12 million at December 31,
1994, 1993, 1992, 1991 and 1990, respectively.
(2) Includes agricultural loans of $1 million, $9 million, $18 million, $13 million and $18 million at December 31, 1994, 1993,
1992, 1991 and 1990, respectively.
(3) Includes agricultural loans secured by real estate of $3 million, $24 million, $28 million, $13 million and $21 million at
December 31, 1994, 1993, 1992, 1991 and 1990, respectively.
(4) Includes agricultural properties of $23 million, $26 million, $55 million, $66 million and $67 million at December 31, 1994,
1993, 1992, 1991 and 1990, respectively.
(5) Excludes in-substance foreclosures (ISFs) of $99 million reclassified to nonaccrual loans at June 30, 1993 due to clarification
of criteria used in determining when a loan is in-substance foreclosed. Complete information is not available for prior periods;
however, any ISFs that would be reclassified in prior periods would not be materially higher than $99 million.
(6) 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 $54 million, $34 million, $93 million and
$124 million at December 31, 1994, 1993, 1992 and 1991, respectively.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
TABLE 15 CHANGES IN NONACCRUAL LOANS BY LOAN CATEGORY
==================================================================================================================================
(in millions) Commercial Real estate Other Real estate Consumer Total
1-4 family real estate construction
first mortgage mortgage
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
BALANCE, BEGINNING OF YEAR $ 252 $ 99 $ 578 $ 235 $ 30 $1,194
New loans placed on nonaccrual 71 46 160 57 6 340
Loans purchased -- 2 25 7 -- 34
Charge-offs (42) (3) (63) (15) (2) (125)
Payments:
Principal (82) (35) (92) (67) (15) (291)
Interest applied to principal (20) -- (26) (6) (1) (53)
Transfers to foreclosed assets (6) (15) (53) (18) (4) (96)
Loans returned to accrual (1) (84) (11) (209) (131) (1) (436)
Loans sold -- (3) -- -- -- (3)
Other additions (deductions) (1) 1 8 (4) (1) 3
----- ---- ------ ----- ---- ------
BALANCE, END OF YEAR $ 88 $ 81 $ 328 $ 58 $ 12 $ 567
===== ==== ====== ===== ==== ======
YEAR ENDED DECEMBER 31, 1993
Balance, beginning of year $ 560 $ 96 $1,207 $ 235 $ 36 $2,134
New loans placed on nonaccrual (2) 278 47 326 156 14 821
Charge-offs (97) (1) (167) (54) (6) (325)
Payments:
Principal (293) (20) (269) (77) (14) (673)
Interest applied to principal (42) (1) (67) (14) -- (124)
Transfers to foreclosed assets (2) (20) (166) (53) -- (241)
Transfer from foreclosed assets (3) 7 -- 48 44 -- 99
Loans returned to accrual (1) (66) (2) (383) (6) (1) (458)
Loans sold (22) -- (11) -- -- (33)
Other additions (deductions) (4) (71) -- 60 4 1 (6)
----- ---- ------ ----- ---- ------
Balance, end of year $ 252 $ 99 $ 578 $ 235 $ 30 $1,194
===== ==== ====== ===== ==== ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Other real estate mortgage loans returned to accrual were the result of loans restructured at market interest rates and the
improvement in the credit quality of loans.
(2) Additions to commercial loans include $68 million for loans to financial companies and $50 million for highly leveraged
transaction loans. Additions to other real estate mortgage loans include $113 million for commercial buildings and $62 million
for commercial land. Additions to real estate construction loans include $127 million for single family land.
(3) Reclassification due to clarification of criteria used in determining when a loan is in-substance foreclosed.
(4) Includes transfers of restructured loans from commercial to other real estate mortgage loans of approximately $52 million.
</TABLE>
<TABLE>
<CAPTION>
TABLE 16 QUARTERLY TREND OF CHANGES IN NONACCRUAL LOANS
==================================================================================================================================
(in millions) Quarter ended
-------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
1994 1994 1994 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $637 $712 $ 895 $1,194 $1,696 $1,898 $1,966 $2,134
New loans placed on nonaccrual 71 93 124 52 113 195 264 249
Loans purchased 25 -- 9 -- -- -- -- --
Charge-offs (25) (38) (27) (35) (55) (90) (71) (109)
Payments (61) (71) (91) (121) (309) (188) (144) (156)
Transfers to foreclosed assets (18) (14) (27) (37) (64) (32) (104) (41)
Transfers from foreclosed
assets (1) -- -- -- -- -- -- 99 --
Loans returned to accrual (62) (45) (172) (157) (188) (81) (107) (82)
Loans sold -- -- -- (3) -- (2) (5) (26)
Other additions (deductions) -- -- 1 2 1 (4) -- (3)
---- ---- ----- ------ ------ ------ ------ ------
BALANCE, END OF QUARTER $567 $637 $ 712 $ 895 $1,194 $1,696 $1,898 $1,966
==== ==== ===== ====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Reclassification due to clarification of criteria used in determining when a loan is in-substance foreclosed. Complete
information is not available for prior periods; however, any ISFs that would be reclassified in prior periods would not be
materially higher than $99 million.
</TABLE>
23
<PAGE>
to continue, the total nonaccrual balance could fluctuate from quarter to
quarter. The Company anticipates normal influxes of loans as it 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 the 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.
Foreclosed assets at December 31, 1994 decreased to $272 million from $348
million at December 31, 1993 substantially due to $206 million in sales,
predominantly offset by $174 million in additions. However, additions decreased
$231 million from 1993. The majority of sales of foreclosed assets in 1994
consisted of 1-4 family properties and office buildings. Approximately 33% of
foreclosed assets at December 31, 1994 have been in the portfolio less than one
year, with land and 1-4 family properties representing a majority of the amount
greater than one year old. Table 17 summarizes the approximate changes during
1994 and 1993 in foreclosed assets. Table 18 summarizes the quarterly trend in
foreclosed assets for the past eight quarters. Table 19 summarizes foreclosed
assets at December 31, 1994 by state and type and Table 20 summarizes California
foreclosed assets at December 31, 1994 by region and type.
<TABLE>
<CAPTION>
TABLE 17 CHANGES IN FORECLOSED ASSETS BY TYPE
==================================================================================================================================
(in millions) Beginning Additions Sales Charge-offs Write-downs Transfers to Other Ending
balance nonaccrual balance
loans (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Land (excluding 1-4 family) $119 $ 14 $ (29) $ (4) $ (2) $ -- $ 2 $100
1-4 family 69 83 (83) (9) (9) -- (1) 50
Industrial buildings 27 12 (14) -- -- -- (1) 24
Agricultural 26 1 (4) -- -- -- -- 23
Apartments 15 23 (10) -- (1) -- (4) 23
Office buildings 51 17 (45) -- -- -- (3) 20
Shopping centers 27 17 (16) (10) (1) -- 2 19
Hotels/motels 6 2 (5) -- -- -- -- 3
Other 8 5 -- -- -- -- (3) 10
---- ---- ----- ---- ---- ---- ---- ----
Total $348 $174 $(206) $(23) $(13) $ -- $ (8) $272
==== ==== ===== ==== ==== ==== ==== ====
YEAR ENDED DECEMBER 31, 1993
Land (excluding 1-4 family) $122 $105 $ (18) $(12) $(13) $(34) $(31) $119
1-4 family 111 128 (109) (16) (18) (41) 14 69
Industrial buildings 44 24 (26) (2) (7) -- (6) 27
Agricultural 54 7 (21) (1) (5) (5) (3) 26
Apartments 23 20 (22) (4) (4) -- 2 15
Office buildings 119 51 (96) (6) (10) (5) (2) 51
Shopping centers 12 56 (27) (2) (2) (7) (3) 27
Hotels/motels 10 9 (7) (6) -- -- -- 6
Other 15 5 (2) -- (2) (7) (1) 8
---- ---- ----- ---- ---- ---- ---- ----
Total $510 $405 $(328) $(49) $(61) $(99) $(30) $348
==== ==== ===== ==== ==== ==== ==== ====
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Reclassification due to clarification of criteria used in determining when a loan is in-substance foreclosed.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
TABLE 18 QUARTERLY TREND OF CHANGES IN FORECLOSED ASSETS
==================================================================================================================================
(in millions) Quarter ended
-------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
1994 1994 1994 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $306 $344 $354 $348 $357 $391 $ 510 $510
Additions 19 30 63 62 100 65 150 90
Sales (37) (64) (63) (42) (89) (76) (117) (46)
Charge-offs (11) (1) (3) (8) (10) (8) (23) (8)
Write-downs (2) (2) (3) (6) (7) (10) (18) (26)
Transfers to nonaccrual loans (1) -- -- -- -- -- -- (99) --
Other deductions (3) (1) (4) -- (3) (5) (12) (10)
---- ---- ---- ---- ---- ---- ----- ----
BALANCE, END OF QUARTER $272 $306 $344 $354 $348 $357 $ 391 $510
==== ==== ==== ==== ==== ==== ===== ====
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Reclassification due to clarification of criteria used in determining when a loan is in-substance foreclosed. Complete
information is not available for prior periods; however, any ISFs that would be reclassified in prior periods would not be
materially higher than $99 million.
</TABLE>
<TABLE>
<CAPTION>
TABLE 19 FORECLOSED ASSETS BY STATE AND TYPE
==================================================================================================================================
(in millions) December 31, 1994
-------------------------------------------------------------------------------------
California Washington, Texas Other Total % of total
D.C. states (1) by type foreclosed
assets
<S> <C> <C> <C> <C> <C> <C>
Land (excluding 1-4 family) $ 70 $13 $ 2 $15 $100 38%
1-4 family 47 -- 3 -- 50 18
Industrial buildings 24 -- -- -- 24 9
Agricultural 23 -- -- -- 23 8
Apartments 23 -- -- -- 23 8
Office buildings 14 -- -- 6 20 7
Shopping centers 7 7 5 -- 19 7
Hotels/motels -- -- -- 3 3 1
Other 6 -- -- 4 10 4
---- --- --- --- ---- ---
Total by state $214 $20 $10 $28 $272 100%
==== === === === ==== ===
% of total foreclosed assets 79% 7% 4% 10% 100%
==== === === === ====
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Consists of 11 states; foreclosed assets in each of these states were less than $7 million at December 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
TABLE 20 CALIFORNIA FORECLOSED ASSETS BY REGION AND TYPE
==================================================================================================================================
(in millions) December 31, 1994
-------------------------------------------------------------------------------------
Southern Northern Central Total % of total
California California California California California
by type foreclosed
assets
<S> <C> <C> <C> <C> <C>
Land (excluding 1-4 family) $ 61 $ 6 $ 3 $ 70 32%
1-4 family 35 5 7 47 22
Industrial buildings 17 7 -- 24 11
Agricultural -- 5 18 23 11
Apartments 23 -- -- 23 11
Office buildings 10 1 3 14 7
Shopping centers 6 -- 1 7 3
Other 3 3 -- 6 3
---- --- --- ---- ---
Total by region $155 $27 $32 $214 100%
==== === === ==== ===
% of total California foreclosed assets 72% 13% 15% 100%
==== === === ====
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
NONACCRUAL LOANS BY PERFORMANCE CATEGORY
At December 31, 1994, an estimated $246 million, or 43%, of nonaccrual loans
were less than 90 days past due, including an estimated $184 million, or 32%,
that were current (less than 30 days past due) as to payment of principal and
interest. This compares with an estimated $704 million, or 59%, of nonaccrual
loans that were less than 90 days past due at December 31, 1993, including an
estimated $595 million, or 50%, that were current.
For all loans on nonaccrual during 1994 and 1993 (including loans no longer
on nonaccrual at December 31, 1994 and 1993), cash interest payments of $74
million and $137 million were received while the loans were on nonaccrual status
in 1994 and 1993, respectively. Of the $74 million received in 1994, $24 million
was recognized as interest income and $50 million was applied to principal. Of
the $137 million received in 1993, $19 million was recognized as interest income
and $118 million was applied to principal. The average nonaccrual book principal
loan balances (net of charge-offs and interest applied to principal) were $799
million and $1,800 million during 1994 and 1993, respectively.
Table 21 presents the amount of nonaccrual loans that were contractually
past due and those that were contractually current at December 31, 1994 and
1993. Both book and contractual balances are presented in the table, the
difference reflecting charge-offs and interest applied to principal. The ratio
of book to contractual principal balance was 65% at December 31, 1994, compared
with 66% at December 31, 1993.
<TABLE>
<CAPTION>
TABLE 21 NONACCRUAL LOANS BY PERFORMANCE CATEGORY (ESTIMATED)(1)
==================================================================================================================================
(in millions) December 31,
---------------------------------------------------------------------------------------------------
1994 1993
------------------------------------------------ ------------------------------------------------
BOOK CUMULATIVE CUMULATIVE CONTRACTUAL Book Cumulative Cumulative Contractual
PRINCIPAL CHARGE- CASH INTEREST PRINCIPAL principal charge- cash interest principal
BALANCE OFFS (6) APPLIED TO BALANCE balance offs (6) applied to balance
PRINCIPAL (6) principal (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contractually past due (2):
Payments not made (3):
90 days or more past due $111 $ 3 $ -- $114 $ 161 $ 22 $ -- $ 183
Less than 90 days past due 2 -- -- 2 23 -- -- 23
---- ---- ---- ---- ------ ---- ---- ------
113 3 -- 116 184 22 -- 206
---- ---- ---- ---- ------ ---- ---- ------
Payments made (4):
90 days or more past due 210 75 28 313 329 171 41 541
Less than 90 days past due 60 4 12 76 86 29 16 131
---- ---- ---- ---- ------ ---- ---- ------
270 79 40 389 415 200 57 672
---- ---- ---- ---- ------ ---- ---- ------
Total past due 383 82 40 505 599 222 57 878
Contractually current (5) 184 115 62 361 595 214 120 929
---- ---- ---- ---- ------ ---- ---- ------
Total nonaccrual loans $567 $197 $102 $866 $1,194 $436 $177 $1,807
==== ==== ==== ==== ====== ==== ==== ======
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) There can be no assurance that individual borrowers will continue to perform at the level indicated or that the performance
characteristics will not change significantly.
(2) Contractually past due is defined as a borrower whose loan principal or interest payment is 30 days or more past due.
(3) Borrower has made no payment since being placed on nonaccrual.
(4) Borrower has made some payments since being placed on nonaccrual. Approximately $168 million and $314 million of these loans had
some payments made on them during the fourth quarter of 1994 and 1993, respectively.
(5) Contractually current is defined as a loan for which principal and interest are being paid in accordance with the terms of the
loan. All of the contractually current loans were placed on nonaccrual due to uncertainty of receiving full timely collection of
interest or principal.
(6) Cumulative amounts recorded since inception of the loan.
</TABLE>
26
<PAGE>
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Table 22 shows loans contractually past due 90 days or more as to interest or
principal, but not included in the nonaccrual or restructured categories. All
loans in this category are both well-secured and in the process of collection or
are consumer loans or real estate 1-4 family first mortgage loans that are
exempt under regulatory rules from being classified as nonaccrual.
<TABLE>
<CAPTION>
TABLE 22 LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING
==================================================================================================================================
(in millions) December 31,
------------------------------------------------------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial $ 6 $ 4 $ 4 $ 26 $ 21
Real estate
1-4 family
first mortgage 18 19 29 38 19
Other real estate
mortgage 47 14 22 28 46
Real estate
construction -- 8 11 3 10
Consumer:
Real estate
1-4 family junior
lien mortgage 4 6 9 13 12
Credit card 42 43 55 50 42
Other revolving
credit and
monthly
payment 1 1 2 3 8
---- --- ---- ---- ----
Total consumer 47 50 66 66 62
Lease financing -- -- 1 1 1
---- --- ---- ---- ----
Total $118 $95 $133 $162 $159
==== === ==== ==== ====
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALLOWANCE FOR LOAN LOSSES
................................................................................
An analysis of the changes in the allowance for loan losses, including charge-
offs and recoveries by loan category, is presented in Note 4 to the Financial
Statements. At December 31, 1994, the allowance for loan losses was $2,082
million, or 5.73% of total loans, compared with $2,122 million, or 6.41%, at
December 31, 1993. The provision for loan losses declined to $200 million in
1994 from $550 million in 1993, due to the continued improvement of the
Company's loan portfolio. Assuming the economic recovery in California and
improvements in the Company's credit quality continue, there may be no provision
for loan losses in 1995. Net charge-offs in 1994 were $240 million, or .70% of
average total loans, compared with $495 million, or 1.44%, in 1993. Loan loss
recoveries were $129 million in 1994, compared with $169 million in 1993. Table
23 summarizes net charge-offs by loan category.
Since peaking in 1992, net charge-offs have steadily declined in 1993 and
1994. Net charge-offs in 1995 are expected to remain roughly flat with 1994
levels.
The largest category of net charge-offs in 1994 was credit card loans,
comprising 50% of the total net charge-offs. However, credit card net charge-
offs declined from $156 million, or 6.06% of average credit card loans, in 1993
to $120 million, or 4.45% of average credit card loans, in 1994. The percentage
of net charge-offs to average credit card loans is expected to increase slightly
in 1995, reflecting the normal loss rates on new accounts.
Any loan that is past due as to principal or interest and that is not both
well-secured and in the process of collection is generally charged off (to the
extent that it exceeds the fair value of any related collateral) after a
predetermined
<TABLE>
<CAPTION>
TABLE 23 NET CHARGE-OFFS BY LOAN CATEGORY
==================================================================================================================================
(in millions) Year ended December 31,
------------------------------------------------------------------------
1994 1993 1992
------------------ ------------------ ------------------
AMOUNT % OF Amount % of Amount % of
AVERAGE average average
LOANS loans loans
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 17 .23 % $ 39 .54% $179 1.83%
Real estate 1-4 family first mortgage 12 .14 23 .34 15 .19
Other real estate mortgage 44 .55 150 1.58 281 2.64
Real estate construction 4 .34 64 4.85 90 4.91
Consumer:
Real estate 1-4 family junior lien mortgage 20 .59 25 .62 27 .57
Credit card 120 4.45 156 6.06 168 6.06
Other revolving credit and monthly payment 25 1.26 29 1.60 29 1.42
---- ---- ----
Total consumer 165 2.04 210 2.52 224 2.37
Lease financing (2) (.15) 9 .82 10 .89
Foreign recoveries -- -- -- -- (1) (1.18)
---- ---- ----
Total net loan charge-offs $240 .70% $495 1.44% $798 1.97 %
==== ==== ==== ==== ==== =====
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
period of time that is based on loan category. Additionally, loans are charged
off when classified as a loss by either internal loan examiners or regulatory
examiners.
The Company has an established process to determine the adequacy of the
allowance for loan losses that assesses the risk and losses inherent in its
portfolio. This process provides an allowance consisting of two components,
allocated and unallocated. The allocated component reflects inherent losses
resulting from the analysis of individual loans. It is developed through
specific credit allocations for individual loans, historical loss experience for
each loan category and degree of criticism within each category. The total of
these allocations is then supplemented by the unallocated component of the
allowance. This includes adjustments to the historical loss experience for the
various loan categories to reflect any current conditions that could affect
losses inherent in the portfolio. The unallocated component includes
management's judgmental determination of the amounts necessary for
concentrations, economic uncertainties and other subjective factors.
The Company's determination of the level of the allowance and,
correspondingly, the provision for loan losses rests upon various judgments and
assumptions, including general (particularly California's) economic conditions,
loan portfolio composition, prior loan loss experience and the Company's ongoing
examination process and that of its regulators. The Company has an internal risk
analysis and review staff that reports to the Board of Directors and
continuously reviews loan quality. Such reviews also assist management in
establishing the level of the allowance. Similar to a number of other large
national banks, the Bank has been for several years and continues to be
examined by its primary regulator, the Office of the Comptroller of the Currency
(OCC), and has OCC examiners in residence. These examinations occur throughout
the year and target various activities of the Bank, including specific segments
of the loan portfolio (for example, commercial real estate and shared national
credits). In addition to the Bank being examined by the OCC, the Parent and its
nonbank subsidiaries are examined by the Federal Reserve.
The Company considers the allowance for loan losses of $2,082 million
adequate to cover losses inherent in loans, commitments to extend credit and
standby letters of credit at December 31, 1994.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114 (FAS 114), Accounting by Creditors for Impairment
of a Loan, as amended by FAS 118 (collectively referred to as FAS 114). These
Statements address the disclosure requirements and allocations of the allowance
for loan losses for certain impaired loans and amend FASB Statements No. 5 and
15; however, they do not address the overall adequacy of the allowance for loan
losses. These Statements are effective January 1, 1995, and can only be applied
prospectively.
A loan within the scope of FAS 114 is considered impaired when, based on
current information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments.
When a loan to an individual borrower with unique risk characteristics has
been identified as being impaired, the amount of impairment will be measured by
the Company using discounted cash flows, except when it is determined that the
sole (remaining) source of repayment for the loan is the operation or
liquidation of the underlying collateral. In such case, the current fair value
of the collateral, reduced by costs to sell, will be used in place of discounted
cash flows. Alternatively, some impaired loans will have risk characteristics
similar to other impaired loans and will be aggregated for the purpose of
measuring impairment using historical loss factors as a means of measurement.
If the measurement of the impaired loan is less than the recorded
investment in the loan (including accrued interest, net deferred loan fees or
costs, and unamortized premium or discount), an impairment will be recognized by
creating or adjusting an existing allocation of the allowance for loan losses.
FAS 114 will not change the timing of charge-offs of loans to reflect the
amount ultimately expected to be collected.
Based on the Company's current interpretations, the preliminary estimate of
the total loans within the scope of FAS 114 that were impaired as of January 1,
1995 were less than $500 million.
DEPOSITS
................................................................................
Comparative detail of average deposit balances is presented in Table 4. Average
core deposits decreased 2% in 1994 compared with 1993. Average core deposits
funded 76% and 79% of the Company's average total assets in 1994 and 1993,
respectively. Total average deposits remained flat compared with 1993, as the
decrease in core deposits was offset by an increase in interest-bearing foreign
deposits, which were used to fund short-term borrowing needs.
28
<PAGE>
Year-end deposit balances are presented in Table 24.
<TABLE>
<CAPTION>
TABLE 24 DEPOSITS
==============================================================================
(in millions) December 31, %
-------------------- Change
1994 1993
<S> <C> <C> <C>
Noninterest-bearing $10,145 $ 9,719 4 %
Interest-bearing checking 4,518 4,789 (6)
Savings 2,395 2,544 (6)
Market rate savings 14,318 17,084 (16)
Savings certificates 7,132 7,155 --
------- -------
Core deposits 38,508 41,291 (7)
Foreign interest-
bearing deposits (1) 3,540 38 --
Other 284 315 (10)
------- -------
Total deposits $42,332 $41,644 2 %
======= ======= ===
- ------------------------------------------------------------------------------
<FN>
(1) Short-term (under 90 days) deposits used to fund short-term borrowing needs.
</TABLE>
CERTAIN FAIR VALUE INFORMATION
..............................................................................
FAS 107 requires that the Company disclose estimated fair values for certain
financial instruments. Quoted market prices, when available, are used to reflect
fair values. If market quotes are not available, which is the case for most of
the Company's financial instruments, management has provided its best estimate
of the calculation of the fair values using discounted cash flows. Fair value
amounts differ from book balances because fair values attempt to capture the
effect of current market conditions (for example, interest rates) on the
Company's financial instruments.
Due to rising interest rates, there was a decrease in the excess (premium)
of the fair value over the carrying value of the Company's financial instruments
at December 31, 1994 compared with December 31, 1993. The Company's FAS 107
disclosures are presented in Note 14 to the Financial Statements.
CAPITAL ADEQUACY/RATIOS
..............................................................................
The Company uses a variety of measures to evaluate capital adequacy. Management
reviews the various capital measures monthly and takes appropriate action to
ensure that they are within established internal and external guidelines. The
Company's current capital position exceeds current guidelines established by
industry regulators.
[CORE DEPOSITS AT YEAR END ($ BILLIONS) (GRAPH)] SEE APPENDIX
RISK-BASED CAPITAL RATIOS
The Federal Reserve Board (FRB) and the OCC issue risk-based capital (RBC)
guidelines for bank holding companies and national banks, respectively. The FRB
is the primary regulator for the Parent and the OCC is the primary regulator for
the Bank. RBC guidelines establish a risk-adjusted ratio relating capital to
different categories of assets and off-balance sheet exposures.
There are two categories of capital under the guidelines. Tier 1 capital
includes common stockholders' equity and qualifying preferred stock, less
goodwill and certain other deductions (including the unrealized net gains and
losses, after applicable taxes, on available-for-sale investment securities
carried at fair value); Tier 2 capital includes preferred stock not qualifying
as Tier 1 capital, mandatory convertible debt, subordinated debt, certain
unsecured senior debt issued by the Parent and the allowance for loan losses,
subject to limitations by the guidelines. Tier 2 capital is limited to the
amount of Tier 1 capital (i.e., at least half of the total capital must be in
the form of Tier 1 capital). The Company's Tier 1 and Tier 2 capital components
are shown in Table 25.
Under the guidelines, one of four risk weights is applied to the different
balance sheet assets, primarily based on the relative credit risk of the
counterparty (for example, qualifying 1-4 family first mortgage loans are risk-
weighted at 50%). Off-balance sheet items, such as loan commitments and
derivative financial instruments, are also applied
29
<PAGE>
a risk weight after calculating balance sheet equivalent amounts. One of four
credit conversion factors are assigned to loan commitments based on the
likelihood of the off-balance sheet item becoming an asset. (For example,
certain loan commitments are converted at 50% and then risk-weighted at 100%.)
Derivative financial instruments are converted to balance sheet equivalents
based on notional values, replacement costs and remaining contractual terms. The
credit conversion factors and risk weights are 0%, 20%, 50% and 100%. (Refer to
Notes 4 and 13 to the Financial Statements for further discussion of off-balance
sheet items.)
The Company's total RBC ratio at December 31, 1994 was 13.16% and its Tier
1 RBC ratio was 9.09%, exceeding the minimum guidelines of 8% and 4%,
respectively. The ratios at December 31, 1993 were 15.12% and 10.48%,
respectively. The decrease in the Company's Tier 1 RBC ratio at December 31,
1994 compared with 1993 resulted primarily from the repurchase of 5,122,597
shares of common stock throughout 1994 and, secondarily, from the redemption of
$150 million in Series A preferred stock (at its liquidation preference carrying
amount) in the first quarter of 1994.
The Company's risk-weighted assets are calculated as shown in Table 25.
Risk-weighted balance sheet assets were $15.1 billion and $16.4 billion less
than total assets on the consolidated balance sheet of $53.4 billion and $52.5
billion at December 31, 1994 and 1993, respectively, as a result of weighing
certain types of assets at less than 100%; such assets, for both December 31,
1994 and 1993, substantially consisted of claims on or guarantees by the U.S.
government or its agencies (risk-weighted at 0% to 20%), 1-4 family first
mortgage loans (50%), private collateralized mortgage obligations backed by 1-4
family first mortgage loans (50%) and cash and due from banks (0% to 20%). The
$2.2 billion increase in risk-weighted balance sheet assets in 1994 compared
with 1993 was substantially due to an increase in loans (mostly commercial and
1-4 family first mortgage loans) and a corresponding decrease in investment
securities, which are lower risk-weighted assets.
<TABLE>
<CAPTION>
TABLE 25 RISK-BASED CAPITAL AND
LEVERAGE RATIOS
==============================================================================
(in billions) December 31,
------------------
1994 1993
<S> <C> <C>
Tier 1:
Common stockholders' equity $ 3.4 $ 3.7
Preferred stock .5 .6
Less goodwill and other deductions (1) (.3) (.5)
----- -----
Total Tier 1 capital 3.6 3.8
----- -----
Tier 2:
Mandatory convertible debt .1 .1
Subordinated debt and unsecured senior debt 1.0 1.1
Allowance for loan losses allowable in Tier 2 .5 .4
----- -----
Total Tier 2 capital 1.6 1.6
----- -----
Total risk-based capital $ 5.2 $ 5.4
===== =====
Risk-weighted balance sheet assets $38.3 $36.1
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans 1.9 1.3
Standby letters of credit .6 .6
Other .3 .2
----- -----
Total risk-weighted off-balance sheet items 2.8 2.1
----- -----
Goodwill and other deductions (1) (.3) (.5)
Allowance for loan losses not included in Tier 2 (1.6) (1.7)
----- -----
Total risk-weighted assets $39.2 $36.0
===== =====
Risk-based capital ratios:
Tier 1 capital (4% minimum requirement) 9.09% 10.48%
Total capital (8% minimum requirement) 13.16 15.12
Leverage ratio (3% minimum requirement) (2) 6.89% 7.39%
- ------------------------------------------------------------------------------
<FN>
(1) Other deductions include the unrealized net gain (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>
LEVERAGE RATIO
To supplement the RBC guidelines, the FRB established a leverage ratio
guideline. The leverage ratio consists of Tier 1 capital divided by quarterly
average total assets, excluding goodwill and certain other items. The minimum
leverage ratio guideline is 3% for banking organizations that do not anticipate
significant growth and that have well-diversified risk, excellent asset quality,
high liquidity, good earnings and, in general, are considered top-rated, strong
banking organizations. Other banking organizations are expected to have ratios
of at least 4% to 5%, depending upon their particular condition and growth
plans. Higher leverage ratios could be required by the particular circumstances
or risk profile of a given banking organization. The Company's leverage ratios
were 6.89% and 7.39% at December 31, 1994 and 1993, respectively. The decrease
in the leverage ratio at December 31, 1994 compared with December 31, 1993 was
primarily due to a decrease in Tier 1 capital.
30
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
IMPROVEMENT ACT OF 1991 (FDICIA)
In addition to adopting a risk-based assessment system, FDICIA required that the
federal regulatory agencies adopt regulations defining five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Under the regulations, a "well
capitalized" institution must have a Tier 1 RBC ratio of at least 6%, a total
capital ratio of at least 10% and a leverage ratio of at least 5% and not be
subject to a capital directive order. The Bank had a Tier 1 RBC ratio of 9.56%,
a total capital ratio of 12.64% and a leverage ratio of 7.21% at December 31,
1994, compared with 10.36%, 13.99% and 7.30% at December 31, 1993, respectively.
ASSET/LIABILITY MANAGEMENT
................................................................................
The principal objectives of asset/liability management are to manage the
sensitivity of net interest spreads to potential changes in interest rates and
to enhance profitability in ways that promise sufficient reward for understood
and controlled risk. Funding positions are kept within predetermined limits
designed to ensure that risk-taking is not excessive and that liquidity is
properly managed.
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 asset and liability rates will
decline or turn negative if rates increase. The Company refers to this type of
risk as "term structure risk." There is, however, another source of interest
rate risk, which results from changing spreads between loan and deposit rates.
These changing spreads are not highly correlated to changes in the level of
interest rates and are driven by other market conditions. The Company calls this
type of risk "basis risk"; it is the Company's main source of interest rate risk
and is significantly more difficult to quantify and manage than term structure
risk.
One way to analyze the impact that future changes in interest rates will
have on net interest income is through a cumulative gap measure. The gap
represents the net position of assets and liabilities subject to repricing in
specified time periods. Table 26 shows in summary form the Company's interest
rate sensitivity based on expected interest rate repricings in specific time
frames for the balance sheet as of December 31, 1994. All swaps, except for
forward swaps, are reported in the table. Table 27 presents an expanded,
detailed report of the Company's interest rate sensitivity by major asset and
liability categories, together with an adjusted cumulative gap measure.
<TABLE>
<CAPTION>
TABLE 26 SUMMARY OF INTEREST RATE SENSITIVITY
==================================================================================================================================
(in millions) December 31, 1994
------------------------------------------------------------------------------------------
Prime- MRA 0-3 >3-6 >6-12 >1-5 >5 Non- Total
based savings months months months years years market
loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $9,338 $ -- $ 10,951 $ 2,292 $ 3,240 $15,800 $ 3,533 $ 8,220 $ 53,374
Liabilities and stockholders' equity -- (10,663) (11,039) (1,256) (2,121) (2,552) (887) (24,856) (53,374)
------ -------- -------- ------- ------- ------- ------- -------- --------
Gap before interest rate swaps $9,338 $(10,663) $ (88) $ 1,036 $ 1,119 $13,248 $ 2,646 $(16,636) $ --
Interest rate swaps (1) -- -- (1,692) 281 149 1,245 17 -- --
------ -------- -------- ------- ------- ------- ------- -------- --------
Gap adjusted for interest rate swaps $9,338 $(10,663) $ (1,780) $ 1,317 $ 1,268 $14,493 $ 2,663 $(16,636) $ --
====== ======== ======== ======= ======= ======= ======= ======== ========
Cumulative gap $ -- $ (1,325) $ (3,105) $(1,788) $ (520) $13,973 $16,636 $ --
====== ======== ======== ======= ======= ======= ======= ========
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Amounts exclude receive-fixed rate, forward starting swaps with a notional amount of $1,415 million at December 31, 1994.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
TABLE 27 INTEREST RATE SENSITIVITY
==================================================================================================================================
(in millions) December 31, 1994
------------------------------------------------------------------------------------------
Prime- MRA 0-3 >3-6 >6-12 >1-5 >5 Non- Total
based savings months months months years years market
loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities (1) $ -- $ -- $ 554 $ 559 $ 1,416 $ 7,508 $ 1,540 $ 31 $11,608
Federal funds sold and securities
purchased under resale agreements -- -- 260 -- -- -- -- -- 260
Loans:
Commercial 4,510 -- 2,609 389 62 238 50 304 8,162
Real estate 1-4 family first mortgage 86 -- 1,014 445 615 5,356 1,453 81 9,050
Other real estate mortgage 2,482 -- 2,443 560 686 1,241 339 328 8,079
Real estate construction 748 -- 172 1 2 31 1 58 1,013
Consumer 1,512 -- 3,748 229 266 588 77 2,266 8,686
Lease financing -- -- 117 109 193 838 73 -- 1,330
Foreign -- -- 27 -- -- -- -- -- 27
------ -------- -------- -------- -------- ------- ------- -------- -------
Total loans (2) 9,338 -- 10,130 1,733 1,824 8,292 1,993 3,037 36,347
------ -------- -------- -------- -------- ------- ------- -------- -------
Other earning assets (3) -- -- 7 -- -- -- -- 52 59
------ -------- -------- -------- -------- ------- ------- -------- -------
Total earning assets 9,338 -- 10,951 2,292 3,240 15,800 3,533 3,120 48,274
Noninterest-earning assets -- -- -- -- -- -- -- 5,100 5,100
------ -------- -------- -------- -------- ------- ------- -------- -------
Total assets $9,338 $ -- $ 10,951 $ 2,292 $ 3,240 $15,800 $ 3,533 $ 8,220 $53,374
------ -------- -------- -------- -------- ------- ------- -------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing checking $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 4,518 $ 4,518
Savings deposits -- -- -- -- -- -- -- 2,395 2,395
Market rate savings (4) -- 10,663 870 -- -- -- -- 2,785 14,318
Savings certificates -- -- 1,684 1,230 1,949 2,141 96 32 7,132
Other time deposits -- -- 45 25 40 168 4 2 284
Deposits in foreign offices -- -- 3,540 -- -- -- -- -- 3,540
------ -------- -------- -------- -------- ------- ------- -------- -------
Total interest-bearing deposits -- 10,663 6,139 1,255 1,989 2,309 100 9,732 32,187
Short-term borrowings -- -- 3,211 -- -- -- -- -- 3,211
Senior debt -- -- 978 1 132 243 39 -- 1,393
Subordinated debt (5) -- -- 636 -- -- -- 748 76 1,460
------ -------- -------- -------- -------- ------- ------- -------- -------
Total interest-bearing liabilities -- 10,663 10,964 1,256 2,121 2,552 887 9,808 38,251
Noninterest-bearing liabilities -- -- -- -- -- -- -- 11,212 11,212
Stockholders' equity -- -- 75 -- -- -- -- 3,836 3,911
------ -------- -------- -------- -------- ------- ------- -------- -------
Total liabilities and
stockholders' equity $ -- $ 10,663 $ 11,039 $ 1,256 $ 2,121 $ 2,552 $ 887 $ 24,856 $53,374
------ -------- -------- -------- -------- ------- ------- -------- -------
Gap before interest rate swaps $9,338 $(10,663) $ (88) $ 1,036 $ 1,119 $13,248 $ 2,646 $(16,636) $ --
Interest rate swaps (6):
Receive fixed -- -- (1,701) 204 216 1,264 17 -- --
Receive variable -- -- 86 -- (67) (19) -- -- --
Basis swaps -- -- (77) 77 -- -- -- -- --
------ -------- -------- -------- -------- ------- ------- -------- -------
Gap adjusted for interest rate swaps $9,338 $(10,663) $ (1,780) $ 1,317 $ 1,268 $14,493 $ 2,663 $(16,636) $ --
====== ======== ======== ======== ======== ======= ======= ======== =======
Cumulative gap $ -- $ (1,325) $ (3,105) $ (1,788) $ (520) $13,973 $16,636 $ --
====== ======== ======== ======== ======== ======= ======= ========
Adjustments:
Exclude noninterest-earning assets,
noninterest-bearing liabilities and
stockholders' equity -- -- 75 -- -- -- -- 9,948
Move interest-bearing checking,
savings deposits and market rate
savings from nonmarket to
shortest maturity -- -- (9,698) -- -- -- -- 9,698
------ -------- -------- -------- -------- ------- ------- --------
Adjusted cumulative gap $9,338 $ (1,325) $(12,728) $(11,411) $(10,143) $ 4,350 $ 7,013 $ 10,023
====== ======== ======== ======== ======== ======= ======= ========
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The nonmarket column consists of marketable equity securities.
(2) The nonmarket column consists of nonaccrual loans of $567 million, fixed-rate credit card loans of $2,300 million (including
$46 million in commercial credit card loans) and overdrafts of $170 million.
(3) The nonmarket column consists of Federal Reserve Bank stock.
(4) The nonmarket column consists of Wells Extra savings.
(5) The nonmarket column substantially consists of foreign currency transaction adjustments to subordinated notes issued in German
marks.
(6) Amounts exclude receive-fixed rate, forward starting swaps with a notional amount of $1,415 million at December 31, 1994.
</TABLE>
32
<PAGE>
In categorizing assets and liabilities according to expected repricing time
frames, management makes certain judgments and approximations. For example, a
new three-year loan with a rate that is adjusted every 30 days would be
included in the "0-3 months" category rather than the "over 1-5 years" category.
There are also balance sheet categories that have a fixed rate and an
unspecified maturity, or a rate which is administered but changes slowly or not
at all as market rates change. An example of this type of account is interest-
bearing checking, which has balances available on demand and pays a rate that
changes infrequently. The balances are relatively stable from quarter to
quarter, but could decline because of disintermediation if rates increased
substantially. Another example is the revolving credit feature of fixed-rate
credit card loans, which differentiates these loans from fixed-rate loans with
specified contractual maturities. Given the unusual rate maturity
characteristics of these balance sheet items, they are placed in a "nonmarket
category." This category is generally viewed as being relatively stable in terms
of interest rate variability and the net nonmarket liabilities are viewed as
funding fixed-rate assets with maturities greater than one year. Nonmarket
assets include non-interest-earning assets, fixed-rate credit card loans,
nonaccrual loans and equity securities. Nonmarket liabilities and stockholders'
equity include savings deposits, interest-bearing checking, Wells Extra savings
(included in market rate savings), noninterest-bearing deposits, other
noninterest-bearing liabilities, common stockholders' equity and fixed-rate
perpetual preferred stock.
Some asset/liability managers allocate these nonmarket assets and
liabilities to the various maturity categories. The Company believes that these
allocations are mostly arbitrary and tend to provide a false sense that the gap
structure is accurately defined. For this reason, they remain in the nonmarket
category, in order to maintain the Company's focus on their unusual rate
maturity characteristics.
Mortgage-backed investment securities and fixed-rate loans in the real
estate 1-4 family first mortgage, other real estate mortgage and consumer loan
categories are based on expected maturities rather than on contractual
maturities. The gap structure also does not allocate Prime-based loans and
market rate account (MRA) savings deposits to specific maturity categories (MRA
savings deposits exclude Wells Extra savings). Statistical evidence indicates
that both Prime-based loans and MRA savings deposits have relatively short
maturities, with that of MRA savings deposits being somewhat longer. Keeping
them in distinct categories (as with nonmarket) helps maintain focus on these
rates, since most of the Company's short-term net interest income variability
depends on their relative movements.
The Company uses interest rate derivative financial instruments as an
asset/liability management tool to hedge mismatches in interest rate maturities.
They are used to reduce the Company's exposure to interest rate fluctuations and
provide more stable spreads between loan yields and the rates on their funding
sources. For example, the Company uses interest rate futures to shorten the rate
maturity of market rate savings to better match the maturity of Prime-based
loans.
The under-one-year net liability position at December 31, 1994 was $520
million (1.0% of total assets), compared with the under-one-year asset position
of $1,402 million at December 31, 1993 (2.7% of total assets). This measure of
term structure risk would indicate a nearly balanced interest rate risk
position.
The two adjustments to the cumulative gap amount shown on Table 27 provide
comparability with those bank holding companies that present interest rate
sensitivity information in this manner. However, management does not believe
that these adjustments depict its interest rate risk. The first adjustment line
excludes noninterest-earning assets, noninterest-bearing liabilities and
stockholders' equity from the cumulative gap calculation so that only earning
assets, interest-bearing liabilities and all interest rate swap contracts,
excluding forward swaps, are reported. The second adjustment line moves
interest-bearing checking, savings deposits and Wells Extra savings from the
nonmarket liability category to the shortest rate maturity category. This second
adjustment reflects the availability of these deposits for immediate withdrawal.
The resulting adjusted under-one-year cumulative gap (net liability position)
was $10.1 billion and $5.9 billion at December 31, 1994 and 1993, respectively.
The gap analysis provides a useful framework to measure the term structure
risk. In addition, the Company performs net interest income simulations to
estimate the potential effects of changing interest rates. This process allows
the Company to fully explore the complex relationships within the gap over time
and various interest rate environments.
To get a complete picture of its current interest rate risk position, the
Company must look at both term structure risk and basis risk. The two most
significant components of basis risk are the Prime/MRA spread and the rate paid
on savings and interest-bearing checking accounts. During the last rate cycle,
the Prime/MRA spread varied from a low of approximately 275 basis points in 1987
to a high of approximately 525 basis points when rates peaked in 1989. The
increase in the Prime/MRA spread as well as lagged movement in other deposit
rates caused spreads to increase to historic high levels. The Company's risk was
that declining rates would cause margins to compress as loan rates dropped more
rapidly than deposit rates. If loan rates decreased even
33
<PAGE>
more than they had at the bottom of the last cycle, the Company's net interest
margin could have come under severe pressure. At the peak of the rate cycle in
1989, interest rate floor contracts and a smaller amount of swaps were purchased
to hedge against this type of margin compression. Most of these contracts
matured by the end of 1994.
The spread between loans and deposits increased again in 1994 as the Prime
rate climbed 250 basis points and deposit rates were slow to react. The
increasing loan/deposit spread roughly offset the loss of hedging income due to
the maturing interest rate floor and swap hedges put in place in 1989.
As the Company looks toward managing interest rate risk in 1995, it is
confronted with several risk scenarios. If the Prime rate and other market rates
remain at current levels, the Company may be faced with an environment in which
deposit rates begin to creep upward, causing declines in net interest income. As
stated earlier, the Prime rate increased 250 basis points during 1994, while the
MRA savings deposit rate on average has moved only 35 basis points. During the
last period of increasing rates, the MRA savings deposit rate moved
approximately 45% of the movement in the Prime rate. Although market conditions
are substantially different in this interest rate cycle, there may be further
increases in deposit rates, causing a decline in net interest income. There is
no cost-effective way to hedge against such a decline.
If interest rates rise, net interest income may actually increase if
deposit rates continue to lag increases in market rates. The Company could,
however, experience significant pressure on net interest income if there is a
substantial movement in deposit rates relative to market rates. This basis risk
potentially could be hedged with interest rate caps, but the Company believes
they are not cost-effective in relation to the risk they would mitigate.
Finally, a declining interest rate environment might result in a decrease
in loan rates while deposit rates remain relatively stable, since they have not
increased much in this cycle. This rate scenario could also create significant
risk to net interest income. The Company has partially hedged against this risk
by again purchasing interest rate floor contracts as indicated in Table 28.
In 1995, the Company anticipates that a significant amount of its loan
growth will be funded by maturing fixed-rate investment securities. Since it is
anticipated that the bulk of the loan growth will be at floating rates, these
changes could significantly affect the gap structure. To partially hedge these
projected gap changes, $1.4 billion of forward swaps were added in which the
Company receives a fixed rate and pays a floating rate. These forward swaps are
detailed in Table 29.
DERIVATIVE FINANCIAL INSTRUMENTS
................................................................................
The Company uses interest rate derivative financial instruments as an
asset/liability management tool to hedge mismatches in interest rate maturities
to reduce the Company's exposure to interest rate fluctuations. 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.
Table 28 reconciles the beginning and ending notional or contractual
amounts for derivative financial instruments for 1994 and shows the expected
remaining maturity at year-end 1994.
Table 29 summarizes the notional amount, expected maturities and weighted
average interest rates associated with amounts to be received or paid on
interest rate swap agreements, together with an indication of the
asset/liability hedged.
For a further discussion of derivative financial instruments, refer to Note
13 of the Financial Statements.
LIQUIDITY MANAGEMENT
................................................................................
Liquidity refers to the Company's ability to maintain a cash flow adequate to
fund operations and meet obligations and other commitments on a timely and cost-
effective basis.
In recent years, core deposits have provided the Company with a sizable
source of relatively stable and low-cost funds. The Company's average core
deposits and stockholders' equity funded 84% and 87% of its average total assets
in 1994 and 1993, respectively.
The remaining funding of average total assets was mostly provided by senior
and subordinated debt, deposits in foreign offices and short-term borrowings
(comprised of federal funds purchased and securities sold under repurchase
agreements, commercial paper and other short-term borrowings). Senior and
subordinated debt averaged $3.4 billion and $4.1 billion in 1994 and 1993,
respectively. Short-term borrowings averaged $2.4 billion and $1.3 billion in
1994 and 1993, respectively.
The weighted average expected remaining maturity of the debt securities
within the investment securities portfolio was 2 years and 10 months at December
31, 1994. Of the $11.8 billion debt securities at cost at December 31, 1994,
$2.5 billion, or 21%, is expected to mature or be prepaid in 1995 and an
additional $2.5 billion, or 21%, is expected to mature or be prepaid in 1996.
The Company has purchased shorter-term debt securities to maintain asset
liquidity and to fund loan growth.
34
<PAGE>
<TABLE>
<CAPTION>
TABLE 28 DERIVATIVE ACTIVITIES
==================================================================================================================================
(notional or contractual amounts in millions) Year ended December 31, 1994
--------------------------------------------------------------------------------
Beginning Additions Expirations Terminations (2) Ending Weighted
balance balance average
expected
remaining
maturity (in
yrs.--mos.)
<S> <C> <C> <C> <C> <C> <C>
Interest rate futures contracts $4,890 $20,291 $19,888(1) $284 $ 5,009 0-3
Interest rate forward contracts 75 246 313(1) -- 8 0-1
Interest rate caps written 1,170 535 533 133 1,039 1-9
Interest rate floors purchased 3,685 12,100 1,347 83 14,355 3-5
Interest rate caps purchased 1,514 474 536 192 1,260 2-0
Interest rate swap contracts 2,052 2,533 1,246 60 3,279 2-9
Foreign exchange contracts (forwards and spots) 320 16,775 16,480 -- 615 0-3
Foreign exchange option contracts purchased 14 459 154 -- 319 0-6
Foreign exchange option contracts written 6 444 132 -- 318 0-6
Cross currency swaps 192 -- 74 -- 118 0-11
When-issued securities 484 -- 484 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) To facilitate the settlement process, the Company enters into offsetting contracts 2 to 45 days prior to their maturity date.
Concurrent with the closing of these positions, the Company generally enters into new interest rate futures and forward
contracts with a later expiration date since the Company's use of these contracts predominantly relates to ongoing hedging
programs.
(2) Terminations occur if a customer that purchased a contract decides to cancel it before the maturity date. If the customer
contract was hedged, the Company terminates the interest rate derivative instrument used to hedge the customer's contract upon
cancellation. The impact of terminations on income before income taxes for 1994 was approximately $1 million.
</TABLE>
<TABLE>
<CAPTION>
TABLE 29 INTEREST RATE AND CROSS CURRENCY SWAP MATURITIES AND AVERAGE RATES (1)
==================================================================================================================================
(notional amounts in millions) 1995 1996 1997 1998 Thereafter Total
<S> <C> <C> <C> <C> <C> <C>
Receive-fixed rate (hedges loans)
Notional amount $ 343 $ 533 $ 398 $ 56 $ 45 $1,375
Weighted average rate received 7.59% 4.52% 4.88% 5.87% 7.45% 5.55%
Weighted average rate paid 5.77 5.74 5.76 6.11 7.62 5.83
Receive-fixed rate (hedges senior debt)
Notional amount $ 12 $ 224 $ -- $ -- $ -- $ 236
Weighted average rate received 7.21% 7.38% --% --% --% 7.37%
Weighted average rate paid 5.51 5.77 -- -- -- 5.75
Receive-fixed rate, forward starting
swaps (hedges loans) (2)
Notional amount $ -- $ -- $ -- $ 150 $1,265 $1,415
Basis swaps (hedges subordinated debt) (3)
Notional amount $ 77 $ -- $ -- $ -- $ -- $ 77
Weighted average rate received 5.30% --% --% --% --% 5.30%
Weighted average rate paid 6.43 -- -- -- -- 6.43
Cross currency swaps (hedges subordinated debt)
Notional amount $ 118 $ -- $ -- $ -- $ -- $ 118
Weighted average rate received 5.11% --% --% --% --% 5.11%
Weighted average rate paid 6.32 -- -- -- -- 6.32
Other swaps (4)
Notional amount $ 132 $ 44 $ -- $ -- $ -- $ 176
Weighted average rate received 6.80% 5.39% --% --% --% 6.49%
Weighted average rate paid 6.82 5.81 -- -- -- 6.56
Total notional amount $ 682 $ 801 $ 398 $ 206 $1,310 $3,397
===== ===== ===== ===== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Variable interest rates are presented on the basis of rates in effect at December 31, 1994. These rates may change substantially
in the future due to open market factors.
(2) These forward swaps, which will hedge loans, start in January 1995 for $15 million and in February, May, August and November
1995 for $350 million each month.
(3) The Company has entered into interest rate basis swap agreements whereby the Company receives interest payments based on the
six-month LIBOR rate and makes interest payments based on the one-month commercial paper rate.
(4) Represents customer accommodation swaps not used for asset/liability management purposes. The notional amount reflects customer
accommodations as well as the swaps used to hedge the customer accommodations.
</TABLE>
35
<PAGE>
Other sources of liquidity include maturity extensions of short-term
borrowings and sale or runoff of assets. Commercial and real estate loans
totaled $26.3 billion at December 31, 1994. Of these loans, $7.0 billion matures
in one year or less, $7.9 billion matures in over one year through five years
and $11.4 billion matures in over five years. Of the $19.3 billion that matures
in over one year, $12.0 billion has floating or adjustable rates and $7.3
billion has fixed rates. Of the $7.3 billion of fixed-rate loans, approximately
$2.7 billion represents fixed initial-rate mortgage (FIRM) loans. FIRM loans
carry fixed rates for a minimum of 3 years to a maximum of 10 years of the loan
term and carry adjustable rates thereafter. (Refer to the Consolidated Statement
of Cash Flows for further information on the Company's cash flows from its
operating, investing and financing activities.)
Liquidity for the Parent Company and its nonbank 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. A
shelf registration statement filed with the Securities and Exchange Commission
allows the issuance of up to $1.5 billion of senior or subordinated debt or
preferred stock. At December 31, 1994, $1.3 billion remained unissued. An
additional $500 million was issued in January 1995, which further reduced the
shelf to $752 million. (Refer to Note 6 to the Financial Statements for a
schedule of outstanding senior and subordinated debt.) The Company also had
unused committed lines of credit of approximately $300 million at December 31,
1994.
In 1994, a significant portion of the Parent's source of funding was due to
dividends paid by the Bank totaling $1,001 million. The dividends received
helped to fund the Company's ongoing stock repurchase program. The Company
expects the Parent to continue to receive dividends from the Bank in 1995. (See
Notes 2 and 11 to the Financial Statements for the Bank's dividend restriction
and the Parent Company's financial statements, respectively.)
To accommodate future growth and current business needs, the Company has a
capital expenditure program. Capital expenditures for 1995 are estimated at $200
million for additional automation equipment for branches and offices, relocation
and remodeling of Company facilities and routine replacement of furniture and
equipment. The Company will fund these expenditures from various sources,
including retained earnings of the Company and borrowings of various maturities.
COMPARISON OF 1993 VERSUS 1992
- --------------------------------------------------------------------------------
Net income in 1993 was $612 million, compared with $283 million in 1992. Net
income per share was $10.10, compared with $4.44 in 1992. Return on average
assets (ROA) was 1.20% and return on average common equity (ROE) was 16.74% in
1993 compared with .54% and 7.93% respectively, in 1992.
The increase in earnings in 1993 compared with 1992 was substantially due
to a $665 million, or 55%, decrease in the loan loss provision. In addition,
net interest income on a taxable-equivalent basis declined 1% to $2,659 million
in 1993, while the net interest margin increased 4 basis points to 5.74%. The
increase in the net interest margin was substantially due to lower rates paid on
interest-bearing checking and savings accounts, wider spreads between Prime- and
LIBOR-based loans and their funding source and recoveries on loans where
interest had been previously applied to principal. These improvements were
partially offset by a change in the mix of earning assets from higher-yielding
loans to lower-yielding investment securities and lower income from derivative
contracts used to hedge mismatches in the rate maturity of loans and their
funding sources. Hedging income from derivative contracts decreased $32 million
in 1993, resulting in a 7 basis point decline in the net interest margin due to
the maturity of contracts.
Average earning assets declined to $46.3 billion in 1993 from $47.3 billion
in 1992. The decrease in earning assets was substantially due to a $6.1 billion
decrease in average loans, primarily in commercial loans and other real estate
mortgage loans, partially offset by a $5.3 billion increase in average
investment securities, predominantly mortgage-backed securities.
36
<PAGE>
Noninterest income was $1,093 million in 1993, compared with $1,059 million
in 1992. Services charges on deposit accounts increased 7% to $423 million,
primarily due to increases in service charges on individual and business
checking accounts. Fees and commissions increased 4% to $376 million
predominantly resulting from sales fees on mutual funds and annuities as well as
increased shared ATM network income. Sales fee revenues on mutual funds and
other financial products increased from $29 million in 1992 to $43 million in
1993 due to the introduction of the Personal Financial Officer program in the
branches. Shared ATM network income increased to $38 million from $32 million
in 1992, primarily due to a fee increase implemented in mid-1992 as well as a
7% increase in the volume of transactions processed through the ATM network.
Trust and investment services income increased 15% to $190 million, mostly due
to greater mutual fund investment management fees, reflecting growth in the
funds' net assets. These fees amounted to $37 million in 1993, compared with
$19 million in 1992. In 1992, the Company realized gains of $45 million from the
sale of all of its 30-year mortgage-backed securities. These securities were
previously designated as held for sale and carried at the lower of cost or
market. The increase in losses from disposition of operations from 1992 to 1993
was due to a $36 million accrual made in the third quarter of 1993 primarily
related to reduced space requirements.
"All Other" noninterest income in 1993 included $18 million of interest
income received as a result of the settlement of California Franchise Tax Board
audits related to the appropriate years for claiming deductions applicable to
the 1976 through 1986 tax returns. "All Other" noninterest income in 1992
included $14 million of interest income due to the settlement of Internal
Revenue Service audits related to the appropriate years for claiming certain
deductions and credits applicable to the 1978 through 1986 tax years. "All
Other" noninterest income in 1992 also included real estate investment
(contingent interest loans accounted for as investments) losses of $19 million,
which were substantially due to a write-down on land for development in Southern
California.
Noninterest expense totaled $2,162 million in 1993, compared with $2,035
million in 1992. Salaries expense increased 5% to $684 million due to increases
in merit pay and severance accruals primarily related to the reorganization of
the Retail Distribution Group. Incentive compensation increased 49% to $109
million substantially due to various sales programs and a Company-wide employee
appreciation program. Employee benefits expense increased 22% to $213 million
primarily due to the adoption of Statement of Financial Accounting Standards
No. 106 (FAS 106), Employers' Accounting for Postretirement Benefits Other Than
Pensions, and FAS 112, Employers' Accounting for Postemployment Benefits.
FAS 106 resulted in an incremental expense in 1993 of approximately $11 million;
FAS 112 resulted in an accrual of $12 million.
Total loans were $33.1 billion at December 31, 1993, a 10% decrease from
December 31, 1992. This decrease was predominantly due to declines of 18% in
other real estate mortgage loans and 16% in commercial loans.
The provision for loan losses in 1993 was $550 million, compared with
$1,215 million in 1992. Net charge-offs in 1993 were $495 million, or 1.44% of
average total loans, compared with $798 million, or 1.97%, in 1992. Loan loss
recoveries were $169 million in 1993, compared with $117 million in 1992. The
allowance for loan losses was 6.41% of total loans at December 31, 1993,
compared with 5.60% at December 31, 1992. The decline in the provision for loan
losses reflected the continued improvement in the Company's loan portfolio.
Total nonaccrual and restructured loans were $1,200 million, or 3.6% of
total loans, at December 31, 1993, compared with $2,142 million, or 5.8% of
total loans, at December 31, 1992. At December 31, 1993, an estimated $704
million, or 59%, of nonaccrual loans were less than 90 days past due, compared
with an estimated $1,294 million, or 61%, at December 31, 1992. Foreclosed
assets were $348 million at December 31, 1993, compared with $510 million at
December 31, 1992.
The average volume of core deposits in 1993 was $40.4 billion, 3% lower
than in 1992. Average core deposits funded 79% of the Company's average total
assets in 1993, compared with 80% in 1992.
The Company adopted FAS 109, Accounting for Income Taxes, on January 1,
1993. Under this method, the computation of the net deferred tax asset or
liability gives current recognition to changes in tax rates and laws. As a
result, when the Omnibus Budget Reconciliation Act was signed into law in August
of 1993, raising the corporate tax rate from 34% to 35%, effective January 1,
1993, an adjustment was made that increased the Company's deferred tax asset
and, correspondingly, decreased income tax expense by approximately $18 million.
Because the deferred tax asset was originally recorded at a lower tax rate, the
higher tax rate in effect at that time increased the value of the asset. The
decreased income tax expense was partially offset by a $9 million increase to
reflect the application of the higher tax rate to 1993 earnings.
37
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Common stock of the Company is traded on the New York Stock Exchange, the
Pacific Stock Exchange, the London Stock Exchange and the Frankfurt Stock
Exchange. The high, low and end-of-period annual and quarterly closing prices of
the Company's stock as reported on the New York Stock Exchange Composite
Transaction Reporting System are presented in the graphs. The number of holders
of record of the Company's common stock was 27,758 as of January 31, 1995.
[PRICE RANGE OF COMMON STOCK-ANNUAL (GRAPH) ($)] SEE APPENDIX
[PRICE RANGE OF COMMON STOCK-QUARTERLY (GRAPH) ($)] SEE APPENDIX
Common dividends declared per share totaled $4.00 in 1994, $2.25 in 1993
and $1.50 in 1992. The dividend was increased in the fourth quarter of 1993 from
$.50 to $.75 per share, increased again to $1.00 per share in the first quarter
of 1994 and to $1.15 per share in January 1995. Quarterly dividends are
considered at the Board of Directors meeting the month following quarter end.
Dividends declared are payable the second month after quarter end. The Company,
with the approval of the Board of Directors, intends to continue its present
policy of paying quarterly cash dividends to stockholders. The level of future
dividends will be determined by the Board of Directors in light of the earnings
and financial condition of the Company.
In 1991, the FRB approved an application by Berkshire Hathaway, Inc.
(Berkshire) to purchase additional shares of the Company's common stock in the
open market, up to a total of 22%. Berkshire entered into a passivity agreement
with the Company, in which it agrees not to exercise any control over the
Company's management or policies. Accordingly, Berkshire granted its proxy to
the Company to vote Berkshire's shares in accordance with the recommendations of
the Board of Directors of the Company. Berkshire owned 13.3% and 12.2% of the
Company's common stock at December 31, 1994 and 1993, respectively.
38
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(in millions) Year ended December 31,
-------------------------------------
1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME
Loans $3,015 $3,066 $3,697
Investment securities 740 672 415
Federal funds sold and securities purchased under resale agreements 7 23 33
Other 3 -- --
------ ------ ------
Total interest income 3,765 3,761 4,145
------ ------ ------
INTEREST EXPENSE
Deposits 854 863 1,185
Federal funds purchased and securities sold under repurchase agreements 99 29 41
Commercial paper and other short-term borrowings 10 6 9
Senior and subordinated debt 192 206 219
------ ------ ------
Total interest expense 1,155 1,104 1,454
------ ------ ------
NET INTEREST INCOME 2,610 2,657 2,691
Provision for loan losses 200 550 1,215
------ ------ ------
Net interest income after provision for loan losses 2,410 2,107 1,476
------ ------ ------
NONINTEREST INCOME
Service charge on deposit accounts 473 423 394
Fees and commissions 387 376 363
Trust and investment services income 203 190 165
Investment securities gains 8 -- 45
Other 129 104 92
------ ------ ------
Total noninterest income 1,200 1,093 1,059
------ ------ ------
NONINTEREST EXPENSE
Salaries 671 684 650
Incentive compensation 155 109 73
Employee benefits 201 213 175
Net occupancy 215 224 222
Equipment 174 148 141
Federal deposit insurance 101 114 106
Other 639 670 668
------ ------ ------
Total noninterest expense 2,156 2,162 2,035
------ ------ ------
INCOME BEFORE INCOME TAX EXPENSE 1,454 1,038 500
Income tax expense 613 426 217
------ ------ ------
NET INCOME $ 841 $ 612 $ 283
====== ====== ======
NET INCOME APPLICABLE TO COMMON STOCK $ 798 $ 562 $ 235
====== ====== ======
PER COMMON SHARE
Net income $14.78 $10.10 $ 4.44
====== ====== ======
Dividends declared $ 4.00 $ 2.25 $ 1.50
====== ====== ======
Average common shares outstanding 53.9 55.6 52.9
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
39
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(in millions) December 31,
-----------------------
1994 1993
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,974 $ 2,644
Investment securities:
At cost (estimated fair value $8,185 and $9,978) 8,619 9,887
At fair value 2,989 3,171
------- -------
Total investment securities 11,608 13,058
Federal funds sold and securities purchased under resale agreements 260 1,668
Loans 36,347 33,099
Allowance for loan losses 2,082 2,122
------- -------
Net loans 34,265 30,977
------- -------
Due from customer on acceptances 77 70
Accrued interest receivable 328 297
Premises and equipment, net 886 898
Goodwill 416 477
Other assets 2,560 2,424
------- -------
Total assets $53,374 $52,513
======= =======
LIABILITIES
Noninterest-bearing deposits $10,145 $ 9,719
Interest-bearing deposits 32,187 31,925
------- -------
Total deposits 42,332 41,644
Federal funds purchased and securities sold under repurchase agreements 3,022 1,079
Commercial paper and other short-term borrowings 189 188
Acceptances outstanding 77 70
Accrued interest payable 60 63
Other liabilities 930 933
Senior debt 1,393 2,256
Subordinated debt 1,460 1,965
------- -------
Total liabilities 49,463 48,198
------- -------
STOCKHOLDERS' EQUITY
Preferred stock 489 639
Common stock--$5 par value, authorized 150,000,000 shares;
issued and outstanding 51,251,648 shares and 55,812,592 shares 256 279
Additional paid-in capital 871 551
Retained earnings 2,409 2,829
Cumulative foreign currency translation adjustments (4) (4)
Investment securities valuation allowance (110) 21
------- -------
Total stockholders' equity 3,911 4,315
------- -------
Total liabilities and stockholders' equity $53,374 $52,513
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
40
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in millions) Preferred Common Additional Retained Foreign Investment Total
stock stock paid-in earnings currency securities stock-
capital translation valuation holders'
adjustments allowance equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1991 $ 463 $260 $ 316 $ 2,236 $(4) $ -- $3,271
----- ---- ------ ------- --- ----- ------
Net income--1992 283 283
Preferred stock issued, net of
issuance costs 176 (7) 169
Common stock issued under
employee benefit and
dividend reinvestment plans 16 197 213
Preferred stock dividends (48) (48)
Common stock dividends (79) (79)
----- ---- ------ ------- --- ----- ------
Net change 176 16 190 156 -- -- 538
----- ---- ------ ------- --- ----- ------
BALANCE DECEMBER 31, 1992 639 276 506 2,392 (4) -- 3,809
----- ---- ------ ------- --- ----- ------
Net income--1993 612 612
Common stock issued under
employee benefit and
dividend reinvestment plans 3 50 53
Common stock repurchased (5) (5)
Preferred stock dividends (50) (50)
Common stock dividends (125) (125)
Cumulative unrealized net gains,
after applicable taxes,
at December 31, 1993 21 21
----- ---- ------ ------- --- ----- ------
Net change -- 3 45 437 -- 21 506
----- ---- ------ ------- --- ----- ------
BALANCE DECEMBER 31, 1993 639 279 551 2,829 (4) 21 4,315
----- ---- ------ ------- --- ----- ------
Net income--1994 841 841
Common stock issued under
employee benefit and
dividend reinvestment plans 3 54 57
Preferred stock redeemed (150) (150)
Common stock repurchased (26) (734) (760)
Preferred stock dividends (43) (43)
Common stock dividends (218) (218)
Change in unrealized net gains,
after applicable taxes (131) (131)
Transfer 1,000 (1,000) --
----- ---- ------ ------- --- ----- ------
Net change (150) (23) 320 (420) -- (131) (404)
----- ---- ------ ------- --- ----- ------
BALANCE DECEMBER 31, 1994 $ 489 $256 $ 871 $ 2,409 $(4) $(110) $3,911
===== ==== ====== ======= === ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
41
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(in millions) Year ended December 31,
--------------------------------------
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 841 $ 612 $ 283
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 200 550 1,215
Depreciation and amortization 246 266 268
Deferred income tax benefit (32) (145) (188)
Net (increase) decrease in accrued interest receivable (31) 4 25
Net decrease in accrued interest payable (3) (25) (58)
Other, net (77) 271 119
------- ------- -------
Net cash provided by operating activities 1,144 1,533 1,664
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
At cost:
Proceeds from prepayments and maturities 3,866 2,492 1,605
Purchases (2,598) (6,168) (7,919)
At lower of cost or market:
Proceeds from sales -- -- 809
At fair value:
Proceeds from sales 18 -- --
Proceeds from prepayments and maturities 670 -- --
Purchases (724) -- --
Net (increase) decrease in loans resulting from originations and collections (3,378) 2,754 3,991
Proceeds from sales (including participations) of loans 134 264 1,936
Purchases (including participations) of loans (375) (36) (31)
Proceeds from sales of foreclosed assets 240 353 311
Net (increase) decrease in federal funds sold and securities purchased
under resale agreements 1,408 (485) (1,174)
Other, net (224) (59) (109)
------- ------- -------
Net cash used by investing activities (963) (885) (581)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 688 (600) (1,475)
Net increase (decrease) in short-term borrowings 1,944 (246) 296
Proceeds from issuance of senior debt 248 980 508
Proceeds from issuance of subordinated debt -- 399 350
Repayment of senior debt (1,101) (884) (882)
Repayment of subordinated debt (526) (300) (116)
Proceeds from issuance of preferred stock -- -- 169
Proceeds from issuance of common stock 57 53 213
Redemption of preferred stock (150) -- --
Repurchase of common stock (760) (5) --
Payment of cash dividends on preferred stock (34) (50) (48)
Payment of cash dividends on common stock (218) (125) (105)
Other, net 1 84 (61)
------- ------- -------
Net cash provided (used) by financing activities 149 (694) (1,151)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS) 330 (46) (68)
Cash and cash equivalents at beginning of year 2,644 2,690 2,758
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,974 $ 2,644 $ 2,690
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,158 $ 1,129 $ 1,512
======= ======= =======
Income taxes $ 680 $ 481 $ 370
======= ======= =======
Noncash investing activities:
Transfers from investment securities at cost to investment securities at lower of
cost or market $ -- $ -- $ 809
======= ======= =======
Transfers from investment securities at cost to investment securities at fair value $ -- $ 3,077 $ --
======= ======= =======
Transfers from foreclosed assets to nonaccrual loans $ -- $ 99 $ --
======= ======= =======
Transfers from loans to foreclosed assets $ 174 $ 404 $ 600
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The accounting and reporting policies of Wells Fargo & Company and Subsidiaries
(Company) conform with generally accepted accounting principles and prevailing
practices within the banking industry. Certain amounts in the financial
statements for prior years have been reclassified to conform with the current
financial statement presentation. The following is a description of the
significant accounting policies of the Company.
CONSOLIDATION
................................................................................
The consolidated financial statements of the Company include the accounts of
Wells Fargo & Company (Parent), Wells Fargo Bank, N.A. (Bank) and the nonbank
subsidiaries of the Parent.
Significant majority-owned subsidiaries are consolidated on a line-by-line
basis. Significant intercompany accounts and transactions are eliminated in
consolidation. Other subsidiaries and affiliates in which there is at least 20%
ownership are generally accounted for by the equity method; those in which there
is less than 20% ownership are generally carried at cost. Subsidiaries and
affiliates that are accounted for by either the equity or cost method are
included in other assets.
SECURITIES
................................................................................
Securities are accounted for according to their purpose and holding period.
INVESTMENT SECURITIES
Securities generally acquired to meet long-term investment objectives, including
yield and liquidity management purposes, are classified as investment
securities. Realized gains and losses are recorded in noninterest income using
the identified certificate method.
SECURITIES AT COST Debt securities acquired with the positive intent and
ability to hold to maturity are classified as securities carried at historical
cost, adjusted for amortization of premium and accretion of discount, where
appropriate. For certain debt securities (for example, Government National
Mortgage Association securities), the Company anticipates prepayments of
principal in the calculation of the effective yield. If it is probable that the
carrying value of any debt security will not be realized due to other-than-
temporary impairment, the estimated loss is recorded in noninterest income as a
loss on investment securities. If a decision is made to dispose of securities at
cost or should the Company become unable to hold securities until maturity, they
would be reclassified to securities at fair value.
SECURITIES AT FAIR VALUE Upon the adoption of Statement of Financial Accounting
Standards No. 115 (FAS 115), Accounting for Certain Investments in Debt and
Equity Securities, on December 31, 1993, debt securities that may not be held
until maturity and marketable equity securities are considered available-for-
sale and, as such, are classified as securities carried at fair value, with
unrealized gains and losses, after applicable taxes, reported in a separate
component of stockholders' equity. Declines in the value of debt securities and
marketable equity securities that are considered other than temporary are
recorded in noninterest income as a loss on investment securities.
SECURITIES AT LOWER OF COST OR MARKET Prior to December 31, 1993, securities
that were not held on a long-term basis or until maturity were classified as
securities carried at the lower of cost or market.
TRADING SECURITIES
Securities, if any, acquired for short-term appreciation or other trading
purposes are recorded in a trading portfolio and are carried at fair value, with
unrealized gains and losses recorded in noninterest income. There were no
trading securities in the past three years.
NONMARKETABLE EQUITY SECURITIES
Nonmarketable equity securities are acquired for various purposes, such as
troubled debt restructurings and as a regulatory requirement (for example,
Federal Reserve Bank stock). These securities are accounted for at cost and are
included in other assets as they do not fall within the scope of FAS 115 since
there are restrictions on their sale or liquidation. The asset value is reduced
when declines in value are considered to be other than temporary.
PREMISES AND EQUIPMENT
................................................................................
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Capital leases are included in premises and equipment, at the
capitalized amount less accumulated amortization.
Depreciation and amortization are computed primarily using the straight-
line method. Estimated useful lives
43
<PAGE>
range up to 40 years for buildings, 2 to 10 years for furniture and equipment,
and up to the lease term for leasehold improvements. Capitalized leased assets
are amortized on a straight-line basis over the lives of the respective leases,
which generally range from 20 to 35 years.
LOANS
................................................................................
Loans are reported at the principal amount outstanding, net of unearned income.
Unearned income, which includes deferred fees net of deferred direct incremental
loan origination costs, is amortized to interest income generally over the
contractual life of the loan using an interest method or the straight-line
method if it is not materially different.
Loans identified as held for sale are carried at the lower of cost or
market value. Nonrefundable fees, related direct loan origination costs and
related hedging gains or losses, if any, are deferred and recognized as a
component of the gain or loss on sale recorded in noninterest income.
NONACCRUAL LOANS Loans are placed on nonaccrual status upon becoming 90 days
past due as to interest or principal (unless both well-secured and in the
process of collection), when the full timely collection of interest or principal
becomes uncertain or when a portion of the principal balance has been charged
off. Real estate 1-4 family loans (both first liens or junior liens) are placed
on nonaccrual status within 150 days of becoming past due as to interest or
principal, regardless of security. Generally, consumer loans not secured by real
estate are only placed on nonaccrual status when a portion of the principal has
been charged off. Generally, such loans are entirely charged off within 180 days
of becoming past due.
When a loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is reversed and the loan is accounted for on the cash or cost
recovery method thereafter, until qualifying for return to accrual status.
Generally, a loan may be returned to accrual status when all delinquent interest
and principal become current in accordance with the terms of the loan agreement
or when the loan is both well-secured and in the process of collection.
RESTRUCTURED LOANS In cases where a borrower experiences financial difficulties
and the Company makes certain concessionary modifications to contractual terms,
the loan is classified as a restructured (accruing) loan, unless the yield is
equivalent to that of a new loan.
Generally, a nonaccrual loan that is restructured remains on nonaccrual for
a period of six months to demonstrate that the borrower can meet the
restructured terms. However, performance prior to the restructuring, or
significant events that coincide with the restructuring, are included in
assessing whether the borrower can meet the new terms and may result in the loan
being returned to accrual at the time of restructuring or after a shorter
performance period. If the borrower's ability to meet the revised payment
schedule is uncertain, the loan remains classified as a nonaccrual loan.
ALLOWANCE FOR LOAN LOSSES The Company's determination of the level of the
allowance for loan losses rests upon various judgments and assumptions,
including general economic conditions, loan portfolio composition, prior loan
loss experience, evaluation of credit risk related to certain individual
borrowers and the Company's ongoing examination process and that of its
regulators. The Company considers the allowance for loan losses adequate to
cover losses inherent in loans, loan commitments and standby letters of credit.
GOODWILL AND IDENTIFIABLE
INTANGIBLE ASSETS
................................................................................
Goodwill, representing the excess of purchase price over the fair value of net
assets acquired, results from acquisitions made by the Company. Most of the
Company's goodwill is being amortized using the straight-line method over 20
years. The remaining period of amortization, on a weighted average basis,
approximated 12 years at December 31,1994.
Identifiable intangible assets that are included in other assets are
generally amortized using an accelerated method over 5 to 15 years.
Approximately 51% of the December 31, 1994 remaining balance will be amortized
in 3 years.
INCOME TAXES
................................................................................
The Company files a consolidated federal income tax return. Consolidated or
combined state tax returns are filed in certain states, including California.
Income taxes are generally allocated to individual subsidiaries as if each had
filed a separate return. Payments are made to the Parent by those subsidiaries
with net tax liabilities on a separate return basis. Subsidiaries with net tax
losses and excess tax credits receive payments for these benefits from the
Parent.
Effective January 1, 1993, deferred income tax assets and liabilities are
determined in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, which uses the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is determined
based on the tax effects of the differences between the book and tax bases of
the various balance sheet assets and liabilities and gives current recognition
to changes in tax rates and laws. FAS 109 supersedes Accounting Principles Board
Opinion No. 11 (APB 11), Accounting for Income Taxes, which was used prior to
1993 to determine the deferred tax assets and liabilities. Under APB 11, the net
deferred tax asset or liability was an
44
<PAGE>
accumulation of annual adjustments based on the tax effects of the book and tax
income statement differences and was not adjusted for subsequent changes in tax
rates and laws.
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS
................................................................................
The Company uses interest rate derivative financial instruments (futures,
forwards, caps, floors and swaps) primarily to hedge mismatches in the rate
maturity of loans and their funding sources. Gains and losses on interest rate
futures are deferred and amortized as a component of the interest income or
expense reported on the asset or liability hedged. Amounts payable or receivable
for swaps, caps and floors are accrued with the passage of time, the effect of
which is included in the interest income or expense reported on the asset or
liability hedged; fees on these financial contracts are amortized over their
contractual life as a component of the interest reported on the asset or
liability hedged. Gains or losses on the interest rate derivatives (e.g.,
forwards) hedging loans originated for sale are deferred and recognized as a
component of the gain or loss recorded on the sale of the related loans in
noninterest income. Cash flows resulting from interest rate derivative financial
instruments that are accounted for as hedges of identifiable transactions are
classified in the same category as the cash flows from the items being hedged.
Credit risk related to interest rate derivative financial instruments is
considered and, if material, provided for separately from the allowance for loan
losses.
The Company adopted Statement of Financial Accounting Standards No. 119
(FAS 119), Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments, on December 31, 1994. FAS 119 requires various
disclosures regarding derivative activities which are set forth in Note 13 to
the Financial Statements.
NET INCOME PER COMMON SHARE
................................................................................
Net income per common share is computed by dividing net income (after deducting
dividends on preferred stock) by the average number of common shares outstanding
during the year. The impact of common stock equivalents, such as stock options,
and other potentially dilutive securities is not material; therefore, they are
not included in the computation.
2 CASH, LOAN AND DIVIDEND RESTRICTIONS
- --------------------------------------------------------------------------------
Federal Reserve Board regulations require reserve balances on deposits to be
maintained by the Bank with the Federal Reserve Bank. The average required
reserve balance was $1.2 billion in both 1994 and 1993.
The Bank is subject to certain restrictions under the Federal Reserve Act,
including restrictions on extensions of credit to its affiliates. In particular,
the Bank is prohibited from lending to the Parent and its nonbank subsidiaries
unless the loans are secured by specified collateral. Such secured loans and
other regulated transactions made by the Bank (including its subsidiaries) are
limited in amount as to each of its affiliates, including the Parent, to 10% of
the Bank's capital stock and surplus (as defined, which for this purpose
includes the allowance for loan losses on an after-tax basis) and, in the
aggregate to all of its affiliates, to 20% of the Bank's capital stock and
surplus. The Bank's capital stock and surplus at December 31, 1994 was $5
billion.
Dividends payable by the Bank to the Parent without the express approval of
the Office of the Comptroller of the Currency (OCC) are limited to the Bank's
retained net profits for the preceding two calendar years plus retained net
profits up to the date of any dividend declaration in the current calendar year.
Retained net profits are defined by the OCC as net income, less dividends
declared during the period, both of which are based on regulatory accounting
principles. Based on this definition, the Bank can declare dividends of
approximately $539 million of its retained net profits at December 31, 1994 plus
retained net profits up to the date of any such dividend declaration. Dividends
declared by the Bank in 1994, 1993 and 1992 were $1,001 million, none and $117
million, respectively.
45
<PAGE>
3 INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 115 (FAS
115), Accounting for Certain Investments in Debt and Equity Securities, on
December 31, 1993. FAS 115 addresses the accounting and reporting for certain
investments in debt and marketable equity securities.
FAS 115 establishes three classifications of securities, each of which
receives different accounting treatment. Held-to-maturity investment securities
are reported at cost. Available-for-sale investment securities are reported at
fair value, with unrealized gains and losses, after applicable taxes, reported
as a separate component of stockholders' equity. Trading securities are reported
at fair value, with unrealized gains and losses included in earnings. The
estimated fair value of investments is determined based on current quotations,
where available. Where current quotations are not available, the estimated fair
value is determined based primarily on the present value of future cash flows,
adjusted for the quality rating of the securities, prepayment assumptions and
other factors. The Company had no trading securities in 1994, 1993 or 1992.
The following table provides the major components of investment securities
at cost and at fair value:
<TABLE>
<CAPTION>
==================================================================================================================================
(in millions) December 31,
-------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------- ----------------------------------------- -----------------
COST ESTIMATED ESTIMATED ESTIMATED Cost Estimated Estimated Estimated Cost Estimated
UNREALIZED UNREALIZED FAIR unrealized unrealized fair fair
GROSS GROSS VALUE gross gross value value
GAINS LOSSES gains losses
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES AT COST:
U.S. Treasury securities $1,772 $-- $ 52 $1,720 $2,365 $ 18 $-- $2,383 $1,964 $1,983
Securities of U.S.
government agencies
and corporations (1) 5,394 -- 293 5,101 6,570 91 17 6,644 7,206 7,278
Private collateralized
mortgage obligations (2) 1,306 -- 85 1,221 815 4 6 813 -- --
Other 147 -- 4 143 137 1 -- 138 118 117
------ --- ---- ------ ------ ---- --- ------ ------ ------
Total debt securities 8,619 -- 434 8,185 9,887 114 23 9,978 9,288 9,378
Federal Reserve
Bank stock (3) -- -- -- -- -- -- -- -- 50 50
------ --- ---- ------ ------ ---- --- ------ ------ ------
Total $8,619 $-- $434 $8,185 $9,887 $114 $23 $9,978 $9,338 $9,428
====== === ==== ====== ====== ==== === ====== ====== ======
AVAILABLE-FOR-SALE
SECURITIES AT
FAIR VALUE:
U.S. Treasury securities $ 372 $-- $ 10 $ 362 $ -- $ -- $-- $ --
Securities of U.S.
government agencies
and corporations (1) 1,476 -- 96 1,380 1,747 13 11 1,749
Private collateralized
mortgage obligations (2) 1,290 1 113 1,178 1,340 5 11 1,334
Other 24 14 -- 38 31 17 -- 48
------ --- ---- ------ ------ ---- --- ------
Total debt securities 3,162 15 219 2,958 3,118 35 22 3,131
Marketable equity
securities 16 17 2 31 17 24 1 40
------ --- ---- ------ ------ ---- --- ------
Total $3,178 $32 $221 $2,989 $3,135 $ 59 $23 $3,171
====== === ==== ====== ====== ==== === ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) All securities of U.S. government agencies and corporations are mortgage-backed securities.
(2) Substantially all private collateralized mortgage obligations are AAA rated bonds collateralized by 1-4 family residential
first mortgages.
(3) Federal Reserve Bank stock was reclassified at December 31, 1993 to other assets due to the implementation of FAS 115.
</TABLE>
46
<PAGE>
Proceeds from the sales of debt securities in the available-for-sale
portfolio totaled $13 million in 1994, resulting in a $5 million gain. A loss of
$1 million was realized in 1994 resulting from a write-down due to other-than-
temporary impairment in the fair value of certain debt securities. Proceeds from
the sales of marketable equity securities in the available-for-sale portfolio
totaled $5 million in 1994, resulting in a $4 million gain.
Proceeds from the sales of debt securities in the available-for-sale
portfolio totaled $284 thousand in 1993, resulting in a $10 thousand gain.
In 1992, 30-year mortgage-backed securities were reclassified from
securities at cost to securities held for sale and carried at the lower of cost
or market. Proceeds from the subsequent sales of these securities totaled $828
million. Gross gains of $45 million were realized on these sales.
The following table provides the remaining contractual principal maturities
and yields (taxable-equivalent basis) of debt securities within the investment
portfolio. The remaining contractual principal maturities for mortgage-backed
securities were allocated assuming no prepayments. Expected remaining maturities
will differ from contractual maturities because borrowers may have the right to
prepay obligations with or without penalties. (See the Investment Securities
section of the Financial Review for expected remaining maturities and yields.)
<TABLE>
<CAPTION>
==================================================================================================================================
(in millions) December 31, 1994
-------------------------------------------------------------------------------------------------------
Total Weighted Weighted Remaining contractual principal maturity
amount average average -----------------------------------------------------------------------
yield remaining Within one year After one year After five years After ten years
maturing (in through five years through ten years
yrs.-mos.) --------------- ------------------ ----------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES:
U.S. Treasury securities $ 1,772 4.79% 1-3 $ 899 4.63% $ 873 4.95% $ -- --% $ -- --%
Securities of U.S.
government agencies
and corporations 5,394 6.17 5-5 361 5.69 2,568 5.98 1,837 6.32 628 6.80
Private collateralized
mortgage obligations 1,306 6.09 6-7 80 5.78 485 6.03 450 6.15 291 6.19
Other 147 6.36 2-3 29 5.13 106 6.72 10 6.13 2 6.37
------- ------ ------ ------ ------
Total cost $ 8,619 5.88% 4-8 $1,369 4.99% $4,032 5.78% $2,297 6.29% $ 921 6.61%
======= ===== ====== ==== ====== ==== ====== ==== ====== ====
ESTIMATED FAIR VALUE $ 8,185 $1,342 $3,820 $2,163 $ 860
======= ====== ====== ====== ======
AVAILABLE-FOR-SALE
SECURITIES (1):
U.S. Treasury securities $ 372 6.62% 3-1 $ -- --% $ 372 6.62% $ -- --% $ -- --%
Securities of U.S.
government agencies
and corporations 1,476 5.54 9-0 38 6.89 173 6.20 570 5.29 695 5.51
Private collateralized
mortgage obligations 1,290 6.38 10-2 21 6.22 192 6.21 477 6.23 600 6.56
Other 24 22.46 5-8 -- -- -- -- 24 22.46 -- --
------- ------ ------ ------ ------
Total cost $ 3,162 6.14% 8-9 $ 59 6.65% $ 737 6.41% $1,071 6.09% $1,295 6.00%
======= ===== ====== ==== ====== ==== ====== ===== ====== ====
ESTIMATED FAIR VALUE $ 2,958 $ 57 $ 708 $1,006 $1,187
======= ====== ====== ====== ======
TOTAL COST OF
DEBT SECURITIES $11,781 5.95% 5-9 $1,428 5.06% $4,769 5.88% $3,368 6.22% $2,216 6.25%
======= ===== ==== ====== ==== ====== ==== ====== ===== ====== ====
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The weighted average yield is computed using the amortized cost of available-for-sale investment securities carried at fair
value.
</TABLE>
Dividend income of none, $3 million and $2 million in 1994, 1993 and 1992,
respectively, is included in interest income on investment securities in the
Consolidated Statement of Income. Substantially all income on investment
securities is taxable.
The cost of investment securities pledged to secure trust and public
deposits and for other purposes as required or permitted by law was $3.1
billion, $2.2 billion and $1.9 billion at December 31, 1994, 1993 and 1992,
respectively.
47
<PAGE>
4 LOANS AND ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
A summary of the major categories of loans outstanding and related unfunded
commitments to extend credit is shown in the table below. At December 31, 1994
and 1993, the commercial loan category and related commitments did not have an
industry concentration that exceeded 10% of total loans and commitments. Tables
10 through 13 in the Loan Portfolio section of the Financial Review summarize
real estate mortgage (excluding 1-4 family first mortgage loans) and real estate
construction loans by state and project type. Substantially all of the Company's
real estate 1-4 family first mortgages and consumer loans are with customers
located in California.
<TABLE>
<CAPTION>
==================================================================================================================================
(in millions) December 31,
---------------------------------------------------------
1994 1993
------------------------- -------------------------
Outstanding Commitments Outstanding Commitments
to extend to extend
credit credit
<S> <C> <C> <C> <C>
Commercial (1) $ 8,162 $ 6,551 $ 6,912 $ 5,092
Real estate 1-4 family first mortgage 9,050 651 7,458 664
Other real estate mortgage 8,079 522 8,286 364
Real estate construction 1,013 731 1,110 358
Consumer:
Real estate 1-4 family junior lien mortgage 3,332 2,952 3,583 2,695
Credit card 3,125 7,780 2,600 5,576
Other revolving credit and monthly payment 2,229 1,752 1,920 1,230
------- ------- ------- -------
Total consumer 8,686 12,484 8,103 9,501
Lease financing 1,330 -- 1,212 --
Foreign 27 -- 18 --
------- ------- ------- -------
Total loans (2) $36,347 $20,939 $33,099 $15,979
======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Outstanding balances include loans to real estate developers of $525 million and $505 million at December 31, 1994 and 1993,
respectively.
(2) Outstanding loan balances at December 31, 1994 and 1993 are net of unearned income, including net deferred loan fees, of $361
million and $336 million, respectively.
</TABLE>
In the course of evaluating the credit risk presented by a customer and the
pricing that will adequately compensate the Company for assuming that risk,
management determines a requisite amount of collateral support. The type of
collateral held varies, but may include accounts receivable, inventory, land,
buildings, equipment, income-producing commercial properties and residential
real estate. The Company has the same collateral policy for loans whether they
are funded immediately or on a delayed basis (commitment).
A commitment to extend credit is a legally binding agreement to lend funds
to a customer and is usually for a specified interest rate and purpose. These
commitments have fixed expiration dates and generally require a fee. The
extension of a commitment gives rise to credit risk. The actual liquidity needs
or the credit risk that the Company will experience will be lower than the
contractual amount of commitments to extend credit shown in the table above
because a significant portion of these commitments is expected to expire without
being drawn upon. Certain commitments are subject to a loan agreement containing
covenants regarding the financial performance of the customer that must be met
before the Company is required to fund the commitment. The Company uses the same
credit policies in making commitments to extend credit as it does in making
loans.
In addition, the Company manages the potential credit risk in commitments
to extend credit by limiting the total amount of arrangements, both by
individual customer and in the aggregate; by monitoring the size and maturity
structure of these portfolios; and by applying the same credit standards
maintained for all of its credit activities. The credit risk associated with
these commitments is considered in management's determination of the allowance
for loan losses.
Standby letters of credit totaled $836 million and $889 million at December
31, 1994 and 1993, respectively. Standby letters of credit are issued on behalf
of customers in connection with contracts between the customers and third
parties. Under a standby letter of credit, the Company assures that the third
party will receive specified funds if a customer fails to meet his contractual
obligation. The liquidity risk to the Company arises from its obligation to make
payment in the event of a customer's contractual default. The credit risk
involved in issuing letters of credit and the Company's management of that
credit risk is the
48
<PAGE>
same as for loans and is considered in management's determination of the
allowance for loan losses. At December 31, 1994 and 1993, standby letters of
credit included approximately $123 million and $143 million, respectively, of
participations purchased and were net of approximately $81 million and $56
million, respectively, of participations sold. Approximately 63% of the
Company's year-end 1994 standby letters of credit had maturities of one year
or less and substantially all had maturities of seven years or less.
Included in standby letters of credit are those that back financial
instruments (financial guarantees). The Company had issued or purchased
participations in financial guarantees of approximately $427 million and $473
million at December 31, 1994 and 1993, respectively. The Company also had
commitments for commercial and similar letters of credit of $125 million and
$105 million at December 31, 1994 and 1993, respectively. Substantially all
fees received from the issuance of financial guarantees are deferred and
amortized on a straight-line basis over the term of the guarantee. Losses on
standby letters of credit and other similar letters of credit have been
immaterial.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 (FAS 114), Accounting by Creditors for Impairment of a Loan,
as amended by FAS 118 (collectively referred to as FAS 114). These Statements
address the accounting treatment of certain impaired loans and amend FAS 5 and
15. A further discussion of FAS 114 is in the Allowance for Loan Losses section
of the Financial Review.
Nonaccrual and restructured loans were $582 million and $1,200 million at
December 31, 1994 and 1993, respectively. Related commitments to lend additional
funds were approximately $67 million and $143 million at December 31, 1994 and
1993, respectively.
Nonaccrual loans with a remaining recorded investment totaling $92 million
and $117 million were restructured at market interest rates and returned to
fully performing accrual status during 1994 and 1993, respectively.
If interest due on the book balances of all nonaccrual and restructured
loans (including loans no longer non-accrual or restructured at year end) had
been accrued under their original terms, it is estimated that income before
income tax expense would have been greater by the amounts shown in the table
below:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Year ended December 31,
------------------------------
1994 1993 1992
<S> <C> <C> <C>
Estimated interest that would
have been recorded under
original terms $70 $140 $189
Gross interest recorded 24 19 23
--- ---- ----
Reduction in interest income $46 $121 $166
=== ==== ====
- ------------------------------------------------------------------------------
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Year ended December 31,
------------------------------
1994 1993 1992
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $2,122 $2,067 $1,646
Provision for loan losses 200 550 1,215
Loan charge-offs:
Commercial (1) (54) (110) (238)
Real estate 1-4 family
first mortgage (18) (25) (17)
Other real estate mortgage (66) (197) (290)
Real estate construction (19) (68) (93)
Consumer:
Real estate 1-4 family
junior lien mortgage (24) (28) (28)
Credit card (138) (177) (189)
Other revolving credit and
monthly payment (36) (41) (41)
------ ------ ------
Total consumer (198) (246) (258)
Lease financing (14) (18) (19)
------ ------ ------
Total loan charge-offs (369) (664) (915)
------ ------ ------
Loan recoveries:
Commercial (2) 37 71 59
Real estate 1-4 family
first mortgage 6 2 2
Other real estate mortgage 22 47 9
Real estate construction 15 4 3
Consumer:
Real estate 1-4 family
junior lien mortgage 4 3 1
Credit card 18 21 21
Other revolving credit and
monthly payment 11 12 12
------ ------ ------
Total consumer 33 36 34
Lease financing 16 9 9
Foreign -- -- 1
------ ------ ------
Total loan recoveries 129 169 117
------ ------ ------
Total net loan
charge-offs (240) (495) (798)
Recoveries on the sale of
developing country loans -- -- 4
------ ------ ------
BALANCE, END OF YEAR $2,082 $2,122 $2,067
====== ====== ======
Total net loan charge-offs as
a percentage of average
total loans .70% 1.44% 1.97%
====== ====== ======
Allowance as a percentage
of total loans 5.73% 6.41% 5.60%
====== ====== ======
- ------------------------------------------------------------------------------
<FN>
(1) Includes charge-offs of loans to real estate developers of $14 million, $21
million and $41 million in 1994, 1993 and 1992, respectively.
(2) Includes recoveries from real estate developers of $2 million, $3 million
and $6 million in 1994, 1993 and 1992, respectively.
</TABLE>
Loans held for sale are included in their respective loan categories and
recorded at lower of cost or market. At December 31, 1994 and 1993, loans held
for sale were $324 million and $125 million, respectively.
49
<PAGE>
5 PREMISES, EQUIPMENT,
LEASE COMMITMENTS AND OTHER ASSETS
- --------------------------------------------------------------------------------
The following table presents comparative data for premises and equipment:
<TABLE>
<CAPTION>
==============================================================================
(in millions) December 31,
-------------------------
1994 1993
<S> <C> <C>
Land $ 144 $ 148
Buildings 531 546
Furniture and equipment 608 571
Leasehold improvements 258 251
Premises leased under capital leases 68 71
------ ------
Total 1,609 1,587
Less accumulated depreciation
and amortization 723 689
------ ------
Net book value $ 886 $ 898
====== ======
- ------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense was $142 million, $140 million and
$136 million for the years ended December 31, 1994, 1993 and 1992, respectively.
The Company is obligated under a number of noncancelable operating leases
for premises (including vacant premises) and equipment with terms up to 25
years, many of which provide for periodic adjustment of rentals based on changes
in various economic indicators. The following table shows future minimum
payments under noncancelable operating leases and capital leases with terms in
excess of one year as of December 31, 1994:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Operating leases Capital leases
<S> <C> <C>
Year ended December 31,
1995 $ 144 $ 10
1996 135 10
1997 123 9
1998 109 9
1999 97 9
Thereafter 441 80
------ ---
Total minimum lease payments $1,049 127
======
Executory costs (4)
Amounts representing interest (68)
----
Present value of net minimum lease payments $ 55
====
- ------------------------------------------------------------------------------
</TABLE>
Total future minimum payments to be received under noncancelable operating
subleases at December 31, 1994 were approximately $238 million; these payments
are not reflected in the above table.
Rental expense, net of rental income, for all operating leases was $97
million, $99 million and $100 million for the years ended December 31, 1994,
1993 and 1992, respectively.
The components of other assets at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
==============================================================================
(in millions) December 31,
-------------------------
1994 1993
<S> <C> <C>
Net deferred tax asset (1) $ 998 $ 862
Nonmarketable equity investments (2) 407 396
Certain identifiable intangible assets 388 373
Foreclosed assets 272 348
Other 495 445
------ ------
Total other assets $2,560 $2,424
====== ======
- ------------------------------------------------------------------------------
<FN>
(1) See Note 10 to the Financial Statements.
(2) Commitments related to nonmarketable equity investments totaled $174 million
and $130 million at December 31, 1994 and 1993, respectively.
</TABLE>
Income from nonmarketable equity investments was $31 million, $42 million
and $17 million for the years ended December 31, 1994, 1993 and 1992,
respectively.
The largest identifiable intangible asset was core deposit intangibles of
$208 million and $257 million at December 31, 1994 and 1993, respectively.
Amortization expense for core deposit intangibles was $49 million, $61 million
and $57 million for the years ended December 31, 1994, 1993 and 1992,
respectively. Total amortization expense for certain identifiable intangible
assets recorded in noninterest expense was $62 million, $77 million and $71
million for the years ended December 31, 1994, 1993 and 1992, respectively.
Foreclosed assets consist of assets (substantially real estate) acquired in
satisfaction of troubled debt and are carried at the lower of fair value (less
estimated costs to sell) or cost. Foreclosed assets expense, including
disposition gains and losses, was none, $60 million and $93 million in 1994,
1993 and 1992, respectively.
50
<PAGE>
6 SENIOR AND SUBORDINATED DEBT
- --------------------------------------------------------------------------------
The following is a summary of senior and subordinated debt (reflecting
unamortized debt discounts and premiums, where applicable) owed by the Parent
and its subsidiaries:
<TABLE>
<CAPTION>
==================================================================================================================================
(in millions) Maturity Interest December 31,
date rate ----------------------
1994 1993
<S> <C> <C> <C> <C>
SENIOR
Parent: Notes (1) 1994 8.5% $ -- $ 100
Notes (1) 1994 7.625% -- 175
Floating-Rate Notes 1994 Various -- 150
Floating-Rate Medium-Term Notes (2) 1994-99 Various 958 1,258
Notes (1) 1996 8.2% 200 200
Medium-Term Notes (1) 1994-96 4.7-9.1% 126 254
Notes payable by subsidiaries 54 59
Obligations of subsidiaries under capital leases (Note 5) 55 60
------ ------
Total senior debt 1,393 2,256
------ ------
SUBORDINATED
Parent: Floating-Rate Notes (U.K. pounds sterling denominated
L60 face amount) (3)(4)(5) 1994 Various -- 89
German Mark Floating-Rate Notes (DM 300 face amount) (3)(6) 1995 Various 194 173
Floating-Rate Notes (4)(7)(8) 1996 Various -- 100
Floating-Rate Capital Notes (4)(8)(9) 1996 Various -- 150
Floating-Rate Notes (3)(4)(8) 1997 Various -- 187
Floating-Rate Notes (4)(10) 1997 Various 101 101
Floating-Rate Notes (3)(4)(11) 1997 Various 100 100
Floating-Rate Capital Notes (3)(4)(9) 1998 Various 200 200
Floating-Rate Notes (3)(4) 2000 Various 118 118
Notes 2002 8.75% 199 199
Notes 2002 8.375% 149 149
Notes 2003 6.875% 150 150
Notes 2003 6.125% 249 249
------ ------
Total subordinated debt 1,460 1,965
------ ------
Total senior and subordinated debt $2,853 $4,221
====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The Company has entered into interest rate swap agreements for substantially all of these Notes, whereby the Company receives
fixed-rate interest payments approximately equal to interest on the Notes and makes interest payments based on an average
three-month LIBOR rate.
(2) Of these Notes, $250 million have been called for redemption in March 1995, prior to maturity.
(3) May be redeemed in whole, at par, at any time in the event withholding taxes are imposed by the United States.
(4) Redeemable in whole or in part, at par.
(5) The Company entered into a swap agreement whereby the Company received pounds sterling sufficient to cover floating-rate
interest and principal on the Notes and made payments in U.S. dollars covering principal and interest. The transaction amount
at the date of issue and swap was $74 million. The difference of $15 million at December 31, 1993 was due to the foreign
currency transaction adjustment.
(6) These Notes are subject to maximum interest rate of 8%. The Company has sold this interest rate cap under an agreement whereby
it receives fixed payments in German marks and makes payments based on the amount by which a floating rate exceeds 8%. The
Company has also entered into a swap agreement whereby the Company receives German marks approximately equal to principal and
interest on the Notes and makes payments in U.S. dollars. The transaction amount at the date of issue and swap was $118
million. The differences of $76 million and $55 million at December 31, 1994 and 1993, respectively, were due to the foreign
currency transaction adjustment.
(7) Equity Commitment Notes.
(8) These Notes were redeemed in 1994, prior to maturity.
(9) Mandatory Equity Notes.
(10) Subject to a maximum interest rate of 13% due to the purchase of an interest rate cap.
(11) Subject to a maximum interest rate of 13%.
</TABLE>
51
<PAGE>
The principal payments, including sinking fund payments, on senior and
subordinated debt are due as follows:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Parent Company
<S> <C> <C>
1995 $ 678 $ 685
1996 588 593
1997 285 290
1998 200 205
1999 50 55
Thereafter 867 949
------ ------
Total $2,668 $2,777
====== ======
- ------------------------------------------------------------------------------
</TABLE>
The interest rates on floating-rate notes are determined periodically by
formulas based on certain money market rates, subject, on certain notes, to
minimum or maximum interest rates.
The Company's mandatory convertible debt, which is identified by notes (7)
and (9) to the table on the preceding page, qualifies as Tier 2 capital but is
subject to discounting and note fund restrictions under the risk-based capital
rules. In 1994, $100 million of the Equity Commitment Notes and $150 million of
the Mandatory Equity Notes, both due in 1996, were redeemed prior to maturity.
The terms of the remaining $200 million of the Mandatory Equity Notes, due in
1998, require the Company to sell or exchange with the noteholder the Company's
common stock, perpetual preferred stock or other capital securities at maturity
or earlier redemption of the notes. At December 31, 1994, $127 million of
stockholders' equity had been designated for the retirement or redemption of
those notes.
Certain of the agreements under which debt has been issued contain
provisions that may limit the merger or sale of the Bank and the issuance of its
capital stock or convertible securities. The Company was in compliance with the
provisions of the borrowing agreements at December 31, 1994.
7 PREFERRED STOCK
- ------------------------------------------------------------------------------
Of the 25,000,000 shares authorized, there were 2,327,500 shares and 5,327,500
shares of preferred stock issued and outstanding at December 31, 1994 and 1993,
respectively. All preferred shares rank senior to common shares both as to
dividends and liquidation preference but have no general voting rights.
The following is a summary of Preferred Stock (Adjustable and Fixed):
<TABLE>
<CAPTION>
==================================================================================================================================
Shares issued Carrying amount Adjustable Dividends declared
and outstanding (in millions) dividend rate (in millions)
--------------------- ----------------- ----------------- -------------------------
December 31, December 31, Minimum Maximum Year ended December 31,
--------------------- ----------------- -------------------------
1994 1993 1994 1993 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable-Rate Cumulative,
Series A (Liquidation
preference $50) (1) -- 3,000,000 $ -- $150 6.0% 12.0% $ 2 $ 9 $ 9
Adjustable-Rate Cumulative,
Series B (Liquidation
preference $50) 1,500,000 1,500,000 75 75 5.5 10.5 4 4 5
9% Cumulative, Series C
(Liquidation preference $500) 477,500 477,500 238 238 -- -- 21 21 21
8-7/8% Cumulative, Series D
(Liquidation preference $500) 350,000 350,000 176 176 -- -- 16 16 13
--------- --------- ---- ---- --- --- ---
Total 2,327,500 5,327,500 $489 $639 $43 $50 $48
========= ========= ==== ==== === === ===
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) In March 1994, the Company redeemed all $150 million of its Series A preferred stock.
</TABLE>
52
<PAGE>
ADJUSTABLE-RATE CUMULATIVE
PREFERRED STOCK, SERIES A
In March 1994, the Company redeemed all $150 million of its Series A preferred
stock at a price of $50 per share plus accrued and unpaid dividends. Dividends
were cumulative and payable on the last day of each calendar quarter. For each
quarterly period, the dividend rate was 2.75% less than the highest of the
three-month Treasury bill discount rate, 10-year constant maturity Treasury
security yield or 20-year constant maturity Treasury bond yield, but limited to
a minimum of 6% and a maximum of 12% per year. The average dividend rate was
6.1% (annualized), 6.0% and 6.0% in 1994, 1993 and 1992, respectively.
ADJUSTABLE-RATE CUMULATIVE
PREFERRED STOCK, SERIES B
These shares are redeemable at the option of the Company through May 14, 1996 at
a price of $51.50 per share and, thereafter, at $50 per share plus accrued and
unpaid dividends. Dividends are cumulative and payable quarterly on the 15th of
February, May, August and November. For each quarterly period, the dividend rate
is 76% of the highest of the three-month Treasury bill discount rate, 10-year
constant maturity Treasury security yield or 20-year constant maturity Treasury
bond yield, but limited to a minimum of 5.5% and a maximum of 10.5% per year.
The average dividend rate was 5.7%, 5.6% and 6.2% during 1994, 1993 and 1992,
respectively.
9% PREFERRED STOCK, SERIES C
This class of preferred stock has been issued as depositary shares, each
representing one-twentieth of a share of the Series C preferred stock. These
shares are redeemable at the option of the Company on and after October 24, 1996
at a price of $500 per share plus accrued and unpaid dividends. Dividends of
$11.25 per share (9% annualized rate) are cumulative and payable on the last day
of each calendar quarter.
8-7/8% PREFERRED STOCK, SERIES D
This class of preferred stock has been issued as depositary shares, each
representing one-twentieth of a share of the Series D preferred stock. These
shares are redeemable at the option of the Company on and after March 5, 1997 at
a price of $500 per share plus accrued and unpaid dividends. Dividends of $11.09
per share (8-7/8% annualized rate) are cumulative and payable on the last day of
each calendar quarter.
8 COMMON STOCK AND EMPLOYEE STOCK PLANS
- ------------------------------------------------------------------------------
COMMON STOCK
..............................................................................
The following table summarizes common stock authorized, reserved, issued and
outstanding as of December 31, 1994:
<TABLE>
<CAPTION>
==============================================================================
Number of shares
<S> <C>
Tax Advantage and Retirement Plan 2,718,228
Long-Term and Equity Incentive Plans 4,616,345
Dividend Reinvestment and
Common Stock Purchase Plan 4,182,041
Employee Stock Purchase Plan 625,495
Director Option Plans 167,099
Stock Bonus Plan 14,959
-----------
Total shares reserved 12,324,167
Shares not reserved 86,424,185
Shares issued and outstanding 51,251,648
-----------
Total shares authorized 150,000,000
===========
- ------------------------------------------------------------------------------
</TABLE>
Under the terms of mandatory convertible debt, the Company must exchange
with the noteholder, or sell, various capital securities of the Company as
described in Note 6 to the Financial Statements.
DIRECTOR OPTION PLANS
..............................................................................
The 1990 Director Option Plan (1990 DOP) provides for annual grants of options
to purchase 500 shares of common stock to each non-employee director elected or
re-elected at the annual meeting of shareholders. Non-employee directors who
join the Board between annual meetings receive options on a prorated basis. The
options may be exercised until the tenth anniversary of the date of grant; they
become exercisable after one year at an exercise price equal to the fair market
value of the stock at the time of grant. The maximum total number of shares of
common stock issuable under the 1990 DOP is 100,000 in the aggregate and 20,000
in any one calendar year. At December 31, 1994, 24,526 options
53
<PAGE>
were outstanding under this plan, of which 18,938 options were exercisable.
During 1994, 2,000 options were exercised. As the exercise price of the option
is equal to the quoted market price of the stock at the time of grant, no
compensation expense is recorded for the 1990 DOP.
The 1987 Director Option Plan (1987 DOP) allows participating directors to
file an irrevocable election to receive stock options in lieu of their retainer
to be earned in any one calendar year. The options may be exercised until the
tenth anniversary of the date of receipt; options become exercisable after one
year at an exercise price of $1 per share. At December 31, 1994, 3,781 options
were outstanding under this plan, of which 3,220 options were exercisable.
During 1994, no options were exercised. Compensation expense for the 1987 DOP is
measured as the difference between the quoted market price of the stock at the
date of grant less the option exercise price. This expense is accrued as
retainers are earned.
EMPLOYEE STOCK PLANS
................................................................................
LONG-TERM AND EQUITY INCENTIVE PLANS
The Wells Fargo & Company Long-Term Incentive Plan (LTIP) became effective upon
the approval of shareholders in April 1994. The LTIP supersedes the 1990 Equity
Incentive Plan (1990 EIP), which is itself the successor to the original 1982
Equity Incentive Plan (1982 EIP). No additional awards or grants will be issued
under the 1990 or 1982 EIPs.
While similar to the existing 1990 EIP, in that the LTIP includes
provisions for the same kinds of awards that could have been made under the 1990
EIP, the LTIP varies from the 1990 EIP in certain respects. The following are
certain of the more important differences. The LTIP provides for awards of
restricted shares in addition to the stock options, stock appreciation rights
and share rights that could have been awarded under the 1990 EIP. Stock
appreciation rights awarded under the LTIP need not be in tandem with stock
options, as was the case under the 1990 EIP, but may stand alone. Employee
stock options granted under the LTIP can be granted with exercise prices at or,
unlike the 1990 EIP, above the current value of the common stock and, except for
incentive stock options, can have terms longer than 10 years, the maximum
provided in the 1990 EIP. Employee stock options generally become fully
exercisable over 3 years from the grant date. Upon termination of employment,
the option period is reduced or the options are canceled. The LTIP also provides
for grants to recipients not limited to present key employees of the Company.
The total number of shares of common stock issuable under the LTIP is 2,500,000
in the aggregate (excluding outstanding awards under the 1990 and 1982 EIPs) and
800,000 in any one calendar year. No compensation expense has been recorded for
the stock options under the LTIP (or 1990 and 1982 EIPs), as the exercise price
is equal to the quoted market price of the stock at the time of grant.
Transactions involving options of the LTIP and EIPs are summarized as
follows:
<TABLE>
<CAPTION>
==================================================================================================================================
Number of shares
----------------------------------------------------------------------------------
LTIP 1990 EIP 1982 EIP
-------------- ----------------------------- -----------------------------
1994 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Options outstanding, beginning of year -- 1,223,360 960,000 784,040 955,690
Granted 284,000 -- 400,400 -- --
Transferred(1) 400,400 (400,400) -- -- --
Canceled (28,500) (28,665) (54,840) -- (6,670)
Exercised (720) (83,360) (79,862) (220,587) (156,080)
Share/tax withholding -- -- (2,338) -- (8,900)
--------- --------- --------- -------- --------
Options outstanding, end of year 655,180 710,935 1,223,360 563,453 784,040
========= ========= ========= ======== ========
Options exercisable, end of year 371,180 710,935 340,245 563,453 784,040
Shares available for grant, end of year 2,219,872 -- 755,147 -- --
Price range of options:
Outstanding $107.25-146.75 $68.75-79.38 $68.75-110.75 $33.50-71.00 $29.56-71.00
Exercised $110.75 $68.75-78.63 $68.75- 78.63 $29.56-71.00 $29.56-71.00
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) In accordance with the terms of the LTIP, the 400,400 options that were previously granted in 1993 under the 1990 EIP were
assumed under the LTIP.
</TABLE>
54
<PAGE>
Loans may be made, at the discretion of the Company, to assist the
participants of the LTIP and the EIPs in the acquisition of shares under
options. The total of such interest-bearing loans were $6 million and $7 million
at December 31, 1994 and 1993, respectively.
The holders of restricted share rights that were granted prior to 1991 are
entitled at no cost to 30% of the shares of common stock represented by the
restricted share rights held three years after the restricted share rights were
granted, an additional 30% after four years and the final 40% after five years.
The holders of the restricted share rights granted in 1991 or later are entitled
at no cost to the shares of common stock represented by the restricted share
rights held by each person five years after the restricted share rights were
granted. Upon receipt of the restricted share rights, holders are entitled to
receive quarterly cash payments equal to the cash dividends that would be paid
on the number of common shares equal to the number of restricted share rights.
Except in limited circumstances, restricted share rights are canceled upon
termination of employment. As of December 31, 1994, the LTIP, the 1990 EIP and
the 1982 EIP had 58,229, 376,410 and 32,266 restricted share rights outstanding,
respectively, to 655, 863 and 80 employees or their beneficiaries, respectively.
The compensation expense for the restricted share rights equals the market price
at the time of grant and is accrued on a straight-line basis over the vesting
period of three to five years. The amount of expense accrued for the restricted
share rights under the LTIP, 1990 and 1982 EIPs was $8 million, $7 million and
$7 million in 1994, 1993 and 1992, respectively.
EMPLOYEE STOCK PURCHASE PLAN
Options to purchase up to 1,100,000 shares of common stock may be granted under
the Employee Stock Purchase Plan (ESPP). Employees of the Company with at least
one year of service, except hourly employees, are eligible to participate.
Certain highly compensated employees may be excluded from participation at the
discretion of the Management Development and Compensation Committee of the Board
of Directors. The plan provides for an option price of the lower of market value
at grant date or 85% to 100% (as determined by the Board of Directors for each
option period) of the market value at the end of the one-year option period. For
the current option period ending July 31, 1995, the Board approved a closing
option price of 85% of the market value. The plan is noncompensatory and results
in no expense to the Company. Transactions involving the ESPP are summarized as
follows:
<TABLE>
<CAPTION>
==============================================================================
Number of options
-----------------------
1994 1993
<S> <C> <C>
Options outstanding, beginning of year 160,476 206,185
Granted 159,515 173,270
Canceled (1) (83,734) (103,240)
Exercised (at $114.73 in 1994 and
$69.05 in 1993) (92,853) (115,739)
------- --------
Options outstanding, end of year 143,404 160,476
======= ========
Options available for grant, end of year 482,091 557,872
======= ========
- ------------------------------------------------------------------------------
<FN>
(1) At the beginning of the option period, participants are granted an
additional 50% of options that are exercised only to the extent that the
closing option price is sufficiently below the market value at grant date
and based on the participant's level of participation. Since the closing
option price was higher in 1994 and 1993, the additional option grants were
canceled. These options represent a majority of the canceled options shown
above.
</TABLE>
For information on employee stock ownership through the Tax Advantage and
Retirement Plan, see Note 9.
DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment and Common Stock Purchase and Share Custody Plan
allows holders of the Company's common stock to purchase additional shares
either by reinvesting all or part of their dividends, or by making optional cash
payments. Currently, up to $6,000 of dividends per quarter may be used to
purchase shares at a 3% discount. Dividends in excess of $6,000 per quarter and
between $150 and $2,000 per month in optional cash payments may be used to
purchase shares at fair market value. Shares may also be held in custody under
the Plan even without the reinvestment of dividends. During 1994 and 1993,
97,256 and 222,679 shares, respectively, were issued under the plan.
55
<PAGE>
9 EMPLOYEE BENEFITS AND OTHER EXPENSES
- --------------------------------------------------------------------------------
RETIREMENT PLAN
................................................................................
The Company's retirement plan is known as the Tax Advantage and Retirement Plan
(TAP), a defined contribution plan. As part of TAP, the Company makes basic
retirement contributions to employee retirement accounts. Effective July 1994,
the Company increased its basic retirement contributions from 4% to 6% of the
total of employee base salary plus payments from certain bonus plans (covered
compensation). The Company also makes special transition contributions related
to the termination of a prior defined benefit plan of the Company ranging from
.5% to 5% of covered compensation for certain employees. The plan covers
salaried employees with at least one year of service and contains a vesting
schedule graduated from three to seven years of service.
Prior to July 1994, the Company made supplemental retirement contributions
of 2% of employee-covered compensation. All salaried employees with at least one
year of service were eligible to receive these Company contributions, which
vested immediately. Effective July 1994, the supplemental retirement
contributions were discontinued, except for those contributions that are made to
employees hired before January 1, 1992. Those employees will continue to receive
the supplemental 2% contribution and the 4% basic retirement contributions until
fully vested. Upon becoming 100% vested, the basic retirement contribution will
increase to 6% of employee-covered compensation and the supplemental 2%
contributions will end.
Salaried employees who have at least one year of service are eligible to
contribute to TAP up to 10% of their pretax covered compensation through salary
deductions under Section 401(k) of the Internal Revenue Code, although a lower
contribution limit may be applied to certain employees in order to maintain the
qualified status of the plan. The Company makes matching contributions of up to
4% of an employee's covered compensation for those who have at least three years
of service and elect to contribute under the plan. Effective July 1994, the
Company began to partially match contributions by employees with at least one
but less than three years of service. For such employees who elect to contribute
under the plan, the Company matches 50% of each dollar on the first 4% of the
employee's covered compensation. The Company's matching contributions are
immediately vested and, similar to retirement contributions, are tax deductible
by the Company.
Employees direct the investment of their TAP funds and may elect to invest
in the Company's common stock.
Expenses related to TAP for the years ended December 31, 1994, 1993 and
1992 were $56 million, $53 million and $50 million, respectively.
HEALTH CARE AND LIFE INSURANCE
................................................................................
The Company provides health care and life insurance benefits for certain active
and retired employees. The Company reserves its right to terminate these
benefits at any time. The health care benefits for active and retired employees
are self-funded by the Company with the Point-of-Service Managed Care Plan or
provided through health maintenance organizations (HMOs). Effective January 1,
1993, the health care and life insurance benefits for retirees changed. The
amount of subsidized health care coverage for active employees is based upon
their eligibility to retire as of January 1, 1993. The amount of subsidized
health care coverage for active employees is based upon their eligibility to
retire as of January 1, 1993 and their years of service at the time of
retirement. For those active employees with an adjusted service date after
September 30, 1992, there are no medical or dental benefits upon retirement.
Additionally, those employees who retire after January 1, 1993 are no longer
eligible for the nominal Company-paid life insurance benefit. Effective
January 1, 1994, newly hired employees are not eligible for Company-paid life
insurance benefits.
The Company recognized the cost of health care benefits for active eligible
employees by expensing contributions totaling $45 million, $49 million and $47
million in 1994, 1993 and 1992, respectively. Life insurance benefits for active
eligible employees are provided through an insurance company. The Company
recognizes the cost of these benefits by expensing the annual insurance
premiums, which were $2 million, $2 million and $3 million in 1994, 1993 and
1992, respectively. At December 31, 1994, the Company had approximately 18,300
active eligible employees and 6,220 retirees.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 (FAS 106), Employers' Accounting for Postretirement
Benefits Other Than Pensions. This Statement changed the method of accounting
for postretirement benefits other than pensions from a cash to an accrual basis.
56
<PAGE>
Under FAS 106, the determination of the accrued liability requires a
calculation of the accumulated postretirement benefit obligation (APBO). The
APBO represents the actuarial present value of postretirement benefits other
than pensions to be paid out in the future (e.g., health benefits to be paid for
retirees) that have been earned as of the end of the year. The unrecognized APBO
at the time of adoption of FAS 106 (transition obligation) of $142 million for
postretirement health care benefits is being amortized over 20 years.
The following table sets forth the net periodic cost for postretirement
health care benefits for 1994 and 1993:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Year ended December 31,
-----------------------
1994 1993
<S> <C> <C>
Interest cost on APBO $ 8.7 $11.2
Amortization of transition obligation 7.1 7.2
Service cost (benefits attributed to
service during the period) 1.0 1.0
----- -----
Total $16.8 $19.4
===== =====
- ------------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status for postretirement health
care benefits and provides an analysis of the accrued postretirement benefit
cost included in the Company's Consolidated Balance Sheet at December 31, 1994
and 1993.
<TABLE>
<CAPTION>
==============================================================================
(in millions) December 31,
-----------------------
1994 1993
<S> <C> <C>
APBO (1):
Retirees $ 69.7 $ 99.9
Eligible active employees 14.6 21.4
Other active employees 18.5 15.7
------- -------
102.8 137.0
Plan assets at fair value -- --
------- -------
APBO in excess of plan assets 102.8 137.0
Unrecognized net gain from past experience
different from that assumed and
from changes in assumptions 44.8 10.4
Unrecognized transition obligation (127.8) (135.0)
------- -------
Accrued postretirement benefit cost
(included in other liabilities) $ 19.8 $ 12.4
======= =======
- ------------------------------------------------------------------------------
<FN>
(1) Based on a discount rate of 8.55% and 6.45% in 1994 and 1993, respectively.
</TABLE>
For measurement purposes, a health care cost trend rate was used to
recognize the effect of expected changes in future health care costs due to
medical inflation, utilization changes, technological changes, regulatory
requirements and Medicare cost shifting. Average annual increases of 5.5% for
HMOs and 8.5% for all other types of coverage in the per capita cost of covered
health care benefits were assumed for 1995. The rate for other coverage was
assumed to decrease gradually to 5.5% in 2001 and remain at that level
thereafter. Increasing the assumed health care trend by one percentage point in
each year would increase the APBO as of December 31, 1994 by $4.5 million and
the aggregate of the interest cost and service cost components of the net
periodic cost for 1994 by $0.4 million.
In 1994, the $34.4 million increase in the unrecognized net gain was
primarily due to an increase in the discount rate, a lower average per capita
cost of health care coverage and a reduction in the health care cost trend rates
for HMOs.
The Company also provides postretirement life insurance to certain existing
retirees. The APBO and expenses related to these benefits were not material.
Effective July 1993, the Company also adopted Statement of Financial
Accounting Standards No. 112 (FAS 112), Employers' Accounting for Postemployment
Benefits. This Statement requires employers to recognize the obligation to
provide benefits to former or inactive employees after employment but before
retirement. The adoption of FAS 112 resulted in an accrual of $12 million in
1993.
OTHER EXPENSES
..............................................................................
Contract services expense was $101 million, $61 million and $48 million in 1994,
1993 and 1992, respectively.
Advertising and promotion expense was $65 million, $59 million and $47
million in 1994, 1993 and 1992, respectively.
Operating losses, which included losses from litigation, fraud and other
matters, were $62 million, $52 million and $45 million in 1994, 1993 and 1992,
respectively.
57
<PAGE>
10 INCOME TAXES
- ------------------------------------------------------------------------------
Total income taxes for the years ended December 31, 1994 and 1993 were recorded
as follows:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Year ended December 31,
----------------------
1994 1993
<S> <C> <C>
Income taxes applicable to income
before income tax expense $613 $426
Goodwill for tax benefits related
to acquired assets (25) (8)
---- ----
Subtotal 588 418
Stockholders' equity for compensation
expense for tax purposes in excess of
amounts recognized for financial
reporting purposes (13) (8)
Stockholders' equity for tax effect of net
unrealized gain (loss) on investment securities (95) 15
---- ----
Total income taxes $480 $425
==== ====
- ------------------------------------------------------------------------------
</TABLE>
The following is a summary of the components of income tax expense
(benefit) applicable to income before income taxes:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Year ended December 31,
------------------------------------
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal $484 $ 445 $ 290
State and local 161 113 91
---- ----- -----
645 558 381
---- ----- -----
Deferred:
Federal (38) (125) (135)
State and local 6 (7) (29)
---- ---- ----
(32) (132) (164)
---- ----- -----
Total $613 $ 426 $ 217
==== ===== =====
- ------------------------------------------------------------------------------
</TABLE>
Amounts for the current year are based upon estimates and assumptions as of
the date of this report and could vary significantly from amounts shown on the
tax returns as filed. Accordingly, the variances from the amounts previously
reported for 1993 are primarily as a result of adjustments to conform to tax
returns as filed.
The Company's income tax expense for 1994, 1993 and 1992 included $3
million, under $1 million and $18 million, respectively, related to investment
securities transactions.
The Company had net deferred tax assets of $998 million, $862 million and
$804 million at December 31, 1994, 1993 and 1992, respectively. The tax effect
of temporary differences that gave rise to significant portions of deferred tax
assets and liabilities at December 31, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Year ended December 31,
----------------------
1994 1993
<S> <C> <C>
DEFERRED TAX ASSETS
Allowance for loan losses $ 844 $ 874
Net tax-deferred expenses 211 207
Investments 93 7
State tax expense 58 42
Foreclosed assets 49 58
------ ------
1,255 1,188
Valuation allowance (2) (2)
------ ------
Total deferred tax assets,
less valuation allowance 1,253 1,186
------ ------
DEFERRED TAX LIABILITIES
Leasing 218 256
Certain identifiable intangibles 11 46
Depreciation 11 20
Other 15 2
------ ------
Total deferred tax liabilities 255 324
------ ------
NET DEFERRED TAX ASSET $ 998 $ 862
====== ======
- ------------------------------------------------------------------------------
</TABLE>
The Company's $998 million net deferred tax asset at December 31, 1994
included a valuation allowance of $2 million. The January 1, 1993 valuation
allowance of $5 million was reduced by $3 million in 1993 due to the current
utilization of a California capital loss carryforward. Substantially all of the
Company's net deferred tax asset of $998 million at December 31, 1994 related
to net expenses (the largest of which was the provision for loan losses) that
have been reflected in the financial statements, but which will reduce future
taxable income. At December 31, 1994, the Company did not have any net operating
loss carryforwards. The Company estimates that approximately $875 million of the
$998 million net deferred tax asset at December 31, 1994 could be realized by
the recovery of previously paid federal taxes; however, the Company
58
<PAGE>
expects to actually realize the federal net deferred tax asset by claiming
deductions against future taxable income. The balance of approximately $123
million relates to approximately $1.8 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.
The significant components of deferred income tax (benefits) for the years
ended December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Year ended December 31,
----------------------
1994 1993
<S> <C> <C>
Deferred tax benefit (excluding below) $(32) $(107)
Adjustments to deferred tax assets and
liabilities for enacted changes in
rates and laws -- (22)
Decrease in valuation allowance -- (3)
---- -----
Total $(32) $(132)
==== =====
- ------------------------------------------------------------------------------
</TABLE>
Under APB 11, the components of the deferred income tax (benefits) for the
year ended December 31, 1992 were as follows:
<TABLE>
<CAPTION>
==============================================================================
(in millions) Year ended December 31, 1992
<S> <C>
Lower loan loss deduction for tax return purposes $(180)
Lower income for tax return purposes resulting
from the net change in deferred income
and expenses 20
Lower depreciation for tax return purposes (13)
Higher state tax deduction for tax return purposes 13
Other, net (4)
-----
Total $(164)
=====
- ------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the statutory federal income tax
expense and rate to the effective income tax expense and rate:
<TABLE>
<CAPTION>
==================================================================================================================================
(in millions) Year ended December 31,
-----------------------------------------------------------------------
1994 1993 1992
------------------- ------------------- -------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax expense and rate $509 35.0 % $363 35.0 % $170 34.0 %
Change in tax rate resulting from:
State and local taxes on income, net of
federal income tax benefit 110 7.5 75 7.2 39 7.8
Amortization of certain intangibles not
deductible for tax return purposes 17 1.2 18 1.7 14 2.9
Adjustment to deferred tax assets and
liabilities for enacted changes in tax
rates and laws -- -- (22) (2.1) -- --
Other (23) (1.5) (8) (.8) (6) (1.3)
---- ---- ---- ---- ---- ----
Effective income tax expense and rate $613 42.2 % $426 41.0 % $217 43.4 %
==== ==== ==== ==== ==== ====
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has not recognized a deferred tax liability of $45 million on
$124 million of undistributed earnings of a foreign subsidiary and an affiliate
because such earnings are indefinitely reinvested in those companies and are not
taxable under current law. A deferred tax liability would be recognized to the
extent the Company changed its intent to not indefinitely reinvest a portion or
all of such undistributed earnings. In addition, a current tax liability would
be recognized if the Company recovered those undistributed earnings in a taxable
manner, such as through the receipt of dividends or sales of the entities, or if
the tax law changed.
59
<PAGE>
11 PARENT COMPANY
- ------------------------------------------------------------------------------
Condensed financial information of Wells Fargo & Company (Parent) is presented
below. For information regarding the Parent's long-term debt and derivative
financial instruments, see Notes 6 and 13, respectively.
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
==============================================================================
(in millions) Year ended December 31,
------------------------------
1994 1993 1992
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries:
Wells Fargo Bank $1,001 $ -- $117
Nonbank subsidiaries -- 3 1
Interest income from:
Wells Fargo Bank 81 97 109
Nonbank subsidiaries 15 22 32
Other 51 56 60
Noninterest income 38 45 9
------ ---- ----
Total income 1,186 223 328
------ ---- ----
EXPENSE
Interest on:
Commercial paper and
other short-term borrowings 8 5 8
Senior and subordinated debt 181 195 207
Provision for loan losses -- 9 39
Noninterest expense 56 39 42
------ ---- ----
Total expense 245 248 296
------ ---- ----
Income (loss) before income tax
(expense) benefit and
undistributed income
of subsidiaries 941 (25) 32
Income tax (expense) benefit 27 (5) 36
Equity in undistributed income
of subsidiaries (1):
Wells Fargo Bank (138) 632 220
Nonbank subsidiaries 11 10 (5)
------ ---- ----
NET INCOME $ 841 $612 $283
====== ==== ====
- ------------------------------------------------------------------------------
<FN>
(1) The 1994 amount represents dividends distributed by Wells Fargo Bank in
excess of its 1994 net income of $863 million.
</TABLE>
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
==============================================================================
(in millions) December 31,
-------------------
1994 1993
<S> <C> <C>
ASSETS
Cash and due from Wells Fargo Bank
(includes interest-earning deposits
of none and $723) $ 25 $ 733
Investment securities:
At cost (estimated fair value of $198 million
and $341 million) 203 337
At fair value 211 50
------ ------
Total investment securities 414 387
Securities purchased under resale agreements -- 250
Loans 333 359
Allowance for loan losses 58 60
------ ------
Net loans 275 299
------ ------
Loans and advances to subsidiaries:
Wells Fargo Bank 1,258 1,682
Nonbank subsidiaries 198 303
Investment in subsidiaries:
Wells Fargo Bank 4,219 4,479
Nonbank subsidiaries 101 95
Other assets 568 552
------ ------
Total assets $7,058 $8,780
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper and other
short-term borrowings $ 133 $ 138
Other liabilities 270 225
Senior debt 1,284 2,137
Subordinated debt 1,460 1,965
------ ------
Total liabilities 3,147 4,465
Stockholders' equity 3,911 4,315
------ ------
Total liabilities and stockholders' equity $7,058 $8,780
====== ======
- ------------------------------------------------------------------------------
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
==============================================================================
(in millions) Year ended December 31,
-------------------------------
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 841 $ 612 $ 283
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provisions for loan losses -- 9 39
Deferred income tax expense (benefit) (4) 30 (15)
Equity in undistributed (income) loss
of subsidiaries 127 (642) (215)
Other, net (24) (32) 2
------- ----- -----
Net cash provided (used) by
operating activities 940 (23) 94
------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
At cost:
Proceeds from prepayments
and maturities 256 13 2
Purchases (122) (25) (127)
At fair value:
Proceeds from sales 5 -- --
Purchases (175) -- --
Net decrease in loans 24 87 32
Net decrease in loans and advances
to subsidiaries 529 103 257
Net (increase) decrease in investment
in subsidiaries 5 (111) (299)
Net (increase) decrease in securities
purchased under resale agreements 250 (250) --
Other, net 12 92 66
------- ----- -----
Net cash provided (used) by
investing activities 784 (91) (69)
------- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term borrowings (5) (30) (58)
Proceeds from issuance of senior debt 248 980 508
Proceeds from issuance of
subordinated debt -- 399 350
Repayment of senior debt (1,101) (884) (882)
Repayment of subordinated debt (526) (300) (116)
Proceeds from issuance of preferred stock -- -- 169
Proceeds from issuance of common stock 57 53 213
Repurchase of preferred stock (150) -- --
Repurchase of common stock (760) (5) --
Payment of cash dividends on
preferred stock (34) (50) (48)
Payment of cash dividends on
common stock (218) (125) (105)
Other, net 57 (9) (26)
------- ----- -----
Net cash provided (used) by
financing activities (2,432) 29 5
------- ----- -----
NET CHANGE IN CASH AND CASH
EQUIVALENTS (DUE FROM
WELLS FARGO BANK) (708) (85) 30
Cash and cash equivalents at
beginning of year 733 818 788
------- ----- -----
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 25 $ 733 $ 818
======= ===== =====
Noncash investing activities:
Transfers from investment securities
at cost to investment securities
at fair value $ -- $ 25 $ --
======= ===== =====
- ------------------------------------------------------------------------------
</TABLE>
12 LEGAL ACTIONS
- ------------------------------------------------------------------------------
In the normal course of business, the Company is at all times subject to
numerous pending and threatened legal actions, some of which the relief or
damages sought are substantial. After reviewing pending and threatened actions
with counsel, management considers that the outcome of such actions will not
have a material adverse effect on stockholders' equity of the Company; the
Company is not able to predict whether the outcome of such actions may or may
not have a material adverse effect on results of operations in a particular
future period.
61
<PAGE>
13 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 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 to not represent exposure to liquidity risk. The
Company is not a dealer but an end-user of these instruments and does not use
them speculatively. The 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 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 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.
The Company also enters into foreign exchange positions, such as forward,
spot and option contracts. As these contracts are purchased for trading
purposes, they are marked to market with gains and losses recognized in income.
The Company adopted Statement of Financial Accounting Standards No. 119
(FAS 119), Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments, on December 31, 1994. FAS 119 requires various
disclosures regarding derivative activities that are set forth on the following
pages.
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 December 31, 1994 and 1993.
<TABLE>
<CAPTION>
==================================================================================================================================
(in millions) December 31,
----------------------------------------------------------------------------
1994 1993
------------------------------------ ------------------------------------
NOTIONAL OR CREDIT RISK ESTIMATED Notional or Credit risk Estimated
CONTRACTUAL AMOUNT(4) FAIR VALUE contractual amount(4) fair value
AMOUNT amount
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT HEDGES
Interest rate contracts:
Futures contracts $ 5,009 $-- $ -- $4,890 $ -- $ --
Forward contracts 8 -- -- 75 -- --
Floors purchased (1) 14,355 25 25 3,685 136 136
Caps purchased (1) 244 6 6 303 2 2
Swap contracts (1)(2) 3,103 3 (65) 1,872 82 82
Foreign exchange contracts:
Cross currency swaps (1)(3) 118 76 76 192 70 70
Forward contracts (1) 25 -- -- 25 -- --
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Caps written 1,039 -- (15) 1,170 -- (3)
Caps purchased (1) 1,016 15 15 1,211 3 3
Swap contracts (1) 176 1 -- 180 4 --
Foreign exchange contracts:
Forward and spot contracts (1) 590 7 -- 295 5 1
Option contracts purchased 319 -- -- 14 -- --
Option contracts written 318 -- -- 6 -- --
OTHER
When-issued securities -- -- -- 484 -- (1)
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The Company anticipates performance by substantially all of the counterparties for these financial instruments.
(2) The Parent's share of the notional principal amount outstanding was $88 million and $107 million at December 31, 1994 and 1993,
respectively.
(3) These are off-balance sheet commitments of the Parent.
(4) Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance by
counterparties.
</TABLE>
62
<PAGE>
Interest rate futures and forward contracts are contracts in which the
buyer agrees to purchase and the seller agrees to make delivery of a specific
financial instrument at a predetermined price or yield. Gains and losses on
futures contracts are settled daily based on a notional (underlying) principal
value and do not involve an actual transfer of the specific instrument. Futures
contracts are standardized and are traded on exchanges. The exchange assumes the
risk that a counterparty will not pay and generally requires margin payments to
minimize such risk. Market risks arise from movements in interest rates and
security values. The Company uses 90- to 120-day futures contracts on Eurodollar
deposits and U.S. Treasury Notes mostly to shorten the rate maturity of market
rate savings to better match the rate maturity of Prime-based loans. Initial
margin requirements on futures contracts are provided by investment securities
pledged as collateral. The net deferred losses related to interest rate futures
contracts were $4 million at December 31, 1994, which will be fully amortized in
1995. The net deferred gains related to interest rate futures contracts were $4
million at December 31, 1993, which was fully amortized in 1994. The Company
also uses forward contracts with maturities of two months and under to hedge the
interest rate risk of fixed-rate real estate 1-4 family first mortgage loans
originated for sale. Gains and losses attributable to the forward contracts are
included with the gains or losses on the sales of the related loans.
Interest rate floors and caps are interest rate protection instruments that
involve the payment from the seller to the buyer of an interest differential.
This differential represents the difference between current interest rates and
an agreed-upon rate, the strike rate, applied to a notional principal amount. At
December 31, 1994, the Company had $14.4 billion of floors to protect variable-
rate loans from a drop in interest rates. Of the $14.4 billion, $2.0 billion had
forward start dates in May 1995. By purchasing a floor, the Company will be paid
by a counterparty the difference between a short-term rate (e.g., three-month
LIBOR) and the strike rate, should the short-term rate fall below the strike
level of the agreement. These contracts have a weighted average maturity of 3
years and 5 months. At December 31, 1994, there were $.2 billion of caps
purchased to hedge caps embedded within loans. The Company generally receives
cash quarterly on purchased floors (when the current interest rate falls below
the strike rate) and purchased caps (when the current interest rate exceeds the
strike rate). The premiums paid for interest rate purchased floor and cap
agreements are included with the assets hedged.
Interest rate swap contracts are entered into primarily as an
asset/liability management strategy to reduce interest rate risk. Interest rate
swap contracts are exchanges of interest payments, such as fixed-rate payments
for floating-rate payments, based on a notional principal amount. Payments
related to the Company's swap contracts are made either monthly, quarterly or
semi-annually by one of the parties depending on the specific terms of the
related contract. The primary risk associated with swaps is the exposure to
movements in interest rates and the ability of the counterparties to meet the
terms of the contract. At December 31, 1994, the Company had $3.1 billion of
interest rate swaps outstanding for interest rate risk management purposes. Of
this amount, $1.6 billion relates to swaps for which the Company receives
payments based on fixed interest rates and makes payments based on variable
rates (i.e., one- or three-month LIBOR rate). Of the $1.6 billion of receive-
fixed rate swap agreements, $1.4 billion was used to convert floating-rate loans
into fixed-rate assets. These contracts have a weighted average maturity of 1
year and 9 months, a weighted average receive rate of 5.55% and a weighted
average pay rate of 5.83%. The remaining $.2 billion was used to convert fixed-
rate debt into floating-rate obligations. These contracts have a weighted
average maturity of 1 year and 10 months, a weighted average receive rate of
7.37% and a weighted average pay rate of 5.75%. The Company also had $1.4
billion of forward starting swaps in which the Company will receive payments
based on fixed rates and will make payments based on variable rates. These
contracts have a weighted average maturity of 4 years and 3 months. The Company
also had $.1 billion basis swaps for which the Company receives a variable rate
(i.e., six-month LIBOR) and pays another rate (i.e., one-month commercial paper
rate). The basis swaps have a weighted average maturity of 10 months, a weighted
average receive rate of 5.30% and a weighted average pay rate of 6.43%.
At December 31, 1994, the Company had a $.1 billion cross currency swap to
convert debt costs of variable-rate long-term debt issued in German marks into
fixed-rate U.S. dollar obligations. Interest payments are settled quarterly,
whereas the principal payment will be settled at the expiration of the contract
in 1995, along with the maturity of the related hedged debt.
63
<PAGE>
14 FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 107 (FAS 107), Disclosures about
Fair Value of Financial Instruments, requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods and assumptions, set forth below for the Company's financial
instruments, are made solely to comply with the requirements of FAS 107 and
should be read in conjunction with the financial statements and footnotes in
this Annual Report. The carrying amounts in the table are recorded in the
Consolidated Balance Sheet under the indicated captions except for the
derivative financial instruments, which are recorded in the specific asset or
liability balance being hedged or in other assets if the derivative financial
instrument is a customer accommodation.
Fair values are based on estimates or calculations at the transaction level
using present value techniques in instances where quoted market prices are not
available. Because broadly traded markets do not exist for most of the Company's
financial instruments, the fair value calculations attempt to incorporate the
effect of current market conditions at a specific time. Fair valuations are
management's estimates of the values, and they are often calculated based on
current pricing policy, the economic and competitive environment, the
characteristics of the financial instruments and other such factors. These
calculations are subjective in nature, involve uncertainties and matters of
significant judgment and do not include tax ramifications; therefore, the
results cannot be determined with precision, substantiated by comparison to
independent markets and may not be realized in an actual sale or immediate
settlement of the instruments. There may be inherent weaknesses in any
calculation technique, and changes in the underlying assumptions used, including
discount rates and estimates of future cash flows, could significantly affect
the results. The Company has not included certain material items in its
disclosure, such as the value of the long-term relationships with the Company's
deposit, credit card and trust customers, since these intangibles are not
financial instruments. For all of these reasons, the aggregation of the fair
value calculations presented herein do not represent, and should not be
construed to represent, the underlying value of the Company.
FINANCIAL ASSETS
................................................................................
SHORT-TERM FINANCIAL ASSETS
This category includes cash and due from banks, federal funds sold and
securities purchased under resale agreements and due from customers on
acceptances. The carrying amount is a reasonable estimate of fair value because
of the relatively short period of time between the origination of the instrument
and its expected realization.
INVESTMENT SECURITIES
Investment securities at cost and fair value at December 31, 1994 and 1993 are
set forth in Note 3.
LOANS
The fair valuation calculation process differentiates loans based on their
financial characteristics, such as product classification, loan category,
pricing features and remaining maturity. Prepayment estimates are evaluated by
product and loan rate. Discount rates presented in the paragraphs below have a
wide range due to the Company's mix of fixed- and variable-rate products. The
Company used variable discount rates which incorporate relative credit quality
to reflect the credit risk on their fair value calculation.
The fair value of commercial loans, other real estate mortgage loans and
real estate construction loans is calculated by discounting contractual cash
flows using discount rates that reflect the Company's current pricing for loans
with similar characteristics and remaining maturity. Most of the discount rates
for commercial loans, other real estate mortgage loans and real estate
construction loans are between 7.3% and 10.3%, 7.8% and 12.5%, and 8.0% and
12.5%, respectively, at December 31, 1994. Most of the discount rates for the
same portfolios in 1993 were between 8.2% and 9.5%, 5.5% and 9.3%, and 6.0% and
8.0%, respectively.
For real estate 1-4 family first and junior lien mortgages, fair value is
calculated by discounting contractual cash flows, adjusted for prepayment
estimates, using discount rates based on the Company's current pricing for loans
of similar size, type, remaining maturity and repricing characteristics. Most of
the discount rates applied to this portfolio are between 7.0% and 10.0% at
December 31, 1994 and 5.7% and 7.3% at December 31, 1993.
For credit card loans, the portfolio's yield is equal to the Company's
current pricing and, therefore, the fair value is equal to book value.
64
<PAGE>
The following table presents a summary of the Company's financial
instruments, as defined by FAS 107:
<TABLE>
<CAPTION>
==================================================================================================================================
(in millions) December 31,
-----------------------------------------------
1994 1993
-------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 2,974 $ 2,974 $ 2,644 $ 2,644
Investment securities:
At cost 8,619 8,185 9,887 9,978
At fair value 2,989 2,989 3,171 3,171
------- ------- ------- -------
Total investment securities 11,608 11,174 13,058 13,149
Federal funds sold and securities purchased under resale agreements 260 260 1,668 1,668
Loans:
Commercial 8,162 8,209 6,912 6,829
Real estate 1-4 family first mortgage 9,050 8,604 7,458 7,534
Other real estate mortgage 8,079 7,933 8,286 8,127
Real estate construction 1,013 1,005 1,110 1,046
Consumer 8,686 8,439 8,103 7,973
Lease financing (1) 1,206 1,185 1,060 1,073
Foreign 27 27 18 17
------- ------- ------- -------
36,223 35,402 32,947 32,599
Less: Allowance for loan losses 2,082 -- 2,122 --
Net deferred fees on off-balance sheet financial instruments 28 -- 14 --
------- ------- ------- -------
Net loans 34,113 35,402 30,811 32,599
Due from customers on acceptances 77 77 70 70
Nonmarketable equity investments 407 618 396 562
Other financial assets 97 97 73 73
FINANCIAL LIABILITIES
Deposits $42,332 $42,354 $41,644 $41,863
Federal funds purchased and securities
sold under repurchase agreements 3,022 3,022 1,079 1,079
Commercial paper and other short-term
borrowings 189 189 188 188
Acceptances outstanding 77 77 70 70
Senior debt (2) 1,338 1,337 2,196 2,244
Subordinated debt (3) 1,460 1,399 1,965 2,008
DERIVATIVE FINANCIAL INSTRUMENTS (4)
Interest rate floor contracts purchased in a receivable position $ 27 $ 25 $ 11 $ 136
Interest rate cap contracts purchased in a receivable position 12 21 13 5
Interest rate cap contracts written in a payable position (9) (15) (8) (3)
Interest rate swap contracts in a receivable position -- 4 -- 86
Interest rate swap contracts in a payable position -- (69) -- (4)
Cross currency swap contracts in a receivable position (3) 76 76 70 70
Foreign exchange contracts in a gain position 14 7 5 5
Foreign exchange contracts in a loss position (14) (7) (4) (4)
When-issued securities in a loss position -- -- -- (1)
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The carrying amount and fair value exclude equipment leases of $124 million and $152 million at December 31, 1994 and 1993,
respectively.
(2) The carrying amount and fair value exclude obligations under capital leases of $55 million and $60 million at December 31, 1994
and 1993, respectively.
(3) The Company entered into cross currency swap agreements to hedge floating-rate subordinated debt issued in German marks and
British pounds.
(4) The carrying amounts include unamortized fees paid or received, deferred gains or losses and gains or losses on derivative
financial instruments receiving mark-to-market treatment.
</TABLE>
65
<PAGE>
For other consumer loans, the fair value is calculated by discounting the
contractual cash flows, adjusted for prepayment estimates, based on the current
rates offered by the Company for loans with similar characteristics. Most of the
discount rates applied to this portfolio are between 9.5% and 16.0% at December
31, 1994 and 8.5% and 9.5% at December 31, 1993.
For auto lease financing, the fair value is calculated by discounting the
contractual cash flows at the Company's current pricing for items of similar
remaining term, without including any tax benefits. Most of the discount rates
applied to this portfolio are between 9.0% and 10.0% at December 31, 1994 and
8.0% and 9.3% at December 31, 1993.
Commitments, standby letters of credit, and commercial and similar letters
of credit not included in the previous table have contractual values of $20,939
million, $836 million and $125 million, respectively, at December 31, 1994, and
$15,979 million, $889 million and $105 million, respectively, at December 31,
1993. These instruments generate ongoing fees at the Company's current pricing
levels. Of the commitments at December 31, 1994, 81% mature within one year and
82% are commitments to extend credit at a floating rate.
NONMARKETABLE EQUITY INVESTMENTS
The Company's nonmarketable equity investments, including securities, are
carried at cost and have a book value of $407 million and $396 million and an
estimated fair value of $618 million and $562 million at December 31, 1994 and
1993, respectively. There are restrictions on the sale and/or liquidation of the
Company's interest, which is generally in the form of limited partnerships; and
the Company has no direct control over the investment decisions of the limited
partnerships. To estimate fair value, a significant portion of the underlying
limited partnerships' investments are valued based on market quotes.
FINANCIAL LIABILITIES
................................................................................
DEPOSIT LIABILITIES
FAS 107 states that the fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, interest-bearing checking and savings
deposits and market rate savings, is equal to the amount payable on demand at
the measurement date. Although the Financial Accounting Standards Board's
requirement for these categories is not consistent with the market practice of
using prevailing interest rates to value these amounts, the amount included for
these deposits in the previous table is their carrying value at December 31,
1994 and 1993. The fair value of certificates of deposit and other time deposits
is calculated based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for like deposits
with similar remaining maturities.
SHORT-TERM FINANCIAL LIABILITIES
This category includes federal funds purchased and securities sold under
repurchase agreements, commercial paper and other short-term borrowings. The
carrying amount is a reasonable estimate of fair value because of the relatively
short period of time between the origination of the instrument and its expected
realization.
SENIOR AND SUBORDINATED DEBT
The fair value of the Company's underwritten senior and subordinated debt is
estimated based on the quoted market prices of the instruments. The fair value
of the medium-term note programs, which are part of senior debt, is calculated
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for new notes with similar remaining
maturities.
DERIVATIVE FINANCIAL INSTRUMENTS
................................................................................
Derivative financial instruments are fair valued based on the estimated amounts
that the Company would receive or pay to terminate the contracts at the
reporting date (i.e., mark-to-market value). Dealer quotes are available for
substantially all of the Company's derivative financial instruments.
LIMITATIONS
................................................................................
These fair value disclosures are made solely to comply with the requirements of
FAS 107. The calculations represent management's best estimates; however, due to
the lack of broad markets and the significant items excluded from this
disclosure, the calculations do not represent the underlying value of the
Company. The information presented in this footnote is based on fair value
calculations and market quotes as of December 31, 1994 and 1993. These amounts
have not been updated since year end; therefore, the valuations may have changed
significantly since that point in time.
66
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Director sand Stockholders
of Wells Fargo & Company
We have audited the accompanying consolidated balance sheet of Wells Fargo &
Company and Subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wells Fargo &
Company and Subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Certified Public Accountants
San Francisco, California
January 17, 1995
67
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF INCOME -- QUARTERLY
==================================================================================================================================
(in millions) 1994 1993
QUARTER ENDED Quarter ended
-------------------------------------- --------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31 Dec. 31 Sept. 30 June 30 Mar. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 984 $ 954 $ 932 $ 895 $ 930 $ 925 $ 936 $ 970
INTEREST EXPENSE 328 297 277 253 264 270 278 292
----- ----- ----- ----- ----- ----- ----- -----
NET INTEREST INCOME 656 657 655 642 666 655 658 678
Provision for loan losses 30 50 60 60 80 120 140 210
----- ----- ----- ----- ----- ----- ----- -----
Net interest income after
provision for loan losses 626 607 595 582 586 535 518 468
----- ----- ----- ----- ----- ----- ----- -----
NONINTEREST INCOME
Service charges on deposit accounts 118 119 119 117 112 106 105 100
Fees and commissions 106 104 92 85 91 98 99 88
Trust and investment services income 51 52 50 50 48 48 48 46
Investment securities gains -- 1 3 4 -- -- -- --
Other 19 31 35 44 44 12 23 25
----- ----- ----- ----- ----- ----- ----- -----
Total noninterest income 294 307 299 300 295 264 275 259
----- ----- ----- ----- ----- ----- ----- -----
NONINTEREST EXPENSE
Salaries 171 172 164 164 171 169 174 170
Incentive compensation 49 44 34 28 41 27 26 15
Employee benefits 48 50 49 54 48 60 52 53
Net occupancy 54 53 53 55 58 56 57 53
Equipment 54 40 41 39 44 36 34 34
Federal deposit insurance 25 25 25 26 28 28 26 32
Other 176 147 160 157 167 159 162 182
----- ----- ----- ----- ----- ----- ----- -----
Total noninterest expense 577 531 526 523 557 535 531 539
----- ----- ----- ----- ----- ----- ----- -----
INCOME BEFORE INCOME TAX EXPENSE 343 383 368 359 324 264 262 188
Income tax expense 128 166 162 157 134 99 113 80
----- ----- ----- ----- ----- ----- ----- -----
NET INCOME $ 215 $ 217 $ 206 $ 202 $ 190 $ 165 $ 149 $ 108
===== ===== ===== ===== ===== ===== ===== =====
NET INCOME APPLICABLE TO
COMMON STOCK $ 205 $ 207 $ 195 $ 190 $ 178 $ 152 $ 137 $ 95
===== ===== ===== ===== ===== ===== ===== =====
PER COMMON SHARE
Net income $3.96 $3.86 $3.57 $3.41 $3.18 $2.74 $2.46 $1.72
===== ===== ===== ===== ===== ===== ===== =====
Dividends declared(1) $1.00 $1.00 $1.00 $1.00 $ .75 $ .50 $ .50 $ .50
===== ===== ===== ===== ===== ===== ===== =====
Average common shares outstanding 51.8 53.6 54.8 55.7 55.8 55.7 55.5 55.4
===== ===== ===== ===== ===== ===== ===== =====
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)In January 1995, the Board of Directors declared a first quarter dividend of $1.15 per common share.
</TABLE>
68
<PAGE>
WELLS FARGO & COMPANY
APPENDIX TO
EXHIBIT 13
<TABLE>
<CAPTION>
Description Page number
1. Line graph of Return on Average Total Assets
(ROA) for 1994, 1993, 1992, 1991 and 1990
(shown in %).
<S> <C>
1994 1.62
1993 1.20
1992 0.54
1991 0.04
1990 1.39 6
</TABLE>
2. Line graph of Return on Common Stockholders' Equity
(ROE)for 1994, 1993, 1992, 1991 and 1990 (shown in %).
<TABLE>
<CAPTION>
<S> <C>
1994 22.41
1993 16.74
1992 7.93
1991 0.07
1990 25.07 6
</TABLE>
3. Line graph of Net Interest Margin for 1994, 1993 and
1992 (shown in %). Also presented is the yield on
total earning assets and the rate on total funding
sources for the same periods. This information is
also presented in Table 4-AVERAGE BALANCES, YIELDS
AND RATES PAID on pages 12 and 13. 11
4. Bar graph of the Loan Mix at Year End shown as a
percentage of total loans at December 31, 1994, 1993
and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Commercial 22% 21% 22%
Real estate 1-4
family first
mortgage 25 23 19
Other real estate
mortgage 22 25 28
Real estate
construction 3 3 4
Consumer 24 24 24
Lease Financing 4 4 3
--- --- ---
Total 100% 100% 100% 20
</TABLE>
<PAGE>
5. Line graphs of Nonaccrual Loans and New Loans Placed
on Nonaccrual for the past eight quarters of 1994 and
1993 (shown in billions). This information is also
presented in Table 16-QUARTERLY TREND OF CHANGES IN
NONACCRUAL LOANS on page 23. 22
6. Bar graph of Core Deposits at Year End at December 31,
1994, 1993 and 1992 (shown in billions).
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Noninterest-bearing $10.1 $ 9.7 $ 9.2
Interest-bearing
checking 4.5 4.8 4.8
Savings 2.4 2.5 2.9
Market rate savings 14.3 17.1 15.9
Saving certificates 7.1 7.2 9.0
----- ----- ------
Total Core Deposits $38.5 $41.3 $ 41.9 29
</TABLE>
7. Bar graph on the Price Range of Common Stock
(high, low, closing price) on an annual
basis for 1994, 1993 and 1992 (shown in dollars).
This information is also presented in Table 1-
RATIOS AND PER COMMON SHARE DATA on page 7. 38
8. Bar graph on the Price Range of Common Stock
(high, low, closing price) on a quarterly
basis for 1994 and 1993 (shown in dollars).
<TABLE>
<CAPTION>
HIGH LOW QTR END
1994
<S> <C> <C> <C>
1Q $147 1/2 $127 5/8 $139 3/8
2Q 159 1/2 136 5/8 150 3/8
3Q 160 3/8 145 1/8 145 1/8
4Q 149 5/8 141 145
1993
1Q $109 1/2 $ 75 1/2 $108 5/8
2Q 120 95 3/4 110 1/4
3Q 127 3/8 107 1/4 126 3/8
4Q 133 105 7/8 129 3/8 38
</TABLE>
<PAGE>
EXHIBIT 23
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Wells Fargo & Company
We consent to the incorporation by reference in the Annual Report on
Form 10-K for the year ended December 31, 1994 and in the Prospectuses
constituting part of the following Registration Statements of Wells Fargo
& Company of our report dated January 17, 1995 relating to the
consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994.
Registration
Statement Number Form Description
- ---------------- ----- -----------
33-34969 S-8 Employee Stock Purchase Plan
33-7274, 33-40781 S-8 Equity Incentive Plans
33-26052, 33-41731 S-8 Director Option Plans
2-93338 S-8 Tax Advantage Plan and Tax Advantage Plan
Sales by Wells Fargo Bank
33-54441 S-8 Long-Term Incentive Plan
2-88534, 33-47434 S-3 Dividend Reinvestment and Common Stock
Purchase and Share Custody Plan
33-51227 S-3 Shelf registrations of senior or subordinated
debt securities or preferred stock
KPMG PEAT MARWICK LLP
San Francisco, California
March 21, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10K DATED MARCH 21, 1995 FOR THE PERIOD ENDED DECEMBER 31, 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,974
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 260
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,989
<INVESTMENTS-CARRYING> 8,619
<INVESTMENTS-MARKET> 8,185
<LOANS> 36,347
<ALLOWANCE> 2,082
<TOTAL-ASSETS> 53,374
<DEPOSITS> 42,332
<SHORT-TERM> 3,211
<LIABILITIES-OTHER> 990
<LONG-TERM> 2,853
<COMMON> 256
0
489
<OTHER-SE> 3,166
<TOTAL-LIABILITIES-AND-EQUITY> 53,374
<INTEREST-LOAN> 3,015
<INTEREST-INVEST> 740
<INTEREST-OTHER> 10
<INTEREST-TOTAL> 3,765
<INTEREST-DEPOSIT> 854
<INTEREST-EXPENSE> 1,155
<INTEREST-INCOME-NET> 2,610
<LOAN-LOSSES> 200
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 2,156
<INCOME-PRETAX> 1,454
<INCOME-PRE-EXTRAORDINARY> 841
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 841
<EPS-PRIMARY> 14.78
<EPS-DILUTED> 14.42
<YIELD-ACTUAL> 5.55
<LOANS-NON> 567
<LOANS-PAST> 118
<LOANS-TROUBLED> 15
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,122
<CHARGE-OFFS> 369
<RECOVERIES> 129
<ALLOWANCE-CLOSE> 2,082
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,497
</TABLE>
