<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 Commission file number 1-6214
-----------------------
WELLS FARGO & COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 13-2553920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415-477-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
April 30, 1996
------------------
Common stock, $5 par value 95,901,593
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statement of Income ...................................... 2
Consolidated Balance Sheet ........................................... 3
Consolidated Statement of Changes in Stockholders' Equity ............. 4
Consolidated Statement of Cash Flows .................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Summary Financial Data ................................................ 7
Overview .............................................................. 8
Merger with First Interstate Bancorp .................................. 9
Line of Business Results .............................................. 12
Earnings Performance .................................................. 15
Net Interest Income .............................................. 15
Noninterest Income ............................................... 17
Noninterest Expense .............................................. 19
Income Taxes ..................................................... 20
Balance Sheet Analysis ................................................ 21
Investment Securities ............................................ 21
Loan Portfolio ................................................... 24
Commercial real estate ...................................... 24
Nonaccrual and Restructured Loans and Other Assets ............... 25
Changes in total nonaccrual loans ........................... 26
Changes in nonaccrual loans by loan category ................ 26
Changes in foreclosed assets ................................ 29
Loans 90 days past due and still accruing ................... 29
Allowance for Loan Losses ........................................ 30
Other Assets ..................................................... 32
Deposits ......................................................... 33
Capital Adequacy/Ratios .......................................... 33
Asset/Liability Management ....................................... 35
Derivative Financial Instruments ................................. 36
Liquidity Management ............................................. 37
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .............. 38
Item 6. Exhibits and Reports on Form 8-K ................................. 39
SIGNATURE .................................................................. 40
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</TABLE>
The information furnished in these interim statements reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for such periods. Such adjustments are of a normal recurring nature,
unless otherwise disclosed in this Form 10-Q. The results of operations in the
interim statements are not necessarily indicative of the results that may be
expected for the full year. The interim financial information should be read in
conjunction with the Company's 1995 Annual Report on Form 10-K.
1
<PAGE>
PART I - FINANCIAL INFORMATION
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Quarter
ended March 31,
---------------
(in millions) 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Federal funds sold and securities
purchased under resale agreements $ 2 $ 1
Investment securities 128 165
Loans 875 858
Other 1 1
------ ------
Total interest income 1,006 1,025
------ ------
INTEREST EXPENSE
Deposits 241 242
Federal funds purchased and securities sold under
repurchase agreements 36 56
Commercial paper and other short-term borrowings 5 10
Senior and subordinated debt 48 52
------ ------
Total interest expense 330 360
------ ------
NET INTEREST INCOME 676 665
Provision for loan losses -- --
------ ------
Net interest income after provision
for loan losses 676 665
------ ------
NONINTEREST INCOME
Service charges on deposit accounts 122 118
Fees and commissions 118 101
Trust and investment services income 59 55
Investment securities gains (losses) -- (15)
Other 55 (17)
------ ------
Total noninterest income 354 242
------ ------
NONINTEREST EXPENSE
Salaries 181 172
Incentive compensation 32 27
Employee benefits 54 53
Equipment 55 47
Net occupancy 53 53
Federal deposit insurance 1 24
Other 191 161
------ ------
Total noninterest expense 567 537
------ ------
INCOME BEFORE INCOME TAX EXPENSE 463 370
Income tax expense 199 137
------ ------
NET INCOME $ 264 $ 233
------ ------
------ ------
NET INCOME APPLICABLE TO COMMON STOCK $ 254 $ 223
------ ------
------ ------
PER COMMON SHARE
Net income $ 5.39 $ 4.41
------ ------
------ ------
Dividends declared $ 1.30 $ 1.15
------ ------
------ ------
Average common shares outstanding 47.0 50.5
------ ------
------ ------
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</TABLE>
2
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(in millions) 1996 1995 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 2,721 $ 3,375 $ 2,708
Federal funds sold and securities
purchased under resale agreements 49 177 39
Investment securities:
At fair value 8,435 8,920 2,403
At cost (estimated fair value $7,928) -- -- 8,173
------- ------- --------
Total investment securities 8,435 8,920 10,576
Mortgage loans held for sale -- -- 3,940
Loans 35,167 35,582 32,737
Allowance for loan losses 1,681 1,794 2,017
------- ------- --------
Net loans 33,486 33,788 30,720
------- ------- --------
Due from customers on acceptances 79 98 74
Accrued interest receivable 316 308 316
Premises and equipment, net 859 862 892
Goodwill 373 382 408
Other assets 2,660 2,406 2,651
------- ------- --------
Total assets $48,978 $50,316 $52,324
------- ------- --------
------- ------- --------
LIABILITIES
Noninterest-bearing deposits $ 9,740 $10,391 $ 9,431
Interest-bearing deposits 28,066 28,591 29,566
------- ------- --------
Total deposits 37,806 38,982 38,997
Federal funds purchased and securities
sold under repurchase agreements 2,243 2,781 4,770
Commercial paper and other short-term
borrowings 225 195 526
Acceptances outstanding 79 98 74
Accrued interest payable 110 85 105
Other liabilities 1,166 1,071 1,074
Senior debt 1,881 1,783 1,454
Subordinated debt 1,266 1,266 1,484
------- ------- --------
Total liabilities 44,776 46,261 48,484
------- ------- --------
STOCKHOLDERS' EQUITY
Preferred stock 489 489 489
Common stock - $5 par value,
authorized 150,000,000 shares;
issued and outstanding 46,999,455 shares,
46,973,319 shares and 49,579,908 shares 235 235 248
Additional paid-in capital 1,136 1,135 590
Retained earnings 2,366 2,174 2,572
Cumulative foreign currency translation
adjustments (4) (4) (4)
Investment securities valuation allowance (20) 26 (55)
------- ------- --------
Total stockholders' equity 4,202 4,055 3,840
------- ------- --------
Total liabilities and stockholders' equity $48,978 $50,316 $52,324
------- ------- --------
------- ------- --------
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</TABLE>
3
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Quarter ended March 31,
(in millions) 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, beginning and end of quarter $ 489 $ 489
------ ------
COMMON STOCK
Balance, beginning of quarter 235 256
Common stock issued under employee benefit and
dividend reinvestment plans -- 3
Common stock repurchased -- (11)
------ ------
Balance, end of quarter 235 248
------ ------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of quarter 1,135 871
Common stock issued under employee benefit and
dividend reinvestment plans 7 34
Common stock repurchased (6) (315)
------ ------
Balance, end of quarter 1,136 590
------ ------
RETAINED EARNINGS
Balance, beginning of quarter 2,174 2,409
Net income 264 233
Preferred stock dividends (10) (10)
Common stock dividends (62) (60)
------ ------
Balance, end of quarter 2,366 2,572
------ ------
CUMULATIVE FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS
Balance, beginning and end of quarter (4) (4)
------ ------
INVESTMENT SECURITIES VALUATION ALLOWANCE
Balance, beginning of quarter 26 (110)
Change in unrealized net gain (loss), after applicable taxes (46) 55
------ ------
Balance, end of quarter (20) (55)
------ ------
Total stockholders' equity $4,202 $3,840
------ ------
------ ------
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</TABLE>
4
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Quarter ended March 31,
(in millions) 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 264 $ 233
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- --
Depreciation and amortization 71 63
Deferred income tax benefit -- (44)
Increase in net deferred loan fees 1 --
Net (increase) decrease in accrued interest receivable (8) 12
Write-down of mortgage loans held for sale -- 83
Net increase in accrued interest payable 25 45
Other, net 75 23
------- -------
Net cash provided by operating activities 428 415
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
At cost:
Proceeds from prepayments and maturities -- 470
Purchases -- (24)
At fair value:
Proceeds from sales -- 670
Proceeds from prepayments and maturities 419 52
Purchases (14) (57)
Net (increase) decrease in loans resulting from originations
and collections 258 (589)
Proceeds from sales (including participations) of loans 51 191
Purchases (including participations) of loans (37) (109)
Proceeds from sales of foreclosed assets 21 43
Net decrease in federal funds sold and securities
purchased under resale agreements 128 221
Other, net (245) (71)
------- -------
Net cash provided by investing activities 581 797
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (1,176) (3,335)
Net increase (decrease) in short-term borrowings (508) 2,085
Proceeds from issuance of senior debt 100 500
Repayment of senior debt -- (440)
Proceeds from issuance of common stock 7 37
Repurchase of common stock (6) (326)
Payment of cash dividends on preferred stock (10) (20)
Payment of cash dividends on common stock (62) (60)
Other, net (8) 81
------- -------
Net cash used by financing activities (1,663) (1,478)
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS) (654) (266)
Cash and cash equivalents at beginning of quarter 3,375 2,974
------- -------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 2,721 $ 2,708
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $ 305 $ 315
------- -------
------- -------
Income taxes $ 75 $ 49
------- -------
------- -------
Noncash investing activities:
Transfers from loans to foreclosed assets $ 35 $ 42
------- -------
------- -------
Transfer from loans to mortgage loans held for sale $ -- $ 4,023
------- -------
------- -------
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</TABLE>
5
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FINANCIAL REVIEW
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
% Change
Quarter ended March 31, 1996 from
------------------------------------- -------------------
MARCH 31, Dec. 31, March 31, Dec. 31, March 31,
(in millions) 1996 1995 1995 1995 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE QUARTER
Net income $ 264 $ 306 $ 233 (14)% 13%
Per common share
Net income $ 5.39 $ 6.29 $ 4.41 (14) 22
Dividends declared 1.30 1.15 1.15 13 13
Average common shares outstanding 47.0 47.0 50.5 -- (7)
Profitability ratios (annualized)
Net income to average total assets (ROA) 2.16% 2.47% 1.80% (13) 20
Net income applicable to common stock to
average common stockholders' equity (ROE) 28.34 34.98 26.89 (19) 5
Efficiency ratio (1) 55.1% 51.1% 59.1% 8 (7)
Average loans $ 35,025 $ 34,423 $ 36,334 2 (4)
Average assets 49,134 49,169 52,390 -- (6)
Average core deposits 36,819 36,943 36,699 -- --
Net interest margin 6.18% 6.08% 5.59% 2 11
Average staff (full-time equivalent) 19,120 19,535 19,493 (2) (2)
AT QUARTER END
Investment securities $ 8,435 $ 8,920 $ 10,576 (5) (20)
Loans (2) 35,167 35,582 32,737 (1) 7
Allowance for loan losses 1,681 1,794 2,017 (6) (17)
Assets 48,978 50,316 52,324 (3) (6)
Core deposits 37,414 37,858 36,975 (1) 1
Common stockholders' equity 3,713 3,566 3,351 4 11
Stockholders' equity 4,202 4,055 3,840 4 9
Tier 1 capital (3) 3,856 3,635 3,437 6 12
Total capital (Tiers 1 and 2) (3) 5,353 5,141 5,034 4 6
Capital ratios
Common stockholders' equity to assets 7.58% 7.09% 6.40% 7 18
Stockholders' equity to assets 8.58 8.06 7.34 6 17
Risk-based capital (3)
Tier 1 capital 9.40 8.81 8.73 7 8
Total capital 13.04 12.46 12.78 5 2
Leverage (3) 7.91 7.46 6.61 6 20
Book value per common share $ 79.01 $ 75.93 $ 67.59 4 17
COMMON STOCK PRICE
High $ 261-1/4 $ 229 $ 160-5/8 14 63
Low 203-1/8 190 143-3/8 7 42
Quarter end 261-1/4 216 156-3/8 21 67
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</TABLE>
(1) The efficiency ratio is defined as noninterest expense divided by the
total of net interest income and noninterest income.
(2) Loans exclude mortgage loans held for sale at March 31, 1995 of
$3,940 million.
(3) See the Capital Adequacy/Ratios section for additional information.
7
<PAGE>
OVERVIEW
Wells Fargo & Company (Parent) is a bank holding company whose principal
subsidiary is Wells Fargo Bank, N.A. (Bank). In this Form 10-Q, Wells Fargo &
Company and its subsidiaries are referred to as the Company.
Net income in the first quarter of 1996 was $264 million, compared with $233
million in the first quarter of 1995, an increase of 13%. Per share earnings
for the first quarter of 1996 were $5.39 per share, compared with $4.41 per
share in the first quarter of 1995, an increase of 22%.
First quarter 1996 results were higher than a year ago, reflecting an increase
in noninterest income of $112 million, partially offset by an increase in income
taxes.
Return on average assets (ROA) was 2.16% and return on average common equity
(ROE) was 28.34% in the first quarter of 1996, compared with 1.80% and 26.89%,
respectively, in the same quarter of 1995.
Net interest income on a taxable-equivalent basis was $676 million and $665
million in the first quarter of 1996 and 1995, respectively. The Company's net
interest margin for the first quarter of 1996 was 6.18%, compared with 5.59% in
the same quarter of 1995. The increase in the margin was substantially
attributable to a favorable change in the mix of earning assets, including
reduced levels of lower-yielding securities and single family loans, partially
offset by increased rates on consumer deposits.
Noninterest income in the first quarter of 1996 was $354 million, compared with
$242 million in the same quarter of 1995, an increase of 46%. The increase was
largely due to an $83 million write-down to lower of cost or estimated market in
1995 for certain product types within the real estate 1-4 family first mortgage
portfolio that were reclassified to mortgage loans held for sale.
Noninterest expense in the first quarter of 1996 was $567 million, up 6% from
$537 million. The increase was primarily due to higher expenses for contract
services as well as higher salary levels and equipment expense, largely offset
by a reduction in federal deposit insurance expense.
During the first quarter of 1996, net charge-offs totaled $113 million, or 1.30%
of average loans (annualized). This compared with $78 million, or .90%, during
the fourth quarter of 1995 and $65 million, or .72%, during the first quarter of
1995. The allowance for loan losses was 4.78% of total loans at March 31, 1996,
compared with 5.04% at December 31, 1995 and 6.16% (excluding mortgage loans
held for sale) at March 31, 1995.
Total nonaccrual and restructured loans were $537 million at March 31, 1996,
compared with $552 million at December 31, 1995 and $581 million at March 31,
1995. Foreclosed assets amounted to $198 million at March 31, 1996, $186
million at December 31, 1995 and $273 million at March 31, 1995.
8
<PAGE>
The Company's effective tax rate for the first quarter of 1996 was 43%, compared
with 37% for the first quarter of 1995. The increase in the effective tax rate
was due to a $22 million reduction of income tax expense in 1995 related to the
settlement with the Internal Revenue Service of certain audit issues pertaining
to auto leases.
Common stockholders' equity to total assets was 7.58% at March 31, 1996,
compared with 7.09% and 6.40% at December 31, 1995 and March 31, 1995,
respectively. The Company's total risk-based capital ratio at March 31, 1996
was 13.04% and its Tier 1 risk-based capital ratio was 9.40%, exceeding
minimum guidelines of 8% and 4%, respectively, for bank holding companies and
the "well capitalized" guidelines for banks of 10% and 6%, respectively. At
December 31, 1995, these risk-based capital ratios were 12.46% and 8.81%,
respectively; at March 31, 1995, these ratios were 12.78% and 8.73%,
respectively. The Company's leverage ratios were 7.91%, 7.46% and 6.61% at
March 31, 1996, December 31, 1995 and March 31, 1995, respectively, exceeding
the minimum regulatory guideline of 3% for bank holding companies and the "well
capitalized" guideline of 5% for banks.
MERGER WITH FIRST INTERSTATE BANCORP
On April 1, 1996, the Company completed its acquisition of First Interstate
Bancorp, creating the eighth largest bank holding company in the United States
based on total assets as of March 31, 1996. The purchase price of the
transaction was approximately $11 billion based on Wells Fargo's share price on
January 19, the last trading day before Wells Fargo and First Interstate agreed
on an exchange ratio. First Interstate shareholders received two-thirds of a
share of Wells Fargo common stock for each share of common stock owned. The
merger is being accounted for as a purchase transaction. Accordingly, the
results of operations of First Interstate will be included with that of the
Company for periods subsequent to the date of the merger (i.e., the first
quarter 1996 financial information included in this Form 10-Q excludes First
Interstate). The name of the newly combined company is Wells Fargo & Company.
The combined company has assets of approximately $111 billion, loans of $71
billion and deposits of $85 billion.
As a condition of the merger, Wells Fargo was required by regulatory agencies to
divest 61 First Interstate branches in California. In the first quarter of
1996, the Company entered into a contract with Home Savings of America,
principal subsidiary of H.F. Ahmanson & Company, to sell the 61 First
Interstate branches with aggregate deposits of about $2.5 billion and loans of
about $1.3 billion. The selling price of the divested branches represents a
premium of 8.11% on the deposits. The transaction is expected to close during
the third quarter of 1996. The impact of the divestitures has not been included
in the pro forma financial data presented on the next page.
9
<PAGE>
The following pro forma combined financial data shows the pro forma effects of
the merger. The pro forma combined summary of income gives effect to the
combination as if the merger was consummated on January 1, 1995 and the selected
pro forma combined balance sheet data gives effect to the merger as if it was
consummated on March 31, 1996.
The pro forma amounts in the table below are presented for informational
purposes and are not necessarily indicative of the financial position or the
results of operations of the combined company for the periods presented. The
pro forma amounts are also not necessarily indicative of the future financial
position or future results of operations of the combined company. In
particular, the Company expects to achieve significant operating cost savings as
a result of the merger, which have not been included in the pro forma amounts.
PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Quarter ended March 31,
----------------------
(in millions, except per share data) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
SUMMARY OF INCOME
Net interest income $ 1,287 $ 1,295
Provision for loan losses -- --
Noninterest income 659 510
Noninterest expense (1) 1,242 1,213
Net income (1) 394 349
PER COMMON SHARE
Net income (1) $ 3.84 $ 3.29
Dividends declared 1.30 1.15
AVERAGE COMMON SHARES OUTSTANDING 98.0 100.5
SELECTED BALANCE SHEET DATA
(AT QUARTER END)
Investment securities $ 16,088
Loans 70,850
Assets 111,387
Deposits 85,251
Senior and subordinated debt 4,372
Stockholders' equity 15,850
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</TABLE>
(1) Noninterest expense for the quarter ended March 31, 1996 excludes $251
million ($245 million after tax) of nonrecurring merger-related
expenses recorded by First Interstate.
The pro forma combined net income of $394 million consists of first quarter
1996 net income of the Company of $264 million and a net loss of First
Interstate of $(23) million, plus pro forma expense adjustments of $153
million. The pro forma combined net income of $349 million consists of first
quarter 1995 net income of the Company of $233 million and First Interstate
of $212 million, less pro forma expense adjustments of $96 million. The pro
forma expense adjustments for both periods include amortization of $66
million relating to a
10
<PAGE>
preliminary estimate of approximately $6,600 million excess purchase price
over fair value of First Interstate's net assets acquired (goodwill).
It is anticipated that the Company will incur merger-related costs of about
$700 million related to premises, severance and other costs. To the extent
these costs relate to First Interstate's premises, employees and operations,
they will affect the final amount of goodwill as of the consummation of the
merger. The remaining costs relating to the Company's premises, employees
and operations as well as all costs relating to systems conversions and other
indirect, integration costs will be expensed, either upon consummation of the
merger or as incurred. With respect to timing, it is assumed that the
integration would be completed and that such costs would be incurred not
later than 18 months after the closing of the merger. No adjustment has been
included in the pro forma amounts for these merger-related costs.
The foregoing estimate is based on the assumption that the equivalent of
approximately 85% (or 350) of First Interstate's California branches will be
consolidated (by closing or divesting both First Interstate and Wells Fargo
branches) following consummation of the merger.
The following discussions included in the Line of Business Results, Earnings
Performance and Balance Sheet Analysis sections of this report do not reflect
the expected impact of the Company's merger with First Interstate.
11
<PAGE>
LINE OF BUSINESS RESULTS (ESTIMATED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
(income/expense in millions, average balances in billions)
- --------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
--------------------- ----------------- ----------------
Retail Business
Distribution Banking Investment
Group Group Group
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income (1) $ 109 $ 108 $ 96 $ 87 $ 99 $ 119
Provision for loan losses (2) -- -- 11 8 -- --
Noninterest income (3) 163 159 44 32 65 73
Noninterest expense (3) 267 228 72 65 89 112
----- ----- ----- ----- ----- -----
Income before income
tax expense (benefit) 5 39 57 46 75 80
Income tax expense (benefit) (4) 3 18 25 20 33 35
----- ----- ----- ----- ----- -----
Net income $ 2 $ 21 $ 32 $ 26 $ 42 $ 45
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
Average loans $ -- $ -- $ 3.0 $ 2.1 $ .5 $ .5
Average assets .9 1.2 4.2 3.3 .9 1.0
Average core deposits 9.1 9.7 6.4 6.4 18.3 18.1
Return on equity (5) 3% 43% 34% 34% 39% 42%
Risk-adjusted efficiency ratio (6) 102% 89% 69% 71% 67% 69%
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</TABLE>
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(1) Net interest income is the difference between actual interest earned
on assets (and interest paid on liabilities) owned by a group and a
funding charge (and credit) based on the Company's cost of funds.
Groups are charged a cost to fund any assets (e.g., loans) and are
paid a funding credit for any funds provided (e.g., deposits). The
interest spread is the difference between interest rate earned on an
asset or paid on a liability and the Company's cost of funds rate.
(2) The provision allocated to the line groups is based on management's
current assessment of the normalized net charge-off ratio for each
line of business. In any particular year, the actual net charge-offs
can be higher or lower than the normalized provision allocated to the
lines of business. The difference between the normalized provision
and the Company provision is included in Other.
(3) The Retail Distribution Group's charges to the product groups are
shown as noninterest income to the branches and noninterest expense to
the product groups. They amounted to $50 million and $48 million in
the first quarter of 1996 and 1995, respectively. These charges are
eliminated in the Other category in arriving at the Consolidated
Company totals for noninterest income and expense.
The line of business results show financial performance of the major
business units comparing the first quarter of 1996 with the first
quarter of 1995. Changes in management structure and/or the allocation
process may result in changes in allocations, transfers and
assignments. In that case, results for prior periods would be restated
to allow comparability from one period to the next.
The Retail Distribution Group's net income in the first quarter of
1996 decreased $19 million, or 90%. Noninterest expense increased
substantially due to higher expenditures on alternative distribution
channels, including supermarket branches and banking centers. A
significant portion of the increase was offset by cost savings from
branch closures and the reduction of FDIC expense.
The Business Banking Group's net income in the first quarter of 1996
increased $6 million, or 23%. Net interest income increased substantially
due to higher balances and spreads on commercial loans, of which a major
portion was offset by narrower spreads on core deposits.
12
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Quarter ended March 31,
- ---------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
-------------- -------------- -------------- ------------- -------------
Wholesale
Real Estate Products Consumer Consolidated
Group Group Lending Other Company
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 67 $ 58 $ 106 $ 99 $ 184 $ 148 $ 15 $ 46 $ 676 $ 665
8 7 10 10 63 50 (92) (75) -- --
24 7 38 45 58 47 (38) (121) 354 242
22 14 50 46 75 72 (8) -- 567 537
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
61 44 84 88 104 73 77 -- 463 370
26 19 36 37 44 31 32 (23) 199 137
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
$ 35 $ 25 $ 48 $ 51 $ 60 $ 42 $ 45 $ 23 $ 264 $ 233
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
$ 7.0 $ 6.4 $ 8.9 $ 8.7 $11.8 $10.1 $ 3.8 $ 8.5 $35.0 $36.3
7.5 6.8 9.8 9.5 12.2 10.3 13.6 19.7 49.1 52.4
.2 .1 2.5 2.2 .3 .2 -- -- 36.8 36.7
19 % 16 % 27 % 29 % 31 % 25 % -- % -- % 28 % 27 %
68 % 77 % 62 % 60 % 63 % 72 % -- % -- % -- % -- %
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
(4) Businesses are taxed at the Company's marginal (statutory)
tax rate, adjusted for any nondeductible expenses. Any
differences between the marginal and effective tax rates are in
Other.
(5) Equity is allocated to the lines of business based on an
assessment of the inherent risk associated with each business so
that the returns on allocated equity are on a risk-adjusted basis
and comparable across business lines.
(6) 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.
Noninterest income increased substantially due to the recognition of a gain
resulting from the Card Establishment Services (CES) alliance, higher sweep
account balances and activity, and increased fees from mass market loan
products. Noninterest expense increased largely due to higher expenses
associated with increased mass market lending volumes, a significant portion of
which was offset by the reduction in FDIC expense.
The Investment Group's net income in the first quarter of 1996 decreased $3
million, or 7%. Net interest income decreased due to narrower spreads on core
deposits, partially offset by higher deposit balances. The decrease in
noninterest income was substantially due to income received in 1995 from the
joint venture interest in Wells Fargo Nikko Investment Advisors (WFNIA) and the
MasterWorks division (which were sold in December 1995) and lower fixed annuity
sales. A major portion of this decrease was offset by higher management fees on
higher assets under management. Noninterest expense decreased mostly from the
reduction of FDIC expense and expenses related to WFNIA and MasterWorks.
13
<PAGE>
The Real Estate Group's net income in the first quarter of 1996
increased $10 million, or 40%. Net interest income increased primarily
due to higher loan balances in the Real Estate Capital Markets Group.
Noninterest income increased substantially due to gains on the sale of
cost method equity investments. Noninterest expense increased
substantially due to lower foreclosed asset gains on sales and the
expansion of the Real Estate Capital Markets Group.
The Wholesale Products Group's net income in the first quarter of
1996 decreased $3 million, or 6%. Net interest income increased
primarily due to recoveries on loans where interest had been previously
applied to principal. Noninterest income reflected lower gains from
loan sales. The increase in noninterest expense was primarily related
to the Wells Fargo HSBC Trade Bank which was established in October
1995.
Consumer Lending's net income in the first quarter of 1996 increased
$18 million, or 43%. The increase in net interest income was largely
due to higher credit card, auto lease and consumer loan balances.
Noninterest income increased primarily due to higher credit card fee
income. Noninterest expense increased substantially due to the cost of
servicing a higher number of open accounts. Consumer Lending has
assumed the responsibility for servicing the Company's remaining 1-4
family first mortgage loan portfolio and mortgage loans owned by third
parties (previously included in the Mortgage Business Group),
contributing net income of $1 million in the first quarter for both
years. This organizational change is due to the Company exiting the 1-
4 family first mortgage loan origination business in October 1995, and
is reflected in both current and prior periods.
The Other category includes the Company's 1-4 family first mortgage
portfolio (previously included in the Mortgage Business Group), the
investment securities portfolio, the difference between the normalized
provision for the line groups and the Company provision for loan
losses, the net impact of transfer pricing loan and deposit balances,
the cost of external debt, the elimination of intergroup noninterest
income and expense, and any residual effects of unallocated systems and
other support groups. It also includes the impact of asset/liability
strategies the Company has put in place to manage the sensitivity of
net interest spreads.
Net income for the Other category in first quarter of 1996 increased
$22 million, or 96%. The increase was due to the write-down of first
mortgages booked in the first quarter of 1995 and a higher loan loss
provision credit. Net interest income decreased predominantly due to
lower investment securities and lower first mortgage balances, of which
a major portion was offset by lower funding costs and higher hedging
income. Tax expense was higher due to the reduction in 1995 tax
expense related to the settlement with the Internal Revenue Service of
certain audit issues pertaining to auto leases.
14
<PAGE>
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $676 million in
the first quarter of 1996, compared with $665 million in the first
quarter of 1995. The Company's net interest margin was 6.18% for the
first quarter of 1996, compared with 5.59% for the first quarter of
1995.
The increase in the margin reflected a change in the mix of average
earning assets, including reduced levels of lower-yielding securities
and single family loans, partially offset by increased rates on
consumer deposits.
Interest income included hedging income of $10 million in the first
quarter of 1996, compared with $1 million in the first quarter of 1995.
Interest expense included hedging income of $1 million in the same
quarters of 1996 and 1995.
Individual components of net interest income and net interest margin
are presented in the rate/yield table on page 16.
Loans averaged $35.0 billion in the first quarter of 1996, a 4%
decrease from $36.3 billion in the first quarter of 1995. The
decrease was substantially in real estate 1-4 family first mortgage
loans due to the Company's decision at year-end 1994 to cease the
origination of first mortgages. A major portion of this decrease was
offset by a $1.3 billion increase in commercial loans, primarily
due to increased small business loans resulting from ongoing marketing
efforts.
Investment securities averaged $8.7 billion during the first quarter
of 1996, a 22% decrease from $11.1 billion in the first quarter of
1995. The decrease was due to the maturity of investment securities.
Cash received from future maturities of investment securities is
expected to be used to fund loan growth.
Average core deposits were $36.8 billion and $36.7 billion in the
first quarters of 1996 and 1995, respectively, and funded 75% and 70%
of the Company's average total assets in the same quarters of 1996 and
1995, respectively.
15
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Quarter ended March 31,
-------------------------------------------------------------------
1996 1995
-------------------------------------------------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
(in millions) BALANCE RATES EXPENSE balance rates expense
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS (3)
Federal funds sold and
securities purchased
under resale agreements $ 125 5.68% $ 2 $ 48 5.58% $ 1
Investment securities:
At fair value (4):
U.S. Treasury securities 1,356 5.52 18 385 6.69 6
Securities of U.S. government
agencies and corporations 4,991 5.95 75 1,211 5.75 18
Private collateralized mortgage
obligations 2,078 6.05 31 1,090 6.35 20
Other securities 225 7.70 4 65 14.56 1
------- ------ ------- ------
Total investment securities
at fair value 8,650 5.95 128 2,751 6.24 45
At cost:
U.S. Treasury securities -- -- -- 1,647 4.83 20
Securities of U.S. government
agencies and corporations -- -- -- 5,234 6.03 78
Private collateralized mortgage
obligations -- -- -- 1,285 5.92 19
Other securities -- -- -- 164 6.67 3
------- ------ ------- ------
Total investment securities at
cost -- -- -- 8,330 5.79 120
------- ------ ------- ------
Total investment securities 8,650 5.95 128 11,081 5.90 165
Loans:
Commercial 9,308 9.96 231 8,055 9.77 194
Real estate 1-4 family first
mortgage 4,400 7.56 83 9,042 7.12 161
Other real estate mortgage 8,197 9.23 188 8,123 9.59 192
Real estate construction 1,327 9.98 33 1,019 10.17 26
Consumer:
Real estate 1-4 family junior
lien mortgage 3,334 8.50 71 3,323 8.65 72
Credit card 3,933 15.56 153 3,125 15.78 123
Other revolving credit and
monthly payment 2,598 11.19 71 2,268 10.42 59
------- ------ ------- ------
Total consumer 9,865 12.02 295 8,716 11.67 254
Lease financing 1,897 9.20 44 1,351 9.17 31
Foreign 31 6.96 1 28 -- --
------- ------ ------- ------
Total loans 35,025 10.03 875 36,334 9.51 858
Other 69 6.34 1 58 5.60 1
------- ------ ------- ------
Total earning assets $43,869 9.21 1,006 $47,521 8.65 1,025
------- ------ ------- ------
------- -------
FUNDING SOURCES
Interest-bearing liabilities:
Deposits:
Interest-bearing checking (5) $ 856 .99 2 $4,365 1.00 11
Market rate and other
savings (5) 17,991 2.52 113 16,121 2.56 101
Savings certificates 8,636 5.24 113 7,346 4.89 89
Other time deposits 341 7.26 6 358 2.45 2
Deposits in foreign offices 524 5.42 7 2,665 5.87 39
------- ------ ------- ------
Total interest-bearing
deposits 28,348 3.41 241 30,855 3.18 242
Federal funds purchased and
securities sold under repurchase
agreements 2,706 5.36 36 3,887 5.82 56
Commercial paper and other
short-term borrowings 405 5.27 5 687 5.89 10
Senior debt 1,710 6.26 26 1,640 6.93 28
Subordinated debt 1,266 6.85 22 1,469 6.60 24
------- ------ ------- ------
Total interest-bearing
liabilities 34,435 3.86 330 38,538 3.78 360
Portion of noninterest-bearing
funding sources 9,434 -- -- 8,983 -- --
------- ------ ------- ------
Total funding sources $43,869 3.03 330 $47,521 3.06 360
------- ------ ------- ------
------- -------
NET INTEREST MARGIN AND NET
INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (6) 6.18% $ 676 5.59% $ 665
----- ------ ----- ------
----- ------ ----- ------
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 2,873 $ 2,587
Other 2,392 2,282
------- -------
Total noninterest-earning
assets $ 5,265 $ 4,869
------- -------
------- -------
NONINTEREST-BEARING FUNDING
SOURCES
Deposits $ 9,336 $ 8,867
Other liabilities 1,277 1,141
Preferred stockholders' equity 489 489
Common stockholders' equity 3,597 3,355
Noninterest-bearing funding
sources used to fund earning
assets (9,434) (8,983)
------- -------
Net noninterest-bearing
funding sources $ 5,265 $ 4,869
------- -------
------- -------
TOTAL ASSETS $49,134 $52,390
------- -------
------- -------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of Wells Fargo Bank was 8.33% and 8.83%
for the quarters ended March 31, 1996 and 1995, respectively.
The average three-month London Interbank Offered Rate (LIBOR)
was 5.40% and 6.29% for the same quarters, respectively.
(2) Interest rates and amounts include the effects of hedge and
risk management activities associated with the respective
asset and liabilities categories.
(3) There was no average balance or related interest income on
Mortgage Loans Held for Sale as they were reclassified from
Loans on March 31, 1995 and subsequently sold by year-end
1995.
(4) Yields are based on amortized cost balances. The average
amortized cost balances for investment securities at fair
value totaled $8,614 million and $2,880 million for the
quarters ended March 31, 1996 and 1995, respectively.
(5) Due to the limited transaction activity on existing NOW
(negotiable order withdrawal) account customers, $3.4 billion
of interest-bearing checking deposits at December 31, 1995
was reclassified to market rate and other savings deposits.
(6) 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 the quarters ended March 31,
1996 and 1995.
16
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Quarter
ended March 31,
--------------- %
(in millions) 1996 1995 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges on deposit accounts $122 $118 3%
Fees and commissions:
Credit card membership and other credit card fees 26 19 37
Charges and fees on loans 17 11 55
Debit and credit card merchant fees 15 14 7
Shared ATM network fees 13 12 8
Mutual fund and annuity sales fees 8 10 (20)
All other 39 35 11
---- ----
Total fees and commissions 118 101 17
Trust and investment services income:
Asset management and custody fees 35 31 13
Mutual fund management fees 21 14 50
All other 3 10 (70)
---- ----
Total trust and investment services income 59 55 7
Investment securities gains (losses) -- (15) 100
Income from equity investments accounted for
by the:
Cost method 35 19 84
Equity method 2 8 (75)
Check printing charges 9 11 (18)
Gains (losses) from dispositions of operations 5 (1) --
Gains (losses) on sales of loans 4 (67) --
All other -- 13 (100)
---- ----
Total $354 $242 46%
---- ---- ---
---- ---- ---
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The overall increase in noninterest income reflected a broad-based increase in
revenue from the Company's core products and services.
The increase in credit card membership and other credit card fees for the first
quarter of 1996 compared with the same period of 1995 was predominantly due to
late fees and other transaction fees incurred by customers.
"All other" fees and commissions include mortgage loan servicing fees and the
related amortization expense for purchased mortgage servicing rights. Mortgage
loan servicing fees totaled $16 million and $10 million for the first quarter of
1996 and 1995, respectively. The related amortization expense was $11 million
and $6 million for the same periods, respectively. The balance of purchased
mortgage servicing rights was $170 million and $127 million at March 31, 1996
and 1995, respectively. The purchased mortgage loan servicing portfolio totaled
$16 billion at March 31, 1996, compared with $11 billion at March 31, 1995.
The increase in trust and investment services income for the first quarter ended
March 31, 1996 was primarily due to greater mutual fund investment management
fees, reflecting the overall growth in the fund families' net assets. The
Company managed 16 of the Stagecoach family of funds consisting of $7.5 billion
of assets at March 31, 1996, compared with 28 funds
17
<PAGE>
consisting of $7.6 billion at March 31, 1995. For the first quarter of 1995,
the Stagecoach family consisted of both retail and institutional funds. The
retail funds are primarily distributed through the branch network. The
institutional funds were offered primarily to selected groups of investors
and certain corporations, partnerships and other business entities. As a
result of the sale of the Company's joint venture interest in WFNIA and the
sale of the MasterWorks division at year-end 1995, $.5 billion of the retail
funds and all the institutional funds were no longer under the Company's
management at March 31, 1996. The Overland Express family of 12 funds, which
is sold nationwide through brokers, had $3.9 billion of assets under
management at March 31, 1996, compared with 12 funds consisting of $3.1
billion at March 31, 1995. In addition to managing Overland Express Funds
and the funds in the Stagecoach family, the Company also managed or
maintained personal trust, employee benefit trust and agency assets of
approximately $52.2 billion at March 31, 1996, compared with $48.9 billion at
March 31, 1995.
The Company's joint venture interest in WFNIA was accounted for as an equity
investment under the equity method in 1995. The income from the equity
investment in WFNIA included in noninterest income was $5 million in the first
quarter of 1995.
For the first quarter of 1996, income from cost method equity investments
reflected both net gains on the sales of and distributions from nonmarketable
equity investments. Income from cost method equity investments in the first
quarter of 1996 reflected a $16 million gain on the sale of an investment.
At December 31, 1995, the Company had a liability of $83 million related to the
disposition of premises and, to a lesser extent, severance and miscellaneous
expenses associated with scheduled branch closures. Of this amount, $13 million
represented a third quarter 1995 accrual for the closures of 21 branches
scheduled for March 1996. The remaining amount consisted of a fourth quarter
accrual for the closures of 120 branches which were expected to be completed by
year-end 1996. However, due to the merger with First Interstate, the completion
of the 120 branch closures is expected to be delayed until the first quarter of
1997. The liability associated with branch closures at March 31, 1996 was $74
million. Additional accruals may be made in 1996 for branch closures or
relocations as the Company continues to open more supermarket branches and
banking centers.
In the first quarter of 1995, gains and losses on sales of loans included an
estimated $83 million write-down to the lower of cost or estimated market
resulting from the reclassification of certain types of products within the real
estate 1-4 family first mortgage loan portfolio to mortgage loans held for sale.
This write-down was partially offset by gains on sales of two loans, resulting
from the assumption of the borrowers' loans by third parties.
"All Other" noninterest income in the first quarter of 1995 included
$8 million of interest income recorded as a result of a settlement with the
Internal Revenue Service of certain audit issues pertaining to auto leases for
the years 1987 through 1992.
18
<PAGE>
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Quarter
ended March 31,
--------------- %
(in millions) 1996 1995 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $181 $172 5%
Incentive compensation 32 27 19
Employee benefits 54 53 2
Equipment 55 47 17
Net occupancy 53 53 --
Contract services 42 25 68
Telecommunications 16 13 23
Postage 15 12 25
Operating losses 14 15 (7)
Advertising and promotion 13 14 (7)
Outside professional services 13 10 30
Certain identifiable intangibles 12 14 (14)
Stationery and supplies 10 9 11
Goodwill 9 9 --
Travel and entertainment 9 7 29
Check printing 7 7 --
Security 6 5 20
Escrow and collection agency fees 4 4 --
Outside data processing 3 3 --
Foreclosed assets 2 (4) --
Federal deposit insurance 1 24 (96)
All other 16 18 (11)
---- ----
Total $567 $537 6%
---- ---- ---
---- ---- ---
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The increase in salaries expense in the first quarter of 1996 reflects increased
temporary help expense and higher salary levels. The Company's full-time
equivalent staff, including hourly employees, averaged approximately 19,120 in
the first quarter of 1996, compared with approximately 19,493 in the first
quarter of 1995.
Increases in equipment expense in the first quarter of 1996 compared with the
same quarter of 1995 was substantially due to a higher level of spending on
software and technology for product development and increased depreciation
expense on equipment related to business initiatives and system upgrades.
The increase in contract services for the first quarter 1996 compared with the
same period of 1995 was largely due to new product development and marketing
initiatives.
The decrease in federal deposit insurance for the first quarter 1996 compared
with the same period of 1995 was predominantly due to the FDIC's reduction of
deposit insurance premiums. Effective January 1, 1996, the best-rated
institutions insured by the Bank Insurance Fund pay the statutory minimum annual
assessment of $2,000.
19
<PAGE>
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 (FAS 123), Accounting for
Stock-Based Compensation. This Statement establishes a new fair value based
accounting method for stock-based compensation plans and encourages (but does
not require) employers to adopt the new method in place of the provisions of
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued
to Employees. In accordance with FAS 123, the Company has decided to continue
to apply the accounting provisions of APB 25 in determining net income; however,
it will apply the disclosure requirements in the 1996 Annual Report.
INCOME TAXES
The Company's effective tax rate for the first quarter of 1996 was 43%, compared
with 37% for the first quarter of 1995. The increase in the effective tax rate
was due to a $22 million reduction of income tax expense during the first
quarter of 1995 related to the settlement with the Internal Revenue Service of
certain audit issues pertaining to auto leases for the years 1987 through 1992.
20
<PAGE>
BALANCE SHEET ANALYSIS
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
1996 1995 1995
------------------ ------------------ ------------------
ESTIMATED Estimated Estimated
FAIR fair fair
(in millions) COST VALUE Cost value Cost value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
AT FAIR VALUE:
U.S. Treasury securities $1,347 $1,350 $1,347 $1,357 $ 422 $ 421
Securities of U.S. government
agencies and corporations (1) 4,866 4,823 5,218 5,223 1,040 984
Private collateralized mortgage obligations (2) 2,056 2,032 2,121 2,122 996 937
Other 170 180 169 181 25 35
------ ------ ------ ------ ------ ------
Total debt securities 8,439 8,385 8,855 8,883 2,483 2,377
Marketable equity securities 29 50 18 37 16 26
------ ------ ------ ------ ------ ------
Total $8,468 $8,435 $8,873 $8,920 $2,499 $2,403
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
HELD-TO-MATURITY SECURITIES
AT COST:
U.S. Treasury securities $ -- $ -- $ -- $ -- $1,572 $1,543
Securities of U.S. government
agencies and corporations (1) -- -- -- -- 5,163 4,997
Private collateralized mortgage obligations (2) -- -- -- -- 1,275 1,224
Other -- -- -- -- 163 164
------ ------ ------ ------ ------ ------
Total debt securities $ -- $ -- $ -- $ -- $8,173 $7,928
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All securities of U.S. government agencies and corporations are
mortgage-backed securities.
(2) Substantially all private collateralized mortgage obligations (CMOs)
are AAA rated bonds collateralized by 1-4 family residential first
mortgages.
In November 1995, the FASB permitted a one-time opportunity for
companies to reassess by December 31, 1995 their classification of
securities under FAS 115, Accounting for Certain Investments in Debt
and Equity Securities. As a result, on November 30, 1995, the Company
reclassified all of its held-to maturity securities at cost portfolio
of $6.5 billion to the available-for-sale securities at fair value
portfolio in order to provide increased liquidity flexibility to meet
anticipated loan growth.
The available-for-sale portfolio includes both debt and marketable
equity securities. At March 31, 1996, the available-for-sale
securities portfolio had an unrealized net loss of $33 million, or
less than 1% of the cost of the portfolio, comprised of unrealized
gross losses of $95 million and unrealized gross gains of $62 million.
At December 31, 1995, the available-for-sale securities portfolio had
an unrealized net gain of $47 million, comprised of unrealized gross
gains of $88 million and unrealized gross losses of $41 million. At
March 31, 1995, the available-for-sale securities portfolio had an
unrealized net loss of $96 million, comprised of unrealized gross
losses of $124 million and unrealized gross gains of $28 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 March 31, 1996, the valuation allowance
21
<PAGE>
amounted to an unrealized net loss of $20 million, compared with an
unrealized net gain of $26 million at December 31, 1995 and an
unrealized net loss of $55 million at March 31, 1995.
At March 31, 1995, the held-to-maturity securities portfolio had an
estimated unrealized net loss of $245 million (which reflected
estimated unrealized gross gains of $7 million).
The unrealized net loss in the available-for-sale portfolio at March
31, 1996 was primarily due to investments in mortgage-backed
securities. This unrealized net loss reflected current interest rates
that were higher than those at the time the investments were
purchased. The decline in the fair value of the investment securities
portfolio is not considered to be an other-than-temporary impairment.
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).
There were no sales of available-for-sale securities in the first
quarter of 1996. In the first quarter of 1995, the Company sold $397
million of securities of U.S. government agencies and corporations and
$288 million of private collateralized mortgage obligations from the
available-for-sale portfolio for asset/liability management purposes.
These sales resulted in realized losses of $15 million (realized gross
gains were zero).
Cash received from future maturities of investment securities is
expected to be used to fund loan growth.
22
<PAGE>
The following table provides the expected remaining maturities and
yields (taxable-equivalent basis) of debt securities within the
investment portfolio.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
March 31, 1996
-----------------------------------------------------------------------------------------------------------
Expected remaining principal maturity
-----------------------------------------------------------------------------------------------------------
Weighted
average
expected
remaining After one year After five years
Weighted maturity Within one year through five years through ten years After ten years
Total average (in yrs. ---------------- ------------------ ----------------- ----------------
(in millions) amount yield -mos.). Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
SECURITIES (1):
U.S. Treasury
securities $1,347 5.51% 1-1 $ 899 5.14% $448 6.25% $ -- --% $ -- --%
Securities of U.S.
government agencies and
corporations 4,866 6.06 2-3 1,537 5.76 2,831 5.96 433 7.48 65 7.84
Private collateralized
mortgage obligations 2,056 6.29 2-5 550 6.03 1,343 6.24 153 6.63 10 21.38
Other 170 8.72 2-3 50 5.99 118 9.90 -- -- 2 6.37
------ ------ ------ ----- ----
TOTAL COST OF DEBT
SECURITIES $8,439 6.08% 2-1 $3,036 5.63% $4,740 6.17% $ 586 7.26% $ 77 9.56%
------ ---- ---- ------ ---- ------ ---- ----- ---- ---- ----
------ ---- ---- ------ ---- ------ ---- ----- ---- ---- ----
ESTIMATED FAIR VALUE $8,385 $3,019 $4,700 $ 587 $ 79
------ ------ ------ ----- ----
------ ------ ------ ----- ----
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted average yield is computed using the amortized cost of
available-for-sale investment securities carried at fair value.
The weighted average expected remaining maturity of the debt
securities portfolio was 2 years and 1 month at March 31, 1996,
compared with 2 years and 1 month at December 31, 1995 and 2 years and
10 months at March 31, 1995. The short-term debt securities portfolio
serves to maintain asset liquidity and to fund loan growth.
At March 31, 1996, mortgage-backed securities included in Securities
of U.S. government agencies and corporations primarily consisted of
pass-through securities and collateralized mortgage obligations (CMOs)
and substantially all were issued or backed by federal agencies. These
securities, along with the Private CMOs, represented $6,855 million,
or 81% of the Company's investment securities portfolio at March 31,
1996. The CMO securities held by the Company (including the private
issues) are primarily shorter-maturity class bonds that were
structured to have more predictable cash flows by being less sensitive
to prepayments during periods of changing interest rates. As an
indication of interest rate risk, the Company has estimated the impact
of a 200 basis point increase in interest rates on the value of the
mortgage-backed securities and the corresponding expected remaining
maturities. Based on this rate scenario, mortgage-backed securities
would decrease in fair value from $6,855 million to $6,543 million and
the expected remaining maturity of these securities would increase
from 2 years and 3 months to 2 years and 7 months.
23
<PAGE>
LOAN PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
% Change
Mar. 31, 1996 from
-----------------------
MAR. 31, Dec. 31, Mar. 31, Dec. 31, Mar. 31,
(in millions) 1996 1995 1995 1995 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial (1)(2) $ 9,393 $ 9,750 $ 8,348 (4)% 13 %
Real estate 1-4 family first mortgage (3) 4,346 4,448 5,025 (2) (14)
Other real estate mortgage (4) 8,274 8,263 8,078 -- 2
Real estate construction 1,312 1,366 1,036 (4) 27
Consumer:
Real estate 1-4 family junior lien mortgage 3,303 3,358 3,312 (2) --
Credit card 3,928 4,001 3,220 (2) 22
Other revolving credit and monthly payment 2,590 2,576 2,305 1 12
------- ------- -------
Total consumer 9,821 9,935 8,837 (1) 11
Lease financing 1,991 1,789 1,382 11 44
Foreign 30 31 31 (3) (3)
------- ------- -------
Total loans (net of unearned income,
including net deferred loan fees,
of $504, $463 and $375) $35,167 $35,582 $32,737 (1)% 7 %
------- ------- ------- --- ---
------- ------- ------- --- ---
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes loans to real estate developers of $576 million, $700 million and
$519 million at March 31, 1996, December 31, 1995 and March 31, 1995,
respectively.
(2) Includes agricultural loans (loans to finance agricultural production and
other loans to farmers) of $927 million, $1,029 million and $721 million at
March 31, 1996, December 31, 1995 and March 31, 1995, respectively.
(3) Excludes mortgage loans held for sale at March 31, 1995 of $3,940 million,
net of an estimated $83 million write-down to the lower of cost or
estimated market.
(4) Includes agricultural loans that are secured by real estate of $252
million, $250 million and $256 million at March 31, 1996, December 31, 1995
and March 31, 1995, respectively.
The increase in the credit card loan portfolio for the first quarter of 1996 as
compared to the same period of 1995 was due to new accounts resulting from
nationwide direct mail campaigns, originations in retail outlets and increased
loan balances from the Company's existing cardholders.
The table below presents comparative period-end commercial real estate loans.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
% Change
Mar. 31, 1996 from
----------------------
MAR. 31, Dec. 31, Mar. 31, Dec. 31, Mar. 31,
(in millions) 1996 1995 1995 1995 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans to
real estate developers (1) $ 576 $ 700 $ 519 (18)% 11 %
Other real estate mortgage 8,274 8,263 8,078 -- 2
Real estate construction 1,312 1,366 1,036 (4) 27
------- ------- ------
Total $10,162 $10,329 $9,633 (2)% 5 %
------- ------- ------ --- ---
------- ------- ------ --- ---
Nonaccrual loans $ 349 $ 371 $ 429 (6)% (19)%
------- ------- ------ --- ---
------- ------- ------ --- ---
Nonaccrual loans as a % of total 3.4% 3.6% 4.5%
------- ------- ------
------- ------- ------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in commercial loans.
24
<PAGE>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
(in millions) 1996 1995 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial (2)(3) $ 120 $ 112 $ 79
Real estate 1-4 family first mortgage 61 64 71
Other real estate mortgage (4) 289 307 324
Real estate construction 44 46 77
Consumer:
Real estate 1-4 family junior lien mortgage 11 8 12
Other revolving credit and monthly payment -- 1 3
----- ----- -----
Total nonaccrual loans (5) 525 538 566
Restructured loans (6) 12 14 15
----- ----- -----
Nonaccrual and restructured loans 537 552 581
As a percentage of total loans (7) 1.5% 1.6% 1.8%
Foreclosed assets (8) 198 186 273
Real estate investments (9) 7 12 17
----- ----- -----
Total nonaccrual and restructured loans
and other assets $ 742 $ 750 $ 871
----- ----- -----
----- ----- -----
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Excludes loans that are contractually past due 90 days or more as to
interest or principal, but are both well-secured and in the process of
collection or are real estate 1-4 family first mortgage loans or consumer
loans that are exempt under regulatory rules from being classified as
nonaccrual.
(2) Includes loans to real estate developers of $16 million, $18 million and
$28 million at March 31, 1996, December 31, 1995 and March 31, 1995,
respectively.
(3) Includes agricultural loans of $6 million or less for all periods
presented.
(4) Includes agricultural loans secured by real estate of $3 million or less
for all periods presented.
(5) Of the total nonaccrual loans, $392 million, $408 million and $442 million
at March 31, 1996, December 31, 1995 and March 31, 1995, respectively, were
considered impaired under FAS 114 (Accounting by Creditors for Impairment
of a Loan).
(6) In addition to originated loans that were subsequently restructured, there
were loans of $50 million, $50 million and none at March 31, 1996, December
31, 1995 and March 31, 1995, respectively, that were purchased at a steep
discount whose contractual terms were modified after acquisition. The
modified terms did not affect the book balance nor the yields expected at
the date of purchase. Of the total restructured loans and loans purchased
at a steep discount, $50 million, $50 million and none were considered
impaired under FAS 114 at March 31, 1996, December 31, 1995 and March 31,
1995.
(7) Total loans exclude mortgage loans held for sale at March 31, 1995.
(8) Includes agricultural properties of $23 million or less for all periods
presented.
(9) 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 $115 million, $95
million and $64 million at March 31, 1996, December 31, 1995 and March 31,
1995, respectively.
25
<PAGE>
The table below summarizes the changes in total nonaccrual loans.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
(in millions) 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $538 $586 $567
New loans placed on nonaccrual 113 106 127
Loans purchased -- -- 13
Charge-offs (9) (27) (28)
Payments (54) (71) (55)
Transfers to foreclosed assets (30) (22) (36)
Loans returned to accrual (33) (34) (24)
Other additions -- -- 2
---- ---- ----
BALANCE, END OF QUARTER $525 $538 $566
---- ---- ----
---- ---- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The table below summarizes the changes in nonaccrual loans by loan category
for the quarters ended March 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Real estate
1-4 family Other real
first estate Real estate
(in millions) Commercial mortgage mortgage construction Consumer Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED MARCH 31, 1996
BALANCE, BEGINNING OF QUARTER $112 $ 64 $307 $ 46 $ 9 $538
New loans placed on nonaccrual (1) (2) 30 27 51 -- 5 113
Charge-offs (6) (1) (1) (1) -- (9)
Payments:
Principal (11) (4) (27) (1) (2) (45)
Interest applied to principal (3) -- (6) -- -- (9)
Transfers to foreclosed assets -- (15) (14) -- (1) (30)
Loans returned to accrual (2) (10) (21) -- -- (33)
---- ---- ---- ---- --- ----
BALANCE, END OF QUARTER $120 $ 61 $289 $ 44 $11 $525
---- ---- ---- ---- --- ----
---- ---- ---- ---- --- ----
QUARTER ENDED DECEMBER 31, 1995
Balance, beginning of quarter $128 $ 56 $335 $ 55 $12 $586
New loans placed on nonaccrual (1) (2) 35 28 41 -- 2 106
Charge-offs (18) (1) (2) (6) -- (27)
Payments:
Principal (29) (4) (22) (3) (3) (61)
Interest applied to principal (3) -- (7) -- -- (10)
Transfers to foreclosed assets -- (9) (12) -- (1) (22)
Loans returned to accrual (1) (6) (26) -- (1) (34)
---- ---- ---- ---- --- ----
Balance, end of quarter $112 $ 64 $307 $ 46 $ 9 $538
---- ---- ---- ---- --- ----
---- ---- ---- ---- --- ----
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No commercial loan placed on nonaccrual status during the first quarter of
1996 and fourth quarter of 1995 exceeded $13 million.
(2) Of the other real estate mortgage loans placed on nonaccrual status in the
first quarter of 1996, $45 million related to a single loan located in
Southern California. For the fourth quarter of 1995, no other real estate
mortgage loan placed on nonaccrual status exceeded $13 million.
26
<PAGE>
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 accounting treatment of certain impaired loans and amend FASB
Statement Nos. 5 and 15. However, these Statements do not address the overall
adequacy of the allowance for loan losses and do not apply to large groups of
smaller-balance homogeneous loans, such as most consumer, real estate 1-4 family
first mortgage and small business loans, unless they have been involved in a
restructuring.
The adoption of FAS 114 has not affected the Company's policy for placing loans
on nonaccrual status. The Company generally identifies loans to be evaluated
for impairment when such loans are on nonaccrual or have been restructured.
However, not all nonaccrual loans are impaired. Generally, a loan is placed on
nonaccrual status upon becoming 90 days past due as to interest or principal
(unless both well-secured and in the process of collection), when the full
timely collection of interest or principal becomes uncertain or when a portion
of the principal balance has been charged off. Real estate 1-4 family loans
(both first liens and junior liens) are placed on nonaccrual status within 150
days of becoming past due as to interest or principal, regardless of security.
In contrast, under FAS 114, loans are considered impaired when it is probable
that the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement, including scheduled interest payments.
For a loan that has been restructured, the contractual terms of the loan
agreement refer to the contractual terms specified by the original loan
agreement, not the contractual terms specified by the restructuring agreement.
Not all impaired loans are necessarily placed on nonaccrual status. That is,
restructured loans performing under restructured terms beyond a specified
performance period are classified as accruing but may still be deemed impaired
under FAS 114.
For loans covered by this Statement, the Company makes an assessment for
impairment when and while such loans are on nonaccrual, or the loan has been
restructured. When a loan 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 cases, the current fair value of the
collateral, reduced by costs to sell, will be used in place of discounted cash
flows. Additionally, some impaired loans with commitments of less than $1
million are 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 is recognized by creating or
adjusting an existing allocation of the allowance for loan losses. FAS 114 does
not change the timing of charge-offs of loans to reflect the amount ultimately
expected to be collected.
27
<PAGE>
The table below shows the recorded investment in impaired loans by loan category
at March 31, 1996, December 31, 1995 and March 31, 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(in millions) 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 81 $ 77 $ 56
Real estate 1-4 family first mortgage 3 2 7
Other real estate mortgage (1) 314 330 299
Real estate construction 44 46 77
Other -- 3 3
----- ----- -----
Total (2) $ 442 $ 458 $ 442
----- ----- -----
----- ----- -----
Impairment measurement based on:
Collateral value method $ 355 $ 374 $ 314
Discounted cash flow method 70 66 106
Historical loss factors 17 18 22
----- ----- -----
$ 442 $ 458 $ 442
----- ----- -----
----- ----- -----
Average recorded investment $ 439 $ 446 $ 432
Interest income recognized (3) $ 4 $ 2 $ 4
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Includes accruing loans of $50 million, $50 million and none purchased at a
steep discount at March 31, 1996, December 31, 1995 and March 31, 1995,
respectively, whose contractual terms were modified after acquisition. The
modified terms did not affect the book balance nor the yields expected at
the date of purchase.
(2) Includes $21 million, $22 million and $23 million of impaired loans with a
related FAS 114 allowance of $2 million, $3 million and $4 million at March
31, 1996, December 31, 1995 and March 31, 1995, respectively.
(3) Interest income recognized was primarily recorded using the cash method.
The Company uses either the cash or cost recovery method to record cash receipts
on impaired loans that are on nonaccrual. Under the cash method, contractual
interest is credited to interest income when received. This method is used when
the ultimate collectibility of the total principal is not in doubt. Under the
cost recovery method, all payments received are applied to principal. This
method is used when the ultimate collectibility of the total principal is in
doubt. Loans on the cost recovery method may be changed to the cash method when
the application of the cash payments has reduced the principal balance to a
level where collection of the remaining recorded investment is no longer in
doubt.
The Company anticipates normal influxes of nonaccrual loans as it further
increases its lending activity as well as resolutions of loans in the nonaccrual
portfolio. The performance of any individual loan can be impacted by external
factors, such as the interest rate environment or factors particular to a
borrower such as actions taken by a borrower's management. In addition, from
time to time, the Company purchases loans from other financial institutions that
may be classified as nonaccrual based on its policies.
28
<PAGE>
The table below summarizes the changes in foreclosed assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
(in millions) 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $186 $214 $272
Additions 35 24 42
Sales (18) (49) (29)
Charge-offs (3) (2) (2)
Write-downs (1) (1) (3)
Other deductions (1) -- (7)
---- ---- ----
BALANCE, END OF QUARTER $198 $186 $273
---- ---- ----
---- ---- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Approximately 75% of the foreclosed assets at March 31, 1996 have been in the
Company's portfolio three years or less.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
The following table shows loans contractually past due 90 days or more as to
interest or principal, but not included in the nonaccrual or restructured
categories. All loans in this category are both well-secured and in the process
of collection or are real estate 1-4 family first mortgage loans or consumer
loans that are exempt under regulatory rules from being classified as nonaccrual
because they are automatically charged off after being past due for a prescribed
period (generally, 180 days). Notwithstanding, real estate 1-4 family loans
(first liens and junior liens) are placed on nonaccrual within 150 days of
becoming past due and are excluded from the following table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
MAR. 31, Dec. 31, Mar. 31,
(in millions) 1996 1995 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 10 $ 12 $9
Real estate 1-4 family first mortgage 8 8 14
Other real estate mortgage 3 24 58
Real estate construction -- -- 1
Consumer:
Real estate 1-4 family junior lien mortgage 3 4 4
Credit card 97 95 46
Other revolving credit and monthly payment 1 1 --
---- ---- ----
Total consumer 101 100 50
---- ---- ----
Total $122 $144 $132
---- ---- ----
---- ---- ----
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Quarter ended
--------------------------------
MARCH 31, Dec. 31, March 31,
(in millions) 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF QUARTER $1,794 $1,872 $2,082
Loan charge-offs:
Commercial (1) (13) (23) (7)
Real estate 1-4 family first mortgage (4) (3) (3)
Other real estate mortgage (3) (3) (22)
Real estate construction (1) (5) (2)
Consumer:
Real estate 1-4 family junior lien mortgage (4) (4) (3)
Credit card (86) (69) (38)
Other revolving credit and monthly payment (20) (17) (10)
------ ------ ------
Total consumer (110) (90) (51)
Lease financing (6) (4) (4)
------ ------ ------
Total loan charge-offs (137) (128) (89)
------ ------ ------
Loan recoveries:
Commercial (2) 5 7 9
Real estate 1-4 family first mortgage 3 -- 1
Other real estate mortgage 4 33 6
Real estate construction 1 -- --
Consumer:
Real estate 1-4 family junior lien mortgage 1 1 1
Credit card 5 3 3
Other revolving credit and monthly payment 3 5 2
------ ------ ------
Total consumer 9 9 6
Lease financing 2 1 2
------ ------ ------
Total loan recoveries 24 50 24
------ ------ ------
Total net loan charge-offs (113) (78) (65)
------ ------ ------
BALANCE, END OF QUARTER $1,681 $1,794 $2,017
------ ------ ------
------ ------ ------
Total net loan charge-offs as a percentage
of average loans (annualized) (3) 1.30% .90% .72%
------ ------ ------
------ ------ ------
Allowance as a percentage of total loans (3) 4.78% 5.04% 6.16%
------ ------ ------
------ ------ ------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) There were no charge-offs of loans to real estate developers for all
periods presented.
(2) Includes recoveries from loans to real estate developers of $1 million, $1
million and none in the quarters ended March 31, 1996, December 31, 1995
and March 31, 1995, respectively.
(3) Average and total loans exclude first mortgage loans that were reclassified
to a held-for-sale category on March 31, 1995 and subsequently sold by
year-end 1995.
30
<PAGE>
The table below presents net charge-offs by loan category.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Quarter ended
---------------------------------------------------------
MARCH 31, 1996 December 31, 1995 March 31, 1995
--------------- ----------------- ----------------
% OF % of % of
AVERAGE average average
(in millions) AMOUNT LOANS(1) Amount loans(1) Amount loans(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 8 .34% $ 16 .66% $ (2) (.12)%
Real estate 1-4 family first mortgage 1 .10 3 .27 2 .10
Other real estate mortgage (1) (.05) (30) (1.52) 16 .82
Real estate construction -- -- 5 1.59 2 .90
Consumer:
Real estate 1-4 family junior lien mortgage 3 .41 3 .41 2 .26
Credit card 81 8.25 66 6.63 35 4.52
Other revolving credit and monthly payment 17 2.64 12 2.15 8 1.40
---- ---- ----
Total consumer 101 4.12 81 3.33 45 2.08
Lease financing 4 .93 3 .73 2 .43
---- ---- ----
Total net loan charge-offs $113 1.30% $ 78 .90% $ 65 .72%
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated on an annualized basis.
The largest category of net charge-offs in the first quarter of
1996 was credit card loans, comprising more than 70% of total net
charge-offs. During the first half of 1995, the Company grew its
credit card loan portfolio through nationwide direct mail
campaigns as well as through retail outlets. The objective of
the direct mail campaigns was higher yielding loans to higher-
risk cardholders. As these loans continue to mature, the total
amount of credit card charge-offs and the percentage of net
charge-offs to average credit card loans is expected to continue
at a level higher than experienced in the past. The Company
continuously evaluates and monitors its selection criteria for
direct mail campaigns and other account acquisition methods to
accomplish the desired risk/customer mix within the credit card
portfolio.
The Company considers the allowance for loan losses of $1,681 million
adequate to cover losses inherent in loans, loan commitments and
standby letters of credit at March 31, 1996. The Company's
determination of the level of the allowance and, correspondingly, the
provision for loan losses rests upon various judgments and
assumptions, including general (particularly California) economic
conditions, loan portfolio composition, prior loan loss experience and
the Company's ongoing examination process and that of its
regulators. There was no provision for loan losses in the first
quarter of 1996 or during 1995. However, as loan growth continues,
the Company anticipates that it will resume making a provision in the
latter part of 1996.
31
<PAGE>
OTHER ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(in millions) 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net deferred tax asset (1) $ 879 $ 854 $1,002
Nonmarketable equity investments 424 428 400
Certain identifiable intangible assets 392 386 404
Foreclosed assets 198 186 273
Other 767 552 572
------ ------ ------
Total other assets $2,660 $2,406 $2,651
------ ------ ------
------ ------ ------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Net of a valuation allowance of none, none and $2 million at March 31,
1996, December 31, 1995 and March 31, 1995, respectively.
The Company estimates that approximately $764 million of the $879 million net
deferred tax asset at March 31, 1996 could be realized by the recovery of
previously paid federal taxes; however, the Company expects to actually realize
the federal net deferred tax asset by claiming deductions against future taxable
income. The balance of approximately $115 million relates to approximately
$1.7 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
$1.3 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.
On October 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 122 (FAS 122), Accounting for Mortgage Servicing Rights. This
Statement amends FAS 65, Accounting for Certain Mortgage Banking Activities, to
require that, for mortgage loans originated for sale with servicing rights
retained, the right to service those loans be recognized as a separate asset,
similar to purchased mortgage servicing rights. This Statement also requires
that capitalized mortgage servicing rights be assessed for impairment based on
the fair value of those rights. Mortgage servicing rights purchased during
first quarter 1996, fourth quarter 1995 and first quarter 1995 were $25 million,
$7 million and $37 million, respectively, and no originated mortgage servicing
rights were capitalized during the same periods. Purchased mortgage servicing
rights are amortized in proportion to and over the period of estimated net
servicing income. Amortization expense, recorded in noninterest income, totaled
$11 million, $11 million and $6 million for the quarters ended March 31, 1996,
December 31, 1995 and March 31, 1995, respectively. Purchased mortgage
servicing rights included in certain identifiable intangible assets were $170
million, $152 million and $127 million at March 31, 1996, December 31, 1995 and
March 31, 1995, respectively.
Other identifiable intangible assets are generally amortized using an
accelerated method, which is based on estimated useful lives ranging from 5 to
15 years. Amortization expense was $24 million, $25 million and $21 million for
the quarters ended March 31, 1996, December 31, 1995 and March 31, 1995,
respectively.
32
<PAGE>
DEPOSITS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(in millions) 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $ 9,740 $ 10,391 $ 9,431
Interest-bearing checking (1) 745 887 4,372
Market rate and other savings (1) 18,260 17,944 15,584
Savings certificates 8,669 8,636 7,588
-------- -------- --------
Core deposits 37,414 37,858 36,975
Other time deposits 245 248 262
Deposits in foreign offices (2) 147 876 1,760
-------- -------- --------
Total deposits $ 37,806 $ 38,982 $ 38,997
-------- -------- --------
-------- -------- --------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Due to the limited transaction activity of existing NOW (negotiable
order of withdrawal) account customers, $3.4 billion of interest-bearing
checking deposits at December 31, 1995 was reclassified to market rate
and other savings deposits.
(2) Short-term (under 90 days) interest-bearing deposits used to fund short-
term borrowing needs.
CAPITAL ADEQUACY/RATIOS
Risk-based capital (RBC) guidelines issued by the Federal Reserve Board (FRB)
establish a risk-adjusted ratio relating capital to different categories of
assets and off-balance sheet exposures. The Company's Tier 1 and Tier 2 capital
components are presented on the following page. The guidelines require a
minimum total RBC ratio of 8%, with at least half of the total capital in the
form of Tier 1 capital. To supplement the RBC guidelines, the FRB established a
minimum leverage ratio guideline of 3% of Tier 1 capital to average total
assets.
The increase in the Company's RBC and leverage ratios at March 31, 1996
compared with December 31, 1995 and March 31, 1995 resulted from an increase in
retained earnings and from the cessation of the common stock repurchase program
after the October 1995 announcement of the proposed merger with First Interstate
Bancorp. Common stock repurchases for the first and fourth quarters of 1995
were 2.1 million shares and .5 million shares, respectively. The program
resumed in late March.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a "well
capitalized" bank must have a Tier 1 RBC ratio of at least 6%, a combined Tier 1
and Tier 2 ratio of at least 10% and a leverage ratio of at least 5%. At March
31, 1996, the Bank had a Tier 1 RBC ratio of 10.13%, a combined Tier 1 and
Tier 2 ratio of 13.24% and a leverage ratio of 7.83%.
33
<PAGE>
The table below presents the Company's risk-based capital and leverage ratios.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(in billions) 1996 1995 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1:
Common stockholders' equity $ 3.7 $ 3.6 $ 3.4
Preferred stock .5 .5 .5
Less goodwill and other deductions (1) (.3) (.5) (.5)
------- ------- -------
Total Tier 1 capital 3.9 3.6 3.4
------- ------- -------
Tier 2:
Mandatory convertible debt -- -- .1
Subordinated debt and unsecured senior debt 1.0 1.0 1.0
Allowance for loan losses allowable in Tier 2 .5 .5 .5
------- ------- -------
Total Tier 2 capital 1.5 1.5 1.6
------- ------- -------
Total risk-based capital $ 5.4 $ 5.1 $ 5.0
------- ------- -------
------- ------- -------
Risk-weighted balance sheet assets $ 38.9 $ 39.2 $ 38.4
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans 2.8 2.7 2.0
Standby letters of credit .6 .7 .6
Other .3 .4 .4
------- ------- -------
Total risk-weighted off-balance sheet items 3.7 3.8 3.0
------- ------- -------
Goodwill and other deductions (1) (.4) (.5) (.5)
Allowance for loan losses not included in Tier 2 (1.2) (1.3) (1.5)
------- ------- -------
Total risk-weighted assets $ 41.0 $ 41.2 $ 39.4
------- ------- -------
------- ------- -------
Risk-based capital ratios:
Tier 1 capital (4% minimum requirement) 9.40% 8.81% 8.73%
Total capital (8% minimum requirement) 13.04 12.46 12.78
Leverage ratio (3% minimum requirement) (2) 7.91% 7.46% 6.61%
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
(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).
34
<PAGE>
ASSET/LIABILITY MANAGEMENT
As is typical in the banking industry, most of the Company's assets and
liabilities are sensitive to fluctuation in interest rates. Accordingly, an
essential objective of asset/liability management is to control interest rate
risk.
Interest rate risk occurs when assets and liabilities reprice at different times
as interest rates change. For example, if fixed-rate assets are funded with
floating-rate debt, the spread between the two will decline or turn negative if
rates increase. The Company refers to this type of risk as "term structure
risk." Another source of interest rate risk, "basis risk," results from
changing spreads between loan and deposit rates. More difficult to quantify and
manage, this type of risk is not highly correlated to changes in the level of
interest rates, and is driven by other market conditions.
The Company employs various asset/liability strategies, including the use of
interest rate derivative products, to ensure that exposure to interest rate
fluctuations is limited within Company guidelines of acceptable levels of risk-
taking. The Company uses interest rate derivatives as an asset/liability
management tool to hedge mismatches in interest rate maturities. For example,
futures are used to shorten the rate maturity of market rate savings to better
match the maturity of prime-based loans.
One way to measure the impact that future changes in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. Generally, a liability sensitive gap indicates that there would be a
negative impact on the net interest margin from an increasing rate environment.
At March 31, 1996, the under-one-year cumulative gap was a $258 million
(0.5% of total assets) net liability position, compared with a net liability
position of $394 million (0.8% of total assets) at December 31, 1995. The
decrease in the net liability position was largely due to a decrease in foreign
deposits and short-term borrowings, a major portion of which was offset by an
increase in market rate savings deposits and a decrease in commercial loans.
Two adjustments to the cumulative gap provide comparability with those bank
holding companies that present interest rate sensitivity in an alternative
manner. However, management does not believe that these adjustments depict its
interest rate risk. The first adjustment excludes noninterest-earning assets,
noninterest-bearing liabilities and stockholders' equity from the reported
cumulative gap. The second adjustment moves interest-bearing checking, savings
deposits and Wells Extra Savings (included in market rate savings) from the
nonmarket category to the shortest possible maturity category. The second
adjustment reflects the availability of the deposits for immediate withdrawal.
The resulting adjusted under-one-year cumulative gap (net liability position)
was $4.7 billion and $8.7 billion at March 31, 1996 and December 31, 1995,
respectively.
The gap analysis provides a useful framework to measure the term structure risk.
To more fully explore the complex relationships within the gap over time and
interest rate environments, the
35
<PAGE>
Company performs simulation modeling to estimate the potential effects of
changing interest rates.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into a variety of financial contracts, which include interest
rate futures and forward contracts, interest rate floors and caps and interest
rate swap agreements. The contract or notional amounts of interest rate
derivatives do not represent amounts exchanged by the parties and therefore are
not a measure of exposure through the use of derivatives. The amounts exchanged
are determined by reference to the notional amounts and the other terms of the
derivatives. The contract or notional amounts do not represent exposure to
liquidity risk. The Company is not a dealer in these instruments and does not
use them speculatively. The Company offers contracts to its customers, but
hedges such contracts by purchasing other financial contracts or uses the
contracts for asset/liability management. The contracts that are used primarily
to hedge mismatches in interest rate maturities serve to reduce rather than
increase the Company's exposure to movements in interest rates.
The Company also enters into foreign exchange positions, such as forward, spot
and option contracts, primarily as customer accommodations.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The Company controls the credit
risk of its financial contracts (except futures contracts, interest rate cap
contracts written and foreign exchange option 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.
36
<PAGE>
The following table summarizes the aggregate notional or contractual
amounts, credit risk amount and net fair value for the Company's derivative
financial instruments at March 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
MARCH 31, 1996 December 31, 1995
----------------------------------------- -----------------------------------------
NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated
CONTRACTUAL RISK FAIR contractual risk fair
(in millions) AMOUNT AMOUNT (3) VALUE amount amount (3) value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT HEDGES
Interest rate contracts:
Futures contracts $ 5,475 $ -- $ -- $ 5,372 $ -- $ --
Floors purchased (1) 15,324 87 87 15,522 206 206
Caps purchased (1) 486 3 3 391 1 1
Swap contracts (1) 6,481 85 57 6,314 185 175
Foreign exchange contracts:
Forward contracts (1) 25 -- -- 25 -- --
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Futures contracts 13 -- -- 23 -- --
Floors written 156 -- (1) 105 -- (1)
Caps written 1,518 -- (7) 1,170 -- (4)
Floors purchased (1) 156 1 1 105 1 1
Caps purchased (1) 1,506 7 7 1,139 4 4
Swap contracts (1) 1,681 10 1 1,518 5 1
Foreign exchange contracts: (2)
Forward and spot contracts (1) 1,057 8 1 909 10 1
Option contracts purchased (1) 32 -- -- 29 -- --
Option contracts written 25 -- -- 23 -- --
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company anticipates performance by substantially all of the
counterparties for these financial instruments.
(2) The Company has immaterial trading positions in these contracts.
(3) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.
LIQUIDITY MANAGEMENT
Liquidity for the Parent Company and its subsidiaries is generated
through its ability to raise funds in a variety of domestic and
international money and capital markets, and through dividends from
subsidiaries and lines of credit. A shelf registration statement
filed in 1995 with the Securities and Exchange Commission allows the
issuance of up to $2.3 billion of senior or subordinated debt or
preferred stock. The proceeds from the sale of any securities will be
used for general corporate purposes. At March 31, 1996, $1.8 billion
of securities remained unissued. In April 1996, the Company issued
$.5 billion of subordinated debt under this shelf registration.
37
<PAGE>
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
I. (a) The Special Meeting of Shareholders was held on March 28, 1996.
(b) The Agreement and Plan of Merger (Merger Agreement) dated as of
January 23, 1996, by and between Wells Fargo and First Interstate
Bancorp, as amended, was adopted, and the transactions
contemplated thereby were approved.
Against
For or Withheld Abstentions
---------- ----------- -----------
(1) Adoption of Merger
Agreement and approval
of transactions
contemplated thereby 36,340,003 144,347 126,464
II. (a) The Annual Meeting of Shareholders was held on April 16, 1996.
(b) Each of the persons named in the Proxy Statement as a nominee for
director was elected; the increase in authorized common stock was
approved; the adoption of the new employee stock purchase plan
was approved; and the selection of KPMG Peat Marwick LLP as the
Company's independent auditors for 1996 was ratified. The
following are the voting results on each of the matters:
Against
For or Withheld Abstentions
---------- ----------- -----------
(1) ELECTION OF DIRECTORS
H. Jesse Arnelle 39,786,386 136,085 --
Edward M. Carson 39,793,451 129,020 --
William S. Davila 39,792,331 130,140 --
Rayburn S. Dezember 39,801,428 121,043 --
Myron Du Bain 39,788,664 133,807 --
Don C. Frisbee 39,776,520 145,951 --
Paul Hazen 39,804,272 118,199 --
Robert K. Jaedicke 39,790,773 131,698 --
Thomas L. Lee 39,791,238 131,233 --
William F. Miller 39,786,687 135,784 --
Ellen M. Newman 39,795,239 127,232 --
Philip J. Quigley 39,795,925 126,546 --
Carl E. Reichardt 39,799,134 123,337 --
Donald B. Rice 39,802,378 120,093 --
Richard J. Stegemeier 39,792,499 129,972 --
Susan G. Swenson 39,784,759 137,712 --
Daniel M. Tellep 39,789,501 132,970 --
Chang-Lin Tien 39,789,042 133,429 --
John A. Young 39,793,120 129,351 --
William F. Zuendt 39,802,318 120,153 --
38
<PAGE>
Against
For or Withheld Abstentions
---------- ----------- -----------
(2) Increase in Authorized
Common Stock 31,818,390 7,955,278 148,803
(3) Approval of the new
Employee Stock
Purchase Plan 39,108,798 631,373 182,300
(4) Ratification of KPMG
Peat Marwick LLP as
independent auditors
for 1996. 39,777,729 50,785 93,957
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Articles of Incorporation
3(ii) By-Laws
4 The Company hereby agrees to furnish upon request to the
Commission a copy of each instrument defining the rights of
holders of securities of the Company.
10 1996 Employee Stock Purchase Plan, incorporated by
reference to Exhibit A of the Proxy statement dated March
13, 1996.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
99(a) Computation of Ratios of Earnings to Fixed Charges -- the
ratios of earnings to fixed charges, including interest on
deposits, were 2.33 and 1.98 for the quarters ended March
31, 1996 and 1995, respectively. The ratios of earnings to
fixed charges, excluding interest on deposits, were 5.32
and 3.74 for the quarters ended March 31, 1996 and 1995,
respectively.
99(b) Computation of Ratios of Earnings to Fixed Charges and
Preferred Dividends -- the ratios of earnings to fixed
charges and preferred dividends, including interest on
deposits, were 2.21 and 1.90 for the quarters ended March
31, 1996 and 1995, respectively. The ratios of earnings to
fixed charges and preferred dividends, excluding interest
on deposits, were 4.55 and 3.34 for the quarters ended
March 31, 1996 and 1995, respectively.
(b) The Company filed the following reports on Form 8-K during the
first quarter of 1996 and through the date hereof:
(1) January 16, 1996 under Item 5, containing the Press
Releases that announced the Company's financial results for
the quarter and year ended December 31, 1995 and the
increase in the Company's common stock dividend
39
<PAGE>
(2) January 24, 1996 under Item 5, containing the January 24
Press Release that announced that the Company and First
Interstate Bancorp have reached a definitive agreement to
merge the two companies
(3) January 31, 1996 under Item 5, containing the Agreement and
Plan of Merger with First Interstate Bancorp, pursuant to
which First Interstate will merge with and into the Company
(4) February 29, 1996 under Item 5, containing the February 28
Press Release that announced that the joint proxy statement
of the Company and First Interstate Bancorp had been
declared effective by the Securities and Exchange
Commission and that the Company had reached agreement with
the Department of Justice and the Office of the Attorney
General for California regarding divestitures
(5) April 1, 1996 under Item 5, containing the April 1 Press
Release that announced that Wells Fargo & Company had
completed its acquisition of First Interstate Bancorp
(6) April 5, 1996 under Item 7, containing unaudited pro forma
combined financial information of the Company and First
Interstate Bancorp for 1995, the Consent of Independent
Accountants for First Interstate and audited financial
statements of First Interstate Bancorp as of December 31,
1995 and 1994 and for each of the years in the three-year
period ended December 31, 1995
(7) April 10, 1996 under Items 2 and 7, describing the
Company's acquisition of First Interstate Bancorp in
accordance with the terms of the Merger Agreement and
containing the unaudited pro forma combined financial
information of the Company and First Interstate Bancorp for
1995 and audited financial statements of First Interstate
Bancorp as of December 31, 1995 and 1994 and for each of
the years in the three-year period ended December 31, 1995
(8) April 16, 1996 under Item 5, containing the Press Releases
that announced the Company's financial results for the
quarter ended March 31, 1996, the Company's share
repurchase program and the quarterly common stock dividend
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 9, 1996.
WELLS FARGO & COMPANY
By:/s/ FRANK A. MOESLEIN
----------------------------
Frank A. Moeslein
Executive Vice President and
Controller
(Principal Accounting Officer)
40
<PAGE>
By-Laws
of
WELLS FARGO & COMPANY
(a Delaware Corporation),
As amended April 16, 1996
---------------
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of stockholders of Wells
Fargo & Company (the "corporation") shall be held on the third Tuesday of April
in each year at such time of day as may be fixed by the Board of Directors, at
the principal office of the corporation, if not a bank holiday, and if a bank
holiday then on the next succeeding business day at the same hour and place, or
at such other time, date or place, within or without the State of Delaware, as
may be determined by the Board of Directors. At such meeting, Directors shall
be elected, reports of the affairs of the corporation may be considered, and any
other proper business may be transacted.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders, unless
otherwise regulated by statute, for any purpose or purposes whatsoever, may be
called at any time by the Board of Directors, the Chairman of the Board, the
President, the Chief Executive Officer (if other than the Chairman of the Board
or the President), or one or more stockholders holding not less than 10 percent
of the voting power of the corporation. Such meetings may be held at any place
within or without the State of Delaware designated by the Board of Directors of
the corporation.
SECTION 3. NOTICE OF MEETINGS. Notice of all meetings of the
stockholders, both annual and special, shall be given by the Secretary in
writing to stockholders entitled to vote. A notice may be given either
personally or by mail or other means of written communication, charges prepaid,
addressed to any stockholder at his address appearing on the books of the
corporation or at the address given by such stockholder to the corporation for
the purpose of notice. Notice of any meeting of stockholders shall be sent to
each stockholder entitled thereto
<PAGE>
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 2l, the exact number within the limits so specified to be fixed from time
to time by a By-Law adopted by the stockholders or by the Board of Directors.
Until some other number is so fixed, the number of Directors shall be 21. 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.
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<PAGE>
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 on the day of the annual meeting of
stockholders of the corporation for the purpose of electing officers, the
members of the Formal Committees provided in Section 11 of this Article and the
Advisory Directors provided in Section 12 of this Article, and for the
transaction of any other business. Said organizational meeting shall be held
without any notice other than this By-Law.
SECTION 5. PLACE OF MEETINGS. The Board of Directors shall hold its
meetings at the main office of the corporation or at such other place as may
from time to time be designated by the Board of Directors or by the chief
executive officer.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
will be held on the third Tuesday of each month (except for the months of August
and December) at the later of the following times: (i) 10:30 a.m. or (ii)
immediately following the adjournment of any regular meeting of the Board of
Directors of Wells Fargo Bank, National Association, held on the same day. If
the day of any regular meeting shall fall upon a bank holiday, the meeting shall
be held at the same hour on the first day following which is not a bank
holiday. No call or notice of a regular meeting need be given unless the
meeting is to be held at a place other than the main office of the corporation.
SECTION 7. SPECIAL MEETINGS. Special meetings shall be held when called
by the chief executive officer or at the written request of four Directors.
SECTION 8. QUORUM; ADJOURNED MEETINGS. A majority of the authorized
number of Directors shall constitute a quorum for the transaction of business.
A majority of the Directors
-3-
<PAGE>
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.
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.
-4-
<PAGE>
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 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,
-5-
<PAGE>
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 the Chairman of the Board, presiding, and not less than seven additional
Directors, who shall be 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.
(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
-6-
<PAGE>
practices employed by the corporation and its subsidiaries and the adequacy
of their accounting, financial, operating and administrative controls, including
the review and approval of any policy statements relating thereto, and (v) to
perform such other duties as the Board of Directors may from time to time assign
to it. The Committee on Examinations and Audits shall submit reports of its
findings, conclusions and recommendations, if any, to the Board of Directors.
(c) MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE. There shall be a
Management Development and Compensation Committee consisting of not less than
six directors, who shall be elected by the Board of Directors at its
organizational meeting or otherwise and none of whom shall be eligible to
participate in either the Wells Fargo & Company Stock Appreciation Rights Plan,
the Wells Fargo & Company Stock Option Plan the Wells Fargo & Company Employee
Stock Purchase Plan or any similar employee stock plan (or shall have been so
eligible within the year next preceding the date of becoming a member of the
Management Development and Compensation Committee). It shall be the duty of the
Management Development and Compensation Committee, and it shall have authority,
(i) to advise the Chief Executive Officer concerning the corporation's salary
policies, (ii) to administer 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.
Each Committee member shall serve until the organizational meeting of the
Board of Directors held on the day of the annual meeting of stockholders in the
year next following his or her election and until his or her successor shall
have been elected, but any such member may be removed at any time by
-7-
<PAGE>
the Board of Directors. Vacancies in any of said committees, however
created, shall be filled by the Board of Directors. A majority of the
members of any such committee shall be necessary to constitute a quorum and
sufficient for the transaction of business, and any act of a majority present
at a meeting of any such committee at which there is a quorum present shall
be the act of such committee. Subject to these By-Laws and the authority of
the Board of Directors, each committee shall have the power to determine the
form of its organization. The provisions of these By-Laws governing the
calling, notice and place of special meetings of the Board of Directors shall
apply to all meetings of any Committee unless such committee fixes a time and
place for regular meetings, in which case notice for such meeting shall be
unnecessary. The provisions of these By-Laws regarding actions taken by the
Board of Directors, however called or noticed, shall apply to all meetings of
any Committee. Each committee shall cause to be kept a full and complete
record of its proceedings, which shall be available for inspection by any
Director. There shall be presented at each 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.
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.
-8-
<PAGE>
Other officers may be appointed by the Chief Executive Officer or by any officer
or committee whom he may authorize to perform this duty. All officers shall
hold office at will, at the pleasure of the Board of Directors, the Chief
Executive Officer, the officer or committee having the authority to appoint such
officers, and the officer or committee authorized by the Chief Executive Officer
to remove such officers, and may be removed at any time, with or without notice
and with or without cause. No authorization by the Chief Executive Officer to
perform such duty of appointment or removal shall be effective unless done in
writing and signed by the Chief Executive Officer. Two or more offices may be
held by the same person.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, when
present, preside at all meetings of the stockholders and of the Board of
Directors and shall be the Chief Executive Officer of the corporation. As Chief
Executive Officer, he shall (i) exercise, and be responsible to the Board of
Directors for, the general supervision of the property, affairs and business of
the corporation, (ii) report at each meeting of the Board of Directors upon all
matters within his knowledge which the interests of the corporation may require
to be brought to its notice, (iii) prescribe, or to the extent he may deem
appropriate designate an officer or committee to prescribe, the duties,
authority and signing power of all other officers and employees of the
corporation and (iv) exercise, subject to these By-Laws, such other powers and
perform such other duties as may from time to time be prescribed by the Board of
Directors.
SECTION 3. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board
shall, subject to these By-Laws, exercise such powers and perform such duties as
may from time to time be prescribed by the Board of Directors. In the absence
of the Chairman of the Board and the President, the Vice Chairman of the Board
shall preside over the meetings of the stockholders and the Board of Directors.
SECTION 4. PRESIDENT. The President shall, subject to these By-Laws, be
the Chief Operating Officer of the corporation and shall exercise such other
powers and perform such other duties as may from time to time be prescribed by
the Board of Directors. In the absence of the Chairman of the Board, the
President shall preside over the meetings of the stockholders and the Board of
Directors.
SECTION 5. ABSENCE OR DISABILITY OF CHIEF EXECUTIVE OFFICER. In the
absence or disability of the Chairman of the
-9-
<PAGE>
Board, the President shall act as Chief Executive Officer. In the absence or
the disability of both the Chairman of the Board and the President, the Vice
Chairman of the Board shall act as Chief Executive Officer. In the absence
of the Chairman of the Board, the President and the Vice Chairman of the
Board, the officer designated by the Board of Directors, or if there be no
such designation the officer designated by the Chairman of the Board, shall
act as Chief Executive Officer. The Chairman of the Board shall at all times
have on file with the Secretary his written designation of the officer from
time to time so designated by him to act as Chief Executive Officer in his
absence or disability and in the absence or disability of the President and
the Vice Chairman of the Board.
SECTION 6. EXECUTIVE VICE PRESIDENTS; SENIOR VICE PRESIDENTS; VICE
PRESIDENTS. The Executive Vice Presidents, the Senior Vice Presidents and the
Vice Presidents shall have all such powers and duties as may be prescribed by
the Board of Directors or by the Chief Executive Officer.
SECTION 7. SECRETARY. The Secretary shall keep a full and accurate record
of all meetings of the stockholders and of the Board of Directors, and shall
have the custody of all books and papers belonging to the corporation which are
located in its principal office. He shall give, or cause to be given, notice of
all meetings of the stockholders and of the Board of Directors, and all other
notices required by law or by these By-Laws. He shall be the custodian of the
corporate seal or seals. In general, he shall perform all duties ordinarily
incident to the office of a secretary of a corporation, and such other duties as
from time to time may be assigned to him by the Board of Directors or the Chief
Executive Officer.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
have charge of and be responsible for all funds, securities, receipts and
disbursements of the corporation, and shall deposit, or cause to be deposited,
in the name of the corporation all moneys or other valuable effects in such
banks, trust companies, or other depositories as shall from time to time be
selected by the Board of Directors. He shall render to the Chief Executive
Officer and the Board of Directors, whenever requested, an account of the
financial condition of the corporation. In general, he shall perform all duties
ordinarily incident to the office of a chief financial officer of a corporation,
and such other duties as may be assigned to him by the Board of Directors or the
Chief Executive Officer.
-10-
<PAGE>
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 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
-11-
<PAGE>
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding or investigation, whether
civil, criminal or administrative, and whether external or internal to the
corporation (other than a judicial action or suit brought by or in the right
of the corporation), by reason of the fact that he or she is or was an Agent
(as hereinafter defined) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement 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 or 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
-12-
<PAGE>
the case, such person is fairly and reasonably entitled to indemnify for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. DETERMINATION OF RIGHT OF INDEMNIFICATION OR CONTRIBUTION.
Unless otherwise ordered by a court, any indemnification under Section 1 or 2,
and any contribution under Section 6, of this Article shall be made by the
corporation to an Agent unless a determination is reasonably and promptly made,
either (i) by the Board of Directors acting by a majority vote of a quorum
consisting of Directors who were not party to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or if obtainable and such quorum so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders, that such Agent acted in bad faith and in a manner that such Agent
did not believe to be in or not opposed to the best interests of the corporation
or, with respect to any criminal proceeding, that such Agent believed or had
reasonable cause to believe that his or her conduct was unlawful.
SECTION 4. ADVANCES OF EXPENSES. Except as limited by Section 5 of this
Article, costs, charges and expenses (including attorneys' fees) incurred by an
Agent in defense of any action, suit, proceeding or investigation of the nature
referred to in Section 1 or 2 of this Article or any appeal therefrom shall be
paid by the corporation in advance of the final disposition of such matter;
provided, however, that if the General Corporation Law of Delaware then so
requires, such payment shall be made only if the Agent shall undertake to
reimburse the corporation for such payment in the event that it is ultimately
determined, as provided herein, that such person is not entitled to
indemnification.
SECTION 5. RIGHT OF AGENT TO INDEMNIFICATION OR ADVANCE UPON APPLICATION;
PROCEDURE UPON APPLICATION. Any indemnification under Section 1 or 2, or
advance under Section 4, of this Article shall be made promptly and in any event
within 90 days, upon the written request of the Agent, unless with respect to an
application under said Sections 1 or 2 an adverse determination is reasonably
and promptly made pursuant to Section 3 of this Article or unless with respect
to an application under said Section 4 an adverse determination is made pursuant
to said Section 4. The right to indemnification or advances as granted by this
Article shall be enforceable by the Agent in any court of competent jurisdiction
if the Board of Directors or independent legal counsel improperly denies the
claim, in whole or in part, or if no disposition of such claim is made within 90
days. It shall be a defense to any such action
-13-
<PAGE>
(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 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
-14-
<PAGE>
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 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
-15-
<PAGE>
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, fines 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 INDEMNIFICATION. Notwithstanding any
other provision of this Article, the corporation shall indemnify any Agent and
advance expenses incurred by such Agent in any action, suit or proceeding of the
nature referred to in Section 1 or 2 of this Article to the fullest extent
permitted by the General Corporation Law of Delaware, as the same may be amended
from time to time, except that no amount shall be paid pursuant to this Article
in the event of an adverse determination pursuant to Section 3 of this Article
or in respect of remuneration to the extent that it shall be determined to have
been paid in violation of law or in respect of amounts owing under Section 16(b)
of the Securities Exchange Act of 1934. The rights to indemnification and
advancement of expenses provided by any provision of this Article, including
without limitation those rights conferred by the preceding sentence, shall not
be deemed exclusive of, and shall not affect, any other rights to which an Agent
seeking indemnification or advancement of expenses may be entitled under any
provision of any law, certificate of incorporation, by-law, agreement or by any
vote of stockholders or disinterested directors or otherwise,
-16-
<PAGE>
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 also provide
indemnification and advancement of expenses to other persons or entities to
the extent deemed appropriate.
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 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
-17-
<PAGE>
owned or controlled by the corporation, or any other affiliate of the
corporation designated in writing as a subsidiary of the corporation by the
Chief Executive Officer of the corporation. All such written designations
shall be filed with the Secretary of the corporation.
SECTION 5. AMENDMENTS. These By-Laws may be altered, amended or repealed
by a vote of the stockholders entitled to exercise a majority of the voting
power of the corporation, by written consent of such stockholders or by the
Board of Directors.
SECTION 6. ANNUAL REPORT. The Board of Directors shall cause an annual
report to be sent to the stockholders not later than 120 days after the close of
the fiscal year and at least 15 days prior to the annual meeting of stockholders
to be held during the ensuing fiscal year.
SECTION 7. CONSTRUCTION. Unless the context clearly requires it, nothing
in these By-Laws shall be construed as a limitation on any powers or rights of
the corporation, its Directors or its officers provided by the General
Corporation Law of Delaware. Unless the context otherwise requires, the General
Corporation Law of Delaware shall govern the construction of these By-Laws.
SECTION 8. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiary, including any officer or employee who
is a director of the corporation or its subsidiary, whenever, in the judgment of
the Board of Directors or any committee thereof, such loan, guaranty or
assistance may reasonably be expected to benefit the 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
-18-
<PAGE>
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.
-19-
<PAGE>
EXHIBIT 11
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Quarter
ended March 31,
------------------
(in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Net income $ 264 $ 233
Less preferred dividends 10 10
-------- --------
Net income for calculating primary
earnings per common share $ 254 $ 223
-------- --------
-------- --------
Average common shares outstanding 47.0 50.5
-------- --------
-------- --------
PRIMARY EARNINGS PER COMMON SHARE $ 5.39 $ 4.41
-------- --------
-------- --------
FULLY DILUTED EARNINGS PER COMMON SHARE (1)
Net income $ 264 $ 233
Less preferred dividends 10 10
-------- --------
Net income for calculating fully
diluted earnings per common share $ 254 $ 223
-------- --------
-------- --------
Average common shares outstanding 47.0 50.5
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 1.3 1.1
-------- --------
Average common shares outstanding as adjusted 48.3 51.6
-------- --------
-------- --------
FULLY DILUTED EARNINGS PER COMMON SHARE $ 5.24 $ 4.31
-------- --------
-------- --------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(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> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q
DATED MAY 9, 1996 FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,721
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 49
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,435
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 35,167
<ALLOWANCE> 1,681
<TOTAL-ASSETS> 48,978
<DEPOSITS> 37,806
<SHORT-TERM> 2,468
<LIABILITIES-OTHER> 1,276
<LONG-TERM> 3,147
0
489
<COMMON> 235
<OTHER-SE> 3,478
<TOTAL-LIABILITIES-AND-EQUITY> 48,978
<INTEREST-LOAN> 875
<INTEREST-INVEST> 128
<INTEREST-OTHER> 3
<INTEREST-TOTAL> 1,006
<INTEREST-DEPOSIT> 241
<INTEREST-EXPENSE> 330
<INTEREST-INCOME-NET> 676
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 567
<INCOME-PRETAX> 463
<INCOME-PRE-EXTRAORDINARY> 264
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264
<EPS-PRIMARY> 5.39
<EPS-DILUTED> 5.24
<YIELD-ACTUAL> 6.18
<LOANS-NON> 525
<LOANS-PAST> 122
<LOANS-TROUBLED> 12
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,794
<CHARGE-OFFS> 137
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 1,681
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99(a)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Quarter ended March 31,
----------------------
(in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 462 $ 370
Fixed charges 348 377
------- -------
$ 810 $ 747
------- -------
------- -------
Fixed charges (1):
Interest expense $ 330 $ 360
Estimated interest component of net
rental expense 18 17
------- -------
$ 348 $ 377
------- -------
------- -------
Ratio of earnings to fixed charges (2) 2.33 1.98
------- -------
------- -------
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 462 $ 370
Fixed charges 107 135
------- -------
$ 569 $ 505
------- -------
------- -------
Fixed charges:
Interest expense $ 330 $ 360
Less interest on deposits (241) (242)
Estimated interest component of net
rental expense 18 17
------- -------
$ 107 $ 135
------- -------
------- -------
Ratio of earnings to fixed charges (2) 5.32 3.74
------- -------
------- -------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(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.
<PAGE>
EXHIBIT 99(b)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
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Quarter ended March 31,
(in millions) 1996 1995
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<S> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 462 $ 370
Fixed charges 348 377
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$ 810 $ 747
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Preferred dividend requirement $ 10 $ 10
Ratio of income before income tax expense to
net income 1.75 1.59
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Preferred dividends (2) $ 18 $ 16
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Fixed charges (1):
Interest expense 330 360
Estimated interest component of net
rental expense 18 17
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348 377
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Fixed charges and preferred dividends $ 366 $ 393
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Ratio of earnings to fixed charges and preferred
dividends (3) 2.21 1.90
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EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 462 $ 370
Fixed charges 107 135
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$ 569 $ 505
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Preferred dividends (2) $ 18 $ 16
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Fixed charges (1):
Interest expense 330 360
Less interest on deposits (241) (242)
Estimated interest component of net
rental expense 18 17
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107 135
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Fixed charges and preferred dividends $ 125 $ 151
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Ratio of earnings to fixed charges and
preferred dividends (3) 4.55 3.34
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</TABLE>
(1) As defined in Item 503(d) of Regulation S-K.
(2) The preferred dividends were increased to amounts representing the pretax
earnings that would be required to cover such dividend requirements.
(3) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there was no change in net
income, the ratios would decline with an increase in the proportion of
income which is tax-exempt or, conversely, they would increase with a
decrease in the proportion of income which is tax-exempt. Second, even
if there was no change in net income, the ratios would decline if interest
income and interest expense increase by the same amount due to an
increase in the level of interest rates or, conversely, they would
increase if interest income and interest expense decrease by the same
amount due to a decrease in the level of interest rates.
