<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
July 31, 1996
------------------
Common stock, $5 par value 94,143,159
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
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
Note to Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Summary Financial Data......................................... 10
Overview....................................................... 11
Merger with First Interstate Bancorp........................... 13
Line of Business Results....................................... 14
Earnings Performance........................................... 17
Net Interest Income.......................................... 17
Noninterest Income........................................... 21
Noninterest Expense.......................................... 23
Income Taxes................................................. 24
Earnings/Ratios Excluding Goodwill and Nonqualifying CDI..... 25
Balance Sheet Analysis......................................... 26
Investment Securities.,,,,,,................................. 26
Loan Portfolio..............,,,,,,........................... 29
Commercial real estate..........,,,,,,..................... 29
Nonaccrual and Restructured Loans and Other Assets........... 30
Changes in total nonaccrual loans.......................... 30
Changes in foreclosed assets............................... 33
Loans 90 days past due and still accruing.................. 33
Allowance for Loan Losses.................................... 34
Other Assets................................................. 36
Deposits..................................................... 38
Capital Adequacy/Ratios...................................... 38
Asset/Liability Management................................... 40
Derivative Financial Instruments............................. 41
Liquidity Management......................................... 42
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 43
SIGNATURE................................................................ 44
============================================================================
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. In addition, this Form 10-Q
includes forward-looking statements that involve inherent risks and
uncertainties. The Company cautions readers that a number of important
factors could cause actual results to differ materially from those in the
forward-looking statements. Those factors include fluctuations in interest
rates, inflation, government regulations, the progress of integrating First
Interstate and economic conditions and competition in the geographic and
business areas in which the Company conducts its operations. The interim
financial information should be read in conjunction with the Company's 1995
Annual Report on Form 10-K.
1
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PART I - FINANCIAL INFORMATION
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
=============================================================================================================
Quarter Six months
ended June 30, ended June 30,
------------------- -------------------
(in millions) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Federal funds sold and securities
purchased under resale agreements $ 8 $ 1 $ 10 $ 2
Investment securities 225 152 353 317
Mortgage loans held for sale -- 54 -- 54
Loans 1,618 823 2,494 1,681
Other 7 1 7 2
------ ------ ------ ------
Total interest income 1,858 1,031 2,864 2,056
------ ------ ------ ------
INTEREST EXPENSE
Deposits 454 254 695 496
Federal funds purchased and securities sold under
repurchase agreements 21 59 57 115
Commercial paper and other short-term borrowings 3 9 8 19
Senior and subordinated debt 80 50 128 102
------ ------ ------ ------
Total interest expense 558 372 888 732
------ ------ ------ ------
NET INTEREST INCOME 1,300 659 1,976 1,324
Provision for loan losses -- -- -- --
------ ------ ------ ------
Net interest income after provision for loan losses 1,300 659 1,976 1,324
------ ------ ------ ------
NONINTEREST INCOME
Service charges on deposit accounts 258 119 380 236
Fees and commissions 211 103 329 204
Trust and investment services income 104 57 164 112
Investment securities gains (losses) 3 -- 2 (15)
Other 63 31 118 14
------ ------ ------ ------
Total noninterest income 639 310 993 551
------ ------ ------ ------
NONINTEREST EXPENSE
Salaries 400 177 581 349
Incentive compensation 61 33 93 60
Employee benefits 102 48 157 101
Equipment 111 45 167 92
Net occupancy 108 53 161 106
Core deposit intangible 82 11 91 22
Goodwill 81 9 89 17
Other 332 184 505 349
------ ------ ------ ------
Total noninterest expense 1,277 560 1,844 1,096
------ ------ ------ ------
INCOME BEFORE INCOME TAX EXPENSE 662 409 1,125 779
Income tax expense 299 177 498 314
------ ------ ------ ------
NET INCOME $ 363 $ 232 $ 627 $ 465
====== ====== ====== ======
NET INCOME APPLICABLE TO COMMON STOCK $ 344 $ 222 $ 598 $ 444
====== ====== ====== ======
PER COMMON SHARE
Net income $ 3.61 $ 4.51 $ 8.39 $ 8.92
====== ====== ====== ======
Dividends declared $ 1.30 $ 1.15 $ 2.60 $ 2.30
====== ====== ====== ======
Average common shares outstanding 95.6 49.1 71.3 49.8
====== ====== ====== ======
=============================================================================================================
</TABLE>
2
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WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
===============================================================================================================
JUNE 30, December 31, June 30,
(in millions) 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 8,882 $ 3,375 $ 2,848
Federal funds sold and securities
purchased under resale agreements 1,344 177 375
Investment securities:
At fair value 13,692 8,920 2,473
At cost (estimated fair value $7,602) -- -- 7,662
-------- ------- -------
Total investment securities 13,692 8,920 10,135
Mortgage loans held for sale -- -- 1,336
Loans 70,541 35,582 33,896
Allowance for loan losses 2,273 1,794 1,947
-------- ------- -------
Net loans 68,268 33,788 31,949
-------- ------- -------
Due from customers on acceptances 210 98 71
Accrued interest receivable 591 308 300
Premises and equipment, net 2,400 862 863
Core deposit intangible 2,208 166 186
Goodwill 7,479 382 399
Other assets 3,512 2,240 2,469
-------- ------- -------
Total assets $108,586 $50,316 $50,931
======== ======= =======
LIABILITIES
Noninterest-bearing deposits $ 27,535 $10,391 $ 9,600
Interest-bearing deposits 56,333 28,591 29,184
-------- ------- -------
Total deposits 83,868 38,982 38,784
Federal funds purchased and securities
sold under repurchase agreements 944 2,781 3,693
Commercial paper and other short-term borrowings 262 195 532
Acceptances outstanding 210 98 71
Accrued interest payable 177 85 89
Other liabilities 2,865 1,071 933
Senior debt 2,586 1,783 1,485
Subordinated debt 2,644 1,266 1,482
-------- ------- -------
Total liabilities 93,556 46,261 47,069
-------- ------- -------
STOCKHOLDERS' EQUITY
Preferred stock 839 489 489
Common stock - $5 par value,
authorized 150,000,000 shares; issued and outstanding
94,912,532 shares, 46,973,319 shares and
48,473,804 shares 475 235 242
Additional paid-in capital 11,207 1,135 407
Retained earnings 2,586 2,174 2,737
Cumulative foreign currency translation adjustments (4) (4) (4)
Investment securities valuation allowance (73) 26 (9)
-------- ------- -------
Total stockholders' equity 15,030 4,055 3,862
-------- ------- -------
Total liabilities and stockholders' equity $108,586 $50,316 $50,931
======== ======= =======
===============================================================================================================
</TABLE>
3
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WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
=========================================================================================
Six months ended June 30,
-------------------------
(in millions) 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, beginning of period $ 489 $ 489
Preferred stock issued to First Interstate stockholders 350 --
------- ------
Balance, end of period 839 489
------- ------
COMMON STOCK
Balance, beginning of period 235 256
Common stock issued to First Interstate stockholders 260 --
Common stock issued under employee benefit and
dividend reinvestment plans 2 3
Common stock repurchased (22) (17)
------- ------
Balance, end of period 475 242
------- ------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 1,135 871
Preferred stock issued to First Interstate stockholders 10 --
Common stock issued to First Interstate stockholders 11,039 --
Common stock issued under employee benefit and
dividend reinvestment plans 53 58
Common stock repurchased (1,141) (522)
Fair value adjustment related to First Interstate stock options 111 --
------- ------
Balance, end of period 11,207 407
------- ------
RETAINED EARNINGS
Balance, beginning of period 2,174 2,409
Net income 627 465
Preferred stock dividends (29) (21)
Common stock dividends (186) (116)
------- ------
Balance, end of period 2,586 2,737
------- ------
CUMULATIVE FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS
Balance, beginning and end of period (4) (4)
------- ------
INVESTMENT SECURITIES VALUATION ALLOWANCE
Balance, beginning of period 26 (110)
Change in unrealized net gain (loss), after applicable taxes (99) 101
------- ------
Balance, end of period (73) (9)
------- ------
Total stockholders' equity $15,030 $3,862
======= ======
=========================================================================================
</TABLE>
4
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
==================================================================================================
Six months ended June 30,
-------------------------
(in millions) 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 627 $ 465
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- --
Depreciation and amortization 323 131
Deferred income tax provision (benefit) 146 (47)
Increase in net deferred loan fees (21) (15)
Net decrease in accrued interest receivable 25 28
Write-down on mortgage loans held for sale -- 83
Net increase in accrued interest payable 5 29
Other, net 38 (207)
-------- ------
Net cash provided by operating activities 1,143 467
-------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
At cost:
Proceeds from prepayments and maturities -- 983
Purchases -- (26)
At fair value:
Proceeds from sales 763 670
Proceeds from prepayments and maturities 2,435 64
Purchases (469) (60)
Cash acquired from First Interstate 6,030 --
Proceeds from sales of mortgage loans held for sale -- 2,580
Net (increase) decrease in loans resulting from originations and collections 49 (1,655)
Proceeds from sales (including participations) of loans 184 238
Purchases (including participations) of loans (43) (179)
Proceeds from sales of foreclosed assets 61 109
Net (increase) decrease in federal funds sold and securities
purchased under resale agreements 907 (115)
Other, net (93) (142)
-------- -------
Net cash provided by investing activities 9,824 2,467
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (2,566) (3,548)
Net increase (decrease) in short-term borrowings (2,116) 1,014
Proceeds from issuance of senior debt 760 815
Repayment of senior debt (300) (705)
Proceeds from issuance of subordinated debt 500 --
Proceeds from issuance of common stock 55 61
Repurchase of common stock (1,163) (539)
Payment of cash dividends on preferred stock (21) (31)
Payment of cash dividends on common stock (186) (116)
Other, net (423) (11)
-------- -------
Net cash used by financing activities (5,460) (3,060)
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS) 5,507 (126)
Cash and cash equivalents at beginning of period 3,375 2,974
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,882 $ 2,848
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $ 796 $ 703
======== =======
Income taxes $ 185 $ 299
======== =======
Noncash investing and financing activities:
Transfers from loans to foreclosed assets $ 72 $ 61
======== =======
Transfers from loans to mortgage loans held for sale $ -- $ 4,023
======== =======
Acquisition of First Interstate:
Common stock issued $ 11,299 $ --
Fair value of preferred stock issued 360 --
Fair value of stock options 111 --
Fair value of assets acquired 55,797 --
Fair value of liabilities assumed 51,214 --
==================================================================================================
</TABLE>
5
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
NOTE TO FINANCIAL STATEMENTS
MERGER WITH FIRST INTERSTATE BANCORP (MERGER)
On April 1, 1996, the Company completed its acquisition of First Interstate
Bancorp (First Interstate), the 14th largest bank holding company in the
nation as of March 31, 1996 with 405 offices in California and a total of
approximately 1,150 offices in 13 western states. The Merger resulted in the
creation of the ninth largest bank holding company in the United States based
on assets as of June 30, 1996. The purchase price of the transaction was
approximately $11.3 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; 52,007,264
shares of the Company's common stock were issued. Each share of First
Interstate preferred stock was converted into the right to receive one share
of the Company's preferred stock. Each outstanding and unexercised option
granted by First Interstate was converted into an option to purchase Company
common stock based on the original plan and the agreed upon exchange ratio.
The Merger is being accounted for as a purchase transaction. Accordingly, the
results of operations of First Interstate are included with that of the
Company for periods subsequent to the date of the Merger (i.e., the financial
information for periods prior to second quarter 1996 included in this Form
10-Q excludes First Interstate). The name of the newly combined company is
Wells Fargo & Company.
The major components of management's plan for the combined company include
the realignment of First Interstate's businesses to reflect Wells Fargo's
structure, consolidation of retail branches and administrative facilities and
reduction in staffing levels. As a result of this plan, the adjustments to
goodwill included accruals totaling approximately $307 million ($181 million
after tax) related to the disposition of premises, including an accrual of
$121 million ($71 million after tax) associated with the dispositions of
traditional former First Interstate branches in California and out of state.
The California dispositions include 176 branch closures in the third quarter of
1996. (See Noninterest Income section for information on other, Wells Fargo
branch dispositions.) Additionally, the adjustments to goodwill included
accruals of approximately $415 million ($245 million after tax) related to
severance of former First Interstate employees throughout the Company who will
be displaced through December 31, 1997. Severance payments of $59 million were
paid during the second quarter of 1996.
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, which is currently expected to be completed in September
1996. In addition, the Company is selling the First Interstate banks in
Wyoming and Montana (for which the Company has a definitive agreement and
expects the sale to close
6
<PAGE>
on or about October 1, 1996, subject to regulatory approval). The
Company is also currently seeking a buyer for the bank subsidiary in Alaska.
Other significant adjustments to goodwill included the write-off of First
Interstate's existing goodwill and other intangibles of $701 million.
The pro forma amounts in the table below are presented for informational
purposes and are not necessarily indicative of the results of operations of
the combined company for the periods presented. The pro forma amounts are
also not necessarily indicative of the 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.
The following pro forma combined summary of income gives effect to the
combination as if the Merger was consummated on January 1, 1995.
<TABLE>
<CAPTION>
PRO FORMA COMBINED FINANCIAL DATA
=============================================================================
Six months ended June 30,
-------------------------
(in millions, except per share data) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
SUMMARY OF INCOME
Net interest income $2,594 $2,620
Provision for loan losses -- --
Noninterest income 1,296 1,086
Noninterest expense (1) 2,435 2,458
Net income (1) 807 707
PER COMMON SHARE
Net income (1) $ 8.11 $ 6.68
Dividends declared 2.60 2.30
AVERAGE COMMON SHARES OUTSTANDING 94.9 100.2
=============================================================================
</TABLE>
(1) Noninterest expense for the six months ended June 30, 1996 excludes $251
million ($245 million after tax) of nonrecurring merger-related expenses
recorded by First Interstate in the first quarter of 1996.
The pro forma combined net income of $807 million for the six months ended
June 30, 1996 consists of second quarter 1996 net income of the combined
company of $363 million, first quarter 1996 net income of the Company of $264
million and a first quarter net loss of First Interstate of $(23) million,
plus pro forma adjustments of $203 million. The pro forma combined net
income of $707 million for the six months ended June 30, 1995 consists of net
income of the Company of $465 million and First Interstate of $432 million
for the six months ended June 30, 1995, less pro forma adjustments of $(190)
million. The pro forma adjustments for both periods include amortization of
$144 million relating to $7,187 million excess purchase price over fair value
of First Interstate's net assets acquired (goodwill). Goodwill is amortized
using the straight-line method over 25 years.
7
<PAGE>
Goodwill may change as certain estimates and contingencies are finalized,
although any adjustments are not expected to have a significant effect on the
ultimate amount of goodwill.
In addition to First Interstate premise and severance costs affecting
goodwill, an estimated $60 million of costs related to the Company's
premises, employees and operations as well as all costs relating to systems
conversions and other indirect, integration costs were expensed during the
second quarter. The Company expects to incur additional merger-related
costs, which will be expensed as incurred. With respect to timing, it is
assumed that the integration will be completed and that such costs will be
incurred not later than 18 months after the closing of the Merger.
8
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[THIS PAGE INTENTIONALLY LEFT BLANK]
9
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FINANCIAL REVIEW
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA
=================================================================================================================================
% Change
Quarter ended June 30, 1996 from Six months ended
--------------------------------- ------------------ -------------------
JUNE 30, Mar. 31, June 30, Mar. 31, June 30, JUNE 30, June 30, %
(in millions) 1996 1996 1995 1996 1995 1996 1995 Change
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Net income $ 363 $ 264 $ 232 38 % 56 % $ 627 $ 465 35 %
Net income applicable to common stock 344 254 222 35 55 598 444 35
Per common share
Net income $ 3.61 $ 5.39 $ 4.51 (33) (20) $ 8.39 $ 8.92 (6)
Dividends declared 1.30 1.30 1.15 -- 13 2.60 2.30 13
Average common shares outstanding 95.6 47.0 49.1 103 95 71.3 49.8 43
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.35% 2.16% 1.81% (38) (25) 1.60 % 1.80% (11)
Net income applicable to common stock to
average common stockholders' equity (ROE) 9.77 28.34 26.71 (66) (63) 13.52 26.80 (50)
Efficiency ratio (1) 65.8% 55.1% 57.8% 19 14 62.1 % 58.5% 6
Average loans $ 70,734 $ 35,025 $33,202 102 113 $ 52,880 $ 34,759 52
Average assets 108,430 49,134 51,491 121 111 78,782 51,938 52
Average core deposits 83,356 36,819 36,226 126 130 60,087 36,462 65
Net interest margin 6.03% 6.18% 5.66% (2) 7 6.08 % 5.63% 8
AT PERIOD END
Investment securities $ 13,692 $ 8,435 $10,135 62 35 $ 13,692 $ 10,135 35
Loans (2) 70,541 35,167 33,896 101 108 70,541 33,896 108
Allowance for loan losses 2,273 1,681 1,947 35 17 2,273 1,947 17
Goodwill 7,479 373 399 -- -- 7,479 399 --
Assets 108,586 48,978 50,931 122 113 108,586 50,931 113
Core deposits 83,331 37,414 37,026 123 125 83,331 37,026 125
Common stockholders' equity 14,191 3,713 3,373 282 321 14,191 3,373 321
Stockholders' equity 15,030 4,202 3,862 258 289 15,030 3,862 289
Tier 1 capital (3) 6,346 3,856 3,418 65 86 6,346 3,418 86
Total capital (Tiers 1 and 2) (3) 9,533 5,353 4,959 78 92 9,533 4,959 92
Capital ratios
Common stockholders' equity to assets 13.07% 7.58% 6.62% 72 97 13.07 % 6.62 % 97
Stockholders' equity to assets 13.84 8.58 7.58 61 83 13.84 7.58 83
Risk-based capital (3)
Tier 1 capital 7.83 9.40 8.60 (17) (9) 7.83 8.60 (9)
Total capital 11.77 13.04 12.48 (10) (6) 11.77 12.48 (6)
Leverage (3) 6.37 7.91 6.69 (19) (5) 6.37 6.69 (5)
Book value per common share $ 149.52 $ 79.01 $ 69.59 89 115 $ 149.52 $ 69.59 115
Staff (active, full-time equivalent) 41,548 18,748 18,978 122 119 41,548 18,978 119
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION AND BALANCES
("CASH" OR "TANGIBLE") (4)
Net income applicable to common stock $ 468 $ 262 $ 230 79 103 $ 730 $ 461 58
Net income per common share 4.89 5.58 4.69 (12) 4 10.24 9.27 10
ROA 1.96% 2.25% 1.89% (13) 4 2.05 % 1.89 % 8
ROE 33.43 32.74 31.58 2 6 33.18 31.67 5
Efficiency ratio 58.0 54.3 56.9 7 2 56.7 57.5 (1)
COMMON STOCK PRICE
High $264-1/2 $261-1/4 $185-7/8 1 42 $264-1/2 $185-7/8 42
Low 232-1/8 203-1/8 157 14 48 203-1/8 143-3/8 42
Period end 239-1/8 261-1/4 180-1/4 (8) 33 239-1/8 180-1/4 33
=================================================================================================================================
</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 June 30, 1995 of $1,336
million.
(3) See the Capital Adequacy/Ratios section for additional information.
(4) Nonqualifying core deposit intangible (CDI) amortization and average
balance excluded from these calculations are, with the exception of the
efficiency ratio, net of applicable taxes. The after-tax amounts for the
amortization and average balance of nonqualifying CDI were $43 million
and $1,334 million for the quarter ended June 30, 1996, respectively, and
$43 million and $667 million for the six months ended June 30, 1996,
respectively. Goodwill amortization and average balance (which are not
tax effected) were $81 million and $7,238 million for the quarter ended
June 30, 1996, respectively, and $89 million and $3,808 million for the
six months ended June 30, 1996, respectively.
10
<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.
On April 1, 1996, the Company completed its acquisition of First Interstate
Bancorp. As a result, the financial information presented in this Form 10-Q
for the second quarter and first six months of 1996 reflects the effects of
the acquisition subsequent to the Merger's consummation.
The Company's results of operations for the second quarter and first six
months of 1996 were significantly affected by the Merger. Since the
Company's results of operations subsequent to April 1, 1996 reflect amounts
recognized from combined operations, they cannot be divided between or
attributed directly to either of the two former entities.
In substantially all of the Company's income and expense categories, the
increases in the amounts reported for the second quarter and first six months
of 1996 compared to the amounts reported in the corresponding periods in 1995
resulted from the Merger. The increases in substantially all of the categories
of the Company's balance sheet between amounts reported at June 30, 1996 and
those reported at December 31, 1995 also resulted from the Merger. Other
significant factors affecting the Company's results of operations and
financial position are described in the applicable sections below.
Net income for the second quarter of 1996 was $363 million, compared with
$232 million for the second quarter of 1995, an increase of 56%. Per share
earnings for the second quarter of 1996 were $3.61, compared with $4.51 in
the second quarter of 1995, a decrease of 20%. Net income for the first six
months of 1996 was $627 million, or $8.39 per share, compared with $465
million, or $8.92 per share, for the first six months of 1995.
Return on average assets (ROA) was 1.35% and 1.60% in the second quarter and
first half of 1996, respectively, compared with 1.81% and 1.80% in the same
periods of 1995. Return on average common equity (ROE) was 9.77% and 13.52%
in the second quarter and first half of 1996, respectively, compared with
26.71% and 26.80%, respectively, in the same periods of 1995.
Earnings before the amortization of goodwill and nonqualifying core deposit
intangible ("cash" or "tangible" earnings) in the second quarter of 1996 were
$4.89 per share, compared with $4.69 per share for the second quarter of
1995. On the same basis, ROA was 1.96% in the second quarter of 1996,
compared with 1.89% in the second quarter of 1995; ROE was 33.43% in the
second quarter of 1996, compared with 31.58% in the second quarter of 1995.
Following the merger with First Interstate, "cash" earnings, as well as
"cash" ROA and ROE, are the measures of performance which will be most
comparable with prior quarters. They are also the most relevant measures of
financial performance for shareholders because they measure the Company's
ability to repurchase stock, pay dividends and support growth.
11
<PAGE>
"Cash" EPS of $4.89 is down from "cash" EPS of $5.58 for the first quarter of
1996 given merger-related expenses and because the Company is just beginning
to realize the economic benefits of the Merger. The Company is confident that
it will meet the original merger targets within the first 18 months.
Net interest income on a taxable-equivalent basis was $1,304 million and $659
million in the second quarter of 1996 and 1995, respectively. The increase
in net interest income in both the second quarter and first half of 1996
compared with the same periods of 1995 was primarily due to an increase in
average earning assets as a result of the Merger. The Company's net interest
margin was 6.03% for the second quarter of 1996, compared with 5.66% in the
same quarter of 1995 and 6.18% in the first quarter of 1996.
Noninterest income was $639 million and $993 million in the second quarter
and first half of 1996, respectively, compared with $310 million and $551
million in the same periods of 1995. In addition to the effects of the
Merger, the increase for the first half of 1996 as compared to the same
period of 1995 included 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 second quarter of 1996 was $1,277 million,
compared with $560 million for the second quarter of 1995. In addition to
the effect of combining operations of First Interstate with the Company, the
increase reflected goodwill and CDI amortization, severance for Wells Fargo
employees and other merger-related expenditures.
During the second quarter of 1996, net charge-offs totaled $178 million, or
1.01% of average loans (annualized). This compared with $113 million, or
1.30%, during the first quarter of 1996 and $70 million, or .84%, during the
second quarter of 1995. The allowance for loan losses was 3.22% of total
loans at June 30, 1996, compared with 4.78% at March 31, 1996 and 5.74% at
June 30, 1995.
Total nonaccrual and restructured loans were $742 million at June 30, 1996,
compared with $552 million at December 31, 1995 and $644 million at June 30,
1995. Foreclosed assets amounted to $238 million at June 30, 1996, $186
million at December 31, 1995 and $224 million at June 30, 1995.
The Company's effective tax rate was 45% and 44% for the second quarter and
first half of 1996, respectively. The effective tax rate was 43% and 40% for
the same periods of 1995. The increase in the effective tax rate for the
second quarter and first half of 1996 was due to increased goodwill
amortization related to the Merger, which is not tax deductible. The
increase in the effective tax rate for the first half of 1996 was also 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 for the years 1987 through 1992.
Common stockholders' equity to total assets was 13.07% at June 30, 1996,
compared with 7.58% and 6.62% at March 31, 1996 and June 30, 1995,
respectively. The Company's total risk-based capital ratio at June 30, 1996
was 11.77% and its Tier 1 risk-based capital ratio was 7.83%, exceeding
minimum guidelines of 8% and 4%, respectively, for bank holding
12
<PAGE>
companies and the "well capitalized" guidelines for banks of 10% and 6%,
respectively. At March 31, 1996, the risk-based capital ratios were 13.04%
and 9.40%, respectively; at June 30, 1995, these ratios were 12.48% and
8.60%, respectively. The Company's leverage ratios were 6.37%, 7.91% and
6.69% at June 30, 1996, March 31, 1996 and June 30, 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. 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. At June 30, 1996, these branches had
aggregate deposits of approximately $2.1 billion and loans of approximately
$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 in
September 1996.
As of the acquisition date, the California bank of First Interstate merged
into Wells Fargo Bank, N.A. In June 1996, the Company merged former First
Interstate bank subsidiaries in six states (Idaho, Nevada, New Mexico,
Oregon, Utah and Washington) into Wells Fargo Bank, N.A. Each of these states
has opted-in early under the interstate branching provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Wells
Fargo Bank of Arizona, N.A. (formerly First Interstate Bank of Arizona, N.A.)
is expected to be merged into Wells Fargo Bank, N.A. in September 1996. In
addition, the Company is selling First Interstate banks in Wyoming and
Montana (for which the Company has a definitive agreement and expects the
sale to close on or about October 1, 1996, subject to regulatory approval).
The Company is also currently seeking a buyer for the bank subsidiary in
Alaska. The aggregate assets and deposits of these banks at June 30, 1996
were $649 million and $462 million, respectively. Banks in the other states
retained by the Company are expected to merge into Wells Fargo Bank, N.A. as
soon as permitted by applicable state laws (i.e., Colorado in June 1997;
Texas not earlier than in September 1999).
The Company expects to meet its pre-merger objective of realizing net annual
cost savings of $700 million ($800 million of noninterest expenses, less $100
million of revenues) not later than 18 months after the date of the Merger.
About 50% of the net cost savings are anticipated to be achieved within the
first nine months. The full impact of revenue losses due to the Merger is
expected to be recognized by the first quarter of 1997, with revenue growth
resuming in the first half of 1997.
For additional discussion of the Company's plan for branch closures and
consolidations and for pro forma information, see Note to Financial
Statements.
13
<PAGE>
<TABLE>
<CAPTION>
LINE OF BUSINESS RESULTS (ESTIMATED)
=======================================================================================================================
(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>
QUARTER ENDED JUNE 30,
Net interest income (1) $228 $117 $164 $ 91 $214 $122
Provision for loan losses (2) -- -- 17 8 1 --
Noninterest income (3) 335 160 67 34 138 71
Noninterest expense (3) 504 236 119 74 179 114
---- ---- ---- ---- ---- ----
Income before income
tax expense 59 41 95 43 172 79
Income tax expense (4) 24 18 39 18 71 33
---- ---- ---- ---- ---- ----
Net income $ 35 $ 23 $ 56 $ 25 $101 $ 46
==== ==== ==== ==== ==== ====
Average loans $ -- $ -- $4.7 $2.3 $1.9 $ .5
Average assets 2.7 1.0 6.5 3.4 2.5 .8
Average core deposits 18.7 9.5 12.3 6.2 37.3 17.8
Return on equity (5) 13% 19% 29% 26% 50% 38%
Risk-adjusted efficiency ratio (6) 99% 94% 73% 79% 62% 68%
SIX MONTHS ENDED JUNE 30,
Net interest income (1) $344 $232 $262 $179 $314 $243
Provision for loan losses (2) -- -- 28 16 2 1
Noninterest income (3) 500 321 111 66 203 145
Noninterest expense (3) 770 461 189 138 261 223
---- ---- ---- ---- ---- ----
Income before income
tax expense 74 92 156 91 254 164
Income tax expense (4) 30 39 65 38 105 69
---- ---- ---- ---- ---- ----
Net income $ 44 $ 53 $ 91 $ 53 $149 $ 95
==== ==== ==== ==== ==== ====
Average loans $ -- $ -- $3.8 $2.2 $1.2 $ .5
Average assets 1.7 1.0 5.3 3.3 1.6 .8
Average core deposits 13.8 9.6 9.3 6.3 27.8 17.9
Return on equity (5) 11% 22% 30% 29% 47% 41%
Risk-adjusted efficiency ratio (6) 100% 92% 71% 75% 62% 69%
=======================================================================================================================
</TABLE>
(1) Net interest income is the difference between actual interest earned on
assets (and interest paid on liabilities) owned by a group and a funding
charge (and credit) based on the Company's cost of funds. Groups are
charged a cost to fund any assets (e.g., loans) and are paid a funding
credit for any funds provided (e.g., deposits). The interest spread is
the difference between the interest rate earned on an asset or paid on a
liability and the Company's cost of funds rate.
(2) The provision allocated to the line groups is based on management's
current assessment of the normalized net charge-off ratio for each line
of business. In any particular year, the actual net charge-offs can be
higher or lower than the normalized provision allocated to the lines of
business. The difference between the normalized provision and the
Company provision is included in Other.
(3) 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 $113 million and $55 million for the
quarters ended June 30, 1996 and 1995, respectively, and $163 million and
$103 million for the six months ended June 30, 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 the financial performance of the Company's
major business units. The table presents the second quarter and six months
ended June 30, 1996 and the same periods of 1995. First Interstate results
prior to April 1, 1996 are not included and, therefore, the current period is
not comparable to prior periods.
14
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
------------------------------------------------------------------------------------------------
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> <C>
QUARTER ENDED JUNE 30,
Net interest income (1) $ 106 $ 62 $ 231 $ 105 $ 288 $ 154 $ 73 $ 8 $1,304 $ 659
Provision for loan losses (2) 12 7 21 10 111 55 (162) (80) -- --
Noninterest income (3) 15 4 85 31 75 55 (76) (45) 639 310
Noninterest expense (3) 29 22 123 49 130 78 193 (13) 1,277 560
------ ---- ----- ----- ------ ------ ------ ------ ------ ------
Income before income
tax expense 80 37 172 77 122 76 (34) 56 666 409
Income tax expense (4) 33 15 71 33 50 32 15 28 303 177
------ ---- ----- ----- ------ ------ ------ ------ ------ ------
Net income $ 47 $ 22 $ 101 $ 44 $ 72 $ 44 $ (49) $ 28 $ 363 $ 232
====== ==== ===== ===== ====== ====== ====== ====== ====== ======
Average loans $ 10.5 $6.3 $18.9 $ 8.9 $ 24.3 $ 10.6 $ 10.4 $ 4.6 $ 70.7 $ 33.2
Average assets 11.1 6.8 23.2 10.1 25.6 11.0 36.8 18.4 108.4 51.5
Average core deposits .3 .1 11.3 2.9 .3 .2 3.2 (.5) 83.4 36.2
Return on equity (5) 18% 13% 23% 24% 19% 24% --% --% 10% 27%
Risk-adjusted efficiency ratio (6) 72% 90% 71% 67% 80% 73% --% --% --% --%
SIX MONTHS ENDED JUNE 30,
Net interest income (1) $ 172 $120 $ 332 $ 209 $ 471 $ 301 $ 85 $ 40 $1,980 $1,324
Provision for loan losses (2) 20 14 31 20 174 105 (255) (156) -- --
Noninterest income (3) 39 11 123 76 133 101 (116) (169) 993 551
Noninterest expense (3) 51 36 179 99 205 150 189 (11) 1,844 1,096
------ ---- ----- ----- ------ ------ ------ ------ ------ ------
Income before income
tax expense 140 81 245 166 225 147 35 38 1,129 779
Income tax expense (4) 58 34 101 70 94 62 49 2 502 314
------ ---- ----- ----- ------ ------ ------ ------ ------ ------
Net income $ 82 $ 47 $ 144 $ 96 $ 131 $ 85 $ (14) $ 36 $ 627 $ 465
====== ==== ===== ===== ====== ====== ====== ====== ====== ======
Average loans $ 8.8 $6.4 $13.9 $ 8.8 $ 18.0 $ 10.3 $ 7.2 $ 6.6 $ 52.9 $ 34.8
Average assets 9.3 6.8 16.7 10.0 18.7 10.6 25.5 19.4 78.8 51.9
Average core deposits .3 .1 6.8 2.8 .3 .2 1.8 (.4) 60.1 36.5
Return on equity (5) 19% 14% 23% 26% 23% 25% --% --% 14% 27%
Risk-adjusted efficiency ratio (6) 70% 84% 70% 64% 73% 73% --% --% --% --%
=================================================================================================
</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.
The results incorporate estimates of cost allocations, transfers and
assignments based on management's current understanding of the First
Interstate businesses. The cost allocations are based on estimates of the
steady state level of expenses. The Company is still in the process of
integrating First Interstate and changes may affect the line of business
results.
15
<PAGE>
The Company believes that cash earnings is the most relevant measure of
financial performance for shareholders. For this reason, goodwill and
nonqualifying core deposit intangible have not been allocated to the business
units in this presentation and are reported in "Other."
The following describes the major business units.
The Retail Distribution Group sells and services a complete line of retail
financial products for consumers and small businesses. It encompasses a
network of traditional branches, supermarket branches and banking centers,
the 24-hour Telephone Banking Centers, the ATM network and Wells Fargo's
On-Line Financial Services, the Company's personal computer banking services.
In addition, Retail Distribution includes the consumer checking business,
which primarily uses the branches as a source of new customers.
As a result of the Merger, the physical distribution network has increased to
2,129 staffed outlets in 13 states, with 1,580 traditional branches, 202
supermarket branches and 347 banking centers, and 4,513 ATMs. Average
consumer checking core deposits for the second quarter were $18.7 billion,
with the addition of $9.4 billion in First Interstate deposits.
The Business Banking Group provides a full range of financial services to
small businesses, including credit, deposits, investments, payroll services,
retirement programs and credit and debit card services. Business Banking
customers include small businesses with annual sales up to $10 million in
which the owner of the business is also the principal financial decision
maker. As a result of the Merger, deposits have increased by $5.8 billion to
$12.3 billion. Loans have increased by $1.3 billion to $4.7 billion.
The Investment Group is responsible for the sales and management of savings
and investment products, investment management, fiduciary and brokerage
services. This includes the Stagecoach and Overland Express families of
funds as well as personal trust, employee benefit trust and agency assets.
It also includes product management for market rate accounts, savings
deposits, Individual Retirement Accounts (IRAs) and time deposits.
Through the Merger, the funds management and high net worth portfolio
management businesses increased from $36.6 billion to $56.3 billion in assets
under management, loans increased by $1.4 billion to $1.9 billion and core
deposits increased by $18.8 billion to $37.3 billion.
The Real Estate Group provides a complete line of services supporting the
commercial real estate market. Products and services include construction
loans for commercial and residential development, land acquisition and
development loans, secured and unsecured lines of credit, interim financing
arrangements for completed structures, rehabilitation loans, affordable
housing loans and letters of credit. Secondary market services are provided
through the Real Estate Capital Markets Group. Its business includes
purchasing distressed loans at a discount, mezzanine financing, acquisition
financing, origination of permanent loans for securitization, syndications,
commercial real estate loan servicing and real estate pension fund advisory
services. The Merger added lending offices in Portland,
Houston, San
16
<PAGE>
Diego and Phoenix. The Real Estate Group's loans increased by $3.3 billion
to $10.5 billion after the inclusion of First Interstate's real estate
lending operations.
The Wholesale Products Group serves businesses with annual sales in excess of
$5 million and maintains relationships with major corporations throughout the
United States. The Group is responsible for soliciting and maintaining
credit and noncredit relationships with businesses by offering a variety of
products and services, including traditional commercial loans and lines,
letters of credit, international trade facilities, foreign exchange services,
cash management and electronic products. The Group includes the majority
ownership interest in the Wells Fargo HSBC Trade Bank established in October
1995 that provides trading financing, letters of credit and collection
services. Middle market commercial banking distribution capability was
enhanced through the Merger with the addition of offices in the Pacific
Northwest, Southwest and Texas. The Merger also provided additional cash
management and electronic products market penetration, especially in the
large corporate segment. As a result of the Merger, the Wholesale Products
Group's loans increased by $10.0 billion to $18.9 billion and core deposits
increased by $8.9 billion to $11.3 billion.
Consumer Lending offers a full array of consumer loan products, including
credit cards, auto financing and leases, home equity lines and loans, lines
of credit and installment loans. As a result of the Merger, the portfolio
increased by $12.3 billion consisting of $1.2 billion in credit cards, $6.5
billion in equity/unsecured loans and $4.6 billion in auto financing and
leases. The total portfolio now contains $5.2 billion in credit cards, $12.1
billion in equity/unsecured loans and $7.0 billion in auto financing.
The Other category includes the Company's 1-4 family first mortgage
portfolio, the investment securities portfolio, goodwill and the
nonqualifying core deposit intangible, 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.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $1,304 million in the
second quarter of 1996, compared with $659 million in the second quarter of
1995. The Company's net interest margin was 6.03% in the second quarter of
1996, compared with 5.66% in the second quarter of 1995 and 6.18% in the
first quarter of 1996. Net interest income on a taxable-equivalent basis was
$1,980 million in the first six months of 1996, compared with $1,324 million
in the first six months of 1995. The Company's net interest margin was 6.08%
in the first six months of 1996, compared with 5.63% in the first six months
of 1995.
Individual components of net interest income and the net interest margin are
presented in the rate/yield table on pages 18 and 19.
17
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
=================================================================================================================================
Quarter ended June 30,
----------------------------------------------------------------------------
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
Federal funds sold and securities purchased
under resale agreements $ 588 5.36% $ 8 $ 66 6.18% $ 1
Investment securities:
At fair value (3):
U.S. Treasury securities 3,177 5.52 44 426 6.70 7
Securities of U.S. government agencies
and corporations 8,434 6.07 129 998 5.38 14
Private collateralized mortgage obligations 2,653 6.23 42 956 6.41 16
Other securities 668 6.83 10 62 14.42 1
-------- ------- -------- -------
Total investment securities at fair value 14,932 6.01 225 2,442 6.16 38
At cost:
U.S. Treasury securities -- -- -- 1,469 4.85 18
Securities of U.S. government agencies
and corporations -- -- -- 4,996 6.04 75
Private collateralized mortgage obligations -- -- -- 1,249 5.85 18
Other securities -- -- -- 156 6.85 3
-------- ------- -------- -------
Total investment securities at cost -- -- -- 7,870 5.80 114
-------- ------- -------- -------
Total investment securities 14,932 6.01 225 10,312 5.89 152
Mortgage loans held for sale (3) -- -- -- 2,884 7.33 54
Loans:
Commercial 19,460 8.75 424 8,436 10.01 211
Real estate 1-4 family first mortgage 11,924 7.50 224 5,063 7.42 94
Other real estate mortgage 13,006 9.32 300 8,058 9.49 190
Real estate construction 2,385 10.07 60 1,070 10.20 27
Consumer:
Real estate 1-4 family junior lien mortgage 6,790 8.96 152 3,356 8.55 72
Credit card 5,183 14.61 189 3,433 15.62 134
Other revolving credit and monthly payment 9,151 9.35 213 2,353 10.56 62
-------- ------- -------- -------
Total consumer 21,124 10.51 554 9,142 11.73 268
Lease financing 2,599 8.76 57 1,405 9.22 32
Foreign 236 4.72 3 28 7.98 1
-------- ------- -------- -------
Total loans 70,734 9.20 1,622 33,202 9.93 823
Other 396 6.62 7 61 5.30 1
-------- ------- -------- -------
Total earning assets $ 86,650 8.62 1,862 $ 46,525 8.86 1,031
======== ------- ======== -------
FUNDING SOURCES
Interest-bearing liabilities:
Deposits:
Interest-bearing checking (4) $ 7,060 1.24 22 $ 4,210 1.00 11
Market rate and other savings (4) 32,921 2.68 220 15,170 2.54 96
Savings certificates 16,779 4.84 201 7,948 5.27 104
Other time deposits 483 5.89 7 442 7.21 8
Deposits in foreign offices 303 5.17 4 2,309 6.06 35
-------- ------- -------- -------
Total interest-bearing deposits 57,546 3.17 454 30,079 3.38 254
Federal funds purchased and securities sold
under repurchase agreements 1,667 5.08 21 3,924 6.02 59
Commercial paper and other short-term borrowings 296 4.19 3 621 5.95 9
Senior debt 2,289 6.07 35 1,511 6.85 26
Subordinated debt 2,580 7.03 45 1,484 6.54 24
-------- ------- -------- -------
Total interest-bearing liabilities 64,378 3.49 558 37,619 3.96 372
Portion of noninterest-bearing funding sources 22,272 -- -- 8,906 -- --
-------- ------- -------- -------
Total funding sources $ 86,650 2.59 558 $ 46,525 3.20 372
======== ------- ======== -------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (5) 6.03% $ 1,304 5.66% $ 659
===== ======= ===== =======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 8,569 $ 2,602
Other 13,211 2,364
-------- --------
Total noninterest-earning assets $ 21,780 $ 4,966
======== ========
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 26,596 $ 8,898
Other liabilities 2,414 1,157
Preferred stockholders' equity 839 489
Common stockholders' equity 14,203 3,328
Noninterest-bearing funding sources used to
fund earning assets (22,272) (8,906)
-------- --------
Net noninterest-bearing funding sources $ 21,780 $ 4,966
======== ========
TOTAL ASSETS $108,430 $ 51,491
======== ========
=================================================================================================================================
</TABLE>
(1) The average prime rate of Wells Fargo Bank was 8.25% and 9.00% for the
quarters ended June 30, 1996 and 1995, respectively and 8.29% and 8.91%
for the six months ended June 30, 1996 and 1995, respectively. The
average three-month London Interbank Offered Rate (LIBOR) was 5.52% and
6.12% for the quarters ended June 30, 1996 and 1995, respectively, and
5.46% and 6.21% for the six months ended June 30, 1996 and 1995,
respectively.
(2) Interest rates and amounts include the effects of hedge and risk
management activities associated with the respective asset and liability
categories.
(3) Yields are based on amortized cost balances. The average amortized cost
balances for investment securities at fair value totaled $15,012 million
and $2,492 million for the quarters ended June 30, 1996 and 1995,
respectively, and $11,814 million and $2,685 million for the six months
ended June 30, 1996 and 1995, respectively. The average amortized cost
balances for mortgage loans held for sale totaled $2,925 million and
$1,470 million for the quarter and six months ended June 30, 1995,
respectively.
(4) Due to the limited transaction activity on 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.
(5) Includes taxable-equivalent adjustments that primarily relate to income
on certain loans and securities that is exempt from federal and
applicable state income taxes. The federal statutory tax rate was 35%
for all periods presented.
18
<PAGE>
<TABLE>
<CAPTION>
============================================================================
Six months ended June 30,
----------------------------------------------------------------------------
1996 1995
--------------------------------- --------------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
BALANCE RATES EXPENSE balance rates expense
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold and securities
purchased under resale agreements $ 357 5.42% $ 10 $ 57 5.93% $ 2
Investment securities:
At fair value (3):
U.S. Treasury securities 2,266 5.52 62 406 6.70 14
Securities of U.S. government
agencies and corporations 6,712 6.02 203 1,104 5.59 32
Private collateralized mortgage
obligations 2,366 6.15 73 1,022 6.38 34
Other securities 447 7.03 15 64 14.49 3
-------- ------ ------- -------
Total investment securities
at fair value 11,791 5.99 353 2,596 6.21 83
At cost:
U.S. Treasury securities -- -- -- 1,557 4.84 38
Securities of U.S. government
agencies and corporations -- -- -- 5,114 6.03 154
Private collateralized mortgage
obligations -- -- -- 1,267 5.89 37
Other securities -- -- -- 160 6.76 5
-------- ------ ------- -------
Total investment securities at
cost -- -- -- 8,098 5.79 234
-------- ------ ------- -------
Total investment securities 11,791 5.99 353 10,694 5.90 317
Mortgage loans held for sale (3) -- -- -- 1,450 7.29 54
Loans:
Commercial 14,384 9.15 655 8,246 9.89 405
Real estate 1-4 family first mortgage 8,162 7.52 307 7,042 7.24 255
Other real estate mortgage 10,602 9.28 489 8,090 9.54 383
Real estate construction 1,856 10.04 93 1,045 10.18 53
Consumer:
Real estate 1-4 family junior lien
mortgage 5,062 8.81 222 3,339 8.60 143
Credit card 4,558 15.02 343 3,280 15.69 257
Other revolving credit and monthly
payment 5,875 9.76 285 2,311 10.49 121
-------- ------ ------- -------
Total consumer 15,495 10.99 850 8,930 11.70 521
Lease financing 2,248 8.95 101 1,378 9.19 63
Foreign 133 4.98 3 28 7.46 1
-------- ------ ------- -------
Total loans 52,880 9.48 2,498 34,759 9.72 1,681
Other 231 6.57 7 60 5.44 2
-------- ------ ------- -------
Total earning assets $ 65,259 8.82 2,868 $47,020 8.76 2,056
======== ------ ======= -------
FUNDING SOURCES
Interest-bearing liabilities:
Deposits:
Interest-bearing checking (4) $ 3,958 1.21 24 $ 4,287 1.00 21
Market rate and other
savings (4) 25,456 2.62 332 15,643 2.55 198
Savings certificates 12,707 4.98 315 7,649 5.09 193
Other time deposits 412 6.46 13 400 5.10 10
Deposits in foreign offices 414 5.33 11 2,486 5.96 74
-------- ------ ------- -------
Total interest-bearing deposits 42,947 3.25 695 30,465 3.28 496
Federal funds purchased and securities
sold under repurchase agreements 2,186 5.25 57 3,905 5.92 115
Commercial paper and other short-term
borrowings 350 4.81 8 654 5.92 19
Senior debt 2,000 6.15 61 1,575 6.89 54
Subordinated debt 1,923 6.97 67 1,477 6.57 48
-------- ------ ------- -------
Total interest-bearing
liabilities 49,406 3.61 888 38,076 3.87 732
Portion of noninterest-bearing
funding sources 15,853 -- -- 8,944 -- --
-------- ------ ------- -------
Total funding sources $ 65,259 2.74 888 $47,020 3.13 732
======== ------ ======= -------
NET INTEREST MARGIN AND NET INTEREST
INCOME ON A TAXABLE-EQUIVALENT
BASIS (5) 6.08% $1,980 5.63% $ 1,324
===== ====== ===== =======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 5,721 $ 2,595
Other 7,802 2,323
-------- -------
Total noninterest-earning
assets $ 13,523 $ 4,918
======== =======
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 17,966 $ 8,883
Other liabilities 1,846 1,149
Preferred stockholders' equity 664 489
Common stockholders' equity 8,900 3,341
Noninterest-bearing funding sources used
to fund earning assets (15,853) (8,944)
-------- -------
Net noninterest-bearing funding
sources $ 13,523 $ 4,918
======== =======
TOTAL ASSETS $ 78,782 $51,938
======== =======
============================================================================
</TABLE>
19
<PAGE>
Interest income included hedging income (expense) of $24 million in the
second quarter of 1996, compared with $(2) million in the second quarter of
1995. Interest expense included hedging income (expense) of $(5) million in the
second quarter of 1996, compared with $6 million in the second quarter of
1995.
Loans averaged $70.7 billion in the second quarter of 1996, compared with
$33.2 billion in the second quarter of 1995, and $52.9 billion in the first
six months of 1996, compared with $34.8 billion in the first six months of
1995. This increase primarily reflects the acquisition of the First
Interstate portfolio.
Investment securities averaged $14.9 billion during the second quarter of
1996, compared with $10.3 billion in the second quarter of 1995, and $11.8
billion in the first six months of 1996, compared with $10.7 billion in the
first six months of 1995. This increase reflects the acquisition of the
First Interstate portfolio.
Average core deposits were $83.4 billion and $36.2 billion in the second
quarter of 1996 and 1995, respectively, and funded 77% and 70% of the
Company's average total assets in the same quarter of 1996 and 1995,
respectively. For the first six months of 1996 and 1995, average core
deposits were $60.1 billion and $36.5 billion, respectively, and funded 76%
and 70% of the Company's average total assets in the same period of 1996 and
1995, respectively.
20
<PAGE>
<TABLE>
<CAPTION>
NONINTEREST INCOME
==================================================================================================================
Quarter Six months
ended June 30, ended June 30,
------------- % ------------- %
(in millions) 1996 1995 Change 1996 1995 Change
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $258 $119 117% $380 $236 61%
Fees and commissions:
Credit card membership and other credit card fees 26 23 13 53 42 26
Debit and credit card merchant fees 37 17 118 52 30 73
Charges and fees on loans 32 12 167 50 23 117
Shared ATM network fees 27 13 108 39 24 63
Mutual fund and annuity sales fees 18 8 125 27 18 50
All other 71 30 137 108 67 61
---- ---- ---- ----
Total fees and commissions 211 103 105 329 204 61
Trust and investment services income:
Asset management and custody fees 60 32 88 95 63 51
Mutual fund management fees 34 17 100 55 31 77
All other 10 8 25 14 18 (22)
---- ---- ---- ----
Total trust and investment services income 104 57 82 164 112 46
Investment securities gains (losses) 3 -- -- 2 (15) --
Income from equity investments accounted for by the:
Cost method 20 13 54 55 32 72
Equity method 8 12 (33) 10 20 (50)
Check printing charges 15 9 67 24 20 20
Gains (losses) from dispositions of operations 1 (9) -- 5 (9) --
Gains (losses) on sales of loans 1 1 -- 5 (66) --
Losses on dispositions of premises and equipment (5) (5) -- (17) (8) (113)
All other 23 10 130 36 25 44
---- ---- ---- ----
Total $639 $310 106% $993 $551 80%
==== ==== === ==== ==== ===
==================================================================================================================
</TABLE>
The overall increase in noninterest income reflected the impact of the Merger.
"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 $21 million and $15 million for the
second quarter of 1996 and 1995, respectively, and $37 million and $25
million for the first half of 1996 and 1995, respectively. The related
amortization expense was $16 million and $11 million for the second quarter
of 1996 and 1995, respectively, and $27 million and $17 million for the first
half of 1996 and 1995, respectively. The balance of purchased mortgage
servicing rights was $230 million and $169 million at June 30, 1996 and 1995,
respectively. The purchased mortgage loan servicing portfolio totaled
$20 billion at June 30, 1996, compared with $14 billion at June 30, 1995.
A major portion of the increase in trust and investment services income for
the second quarter and first half of 1996 was due to greater mutual fund
management fees, reflecting the overall growth in the fund families' net
assets. The Company managed 17 of the Stagecoach family of funds consisting
of $7.8 billion of assets at June 30, 1996, compared with 28 funds consisting
of $8.0 billion at June 30, 1995. At June 30, 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
21
<PAGE>
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 of $1.8 billion were no longer under the
Company's management at June 30, 1996. The Overland Express family of 13
funds, which had $4.4 billion of assets under management at June 30, 1996,
compared with $2.9 billion at June 30, 1995, is sold through brokers around
the country. In addition to managing Stagecoach and Overland Express Funds,
the Company also managed or maintained personal trust, corporate trust,
employee benefit trust and agency assets of approximately $285 billion
(including $235 billion from First Interstate) and $51 billion at June 30,
1996 and 1995, respectively.
As a result of the Merger, the Company became the interim advisor for the
Pacifica family of 18 funds which had $5.4 billion of assets under management
at June 30, 1996. These funds are expected to merge into the Stagecoach
family of funds in September 1996.
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 1995 accrual for the disposition of 120 branches, of which 88
branches have been or are scheduled to be closed in the third quarter of
1996. The remaining 32 branch dispositions are expected to be completed by
the first quarter of 1997. The liability at June 30, 1996 associated with
branch dispositions not acquired as a result of the Merger was $72 million.
Additional expense accruals are expected to be made in the fourth quarter of
1996 or the first quarter of 1997 for additional Wells Fargo branch
dispositions that are yet to be identified as the Company continues to open
more supermarket branches and banking centers. At June 30, 1996, the Company
had 2,129 retail outlets, comprised of 1,580 traditional branches, 202
supermarket branches and 347 banking centers, in 13 western states. In August
1996, the Company and Safeway Inc. signed an agreement in principle that
would allow the Company to open as many as 450 new retail outlets (banking
centers and branches) in Safeway stores in the western United States.
For the first half 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.
22
<PAGE>
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
======================================================================================================================
Quarter Six months
ended June 30, ended June 30,
--------------- % --------------- %
(in millions) 1996 1995 Change 1996 1995 Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 400 $177 126% $ 581 $349 66%
Incentive compensation 61 33 85 93 60 55
Employee benefits 102 48 113 157 101 55
Equipment 111 45 147 167 92 82
Net occupancy 108 53 104 161 106 52
Contract services 66 38 74 108 64 69
Core deposit intangible:
Nonqualifying (1) 72 -- -- 72 -- --
Qualifying 10 11 (9) 19 22 (14)
Goodwill 81 9 800 89 17 424
Outside professional services 31 11 182 44 20 120
Telecommunications 28 15 87 44 28 57
Operating losses 27 11 145 42 27 56
Postage 26 14 86 41 26 58
Advertising and promotion 21 17 24 34 31 10
Stationery and supplies 21 9 133 31 18 72
Travel and entertainment 16 10 60 26 17 53
Security 17 5 240 23 10 130
Outside data processing 15 3 400 18 5 260
Check printing 10 6 67 16 12 33
Escrow and collection agency fees 9 4 125 13 8 63
Federal deposit insurance 3 24 (88) 4 47 (91)
Foreclosed assets 1 2 (50) 3 (2) --
All other 41 15 173 58 38 53
------ ---- ------ -----
Total $1,277 $560 128% $1,844 $1,096 68%
====== ==== === ====== ====== ===
======================================================================================================================
</TABLE>
(1) Amortization of core deposit intangibles acquired after February 1992
that are subtracted from stockholders' equity in computing regulatory
capital for bank holding companies.
In addition to the effect of combining operations of First Interstate with
the Company, the overall increase in noninterest expense primarily reflected
merger-related expenses, including severance and higher expenses for contract
and outside professional services.
Salaries, incentive compensation and employee benefits expense increased $305
million and $321 million from the second quarter and first half of 1995,
respectively, substantially due to higher staff levels after the consummation
of the Merger. Salaries and employee benefits expense for the second quarter
of 1996 included merger-related severance expense of $27 million. Additional
severance expense may be incurred in future quarters as the Company continues
the integration process, although the total amount is not anticipated to be
materially different than the second quarter. The Company's active full-time
equivalent (FTE) staff, including hourly employees, was approximately 41,548
at June 30, 1996, compared with approximately 18,978 at June 30, 1995. The
Company currently expects to have less than 35,000 active FTE by the third
quarter of 1997.
Excluding the effects of the Merger, increases in equipment expense in the
second quarter and first half of 1996 compared with the same periods in 1995
were primarily due to a higher level
23
<PAGE>
of spending on software and technology for product development and increased
depreciation expense on equipment related to business initiatives and system
upgrades.
Goodwill and CDI amortization resulting from the Merger were each $72 million
for the quarter ended June 30, 1996. The core deposit intangible is
amortized on an accelerated basis based on an estimated useful life of 15
years. The impact on noninterest expense from the amortization of the
nonqualifying core deposit intangible in 1997, 1998 and 1999 is expected to
be $241 million, $211 million and $186 million, respectively. The related
impact on income tax expense is expected to be a benefit of $99 million, $86
million and $76 million in 1997, 1998 and 1999, respectively.
The decrease in federal deposit insurance for the second quarter of 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.
INCOME TAXES
The Company's effective tax rate was 45% and 44% for the second quarter and
first half of 1996, respectively, compared with 43% and 40% for the same
periods of 1995, respectively. The increase in the effective tax rate for the
second quarter and first half of 1996 was due to increased goodwill
amortization related to the Merger, which is not tax deductible. The
increase in the effective tax rate for the first half of 1996 was also 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 for the years 1987 through 1992.
24
<PAGE>
EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
The following table reconciles reported earnings to net income excluding
goodwill and nonqualifying core deposit intangible ("cash" or "tangible") for
the quarter ended June 30, 1996:
<TABLE>
<CAPTION>
======================================================================================================
Quarter ended
(in millions) June 30, 1996
- ------------------------------------------------------------------------------------------------------
Amortization
---------------------------
Nonqualifying
Reported core deposit "Cash"
earnings Goodwill intangible earnings
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income tax expense $ 662 $ 81 $ 72 $ 815
Income tax expense (299) -- (29) (328)
----- ---- ---- -----
Net income 363 81 43 487
Preferred dividends (19) -- -- (19)
----- ---- ---- -----
Net income applicable to common stock $ 344 $ 81 $ 43 $ 468
===== ==== ==== =====
Per common share $3.61 $.84 $.44 $4.89
===== ==== ==== =====
======================================================================================================
</TABLE>
The ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core
deposit intangible amortization and balances for the quarter ended June 30,
1996 were calculated as follows:
<TABLE>
<CAPTION>
======================================================================================================
Quarter ended
(in millions) June 30, 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ROA: A*/ (C-E) = 1.96%
ROE: B*/ (D-E) = 33.43%
Efficiency: (F-G) / H = 58.0%
Net income $ 487 (A)
Net income applicable to common stock 468 (B)
Average total assets 108,430 (C)
Average common stockholders' equity 14,203 (D)
Average goodwill ($7,238) and after-tax nonqualifying core deposit intangible ($1,334) 8,572 (E)
Noninterest expense 1,277 (F)
Amortization expense for goodwill and nonqualifying core deposit intangible 153 (G)
Net interest income plus noninterest income 1,939 (H)
======================================================================================================
</TABLE>
* Annualized
25
<PAGE>
BALANCE SHEET ANALYSIS
- ----------------------
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
==========================================================================================================================
JUNE 30, December 31, June 30,
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 $ 2,626 $ 2,624 $1,347 $1,357 $ 423 $ 431
Securities of U.S. government
agencies and corporations (1) 7,928 7,847 5,218 5,223 1,036 1,008
Private collateralized mortgage obligations (2) 2,790 2,716 2,121 2,122 990 972
Other 439 443 169 181 25 34
------- ------- ------ ------ ------ ------
Total debt securities 13,783 13,630 8,855 8,883 2,474 2,445
Marketable equity securities 31 62 18 37 16 28
------- ------- ------ ------ ------ ------
Total $13,814 $13,692 $8,873 $8,920 $2,490 $2,473
======= ======= ====== ====== ====== ======
HELD-TO-MATURITY SECURITIES
AT COST:
U.S. Treasury securities $ -- $ -- $ -- $ -- $1,372 $1,361
Securities of U.S. government
agencies and corporations (1) -- -- -- -- 4,902 4,870
Private collateralized mortgage obligations (2) -- -- -- -- 1,236 1,217
Other -- -- -- -- 152 154
------- ------- ------ ------ ------ ------
Total debt securities $ -- $ -- $ -- $ -- $7,662 $7,602
======= ======= ====== ====== ====== ======
==========================================================================================================================
</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 June 30, 1996, the available-for-sale securities portfolio
had an unrealized net loss of $123 million, or less than 1% of the cost of
the portfolio, comprised of unrealized gross losses of $185 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 June 30, 1995, the available-for-sale
securities portfolio had an unrealized net loss of $17 million, comprised of
unrealized gross losses of $55 million and unrealized gross gains of $38
million. The unrealized net gain or loss on available-for-sale securities is
reported on an after-tax basis as a separate component of stockholders'
equity. At June 30, 1996, the valuation allowance amounted to an unrealized
net
26
<PAGE>
loss of $73 million, compared with an unrealized net gain of $26 million at
December 31, 1995 and an unrealized net loss of $9 million at June 30, 1995.
At June 30, 1995, the held-to-maturity securities portfolio had an estimated
unrealized net loss of $60 million (which reflected estimated unrealized
gross gains of $26 million).
The unrealized net loss in the available-for-sale portfolio at June 30, 1996
was predominantly 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).
During the first half of 1996, realized gross gains and losses resulting from
the sale of available-for-sale securities were $5 million and $2 million,
respectively.
During the first half of 1995, realized losses on the sale of investment
securities totaled $15 million. These losses resulted from the sale of $397
million of securities of U.S. government agencies and corporations, $288
million of private collateralized mortgage obligations and $2 million of
marketable equity securities from the available-for-sale portfolio for
asset/liability management purposes.
27
<PAGE>
The following table provides the expected remaining maturities and yields
(taxable-equivalent basis) of debt securities within the investment portfolio.
<TABLE>
<CAPTION>
===============================================================================================
June 30, 1996
---------------------------------------------------------
Expected remaining principal maturity
---------------------------------------------------------
Weighted
average
expected
Weighted remaining One year or less
Total average maturity ----------------
(in millions) amount yield (in yrs.-mos.) Amount Yield
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES (1):
U.S. Treasury securities $ 2,626 5.84% 1-4 $1,278 5.59%
Securities of U.S. government
agencies and corporations 7,928 6.39 2-5 2,684 5.86
Private collateralized mortgage
obligations 2,790 6.40 2-2 805 6.28
Other 439 6.96 2-3 121 6.27
------- ------
TOTAL COST OF DEBT SECURITIES $13,783 6.31% 2-2 $4,888 5.87%
======= ==== === ====== ====
ESTIMATED FAIR VALUE $13,630 $4,852
======= ======
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
=====================================================================================================
June 30, 1996
--------------------------------------------------------------
Expected remaining principal maturity
--------------------------------------------------------------
After one year After five years
through five years through ten years After ten years
------------------ ----------------- ---------------
(in millions) Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES (1):
U.S. Treasury securities $1,341 6.07% $ 7 6.30% $ -- --%
Securities of U.S. government
agencies and corporations 4,494 6.48 670 7.85 80 7.20
Private collateralized mortgage
obligations 1,919 6.40 54 7.36 12 18.85
Other 298 6.64 17 18.67 3 6.37
------ ---- ----
TOTAL COST OF DEBT SECURITIES $8,052 6.40% $748 8.05% $ 95 8.65%
====== ==== ==== ===== ==== =====
ESTIMATED FAIR VALUE $7,937 $746 $ 95
====== ==== ====
=====================================================================================================
</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 2 months at June 30, 1996, compared with 2 years
and 1 month at March 31, 1996 and December 31, 1995. The short-term debt
securities portfolio serves to maintain asset liquidity and to fund loan
growth.
At June 30, 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 $10,563 million, or 77%, of the Company's
investment securities portfolio at June 30, 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 $10,563 million to $10,054 million and the
expected remaining maturity of these securities would increase from 2 years
and 4 months to 2 years and 7 months.
28
<PAGE>
<TABLE>
<CAPTION>
LOAN PORTFOLIO
=======================================================================================================
% Change
June 30, 1996 from
------------------
JUNE 30, Dec. 31, June 30, Dec. 31, June 30,
(in millions) 1996 1995 1995 1995 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial (1)(2) $19,575 $ 9,750 $ 8,872 101% 121%
Real estate 1-4 family first mortgage (3) 11,811 4,448 5,051 166 134
Other real estate mortgage (4) 12,920 8,263 7,973 56 62
Real estate construction 2,401 1,366 1,110 76 116
Consumer:
Real estate 1-4 family junior lien mortgage 6,736 3,358 3,373 101 100
Credit card 5,276 4,001 3,628 32 45
Other revolving credit and monthly payment 9,075 2,576 2,409 252 277
------- ------- -------
Total consumer 21,087 9,935 9,410 112 124
Lease financing 2,689 1,789 1,451 50 85
Foreign 58 31 29 87 100
------- ------- -------
Total loans (net of unearned income,
including net deferred loan fees,
of $528, $463 and $407) $70,541 $35,582 $33,896 98% 108%
======= ======= ======= === ===
=======================================================================================================
</TABLE>
(1) Includes loans to real estate developers of $905 million, $700 million
and $467 million at June 30, 1996, December 31, 1995 and June 30, 1995,
respectively.
(2) Includes agricultural loans (loans to finance agricultural production and
other loans to farmers) of $1,493 million, $1,029 million and $838
million at June 30, 1996, December 31, 1995 and June 30, 1995,
respectively.
(3) Excludes mortgage loans held for sale at June 30, 1995 of $1,336 million,
net of an estimated $50 million write-down to the lower of cost or
estimated market.
(4) Includes agricultural loans that are secured by real estate of $370
million, $250 million and $258 million at June 30, 1996, December 31,
1995 and June 30, 1995, respectively.
The table below presents comparative period-end commercial real estate loans.
<TABLE>
<CAPTION>
=======================================================================================================
% Change
June 30, 1996 from
------------------
JUNE 30, Dec. 31, June 30, Dec. 31, June 30,
(in millions) 1996 1995 1995 1995 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans to
real estate developers (1) $ 905 $ 700 $ 467 35% 102 %
Other real estate mortgage 12,920 8,263 7,973 56 62
Real estate construction 2,401 1,366 1,110 76 116
------- ------- ------
Total $16,226 $10,329 $9,550 57% 70 %
======= ======= ====== === ===
Nonaccrual loans $ 425 $ 371 $ 458 15% (7)%
======= ======= ====== === ===
Nonaccrual loans as a % of total 2.6% 3.6% 4.8%
======= ======= ======
=======================================================================================================
</TABLE>
(1) Included in commercial loans.
29
<PAGE>
<TABLE>
<CAPTION>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
==============================================================================
JUNE 30, Dec. 31, June 30,
(in millions) 1996 1995 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial (2)(3) $ 208 $ 112 $ 121
Real estate 1-4 family first mortgage 87 64 64
Other real estate mortgage (4) 363 307 373
Real estate construction 47 46 58
Consumer:
Real estate 1-4 family junior lien mortgage 22 8 12
Other revolving credit and monthly payment 1 1 3
Lease financing 3 -- --
----- ----- -----
Total nonaccrual loans (5) 731 538 631
Restructured loans (6) 11 14 13
----- ----- -----
Nonaccrual and restructured loans 742 552 644
As a percentage of total loans (7) 1.1% 1.6% 1.9%
Foreclosed assets 238 186 224
Real estate investments (8) 7 12 14
----- ----- -----
Total nonaccrual and restructured loans
and other assets $ 987 $ 750 $ 882
===== ===== =====
==============================================================================
</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 $15 million, $18 million and
$27 million at June 30, 1996, December 31, 1995 and June 30, 1995,
respectively.
(3) Includes agricultural loans of $30 million, $6 million and $2 million at
June 30, 1996, December 31, 1995 and June 30, 1995, respectively.
(4) Includes agricultural loans secured by real estate of $6 million or less
for all periods presented.
(5) Of the total nonaccrual loans, $553 million, $408 million and $516
million at June 30, 1996, December 31, 1995 and June 30, 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 June 30, 1996,
December 31, 1995 and June 30, 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 June 30, 1996, December 31,
1995 and June 30, 1995, respectively.
(7) Total loans exclude mortgage loans held for sale at June 30, 1995.
(8) 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
$124 million, $95 million and $75 million at June 30, 1996, December 31,
1995 and June 30, 1995, respectively.
The table below summarizes the changes in total nonaccrual loans.
<TABLE>
<CAPTION>
==============================================================================
JUNE 30, June 30,
(in millions) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF QUARTER $525 $566
Nonaccrual loans of First Interstate 201 --
New loans placed on nonaccrual 173 173
Loans purchased -- 1
Charge-offs (48) (18)
Payments (87) (49)
Transfers to foreclosed assets (19) (19)
Loans returned to accrual (14) (23)
---- ----
BALANCE, END OF QUARTER $731 $631
==== ====
==============================================================================
</TABLE>
30
<PAGE>
The Company generally identifies loans to be evaluated for impairment under
FAS 114 (Accounting by Creditors for Impairment of a Loan) 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 under FAS 114, 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.
31
<PAGE>
The table below shows the recorded investment in impaired loans by loan
category at June 30, 1996, December 31, 1995 and June 30, 1995:
<TABLE>
<CAPTION>
=================================================================================
JUNE 30, December 31, June 30,
(in millions) 1996 1995 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 166 $ 77 $ 98
Real estate 1-4 family first mortgage 2 2 6
Other real estate mortgage (1) 386 330 351
Real estate construction 47 46 57
Other 2 3 4
----- ----- -----
Total (2) $ 603 $ 458 $ 516
===== ===== =====
Impairment measurement based on:
Collateral value method $ 433 $ 374 $ 367
Discounted cash flow method 135 66 130
Historical loss factors 35 18 19
----- ----- -----
$ 603 $ 458 $ 516
===== ===== =====
=================================================================================
</TABLE>
(1) Includes accruing loans of $50 million, $50 million and none purchased at
a steep discount at June 30, 1996, December 31, 1995 and June 30, 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 $39 million, $22 million and $48 million of impaired loans with
a related FAS 114 allowance of $4 million, $3 million and $9 million at
June 30, 1996, December 31, 1995 and June 30, 1995, respectively.
The average recorded investment in impaired loans was $613 million and $523
million during the second quarter and first half of 1996, respectively, and
$504 million and $479 million during the second quarter and first half of
1995, respectively. Total interest income recognized on impaired loans was
$5 million and $9 million during the second quarter and first half of 1996,
respectively, and $4 million and $8 million during the second quarter and
first half of 1995, respectively. The interest income for all periods was
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.
32
<PAGE>
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.
The table below summarizes the changes in foreclosed assets.
<TABLE>
<CAPTION>
=============================================================================
JUNE 30, June 30,
(in millions) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF QUARTER $ 198 $ 273
Foreclosed assets of First Interstate 51 --
Additions 37 19
Sales (33) (62)
Charge-offs (12) (2)
Write-downs (1) (1)
Other deductions (2) (3)
----- -----
BALANCE, END OF QUARTER $ 238 $ 224
===== =====
=============================================================================
</TABLE>
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 such nonaccrual loans are excluded
from the following table.
<TABLE>
<CAPTION>
=============================================================================
JUNE 30, Dec. 31, June 30,
(in millions) 1996 1995 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 83 $ 12 $ 1
Real estate 1-4 family first mortgage 31 8 8
Other real estate mortgage 31 24 66
Real estate construction 15 -- --
Consumer:
Real estate 1-4 family junior lien mortgage 11 4 5
Credit card 105 95 54
Other revolving credit and monthly payment 7 1 1
----- ----- -----
Total consumer 123 100 60
Lease financing 1 -- --
----- ----- -----
Total $ 284 $ 144 $ 135
===== ===== =====
=============================================================================
</TABLE>
33
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
===========================================================================================
Quarter ended Six months ended
------------------- --------------------
JUNE 30, June 30, JUNE 30, June 30,
(in millions) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $1,681 $2,017 $1,794 $2,082
Allowance of First Interstate 770 -- 770 --
Loan charge-offs:
Commercial (1) (48) (10) (61) (17)
Real estate 1-4 family first mortgage (5) (3) (9) (6)
Other real estate mortgage (13) (12) (16) (34)
Real estate construction (4) (1) (5) (4)
Consumer:
Real estate 1-4 family junior lien mortgage (13) (4) (17) (7)
Credit card (101) (46) (187) (83)
Other revolving credit and monthly payment (51) (13) (71) (23)
------ ------ ------ ------
Total consumer (165) (63) (275) (113)
Lease financing (8) (3) (14) (7)
------ ------ ------ ------
Total loan charge-offs (243) (92) (380) (181)
------ ------ ------ ------
Loan recoveries:
Commercial (2) 8 6 13 14
Real estate 1-4 family first mortgage 2 1 5 2
Other real estate mortgage 19 7 23 13
Real estate construction 4 -- 5 1
Consumer:
Real estate 1-4 family junior lien mortgage 4 1 5 2
Credit card 11 3 16 6
Other revolving credit and monthly payment 15 3 18 5
------ ------ ------ ------
Total consumer 30 7 39 13
Lease financing 2 1 4 3
------ ------ ------ ------
Total loan recoveries 65 22 89 46
------ ------ ------ ------
Total net loan charge-offs (178) (70) (291) (135)
------ ------ ------ ------
BALANCE, END OF PERIOD $2,273 $1,947 $2,273 $1,947
====== ====== ====== ======
Total net loan charge-offs as a percentage
of average loans (annualized) (3) 1.01% .84% 1.10% .78%
------ ------ ------ ------
Allowance as a percentage of total loans (3) 3.22% 5.74% 3.22% 5.74%
====== ====== ====== ======
===========================================================================================
</TABLE>
(1) Charge-offs of loans to real estate developers were $.8 million and $.1
million for the quarters ended June 30, 1996 and June 30, 1995,
respectively, and $1.1 million and $.3 million for the six months ended
June 30, 1996 and 1995, respectively.
(2) Includes recoveries from loans to real estate developers of $.5 million
and $1 million for the quarters ended June 30, 1996 and June 30, 1995,
respectively, and $1.1 million and $1.4 million for the six months ended
June 30, 1996 and June 30, 1995, respectively.
(3) Average and total loans exclude first mortgage loans held for sale at
June 30, 1995.
34
<PAGE>
The table below presents net charge-offs by loan category.
<TABLE>
<CAPTION>
========================================================================================================================
Quarter ended Six Months Ended
------------------------------------ --------------------------------------
JUNE 30, 1996 June 30, 1995 JUNE 30, 1996 June 30, 1995
--------------- ---------------- ---------------- -----------------
% OF % of % OF % of
AVERAGE average AVERAGE average
(in millions) AMOUNT LOANS(1) Amount loans(1) AMOUNT LOANS(1) Amount loans(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 40 .80% $ 4 .22% $ 48 .65% $ 2 .06%
Real estate 1-4 family first mortgage 3 .10 2 .14 4 .10 4 .12
Other real estate mortgage (6) (.20) 5 .24 (7) (.14) 21 .53
Real estate construction -- -- 1 .33 -- -- 3 .61
Consumer:
Real estate 1-4 family
junior lien mortgage 9 .54 3 .42 12 .50 5 .34
Credit card 90 7.03 43 4.95 171 7.56 78 4.75
Other revolving credit
and monthly payment 36 1.59 10 1.65 53 1.82 18 1.53
---- ---- ---- ----
Total consumer 135 2.58 56 2.44 236 3.07 101 2.27
Lease financing 6 .84 2 .60 10 .88 4 .52
---- ---- ---- ----
Total net loan charge-offs $178 1.01% $ 70 .84% $291 1.10% $135 .78%
==== ==== ==== ==== ==== ==== ==== ====
========================================================================================================================
</TABLE>
(1) Calculated on an annualized basis.
The largest category of net charge-offs in the second quarter and first half
of 1996 was credit card loans, comprising more than 50% of total net
charge-offs in each period. 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.
During the second quarter of 1996, the Company's credit policies for certain
consumer loans not secured by real estate were modified. The changes were
made primarily to align the charge-off policies of the combined Wells Fargo
and First Interstate portfolios. The policy changes included extending
installment loans and lines of credit charge-offs from 90 to 120 days, or
from four to five payment cycles. The impact of this change was a one-time
reduction in gross charge-offs of approximately $4 million. Separately,
First Interstate's charge-off policies were conformed to Wells Fargo's
policies in two areas. The credit card charge-off period was extended from
120 days to 180 days past due before a loan was charged off, which reduced
gross charge-offs by approximately $7 million for the second quarter. An
offsetting policy change for auto loans and leases conformed the First
Interstate charge-off policy of 120 days to the Wells Fargo policy of 90 days
and resulted in an increase to charge-offs of approximately $6 million.
The Company considers the allowance for loan losses of $2,273 million
adequate to cover losses inherent in loans, loan commitments and standby
letters of credit at June 30, 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 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
35
<PAGE>
half of 1996, or during all of 1995. However, the Company anticipates that
it will resume making a provision of up to $40 million in either the third or
fourth quarter of 1996.
OTHER ASSETS
<TABLE>
<CAPTION>
============================================================================================
JUNE 30, December 31, June 30,
(in millions) 1996 1995 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonmarketable equity investments $ 691 $ 428 $ 412
Net deferred tax asset (1) 551 854 972
Certain identifiable intangible assets 462 220 245
Foreclosed assets 238 186 224
Other 1,570 552 616
------ ------ ------
Total other assets $3,512 $2,240 $2,469
====== ====== ======
============================================================================================
</TABLE>
(1) Net of a valuation allowance of none, none and $2 million at June 30,
1996, December 31, 1995 and June 30, 1995, respectively.
The Company estimates that approximately $504 million of the $551 million net
deferred tax asset at June 30, 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 $47 million primarily
relates to approximately $621 million 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.
In October 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
second quarter 1996, fourth quarter 1995 and second quarter 1995 were $76
million (including $72 million from First Interstate), $7 million and $53
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 $16
million, $11 million and $11 million for the quarters ended June 30, 1996,
December 31, 1995 and June 30, 1995, respectively. Purchased mortgage
servicing rights included in certain identifiable intangible assets were $230
million, $152 million and $169 million at June 30, 1996, December 31, 1995
and June 30, 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
36
<PAGE>
$25 million, $15 million and $15 million for the quarters ended June 30,
1996, December 31, 1995 and June 30, 1995, respectively.
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 125 (FAS 125), Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. This Statement provides guidance for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. FAS 125 supersedes FAS 76, 77 and 122, while amending both FAS
65 and 115. The Statement is effective January 1, 1997 and is to be applied
prospectively. Earlier implementation is not permitted.
A transfer of financial assets in which control is surrendered over those
assets is accounted for as a sale to the extent that consideration other than
beneficial interests in the transferred assets is received in the exchange.
Liabilities and derivatives incurred or obtained by the transfer of financial
assets are required to be measured at fair value, if practicable. Also, any
servicing assets and other retained interests in the transferred assets must
be measured by allocating the previous carrying value between the asset sold
and the interest retained, if any, based on their relative fair values at the
date of transfer. For each servicing contract in existence before January 1,
1997, previously recognized servicing rights and excess servicing receivables
that do not exceed contractually specified servicing are required to be
combined, net of any previously recognized servicing obligations under that
contract, as a servicing asset or liability. Previously recognized servicing
receivables that exceed contractually specified servicing fees are required
to be reclassified as interest-only strips receivable.
The Statement also requires an assessment of interest-only strips, loans,
other receivables or retained interests in securitizations. If these assets
can be contractually prepaid or otherwise settled such that the holder would
not recover substantially all of its recorded investment, the asset will be
measured like available-for-sale securities or trading securities, under FAS
115. This assessment is required for financial assets held on or acquired
after January 1, 1997.
In accordance with the above, the Company will apply the requirements of this
Statement beginning January 1, 1997. The Company has not completed the
complex analysis required to determine the future impact on its financial
statements related to existing financial assets and servicing contracts.
37
<PAGE>
DEPOSITS
<TABLE>
<CAPTION>
================================================================================
JUNE 30, December 31, June 30,
(in millions) 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $27,535 $10,391 $ 9,600
Interest-bearing checking (1) 6,984 887 4,108
Market rate and other savings (1) 32,302 17,944 15,083
Savings certificates 16,510 8,636 8,235
------- ------- -------
Core deposits 83,331 37,858 37,026
Other time deposits 472 248 244
Deposits in foreign offices (2) 65 876 1,514
------- ------- -------
Total deposits $83,868 $38,982 $38,784
======= ======= =======
================================================================================
</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 decrease in the Company's RBC and leverage ratios at June 30, 1996
compared with December 31, 1995 resulted primarily from an overall increase
in risk-weighted assets due to the Merger.
38
<PAGE>
The table below presents the Company's risk-based capital and leverage ratios.
<TABLE>
<CAPTION>
=========================================================================================
JUNE 30, December 31, June 30,
(in billions) 1996 1995 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1:
Common stockholders' equity $ 14.2 $ 3.6 $ 3.4
Preferred stock .8 .5 .5
Less goodwill and other deductions (1) (8.7) (.5) (.5)
--------- --------- -------
Total Tier 1 capital 6.3 3.6 3.4
--------- --------- -------
Tier 2:
Mandatory convertible debt .2 -- .1
Subordinated debt and unsecured senior debt 2.0 1.0 1.0
Allowance for loan losses allowable in Tier 2 1.0 .5 .5
--------- --------- -------
Total Tier 2 capital 3.2 1.5 1.6
--------- --------- -------
Total risk-based capital $ 9.5 $ 5.1 $ 5.0
--------- --------- -------
--------- --------- -------
Risk-weighted balance sheet assets $ 83.3 $ 39.2 $ 38.2
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans 4.9 2.7 2.4
Standby letters of credit 2.4 .7 .6
Other .5 .4 .4
--------- --------- -------
Total risk-weighted off-balance sheet items 7.8 3.8 3.4
--------- --------- -------
Goodwill and other deductions (1) (8.8) (.5) (.5)
Allowance for loan losses not included in Tier 2 (1.3) (1.3) (1.4)
--------- --------- -------
Total risk-weighted assets $ 81.0 $ 41.2 $ 39.7
--------- --------- -------
--------- --------- -------
Risk-based capital ratios:
Tier 1 capital (4% minimum requirement) 7.83% 8.81% 8.60%
Total capital (8% minimum requirement) 11.77 12.46 12.48
Leverage ratio (3% minimum requirement) (2) 6.37% 7.46% 6.69%
=========================================================================================
</TABLE>
(1) Other deductions include the unrealized net loss on available-for-sale
investment securities 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).
39
<PAGE>
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a
"well capitalized" bank must have a Tier 1 RBC ratio of at least 6%, a
combined Tier 1 and Tier 2 ratio of at least 10% and a leverage ratio of at
least 5%. At June 30, 1996, the Bank had a Tier 1 RBC ratio of 9.90%, a
combined Tier 1 and Tier 2 ratio of 13.01% and a leverage ratio of 7.90%.
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, an asset sensitive gap indicates that
there would be a negative impact on the net interest margin from a decreasing
rate environment. At June 30, 1996, the under-one-year cumulative gap was a
$985 million (.9% of total assets) net asset position, compared with net
liability positions of $258 million (.5% of total assets) at March 31, 1996
and $394 million (.8% of total assets) at December 31, 1995. The shift to a
net asset position at June 30, 1996 from a net liability position at March
31, 1996 was due to the inclusion of the First Interstate balance sheet which
had a significant net asset position.
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
40
<PAGE>
liability position) was $14.7 billion, $4.7 billion and $8.7 billion at June
30, 1996, 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 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.
41
<PAGE>
The following table summarizes the aggregate notional or contractual amounts,
credit risk amount and net fair value for the Company's derivative financial
instruments at June 30, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
==========================================================================================================================
JUNE 30, 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 $ 5,534 $ -- $ -- $ 5,372 $ -- $ --
Floors purchased (1) 19,023 64 64 15,522 206 206
Caps purchased (1) 491 5 5 391 1 1
Swap contracts (1) 16,826 105 (161) 6,314 185 175
Foreign exchange contracts:
Forward contracts (1) 35 -- -- 25 -- --
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Futures contracts 10 -- -- 23 -- --
Floors written 1,865 -- (9) 105 -- (1)
Caps written 2,348 -- (7) 1,170 -- (4)
Floors purchased (1) 1,863 9 9 105 1 1
Caps purchased (1) 2,256 7 7 1,139 4 4
Swap contracts (1) 2,210 21 5 1,518 5 1
Foreign exchange contracts (2):
Forward and spot contracts (1) 1,566 13 3 909 10 1
Option contracts purchased (1) 23 -- -- 29 -- --
Option contracts written 21 -- -- 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. At June 30, 1996, $.8 billion of
securities remained unissued. During the third quarter of 1996, the Company
issued $.6 billion of senior and subordinated debt under this shelf
registration.
42
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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.
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 2.11 and 2.05 for the quarters ended June
30, 1996 and 1995, respectively, and 2.19 and 2.02 for the
six months ended 1996 and 1995, respectively. The ratios
of earnings to fixed charges, excluding interest on
deposits, were 5.73 and 4.05 for the quarters ended June
30, 1996 and 1995, respectively, and 5.55 and 3.91 for the
six months ended June 30, 1996 and 1995, respectively.
(b) Computation of Ratios of Earnings to Fixed Charges and
Preferred Dividends -- the ratios of earnings to fixed
charges and preferred dividends, including interest on
deposits, were 2.00 and 1.96 for the quarters ended June
30, 1996 and 1995, respectively, and 2.08 and 1.93 for the
six months ended June 30, 1996 and 1995, respectively. The
ratios of earnings to fixed charges and preferred
dividends, excluding interest on deposits, were 4.58 and
3.57 for the quarters ended June 30, 1996 and 1995,
respectively, and 4.59 and 3.46 for the six months ended
June 30, 1996 and 1995, respectively.
(b) The Company filed the following reports on Form 8-K during the
second quarter of 1996 and through the date hereof:
(1) 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
(2) 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
43
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(3) 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
(4) 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
(5) July 16, 1996 under Item 5, containing the Press Release that
announced the Company's financial results for the quarter
ended June 30, 1996
(6) August 9, 1996 under Item 7, containing the unaudited pro forma
combined financial information of the Ccmpany and First
Interstate Bancorp for the six months ended June 30, 1996 and
the year ended December 31, 1996
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 14, 1996.
WELLS FARGO & COMPANY
By: /s/ FRANK A. MOESLEIN
--------------------------------------
Frank A. Moeslein
Executive Vice President and Controller
(Principal Accounting Officer)
44
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Exhibit 3(ii)
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BY-LAWS
OF
WELLS FARGO & COMPANY
(A DELAWARE CORPORATION),
AS AMENDED MAY 10, 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.
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
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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 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
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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.
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
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<PAGE>
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, 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
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<PAGE>
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 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 &
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<PAGE>
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 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
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<PAGE>
meeting of the Board of Directors a summary of the minutes of all proceedings of
each committee since the preceding meeting of the Board of Directors.
ARTICLE III
OFFICERS
SECTION 1. ELECTION OF EXECUTIVE OFFICERS. The corporation shall have
(i) a Chairman of the Board, (ii) a President, (iii) a Secretary and (iv) a
Chief Financial Officer. The Corporation also may have a Vice Chairman of the
Board, one or more Vice Chairmen, one or more Executive Vice Presidents, one or
more Senior Vice Presidents, one or more Vice Presidents, a Controller, a
Treasurer, one or more Assistant Vice Presidents, one or more Assistant
Treasurers, one or more Assistant Secretaries, a General Auditor, a Risk Control
Officer, and such other officers as the Board of Directors, or the Chief
Executive Officer or any officer or committee whom he may authorize to perform
this duty, may from time to time deem necessary or expedient for the proper
conduct of business by the corporation. The Chairman of the Board, the Vice
Chairman of the Board, if any, and the President shall be elected from among the
members of the Board of Directors. The following offices shall be filled only
pursuant to election by the Board of Directors: Chairman of the Board, Vice
Chairman of the Board, President, Vice Chairman, Executive Vice President,
Senior Vice President, Secretary, Controller, Treasurer, General Auditor and
Risk Control Officer. Other officers may be appointed by the Chief Executive
Officer or by any officer or committee whom he may authorize to perform this
duty. All officers shall hold office at will, at the pleasure of the Board of
Directors, the Chief Executive Officer, the officer or committee having the
authority to appoint such officers, and the officer or committee authorized by
the Chief Executive Officer to remove such officers, and may be removed at any
time, with or without notice and with or without cause. No authorization by the
Chief Executive Officer to perform such duty of appointment or removal shall be
effective unless done in writing and signed by the Chief Executive Officer. Two
or more offices may be held by the same person.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall,
when present, preside at all meetings of the stockholders and of the Board of
Directors and shall be the Chief Executive Officer of the corporation. As Chief
Executive Officer, he shall (i) exercise, and be responsible to the Board of
Directors for, the general supervision of the property, 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
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<PAGE>
be brought to its notice, (iii) prescribe, or to the extent he may deem
appropriate designate an officer or committee to prescribe, the duties,
authority and signing power of all other officers and employees of the
corporation and (iv) exercise, subject to these By-Laws, such other powers and
perform such other duties as may from time to time be prescribed by the Board of
Directors.
SECTION 3. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board
shall, subject to these By-Laws, exercise such powers and perform such duties as
may from time to time be prescribed by the Board of Directors. In the absence
of the Chairman of the Board and the President, the Vice Chairman of the Board
shall preside over the meetings of the stockholders and the Board of Directors.
SECTION 4. PRESIDENT. The President shall, subject to these By-Laws,
be the chief operating officer of the corporation and shall exercise such other
powers and perform such other duties as may from time to time be prescribed by
the Board of Directors. In the absence of the Chairman of the Board, the
President shall preside over the meetings of the stockholders and the Board of
Directors.
SECTION 5. ABSENCE OR DISABILITY OF CHIEF EXECUTIVE OFFICER. In the
absence or disability of the Chairman of the Board, the President shall act as
Chief Executive Officer. In the absence or the disability of both the Chairman
of the Board and the President, the Vice Chairman of the Board shall act as
Chief Executive Officer. In the absence of the Chairman of the Board, the
President and the Vice Chairman of the Board, the officer designated by the
Board of Directors, or if there be no such designation the officer designated by
the Chairman of the Board, shall act as Chief Executive Officer. The Chairman
of the Board shall at all times have on file with the Secretary his written
designation of the officer from time to time so designated by him to act as
Chief Executive Officer in his absence or disability and in the absence or
disability of the President and the Vice Chairman of the Board.
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
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all meetings of the stockholders and of the Board of Directors, and all other
notices required by law or by these By-Laws. He shall be the custodian of the
corporate seal or seals. In general, he shall perform all duties ordinarily
incident to the office of a secretary of a corporation, and such other duties as
from time to time may be assigned to him by the Board of Directors or the Chief
Executive Officer.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
have charge of and be responsible for all funds, securities, receipts and
disbursements of the corporation, and shall deposit, or cause to be deposited,
in the name of the corporation all moneys or other valuable effects in such
banks, trust companies, or other depositories as shall from time to time be
selected by the Board of Directors. He shall render to the Chief Executive
Officer and the Board of Directors, whenever requested, an account of the
financial condition of the corporation. In general, he shall perform all duties
ordinarily incident to the office of a chief financial officer of a corporation,
and such other duties as may be assigned to him by the Board of Directors or the
Chief Executive Officer.
SECTION 9. GENERAL AUDITOR. The General Auditor shall be responsible
to the Board of Directors for evaluating the ongoing operation, and the
adequacy, effectiveness and efficiency, of the system of control within the
corporation and of each subsidiary which has authorized the Committee on
Examinations and Audits to act under Section 14(b) of Article II of these
By-Laws. He shall make, or cause to be made, such internal audits and reports
of the corporation and each such subsidiary as may be required by the Board of
Directors or by the Committee on Examinations and Audits. He shall coordinate
the auditing work performed for the corporation and its subsidiaries 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.
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SECTION 10. RISK CONTROL OFFICER. The Risk Control Officer shall
report to the Board of Directors through its Committee on Examinations and
Audits. The Risk Control Officer shall be responsible for directing a number of
control related activities principally affecting the Company's credit function
and shall have such other duties and responsibilities as shall be prescribed
from time to time by the chief executive officer and the Committee on
Examinations and Audits. Should the Risk Control Officer deem any matter to be
of special importance, the Risk Control Officer shall report thereon forthwith
through the Committee to the Board of Directors.
ARTICLE IV
INDEMNIFICATION
SECTION 1. ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding or investigation, whether civil, criminal or
administrative, and whether external or internal to the corporation (other than
a judicial action or suit brought by or in the right of the corporation), by
reason of the fact that he or she is or was an Agent (as hereinafter defined)
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement 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
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or is a party or is threatened to be made a party to any threatened, pending or
completed judicial action or suit brought by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that such person is or
was an Agent (as defined above) against expenses (including attorneys' fees) and
amounts paid in settlement actually and reasonably incurred by such person in
connection with the defense, settlement or appeal of such action or suit if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnify for such expenses which
the Court of Chancery or such other court shall deem proper.
SECTION 3. DETERMINATION OF RIGHT OF INDEMNIFICATION OR CONTRIBUTION.
Unless otherwise ordered by a court, any indemnification under Section 1 or 2,
and any contribution under Section 6, of this Article shall be made by the
corporation to an Agent unless a determination is reasonably and promptly made,
either (i) by the Board of Directors acting by a majority vote of a quorum
consisting of Directors who were not party to such action, suit or proceeding,
or (ii) if such a quorum is not 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
-12-
<PAGE>
indemnification under Section 1 or 2, or advance under Section 4, of this
Article shall be made promptly and in any event within 90 days, upon the written
request of the Agent, unless with respect to an application under said Sections
1 or 2 an adverse determination is reasonably and promptly made pursuant to
Section 3 of this Article or unless with respect to an application under said
Section 4 an adverse determination is made pursuant to said Section 4. The
right to indemnification or advances as granted by this Article shall be
enforceable by the Agent in any court of competent jurisdiction if the Board of
Directors or independent legal counsel improperly denies the claim, in whole or
in part, or if no disposition of such claim is made within 90 days. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any action, suit or proceeding in advance of
its final disposition where any required undertaking has been tendered to the
corporation) that the Agent has not met the standards of conduct which would
require the corporation to indemnify or advance the amount claimed, but the
burden of proving such defense shall be on the corporation. Neither the failure
of the corporation (including the Board of Directors, independent legal counsel
and the stockholders) to have made a determination prior to the commencement of
such action that indemnification of the Agent is proper in the circumstances
because he or she has met the applicable standard of conduct, nor an actual
determination by the corporation (including the Board of Directors, independent
legal counsel and the stockholders) that the Agent had not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Agent had not met the 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
-13-
<PAGE>
settlement amounts, as well as any other relevant equitable considerations. The
relative fault of the corporation on the one hand and of the Agent on the other
shall be determined by reference to, among other things, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
the circumstances resulting in such expenses, judgments, fines or settlement
amounts.
SECTION 7. OTHER RIGHTS AND REMEDIES. Indemnification under this
Article shall be provided regardless of when the events alleged to underlie any
action, suit or proceeding may have occurred, shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs, executors
and administrators of such a person. All rights to indemnification and
advancement of expenses under this Article shall be deemed to be provided by a
contract between the corporation and the Agent who serves as such at any time
while these By-Laws and other relevant provisions of the General Corporation Law
of Delaware and other applicable law, if any, are in effect. Any repeal or
modification thereof shall not affect any rights or obligations then existing.
SECTION 8. INSURANCE. Upon resolution passed by the Board of
Directors, the corporation may purchase and maintain insurance on behalf of any
person who is or was an Agent against any liability asserted against such person
and incurred by him or her in any such capacity, or arising out of his or her
status as such, regardless of whether the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article. The corporation may create a trust 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.
-14-
<PAGE>
SECTION 10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S
REQUEST. For purposes of this Article, references to "other enterprise" in
Sections 1 and 9 shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service by an Agent as director, officer, employee, trustee or
agent of the corporation which imposes duties on, or involves services by, such
Agent with respect to any employee benefit plan, its participants, or
beneficiaries. A person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interest of the corporation" for purposes of this Article.
SECTION 11. SAVINGS CLAUSE. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each Agent as to expenses
(including attorneys' fees, judgments, 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
-15-
<PAGE>
sentence, shall not be deemed exclusive of, and shall not affect, any other
rights to which an Agent seeking indemnification or advancement of expenses may
be entitled under any provision of any law, certificate of incorporation,
by-law, agreement or by any vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while serving as an Agent. The corporation may 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.
-16-
<PAGE>
SECTION 4. SUBSIDIARY. As used in these By-Laws the term "subsidiary"
or "subsidiaries" means any corporation 25 percent or more of whose voting
shares is directly or indirectly owned or controlled by the corporation, or any
other affiliate of the corporation designated in writing as a subsidiary of the
corporation by the Chief Executive Officer of the corporation. All such written
designations shall be filed with the Secretary of the corporation.
SECTION 5. AMENDMENTS. These By-Laws may be altered, amended or
repealed by a vote of the stockholders entitled to exercise a majority of the
voting power of the corporation, by written consent of such stockholders or by
the Board of Directors.
SECTION 6. ANNUAL REPORT. The Board of Directors shall cause an
annual report to be sent to the stockholders not later than 120 days after the
close of the fiscal year and at least 15 days prior to the annual meeting of
stockholders to be held during the ensuing fiscal year.
SECTION 7. CONSTRUCTION. Unless the context clearly requires it,
nothing in these By-Laws shall be construed as a limitation on any powers or
rights of the corporation, its Directors or its officers provided by the General
Corporation Law of Delaware. Unless the context otherwise requires, the General
Corporation Law of Delaware shall govern the construction of these By-Laws.
SECTION 8. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiary, including any officer or employee who
is a director of the corporation or its subsidiary, whenever, in the judgment of
the Board of Directors or any committee thereof, such loan, guaranty or
assistance may reasonably be expected to benefit the 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
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<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.
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<PAGE>
EXHIBIT 11
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
===============================================================================================================
Quarter Six months
ended June 30, ended June 30,
------------------- -------------------
(in millions) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Net income $ 363 $ 232 $ 627 $ 465
Less preferred dividends 19 10 29 21
------ ------ ------ ------
Net income for calculating primary
earnings per common share $ 344 $ 222 $ 598 $ 444
------ ------ ------ ------
------ ------ ------ ------
Average common shares outstanding 95.6 49.1 71.3 49.8
------ ------ ------ ------
PRIMARY EARNINGS PER COMMON SHARE $ 3.61 $ 4.51 $ 8.39 $ 8.92
------ ------ ------ ------
------ ------ ------ ------
FULLY DILUTED EARNINGS PER COMMON SHARE (1)
Net income $ 363 $ 232 $ 627 $ 465
Less preferred dividends 19 10 29 21
------ ------ ------ ------
Net income for calculating fully
diluted earnings per common share $ 344 $ 222 $ 598 $ 444
------ ------ ------ ------
------ ------ ------ ------
Average common shares outstanding 95.6 49.1 71.3 49.8
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 1.8 1.1 1.8 1.1
------ ------ ------ ------
Average common shares outstanding as adjusted 97.4 50.2 73.1 50.9
------ ------ ------ ------
------ ------ ------ ------
FULLY DILUTED EARNINGS PER COMMON SHARE $ 3.54 $ 4.42 $ 8.19 $ 8.73
------ ------ ------ ------
------ ------ ------ ------
===============================================================================================================
</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 AUGUST 8, 1996 FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,882
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,344
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,692
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 70,541
<ALLOWANCE> 2,273
<TOTAL-ASSETS> 108,586
<DEPOSITS> 83,868
<SHORT-TERM> 1,206
<LIABILITIES-OTHER> 3,042
<LONG-TERM> 5,230
0
839
<COMMON> 475
<OTHER-SE> 13,716
<TOTAL-LIABILITIES-AND-EQUITY> 108,586
<INTEREST-LOAN> 2,494
<INTEREST-INVEST> 353
<INTEREST-OTHER> 7
<INTEREST-TOTAL> 2,864
<INTEREST-DEPOSIT> 695
<INTEREST-EXPENSE> 888
<INTEREST-INCOME-NET> 1,976
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 1,844
<INCOME-PRETAX> 1,125
<INCOME-PRE-EXTRAORDINARY> 627
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 627
<EPS-PRIMARY> 8.39
<EPS-DILUTED> 8.19
<YIELD-ACTUAL> 6.08
<LOANS-NON> 731
<LOANS-PAST> 284
<LOANS-TROUBLED> 11
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,794
<CHARGE-OFFS> 380
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 2,273
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99(a)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
===============================================================================================================
Quarter Six months
ended June 30, ended June 30,
------------------- -------------------
(in millions) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 662 $ 409 $1,125 $ 779
Fixed charges 594 388 942 764
------ ----- ------ ------
$1,256 $ 797 $2,067 $1,543
------ ----- ------ ------
------ ----- ------ ------
Fixed charges (1):
Interest expense $ 558 $ 372 $ 888 $ 732
Estimated interest component of net rental expense 36 16 54 32
------ ----- ------ ------
$ 594 $ 388 $ 942 $ 764
------ ----- ------ ------
------ ----- ------ ------
Ratio of earnings to fixed charges (2) 2.11 2.05 2.19 2.02
------ ----- ------ ------
------ ----- ------ ------
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 662 $ 409 $1,125 $ 779
Fixed charges 140 134 247 268
------ ----- ------ ------
$ 802 $ 543 $1,372 $1,047
------ ----- ------ ------
------ ----- ------ ------
Fixed charges (1):
Interest expense $ 558 $ 372 $ 888 $ 732
Less interest on deposits (454) (254) (695) (496)
Estimated interest component of net rental expense 36 16 54 32
------ ----- ------ ------
$ 140 $ 134 $ 247 $ 268
------ ----- ------ ------
------ ----- ------ ------
Ratio of earnings to fixed charges (2) 5.73 4.05 5.55 3.91
------ ----- ------ ------
------ ----- ------ ------
===============================================================================================================
</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 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.
<PAGE>
EXHIBIT 99(b)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
===============================================================================================================
Quarter Six months
ended June 30, ended June 30,
------------------- -------------------
(in millions) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 662 $ 409 $1,125 $ 779
Fixed charges 594 388 942 764
------ ----- ------ ------
$1,256 $ 797 $2,067 $1,543
------ ----- ------ ------
------ ----- ------ ------
Preferred dividend requirement $ 19 $ 10 $ 29 $ 21
Ratio of income before income tax expense to net income 1.82 1.76 1.79 1.68
------ ----- ------ ------
Preferred dividends (2) $ 35 $ 18 $ 52 $ 35
------ ----- ------ ------
Fixed charges (1):
Interest expense 558 372 888 732
Estimated interest component of net rental expense 36 16 54 32
------ ----- ------ ------
594 388 942 764
------ ----- ------ ------
Fixed charges and preferred dividends $ 629 $ 406 $ 994 $ 799
------ ----- ------ ------
------ ----- ------ ------
Ratio of earnings to fixed charges and preferred dividends (3) 2.00 1.96 2.08 1.93
------ ----- ------ ------
------ ----- ------ ------
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 662 $ 409 $1,125 $ 779
Fixed charges 140 134 247 268
------ ----- ------ ------
$ 802 $ 543 $1,372 $1,047
------ ----- ------ ------
------ ----- ------ ------
Preferred dividends (2) $ 35 $ 18 $ 52 $ 35
------ ----- ------ ------
Fixed charges (1):
Interest expense 558 372 888 732
Less interest on deposits (454) (254) (695) (496)
Estimated interest component of net rental expense 36 16 54 32
------ ----- ------ ------
140 134 247 268
------ ----- ------ ------
Fixed charges and preferred dividends $ 175 $ 152 $ 299 $ 303
------ ----- ------ ------
------ ----- ------ ------
Ratio of earnings to fixed charges and preferred dividends (3) 4.58 3.57 4.59 3.46
------ ----- ------ ------
------ ----- ------ ------
===============================================================================================================
</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.
