<PAGE>
UNITED STATES
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 September 30, 1998 Commission file number 1-6214
------------------------
WFC HOLDINGS CORPORATION
(SUCCESSOR TO WELLS FARGO & COMPANY)
(Exact name of Registrant as specified in its charter)
Delaware 41-1921346
(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: 1-800-411-4932
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.
<TABLE>
<CAPTION>
Shares Outstanding
October 31, 1998
------------------
<S> <C>
Common stock, $5 par value 87,794,370
</TABLE>
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C>
Consolidated Statement of Income................................. 2
Consolidated Balance Sheet....................................... 3
Consolidated Statement of Changes in Stockholders' Equity........ 4
Consolidated Statement of Cash Flows............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Summary Financial Data........................................... 7
Overview......................................................... 8
Merger with Norwest Corporation.................................. 10
Earnings Performance............................................. 11
Net Interest Income............................................ 11
Noninterest Income............................................. 14
Noninterest Expense............................................ 16
Earnings/Ratios Excluding Goodwill and Nonqualifying CDI ...... 19
Balance Sheet Analysis........................................... 20
Investment Securities.......................................... 20
Loan Portfolio................................................. 22
Commercial real estate...................................... 22
Nonaccrual and Restructured Loans and Other Assets............. 23
Loans 90 days past due and still accruing................... 26
Allowance for Loan Losses...................................... 27
Other Assets................................................... 29
Deposits....................................................... 30
Capital Adequacy/Ratios........................................ 30
Derivative Financial Instruments............................... 32
Liquidity Management........................................... 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 33
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 35
SIGNATURE.................................................................. 36
</TABLE>
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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. WFC Holdings Corporation (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, customer
disintermediation, technology changes (including the Year 2000 issue) 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 1997 Annual Report on Form
10-K.
1
<PAGE>
PART I - FINANCIAL INFORMATION
WFC HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended September 30, ended September 30,
------------------------ ------------------------
(in millions) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Federal funds sold and securities
purchased under resale agreements $ 16 $ 3 $ 32 $ 15
Investment securities 128 175 403 573
Loans 1,497 1,513 4,524 4,570
Other 26 16 69 39
------ ------ ------ ------
Total interest income 1,667 1,707 5,028 5,197
------ ------ ------ ------
INTEREST EXPENSE
Deposits 407 430 1,219 1,280
Federal funds purchased and securities sold under
repurchase agreements 16 44 76 109
Commercial paper and other short-term borrowings 4 5 14 12
Senior and subordinated debt 68 75 217 234
Guaranteed preferred beneficial interests in
Company's subordinated debentures 25 25 76 75
------ ------ ------ ------
Total interest expense 520 579 1,602 1,710
------ ------ ------ ------
NET INTEREST INCOME 1,147 1,128 3,426 3,487
Provision for loan losses 160 175 510 420
------ ------ ------ ------
Net interest income after provision for loan losses 987 953 2,916 3,067
------ ------ ------ ------
NONINTEREST INCOME
Fees and commissions 274 246 801 694
Service charges on deposit accounts 235 214 665 649
Trust and investment services income 115 117 343 338
Investment securities gains (losses) 18 (1) 41 6
Other 95 101 347 309
------ ------ ------ ------
Total noninterest income 737 677 2,197 1,996
------ ------ ------ ------
NONINTEREST EXPENSE
Salaries 299 308 907 964
Incentive compensation 61 54 175 143
Employee benefits 73 80 244 256
Equipment 96 97 294 289
Net occupancy 96 96 295 292
Goodwill 80 81 242 245
Core deposit intangible 55 64 172 193
Operating losses 23 40 79 262
Other 305 267 869 806
------ ------ ------ ------
Total noninterest expense 1,088 1,087 3,277 3,450
------ ------ ------ ------
INCOME BEFORE INCOME TAX EXPENSE 636 543 1,836 1,613
Income tax expense 289 253 837 756
------ ------ ------ ------
NET INCOME $ 347 $ 290 $ 999 $ 857
------ ------ ------ ------
------ ------ ------ ------
NET INCOME APPLICABLE TO COMMON STOCK $ 343 $ 285 $ 986 $ 836
------ ------ ------ ------
------ ------ ------ ------
EARNINGS PER COMMON SHARE $ 4.03 $ 3.26 $11.55 $ 9.38
------ ------ ------ ------
------ ------ ------ ------
DILUTED EARNINGS PER COMMON SHARE $ 3.99 $ 3.23 $11.44 $ 9.28
------ ------ ------ ------
------ ------ ------ ------
DIVIDENDS DECLARED PER COMMON SHARE $ 1.30 $ 1.30 $ 3.90 $ 3.90
------ ------ ------ ------
------ ------ ------ ------
Average common shares outstanding 85.2 87.5 85.4 89.1
------ ------ ------ ------
------ ------ ------ ------
Diluted average common shares outstanding 85.9 88.4 86.2 90.1
------ ------ ------ ------
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WFC HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
(in millions) 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 6,538 $ 8,169 $ 7,823
Federal funds sold and securities
purchased under resale agreements 1,080 82 188
Securities available for sale 8,242 9,888 10,737
Loans 64,374 65,734 65,104
Allowance for loan losses 1,833 1,828 1,823
------- ------- -------
Net loans 62,541 63,906 63,281
------- ------- -------
Due from customers on acceptances 103 98 104
Accrued interest receivable 502 507 537
Premises and equipment, net 1,913 2,117 2,173
Core deposit intangible 1,537 1,709 1,771
Goodwill 6,757 7,031 7,149
Other assets 3,602 3,949 3,892
------- ------- -------
Total assets $92,815 $97,456 $97,655
------- ------- -------
------- ------- -------
LIABILITIES
Noninterest-bearing deposits $22,542 $23,953 $23,005
Interest-bearing deposits 47,227 48,246 47,917
------- ------- -------
Total deposits 69,769 72,199 70,922
Federal funds purchased and securities
sold under repurchase agreements 1,419 3,576 4,268
Commercial paper and other short-term borrowings 451 249 458
Acceptances outstanding 103 98 104
Accrued interest payable 241 175 245
Other liabilities 2,519 2,403 2,574
Senior debt 1,284 1,983 2,280
Subordinated debt 2,530 2,585 2,585
Guaranteed preferred beneficial interests in
Company's subordinated debentures 1,299 1,299 1,299
STOCKHOLDERS' EQUITY
Preferred stock 275 275 275
Common stock - $5 par value,
authorized 150,000,000 shares; issued and
outstanding 85,237,292 shares, 86,152,779 shares
and 86,780,522 shares 426 431 434
Additional paid-in capital 8,375 8,712 8,925
Retained earnings 4,069 3,416 3,235
Cumulative other comprehensive income 55 55 51
------- ------- -------
Total stockholders' equity 13,200 12,889 12,920
------- ------- -------
Total liabilities and stockholders' equity $92,815 $97,456 $97,655
------- ------- -------
------- ------- -------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
WFC HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
--------------------------------------------------------
1998 1997
---------------------- ---------------------
STOCK- COMPRE- Stock- Compre-
HOLDERS' HENSIVE holders' hensive
(in millions) EQUITY INCOME equity income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of period $ 275 $ 600
Preferred stock redeemed -- (325)
------- -------
Balance, end of period 275 275
------- -------
COMMON STOCK
Balance, beginning of period 431 457
Common stock issued under employee benefit and
dividend reinvestment plans 2 3
Common stock repurchased (7) (26)
------- -------
Balance, end of period 426 434
------- -------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 8,712 10,287
Common stock issued under employee benefit and
dividend reinvestment plans 85 64
Common stock repurchased (422) (1,426)
------- -------
Balance, end of period 8,375 8,925
------- -------
RETAINED EARNINGS
Balance, beginning of period 3,416 2,749
Net income 999 $999 857 $857
Preferred stock dividends (13) (21)
Common stock dividends (333) (350)
------- -------
Balance, end of period 4,069 3,235
------- -------
CUMULATIVE OTHER COMPREHENSIVE INCOME
Balance, beginning of period 55 19
Unrealized gains on investment securities arising during
the period, net of tax of $16 million and $19 million 24 24 32 32
Reclassification adjustment for investment securities gains included
in net income, net of tax of $17 million and $2 million (24) (24) (4) (4)
Foreign currency translation adjustments, net of tax of ($4) million -- -- 4 4
------- ---- ------- ----
Balance, end of period 55 51
------- -------
COMPREHENSIVE INCOME $999 $889
---- ----
---- ----
Total stockholders' equity $13,200 $12,920
------- -------
------- -------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
WFC HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
------------------------------
(in millions) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 999 $ 857
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 510 420
Depreciation and amortization 683 683
Investment securities gains (41) (6)
Gains on sales of loans (67) (41)
Gains from dispositions of operations (89) (7)
Net decrease in accrued interest receivable 5 128
Net increase in accrued interest payable 66 74
Net decrease (increase) in loans originated for sale 174 (75)
Other, net (117) 1,227
------- --------
Net cash provided by operating activities 2,123 3,260
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 558 275
Proceeds from prepayments and maturities 4,038 3,270
Purchases (2,868) (726)
Net (increase) decrease in loans resulting from originations and collections (463) 1,755
Proceeds from sales (including participations) of loans 1,237 158
Purchases (including participations) of loans (97) (210)
Proceeds from dispositions of operations 473 8
Proceeds from sales of foreclosed assets 115 116
Net increase in federal funds sold and securities
purchased under resale agreements (998) (1)
Other, net (151) 54
------- --------
Net cash provided by investing activities 1,844 4,699
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (2,430) (10,899)
Net increase (decrease) in short-term borrowings (1,955) 2,296
Proceeds from issuance of senior debt -- 700
Repayment of senior debt (693) (525)
Proceeds from issuance of subordinated debt 250 --
Repayment of subordinated debt (300) (351)
Proceeds from issuance of guaranteed preferred beneficial interests
in Company's subordinated debentures -- 149
Proceeds from issuance of common stock 87 67
Redemption of preferred stock -- (325)
Repurchase of common stock (429) (1,452)
Payment of cash dividends on preferred stock (13) (21)
Payment of cash dividends on common stock (333) (350)
Other, net 218 (1,161)
------- --------
Net cash used by financing activities (5,598) (11,872)
------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS) (1,631) (3,913)
Cash and cash equivalents at beginning of period 8,169 11,736
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,538 $ 7,823
------- --------
------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,536 $ 1,636
Income taxes $ 645 $ 558
Noncash investing activities:
Transfers from loans to foreclosed assets $ 73 $ 76
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL REVIEW
SUMMARY FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
% Change
Quarter ended Sept. 30, 1998 from Nine months ended
------------------------------ ------------------- -------------------
SEPT. 30, June 30, Sept. 30, June 30, Sept. 30, SEPT. 30, Sept. 30, %
(in millions) 1998 1998 1997 1998 1997 1998 1997 Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Net income $ 347 $ 337 $ 290 3% 20% $ 999 $ 857 17%
Net income applicable to common stock 343 333 285 3 20 986 836 18
Earnings per common share $ 4.03 $ 3.91 $ 3.26 3 24 $ 11.55 $ 9.38 23
Diluted earnings per common share 3.99 3.87 3.23 3 24 11.44 9.28 23
Dividends declared per common share 1.30 1.30 1.30 -- -- 3.90 3.90 --
Average common shares outstanding 85.2 85.2 87.5 -- (3) 85.4 89.1 (4)
Diluted average common shares outstanding 85.9 86.1 88.4 -- (3) 86.2 90.1 (4)
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.49% 1.45% 1.18% 3 26 1.43% 1.14% 25
Net income applicable to common stock to
average common stockholders' equity (ROE) 10.70 10.66 8.94 -- 20 10.48 8.62 22
Efficiency ratio (1) 57.8% 58.2% 60.2% (1) (4) 58.3% 62.9% (7)
Average loans $63,638 $64,397 $63,865 (1) -- $64,362 $ 64,653 --
Average assets 92,335 93,148 97,032 (1) (5) 93,570 100,703 (7)
Average core deposits 69,608 69,807 70,744 -- (2) 69,756 73,937 (6)
Net interest margin 6.18% 6.22% 5.94% (1) 4 6.14% 6.00% 2
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION AND BALANCES
("CASH" OR "TANGIBLE") (2)
Net income applicable to common stock $ 452 $ 444 $ 400 2 13 $ 1,319 $ 1,181 12
Earnings per common share 5.31 5.21 4.57 2 16 15.44 13.25 17
Diluted earnings per common share 5.26 5.15 4.52 2 16 15.30 13.11 17
ROA 2.14% 2.11% 1.81% 1 18 2.08% 1.74% 20
ROE 35.64 37.78 35.44 (6) 1 36.92 33.83 9
Efficiency ratio 50.9 51.2 52.6 (1) (3) 51.3 55.4 (7)
AT PERIOD END
Securities available for sale $ 8,242 $ 8,449 $10,737 (2) (23) $ 8,242 $ 10,737 (23)
Loans 64,374 64,320 65,104 -- (1) 64,374 65,104 (1)
Allowance for loan losses 1,833 1,835 1,823 -- 1 1,833 1,823 1
Goodwill 6,757 6,837 7,149 (1) (5) 6,757 7,149 (5)
Assets 92,815 93,200 97,655 -- (5) 92,815 97,655 (5)
Core deposits 69,491 70,209 70,580 (1) (2) 69,491 70,580 (2)
Common stockholders' equity 12,925 12,675 12,645 2 2 12,925 12,645 2
Stockholders' equity 13,200 12,950 12,920 2 2 13,200 12,920 2
Tier 1 capital (3) 6,802 6,425 6,005 6 13 6,802 6,005 13
Total capital (Tiers 1 and 2) (3) 9,844 9,491 9,153 4 8 9,844 9,153 8
Capital ratios
Common stockholders' equity to assets 13.93% 13.60% 12.95% 2 8 13.93% 12.95% 8
Stockholders' equity to assets 14.22 13.90 13.23 2 7 14.22 13.23 7
Risk-based capital (3)
Tier 1 capital 8.47 8.08 7.53 5 12 8.47 7.53 12
Total capital 12.26 11.94 11.47 3 7 12.26 11.47 7
Leverage (3) 8.04 7.53 6.76 7 19 8.04 6.76 19
Book value per common share $151.63 $148.96 $145.72 2 4 $151.63 $ 145.72 4
Staff (active, full-time equivalent) 31,600 31,620 32,663 -- (3) 31,600 32,663 (3)
COMMON STOCK PRICE
High $392.94 $387.25 $279.88 1 40 $392.94 $ 319.25 23
Low 281.88 329.13 250.13 (14) 13 281.88 246.00 15
Period end 355.00 369.00 275.00 (4) 29 355.00 275.00 29
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The efficiency ratio is defined as noninterest expense divided by the total
of net interest income and noninterest income.
(2) 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 $29 million and
$884 million, respectively, for the quarter ended September 30, 1998 and
$90 million and $913 million, respectively, for the nine months ended
September 30, 1998. Goodwill amortization and average balance (which are
not tax effected) were $80 million and $6,797 million, respectively, for
the quarter ended September 30, 1998 and $242 million and $6,896 million,
respectively, for the nine months ended September 30, 1998.
(3) See the Capital Adequacy/Ratios section for additional information.
7
<PAGE>
OVERVIEW
On November 2, 1998, Wells Fargo & Company (the former Wells Fargo) merged (the
Merger) with WFC Holdings Corporation, a wholly-owned subsidiary of Norwest
Corporation (WFC Holdings), with WFC Holdings as the surviving corporation. In
connection with the Merger, Norwest Corporation changed its name to "Wells Fargo
& Company." WFC Holdings Corporation (Parent) is a bank holding company whose
principal subsidiary is Wells Fargo Bank, N.A. (Bank). In this Form 10-Q, WFC
Holdings Corporation and its subsidiaries are referred to as the Company.
Because the Merger occurred after September 30, 1998, this report does not give
effect to the Merger. The results presented in this report represent the results
of the former Wells Fargo & Company for all periods presented.
Net income for the third quarter of 1998 was $347 million, compared with $290
million for the third quarter of 1997, an increase of 20%. Earnings per share
for the third quarter of 1998 were $4.03, compared with $3.26 in the third
quarter of 1997, an increase of 24%. Net income for the first nine months of
1998 was $999 million, or $11.55 per share, compared with $857 million, or $9.38
per share, for the first nine months of 1997.
Return on average assets (ROA) was 1.49% and 1.43% in the third quarter and
first nine months of 1998, respectively, compared with 1.18% and 1.14% in the
same periods of 1997. Return on average common equity (ROE) was 10.70% and
10.48% in the third quarter and first nine months of 1998, respectively,
compared with 8.94% and 8.62% in the same periods of 1997.
Earnings before the amortization of goodwill and nonqualifying core deposit
intangible ("cash" or "tangible" earnings) in the third quarter and first nine
months of 1998 were $5.31 and $15.44 per share, respectively, compared with
$4.57 and $13.25 per share in the same periods of 1997. On the same basis, ROA
was 2.14% and 2.08% in the third quarter and first nine months of 1998,
respectively, compared with 1.81% and 1.74% in the same periods of 1997; ROE was
35.64% and 36.92% in the third quarter and first nine months of 1998,
respectively, compared with 35.44% and 33.83% in the same periods of 1997.
Net interest income on a taxable-equivalent basis was $1,151 million and $3,435
million in the third quarter and first nine months of 1998, respectively,
compared with $1,132 million and $3,497 million in the same periods of 1997. The
Company's net interest margin was 6.18% for the third quarter of 1998, compared
with 5.94% in the same quarter of 1997 and 6.22% in the second quarter of 1998.
The increase in net interest margin for the third quarter of 1998 compared with
the same period of 1997 was mostly due to an improvement in the funding mix.
Noninterest income was $737 million and $2,197 million in the third quarter and
first nine months of 1998, respectively, compared with $677 million and $1,996
million in the same periods of 1997. A significant portion of the increase from
a year ago was due to service charges on deposit accounts and higher fees and
commissions income.
8
<PAGE>
Noninterest expense in the third quarter and first nine months of 1998 was
$1,088 million and $3,277 million, respectively, compared with $1,087 million
and $3,450 million for the same periods of 1997.
The provision for loan losses in the third quarter and first nine months of 1998
was $160 million and $510 million, respectively, compared with $175 million and
$420 million for the same periods in 1997. During the third quarter of 1998, net
charge-offs totaled $162 million, or 1.01% of average loans (annualized). This
compared with $165 million, or 1.02%, during the second quarter of 1998 and $202
million, or 1.25%, during the third quarter of 1997. The allowance for loan
losses of $1,833 million was 2.85% of total loans at September 30, 1998 and June
30, 1998, compared with 2.80% at September 30, 1997.
Total nonaccrual and restructured loans were $506 million, or .8% of total
loans, at September 30, 1998, compared with $537 million, or .8% of total loans,
at December 31, 1997 and $574 million, or .9% of total loans, at September 30,
1997. Foreclosed assets amounted to $130 million at September 30, 1998, $158
million at December 31, 1997 and $196 million at September 30, 1997.
Common stockholders' equity to total assets was 13.93% at September 30, 1998,
compared with 13.60% and 12.95% at June 30, 1998 and September 30, 1997,
respectively. The Company's total risk-based capital ratio at September 30, 1998
was 12.26% and its Tier 1 risk-based capital ratio was 8.47%, exceeding minimum
guidelines of 8% and 4%, respectively, for bank holding companies and the "well
capitalized" guidelines for banks of 10% and 6%, respectively. At June 30, 1998,
the risk-based capital ratios were 11.94% and 8.08%, respectively; at September
30, 1997, these ratios were 11.47% and 7.53%, respectively. The Company's
leverage ratios were 8.04%, 7.53% and 6.76% at September 30, 1998, June 30, 1998
and September 30, 1997, respectively, exceeding the minimum regulatory guideline
of 3% for bank holding companies and the "well capitalized" guideline of 5% for
banks.
The Company has bought in the past shares to offset common stock issued or
expected to be issued under the Company's employee benefit and dividend
reinvestment plans. In addition to these shares, the Board of Directors
authorized in April 1996 the repurchase of up to 9.6 million shares of the
Company's outstanding common stock under a repurchase program begun in 1994.
In October 1997, the Board of Directors authorized the repurchase from time
to time of up to an additional 8.6 million shares of the Company's
outstanding stock under the same program. Under these programs, the Company
has repurchased 7.7 million shares (net of shares issued) in 1996, 5.3
million shares (net of shares issued) in 1997 and 1.1 million shares (net of
shares issued) in the first half of 1998. In connection with the Merger, the
Company rescinded all of its share repurchase programs effective June 7,
1998. In addition, on October 12, 1998, the Company issued 2.5 million shares
to cure a portion of previously repurchased "tainted" shares and, thus, allow
the Merger to be accounted for as a pooling of interests.
9
<PAGE>
MERGER WITH NORWEST CORPORATION
On November 2, 1998, Wells Fargo & Company (the former Wells Fargo) merged with
WFC Holdings, a wholly owned subsidiary of Norwest Corporation, with WFC
Holdings as the surviving corporation. In connection with the Merger, Norwest
Corporation changed its name to Wells Fargo & Company. The corporate
headquarters for Wells Fargo & Company is in San Francisco. Minneapolis is the
headquarters for the Midwest banking business. The Merger is accounted for as a
pooling of interests.
The combined Board of Directors consists of an equal number of representatives
from each of the companies. Under the terms of the merger agreement, the former
Wells Fargo & Company shareholders received a tax-free exchange of ten shares of
Norwest common stock for each share of the former Wells Fargo & Company's common
stock.
At September 30, 1998, Norwest had assets of $104 billion and was the tenth
largest bank holding company in the nation. Norwest had 3,961 financial services
stores in all 50 states, Canada, the Caribbean, Latin America and elsewhere
internationally. At September 30, 1998, the former Wells Fargo & Company had
1,865 physical distribution offices in ten western states.
In order to comply with the Department of Justice merger guidelines, the company
is required to sell deposits of approximately $1.2 billion. The divestitures are
in various markets in Arizona and Nevada.
Wells Fargo & Company expects to achieve approximately $650 million ($430
million after tax) in annual cost savings within three years of the merger date.
The savings are expected to result from the conversion to one systems platform,
the elimination of duplicate systems development and maintenance, the
consolidation of operations and branches and the elimination of duplicate
overhead functions.
Wells Fargo & Company expects to incur approximately $950 million ($625 million
after tax) in transition-related expenses. The estimated transition-related
expenses consist primarily of employee-related expense and costs associated with
systems integration and operations.
The following discussions included in Earnings Performance and Balance Sheet
Analysis sections of this report do not reflect the expected impact of the
Merger.
The foregoing paragraphs contain a number of forward-looking statements with
respect to the financial condition, results of operations, plans, objectives,
future performance and business of Wells Fargo & Co., as well as certain
information relating to the Merger, including, without limitation (i)
statements relating to the cost savings estimated to result from the Merger,
(ii) statements relating to the Merger and integration costs estimated to be
incurred in connection with the Merger and (iii) statements preceded by,
followed by or that include the words "expects," "estimates" or similar
expressions. These forward-looking statements involve certain risks and
uncertainties. Actual results may differ materially from those contemplated
by such forward-looking statements due to, among others, the following
factors: (a) expected cost savings from the Merger
10
<PAGE>
are not fully realized, realized within the expected time frame or additional
or unexpected costs are incurred; (b) competitive pressures among financial
services companies increase; (c) costs or difficulties related to the
integration of the business of Norwest and Wells Fargo or other acquired
businesses are greater than expected; (d) changes in the interest rate
environment reduce interest margins; (e) general economic conditions, either
internationally or nationally or in the states or countries in which the
Company is doing business, are less favorable than expected; (f) legislative
or regulatory changes adversely affect the businesses in which the Company is
engaged; (g) personal or commercial customers' bankruptcies increase; and (h)
technological changes (including "Year 2000" data systems compliance issues)
are more difficult or expensive than anticipated.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Individual components of net interest income and the net interest margin are
presented in the rate/yield table on pages 12 and 13.
Net interest income on a taxable-equivalent basis was $1,151 million in the
third quarter of 1998, compared with $1,132 million in the third quarter of
1997. The Company's net interest margin was 6.18% in the third quarter of 1998,
compared with 5.94% in the third quarter of 1997 and 6.22% in the second quarter
of 1998. Net interest income on a taxable-equivalent basis was $3,435 million in
the first nine months of 1998, compared with $3,497 million in the first nine
months of 1997. The Company's net interest margin was 6.14% in the first nine
months of 1998, compared with 6.00% in the first nine months of 1997.
Interest income included hedging income of $20 million in the third quarter of
1998, compared with $16 million in the third quarter of 1997. Interest expense
included hedging expense of $3 million in the third quarter of 1998, compared
with $4 million in the same quarter of 1997.
Loans averaged $63.6 billion in the third quarter of 1998, compared with $63.9
billion in the third quarter of 1997, and $64.4 billion in the first nine months
of 1998, compared with $64.7 billion in the first nine months of 1997.
Securities available for sale averaged $8.1 billion during the third quarter of
1998, compared with $11.0 billion in the third quarter of 1997, and $8.5 billion
in the first nine months of 1998, compared with $12.0 billion in the first nine
months of 1997. The decrease was predominantly due to maturities.
Average core deposits were $69.6 billion and $70.7 billion in the third
quarter of 1998 and 1997, respectively, and funded 75% and 73% of the
Company's average total assets in the third quarter of 1998 and 1997,
respectively. For the first nine months of 1998 and 1997, average core
deposits were $69.8 billion and $73.9 billion, respectively, and funded 75%
and 73%, respectively, of the Company's average total assets.
11
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter ended September 30,
-------------------------------------------------------------
1998 1997
-------------------------- ----------------------------
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 $ 1,152 5.64% $ 16 $ 229 5.63% $ 3
Securities available for sale (3):
U.S. Treasury securities 1,771 6.05 27 2,634 6.00 40
Securities of U.S. government agencies
and corporations 2,928 6.60 48 5,303 6.42 85
Private collateralized mortgage obligations 2,832 6.62 47 2,737 6.68 46
Other securities 553 6.84 8 330 6.41 4
------- ------ -------- ------
Total securities available for sale 8,084 6.50 130 11,004 6.38 175
Loans:
Commercial 20,965 8.89 469 18,283 9.11 419
Real estate 1-4 family first mortgage 7,550 7.54 143 9,543 7.52 180
Other real estate mortgage 11,509 9.67 281 11,421 9.35 269
Real estate construction 2,534 9.43 60 2,304 10.90 63
Consumer:
Real estate 1-4 family junior lien mortgage 5,368 9.07 123 5,946 9.35 140
Credit card 4,279 15.30 164 5,073 14.66 186
Other revolving credit and monthly payment 6,606 9.45 156 7,638 9.26 178
------- ------ -------- ------
Total consumer 16,253 10.86 443 18,657 10.75 504
Lease financing 4,684 8.58 100 3,533 8.99 79
Foreign 143 7.37 3 124 6.88 2
------- ------ -------- ------
Total loans (4) 63,638 9.37 1,499 63,865 9.45 1,516
Other 1,405 7.24 26 883 7.18 16
------- ------ -------- ------
Total earning assets $74,279 8.96 1,671 $ 75,981 8.97 1,710
------- ------ -------- ------
------- --------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 1,711 1.39 6 $ 1,736 1.45 6
Market rate and other savings 30,356 2.69 206 31,098 2.64 207
Savings certificates 15,082 5.05 192 15,602 5.17 203
Other time deposits 205 4.74 2 253 4.83 3
Deposits in foreign offices 55 3.95 1 731 5.48 10
------- ------ -------- ------
Total interest-bearing deposits 47,409 3.40 407 49,420 3.45 429
Federal funds purchased and securities sold
under repurchase agreements 1,186 5.33 16 3,211 5.48 44
Commercial paper and other short-term borrowings 261 5.41 4 343 5.82 5
Senior debt 1,487 6.17 23 1,770 6.47 29
Subordinated debt 2,593 6.99 45 2,604 7.12 46
Guaranteed preferred beneficial interests in Company's
subordinated debentures 1,299 7.81 25 1,299 7.81 25
------- ------ -------- ------
Total interest-bearing liabilities 54,235 3.81 520 58,647 3.92 578
Portion of noninterest-bearing funding sources 20,044 -- -- 17,334 -- --
------- ------ -------- ------
Total funding sources $74,279 2.78 520 $ 75,981 3.03 578
------- ------ -------- ------
------- --------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (5) 6.18% $1,151 5.94% $1,132
---- ------ ---- ------
---- ------ ---- ------
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 6,384 $ 7,299
Goodwill 6,797 7,190
Other 4,875 6,562
------- --------
Total noninterest-earning assets $18,056 $ 21,051
------- --------
------- --------
NONINTEREST-BEARING FUNDING SOURCES
Deposits $22,459 $ 22,308
Other liabilities 2,649 3,135
Preferred stockholders' equity 275 275
Common stockholders' equity 12,717 12,667
Noninterest-bearing funding sources used to
fund earning assets (20,044) (17,334)
------- --------
Net noninterest-bearing funding sources $18,056 $ 21,051
------- --------
------- --------
TOTAL ASSETS $92,335 $ 97,032
------- --------
------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of Wells Fargo Bank was 8.50% for the quarters ended
September 30, 1998 and 1997 and 8.50% and 8.42% for the nine months ended
September 30, 1998 and 1997, respectively. The average three-month London
Interbank Offered Rate (LIBOR) was 5.62% and 5.73% for the quarters ended
September 30, 1998 and 1997, respectively, and 5.65% and 5.71% for the nine
months ended September 30, 1998 and 1997, 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 securities available for sale totaled $7,971 million and
$10,931 million for the quarters ended September 30, 1998 and 1997,
respectively, and $8,349 million and $11,973 million for the nine months
ended September 30, 1998 and 1997, respectively.
(4) Nonaccrual loans and related income are included in their respective loan
categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on
certain loans and securities that is exempt from federal and applicable
state income taxes. The federal statutory tax rate was 35% for all periods
presented.
12
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Nine months ended September 30,
------------------------------------------------------------
1998 1997
-------------------------- ---------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
BALANCE RATES EXPENSE balance rates expense
- --------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 759 5.65% $ 32 $ 351 5.58% $ 15
2,105 6.09 95 2,745 6.03 124
3,413 6.60 167 5,972 6.43 287
2,422 6.65 120 2,935 6.63 147
511 7.07 25 340 6.42 15
-------- ------ -------- ------
8,451 6.51 407 11,992 6.39 573
20,550 8.99 1,382 18,373 9.07 1,246
8,109 7.50 456 9,899 7.49 555
11,810 9.61 848 11,514 9.82 846
2,444 9.55 175 2,288 10.23 175
5,521 9.32 385 6,049 9.34 423
4,554 15.19 519 5,188 14.39 560
6,841 9.20 471 7,913 9.29 550
-------- ------ -------- ------
16,916 10.85 1,375 19,150 10.69 1,533
4,408 8.64 286 3,295 8.83 218
125 7.68 7 134 6.91 7
-------- ------ -------- ------
64,362 9.40 4,529 64,653 9.46 4,580
1,261 7.29 69 770 6.79 39
-------- ------ -------- ------
$ 74,833 9.00 5,037 $ 77,766 8.94 5,207
-------- ------ -------- ------
-------- --------
$ 1,735 1.41 18 $ 1,847 1.30 18
30,408 2.68 610 32,562 2.59 632
15,076 5.10 576 15,596 5.10 595
234 4.79 8 201 4.47 7
189 5.03 7 708 5.38 28
-------- ------ -------- ------
47,642 3.42 1,219 50,914 3.36 1,280
1,895 5.40 76 2,712 5.37 109
323 5.89 14 264 5.96 12
1,709 6.26 80 1,840 6.33 87
2,619 6.96 137 2,808 6.99 147
1,299 7.80 76 1,283 7.82 75
-------- ------ -------- ------
55,487 3.86 1,602 59,821 3.82 1,710
19,346 -- -- 17,945 -- --
-------- ------ -------- ------
$ 74,833 2.87 1,602 $ 77,766 2.94 1,710
-------- ------ -------- ------
-------- --------
6.14% $3,435 6.00% $3,497
---- ------ ---- ------
---- ------ ---- ------
$ 6,547 $ 8,293
6,896 7,255
5,294 7,389
-------- --------
$ 18,737 $ 22,937
-------- --------
-------- --------
$ 22,537 $ 23,932
2,687 3,588
275 397
12,584 12,965
(19,346) (17,945)
-------- --------
$ 18,737 $ 22,937
-------- --------
-------- --------
$ 93,570 $100,703
-------- --------
-------- --------
- --------------------------------------------------------------
</TABLE>
13
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
-------------- % --------------- %
(in millions) 1998 1997 Change 1998 1997 Change
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fees and commissions:
Credit card membership and other credit card fees $ 66 $ 62 6% $ 195 $ 162 20%
ATM network fees 50 43 16 144 125 15
Charges and fees on loans 42 37 14 125 100 25
Debit and credit card merchant fees 27 25 8 74 72 3
Mutual fund and annuity sales fees 22 18 22 65 51 27
All other (1) 67 61 10 198 184 8
---- ---- ------ ------
Total fees and commissions 274 246 11 801 694 15
Service charges on deposit accounts 235 214 10 665 649 2
Trust and investment services income:
Asset management and custody fees 62 64 (3) 187 186 1
Mutual fund management fees 47 47 -- 137 131 5
All other 6 6 -- 19 21 (10)
---- ---- ------ ------
Total trust and investment services income 115 117 (2) 343 338 1
Investment securities gains (losses) 18 (1) -- 41 6 583
Income from equity investments accounted for by the:
Cost method 32 18 78 116 109 6
Equity method 12 11 9 43 42 2
Check printing charges 22 17 29 60 53 13
Gains on sales of loans 14 28 (50) 67 41 63
Gains (losses) from dispositions of operations 18 (1) -- 89 7 --
Losses on dispositions of premises and equipment (7) (10) (30) (58) (45) 29
All other 4 38 (89) 30 102 (71)
---- ---- ------ ------
Total $737 $677 9% $2,197 $1,996 10%
---- ---- --- ------ ------ ---
---- ---- --- ------ ------ ---
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes mortgage loan servicing fees totaling $1 million and $24 million
for purchased mortgage servicing rights for the quarters ended September
30, 1998 and 1997, respectively, and $40 million and $73 million for the
nine months ended September 30, 1998 and 1997, respectively. Also includes
the related amortization expense of none and $16 million for the quarters
ended September 30, 1998 and 1997, respectively, and $30 million and $51
million for the nine months ended September 30, 1998 and 1997,
respectively.
Fees and commissions increased $28 million, or 11%, from the third quarter of
1997 reflecting increased fees in all major business units.
Service charges on deposit accounts increased $21 million, or 10%, from the
third quarter of 1997 due to an increase in fees.
The increase in gains on sales of investment securities was predominantly due
to sales of U.S. Treasury securities.
In June 1998, the Company sold its mortgage servicing business to GMAC Mortgage
Corporation. The resulting pre-tax gain of $58 million was included in gains
from dispositions of operations in the second quarter and an additional $4
million was included in the third quarter. Pre-tax income from the mortgage
servicing business was none and $7 million in the third quarter and first nine
months of 1998, respectively, compared with $3 million and $10 million in the
same periods of 1997.
14
<PAGE>
At December 31, 1997, the Company had a liability of $48 million related to the
disposition of premises and, to a lesser extent, severance and miscellaneous
expenses associated with 65 branches not acquired as a result of the acquisition
of First Interstate Bancorp (First Interstate) or with First Interstate branches
that were identified in the fourth quarter of 1997 for closure in 1998. Of this
amount, $21 million represented the balance of the fourth-quarter 1996 accrual
related to 32 traditional branches in California and $27 million represented the
fourth-quarter 1997 accrual for the disposition of 33 traditional branches
located mostly outside of California. Of the total 65 branches, 31 branches were
closed in the first nine months of 1998, including 3 in the third quarter of
1998. In the second and third quarters of 1998, the Company evaluated the
remaining 34 scheduled branch closures and decided to retain 32 branches, which
resulted in reducing the liability by $18 million. The decision was made based
on numerous factors, including the need to maintain customer service levels,
particularly given the earlier unstable operating environment associated with
integrating First Interstate, as well as the review of profitability analyses
demonstrating increased customer usage and improved profitability for these 32
branches. These developments were not anticipated or foreseen at the time these
accruals were originally recorded. The remaining balance of $1 million at
September 30, 1998 is for the expected closure of 2 branches by year-end 1998.
The decrease in "All Other" was predominantly due to losses on trading of
commercial mortgage-backed securities.
At September 30, 1998, the Company had 842 traditional branches, 582 in-store
branches, 365 banking centers and 34 business centers. Motor banking facilities
("motorbanks") were available at 42 of the traditional branches.
15
<PAGE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
--------------------- % --------------------- %
(in millions) 1998 1997 Change 1998 1997 Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 299 $ 308 (3)% $ 907 $ 964 (6)%
Incentive compensation 61 54 13 175 143 22
Employee benefits 73 80 (9) 244 256 (5)
Equipment 96 97 (1) 294 289 2
Net occupancy 96 96 -- 295 292 1
Goodwill 80 81 (1) 242 245 (1)
Core deposit intangible:
Nonqualifying (1) 49 56 (13) 152 169 (10)
Qualifying 6 8 (25) 20 24 (17)
Operating losses 23 40 (43) 79 262 (70)
Contract services 73 56 30 206 172 20
Telecommunications 34 35 (3) 98 108 (9)
Security 22 22 -- 63 66 (5)
Postage 17 19 (11) 55 64 (14)
Outside professional services 24 20 20 72 56 29
Advertising and promotion 30 19 58 84 53 58
Stationery and supplies 14 19 (26) 40 56 (29)
Travel and entertainment 18 15 20 51 44 16
Check printing 12 12 -- 36 42 (14)
Outside data processing 21 11 91 51 37 38
Foreclosed assets (1) 1 -- (1) (2) (50)
All other 41 38 8 114 110 4
------ ------ ------ ------
Total $1,088 $1,087 -- % $3,277 $3,450 (5)%
------ ------ --- ------ ------ ---
------ ------ --- ------ ------ ---
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amortization of core deposit intangible acquired after February 1992 that
is subtracted from stockholders' equity in computing regulatory capital for
bank holding companies.
Salaries expense decreased $9 million and $57 million in the third quarter and
first nine months of 1998, respectively, due to reduced staff levels. The
Company's active full-time equivalent (FTE) staff, including hourly employees,
was 31,600 at September 30, 1998, compared with 32,663 at September 30, 1997.
Goodwill and CDI amortization resulting from the acquisition of First Interstate
on April 1, 1996 were $72 million and $49 million, respectively, for the quarter
ended September 30, 1998, compared with $73 million and $56 million,
respectively, for the quarter ended September 30, 1997. 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 1998, 1999 and 2000 is expected to be
$199 million, $178 million and $162 million, respectively. The related impact on
income tax expense is expected to be a benefit of $81 million, $72 million and
$66 million in 1998, 1999 and 2000, respectively.
The Company, following an initial awareness phase, utilizes a four-phase plan
for achieving Year 2000 readiness. The Assessment Phase is intended to determine
which computers, operating systems, applications and facilities require
remediation and prioritizing those remediation efforts. The Assessment Phase has
been completed except for the on-going
16
<PAGE>
assessment of new systems. The Renovation Phase addressed the correction or
replacement of any non-compliant hardware, software or facilities and has
been substantially completed. All renovated software, both in-house
applications and vendor software was placed back into production before
commencement of the Validation Phase. The Validation Phase, which involves
testing of in-house systems, vendor software and service providers, is in
process. Testing of internal mission-critical systems is anticipated to be
substantially completed by December 31, 1998, and testing of mission-critical
service providers is anticipated to be substantially completed by March 31,
1999. During the fourth phase, the Implementation Phase, remediated and
validated code will be tested in interfaces with customers, business
partners, government institutions and others. It is anticipated that the
Implementation Phase will be substantially completed by June 30, 1999.
The Company may be impacted by the Year 2000 compliance issues of governmental
agencies, businesses and other entities who provide data to, or receive data
from, the Company, and by entities, such as borrowers, vendors,
customers and business partners, whose financial condition or operational
capability is significant to the Company. The Company's Year
2000 project also includes assessing the Year 2000 readiness of certain
customers, borrowers, vendors, business partners, counterparties and
governmental entities. In addition to assessing the readiness of these external
parties, the Company is developing contingency plans which will include
plans to recover operations and alternatives to mitigate the effects of
counterparties whose own failure to properly address Year 2000 issues may
adversely impact the Company's ability to perform certain functions.
These contingency plans are currently being developed and are expected to be
substantially completed by June 30, 1999.
The Company currently estimates that its total cost for the Year 2000 project
will approximate $141 million. To date, the Company has incurred charges of
$77 million related to its Year 2000 project, and $24 million and $67 million
total expenditures were incurred in the quarter and nine months ended
September 30, 1998, respectively. Charges include the cost of external
consulting costs and costs of accelerated replacement of hardware and
software, but do not include the cost of internal staff redeployed to the
Year 2000 project. The Company does not believe that the redeployment of
internal staff will have a material impact on its financial condition or
results of operations.
The foregoing paragraphs contain a number of forward-looking statements.
These statements reflect management's best current estimates, which were
based on numerous assumptions about future events, including the continued
availability of certain resources, representations received from third party
service providers and other third parties, and additional factors. There can
be no guarantee that these estimates, including Year 2000 costs, will be
achieved, and actual results could differ materially from those estimates. A
number of important factors could cause management's estimates and the impact
of the Year 2000 issue to differ materially from what is described in the
forward-looking statements contained in the above paragraphs. Those factors
include, but are not limited to, uncertainties in the cost of hardware and
software, the availability and cost of programmers and other systems
personnel, inaccurate or incomplete execution of the phases, ineffective
remediation of computer code, and whether the
17
<PAGE>
Company's customers, vendors, competitors and counterparties effectively
address the Year 2000 issue.
If Year 2000 issues are not adequately addressed by the Company and significant
third parties, the Company's business, results of operations and financial
position could be materially adversely affected. Failure of certain vendors to
be Year 2000 compliant could result in disruption of important services upon
which the Company depends, including, but not limited to, such services
as telecommunications, electrical power and data processing. Failure of the
Company's loan customers to properly prepare for the Year 2000 could
also result in increases in problem loans and credit losses in future years.
Notwithstanding the Company's efforts, there can be no assurance that the
Company or significant third party vendors or other significant third parties
will adequately address their Year 2000 issues. The Company is continuing to
assess the Year 2000 readiness of third parties but does not know at this time
whether the failure of third parties to be Year 2000 compliant will have a
material effect on the Company's results of operations, liquidity and
financial condition.
The forward-looking statements made in the foregoing Year 2000 discussion speak
only as of the date on which such statements are made, and the Company
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.
In February 1998, the FASB issued FAS 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits, which will be effective for the year-end 1998
financial statements. FAS 132 only addresses disclosure issues; it does not
address measurement and recognition of pensions and other postretirement
benefits. FAS 132 requires the reconciliation of changes in benefit obligation
and plan assets for both pensions and other postretirement benefits, showing the
effects of the major components separately for each reconciliation. FAS 132 will
be adopted at year-end 1998 and is not expected to materially change the
Company's current pension and other postretirement disclosures.
18
<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 September 30, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarter ended
(in millions) September 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Amortization
-------------------------
Nonqualifying
Reported core deposit "Cash"
earnings Goodwill intangible earnings
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income tax expense $ 636 $ 80 $ 49 $ 765
Income tax expense 289 -- 20 309
----- ---- ---- -----
Net income 347 80 29 456
Preferred stock dividends 4 -- -- 4
----- ---- ---- -----
Net income applicable to common stock $ 343 $ 80 $ 29 $ 452
----- ---- ---- -----
----- ---- ---- -----
Earnings per common share $4.03 $.94 $.34 $5.31
----- ---- ---- -----
----- ---- ---- -----
Diluted earnings per common share $3.99 $.93 $.34 $5.26
----- ---- ---- -----
----- ---- ---- -----
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core
deposit intangible amortization and balances for the quarter ended September 30,
1998 were calculated as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarter ended
(in millions) September 30, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ROA: A*/ (C-E) = 2.14%
ROE: B*/ (D-E) = 35.64%
Efficiency: (F-G) / H = 50.89%
Net income $ 456 (A)
Net income applicable to common stock 452 (B)
Average total assets 92,335 (C)
Average common stockholders' equity 12,717 (D)
Average goodwill ($6,797) and after-tax nonqualifying core deposit intangible ($884) 7,681 (E)
Noninterest expense 1,088 (F)
Amortization expense for goodwill and nonqualifying core deposit intangible 129 (G)
Net interest income plus noninterest income 1,884 (H)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
These calculations were specifically formulated by the Company and may not be
comparable to similarly titled measures reported by other companies. Also,
"cash" or "tangible" earnings are not entirely available for use by management.
See the Consolidated Statement of Cash Flows on page 5 for other information
regarding funds available for use by management.
19
<PAGE>
BALANCE SHEET ANALYSIS
INVESTMENT SECURITIES
The following table provides the cost and fair value for the major components of
securities available for sale (there were no securities held to maturity at the
end of the periods presented):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
1998 1997 1997
------------------ ----------------- ------------------
ESTIMATED Estimated Estimated
FAIR fair fair
(in millions) COST VALUE Cost value Cost value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $1,206 $1,215 $2,535 $2,549 $ 2,638 $ 2,652
Securities of U.S. government
agencies and corporations (1) 3,181 3,224 4,390 4,425 5,050 5,088
Private collateralized mortgage
obligations (2) 3,040 3,073 2,390 2,396 2,656 2,656
Other 634 654 441 453 283 283
------ ------ ------ ------ ------- -------
Total debt securities 8,061 8,166 9,756 9,823 10,627 10,679
Marketable equity securities 58 76 40 65 24 58
------ ------ ------ ------ ------- -------
Total $8,119 $8,242 $9,796 $9,888 $10,651 $10,737
------ ------ ------ ------ ------- -------
------ ------ ------ ------ ------- -------
- -------------------------------------------------------------------------------------------------------------------
</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.
The securities available for sale portfolio includes both debt and marketable
equity securities. At September 30, 1998, the securities available for sale
portfolio had an unrealized net gain of $123 million, or less than 2% of the
cost of the portfolio, comprised of unrealized gross gains of $135 million and
unrealized gross losses of $12 million. At December 31, 1997, the securities
available for sale portfolio had an unrealized net gain of $92 million,
comprised of unrealized gross gains of $112 million and unrealized gross losses
of $20 million. At September 30, 1997, the securities available for sale
portfolio had an unrealized net gain of $86 million, comprised of unrealized
gross gains of $110 million and unrealized gross losses of $24 million. The
unrealized net gain or loss on securities available for sale is included as a
separate component of cumulative other comprehensive income in stockholders'
equity. At September 30, 1998, the amount included in cumulative other
comprehensive income on a net of tax basis was an unrealized net gain of $55
million, compared with $55 million at December 31, 1997 and $51 million at
September 30, 1997.
The unrealized net gain in the securities available for sale portfolio at
September 30, 1998 was primarily due to investments in mortgage-backed
securities. This unrealized net gain reflected current interest rates that were
lower than those at the time the investments were purchased. The Company may
decide to sell certain of the securities available for sale to manage the level
of earning assets (for example, to offset loan growth that may exceed expected
maturities and prepayments of securities).
20
<PAGE>
Realized gross gains resulting from the sale of securities available for sale
were $41 million and $8 million in the first nine months of 1998 and 1997,
respectively. Realized gross losses were none and $2 million in the first
nine months of 1998 and 1997, respectively.
At September 30, 1998, 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 all were issued or
backed by federal agencies. These securities, along with the private CMOs,
represented $6,297 million, or 76%, of the Company's securities available for
sale portfolio at September 30, 1998. The CMO securities held by the Company
(including the private issues) are primarily shorter-maturity class bonds that
were structured to have more predictable cash flows by being less sensitive to
prepayments during periods of changing interest rates. As an indication of
interest rate risk, the Company has estimated the impact of a 200 basis point
increase in interest rates on the value of the mortgage-backed securities and
the corresponding expected remaining maturities. Based on this rate scenario,
mortgage-backed securities would decrease in fair value from $6,297 million to
$6,094 million and the expected remaining maturity of these securities would
increase from 2 years and 1 month to 3 years and 5 months.
In October 1998, the FASB issued FAS 134, Accounting for Mortgage-Backed
Securities Retained after Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise. This Statement requires that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold investments.
FAS 134 will be implemented at the beginning of 1999 and is not expected to have
a material effect on the Company's financial statements.
21
<PAGE>
LOAN PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% Change
Sept. 30, 1998 from
------------------------
SEPT. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 30,
(in millions) 1998 1997 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial (1)(2) $21,705 $20,144 $19,512 8% 11%
Real estate 1-4 family first mortgage 7,384 8,869 9,311 (17) (21)
Other real estate mortgage (3) 11,715 12,186 11,614 (4) 1
Real estate construction 2,475 2,320 2,351 7 5
Consumer:
Real estate 1-4 family junior lien mortgage 5,375 5,865 5,931 (8) (9)
Credit card (4) 4,049 5,039 5,020 (20) (19)
Other revolving credit and monthly payment 6,610 7,185 7,513 (8) (12)
------- ------- -------
Total consumer 16,034 18,089 18,464 (11) (13)
Lease financing 4,919 4,047 3,754 22 31
Foreign 142 79 98 80 45
------- ------- -------
Total loans (net of unearned income,
including net deferred loan fees,
of $897, $832 and $781) $64,374 $65,734 $65,104 (2)% (1)%
------- ------- ------- --- ---
------- ------- ------- --- ---
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes loans (primarily unsecured) to real estate developers and real
estate investment trusts (REITs) of $1,944 million, $1,772 million and
$1,397 million at September 30, 1998, December 31, 1997 and September 30,
1997, respectively.
(2) Includes agricultural loans (loans to finance agricultural production and
other loans to farmers) of $1,582 million, $1,599 million and $1,464
million at September 30, 1998, December 31, 1997 and September 30, 1997,
respectively.
(3) Includes agricultural loans that are secured by real estate of $375
million, $343 million and $326 million at September 30, 1998, December 31,
1997 and September 30, 1997, respectively.
(4) As a result of reevaluating its credit card lending strategies, the
Company has decided to make available for sale certain accounts within
the credit card portfolio. Accordingly, approximately $375 million of
primarily out-of-franchise territory accounts were considered available
for sale as of September 30, 1998. If sold, it is anticipated that a
loss (charge-off) would result due to the credit quality of this
portion, which has been provided for in the allocation of the allowance
for loan losses. The Company intends to hold the remaining credit card
portfolio for the foreseeable future.
The table below presents comparative period-end commercial real estate loans.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% Change
Sept. 30, 1998 from
------------------------
SEPT. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 30,
(in millions) 1998 1997 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans to real
estate developers and REITs (1) $ 1,944 $ 1,772 $ 1,397 10% 39%
Other real estate mortgage 11,715 12,186 11,614 (4) 1
Real estate construction 2,475 2,320 2,351 7 5
------- ------- -------
Total $16,134 $16,278 $15,362 (1)% 5%
-- ---
-- ---
Nonaccrual loans $ 236 $ 252 $ 277 (6)% (15)%
------- ------- ------- -- ---
------- ------- ------- -- ---
Nonaccrual loans as a % of total 1.5% 1.5% 1.8%
------- ------- -------
------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in commercial loans.
22
<PAGE>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1998 1997 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial (2)(3) $180 $155 $172
Real estate 1-4 family first mortgage 73 104 100
Other real estate mortgage (4) 205 228 258
Real estate construction 30 23 18
Consumer:
Real estate 1-4 family junior lien mortgage 15 17 16
Other revolving credit and monthly payment 3 1 1
---- ---- ----
Total nonaccrual loans (5) 506 528 565
Restructured loans (6) -- 9 9
---- ---- ----
Nonaccrual and restructured loans 506 537 574
As a percentage of total loans .8% .8% .9%
Foreclosed assets 130 158 196
Real estate investments (7) 2 4 4
---- ---- ----
Total nonaccrual and restructured loans
and other assets $638 $699 $774
---- ---- ----
---- ---- ----
- ------------------------------------------------------------------------------------------------------------------
</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 (primarily unsecured) to real estate developers and REITs of
$1 million for the periods presented.
(3) Includes agricultural loans of $10 million, $13 million and $16 million at
September 30, 1998, December 31, 1997 and September 30, 1997, respectively.
(4) Includes agricultural loans secured by real estate of $10 million, $13
million and $15 million at September 30, 1998, December 31, 1997 and
September 30, 1997, respectively.
(5) Of the total nonaccrual loans, $338 million, $321 million and $356 million
at September 30, 1998, December 31, 1997 and September 30, 1997,
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 $23 million for the periods presented 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, $23 million were considered impaired under
FAS 114 for the periods presented.
(7) Represents the amount of real estate investments (contingent interest loans
accounted for as investments) that would be classified as nonaccrual if
such assets were loans. Real estate investments totaled $133 million, $172
million and $170 million at September 30, 1998, December 31, 1997 and
September 30, 1997, respectively.
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
23
<PAGE>
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.
The average recorded investment in impaired loans was $357 million and $350
million during the third quarter and first nine months of 1998, respectively,
and $394 million and $435 million during the third quarter and first nine
months of 1997, respectively. Total interest income recognized on impaired
loans was $2 million and $7 million during the third quarter and first nine
months of 1998, respectively, and $2 million and $11 million during the third
quarter and first nine months of 1997, respectively. The interest income for
all periods was recorded using the cash method.
24
<PAGE>
The table below shows the recorded investment in impaired loans by loan
category.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1998 1997 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $129 $103 $110
Real estate 1-4 family first mortgage 2 2 1
Other real estate mortgage (1) 200 216 249
Real estate construction 27 22 17
Other 3 1 2
---- ---- ----
Total (2) $361 $344 $379
---- ---- ----
---- ---- ----
Impairment measurement based on:
Collateral value method $246 $256 $298
Discounted cash flow method 97 61 60
Historical loss factors 18 27 21
---- ---- ----
$361 $344 $379
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes accruing loans of $23 million purchased at a steep discount for
the periods presented 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 $18 million, $27 million and $26 million of impaired loans with a
related FAS 114 allowance of $1 million, $2 million and $4 million at
September 30, 1998, December 31, 1997 and September 30, 1997, respectively.
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.
25
<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.
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>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 16 $ 8 $ 14
Real estate 1-4 family first mortgage 20 35 42
Other real estate mortgage 12 5 11
Real estate construction 1 1 1
Consumer:
Real estate 1-4 family junior lien mortgage 38 42 37
Credit card 108 133 123
Other revolving credit and monthly payment 8 19 13
---- ---- ----
Total consumer 154 194 173
---- ---- ----
Total $203 $243 $241
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
------------------- --------------------
(in millions) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $1,835 $1,850 $1,828 $2,018
Provision for loan losses 160 175 510 420
Loan charge-offs:
Commercial (1) (50) (69) (145) (198)
Real estate 1-4 family first mortgage (3) (5) (11) (15)
Other real estate mortgage (18) (2) (29) (13)
Real estate construction -- -- (2) (3)
Consumer:
Real estate 1-4 family junior lien mortgage (2) (6) (8) (18)
Credit card (105) (124) (340) (372)
Other revolving credit and monthly payment (45) (55) (147) (168)
------ ------ ------ ------
Total consumer (152) (185) (495) (558)
Lease financing (9) (10) (31) (29)
------ ------ ------ ------
Total loan charge-offs (232) (271) (713) (816)
------ ------ ------ ------
Loan recoveries:
Commercial (2) 12 21 44 53
Real estate 1-4 family first mortgage 2 1 5 3
Other real estate mortgage 26 13 62 42
Real estate construction -- 1 2 3
Consumer:
Real estate 1-4 family junior lien mortgage 1 2 4 6
Credit card 11 12 34 34
Other revolving credit and monthly payment 15 17 48 51
------ ------ ------ ------
Total consumer 27 31 86 91
Lease financing 3 2 9 9
------ ------ ------ ------
Total loan recoveries 70 69 208 201
------ ------ ------ ------
Total net loan charge-offs (162) (202) (505) (615)
BALANCE, END OF PERIOD $1,833 $1,823 $1,833 $1,823
------ ------ ------ ------
------ ------ ------ ------
Total net loan charge-offs as a percentage
of average loans (annualized) 1.01% 1.25% 1.05% 1.27%
------ ------ ------ ------
------ ------ ------ ------
Allowance as a percentage of total loans 2.85% 2.80% 2.85% 2.80%
------ ------ ------ ------
------ ------ ------ ------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There were no charge-offs of loans (primarily unsecured) to real estate
developers and REITs for the periods presented.
(2) Includes recoveries from loans (primarily unsecured) to real estate
developers and REITs of none and $1 million for the quarters ended
September 30, 1998 and 1997, respectively, and $1 million and $2 million
for the nine months ended September 30, 1998 and 1997, respectively.
27
<PAGE>
The table below presents net charge-offs by loan category.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter ended September 30, Nine months ended September 30,
-------------------------------------- -----------------------------------------
1998 1997 1998 1997
-------------------------------------- -----------------------------------------
% 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 $ 38 .71% $ 48 1.03% $101 .66% $145 1.04%
Real estate 1-4 family first mortgage 1 .05 4 .16 6 .09 12 .16
Other real estate mortgage (8) (.27) (11) (.36) (33) (.38) (29) (.34)
Real estate construction -- -- (1) (.21) -- .04 -- --
Consumer:
Real estate 1-4 family
junior lien mortgage 1 .06 4 .25 4 .09 12 .27
Credit card 94 8.78 112 8.77 306 9.00 338 8.71
Other revolving credit
and monthly payment 30 1.81 38 1.99 99 1.93 117 1.98
---- ---- ---- ----
Total consumer 125 3.07 154 3.28 409 3.23 467 3.26
Lease financing 6 .55 8 .82 22 .69 20 .83
---- ---- ---- ----
Total net loan charge-offs $162 1.01% $202 1.25% $505 1.05% $615 1.27%
---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated on an annualized basis.
The commercial loan category includes net charge-offs for the commercial loan
component of small business loans of $25 million (or 2.30% of average small
business loans in this category) in the third quarter of 1998, compared with $26
million (or 2.45%) in the second quarter of 1998 and $33 million (or 3.38%) in
the third quarter of 1997. During the last half of 1997, the period of charging
off past due loans for the Business Direct product within this portfolio was
changed from 180 to 120 days. The target market for small business loans is
expected to experience higher loss rates on a recurring basis than is the case
with loans to middle market and corporate borrowers, and such loans are priced
at appropriately higher spreads.
The largest category of net charge-offs in the third quarter of 1998 and 1997
was credit card loans, comprising 58% and 55%, respectively, of total net
charge-offs. During the third quarter of 1998, credit card gross charge-offs due
to bankruptcies were $40 million, or 38%, of total credit card gross
charge-offs, compared with $47 million, or 40%, in the second quarter of 1998
and $54 million, or 43%, in the third quarter of 1997. In addition, credit card
loans 30 to 89 days past due and still accruing totaled $154 million at
September 30, 1998, compared with $133 million at June 30, 1998 and $180 million
at September 30, 1997.
The Company considers the allowance for loan losses of $1,833 million adequate
to cover losses inherent in loans, commitments to extend credit and standby
letters of credit at September 30, 1998. The Company's determination of the
level of the allowance and, correspondingly, the provision for loan losses rests
upon various judgments and assumptions, including general (particularly
California) economic conditions, loan portfolio composition, prior loan loss
experience and the Company's ongoing examination process and that of its
regulators. The Company made a $160 million provision in the third quarter of
1998.
28
<PAGE>
OTHER ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonmarketable equity investments $1,146 $1,113 $1,114
Trading assets 922 815 541
Net deferred tax asset 57 209 347
Certain identifiable intangible assets 160 479 491
Foreclosed assets 130 158 196
Other 1,187 1,175 1,203
------ ------ ------
Total other assets $3,602 $3,949 $3,892
------ ------ ------
------ ------ ------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Income from nonmarketable equity investments accounted for using the cost method
was $32 million and $18 million in the third quarter of 1998 and 1997,
respectively, and $116 million and $109 million in the nine months ended
September 30, 1998 and 1997, respectively.
Trading assets consist largely of securities, including corporate debt and U.S.
government agency obligations. Gains (losses) from trading assets were $(8)
million and $21 million in the third quarter of 1998 and 1997, respectively, and
$30 million and $59 million in the nine months ended September 30, 1998 and
1997, respectively.
The Company estimates that approximately $52 million of the $57 million net
deferred tax asset at September 30, 1998 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 $5 million primarily relates to net
deductions that are expected to reduce future state taxable income. The Company
believes that it is more likely than not that it will have sufficient future
state taxable income to fully utilize these deductions. The amount of the total
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carry forward periods are
reduced.
Included in certain identifiable intangible assets were purchased mortgage
servicing rights of none, $292 million and $301 million at September 30, 1998,
December 31, 1997 and September 30, 1997, respectively. In June 1998, the
Company sold its mortgage servicing business to GMAC Mortgage Corporation. (See
page 14 for additional information.)
The other identifiable intangible assets included in other assets are generally
amortized using an accelerated method, which is based on estimated useful lives
ranging from 5 to 15 years. Amortization expense was $6 million and $7 million
for the quarters ended September 30, 1998 and 1997, respectively.
29
<PAGE>
DEPOSITS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $22,542 $23,953 $23,005
Interest-bearing checking 1,799 2,155 2,209
Market rate and other savings 29,954 29,940 29,906
Savings certificates 15,196 15,349 15,460
------- ------- -------
Core deposits 69,491 71,397 70,580
Other time deposits 208 205 288
Deposits in foreign offices 70 597 54
------- ------- -------
Total deposits $69,769 $72,199 $70,922
------- ------- -------
------- ------- -------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL ADEQUACY/RATIOS
Risk-based capital (RBC) guidelines issued by the Federal Reserve Board (FRB)
establish a risk-adjusted ratio relating capital to different categories of
assets and off-balance sheet and market risk exposures. The Company's Tier 1 and
Tier 2 capital components are presented on the following page. The guidelines
require a minimum total RBC ratio of 8%, with at least half of the total capital
in the form of Tier 1 capital. To supplement the RBC guidelines, the FRB
established a minimum leverage ratio guideline of 3% of Tier 1 capital to
average total assets.
The increase in the Company's ratios at September 30, 1998 compared with
December 31, 1997 was due to an increase in common stockholders' equity
(predominantly retained earnings).
30
<PAGE>
The table below presents the Company's risk-based capital and leverage ratios.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in billions) 1998 1997 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1:
Common stockholders' equity $12.9 $12.6 $12.6
Preferred stock .3 .3 .3
Guaranteed preferred beneficial interests in
Company's subordinated debentures 1.3 1.3 1.3
Goodwill and other deductions (1) (7.7) (8.1) (8.2)
----- ----- -----
Total Tier 1 capital 6.8 6.1 6.0
----- ----- -----
Tier 2:
Mandatory convertible debt -- .1 .2
Subordinated debt and unsecured senior debt 2.0 2.0 2.0
Allowance for loan losses allowable in Tier 2 1.0 1.0 1.0
----- ----- -----
Total Tier 2 capital 3.0 3.1 3.2
----- ----- -----
Total risk-based capital $ 9.8 $ 9.2 $ 9.2
----- ----- -----
----- ----- -----
Risk-weighted balance sheet assets $75.6 $77.6 $77.1
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans 9.2 9.4 9.4
Standby letters of credit 1.6 1.6 1.7
Other 1.4 .7 .6
----- ----- -----
Total risk-weighted off-balance sheet items 12.2 11.7 11.7
----- ----- -----
Market risk equivalent assets (2) 1.0 -- --
Goodwill and other deductions (1) (7.7) (8.1) (8.2)
Allowance for loan losses not included in Tier 2 (.8) (.8) (.8)
----- ----- -----
Total risk-weighted assets $80.3 $80.4 $79.8
----- ----- -----
----- ----- -----
Risk-based capital ratios:
Tier 1 capital (4% minimum requirement) 8.47% 7.61% 7.53%
Total capital (8% minimum requirement) 12.26 11.49 11.47
Leverage ratio (3% minimum requirement) (3) 8.04% 6.95% 6.76%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Other deductions include CDI acquired after February 1992 (nonqualifying
CDI) and the unrealized net gain (loss) on securities available for sale.
(2) As the Company met at September 30, 1998 certain trading thresholds as
defined by the FRB, its risk-based capital ratios now include a regulatory
measurement for market risk, which represents the risk of loss in trading
activities that result from movements in market prices.
(3) Tier 1 capital divided by quarterly average total assets (excluding
goodwill, nonqualifying CDI and other items which were deducted to arrive
at Tier 1 capital).
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
September 30, 1998, the Bank had a Tier 1 RBC ratio of 7.88%, a combined Tier 1
and Tier 2 ratio of 11.01 % and a leverage ratio of 7.07%.
31
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the aggregate notional or contractual amounts,
credit risk amount and net fair value of the Company's derivative financial
instruments at September 30, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 December 31, 1997
--------------------------------------- ---------------------------------------
NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated
CONTRACTUAL RISK FAIR contractual risk fair
(in millions) AMOUNT AMOUNT(2) VALUE amount amount(2) value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT HEDGES
Interest rate contracts:
Swaps (1) $20,008 $ 642 $ 635 $16,301 $ 233 $ 174
Futures 6,645 -- -- 6,259 -- --
Floors purchased (1) 17,721 168 168 20,727 63 63
Caps purchased (1) 186 -- -- 240 1 1
Options purchased -- -- -- 42 -- --
Foreign exchange contracts:
Forwards (1) 129 -- (1) 57 1 1
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Swaps (1) 6,259 102 28 3,158 13 4
Futures 6,647 -- -- 2,387 -- --
Floors purchased (1) 1,327 34 34 1,141 13 13
Caps purchased (1) 2,970 3 3 2,836 8 8
Floors written 1,312 -- (33) 1,122 -- (13)
Caps written 2,948 -- (3) 2,871 -- (9)
Options purchased (1) -- -- -- 37 -- --
Options written (1) -- -- -- 27 -- --
Forwards (1) 1,072 44 7 59 2 2
Foreign exchange contracts:
Forwards and spots (1) 2,527 37 2 1,853 29 3
Options purchased (1) 135 2 2 110 -- --
Options written 123 -- (2) 110 -- --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company anticipates performance by substantially all of the
counterparties for these or the underlying financial instruments.
(2) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.
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 contractual or notional amounts of
derivatives do not represent amounts exchanged by the parties and therefore
are not a measure of exposure through the use of derivatives. The amounts
exchanged are determined by reference to the notional amounts and the other
terms of the derivatives. The contractual or notional amounts do not
represent exposure to liquidity risk. The Company is not a dealer but an
end-user of these instruments and does not use them speculatively. The
Company also offers contracts to its customers, but offsets such contracts by
purchasing other financial contracts or uses the contracts for
asset/liability management.
The Company also enters into foreign exchange derivative financial
instruments (forward and spot contracts and options) primarily as an
accommodation to customers and offsets the related foreign exchange risk with
other foreign exchange derivative financial instruments.
32
<PAGE>
The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The Company controls the credit risk
of its financial contracts (except futures contracts and floor, cap and
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 counterparties, losses
associated with counterparty nonperformance on derivative financial
instruments have been immaterial.
In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments
and Hedging Activities, which will be effective for the Company's financial
statements for periods beginning January 1, 2000. The new standard requires
companies to record derivatives on the balance sheet, measured at fair value.
Changes in the fair values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. The Company has not yet determined when it will
implement the Statement nor has it completed the complex analysis required to
determine the impact on the financial statements.
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. In 1996, the Company filed a shelf registration with the Securities
and Exchange Commission (SEC) that allows for the issuance of $3.5 billion of
senior or subordinated debt or preferred stock. This shelf registration was
amended on October 12, 1998 to include 2.5 million shares of common stock. In
October 1998, the Company issued $759 million of common stock under this
shelf registration to cure a portion of previously repurchased "tainted"
shares and, thus, allow the Merger to be accounted for as a pooling of
interests. The proceeds from the sale of any securities will be used for
general corporate purposes. As of September 30, 1998, the Company had issued
$.2 billion of preferred stock and $.7 billion of medium-term notes under
this shelf registration. As of November 16, 1998, this shelf registration is
no longer effective.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The
primary market risk to which the Company is exposed is 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 asset and liability rates will
decline or turn negative if rates increase. The Company refers to this type
of risk as "term structure risk." There is, however, another source of
interest rate risk which results from changing spreads between asset and
liability rates. The Company calls this type of risk "basis risk;" it is the
Company's main source of interest rate risk and is significantly more
difficult to quantify and manage than term structure risk.
33
<PAGE>
The Company employs a sensitivity analysis in the form of a net interest
income simulation to help characterize the market risk arising from changes
in interest rates in the other-than-trading portfolio. The Company's net
interest income simulation includes all other-than-trading financial assets,
financial liabilities, derivative financial instruments and leases where the
Company is the lessor. It captures the dynamic nature of the balance sheet by
anticipating probable balance sheet and off-balance sheet strategies and
volumes under different interest rate scenarios over the course of a one-year
period. This simulation measures both the term structure risk and the basis
risk in the Company's positions. The simulation also captures the option
characteristics of products, such as caps and floors on floating rate loans,
the right to prepay mortgage loans without penalty and the ability of
customers to withdraw deposits on demand. These options are modeled directly
in the simulation either through the use of option pricing models, in the
case of caps and floors on loans, or through statistical analysis of
historical customer behavior, in the case of mortgage loan prepayments or
non-maturity deposits.
The Company uses four standard scenarios - rates unchanged, expected rates,
high rates and low rates - in analyzing interest rate sensitivity. The
expected scenario is based on the Company's projected future interest rates,
while the high-rate and low-rate scenarios cover 90% probable upward and
downward rate movements based on the Company's own interest rate models.
The current interest rate risk limit using the net interest income simulation
allows up to 30 basis points (.30%) of sensitivity in the expected average
net interest margin over the next 12 months. As of September 30, 1998, the
simulation showed a decline in the net interest margin of 9 basis points
(.09%, or $67 million decline in net interest income over the next 12 months)
for the low-rate scenario case relative to the expected case.
The Company uses interest rate derivative financial instruments as an
asset/liability management tool to hedge mismatches in interest rate
exposures indicated by the net interest income simulation described above.
They are used to reduce the Company's exposure to interest rate fluctuations
and provide more stable spreads between loan yields and the rates on their
funding sources.
The Company considers the fair values and the potential near term losses to
future earnings related to its customer accommodation derivative financial
instruments to be immaterial.
34
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of shareholders was held on October 20, 1998,
to consider a proposal to adopt the Agreement and Plan of
Merger, dated as of June 7, 1998, and amended and restated as of
September 10, 1998 (the "Agreement"), by and among Wells Fargo &
Company, Norwest Corporation and WFC Holdings Corporation. The
Agreement was adopted by the following vote:
For 57,428,537
Against 500,572
Abstain 266,623
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
2 Agreement and Plan of Merger, dated as of
June 7, 1998, and amended and restated as of
September 10, 1998, by and among Wells Fargo
& Company, Norwest Corporation and WFC
Holdings Corporation, filed as Exhibit 2.1 to
the Registration Statement on Form S-4 of
Norwest Corporation, File No. 333-63247,
filed September 11, 1998, and incorporated
herein by reference.
3(a) Certificate of Incorporation
(b) By-Laws
4 The Company hereby agrees to furnish to the
Commission upon request a copy of each
instrument defining the rights of holders of
securities of the Company.
10(a) Employment Agreement, dated as of June 7,
1998, by and between Norwest Corporation and
Paul Hazen, filed as Exhibit 10.1 to the
Registration Statement on Form S-4 of Norwest
Corporation, File No. 333-63247, filed
September 11, 1998, and incorporated herein
by reference.
10(b) Employment Agreement, dated as of June 7,
1998, by and between Norwest Corporation and
Rodney L. Jacobs, filed as Exhibit 10.2 to the
Registration Statement on Form S-4 of Norwest
Corporation, File No. 333-63247, filed
September 11, 1998, and incorporated herein
by reference.
10(c) Wells Fargo & Company Change of Control
Severance Plan, adopted October 20, 1998.
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
2.15 and 1.89 for the quarters ended
September 30, 1998 and 1997, respectively,
and 2.08 and 1.89 for the nine months ended
September 30, 1998 and 1997, respectively.
The ratios of earnings to fixed charges,
excluding interest on deposits, were 5.42 and
4.02 for the quarters ended September 30,
1998 and 1997, respectively, and 4.84 and
4.07 for the nine months ended September 30,
1998 and 1997, respectively.
35
<PAGE>
99(b) Computation of Ratios of Earnings to Fixed
Charges and Preferred Dividends -- the
ratios of earnings to fixed charges and
preferred dividends, including interest on
deposits, were 2.13 and 1.86 for the
quarters ended September 30, 1998 and 1997,
respectively, and 2.05 and 1.85 for the nine
months ended September 30, 1998 and 1997,
respectively. The ratios of earnings to
fixed charges and preferred dividends,
excluding interest on deposits, were 5.17
and 3.83 for the quarters ended September
30, 1998 and 1997, respectively, and 4.61
and 3.78 for the nine months ended September
30, 1998 and 1997, respectively.
</TABLE>
(b) The Company filed the following reports on Form 8-K
during the third quarter of 1998 and through the
date hereof:
(1) July 21, 1998 under Item 5, containing the
Press Release that announced the Company's
financial results for the quarter ended June
30, 1998
(2) July 24, 1998 under Item 5, containing the
abridged analyst presentation materials dated
June 8, 1998 regarding the proposed merger
between the Company and Norwest Corporation
(3) September 15, 1998 under Item 7, containing
the unaudited pro forma combined financial
information of the Company and Norwest
Corporation for the six months ended June 30,
1998 and the years ended December 31, 1997,
1996 and 1995
(4) October 15, 1998 under Item 5, containing the
Underwriting Agreement between the Company
and Goldman, Sachs & Co., dated October 12,
1998 in connection with the sale of 2.5
million shares of the Company's common stock,
$5 par value per share, pursuant to the
Company's Prospectus Supplement dated October
12, 1998 to the Prospectus dated September
16, 1998
(5) October 20, 1998 under Item 5, containing the
Press Release that announced the Company's
financial results for the quarter ended
September 30, 1998
(6) November 16, 1998 under Items 2 and 7, describing
the consummation of the Merger by and among Former
Wells Fargo & Company, Norwest Corporation and
WFC Holdings Corporation pursuant to an Agreement
and Plan of Merger dated as of June 7, 1998 and
amended and restated as of September 10, 1998 and
containing the Press Release dated November 2, 1998
issued by Norwest Corporation announcing the
completion of the Merger
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 November 23, 1998.
WFC HOLDINGS CORPORATION
By: LES L. QUOCK
-------------------------------------
Les L. Quock
Senior Vice President and Controller
(Principal Accounting Officer)
36
<PAGE>
CERTIFICATE OF INCORPORATION
OF
WFC HOLDINGS CORPORATION
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
hereby execute this Certificate of Incorporation and do hereby certify as
follows:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
WFC Holdings Corporation.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
SECTION 4.1. The Corporation shall be authorized to issue 1,000 shares
of capital stock, of which 1,000 shares shall be shares of Common Stock, $.01
par value ("Common Stock").
SECTION 4.2. Except as otherwise provided by law the Common Stock shall
have the exclusive right to vote for the election of directors and for all other
purposes. Each share of
<PAGE>
Common Stock shall have one vote, and the Common Stock shall vote together as a
single class.
ARTICLE V
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by law,
the Board of Directors of the Corporation (the "Board") is expressly authorized
and empowered to make, alter and repeal the By-Laws of the Corporation by a
majority vote at any regular or special meeting of the Board or by written
consent, subject to the power of the stockholders of the Corporation to alter or
repeal any By-Laws made by the Board.
ARTICLE VII
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
ARTICLE VIII
SECTION 8.1. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. A director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended.
<PAGE>
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
SECTION 8.2. INDEMNIFICATION AND INSURANCE.
(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or
was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, to the fullest extent permitted by law, only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys'
fees, judgments, fines, amounts paid or to be paid in settlement, and
excise taxes or penalties arising under the Employee Retirement Income
Security Act of 1974) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of his or her heirs, executors and administrators; PROVIDED,
HOWEVER, that, except as provided in paragraph (b) hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with
a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this Section shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition;
PROVIDED, HOWEVER, that, if the General Corporation Law of the State of
Delaware requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not
entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of the Board, provide
<PAGE>
indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and
officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph
(a) of this Section is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which
make it permissible under the General Corporation Law of the State of
Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in the General Corporation Law
of the State of Delaware, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met
the applicable standard of conduct.
(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, By-law, agreement,
vote of stockholders or disinterested directors or otherwise.
(d) INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust
or other enterprise against any such expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the General Corporation Law of the
State of Delaware.
ARTICLE IX
The name and mailing address of the incorporator is Lawrence S. Makow,
Esq., c/o Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New
York 10019.
<PAGE>
IN WITNESS WHEREOF, I, the undersigned, being the incorporator
hereinbefore named, do hereby further certify that the facts hereinabove stated
are truly set forth and, accordingly, I have hereunto set my hand this 9th day
of September, 1998.
/s/ LAWRENCE S. MAKOW
------------------------------
Lawrence S. Makow
Incorporator
<PAGE>
BY-LAWS
OF
WFC HOLDINGS CORPORATION
INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE
* * *
ARTICLE I
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of WFC Holdings
Corporation (the "Corporation") shall be established and maintained at the
office of The Corporation Trust Company at The Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle, State of
Delaware, and said Corporation Trust Company shall be the registered agent of
the Corporation in charge thereof.
SECTION 1.2. OTHER OFFICES. The Corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time select or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. If
the Board of Directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the registered
office of the Corporation on the first Tuesday in April. If the date of the
annual meeting shall fall upon a legal holiday, the meeting shall be held on the
next succeeding business day. At each annual meeting, the stockholders entitled
to vote shall elect a Board of Directors and they may transact such other
corporate business as shall be stated in the notice of the meeting.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders
for any purpose or purposes may be called by the President or the Secretary, or
by resolution of the Board of Directors.
<PAGE>
SECTION 2.3. VOTING. Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation of the Corporation and these
By-Laws may vote in person or by proxy, but no proxy shall be voted after one
year from its date unless such proxy provides for a longer period. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, with the address of each, and the number of
shares held by each, shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is entitled to be present.
SECTION 2.4. QUORUM. Except as otherwise required by law, by the
Certificate of Incorporation of the Corporation or by these By-Laws, the
presence, in person or by proxy, of stockholders holding shares constituting a
majority of the voting power of the Corporation shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote shall
be represented, any business may be transacted that might have been transacted
at the meeting as originally noticed; but only those stockholders entitled to
vote at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
SECTION 2.5. NOTICE OF MEETINGS. Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat, at his
or her address as it appears on the records of the Corporation, not less than
ten nor more than sixty days before the date of the meeting. No business other
than that stated in the notice shall be transacted at any meeting without the
unanimous consent of all the stockholders entitled to vote thereat.
SECTION 2.6. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation of the Corporation, any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
ARTICLE III
DIRECTORS
SECTION 3.1. NUMBER AND TERM. The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors which
shall consist of one or more persons. The exact number of directors shall
initially be 3 and may thereafter be fixed from time to time by the Board of
Directors. Directors shall be elected at the annual meeting of stockholders and
each director shall be elected to serve until his or her successor shall be
elected and shall qualify. A director need not be a stockholder.
SECTION 3.2. RESIGNATIONS. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the President or the Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 3.3. VACANCIES. If the office of any director becomes vacant,
the remaining directors in the office, though less than a quorum, by a majority
vote, may appoint any qualified person to fill such vacancy, who shall hold
office for the unexpired term and until his or her successor shall be duly
chosen. If the office of any director becomes vacant and there are no remaining
directors, the stockholders, by the affirmative vote of the holders of shares
constituting a majority of the voting power of the Corporation, at a special
meeting called for such purpose, may appoint any qualified person to fill such
vacancy.
SECTION 3.4. REMOVAL. Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of the voting power entitled to
vote for the election of directors, at an annual meeting or a special meeting
called for the purpose, and the vacancy thus created may be filled, at such
meeting, by the affirmative vote of holders of shares constituting a majority of
the voting power of the Corporation.
SECTION 3.5. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
Corporation.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it.
SECTION 3.6. MEETINGS. The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent of
all the Directors.
<PAGE>
Regular meetings of the Board of Directors may be held without notice
at such places and times as shall be determined from time to time by resolution
of the Board of Directors.
Special meetings of the Board of Directors may be called by the
President, or by the Secretary on the written request of any director, on at
least four hour's notice to each director (except that notice to any director
may be waived in writing by such director) and shall be held at such place or
places as may be determined by the Board of Directors, or as shall be stated in
the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation of the
Corporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in any meeting
of the Board of Directors or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
SECTION 3.7. QUORUM. A majority of the Directors shall constitute a
quorum for the transaction of business. If at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time until a quorum is obtained, and no
further notice thereof need be given other than by announcement at the meeting
which shall be so adjourned. The vote of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors unless the Certificate of Incorporation of the Corporation or these
By-Laws shall require the vote of a greater number.
SECTION 3.8. COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the Board of Directors a fixed fee and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 3.9. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Treasurer and a Secretary, all of whom
shall be elected by the Board of Directors and shall hold office until their
successors are duly elected and qualified. In addition, the Board of
<PAGE>
Directors may elect such Assistant Secretaries and Assistant Treasurers as they
may deem proper. The Board of Directors may appoint such other officers and
agents as it may deem advisable, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors.
SECTION 4.2. PRESIDENT. The President shall be the Chief Executive and
Operating Officer of the Corporation. He or she shall have the general powers
and duties of supervision and management usually vested in the office of
President of a corporation. The President shall have the power to execute
bonds, mortgages and other contracts on behalf of the Corporation, and to cause
the seal to be affixed to any instrument requiring it, and when so affixed the
seal shall be attested to by the signature of the Secretary or the Treasurer or
an Assistant Secretary or an Assistant Treasurer.
SECTION 4.3. VICE PRESIDENTS. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him or her by the
Board of Directors.
SECTION 4.4. TREASURER. The Treasurer shall be the Chief Financial
Officer of the Corporation. He or she shall have the custody of the Corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He or she shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. He or she
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors or the President, taking proper vouchers for such disbursements. He
or she shall render to the President and Board of Directors at the regular
meetings of the Board of Directors, or whenever they may request it, an account
of all his or her transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, he or she shall give
the Corporation a bond for the faithful discharge of his or her duties in such
amount and with such surety as the Board of Directors shall prescribe.
SECTION 4.5. SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and of the Board of Directors and
all other notices required by law or by these By-Laws, and in case of his or her
absence or refusal or neglect so to do, any such notice may be given by any
person thereunto directed by the President or by the Board of Directors, upon
whose request the meeting is called as provided in these By-Laws. He or she
shall record all the proceedings of the meetings of the Board of Directors, any
committees thereof and the stockholders of the Corporation in a book to be kept
for that purpose, and shall perform such other duties as may be assigned to him
or her by the Board of Directors or the President. He or she shall have the
custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the Board of Directors or the
President, and attest to the same.
SECTION 4.6. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the Board of Directors.
<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 5.1. CERTIFICATES OF STOCK. A certificate of stock shall be
issued to each stockholder certifying the number of shares owned by such
stockholder in the Corporation. Certificates of stock of the Corporation shall
be of such form and device as the Board of Directors may from time to time
determine.
SECTION 5.2. LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representatives, to give the Corporation a bond, in such sum as
they may direct, not exceeding double the value of the stock, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate, or the issuance of any such new
certificate.
SECTION 5.3. TRANSFER OF SHARES. The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 5.4. STOCKHOLDERS RECORD DATE. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before the date
of such meeting; (2) in the case of determination of stockholders entitled to
express consent to corporate action in writing without a meeting, shall not be
more than ten days from the date upon which the resolution fixing the record
date is adopted by the Board of Directors; and (3) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without
<PAGE>
a meeting when no prior action of the Board of Directors is required by law,
shall be the first day on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation in
accordance with applicable law, or, if prior action by the Board of Directors is
required by law, shall be at the close of business on the day on which the Board
of Directors adopts the resolution taking such prior action; and (3) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 5.5. DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors may, out of funds
legally available therefor at any regular or special meeting, declare dividends
upon stock of the Corporation as and when they deem appropriate. Before
declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends, such sum or sums as the Board of Directors
from time to time in their discretion deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such other
purposes as the Board of Directors shall deem conducive to the interests of the
Corporation.
SECTION 5.6. SEAL. The corporate seal of the Corporation shall be in
such form as shall be determined by resolution of the Board of Directors. Said
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 5.7. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 5.8. CHECKS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, or agent or agents,
of the Corporation, and in such manner as shall be determined from time to time
by resolution of the Board of Directors.
SECTION 5.9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given under these By-Laws, personal notice is not required unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his or her address as it appears on
the records of the Corporation, and such notice shall be deemed to have been
given on the day of such mailing. Stockholders not entitled to vote shall not
be entitled to receive notice of any meetings except as otherwise provided by
law. Whenever any notice is required to be given under the provisions of any
law, or under the provisions of the Certificate of Incorporation of the
Corporation or of these By-Laws, a waiver thereof, in writing and signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to such required notice.
<PAGE>
ARTICLE VI
AMENDMENTS
These By-Laws may be altered, amended or repealed at any annual
meeting of the stockholders (or at any special meeting thereof if notice of such
proposed alteration, amendment or repeal to be considered is contained in the
notice of such special meeting) by the affirmative vote of the holders of shares
constituting a majority of the voting power of the Corporation. Except as
otherwise provided in the Certificate of Incorporation of the Corporation, the
Board of Directors may by majority vote of those present at any meeting at which
a quorum is present alter, amend or repeal these By-Laws, or enact such other
By-Laws as in their judgment may be advisable for the regulation and conduct of
the affairs of the Corporation.
<PAGE>
THE WELLS FARGO & COMPANY
CHANGE OF CONTROL SEVERANCE PLAN
AS ADOPTED BY THE BOARD OF DIRECTORS OF WELLS FARGO & COMPANY
AT ITS OCTOBER 20, 1998 MEETING
INTRODUCTION
The Board of Directors of Wells Fargo & Company recognizes that,
from time to time, the Company may explore potential transactions that could
result in a Change of Control of the Company. This possibility and the
uncertainty it creates may result in the loss or distraction of employees of
the Company to the detriment of the Company and its shareholders.
The Board considers the avoidance of such loss and distraction
to be essential to protecting and enhancing the best interests of the Company
and its shareholders. The Board also believes that when a Change in Control
is perceived as imminent, or is occurring, the Board should be able to
receive and rely on disinterested service from employees regarding the best
interests of the Company and its shareholders without concern that employees
might be distracted or concerned by the personal uncertainties and risks
created by the perception of an imminent or occurring Change in Control.
In addition, the Board believes that it is consistent with the
Company's employment practices and policies and in the best interests of the
Company and its shareholders to treat fairly its employees whose employment
terminates in connection with or following a Change of Control.
Accordingly, the Board has determined that appropriate steps
should be taken to assure the Company of the continued employment and
attention and dedication to duty of its employees and to seek to ensure the
availability of their continued service, notwithstanding the possibility or
occurrence of a Change of Control.
Therefore, in order to fulfill the above purpose, the following
Change of Control Severance Plan has been developed and is hereby adopted.
This Plan shall supercede any previous plans, policies or agreements
providing Change of Control severance benefits to Participants.
<PAGE>
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby adopts the Wells
Fargo & Company Change of Control Severance Plan as set forth in this
document.
ARTICLE II
DEFINITIONS
As used herein, the following words and phrases shall have the
following respective meanings (unless the context clearly indicates
otherwise):
(a) ANNUAL BASE SALARY. The amount of a Participant's base salary
or wages on an annualized basis, which shall be at least equal to
twelve times the highest monthly base salary or wages paid or
payable, including any base salary or wages which have been earned
but deferred, to the Participant by an Employer in respect to the
twelve-month period immediately preceding the month in which the
Change of Control occurs, and excluding all bonus, overtime, expense
or relocation reimbursements and incentive compensation.
(b) BOARD. The Board of Directors of Wells Fargo & Company.
(c) CAUSE. As defined in Section 4.2(b)(iii).
(d) CHANGE OF CONTROL. The first to occur of the following events:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934. as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13-d-3 promulgated under the Exchange Act) of
20% or more of either (a) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock) or (b) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding
Company Voting Securities"); PROVIDED, HOWEVER, that for
purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition
pursuant to a transaction which complies with clauses (A),
(B), or (C) of subsection (iii) of this Section 2(d); or
(ii) Individuals who, as of the Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority
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of the Board; PROVIDED, HOWEVER, that any individual becoming
a director subsequent to the Effective Date whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board, or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets of another entity (a "Corporate
Transaction"), in each case, unless, immediately following
such Corporate Transaction, (A) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Corporate Transaction beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, or the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or indirectly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Corporate
Transaction) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Corporate
Transaction and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at
the time of the execution of the initial Plan, or the action
of the Board, providing for such Corporate Transaction; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(e) CODE. The Internal Revenue Code of 1986, as amended from time to
time.
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<PAGE>
(f) COMMITTEE. The Management Development and Compensation
Committee of the Board.
(g) COMPANY. Wells Fargo & Company and any successor thereto.
(h) TERMINATION OF ACTIVE EMPLOYMENT. (i) If the Participant's
employment is terminated by the Company for Cause or by the
Participant for Good Reason, the date of receipt of the Notice of
Termination (as described in Section 4.2(c)) or any later date
specified therein, as the case may be, (ii) if the Participant's
employment is terminated by the Company other than for Cause or
Disability, the Termination of Active Employment shall be the date
on which the Company notifies the Participant of such termination or
any later date specified by the Company in the Participant's written
Notice of Termination and (iii) if the Participant's employment is
deemed terminated by reason of Disability, the Termination of Active
Employment shall be the Participant's Disability Effective Date.
(i) DISABILITY. As defined in Section 4.2(b)(i).
(j) DISABILITY EFFECTIVE DATE. As defined in Section 4.2(b)(i).
(k) EFFECTIVE DATE. Such date as the Board shall designate in its
resolution approving the Plan.
(l) EMPLOYEE. Any regular, full-time or part-time employee of the
Employer.
(m) EMPLOYER. The Company or any of its subsidiaries or affiliates.
(n) GOOD REASON. As defined in Section 4.2(a).
(o) HIGHEST ANNUAL BONUS. The amount of a Participant's annual
bonus, which shall be equal to the higher of (i) the highest bonus
paid or payable to the Participant under the Company's or an
Employer's annual bonus and incentive plans, for the last three full
fiscal years prior to the Change of Control, and (ii) the annual
bonus paid or payable to the Participant for the most recently
completed fiscal year prior to the Termination of Active Employment
(in the case of clauses (i) and (ii), including any bonus or portion
thereof which has been earned but deferred and, in the event that
the Participant was not employed by an Employer for the whole of
such fiscal year, annualized).
(p) LEVEL I. The Separation Benefit calculated in accordance with
Section 4.3(a)(i).
(q) LEVEL II. The Separation Benefit calculated in accordance with
Section 4.3(a)(ii).
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<PAGE>
(r) LEVEL OF PARTICIPATION. The level of a Participant's
participation in the Plan, which shall be either Level I or Level
II, as designated by the Committee pursuant to Section 3.1.
(s) MULTIPLE. For purposes of determining a Participant's
Separation Benefits and Separation Period, the Multiple is either
two or three, as designated by the Committee pursuant to Section
3.1 with respect to a Level I Participant; and with respect to a
Level II Participant, the Multiple is one and one-half.
(t) PARTICIPANT. An Employee who meets the eligibility
requirements of Section 3.1.
(u) PLAN. The Wells Fargo & Company Change of Control Severance
Plan, as adopted by the Board of Directors at its October 20, 1998
meeting.
(v) SEPARATION BENEFITS. The amounts and benefits payable or
required to be provided in accordance with Section 4.3.
(w) SEPARATION PERIOD. The salary continuation leave of absence
period beginning on the date of Termination of Active Employment
that is equal to either (i) the number of years equal to the
applicable Multiple in the case of a Level I Participant or (ii) the
Multiple of one and one-half years in the case of a Level II
Participant.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION. The Committee shall designate which Employees are
Participants in the Plan and the applicable Level of Participation and in the
case of Level I Participants, the Multiple. Such designations shall be
binding and conclusive. Notwithstanding the foregoing, the Committee may
cause any Employee to cease to be a Participant or change a Participant's
Level of Participation and in the case of a Level I Participant, the
Multiple, at any time prior to the effective time of a Change of Control,
provided that no such action shall be taken at the request of a third party
in anticipation of a Change of Control.
3.2 DURATION OF PARTICIPATION. A Participant shall cease to be a
Participant in the Plan if (i) he or she, under circumstances not entitling
him or her to Separation Benefits hereunder ceases to be an Employee of an
Employer or (ii) he or she ceases to be a Participant pursuant to the action
of the Committee in accordance with Section 3.1. Notwithstanding the
foregoing, a Participant who is entitled, as a result of ceasing to be an
Employee of an Employer, to Separation Benefits under the Plan shall remain a
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<PAGE>
Participant in the Plan until the Separation Benefits and any other amounts
or benefits under the Plan have been paid or provided in full to the
Participant.
ARTICLE IV
SEPARATION BENEFITS
4.1 RIGHT TO SEPARATION BENEFIT. A Participant shall be entitled to
receive from the Company or an Employer, the Separation Benefits provided in
Section 4.3 if (i) a Change of Control has occurred and the Participant's
active employment is terminated by an Employer for any reason specified in
Section 4.2(a), and not one of the exceptions of Section 4.2(b), whether the
termination is voluntary or involuntary, (ii) such Termination of Active
Employment occurs after such Change of Control and on or before the second
anniversary thereof and (iii) the Participant executes a general release
agreement in accordance with Section 4.4.
4.2 TERMINATION OF ACTIVE EMPLOYMENT.
(a) TERMINATIONS OF ACTIVE EMPLOYMENT WHICH GIVE RISE TO
SEPARATION BENEFITS UNDER THIS PLAN. Except as set forth in
subsection (b) below and subject to Section 4.4, any termination of
active employment with an Employer by action of an Employer within
the two-year period following a Change of Control or a termination
of active employment by a Participant for Good Reason within the
two-year period following a Change of Control shall entitle a
Participant to the Separation Benefits provided in Section 4.3. For
purposes of this Plan, "Good Reason" shall mean (i) a decrease in
the Participant's Annual Base Salary, other than as the result of an
isolated, insubstantial and inadvertent error not occurring in bad
faith and which is remedied by the Company or the Employer promptly
after receipt of notice thereof given by the Participant or (ii) the
Company's or the Employer's requiring the Participant to be based at
any office or location more than 35 miles from the office or
location where the Participant was based and performed services
immediately prior to the Change of Control, provided such change in
office location results in an increase in the distance between the
Participant's place of residence and the new office location.
(b) TERMINATIONS WHICH DO NOT GIVE RISE TO SEPARATION BENEFITS
UNDER THIS PLAN. If a Participant's active employment is terminated
for Cause or Disability (as those terms are defined below) or as a
result of the Participant's death, or the Participant terminates
active employment other than for Good Reason, the Participant shall
not be entitled to Separation Benefits under the Plan, regardless of
the occurrence of a Change of Control.
(i) A termination for "Disability" shall be deemed to have
occurred where a Participant is absent from the Participant's
duties with the Company or the Employer on a full-time basis
for 180-consecutive
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<PAGE>
business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent
in a medical certification statement prepared by a physician
selected by the Company or its insurers and acceptable to the
Participant or the Participant's legal representative. In such
event, the Participant's employment with the Company or the
Employer shall be deemed to have terminated for purposes of
this Plan, effective the 30th day after receipt of such notice
by the Participant (the "Disability Effective Date"), provided
that, within the 30 days after such receipt, the Participant
shall not have returned to active employment.
(ii) A termination for "Cause" shall have occurred where a
Participant is terminated because of:
(A) the continued failure of the Participant to
perform substantially the Participant's duties with the
Company or the Employer (other than any such failure
resulting from incapacity due to physical or mental
illness), after a written demand for performance is
delivered to the Participant by an officer of the
Company or the Employer which identifies the manner in
which the officer believes that the Participant has not
performed the Participant's duties, or
(B) the engaging by the Participant in illegal
conduct or gross misconduct which is materially and
demonstrably injurious to the Company or the Employer.
(c) NOTICE OF TERMINATION. A Notice of Termination shall communicate
any termination by the Company for Cause, or by the Participant for
Good Reason, to the other party. For purposes of this Plan, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Plan relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Participant's
employment under the provision so indicated and (iii) if the
Termination of Active Employment is other than the date of receipt of
such notice, specifies the applicable date (which date shall not be
more than 60 days after the giving of such notice). The failure by the
Participant or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason
or Cause shall not waive any right of the Participant or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Participant's or the Company's rights hereunder.
4.3 SEPARATION BENEFITS. If a Participant's active employment is
terminated under the circumstances set forth in Section 4.2(a) entitling him
or her to Separation Benefits, the Company shall pay or provide, as the case
may be, to the Participant the amounts and
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<PAGE>
benefits set forth in items (a) through (c) below (the "Separation
Benefits"), subject to Section 4.4.
(a) Subject to the provisions of Section 4.4, the Company shall
pay, or begin to pay, to the Participant as soon as administratively
possible, a Separation Benefit computed in accordance with the
Participant's designated Level of Participation (as set forth below
in clauses (i) and (ii). The Participant's Annual Base Salary shall
be paid in the form of salary continuation during the Participant's
Separation Period (as determined by the Multiple applicable to such
Participant) and the Participant's Highest Annual Bonus (multiplied
by the Multiple applicable to such Participant) shall be paid in a
lump sum.
(i) LEVEL I. The Separation Benefit payable to a
Participant with a Level of Participation designated by Level
I shall equal the product of (A) the Multiple (either two or
three, as determined in accordance with Section 3.1) and (B)
the sum of (x) the Participant's Annual Base Salary and (y)
the Highest Annual Bonus.
(ii) LEVEL II. The Separation Benefit payable to a
Participant with a Level of Participation designated as Level
II shall equal the product of (A) the Multiple (one and
one-half) and (B) the sum of (x) the Participant's Annual Base
Salary and (y) the Highest Annual Bonus.
(b) For the Separation Period, the Company shall continue welfare
benefits to the Participant and/or the Participant's eligible
dependents at least equal to those which would have been
provided to them in accordance with the plans, programs,
practices and policies (including, without limitation,
medical, prescription, dental, disability, employee life,
group life, accidental death and travel accident insurance
plans and programs), as in effect immediately prior to the
Change of Control, or, if more favorable to the Participant,
as in effect immediately prior to the date of Termination of
Active Employment; PROVIDED, HOWEVER, that if the Participant
becomes reemployed with another employer and is eligible to
receive medical and other welfare benefits under another
employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time of
commencement of benefits) of the Participant for retiree
benefits pursuant to such plans, practices, programs and
policies, the Participant shall be considered to have remained
employed until the end of the Separation Period.
(c) The Company shall timely pay or provide to the Participant any
other amounts or benefits due or payable or which the Participant
is eligible to receive under any plan, program, policy or
practice or contract or agreement of, or with, the Company and
its affiliated companies, as if the
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<PAGE>
Participant remained an Employee on a paid leave of absence
during the Separation Period.
4.4 GENERAL RELEASE AGREEMENT. As set forth in Section 4.1, Separation
Benefits under this Plan are contingent upon the Participant's execution of a
general release agreement in such form as determined by the Plan's
administrator. Upon the execution of the general release agreement,
Participant has seven days in which to revoke such agreement. As soon as
administratively possible following this seven-day revocation period, the
Company shall pay, or begin to pay, Separation Benefits to the Participant.
However, in no event shall Separation Benefits begin prior to the
Participant's Termination of Active Employment, the timely execution of the
general release agreement and the expiration of the rescission period.
4.5 EXCESS PARACHUTE PAYMENTS. Anything in this Plan to the contrary
notwithstanding, the Committee shall in its sole and absolute discretion
determine whether a Participant, with respect to the Separation Benefits
provided under the Plan or otherwise, shall receive a Gross-Up Payment
pursuant to the terms of Schedule I hereof, a Modified Reduced Amount
pursuant to the terms of Schedule II hereof, or a Reduced Amount pursuant to
the terms of Schedule III hereof. The determination of the Committee with
respect to the application of the provisions of Schedule I, II or III to the
Separation Benefits of an individual Participant shall be made at the time an
Employee is designated as a Participant and shall be binding and conclusive.
4.6. PAYMENT OBLIGATIONS ABSOLUTE. Upon a Change of Control, subject to
Section 4.5, the obligations of the Company to pay or provide the Separation
Benefits described in Section 4.3 shall be absolute and unconditional,
subject to compliance with Sections 4.3 and 4.4, and shall not be affected by
any circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Company, the Employer or any of
their affiliates may have against any Participant. In no event shall a
Participant be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to a Participant under any of the
provisions of this Plan, nor shall the amount of any payment or value of any
benefits thereunder be reduced by any compensation or benefits earned by a
Participant as a result of employment by another employer, except as provided
under Section 4.3(c).
Nothing in this Plan shall prevent or limit the Participant's
continuing or future participation in any plan, program, policy or practice
provided by the Company, the Employer or any of their affiliated companies
and for which the Participant may qualify, nor, subject to Section 7.2, shall
anything herein limit or otherwise affect such rights as the Participant may
have under any contract or agreement with the Company or any of its
subsidiaries or affiliated companies. Amounts or benefits which the
Participant is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any of its
affiliated companies shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly modified by
this Plan. However, benefits under the Wells Fargo & Company Change of
Control Severance Plan, as adopted by the Board
-9-
<PAGE>
of Directors of Wells Fargo at its October 20, 1998 meeting, are in lieu of
any other severance benefits that would otherwise be payable to the
Participant.
ARTICLE V
SUCCESSOR TO COMPANY
This Plan shall bind any successor of the Company, its assets or
its businesses (whether direct or indirect, by purchase, merger,
consolidation or otherwise), in the same manner and to the same extent that
the Company would be obligated under this Plan if no succession had taken
place.
In the case of any transaction in which a successor would not by
the foregoing provision or by operation of law be bound by the Plan, the
Company shall require such successor expressly and unconditionally to assume
and agree to perform the Company's obligations under this Plan, in the same
manner and to the same extent that the Company would be required to perform
if no such succession had taken place. The term "Company," as used in this
Plan, shall mean the Company as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes bound by
this Plan.
ARTICLE VI
DURATION, AMENDMENT AND TERMINATION
6.1 DURATION. If a Change of Control has not occurred, this Plan shall
expire five years from the Effective Date, unless sooner terminated as
provided in Section 6.2, or unless extended for an additional period or
periods by resolution adopted by the Board. If a Change of Control occurs,
this Plan shall continue in full force and effect and shall not terminate or
expire until after all Participants who become entitled to any payments
hereunder shall have received such payments in full.
6.2 AMENDMENT AND TERMINATION. The Plan may be terminated or amended in
any respect by resolution adopted by a majority of the Board, unless a Change
of Control has previously occurred. However, after the Board has knowledge of
a transaction or event that if consummated would constitute a Change of
Control, this Plan may not be terminated or amended in any manner which would
adversely affect the rights or potential rights of Participants, unless and
until the Board has determined that the transactions or events that, if
consummated, would constitute a Change of Control have been abandoned and
will not be consummated, and, provided that, the Board does not have
knowledge of other transactions or events that, if consummated, would
constitute a Change of Control. If a Change of Control occurs, the Plan shall
no longer be subject to amendment, change, substitution, deletion, revocation
or termination in any respect which adversely affects the rights of
Participants.
-10-
<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 INDEMNIFICATION. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which the Participant may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Participant or others of the validity or
enforceability of, or liability under, any provision of this Plan or any
guarantee of performance thereof (including as a result of any contest by the
Participant about the amount of any payment pursuant to this Plan), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code.
7.2 EMPLOYMENT STATUS. This Plan does not constitute a contract of
employment or impose on the Participant, the Company or the Participant's
Employer any obligation to retain the Participant as an employee, to change
the status of the Participant's employment, or to change the Company's or the
Employer's policies or those of their affiliates regarding termination of
employment.
7.3 TAX WITHHOLDING. The Company may withhold from any amounts payable
under this Plan such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
7.4 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability or any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
7.5 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of
California, without reference to principles of conflict of law.
7.6 CLAIM PROCEDURE. If a Participant makes a written request alleging a
right to receive Separation Benefits under the Plan or alleging a right to
receive an adjustment in benefits being paid under the Plan, the Company
shall treat it as a claim for benefits. All claims for Separation Benefits
under the Plan shall be sent to the Human Resources Department of the Company
and must be received within 30 days after the Termination of Active
Employment. If the Company determines that any individual who has claimed a
right to receive Separation Benefits under the Plan is not entitled to
receive all or a part of the benefits claimed, it will inform the claimant in
writing of its determination and the reasons therefor in terms calculated to
be understood by the claimant. The notice will be sent within 90 days of the
written request, unless the Company determines additional time, not exceeding
90 days, is needed. The notice shall make specific reference to the pertinent
Plan provisions on which the denial is based, and described any additional
material or information that is necessary. Such notice shall, in addition,
inform the claimant what procedure the claimant should follow to take
advantage of the
11
<PAGE>
review procedures set forth below in the event the claimant desires to
contest the denial of the claim. The claimant may within 90 days thereafter
submit in writing to the Company, a notice that the claimant contests the
denial of his or her claim by the Company and desires a further review. The
Company shall within 60 days thereafter review the claim and authorize the
claimant to appear personally and review the pertinent documents and submit
issues and comments relating to the claim to the persons responsible for
making the determination on behalf of the Company. The Company will render
its final decision with specific reasons therefor in writing and will
transmit it to the claimant within 60 days of the written request for review,
unless the Company determines additional time, not exceeding 60 days, is
needed, and so notifies the Participant. If the Company fails to respond to a
claim filed in accordance with the foregoing within 60 days or any such
extended period, the Company shall be deemed to have denied the claim.
7.7 UNFUNDED PLAN STATUS. This Plan is intended to be an unfunded plan.
All payments pursuant to the Plan shall be made from the general funds of the
Company and no special or separate fund shall be established or other
segregation of assets made to assure payment. No Participant or other person
shall have under any circumstances any interest in any particular property or
assets of the Company as a result of participating in the Plan.
Notwithstanding the foregoing, the Company may (but shall not be obligated
to) create one or more grantor trusts, the assets of which are subject to the
claims of the Company's creditors, to assist it in accumulating funds to pay
its obligations under the Plan.
-12-
<PAGE>
SCHEDULE I
GROSS-UP PAYMENT. (a) Anything in the Plan to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company or its affiliates to or for the
benefit of the Participant (whether paid or payable or distributed or
distributable pursuant to the terms of the Plan or otherwise, but determined
without regard to any additional payments required under this Schedule I) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the Participant with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Participant shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Participant
of all taxes (including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Participant retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding
the foregoing provisions of the Section (a) of Schedule I, if it shall be
determined that the Participant is entitled to a Gross-Up Payment, but that
the Payments do not exceed 110% of the greatest amount (the "Reduced Amount")
that could be paid to the Participant such that the receipt of Payments would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
the Participant and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section (c) of Schedule I, all
determinations required to be made under Schedule I, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall
be made by KPMG Peat Marwick or such other certified public accounting firm
as may be designated by the Participant (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the
Participant within 15 business days of the receipt of notice from the
Participant that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the
Change of Control, the Participant may use the nationally recognized
accounting firm of Ernst & Young LLP or appoint another nationally recognized
accounting firm to make determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Schedule I, shall be paid by
the Company to the Participant within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and the Participant. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
-13-
<PAGE>
pursuant to Section (c) of Schedule I and the Participant thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Participant.
(c) The Participant shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Participant is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Participant shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date than any
payment of taxes with respect to such claim is due). If the Company notifies
the Participant in writing prior to the expiration of such period that it
desires to contest such claim, the Participant shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
related to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Participant harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of the Section (c) of Schedule I, the Company shall control all
proceedings taken in connection with such contest and, at its sole option,
either direct the Participant to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Participant agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; PROVIDED, HOWEVER, that if the Company directs
Participant to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Participant, on an interest-free basis and
shall indemnify and hold the Participant harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
-14-
<PAGE>
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to the
payment of taxes for the taxable year of the Participant with respect to
which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Participant shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(d) If, after the receipt by the Participant of an amount advanced
by the Company pursuant to Section (c) of Schedule I, the Participant becomes
entitled to receive any refund with respect to such claim, the Participant
shall (subject to the Company's complying with the requirements of Section
(c) of Schedule I) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after receipt by the Participant of an amount advanced by the
Company pursuant to Section (c) of Schedule I, a determination is made that
the Participant shall not be entitled to any refund with respect to such
claim and the Company does not notify the Participant in writing of its
intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
-15-
<PAGE>
SCHEDULE II
MODIFIED REDUCED AMOUNT. (a) For purposes of this Schedule II: (i) a
"Payment" shall mean any payment or distribution in the nature of
compensation to or for the benefit of the Participant, whether paid or
payable pursuant to the Plan or otherwise; (ii) "Plan of Payment" shall mean
a Payment paid or payable pursuant to the Plan (disregarding this Schedule
II); (iii) "Net After Tax Receipt" shall mean the Present Value of a Payment
net of all federal, state and local taxes imposed on the Participant with
respect thereto (including without limitation under Section 4999 of the
Code), determined by applying the highest marginal rates of such taxes that
applied to the Participant's taxable income for the immediately preceding
taxable year, or such other rate(s) as the Participant shall in his or her
sole discretion certify as likely to apply to the Participant in the relevant
tax year(s); (iv) "Present Value" shall mean such value determined in
accordance with Section 280G(d)(4) of the Code; and (v) "Modified Reduced
Amount" shall mean the smallest aggregate amount of Plan Payments which (A)
is less than the sum of all Plan Payments and (B) results in aggregate Net
After Tax Receipts which are equal to or greater than the Net After Tax
Receipts which would result if the aggregate Plan Payments were any other
amount less than the sum of all Plan Payments. Anything in the Plan to the
contrary notwithstanding, in the event KPMG Peat Marwick LLP or such other
nationally recognized certified public accounting firm as may be designated
by the Participant (the "Accounting Firm") shall determine that receipt of
all Payments would subject the Participant to tax under Section 4999 of the
Code, it shall determine whether some amount of Plan Payments would meet the
definition of a "Reduced Amount." If said firm determines that there is a
Modified Reduced Amount, the aggregate Plan Payments shall be reduced to such
Modified Reduced Amount.
(b) If the Accounting Firm determines that aggregate Plan Payments
should be reduced to the Modified Reduced Amount, the Company shall promptly
give the Participant notice to that effect and a copy of the detailed
calculation thereof, and the Participant may then elect, in his or her sole
discretion, which and how much of the Plan Payments shall be eliminated or
reduced (as long as after such election the present value of the aggregate
Plan Payments equals the Modified Reduced Amount), and shall advise the
Company in writing of his or her election within ten days of his or her
receipt of notice. If no such election is made by the Participant within such
ten-day period, the Company may elect which of such Plan Payments shall be
eliminated or reduced (as long as after such election the present value of
the aggregate Plan Payments equals the Modified Reduced Amount) and shall
notify the Participant promptly of such election. All determinations made by
the Accounting Firm under this Schedule II shall be binding upon the Company
and the Participant and shall be made within 60 days of a termination of
employment of the Participant. As promptly as practicable following such
determination, the Company shall pay to or distribute for the benefit of the
Participant such Plan Payments as are then due to the Participant under the
Plan and shall promptly pay to or distribute for the benefit of the
Participant in the future such Plan Payments as become due to the Participant
under the Plan.
-16-
<PAGE>
(c) While it is the intention of the Company and the Participant to
reduce the amounts payable or distributable to the Participant hereunder only
if the aggregate Net After Tax Receipts to the Participant would thereby be
increased, as a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by
the Company to or for the benefit of the Participant pursuant to the Plan
which should not have been paid or so distributed ("Overpayment") or that
additional amounts which will have not been paid or distributed by the
Company to or for the benefit of the Participant pursuant to the Plan could
have been so paid or distributed ("Underpayment"), in each case, consistent
with the calculation of the Modified Reduced Amount hereunder. In the event
that the Accounting Firm, based upon the assertion of a deficiency by the
Internal Revenue Service against either the Company or the Participant which
the Accounting Firm believes has a high probability of success determines
that an Overpayment has been made, any such Overpayment paid or distributed
by the Company to or for the benefit of the Participant shall be treated for
all purposes as a loan to the Participant which the Participant shall repay
to the Company together with interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code; PROVIDED, HOWEVER, that no such loan
shall be deemed to have been made and no amount shall be payable by the
Participant to the Company if and to the extent such deemed loan and payment
would not either reduce the amount on which the Participant is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such
taxes. In the event that the Accounting Firm, based upon controlling
precedent or substantial authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Participant together with interest as the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
(d) All fees and expenses of the Accounting Firm in implementing the
provisions of this Schedule II shall be borne by the Company.
-17-
<PAGE>
SCHEDULE III
REDUCED AMOUNT. (a) For purposes of this Schedule III: (i) a "Payment" shall
mean any payment or distribution in the nature of compensation to or for the
benefit of a Participant, whether paid or payable pursuant to the Plan or
otherwise; (ii) "Separation Benefits" shall mean a Payment paid or payable
pursuant to the Plan (disregarding this Schedule III); "(iii) "Present Value"
shall mean such value determined in accordance with Section 280G(d)(4) of the
Internal Revenue Code; and (iv) "Reduced Amount" shall mean an amount
expressed in Present Value that maximizes the aggregate Present Value of
Separation Benefits without causing any Payment to be nondeductible by the
Company or Employer because of Section 280G of the Code. Anything in the Plan
to the contrary notwithstanding, in the event KPMG Peat Marwick LLP (the
"Accounting Firm") shall determine that receipt of all Payments would subject
the Participant to tax under Section 4999 of the Code, the aggregate
Separation Benefits shall be reduced (but not below zero) to meet the
definition of Reduced Amount.
(b) If the Accounting Firm determines that aggregate Separation
Benefits should be reduced to the Reduced Amount, the Company shall promptly
give the Participant notice to that effect and a copy of the detailed
calculation thereof, and the Participant may then elect, in his or her sole
discretion, which and how much of the Separation Benefits shall be eliminated
or reduced (as long as after such election the present value of the aggregate
Separation Benefits equals the Reduced Amount), and shall advise the Company
in writing of his or her election within ten days of his or her receipt of
notice. If no such election is made by the Participant within such ten-day
period, the Company may elect which of such Separation Benefits shall be
eliminated or reduced (as long as after such election the present value of
the aggregate Separation Benefits equals the Reduced Amount) and shall notify
the Participant promptly of such election. All determinations made by the
Accounting Firm under this Schedule III shall be binding upon the Company and
the Participant and shall be made within 60 days of a termination of
employment by the Participant. As promptly as practicable following such
determination, the Company shall pay to or distribute for the benefit of the
Participant such Separation Benefits as are then due to the Participant under
the Plan and shall promptly pay to or distribute for the benefit of the
Participant in the future such Separation Benefits as become due to the
Participant under the Plan.
(c) As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that amounts will have been paid or
distributed by the Company to or for the benefit of a Participant pursuant to
the Plan which should not have been so paid or distributed ("Overpayment") or
that additional amounts which will have not been paid or distributed by the
Company to or for the benefit of a Participant pursuant to the Plan could
have been so paid or distributed ("Underpayment"), in each case, consistent
with the calculation of the Reduced Amount hereunder. In the event that the
Accounting Firm, based upon the assertion of a deficiency by the Internal
Revenue Service against either the Company or the Participant which the
Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such
-18-
<PAGE>
Overpayment paid or distributed by the Company to or for the benefit of a
Participant shall be treated for all purposes as a loan to the Participant
which the Participant shall repay to the Company together with interest as
the applicable federal rate provided for in Section 7872(f)(2) of the Code;
PROVIDED, HOWEVER, that no such loan shall be deemed to have made and no
amount shall be payable by a Participant to the Company if and to the extent
such deemed loan and payment would not either reduce the amount on which the
Participant is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Participant together with interest
at the applicable federal rate provided for in Section 7872(f)(2) of the Code.
(d) All fees and expenses of the Accounting Firm in implementing
provisions of this Schedule III shall be borne by the Company.
-19-
<PAGE>
EXHIBIT 11
WFC HOLDINGS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
-------------- ---------------
(in millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE
Net income $ 347 $ 290 $ 999 $ 857
Less preferred dividends 4 5 13 21
----- ----- ------ -----
Net income for calculating
earnings per common share $ 343 $ 285 $ 986 $ 836
----- ----- ------ -----
----- ----- ------ -----
Average common shares outstanding 85.2 87.5 85.4 89.1
----- ----- ------ -----
----- ----- ------ -----
EARNINGS PER COMMON SHARE $4.03 $3.26 $11.55 $9.38
----- ----- ------ -----
----- ----- ------ -----
DILUTED EARNINGS PER COMMON SHARE
Net income $ 347 $ 290 $ 999 $ 857
Less preferred dividends 4 5 13 21
----- ----- ------ -----
Net income for calculating
diluted earnings per common share $ 343 $ 285 $ 986 $ 836
----- ----- ------ -----
----- ----- ------ -----
Average common shares outstanding 85.2 87.5 85.4 89.1
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 .7 .9 .8 1.0
----- ----- ------ -----
Diluted average common shares outstanding 85.9 88.4 86.2 90.1
----- ----- ------ -----
----- ----- ------ -----
DILUTED EARNINGS PER COMMON SHARE $3.99 $3.23 $11.44 $9.28
----- ----- ------ -----
----- ----- ------ -----
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q
DATED NOVEMBER 23, 1998 FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,538
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,080
<TRADING-ASSETS> 922
<INVESTMENTS-HELD-FOR-SALE> 8,242
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 64,374
<ALLOWANCE> 1,833
<TOTAL-ASSETS> 92,815
<DEPOSITS> 69,769
<SHORT-TERM> 1,870
<LIABILITIES-OTHER> 2,760
<LONG-TERM> 5,113
0
275
<COMMON> 426
<OTHER-SE> 12,499
<TOTAL-LIABILITIES-AND-EQUITY> 92,815
<INTEREST-LOAN> 4,524
<INTEREST-INVEST> 403
<INTEREST-OTHER> 101
<INTEREST-TOTAL> 5,028
<INTEREST-DEPOSIT> 1,219
<INTEREST-EXPENSE> 1,602
<INTEREST-INCOME-NET> 3,426
<LOAN-LOSSES> 510
<SECURITIES-GAINS> 41
<EXPENSE-OTHER> 3,277
<INCOME-PRETAX> 1,836
<INCOME-PRE-EXTRAORDINARY> 999
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 999
<EPS-PRIMARY> 11.55<F1>
<EPS-DILUTED> 11.44
<YIELD-ACTUAL> 6.14
<LOANS-NON> 506
<LOANS-PAST> 203
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,828
<CHARGE-OFFS> 713
<RECOVERIES> 208
<ALLOWANCE-CLOSE> 1,833
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Amount represents basic earnings per common share pursuant to FAS 128.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99(a)
WFC HOLDINGS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
---------------- ----------------
(in millions) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 636 $ 543 $1,836 $1,613
Fixed charges 551 610 1,697 1,805
------ ------ ------ ------
$1,187 $1,153 $3,533 $3,418
------ ------ ------ ------
------ ------ ------ ------
Fixed charges (1):
Interest expense $ 520 $ 579 $1,602 $1,710
Estimated interest component of net rental expense 31 31 95 95
------ ------ ------ ------
$ 551 $ 610 $1,697 $1,805
------ ------ ------ ------
------ ------ ------ ------
Ratio of earnings to fixed charges (2) 2.15 1.89 2.08 1.89
------ ------ ------ ------
------ ------ ------ ------
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 636 $ 543 $1,836 $1,613
Fixed charges 144 180 478 525
------ ------ ------ ------
$ 780 $ 723 $2,314 $2,138
------ ------ ------ ------
------ ------ ------ ------
Fixed charges:
Interest expense $ 520 $ 579 $1,602 $1,710
Estimated interest component of net rental expense 31 31 95 95
Less interest on deposits 407 430 1,219 1,280
------ ------ ------ ------
$ 144 $ 180 $ 478 $ 525
------ ------ ------ ------
------ ------ ------ ------
Ratio of earnings to fixed charges (2) 5.42 4.02 4.84 4.07
------ ------ ------ ------
------ ------ ------ ------
- ---------------------------------------------------------------------------------------------------
</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)
WFC HOLDINGS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
---------------- ----------------
(in millions) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 636 $ 543 $1,836 $1,613
Fixed charges 551 610 1,697 1,805
------ ------ ------ ------
$1,187 $1,153 $3,533 $3,418
------ ------ ------ ------
------ ------ ------ ------
Preferred dividend requirement $ 4 $ 5 $ 13 $ 21
Ratio of income before income tax expense to net income 1.83 1.87 1.84 1.88
------ ------ ------ ------
Preferred dividends (2) $ 7 $ 9 $ 24 $ 40
------ ------ ------ ------
Fixed charges (1):
Interest expense 520 579 1,602 1,710
Estimated interest component of net rental expense 31 31 95 95
------ ------ ------ ------
551 610 1,697 1,805
------ ------ ------ ------
Fixed charges and preferred dividends $ 558 $ 619 $1,721 $1,845
------ ------ ------ ------
------ ------ ------ ------
Ratio of earnings to fixed charges and preferred dividends (3) 2.13 1.86 2.05 1.85
------ ------ ------ ------
------ ------ ------ ------
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 636 $ 543 $1,836 $1,613
Fixed charges 144 180 478 525
------ ------ ------ ------
$ 780 $ 723 $2,314 $2,138
------ ------ ------ ------
------ ------ ------ ------
Preferred dividends (2) $ 7 $ 9 $ 24 $ 40
------ ------ ------ ------
Fixed charges:
Interest expense 520 579 1,602 1,710
Estimated interest component of net rental expense 31 31 95 95
Less interest on deposits 407 430 1,219 1,280
------ ------ ------ ------
144 180 478 525
------ ------ ------ ------
Fixed charges and preferred dividends $ 151 $ 189 $ 502 $ 565
------ ------ ------ ------
------ ------ ------ ------
Ratio of earnings to fixed charges and preferred dividends (3) 5.17 3.83 4.61 3.78
------ ------ ------ ------
------ ------ ------ ------
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</TABLE>
(1) As defined in Item 503(d) of Regulation S-K.
(2) The preferred dividends were increased to amounts representing the pretax
earnings that would be required to cover such dividend requirements.
(3) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there was no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there was no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the
level of interest rates or, conversely, they would increase if interest
income and interest expense decrease by the same amount due to a decrease
in the level of interest rates.
