<PAGE> 1
PART I
Item 1. Business.
Norwest Financial, Inc. (the "Company") is an Iowa Corporation organized on
August 19, 1982, as the successor to a business founded in 1897, and is a
wholly-owned subsidiary of Norwest Financial Services, Inc. (the "Parent").
On November 2, 1998, Norwest Corporation, the parent of Norwest Financial
Services Inc., changed its name to Wells Fargo & Company upon the merger
of the former Wells Fargo & Company into a wholly-owned subsidiary of Norwest
Corporation. The Parent is now a wholly-owned subsidiary of Wells Fargo &
Company ("Wells Fargo"), a $202 billion diversified financial services
organization. (Unless the context otherwise requires, any reference to
"Norwest Financial" shall include the Company and its subsidiaries.)
Norwest Financial is a leading diversified consumer finance company.
Norwest Financial's consumer finance operations make loans to individuals
and purchase sales finance contracts through 916 consumer finance branches
in 46 states, Guam, Saipan, Puerto Rico, Argentina and the ten Canadian
provinces. Norwest Financial also issues credit cards primarily through
two banking subsidiaries. Norwest Financial's automobile finance operations
have 231 branches in 33 states and Puerto Rico and specialize in purchasing
sales finance contracts directly from automobile dealers and making loans
secured by automobiles. For additional information on the financial results
of the Company's segments see note 14 to the consolidated financial
statements.
The Company also has insurance subsidiaries which are primarily engaged in
the business of providing, directly or through reinsurance arrangements,
credit life and credit disability insurance as a part of Norwest Financial's
consumer business and the consumer business of certain affiliates. Credit
property, involuntary unemployment and non-filing insurance are provided as
part of Norwest Financial's consumer business. Such business is written,
directly or through reinsurance agreements, by the Company's insurance
subsidiaries, or it is offered on an agency basis by Norwest Financial.
Under the Bank Holding Company Act of 1956, the insurance underwriting
activities of the Company's insurance subsidiaries (other than the Company's
foreign insurance subsidiaries and insurance subsidiaries that are
subsidiaries of the Company's state chartered bank subsidiary) are limited
generally to the underwriting (directly or through reinsurance arrangements)
of insurance that (1) is directly related to an extension of credit by
Wells Fargo or any of its subsidiaries, and (2) is limited to assuring the
repayment of the outstanding balance due on the extension of credit in the
event of the death, disability or involuntary unemployment of the borrower.
The Company's casualty insurance subsidiaries are permitted under this Act
to underwrite non-filing insurance policies issued to Wells Fargo or any of
its subsidiaries. The Company also has insurance subsidiaries which write
federally insured multiple peril crop insurance.
Information services are provided to Norwest Financial and other financial
services companies by subsidiaries of the Company. The Company also has
subsidiaries engaged in the commercial finance business, including lease
financing and accounts receivable financing.
In October 1998, two of the Company's automobile finance subsidiaries,
Community Credit Co. and Fidelity Acceptance Corporation, acquired $320
million in automobile finance contracts from Sunstar Acceptance Corporation,
a division of NationsBank.
Effective February 21, 1997, Norwest Corporation acquired Reliable Financial
Services, Inc. ("Reliable"). Norwest Corporation made a capital
contribution, without consideration, of all the issued and outstanding shares of
capital stock of Reliable to the Parent. This capital contribution was
accounted for as a merger of interests under common control. Effective
June 30, 1998, the Parent made a capital contribution, without consideration,
to the Company of the issued and outstanding shares of capital stock of
Reliable. This capital contribution was accounted for as a merger of
interests under common control. Reliable's headquarters are in San Juan,
Puerto Rico and its principal business is automobile finance. Reliable had
finance receivables outstanding of $293 million at the time of the
contribution.
<PAGE> 2
Effective April 21, 1998, one of the Company's Canadian subsidiaries
acquired all of the issued and outstanding shares of capital stock of The
T. Eaton Acceptance Co. Limited ("TEAC") and National Retail Credit Services
Limited ("NRCS"). The acquisition was accounted for as a purchase.
TEAC and NRCS are headquartered in Toronto, Ontario and are primarily
engaged in purchasing sales finance contracts. TEAC and NRCS had finance
receivables outstanding of $305 million at the time of the acquisition.
Effective January 7, 1998, the Company, through its wholly-owned subsidiary,
Finvercon USA, Inc. acquired Finvercon S.A. Compania Financiera
("Finvercon"). The acquisition was accounted for as a purchase. Funding
necessary for this acquisition was provided to Finvercon USA, Inc. by the
Company. Finvercon is engaged in consumer finance operations from its office
in Buenos Aires, Argentina and had receivables outstanding of $33 million
at the time of acquisition.
Effective August 31, 1997, Norwest Corporation, through its wholly-owned
subsidiary, Fidelity Acceptance Holding, Inc. ("FAHI"), acquired Fidelity
Acceptance Corporation. The acquisition was accounted for as a purchase.
Funding necessary for this acquisition (totaling approximately $1.1
billion) was provided via a term loan to FAHI by the Company. Effective
September 2, 1997, Norwest Corporation made a capital contribution, without
consideration, of all the issued and outstanding shares of capital stock of
FAHI to the Parent. Immediately thereafter, the Parent made a capital
contribution, without consideration, of all the issued and outstanding
shares of capital stock of FAHI to the Company. This capital contribution
was accounted for as a merger of interests under common control. The
principal business of Fidelity Acceptance Corporation and its subsidiaries
("Fidelity") is purchasing sales finance contracts directly from automobile
dealers and making loans secured by automobiles. Fidelity operated 147
branch offices in 31 states and Guam and had approximately $1.1 billion in
finance receivables outstanding at the time of the contribution.
Effective May 4, 1995, Norwest Corporation purchased Island Finance, a group
of eight consumer finance companies headquartered in San Juan, Puerto Rico,
with 130 branch offices located in Puerto Rico, the U.S. Virgin Islands,
Netherlands Antilles, Panama, Aruba, and Costa Rica. Island Finance's
principal business is making direct loans to individuals. Although Island
Finance is not included in the Company's financial results, the Company
manages Island Finance and had term loans of $389 million at December 31,
1998 with Island Finance Puerto Rico, Inc., one of the companies in the
Island Finance group. In conjunction with the Island Finance acquisition,
the Company also acquired the net assets of seven offices in Puerto Rico
which are engaged in purchasing sales finance contracts. The acquisition
of the net assets of those offices was accounted for as a purchase.
Effective January 1, 1995, the Parent made a capital contribution, without
consideration, to the Company of the issued and outstanding shares of capital
stock of Community Credit Co. and Dial National Bank. These capital
contributions to the Company have been accounted for as a merger of interests
under common control. Community Credit Co. and its subsidiaries ("Community
Credit") are primarily engaged in automobile finance and had 55 branch
offices and assets of $213.6 million at January 1, 1995. Net earnings in
1994 were $6.3 million. Dial National Bank is primarily engaged in the
credit card business and had assets of $112.2 million at January 1, 1995 and
net earnings of $4.0 million for the year ended December 31, 1994.
The common stock of one of the Company's consumer finance subsidiaries was
transferred by way of a non-cash dividend to the Parent on November 1, 1994.
This subsidiary had assets totaling $147.1 million and 39 branch offices at
the time of the transfer.
<PAGE> 3
CONSUMER OPERATIONS
At December 31, 1998, consumer receivables accounted for 93% of Norwest
Financial's total finance receivables outstanding. The amount and type of
consumer receivables outstanding are shown below:
Consumer Receivables Outstanding
(In Thousands)
United States consumer finance:
Loans secured by real estate $1,889,410
Loans not secured by real estate 1,124,381
Total loans 3,013,791
Sales finance contracts 1,191,675
Credit cards 489,131
Total United States consumer finance 4,694,597
Canadian consumer finance:
Loans secured by real estate 67,425
Loans not secured by real estate 390,612
Total loans 458,037
Sales finance contracts 474,924
Credit cards 7,608
Total Canadian consumer finance 940,569
Automobile finance 1,981,816
Finvercon 83,936
Total consumer receivables $7,700,918
<PAGE> 4
Geography
At December 31, 1998, Norwest Financial had consumer finance branch offices
in 46 states, Guam, Saipan, Puerto Rico, Argentina, and the ten Canadian
provinces and automobile finance branch offices in 33 states and Puerto Rico.
The number of branch offices and percentage of receivables for consumer
finance and for automobile finance at December 31, 1998, are shown below:
Consumer Finance Number of Branch Offices and Percent of Receivables
Percent of Percent of
Consumer Consumer
Branch Finance Branch Finance
Location Offices Receivables Location Offices Receivables
Alaska 6 .9% Oregon 13 1.2%
Arizona 17 1.5 Pennsylvania 26 3.1
California 79 7.9 Puerto Rico 7 .6
Colorado 14 1.5 Rhode Island 4 .5
Connecticut 3 .3 Saipan 1 .1
Delaware 2 .1 South Carolina 22 2.5
Florida 42 4.6 South Dakota 3 .2
Georgia 21 2.4 Tennessee 25 2.6
Guam 3 .7 Texas 48 4.2
Hawaii 12 1.1 Utah 13 1.3
Idaho 13 1.0 Virginia 10 1.0
Illinois 26 2.6 Washington 21 2.4
Indiana 16 1.3 West Virginia 6 .7
Iowa 15 1.5 Wisconsin 14 1.0
Kansas 7 .7 Wyoming 4 .3
Kentucky 18 1.6
Louisiana 30 2.6 Total U.S. 768 79.7%
Maine 2 .1
Maryland 20 3.1 Alberta 10 1.5%
Massachusetts 11 1.4 British Columbia 19 2.5
Michigan 5 .3 Manitoba 4 .7
Minnesota 12 1.2 New Brunswick 12 .9
Mississippi 17 1.6 Newfoundland 15 1.0
Missouri 26 2.7 Nova Scotia 17 1.6
Montana 7 .8 Ontario 43 7.0
Nebraska 10 1.0 Prince Edward Island 2 .2
Nevada 12 1.2 Quebec 21 2.8
New Jersey 8 .9 Saskatchewan 4 .5
New Mexico 20 1.6
New York 13 2.1 Total Canada 147 18.7%
North Carolina 16 2.5
North Dakota 6 .5 Argentina 1 1.6%
Ohio 28 3.4
Oklahoma 14 1.3 Total Consumer
Finance 916 100.0%
<PAGE> 5
Automobile Finance Number of Branch Offices and Percent of Receivables
Percent of Percent of
Automobile Automobile
Branch Finance Branch Finance
Location Offices Receivables Location Offices Receivables
Alabama 6 1.8% Mississippi 6 2.8%
Arizona 9 4.2 Missouri 8 3.3
California 31 15.4 Nebraska 2 .5
Colorado 9 2.6 Nevada 4 1.4
Delaware 1 .6 New Jersey 2 .7
Florida 4 2.2 New Mexico 2 .3
Georgia 13 3.2 Ohio 18 6.1
Hawaii 1 .5 Oklahoma 3 .9
Idaho 1 .1 Oregon 2 .4
Illinois 17 6.8 Pennsylvania 4 .9
Indiana 9 2.7 Puerto Rico 3 17.6
Iowa 1 .1 South Carolina 2 .5
Kansas 6 2.2 Tennessee 8 2.5
Kentucky 5 2.0 Texas 10 3.1
Louisiana 4 1.8 Utah 3 1.0
Michigan 1 1.1 Washington 4 1.2
Minnesota 21 5.6 Wisconsin 11 3.9
Total Automobile
Finance 231 100.0%
<PAGE> 6
Growth and Volume
United States and Canadian Consumer Finance
The following tables present the growth and volume of United States ("U.S.")
and Canadian consumer finance loans and sales finance contracts for the five
years ended December 31, 1998 (United States and Canadian consumer finance are
combined in the charts below since their portfolios are similar.)
Consumer Finance Receivables and Number of Accounts Outstanding
Net Average
December Receivables Number Balance
31, (in thousands) of Accounts per Account
1998 $5,138,427 3,175,000 $1,618
1997 4,783,471 2,447,000 1,955
1996 4,770,519 2,539,000 1,879
1995 4,562,392 2,506,000 1,821
1994 4,153,594 2,311,000 1,797
Consumer Finance Volume
Sales Finance
Loans Made Number of Contracts Number of
Years Ended and Acquired Loans Made Purchased Contracts
December 31, (in thousands)* and Acquired (in thousands) Purchased
1998 $2,936,879 872,000 $2,026,970 1,902,000
1997 2,812,670 956,000 1,893,546 1,830,000
1996 2,859,161 1,025,000 1,977,983 1,918,000
1995 2,673,104 1,013,000 1,951,718 1,905,000
1994 2,729,095 1,051,000 1,825,917 1,825,000
* Includes balances renewed of $825,982,000; $812,052,000;
$840,256,000; $766,552,000; and $759,775,000 for the years
1998 through 1994, respectively.
Norwest Financial markets VISA and MasterCard credit cards to certain of
its customers through its United States consumer finance branch offices.
These credit cards are issued by Dial Bank, the Company's state chartered
bank subsidiary located in Sioux Falls, South Dakota. Dial Bank had 260,000
accounts at December 31, 1998; credit card receivables outstanding were
$277.6 million.
Dial National Bank is a federally-chartered bank located in Des Moines,
Iowa. The bank issues private label credit cards and dual-line Co-Branded
MasterCard credit cards for several national companies. The dual-line
credit card serves as a private label credit card for use at any of the
Co-Branders' retail locations, as well as a traditional MasterCard credit
card for use at locations around the world. Dial National Bank had 191,000
accounts at December 31, 1998; credit card receivables outstanding were
$211.5 million.
<PAGE> 7
Automobile Finance
The following tables present the growth and volume of Norwest Financial's
automobile finance receivables for the four years ended December 31, 1998.
(Only four years of information is shown for automobile finance. This
operation consists of Community Credit which was contributed by the
Parent effective January 1, 1995, Fidelity which was contributed by the
Parent effective September 2, 1997, and Reliable which was contributed
by the Parent effective June 30, 1998.):
Automobile Finance Receivables and Number of Accounts Outstanding
Net Average
December Receivables Number Balance
31, (in thousands) of Accounts per Account
1998 $1,981,816 235,000 $8,433
1997 1,442,614 182,000 7,926
1996 306,537 40,000 7,663
1995 240,322 35,000 6,866
Automobile Finance Volume
Net Receivables Number of
Years Ended Made and Acquired Accounts Made
December 31, (in thousands)* and Acquired
1998 $1,215,906 134,000
1997 553,526 60,000
1996 267,175 30,000
1995 231,630 30,000
* Includes balances renewed of $64,061,000; $38,155,000; $33,794,000;
and $28,244,000 for the years 1998 through 1995, respectively.
Regulation
U.S. Consumer Finance, Canadian Consumer Finance, Automobile Finance
Norwest Financial's consumer finance and automobile finance operations in
the United States are, for the most part, regulated by consumer finance laws
or similar legislation in each of the states or other jurisdictions where
Norwest Financial has branch offices. Although consumer finance laws have
been in effect many years, amending and new legislation is frequently
enacted. In those states which have enacted legislation in recent years
that affects the maximum permitted amount of loan and maximum allowable rate
of charge, the trend has been to increase such amounts and rates of charge
or to deregulate the same altogether. With respect to the foregoing, Norwest
Financial's consumer lending operations in Canada are, for the most part,
essentially unregulated.
<PAGE> 8
Consumer finance laws generally require that each branch office be licensed
to conduct its business. In most jurisdictions the granting of licenses is
dependent on a finding of financial responsibility, character and fitness
of the applicant and, in some jurisdictions, public convenience and advantage.
Each licensed branch office is subject to state or provincial regulation and
examination. In nearly all states a report of the activities of licensed
branch offices must be made annually to the appropriate state department.
Licenses are revocable for cause and their continuance depends upon
compliance with the provisions of the applicable state or provincial law.
Norwest Financial has never had any of its licenses revoked.
The Federal Consumer Credit Protection Act (the "Act") requires a written
statement showing the annual percentage rate of finance charge and other
information to be given to borrowers when consumer credit contracts are made.
When a closed-end loan (a loan which does not allow additional borrowings)
with rates or fees above a certain percentage or amount is secured by the
borrower's principal dwelling, additional disclosures must be given at least
three business days before the loan is consummated, and limits on prepayment
penalties apply to the loan. The Act also requires certain disclosures to
applicants concerning credit reports that are used as a basis for denying or
increasing the charge for credit.
The Real Estate Settlement Procedures Act requires creditors to provide
consumers with estimates of closing costs and other disclosures before
loans secured by residential real estate are made and disclosures of the
actual closing costs at the time the loan is made.
The Federal Equal Credit Opportunity Act prohibits discrimination against
applicants with respect to any aspect of a credit transaction on the basis
of sex, martial status, race, color, religion, national origin, age (provided
the applicant has the capacity to contract), or because all or part of the
applicant's income derives from any public assistance program, or because
the applicant has in good faith exercised any right under the Federal
Consumer Credit Protection Act.
By virtue of a Federal Trade Commission rule, sales finance contracts and
certain loans (those made for the borrower's purchase of personal property
from a seller having a relationship with the lender) contain a provision
that the lender is subject to all claims and defenses which the borrower
could assert against the seller. However, the borrower's recovery under
such provision cannot exceed the amount paid under the contract.
A Federal Trade Commission trade regulation rule on creditor practices
prohibits, among other things, the taking of a security interest (other than
a purchase money security interest) in certain of a borrower's household goods.
In Canada, there are similar laws regarding the granting of credit.
Business Methods
In order to make a careful selection of credit risks, Norwest Financial
reviews credit information concerning each applicant to determine income,
living expenses, payment obligations, indebtedness, paying habits, and
length and stability of employment. The information is obtained from
the applicants, the applicants' employers, creditors of the applicants
and credit reporting agencies. Norwest Financial believes that any risk to
its business which may be created by unfavorable local conditions is
minimized by the large number of customers, their broad range of occupations
and geographical distribution.
<PAGE> 9
United States and Canadian Consumer Finance
Loans are generally repayable in monthly instalments and are made for periods
of 180 months or less. Sales finance contracts may be either open-end
(revolving) or closed-end. An open-end sales finance contract establishes
an account that can be used from time to time for repeated purchases. A
closed-end sales finance contract covers only a single purchase. At
December 31, 1998, 73% of sales finance receivables in the consumer finance
operations were open-end. Open-end sales finance contracts do not have an
original maturity because the accounts created by these contracts may be
used for repeated transactions. The minimum monthly payment of open-end
sales finance contracts generally ranges from 1/12 to 1/30 of the highest
unpaid balance of the account. Closed-end sales finance contracts are
repayable in equal monthly instalments and generally have original maturities
of 60 months or less.
In many cases loans are secured by liens on household goods, other personal
property or real estate. Of the total loans made during 1998, approximately
92% of the amount and 88% of the number were secured by security agreements
or other forms of security. The decision to record a lien or to appraise or
examine the title to collateral depends upon the size of loan and the type of
collateral. As an alternative to recording liens on personal property
securing certain loans, Norwest Financial purchases non-filing insurance,
the cost of which is borne by the borrowers. Generally, Norwest Financial
initiates legal proceedings on its loans, including foreclosure on
collateral, only when it appears that a recovery is likely which will justify
the cost of bringing suit.
Generally, Norwest Financial carries only one loan with a borrower at any one
time. When a borrower wishes to obtain additional money from Norwest
Financial before the loan is fully repaid, a new loan is made sufficient
to pay the balance on the old loan and supply the new money, provided
the borrower's credit is satisfactory. Of the total amount of loans made
during 1998, 62.1% represented funds lent to borrowers who requested
additional money while still owing Norwest Financial. In the years 1997
through 1994, this figure was 61.7%, 64.6%, 64.6% and 63.5%, respectively.
In 1998, of the 872,000 loans made by Norwest Financial's consumer finance
operations, 357,000 were to borrowers who requested additional money while
still owing a balance to Norwest Financial. The average amount of additional
money lent to such borrowers was $2,677; the average amount of the old
balance was $2,311. Norwest Financial's policy is that loans are not made
to present customers to cure a default in principal or interest.
For consumer finance branch offices, sales finance contracts are the primary
source of new customers for direct loans; of new loans made in 1998, 62.1%
were to current or former sales finance customers.
The credit insurance operations have a close relationship with Norwest
Financial's consumer operations. Generally, where applicable laws permit,
Norwest Financial makes credit life, credit disability, property, and
involuntary unemployment insurance available to borrowers. If the customer
decides to purchase insurance, an additional charge is made. Credit life
insurance generally provides, at a minimum, for the repayment of the
indebtedness upon the death of the insured borrower. Credit disability
coverage provides for the monthly payment of the indebtedness while
the borrower is disabled because of accident or illness. Property
insurance provides for the payment of the value or cost of repairs
or replacement of covered property of the borrower if the property
is damaged, destroyed or stolen. Involuntary unemployment insurance
provides for the monthly payment of the indebtedness while the borrower is
unemployed, if the borrower becomes unemployed due to layoff, termination,
lockout, labor disputes or strike. Non-filing insurance is an alternative
to perfecting a security interest in property used as collateral. Payment
is provided, up to a specified limit, when there is a loss with this
coverage which resulted from the failure to perfect a security interest.
The laws of most of the states in which Norwest Financial operates regulate
the sale of insurance to borrowers by prescribing, among other things, the
maximum amount and term thereof and by fixing the permissible premium rates
or authorizing the state insurance commissioner or other state official to
fix the maximum premium rates on such insurance. In several states such
rates have been reduced in recent years.
Income before income taxes from the underwriting (as principal), or the sale
(as agent), of insurance for the years 1998 through 1994, was $66,519,000;
$77,406,000; $81,255,000; $74,071,000, and $68,616,000, respectively for
U.S. and Canadian consumer finance.
<PAGE> 10
Automobile Finance
Loans are generally repayable in monthly instalments and are made for periods
of 60 months or less. Sales finance contracts are all closed-end. These
contracts are repayable in equal monthly instalments and generally have
maturities of 60 months or less.
In most cases, receivables are secured by automobiles. Of the total
receivable volume in 1998, approximately 99% of the amount and 98% of the
number were secured by security agreements or other forms of security.
Norwest Financial initiates legal proceedings on its receivables, including
repossessions of collateral, when it appears that a recovery is likely which
will justify the cost of bringing suit.
Credit insurance operations also have a close relationship with automobile
finance operations, see the discussion of insurance included above. Income
before income taxes from the underwriting (as principal),or the sale (as
agent), of insurance for the years 1998 through 1995, was $3,183,000;
$1,668,000; $786,000, and $694,000, respectively, for automobile finance.
Loss Experience
All such receivables which appear to be uncollectible or to require
inordinate collection costs are written off. In addition, consumer finance
receivables in the United States are generally written off if no payment is
applied during the three month period immediately preceding the balance
sheet date and the receivables are 90 days or more contractually delinquent.
Automobile finance receivables are written off when the receivable is 150
days or more contractually delinquent. All other consumer receivables
are written off when the receivable is 180 days or more contractually
delinquent. The Company has an established process to determine the
adequacy of the allowance for credit losses which assesses the risk and
losses inherent in its portfolio. The determination of the allowance for the
consumer portfolios is conducted at an aggregate or pooled level. The risk
assessment process emphasizes the development of forecasting models, which
focus on recent delinquency and loss trends in different portfolio segments
to project relevant risk metrics over an intermediate-term horizon.
The analysis is updated to capture the most recent behavioral characteristics
of the portfolios, as well as any changes in management's loss mitigation
strategies in order to reduce the differences between estimated and observed
losses. An allowance that approximates one year of projected net losses is
provided as the baseline allocation for most homogeneous portfolios, to
which management adds certain adjustments to ensure that a prudent amount of
conservatism is present in the specific assumptions underlying the forecast.
During the fourth quarter of 1998, the Company reviewed its policies
involving the write off of receivables that are a predetermined number of
days delinquent. As a result of the review, the Company made several changes
in its policies to reflect current trends and expectations. The changes
resulted in additional consumer write-offs of $37.4 million.
Write-offs after recoveries, as a percent of average consumer receivables,
including the additional write-offs were 4.26% in 1998. Excluding the
additional write-offs, the net write-off percent was 3.72%. The net
write-off percentages were 3.87%, 3.55%, 2.66%, and 2.24% in 1997 through
1994, respectively. The increases in 1998 and 1997 were due primarily to
the addition of Fidelity. The increases in the net write-off percentages in
1996 and 1995 were due primarily to increased net write-offs in U.S.
consumer finance portfolio.
<PAGE> 11
Information concerning consumer loss experience and allowance for credit
losses is shown below:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Allowance, beginning
of year $291,450 $162,983 $152,108 $126,802 $114,876
Write-offs:
Loans (167,301) (144,711) (122,703) (96,278) (77,751)
Sales finance (156,111) (90,515) (61,184) (37,118) (23,920)
Credit cards (22,294) (21,901) (23,903) (11,570) (5,925)
Total write-offs (345,706) (257,127) (207,790) (144,966) (107,596)
Recoveries:
Loans 28,912 21,257 13,370 12,058 12,257
Sales finance 15,688 8,525 4,233 2,997 2,528
Credit cards 3,137 2,481 1,458 852 470
Total recoveries 47,737 32,263 19,061 15,907 15,255
Provision for credit
losses charged to
expense 299,597 232,818 195,952 143,467 107,931
Allowance related to
receivables acquired,
contributed or
(transferred) - net 48,790 120,513 3,652 10,898 (3,664)
Allowance, end of year:
Loans 163,256 135,776 87,046 82,443 77,756
Sales finance 155,678 136,004 62,167 54,365 40,696
Credit cards 22,934 19,670 13,770 15,300 8,350
Total allowance $341,868 $291,450 $162,983 $152,108 $126,802
Ending receivables as
a percent of total
consumer receivables:
Loans 53% 59% 62% 61% 68%
Sales finance 40 35 31 29 28
Credit cards 7 6 7 10 4
100% 100% 100% 100% 100%
Allowance as a percent of
ending receivables 4.44% 4.38% 2.99% 2.86% 2.92%
Write-offs after recoveries
as a percent of average
consumer receivables 4.26% 3.87% 3.55% 2.66% 2.24%
Consumer receivables
outstanding more
than three payments
contractually
delinquent $158,026 $127,622 $123,961 $101,693 $77,233
</TABLE>
Non-accrual automobile finance receivables were $26,197,000 at
December 31, 1998.
<PAGE> 12
OTHER OPERATIONS
Other operations consist of commercial finance operations, information
services, other insurance operations and Finvercon.
Commercial Finance Operations
At December 31, 1998, commercial finance receivables accounted for 7% of
Norwest Financial's total finance receivables outstanding. The following
table presents Norwest Financial's commercial finance receivables
outstanding for the five years ended December 31, 1998:
Commercial Finance Receivables Outstanding
(Dollars In Thousands)
Commercial Percentage
Finance Increase (Decrease)
December 31, Receivables From Previous Year
1998 $569,309 22%
1997 465,601 (6)
1996 494,104 (3)
1995 507,480 1
1994 500,270 (2)
Loss Experience
The allowance for losses on commercial finance receivables is based on loss
experience in relation to commercial finance receivables outstanding. All
such receivables which appear to be uncollectible or to require inordinate
collection costs are written off. In addition, receivables are generally
written off when the receivable is 180 days or more contractually delinquent.
<PAGE> 13
Information concerning commercial loss experience and allowance for credit
losses is shown below:
Years Ended December 31,
(In Thousands) 1998 1997 1996 1995 1994
Allowance, beginning
of year $6,350 $6,150 $6,510 $9,150 $10,250
Write-offs (4,627) (4,313) (4,081) (3,967) (3,287)
Recoveries 1,716 1,454 1,193 1,476 1,248
Provision for credit
losses charged
(credited) to expense 4,677 3,059 2,528 (149) 939
Allowance related to
receivables acquired,
contributed or
(transferred) - net 1,000
Allowance, end of year $9,116 $6,350 $6,150 $6,510 $9,150
Allowance as a percent
of ending commercial
finance receivables 1.60% 1.36% 1.24% 1.28% 1.83%
Write-offs after recoveries
as a percent of average
commercial finance
receivables .57% .61% .59% .50% .43%
Non-accrual commercial receivables totaled $6,332,000; $4,121,000; $3,189,000;
$3,299,000; and $2,606,000 at December 31, 1998 through 1994, respectively.
During 1998, the finance charges and interest that would have been recorded
had non-accrual receivables been current in accordance with their original
terms would have been $272,000. The amount of finance charges and interest
actually recorded on these receivables during 1998 totaled $225,000.
Commercial receivables outstanding which were more than three payments
contractually delinquent and which were still accruing interest totaled
$378,000; $771,000; $916,000; $1,025,000; and $1,202,000 at December 31, 1998
through 1994, respectively.
Norwest Financial Leasing, Inc.
Norwest Financial Leasing, Inc. ("NFLI") is headquartered in Des Moines, Iowa
and also has business production offices in Riverside, California and
Charlotte, North Carolina. NFLI specializes in financing commercial
equipment such as office copiers, telephone systems, health care equipment,
small computers, and light industrial equipment. The cost of this equipment
generally ranges from $2,000 to above $200,000. Finance receivables are
generated primarily from equipment distributors ranging from small
independently-owned vendors to large equipment manufacturers.
<PAGE> 14
Generally, an end-user will enter into a lease or rental agreement with a
vendor. After approving credit, NFLI purchases the contract from the vendor
and collects the lease payments from the end-user. Billing is often done in
the vendor's name, as are any customer service functions that might become
necessary in connection with the lease or rental agreement (thus providing
the vendor with a "private label" financing service). In some instances,
NFLI purchases the equipment and leases it to the end-user, with billing
and other customer contacts being done in the name of NFLI. Leases and other
commercial finance receivables acquired by NFLI generally provide for equal
monthly payments and normally have an initial term of 60 months or less.
Norwest Financial Business Credit, Inc.
Norwest Financial Business Credit, Inc. provides custom designed financing
programs to target the financing and marketing needs of retailers of consumer
goods and services. These relationships are structured as a loan to the
retailer, using accounts receivable generated as a result of retail sales as
security. Consumer credit approvals, billing, payment processing, and
collections of the receivables securing the loan are conducted largely in the
retailers' names to provide a private label service.
Norwest Financial Preferred Capital, Inc.
Norwest Financial Preferred Capital, Inc. provides financing via secured
lines of credit to commercial entities which in turn provide financing to
their customers. The business of these commercial entities is similar in
nature to that of Norwest Financial. This type of lending is often referred
to as rediscounting.
Other Insurance Operations
One of the Company's foreign insurance subsidiaries reinsures credit life
and disability insurance written by a non-affiliated company. Income (loss)
before income taxes from these operations for the years 1998 through 1994
was $16,928,000; $15,790,000; $16,311,000; $9,149,000; and ($2,000),
respectively. In addition, the Company has insurance subsidiaries which are
licensed to write federally insured multiple peril crop insurance throughout
the United States. Multiple peril crop insurance is a federally regulated
subsidized crop insurance program that insures a producer of crops with
varying levels of protection against loss of yield from substantially all
natural perils to growing crops. Insurance premiums and commissions on
multiple peril crop insurance for the years 1998 through 1994 were
$145,138,000; $94,539,000; $41,841,000; $13,140,000; and $12,510,000,
respectively. In addition, claim expense and underwriting expense for the
years 1998 through 1994 were $133,445,000; $85,891,000; $36,436,000;
$7,987,000; and $8,706,000, respectively.
Finvercon
In January 1998, the Company acquired Finvercon, a consumer lender based in
Buenos Aires, Argentina, which provided an entry into the South American
market. Finvercon markets small loans to members of labor associations.
Finvercon had 37,000 accounts outstanding at December 31, 1998; consumer
receivables outstanding were $83.9 million.
Information Services Operations
Norwest Financial Information Services Group, Inc. ("NFISG") has developed
and installed an on-line real-time information processing and communications
system called SWIFT, which connects, over leased telecommunication
facilities, equipment located in branch offices to computer centers at the
Company's principal executive offices to process loans and payments, write
checks, and perform bookkeeping functions. The system provides information
services to consumer branch offices of Norwest Financial. In addition, as of
December 31, 1998, NFISG had contracts to supply information services to 21
other finance companies. On that date, approximately 2,500 branch offices
were being served and 5.3 million accounts were being maintained on the
system.
<PAGE> 15
NFISG developed an enhancement to the system called SUPREME which replaced
the paper ledger card with video display units. SUPREME provides greater
efficiencies and enhanced customer service by adding a number of new
capabilities to the existing system. For example, delinquency lists, daily
collection work lists, solicitation lists, automated advertising, complete
application processing including retrieval of credit bureau reports, and
company-wide access of account records are a few of the automated features
provided by SUPREME. Eighteen subscribing companies were utilizing SUPREME
at December 31, 1998. Norwest Financial has installed SUPREME in all of its
consumer and automobile finance branch offices in the United States and
Canada. Overall, 5.2 million accounts in approximately 2,400 locations were
being maintained on SUPREME at December 31, 1998.
NFISG is developing a new system called SAPPHIRE which will replace all of
NFISG's current system product offerings. The new system design uses leading
edge technology to incorporate state-of-the-art support for virtually every
facet of the consumer financial services industry. Norwest Financial plans
to install SAPPHIRE in its branches beginning in 2000. The system will be
made available to other companies in 2000.
NFISG continues to offer such services for sale, although there can be no
assurance of future sales, or that existing contracts will be renewed upon
expiration. A discussion of the Year 2000 issue is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
ASSETS UNDER MANAGEMENT
Island Finance
Island Finance, a group of eight consumer finance companies headquartered
in San Juan, Puerto Rico, was acquired by Norwest Corporation in May 1995.
Norwest Financial manages Island Finance. Island Finance provides direct
loans to individuals through 141 consumer finance offices located in Puerto
Rico, the U.S. Virgin Islands, Netherlands Antilles, Panama, Aruba, and
Costa Rica. Receivables outstanding on December 31, 1998, totaled $890
million.
Island Finance's financial results and receivables are not included in the
Company's statements of consolidated earnings or consolidated balance sheets,
however, Norwest Financial provides a portion of the funding for Island
Finance. At December 31, 1998, Norwest Financial had term loans of $389
million with Island Finance Puerto Rico, Inc. ("IFPR"), one of the companies
in the Island Finance group. The loans have a weighted average interest
rate of 8.89% and mature in 2000 and 2002. IFPR is also an issuer
of commercial paper in the United States. At December 31, 1998, IFPR's
commercial paper outstanding totaled $678.4 million. Other entities in the
Island Finance group obtain funding by borrowing from commercial banks and
other affiliates.
In conjunction with the Island Finance acquisition, the Company also purchased
seven offices in Puerto Rico which are engaged in purchasing sales finance
contracts.
<PAGE> 16
SOURCES OF FUNDS
Norwest Financial funds its operations through payments of principal and
interest from finance receivables, capital funds, the sale of debt
securities, and borrowings from banks and affiliates. Fixed rate borrowings
with original maturities of more than one year comprise 63% of the Company's
total indebtedness at December 31, 1998. The remaining 37% includes
commercial paper with maturities of nine months or less (32%) and short-term
debt to affiliates and other short-term debt (5%).
The effective interest rate on commercial paper debt is higher that the
stated rates due to commitment fees paid in connection with Norwest
Financial's bank credit agreements (lines of credit and revolving credit
agreements). These agreements provide an alternative source of liquidity
to support the Company's commercial paper borrowings.
The weighted average annual interest cost of the total average daily
borrowings outstanding in each of the respective years 1998 through 1994
without commitment fees relating to bank credit agreements were 6.40%,
6.37%, 6.44%, 6.74%, and 6.22%, respectively. The corresponding figures
including commitment fees were 6.41%, 6.39%, 6.46%, 6.76%, and 6.25%,
respectively. Norwest Financial has obtained and continues to obtain, at
prevailing rates, funds sufficient to conduct its business.
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Bank credit agreements
at December 31 $1,821,297 $1,322,413 $1,327,680 $1,456,633 $1,147,700
Number of banks participating
in the credit agreements 32 33 33 38 34
Daily average outstanding:
Commercial paper $2,099,977 $1,817,534 $1,713,937 $1,523,898 $1,180,649
Less excess funds
investments 34,561 33,833 18,884 41,331 26,097
Net average commercial
paper outstanding $2,065,416 $1,783,701 $1,695,053 $1,482,567 $1,154,552
Ratio of bank credit
agreements to above 88% 74% 78% 98% 99%
</TABLE>
See note 6 to the consolidated financial statements for a listing of the
amounts and maturities of the Company's outstanding long-term debt at
December 31, 1998 and 1997.
<PAGE> 17
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
Norwest Financial for the periods indicated:
Years Ended December 31,
1998 1997 1996 1995 1994
1.72 2.00 2.11 2.13 2.26
The ratios of earnings to fixed charges have been computed by dividing
net earnings plus fixed charges and income taxes by fixed charges.
Fixed charges consist of interest and debt expense plus one-third of rentals
(which is deemed representative of the interest factor).
COMPETITION
The business in which Norwest Financial is engaged is highly competitive.
In addition to competition from other consumer, automobile, and commercial
finance companies, competition comes from sales finance companies, commercial
banks, savings and loan associations, credit card companies, credit unions
and retail establishments offering revolving credit plans. The principal
method of competition is service to customers, although interest rates and
other financing charges are adjusted from time to time to reflect market
conditions. Generally, Norwest Financial's interest rates or other
financing charges are comparable to those of other companies engaged in
consumer finance, commercial finance and lease financing business, sales
finance companies, credit card companies and retail establishments offering
revolving credit plans. They are usually higher than those of commercial
banks, savings and loan associations and credit unions. Norwest Financial
is among the largest finance companies in the United States, but is
substantially smaller than the largest concerns. Trans Canada Credit
Corporation, one of the Company's Canadian subsidiaries, has been ranked
among the largest finance companies in Canada.
EMPLOYEE RELATIONS
As of December 31, 1998, the Company and its subsidiaries employed
approximately 8,500 persons. Management believes its employee relations
are excellent.
Item 2. Properties.
The Company owns an eleven-story building in Des Moines, Iowa, where its
principal executive offices are maintained. One of the Company's life
insurance subsidiaries owns a three-story building in Des Moines which is
used by the Company for administrative purposes. Dial Bank owns a one-story
building in Sioux Falls, South Dakota, where its office is maintained.
All of Norwest Financial's other business offices (consisting of consumer
finance and automobile finance branch offices, commercial finance executive
and business production offices, and other administrative offices) are
located in rented office space. Norwest Financial believes its facilities
are suitable and adequate for its business needs. These facilities are
generally fully occupied and utilized, although in some instances, office
space has been reserved for anticipated business expansion; otherwise,
additional office space or facilities are leased only when they are needed.
The equipment used in the information processing system (located at branch
offices, relay communication sites, and home office facilities) is leased
or owned by Norwest Financial. Telecommunication lines used in the
information processing system are leased on a monthly basis.
<PAGE> 18
Item 3. Legal Proceedings.
Norwest Financial is a defendant in various matters of litigation generally
incidental to its business. Although it is difficult to predict the ultimate
outcome of these cases, management believes, based on discussion with
counsel, that any ultimate liability will not materially affect the financial
position and results of operations of the Company and its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted in accordance with General Instructions I(2) (c).
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
All of the outstanding common stock (1,000 shares) of the Company is and was,
at all times during 1998 and 1997, owned beneficially and of record by a
single stockholder, the Parent.
The aggregate amount of dividends paid by the Company on its common stock
each quarter during 1998 and 1997 was as follows:
(In Thousands) 1998 1997
First quarter $ $1,729
Second quarter
Third quarter 20,000
Fourth quarter 30,000 60,000
Certain long-term debt instruments restrict payment of dividends on and
acquisitions of the Company's common stock. In addition, such debt
instruments and the Company's bank credit agreements contain certain
requirements as to maintenance of net worth (as defined). Approximately
$915 million of consolidated stockholder's equity was unrestricted at
December 31, 1998.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Total income $2,005,765 $1,728,796 $1,582,993 $1,427,345 $1,183,991
Interest and
debt expense 485,784 401,736 372,859 359,079 259,605
Provision for
credit losses 304,274 235,877 198,480 143,318 108,870
Net income 238,604 269,450 276,331 267,941 223,340
December 31,
(In Thousands) 1998 1997 1996 1995 1994
Total assets $10,516,207 $9,321,924 $7,760,845 $7,539,259 $6,124,742
Long-term debt 5,272,818 5,221,413 4,132,894 4,081,531 3,092,623
</TABLE>
<PAGE> 19
NORWEST FINANCIAL, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Norwest Financial's total income (revenue) increased 16% in 1998 and 9% in
1997 ($2,005.8 million in 1998 compared with $1,728.8 million in 1997 and
$1,583.0 million in 1996). Total income increased 8% and 4% in 1998 and
1997, respectively excluding Fidelity.
Income from finance charges and interest increased 17% in 1998 and 6% in
1997 ($1,498.7 million in 1998 compared with $1,282.6 million in 1997 and
$1,208.8 million in 1996). Income from finance charges and interest
increased 6% in 1998 and remained unchanged in 1997 excluding Fidelity.
Changes in income from finance charges and interest result primarily from
(1) changes in the amount of finance receivables outstanding and (2)
changes in the rate of charge on those receivables.
Increase (decrease) in average
finance receivables outstanding: 1998 1997 1996
U.S. consumer finance 0% (1)% 8%
Canadian consumer finance 36 17 11
Automobile finance 136 156 29
Other 22 (2) 2
Total 20 8 9
Rate of charge on finance receivables: 1998 1997 1996
U.S consumer finance 19.63% 20.29% 20.54%
Canadian consumer finance 25.13 25.79 27.22
Automobile finance 20.02 20.57 20.03
Other 14.49 13.76 14.73
Total 19.97 20.42 20.69
The increases in income from finance charges and interest in both 1998 and
1997 were due primarily to growth in average receivables outstanding.
This was offset in part by the decline in the rate of charge. Growth in
average receivables for all segments in 1998, 1997, and 1996 was due
primarily to various acquisitions combined with regular business activity.
The majority of the increase in Canadian consumer finance average receivables
in 1998 was due to the acquisition of TEAC and NRCS, effective April 21,
1998. The majority of the increase in automobile finance average receivables
in 1998 and 1997 was due to the acquisition of Fidelity, effective August 31,
1997, along with a capital contribution by the Parent to the Company, of the
issued and outstanding shares of capital stock of Reliable, effective
June 30, 1998. The majority of the increase in other average receivables
in 1998 was due to significant receivable growth of Norwest Financial
Preferred Capital, Inc., a subsidiary of the Company which began rediscounting
to commercial entities in 1997. Changes in the earned rates of charge were
due to changes in prevailing market rates combined with a change in the
portfolio mix.
<PAGE> 20
Insurance premiums and commissions increased 20% in 1998 and 28% in 1997
($280.2 million in 1998 compared with $232.9 million in 1997 and $182.3
million in 1996). The increases were due to increases in insurance premiums
and commissions on multiple peril crop insurance. Insurance losses and loss
expenses increased 41% in 1998 and 74% in 1997 ($177.2 million in 1998
compared to $125.8 million in 1997 and $72.3 million in 1996.) The increases
were due primarily to increased insurance losses and loss expenses on
multiple peril crop insurance. Multiple peril crop insurance is a
government-sponsored program. The Company's profit or loss from its multiple
peril crop insurance is determined after the crop season ends on the basis
of a profit sharing formula established by law and the Risk Management
Agency, a division of the United Stated Department of Agriculture. The
profit or loss on multiple peril crop insurance is primarily recognized in
the third and fourth quarters of the calendar year. During the past several
years the Company has been increasing the amount of multiple peril crop
insurance premiums retained. Insurance premiums and commissions on multiple
peril crop insurance were $145.1 million in 1998, $94.5 million in 1997,
and $41.8 million in 1996. Insurance losses and loss expenses on multiple
peril crop insurance were $133.4 million in 1998, $85.9 million in 1997,
and $36.4 million in 1996.
Other income increased 6% in 1998 and 11% in 1997 ($226.9 million in 1998
compared with $213.3 million in 1997 and $191.9 million in 1996). The
increase in 1998 was due primarily to increases in investment income, income
from affiliates, income generated from the origination and sale of certain
loans, and gains from the sale of branches and other assets partially offset
by a reduction in net gains on the sale of marketable securities. In 1997
the increase was due to increases in net gains on the sale of marketable
securities combined with increases in investment income and income from
affiliates. Income from affiliates was $63.2 million in 1998, $58.2 million
in 1997, and $54.4 million in 1996. The increase in income from affiliates
corresponds with the increase in average notes receivable - affiliates
combined with increased management fees charged to affiliates. Investment
income was $73.6 million in 1998, $65.5 million in 1997, and $52.8 million
in 1996. The increases were due primarily to increases in average
investments. Net gains on the sale of marketable securities were $5.0
million in 1998, $16.9 million in 1997, and $9.3 million in 1996.
Operating expenses increased 23% in 1998 and 7% in 1997 ($678.2 million in
1998 compared with $551.8 million in 1997 and $514.9 million in 1996). A
breakdown of operating expenses between salaries and benefits and all other
operating expenses is shown below:
1998 1997 1996
Salaries and benefits $390,263 $323,361 $307,234
All other operating expenses 287,934 228,468 207,656
Total $678,197 $551,829 $514,890
The increase in operating expenses was due primarily to increases in
employee compensation and benefits and other costs resulting from
business expansion including the addition of Fidelity in 1997 and other
acquisitions in 1998.
<PAGE> 21
Interest and debt expense increased 21% in 1998 and 8% in 1997 ($485.8
million in 1998 compared with $401.7 million in 1997 and $372.9 million
in 1996). Changes in interest and debt expense result primarily from
(1) change in the amount of borrowings outstanding and (2) changes in
the cost of those borrowings.
Increase in average debt outstanding: 1998 1997
Short-term 19% 10%
Long-term 18 10
Total 19 10
Cost of funds: 1998 1997 1996
Short-term 5.59% 5.30% 5.36%
Long-term 6.74 6.83 6.90
Total 6.40 6.37 6.44
Changes in average debt outstanding result primarily from the change in
average finance receivables outstanding combined with the change in notes
receivable - affiliates. Average finance receivables and average notes
receivable - affiliates combined increased 18% in 1998 and 9% in 1997.
Provision for credit losses increased 29% in 1998 and 19% in 1997 ($304.3
million in 1998 compared with $235.9 million in 1997 and $198.5 million
in 1996). During the fourth quarter of 1998 the Company reviewed its
policies involving the write-off of receivables that are a predetermined
number of days delinquent. As a result of the review, the Company made
several changes in its policies to reflect current trends and expectations.
The changes resulted in additional consumer write-offs of $37.4 million.
Excluding the additional fourth quarter write-offs, provision for credit
losses increased 13% in 1998. Increases in average finance receivables
outstanding contributed to the increase in the provision for credit losses.
Average finance receivables increased 20% in 1998 and 8% in 1997. Net
write-offs as a percentage of average net receivables outstanding were 4.01%
in 1998 compared with 3.63% in 1997 and 3.30% in 1996. Excluding the
additional fourth quarter write-offs, net write-offs as a percentage of
average net receivables were 3.51% in 1998. At December 31, 1998, the
Company had an allowance for credit losses of $351.0 million (4.24% of
receivables) compared with $297.8 million (4.19% of receivables) at
December 31, 1997 and $169.1 million (2.84% of receivables) at December 31,
1996. During 1998 the provision for credit losses exceeded net write-offs
by $3.4 million. In addition, $49.8 million in allowance for credit losses
related to receivables acquired or contributed accounted for the remainder
of the increase in the allowance for credit losses. During 1997 the
provision for credit losses exceeded net write-offs by $8.2 million. In
addition, $120.5 million in allowance for credit losses related to receivables
acquired or contributed accounted for the remainder of the increase in the
allowance for credit losses. There were no material changes in estimation
methods and assumptions during 1998 and 1997. Management believes the
allowance for credit losses at December 31, 1998, is adequate to absorb
expected losses in the finance receivables portfolio.
Income taxes decreased 16% in 1998 and 3% in 1997. Earnings before income
taxes decreased 13% in 1998 and 3% in 1997. The effective tax rates were
33.8% in 1998, 34.8% in 1997, and 34.9% in 1996.
Borrowings constitute the largest part of Norwest Financial's capitalization.
At December 31, 1998, 84% of the Company's capital had been obtained from
borrowings and 16% from stockholder's equity. Sixty-three percent of Norwest
Financial's borrowings was in fixed-rate term borrowings with original
maturities of more than one year. The remaining 37% includes commercial
paper with maturities of nine months or less (32%) and short-term debt to
affiliates and other short-term debt (5%). At December 31, 1997, short-term
borrowings comprised 30% of total borrowings. This consisted of commercial
paper with maturities of nine months or less (22%) and short-term debt to
affiliates and other short-term debt (8%). Short-term borrowings as a
percent of total borrowings averaged 30% in 1998 and 1997.
<PAGE> 22
The Company maintains bank lines of credit and revolving credit agreements
to provide an alternative source of liquidity to support the Company's
commercial paper borrowings. At December 31, 1998, lines of credit and
revolving credit agreements totaling $1,821 million were being maintained at
32 domestic and international banks; the entire amount was available on that
date. Additionally, the Company's bank subsidiaries, Dial Bank and Dial
National Bank, have access to federal funds borrowings. At December 31,
1998, federal funds availability at the two banks was $400 million.
The Company and a Canadian subsidiary obtain long-term debt capital primarily
from the issuance of debt securities to the public through underwriters on a
firm-commitment basis and the issuance of debt securities to institutional
investors. The Company and a Canadian subsidiary also obtain long-term debt
from the issuance of medium-term notes (which have maturities ranging from
nine months to 30 years) through underwriters (acting as agent or principal).
The Company anticipates the continued availability of borrowed funds, at
prevailing interest rates, to provide for Norwest Financial's growth in the
foreseeable future. Funds are also generated internally from payments of
principal and interest on Norwest Financial's finance receivables.
During 1998, Norwest Financial continued with its company-wide project to
prepare Norwest Financial's systems for Year 2000 compliance. The Year
2000 issue relates to computer systems that use two digits rather than four
to define the applicable year and whether such systems will properly process
information when the year changes to 2000. "Systems" include all hardware,
networks, system and application software, and commercial "off the shelf"
software, and embedded technology such as properties/date impacted processors
in automated systems such as elevators, telephone systems, security, heating
and cooling systems and others. Priority is given to "mission critical"
systems. A system is considered "mission critical" if it is vital to the
successful continuation of a core business activity.
The implementation of Norwest Financial's Year 2000 readiness project is
divided into four principal phases: Phase I requires a comprehensive
assessment and inventory of all applicable software, system hardware devices,
data and voice communication devices and other embedded technology to
determine Year 2000 vulnerability and risk; Phase II requires date detection
on systems intended to determine which systems must be remediated and which
systems are compliant and require testing only, determination of the
resources and costs, and the development of schedules and high level testing
plans and schedules for the repair, replacement and/or retirement of systems
that are determined not to be compliant. Phase III requires repair,
replacement and/or retirement of systems that are determined not to be Year
2000 compliant, and planning the integration testing for those systems that
have interfaces with other systems both internal and external to Norwest
Financial, such as customers/suppliers; and Phase IV requires integration
testing on applicable systems to validate that interfaces are Year 2000
compliant and contingency planning.
<PAGE> 23
Norwest Financial may be affected by the Year 2000 compliance issues of
governmental agencies, business and other entities who provide data to, or
receive data from, Norwest Financial, and by entities, such as borrowers,
vendors, customers and business partners, whose financial condition or
operational capability is significant to Norwest Financial. Norwest
Financial's Year 2000 project also includes assessing the Year 2000 readiness
of certain customers, borrowers, vendors, business partners, counterparties
and governmental entities and the testing of major external interfaces with
third parties which Norwest Financial has determined are critical. Norwest
Financial is primarily engaged in the consumer and automobile finance
business. The average balance outstanding with any individual customer is
not significant. As a result Norwest Financial does not plan to test the
Year 2000 compliance of any borrowers. Norwest Financial has tested
mainframe software packages included in the company's systems. It does not
plan to directly test the Year 2000 compliance of its other major vendors.
Instead, Norwest Financial is obtaining representations and warranties of the
Year 2000 compliance of its major vendors. In addition to assessing the
readiness of these external parties, Norwest Financial is developing
contingency plans which will include recovery plans and alternatives to
mitigate the effects of counterparties whose own failure to properly address
Year 2000 issues may adversely impact Norwest Financial's ability to perform
mission critical functions. These contingency plans are currently being
developed and are expected to be substantially completed by June 30, 1999.
The Company has not used any independent verification and validation
processes in determining its Year 2000 compliance.
Norwest Financial has substantially completed Phases I, II, and III of its
Year 2000 project. Phase IV for all mission critical systems is anticipated
to be completed by June 30, 1999. In the area of embedded technology, or
non-information technology systems, Norwest Financial has completed
Phases I, II and III of the Year 2000 project. The Company believes all
mission critical embedded technology is Year 2000 compliant.
Through December 31, 1998, Norwest Financial has incurred charges of $4.3
million related to its Year 2000 project. This represents less than 10% of
its information technology budget. Charges include $3.1 million related to
the cost of internal staff redeployed to the Year 2000 project, as well as
$.5 million for external consulting costs and $.7 million for costs of
accelerated replacement of hardware and software due to Year 2000 issues.
Norwest Financial currently estimates that its total cost for the Year 2000
project will be $5.4 million. The redeployment of internal staff has not
delayed other information technology projects, and thus will not have an
impact on the 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 costs 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 the ability of Norwest
Financial's customers, vendors, competitors and counterparties to effectively
address the Year 2000 issue.
If Year 2000 issues are not adequately addressed by Norwest Financial and
significant third parties, Norwest Financial'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 Norwest Financial depends,
including, but not limited to, such services as telecommunications,
electrical power and data processing. The failure of loan customers to
properly prepare for the Year 2000 could also result in increases in
problem loans and credit losses in future years. Notwithstanding Norwest
Financial's efforts, there can be no assurance that Norwest Financial or
significant third party vendors or other significant third parties will
adequately address their Year 2000 issues. Norwest Financial 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 results of operations, liquidity and financial
condition.
<PAGE> 24
The forward-looking statements made in the foregoing Year 2000 discussion
speak only as of the date on which such statements are made, and Norwest
Financial undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement
is made to reflect the occurrence of unanticipated events.
The Company adopted on January 1, 1998, Statement of Financial Accounting
Standards ("FAS") No. 130, "Reporting Comprehensive Income". This Statement
sets standards for reporting and displaying comprehensive income and its
components in the financial statements. It requires that a company
classify items of other comprehensive income, as defined by accounting
standards, by their nature in the financial statements. Other comprehensive
income, as defined, is net of income taxes. Accumulated other comprehensive
income is displayed separately in the equity section of the balance sheet
and the consolidated statement of changes in stockholder's equity. For
comparative purposes financial statements for earlier periods provided have
been reclassified.
The Company adopted on December 31, 1998, FAS 131, "Disclosures about
Segments of an Enterprise and Related Information". The Statement requires
that a public business enterprise report financial and descriptive
information about its reportable operating segments on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments.
The Company adopted on December 31, 1998, FAS 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits". The Statement only
addresses disclosure issues; it does not address measurement and recognition
of pensions and other postretirement benefits. This Statement requires the
reconciliation of changes in benefit obligations and plan assets for both
pensions and other postretirement benefits, showing the effects of the
major components separately for each reconciliation.
In June 1998, the Financial Accounting Standards Board 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. This Statement 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 FAS 133 nor has it
completed the analysis required to determine the impact on the financial
statements.
<PAGE> 25
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Interest Sensitivity Risk
Interest sensitivity risk is the risk that future changes in interest
rates will reduce net interest income or the market value of the balance
sheet.
Norwest Financial is subject to the risk of fluctuating interest rates in
the normal course of business primarily in finance receivables, securities
available for-sale, and both short-term and long-term debt. Each of these
balance sheet categories will be discussed individually.
Finance Receivables:
The interest rates on receivables outstanding at December 31, 1998 and 1997,
are consistent with the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining
maturities. As a result, the carrying value is a reasonable estimate of
fair value. Expected maturities presented below differ from contractual
maturities since it is the Company's experience that a substantial portion
of the consumer receivable portfolio is renewed or repaid before contractual
maturity dates.
<TABLE>
<CAPTION>
December 31, 1998:
1999 2000 2001 2002 2003 Thereafter Total Fair Value
(In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Finance receivables $4,123 $1,403 $931 $682 $329 $802 $8,270 $8,270
Average earned rate 19.15% 19.88% 19.85% 20.28% 20.31% 21.68% 19.74%
December 31, 1997:
1998 1999 2000 2001 2002 Thereafter Total Fair Value
(In Millions)
Finance receivables $3,610 $1,143 $791 $553 $267 $750 $7,114 $7,114
Average earned rate 19.51% 21.48% 21.22% 22.10% 22.34% 22.51% 20.64%
</TABLE>
Securities Available-for-Sale:
Norwest Financial does not use derivative financial instruments in its
investment portfolio. Norwest Financial's investment policy only allows
for purchases in investment grade securities. In addition, the investment
policy also limits the amount of credit exposure to any one issue, issuer
and type of investment. Norwest Financial does not expect any material loss
with respect to its investment portfolio. Maturities for securities
available for-sale shown below are at amortized cost and are based on
contractual maturities for all debt securities except for mortgage backed
federal agencies and collateralized mortgage obligations, which are based
on expected maturities.
<PAGE> 26
<TABLE>
<CAPTION>
(In Millions)
December 31, 1998:
1999 2000 2001 2002 2003 Thereafter Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Federal Agencies $15 $12 $8 $17 $16 $60 $128 $133
Average Yield 7.05% 6.90% 6.94% 7.15% 6.95% 7.23% 7.12%
States and Political
Subdivisions $5 $26 $33 $23 $21 $177 $285 $299
Average Yield 4.36% 4.73% 4.57% 4.66% 4.45% 4.60% 4.59%
Mortgage Backed
Federal Agencies $41 $35 $34 $39 $42 $61 $252 $255
Average Yield 7.34% 6.95% 6.95% 6.95% 6.95% 6.73% 6.99%
Collateralized Mortgage
Obligations $1 $1 $0 $0 $1 $2 $5 $5
Average Yield 9.26% 8.75% 8.75% 8.75% 8.75% 6.95% 7.99%
Equity Securities $89 $89 $93
Average Yield 2.94% 2.94%
All Other Securities $60 $73 $46 $44 $80 $107 $410 $419
Average Yield 6.91% 6.61% 6.74% 6.86% 6.49% 6.73% 6.71%
December 31, 1997:
1998 1999 2000 2001 2002 Thereafter Total Fair Value
U.S. Treasury and
Federal Agencies $33 $10 $12 $12 $8 $89 $164 $169
Average Yield 6.59% 6.99% 6.86% 7.24% 6.82% 7.34% 7.06%
States and Political
Subdivisions $10 $3 $25 $29 $15 $136 $218 $225
Average Yield 5.05% 6.40% 4.81% 4.68% 4.91% 5.32% 4.81%
Mortgage Backed
Federal Agencies $48 $46 $45 $43 $41 $52 $275 $278
Average Yield 7.32% 6.97% 6.97% 6.97% 6.97% 7.17% 7.06%
Collateralized Mortgage
Obligations $1 $1 $1 $1 $1 $3 $8 $8
Average Yield 8.44% 8.69% 8.69% 8.69% 8.69% 7.32% 8.17%
Equity Securities $93 $93 $96
Average Yield 3.71% 3.71%
All Other Securities $46 $35 $48 $33 $40 $79 $281 $288
Average Yield 7.11% 7.60% 7.40% 7.11% 6.76% 7.50% 7.27%
</TABLE>
<PAGE> 27
Short-Term and Long-Term Debt:
The table below provides information about Norwest Financial's debt
instruments. All long-term debt is fixed rate. The table shows principal
cash flows and related weighted average interest rates by expected maturity
dates. The information is presented in U.S. dollars which is the Company's
reporting currency. The instruments' actual cash flows are denominated in
U.S. dollars, Canadian dollars, and Argentine pesos.
<TABLE>
<CAPTION>
(In Millions
of U.S. Dollars)
December 31, 1998:
1999 2000 2001 2002 2003 Thereafter Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Debt - U.S:
Debt Outstanding $2,660 $2,660 $2,660
Average Interest Rate 5.48% 5.48%
Short-Term Debt - Canada:
Debt Outstanding $384 $384 $384
Average Interest Rate 5.06% 5.06%
Short-Term Debt - Argentina:
Debt Outstanding $50 $50 $50
Average Interest Rate 9.88% 9.88%
Long-Term Debt - U.S.:
Debt Outstanding $835 $754 $404 $654 $653 $1,400 $4,700 $4,857
Average Interest Rate 6.33% 6.75% 6.68% 6.93% 6.16% 6.76% 6.62%
Long-Term Debt- Canada:
Debt Outstanding $107 $131 $98 $46 $94 $98 $573 $580
Average Interest Rate 7.75% 6.49% 5.83% 5.50% 5.53% 5.76% 6.25%
December 31, 1997:
1998 1999 2000 2001 2002 Thereafter Total Fair Value
Short-Term Debt - U.S:
Debt Outstanding $1,957 $1,957 $1,957
Average Interest Rate 5.75% 5.75%
Short-Term Debt - Canada:
Debt Outstanding $270 $270 $270
Average Interest Rate 4.05% 4.05%
Long-Term Debt - U.S.:
Debt Outstanding $414 $835 $754 $404 $654 $1,853 $4,914 $4,992
Average Interest Rate 6.57% 6.33% 6.75% 6.68% 6.93% 6.70% 6.66%
Long-Term Debt- Canada:
Debt Outstanding $73 $80 $84 $35 $35 $307 $310
Average Interest Rate 6.36% 7.21% 5.77% 6.05% 5.50% 6.29%
</TABLE>
<PAGE> 28
Foreign Currency Exchange Rate Risk
The amount invested in subsidiaries and translated into U.S. dollars using
the year-end exchange rate was $93 and $117 million at December 31, 1998
and 1997, respectively. All investments in subsidiaries were denominated
in either Canadian dollars or Argentine pesos. The potential loss in fair
value resulting from a hypothetical 10% adverse change in quoted foreign
currency exchange rates amounts to $9 and $12 million at December 31, 1998
and 1997, respectively. Actual results may differ. Canadian operations
are funded with borrowings in Canadian dollars and Argentine operations
are funded primarily with borrowings in Argentine pesos.
<PAGE> 29
Item 8. Financial Statements and Supplementary Data.
Deloitte & Touche LLP
(logo Two Prudential Plaza Telephone:(312) 946-3000
180 North Stetson Avenue Facsimile:(312) 946-2600
Chicago, Illinois 60601-6779
INDEPENDENT AUDITORS' REPORT
Norwest Financial, Inc.:
We have audited the accompanying consolidated balance sheets of Norwest
Financial, Inc. (a wholly-owned subsidiary of Norwest Financial Services,
Inc. which is a wholly-owned subsidiary of Wells Fargo & Company) and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, comprehensive income, cash flows and stockholder's
equity for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Norwest Financial, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
January 18, 1999
Chicago, Illinois
Deloitte Touche
Tohmatsu
<PAGE> 30
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Assets
Cash and cash equivalents $ 139,184 $ 94,600
Securities available-for-sale 1,203,500 1,063,600
Finance receivables:
Consumer:
Loans 4,088,502 3,893,550
Sales finance contracts 3,111,800 2,332,535
Credit cards 500,616 422,435
Commercial 569,309 465,601
Total finance receivables 8,270,227 7,114,121
Less allowance for credit losses 350,984 297,800
Finance receivables - net 7,919,243 6,816,321
Notes receivable - affiliates 499,123 646,832
Property and equipment (at cost, less
accumulated depreciation of $135,105
for 1998 and $107,435 for 1997) 187,695 102,537
Deferred income taxes 60,717 64,420
Other assets 506,745 533,614
Total assets $10,516,207 $9,321,924
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 31
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Liabilities and
Stockholder's Equity
Loans payable - short-term:
Commercial paper $2,662,321 $1,664,796
Affiliates 194,453 392,165
Other 237,467 170,000
Unearned insurance premiums and commissions 132,793 143,478
Insurance claims and policy reserves 29,750 30,566
Accrued interest payable 96,482 93,344
Other payables to affiliates 44,173 13,815
Other liabilities 280,737 228,557
Long-term debt 5,272,818 5,221,413
Total liabilities 8,950,994 7,958,134
Commitments and contingencies (notes 6 and 10)
Stockholder's equity:
Common stock without par value
(authorized 1,000 shares, issued
and outstanding 1,000 shares) 3,855 3,855
Additional paid in capital 189,438 185,410
Retained earnings 1,362,370 1,167,418
Accumulated other comprehensive
income, net of income taxes, 9,550 7,107
Total stockholder's equity 1,565,213 1,363,790
Total liabilities and
stockholder's equity $10,516,207 $9,321,924
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
NORWEST FINANCIAL, INC.
Consolidated Statements of Income
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Income:
Finance charges and interest $1,498,692 $1,282,576 $1,208,794
Insurance premiums and commissions 280,207 232,890 182,259
Other income 226,866 213,330 191,940
Total income 2,005,765 1,728,796 1,582,993
Expenses:
Operating expenses 678,197 551,829 514,890
Interest and debt expense 485,784 401,736 372,859
Provision for credit losses 304,274 235,877 198,480
Insurance losses and loss expenses 177,238 125,822 72,337
Total expenses 1,645,493 1,315,264 1,158,566
Net income before income taxes 360,272 413,532 424,427
Income taxes 121,668 144,082 148,096
Net income $ 238,604 $ 269,450 $ 276,331
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 33
NORWEST FINANCIAL INC.
Consolidated Statements of Comprehensive Income
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net income $238,604 $269,450 $276,331
Other comprehensive income,
before income taxes:
Unrealized gains (losses) on
securities available-for-sale:
Unrealized gains arising during
the period 15,838 26,305 962
Less: reclassification
adjustment for net gains
included in net income 4,963 16,873 9,276
10,875 9,432 (8,314)
Foreign currency translation
adjustment (4,773) (2,766) (598)
Other comprehensive income
(loss) before income taxes 6,102 6,666 (8,912)
Income tax expense (benefit)
related to unrealized gains
(losses) on securities
available-for-sale 3,659 3,273 (3,016)
Other comprehensive income
(loss), net of income taxes 2,443 3,393 (5,896)
Comprehensive income $241,047 $272,843 $270,435
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 34
NORWEST FINANCIAL, INC.
Consolidated Statements of Cash Flows
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $238,604 $269,450 $276,331
Adjustments to reconcile net income to
net cash flows from operating activities,
net of effect of contributed subsidiaries:
Provision for credit losses 304,274 235,877 198,480
Depreciation and amortization 47,768 34,906 27,613
Deferred income taxes 7,549 25,104 8,632
Other receivables from affiliate 31,643
Other assets 7,649 (41,308) 30,925
Unearned insurance premiums and commissions (10,685) 6,076 (3,456)
Insurance claims and policy reserves (816) (18,689) 1,210
Accrued interest payable 3,138 15,578 (1,151)
Other payables to affiliates 28,601 8,250 5,565
Other liabilities 39,704 3,604 6,002
Net cash flows from operating activities 665,786 538,848 581,794
Cash flows used for investing activities:
Finance receivables:
Principal collected 6,689,362 5,665,098 5,587,314
Receivables originated or purchased (7,808,023)(5,955,306)(5,889,870)
Proceeds from sales of securities 146,510 136,041 145,791
Proceeds from maturities of securities 155,602 82,523 65,296
Purchase of securities (431,137) (419,456) (279,090)
Net additions to property and equipment (98,522) (39,240) (25,626)
Net increase in notes receivable - affiliates,
net of effect of contributed subsidiaries (122,910)(1,172,888) (22,339)
Cash and cash equivalents of contributed
subsidiaries received 503 3,258
Other (47,810) (82,507) (37,763)
Net cash flows used for
investing activities (1,516,425)(1,782,477) (456,287)
Cash flows from financing activities:
Net increase in loans payable - short-term 867,280 126,860 141,618
Proceeds from long-term debt - senior 583,271 1,805,279 525,000
Repayments of long-term debt:
Senior (503,328) (735,873) (308,424)
Subordinated (2,000) (50,000) (165,000)
Additional paid in capital 112,000
Dividends paid (50,000) (61,729) (250,000)
Net cash flows from (used for)
financing activities 895,223 1,196,537 (56,806)
Net increase (decrease) in cash
and cash equivalents 44,584 (47,092) 68,701
Cash and cash equivalents beginning of year 94,600 141,692 72,991
Cash and cash equivalents end of year $ 139,184 $94,600 $ 141,692
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 35
NORWEST FINANCIAL, INC.
Consolidated Statements of Stockholder's Equity
(Thousands of Dollars)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
Unrealized Gains
Additional Foreign on Securities
Common Paid In Retained Currency Available
Stock Capital Earnings Translation for-Sale Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $3,855 $ 90,766 $933,366 $(5,393) $15,003 $1,037,597
Comprehensive income:
Net income 276,331 276,331
Other (598) (5,298) (5,896)
Dividends (250,000) (250,000)
Balance, December 31, 1996 3,855 90,766 959,697 (5,991) 9,705 1,058,032
Comprehensive income:
Net income 269,450 269,450
Other (2,766) 6,159 3,393
Paid in capital 112,000 112,000
Contributed subsidiary (17,356) (17,356)
Dividends (61,729) (61,729)
Balance, December 31, 1997 3,855 185,410 1,167,418 (8,757) 15,864 1,363,790
Comprehensive income:
Net income 238,604 238,604
Other (4,773) 7,216 2,443
Contributed subsidiary 4,028 6,348 10,376
Dividends (50,000) (50,000)
Balance, December 31, 1998 $3,855 $189,438 $1,362,370 $(13,530) $23,080 $1,565,213
</TABLE>
See accompanying notes to consolidated financial statements.<
<PAGE> 36
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements
1. Significant Accounting Policies.
Principles of Consolidation. The consolidated financial statements include
the accounts of Norwest Financial, Inc. (the "Company") and subsidiaries
(collectively, "Norwest Financial"). Intercompany accounts and transactions
are eliminated. The Company is a wholly-owned subsidiary of Norwest Financial
Services, Inc. (the "Parent"). On November 2, 1998, Norwest Corporation,
the parent of Norwest Financial Services, Inc., changed its name to Wells
Fargo & Company ("Wells Fargo") upon the merger of the former Wells Fargo &
Company into a wholly-owned subsidiary of Norwest Corporation. The parent
is now a wholly-owned subsidiary of Wells Fargo.
In October 1998, two of the Company's automobile finance subsidiaries,
Community Credit Co. and Fidelity Acceptance Corporation, acquired $320
million in automobile sales finance contracts from Sunstar Acceptance
Corporation, a division of NationsBank.
Effective June 30, 1998, the Parent made a capital contribution, without
consideration, to the Company of the issued and outstanding shares of capital
stock of Reliable Financial Services, Inc. ("Reliable"). This capital
contribution was accounted for as a merger of interests under common control.
Reliable's headquarters are in San Juan, Puerto Rico and its principal
business is automobile finance. Reliable had finance receivables outstanding
of $293 million at the time of the contribution.
Effective April 21, 1998, one of the Company's Canadian subsidiaries acquired
all of the issued and outstanding shares of capital stock of The T. Eaton
Acceptance Co. Limited ("TEAC") and National Retail Credit Services Limited
("NRCS"). The acquisition was accounted for as a purchase. TEAC and NRCS are
headquartered in Toronto, Ontario and are primarily engaged in purchasing
sales finance contracts. TEAC and NRCS had finance receivables outstanding
of $305 million at the time of the acquisition.
Effective January 7, 1998, the Company, through its wholly-owned subsidiary,
Finvercon USA, Inc., acquired Finvercon S.A. Compania Financiera
("Finvercon"). The acquisition was accounted for as a purchase. Funding
necessary for this acquisition was provided to Finvercon USA, Inc. by the
Company. Finvercon is engaged in consumer finance from its office in
Buenos Aires, Argentina and had receivables outstanding of $33 million at
the time of acquisition.
Effective August 31, 1997, Norwest Corporation, through its wholly-owned
subsidiary, Fidelity Acceptance Holding, Inc. ("FAHI"), acquired Fidelity
Acceptance Corporation. The acquisition was accounted for as a purchase.
Funding necessary for this acquisition (totaling approximately $1.1 billion)
was provided via a term loan to FAHI by the Company. Effective September 2,
1997, Norwest Corporation made a capital contribution, without consideration,
of all the issued and outstanding shares of capital stock of FAHI to the
Parent. Immediately thereafter, the Parent made a capital contribution,
without consideration, of all the issued and outstanding shares of capital
stock of FAHI to the Company. This capital contribution was accounted for
as a merger of interests under common control and resulted in a reduction in
additional paid in capital of approximately $17.4 million.
Securities Available-for-Sale. Debt and equity securities are classified
as available-for-sale. Debt and equity securities classified as
available-for-sale are reported at fair value with net unrealized gains and
losses, net of deferred income taxes, excluded from earnings and recorded as
a component of accumulated other comprehensive income until realized. If a
decline in the security's fair value is deemed to be other than temporary,
the amount of the write-down is recognized as a reduction in earnings.
<PAGE> 37
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
1. Significant Accounting Policies, Continued.
Finance Charges and Interest. Finance charges and interest are earned
primarily using the interest method on an accrual basis. Automobile finance
and commercial receivables that are past due for 90 days or more are placed
on non-accrual status. When the receivable is placed on non-accrual status,
accrued and unpaid interest is charged against finance charges and interest.
All other finance receivables continue to accrue interest until the
receivable is collected or written off. When a receivable is written off,
accrued and unpaid interest is charged against finance charges and interest.
Loan Origination Fees and Costs. Fees received and certain direct costs
incurred for the origination of receivables are deferred and amortized to
interest income over the contractual lives of the receivables using the
interest method.
Unamortized amounts are recognized at the time receivables are paid in full.
Material discounts and premiums on purchased receivables are recognized over
the contractual life of the purchased receivable using a method that
approximates the interest method.
Allowance for Credit Losses. The allowance for credit losses is based on
loss experience in relation to finance receivables outstanding and is
established through a provision for credit losses charged to expense.
The allowance is an amount that management believes will be adequate to
absorb probable losses on existing receivables that may become uncollectible
based on evaluations of collectibility of receivables and prior credit
loss experience.
Finance receivables are written off when evaluated as uncollectible. In
addition, consumer finance receivables in the United States are generally
written off if no payment is applied during the three-month period
immediately preceding the balance sheet date and the receivable is 90 days
or more contractually delinquent. Automobile finance receivables are written
off when the receivable is 150 days or more contractually delinquent. All
other receivables are generally written off when the receivable is 180 days
or more contractually delinquent.
Property and Equipment. Depreciation is provided for property and equipment
on a straight-line basis over their estimated useful lives, which are: 19
to 39 years for buildings, 5 to 39 years for building equipment and
improvements, and 3 to 8 years for furniture, fixtures and equipment.
Generally, leasehold improvements are amortized over five years or the
life of the lease whichever is shorter. Maintenance and repairs of building
and office equipment (not significant in the aggregate) are charged to
expense. At the time assets are disposed of or are retired, the related
asset and accumulated depreciation or amortization are removed from the
respective accounts. Gains and losses on dispositions are included in
earnings.
Deferred Income Taxes. Deferred income taxes reflect the impact of
temporary differences between the amounts of assets and liabilities recorded
for financial reporting from the basis used for income tax purposes
(note 10). A valuation allowance is recognized if, based on the weight of
available evidence, it is more likely than not that some portion or all of
the deferred assets will not be realized.
Retirement Plans. Retirement plans cover substantially all employees who
meet certain age and service requirements. Norwest Financial's funding
policy is to contribute no more than the maximum amount that can be deducted
for federal income tax purposes (note 11).
<PAGE> 38
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
1. Significant Accounting Policies, Continued.
Insurance Income and Expense. Insurance premiums are recognized as income
over the terms of the policies. Premiums for credit life insurance are
recognized as revenue using a method that approximates the interest method.
Premiums for credit disability insurance, involuntary unemployment insurance,
and multiple peril crop insurance are recognized as revenue in relationship
to anticipated claims. Premiums and commissions from property insurance and
non-filing insurance are recognized as revenue on a pro-rata basis. Policy
acquisition expenses (principally ceding commissions) are deferred and
charged to expense over the terms of the related policies in proportion
to premium income recognition.
Foreign Currency Translation. Assets and liabilities of the foreign
operations are translated at the exchange rate as of the balance sheet date.
Foreign operating results are translated at the average exchange rates for
the period covered by the income statement. The resulting translation
adjustments are recorded as a separate component of accumulated other
comprehensive income.
Goodwill and Other Intangibles. Goodwill represents the unamortized cost
of acquiring subsidiaries and other net assets in excess of the appraised
value of such net assets at the date of acquisition. Goodwill is amortized
over a maximum 15-year period using the straight-line method. Other
identifiable intangibles are amortized either on an accelerated basis or
straight-line, over various periods which do not exceed 15 years.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications. Certain amounts in the 1997 and 1996 financial
statements have been reclassified to conform to the presentation used in
the 1998 financial statements.
New Standards. The Company adopted on January 1, 1998, Statement of
Financial Accounting Standards ("FAS") No. 130, "Reporting Comprehensive
Income". This Statement sets standards for reporting and displaying
comprehensive income and its components in the financial statements.
It requires that a company classify items of other comprehensive income,
as defined by accounting standards, by their nature in the financial
statements. Other comprehensive income, as defined, is net of income
taxes. Accumulated other comprehensive income is displayed separately in
the equity section of the balance sheet and the consolidated statement of
changes in stockholder's equity. For comparative purposes, financial
statements for earlier periods provided have been reclassified.
The Company adopted on December 31, 1998, FAS 131, "Disclosures about
Segments of an Enterprise and Related Information". The Statement requires
that a public business enterprise report financial and descriptive
information about its reportable operating segments on the basis that is
used internally for evaluating segment performance and deciding how to
allocate resources to segments.
The Company adopted on December 31, 1998, FAS 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits". The Statement only
addresses disclosure issues; it does not address measurement and recognition
of pensions and other postretirement benefits. This Statement requires
the reconciliation of changes in benefit obligations and plan assets for
both pensions and other postretirement benefits, showing the effects of
the major components separately for each reconciliation.
<PAGE> 39
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
1. Significant Accounting Policies, Continued.
In June 1998, the Financial Accounting Standards Board 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. This Statement 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 FAS
133 nor has it completed the analysis required to determine the impact on
the financial statements.
2. Securities Available-for-Sale.
The amortized cost and fair value of securities available-for-sale were:
December 31, 1998 December 31, 1997
Amortized Fair Amortized Fair
(In Thousands) Cost Value Cost Value
U.S. Treasury and
federal agencies $ 127,882 $132,867 $164,239 $168,601
States and political
subdivisions 284,724 298,617 218,115 225,040
Mortgage-backed securities:
Federal agencies 252,333 254,668 274,438 278,355
Collateralized mortgage
obligations 4,800 4,916 8,267 8,453
Total mortgage-backed
securities 257,133 259,584 282,705 286,808
Other (corporate bonds
and stocks) 498,687 512,432 374,342 383,151
Total $1,168,426 $1,203,500 $1,039,401 $1,063,600
The gross unrealized gains and losses of securities available-for-sale were:
December 31, 1998 December 31, 1997
Gross Unrealized Gross Unrealized
(In Thousands) Gains Losses Gains Losses
U.S. Treasury and
federal agencies $ 4,999 $ 14 $4,563 $ 201
States and political
subdivisions 13,962 69 7,028 103
Mortgage-backed securities:
Federal agencies 2,587 252 4,144 227
Collateralized mortgage
obligations 118 2 192 6
Total mortgage-backed
securities 2,705 254 4,336 233
Other (corporate bonds
and stocks) 25,756 12,011 12,103 3,294
Total $47,422 $12,348 $28,030 $3,831
<PAGE> 40
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
2. Securities Available-for-Sale, Continued.
The amortized cost and fair values of securities available-for-sale by
maturity were:
December 31, 1998
Amortized Fair
(In Thousands) Cost Value
In one year or less $ 120,781 $ 122,177
After one year through five years 551,896 562,134
After five years through ten years 260,652 268,223
After ten years 235,097 250,966
Total $1,168,426 $1,203,500
Norwest Financial computes realized gains and losses using the specific
identification method. Total gross realized gains and losses from the
sale of securities were $7,749,000 and $2,786,000, respectively, in 1998;
$18,394,000 and $1,521,000, respectively, in 1997; and $10,057,000 and
$781,000, respectively, in 1996. The carrying amounts of securities on
deposit under statutory or other requirements at December 31, 1998 and
1997, were $11,616,000 and $11,672,000 respectively.
Income from securities available-for-sale and cash equivalents was as follows:
Years Ended December 31,
(In Thousands) 1998 1997 1996
Taxable interest $55,701 $51,334 $45,127
Tax-exempt interest 13,032 9,135 4,383
Dividends 4,903 5,078 3,281
Total income $73,636 $65,547 $52,791
3. Finance Receivables.
Loans are generally repayable in monthly instalments over a period of 180
months or less. Sales finance contracts can be either open-end (revolving)
or closed-end. Open-end sales finance contracts do not have an original
maturity because the accounts created by these contracts can be used for
repeated transactions. The minimum monthly payment of open-end sales
finance contracts generally ranges from 1/12 to 1/30 of the highest unpaid
balance of the account. Closed-end sales finance contracts purchased are
repayable in equal monthly instalments and generally have original
maturities of 60 months or less.
The amounts of cash payments applied to consumer receivables during the years
ended December 31, 1998, 1997, and 1996 approximated $6,346,421,000,
$5,342,833,000, and $4,510,330,000, respectively. These amounts exceeded
the amount contractually due because a substantial portion of such
receivables are renewed, converted, or paid in full prior to maturity.
Unearned insurance premiums and insurance claims and policy reserves
which pertain to Norwest Financial's consumer receivables were approximately
$147,227,000 and $152,584,000 at December 31, 1998 and 1997, respectively.
<PAGE> 41
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
3. Finance Receivables, Continued.
At December 31, 1998, contractual maturities of commercial receivables
were as follows: $206,264,000 were due in one year or less; $345,501,000
were due after one year through five years; and $17,544,000 were due after
five years. Substantially all commercial receivables have fixed interest
rates. Contractual maturities are not presented for the consumer receivables
as it is the Company's experience that a substantial portion of the consumer
receivable portfolio is renewed or repaid before contractual maturity dates.
Consumer receivables include Canadian receivables of $940,569,000 and
$617,828,000 at December 31, 1998 and 1997, respectively, and Argentina
receivables of $83,936,000 at December 31, 1998. Commercial receivables at
December 31, 1998 include Canadian and Argentina receivables of $3,586,000
and $8,167,000, respectively.
Non-accrual commercial receivables totaled $6,332,000 and $4,121,000 at
December 31, 1998 and 1997, respectively. The allowance for losses related
to these commercial loans was $831,000 and $41,000 at December 31, 1998 and
1997, respectively.
The average amount of non-accrual commercial receivables for the years
ended December 31, 1998, 1997 and 1996 were $5,300,000, $3,481,000, and
$3,527,000, respectively.
The effect of non-accrual commercial receivables on finance charges and
interest are:
Years Ended December 31,
(In Thousands) 1998 1997 1996
Finance charges and interest:
As originally contracted $272 $391 $377
As recognized using the cash basis 225 299 279
4. Allowance for Credit Losses.
The analysis of the allowance for credit losses is as follows:
Years Ended December 31,
(In Thousands) 1998 1997 1996
Allowance for credit losses
beginning of year $297,800 $169,133 $ 158,618
Provision for credit losses
charged to expense 304,274 235,877 198,480
Write-offs (350,333) (261,440) (211,871)
Recoveries 49,453 33,717 20,254
Allowance related to
receivables contributed
or acquired 49,790 120,513 3,652
Allowance for credit losses
end of year $350,984 $297,800 $169,133
<PAGE> 42
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
5. Loans Payable - Short-term.
Commitment fees are paid to support bank credit agreements (lines of
credit and revolving credit agreements). The bank credit agreements
amounted to $1,821,297,000 at December 31, 1998; the entire amount
was available at that date. Unused bank credit agreements are available
to support outstanding commercial paper. If all credit agreements in effect
at December 31, 1998 were to remain in effect and unused throughout 1999,
the Company would pay approximately $1,246,000 in commitment fees.
Weighted average annual interest rates and average debt outstanding for
commercial paper and other short-term debt excluding short-term debt
from affiliates are shown below:
(Dollars in Thousands)
1998 1997 1996
Weighted average annual interest
rate on commercial paper and
other short-term debt:
At December 31, 5.50% 5.68% 5.20%
For the year 5.60 5.30 5.36
For the year after considering
the effect of commitment fees 5.64 5.35 5.42
Average daily amount of commercial
paper and other short-term debt
outstanding during the year $2,262,680 $1,894,706 $1,719,136
Maximum amount of commercial paper
and other short-term debt
outstanding at any month-end
during the year $3,094,241 $2,381,650 $2,100,101
The weighted average annual interest rate for the year was computed by
dividing total interest expense on commercial paper and other short-term
debt by the average daily amount of such debt outstanding. The weighted
average annual interest rate on short-term debt from affiliates for the
years 1998, 1997, and 1996 was 5.37%, 5.43%, and 5.30% respectively.
<PAGE> 43
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
6. Long-term Debt.
Long-term debt outstanding:
December 31,
(In Thousands)
1998 1997
Senior - United States:
5-1/2% due 1998 $ $ 150,000
6.23 % due 1998 150,000
7.34 % due 1998 2,000
8-1/2% due 1998 100,000
6 % due 1999 150,000 150,000
6.20 % due 1999 75,000 75,000
6-1/4% due 1999 150,000 150,000
6-7/8% due 1999 100,000 100,000
6.99 % due 1999 2,200 4,600
9.50 % due 1999 3,400 6,700
5-1/8% due 2000 150,000 150,000
6.10 % due 2000 150,000 150,000
6-7/8% due 2000 150,000 150,000
7-1/4% due 2000 150,000 150,000
8-3/8% due 2000 150,000 150,000
6-3/8% due 2001 150,000 150,000
7-3/4% due 2001 100,000 100,000
6-1/4% due 2002 200,000 200,000
6-3/8% due 2002 200,000 200,000
7-7/8% due 2002 150,000 150,000
7.95 % due 2002 100,000 100,000
8.56 % due 1999-2002 6,667 8,333
5-3/8% due 2003 200,000
6-1/8% due 2003 150,000 150,000
6-3/8% due 2003 150,000 150,000
6.93 % due 1999-2003 12,500 15,000
7 % due 2003 150,000 150,000
6 % due 2004 150,000 150,000
6-5/8% due 2004 250,000 250,000
7.20 % due 2004 100,000 100,000
6-3/4% due 2005 150,000 150,000
7-1/2% due 2005 150,000 150,000
6-1/4% due 2007 100,000 100,000
6-3/8% due 2007 100,000 100,000
7.20 % due 2007 150,000 150,000
6.85 % due 2009 250,000 250,000
Medium-term notes, 6.05% to 6.68%,
due 1999 to 2001 500,000 500,000
Total senior - United States 4,699,767 4,911,633
<PAGE> 44
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
6. Long-term Debt, Continued.
Long-term debt outstanding, continued
(In Thousands) December 31,
1998 1997
Senior - Canada:
6.25 % due 1998 $ $ 69,950
8.65 % due 1998 3,497
8.50 % due 1999 48,758 52,463
9.00 % due 1999 32,505
7.55 % due 2000 52,966
7.80 % due 2000 6,501 6,995
Medium-term notes, 4.79% to 6.15%,
due 1999 to 2008 432,321 174,875
Total senior - Canada 573,051 307,780
Total senior 5,272,818 5,219,413
Senior subordinated - United States:
7.34 % due 1998 2,000
Total long-term debt outstanding $5,272,818 $5,221,413
Contractual maturities of long-term debt for the years 1999 through 2003
and thereafter are $942,034,000; $885,146,000; $501,683,000; $699,673,000;
$746,766,000; and $1,497,516,000, respectively.
Certain long-term debt instruments restrict payment of dividends on and
acquisitions of the Company's common stock. In addition, such debt
instruments and the Company's bank credit agreements contain certain
requirements as to maintenance of net worth (as defined). Apprroximately
$915 million of consolidated stockholder's equity was unrestricted at
December 31, 1998.
<PAGE> 45
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
7. Interest and Debt Expense.
Interest and debt expense is summarized as follows:
Years Ended December 31,
(In Thousands) 1998 1997 1996
Short-term - affiliates $ 8,799 $ 916 $ 83
Short-term - commercial paper
and other 122,014 96,569 92,352
Long-term 348,590 298,293 274,586
Amortization of debt expense 6,381 5,958 5,838
Total interest and debt expense $485,784 $401,736 $372,859
8. Insurance Premiums and Claims.
Insurance premiums earned by the Company's insurance subsidiaries are
as follows:
Years Ended December 31,
(In Thousands) 1998 1997 1996
Direct premiums earned $342,006 $298,795 $239,023
Assumed premiums earned 148,349 131,681 173,215
Ceded premiums earned (220,677) (219,024) (255,895)
Net premiums earned $269,678 $211,452 $156,343
Included in assumed premiums earned in 1998, 1997 and 1996 is $13.7
million, $22.6 million and $10.9 million of MPCI profit share.
The following table presents an analysis of the Company's insurance
claims and policy reserves, reconciling beginning and ending balances.
Years Ended December 31,
(In Thousands) 1998 1997 1996
Insurance claims and policy
reserves at beginning of year $ 30,566 $ 35,893 $ 34,683
Provision for insurance losses
and loss expenses 211,449 154,873 102,739
Insurance losses and loss
expense paid (212,265) (160,200) (101,529)
Insurance claims and policy
reserves at end of year $ 29,750 $ 30,566 $ 35,893
<PAGE> 46
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
8. Insurance Premiums and Claims, Continued.
Insurance loss and loss expenses have been reduced by recoveries recognized
under reinsurance contracts of $281.7 million, $130.5 million and $264.2
million for the years ended December 31, 1998, 1997, and 1996 respectively.
9. Leased Assets and Lease Commitments.
Lease terms are generally for three to seven years. Commitments at
December 31, 1998, under operating leases having initial or remaining
lease terms in excess of one year are approximately $46 million.
10. Income Taxes.
The Company and its subsidiaries are included in the consolidated
federal income tax return of Wells Fargo. Federal income taxes are
allocated to the Company and its subsidiaries at the approximate amount
which would have been computed on a separate return basis. Current
income taxes payable of $44.2 million was included in other payables to
affiliates at December 31, 1998. The Company's foreign subsidiaries file
separate federal and provincial returns in the local country.
At December 31, 1998, no federal income taxes had been provided on
approximately $44 million of one of the United States life insurance
subsidiary's retained earnings since such taxes become payable only to
the extent such retained earnings are distributed as dividends or to the
extent prescribed by tax laws. The life insurance subsidiary does not
contemplate distributing dividends from these retained earnings. The
amount of unrecognized deferred tax liability at December 31, 1998, was
$15.4 million.
Income taxes for the years 1998, 1997, and 1996 are composed of the
following elements:
Years Ended December 31,
(In Thousands) 1998 1997 1996
Current:
Federal $84,949 $90,276 $110,569
State 1,906 4,526 2,529
Foreign 27,264 24,176 26,300
Deferred:
Federal and state 18,075 26,982 10,776
Foreign (10,526) (1,878) (2,078)
Total income taxes $121,668 $144,082 $148,096
Income before taxes from operations outside the United States was $39.4
million, $61.7 million, and $65.8 million for the years ended December 31,
1998, 1997, and 1996, respectively.
Deferred income taxes are primarily due to leasing and lease financing,
the allowance for credit losses, accrued employee benefits and the net
unrealized holding gain (loss) on securities available-for-sale.
<PAGE> 47
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
11. Employee Benefits.
The Company has a defined benefit pension plan which covers United
States employees who meet certain age and service requirements. Pension
benefits provided are based on the employee's highest compensation in
three consecutive years during the last ten calendar years of employment.
Benefits accrue under this plan at a rate of 1-1/4% for each year of
service. The plan holds single premium annuity contracts issued by one of
the Company's life insurance subsidiaries. Annual benefits paid to retirees
covered by the contracts were approximately $1.7 million and $1.8 million
in 1998 and 1997, respectively.
The Company's Canadian subsidiary, Trans Canada Credit Corporation ("TCC"),
has a non-contributory defined benefit pension plan which covers employees
who meet certain service requirements. Pension benefits under the plan are
based on the employee's highest compensation in five consecutive calendar
years during the last ten calendar years of employment. Benefits generally
accrue under the plan at a rate of 1% of such highest average compensation
up to the average Canada/Quebec Pension Plan Earnings Ceiling (an amount
based on the maximum amount of the annual compensation used to calculate
the employee's Canada/Quebec Pension Plan benefits) plus 1.5% of such
highest average compensation in excess of the average Canada/Quebec Pension
Plan Earnings Ceiling for each year of service (not to exceed 35 years of
service).
The Company also provides certain health care and life benefits for
substantially all of its retired United States employees. In accordance
with SFAS 106, the Company has elected to recognize the transition
obligation of approximately $22.2 million over a period of twenty years.
TCC also provides certain health and life insurance benefits to its retirees.
<PAGE> 48
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
11. Employee Benefits, Continued.
The following table shows the changes in the benefit obligation and the fair
value of plan assets during 1998 and 1997 and the amounts included in the
Company's balance sheet as of December 31, 1998 and 1997 for the Company's
defined benefit pension and other postretirement benefit plans:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Pension Other Pension Other
(In Thousands) benefits benefits benefits benefits
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at
beginning of year $104,594 $54,270 $ 89,290 $39,586
Service cost 5,785 4,437 3,941 3,174
Interest cost 7,671 3,903 6,654 3,372
Plan participants'contributions 76 72
Amendments 1,176
Actuarial loss 14,191 3,687 10,181 8,964
Acquisitions 5,758
Benefits paid (5,927) (1,120) (4,772) (804)
Translation adjustment (1,293) (185) (700) (94)
Benefit obligation at
end of year $131,955 $65,068 $104,594 $54,270
Change in plan assets:
Fair value of plan assets
at beginning of year* $118,992 $ 14,999 $103,066 $10,100
Actual return on plan assets 11,636 719 15,662 618
Acquisitions 4,117
Employer contributions 8,233 4,421 5,626 5,013
Plan participants' contributions 76 72
Benefits paid (5,927) (1,120) (4,772) (804)
Translation adjustment (1,031) (590)
Fair value of plan assets
at end of year* $136,020 $19,095 $118,992 $14,999
Funded status 4,065 (45,973) 14,398 (39,271)
Unrecognized net actuarial loss 15,235 10,293 4,705 7,502
Unrecognized net transition
obligation (asset) (993) 15,555 (1,245) 16,667
Unrecognized prior service
cost (credit) 694 671 (628) 715
Prepaid (accrued) benefit cost $ 19,001 $(19,454) $ 17,230 $(14,387)
</TABLE>
* Consists primarily of marketable bonds and debentures and obligations of the
United States government and its agencies and includes $3,482,000 invested
in the Norwest Short-Term Investment Fund at December 31, 1997.
<PAGE> 49
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
11. Employee Benefits, Continued.
The following table sets forth the components of net periodic benefit cost:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
Pension Other Pension Other Pension Other
(In Thousands) benefits benefits benefits benefits benefits benefits
<S> <C> <C> <C> <C> <C> <C>
Service cost $5,785 $4,437 $3,941 $3,174 $4,204 $3,361
Interest cost 7,671 3,903 6,654 3,372 6,045 3,116
Expected return on plan assets (9,879) (797) (8,861) (546) (7,148)
Recognized net actuarial
(gain) loss (1) 2,804 850 (822) 616 1,393 1,189
Amortization of prior service
cost (credit) (146) 44 (146) 43 (146) 43
Amortization of unrecognized
transition obligation (asset) (193) 1,112 (199) 1,112 (200) 1,112
Net period benefit cost $6,042 $9,549 $ 567 $7,771 $4,148 $8,821
</TABLE>
(1) Net gains and losses are amortized over five years.
The weighted-average assumptions used in calculating the amounts above for
the United States plans were, as of December 31, 1998 and 1997:
December 31, 1998 December 31, 1997
Pension Other Pension Other
(In Thousands) benefits benefits benefits benefits
Discount rate 6.5% 6.5% 7.0% 7.0%
Expected return on plan assets 9.0 5.0 9.0 5.0
Rate of compensation increase 5.0 5.0
The weighted-average assumptions used in calculating the amounts above for
the Canadian plans were, as of December 31, 1998 and 1997:
December 31, 1998 December 31, 1997
Pension Other Pension Other
(In Thousands) benefits benefits benefits benefits
Discount rate 6.3% 6.3% 6.5% 6.5%
Expected return on plan assets 8.0 8.0
Rate of compensation increase 5.6 6.5
<PAGE> 50
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
11. Employee Benefits, Continued.
The assumed health care cost trend rate used in measuring the United States
plan's accumulated postretirement benefit obligation as of December 31 1998
was 10% for 1999 decreasing until it reaches 8% in 2000 after which it
remains constant. The Canadian plan assumed a 1999 health care trend of 12%
decreasing each successive year until it reaches 6% in 2006. Increasing
the assumed health care trend by one percentage point in each year would
increase the combined accumulated postretirement benefit obligation as of
December 31, 1998 by $14.8 million and the aggregate of the combined interest
cost and service cost components of the net periodic benefit cost for 1998
by $2.2 million. Decreasing the assumed health care trend by one percentage
point in each year would decrease the combined accumulated postretirement
benefit obligation as of December 31, 1998 by $11.2 million and the
aggregate of the combined interest cost and service cost components of
the net benefit periodic cost for 1998 by $1.6 million.
The Company also has a defined contribution thrift and profit sharing plan
whereby each eligible United States employee may make basic contributions
up to 6% of his or her compensation and supplemental contributions up to an
additional 4%. The Company makes a matching contribution of $.25 for every
dollar of the basic employee contribution made during the year and not
withdrawn. The Company may also make a profit sharing contribution
on the basic employee contribution with the amount determined by the
percentage return on consolidated equity (as defined) of Norwest Financial
Services, Inc. and its subsidiaries. Contribution expense for the Company
was $17,178,000, $15,051,000, and $13,694,000 for the years ended December 31,
1998, 1997, and 1996, respectively.
12. Statements of Consolidated Cash Flows.
The Company and its subsidiaries consider highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. Supplemental disclosure of certain cash flow information is
presented below:
Years Ended December 31,
(In Thousands) 1998 1997 1996
Cash paid for:
Interest $477,117 $375,376 $370,144
Income taxes 95,955 109,391 110,026
13. Concentrations of Credit Risk.
The Company and its subsidiaries are primarily engaged in the consumer and
automobile finance business. The average balance outstanding with any
individual customer is not significant. At December 31, 1998, the Company
had 1,147 consumer and automobile finance offices in 46 states, Guam, Saipan,
Puerto Rico, Argentina, and all ten Canadian provinces compared with 1,236
consumer and automobile finance offices in 47 states, Guam, Puerto Rico,
and ten Canadian provinces at December 31, 1997. Credit cards are issued
by Dial Bank to customers located nationwide. Dial National Bank issues
private label and dual-line Co-Branded credit cards nationwide.
<PAGE> 51
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
13. Concentrations of Credit Risk, Continued.
A subsidiary of the Company also provides accounts receivable financing
primarily to high quality furniture stores across the country. A different
subsidiary provides financing via secured lines of credit to commercial
entities who in turn provide financing to their customers. In addition,
another subsidiary of the Company provides lease financing and other
leasing services nationwide for a variety of commercial equipment with
an emphasis on health care equipment.
14. Segment Information.
The Company has three reportable segments: U.S. consumer finance, Canadian
consumer finance, and automobile finance. The Company's operating segments
are determined by product type and geography. U.S. consumer finance
operations make loans to individuals and purchase sales finance contracts
through 768 consumer finance branches in 46 states, Guam, Saipan, and
Puerto Rico. The U.S. consumer finance segment also issues credit cards
through two banking subsidiaries. Canadian consumer finance operations make
loans to individuals and purchase sales finance contracts through 147
consumer finance branches in the 10 provinces. Automobile finance operations
specialize in purchasing sales finance contracts directly from automobile
dealers and making loans secured by automobiles through 231 branches in 33
states and Puerto Rico. Results from insurance operations are included in
the appropriate segment.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see note 1). The Company
accounts for intersegment sales and transfers as if the sales or transfer
were to third parties, that is, at current market prices.
Selected financial information for each segment is shown below:
<TABLE>
<CAPTION>
(In Thousands) U.S. Canadian
Consumer Consumer Automobile
Finance Finance Finance Other* Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
1998:
Finance charges
and interest $ 898,426 $ 201,163 $ 327,623 $ 71,480 $ $ 1,498,692
Interest expense 318,023 46,072 90,825 30,864 485,784
Intersegment income 49,384 (49,384)
Total income 1,157,508 221,419 343,004 333,218 (49,384) 2,005,765
Income tax expense 74,917 9,360 8,776 28,615 121,668
Net income 158,641 17,409 12,430 50,124 238,604
Total assets 6,484,291 1,042,515 2,182,446 806,955 10,516,207
1997:
Finance charges
and interest 931,952 152,315 142,672 55,637 1,282,576
Interest expense 314,113 25,843 38,442 23,338 401,736
Intersegment income 49,488 (49,488)
Total income 1,186,980 172,450 149,940 268,914 (49,488) 1,728,796
Income tax expense 90,105 15,677 7,692 30,608 144,082
Net income 170,569 29,115 13,389 56,377 269,450
Total assets 6,529,125 655,874 1,598,442 538,483 9,321,924
</TABLE>
<PAGE> 52
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
14. Segment Information, Continued.
<TABLE>
<CAPTION>
U.S. Canadian
Consumer Consumer Automobile
Finance Finance Finance Other* Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
1996:
Finance charges
and interest $ 949,373 $137,525 $ 54,269 $ 67,627 $ $1,208,794
Interest expense 308,799 24,638 15,603 23,819 372,859
Intersegment income 45,977 (45,977)
Total income 1,187,923 155,620 59,707 225,720 (45,977) 1,582,993
Income tax expense 96,728 17,190 4,717 29,461 148,096
Net income 167,845 31,925 10,145 66,416 276,331
Total assets 6,322,077 591,892 339,539 507,337 7,760,845
</TABLE>
* Information from other segments below the quantitative threshold are
attributable to commercial finance operations, information services
operations, several miscellaneous insurance companies and operations
in Argentina.
The following information is shown by geographic area:
(In Thousands)
All Other
United States Canada Countries Total
1998:
Total income $1,746,038 $ 221,419 $ 38,308 $ 2,005,765
Total net income 212,770 17,409 8,425 238,604
Total long-lived assets 178,432 7,914 1,349 187,695
Total assets 9,304,860 1,042,515 168,832 10,516,207
1997:
Total income 1,535,941 172,450 20,405 1,728,796
Total net income 228,527 29,115 11,808 269,450
Total long-lived assets 96,346 6,191 102,537
Total assets 8,615,794 655,874 50,256 9,321,924
1996:
Total income 1,407,480 155,620 19,893 1,582,993
Total net income 232,957 31,925 11,449 276,331
Total long-lived assets 69,203 5,865 75,068
Total assets 7,129,143 591,892 39,810 7,760,845
<PAGE> 53
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
15. Fair Value of Financial Instruments.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents. Due to the relatively short period of time
between the origination of these instruments and their expected realization,
the carrying value of cash equivalents is a reasonable estimate of fair value.
Securities Available-for-Sale. Fair values of these financial instruments
were estimated using quoted market prices, when available. If quoted market
prices were not available, fair value was estimated using quoted market
prices for similar securities (note 2).
Finance Receivables and Notes Receivable - Affiliates. The interest rates
on the receivables outstanding at December 31, 1998 and 1997, are consistent
with the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. As a
result, the carrying value is a reasonable estimate of fair value.
Loans Payable - Short-term and Accrued Interest Payable. Carrying value is
a reasonable estimate of fair value. The carrying amount approximates fair
value due to the short maturity of these instruments.
Other Payables to Affiliates. Due to the relatively short period of time
between the origination of these instruments and the expected realization,
the carrying value of other payables to affiliates is a reasonable estimate
of fair value.
Long-term Debt. Based on quoted market rates for the same or similar issues
of debt or on current rates offered to the Company for similar debt of the
same remaining maturities, the fair value of long-term debt is
$5,436,650,000 as of December 31, 1998 and $5,301,982,000 as of December 31,
1997.
16. Selected Quarterly Financial Data (Unaudited).
Selected quarterly financial data for 1998 and 1997 were as follows:
Interest Provision
Total and Debt for Credit Net
(In Thousands) Income Expense Losses Income
March 31, 1997 $408,836 $ 92,879 $ 54,749 $62,777
June 30, 1997 391,047 92,934 44,627 68,309
September 30, 1997 471,614 102,042 57,819 67,640
December 31, 1997 457,299 113,881 78,682 70,724
March 31, 1998 447,151 114,350 67,176 58,690
June 30, 1998 457,823 119,703 63,304 64,306
September 30, 1998 612,203 123,787 68,935 65,534
December 31, 1998 488,588 127,944 104,859 50,074
<PAGE> 54
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Concluded
17. Related Parties.
Notes receivable - affiliates were $499,123,000 and $646,832,000 at
December 31, 1998 and 1997, respectively. Notes receivable affiliates
include a combination of short-term and long-term notes receivable. At
December 31, 1998, Norwest Financial, Inc. had term loans totaling $389
million to an affiliate, Island Finance Puerto Rico, Inc. The loans have
a weighted average interest rate of 8.89% and mature in 2000 and 2002.
The remainder of notes outstanding at December 31, 1998 and 1997, earn
interest at rates that approximate the cost of borrowings of the Company.
Income from affiliates was $63,228,000; $58,200,000; and $54,443,000 for
the years ended December 31, 1998, 1997, and 1996, respectively.
Management fees paid to Norwest Corporation were $7,143,000; $5,724,000;
and $5,230,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.
18. Business Combination (Unaudited).
The following unaudited summary, prepared on a proforma basis, combines
the consolidated results of operations of the Company for the years ended
December 31, 1998 and 1997, with Reliable, TEAC, NRCS, Finvercon,
and Fidelity as if the acquisitions had occurred at the beginning of each
respective year presented:
(In Thousands) 1998 1997
Total income $2,040,133 $1,947,903
Net income 240,061 289,458
<PAGE> 55
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
On March 5, 1999, upon the recommendation of the management of Wells Fargo,
the Board of Directors of the Company dismissed the Company's auditors,
Deloitte & Touche LLP ("Deloitte"), subject to completion of the Company's
and related entities' audits for the year ended December 31, 1998, and
approved the selection of KPMG Peat Marwick LLP ("Peat"), as the Company's
independent accountants for the year ending December 31, 1999.
Deloitte served as the Company's independent accountants for the years
ended December 31, 1996, 1997 and 1998. Deloitte issued an unqualified
opinion on the Company's consolidated financial statements as of and for
the years ended December 31, 1996, 1997 and 1998. Prior to the
November 2, 1998 merger of the former Wells Fargo & Company into a
wholly-owned subsidiary of Norwest Corporation, Peat audited the financial
statements of both Norwest Corporation and the former Wells Fargo & Company
and since consummation of the merger has been the auditor of Wells Fargo.
For additional information on the Company's changes in auditors, please see
the Company's Current Report on Form 8-K dated March 9, 1999.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Omitted in accordance with General Instruction I (2) (c).
Item 11. Executive Compensation.
Omitted in accordance with General Instruction I (2) (c).
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted in accordance with General Instruction I (2) (c).
Item 13. Certain Relationships and Related Transactions.
Omitted in accordance with General Instruction I (2) (c).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
a. Consolidated balance sheets as of December 31, 1998 and 1997.
b. Statements of consolidated income for the years ended
December 31, 1998, 1997, and 1996.
c. Statements of consolidated comprehensive income for the
years ended December 31, 1998, 1997, and 1996.
d. Statements of consolidated cash flows for the years ended
December 31, 1998, 1997, and 1996.
e. Statements of consolidated stockholder's equity for the years
ended December 31, 1998, 1997 and 1996.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the
information is given in consolidated financial statements or
notes thereto.
<PAGE> 56
(3) Exhibits:
3(a) Articles of Incorporation of the Company (Exhibit 3(a) of
the Company's Form 10-K Annual Report for 1983, which is
hereby incorporated by reference).
3(b) By-laws of the Company (Exhibit 3(b) of the Company's Form
10-K Annual Report for 1983, which is hereby incorporated
by reference).
4(a) Conformed copy of Indenture dated as of May 1, 1986, between
the Company and The Chase Manhattan Bank (National
Association), Trustee (Exhibit 4(o) of the Company's Form
10-K Annual Report for 1986, which is hereby incorporated
by reference).
4(b) Conformed copy of Indenture dated as of May 1, 1986, between
the Company and Harris Trust and Savings Bank, Trustee
(Exhibit 4(p) of the Company's Form 10-K Annual Report for
1986, which is hereby incorporated by reference).
4(c) Copy of Norwest Financial, Inc. Standard Multiple-Series
Indenture Provisions dated May 1, 1986, (Exhibit 4(q) of
the Company's Form 10-K Annual Report for 1986, which is
hereby incorporated by reference).
4(d) Conformed copy of First Supplemental Indenture dated as of
February 15, 1991, between the Company and The Chase
Manhattan Bank (National Association), Trustee (Exhibit 4.3
of the Company's Form 8-K Current Report dated February 25,
1991, which is hereby incorporated by reference).
4(e) Conformed copy of First Supplemental Indenture dated as of
February 15, 1991, between the Company and Harris Trust and
Savings Bank Trustee (Exhibit 4.4 of the Company's Form 8-K
Current Report dated February 25, 1991, which is hereby
incorporated by reference).
4(f) Conformed copy of Indenture dated as of November 1, 1991,
between the Company and The First National Bank of Chicago,
Trustee (Exhibit 2(a) of the Company's Form 8-A Registration
Statement dated May 24, 1993, which is hereby incorporated
by reference).
*(12) Computation of ratios of earnings to fixed charges for the
years ended December 31, 1998, 1997, 1996, 1995, and 1994.
*(23) Consent of Deloitte & Touche LLP.
Certain instruments with respect to long-term debt publicly issued, privately
placed or borrowed from banks are not filed herewith as exhibits as the total
amount of securities or indebtedness authorized under any of such instruments
does not exceed 10% of the total assets of the Company and its subsidiaries
on a consolidated basis. In accordance with subsection (4)(iii) of paragraph
(b) of Item 601 of Regulation S-K, the Company hereby agrees to furnish copy
of any such instrument to the Securities and Exchange Commission upon
request. The list of subsidiaries exhibit required by Item 601 of Regulation
S-K has been omitted in accordance with General Instruction I(2)(b).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized,
on the 19th day of March 1999.
NORWEST FINANCIAL, INC.
By \S\ Dennis E. Young
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, on behalf
of the registrant and in the capacities indicated, on the 19th day of
March 1999.
\S\ David C. Wood
David C. Wood
Chairman of the Board and
President (Principal
Executive Officer)
\S\ Patricia J. McFarland
Patricia J. McFarland
Senior Vice President,
General Counsel,
Secretary, and Director
Stanley S. Stroup
Director
\S\ Dennis E. Young
Dennis E. Young
Executive Vice President and
Chief Financial Officer, and
Director
(Principal Financial Officer)
\S\ Eric Torkelson
Eric Torkelson
Senior Vice President
and Controller
(Principal Accounting Officer)
NORWEST FINANCIAL, INC.
Computation of Ratios of Earnings to Fixed Charges
Exhibit 12
Years Ended December 31,
(Thousands of Dollars)
1998 1997 1996 1995 1994
Net earnings $238,604 $269,450 $276,331 $267,941 $223,340
Add:
Fixed charges:
Interest including
amortization of
debt expense 485,784 401,736 372,859 359,079 259,605
One third of rentals* 13,406 12,107 10,748 10,317 9,747
Total fixed charges 499,190 413,843 383,607 369,396 269,352
Provision for income taxes 121,668 144,082 148,096 147,873 116,900
Total net earnings,
fixed charges and
income taxes -
"Earnings" $859,462 $827,375 $808,034 $785,210 $609,592
Ratio of earnings
to fixed charges 1.72 2.00 2.11 2.13 2.26
* One-third of rentals is deemed representative of the interest factor.
EXHIBIT 23
Deloitte & Touche LLP
(logo) Two Prudential Plaza Telephone (312) 946-3000
180 North Stetson Avenue Facsimile:(312) 946-2600
Chicago, Illinois 60601-6779
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-62635 of Norwest Financial, Inc. on Form S-3 of our report
dated January 18, 1999, appearing in the Annual Report on Form 10-K
of Norwest Financial, Inc. for the year ended December 31, 1998.
\s\ Deloitte & Touche LLP
March 19, 1999
Chicago, Illinois
Deloitte Touche
Tohmatsu
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM NORWEST
FINANCIAL INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 139,184
<SECURITIES> 1,203,500
<RECEIVABLES> 8,270,227
<ALLOWANCES> 350,984
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 322,800
<DEPRECIATION> 135,105
<TOTAL-ASSETS> 10,516,207
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,367,059<F2>
0
0
<COMMON> 3,855
<OTHER-SE> 1,561,358
<TOTAL-LIABILITY-AND-EQUITY> 10,516,207
<SALES> 0
<TOTAL-REVENUES> 2,005,765
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 855,435
<LOSS-PROVISION> 304,274
<INTEREST-EXPENSE> 485,784
<INCOME-PRETAX> 360,272
<INCOME-TAX> 121,668
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238,604
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NORWEST FINANCIAL INC. HAS A NON-CLASSIFIED BALANCE SHEET
SO THIS INFORMATION IS UNAVAILABLE.
<F2>INCLUDES $3.1 BILLION OF SHORT-TERM LOANS.
</FN>
</TABLE>
