UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2979
NORWEST CORPORATION
A Delaware Corporation-I.R.S. No. 41-0449260
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479
Telephone (612) 667-1234
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes ___ No.
Common Stock, par value $1 2/3 per share,
outstanding at October 31, 1994 308,620,251 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following consolidated financial statements of Norwest Corporation and
its subsidiaries are included herein:
Page
1. Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 .................... 3
2. Consolidated Statements of Income -
Quarters and Nine Months Ended September 30, 1994 and 1993 .. 4
3. Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 ............... 6
4. Consolidated Statements of Stockholders' Equity -
Nine Months Ended September 30, 1994 and 1993 ............... 8
5. Notes to Unaudited Consolidated Financial Statements ........... 10
The financial information for the interim periods is unaudited. In the
opinion of management, all adjustments necessary (which are of a normal
recurring nature) have been included for a fair presentation of the results
of operations. The results of operations for an interim period are not
necessarily indicative of the results that may be expected for a full year
or any other interim period.
2
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
In millions, except shares September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and due from banks ....................... $ 3,103.0 2,844.4
Interest-bearing deposits with banks .......... 20.9 55.9
Federal funds sold and resale agreements ...... 720.6 707.7
Total cash and cash equivalents ........... 3,844.5 3,608.0
Trading account securities .................... 170.4 279.1
Investment securities (fair value
$1,439.0 in 1994 and $1,597.6 in 1993) ...... 1,380.5 1,542.7
Mortgage-backed securities (fair value
$153.1 in 1993) ............................. - 151.0
Investment securities available for sale
(fair value $2,260.9 in 1993) ............... 1,574.5 2,001.2
Mortgage-backed securities available for
sale (fair value $9,244.0 in 1993) .......... 11,020.2 9,021.6
Total investment securities ............... 13,975.2 12,716.5
Student loans available for sale .............. 1,639.3 1,349.2
Mortgages held for sale ....................... 3,249.0 6,090.7
Loans and leases .............................. 32,180.6 29,781.9
Unearned discount ............................. (1,105.6) (1,021.1)
Allowance for credit losses ................... (789.9) (789.2)
Net loans and leases ...................... 30,285.1 27,971.6
Premises and equipment, net ................... 937.9 842.1
Interest receivable and other assets .......... 2,464.0 1,807.8
Total assets .............................. $56,565.4 54,665.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing ......................... $ 8,357.8 9,054.3
Interest-bearing ............................ 26,392.0 26,922.2
Total deposits ............................ 34,749.8 35,976.5
Short-term borrowings ......................... 7,125.8 5,996.8
Accrued expenses and other liabilities ........ 2,555.4 2,079.9
Long-term debt ................................ 8,310.1 6,850.9
Total liabilities ......................... 52,741.1 50,904.1
Preferred stock ............................... 363.9 380.0
Unearned ESOP shares .......................... (23.1) -
Total preferred stock ..................... 340.8 380.0
Common stock, $1 2/3 par value - authorized
500,000,000 shares:
Issued 323,084,474 and 309,255,558 shares
in 1994 and 1993, respectively ............. 538.5 515.4
Surplus ....................................... 578.1 503.3
Retained earnings ............................. 2,854.7 2,433.3
Net unrealized losses
on securities available for sale ............ (206.9) -
Notes receivable from ESOP .................... (13.3) (16.3)
Treasury stock - 10,078,899 and 1,956,803 common
shares in 1994 and 1993, respectively ....... (263.4) (51.5)
Foreign currency translation .................. (4.2) (3.3)
Total common stockholders' equity ......... 3,483.5 3,380.9
Total stockholders' equity ................ 3,824.3 3,760.9
Total liabilities and
stockholders' equity .................... $56,565.4 54,665.0
See notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
In millions, except per common share amounts Quarter Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INTEREST INCOME ON
Loans and leases ................................ $ 789.9 661.5 2,236.6 1,954.5
Investment securities ........................... 21.2 28.7 57.4 89.8
Mortgage-backed securities ...................... - 3.0 - 7.3
Investment securities available for sale ........ 30.0 29.7 90.5 88.0
Mortgage-backed securities available for sale ... 193.1 140.8 505.1 454.5
Student loans available for sale ................ 26.0 20.0 76.2 63.7
Mortgages held for sale ......................... 62.2 90.0 194.9 233.4
Money market investments ........................ 3.6 3.4 15.9 11.5
Trading account securities ...................... 4.7 8.1 20.7 21.6
Total interest income ....................... 1,130.7 985.2 3,197.3 2,924.3
INTEREST EXPENSE ON
Deposits ........................................ 214.6 210.8 628.0 628.8
Short-term borrowings ........................... 82.2 59.6 195.8 186.2
Long-term debt .................................. 112.1 89.1 304.5 258.7
Total interest expense ...................... 408.9 359.5 1,128.3 1,073.7
Net interest income ....................... 721.8 625.7 2,069.0 1,850.6
Provision for credit losses ..................... 41.6 23.3 101.6 100.8
Net interest income after
provision for credit losses ............. 680.2 602.4 1,967.4 1,749.8
NON-INTEREST INCOME
Trust ........................................... 51.1 45.1 153.5 139.2
Service charges on deposit accounts ............. 60.0 53.7 176.1 156.0
Mortgage banking ................................ 141.6 122.3 416.8 332.2
Data processing ................................. 15.7 16.6 46.4 48.9
Credit card ..................................... 29.9 28.9 82.6 85.9
Insurance ....................................... 49.6 36.5 161.7 139.9
Other fees and service charges .................. 45.0 42.8 133.4 120.5
Net investment and mortgage-backed
securities gains ............................... 0.9 - 0.2 -
Net investment and mortgage-backed
securities available for sale gains (losses).... (52.8) (0.8) (59.1) 28.6
Net venture capital gains ....................... 16.2 21.4 51.4 48.0
Other ........................................... 22.2 10.9 37.4 49.0
Total non-interest income ................... 379.4 377.4 1,200.4 1,148.2
NON-INTEREST EXPENSES
Salaries and benefits ........................... 389.9 383.8 1,180.3 1,075.3
Net occupancy ................................... 59.4 48.3 167.8 139.1
Equipment rentals, depreciation
and maintenance ................................ 60.2 48.7 170.4 141.3
Business development ............................ 50.6 34.6 139.6 100.1
Communication ................................... 44.7 41.2 134.6 117.5
Data processing ................................. 26.7 28.3 80.9 81.7
FDIC assessment and regulatory examination fees . 21.5 19.7 65.6 58.6
Intangible asset amortization ................... 16.8 18.6 54.1 51.3
Other ........................................... 90.7 118.7 295.3 416.4
Total non-interest expenses ................. 760.5 741.9 2,288.6 2,181.3
INCOME BEFORE INCOME TAXES ...................... 299.1 237.9 879.2 716.7
Income tax expense .............................. 96.1 63.1 283.7 214.7
NET INCOME ...................................... $ 203.0 174.8 595.5 502.0
(Continued on page 5)
</TABLE>
4
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued from page 4)
<TABLE>
<CAPTION>
In millions, except per common share amounts Quarter Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Average Common and Common Equivalent Shares ..... 317.3 308.5 316.5 307.4
PER COMMON SHARE
Net Income
Primary ....................................... $ 0.62 0.54 1.82 1.56
Fully diluted ................................. 0.61 0.53 1.78 1.52
Dividends ...................................... 0.185 0.165 0.555 0.475
See notes to unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
In millions Nine Months Ended
September 30
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................... $ 595.5 502.0
Adjustments to reconcile net income to net cash
flows from operating activities:
Writedown of intangible and other assets ......... - 56.8
Provision for credit losses ...................... 101.6 100.8
Depreciation and amortization .................... 184.6 147.3
Gain on divestiture of branches .................. (5.1) -
Gains on other real estate owned, net ............ (9.8) (3.0)
(Gains) losses on sales of premises and equipment. 1.0 (0.1)
Gains on sales of mortgages held
for sale ....................................... (70.3) (90.7)
Gains on sales of investment and
mortgage-backed securities ..................... (0.2) -
(Gains) losses on sales of investment,
mortgage-backed and venture capital
securities available for sale ................... 7.7 (76.6)
Gains on sales of student loans
available for sale ............................. (6.8) (4.0)
Release of preferred shares to ESOP .............. 18.4 -
Trading account securities gains ................. (2.7) (15.4)
Purchases of trading account securities .......... (43,544.4) (48,067.6)
Proceeds from sales of trading account
securities ..................................... 43,513.8 47,820.0
Originations of mortgages held for sale .......... (19,973.0) (23,575.3)
Proceeds from sales of mortgages held for sale ... 22,882.4 22,531.9
Proceeds from sales of investment and mortgage-
backed securities available for sale ............ - 1,516.7
Purchases of investment and mortgage-backed
securities available for sale ................... - (2,582.9)
Proceeds from maturities and paydowns of
investment and mortgage-backed securities
available for sale ............................. - 1,836.5
Originations of student loans available for sale.. (660.9) (661.7)
Proceeds from sales of student loans
available for sale .............................. 446.6 547.9
Deferred income taxes ............................ (20.9) (10.9)
Interest receivable .............................. (31.1) 15.8
Interest payable ................................. (7.0) 35.4
Other assets, net ................................ (39.2) 171.3
Other accrued expenses and liabilities, net ...... 326.2 496.4
Net cash flows from
operating activities .......................... 3,706.4 690.6
(Continued on page 7)
6
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Continued from page 6)
In millions Nine Months Ended
September 30
1994 1993
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and paydowns of:
Investment securities ........................... 847.2 620.0
Investment and mortgage-backed
securities available for sale ................. 2,400.2 -
Proceeds from sales and calls of:
Investment securities ........................... 73.9 0.7
Investment and mortgage-backed
securities available for sale ................. 2,658.6 -
Purchases of:
Investment securities ........................... (581.9) (562.8)
Investment and mortgage-backed
securities available for sale ................. (6,594.9) -
Proceeds from sales of consumer loans by
banking subsidiaries ............................ - 48.2
Net increase in banking
subsidiaries' loans and leases.................... (644.2) (838.3)
Principal collected on non-bank
subsidiaries' loans and leases ................... 2,715.8 2,945.1
Non-bank subsidiaries' loans and
leases originated ................................ (3,804.4) (3,189.1)
Purchases of premises and equipment ............... (203.6) (168.2)
Proceeds from sales of premises and equipment ..... 8.2 8.4
Proceeds from sales of other real estate owned .... 72.1 84.8
Purchases of subsidiaries, net of cash
and cash equivalents acquired .................... 90.1 1,949.3
Divestiture of branches, net of cash and
cash equivalents paid ............................ (55.1) -
Net cash flows from (used for)
investing activities .......................... (3,018.0) 898.1
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits, net ..................................... (2,354.9) (513.1)
Short-term borrowings, net ........................ 1,017.4 (2,627.9)
Long-term debt borrowings ......................... 2,454.4 2,755.9
Repayments of long-term debt ...................... (1,091.0) (1,268.8)
Issuances of common stock ......................... 40.4 42.4
Repurchases of common stock ....................... (316.6) (93.8)
Repurchases of preferred stock .................... (8.3) (0.6)
Net decrease in notes receivable from ESOP ........ 3.0 2.1
Dividends paid .................................... (196.3) (162.2)
Net cash flows used for
financing activities ........................... (451.9) (1,866.0)
Net increase (decrease) in cash and
cash equivalents .............................. 236.5 (277.3)
CASH AND CASH EQUIVALENTS
Beginning of period ............................... 3,608.0 3,428.0
End of period ..................................... $ 3,844.5 3,150.7
See notes to unaudited consolidated financial statements.
7
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Gains
In (Losses) on
millions, Unearned Securities Notes Foreign
except for Preferred ESOP Common Sur- Retained Available Receivable Treasury Currency
shares Stock Shares Stock plus Earnings for Sale from ESOP Stock Translation Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992, as
originally reported $ 342.5 - 242.4 616.0 2,002.8 - (19.5) (43.2) (0.3) 3,140.7
Adjustments for
pooling of interests 51.5 - 22.7 70.6 86.3 - - - - 231.1
Balance, December 31,
1992, restated 394.0 - 265.1 686.6 2,089.1 - (19.5) (43.2) (0.3) 3,371.8
Net income 502.0 502.0
Dividends on
Common stock (138.7) (138.7)
Preferred stock (23.5) (23.5)
Stock split 244.2 (244.2) -
Repurchase of 4,950
preferred shares (0.5) (0.1) (0.6)
Conversion of 320,202
preferred shares to
1,705,410 common shares (13.4) 2.1 11.3 -
Issuance of 3,891,049
common shares 1.6 61.6 (41.7) 43.1 64.6
Issuance of 2,438,760
common shares for
acquisitions 0.7 (16.4) (1.7) 34.4 17.0
Repurchase of 3,686,246
common shares (93.8) (93.8)
Cash payments
received on notes
receivable from ESOP 2.1 2.1
Tax benefits of dividends
on common stock held
by ESOP 0.2 0.2
Foreign currency
translation (3.6) (3.6)
Balance,
September 30, 1993 $ 380.1 - 513.7 498.9 2,385.6 - (17.4) (59.5) (3.9) 3,697.5
(Continued on page 9)
</TABLE>
8
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Continued from page 8)
<TABLE>
<CAPTION>
Net
Unrealized
Gains
In (Losses) on
millions, Unearned Securities Notes Foreign
except for Preferred ESOP Common Sur- Retained Available Receivable Treasury Currency
shares Stock Shares Stock plus Earnings for Sale from ESOP Stock Translation Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993 as originally
reported $ 341.9 - 490.2 413.0 2,394.4 - (16.3) (51.5) (3.3) 3,568.4
Adjustments for
pooling of interests 38.1 - 25.2 90.3 38.9 - - - - 192.5
Balance, December 31,
1993, restated 380.0 - 515.4 503.3 2,433.3 - (16.3) (51.5) (3.3) 3,760.9
Net unrealized gains
on securities
available for sale,
January 1, 1994 313.4 313.4
Net income 595.5 595.5
Dividends on
Common stock (175.3) (175.3)
Preferred stock (21.0) (21.0)
Conversion of 1,222,074
preferred shares to
3,405,917 common shares (48.7) 4.4 24.6 19.7 -
Repurchase of 192,220
preferred shares (8.3) (8.3)
Issuance of 40,900
preferred shares
to ESOP 40.9 (42.1) 1.2 -
Release of preferred
shares to ESOP 19.0 (0.6) 18.4
Issuance of 2,478,203
common shares 0.1 19.9 (36.3) 65.7 49.4
Issuance of 11,894,200
common shares for
acquisitions 18.6 29.7 58.5 19.3 126.1
Repurchase of 12,071,500
common shares (316.6) (316.6)
Change in net unrealized
gains (losses) on securities
available for sale (520.3) (520.3)
Cash payments received
on notes receivable
from ESOP 3.0 3.0
Foreign currency
translation (0.9) (0.9)
Balance,
September 30, 1994 $ 363.9 (23.1) 538.5 578.1 2,854.7 (206.9) (13.3) (263.4) (4.2) 3,824.3
See notes to unaudited consolidated financial statements.
</TABLE>
9
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Change in Accounting Policies
Effective January 1, 1994, the corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," ("FAS 115"). Accordingly, debt and equity securities
available for sale are measured at fair value. Net unrealized gains (losses)
on securities available for sale are excluded from earnings and reported as a
separate component of stockholders' equity until realized. Realized gains and
losses on sales are computed by the specific identification method at the time
of disposition and are recorded in non-interest income.
Prior to the adoption of FAS 115, debt and equity securities available for
sale were carried at the lower of aggregate cost or market value.
2. Consolidated Statements of Cash Flows
Cash paid for interest and income taxes for the nine months ended September 30
was:
In millions
1994 1993
Interest $1,135.4 1,109.1
Income taxes 89.8 192.4
During the first nine months of 1994 and 1993, $43.4 million and $51.3
million, respectively, of loans were transferred to other real estate owned.
Mortgage-backed securities of $151.0 million, held for investment by First
United Bank Group, Inc. ("First United"), were transferred to available for
sale in the first quarter of 1994. The transfer was made to comply with the
corporation's investment and interest rate risk policies. See Note 11 for a
discussion of the acquisition of First United. Venture capital securities of
$122.0 million, originally classified as available for sale, were transferred
to the held to maturity category in January 1994 to comply with FAS 115.
During the nine months ended September 30, 1994 and 1993, the corporation
issued 1,071,888 shares and 2,127,428 shares of common stock, respectively, in
connection with acquisitions accounted for using the purchase method. On
March 31, 1994, the corporation issued 40,900 shares of ESOP Cumulative
Convertible Preferred Stock in the stated amount of $40.9 million at a premium
of $1.2 million. A corresponding charge of $42.1 million was recorded to
unearned ESOP shares (see Note 7). Preferred stock in the amount of $19.0
million was released to the ESOP during the nine months ended September 30,
1994.
In conjunction with the acquisition of First United, $30.2 million of
preferred stock of First United was converted into common stock of the
corporation.
10
<PAGE>
3. Investment and Mortgage-backed Securities
The amortized cost and fair value of investment and mortgage-backed
securities at September 30, 1994 and December 31, 1993 were:
<TABLE>
<CAPTION>
In millions September 30, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held for investment:
U.S. Treasury and federal agencies .. $ 236.9 - (4.8) 232.1
State, municipal and housing -
tax exempt.......................... 710.4 25.6 (9.9) 726.1
Other ............................... 433.2 50.7 (3.1) 480.8
Total investment securities
held for investment ............. $ 1,380.5 76.3 (17.8) 1,439.0
Available for sale:
U.S. Treasury and federal agencies .. $ 1,103.5 11.6 (19.8) 1,095.3
State, municipal and housing -
tax exempt ......................... 98.8 0.8 (1.8) 97.8
Other ............................... 297.4 94.5 (10.5) 381.4
Total investment securities
available for sale .............. 1,499.7 106.9 (32.1) 1,574.5
Mortgage-backed securities:
Federal agencies ................... 11,294.2 37.5 (432.9) 10,898.8
Collateralized mortgage
obligations ....................... 122.0 0.9 (1.5) 121.4
Total mortgage-backed securities
available for sale .............. 11,416.2 38.4 (434.4) 11,020.2
Total investment and
mortgage-backed securities
available for sale .............. $12,915.9 145.3 (466.5) 12,594.7
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
In millions December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held for investment:
U.S. Treasury and federal agencies .. $ 665.0 5.5 - 670.5
State, municipal and housing -
tax exempt ........................ 632.9 50.1 (1.0) 682.0
Other ............................... 244.8 0.3 - 245.1
Total investment securities
held for investment ............. 1,542.7 55.9 (1.0) 1,597.6
Mortgage-backed securities:
Federal agencies ................... 126.0 2.1 - 128.1
Collateralized mortgage
obligations ....................... 25.0 - - 25.0
Total mortgage-backed
securities held for investment .. 151.0 2.1 - 153.1
Total investment and
mortgage-backed securities
held for investment ............. $ 1,693.7 58.0 (1.0) 1,750.7
Available for sale:
U.S. Treasury and federal agencies .. $ 1,520.5 77.2 (2.8) 1,594.9
State, municipal and housing -
tax exempt ........................ 96.2 3.7 (0.1) 99.8
Other ............................... 384.5 188.8 (7.1) 566.2
Total investment securities
available for sale .............. 2,001.2 269.7 (10.0) 2,260.9
Mortgage-backed securities:
Federal agencies ................... 8,889.1 227.5 (7.5) 9,109.1
Collateralized mortgage
obligations ....................... 132.5 2.7 (0.3) 134.9
Total mortgage-backed securities
available for sale .............. 9,021.6 230.2 (7.8) 9,244.0
Total investment and
mortgage-backed securities
available for sale .............. $11,022.8 499.9 (17.8) 11,504.9
</TABLE>
12
<PAGE>
Interest income on investment and mortgage-backed securities for the quarters
and nine months ended September 30 were:
<TABLE>
<CAPTION>
Quarter Nine Months
In millions 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Held for investment:
U.S. Treasury and federal agencies .. $ 2.2 10.6 4.4 34.4
State, municipal and housing -
tax exempt ........................ 12.9 13.6 38.1 43.0
Other ............................... 6.1 4.5 14.9 12.4
Total investment securities
held for investment ............. $ 21.2 28.7 57.4 89.8
Mortgage-backed securities:
Federal agencies ................... $ - 2.8 - 6.5
Collateralized mortgage
obligations ....................... - 0.2 - 0.8
Total mortgage-backed securities
held for investment ............. $ - 3.0 - 7.3
Available for sale:
U.S. Treasury and federal agencies .. $ 23.4 24.3 71.4 73.6
State, municipal and housing -
tax exempt ........................ 1.4 1.2 4.0 3.5
Other ............................... 5.2 4.2 15.1 10.9
Total investment securities
available for sale .............. $ 30.0 29.7 90.5 88.0
Mortgage-backed securities:
Federal agencies ................... $ 191.0 130.4 498.8 429.5
Collateralized mortgage
obligations ....................... 2.1 10.4 6.3 25.0
Total mortgage-backed securities
available for sale .............. $ 193.1 140.8 505.1 454.5
During the three and nine months ended September 30, 1994, certain investment
securities with a total amortized cost of $24.2 million and $73.7 million,
respectively, were sold by the corporation principally because such securities
were called by the issuers prior to maturity, or in certain cases due to
significant deterioration in the creditworthiness of the related issuers. The
sales and calls of investment securities resulted in net gains of $0.9 million
for the third quarter and $0.2 million for the nine months ended September 30,
1994.
</TABLE>
13
<PAGE>
4. Loans and Leases
The carrying values of loans and leases at September 30, 1994 and December 31,
1993 were:
In millions September 30, December 31,
1994 1993
Commercial ............................... $ 8,056.6 7,624.1
Construction and land development ........ 587.7 565.6
Real estate .............................. 12,115.0 11,738.8
Consumer ................................. 10,114.0 8,606.3
Lease financing .......................... 689.2 698.6
Foreign .................................. 618.1 548.5
Total loans and leases ................. 32,180.6 29,781.9
Unearned discount ........................ (1,105.6) (1,021.1)
Loans and leases, net of
unearned discount .................... $ 31,075.0 28,760.8
Changes in the allowance for credit losses for the quarters and nine months
ended September 30 were:
Quarter Nine Months
In millions 1994 1993 1994 1993
Balance at beginning of period ............ $ 790.4 773.0 789.2 773.1
Allowance related to loans acquired ..... 1.9 23.5 19.7 29.3
Provision for credit losses ............. 41.6 23.3 101.6 100.8
Credit losses ........................... (71.2) (66.7) (214.8) (208.7)
Recoveries .............................. 27.2 35.6 94.2 94.2
Net credit losses ..................... (44.0) (31.1) (120.6) (114.5)
Balance at end of period .................. $ 789.9 788.7 789.9 788.7
5. Non-accrual, Restructured and 90-Day Past Due Loans and Other Real Estate
Owned
Non-accrual, restructured and 90-day past due loans and other real estate
owned at September 30, 1994 and 1993 and December 31, 1993 were:
In millions September 30, December 31,
1994 1993 1993
Non-accrual loans ....................... $ 128.4 246.0 195.7
Restructured loans ...................... 2.2 6.9 10.3
Total non-accrual and
restructured loans ................... 130.6 252.9 206.0
Other real estate owned ................. 44.2 89.0 63.0
Total non-performing assets ........... 174.8 341.9 269.0
Loans and leases past due
90 days or more* ...................... 73.7 74.8 50.8
Total non-performing assets and
90-day past due loans and leases ..... $ 248.5 416.7 319.8
* Excludes non-accrual and restructured loans.
14
<PAGE>
The effects of non-accrual and restructured loans on interest income for the
quarters and nine months ended September 30 were:
Quarter Nine Months
In millions 1994 1993 1994 1993
Interest
As originally contracted ........... $ 3.5 4.2 15.3 15.1
As recognized ...................... (1.8) (0.8) (3.0) (2.7)
Reduction of interest income ..... $ 1.7 3.4 12.3 12.4
6. Long-term Debt
During the first nine months of 1994, certain banking subsidiaries of the
corporation received $8 million in advances from the Federal Home Loan Bank
(FHLB) bearing interest at 6.23 percent and maturing in April 2009, $41
million in FHLB advances bearing interest at LIBOR minus 10 basis points
maturing in November 1994, and $275 million in FHLB advances bearing interest
at LIBOR minus 5 basis points maturing from July 1995 to July 1996. In
addition, a banking subsidiary of the corporation received $500 million in
advances from the Student Loan Marketing Association bearing interest at LIBOR
minus 2 basis points maturing in December 1995. The corporation issued $200
million of medium-term notes at LIBOR plus 5 basis points due in May 1996,
$200 million of medium-term notes at LIBOR maturing in May 1996, and $175
million of medium-term notes bearing fixed rates ranging from 7.125 percent to
7.45 percent maturing in August and September 1999. The corporation also
issued $200 million of senior notes bearing interest at LIBOR plus 5 basis
points maturing in February 1999. Also, during the first nine months of 1994,
Norwest Financial, Inc. issued $870 million of senior and senior subordinated
notes bearing fixed rates ranging from 5.40 percent to 8.65 percent which
mature from March 1996 to February 2004.
15
<PAGE>
7. Preferred Stock
The corporation is authorized to issue 5,000,000 shares of preferred stock
without par value. The table below is a summary of the corporation's
preferred stock at September 30, 1994 and December 31, 1993. A detailed
description of the corporation's preferred stock is provided in Note 10 of the
Notes to Consolidated Financial Statements in the corporation's 1993 Annual
Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A dated May
13, 1994.
<TABLE>
<CAPTION>
In millions, except share amounts
Annual
Dividend
Shares Outstanding Rate at Amount Outstanding
September 30, December 31, September 30, September 30, December 31,
1994 1993 1994 1994 1993
<S> <C> <C> <C> <C> <C>
10.24% Cumulative,
$100 stated value 1,127,125 1,131,250 10.24% $112.8 113.2
7.00% Cumulative
Convertible, Series B,
$200 stated value 1,143,675 1,143,750 7.00% 228.7 228.7
ESOP Cumulative Convertible,
$1,000 stated value 22,471 - 9.00% 22.4 -
First United Cumulative
Convertible Exchangeable,
Series A, $25 stated value - 1,200,000 - - 30.0
First United Adjustable Rate
Cumulative, Series B,
$1 par value - 188,095 - - 7.9
First United 10.00% Cumulative
Convertible Exchangeable,
Series C, $1 par value - 3,570 - - 0.2
Preferred stock 363.9 380.0
Unearned ESOP shares (23.1) -
Total preferred stock $340.8 380.0
</TABLE>
16
<PAGE>
On March 31, 1994 the corporation issued 40,900 shares of ESOP Cumulative
Convertible Preferred Stock, $1,000 stated value per share ("ESOP Preferred
Stock"). All shares of the ESOP Preferred Stock have been issued to a trustee
acting on behalf of the Norwest Corporation Savings-Investment Plan and Master
Savings Trust (the "Plan"). Dividends are cumulative from the date of initial
issuance and are payable quarterly at an annual rate of 9.00 percent.
Each share of ESOP Preferred Stock released from the unallocated reserve of
the Plan is convertible into shares of common stock of the corporation based
on the stated value of the ESOP Preferred Stock and the then current market
price of the corporation's common stock. During the third quarter of 1994,
12,654 shares of ESOP Preferred Stock were converted into 501,651 shares of
common stock of the corporation. During the nine months ended September 30,
1994, 18,429 shares of ESOP Preferred Stock were converted into 743,535 shares
of common stock of the corporation. The ESOP Preferred Stock is also
convertible at the option of the holder at any time, unless previously
redeemed. The ESOP Preferred Stock is redeemable at any time, in whole or in
part, at the option of the corporation at a redemption price per share equal
to the higher of (a) $1,000 per share plus accrued and unpaid dividends and
(b) the fair market value, as defined in the ESOP Preferred Stock Certificate
of Designations, of the ESOP Preferred Stock.
In accordance with the American Institute of Certified Public Accountants
Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans", the corporation recorded a corresponding charge to unearned
ESOP shares in connection with the issuance of the ESOP Preferred Stock. The
unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are
committed to be released.
As a result of the acquisition of First United (See Note 11), each share of
the Cumulative Convertible Exchangeable Preferred Stock, Series A, and the
10.00% Cumulative Convertible Exchangeable Preferred Stock, Series C, was
converted into 2.2 and 6.039 shares, respectively, of the corporation's common
stock and each outstanding share of the Adjustable Rate Cumulative Preferred
Stock, Series B, was redeemed for $42 per share plus accrued and unpaid
dividends.
8. Segment Reporting
The corporation's operations include three primary business segments:
banking, mortgage banking and consumer finance. The corporation, primarily
through its subsidiary banks, offers diversified banking services including
retail, commercial and corporate banking, equipment leasing, trust services,
securities brokerage, investment banking and venture capital investments.
Mortgage banking activities include the origination and purchase of
residential mortgage loans for sale to various investors as well as providing
servicing of mortgage loans for others where servicing rights have been
retained. Consumer finance activities, provided through the corporation's
Norwest Financial subsidiaries, include providing direct installment loans to
individuals, purchasing of sales finance contracts, private label and lease
accounts receivable financing and other related products and services.
17
<PAGE>
Selected financial information by business segment for the quarters and nine
months ended September 30 is included in the following summary:
Quarter Nine Months
In millions 1994 1993 1994 1993
Revenues:*
Banking $ 975.0 862.7 2,836.0 2,666.2
Mortgage banking 225.2 227.0 667.1 601.6
Consumer finance 309.9 272.9 894.6 804.7
Total $ 1,510.1 1,362.6 4,397.7 4,072.5
Organizational earnings:*
Banking $ 128.4 108.9 392.5 312.0
Mortgage banking 18.6 12.6 40.9 46.1
Consumer finance 56.0 53.3 162.1 143.9
Total $ 203.0 174.8 595.5 502.0
Total assets:
Banking $45,775.6 41,922.9
Mortgage banking 4,997.8 6,993.2
Consumer finance 5,792.0 4,939.4
Total $56,565.4 53,855.5
* Revenues, where applicable, and organizational earnings by business
segment are impacted by intercompany revenues and expenses, such as
interest on borrowings from the parent company, corporate service
fees and allocation of federal income taxes.
9. Mortgage Banking Activities
The detail of mortgage banking non-interest income for each of the quarters
and nine months ended September 30 is presented below:
Quarter Nine Months
In millions 1994 1993 1994 1993
Origination fees $ 25.7 36.4 82.2 94.5
Servicing fees 51.1 8.8 129.5 31.0
Net gains (losses) on sales
of servicing rights 37.4 (0.3) 74.6 61.5
Net gains on sales of
mortgages 8.1 61.5 70.4 90.7
Other mortgage fee income 19.3 15.9 60.1 54.5
Total mortgage banking
non-interest income $141.6 122.3 416.8 332.2
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The outstanding balances of serviced loans were
$70,470.0 million and $38,039.0 million at September 30, 1994 and 1993,
respectively.
18
<PAGE>
Changes in intangibles from purchased mortgage loan servicing rights for the
quarters and nine months ended September 30 were:
Quarter Nine Months
In millions 1994 1993 1994 1993
Balance at beginning
of period $349.8 110.4 185.2 64.0
Purchases 110.7 47.5 311.6 116.5
Sales (15.0) - (32.9) (2.4)
Amortization (13.5) (8.7) (31.7) (16.3)
Adjustments due to
changes in prepayment
assumptions (0.2) (4.9) (0.4) (17.5)
Balance at end of period $431.8 144.3 431.8 144.3
10. Derivative Activities
The corporation and its subsidiaries, as end-users, utilize various types of
derivative products (principally interest rate swaps) as part of an overall
interest rate risk management strategy. Interest rate swaps generally involve
the exchange of fixed and floating rate interest payments based on an
underlying notional amount. Generic swaps' notional amounts do not change for
the life of the contract. Amortizing swaps' notional amounts and lives change
based on a remaining principal amount of a pool of mortgage-backed securities.
Generally, as rates fall the notional amounts decline more rapidly and as
rates increase notional amounts decline more slowly. A key assumption in the
information which follows is that rates remain constant at September 30, 1994
levels. To the extent that rates change, both the maturity and variable
interest rate information will change. The basis swaps are contracts where
the corporation receives an amount and pays an amount based on different
floating indices.
For the nine months ended September 30, 1994, the end-user derivative
activities increased interest income by $5.9 million and reduced interest
expense by $5.9 million, for a total benefit to net interest income of $11.8
million. For the same period in 1993, interest income was increased by $10.1
million and interest expense was reduced by $9.1 million, for a total benefit
to net interest income of $19.2 million.
19
<PAGE>
The following table presents the maturities and weighted average rates for end-
user derivatives by type:
<TABLE>
<CAPTION>
Dollars in millions
Maturity
There-
September 30, 1994 1994 1995 1996 1997 1998 after Total
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Generic receive fixed-
Notional value $ 500 - 405 50 200 100 1,255
Weighted avg.
receive rate 6.15% - 4.71 9.12 5.60 6.11 5.71
Weighted avg. pay rate 4.92% - 4.94 4.63 5.06 4.88 4.94
Generic pay fixed-
Notional value $ - - - - - 100 100
Weighted avg.
receive rate -% - - - - 5.13 5.13
Weighted avg. pay rate -% - - - - 5.69 5.69
Basis -
Notional value $ - - 200 - 29 - 229
Weighted avg.
receive rate -% - 4.91 - 4.63 - 4.87
Weighted avg. pay rate -% - 5.00 - 4.26 - 4.91
Interest rate caps (1):
Notional value $ - 8 16 - 327 - 351
Total notional value $ 500 8 621 50 556 200 1,935
Total weighted avg.
rates on swaps:
Receive rate 6.15% - 4.77 9.12 5.48 5.62 5.55
Pay rate 4.92% - 4.96 4.63 4.96 5.28 4.98
(1) Average rates are not meaningful for interest rate caps.
Note: Weighted average variable rates are the actual rates as of September
30, 1994.
</TABLE>
20
<PAGE>
Activity in the notional amounts of end-user derivatives for the nine months
ended September 30, 1994 is summarized as follows:
<TABLE>
<CAPTION>
In millions December 31, Amortizations September 30,
1993 Additions Maturities Terminations 1994
<S> <C> <C> <C> <C> <C>
Swaps:
Generic receive fixed $ 875 480 - (100) 1,255
Amortizing receive fixed - 1,900 (103) (1,797) -
Generic pay fixed 300 - (100) (100) 100
Basis - 229 - - 229
Total swaps 1,175 2,609 (203) (1,997) 1,584
Interest rate caps 649 - (298) - 351
Futures 2,000 - - (2,000) -
Total $ 3,824 2,609 (501) (3,997) 1,935
</TABLE>
Net deferred losses on terminations of end-user derivatives were $58.0
million at September 30, 1994. The amortization of the net deferred
losses by year is: 1994 - $3.7 million; 1995 - $16.5 million; 1996 - $12.7
million; 1997 - $11.4 million; 1998 - $9.9 million; 1999 - $2.8
million; and thereafter - $1.0 million. Gains and losses on terminations of
end-user derivatives were not material at December 31, 1993.
As of December 31, 1993 the corporation had hedged for one year $2.0 billion of
variable rate FHLB borrowings and variable rate deposits using a
stream of purchased put options of Euro futures. These futures were closed out
during the first quarter of 1994.
21
<PAGE>
The following table provides the gross gains and gross losses not yet
recognized in the income statements for end-user derivatives applicable to
certain hedged assets and liabilities:
<TABLE>
<CAPTION>
In millions
Balance Sheet Category
Interest- Other Long-
Investment bearing Short-term term
September 30, 1994 Securities Loans Deposits Borrowings Debt Total
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Pay variable
Unrealized gains $ - - - - 2.6 2.6
Pay variable
Unrealized (losses) - (0.6) (19.9) - (13.5) (34.0)
Pay variable net - (0.6) (19.9) - (10.9) (31.4)
Pay fixed
Unrealized gains - - 13.4 - - 13.4
Basis
Unrealized (losses) (2.1) - - - - (2.1)
Total unrealized gains - - 13.4 - 2.6 16.0
Total unrealized (losses) (2.1) (0.6) (19.9) - (13.5) (36.1)
Total net $ (2.1) (0.6) (6.5) - (10.9) (20.1)
Interest rate caps:
Unrealized gains $ 1.4 - - - 0.5 1.9
Unrealized (losses) - - - (0.1) - (0.1)
Total net $ 1.4 - - (0.1) 0.5 1.8
Grand total
Unrealized gains $ 1.4 - 13.4 - 3.1 17.9
Grand total
Unrealized (losses) (2.1) (0.6) (19.9) (0.1) (13.5) (36.2)
Grand total net $ (0.7) (0.6) (6.5) (0.1) (10.4) (18.3)
</TABLE>
As a result of interest rate fluctuations, off balance-sheet derivatives have
unrealized appreciation or depreciation in market values as compared with
their cost. As these derivatives hedge certain assets and liabilities of the
corporation, as noted in the table above, there has been offsetting unrealized
appreciation and depreciation in the assets and liabilities hedged.
The corporation has entered into mandatory and standby forward contracts to
reduce interest rate risk on certain mortgage loans held for sale and other
commitments. The contracts provide for the delivery of securities at a
specified future date, at a specified price or yield. At September 30, 1994,
the corporation had forward contracts totaling $4.1 billion, all of which
mature within 240 days. Gains and losses on forward contracts are included in
the determination of market value of mortgages held for sale.
22
<PAGE>
11. Business Combinations
The corporation regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of the corporation
does not make a public announcement about an acquisition opportunity until a
definitive agreement has been signed.
On January 14, 1994, the corporation completed its acquisition of First
United, a multibank holding company headquartered in Albuquerque, New Mexico,
with total assets of $3.9 billion. The corporation issued 17,784,916 shares
of its common stock in connection with the acquisition. The acquisition was
accounted for using the pooling of interests method of accounting and,
accordingly, the corporation's financial statements have been restated for all
periods prior to the acquisition to include the accounts and operations of
First United.
Net income and net income per share amounts of the corporation and First
United prior to restatement for the years ended December 31, 1993, 1992 and
1991 were:
In millions, except per share amounts 1993 1992 1991
The corporation
Net income ............................ $ 653.6 364.1 400.9
Net income per share
Primary .............................. 2.13 1.16 1.34
Fully diluted ........................ 2.10 1.16 1.33
First United
Net (loss) income ..................... $ (40.5) 29.9 17.4
Net (loss) income per share
Primary .............................. (3.40) 2.18 1.34
Fully diluted ........................ (3.40) 1.84 1.29
The corporation acquired Bank of Scottsdale, a $93 million bank located in
Scottsdale, Arizona, on October 21, 1994, for cash of $13.6 million. On
October 2, 1994, the corporation acquired Copper Bancshares, Inc., a $98
million bank holding company located in Silver City, New Mexico, and issued
524,920 common shares. On September 15, 1994, the corporation acquired
LaPorte Bancorp, a $137 million bank holding company located in Hammond,
Indiana, and issued 564,553 common shares. On July 1, 1994, the corporation
acquired American Land Title Company of Kansas City, Inc. and issued 166,666
common shares.
On May 1, 1994, the corporation completed its acquisition of Double Eagle
Financial Corporation, an insurance agency, located in Phoenix, Arizona, and
issued 307,700 common shares. On April 28, 1994, the corporation completed
its acquisition of D.L. Bancshares, Inc., a $78 million bank holding company
located in Detroit Lakes, Minnesota, for cash of $11.9 million. On April 15,
1994, the corporation completed its acquisition of Bank of Montana System with
assets of $807 million, located in Great Falls, Montana, and issued 4,174,105
common shares.
On March 15, 1994, the corporation completed its acquisition of Community
Credit Co., a $173 million consumer finance company located in Minneapolis,
Minnesota, and issued 3,726,871 common shares. On February 2, 1994, the
corporation completed its acquisition of First National Bank of Arapahoe
County, First National Bank of Lakewood and First National Bank of Southeast
Denver, with assets of $36 million, $61 million and $134 million,
23
<PAGE>
respectively, located in the Denver, Colorado metro area, and issued 260,896,
337,582 and 803,439 common shares, respectively. Also on February 2, 1994,
the corporation completed its acquisition of Lindeberg Financial Corporation,
a $55 million bank holding company, located in Forest Lake, Minnesota, and
issued 413,599 common shares. On January 1, 1994, the corporation completed
its acquisition of St. Cloud National Bank & Trust Co., a $119 million bank,
and on January 6, 1994, closed on St. Cloud Metropolitan Agency, Inc., an
insurance agency, and issued 1,105,820 and 32,969 common shares, respectively.
The acquisitions of Bank of Montana System, Community Credit Co., First
National Bank of Arapahoe County, First National Bank of Lakewood, First
National Bank of Southeast Denver, Lindeberg Financial Corporation and St.
Cloud National Bank & Trust Co. were accounted for using the pooling of
interests method of accounting; however, the financial results of the
corporation for periods prior to these acquisitions have not been restated
because the effect of these acquisitions on the corporation's financial
statements was not material. The acquisitions of Bank of Scottsdale, Copper
Bancshares, Inc., LaPorte Bancorp, American Land Title Company of Kansas City,
Inc., D.L. Bancshares, Inc., Double Eagle Financial Corporation and St. Cloud
Metropolitan Agency, Inc., were accounted for using the purchase method.
The corporation has nine other pending acquisitions with total assets of
approximately $2.8 billion and it is anticipated that cash of $184.8 million
and approximately 4.4 million common shares will be issued upon completion of
these acquisitions. These pending acquisitions, subject to approval by
regulatory agencies, are expected to be completed during the fourth quarter of
1994 and the first quarter of 1995 and are not significant to the financial
statements of the corporation, either individually or in the aggregate.
24
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's discussion and analysis should be read together with the
financial statements submitted under Item 1 of Part I and with Norwest
Corporation's 1993 Annual Report on Form 10-K, as amended by Amendment No. 1
on Form 10-K/A dated May 13, 1994.
EARNINGS PERFORMANCE
The corporation reported net income of $203.0 million for the quarter ended
September 30, 1994, a 16.1 percent increase over the $174.8 million earned in
the third quarter of 1993. Net income per common share was 62 cents, compared
with 54 cents in the third quarter of 1993, an increase of 14.8 percent.
Return on realized common equity was 21.1 percent and return on assets was
1.45 percent for the third quarter of 1994, compared with 20.4 percent and
1.35 percent, respectively, in the third quarter of 1993.
For the nine months ended September 30, 1994, net income was $595.5 million,
or $1.82 per common share, an increase of 18.6 percent and 16.7 percent,
respectively, over the $502.0 million or $1.56 per common share earned in the
first nine months of 1993. Return on realized common equity was 21.4 percent
and return on assets was 1.46 percent for the first nine months of 1994,
compared with 20.3 percent and 1.35 percent, respectively, for the same period
a year ago.
The 1993 results have been restated to include First United Bank Group, Inc.
("First United"), acquired on January 14, 1994, in a pooling of interests
transaction. For a discussion of additional completed and pending
acquisitions, see Note 11 to the unaudited consolidated financial statements
for the third quarter 1994.
ORGANIZATIONAL EARNINGS*
The earnings of the corporation's major entities appear below for the quarters
and nine months ended September 30.
Quarter Nine Months
In millions 1994 1993 1994 1993
Banking $ 128.4 108.9 392.5 312.0
Mortgage banking 18.6 12.6 40.9 46.1
Norwest Financial Services, Inc.
and subsidiaries 56.0 53.3 162.1 143.9
Net income $ 203.0 174.8 595.5 502.0
* Earnings of the entities listed are impacted by intercompany revenues and
expenses, such as interest on borrowings from the parent company, corporate
service fees and allocation of federal income taxes.
Banking
The Banking Group reported third quarter 1994 earnings of $128.4 million, a
17.9 percent increase over the third quarter 1993 earnings of $108.9 million.
For the nine months ended September 30, 1994, earnings increased 25.8 percent
to $392.5 million from $312.0 million for the same period in 1993. The
increased earnings in the first nine months of 1994 reflected a 15.7 percent
growth in tax-equivalent net interest income to $1,420.2 million, due to an
11.2 percent increase in average earning assets and a 19 basis point increase
in net interest margin. The Banking Group's year-to-date provision for credit
25
<PAGE>
losses decreased 16.9 percent to $19.8 million, compared with the same period
in 1993, reflecting continued decreases in non-performing assets and net
credit losses. Non-interest income decreased 8.0 percent to $624.4 million
from the first nine months of 1993, largely due to net investment securities
losses. The Banking Group recorded net securities losses of $57.6 million
during the nine months ended September 30, 1994, compared with securities
gains of $27.7 million in the same period last year. Non-interest expenses of
$1,444.1 million for the first nine months of 1994 were up 0.8 percent
compared with the first nine months of 1993.
Mortgage Banking
Mortgage banking operations earned $18.6 million during the third quarter of
1994, an increase of 47.4 percent from the $12.6 million earned in the third
quarter of 1993. For the first nine months of 1994, mortgage banking earned
$40.9 million compared with $46.1 million during the same period in 1993, a
decrease of 11.3 percent. Mortgage originations were $6.0 billion in the
third quarter of 1994 and $19.9 billion during the first nine months of 1994,
decreases of 37.1 percent and 14.3 percent, respectively, from the third
quarter and first nine months of 1993. Servicing increased $11.1 billion in
the third quarter of 1994 and $24.8 billion from year-end 1993. Servicing
acquired in the three and nine months ended September 30, 1994, were $9.5
billion and $15.5 billion, respectively. Sales of servicing amounted to $3.4
billion and $6.5 billion, respectively, for the quarter and nine months ended
September 30, 1994. The mortgage servicing portfolio totaled $70.5 billion at
September 30, 1994, an increase of $32.4 billion from the end of the third
quarter of 1993 and $24.8 billion from year-end 1993.
Norwest Financial Services, Inc. and subsidiaries ("Norwest Financial")
Norwest Financial reported earnings of $56.0 million in the third quarter of
1994, compared with $53.3 million in the third quarter of 1993, an increase of
5.1 percent. Norwest Financial's net income of $162.1 million for the first
nine months of 1994 was up 12.7 percent from the same period a year ago. The
growth in year-to-date earnings reflect a 13.3 percent increase in Norwest
Financial's tax-equivalent net interest income. This increase resulted from a
13.9 percent increase in average finance receivables compared with the first
nine months of 1993, partially offset by a 12 basis point decline in net
interest margin due to higher funding costs.
CONSOLIDATED INCOME STATEMENT ANALYSIS
Net Interest Income
Consolidated tax-equivalent net interest income was $728.9 million in the
third quarter of 1994, compared with $634.2 million in the third quarter of
1993, an increase of 14.9 percent. For the first nine months of 1994, tax-
equivalent net interest income increased 11.5 percent from the same period in
1993 to $2,090.7 million. Growth in tax-equivalent net interest income was a
result of continued growth in average earning assets and increased net
interest margin. Compared to the third quarter of 1993, average earning assets
increased 8.3 percent and net interest margin widened 31 basis points. For
the first nine months of 1994, average earning assets grew 9.6 percent and net
interest margin increased 10 basis points from the same period a year earlier.
Net interest margin, the ratio of annualized tax-equivalent net interest
income to average earning assets, was 5.76 percent for the third quarter and
5.64 percent for the first nine months of 1994, compared with 5.45 percent and
5.54 percent, respectively, for the same periods in 1993. The net interest
26
<PAGE>
margin for both the quarterly and year-to-date periods benefited from an
improvement in the yield spread and a shift in the mix of earning assets to
relatively higher-yielding loans. The following table summarizes changes in
tax-equivalent net interest income between the quarters ended September 30 and
June 30 and nine months ended September 30. In addition, see pages 33 and 34
for additional information with respect to average balances and tax-equivalent
yields and rates.
Changes in Tax-Equivalent Net Interest Income*
In millions 3Q 94 3Q 94 9 Mos. 94
over over over
3Q 93 2Q 94 9 Mos. 93
Increase (decrease) due to
Change in earning asset volume ................ $ 55.6 9.5 182.1
Change in volume of interest-free funds ....... 4.0 0.1 24.0
Change in net return from
Interest-free funds .......................... 4.5 5.9 (5.3)
Interest-bearing funds ....................... 2.8 5.7 (65.0)
Change in earning asset mix ................... 26.6 7.4 73.4
Change in funding mix ......................... 1.2 (4.3) 6.9
Change in tax-equivalent net interest income .... $ 94.7 24.3 216.1
* Net interest income is presented on a tax-equivalent basis utilizing a
federal incremental tax rate of 35% in each period presented.
Trading Revenues
Interest income on a tax-equivalent basis derived from trading account
securities was $4.9 million and $8.4 million for the three months ended
September 30, 1994 and 1993, respectively. Year-to-date tax-equivalent
interest income was $21.2 million for the first nine months of 1994 compared
with $22.2 million for the comparable period of 1993. Non-interest trading
revenues (losses) were $7.8 million and $(9.5) million for the three and nine
months ended September 30, 1994, respectively. The comparable figures for
1993 were $9.6 million for the third quarter and $26.2 million for the first
nine months. The trading revenues were derived from the following activities:
<TABLE>
<CAPTION>
Three Months Ended September 30,
In millions 1994 1993
Non- Non-
Interest interest Interest interest
Income Income Total Income Income Total
<S> <C> <C> <C> <C> <C> <C>
Securities:
U.S. Treasury
and agencies $ 2.1 - 2.1 1.7 - 1.7
State and
municipal 0.4 - 0.4 0.6 - 0.6
Mortgage-backed 0.1 - 0.1 0.3 - 0.3
Other 0.3 - 0.3 0.4 - 0.4
2.9 - 2.9 3.0 - 3.0
Derivatives:
Swaps and other
interest rate
contracts 2.0 (8.2) (6.2) 5.4 0.7 6.1
Options - 0.8 0.8 - - -
Debt instruments - - - - - -
Futures - (0.4) (0.4) - (1.5) (1.5)
Gains (losses) on
securities sold - 13.7 13.7 - 9.3 9.3
Foreign exchange
trading - 1.9 1.9 - 1.1 1.1
Total $ 4.9 7.8 12.7 8.4 9.6 18.0
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
In millions 1994 1993
Non- Non-
Interest interest Interest interest
Income Income Total Income Income Total
<S> <C> <C> <C> <C> <C> <C>
Securities:
U.S. Treasury
and agencies $ 9.0 - 9.0 6.1 - 6.1
State and
municipal 1.4 - 1.4 1.6 - 1.6
Mortgage-backed 0.9 - 0.9 0.9 - 0.9
Other 0.6 - 0.6 1.0 - 1.0
11.9 - 11.9 9.6 - 9.6
Derivatives:
Swaps and other
interest rate
contracts 9.3 (25.3) (16.0) 12.6 10.2 22.8
Options - 7.4 7.4 - - -
Debt instruments - - - - 0.1 0.1
Futures - 1.0 1.0 - (2.7) (2.7)
Gains (losses) on
securities sold - 2.7 2.7 - 15.4 15.4
Foreign exchange
trading - 4.7 4.7 - 3.2 3.2
Total $ 21.2 (9.5) 11.7 22.2 26.2 48.4
</TABLE>
Provision for Credit Losses
The corporation provided $41.6 million for credit losses in the third quarter
of 1994, compared with $23.3 million in the same period a year ago. Net
credit losses totaled $44.0 million and $31.1 million for the three months
ended September 30, 1994 and 1993, respectively. As a percent of average
loans and leases, net credit losses were 0.57 percent in the third quarter of
1994, compared with 0.46 percent in the same period a year ago.
For the first nine months of 1994, the provision for credit losses totaled
$101.6 million, compared with $100.8 million in the year-earlier period. Net
credit losses were $120.6 million, or 0.54 percent of average loans and
leases, for the nine months ended September 30, 1994, compared with $114.5
million, or 0.59 percent, for the same period in 1993.
Non-interest Income
Consolidated non-interest income of $379.4 million was essentially flat
compared with $377.4 million in the third quarter of 1993, primarily due to
investment securities losses related to repositioning portions of the
corporation's investment portfolio. Net investment securities losses of $51.9
million were recorded during the third quarter of 1994, providing an
opportunity to reinvest at higher yields. For the first nine months of 1994,
non-interest income was up $52.2 million to $1,200.4 million, an increase of
4.6 percent over 1993. This increase was primarily due to increased mortgage
banking revenues, insurance fees and deposit service charges, partially offset
by net losses on sales of investment securities. Excluding gains (losses) on
investment/mortgage-backed securities and investment/mortgage-backed
securities available for sale and venture capital gains, non-interest income
increased 16.3 percent from the third quarter of 1993 and 12.7 percent from
the first nine months of 1993.
28
<PAGE>
Mortgage banking revenues were $141.6 million for the third quarter of 1994,
an increase of 15.8 percent over the same period in 1993. For the nine months
ended September 30, 1994, mortgage banking revenues were $416.8 million
compared with $332.2 million for the first nine months of 1993, an increase of
25.5 percent. The growth in mortgage banking revenues principally reflects
increased servicing fees resulting from growth in the corporation's servicing
portfolio. For the three months ended September 30, 1994, net gains on sales
of mortgages in the secondary market were $8.1 million, down from $61.5
million in the third quarter of 1993 due to continued tight pricing. This was
partially offset by $37.4 million of net gains on sales of servicing rights in
the current quarter, compared with net losses of $0.3 million in last year's
third quarter. See Note 9 to the unaudited consolidated financial statements
for the third quarter of 1994 for a detailed analysis of mortgage banking
revenues for the three and nine months ended September 30, 1994 and 1993.
For the first nine months of 1994, credit cards fees were $82.6 million, $3.3
million less than the same period in 1993, due to the repurchase of $858
million of credit card receivables from the securitized credit card receivable
trusts during 1993 and 1994. The repurchase program was completed during the
second quarter of 1994. Revenues on securitized credit card receivables are
recorded in non-interest income rather than net interest income.
Net venture capital gains were $16.2 million for the quarter and $51.4 million
for the nine months ended September 30, 1994, compared with $21.4 million and
$48.0 million, respectively, for the same periods in 1993. Sales of venture
capital securities generally relate to holdings becoming publicly traded and
prevailing subsequent market conditions. Therefore, venture capital gains are
unpredictable in nature. Net unrealized appreciation in the venture capital
investment portfolio was $76.3 million at September 30, 1994.
Non-interest Expenses
Consolidated non-interest expenses of $760.5 million increased 2.5 percent
over the third quarter of 1993. For the nine months ended September 30, 1994,
non-interest expenses were up $107.3 million to $2,288.6 million, an increase
of 4.9 percent over 1993. The quarterly and year-to-date results reflect
higher salaries and benefits costs, occupancy charges and equipment rentals,
primarily due to acquisitions and additional Norwest Financial stores.
Offsetting these increases were decreases in other non-interest expenses of
$28.0 million for the three months and $121.1 million for the nine months
ended September 30, 1994, compared with the same periods a year ago. These
decreases reflect lower charitable contributions to the Norwest Foundation in
1994 compared with 1993, due to the funding status of the Foundation, as well
as one-time special charges recorded in 1993 for write-downs of excess
facilities and other assets.
29
<PAGE>
CONSOLIDATED BALANCE SHEET ANALYSIS
At September 30, 1994, earning assets were $50.9 billion, an increase of 1.8
percent from $50.0 billion at December 31, 1993. This increase was primarily
due to a 9.9 percent increase in total investment securities and an 8.0
percent increase in net loans, partially offset by a 46.7 percent decrease in
mortgages held for sale. The decline in mortgages held for sale reflects a
decrease in mortgage originations due to increased interest rates during much
of 1994.
At September 30, 1994, interest-bearing liabilities totaled $41.8 billion, a
5.2 percent increase from $39.8 billion at December 31, 1993. The increase is
primarily due to increases in short-term borrowings and long-term debt,
partially offset by a decrease in interest-bearing deposits. See Note 6 to
the unaudited consolidated financial statements for the third quarter 1994 for
a detailed discussion of long-term debt issued during 1994.
Credit Quality
Loans and leases as of the end of each of the last five quarters were as
follows:
In millions 1994 1993
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
Commercial, financial and
industrial ................ $ 7,090 6,952 6,984 6,686 6,631
Agricultural ................ 967 959 869 938 836
Real estate
Secured by 1-4 family
residential properties .. 8,689 8,521 8,256 8,321 8,483
Secured by development
properties .............. 1,713 1,767 1,686 1,641 1,596
Secured by construction
and land development .... 588 596 590 566 540
Secured by owner-
occupied properties ..... 1,713 1,632 1,755 1,777 1,731
Consumer .................... 7,537 7,157 6,769 6,560 6,242
Credit card and check credit. 2,577 2,429 2,227 2,046 1,623
Lease financing ............. 689 670 672 698 677
Foreign ..................... 618 571 539 549 542
Total loans and leases .. 32,181 31,254 30,347 29,782 28,901
Unearned discount ....... (1,106) (1,081) (1,060) (1,021) (1,014)
Total loans and leases,
net of unearned
discount ............. $31,075 30,173 29,287 28,761 27,887
30
<PAGE>
At September 30, 1994, the allowance for credit losses totaled $789.9 million,
or 2.54 percent of loans and leases outstanding. Comparable amounts were
$788.7 million, or 2.83 percent, at September 30, 1993, and $789.2 million, or
2.74 percent, at December 31, 1993. The ratio of the allowance for credit
losses to the total non-performing assets and 90-day past due loans and leases
was 317.9 percent at September 30, 1994, compared with 189.3 percent at
September 30, 1993 and 246.8 percent at December 31, 1993.
Non-performing assets and 90-day past due loans totaled $248.5 million, or
0.44 percent of total assets, at September 30, 1994, compared with $416.7
million, or 0.77 percent, at September 30, 1993, and $319.8 million, or 0.59
percent, at December 31, 1993. The decrease from September 30, 1993, reflects
a $49.8 million decrease in commercial non-accrual loans, a $37.1 million
decrease in real estate non-accrual loans, and a $44.8 million decrease in
other real estate owned. The decrease from December 31, 1993, included a
$27.8 million decrease in commercial non-accrual loans, a $17.6 million
decrease in real estate non-accrual loans, a $5.9 million decrease in
construction and development non-accrual loans, a $12.4 million decrease in
other non-accrual loans, an $8.1 million decrease in restructured loans and an
$18.8 million decrease in other real estate owned, partially offset by a $22.9
million increase in 90-day past due loans.
The corporation manages exposure to credit risk through loan portfolio
diversification by customer, product, industry and geography. As a result,
there is no undue concentration in any single sector.
The corporation's Banking Group operates in 15 states, largely in the Midwest
and Rocky Mountain regions of the country. In general, the economy in both of
these regions is noticeably stronger than last fall. Midwestern employment
growth is accelerating with respect to construction and manufacturing. Though
agricultural conditions vary considerably throughout the Midwest, farmland
prices have shown strength and substantial disaster payments are mitigating
the effects of last year's poor crops. The economy of the Rocky Mountain
region remains the strongest in the nation. In some Rocky Mountain states,
job growth is double the national average.
Norwest Card Services, Norwest Mortgage and Norwest Financial operate on a
nationwide basis. With respect to Norwest Card Services, 43 percent of the
credit card portfolio is within the 15-state Norwest banking region.
Approximately 60 percent of the portfolio is accounted for by the states of
Massachusetts, Minnesota, Iowa, New York, Connecticut, Colorado, California,
Illinois, Nebraska and Oklahoma. No one state accounts for more than 10
percent of the total credit card portfolio.
31
<PAGE>
Norwest Mortgage operates in all 50 states, representing the largest retail
mortgage network in the country. Norwest Financial engages in consumer
finance activities in 46 states and all 10 Canadian provinces. The general
strength of the consumer sector of the national economy and the extent of the
geographic diversification exercised by Norwest Mortgage and Norwest Financial
help to mitigate the credit risk in their loan portfolios.
Credit Ratings
The corporation's senior debt is currently rated AA+ by Thomson BankWatch, AA
by Fitch Investors Services, Inc. and Duff & Phelps, AA- by Standard & Poor's
and Aa3 by Moody's. The corporation's commercial paper/short-term debt is
currently rated TBW-1 by Thomson BankWatch, P1 by Moody's, A1+ by Standard &
Poor's, Duff-1+ by Duff & Phelps and F-1+ by Fitch Investors Services, Inc.
Norwest Financial's senior debt is currently rated AA+ by Thomson BankWatch
and Fitch Investors Services, Inc., AA by Duff & Phelps, AA- by Standard &
Poor's and Aa3 by Moody's.
Capital Ratios
The corporation's Tier 1 capital ratio was 9.96 percent at September 30, 1994,
and its total capital to risk-based assets ratio was 12.34 percent, compared
with 9.71 percent and 12.39 percent, respectively, at December 31, 1993. The
corporation's leverage ratio was 6.87 percent at September 30, 1994, compared
with 6.46 percent at December 31, 1993. These ratios compare favorably to the
regulatory minimums of 4.0 percent for Tier 1, 8.0 percent for total capital
to risk-based assets, and 3.0 percent for leverage ratio. The corporation's
dividend payout ratio was 29.8 percent for the third quarter of 1994 compared
with 30.6 percent for the third quarter of 1993. During the first, second and
third quarters of 1994, the corporation paid a quarterly dividend of 18.5
cents per common share, up 2 cents per common share from the fourth quarter
1993. On October 25, 1994, the corporation increased the quarterly dividend
to 21 cents per share from 18.5 cents. The dividend is payable on December 1,
1994, to stockholders of record on November 4, 1994.
32
<PAGE>
Consolidated average balance sheets and related tax-equivalent yields and rates
for the quarters ended September 30, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
In millions 1994 1993
Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/
Balance Expense* Rates* Balance Expense* Rates*
<S> <C> <C> <C> <C> <C> <C>
Assets
Money market investments $ 471 $ 3.6 3.05% $ 460 $ 3.4 2.90%
Trading account securities 198 4.9 9.84 243 8.4 13.61
Investment securities 1,401 26.5 7.57 1,822 34.8 7.65
Mortgage-backed securities - - - 235 3.0 5.10
Investment securities
available for sale 1,807 30.6 7.07 1,697 30.2 7.12
Mortgage-backed securities
available for sale 11,189 193.1 6.73 8,658 140.8 6.51
Total investment
securities 14,397 250.2 6.85 12,412 208.8 6.73
Student loans available
for sale 1,425 26.0 7.22 1,199 20.0 6.62
Mortgages held for sale 3,399 62.2 7.32 5,545 90.0 6.49
Loans and leases 30,502 790.9 10.33 26,668 663.1 9.91
Total earning assets 50,392 1,137.8 8.97 46,527 993.7 8.52
Allowance for credit losses (798) (797)
Cash and due from banks 2,811 2,892
Other assets 2,958 2,737
Total assets $55,363 $51,359
Liabilities and
Stockholders' Equity
Non interest-bearing
deposits $ 8,455 $ 7,854
Interest-bearing
deposits 26,747 214.6 3.18 24,999 210.8 3.34
Short-term borrowings 7,073 82.2 4.61 7,444 59.6 3.18
Long-term debt 7,665 112.1 5.85 6,099 89.1 5.84
Total interest-bearing
liabilities 41,485 408.9 3.92 38,542 359.5 3.71
Other liabilities 1,536 1,340
Stockholders' equity 3,887 3,623
Total liabilities and
stockholders' equity $55,363 $51,359
Net interest income
tax-equivalent basis $ 728.9 $634.2
Yield spread 5.05 4.81
Net interest income to
earning assets 5.76 5.45
Interest-bearing
liabilities to
earning assets 82.33 82.84
* Interest income and yields are calculated on a tax-equivalent basis
utilizing a federal incremental tax rate of 35% in each period presented.
Non-accrual loans and the related negative income effect have been included in
the calculation of yields.
</TABLE>
33
<PAGE>
Consolidated average balance sheets and related tax-equivalent yields and rates
for the nine months ended September 30, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
In millions 1994 1993
Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/
Balance Expense* Rates* Balance Expense* Rates*
<S> <C> <C> <C> <C> <C> <C>
Assets
Money market investments $ 511 $ 15.9 4.16% $ 515 $ 11.5 2.98%
Trading account securities 278 21.2 10.21 236 22.2 12.54
Investment securities 1,188 73.1 8.20 1,899 107.4 7.55
Mortgage-backed securities - - - 185 7.3 5.23
Investment securities
available for sale 2,183 92.2 5.89 1,616 89.5 7.39
Mortgage-backed securities
available for sale 10,117 505.1 6.57 8,868 454.5 6.83
Total investment
securities 13,488 670.4 6.61 12,568 658.7 6.99
Student loans available
for sale 1,499 76.2 6.79 1,237 63.7 6.88
Mortgages held for sale 3,960 194.9 6.56 4,545 233.4 6.85
Loans and leases 29,747 2,240.4 10.05 26,036 1,958.8 10.04
Total earning assets 49,483 3,219.0 8.68 45,137 2,948.3 8.72
Allowance for credit losses (804) (790)
Cash and due from banks 2,914 2,755
Other assets 2,854 2,611
Total assets $54,447 $49,713
Liabilities and
Stockholders' Equity
Non interest-bearing
deposits $ 8,583 $ 7,283
Interest-bearing
deposits 26,845 628.0 3.13 24,375 628.8 3.45
Short-term borrowings 6,454 195.8 4.06 7,650 186.2 3.25
Long-term debt 7,135 304.5 5.69 5,598 258.7 6.16
Total interest-bearing
liabilities 40,434 1,128.3 3.73 37,623 1,073.7 3.81
Other liabilities 1,543 1,266
Stockholders' equity 3,887 3,541
Total liabilities and
stockholders' equity $54,447 $49,713
Net interest income
tax-equivalent basis $2,090.7 $1,874.6
Yield spread 4.95 4.91
Net interest income to
earning assets 5.64 5.54
Interest-bearing
liabilities to
earning assets 81.71 83.35
* Interest income and yields are calculated on a tax-equivalent basis utilizing
a federal incremental tax rate of 35% in each period presented.
Non-accrual loans and the related negative income effect have been included in
the calculation of yields.
</TABLE>
34
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed in response to Item 601 of Regulation
S-K.
Exhibit
No. Exhibit Page
4. Copies of instruments with respect to long-term debt
will be furnished to the Commission upon request.
10. Employees' Deferred Compensation Plan, as amended......... 37
11. Computation of Earnings Per Share ........................ 43
12(a). Computation of Ratio of Earnings to Fixed Charges ........ 45
12(b). Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends ........................... 46
(b) Reports on Form 8-K.
On July 21, 1994, the corporation filed a Current Report on Form 8-K,
dated July 18, 1994, reporting consolidated operating results of the
corporation for the quarter and six months ended June 30, 1994.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORWEST CORPORATION
November 14, 1994 By /s/ Michael A. Graf
Senior Vice President
and Controller
(Chief Accounting Officer)
36
<PAGE>
Exhibit 10.
NORWEST CORPORATION
EMPLOYEES' DEFERRED COMPENSATION PLAN
1. Eligibility. Each full-time employee of Norwest Corporation
(the "Corporation") or any of its subsidiaries who has target total
compensation of $80,000 or more ("Compensation") and who has also been
selected for participation in this Plan by the Human Resources Committee
of the Board of Directors or such officers of the Corporation to which
said Committee has delegated its authority ("Eligible Employee") shall
be eligible to participate in the Employees' Deferred Compensation Plan
(the "Plan").
2. Deferral of Compensation. An Eligible Employee may elect to
defer all or a portion of his or her Compensation, subject, however, to
a minimum deferral per pay period of $100, that he or she may earn from
the Corporation or its subsidiaries during the calendar year (the
"Deferral Year") following the year in which the Deferral Election (as
defined in Section 3(a)) is made; provided however, that any other
payroll deductions elected by the Eligible Employee (such as payments
for welfare or retirement benefits or insurance), including FICA taxes,
shall be made before any deferrals are made under this Plan. Such
election shall be made pursuant to Section 3.
3. Election to Participate and Defer Compensation.
a) Participation. An Eligible Employee becomes a participant in
the Plan by filing not later than December 15 of the year preceding the
Deferral Year an irrevocable election (the "Deferral Election") with the
Plan Administrator (as defined in Section 10) on a form provided for
that purpose. An Eligible Employee who has made a Deferral Election
under this Section for any year and has a Deferral Account (as defined
in Section 4) is deemed a "Participant." The Deferral Election shall be
effective only for the Deferral Year specified. A new Deferral Election
must be filed for each Deferral Year.
b) Deferral Election. The Deferral Election shall consist of two
parts: 1) the deferral of incentive pay which is earned throughout the
year and paid after the end of the year, and 2) the deferral of base pay
or incentives, which are paid on a periodic basis during the year. The
employee shall specify in the Deferral Election a) an amount to be
deferred, expressed either as a percentage or a dollar amount of
Compensation otherwise payable in cash to the employee; b) an earnings
option as described in Section 4; c) one of the payment options
described in Section 6; and d) the event which triggers payment or the
year in which amounts deferred shall be paid in a lump sum or in which
installment payments shall commence pursuant to Section 6.
c) Initial Deferral Election or Initial Eligibility. The initial
Deferral Elections by Participants will be made within thirty days of
the effective date of the Plan for compensation to be earned subsequent
to the Deferral Election. A new Eligible Employee must make a Deferral
Election within thirty days of the date the employee becomes eligible to
participate in the Plan to defer compensation earned in the current
year.
37
<PAGE>
d) Early Withdrawal. A Participant who wishes to receive payment
of all or part of his or her deferred Compensation on a date earlier
than that specified in the Deferral Election may do so by filing a
request for early withdrawal with the Plan Administrator. In fulfilling
the request, the Plan Administrator will distribute an amount equal to
(i) the entire amounts credited to the Participant's Deferral Account
for a number of Deferral Years sufficient to cover the amount requested,
beginning with the earliest Deferral Year in which the Participant
participated in the Plan, less (ii) an early withdrawal penalty equal to
10% of the amounts credited for such Year(s). The amount distributed
will never be less than the entire amount credited for the full Deferral
Year or Years less the 10% early withdrawal penalty. The Participant
shall permanently forfeit the early withdrawal penalty and shall forfeit
eligibility to make Deferral Elections for the two calendar years
following the year in which the early withdrawal is requested. In no
case shall an early withdrawal cause a current Deferral Election to be
suspended or canceled. A Participant may not request more than one
early withdrawal per calendar year.
4. Deferral Account
a) Earnings Options. The earnings options available for selection
in the Deferral Election are as follows:
i) Norwest Corporation common stock option ("Common Stock
Option").
ii) Norwest Bank Minnesota, N.A. one-year certificate of
deposit option ("CD Option").
iii) A selection of registered investment companies chosen
by the Employee Benefit Review Committee of the Corporation ("Fund
Option").
A Participant may choose to allocate amounts credited to his or her
account under the Plan (the "Deferral Account") among the earnings
options in increments of five (5) percent. The allocation of earnings
options must be made by the Participant in advance of each Deferral Year
and, once made, cannot be changed for the deferred Compensation. If the
Participant makes no earnings option election, the Participant will be
deemed to have selected the Common Stock Option for that Deferral Year.
b) Periodic Credits. On each pay day on which the deferred
Compensation would otherwise be paid to a Participant, the Participant
shall receive a credit to his or her Deferral Account. The amount of
each credit shall be equal to the amount the Participant elected to
defer in the Deferral Election, and each credit shall be accounted for
based on the earnings options selected by the Participant in the
Deferral Election. In the case of the Common Stock Option, the credit
shall be a number of shares of Norwest common stock ("Common Stock")
determined in accordance with paragraph 5(b) below.
c) Adjustments. That portion of a Participant's Deferral Account
which is accounted for under each earnings option shall be further
adjusted by an amount determined in accordance with the respective
earnings option as follows:
i) CD Option. Adjustments under the CD Option shall be made
monthly as of the last day of each month. The amount of the
adjustment for the CD Option shall be calculated by multiplying
the Participant's average balance in the CD Option for the month
by an earnings factor based on the interest rate for a Norwest
38
<PAGE>
Bank Minnesota, N.A. one-year certificate of deposit as determined
from time to time by the Plan Administrator.
ii) Fund Option. Adjustments under any Fund Option shall be
made monthly as of the last day of each month. The amount of the
adjustment for a Fund Option shall be calculated by multiplying
the Participant's average balance in the Fund Option for the month
by an adjustment factor based on the reported positive or negative
performance for the month of the registered investment company
assets relating to the Fund Option selected.
iii) Common Stock Option. Adjustments under the Common
Stock Option shall be made each time a dividend is paid on Common
Stock in accordance with paragraph 5(c) below.
5. Common Stock Option
a) Accounting. All periodic credits and all adjustments to a
Participant's Deferral Account under the Common Stock Option shall be
credited in shares of Common Stock. Shares of Common Stock shall be
rounded to the nearest one-hundredth of a share.
b) Determination of Number of Shares. The number of shares of
Common Stock credited to a Participant's Deferral Account under the
Common Stock Option shall be determined by dividing the amount of each
periodic credit by the average of the high and low prices per share of
Common Stock reported on the consolidated tape of the New York Stock
Exchange on the last day of each month (or, if the New York Stock
Exchange is closed on that date, on the next preceding date on which it
was open).
c) Adjustments Based on Dividends. Adjustments under the Common
Stock Option shall be made each time a dividend is paid on Common Stock.
The number of shares credited to a Participant's Deferral Account for
such adjustments shall be determined by multiplying the dividend amount
per share by the number of shares credited to the Participant's Deferral
Account as of the record date for the dividend and dividing the product
by the average of the high and low prices per share of Common Stock
reported on the consolidated tape of the New York Stock Exchange on the
dividend payment date (or, if the New York Stock Exchange is closed on
that date, on the next preceding date on which it was open).
d) Number of Shares Issuable under the Plan. Subject to
adjustment as provided in Section 5(e), the maximum number of shares of
Common Stock that may be credited under the Plan is 500,000.
e) Adjustments for Certain Changes in Capitalization. If the
Corporation shall at any time increase or decrease the number of its
outstanding shares of Common Stock or change in any way the rights and
privileges of such shares by means of the payment of a stock dividend or
any other distribution upon such shares payable in Common Stock, or
through a stock split, subdivision, consolidation, combination,
reclassification, or recapitalization involving the Common Stock, then
the numbers, rights, and privileges of the shares issuable under the
Plan shall be increased, decreased, or changed in like manner as if such
shares had been issued and outstanding, fully paid, and nonassessable at
the time of such occurrence.
39
<PAGE>
f) Availability. The Common Stock Option shall be available only
to those Participants who are not subject to the provisions of Section
16 of the Securities Exchange Act of 1934 and rules promulgated by the
Securities and Exchange Commission thereunder ("Insiders") until such
time as this Plan has been approved by a vote of the stockholders of the
Corporation. After such approval, the Common Stock Option shall be
available to Insiders on the same basis as it is to other Participants.
6. Distributions. Payment of Deferral Accounts shall be made
pursuant to the Participant's Deferral Election, subject to the
following:
a) Upon Retirement or Disability. A Participant may designate in
the Deferral Election distribution of the Deferral Account in either a
lump sum or annual installments for a period of years not to exceed ten
if the Participant elects distribution to be made following his or her
disability as described in the Norwest Corporation Long Term Disability
Plan or after his or her regular retirement date or early retirement as
defined in Sec. 6.1 or 6.2 of the Norwest Corporation Pension Plan.
b) Upon death. If a Participant dies before receiving all
payments to which he or she is entitled under the Plan, payment of the
balance in the Deferral Account shall be made as designated in the
Deferral Election in a lump sum on February 28 (or the next preceding
business day if February 28 is not a business day) of the year following
the date of death or 60 days following the date of death to such
Participant's estate or, if the Participant has designated a beneficiary
in writing and the written designation has been delivered to and
accepted by the Plan Administrator prior to the Participant's death, to
such beneficiary.
c) Upon other termination of employment. Notwithstanding any
Deferral Election to the contrary, if a Participant terminates
employment with the Corporation prior to regular or early retirement as
defined in Section 6.1 or 6.2 of the Norwest Corporation Pension Plan or
disability as described in the Norwest Corporation Long-Term Disability
Plan, the Deferral Account will be paid to the Participant in a lump
sum.
d) Form of distributions. All distributions shall be payable as
follows:
i) in cash for all Deferral Accounts for which the
Participant elected an earnings option other than the Common Stock
Option; or
ii) if the Participant elected the Common Stock Option, in
cash, or in whole shares of Common Stock (together with cash in
lieu of a fractional share), or in a combination thereof, as the
Participant shall elect prior to payment. If no election is made,
distribution shall be made in whole shares of Common Stock
(together with cash in lieu of a fractional share).
e) Valuation of Deferral Accounts for distribution.
i) Amounts paid on any February 28 (or the next preceding
business day if February 28 is not a business day) shall be
determined based on the Participant's Deferral Account balance
40
<PAGE>
and/or on the price of Common Stock determined pursuant to Section
5 as of the preceding December 31 (or the next preceding business
day if December 31 is not a business day). Amounts paid as of any
other date on which a distribution is made shall be determined
based on the Participant's Deferral Account balance and/or on the
price of Common Stock determined pursuant to Section 5 as of the
end of the month in which the event which triggers distribution
occurs.
ii) The amount of each installment payment shall be a
fraction of the value of the Participant's Deferral Account as of
the December 31 preceding the date of the installment payment (or
the next preceding business day if December 31 is not a business
day), the numerator of which is one and the denominator of which
is the total number of installments elected (not to exceed ten)
minus the number of installments previously paid. The balance
remaining in the Deferral Account shall continue to be adjusted
based on the earnings options selected by the Participant in the
Deferral Election until the Deferral Account is paid out in full.
All installment payments will be made by pro rata withdrawals from
each earnings option elected by the Participant.
f) Timing of distributions.
i) All lump sum distributions shall be made as designated in
the Deferral Election on either February 28 (or the next preceding
business day if February 28 is not a business day) of the year
designated in the Deferral Election or on the date 60 days
following the occurrence of the event which triggers distribution.
ii) All annual installment distributions shall be made on
February 28 (or the next preceding business day if February 28 is
not a business day), commencing on February 28 of the calendar
year following disability or retirement.
7. Nonassignability. No right to receive cash payments under the
Plan nor any shares of Common Stock credited to a Participant's Deferral
Account shall be assignable or transferable by a Participant other than
by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue
Code of 1986, as amended ("Internal Revenue Code"), Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or rules thereunder. The designation of a beneficiary by a Participant
does not constitute a transfer.
8. Withholding of Taxes. Distributions under this Plan shall be
subject to the deduction of the amount of any federal, state, or local
income taxes, Social Security tax, Medicare tax, or other taxes required
to be withheld from such payments by applicable laws and regulations.
9. Unsecured Obligation. Benefits payable under this Plan shall
be an unsecured obligation of the Corporation.
10. Administration. The Plan shall be administered by the Human
Resources Committee of the Corporation's Board of Directors (the "Plan
Administrator") or its delegate, which shall have the authority to
41
<PAGE>
interpret the Plan, to adopt procedures for implementing the Plan, and
to determine adjustments under the Plan.
11. Amendment and Termination. The Human Resources Committee of
the Corporation's Board of Directors may at any time terminate, suspend,
or amend this Plan; provided, however, that the provisions of Sections
1, 2, 3, 4 and 5 may not be amended more than once in every six months
other than to comport with changes in the Internal Revenue Code, ERISA,
or the rules thereunder or the regulations of the Securities and
Exchange Commission. No such action shall deprive any Participant of
any benefits to which he or she would have been entitled under the Plan
if termination of the Participant's employment had occurred on the day
prior to the date such action was taken, unless agreed to by the
Participant.
12. Effective Date. The effective date of the Plan shall be
determined by the Human Resources Committee of the Board of Directors or
such officers of the Corporation to which said Committee has delegated
its authority to set the effective date.
42
<PAGE>
Exhibit 11.
Norwest Corporation and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
In thousands, except per common share amounts Quarter Ended
September 30,
1994 1993
<S> <C> <C>
PRIMARY:
Weighted average number of common shares
outstanding ..................................... 315,059 305,405
Net effect of assumed exercise of stock options
based on treasury stock method using average
market price .................................... 2,255 3,126
317,314 308,531
Net income ........................................ $202,988 174,773
Less dividends accrued on preferred stock ........ 6,888 7,681
Net income, as adjusted .......................... $196,100 167,092
Net income per common share ...................... $ 0.62 0.54
FULLY DILUTED:
Weighted average number of common shares
outstanding ..................................... 315,059 305,405
Net effect of assumed exercise of stock options
based on treasury stock method using average
market price or period-end market price,
whichever is higher ............................. 2,268 3,224
Assumed conversion of 6 3/4% convertible
subordinated debentures due 2003 ................ 47 69
Assumed conversion of Cumulative Convertible
Preferred Stock ................................. 12,627 15,464
330,001 324,162
Net income ........................................ $202,988 174,773
Less dividends accrued on preferred stock ........ 2,885 3,037
Add 6 3/4% convertible subordinated debentures
interest and amortization of debt expense,
net of income tax effect ........................ 3 4
Net income, as adjusted .......................... $200,106 171,740
Net income per common share....................... $ 0.61 0.53
</TABLE>
43
<PAGE>
Exhibit 11.
(continued)
Norwest Corporation and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
In thousands, except per common share amounts Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
PRIMARY:
Weighted average number of common shares
outstanding ..................................... 314,238 304,366
Net effect of assumed exercise of stock options
based on treasury stock method using average
market price .................................... 2,310 3,031
316,548 307,397
Net income ........................................ $595,488 501,986
Less dividends accrued on preferred stock ........ 20,938 23,467
Net income, as adjusted .......................... $574,550 478,519
Net income per common share ...................... $ 1.82 1.56
FULLY DILUTED:
Weighted average number of common shares
outstanding ..................................... 314,238 304,366
Net effect of assumed exercise of stock options
based on treasury stock method using average
market price or period-end market price,
whichever is higher ............................. 2,332 3,319
Assumed conversion of 6 3/4% convertible
subordinated debentures due 2003 ................ 48 81
Assumed conversion of Cumulative Convertible
Preferred Stock ................................. 12,627 16,288
329,245 324,054
Net income ........................................ $595,488 501,986
Less dividends accrued on preferred stock ........ 8,929 9,150
Add 6 3/4% convertible subordinated debentures
interest and amortization of debt expense,
net of income tax effect ........................ 8 14
Net income, as adjusted .......................... $586,567 492,850
Net income per common share....................... $ 1.78 1.52
</TABLE>
44
<PAGE>
Exhibit 12(a).
Norwest Corporation and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
In thousands 1994 1993 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Computation of Income:
Income before
income taxes $ 879,156 716,658 879,755 645,568 491,673 284,453 383,681
Capitalized interest (56) (44) (65) (24) - (13) (165)
Income before income
taxes and capitalized
interest 879,100 716,614 879,690 645,544 491,673 284,440 383,516
Fixed charges 1,166,207 1,102,659 1,485,936 1,651,664 2,187,536 2,354,041 2,241,827
Total income for
computation $2,045,307 1,819,273 2,365,626 2,297,208 2,679,209 2,638,481 2,625,343
Total income for
computation excluding
interest on deposits
from fixed charges $1,417,351 1,190,505 1,513,317 1,281,619 1,196,648 1,111,762 1,166,852
Computation of Fixed
Charges:
Net rental
expense (a) $ 113,457 86,758 128,573 123,342 111,609 102,192 94,568
Portion of rentals
deemed
representative
of interest $ 37,819 28,919 42,858 41,114 37,203 34,064 31,523
Interest:
Interest on
deposits 627,956 628,768 852,309 1,015,589 1,482,561 1,526,719 1,458,491
Interest on
federal funds
and other
short-term
borrowings 195,732 186,196 238,046 277,835 352,384 522,849 493,142
Interest on
long-term debt 304,644 258,732 352,658 317,102 315,388 270,396 258,506
Capitalized
interest 56 44 65 24 - 13 165
Total interest 1,128,388 1,073,740 1,443,078 1,610,550 2,150,333 2,319,977 2,210,304
Total fixed
charges $1,166,207 1,102,659 1,485,936 1,651,664 2,187,536 2,354,041 2,241,827
Total fixed
charges excluding
interest on
deposits $ 538,251 473,891 633,627 636,075 704,975 827,322 783,336
Ratio of Income
to Fixed Charges:
Excluding
interest on
deposits 2.63X 2.51 2.39 2.01 1.70 1.34 1.49
Including
interest on
deposits 1.75X 1.65 1.59 1.39 1.22 1.12 1.17
(a) Includes equipment rentals.
</TABLE>
45
<PAGE>
Exhibit 12(b).
Norwest Corporation and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
In thousands 1994 1993 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Computation of Income:
Income before
income taxes $ 879,156 716,658 879,755 645,568 491,673 284,453 383,681
Capitalized interest (56) (44) (65) (24) - (13) (165)
Income before income
taxes and capitalized
interest 879,100 716,614 879,690 645,544 491,673 284,440 383,516
Fixed charges 1,166,207 1,102,659 1,485,936 1,651,664 2,187,536 2,354,041 2,241,827
Total income for
computation $2,045,307 1,819,273 2,365,626 2,297,208 2,679,209 2,638,481 2,625,343
Total income for
computation excluding
interest on deposits
from fixed charges $1,417,351 1,190,505 1,513,317 1,281,619 1,196,648 1,111,762 1,166,852
Computation of Fixed
Charges:
Net rental
expense (a) $ 113,457 86,758 128,573 123,342 111,609 102,192 94,568
Portion of rentals
deemed
representative
of interest $ 37,819 28,919 42,858 41,114 37,203 34,064 31,523
Interest:
Interest on
deposits 627,956 628,768 852,309 1,015,589 1,482,561 1,526,719 1,458,491
Interest on
federal funds
and other
short-term
borrowings 195,732 186,196 238,046 277,835 352,384 522,849 493,142
Interest on
long-term debt 304,644 258,732 352,658 317,102 315,388 270,396 258,506
Capitalized
interest 56 44 65 24 - 13 165
Total interest 1,128,388 1,073,740 1,443,078 1,610,550 2,150,333 2,319,977 2,210,304
Total fixed
charges $1,166,207 1,102,659 1,485,936 1,651,664 2,187,536 2,354,041 2,241,827
Total fixed
charges excluding
interest on
deposits $ 538,251 473,891 633,627 636,075 704,975 827,322 783,336
Preferred stock
dividends 20,938 23,467 31,170 32,219 20,065 3,225 6,870
Pre-tax earnings
needed to meet
preferred stock
dividend
requirements 30,913 33,503 44,728 44,367 23,997 5,294 9,232
Total combined fixed
charges and preferred
stock dividends $1,197,120 1,136,162 1,530,664 1,696,031 2,211,533 2,359,335 2,251,059
Total combined
fixed charges
and preferred stock
dividends excluding
interest on
deposits $ 569,164 507,394 678,355 680,442 728,972 832,616 792,568
(a) Includes equipment rentals.
</TABLE>
46
<PAGE>
Exhibit 12(b).
(continued)
Norwest Corporation and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
In thousands 1994 1993 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Income to Combined
Fixed Charges and Preferred
Stock Dividends:
Excluding interest on
deposits 2.49X 2.35 2.23 1.88 1.64 1.34 1.47
Including interest on
deposits 1.71X 1.60 1.55 1.35 1.21 1.12 1.17
</TABLE>
47
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1994 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,103
<INT-BEARING-DEPOSITS> 21
<FED-FUNDS-SOLD> 721
<TRADING-ASSETS> 170
<INVESTMENTS-HELD-FOR-SALE> 12,595
<INVESTMENTS-CARRYING> 1,381
<INVESTMENTS-MARKET> 1,439
<LOANS> 31,075
<ALLOWANCE> 790
<TOTAL-ASSETS> 56,565
<DEPOSITS> 34,750
<SHORT-TERM> 7,126
<LIABILITIES-OTHER> 2,555
<LONG-TERM> 8,310
<COMMON> 539
0
341
<OTHER-SE> 2,944
<TOTAL-LIABILITIES-AND-EQUITY> 56,565
<INTEREST-LOAN> 2,237
<INTEREST-INVEST> 653
<INTEREST-OTHER> 307
<INTEREST-TOTAL> 3,197
<INTEREST-DEPOSIT> 628
<INTEREST-EXPENSE> 1,128
<INTEREST-INCOME-NET> 2,069
<LOAN-LOSSES> 102
<SECURITIES-GAINS> (59)
<EXPENSE-OTHER> 2,289
<INCOME-PRETAX> 879
<INCOME-PRE-EXTRAORDINARY> 596
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 596
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 5.64
<LOANS-NON> 128
<LOANS-PAST> 74
<LOANS-TROUBLED> 2
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 789
<CHARGE-OFFS> 215
<RECOVERIES> 94
<ALLOWANCE-CLOSE> 790
<ALLOWANCE-DOMESTIC> 530
<ALLOWANCE-FOREIGN> 20
<ALLOWANCE-UNALLOCATED> 240
</TABLE>
