<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
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
This Form 10-K/A amends and restates in its entirety the consolidated
financial statements of the corporation and its subsidiaries included on pages
36 through 83 of the Appendix, filed pursuant to Item 8 and Item 14(a)(1), to
reflect the acquisition of First United Bank Group, Inc. on January 14, 1994.
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.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed Pursuant to Section 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
NORWEST CORPORATION
I.R.S. No. 41-0449260
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479
Telephone (612) 667-1234
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its 1993 Annual Report on Form 10-K
as set forth in the pages attached hereto.
FINANCIAL STATEMENTS
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Norwest Corporation
(Registrant)
May 13, 1994 By /s/ Richard M. Kovacevich
President and Chief Executive Officer
By /s/ John T. Thornton
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
By /s/ Michael A. Graf
Senior Vice President and Controller
(Principal Accounting Officer)
By /s/ William A. Hodder
Director and Attorney-in-fact
<PAGE>
CONTENTS
Page
Consent of Independent Auditors 1
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 5
Consolidated Statements of Stockholders' Equity 8
Notes to Consolidated Financial Statements 10
<PAGE>
The Board of Directors
Norwest Corporation
We consent to the substitution of the following financial statements for the
corresponding financial statements previously filed by you as a part of your
annual report on Form 10-K for the fiscal year ended December 31, 1993:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
and to the use of our report dated January 19, 1994, included in said annual
report after such substitution.
By /s/ KPMG Peat Marwick
KPMG Peat Marwick
Minneapolis, Minnesota
May 13, 1994
1
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
In millions, except shares
<TABLE>
<CAPTION>
At December 31, 1993 1992
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,844.4 2,744.3
Interest-bearing deposits with banks 55.9 112.6
Federal funds sold and resale agreements 707.7 571.1
Total cash and cash equivalents 3,608.0 3,428.0
Trading account securities 279.1 132.0
Investment securities (market value $1,597.6
in 1993 and $1,927.3 in 1992) 1,542.7 1,865.0
Mortgage-backed securities (market value
$153.1 in 1993 and $167.5 in 1992) 151.0 165.9
Investment securities available for sale
(market value $2,260.9 in 1993 and
$1,815.7 in 1992) 2,001.2 1,573.6
Mortgage-backed securities available for sale
(market value $9,244.0 in 1993 and
$9,565.6 in 1992) 9,021.6 9,358.2
Total investment securities 12,716.5 12,962.7
Student loans available for sale 1,349.2 1,156.5
Mortgages held for sale 6,090.7 4,727.8
Loans and leases 29,781.9 26,797.9
Unearned discount (1,021.1) (1,015.4)
Allowance for credit losses (789.2) (773.1)
Net loans and leases 27,971.6 25,009.4
Premises and equipment, net 842.1 742.2
Interest receivable and other assets 1,807.8 1,878.4
Total assets $54,665.0 50,037.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 9,054.3 7,382.5
Interest-bearing 26,922.2 24,226.9
Total deposits 35,976.5 31,609.4
Short-term borrowings 5,996.8 8,824.9
Accrued expenses and other liabilities 2,079.9 1,677.7
Long-term debt 6,850.9 4,553.2
Total liabilities 50,904.1 46,665.2
Preferred stock 380.0 394.0
Common stock, $1 2/3 par value-authorized
500,000,000 shares:
Issued 309,255,558 and 303,608,233 shares
in 1993 and 1992, respectively 515.4 265.1
Surplus 503.3 686.6
Retained earnings 2,433.3 2,089.1
Notes receivable from ESOP (16.3) (19.5)
Treasury stock-1,956,803 and 2,066,950 common shares
in 1993 and 1992, respectively (51.5) (43.2)
Foreign currency translation (3.3) (0.3)
Total common stockholders' equity 3,380.9 2,977.8
Total stockholders' equity 3,760.9 3,371.8
Total liabilities and stockholders' equity $54,665.0 50,037.0
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
In millions, except per common share amounts
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
<S> <C> <C> <C>
INTEREST INCOME ON
Loans and leases $2,648.2 2,454.9 2,701.6
Investment securities 117.1 230.0 293.6
Mortgage-backed securities 9.3 584.2 751.2
Investment securities available for sale 118.5 16.9 -
Mortgage-backed securities available for sale 592.4 164.9 -
Student loans available for sale 85.3 24.2 -
Mortgages held for sale 326.8 279.4 192.1
Money market investments 19.8 28.9 76.7
Trading account securities 28.9 23.0 10.7
Total interest income 3,946.3 3,806.4 4,025.9
INTEREST EXPENSE ON
Deposits 852.3 1,015.6 1,482.5
Short-term borrowings 238.1 277.9 352.4
Long-term debt 352.5 317.1 315.4
Total interest expense 1,442.9 1,610.6 2,150.3
NET INTEREST INCOME 2,503.4 2,195.8 1,875.6
Provision for credit losses 158.2 270.8 406.4
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 2,345.2 1,925.0 1,469.2
NON-INTEREST INCOME
Trust 187.2 168.9 149.6
Service charges on deposit accounts 211.6 190.7 172.5
Mortgage banking 472.3 275.3 185.9
Data processing 65.5 66.1 64.2
Credit card 114.3 134.2 152.4
Insurance 176.8 155.1 140.6
Other fees and service charges 163.3 145.6 129.9
Net investment and mortgage-backed
securities gains 0.1 10.7 20.9
Net investment and mortgage-backed securities
available for sale gains 48.7 55.5 -
Net venture capital gains (losses) 59.5 29.7 (4.6)
Other 85.7 41.9 52.6
Total non-interest income 1,585.0 1,273.7 1,064.0
NON-INTEREST EXPENSES
Salaries and benefits 1,474.3 1,175.4 983.3
Net occupancy 189.2 181.7 163.6
Equipment rentals, depreciation and maintenance 202.0 175.8 150.9
Business development 151.3 117.5 93.4
Communication 168.6 145.7 129.3
Data processing 108.2 100.5 94.3
FDIC assessment and regulatory examination fees 79.7 75.2 67.8
Intangible asset amortization 74.7 76.4 64.6
Other 602.4 504.9 294.3
Total non-interest expenses 3,050.4 2,553.1 2,041.5
</TABLE>
(CONTINUED ON PAGE 4)
3
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED FROM PAGE 3)
In millions, except per common share amounts
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
<S> <C> <C> <C>
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF A CHANGE IN METHOD OF ACCOUNTING FOR
POSTRETIREMENT MEDICAL BENEFITS 879.8 645.6 491.7
Income tax expense 266.7 175.6 73.4
Income before cumulative effect of a change in
accounting for postretirement medical benefits 613.1 470.0 418.3
Cumulative effect on years ended prior to
December 31, 1992 of a change in accounting
for postretirement medical benefits,
net of tax - (76.0) -
NET INCOME $613.1 394.0 418.3
Average Common and Common Equivalent Shares 307.7 303.4 297.3
PER COMMON SHARE
NET INCOME
Primary:
Before cumulative effect of a change in
accounting for postretirement medical
benefits $ 1.89 1.44 1.33
Cumulative effect on years ended prior to
December 31, 1992 of a change in accounting
for postretirement medical benefits - (0.25) -
Net Income $ 1.89 1.19 1.33
Fully Diluted:
Before cumulative effect of a change in
accounting for postretirement medical
benefits $ 1.86 1.42 1.32
Cumulative effect on years ended prior
to December 31, 1992 of a change in
accounting for postretirement medical
benefits - (0.23) -
Net Income $ 1.86 1.19 1.32
DIVIDENDS $0.640 0.540 0.470
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 613.1 394.0 418.3
Adjustments to reconcile net income
to net cash flows used for operating
activities:
Cumulative effect on years prior to
December 31, 1992 of a change in
accounting for postretirement
medical benefits, net of tax - 76.0 -
Writedown of intangible and other
assets 84.8 150.0 -
Provision for credit losses 158.2 270.8 406.4
Depreciation and amortization 206.4 178.7 163.9
(Gains) losses on other real
estate owned, net (0.6) (5.2) 17.7
Losses on sales of premises and
equipment 4.3 29.5 3.7
Gains on sales of mortgages held
for sale (140.5) (18.9) (12.9)
Gains on sales of investment,
mortgage-backed and venture
capital securities (0.1) (37.9) (16.3)
Gains on sales of investment,
mortgage-backed and venture
capital securities available
for sale (108.2) (58.0) -
Gains on sales of student loans
available for sale (12.4) (0.3) -
Trading account securities gains (22.0) (2.3) (12.8)
Purchases of trading account
securities (64,057.2) (30,912.7) (26,713.6)
Proceeds from sales of trading
account securites 63,932.1 30,940.9 26,756.9
Originations of mortgages
held for sale (34,285.9) (21,037.7) (13,184.0)
Proceeds from sales of
mortgages held for sale 33,063.5 19,338.3 12,031.6
Proceeds from sales of investment
and mortgage-backed securities
available for sale 2,351.6 2,590.1 -
Purchases of investment and mortgage-
backed securities available
for sale (4,784.4) (199.8) -
Proceeds from maturities and
paydowns of investment and
mortgage-backed securities
available for sale 3,120.4 691.1 -
</TABLE>
(CONTINUED ON PAGE 6)
5
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED FROM PAGE 5)
In millions
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Originations of student loans
available for sale (1,035.7) - -
Proceeds from sales of student loans
available for sale 855.4 172.0 -
Deferred income taxes (20.0) (116.3) 27.0
Interest receivable 31.0 8.8 55.0
Interest payable 36.2 (44.1) (11.8)
Other assets, net (41.9) (118.6) (165.4)
Other accrued expenses and
liabilities, net 284.1 103.8 98.9
Net cash flows from (used for)
operating activities 232.2 2,392.2 (137.4)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and paydowns
of investment securities 854.9 1,440.8 1,010.9
Proceeds from sales of investment
securities 0.7 918.2 1,296.8
Purchases of investment securities (657.9) (1,838.4) (2,259.9)
Proceeds from maturities and paydowns
of mortgage-backed securities - 2,357.6 1,888.0
Proceeds from sales of mortgage-backed
securities - 493.5 3,967.4
Purchases of mortgage-backed securities - (5,517.4) (8,694.4)
Proceeds from sales of consumer loans
by banking subsidiaries 25.6 278.8 122.7
Net (increase) decrease in banking
subsidiaries' loans and leases (1,278.8) (3,702.0) 1,449.4
Principal collected on non-bank
subsidiaries' loans and leases 4,048.4 3,241.1 2,766.1
Non-bank subsidiaries' loans and
leases originated (4,523.9) (3,494.1) (3,274.3)
Purchase of premises and equipment (226.3) (191.3) (122.3)
Proceeds from sales of premises and
equipment 1.3 16.3 25.6
Proceeds from sales of other real
estate owned 129.7 138.5 148.8
Purchase of subsidiaries, net of cash
and cash equivalents acquired 2,181.8 (204.5) 207.4
Net cash flows from (used for)
investing activities 555.5 (6,062.9) (1,467.8)
</TABLE>
(CONTINUED ON PAGE 7)
6
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED FROM PAGE 6)
In millions
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits, net 310.9 11.8 (656.1)
Short-term borrowings, net (2,896.1) 2,720.2 (351.8)
Long-term debt borrowings 4,301.8 1,571.2 1,304.5
Repayments of long-term debt (2,038.7) (700.3) (695.5)
Issuances of preferred stock - - 266.0
Repurchase/redemption of preferred
stock (0.7) (2.9) (30.4)
Issuances of common stock 55.9 35.8 239.6
Repurchases of common stock (124.3) (86.0) (5.4)
Net decrease in notes receivable
from ESOP 3.2 3.0 8.1
Dividends paid (219.7) (185.7) (146.8)
Net cash flows from (used for)
financing activities (607.7) 3,367.1 (67.8)
Net increase (decrease) in cash
and cash equivalents 180.0 (303.6) (1,673.0)
Cash and cash equivalents
Beginning of year 3,428.0 3,731.6 5,404.6
End of year $ 3,608.0 3,428.0 3,731.6
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
In millions, Notes Foreign
except for Preferred Common Sur- Retained Receivable Treasury Currency
shares Stock Stock plus Earnings from ESOP Stock Translation Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1990, as
originally
reported $144.7 225.8 395.7 1,590.8 (30.6) (29.7) - 2,296.7
Adjustments for
pooling
of interests 10.2 20.7 55.7 50.1 - - - 136.7
Balance,
December 31,
1990, restated 154.9 246.5 451.4 1,640.9 (30.6) (29.7) - 2,433.4
Net income - - - 418.3 - - - 418.3
Dividends on
Common stock - - - (127.6) - - - (127.6)
Preferred stock - - - (20.1) - - - (20.1)
Redemption of
preferred stock (29.7) - - (0.7) - - - (30.4)
Issuance of
2,618,041
preferred shares 271.3 - (5.3) - - - - 266.0
Public offering of
17,638,200 common
shares - 14.7 189.0 - - - - 203.7
Issuance of
5,262,594 common
shares - 1.8 21.6 (3.4) - 25.4 - 45.4
Issuance of 230,000
common shares for
acquisition - 0.2 (1.0) - - - - (0.8)
Repurchase of 323,138
common shares - - - - - (4.6) - (4.6)
Repurchase and
retirement of 53,710
common shares - - (0.8) - - - - (0.8)
Net change in reserve
for losses on equity
investments - - - 1.7 - - - 1.7
Cash payments received
on notes receivable
from ESOP - - - - 8.1 - - 8.1
Balance,
December 31, 1991 396.5 263.2 654.9 1,909.1 (22.5) (8.9) - 3,192.3
</TABLE>
(CONTINUED ON PAGE 9)
8
<PAGE>
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED FROM PAGE 8)
<TABLE>
<CAPTION>
In millions, Notes Foreign
except for Preferred Common Sur- Retained Receivable Treasury Currency
shares Stock Stock plus Earnings from ESOP Stock Translation Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income - - - 394.0 - - - 394.0
Dividends on
Common stock - - - (153.6) - - - (153.6)
Preferred stock - - - (32.1) - - - (32.1)
Issuance of 4,395,318
common shares - 1.9 42.7 (27.8) - 34.9 - 51.7
Issuance of 899,972
common shares for
acquisition - - (11.0) - - 16.7 - 5.7
Repurchase of 4,590,105
common shares - - (0.1) - - (85.9) - (86.0)
Repurchase of 18,550
preferred shares (2.5) - 0.1 (0.5) - - - (2.9)
Cash payments
received on notes
receivable from
ESOP - - - - 3.0 - - 3.0
Foreign currency
translation - - - - - - (0.3) (0.3)
Balance,
December 31, 1992 394.0 265.1 686.6 2,089.1 (19.5) (43.2) (0.3) 3,371.8
Net income - - - 613.1 - - - 613.1
Dividends on
Common stock - - - (188.5) - - - (188.5)
Preferred stock - - - (31.2) - - - (31.2)
Stock split - 244.2 (244.2) - - - - -
Issuance of 4,787,158
common shares - 1.6 73.8 (59.5) - - - 82.5
Issuance of 4,054,562
common shares for
acquisitions - 2.4 (24.2) 10.1 - 49.4 - 37.7
Repurchase of 4,789,658
common shares - - - - - (124.3) - (124.3)
Repurchase of 6,450
preferred shares (0.6) - - (0.1) - - - (0.7)
Conversion of 320,202
preferred shares into
1,705,410 common
shares (13.4) 2.1 11.3 - - - - -
Cash payments
received on notes
receivable from
ESOP - - - - 3.2 - - 3.2
Tax benefits of
dividends on common
stock held by ESOP - - - 0.3 - - - 0.3
Foreign currency
translation - - - - - - (3.0) (3.0)
Balance,
December 31, 1993 $380.0 515.4 503.3 2,433.3 (16.3) (51.5) (3.3) 3,760.9
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Norwest Corporation (the "corporation") is a regional bank holding company
organized in 1929 and registered under the Bank Holding Company Act of 1956,
as amended. The corporation is a diversified financial services organization
which operates through subsidiaries engaged in banking and related businesses.
The corporation provides retail, commercial, and corporate banking services to
its customers through banks located in Arizona, Colorado, Illinois, Indiana,
Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Ohio, South
Dakota, Texas, Wisconsin and Wyoming. The corporation also owns subsidiaries
engaged in various businesses related to banking, principally mortgage
banking, equipment leasing, agricultural finance, commercial finance,
consumer finance, securities brokerage and investment banking, insurance,
computer and data processing services, trust services and venture capital
investments.
The accounting and reporting policies of the corporation and its subsidiaries
conform to generally accepted accounting principles and general practices
within the financial services industry. The more significant accounting
policies are summarized below.
CONSOLIDATION
The consolidated financial statements include the accounts of the corporation
and all subsidiaries. Significant intercompany accounts and transactions have
been eliminated.
CHANGE IN ACCOUNTING FOR POSTRETIREMENT MEDICAL BENEFITS
Effective January 1, 1992, the corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (FAS 106). FAS 106 requires employers to accrue
the cost of retiree health care benefits and the cost of all other
postretirement benefits other than pensions during the employees' active
service. In prior years, this expense was recognized when benefits were paid.
The cumulative liability for these expenses for years prior to 1992 of $76.0
million after tax, or $0.25 per common share, was recognized as a cumulative
effect of accounting change as of January 1, 1992. As a result of applying
the new method of accounting for postretirement medical benefits, medical
benefits expense increased $9.5 million in 1992.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the corporation
considers cash and due from banks, interest-bearing deposits with banks and
federal funds sold and resale agreements to be cash equivalents.
Cash paid for interest and income taxes for the years ended December 31 was:
In millions 1993 1992 1991
Interest $1,481.1 1,654.6 2,174.8
Income taxes 226.0 208.6 55.6
Loans transferred to other real estate owned totaled $69.6 million in 1993,
$112.7 million in 1992, and $128.0 million in 1991. Investment and mortgage-
backed securities of $234.2 million and $14,001.2 million were transferred to
available for sale in 1993 and 1992, respectively, and student loans of
$1,330.3 million were transferred to available for sale in 1992. During 1993
and 1992, the corporation issued 2,127,428 and 899,972 shares of common stock,
respectively, in connection with acquisitions accounted for using the purchase
method.
10
<PAGE>
SECURITIES
Investment and mortgage-backed securities which the corporation intends to
hold until maturity are stated at cost, adjusted for amortization of premiums
and accretion of discounts using a method that approximates level yield.
Investment and mortgage-backed securities which the corporation intends to
hold for indefinite periods of time, including securities that management
intends to use as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, securities
on which call options have been written, the need to increase regulatory
capital or similar factors, are classified as available for sale. Securities
available for sale are stated at the lower of aggregate cost or market value.
Investment and mortgage-backed securities are transferred to securities
available for sale at their respective carrying value. Gains and losses on
the sales of investment and mortgage-backed securities are computed by the
specific identification method.
Trading account securities are purchased with the intent to earn a profit by
trading or selling the security. These securities are stated at market value.
Adjustments to the carrying value are reported in other non-interest income.
Securities held by the venture capital subsidiaries are included in investment
securities available for sale and are stated at the lower of aggregate cost or
market value. Gains and losses on the sales of such securities are computed
on a specific identification basis.
LOANS AND LEASES
Loans are stated at their principal amount. Interest income is recognized on
an accrual basis except when a loan has been past due for 90 days, unless such
loan is in the process of collection and, in management's opinion, is fully
secured. When a loan is placed on non-accrual status, uncollected interest
accrued in prior years is charged against the allowance for credit losses. A
loan is returned to accrual status when principal and interest are no longer
past due and collectibility is no longer doubtful.
Restructured loans are those on which concessions in terms have been made as a
result of deterioration in a borrower's financial condition. Interest on
these loans is accrued at the new terms.
Lease financing assets include aggregate lease rentals, net of related
unearned income, which includes deferred investment tax credits, and related
nonrecourse debt. Leasing income is recognized as a constant percentage of
outstanding lease financing balances over the lease terms.
Unearned discount on consumer loans is recognized by either the interest
method or methods for which results are not materially different from the
interest method.
Loan origination fees and costs incurred to extend credit are deferred and
amortized over the term of the loan and the loan commitment period as a yield
adjustment. Loan fees representing adjustments of interest rate yield are
generally deferred and amortized into interest income over the term of the
loan using the interest method. Loan commitment fees are generally deferred
and amortized into non-interest income on a straight-line basis over the
commitment period.
At December 31, 1993 and 1992, the corporation had $1,349.2 million and
$1,156.5 million, respectively, of student loans available for sale because
the corporation does not intend to hold these loans for the foreseeable
future. Student loans available for sale are stated at the lower of aggregate
cost or market value. Student loans were transferred to available for sale at
their carrying value.
11
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is based upon management's evaluation of a
number of factors, including credit loss experience, risk analyses of loan
portfolios, as well as current and expected economic conditions.
Charge-offs are loans or portions thereof evaluated as uncollectible. Loans
made by the consumer finance subsidiaries, unless fully secured by real
estate, are generally charged off when the loan is 90 days or more
contractually delinquent and no payment has been received for 90 days. Credit
card receivables are generally charged off when they become 180 days past due
or sooner upon receipt of a bankruptcy notice. Other consumer loans are
generally charged off when they become 120 days past due unless fully secured.
MORTGAGES HELD FOR SALE
Mortgages held for sale are stated at the lower of aggregate cost or market
value. The determination of market value includes consideration of all open
positions, outstanding commitments from investors, and related fees paid.
Gains and losses on sales of mortgages are recognized at settlement dates.
Gains and losses are determined by the difference between sales proceeds and
the carrying value of the mortgages.
PURCHASED MORTGAGE SERVICING RIGHTS
The costs of purchased mortgage servicing rights are capitalized and are
either deferred, if anticipated to be sold concurrent with the sale of the
mortgage, or, if the servicing rights are retained, amortized over the
estimated remaining life of the underlying loans using a method which
approximates the level yield method with appropriate prepayment assumptions.
The carrying value of purchased mortgage servicing rights is periodically
evaluated in relation to estimated future servicing net revenues.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Owned properties are depreciated on a straight-line basis over
their estimated useful lives. Capital lease assets and leasehold improvements
are amortized over lease terms on a straight-line basis.
The cost of improvements are capitalized while maintenance and repairs as well
as gains and losses on dispositions of premises and equipment are included in
non-interest expenses.
OTHER REAL ESTATE OWNED
Other real estate owned is stated at the lower of cost or 70 percent of
current appraised value, which is not materially different from fair value
minus estimated costs to sell. When a property is acquired, the excess of the
recorded investment in the property over fair value, if any, is charged to the
allowance for credit losses. Subsequent declines in the estimated fair value,
net operating results and gains or losses on disposition of the property are
included in other non-interest expenses.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the unamortized cost of acquiring subsidiaries and other
net assets in excess of the appraised value of such net assets at the date of
acquisition. In 1993, the corporation changed the amortizable life of
goodwill to a maximum of 15 years from amortizable lives ranging from 15-30
years. Goodwill is amortized using the straight-line method. Other
identifiable intangibles are amortized straight-line over various periods not
to exceed 15 years.
12
<PAGE>
INTEREST RATE FUTURES, CAPS AND FLOORS, OPTIONS AND FORWARD CONTRACTS
The corporation uses interest rate futures, caps and floors and forward
contracts as part of its overall interest rate risk management strategy.
Realized gains and losses on positions used in the management of specific
asset and liability positions in banking operations are deferred and amortized
over the terms of the items hedged as adjustments to interest income or
interest expense. Realized gains and losses on positions used as hedges in
mortgage banking operations are deferred and recognized when the related
mortgages are sold. Positions which are not hedges of specific assets,
liabilities or commitments are valued at market and the resulting gains or
losses are recognized currently.
The corporation also uses option agreements as part of its overall risk
management strategy. Premiums paid on purchased put options which qualify as
hedges are deferred and amortized over the terms of the contracts. Purchased
options for uncovered puts are marked to market daily with losses limited to
the amount of the option fee. Losses are recognized currently on put options
sold when the market value of the underlying security falls below the put
price plus the premium received. A premium received on a covered call option
sold is deferred until the option matures. If the market value of the related
asset is greater than the option strike price, the option will be exercised
and the premium recorded as an adjustment of the gain or loss recognized. If
the option expires the premium is recorded in other non-interest income.
Uncovered calls sold are marked to market daily with the gain limited to the
amount of the option fee.
INTEREST RATE SWAPS
The corporation and its subsidiaries have entered into interest rate swaps as
a tool to manage the interest sensitivity of the balance sheet. The contracts
represent an exchange of interest payments, and the underlying principal
balances of the assets or liabilities are not affected. Net settlement
amounts are reported as adjustments to interest income or interest expense.
INCOME TAXES
The corporation and its United States subsidiaries file a consolidated federal
income tax return. The effects of current or deferred taxes are recognized as
a current and deferred tax liability or asset based on current tax laws.
Accordingly, income tax expense in the consolidated statements of income
includes charges or credits to properly reflect the current and deferred tax
asset or liability. Foreign taxes paid are applied as credits to reduce
federal income taxes payable.
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," (FAS
109) effective January 1, 1993. The corporation adopted FAS 109 as of January
1, 1993, with no material impact on the consolidated financial statements of
the corporation. Prior to adoption of FAS 109, the corporation accounted for
income taxes under Statement of Financial Accounting Standards No. 96.
FOREIGN CURRENCY TRANSLATION
The accounts of the corporation's Canadian subsidiary are measured using local
currency as the functional currency. Assets and liabilities are translated
into United States dollars at period-end exchange rates, and income and
expense accounts are translated at average monthly exchange rates. Net
exchange gains or losses resulting from such translation are excluded from net
income and included as a separate component of stockholders' equity.
13
<PAGE>
EARNINGS PER SHARE
Income for primary and fully diluted earnings per share is adjusted for
preferred stock dividends. Primary earnings per share data is computed based
on the weighted average number of common shares outstanding and common stock
equivalents arising from the assumed exercise of outstanding stock options.
Fully diluted earnings per share data is computed by using such average common
shares and equivalents increased by the assumed conversion into common stock
of the 6 3/4 percent convertible subordinated debentures, the 12 percent
convertible notes, the Cumulative Convertible Preferred Stock, Series B, the
First United Cumulative Convertible Exchangeable Preferred Stock, Series A and
the First United Cumulative Convertible Exchangeable Preferred Stock, Series
C. Income for fully diluted earnings per share is also adjusted for interest
expense on these debentures and notes, net of the related income tax effect,
and preferred stock dividends related to the convertible preferred stock.
Weighted average numbers of common and common equivalent shares applied in
calculating earnings per share are as follows:
1993 1992 1991
Primary 307,726,009 303,427,080 297,315,000
Fully diluted 323,823,259 322,422,652 306,752,300
2. 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
Bank Group, Inc. (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 common share amounts 1993 1992 1991
The corporation
Net income $653.6 364.1 400.9
Net income per common 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 common share
Primary (3.40) 2.18 1.34
Fully diluted (3.40) 1.84 1.29
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.
14
<PAGE>
On December 10, 1993, the corporation completed its acquisition of Winner
Banshares, Inc., a $99 million bank holding company headquartered in Winner,
South Dakota, and issued 530,737 common shares. On October 29, 1993, the
corporation completed its acquisition of FirstAmerican Bank, N.A., a $47.6
million bank, located in Colorado Springs, Colorado. On October 7, 1993, the
corporation completed its acquisition of Ralston Bancshares, Inc., a $101.1
million bank holding company headquartered in Ralston, Nebraska, and issued
548,981 common shares. On October 1, 1993, the corporation completed its
acquisition of M & D Holding Company, a $57.1 million bank holding company
headquartered in Spring Lake Park, Minnesota, and issued 536,084 common
shares. On September 10, 1993, Norwest Bank Denver, N.A., a banking subsidiary
of the corporation, completed its acquisition of $1.1 billion in assets of the
Columbia Savings division of First Nationwide Bank, a Federal Savings Bank.
On September 1, 1993, Norwest Bank Arizona, N.A., a subsidiary of the
corporation, completed its acquisition of the $2.1 billion banking business of
Citibank (Arizona), a subsidiary of Citicorp. On April 1, 1993, the
corporation completed its acquisition of Financial Concepts Bancorp, Inc., a
$175.5 million bank holding company headquartered in Green Bay, Wisconsin, and
issued 847,416 common shares. On February 1, 1993, the corporation completed
its acquisitions of Merchants & Miners Bancshares, Inc., a $57 million bank
holding company headquartered in Hibbing, Minnesota, and BORIS Systems, Inc.,
a $6 million data processing/transmission service, headquartered in East
Lansing, Michigan, which provides services to more than 100 boards of realtors
located throughout the United States, and issued 343,050 and 691,210 common
shares, respectively. On January 8, 1993, the corporation completed its
acquisition of Rocky Mountain Bankshares, Inc., a $105 million bank holding
company with a bank in Aspen, Colorado, and issued 557,084 common shares.
The acquisitions of St. Cloud National Bank & Trust Co., Winner Banshares,
Inc., Ralston Bancshares, Inc. and Financial Concepts Bancorp, Inc. were
accounted for using the pooling of interests method of accounting; however,
the financial results of the corporation have not been restated because the
effect of these acquisitions on the corporation's financial statements was not
material. The acquisitions of St. Cloud Metropolitan Agency, Inc.,
FirstAmerican Bank, N.A., M & D Holding Company, Columbia Savings, Citibank
(Arizona), Merchants & Miners Bancshares, Inc., BORIS Systems, Inc. and Rocky
Mountain Bankshares, Inc. were accounted for using the purchase method.
On February 9, 1993, the corporation completed its acquisition of Lincoln
Financial Corporation (Lincoln), a $2.0 billion bank holding company
headquartered in Fort Wayne, Indiana. The corporation issued 8,529,242 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
Lincoln.
15
<PAGE>
Net income and net income per share amounts of the corporation and Lincoln
prior to restatement for the years ended December 31, 1992 and 1991 were:
In millions, except per common share amounts 1992 1991
The corporation
Net income $ 446.7 422.1
Net income per common share
Primary 1.48 1.46
Fully diluted 1.47 1.44
Lincoln
Net loss $ (82.6) (21.2)
Net loss per common share (11.47) (2.96)
As of January 19, 1994, the corporation had eight other pending acquisitions
with total assets of approximately $1.3 billion. The corporation expects to
issue approximately 10.4 million common shares upon completion of these
acquisitions. These acquisitions, subject to approval of regulatory
authorities, are expected to be completed during 1994 and are not significant
to the financial statements of the corporation, either individually or in the
aggregate.
On December 29, 1992, the corporation acquired Am-Can Investment, Inc., a $33
million bank holding company headquartered in Moorhead, Minnesota, for cash.
On October 2, 1992, the corporation completed its acquisition of United
Bancshares, Inc. a $174 million bank holding company headquartered in Lincoln,
Nebraska and issued 899,972 common shares. These acquisitions were accounted
for using the purchase method.
Effective January 19, 1992, Davenport Bank and Trust Company (Davenport Bank),
an Iowa banking corporation headquartered in Davenport, Iowa, consolidated
with Bettendorf Bank, National Association, a banking subsidiary of the
corporation. The corporation issued 19,331,426 shares of its common stock to
former Davenport Bank shareholders in connection with the consolidation. The
consolidation 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 consolidation to include the accounts
and operations of Davenport Bank.
On November 27, 1991, the corporation acquired MIG Insurance Brokers, Inc.
(MIG), an insurance brokerage company headquartered in Minneapolis, Minnesota.
As provided under the agreement, the corporation issued 230,000 shares of its
common stock in exchange for all outstanding shares of MIG common stock. This
acquisition was accounted for using the pooling of interests method of
accounting. Financial statements prior to the acquisition date were not
restated due to immateriality.
Effective April 19, 1991, United Banks of Colorado, Inc. (United), a $5.5
billion bank holding company headquartered in Denver, Colorado, merged with
the corporation. As provided under the agreement, the corporation issued
38,515,662 shares of its common stock in exchange for all outstanding shares
of United's common stock. In addition, each outstanding share of United
preferred stock was converted into the right to receive $51.50 in cash plus
accrued dividends. The merger was accounted for using the pooling of interest
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 United.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The corporation's banking subsidiaries are required to maintain reserve
balances in cash with Federal Reserve Banks. The average amount of those
reserve balances was approximately $555 million and $463 million for the years
ended December 31, 1993 and 1992, respectively.
16
<PAGE>
4. INVESTMENT SECURITIES
Information related to the carrying and market values of investment and
mortgage-backed securities for the three years ended December 31 is provided
in the table below. At December 31, 1991, no investment or mortgage-backed
securities were classified as available for sale.
CARRYING AND MARKET VALUES OF INVESTMENT AND MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
1993 1992 1991
Carrying Market Carrying Market Carrying Market
In millions Value Value Value Value Value Value
<S> <C> <C> <C> <C> <C> <C>
Held for investment:
U.S. Treasury and
federal agencies $ 665.0 670.5 884.3 890.7 2,107.5 2,232.8
State, municipal and
housing-tax exempt 632.9 682.0 787.3 842.8 974.1 1,035.8
Other 244.8 245.1 193.4 193.8 448.8 534.3
Total investment
securities held
for investment 1,542.7 1,597.6 1,865.0 1,927.3 3,530.4 3,802.9
Mortgage-backed
securities:
Federal agencies 126.0 128.1 165.9 167.5 10,160.9 10,463.5
Collateralized
mortgage obligations 25.0 25.0 - - 266.8 275.5
Total mortgage-backed
securities held for
investment 151.0 153.1 165.9 167.5 10,427.7 10,739.0
Total investment and
mortgage-backed
securities held for
investment 1,693.7 1,750.7 2,030.9 2,094.8 13,958.1 14,541.9
Available for sale:
U.S. Treasury and
federal agencies 1,520.5 1,594.9 1,241.0 1,322.9 - -
State, municipal and
housing-tax exempt 96.2 99.8 71.8 76.9 - -
Other 384.5 566.2 260.8 415.9 - -
Total investment
securities
available for sale 2,001.2 2,260.9 1,573.6 1,815.7 - -
Mortgage-backed
securities:
Federal agencies 8,889.1 9,109.1 9,096.6 9,301.7 - -
Collateralized
mortgage obligations 132.5 134.9 261.6 263.9 - -
Total mortgage-
backed securities
available for sale 9,021.6 9,244.0 9,358.2 9,565.6 - -
Total investment
and mortgage-backed
securities available
for sale 11,022.8 11,504.9 10,931.8 11,381.3 - -
Total investment
securities $12,716.5 13,255.6 12,962.7 13,476.1 13,958.1 14,541.9
</TABLE>
17
<PAGE>
The gross unrealized gains and losses on investment and mortgage-backed
securities at December 31 were:
<TABLE>
<CAPTION>
1993 1992
Gross Gross Gross Gross
Unreal- Unreal- Unreal- Unreal-
ized ized ized ized
In millions Gains Losses Gains Losses
<S> <C> <C> <C> <C>
Held for investment:
U.S. Treasury and federal agencies $ 5.5 - 7.7 1.3
State, municipal and housing-tax exempt 50.1 1.0 59.5 4.0
Other 0.3 - 0.4 -
Subtotal investment securities
held for investment 55.9 1.0 67.6 5.3
Mortgage-backed securities:
Federal agencies 2.1 - 1.6 -
Collateralized mortgage obligations - - - -
Subtotal mortgage-backed
securities held for investment 2.1 - 1.6 -
Total investment and mortgage-
backed securities held for
investment 58.0 1.0 69.2 5.3
Available for sale:
U.S. Treasury and federal agencies 77.2 2.8 85.0 3.1
State, municipal and housing-tax exempt 3.7 0.1 5.1 -
Other 188.8 7.1 158.5 3.4
Subtotal investment securities
available for sale 269.7 10.0 248.6 6.5
Mortgage-backed securities:
Federal agencies 227.5 7.5 217.5 12.4
Collateralized mortgage obligations 2.7 0.3 6.5 4.2
Subtotal mortgage-backed securities
available for sale 230.2 7.8 224.0 16.6
Total investment securities
available for sale 499.9 17.8 472.6 23.1
Total investment securities $557.9 18.8 541.8 28.4
</TABLE>
18
<PAGE>
The carrying and market values of investments and mortgage-backed securities
by maturity at December 31 were:
<TABLE>
<CAPTION>
1993 1992
Carrying Market Carrying Market
In millions Value Value Value Value
<S> <C> <C> <C> <C>
Held for investment:
Investment Securities:
In one year or less $ 686.4 690.7 489.9 494.2
After one year through five years 446.3 461.8 758.6 775.6
After five years through ten years 163.1 179.4 192.6 213.1
After ten years 246.9 265.7 423.9 444.4
Total investment securities
held for investment 1,542.7 1,597.6 1,865.0 1,927.3
Mortgage-backed securities:
After ten years 151.0 153.1 165.9 167.5
Total investment securities
held for investment 1,693.7 1,750.7 2,030.9 2,094.8
Available for sale:
Investment securities:
In one year or less 289.9 352.5 197.6 256.6
After one year through five years 1,211.7 1,364.2 694.5 820.7
After five years through ten years 480.7 525.0 587.0 624.7
After ten years 18.9 19.2 94.5 113.7
Total investment securities
available for sale 2,001.2 2,260.9 1,573.6 1,815.7
Mortgage-backed securities:
In one year or less 247.6 270.3 36.8 37.5
After one year through five years 111.1 115.2 97.0 101.6
After five years through ten years 126.0 128.7 265.9 274.3
After ten years 8,536.9 8,729.8 8,958.5 9,152.2
Total mortgage-backed
securities available for sale 9,021.6 9,244.0 9,358.2 9,565.6
Total investment securities
available for sale 11,022.8 11,504.9 10,931.8 11,381.3
Total investment securities $12,716.5 13,255.6 12,962.7 13,476.1
</TABLE>
19
<PAGE>
Interest income on investment and mortgage-backed securities for each of the
three years ended December 31 was:
<TABLE>
<CAPTION>
In millions 1993 1992 1991
<S> <C> <C> <C>
Held for investment:
U.S. Treasury and federal agencies $ 44.0 132.1 178.6
State, municipal and housing-tax exempt 55.8 68.3 78.7
Other 17.3 29.6 36.3
Total investment securities held for
investment 117.1 230.0 293.6
Mortgage-backed securities:
Federal agencies 8.2 562.7 715.3
Collateralized mortgage
obligations 1.1 21.5 35.9
Total mortgage-backed securities
held for investment 9.3 584.2 751.2
Total investment and mortgage-backed
securities held for investment 126.4 814.2 1,044.8
Available for sale:
U.S. Treasury and federal agencies 101.6 13.1 -
State, municipal and housing-tax exempt 4.8 2.7 -
Other 12.1 1.1 -
Total investment securities
available for sale 118.5 16.9 -
Mortgage-backed securities:
Federal agencies 561.3 161.9 -
Collateralized mortgage obligations 31.1 3.0 -
Total mortgage-backed securities
available for sale 592.4 164.9 -
Total investment securities available
for sale 710.9 181.8 -
Total investment securities $837.3 996.0 1,044.8
</TABLE>
Investment and mortgage-backed securities (including securities available for
sale) carried at $6,207.6 million and $5,697.0 million were pledged to secure
public or trust deposits or for other purposes at December 31, 1993 and 1992,
respectively.
20
<PAGE>
Total gross realized gains and gross realized losses from the sale of
securities for each of the three years ended December 31 were:
<TABLE>
<CAPTION>
In millions 1993 1992 1991
<S> <C> <C> <C>
Held for investment:
Investment securities:
Gross realized gains $ 0.1 6.7 9.8
Gross realized losses - (1.2) (8.6)
Net gains 0.1 5.5 1.2
Mortgage-backed securities:
Gross realized gains - 13.8 41.2
Gross realized losses - (8.6) (21.5)
Net gains - 5.2 19.7
Net realized gains on securities held
for investment $ 0.1 10.7 20.9
Available for sale:
Investment securities:
Gross realized gains $ 24.4 2.7 -
Gross realized losses (3.4) - -
Net gains 21.0 2.7 -
Mortgage-backed securities:
Gross realized gains 35.6 52.9 -
Gross realized losses (7.9) (0.1) -
Net gains 27.7 52.8 -
Net realized gains on securities
available for sale $ 48.7 55.5 -
Venture capital securities held for
investment:
Gross realized gains $ - 31.7 9.5
Gross realized losses - (4.5) (14.1)
Net gains (losses) - 27.2 (4.6)
Venture capital securities available
for sale:
Gross realized gains 73.2 16.9 -
Gross realized losses (13.7) (14.4) -
Net gains 59.5 2.5 -
Net venture capital gains (losses) $ 59.5 29.7 (4.6)
</TABLE>
During 1993 securities held for investment with a total amortized cost of
$29.5 million were called by the issuer and, therefore, sold by the
corporation for a total gain on sales of $0.1 million.
21
<PAGE>
5. LOANS AND LEASES
The carrying values of loans and leases at December 31 were:
In millions 1993 1992
Commercial $ 7,624.1 7,406.5
Construction and land development 565.6 453.6
Real estate 11,738.8 10,768.4
Consumer 8,606.3 7,040.0
Lease financing 698.6 627.0
Foreign 548.5 502.4
Total loans and leases 29,781.9 26,797.9
Unearned discount (1,021.1) (1,015.4)
Loans and leases, net of
unearned discount $28,760.8 25,782.5
Changes in the allowance for credit losses were:
In millions 1993 1992 1991
Balance at beginning of year $ 773.1 704.3 577.0
Allowances related to assets acquired 36.2 23.4 42.5
Provision for credit losses 158.2 270.8 406.4
Credit losses (310.3) (341.1) (444.5)
Recoveries 132.0 115.7 122.9
Net credit losses (178.3) (225.4) (321.6)
Balance at end of year $ 789.2 773.1 704.3
Non-accrual, restructured and 90 day past due loans and other real estate
owned at December 31 were:
In millions 1993 1992
Non-accrual loans $195.7 257.6
Restructured loans 10.3 5.4
Total non-accrual and restructured loans 206.0 263.0
Other real estate owned 63.0 113.7
Total non-performing assets 269.0 376.7
Loans and leases past due 90 days or more* 50.8 51.9
Total non-performing assets and 90-day
past due loans and leases $319.8 428.6
* Excludes non-accrual loans and leases.
22
<PAGE>
The effect of non-accrual and restructured loans on interest income for each
of the three years ended December 31 was:
In millions 1993 1992 1991
Interest income
As originally contracted $19.4 26.5 41.6
As recognized (5.5) (8.1) (14.2)
Reduction of interest income $13.9 18.4 27.4
There are no material commitments to lend additional funds to customers whose
loans were classified as non-accrual or restructured at December 31, 1993.
Leveraged lease financing amounted to $144.9 million and $131.1 million at
December 31, 1993 and 1992, respectively. Deferred income taxes related to
leveraged leases amounted to $99.7 million and $83.0 million at the same
dates, respectively.
Loans and leases totaling $4,082.3 million and $1,400.0 million were pledged
to secure Federal Home Loan Bank (FHLB) advances at December 31, 1993 and
1992, respectively.
The corporation and its subsidiaries have made loans to the executive officers
and directors (and their associates) of the corporation and its significant
subsidiaries in the ordinary course of business. Aggregate amounts of these
loans (but excluding loans to the immediate families of persons who are solely
executive officers and directors of the corporation's significant
subsidiaries) were $65.3 million and $61.0 million at December 31, 1993 and
1992, respectively. Activity with respect to these loans during 1993 included
advances, repayments and net decreases (due to changes in executive officers
and directors) of $203.0 million, and $196.6 million and $2.1 million,
respectively.
6. PREMISES AND EQUIPMENT
The carrying value of premises and equipment at December 31 was:
In millions 1993 1992
Owned
Land $ 99.0 88.3
Premises and improvements 665.4 640.3
Furniture, fixtures and equipment 829.3 687.9
Total 1,593.7 1,416.5
Capitalized leases
Premises 20.2 19.6
Equipment 14.3 12.5
Total 34.5 32.1
Total premises and equipment 1,628.2 1,448.6
Less accumulated depreciation
and amortization (786.1) (706.4)
Premises and equipment, net $ 842.1 742.2
7. CERTIFICATES OF DEPOSIT OVER $100,000
The corporation had certificates of deposit over $100,000 of $1,849.6 million
and $1,773.5 million at December 31, 1993 and 1992, respectively. Interest
expense on certificates of deposit over $100,000 was $90.2 million, $99.0
million and $178.0 million for the years ended December 31, 1993, 1992, and
1991, respectively. Total brokered certificates of deposit over $100,000 were
$13.5 million at December 31, 1992. There were no brokered certificates of
deposit over $100,000 at December 31, 1993.
23
<PAGE>
8. SHORT-TERM BORROWINGS
Information related to short-term borrowings for the three years ended
December 31 is provided in the table below.
At December 31, 1993, the corporation had available lines of credit totaling
$1,172.7 million, including $972.7 million at a subsidiary, Norwest Financial,
Inc. These financing arrangements require the maintenance of compensating
balances or payment of fees, which are not material.
At December 31, 1993, the corporation had revolving credit agreements totaling
$200.0 million (included in the $1,172.7 million reported in the preceding
paragraph).
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1993 1992 1991
In millions Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
At December 31,
Commercial paper $2,711.6 3.56% $2,947.5 3.65% $3,067.2 5.07%
Federal funds purchased
and securities sold
under agreements to
repurchase 2,202.8 2.72 5,025.5 2.83 2,274.5 4.16
Other 1,082.4 3.23 851.9 5.26 756.8 4.72
Total $5,996.8 3.19 $8,824.9 3.34 $6,098.5 4.69
For the year ended
December 31,
Average Daily Balance
Commercial paper $2,675.0 3.37% $2,751.2 4.19% $2,739.4 6.37%
Federal funds purchased
and securities sold
under agreements to
repurchase 3,509.0 3.01 3,805.8 3.63 2,743.7 5.60
Other 1,127.0 3.83 483.8 5.08 406.5 5.96
Total $7,311.0 3.27 $7,040.8 3.95 $5,889.6 5.98
Maximum month-end balance
Commercial paper $3,084.6 NA $2,947.5 NA $3,067.2 NA
Federal funds purchased
and securities sold
under agreements to
repurchase 4,729.7 NA 5,138.0 NA 3,641.4 NA
Other 1,590.2 NA 861.5 NA 775.5 NA
</TABLE>
NA - not applicable
24
<PAGE>
9. LONG-TERM DEBT
Long-term debt at December 31 consisted of:
In millions 1993 1992
Norwest Corporation (parent company only)
Medium-Term Notes, Series A, 4.5% to 9.1%
due 1994 to 1998 $ 62.6 85.6
Floating Rate Medium-Term Notes,
Series B, due 1995 200.0 -
Floating Rate Medium-Term Notes,
Series C, due 1995 to 1998 255.4 -
Medium-Term Notes, Series C, 4.03% to
5.14%, due 1995 to 1998 44.6 -
12% Convertible Notes due 1993 - 6.7
ESOP Series A Notes due 1996, 8.42%
and 8.5% in 1993 and 1992, respectively 31.0 31.0
7 7/8% Notes due 1997 100.0 100.0
9 1/4% Subordinated Capital Notes due 1997 100.0 100.0
Floating Rate Subordinated Capital Notes
due 1998 - 78.0
Floating Rate Subordinated Capital Notes
due 1999 - 83.0
6 5/8% Subordinated Notes, due 2003 200.0 -
ESOP Series B Notes due 1999, 8.52%
and 8.6% in 1993 and 1992, respectively 13.3 13.3
7 3/4% Sinking Fund Debentures due 2003 - 51.8
6 3/4% Convertible Subordinated
Debentures due 2003 0.3 0.5
6.65% Subordinated Debentures, due 2023 200.0 -
Senior Notes, 11.22% to 11.66%, due 1994 to 1995 15.0 30.0
5.75% Senior Notes, due 1998 100.0 -
6% Senior Notes, due 2000 200.0 -
Other Notes 6.0 3.8
Total 1,528.2 583.7
Norwest Financial, Inc. and its subsidiaries
Senior Notes, 4.625% to 9.75%, due
1994 to 2003 2,479.2 2,141.8
Senior Subordinated Notes, 4.85% to
9.63%, due 1994 to 1998 262.5 262.5
Junior Subordinated Notes, 9.87% to 10%, due 1993 - 1.9
Total 2,741.7 2,406.2
Other consolidated subsidiaries
FHLB Notes and Advances, 3.10% to
7.61%, due 1994 through 2012 306.5 309.1
Floating Rate FHLB Advances due 1994
through 2000 2,140.1 1,110.0
10.585% to 12.175% Notes guaranteed
by Small Business Administration due
1994 through 1995 4.8 6.8
9.25% Subordinated Capital Notes due 1993 - 4.3
Floating Rate Subordinated Notes, due 1995 to 1996 1.2 1.2
8% Subordinated Note, due 1993 to 1995 - 0.7
10% Subordinated Note, due 1994 to 1998 0.5 0.5
Senior Notes, 9.40% to 12.25%, due 1994 to 2001 44.9 62.0
Other notes and debentures due 1994 through 2004 36.7 30.7
Mortgages payable 27.0 29.0
Capital lease obligations 19.3 17.9
Total 2,581.0 1,572.2
Less 7 3/4% Sinking Fund Debentures due
2003 held by subsidiaries - (8.9)
Total $6,850.9 4,553.2
25
<PAGE>
Notes and debentures of the corporation and Norwest Financial, Inc. and its
subsidiaries are unsecured.
During 1993, the corporation issued $100 million of senior notes at 5.75
percent due March 15, 1998 and $200 million of senior notes at 6 percent due
March 15, 2000. The corporation issued $200 million of subordinated notes at
6 5/8 percent due March 15, 2003 and issued $200 million of subordinated
debentures at 6.65 percent due October 15, 2023. Also during 1993, the
corporation issued a total of $560.3 million of Medium-Term Notes. This
included $60.3 million of Medium-Term Notes, Series A, bearing interest at
rates from 4.47 percent to 5.74 percent and maturing from June 14, 1995 to
July 2, 1998; $200 million of Medium-Term Notes, Series B, at a floating rate
of LIBOR minus five basis points and maturing July 7, 1995, and $300 million
of Medium-Term Notes, Series C. The Medium-Term Notes, Series C, have maturity
dates ranging from October 5, 1995 to October 22, 1998, and consist of $44.6
million of fixed rate notes and $255.4 million of floating rate notes. The
fixed rate Medium-Term Notes, Series C, bear interest at rates ranging from
4.03 percent to 5.14 percent. The floating rate Medium-Term Notes, Series C,
reset periodically at interest rates ranging from three month LIBOR to three
month LIBOR plus 30 basis points or U.S. Treasury bills plus 25 basis points.
The corporation has entered into $55 million of interest rate swap agreements
to exchange the fixed rate interest on the Medium-Term Notes, Series A to a
floating rate. The $60.3 million of Medium-Term Notes, Series A, issued in
1993 combined with the interest rate swap agreements provide the corporation
with $55 million of funds at an effective net interest rate of three-month
LIBOR plus 0.29 percent. In addition, the corporation has entered into $20
million of interest rate swap agreements to exchange the fixed rate interest
on the Medium-Term Notes, Series C, to a floating rate. $44.65 million of
fixed rate Medium-Term Notes, Series C, coupled with the interest rate swap
agreements provide the corporation with $20 million of funds at an effective
net interest rate of three-month LIBOR plus 0.09 percent.
The 9 1/4 percent Subordinated Capital Notes due 1997 are redeemable at the
option of the corporation at the principal amount in exchange for an
equivalent market value of common stock, perpetual preferred or other
eligible primary capital securities of the organization or cash at the
bondholder's election if the corporation determines that the debt no longer
constitutes primary capital or ceases to be treated as primary capital by the
regulatory authorities. The corporation is required to sell or issue and
dedicate common stock, preferred stock or any other capital securities, as
determined by the regulatory authorities, and dedicate the proceeds to the
retirement or redemption of the principal amount of these subordinated capital
notes. Proceeds of equity offerings have been designated to redeem the full
amount of the subordinated debentures.
The 6 5/8 percent Subordinated Notes due 2003 are unsecured and subordinated
to all present and future senior debt of the corporation. Payment of
principal may be accelerated only in the case of bankruptcy of the
corporation. There is no right of acceleration in the case of a default in the
payment of principal or interest or in the lack of performance of any covenant
or agreement of the corporation.
The 6.65 percent Subordinated Debentures due 2003 are unsecured and
subordinated to all present and future senior debt of the corporation. There
is no right of acceleration in the case of a default in the payment of
principal or interest or in the lack of performance of any covenant of the
corporation. Payment of principal may be accelerated only in the case of
bankruptcy of the corporation.
The Series A ESOP Notes are due April 26, 1996 and the Series B ESOP Notes are
due April 26, 1999. The full principal amounts of the Series A ESOP Notes are
due at maturity. The Series B ESOP Notes require payments of $4.4 million on
April 25 of 1997 and 1998, with the balance due at maturity. As a result of
the increase in the federal tax rate in 1993, the rates on the Series A ESOP
Notes and Series B ESOP Notes were adjusted retroactively from 8.5 percent to
8.6 percent, respectively, to 8.42 percent and 8.52 percent, respectively.
26
<PAGE>
The 7 7/8 percent Notes due 1997 were redeemed on January 20, 1994, at the
principal amounts plus accrued interest.
The corporation has entered into interest rate swap agreements to exchange the
fixed interest rate on $50 million of the 9 1/4 percent Subordinated Capital
Notes for a floating rate through 1997. The 9 1/4 percent Subordinated Capital
Notes coupled with the interest rate swap agreements provide the corporation
with $50 million of funds at an effective net interest rate of the six month
LIBOR plus 0.44 percent.
The 6 3/4 percent Convertible Subordinated Debentures due 2003 can be
converted into common stock of the corporation at $5 per share subject to
adjustment for certain events. Repayment is subordinated, but only to the
extent described in the indenture relating to the debentures, to the prior
payment in full of all of the corporation's obligations for borrowed money.
The subordinated debentures are redeemable at the principal amount plus a
premium ranging from 1.35 percent in 1993 to 0.338 percent in 1997, and
thereafter without a premium.
During 1993, Norwest Financial, Inc. issued a total of $698 million of senior
notes bearing interest at rates from 5.125 percent to 7.0 percent and due
dates ranging from December 2, 1996, to August 1, 2003. Norwest Financial also
issued $100 million of Senior Subordinated Notes, bearing interest rates
ranging from 4.85 percent to 5.2 percent and maturing in 1996.
Mortgages payable consist of notes secured by deeds of trust on the premises
and certain other real estate owned with a net book value of $16.6 million at
December 31, 1993. Interest rates on the mortgages payable range up to 9.25
percent with maturities through the year 1998.
The Floating Rate FHLB advances bear interest at rates ranging from LIBOR less
0.20 percent to LIBOR less 0.07 percent, the one month LIBOR less 0.15 percent
to the one month LIBOR less 0.12 percent and the three month LIBOR less 0.15
percent to the three month LIBOR less 0.10 percent. The maturities of the
FHLB Advances are determined quarterly, based on the outstanding balance, the
then current LIBOR rate, and the maximum life of the advance. Based upon
these factors and the LIBOR rate in effect at December 31, 1993, the maturity
dates range from 1994 to 2000.
The interest rate on the Floating Rate Subordinated Notes due 1995 to 1996 is
determined semi-annually at 1% over the average yield on 10 year U.S. Treasury
notes, subject to a minimum rate of 8% and a maximum rate of 14%.
Maturities of long-term debt at December 31, 1993 were:
Parent
In Millions Consolidated Company Only
1994 $1,481.5 8.0
1995 991.0 309.8
1996 1,053.5 179.8
1997 637.2 205.1
1998 870.7 218.1
Thereafter 1,817.0 607.4
Total $6,850.9 1,528.2
27
<PAGE>
10. STOCKHOLDERS' EQUITY
Preferred Stock
The corporation is authorized to issue 5,000,000 shares of preferred stock
without par value. A summary of the corporation's preferred stock at December
31 is presented below.
In millions, except share and per share amounts
<TABLE>
<CAPTION>
Annual
Dividend
Shares Outstanding Rate Amount Outstanding
1993 1992 1993 1993 1992
<S> <C> <C> <C> <C> <C>
10.24% Cumulative, $100
stated value 1,131,250 1,137,700 10.24% $113.2 113.8
7.00% Cumulative
Convertible, Series B,
$200 stated value 1,143,750 1,143,750 7.00% 228.7 228.7
First United Cumulative
Convertible Exchangeable,
Series A,
$25 stated value 1,200,000 1,200,000 $2.125 30.0 30.0
per share
First United 10.00%
Cumulative Convertible
Exchangeable, Series C,
$1 par value 3,570 265,475 10.00% 0.2 11.2
First United Adjustable
Rate Cumulative,
Series B, $1 par value 188,095 188,095 6.75% 7.9 7.9
FBG Adjustable Rate
Cumulative, Series B,
$42 stated value - 21,992 - - 0.9
FBG Adjustable Rate
non-cumulative, Series C,
$42 stated value - 36,305 - - 1.5
3,666,665 3,993,317 $380.0 394.0
</TABLE>
The corporation has outstanding 1,131,250 shares of 10.24 percent Cumulative
Preferred Stock, $100 stated value per share, in the form of 4,525,000
depositary shares, each of which represents ownership of one quarter of a
share of such preferred stock. At December 31, 1993, there were 1,639 holders
of record of the depositary shares. Dividends are cumulative from the date of
issue and are payable quarterly at 10.24 percent per annum. Prior to January
1, 1996, if the corporation requests the holders of this preferred stock to
vote upon or consent to a merger or consolidation, and the corporation shall
not have received a favorable vote or consent requisite to the consummation of
the transaction within 60 days, the corporation may redeem, at its option, all
outstanding shares of 10.24 percent Cumulative Preferred Stock at the $100
stated value plus accrued and unpaid dividends. On or after January 1, 1996,
the corporation, at its option, may redeem all or part of the outstanding
shares at the $100 stated value plus accrued and unpaid dividends. During
1993 and 1992, the corporation repurchased 6,450 and 12,300 shares of 10.24%
Cumulative Preferred Stock, respectively.
28
<PAGE>
The corporation has outstanding 1,143,750 shares of Cumulative Convertible
Preferred Stock, Series B, $200 stated value per share, in the form of
4,575,000 depositary shares, each of which represents ownership of one quarter
of a share of such preferred stock. At December 31, 1993, there were 91
holders of record of the depositary shares. Dividends are cumulative from the
date of issue and are payable quarterly at a rate of 7.00 percent per annum.
The convertible preferred stock is convertible at the option of the holder at
any time, unless previously redeemed, into common stock of the corporation at
a conversion price of $18.23 per share of common stock subject to adjustments
in certain events. On or after September 1, 1995, the corporation, at its
option, may redeem all or part of the outstanding shares at 104.2 percent of
its stated value plus accrued and unpaid dividends. The redemption price
declines during each 12-month subsequent period to 100.0 percent of the stated
value plus accrued and unpaid dividends if redeemed on or after September 1,
2001. During 1992, the corporation repurchased 6,250 shares of Cumulative
Convertible Preferred Stock, Series B.
First United had 1,200,000 shares of Cumulative Convertible Exchangeable
Preferred Stock, Series A, $25 stated value per share; 188,095 shares of
Cumulative Preferred Stock, Series B, $1 par value per share; and 3,570 shares
of Cumulative Convertible Preferred Stock, Series C, $1 par value per share.
Dividends were payable quarterly and were cumulative from the date of original
issue at an annual rate of $2.125 per share, prime plus 3/4 of one percent,
and 10.00 percent, respectively. As a result of the acquisition on January
14, 1994, each share of the Series A and Series C Preferred Stock was
converted into 2.2 and 6.039 shares, respectively, of the corporation's common
stock and each outstanding share of the Series B Preferred Stock was converted
into the right to receive $42.00 per share, plus accrued and unpaid dividends.
During 1993, 261,905 shares of Cumulative Convertible Preferred Stock, Series
C, 21,992 shares of Ford Bank Group, Inc. ("FBG") Cumulative Preferred Stock,
Series B, and 36,305 shares of FBG Non-cumulative Preferred Stock, Series C,
were converted into 1,705,410 shares of First United's common stock.
Common Stock
On April 27, 1993, the stockholders approved an amendment to the corporation's
Restated Certificate of Incorporation increasing the authorized shares of
common stock to 500,000,000. On April 27, 1993, the Board of Directors
approved a two-for-one stock split effected in the form of a 100 percent stock
dividend distributed on June 28, 1993 to stockholders of record on June 4,
1993. The stock split resulted in an increase in common stock of 146,549,734
shares and was accounted for by a transfer of $244.2 million to common stock
from surplus. All prior year common share and per share disclosures have been
restated to reflect the stock split.
In 1993, 1992, and 1991, holders of $6.9 million, $5.0 million and $0.7
million, respectively, of convertible subordinated debentures and the 12
percent convertible notes exchanged such debt for 695,016 shares, 831,710
shares and 92,198 shares, respectively, of the corporation's common stock. At
December 31, 1993, there were 11 holders of record of the convertible
subordinated debentures.
Common stockholders may purchase shares of common stock at market prices with
no sales charges through a dividend reinvestment plan. Stockholders may
purchase additional shares up to $30,000 per quarter with no sales charges
under the terms of the plan.
29
<PAGE>
The corporation had reserved shares of authorized but unissued common stock at
December 31, as follows:
1993 1992
Stock incentive plans 25,591,754 18,660,332
Convertible subordinated debentures
and notes 50,500 858,004
Dividend reinvestment 1,089,842 1,408,874
Invest Norwest Program 1,067,105 249,452
Savings-Investment Plans and Executive
Incentive Compensation Plan 5,108,548 1,089,514
Cumulative Convertible Preferred
Stock 17,494,416 19,076,115
Directors' Formula Stock Award and
Stock Deferral Plans 386,244 392,820
Employees' deferral plans 1,350,000 -
Total 52,138,409 41,735,111
Each share of the corporation's common stock includes one preferred share
purchase right. These rights will become exercisable only if a person or
group acquires or announces an offer to acquire 25 percent or more of the
corporation's common stock. This triggering percentage may be reduced to no
less than 15 percent by the Board prior to the time the rights become
exercisable. When exercisable, each right will entitle the holder to buy one
four-hundredth of a share of a new series of junior participating preferred
stock at a price of $175 for each one one-hundredth of a preferred share. In
addition, upon the occurrence of certain events, holders of the rights will be
entitled to purchase either the corporation's common stock or shares in an
"acquiring entity" at one half of the then market value. The corporation will
generally be entitled to redeem the rights at one-quarter cent per right at
any time before they become exercisable. The rights will expire on November
23, 1998, unless extended, previously redeemed or exercised. The corporation
has reserved one million shares of preferred stock for issuance upon exercise
of the rights.
11. EMPLOYEE BENEFIT AND STOCK INCENTIVE PLANS
Savings Investment Plans
Under the Savings-Investment Plan (SIP), each eligible employee may contribute
on a before-tax basis up to twelve percent of his or her salary, and the
contributions will be matched 100 percent by the corporation up to six percent
of the employee's salary. The corporation's matching contributions vest 25
percent per year of eligibility. All of the corporation's matching
contributions are invested in the corporation's common stock. The employee's
contributions are invested in a bond, equity, S&P 500 index, stable return or
Norwest common stock fund, or a combination thereof, at the employee's
direction. The corporation also maintains a Supplemental Savings-Investment
Plan under which amounts otherwise available for contribution to the SIP, in
excess of the contribution limitations imposed by the Internal Revenue Code of
1986, are credited to an account for the participant. Contribution expense
for the plans amounted to $22.4 million, $18.9 million and $19.3 million in
1993, 1992, and 1991, respectively.
The corporation's SIP contains Employee Stock Ownership Plan (ESOP) provisions
under which the SIP may borrow money to purchase corporation common stock. In
1989, the corporation loaned money to the SIP which was used to purchase
shares of the corporation's common stock. The loans from the corporation to
the SIP are repayable in monthly installments through April 26, 1999, with
interest at rates of 8.35 percent and 8.45 percent. Interest income on these
loans was $1.6 million, $1.8 million and $2.3 million in 1993, 1992 and 1991,
respectively, and is included as a reduction in salaries and benefits expense.
Total interest expense on the Series A and B ESOP Notes was $3.8 million in
each of 1993, 1992, and 1991. Each quarter dividends paid to the ESOP are
used to make loan principal and interest payments. With each principal and
30
<PAGE>
interest payment, a portion of the common stock purchased in 1989 is released
and allocated to participating employees. The corporation's ESOP loans to the
SIP are recorded as a reduction of stockholders' equity. Total dividends paid
to the ESOP in 1993, 1992, and 1991 were $5.7 million, $4.9 million and $4.3
million, respectively.
Norwest Financial Services, Inc. has a thrift and profit sharing plan for its
employees in which eligible employees may contribute on a before tax basis up
to ten percent of their salary, and the contributions will be matched 25
percent by Norwest Financial up to six percent of the employee's salary.
Norwest Financial may also make a profit sharing contribution with the amount
determined by the percentage return on consolidated equity of Norwest
Financial and its subsidiaries. Contribution expense for the plan was $9.3
million, $7.9 million and $8.1 million in 1993, 1992 and 1991, respectively.
RETIREMENT PLANS
The corporation's noncontributory defined benefit retirement plans cover
substantially all full-time employees. Pension benefits provided are based on
the employee's highest compensation in three consecutive years during the last
ten years of employment. The corporation's funding policy is to maximize the
federal income tax benefits of the contributions while maintaining adequate
assets to provide for both benefits earned to date and those expected to be
earned in the future.
The combined plans' funded status at December 31 is presented below:
In millions 1993 1992
Plan assets at fair value* $661.1 538.0
Actuarial present value of benefit obligations
Accumulated benefit obligation, including
vested benefits of $474.3 and $386.2,
respectively 522.0 418.1
Projected benefit obligation for service
rendered to date 678.1 533.3
Plan assets (in excess of) less than projected
benefit obligation 17.0 (4.7)
Unrecognized net gain (loss) from past
experience different from that assumed and
effects of changes in assumptions (15.7) 30.3
Unrecognized net asset being amortized over
approximately 17 years 16.4 23.2
Unrecognized prior service cost (2.7) (5.8)
Accrued pension liability included in other
liabilities $ 15.0 43.0
* Consists primarily of listed stocks and bonds and obligations of the U.S.
Government and its agencies.
31
<PAGE>
The components of net pension cost for the years ended December 31 are
presented below:
In millions 1993 1992 1991
Service cost-benefits earned
during the year $32.3 22.9 20.3
Interest cost on projected
benefit obligation 43.3 40.1 35.9
Actual return on plan assets (67.5) (39.4) (115.1)
Net amortization and deferral* 49.9 (8.7) 73.9
Net pension cost $58.0 14.9 15.0
* Consists primarily of the net effects of the difference between the expected
investment return and the actual investment return and the amortization of
the unrecognized net gains and losses over five years.
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were seven percent and six percent, respectively,
for 1993 and eight percent and six percent, respectively, for 1992. The
expected long-term rate of return on assets was six percent for 1993 and nine
percent for 1992.
Other Postretirement Benefits
The corporation sponsors a medical plan for retired employees. Substantially
all employees become eligible for these benefits if they retire under the
corporation's retirement plans. The corporation's funding policy is to
maximize the federal income tax benefits of the contributions while
maintaining adequate assets to provide for both benefits earned to date and
those expected to be earned in the future. The plan's funded status at
December 31 is presented below:
In millions 1993 1992
Plan asset at fair value* $ 52.1 32.6
Accumulated postretirement benefit obligation:
Retirees 88.6 70.4
Fully eligible active plan participants 11.5 10.1
Other active plan participants 66.8 50.3
166.9 130.8
Unrecognized net gain (loss) (15.7) 0.9
Accrued postretirement benefit liability
included in other liabilities $ 99.1 99.1
* Consists primarily of listed stocks and bonds, municipal securities, and
obligations of the U.S. government and its agencies.
32
<PAGE>
The components of net periodic postretirement benefit cost for the years ended
December 31 are presented below:
In millions 1993 1992
Service cost-benefits earned during the year $ 7.5 4.8
Interest cost on accumulated postretirement
benefit obligation 10.7 9.6
Actual return on plan assets (3.4) (1.2)
Net amortization and deferral* 6.0 (0.4)
Net periodic postretirement benefit cost $20.8 12.8
* Consists primarily of the net effects of the difference of the expected
investment return and the actual investment return and amortization of
gains and losses over five years.
For measurement purposes, a 12.0 percent annual increase in the cost of
covered health care benefits is assumed in the first two years. This rate is
assumed to decrease to eight percent after seven years and remain at that
level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, a one percent
increase in the health care trend rate would increase the accumulated
postretirement benefit obligation by approximately $16.0 million at December
31, 1993 and the service and interest components of the net periodic cost by
$1.9 million for the year. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was seven
percent in 1993 and eight percent in 1992. The expected long-term rate of
return on plan assets after taxes was 3.6 percent in 1993 and 4.8 percent in
1992.
In years prior to 1992, the expense for postretirement medical benefits was
recognized when benefits were paid, and amounted to approximately $3.8 million
in 1991. The total cost of medical benefits for the year ended December 31,
1991 is presented below:
In millions of dollars 1991
Medical benefits expense $ 35.4
Total active employees 24,300
Total retired employees 3,200
STOCK INCENTIVE PLANS
The corporation grants stock incentives to key employees. In April 1985, the
corporation's stockholders approved the adoption of the 1985 Long-Term
Incentive Compensation Plan (1985 Plan). In April 1988, 1991 and 1993, the
stockholders approved amendments which increased the number of shares that may
be distributed under the 1985 Plan. Shares which are not used because the
terms of an award are not met, and shares which are used by a participant to
pay all or part of the purchase price of an option, may again be used for
awards under the 1985 Plan.
At the discretion of a committee comprised of non-management directors,
participants may be granted stock options, stock appreciation rights,
restricted stock, performance awards, and stock awards without restrictions.
At December 31, 1993, 324,900 shares of restricted stock and options to
acquire 8,981,891 shares of common stock were outstanding under the the 1985
plan.
Stock options may be granted as incentive stock options or nonqualified
options, but may not be granted at prices less than market value at the dates
of grant. Options may be exercised during a period fixed by the committee of
not more than ten years. At the discretion of the committee, a stock option
grant may include the right to acquire an Accelerated Ownership Non-Qualified
Stock Option ("AO"). If an option grant contains the AO feature and if a
participant pays all or part of the purchase price of the option with shares
of the corporation's stock held by the participant for at least six months,
then upon exercise of the option the participant is granted an AO to purchase,
33
<PAGE>
at the fair market value as of the date of the AO grant, the number of shares
of common stock of the corporation equal to the sum of the number of shares
used in payment of the purchase price and a number of shares with respect to
taxes.
With the adoption of the 1985 Plan, no new grants may be made under the 1983
Stock Option and Restricted Stock Plan (1983 Plan). At December 31, 1993,
39,400 shares remained reserved under the 1983 Plan for unexercised options
having an expiration date of September 25, 1994.
Proceeds from stock options exercised are credited to common stock and
surplus. There are no charges or credits to expense with respect to the
granting or exercise of options.
In connection with the First United acquisition, the corporation assumed First
United's obligations under the First United Bank Group Incentive Stock Option
Plan. Exercise prices were based on the fair market value of First United's
common stock on the date of grant. As a result of the acquisition, all
outstanding options under the plan were vested and converted into options to
acquire the corporation's common stock. At December 31, 1993, options to
acquire 163,900 shares of common stock were outstanding under First United's
stock option plan.
In connection with the acquisition of Financial Concepts Bancorp, Inc.
(Financial Concepts), the corporation assumed Financial Concepts's obligations
under a stock option plan. As a result of the merger, all options under the
plan were converted into options to acquire 99,712 shares of the corporation's
common stock, which options remain outstanding as of December 31, 1993.
In connection with the Lincoln acquisition, the corporation assumed Lincoln's
obligations under two stock option plans and the Director's Stock Compensation
Plan. Under terms of the option plans, stock options were granted as either
incentive stock options or non-qualified options, at prices not less than
market value at the dates of grant, and became exercisable not less than one
year from the date of grant. As of the effective time of the acquisition,
Lincoln's stock option plans were terminated and all outstanding options were
vested and converted into options to purchase shares of the corporation's
common stock. In addition, all restrictions on outstanding restricted stock
were terminated. At December 31, 1993, options to acquire 59,922 shares of
common stock were outstanding under Lincoln's stock option plans.
In connection with the United merger, the corporation assumed United's
obligations under two stock option plans and the Outside Directors'
Supplemental Compensation Plan. Exercise prices were based upon the fair
market value of United's common stock on the date of grant. As a result of
the merger, all options under these plans were vested and converted into
options to acquire the corporation's common stock. No new options may be
granted under these plans. In addition, immediately prior to the merger, all
outstanding awards under the United Restricted Stock Rights Award Plan were
accelerated and converted into United's common stock and this plan was
terminated. At December 31, 1993, options to acquire 16,776 shares were
outstanding under United's stock option plans.
The table on page 35 presents a summary of stock option transactions under the
plans. At December 31, 1993 options for 7,034,028 shares were exercisable
under the plans.
34
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STOCK OPTION TRANSACTIONS
Options Option Price
Available Total
for Grant Outstandings Per Share In millions
December 31, 1990 8,054,093 10,547,053 $ 4.25-11.905 $ 81.7
Stockholder
Amendment 9,880,188 - - -
Granted* (8,030,948) 8,030,948 6.6845-18.1563 113.0
Shares Swapped 1,194,638 - - -
Excercised - (4,913,959) 4.4067-14.6875 (34.8)
Cancelled 514,146 (564,964) 6.6845-14.5313 (4.7)
Restricted Stock
Awards (201,020) (254,524) - -
Termination of
United Plans (3,378,088) - - -
December 31, 1991 8,033,009 12,844,554 4.25-18.1563 155.2
Granted* (1,522,158) 1,522,158 16.9375-21.9688 29.9
Shares Swapped 1,271,826 - - -
Excercised - (3,334,261) 4.25-19.4688 (34.5)
Cancelled 170,422 (200,938) 9.0909-19.4688 (3.3)
Restricted Stock
Awards (124,280) - - -
December 31, 1992 7,828,819 10,831,513 4.25-21.9688 147.3
Stockholder
Amendment 9,000,000 - - -
Granted* (1,391,620) 1,391,620 20.8125-28.6875 36.8
Shares Swapped 835,264 - - -
Excercised - (2,705,836) 4.4066-23.0625 (33.6)
Cancelled 236,518 (255,408) 6.6845-27.375 (2.6)
Restricted Stock
Awards (105,600) - - -
Acquisition of
Financial Concepts - 99,712 8.4101-11.6818 0.8
Termination of
Lincoln Plans (173,228) - - -
December 31, 1993 16,230,153 9,361,601 $ 4.25-28.6875 $148.7
* Includes 1,076,552, 1,263,568 and 1,623,662 AO Grants at December 31, 1993,
1992 and 1991, respectively.
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12. INCOME TAXES
Components of income tax expense were:
In millions 1993 1992 1991
From Operations
Current
Federal $250.1 224.3 31.9
State 32.6 21.1 14.1
Foreign 4.0 1.3 0.4
Total current 286.7 246.7 46.4
Deferred
Federal (19.0) (78.6) 27.6
State (1.0) 7.5 ( 0.6)
Total deferred (20.0) (71.1) 27.0
Total from operations 266.7 175.6 73.4
From change in accounting
for postretirement medical benefits
Deferred
Federal - (39.2) -
State - (6.0) -
Total deferred - (45.2) -
Total $266.7 130.4 73.4
Income tax expense applicable to net gains on investment/mortgage-backed
securities for the years ended December 31, 1993, 1992, and 1991 was $18.3
million, $23.6 million and $7.8 million, respectively.
Income before income taxes from operations outside the United States was not
material.
The net deferred tax asset included the following major temporary differences
at December 31:
In millions 1993 1992
Deferred tax liabilities
Depreciation $ 24.3 28.1
Lease financing 169.8 132.4
Other 83.9 37.6
Total deferred tax liabilities 278.0 198.1
Deferred tax assets
Provision for credit losses (231.4) (222.4)
Expenses deducted when paid (114.0) (109.8)
Mark to market (19.6) -
Postretirement benefits other than pensions (37.5) (37.5)
Other (133.0) (26.0)
Total deferred tax assets (535.5) (395.7)
Valuation allowance - -
Deferred tax assets, net (535.5) (395.7)
Total net deferred tax assets $(257.5) (197.6)
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Pursuant to FAS 109, the corporation has determined that it is not required to
establish a valuation reserve for the deferred tax asset since it is more
likely than not that the net deferred tax asset of $257.5 million will be
principally realized through carryback to taxable income in prior years, and
future reversals of existing taxable temporary differences, and, to a lesser
extent, future taxable income and tax planning strategies. The corporation's
conclusion that it is "more likely than not" that the deferred tax asset will
be realized is based on federal taxable income of over $1.4 billion in the
carryback period, substantial state taxable income in the carryback period, as
well as a history of growth in earnings and the prospects for continued
growth.
A reconciliation of the federal income tax rate to effective income tax rates
follows:
1993 1992 1991
Federal income tax rate 35.0% 34.0 34.0
Adjusted for
State income taxes 2.4 2.9 1.5
Tax-exempt income (3.5) (6.7) (8.0)
Federal tax benefit limitation (0.1) (6.0) (10.7)
Charitable contributions of
appreciated assets (2.5) (1.2) (0.2)
Other, net (1.0) 1.9 (1.7)
Effective income tax rate 30.3% 24.9 14.9
13. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1993, the corporation and its subsidiaries were obligated
under noncancelable leases for premises and equipment with terms, including
renewal options, ranging from one to approximately 100 years, which provide
for increased rentals based upon increases in real estate taxes, operating
costs or selected price indices.
Rental expense (including taxes, insurance and maintenance when included in
rent, and contingent rentals) net of sublease rentals, amounted to $156.4
million, $139.4 million and $134.8 million in 1993, 1992 and 1991,
respectively.
Future minimum rental payments under capital leases and noncancelable
operating leases, net of sublease rentals with terms of one year or more, at
December 31, 1993 were:
In millions Capital Operating
Leases Leases
1994 $ 2.6 $ 72.1
1995 2.4 62.4
1996 2.2 49.3
1997 2.2 40.6
1998 2.2 34.2
Thereafter 49.6 285.8
Total minimum rental payments 61.2 $544.4
Less interest (41.9)
Present value of net
minimum rental payments $ 19.3
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To meet the financing needs of its customers and as part of its overall risk
management strategy, the corporation is a party to financial instruments with
off-balance sheet risk. These financial instruments include commitments to
extend credit, recourse obligations, options, standby letters of credit,
interest rate futures, caps and floors and interest rate swaps and forward
contracts. These instruments involve elements of credit and interest rate
risk in addition to amounts recognized in the financial statements.
The corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit, recourse obligations, and financial guarantees
written is represented by the contractual notional amount of those
instruments. The corporation uses the same credit policies in making
commitments and conditional obligations as it does on balance sheet
instruments. The corporation uses the same credit and collateral policies in
making loans which are subsequently sold with recourse obligations as it does
for loans not sold. For interest rate futures, caps, floors, and swap
transactions, forward contracts and options written, the contract or notional
amounts do not represent exposure to credit loss. The corporation controls
the credit risk of its interest rate futures, caps, floors and swaps, forward
contracts and option contracts through credit approvals, limits, and
monitoring procedures.
A summary of the contract or notional amounts of these financial instruments
at December 31, is as follows:
In millions 1993 1992
Commitments to extend credit $6,498.2 5,048.0
Standby letters of credit* 907.7 761.0
Other letters of credit 404.9 317.1
Forward contracts for delivery of securities 7,962.6 7,569.4
Interest rate swap agreements 1,891.2 1,377.5
Futures contracts - 1,845.0
Interest rate caps and floors 1,213.0 4,001.3
Option contracts:
Purchased 2,107.5 -
Written 400.0 -
Foreign exchange options:
Purchased 79.5 4.7
Written 8.9 4.6
* Total standby letters of credit are net of participations in standby letters
of credit sold to other institutions of $319.0 million in 1993 and $195.2
million in 1992.
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and usually require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
amount of collateral obtained is based on management's credit evaluation of
the counter-party. Collateral held varies but may include cash, marketable
securities, accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the corporation to guarantee the performance of a
customer to a third party. Outstanding standby letters of credit at December
31, 1993 supported $500.3 million of industrial revenue bonds, $196.6 million
of supplier payment guarantees, $148.9 million of performance bonds and $380.9
million of other obligations of unaffiliated parties with maturities up to 14
years, eight years, 15 years and eight years, respectively. Risks associated
38
<PAGE>
with such standby letters of credit are included in the evaluation of overall
credit risk in determining the allowance for credit losses. The collateral
requirements are essentially the same as those involved in extending loan
facilities to customers. As part of its overall risk management strategy,
the corporation does not believe it has any significant concentrations of
credit risk.
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. In the event the
counter-party is unable to meet its contractual obligations, the corporation
may be exposed to the risk of selling mortgage loans at the prevailing market
prices.
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying financial instrument. The corporation becomes a principal in the
exchange of interest payments with other parties and, therefore, is exposed to
loss should the counter-party default. The corporation minimizes this risk by
performing normal credit reviews on its swap customers and minimizes its
exposure to the interest rate risk inherent in customer swap transactions by
entering into offsetting swap positions that essentially counter-balance each
other.
Entering into interest rate swap agreements involves not only the risk of
dealing with counter-parties and their ability to meet the terms of the
contracts but also the interest rate risk associated with unmatched positions.
Notional principal amounts often are used to express the volume of these
transactions, but the amounts potentially subject to credit risk are much
smaller.
Interest rate caps and floors written by the corporation enable customers to
transfer, modify, or reduce their interest rate risk. Option contracts allow
the holder of the option to purchase or sell a financial instrument at a
specified price and within a specified period of time from or to the seller or
"writer" of the option. As a writer of options, the corporation receives a
premium at the outset and then bears the risk of an unfavorable change in the
price of the financial instrument underlying the option.
The corporation has written $400 million of uncovered call options as of
December 31, 1993. Fees received on the sales of these options were $1.5
million and the market value as of December 31, 1993 was $2.6 million.
As of December 31, 1993 the corporation has hedged for one year $2.0 billion
of variable rate FHLB borrowings and variable rate deposits using a stream of
purchased put options on Euro Futures. The corporation also had $50 million
of notional value purchased put options on Euro Futures outstanding as part of
the corporation's trading account portfolio, which are valued at market.
Norwest Mortgage, Inc., prior to 1985, sold mortgage loans in non-standard,
negotiated transactions, primarily with the Federal Home Loan Mortgage
Corporation, which provide for recourse to Norwest Mortgage, Inc. The
outstanding loan balances for these sales transactions were $203.8 million at
December 31, 1993 and $268.5 million at December 31, 1992. The liability under
these recourse arrangements is not material.
The corporation and certain subsidiaries are defendants in various matters of
litigation generally incidental to their business. Although it is difficult to
predict the ultimate outcome of these cases, management believes, based on
discussions with counsel, that any ultimate liability will not materially
affect the consolidated financial position of the corporation and its
subsidiaries.
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<PAGE>
14. 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 and 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.
Selected financial information by business segment for each of the three years
ended December 31 is included in the following summary:
Organizational Total
In millions Revenues* Earnings* Assets
1993:
Banking $2,550.7 356.7 41,956.9
Mortgage banking 698.6 56.3 7,425.2
Consumer finance 839.1 200.1 5,282.9
Total $4,088.4 613.1 54,665.0
1992:**
Banking $2,340.5 257.6 39,879.1
Mortgage banking 450.8 53.4 5,328.8
Consumer finance 678.2 159.0 4,829.1
Total $3,469.5 470.0 50,037.0
1991:
Banking $2,111.0 263.4 38,497.0
Mortgage banking 268.6 31.4 3,308.4
Consumer finance 560.0 123.5 4,169.1
Total $2,939.6 418.3 45,974.5
* 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 allocations
of federal income taxes.
** Organizational earnings is presented prior to the cumulative effect of a
change in accounting for postretirement medical benefits, which totaled
$76.0 million net of tax. Organizational earnings for 1992 reflect
additional postretirement benefit costs as compared with 1991 due to the
change in accounting of $3.9 million in banking, $0.3 million in mortgage
banking and $1.4 million in consumer finance.
40
<PAGE>
15. MORTGAGE BANKING ACTIVITIES
The detail of mortgage banking non-interest income for each of the three years
ended December 31 is presented below:
In millions 1993 1992 1991
Origination fees $135.6 103.8 60.0
Servicing fees 56.1 39.9 11.7
Net gains on sales of servicing rights 61.7 62.4 76.5
Net gains on sales of mortgages 140.5 19.8 13.0
Other mortgage fee income 78.4 49.4 24.7
Total mortgage banking
non-interest income $472.3 275.3 185.9
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The outstanding balances of
serviced loans were $45,695.1 million, $21,612.9 million and $8,643.3 million
at December 31, 1993, 1992 and 1991, respectively.
Changes in mortgage loan servicing rights purchased for each of the three
years ended December 31, were:
In millions 1993 1992 1991
Balance at beginning of year $ 64.0 35.8 31.6
Purchases 169.9 133.4 93.1
Sales (2.5) (90.9) (82.1)
Amortization (27.7) (11.5) ( 4.0)
Adjustments due to changes
in prepayment assumptions (18.5) (2.8) (2.8)
Balance at end of year $ 185.2 64.0 35.8
16. FAIR VALUES OF FINANCIAL INSTRUMENTS AND CERTAIN
NON-FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" (FAS 107) requires the disclosure of estimated
fair values of all asset, liability and off-balance sheet financial
instruments. FAS 107 also allows the disclosure of estimated fair values of
non-financial instruments. Fair value estimates under FAS 107 are determined
as of a specific point in time utilizing various assumptions and estimates.
The use of assumptions and various valuation techniques, as well as the
absence of secondary markets for certain financial instruments, will likely
reduce the comparability of fair value disclosures between financial
institutions.
FINANCIAL INSTRUMENTS
The fair value estimates disclosed in the table on page 42 are based on
existing on and off balance sheet financial instruments and do not consider
the value of future business. Other significant assets and liabilities, which
are not considered financial assets or liabilities and for which fair values
have not been estimated, include premises and equipment, goodwill and other
intangibles, deferred tax assets and other liabilities. The estimated fair
values of the corporation's financial instruments as of December 31 are set
forth in the following table on page 42 and explained below. The 1992 and
1991 fair values of loans and leases and student loans available for sale have
been restated to conform with the methodologies used in the 1993 valuations.
41
<PAGE>
FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
1993 1992 1991
Carrying Fair Carrying Fair Carrying Fair
In millions Amount Value Amount Value Amount Value
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $ 3,608.0 $3,608.0 3,428.0 3,428.0 3,731.6 3,731.6
Trading account
securities 279.1 279.1 132.0 132.0 157.9 157.9
Investment
securities 1,542.7 1,597.6 1,865.0 1,927.3 3,530.4 3,802.9
Mortgage-backed
securities 151.0 153.1 165.9 167.5 10,427.7 10,739.0
Investment securities
available for
sale 2,001.2 2,260.9 1,573.6 1,815.7 - -
Mortgage-backed
securities available
for sale 9,021.6 9,244.0 9,358.2 9,565.6 - -
Student loans
available for sale 1,349.2 1,349.2 1,156.5 1,156.5 - -
Mortgages held for
sale 6,090.7 6,103.4 4,727.8 4,727.8 3,007.7 3,007.7
Loans and leases, net 27,971.6 28,236.7 25,009.4 25,255.3 22,615.5 22,926.0
Interest receivable 300.8 300.8 330.9 330.9 342.2 342.2
Excess servicing rights
receivable 54.4 86.7 9.0 20.7 3.0 3.0
Total financial
assets 52,370.3 53,219.5 47,756.3 48,527.3 43,816.0 44,710.3
Financial liabilities:
Non-maturity deposits 24,066.8 24,066.8 20,116.9 20,116.9 18,266.6 18,266.6
Deposits with stated
maturities 11,909.7 12,074.5 11,492.5 11,687.9 13,064.5 13,340.6
Short-term borrowings 5,996.8 5,996.8 8,824.9 8,824.9 6,098.5 6,098.5
Long-term debt 6,850.9 6,928.7 4,553.2 4,645.2 3,686.6 3,882.0
Interest payable 238.4 238.4 263.8 263.8 303.1 303.1
Total financial
liabilities 49,062.6 49,305.2 45,251.3 45,538.7 41,419.3 41,890.8
Off-balance sheet
financial instruments:
Forward delivery
commitments 28.3 28.3 (35.7) (35.7) (122.7) (122.7)
Interest rate swaps 11.2 14.8 0.7 (7.0) 0.7 18.0
Futures contracts 0.5 - - - 17.9 -
Interest rate
caps/floors 2.4 17.2 23.4 36.3 10.7 55.1
Options contracts
to sell 4.2 8.1 - - (3.8) (11.5)
Total off-balance
sheet financial
instruments 46.6 68.4 (11.6) (6.4) (97.2) (61.1)
Net financial
instruments $ 3,354.3 $ 3,982.7 2,493.4 2,982.2 2,299.5 2,758.4
</TABLE>
42
<PAGE>
The following methods and assumptions are used by the corporation in
estimating its fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents approximates fair value due to
the relatively short period of time between the origination of the instruments
and their expected realization.
TRADING ACCOUNT SECURITIES, INVESTMENT SECURITIES, MORTGAGE-BACKED SECURITIES,
AND INVESTMENTS AND MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Fair values of these financial instruments were estimated using quoted market
prices, when available. If quoted market prices were not available, fair
value was estimated using quoted market prices for similar assets.
MORTGAGES HELD FOR SALE
Fair value of mortgages held for sale are stated at market.
LOANS AND LEASES AND STUDENT LOANS AVAILABLE FOR SALE
Fair values of loans and leases are estimated based on contractual cash flows,
adjusted for prepayment assumptions and credit risk factors, discounted using
the current market rate for loans and leases. Variable rate loans, including
student loans available for sale, are valued at carrying value since the loans
reprice to market rates over short periods of time. Credit card receivables
are valued at carrying value since the receivables are priced near market
rates for such receivables and are short-term in life. The fair value of the
corporation's consumer finance subsidiaries' loans have been reported at book
value since the estimated life, assuming prepayments, is short-term in nature.
INTEREST RECEIVABLE AND PAYABLE
The carrying value of interest receivable and payable approximates fair value
due to the relatively short period of time between accrual and expected
realization.
EXCESS SERVICING RIGHTS RECEIVABLE
Excess servicing rights receivable represents the present value using
applicable investor yields of estimated future servicing revenues in excess of
normal servicing revenues over the assumed life of the servicing portfolio.
DEPOSITS
The fair value of fixed-maturity deposits is the present value of the
contractual cash flows, including principal and interest, and servicing costs,
discounted using an appropriate investor yield.
In accordance with FAS 107, the fair value of deposits with no stated
maturity, such as demand deposit, savings, NOW and money market accounts, are
disclosed as the amount payable on demand.
SHORT-TERM BORROWINGS
The carrying value of short-term borrowings approximates fair value due to the
relatively short period of time between the origination of the instruments and
their expected payment.
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LONG-TERM DEBT
The fair value of long-term debt is the present value of the contractual cash
flows, discounted by the investor yield which considers the corporation's
credit rating.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND RECOURSE
OBLIGATIONS
The majority of the corporation's commitment agreements and letters of credit
contain variable interest rates and counter-party credit deterioration clauses
and therefore, the carrying value of the corporation's commitments to extend
credit and letters of credit approximates fair value. The fair value of the
corporation's recourse obligations are valued based on estimated cash flows
associated with such obligations. As any potential liabilities under such
recourse obligations are recognized on the corporation's balance sheet, the
carrying value of such recourse obligations approximates fair value.
FORWARD DELIVERY COMMITMENTS, INTEREST RATE SWAPS, FUTURES CONTRACTS, OPTIONS
AND INTEREST RATE CAPS AND FLOORS
The fair value of forward delivery commitments, interest rate caps, floors,
swaps and futures contracts is estimated, using dealer quotes, as the amount
that the corporation would receive or pay to execute a new agreement with
terms identical to those remaining on the current agreement, considering
current interest rates.
CERTAIN NON-FINANCIAL INSTRUMENTS
Supplemental fair value information for certain non-financial instruments as
of December 31 are set forth in the table on page 45 and explained below.
The supplemental fair value information, combined with the total fair value of
net financial instruments from the table on page 42, is presented in the table
on page 45 for information purposes. This combination is not necessarily
indicative of the "franchise value" or the fair value of the corporation taken
as a whole. Certain values of non-financial instruments for 1992 and 1991
have been restated to conform with the non-financial instruments and related
methodologies reported in the 1993 information.
44
<PAGE>
In millions 1993 1992 1991
Non-financial instrument
assets and liabilities:
Premises and equipment, net $ 842.1 742.2 697.1
Other assets 1,452.6 1,538.5 1,461.4
Accrued expenses and other liabilities (1,841.5)(1,413.9) (1,362.8)
Other values:
Non-maturity deposits 1,265.1 1,150.4 1,035.0
Consumer finance network 3,128.5 2,374.0 1,932.2
Credit card 245.3 84.6 109.2
Banking subsidiaries' consumer loans 269.3 224.4 198.3
Mortgage servicing 431.4 187.2 69.7
Mortgage loan origination/
wholesale network 836.4 707.6 180.4
Trust department 631.8 570.0 504.9
Net fair value of certain non-financial
instruments 7,261.0 6,165.0 4,825.4
Fair value of financial instruments 3,982.7 2,982.2 2,758.4
Net stockholders' equity at the fair
value of net financial instruments
and certain non-financial instruments* $11,243.7 9,147.2 7,583.8
* Amounts do not include applicable deferred income taxes, if any.
The following methods and assumptions were used by the corporation in
estimating the fair value of certain non-financial instruments.
NON-FINANCIAL INSTRUMENT ASSETS AND LIABILITIES
The non-financial instrument assets and liabilities are stated at book value,
which approximates fair value.
NON-MATURITY DEPOSITS
The fair value table of financial instruments on page 42 does not consider the
benefit resulting from the low-cost funding provided by deposit liabilities as
compared with wholesale funding rates. The fair value of non-maturity
deposits, considering these relational benefits, would be $25,331.9 million,
$21,267.3 million, and $19,301.6 million at December 31, 1993, 1992 and 1991,
respectively. Such amounts are based on a discounted cash flow analysis,
assuming a constant balance over ten years and taking into account the
interest sensitivity of each deposit category.
CONSUMER FINANCE NETWORK
The supplemental fair value table includes the estimated fair value associated
with the consumer finance network which is estimated to be $3,128.5 million,
$2,374.0 million and $1,932.2 million at December 31, 1993, 1992 and 1991,
respectively. Such estimates are based on current industry price/earnings
ratios for similar networks. These current price/earnings ratios are industry
averages and do not consider the higher earnings levels and the value of the
data processing business associated with the corporation's consumer finance
network.
CREDIT CARD
The fair value of financial instruments on page 42 excludes the fair value
attributed to the expected credit card balances in future years with the
holders of such cards. The fair value of such future balances is estimated to
exceed book value by $245.3 million, $84.6 million and $109.2 million at
December 31, 1993, 1992 and 1991, respectively. This represents the fair value
related to such future balances of both securitized and on-balance sheet
credit card receivables based on a discounted cash flow analysis, utilizing an
investor yield on similar portfolio acquisitions.
45
<PAGE>
BANKING SUBSIDIARIES' CONSUMER LOANS
For purposes of the table of fair values of financial instruments on page 42,
the fair value of the banking subsidiaries' consumer loans is based on the
contractual balances and maturities of existing loans. The fair value of such
financial instruments does not consider future loans with customers. The fair
value related to such future balances is estimated to be $269.3 million,
$224.4 million and $198.3 million at December 31, 1993, 1992 and 1991,
respectively. This fair value is estimated by cash flow analysis, discounted
utilizing an investor yield. The expected balances for such purposes are
estimated to extend ten years at a constant rate of replacement.
MORTGAGE SERVICING
Mortgage servicing represents estimated current value in the servicing
portfolio. The corporation estimates that the fair value of its mortgage
servicing exceeds book values by $431.4 million, $187.2 million and $69.7
million at December 31, 1993, 1992, and 1991, respectively.
MORTGAGE LOAN ORIGINATION/WHOLESALE NETWORK
The supplemental fair value table includes the fair value associated with the
corporation's origination network for mortgage loans, which is estimated to be
$836.4 million, $707.6 million and $180.4 million at December 31, 1993, 1992
and 1991, respectively. Such estimates are based on current industry
price/earnings ratios for similar networks.
TRUST DEPARTMENT
The fair value associated with the corporation's management of trust assets is
estimated to be $631.8 million, $570.0 million and $504.9 million at December
31, 1993, 1992 and 1991, respectively. Such estimates are based on current
trust revenues using an industry multiple.
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<PAGE>
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Norwest Corporation (parent company only)
follows:
BALANCE SHEETS
In millions
At December 31, 1993 1992
Assets
Interest-bearing deposits with subsidiary banks $ 155.4 146.4
Advances to non-bank subsidiaries 2,313.8 1,556.3
Capital notes and term loans of subsidiaries
Banks 353.0 333.0
Non-banks 371.5 237.8
Total capital notes and term loans of
subsidiaries 724.5 570.8
Investments in subsidiaries
Banks 3,096.6 2,598.3
Non-banks 803.4 837.1
Total investment in subsidiaries 3,900.0 3,435.4
Investment and mortgage-backed securities 211.7 148.2
Investment securities available for sale 91.4 105.9
Other assets 173.0 186.6
Total assets $7,569.8 6,149.6
Liabilities and Stockholders' Equity
Short-term borrowings $2,094.1 2,028.7
Accrued expenses and other liabilities 186.6 165.4
Long-term debt with non-affiliates 1,528.2 583.7
Stockholders' equity 3,760.9 3,371.8
Total liabilities and stockholders'equity $7,569.8 6,149.6
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STATEMENTS OF INCOME
In millions
Year ended December 31, 1993 1992 1991
Income
Dividends from subsidiaries
Banks $402.0 318.3 107.0
Non-banks 215.7 168.8 107.6
Total dividends from subsidiaries 617.7 487.1 214.6
Interest from subsidiaries 91.2 109.1 173.4
Service fees from subsidiaries 58.0 50.0 45.5
Other income 38.2 29.0 21.8
Total income 805.1 675.2 455.3
Expenses
Interest to subsidiaries 1.5 1.0 1.7
Other interest 140.0 134.0 191.7
Other expenses 113.0 140.8 56.8
Total expenses 254.5 275.8 250.2
Income before income taxes, equity in
undistributed earnings of subsidiaries,
and cumulative effect of a change in
accounting for postretirement
medical benefits 550.6 399.4 205.1
Income tax benefit 24.4 43.3 39.9
Income before equity in undistributed
earnings of subsidiaries and cumulative
effect of a change in accounting for
postretirement medical benefits 575.0 442.7 245.0
Equity in undistributed earnings
of subsidiaries 38.1 27.3 173.3
Income before cumulative effect of a
change in accounting for postretirement
medical benefits 613.1 470.0 418.3
Cumulative effect on years ended prior
to December 31, 1992 of a change in
accounting for post retirement medical
benefits, net of tax - (76.0) -
Net income $613.1 394.0 418.3
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STATEMENTS OF CASH FLOWS
In millions 1993 1992 1991
Year ended December 31,
Cash Flows From Operating Activities
Net income $ 613.1 394.0 418.3
Adjustments to reconcile net income
to net cash flows from operating activities:
Cumulative effect on years ended prior
to December 31, 1992 of a change in
accounting for postretirement
medical benefits, net of tax - 76.0 -
Equity in undistributed earnings of
subsidiaries (38.1) (27.3) (173.3)
Depreciation and amortization 12.2 12.9 12.9
Other assets, net (3.7) (36.4) 9.4
Accrued expenses and other liabilities, net 32.1 (5.9) (41.3)
Net cash flows from operating activities 615.6 413.3 226.0
Cash Flows From Investing Activities
Advances to non-bank subsidiaries, net (762.5) 580.8 (328.5)
Investment securities, net (63.5) 46.5 (56.9)
Investment securities available for sale, net 14.5 (105.9) -
Principal collected on capital notes and
term loans of subsidiaries 23.3 75.6 383.5
Capital notes and term loans
made to subsidiaries (218.2) (143.2) (322.1)
Investment in subsidiaries, net (354.4) (242.1) (277.8)
Net cash flows from (used for)
investing activities (1,360.8) 211.7 (601.8)
Cash Flows From Financing Activities
Short-term borrowings, net 84.3 (158.8) (20.6)
Taxes receivable from affiliates, net 4.7 (4.7) 2.8
Proceeds from issuance of long-term debt
with non-affiliates 1,263.2 - 25.0
Repayment of long-term debt with
non-affiliates (312.4) (137.5) (148.9)
Issuances of common stock 55.9 35.8 239.6
Repurchases of common stock (124.3) (86.0) (5.4)
Issuances of preferred stock - - 266.0
Redemption of preferred stock (0.7) (2.9) (30.4)
Net decrease in ESOP loans 3.2 3.0 8.1
Dividends paid (219.7) (185.7) (146.8)
Net cash flows from (used for)
financing activities 754.2 (536.8) 189.4
Net increase (decrease) in
cash and cash equivalents 9.0 88.2 (186.4)
Cash and cash equivalents
Beginning of year 146.4 58.2 244.6
End of year $ 155.4 146.4 58.2
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Federal law prevents the corporation from borrowing from its subsidiary banks
unless loans are secured by specified assets. Such secured loans by any
subsidiary bank are generally limited to 10 percent of the subsidiary bank's
capital and surplus and aggregate loans to the corporation and its non-bank
subsidiaries are limited to 20 percent of the subsidiary bank's capital and
surplus.
The payment of dividends to the corporation by subsidiary banks is subject to
various federal and state regulatory limitations. A national bank must obtain
the approval of the Comptroller of the Currency if the total of all dividends
declared in any calendar year exceeds the bank's net profits for that year
combined with its retained net profits for the preceeding two calendar years.
Under this formula, at December 31, 1993 the corporation's national banks
could have declared $491.0 million of aggregate dividends, in addition to
amounts previously paid, without the approval of the Comptroller of the
Currency, subject to minimum regulatory capital requirements. In addition,
the corporation's non-bank subsidiaries could have declared dividends totaling
$803.4 million.
50
