<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 2, 1998
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-2979 No. 41-0449260
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 1-800-411-4932
Norwest Corporation
(Former Name)
Sixth and Marquette, Minneapolis, Minnesota 55479
(Former Address)
<PAGE>
Item 5: OTHER EVENTS
On November 2, 1998, the former Wells Fargo & Company merged (the
Merger) with WFC Holdings Corporation (WFC Holdings), a wholly-owned
subsidiary of Norwest Corporation, with WFC Holdings as the surviving
corporation. In connection with the Merger, Norwest Corporation
changed its name to Wells Fargo & Company (the Company). The Merger
was accounted for as a pooling of interests and, accordingly, the
information included in the Supplemental Annual Report and the
Supplemental Quarterly Report presents the combined results as if the
Merger had been in effect for all periods presented.
The Company is placing on file a copy of the Supplemental Consolidated
Management's Discussion and Analysis of Results of Operations and
Financial Condition and Supplemental Financial Statements of Wells
Fargo & Company as of and for the three years ended December 31, 1997
and the Supplemental Consolidated Management's Discussion and Analysis
of Results of Operations and Financial Condition and Supplemental
Financial Statements of Wells Fargo & Company as of and for the nine
months ended September 30, 1998 as Exhibits 99(a) and 99(b),
respectively, to this Form 8-K, which are incorporated into this
Item 5 by reference.
The Company is placing on file as Exhibit 99(c) a copy of Wells Fargo
& Company's financial results for the quarter ended December 31,
1998. Final financial statements with additional analyses will be
filed as part of the Company's 10-K in March 1999.
Item 7: FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
2 Agreement and Plan of Merger, dated as of June 7, 1998,
and amended and restated as of September 10, 1998, by and
among Wells Fargo & Company, Norwest Corporation and WFC
Holdings Corporation, filed as Exhibit 2.1 to the
Registration Statement on Form S-4 of Norwest Corportion,
File No. 333-63247, and incorporated herein by reference.
23 Consent of Independent Accountants
27 Financial Data Schedules
99(a) Supplemental Consolidated Management's Discussion and
Analysis of Results of Operations and Financial Condition
and Supplemental Financial Statements of Wells Fargo &
Company as of and for the three years ended December 31,
1997.
99(b) Supplemental Consolidated Management's Discussion and
Analysis of Results of Operations and Financial Condition
and Supplemental Financial Statements of Wells Fargo &
Company as of and for the nine months ended September 30,
1998.
99(c) Wells Fargo & Company's financial results for the
quarter ended December 31, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on January 19, 1999.
WELLS FARGO & COMPANY
+
By: /s/ Les L. Quock
------------------------------------
Les L. Quock
Senior Vice President and Controller
<PAGE>
The Board of Directors
Wells Fargo & Company
We consent to the incorporation by reference in the Registration Statements
noted below on Forms S-3, S-4 and S-8 of Wells Fargo & Company of our report
dated January 19, 1999 with respect to the supplemental consolidated balance
sheet of Wells Fargo & Company and Subsidiaries as of December 31, 1997 and
1996, and the related supplemental consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, which report appears in the Form
8-K of Wells Fargo & Company dated January 19, 1999. Our report contains an
explanatory paragraph that states that the supplemental consolidated
financial statements give retroactive effect to the merger of Wells Fargo &
Company and Norwest Corporation on November 2, 1998, which has been accounted
for as a pooling-of-interests as described in Note 1 to the supplemental
consolidated financial statements.
<TABLE>
<CAPTION>
Registration
Statement Form Description
--------- ---- -----------
<S> <C> <C>
033-50435 S-3 Universal Shelf 1993-2
033-61045 S-3 Universal Shelf 1995-1
333-01737 S-3 Universal Shelf 1996
333-09489 S-3 Dividend Reinvestment and Common Stock
Purchase Plan
033-10820 S-8 Norwest Financial Employee $20,000,000 Senior
Indebtedness Plan
333-08219 S-4 Acquisition Shelf
333-40989 S-4 Acquisition Shelf
333-53219 S-4 Acquisition Shelf
003-11438 S-8 1985 Long-Term Incentive Compensation Plan
033-21484 S-8 800,000 Shares Common Stock and $100 Million
Undivided Interests Savings-Investment Plan
033-21485 S-8 1985 Long-Term Incentive Compensation Plan
033-35162 S-8 Invest Norwest Program
033-38767 S-8 Master Savings Trust
033-42198 S-8 1985 Long-Term Incentive Compensation Plan
033-50305 S-8 Norwest Corporation Master Savings Trust
033-50307 S-8 Norwest Corporation Employees' Deferred
Compensation Plan
033-50309 S-8 1985 Long Term Incentive Compensation Plan
033-50311 S-8 Invest Norwest Program
033-65007 S-8 Invest Norwest Program
033-65009 S-8 Norwest Corporation Master Savings Trust
333-12423 S-8 Long-Term Incentive Compensation Plan
333-02485 S-8 Benson Financial Corporation Stock Option
Plan
333-09413 S-8 PartnerShares Plan
333-50789 S-8 PartnerShares Plan
333-62877 S-8 Long-Term Incentive Compensation Plan
333-63247 S-8 Wells Fargo & Company: 1982 Equity Incentive
Plan, 1987 Director Option Plan 1990 Equity
Incentive Plan, 1990 Director Option Plan,
Long-Term Incentive Plan, 1996 Employee Stock
Purchase Plan, First Interstate Bancorp:
1983 Performance Stock Plan, 1988 Performance
Stock Plan, 1991 Director Option Plan, 1991
Performance Stock Plan.
333-68093 S-8 Tax Advantage and Retirement Plan
</TABLE>
KPMG LLP
Certified Public Accountants
San Francisco, California
January 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS 8-K
DATED JANUARY 19, 1999 FOR THE PERIODS ENDED DECEMBER 31, 1998, DECEMBER 31,
1997, DECEMBER 31, 1996 AND SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996 JAN-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996 SEP-30-1998
<CASH> 12,731 13,081 16,593 10,985
<INT-BEARING-DEPOSITS> 0 0 0 0
<FED-FUNDS-SOLD> 1,517 1,049 1,464 1,950
<TRADING-ASSETS> 0 1,302 591 1,243
<INVESTMENTS-HELD-FOR-SALE> 31,997 27,872 29,752 32,210
<INVESTMENTS-CARRYING> 0 0 0 0
<INVESTMENTS-MARKET> 0 0 0 0
<LOANS> 107,994 106,311 105,950 107,692
<ALLOWANCE> 3,134 3,062 3,059 3,170
<TOTAL-ASSETS> 202,475 185,685 188,633 195,863
<DEPOSITS> 136,788 127,656 131,951 129,951
<SHORT-TERM> 15,897 13,381 10,003 17,570
<LIABILITIES-OTHER> 8,537 6,236 7,336 8,616
<LONG-TERM> 20,494 17,335 18,142 18,486
0 0 0 0
463 463 789 462
<COMMON> 2,769 2,718 2,149 2,726
<OTHER-SE> 18,181 16,597 17,113 17,370
<TOTAL-LIABILITIES-AND-EQUITY> 202,475 185,685 188,633 195,863
<INTEREST-LOAN> 10,685 10,539 9,854 8,046
<INTEREST-INVEST> 1,844 2,063 1,950 1,330
<INTEREST-OTHER> 1,526 1,000 1,037 1,082
<INTEREST-TOTAL> 14,055 13,602 12,841 10,458
<INTEREST-DEPOSIT> 3,111 3,150 2,911 2,340
<INTEREST-EXPENSE> 5,065 4,954 4,619 3,769
<INTEREST-INCOME-NET> 8,990 8,648 8,222 6,689
<LOAN-LOSSES> 1,545 1,140 500 921
<SECURITIES-GAINS> 169 99 12 161
<EXPENSE-OTHER> 10,579 8,914 8,679 7,042
<INCOME-PRETAX> 3,293 4,193 3,767 3,541
<INCOME-PRE-EXTRAORDINARY> 1,950 2,499 2,228 2,144
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,950 2,499 2,228 2,144
<EPS-PRIMARY> 1.18<F1> 1.50 1.38 1.31
<EPS-DILUTED> 1.17 1.48 1.36 1.29
<YIELD-ACTUAL> 5.79 5.86 5.87 5.86
<LOANS-NON> 709 706 871 721
<LOANS-PAST> 0 397 444 379
<LOANS-TROUBLED> 1 9 10 1
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 3,062 3,059 2,711 3,062
<CHARGE-OFFS> 2,044 1,731 1,371 1,253
<RECOVERIES> 427 426 349 322
<ALLOWANCE-CLOSE> 3,134 3,062 3,059 3,170
<ALLOWANCE-DOMESTIC> 0 0 0 0
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 1,001 1,162 0
<FN>
<F1>AMOUNT REPRESENTS BASIC EARNINGS PER COMMON SHARE PURSUANT TO FAS 128.
</FN>
</TABLE>
<PAGE>
Exhibit 99(a)
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL REVIEW
Overview................................................................1
Earnings Performance....................................................5
Net Interest Income..................................................5
Noninterest Income...................................................8
Noninterest Expense..................................................9
Earnings/Ratios Excluding Goodwill and Nonqualifying CDI............13
Balance Sheet Analysis.................................................15
Investment Securities...............................................15
(table on page 47)
Loan Portfolio......................................................16
(table on page 49)
Nonaccrual and Restructured Loans and Other Assets..................19
Allowance for Loan Losses...........................................21
(table on page 52)
Deposits............................................................24
Market Risks........................................................25
Derivative Financial Instruments....................................26
Liquidity Management................................................27
Capital Management..................................................28
Comparison of 1996 Versus 1995.........................................29
Additional Information.................................................29
FINANCIAL STATEMENTS
Consolidated Statement of Income.......................................30
Consolidated Balance Sheet.............................................31
Consolidated Statement of Changes in Stockholders' Equity..............32
Consolidated Statement of Cash Flows...................................34
Notes to Financial Statements..........................................35
INDEPENDENT AUDITORS' REPORT....................................................99
QUARTERLY FINANCIAL DATA.......................................................100
</TABLE>
<PAGE>
FINANCIAL REVIEW
OVERVIEW
On November 2, 1998, the former Wells Fargo & Company (the former Wells Fargo)
merged (the Merger) with WFC Holdings Corporation (WFC Holdings), a wholly-owned
subsidiary of Norwest Corporation, with WFC Holdings as the surviving
corporation. In connection with the Merger, Norwest Corporation changed its name
to "Wells Fargo & Company." Norwest Corporation as it was before the Merger is
referred to as the former Norwest. The Merger was accounted for as a pooling of
interests and, accordingly, the information included in the financial review
presents the combined results as if the Merger had been in effect for all
periods presented. Certain amounts in the financial review for prior years
have been reclassified to conform with the current financial statement
presentation.
Wells Fargo & Company is a $186 billion diversified financial services company
providing banking, insurance, investments, mortgage and consumer finance through
5,836 stores and other distribution channels in all 50 states, Canada, the
Caribbean, Latin America and elsewhere internationally. It ranked seventh in
assets and third in the market value of its stock at December 31, 1997 among
U.S. bank holding companies. In this Supplemental Annual Report, Wells Fargo &
Company and its subsidiaries are referred to as the Company and Wells Fargo &
Company is referred to as the Parent.
This Supplemental Annual Report (including information incorporated by
reference in this Supplemental Annual Report) includes forward-looking
statements about the Company's financial condition, results of operations,
plans, objectives and future performance and business. These statements
generally include the words "believe," "expect," "anticipate," "estimate,"
"may," "will" or similar expressions that suggest the statements are forward
looking in nature.
These forward-looking statements involve inherent risks and uncertainties.
The Company cautions readers that a number of factors--many of which are
beyond the control of the Company--could cause actual results to differ
materially from those in the forward-looking statements. Among these factors
are changes in political and economic conditions, interest rate fluctuations,
technological changes (including the "Year 2000" data systems compliance
issue), customer disintermediation, competitive product and pricing pressures
in the Company's geographic and product markets, equity and fixed income
market fluctuations, personal and commercial customers' bankruptcies,
inflation, changes in law, changes in fiscal, monetary, regulatory and tax
policies, monetary fluctuations, credit quality and credit risk management,
mergers and acquisitions, the integration of merged and acquired companies,
and success in gaining regulatory approvals when required.
RECENT ACCOUNTING STANDARDS
The Company adopted on December 31, 1997 Statement of Financial Accounting
Standards No. 128 (FAS 128), Earnings per Share. This Statement establishes
standards for computing and presenting earnings per common share. It requires
dual presentation of earnings per common share and diluted earnings per common
share on the face of the income statement and a reconciliation of the numerator
and denominator of both earnings per common share computations. The Statement
requires restatement of all prior period earnings per common share data
presented, including interim periods.
The Company adopted on January 1, 1998, FAS 130, Reporting Comprehensive Income.
This Statement establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. It requires that a
company classify items of other comprehensive income, as defined by accounting
standards, by their nature in the financial statements. Other comprehensive
income, as defined, is net of income taxes. Cumulative other comprehensive
income is to be displayed separately in the equity section of the balance sheet
and the consolidated statement of changes in stockholders' equity.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
The Company adopted on December 31, 1998, FAS 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. The Statement only addresses
disclosure issues; it does not address measurement and recognition of pensions
and other postretirement benefits. This Statement requires the reconciliation of
changes in benefit obligation and plan assets for both pensions and other
postretirement benefits, showing the effects of the major components separately
for each reconciliation. FAS 132 is not expected to materially change the
Company's current pension and other postretirement disclosures.
In June 1998, the Financial Accounting Standards Board (FASB) issued FAS 133,
Accounting for Derivative Instruments and Hedging Activities, which will be
effective for the Company's financial statements for periods beginning
1
<PAGE>
January 1, 2000. This Statement requires companies to record derivatives on the
balance sheet, measured at fair value. Changes in the fair values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. The Company has not
yet determined when it will implement the Statement nor has it completed the
complex analysis required to determine the impact on the financial statements.
In October 1998, the FASB issued FAS 134, Accounting for Mortgage-Backed
Securities Retained after Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise. This Statement requires that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold investments.
The Company implemented FAS 134 in the fourth quarter of 1998. The Statement is
not expected to have a material impact on the Company's Financial Statements.
2
<PAGE>
Table 1
RATIOS AND PER COMMON SHARE DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROFITABILITY RATIOS
Net income to average total assets (ROA) 1.37% 1.31% 1.70%
Net income applicable to common stock
to average common stockholders' equity (ROE) 12.81 12.73 25.34
Net income to average stockholders' equity 12.67 12.52 23.50
EFFICIENCY RATIO (1) 62.6% 67.0% 61.2%
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION AND BALANCES
("CASH" OR "TANGIBLE") (2)
Net income applicable to common stock $3,031 $2,616 $2,015
Earnings per common share 1.85 1.68 1.76
Diluted earnings per common share 1.83 1.67 1.71
ROA 1.78% 1.66% 1.81%
ROE 30.49 28.55 30.53
Efficiency ratio 57.8 63.5 61.0
CAPITAL RATIOS
At year end:
Common stockholders' equity to assets 10.40% 10.21% 6.91%
Stockholders' equity to assets 10.65 10.63 7.56
Risk-based capital (3)
Tier 1 capital 8.16 7.96 8.30
Total capital 11.20 11.11 11.09
Leverage (3) 6.72 6.36 6.28
Average balances:
Common stockholders' equity to assets 10.52 9.91 6.43
Stockholders' equity to assets 10.82 10.48 7.23
PER COMMON SHARE DATA
Dividend payout (4) 41% 38% 27%
Book value $11.92 $11.66 $10.27
Market prices (5):
High $39.50 $23.44 $17.38
Low 21.38 15.25 11.31
Year end 38.75 21.75 16.50
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The efficiency ratio is defined as noninterest expense divided by the total
of net interest income and noninterest income.
(2) Nonqualifying core deposit intangible (CDI) amortization and average balance
excluded from these calculations are, with the exception of the efficiency
ratio, net of applicable taxes. The after-tax amounts for the amortization
and average balance of nonqualifying CDI were $240 million and $1,045
million, respectively, for the year ended December 31, 1997. Goodwill
amortization and average balance (which are not tax effected) were $433
million and $8,186 million, respectively, for the year ended December 31,
1997. See page 14 for additional information.
(3) See the Capital Adequacy/Ratios section for additional information.
(4) Dividends declared per common share as a percentage of earnings per common
share.
(5) Based on daily closing prices reported on the New York Stock
Exchange Composite Transaction Reporting System.
3
<PAGE>
Table 2
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
% CHANGE
1997/
(in millions) 1997 1996 1995 1994 1993 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 8,648 $ 8,222 $ 5,923 $ 5,414 $ 5,160 5%
Provision for loan losses 1,140 500 312 365 708 128
Noninterest income 5,599 4,724 3,141 2,805 2,640 19
Noninterest expense 8,914 8,679 5,551 5,217 5,183 3
Net income 2,499 2,228 1,988 1,642 1,130 12
Earnings per common share $ 1.50 $ 1.38 $ 1.66 $ 1.40 $ 1.85 9%
Diluted earnings per
common share 1.48 1.36 1.62 1.36 1.74 9
Dividends declared
per common share (1) .615 .525 .450 .383 .320 11
BALANCE SHEET
(at year end)
Securities available for sale $ 27,872 $ 29,752 $ 24,163 $ 25,949 $ 25,530 (6)%
Loans 106,311 105,760 70,780 66,575 59,829 1
Allowance for loan losses 3,062 3,059 2,711 2,872 2,911 --
Goodwill 8,062 8,200 1,212 574 618 (2)
Assets 185,685 188,633 122,200 112,674 107,170 (2)
Core deposits 122,327 128,178 77,355 72,738 75,379 (5)
Long-term debt 17,335 18,142 16,726 12,039 11,072 (4)
Guaranteed preferred
beneficial interests in
Company's subordinated
debentures 1,299 1,150 -- -- -- 13
Common stockholders' equity 19,315 19,262 8,448 6,628 6,928 --
Stockholders' equity 19,778 20,051 9,239 7,629 7,947 (1)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Dividends declared per common share represent the dividends of the former
Norwest. Dividends declared per common share for the former Wells Fargo were
$5.20, $5.20, $4.60, $4.00 and $2.25 for 1997, 1996, 1995, 1994 and
1993, respectively.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income is the difference between interest income (which includes
yield-related loan fees) and interest expense. Net interest income on a
taxable-equivalent basis was $8,705 million in 1997, compared with $8,265
million in 1996.
Net interest income on a taxable-equivalent basis expressed as a percentage of
average total earning assets is referred to as the net interest margin, which
represents the average net effective yield on earning assets. For 1997, the net
interest margin was 5.86%, compared with 5.87% in 1996.
4
<PAGE>
Table 4 presents the individual components of net interest income and net
interest margin.
Interest income included hedging income of $79 million in 1997, compared with
$91 million in 1996. Interest expense included hedging income of $81 million in
1997, compared with $51 million in 1996.
5
<PAGE>
Table 4
AVERAGE BALANCES, YIELDS, RATES PAID AND ANALYSIS OF CHANGES IN NET INTEREST
INCOME (TAXABLE-EQUIVALENT BASIS) (1)(2)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
INTEREST INTEREST
AVERAGE YIELDS/ INCOME/ AVERAGE YIELDS/ INCOME/
(in millions) BALANCE RATES EXPENSE BALANCE RATES EXPENSE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold and securities purchased
under resale agreements $ 1,131 5.39% $ 61 $ 1,596 5.46% $ 87
Securities available for sale (3):
Securities of U.S. Treasury and federal
agencies 5,078 6.16 312 3,730 5.95 221
Securities of U.S. states and political
subdivisions 1,352 8.49 112 907 8.89 79
Mortgage-backed securities:
Federal agencies 19,844 7.13 1,403 20,199 6.98 1,410
Private collateralized mortgage obligations 3,024 6.81 206 2,852 6.51 187
-------- ------- -------- -------
Total mortgage-backed securities 22,868 7.09 1,609 23,051 6.92 1,597
Other securities 1,373 4.72 67 1,567 5.03 77
-------- ------- -------- -------
Total securities available for sale 30,671 6.88 2,100 29,255 6.76 1,974
Securities held to maturity -- -- -- -- -- --
-------- ------- -------- -------
Total securities 30,671 6.88 2,100 29,255 6.76 1,974
Loans held for sale (3) 3,849 8.11 312 3,560 9.22 328
Mortgages held for sale (3) 6,741 7.27 490 6,889 7.68 529
Loans:
Commercial 29,951 9.18 2,748 27,547 9.15 2,520
Real estate 1-4 family first mortgage 15,866 8.75 1,341 15,522 8.64 1,301
Other real estate mortgage 16,205 9.58 1,552 15,612 9.21 1,438
Real estate construction 3,298 9.92 327 2,940 10.25 301
Consumer:
Real estate 1-4 family junior lien mortgage 9,880 9.39 949 8,995 9.11 844
Credit card 6,663 14.53 968 6,505 15.03 979
Other revolving credit and monthly payment 16,947 12.42 2,105 16,505 12.25 2,022
-------- ------- -------- -------
Total consumer 33,490 12.28 4,022 32,005 12.24 3,845
Lease financing 4,285 8.38 359 3,347 8.15 272
Foreign 1,042 20.31 212 950 20.52 195
-------- ------- -------- -------
Total loans (4) 104,137 10.14 10,561 97,923 10.08 9,872
Other 2,273 5.93 134 1,696 5.51 94
-------- ------- -------- -------
Total earning assets / total increase
(decrease) in interest income $148,802 9.19 13,658 $140,919 9.15 12,884
-------- ------- -------- -------
-------- --------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 3,016 1.66 50 $ 6,749 1.38 93
Market rate and other savings 51,182 2.58 1,322 45,049 2.68 1,207
Savings certificates 28,581 5.27 1,506 26,853 5.17 1,390
Other time deposits 3,708 5.64 209 3,245 5.77 187
Deposits in foreign offices 1,287 4.85 62 719 4.76 34
-------- ------- -------- -------
Total interest-bearing deposits 87,774 3.59 3,149 82,615 3.52 2,911
Short-term borrowings 11,362 5.37 610 10,692 5.25 562
Long-term debt 17,149 6.38 1,093 18,283 6.24 1,140
Guaranteed preferred beneficial interests in
Company's subordinated debentures 1,287 7.82 101 82 7.81 6
-------- ------- -------- -------
Total interest-bearing liabilities 117,572 4.21 4,953 111,672 4.14 4,619
Portion of noninterest-bearing funding sources 31,230 -- -- 29,247 -- --
-------- ------- -------- -------
Total funding sources / total increase
(decrease) in interest expense $148,802 3.33 4,953 $140,919 3.28 4,619
-------- ------- -------- -------
-------- --------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (5) / INCREASE
(DECREASE) IN NET INTEREST INCOME ON A
TAXABLE-EQUIVALENT BASIS 5.86% $ 8,705 5.87% $ 8,265
----- ------- ----- -------
----- ------- ----- -------
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 11,609 $ 11,442
Goodwill 8,186 6,477
Other 13,653 11,051
-------- --------
Total noninterest-earning assets $ 33,448 $ 28,970
-------- --------
-------- --------
NONINTEREST-BEARING FUNDING SOURCES
Deposits $37,710 $ 34,952
Other liabilities 7,243 5,466
Preferred stockholders' equity 554 968
Common stockholders' equity 19,171 16,831
Noninterest-bearing funding sources used to
fund earning assets (31,230) (29,247)
-------- --------
Net noninterest-bearing funding sources $ 33,448 $ 28,970
-------- --------
-------- --------
TOTAL ASSETS $182,250 $169,889
-------- --------
-------- --------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 8.44%, 8.27% and 8.83% for
1997, 1996 and 1995, respectively. The average three-month London
Interbank Offered Rate (LIBOR) was 5.74%, 5.51% and 6.04% for the same
years, respectively.
(2) Interest rates and amounts include the effects of hedge and risk
management activities associated with the respective asset and liability
categories.
(3) Yields are based on amortized cost balances.
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1995 YEAR ENDED DECEMBER 31,
- ------------------------------------- ------------------------------------------------------------------
1997 OVER 1996(7) 1996 OVER 1995 (6)
INTEREST -------------------------- --------------------------
AVERAGE YIELDS/ INCOME/
BALANCE RATES EXPENSE VOLUME RATES TOTAL VOLUME RATES TOTAL
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 645 5.83% $ 38 $ (25) $ (1) $ (26) $ 52 $ (3) $ 49
1,604 6.60 105 83 8 91 127 (11) 116
124 20.80 9 37 (4) 33 91 (21) 70
13,897 7.27 1,017 (30) 23 (7) 435 (42) 393
1,252 6.39 82 11 8 19 103 2 105
- --------- ------
15,149 7.19 1,099
750 12.06 50 (7) (3) (10) 86 (59) 27
- --------- ------
17,627 7.48 1,263
7,666 5.40 477 -- -- -- (477) -- (477)
- --------- ------
25,293 5.40 1,740
2,557 8.88 227 25 (41) (16) 92 9 101
4,996 7.86 393 (11) (28) (39) 145 (9) 136
17,773 9.67 1,718 220 8 228 899 (97) 802
11,883 8.51 976 25 15 40 310 15 325
11,742 9.40 1,104 55 59 114 357 (23) 334
1,833 10.06 184 36 (10) 26 113 4 117
7,512 8.64 678 80 25 105 130 36 166
5,939 15.54 923 23 (34) (11) 87 (31) 56
10,887 13.26 1,444 55 28 83 695 (117) 578
- --------- ------
24,338 13.16 3,045
2,284 8.51 194 79 8 87 87 (9) 78
704 23.01 162 19 (2) 17 52 (19) 33
- --------- ------
70,557 10.47 7,383
940 5.87 55 33 7 40 43 (4) 39
- --------- ------ ------ ----- ------ ------ ----- ------
$ 104,988 9.36 9,836 708 67 774 3,427 (379) 3,048
- --------- ------ ------ ----- ------ ------ ----- ------
- ---------
$ 6,423 1.24 80 $ (59) 16 (43) $ 4 9 13
28,622 2.78 796 161 (46) 115 441 (30) 411
18,889 5.33 1,007 89 27 116 414 (31) 383
2,244 5.81 131 26 (4) 22 57 (1) 56
2,381 5.86 139 27 1 28 (83) (22) (105)
- --------- ------
58,559 3.68 2,153
12,682 5.88 746 35 13 48 (109) (75) (184)
14,996 6.53 980 (72) 25 (47) 205 (45) 160
-- -- -- 95 -- 95 6 -- 6
- --------- ------
86,237 4.50 3,879
18,751 -- -- -- -- -- -- -- --
- --------- ------ ------ ----- ------ ------ ----- ------
$ 104,988 3.69 3,879 302 32 334 935 (195) 740
- --------- ------ ------ ----- ------ ------ ----- ------
- ---------
5.67% $5,957 $ 406 $ 34 $ 440 $2,492 $(184) $2,308
---- ------ ------ ----- ------ ------ ----- ------
---- ------ ------ ----- ------ ------ ----- ------
$ 5,858
895
5,273
- ---------
$ 12,026
- ---------
- ---------
$ 19,070
3,246
942
7,519
(18,751)
- ---------
$ 12,026
- ---------
- ---------
$ 117,014
- ---------
- ---------
- --------------------------------------------------------------------------------
</TABLE>
(4) Nonaccrual loans and related income are included in their respective loan
categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on
certain loans and securities that is exempt from federal and applicable
state income taxes. The federal statutory tax rate was 35% for all years
presented.
(6) These columns allocate the changes in net interest income on a
taxable-equivalent basis to changes in either average balances or average
rates for both interest-earning assets and interest-bearing liabilities.
7
<PAGE>
NONINTEREST INCOME
Table 5 shows the major components of noninterest income.
Table 5
NONINTEREST INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
% Change
Year ended December 31, ------------------
------------------------------------- 1997/ 1996/
(in millions) 1997 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $1,244 $1,198 $ 747 4% 60%
Trust and investment fees and commissions:
Asset management and custody fees 603 510 370 18 38
Mutual fund and annuity sales fees 273 190 105 44 81
All other 78 75 65 4 15
------ ------ ------
Total trust and investment fees
and commissions 954 775 540 23 44
Credit card fee revenue 448 350 293 28 19
Other fees and commissions:
ATM network fees 176 107 55 64 95
Charges and fees on loans 254 209 111 22 88
All other 396 373 256 6 46
------ ------ ------
Total other fees and commissions 826 689 422 20 63
Mortgage banking:
Origination and other closing fees 314 305 198 3 54
Servicing fees, net of amortization 324 318 228 2 39
Net gains (losses) on sales of mortgage
servicing rights (8) 57 81 -- (30)
Net gains (losses) on sales of mortgages 120 13 (24) 823 --
Other 177 151 69 17 119
------ ------ ------
Total mortgage banking 927 844 552 10 53
Insurance 336 280 225 20 24
Net venture capital gains 191 256 102 (25) 151
Net gains (losses) on securities available for sale 99 12 (52) 725 --
Income from equity investments accounted
for by the:
Cost method 157 137 58 15 136
Equity method 57 24 39 138 (38)
Net gains (losses) on sales of loans 30 22 (40) 36 --
Net gains (losses) from dispositions of operations 15 (95) (89) -- 7
Net losses on dispositions of premises
and equipment (76) (45) (38) 69 18
All other 391 277 382 41 (27)
------ ------ ------
Total $5,599 $4,724 $3,141 19% 50%
------ ------ ------ --- --
------ ------ ------ --- --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
The increase in net gains on sales of mortgages is substantially due to an
increase in loan volume and favorable market conditions between loan funding
and settlement date.
At December 31, 1996, the Company had a liability of $111 million related to the
disposition of premises and, to a lesser extent, severance and miscellaneous
expenses associated with branches not acquired as a result of the merger with
First Interstate Bancorp (First Interstate). Of this amount, $15 million
represented the balance of the 1995 accrual for the sale of 13 branches and the
closures of 9 branches which were completed in 1997. At December 31, 1996, the
remaining balance consisted of a fourth quarter 1996 accrual of $96 million for
the disposition of 137 traditional branches in California. Of the $96 million,
$48 million was associated with 68 branches that were closed in 1997. In the
fourth quarter of 1997, the Company evaluated the remaining 69 scheduled branch
closures and decided to retain 37 branches, which resulted in reducing the
liability by $27 million. The decision was made based on numerous factors,
including the need to maintain customer service levels, particularly given the
earlier unstable operating environment associated with integrating First
Interstate, as well as the review of profitability analysis demonstrating
increased customer usage and improved profitability for these 37 branches. These
developments were not anticipated or foreseen at the time this accrual was
originally recorded. The remaining $21 million liability at December 31, 1997
was related to 32 branches that were expected to be closed in 1998. In addition,
an expense accrual of $27 million was made in the fourth quarter of 1997
representing disposition of premises and, to a lesser extent, severance and
communication expenses associated with the disposition in 1998 of 33 traditional
branches located mostly outside of California.
NONINTEREST EXPENSE
Table 6 shows the major components of noninterest expense.
9
<PAGE>
Table 6
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
% Change
----------------
Year ended December 31, 1997/ 1996/
----------------------------------------
(in millions) 1997 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and benefits $3,811 $3,624 $2,428 5% 49%
Net occupancy 719 688 471 5 46
Equipment 739 724 468 2 55
Goodwill 433 339 98 28 246
Core deposit intangible:
Nonqualifying (1) 240 227 21 6 981
Qualifying 33 38 43 (13) (12)
Operating losses 374 189 104 98 82
Contract services 271 329 185 (18) 78
Telecommunications 241 234 133 3 76
Security 87 56 21 55 167
Postage 210 206 144 2 43
Outside professional services 262 254 166 3 53
Insurance 122 90 62 36 45
Outside data processing 217 216 140 -- 54
Advertising and promotion 202 234 163 (14) 44
Stationery and supplies 182 192 124 (5) 55
Travel and entertainment 188 188 118 -- 59
All other 583 851 662 (31) 29
------ ------ ------
Total $8,914 $8,679 $5,551 3% 56%
------ ------ ------ -- ---
------ ------ ------ -- ---
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amortization of core deposit intangible acquired after February 1992 that
is subtracted from stockholders' equity in computing regulatory capital for
bank holding companies.
10
<PAGE>
The increase in operating losses in 1997 was predominantly a result of
back-office problems which arose subsequent to certain systems conversions and
other changes to operating processes that were part of the First Interstate
integration. These problems were related to clearing accounts with other banks,
misposting of deposits and loan payments to customer accounts and processing of
returned items. Since the inception of these problems, management dedicated
resources to resolve the increasing volume of ensuing suspense items. In the
second quarter of 1997, based on the age and volume of suspense items as well as
additional research and better insight, management determined that many of the
items would not be cleared or collected. Consequently, it was determined that
there was a need to record an operating loss related to the outstanding items.
Substantially all of these items were written off in the third quarter.
Goodwill and CDI amortization resulting from the First Interstate merger were
$292 million and $223 million, respectively, for the year ended December 31,
1997, compared with $216 million and $206 million, respectively, for the year
ended December 31, 1996. The core deposit intangible is amortized on an
accelerated basis based on an estimated useful life of 15 years. The impact on
noninterest expense from the amortization of the nonqualifying core deposit
intangible in 1998, 1999 and 2000 is expected to be $200 million, $177 million
and $162 million, respectively. The related impact on income tax expense is
expected to be a benefit of $81 million, $72 million and $66 million in 1998,
1999 and 2000, respectively.
During 1998, the Company continued with its company-wide project to prepare
the Company's systems for Year 2000 compliance. The Year 2000 issue relates
to computer systems that use two digits rather than four to define the
applicable year and whether such systems will properly process information
when the year changes to 2000. "Systems" include all firmware, hardware,
networks, system and application software, and commercial "off the shelf"
software, and embedded technology such as properties/date impacted processors
in automated systems such as elevators, telephone systems, security systems,
vault systems, heating and cooling systems and others. Priority is given to
"mission critical" systems. A system is considered "mission critical" if it
is vital to the successful continuation of a core business activity.
The former Norwest's Year 2000 readiness project is divided into four phases
- - Phase I: a comprehensive assessment and inventory of applicable software,
system hardware devices, data and voice communication devices and embedded
technology intended to determine Year 2000 vulnerability and risk; Phase II:
date detection on systems intended to determine which systems must be
remediated and which systems are compliant and require testing only,
determination of the resources and costs, and the development of schedules
and high level testing plans for the repair, replacement and/or retirement of
systems that are determined not to be compliant; Phase III: repair,
replacement and/or retirement of systems that are determined not to be Year
2000 compliant, and planning the integration testing for those systems that
have interfaces with other systems both internal and external to the Company,
such as customers and suppliers; and Phase IV: integration testing on
applicable systems to
11
<PAGE>
validate that interfaces are Year 2000 compliant and contingency planning.
The former Norwest has substantially completed Phases I, II and III of its Year
2000 project.
The former Wells Fargo, following an initial awareness phase, utilizes a
four-phase plan for achieving Year 2000 readiness. The Assessment Phase
(Phase I) is intended to determine which computers, operating systems,
applications and facilities require remediation and prioritizing those
remediation efforts. The Assessment Phase has been completed except for the
on-going assessment of new systems. The Renovation Phase (Phase II) addressed
the correction or replacement of any non-compliant hardware, software or
facilities and has been substantially completed. All renovated software, both
in-house applications and vendor software was placed back into production
before commencement of the Validation Phase (Phase III). The Validation
Phase, which involves testing of in-house systems, vendor software and
service providers, is in process. During Phase IV, the Implementation Phase,
remediated and validated code will be tested in interfaces with customers,
business partners, government institutions and others.
It is anticipated that the Company will have substantially completed the
unfinished phases discussed in the preceding two paragraphs by June 30, 1999.
The Company may be impacted by the Year 2000 compliance issues of
governmental agencies, businesses and other entities who provide data to, or
receive data from, the Company, and by entities, such as borrowers, vendors,
customers and business partners, whose financial condition or operational
capability is significant to the Company. The Company's Year 2000 project
also includes assessing the Year 2000 readiness of certain customers,
borrowers, vendors, business partners, counterparties and governmental
entities. In addition to assessing the readiness of these external parties,
the Company is developing contingency plans which will include plans to
recover operations and alternatives to mitigate the effects of counterparties
whose own failure to properly address Year 2000 issues may adversely impact
the Company's ability to perform certain functions. These contingency plans
are expected to be substantially completed by June 30, 1999.
Through September 30, 1998, the Company currently estimates that its total
cost for the Year 2000 project will approximate $300 million. To date, the
Company has incurred charges of $151 million related to its Year 2000 project
and $46 million and $125 million total expenditures were incurred in the
quarter and nine months ended September 30, 1998, respectively. Charges for
the former Norwest include the cost of internal staff redeployed to the Year
2000 project, as well as external consulting costs and costs of accelerated
replacement of hardware and software due to Year 2000 issues. Charges for the
former Wells Fargo include the cost of external consulting costs and costs of
accelerated replacement of hardware and software, but do not include the cost
of internal staff redeployed to the Year 2000 project. The Company does not
believe that the redeployment of internal staff for the former Wells Fargo
will have a material impact on the financial condition or results of
operations for the Company.
12
<PAGE>
The foregoing paragraphs contain a number of forward-looking statements. These
statements reflect management's best current estimates, which were based on
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third party service
providers and other third parties, and additional factors. There can be no
guarantee that these estimates, including Year 2000 costs, will be achieved, and
actual results could differ materially from those estimates. A number of
important factors could cause management's estimates and the impact of the Year
2000 issue to differ materially from what is described in the forward-looking
statements contained in the above paragraphs. Those factors include, but are not
limited to, uncertainties in the cost of hardware and software, the availability
and cost of programmers and other systems personnel, inaccurate or incomplete
execution of the phases, ineffective remediation of computer code, and whether
the Company's customers, vendors, competitors and counterparties effectively
address the Year 2000 issue.
If Year 2000 issues are not adequately addressed by the Company and significant
third parties, the Company's business, results of operations and financial
position could be materially adversely affected. Failure of certain vendors to
be Year 2000 compliant could result in disruption of important services upon
which the Company depends, including, but not limited to, such services as
telecommunications, electrical power and data processing. Failure of the
Company's loan customers to properly prepare for the Year 2000 could also result
in increases in problem loans and credit losses in future years. Notwithstanding
the Company's efforts, there can be no assurance that the Company or significant
third party vendors or other significant third parties will adequately address
their Year 2000 issues. The Company is continuing to assess the Year 2000
readiness of third parties but does not know at this time whether the failure of
third parties to be Year 2000 compliant will have a material effect on the
Company's results of operations, liquidity and financial condition.
The forward-looking statements made in the foregoing Year 2000 discussion speak
only as of the date on which such statements are made, and the Company
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.
EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
Table 7 reconciles reported earnings to net income excluding goodwill and
nonqualifying core deposit intangible amortization ("cash" or "tangible") for
the year ended December 31, 1997. Table 8 presents the calculation of the ROA,
ROE and efficiency ratios excluding goodwill and nonqualifying core deposit
intangible amortization and balances for the year ended December 31, 1997. These
calculations were specifically formulated by the Company and may not be
comparable to similarly titled measures reported by other companies. Also,
"cash" or "tangible" earnings are not entirely available for use by management.
See the Consolidated Statement of Cash Flows and Note 3 to Financial Statements
for other information regarding funds available for use by management.
13
<PAGE>
Table 7
EARNINGS EXCLUDING GOODWILL AND NONQUALIFYING CDI
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended
(in millions) December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Amortization
--------------------------
Nonqualifying
Reported core deposit "Cash"
earnings Goodwill intangible earnings
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income tax expense $4,193 $433 $240 $4,866
Income tax expense 1,694 -- 98 1,792
------ ---- ---- ------
Net income 2,499 433 142 3,074
Preferred stock dividends 43 -- -- 43
------ ---- ---- ------
Net income applicable to common stock $2,456 $433 $142 $3,031
------ ---- ---- ------
------ ---- ---- ------
Earnings per common share $ 1.50 $.26 $.09 $ 1.85
------ ---- ---- ------
------ ---- ---- ------
Diluted earnings per common share $ 1.48 $.26 $.09 $ 1.83
------ ---- ---- ------
------ ---- ---- ------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Table 8
RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended
(in millions) December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ROA: A / (C-E) = 1.78%
ROE: B / (D-E) = 30.49%
Efficiency: (F-G) / H = 57.84%
Net income $ 3,074 (A)
Net income applicable to common stock 3,031 (B)
Average total assets 182,250 (C)
Average common stockholders' equity 19,171 (D)
Average goodwill ($8,186) and after-tax nonqualifying core deposit intangible ($1,045) 9,231 (E)
Noninterest expense 8,914 (F)
Amortization expense for goodwill and nonqualifying core deposit intangible 673 (G)
Net interest income plus noninterest income 14,247 (H)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
BALANCE SHEET ANALYSIS
A comparison between the year-end 1997 and 1996 balance sheets is presented
below.
INVESTMENT SECURITIES
Total investment securities averaged $30.7 billion in 1997, a 5% increase
from $29.3 billion in 1996. Total investment securities were $27.9 billion at
December 31, 1997, a 6% decrease from $29.8 billion at December 31, 1996.
The securities available for sale portfolio includes both debt and marketable
equity securities. At December 31, 1997, the securities available for sale
portfolio had an unrealized net gain of $740 million, comprised of unrealized
gross gains of $787 million and unrealized gross losses of $47 million. At
December 31, 1996, the securities available for sale portfolio had an unrealized
net gain of $511 million, comprised of unrealized gross gains of $718 million
and unrealized gross losses of $207 million. The unrealized net gain or loss on
securities available for sale is reported on an after-tax basis as a valuation
allowance that is a separate component of stockholders' equity. At December 31,
1997, the valuation allowance amounted to an unrealized net gain of $474
million, compared with an unrealized net gain of $327 million at December 31,
1996.
The unrealized net gain in the debt securities portion of the securities
available for sale portfolio at December 31, 1997 was primarily attributable to
mortgage-backed securities, reflecting a decrease in interest rates since the
time of purchase. The Company may decide to sell certain of the securities
available for sale to manage the level of earning assets (for example, to offset
loan growth that may exceed expected maturities and prepayments of securities).
(See Note 4 to Financial Statements for securities available for sale by
security type.)
At December 31, 1997, mortgage-backed securities, including collateralized
mortgage obligations (CMOs), represented $21.2 billion, or 76% of the Company's
investment securities portfolio at December 31, 1997. The CMO securities held by
the Company (including the private issues) are primarily shorter-maturity class
bonds that were structured to have more predictable cash flows by being less
sensitive to prepayments during periods of changing interest rates. As an
indication of interest rate risk, the Company has estimated the impact of a 200
basis point increase in interest rates on the value of the mortgage-backed
securities and the corresponding expected remaining maturities. Based on this
rate scenario, mortgage-backed securities would decrease in fair value from
$21.2 billion to $20.0 billion.
15
<PAGE>
LOAN PORTFOLIO
The following table presents the remaining contractual principal maturities of
selected loan categories at December 31, 1997 and a summary of the major
categories of loans outstanding at the end of the last five years. At
December 31, 1997, the Company did not have loan concentrations that exceeded
10% of total loans, except as shown below.
Table 9
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
---------------------------------------------------
OVER ONE YEAR December 31,
ONE YEAR THROUGH OVER -------------------------------------
(in millions) OR LESS FIVE YEARS FIVE YEARS TOTAL 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected loan maturities:
Commercial $16,958 $12,373 $2,730 $32,061 $30,794 $20,127 $16,550 $14,533
Other real estate mortgage 2,514 7,123 6,689 16,326 16,419 11,857 10,616 10,846
Real estate construction 1,908 1,144 274 3,326 3,247 2,108 1,581 1,676
Foreign - commercial 130 110 51 291 357 227 157 111
------- ------- ------ ------- ------- ------- ------- -------
Total selected loan
maturities $21,510 $20,750 $9,744 52,004 50,817 34,319 28,904 27,166
------- ------- ------ ------- ------- ------- ------- -------
------- ------- ------
Other loan categories:
Real estate 1-4 family first
mortgage 14,165 16,051 8,799 14,335 12,669
Consumer:
Real estate 1-4 family
junior lien mortgage 10,618 10,357 6,970 6,433 6,158
Credit card 6,671 7,028 5,667 5,636 4,327
Other revolving credit and
monthly payment 17,021 16,916 11,715 8,686 7,143
-------- -------- ------- ------- -------
Total consumer 34,310 34,301 24,352 20,755 17,628
Lease financing 4,968 3,816 2,605 2,095 1,911
Foreign (1) 864 775 705 486 455
-------- -------- ------- ------- -------
Total loans $106,311 $105,760 $70,780 $66,575 $59,829
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Foreign loans include foreign other revolving credit and monthly payment
and real estate secured by 1-4 family residential properties.
A comparative schedule of average loan balances is presented in Table 4;
year-end balances are presented in Note 5 to Financial Statements.
Included in $52.0 billion of selected loan maturities in Table 9 for 1997 are
$5.9 billion and $14.8 billion of loans with fixed rates and floating or
adjustable rates, respectively, with maturities over one year through five
years and $4.6 billion and $5.1 billion of loans with fixed rate and floating
or adjustable rates, respectively, with maturities over five years.
Loans averaged $104.1 billion in 1997, compared with $97.9 billion in 1996.
Total loans at December 31, 1997 were $106.3 billion, compared with $105.8
billion at year-end 1996. The Company's total unfunded loan commitments were
$71.1 billion at December 31, 1997, compared with $65.4 billion at December
31, 1996.
Commercial loans grew 4% to $32.1 billion at year-end 1997, from $30.8
billion at December 31, 1996. Total unfunded commercial loan commitments at
December 31, 1997 were $35.2 billion, compared with $35.0 billion at December
31, 1996. Included in the commercial
16
<PAGE>
loan portfolio are agricultural loans of $2.9 billion and $2.5 billion at
December 31, 1997 and 1996, respectively. Agricultural loans consist of loans
to finance agricultural production and other loans to farmers.
The five states with the highest originations of 1-4 family mortgages in 1997
were: California, $10.7 billion; Minnesota, $3.0 billion; Texas, $2.7
billion; Illinois, $2.6 billion; and New Jersey $2.5 billion. The
originations in these five states comprise approximately 38.6% of total
originations in 1997.
Table 10 summarizes other real estate mortgage loans by state and property
type.
Table 10
REAL ESTATE MORTGAGE LOANS BY STATE AND TYPE
(excluding 1-4 family first mortgages)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
---------------------------------------------------------------------------------------------------------
Other
California Texas Nevada Minnesota states(2) All states Non-
--------------- -------------- ------------- -------------- -------------- -------------- accruals
as a %
Total Non- Total Non- Total Non- Total Non- Total Non- Total Non- of total
(in millions) loans accrual loans accrual loans accrual loans accrual loans accrual loans accrual by type
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office buildings $2,071 $ 79 $ 224 $-- $134 $-- $ 92 $ 1 $1,155 $28 $ 3,676 $108 3%
Retail buildings 1,450 24 181 3 101 -- 171 1 1,346 9 3,249 37 1
Industrial 1,300 14 215 -- 83 -- 204 -- 609 10 2,411 24 1
Hotels/motels 399 4 131 -- 375 -- 91 -- 698 6 1,694 10 1
Apartments 915 17 154 1 145 -- 72 -- 468 2 1,754 20 1
Institutional 334 9 29 -- 8 -- -- -- 113 3 484 12 2
Agricultural 277 9 41 -- -- -- 59 1 457 8 834 18 2
Land 204 8 126 2 16 2 16 -- 115 1 477 13 3
1-4 family structures (1) 2 -- 17 1 1 -- 32 -- 110 1 162 2 1
Other 361 8 154 5 94 3 110 -- 866 5 1,585 21 1
------ ---- ------ --- ---- --- ---- --- ------ --- ------- ----
Total by state $7,313 $172 $1,272 $12 $957 $ 5 $847 $ 3 $5,937 $73 $16,326 $265 2%
------ ---- ------ --- ---- --- ---- --- ------ --- ------- ----
------ ---- ------ --- ---- --- ---- --- ------ --- ------- ----
% of total loans 45% 8% 6% 5% 36% 100%
------ ------ ---- ---- ------ -------
------ ------ ---- ---- ------ -------
Nonaccruals as a %
of total by state 2% 1% 1% --% 1%
---- --- --- --- ---
---- --- --- --- ---
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents loans to real estate developers secured by 1-4 family residential
developments.
(2) Consists of 37 states; no state had loans in excess of $602 million at
December 31, 1997.
17
<PAGE>
Table 11 summarizes real estate construction loans by state and project type.
Table 11
REAL ESTATE CONSTRUCTION LOANS BY STATE AND TYPE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1997
-----------------------------------------------------------------------------------------------------
Other
California Texas Nevada(1) Arizona(1) states (2) All states Non-
-------------- ------------ --------- ---------- ----------------- ---------------- accruals
as a %
Total Non- Total Non- Total Total Total Non- Total Non- of total
(in millions) loans accrual loans accrual loans loans loans accrual loans accrual by type
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail buildings $ 136 $-- $ 34 $-- $ 27 $ 17 $ 231 $-- $ 445 $-- --%
1-4 family:
Land 238 -- 7 -- 8 -- 84 -- 337 -- --
Structures 187 15 88 -- 39 87 291 1 692 16 2
Land (excluding
1-4 family) 132 -- 63 -- 12 25 185 10 417 10 2
Apartments 100 -- 14 -- 29 8 157 -- 308 -- --
Office buildings 82 -- 20 -- 13 24 88 -- 227 -- --
Industrial 81 -- 15 -- 14 28 99 -- 237 -- --
Hotels/motels 15 -- 6 -- 41 54 26 -- 142 -- --
Institutional 7 -- 3 -- 4 2 27 -- 43 -- --
Agricultural 1 -- -- -- -- 4 -- -- 5 -- --
Other 131 -- 51 1 105 17 169 -- 473 1 --
------ --- ---- --- ---- ---- ---- ---- ---- ---- ---
Total by state $1,110 $15 $301 $1 $292 $266 $1,357 $11 $3,326 $27 1
------ --- ---- -- ---- ---- ------ --- ------ --- ---
------ --- ---- -- ---- ---- ------ --- ------ --- ---
% of total loans 33% 9% 9% 8% 41% 100%
------ ---- ---- ---- ------ ------
------ ---- ---- ---- ------ ------
Nonaccruals as a %
of total by state 1% --% 1%
--- -- ---
--- -- ---
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There were no loans on nonaccrual at December 31, 1997.
(2) Consists of 31 states; no state had loans in excess of $226 million at
December 31, 1997.
18
<PAGE>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
Table 12 presents comparative data for nonaccrual and restructured loans and
other assets. Management's classification of a loan as nonaccrual or
restructured does not necessarily indicate that the principal of the loan is
uncollectible in whole or in part. Table 12 excludes loans that are
contractually past due 90 days or more as to interest or principal, but are
both well-secured and in the process of collection or are real estate 1-4
family first mortgage loans or consumer loans that are exempt under
regulatory rules from being classified as nonaccrual. This information is
presented in a narrative on page 21. Notwithstanding, real estate 1-4 family
loans (first and junior liens) are placed on nonaccrual within 150 days of
becoming past due (with the exception that junior liens of the former Norwest
were placed on nonaccrual at the time of transfer to other real estate (ORE) )
and are shown in the table below. (Note 1 to Financial Statements describes
the Company's accounting policies relating to nonaccrual and restructured
loans.)
Table 12
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------
(in millions) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (1) (2) $706 $ 871 $705 $ 695 $1,390
Restructured loans (3) 9 10 16 17 16
---- ------ ---- ------ ------
Nonaccrual and restructured loans 715 881 721 712 1,406
As a percentage of total loans .7% .8% 1.0% 1.1% 2.4%
Other real estate 264 308 244 306 419
Real estate investments (4) 4 4 13 18 17
---- ------ ---- ------ ------
Total nonaccrual and restructured
loans and other assets $983 $1,193 $978 $1,036 $1,842
---- ------ ---- ------ ------
---- ------ ---- ------ ------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes commercial agricultural loans of $24 million, $25 million,
$13 million, $4 million and $11 million and agricultural loans secured by
real estate of $18 million, $13 million, $5 million, $9 million and
$25 million at December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(2) Of the total nonaccrual loans, $411 million, $587 million and $508 million
at December 31, 1997, 1996 and 1995, respectively, were considered impaired
under FAS 114 (Accounting by Creditors for Impairment of a Loan).
(3) In addition to originated loans that were subsequently restructured, there
were loans of $23 million, $50 million and $50 million at December 31,
1997, 1996 and 1995, respectively, that were purchased at a steep discount
whose contractual terms were modified after acquisition. The modified terms
did not affect the book balance nor the yields expected at the date of
purchase. Of the total restructured loans and loans purchased at a steep
discount, $23 million, $50 million and $50 million were considered impaired
under FAS 114 at December 31, 1997, 1996 and 1995, respectively.
(4) Represents the amount of real estate investments (contingent interest loans
accounted for as investments) that would be classified as nonaccrual if
such assets were loans. Real estate investments totaled $172 million, $154
million, $96 million, $55 million and $36 million at December 31, 1997,
1996, 1995, 1994 and 1993, respectively.
The Company anticipates normal influxes of nonaccrual loans as it further
increases its lending activity as well as resolutions of loans in the nonaccrual
portfolio. The performance of any individual loan can be impacted by external
factors, such as the interest rate environment or factors particular to a
borrower such as actions taken by a borrower's management. In addition, from
time to time, the Company purchases loans from other financial institutions that
may be classified as nonaccrual based on its policies.
19
<PAGE>
The Company generally identifies loans to be evaluated for impairment under FAS
114 (Accounting by Creditors for Impairment of a Loan) when such loans are on
nonaccrual or have been restructured. However, not all nonaccrual loans are
impaired. Generally, a loan is placed on nonaccrual status upon becoming 90 days
past due as to interest or principal (unless both well-secured and in the
process of collection), when the full timely collection of interest or principal
becomes uncertain or when a portion of the principal balance has been charged
off. Real estate 1-4 family loans (both first liens and junior liens) are placed
on nonaccrual status within 150 days of becoming past due as to interest or
principal, regardless of security. In contrast, under FAS 114, loans are
considered impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. For a loan that has been
restructured, the contractual terms of the loan agreement refer to the
contractual terms specified by the original loan agreement, not the contractual
terms specified by the restructuring agreement. Not all impaired loans are
necessarily placed on nonaccrual status. That is, restructured loans performing
under restructured terms beyond a specified performance period are classified as
accruing but may still be deemed impaired under FAS 114.
For loans covered under FAS 114, the Company makes an assessment for impairment
when and while such loans are on nonaccrual, or the loan has been restructured.
When a loan with unique risk characteristics has been identified as being
impaired, the amount of impairment will be measured by the Company using
discounted cash flows, except when it is determined that the sole (remaining)
source of repayment for the loan is the operation or liquidation of the
underlying collateral. In such cases, the current fair value of the collateral,
reduced by costs to sell, will be used in place of discounted cash flows.
Additionally, some impaired loans with commitments of less than $1 million are
aggregated for the purpose of measuring impairment using historical loss factors
as a means of measurement.
If the measurement of the impaired loan is less than the recorded investment in
the loan (including accrued interest, net deferred loan fees or costs and
unamortized premium or discount), an impairment is recognized by creating or
adjusting an existing allocation of the allowance for loan losses. FAS 114 does
not change the timing of charge-offs of loans to reflect the amount ultimately
expected to be collected.
If interest due on the book balances of all nonaccrual and restructured loans
(including loans no longer on nonaccrual or restructured at year end) had been
accrued under their original terms, $76 million of interest would have been
recorded in 1997, compared with $27 million actually recorded.
ORE at December 31, 1997 decreased to $264 million from $308 million at
December 31, 1996.
20
<PAGE>
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Loans contractually past due 90 days or more as to interest or principal, but
not included in the nonaccrual or restructured categories totaled $397 million,
$444 million, $236 million, $176 million and $146 million at December 31, 1997,
1996, 1995, 1994 and 1993, respectively. All loans in this category are both
well-secured and in the process of collection or are real estate 1-4 family
first mortgage loans or consumer loans that are exempt under regulatory rules
from being classified as nonaccrual because they are automatically charged off
after being past due for a prescribed period (generally, 180 days).
Notwithstanding, real estate 1-4 family loans (first liens and junior liens) are
placed on nonaccrual within 150 days of becoming past due (with the exception
that junior liens of the former Norwest were placed on nonaccrual at the time of
transfer to ORE).
ALLOWANCE FOR LOAN LOSSES
The table on the following page provides a breakdown of the allowance for
loan losses by loan category. The Company has an established process to
determine the adequacy of the allowance for loan losses which assesses the
risk and losses inherent in its portfolio. This process provides an allowance
consisting of two components, allocated and unallocated. To arrive at the
allocated component of the allowance, the Company combines estimates of the
allowances needed for loans analyzed individually (including impaired loans
subject to FAS 114) and loans analyzed on a pool basis. While coverage of one
year's losses is often adequate (particularly for homogeneous pools of
loans), the time period covered by the allowance may vary by portfolio, based
on the Company's best estimate of the inherent losses in the entire portfolio
as of the evaluation date. To mitigate the imprecision inherent in most
estimates of expected credit losses, the allocated component of the allowance
is supplemented by an unallocated component. The unallocated component
includes management's judgmental determination of the amounts necessary for
concentrations, economic uncertainties and other subjective factors;
correspondingly, the relationship of the unallocated component to the total
allowance for loan losses may fluctuate from period to period. Although
management has allocated a portion of the allowance to specific loan
categories, the adequacy of the allowance must be considered in its entirety.
21
<PAGE>
Table 13
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(in millions) 1997 1996 (1) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 560 $ 472 $ 321 $ 248 $ 280
Real estate 1-4 family first mortgage 64 53 73 69 74
Other real estate mortgage 277 340 291 330 503
Real estate construction 46 59 68 62 114
Consumer:
Credit card (2) 471 440 383 126 132
Other consumer 542 452 313 240 246
------ ------ ------ ------ ------
Total consumer 1,013 892 696 366 378
Lease financing 58 47 41 34 29
Foreign 43 34 27 20 21
------ ------ ------ ------ ------
Total allocated 2,061 1,897 1,517 1,129 1,399
Unallocated component of
the allowance (3) 1,001 1,162 1,194 1,743 1,512
------ ------ ------ ------ ------
Total $3,062 $3,059 $2,711 $2,872 $2,911
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ----------------- ----------------- ----------------- -----------------
ALLOC. LOAN Alloc. Loan Alloc. Loan Alloc. Loan Alloc. Loan
ALLOW. CATGRY allow. catgry allow. catgry allow. catgry allow. catgry
AS % AS % as % as % as % as % as % as % as % as %
OF LOAN OF TOTAL of loan of total of loan of total of loan of total of loan of total
CATGRY LOANS catgry loans catgry loans catgry loans catgry loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 1.75% 30% 1.53% 29% 1.59% 28% 1.50% 25% 1.93% 25%
Real estate 1-4 family first
mortgage .45 14 .33 15 .83 13 .48 22 .58 21
Other real estate mortgage 1.70 15 2.07 16 2.45 17 3.11 16 4.64 18
Real estate construction 1.38 3 1.82 3 3.23 3 3.92 2 6.80 3
Consumer:
Credit card (2) 7.06 6 6.26 6 6.76 8 2.24 8 3.05 7
Other consumer 1.96 26 1.66 26 1.68 26 1.59 23 1.85 22
--- --- --- --- ---
Total consumer 2.95 32 2.60 32 2.86 34 1.76 31 2.14 29
Lease financing 1.17 5 1.23 4 1.57 4 1.62 3 1.52 3
Foreign 3.72 1 3.00 1 2.90 1 3.11 1 3.71 1
- - - - -
Total allocated 1.94 100% 1.79 100% 2.14 100% 1.70 100% 2.34 100%
--- --- --- --- ---
--- --- --- --- ---
Unallocated component of
the allowance (3) .94 1.10 1.69 2.61 2.53
---- ---- ---- ---- ----
Total 2.88% 2.89% 3.83% 4.31% 4.87%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
(1) In 1996, the methods used for the allocation of the allowance for the
former Wells Fargo for loan losses for all loan categories were modified.
For example, the modification of the method for determining the allocation
for real estate 1-4 family first mortgage loans (and "other consumer"
loans) generally reduced the number of months of projected losses covered
compared with the method used in prior years. The new methodology provided
approximately 12 months coverage of projected loan losses for the real
estate 1-4 family first mortgage loans in 1997 and approximately 13 months
coverage in 1996, compared with approximately 40 months coverage in 1995.
(2) The allocation of the former Norwest for credit card loans approximated six
months of projected losses in 1993 through 1997. The allocation for credit
card loans for the former Wells Fargo in 1997, 1996 and 1995 approximated
12 months of projected losses, compared with 7 months in 1994 and 1993.
(3) This amount and any unabsorbed portion of the allocated allowance are also
available for any of the above listed loan categories.
An analysis of the changes in the allowance for loan losses, including
charge-offs and recoveries by loan category, is presented in Note 5 to
Financial Statements. At December 31, 1997, the allowance for loan losses was
$3,062 million, or 2.88% of total loans, compared with $3,059 million, or
2.89%, at December 31, 1996. The provision for loan losses totaled $1,140
million in 1997 and $500 million in 1996. Of these amounts, the former Wells
Fargo provided $615 million for loan losses in 1997 and $105 million in 1996.
Throughout this period the Company considered its allowance for loan losses
adequate in relation to its existing loan portfolio, which had gradually
improved in credit quality following the
22
<PAGE>
economic environment of 1991 and 1992. Net charge-offs in 1997 were $1,305
million, or 1.25% of average total loans, compared with $1,022 million, or
1.04%, in 1996. Loan loss recoveries were $426 million in 1997, compared with
$349 million in 1996.
The largest category of net charge-offs in 1997 and 1996 was credit card
loans, comprising more than 39% of the total net charge-offs. During 1997,
credit card gross charge-offs due to bankruptcies were $238 million, or 41%,
of total credit card charge-offs, compared with $206 million, or 42%, in
1996. In addition, credit card loans 30 to 89 days past due and still
accruing totaled $200 million at December 31, 1997, compared with $228
million at December 31, 1996.
Any loan that is past due as to principal or interest and that is not both
well-secured and in the process of collection is generally charged off (to
the extent that it exceeds the fair value of any related collateral) after a
predetermined period of time that is based on loan category. For example,
credit card loans generally are charged off within 180 days of becoming past
due. Additionally, loans are charged off when classified as a loss by either
internal loan examiners or regulatory examiners.
The Company's direct credit risk related to the ongoing volatility of the
financial markets in Asia is predominantly short-term in nature and is not
significant. However, the primary risk to the Company is the long-term impact
of the Asian financial markets on the economy of the U.S. and the Company's
borrowers. Understanding this risk is more difficult and is dependent on the
passage of time.
The Company considers the allowance for loan losses of $3,062 million
adequate to cover losses inherent in loans, commitments to extend credit and
standby letters of credit at December 31, 1997. However, no assurance can be
given that the Company will not, in any particular period, sustain loan
losses that are sizable in relation to the amount reserved, or that
subsequent evaluations of the loan portfolio, in light of the factors then
prevailing, including economic conditions and the Company's ongoing
examination process and that of its regulators, will not require significant
increases in the allowance for loan losses. For the discussion of the process
by which the Company determines the adequacy for loan losses, see Note 5 to
the Financial Statements.
23
<PAGE>
DEPOSITS
Comparative detail of average deposit balances is presented in Table 4.
Average core deposits increased 6% in 1997 compared with 1996. Average core
deposits funded 66% and 67% of the Company's average total assets in 1997 and
1996, respectively.
Year-end deposit balances are presented in Table 14.
Table 14
DEPOSITS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
December 31,
---------------------------------- %
(in millions) 1997 1996 Change
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $ 40,206 $ 43,369 (7)%
Interest-bearing checking 2,759 5,009 (45)
Market rate and other savings 51,038 51,217 --
Savings certificates 28,324 28,583 (1)
-------- --------
Core deposits 122,327 128,178 (5)
Other time deposits 3,927 3,373 16
Deposits in foreign offices 1,402 400 251
-------- --------
Total deposits $127,656 $131,951 (3)%
-------- -------- ---
-------- -------- ---
- -----------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
MARKET RISKS
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The
primary market risk to which the Company is exposed is interest rate risk.
The majority of the Company's interest rate risk arises from the instruments,
positions and transactions entered into for purposes other than trading. They
include loans, investment securities, deposit liabilities, short-term
borrowings, long-term debt and derivative financial instruments used for
asset/liability management. Interest rate risk occurs when assets and
liabilities reprice at different times as interest rates change. For example,
if fixed-rate assets are funded with floating-rate debt, the spread between
asset and liability rates will decline or turn negative if rates increase.
The Company refers to this type of risk as "term structure risk." There is,
however, another source of interest rate risk which results from changing
spreads between asset and liability rates. The Company calls this type of
risk "basis risk;" it is a significant source of interest rate risk for the
Company and is more difficult to quantify and manage than term structure
risk. Two primary components of basis risk for the Company are the spread
between Prime-based loans and market rate account (MRA) savings deposits and
the rate paid on savings and interest-bearing checking accounts as compared
to LIBOR-based loans.
Interest rate risk is managed within an overall asset/liability framework for
the Company. The principal objectives of asset/liability management are to
manage the sensitivity of net interest spreads to potential changes in
interest rates and to enhance profitability in ways that promise sufficient
reward for understood and controlled risk. Funding positions are kept within
predetermined limits designed to ensure that risk-taking is not excessive and
that liquidity is properly managed. The Company employs a sensitivity
analysis in the form of a net interest income simulation to help characterize
the market risk arising from changes in interest rates in the
other-than-trading portfolio.
The Company's net interest income simulation includes all other-than-trading
financial assets, financial liabilities, derivative financial instruments and
leases where the Company is the lessor. It captures the dynamic nature of the
balance sheet by anticipating probable balance sheet and off-balance sheet
strategies and volumes under different interest rate scenarios over the
course of a one-year period. This simulation measures both the term structure
risk and the basis risk in the Company's positions. The simulation also
captures the option characteristics of products, such as caps and floors on
floating rate loans, the right to prepay mortgage loans without penalty and
the ability of customers to withdraw deposits on demand. These options are
modeled directly in the simulation either through the use of option pricing
models, in the case of caps and floors on loans, or through statistical
analysis of historical customer behavior, in the case of mortgage loan
prepayments or non-maturity deposits.
The Company uses four standard scenarios - rates unchanged, expected rates,
high rates and low rates - in analyzing interest rate sensitivity. The
expected scenario is based on the Company's projected future interest rates,
while the high-rate and low-rate scenarios cover 90% probable upward and
downward rate movements based on the Company's own interest rate models. For
25
<PAGE>
example, the low-rate scenario would have the 5-year Treasury rate of 4.61%
at December 31, 1998, compared with the actual rate of 5.71% at December 31,
1997.
The current interest rate risk limit using the net interest income simulation
allows up to 30 basis points (.30%) of sensitivity in the expected average
net interest margin over the next year. As of December 31, 1997, the
simulation showed a decline in the net interest margin of 2 basis points
(.02%, or $28 million decline in net interest income) for the low-rate
scenario case relative to the expected case.
The Company uses interest rate derivative financial instruments as an
asset/liability management tool to hedge mismatches in interest rate
exposures indicated by the net interest income simulation described above.
They are used to reduce the Company's exposure to interest rate fluctuations
and provide more stable spreads between loan yields and the rates on their
funding sources. For example, the Company uses interest rate futures to
shorten the rate maturity of MRA savings deposits to better match the
maturity of Prime-based loans. The Company also purchases interest rate
floors to protect against the loss in interest income on LIBOR-based loans
during a decreasing interest rate environment. Additionally, receive-fixed
rate swaps are used to convert floating-rate loans into fixed rates to better
match the liabilities that fund the loans.
Looking toward managing interest rate risk in 1998, the Company will continue
to face term structure risk and basis risk and may be confronted with several
risk scenarios. If interest rates rise, net interest income may actually
increase if deposit rates lag increases in market rates (e.g. Prime, LIBOR).
The Company could, however, experience pressure on net interest income in
this scenario if deposits are aggressively repriced as market rates increase.
A declining interest rate environment might result in a decrease in loan
rates, while deposit rates remain relatively stable, as they did between 1994
and 1996. This rate scenario could also create significant risk to net
interest income. The Company has partially hedged against this risk with
receive-fixed rate swap contracts and purchasing interest rate floors and
fixed rate mortgage backed securities. Based on its current and projected
balance sheet, the Company does not expect that a change in interest rates
would affect its liquidity position.
The Company considers the fair values and the potential near losses to future
earnings related to its customer accommodation derivative financial
instruments to be immaterial.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate derivative financial instruments as an
asset/liability management tool to hedge the Company's exposure to interest
rate fluctuations. Table 15 reconciles the beginning and ending notional or
contractual amounts for derivative financial instruments used for
asset/liability management purposes for 1997 and shows the expected remaining
maturity at year-end 1997. The Company also offers contracts to its
customers, but hedges such contracts by
26
<PAGE>
purchasing other financial contracts or uses the contracts for
asset/liability management. For a further discussion of derivative financial
instruments, refer to Note 21 to Financial Statements.
Table 15
DERIVATIVE ACTIVITIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
-------------------------------------------------------------------------------------
Weighted
average
expected
Amortization remaining
(notional or contractual Beginning and Ending maturity (in
amounts in millions) balance Additions maturities Terminations (1) balance yrs.-mos.)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts:
Swaps $21,729 $ 4,372 $ 1,180 $ 869 $24,052 2-9
Futures 8,805 48,047 20,050 25,853 10,949 0-10
Floors and caps 37,052 8,800 1,908 8,600 35,344 2-1
Options 6,384 69,729 24,750 40,195 11,168 0-1
Forwards 19,844 65,231 43,752 13,816 27,507 0-1
Foreign exchange contracts:
Forwards and spots 64 1,234 743 7 548 0-2
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Terminations occur if a customer that purchased a contract decides to
cancel it before the maturity date. If the customer contract was hedged,
the Company terminates the interest rate derivative instrument used to
hedge the customer's contract upon cancellation.
LIQUIDITY MANAGEMENT
Liquidity refers to the Company's ability to maintain a cash flow adequate to
fund operations and meet obligations and other commitments on a timely and
cost-effective basis. The Company manages its liquidity at both the parent
and subsidiary levels.
In addition to the immediately liquid resources of cash and due from banks
and federal funds sold and securities purchased under resale agreements, the
Company has a significant liquidity reserve in its available for sale
investment securities portfolio. Approximately 80% of the $27.3 billion of
debt securities in this portfolio consist of highly marketable U.S. Treasury
or federal agency securities. The weighted average expected remaining maturity
of the debt securities within the portfolio was 4 years and 7 months at
December 31, 1997 with $7.9 billion, or 28%, expected to mature or be prepaid
in 1998 and an additional $4.6 billion, or 17%, expected to mature or be
prepaid in 1999. Asset liquidity is further enhanced by the Company's ability
to securitize assets such as mortgage loans. Through public offerings, the
Company securitized $55 billion of mortgage loans in 1997 and $53 billion of
mortgage loans in 1996.
Core deposits have historically provided the Company with a sizeable source
of relatively stable and low-cost funds. The Company's average core deposits
and stockholder's equity funded 77% and 77% of its average total assets in
1997 and 1996.
27
<PAGE>
The remaining funding of average total assets was mostly provided by
long-term debt, deposits in foreign offices, short-term borrowings (comprised
of federal funds purchased and securities sold under repurchase agreements,
commercial paper and other short-term borrowings) and trust preferred
securities. Short-term borrowings averaged $11.4 billion and $10.7 billion in
1997 and 1996, respectively. Long-term debt averaged $17.1 billion and $18.3
billion in 1997 and 1996, respectively. Trust preferred securities averaged
$1.3 billion and $.1 billion in 1997 and 1996, respectively.
Liquidity for the Parent Company is provided by dividend and interest income
from its subsidiaries, lines of credit, and through its ability to raise
funds in a variety of domestic and international money and capital markets.
In 1996, the Company filed two shelf registration statements with the
Securities and Exchange Commission (SEC) that allows for the issuance of $5
billion and $2 billion of debt securities, respectively, in domestic and
international money and capital markets. The proceeds from the sale of any
securities are expected to be used for general corporate purposes. As of
December 31, 1997, the Company had issued $700 million of securities under
such shelf registrations.
To accommodate future growth and current business needs, the Company has a
capital expenditure program, which includes expenditures for equipment for
stores relocation and remodeling of Company facilities and routine
replacement of furniture and equipment. The Company funds these expenditures
from various sources, including retained earnings of the Company and
borrowings of various maturities.
CAPITAL MANAGEMENT
Since 1986, the former Norwest has repurchased common stock in the open market
in a systematic pattern to meet the common stock issuance requirements of the
former Norwest's Savings Investment Plans, the Long-Term Incentive Compensation
Plan, and other stock issuance requirements other than acquisitions accounted
for as pooling of interests. In November 1997, the former Norwest's board of
directors authorized additional purchases, upon such terms and conditions as
management approves, of 11,000,000 shares of the former Norwest's common stock,
and as of December 31, 1997, the remaining total common stock purchase authority
was 7,876,000 shares.
During 1997, the former Norwest repurchased 3,526,000 shares of its common stock
for issuance in conjunction with specific purchase acquisitions that were
consummated during the year. In addition, approximately 13,102,000 shares were
repurchased during 1997 for benefit plans, including shares acquired related to
the vesting of options granted in 1996 under the former Norwest's Best Practices
PartnerShares plan, and other ongoing needs. During 1996, 7,462,000 shares were
repurchased for acquisition purposes and 10,475,000 shares were repurchased for
benefit plans and other ongoing needs.
The former Wells Fargo has bought in the past shares to offset common stock
issued or expected to be issued under the former Wells Fargo's employee benefit
and dividend reinvestment plans. In addition to these shares, the Board of
Directors authorized in April 1996 the repurchase of up to 9.6 million shares of
the former Wells Fargo's outstanding common stock under a repurchase program
begun in 1994. In October 1997, the Board of Directors authorized the
repurchase from time to time of up to an additional 8.6 million shares of the
former Wells Fargo's outstanding stock under the same program. Under these
programs, the former Wells Fargo has repurchased 7.7 million shares (net of
shares issued) in 1996, 5.3 million shares (net of shares issued) in 1997 and
1.1 million shares (net of shares issued) in the first half of 1998. In
connection with the Merger, the former Wells Fargo rescinded all of its share
repurchase programs effective June 7, 1998. In addition, on October 12, 1998,
the former Wells Fargo issued 2.5 million shares to cure a portion of previously
repurchased "tainted" shares and, thus, allow the Merger to be accounted for as
a pooling of interests.
28
<PAGE>
COMPARISON OF 1996 VERSUS 1995
On April 1, 1996, the Company completed its acquisition (Acquisition) of
First Interstate, which has been accounted for as a purchase business
combination. As a result, the financial information presented in this
Supplemental Annual Report reflects the effects of the acquisition subsequent
to the Acquisition's consummation. Since the Company's results of operations
subsequent to April 1, 1996 reflect amounts recognized from the combined
operations, they cannot be divided between or attributed directly to either
of the two former entities nor can they be directly compared with prior
periods.
In most of the Company's income and expense categories, the increases in the
amounts reported for the year ended December 31, 1996 compared to the amounts
reported in the corresponding period in 1995 resulted from the Acquisition.
The increases in most of the categories of the Company's balance sheet
between amounts reported at December 31, 1996 and those reported at December
31, 1995 also resulted from the Acquisition.
The increase in mortgage banking noninterest income was due in part to the
acquisition of certain assets of the Prudential Home Mortgage Company, Inc.
in May 1996, including $47 billion of its mortgage servicing portfolio.
ADDITIONAL INFORMATION
Common stock of the Company is traded on the New York Stock Exchange and the
Chicago Stock Exchange. The high, low and end-of-period annual and quarterly
closing prices of the Company's stock as reported on the New York Stock Exchange
Composite Transaction Reporting System are presented in Table 1 and in the table
below, respectively. The number of holders of record of the Company's common
stock was 90,294 as of January 31, 1998.
Table 16
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
QUARTER ENDED Quarter ended
------------------------------------------ ---------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31 Dec. 31 Sept. 30 June 30 Mar. 31
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common share market prices:
High $39.50 $32.16 $29.63 $ 26.63 $23.44 $20.50 $18.75 $18.56
Low 29.75 28.13 22.19 21.63 20.38 16.00 16.50 15.25
Year end 38.75 30.63 28.13 23.13 21.75 20.38 17.44 18.38
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------
(in millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Securities available for sale $ 2,063 $ 1,950 $ 1,717
Mortgages held for sale 490 529 392
Loans held for sale 312 328 227
Loans 10,539 9,854 7,377
Other interest income 198 180 89
-------- ------- -------
Total interest income 13,602 12,841 9,802
-------- ------- -------
INTEREST EXPENSE
Deposits 3,150 2,911 2,153
Short-term borrowings 610 562 746
Long-term debt 1,093 1,140 980
Guaranteed preferred beneficial interests in Company's
subordinated debentures 101 6 -
-------- ------- -------
Total interest expense 4,954 4,619 3,879
-------- ------- -------
NET INTEREST INCOME 8,648 8,222 5,923
Provision for loan losses 1,140 500 312
-------- ------- -------
Net interest income after provision for loan losses 7,508 7,722 5,611
-------- ------- -------
NONINTEREST INCOME
Service charges on deposit accounts 1,244 1,198 747
Trust and investment fees and commissions 954 775 540
Credit card fee revenue 448 350 293
Other fees and commissions 826 689 422
Mortgage banking 927 844 552
Insurance 336 280 225
Net venture capital gains 191 256 102
Net gains (losses) on securities available for sale 99 12 (52)
Other 574 320 312
-------- ------- -------
Total noninterest income 5,599 4,724 3,141
-------- ------- -------
NONINTEREST EXPENSE
Salaries and benefits 3,811 3,624 2,428
Net occupancy 719 688 471
Equipment 739 724 468
Goodwill 433 339 98
Core deposit intangible 273 265 64
Operating losses 374 189 104
Other 2,565 2,850 1,918
-------- ------- -------
Total noninterest expense 8,914 8,679 5,551
-------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 4,193 3,767 3,201
Income tax expense 1,694 1,539 1,213
-------- ------- -------
NET INCOME $ 2,499 $ 2,228 $ 1,988
-------- ------- -------
-------- ------- -------
NET INCOME APPLICABLE TO COMMON STOCK $ 2,456 $ 2,143 $ 1,905
-------- ------- -------
-------- ------- -------
EARNINGS PER COMMON SHARE $ 1.50 $1.38 $ 1.66
-------- ------- -------
-------- ------- -------
DILUTED EARNINGS PER COMMON SHARE $ 1.48 $1.36 $ 1.62
-------- ------- -------
-------- ------- -------
DIVIDENDS DECLARED PER COMMON SHARE $ .615 $.525 $ .450
-------- ------- -------
-------- ------- -------
Average common shares outstanding 1,634.6 1,553.3 1,147.7
-------- ------- -------
-------- ------- -------
Diluted average common shares outstanding 1,657.8 1,570.5 1,175.8
-------- ------- -------
-------- ------- -------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------------
(in millions) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,081 $ 16,593
Federal funds sold and securities purchased
under resale agreements 1,049 1,464
Securities available for sale 27,872 29,752
Mortgages held for sale 9,706 6,529
Loans held for sale 4,494 3,648
Loans 106,311 105,760
Allowance for loan losses 3,062 3,059
-------- --------
Net loans 103,249 102,701
-------- --------
Mortgage servicing rights 3,048 2,892
Premises and equipment, net 3,311 3,523
Core deposit intangible 1,737 2,083
Goodwill 8,062 8,200
Interest receivable and other assets 10,076 11,248
-------- --------
Total assets $185,685 $188,633
-------- --------
-------- --------
LIABILITIES
Noninterest-bearing deposits $ 40,206 $ 43,369
Interest-bearing deposits 87,450 88,582
-------- --------
Total deposits 127,656 131,951
Short-term borrowings 13,381 10,003
Accrued expenses and other liabilities 6,236 7,336
Long-term debt 17,335 18,142
Guaranteed preferred beneficial interests in Company's
subordinated debentures 1,299 1,150
STOCKHOLDERS' EQUITY
Preferred stock 543 850
Unearned ESOP shares (80) (61)
-------- --------
Total preferred stock 463 789
Common stock - $1 2/3 par value, authorized
4,000,000,000 shares; issued
1,630,640,939 shares and 1,665,811,500 shares 2,718 2,149
Additional paid-in capital 8,126 10,170
Retained earnings 8,292 6,871
Cumulative foreign currency translation adjustments (10) (11)
Investment securities valuation allowance 474 327
Notes receivable from ESOP (10) (11)
Treasury stock - 10,493,685 shares and 13,661,838 shares (275) (233)
-------- --------
Total stockholders' equity 19,778 20,051
-------- --------
Total liabilities and stockholders' equity $185,685 $188,633
-------- --------
-------- --------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Unearned Additional
Number of Preferred ESOP Common paid-in
(in millions) shares stock shares stock capital
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994 $ 527 $(15) $ 539 $ 579
Adjustments for pooling of interests 489 853 272
------ ----- ------ ------
BALANCE DECEMBER 31, 1994 (RESTATED) 1,016 (15) 1,392 851
Net income -1995
Common stock issued 14,578,500 13 198
Common stock issued for acquisitions 69,066,490 52 41
Common stock repurchased 66,197,300 (83) (764)
Preferred stock issued to ESOP 63,300 63 (66) 3
Preferred stock released to ESOP 42 (1)
Preferred stock (1,181,900) converted to common stock 27,783,510 (269) 7 (7)
Preferred stock repurchased 1,784
Sale of preferred stock held by subsidiary 100,000 20
Preferred stock dividends
Common stock dividends
Change in unrealized net gains (losses) on securities
available for sale after applicable taxes
Transfer 1,000
------ ----- ------ ------
Foreign currency translation
Net change (186) (24) (11) 470
------ ----- ------ ------
BALANCE DECEMBER 31, 1995 830 (39) 1,381 1,321
------ ----- ------ ------
Net income-1996
Common stock issued 15,490,268 13 164
Preferred stock issued for acquisitions 1,750,000 350 10
Common stock issued for acquisitions 560,360,762 895 10,580
Preferred stock issued, net of issuance costs 4,000,000 200 (3)
Preferred stock repurchased 1,127,125 (552)
Common stock repurchased 101,936,842 (140) (2,018)
Preferred stock issued to ESOP 59,000 59 (61) 2
Preferred stock released to ESOP 39 (1)
Preferred stock (37,777) converted to common shares 1,970,310 (37) 4
Preferred stock dividends
Common stock dividends
Change in unrealized net gains (losses) on securities
available for sale after applicable taxes
Fair value adjustment related to acquiree's options 111
Cash payments received on notes receivable from ESOP
------ ----- ------ ------
Foreign currency translation
Net change 20 (22) 768 8,849
------ ----- ------ ------
BALANCE DECEMBER 31, 1996 850 (61) 2,149 10,170
------ ----- ------ ------
NET INCOME-1997
COMMON STOCK ISSUED 18,793,327 10 155
COMMON STOCK ISSUED FOR ACQUISITIONS 23,835,535 21 20
PREFERRED STOCK REPURCHASED 1,100,000 (325)
COMMON STOCK REPURCHASED 74,627,681 (97) (1,591)
PREFERRED STOCK ISSUED TO ESOP 51,700 52 (54) 2
PREFERRED STOCK RELEASED TO ESOP 35 (1)
PREFERRED STOCK (34,074) CONVERTED TO COMMON SHARES 1,212,871 (34)
6
PREFERRED STOCK DIVIDENDS
COMMON STOCK DIVIDENDS
CHANGE IN UNREALIZED NET GAINS (LOSSES) ON SECURITIES
AVAILABLE FOR SALE AFTER APPLICABLE TAXES
CASH PAYMENTS RECEIVED ON NOTES RECEIVABLE FROM ESOP
STOCK SPLIT 635 (635)
------ ----- ------ ------
FOREIGN CURRENCY TRANSLATION
NET CHANGE (307) (19) 569 (2,044)
------ ----- ------ ------
BALANCE DECEMBER 31, 1997 $ 543 $(80) $2,718 $8,126
------ ----- ------ ------
------ ----- ------ ------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Foreign Investment Note
currency securities Receivable Total
Retained translation valuation from Treasury stockholders'
earnings adjustments allowance ESOP stock equity
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,950 $ (8) $(360) $(13) $(351) $ 3,848
2,281 (4) (110) 3,781
------- ---- ----- ---- ----- -------
5,231 (12) (470) (13) (351) 7,629
1,988 1,988
(136) 91 166
68 16 95 272
(234) (1,081)
--
41
(4) 273 --
--
20
(83) (83)
(522) (522)
807 807
(1,000) --
2 2
------- ---- ----- ---- ----- -------
311 2 823 -- 225 1,610
------- ---- ----- ---- ----- -------
5,542 (10) 353 (13) (126) 9,239
------- ---- ----- ---- ----- -------
2,228 2,228
(71) 116 222
360
72 (2) 99 11,644
197
(552)
(355) (2,513)
--
38
33 --
(85) (85)
(815) (815)
(26) (26)
111
4 4
(1) (1)
------- ---- ----- ---- ----- -------
1,329 (1) (26) 2 (107) 10,812
------- ---- ----- ---- ----- -------
6,871 (11) 327 (11) (233) 20,051
------- ---- ----- ---- ----- -------
2,499 2,499
(151) 282 296
41 1 131 214
(325)
(483) (2,171)
--
34
28 --
(43) (43)
(925) (925)
146 146
1 1
--
1 1
------- ---- ----- ---- ----- -------
1,421 1 147 1 (42) (273)
------- ---- ----- ---- ----- -------
$8,292 $(10) $474 $(10) $(275) $19,778
------- ---- ----- ---- ----- -------
------- ---- ----- ---- ----- -------
- ---------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------
(in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,499 $ 2,228 $ 1,988
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,140 500 312
Depreciation and amortization 1,734 1,458 556
Securities available for sale gains (99) (12) 52
Gains on sale of loans (30) (22) 40
(Gains) losses from disposition of operations (15) 95 89
Gain on sale of joint venture interest -- -- (163)
Release of preferred shares to ESOP 34 38 40
Net (increase) decrease in trading assets (711) (440) 21
Deferred income tax expense (benefit) 177 375 (53)
Net decrease (increase) in accrued interest receivable 96 (75) (74)
Net increase in accrued interest payable 43 37 173
Originations of mortgages held for sale (56,297) (53,088) (35,831)
Proceeds from sales of mortgages held for sale 53,252 55,920 31,976
Net (increase) decrease in loans held for sale (846) 673 4,025
Other, net 974 (3,542) (1,732)
--------- --------- ---------
Net cash provided by operating activities 1,951 4,145 1,419
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 9,798 5,905 6,416
Proceeds from prepayments and maturities 6,998 7,853 2,153
Purchases (13,140) (10,100) (6,237)
Securities held to maturity:
Proceeds from sales -- -- 155
Proceeds from prepayment and maturities -- -- 2,537
Purchases -- -- (629)
Net cash (paid for) acquired from acquisitions (67) 3,561 (95)
Net (increase) decrease in banking subsidiaries' loans
resulting from originations and collections 843 4,053 (3,877)
Proceeds from sales (including participations) of banking
subsidiaries' loans 437 364 770
Purchases (including participations) of banking subsidiaries' loans (314) (133) (233)
Principal collected on nonbank subsidiaries' loans 8,456 5,503 5,725
Nonbank subsidiaries' loans originated (8,748) (6,950) (6,242)
Proceeds from (cash paid for) disposition of operations 16 6 (2)
Proceeds from sales of other real estate (ORE) 278 200 234
Net decrease in federal funds sold and securities purchased under resale agreements 415 1,385 38
Other, net (320) (929) (364)
--------- --------- ---------
Net cash provided by investing activities 4,652 10,718 349
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (7,273) (2,198) (1,861)
Net increase (decrease)in short-term borrowings 2,838 (1,970) (1,359)
Proceeds from issuance of long-term debt 4,003 6,403 8,559
Repayment of long-term debt (5,394) (6,293) (4,296)
Proceeds from issuance of guaranteed preferred beneficial
interests in Company's subordinated debentures 149 1,150 --
Proceeds from issuance of preferred stock -- 197 20
Proceeds from issuance of common stock 238 199 155
Redemption of preferred stock (325) (552) --
Repurchase of common stock (2,171) (2,513) (1,081)
Net decrease in notes receivable from ESOP 1 4 --
Payment of cash dividends on preferred and common stock (968) (905) (605)
Other, net (1,213) 513 (10)
--------- --------- ---------
Net cash used by financing activities (10,115) (5,965) (478)
--------- --------- ---------
NET CHANGE IN CASH AND DUE FROM BANKS (3,512) 8,898 1,290
Cash and due from banks at beginning of year 16,593 7,695 6,405
--------- --------- ---------
CASH AND DUE FROM BANKS AT END OF YEAR $ 13,081 $ 16,593 $ 7,695
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,911 $ 4,582 $ 3,706
Income taxes $ 1,238 $ 684 $ 1,151
Noncash investing and financing activities:
Transfers from securities held to maturity to securities available for sale $ -- $ -- $ 7,225
Transfers from loans to ORE $ 162 $ 192 $ 144
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Fargo & Company (Parent) is a bank holding company. Wells Fargo & Company
and Subsidiaries (Company) engages in banking in 21 states and a variety of
related businesses in 50 states, principally mortgage banking, consumer finance,
equipment leasing, agricultural finance, commercial finance, securities
brokerage and investment banking, insurance agency services, computer and data
processing services, trust services, mortgage-backed securities servicing and
venture capital investment. The Company also provides consumer and automobile
finance products and services in Guam, Saipan, Canada, the Caribbean and Latin
America.
The accounting and reporting policies of the Company conform with generally
accepted accounting principles (GAAP) and prevailing practices within the
financial services industry. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and income and expenses during the reporting period. Actual
results could differ from those estimates.
On November 2, 1998, the former Wells Fargo & Company (the former Wells
Fargo) merged (the Merger) with WFC Holdings Corporation (WFC Holdings) a
wholly-owned subsidiary of Norwest Corporation, with WFC Holdings as the
surviving corporation. In connection with the Merger, Norwest Corporation
changed its name to Wells Fargo & Company. Norwest Corporation as it was
before the Merger is referred to as the former Norwest. The Merger was
accounted for as a pooling of interests and, accordingly, the information
included in the financial statements presents the combined results as if the
Merger had been in effect for all periods presented. Certain amounts in the
financial statements for prior years have been reclassified to conform with
the current financial statement presentation. The following is a description
of the significant accounting policies of the Company.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts of the
Parent, and its majority-owned subsidiaries, which are consolidated on a
line-by-line basis. Significant intercompany accounts and transactions are
eliminated in consolidation. Other subsidiaries and affiliates in which there is
at least 20% ownership are generally accounted for by the equity method; those
in which there is less than 20% ownership are generally carried at cost.
Investments that are accounted for by either the equity or cost method are
included in other assets.
35
<PAGE>
SECURITIES
Securities are accounted for according to their purpose and holding period.
SECURITIES AVAILABLE FOR SALE Debt securities that may not be held until
maturity and marketable equity securities are available for sale and, as such,
are carried at fair value, with unrealized gains and losses, after applicable
taxes, reported in a separate component of stockholders' equity. The estimated
fair value of a security is determined based on current quotations, where
available. Where current quotations are not available, the estimated fair value
is determined based primarily on the present value of future cash flows,
adjusted for the quality rating of the securities, prepayment assumptions and
other factors. Declines in the value of debt securities and marketable equity
securities that are considered other than temporary are recorded in noninterest
income as a loss on available for sale securities. Realized gains and losses are
recorded in noninterest income using the identified certificate method. For
certain debt securities (for example, Government National Mortgage Association
securities), the Company anticipates prepayments of principal in the calculation
of the effective yield.
TRADING SECURITIES Securities acquired for short-term appreciation or other
trading purposes are recorded in a trading portfolio and are carried at fair
value, with unrealized gains and losses recorded in noninterest income.
NONMARKETABLE EQUITY SECURITIES Nonmarketable equity securities include the
venture capital subsidiaries' equity securities that are not publicly traded and
securities acquired for various purposes, such as troubled debt restructurings
and as a regulatory requirement (for example, Federal Reserve Bank stock). These
securities are accounted for at cost. The asset value is reduced when declines
in value are considered to be other than temporary and the estimated loss is
recorded in noninterest income as a loss from equity investments along with
income recognized on these assets.
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, related fees paid and related
hedging gains and losses. Gains and losses on sales of mortgages are recognized
at settlement dates and are determined by the difference between sales proceeds
and the carrying value of the mortgages. Gains and losses are recorded in
noninterest income.
LOANS HELD FOR SALE
Included in this category are student loans which are classified as held for
sale because the Company does not intend to hold these loans until maturity or
sales of the loans are pending. Such loans are carried at the lower of aggregate
cost or market value. Gains and losses are recorded in noninterest income, based
on the difference between sales proceeds and carrying value.
36
<PAGE>
LOANS
Loans are reported at the principal amount outstanding, net of unearned income.
Unearned income, which includes deferred fees net of deferred direct incremental
loan origination costs, is amortized to interest income generally over the
contractual life of the loan using an interest method or the straight-line
method if it is not materially different.
NONACCRUAL LOANS Generally, loans are placed on nonaccrual status upon
becoming 90 days past due as to interest or principal (unless both
well-secured and in the process of collection), when the full timely
collection of interest or principal becomes uncertain or when a portion of
the principal balance has been charged off. Real estate 1-4 family loans
(both first liens and junior liens) are placed on nonaccrual status within
150 days of becoming past due as to interest or principal, regardless of
security (with the exception that junior liens of the former Norwest were
placed on nonaccrual at the time of transfer to ORE). Generally, consumer
loans not secured by real estate are only placed on nonaccrual status when a
portion of the principal has been charged off. Such loans are entirely
charged off when deemed uncollectible or when they reach a predetermined
number of days past due depending upon loan product, country, terms and other
factors.
When a loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is reversed and the loan is accounted for on the cash or cost
recovery method thereafter, until qualifying for return to accrual status.
Generally, a loan may be returned to accrual status when all delinquent interest
and principal become current in accordance with the terms of the loan agreement
or when the loan is both well-secured and in the process of collection and
collectibility is no longer doubtful.
IMPAIRED LOANS Loans, other than those included in large groups of
smaller-balance homogeneous loans, are considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. For a loan that has been
restructured, the contractual terms of the loan agreement refer to the
contractual terms specified by the original loan agreement, not the contractual
terms specified by the restructuring agreement.
This assessment for impairment occurs when and while such loans are on
nonaccrual, or the loan has been restructured. When a loan with unique risk
characteristics has been identified as being impaired, the amount of impairment
will be measured by the Company using discounted cash flows, except when it is
determined that the sole (remaining) source of repayment for the loan is the
operation or liquidation of the underlying collateral. In such cases, the
current fair value of the collateral, reduced by costs to sell, will be used in
place of discounted cash flows. Additionally, some impaired loans with
commitments of less than $1 million are aggregated for the purpose of measuring
impairment using historical loss factors as a means of measurement.
If the measurement of the impaired loan is less than the recorded investment in
the loan (including accrued interest, net deferred loan fees or costs and
unamortized premium or
37
<PAGE>
discount), an impairment is recognized by creating or adjusting an existing
allocation of the allowance for loan losses.
RESTRUCTURED LOANS In cases where a borrower experiences financial difficulties
and the Company makes certain concessionary modifications to contractual terms,
the loan is classified as a restructured (accruing) loan. Loans restructured at
a rate equal to or greater than that of a new loan with comparable risk at the
time the contract is modified may be excluded from the impairment assessment and
may cease to be considered impaired loans in the calendar years subsequent to
the restructuring if they are not impaired based on the modified terms.
Generally, a nonaccrual loan that is restructured remains on nonaccrual for a
period of six months to demonstrate that the borrower can meet the restructured
terms. However, performance prior to the restructuring, or significant events
that coincide with the restructuring, are included in assessing whether the
borrower can meet the new terms and may result in the loan being returned to
accrual at the time of restructuring or after a shorter performance period. If
the borrower's ability to meet the revised payment schedule is uncertain, the
loan remains classified as a nonaccrual loan.
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation allowance
for possible losses which had occurred as of the balance sheet date. The
Company's determination of the level of the allowance for loan losses rests upon
various judgments and assumptions, including general economic conditions, loan
portfolio composition, prior loan loss experience, evaluation of credit risk
related to certain individual borrowers and the Company's ongoing examination
process and that of its regulators. The Company considers the allowance for loan
losses adequate to cover losses inherent in loans, loan commitments and standby
letters of credit.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
A transfer of financial assets is accounted for as a sale when control is
surrendered over the assets transferred. Servicing rights and other retained
interests in the assets sold are recorded by allocating the previous recorded
investment between the asset sold and the interest retained based on their
relative fair values, if practicable to determine, at the date of transfer.
The Company recognizes as separate assets the rights to service mortgage loans
for others, whether the servicing rights are acquired through purchases or sales
of loan originations. For purposes of evaluating and measuring impairment of
mortgage servicing rights, the Company stratifies its portfolio on the basis of
certain risk characteristics including loan type and note rate. Based upon
current fair values and considering outstanding positions of derivative
financial instruments utilized as hedges, mortgage servicing rights are
periodically assessed for impairment. Impairment is recognized in the statement
of income during the period in which impairment occurs as an adjustment to the
corresponding valuation allowance. Mortgage servicing rights are amortized over
the period of estimated net servicing income and take into account appropriate
prepayment assumptions.
38
<PAGE>
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Capital leases are included in premises and equipment, at the
capitalized amount less accumulated amortization.
Depreciation and amortization are computed primarily using the straight-line
method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years
for furniture and equipment, and up to the lease term for leasehold
improvements. Capitalized leased assets are amortized on a straight-line basis
over the lives of the respective leases, which generally range from 20 to 35
years.
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill, representing the excess of purchase price over the fair value of net
assets acquired, results from acquisitions made by the Company. Substantially
all of the Company's goodwill is being amortized using the straight-line method
over 25 years. Core deposit intangibles are amortized on an accelerated basis
based on an estimated useful life of 10 to 15 years. Certain identifiable
intangible assets that are included in other assets are generally amortized
using an accelerated method over an original life of 5 to 15 years.
The Company reviews its intangible assets periodically for other-than-temporary
impairment. If such impairment is indicated, recoverability of the asset is
assessed based on expected undiscounted net cash flows.
INCOME TAXES
The Company files a consolidated federal income tax return. Deferred income tax
assets and liabilities are determined using the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is determined
based on the tax effects of the differences between the book and tax bases of
the various balance sheet assets and liabilities and gives current recognition
to changes in tax rates and laws.
EARNINGS PER COMMON SHARE
Earnings per common share are presented under two formats: earnings per common
share and diluted earnings per common share. Earnings per common share are
computed by dividing net income (after deducting dividends on preferred stock)
by the weighted average number of common shares outstanding during the year.
Diluted earnings per common share are computed by dividing net income (after
deducting dividends on preferred stock and interest expense on convertible
subordinated debentures) by the weighted average number of common shares
outstanding during the year, plus the impact of those common stock equivalents
(i.e., stock options, restricted share rights and convertible subordinated
debentures) that are dilutive.
39
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
INTEREST RATE DERIVATIVES The Company uses interest rate derivative financial
instruments (futures contracts, forward contracts, swaps, caps, floors and
options) primarily to hedge mismatches in the rate maturity of loans and their
funding sources and the price risk of interest-rate sensitive assets. These
instruments serve to reduce rather than increase the Company's exposure to
movements in interest rates. At the inception of the hedge, the Company
identifies an individual asset or liability, or an identifiable group of
essentially similar assets or liabilities, that expose the Company to interest
rate risk at the consolidated or enterprise level. Interest rate derivatives are
accounted for by the deferral or accrual method only if they are designated as a
hedge and are expected to be and are effective in substantially reducing the
risk arising from the asset or liability identified as exposing the Company to
risk. Futures contracts must meet specific high correlation tests. For caps,
floors and swaps hedging mismatches between interest-bearing asset or liability,
their notional amount, interest rate index and life must closely match the
related terms of the hedged asset or liability. Caps, floors, swaps and options
and the mortgage servicing rights that they hedge must correlate based on
certain duration and convexity parameters. For futures contracts, if the
underlying financial instrument differs from the hedged asset or liability,
there must be a clear economic relationship between the prices of the two
financial instruments. If periodic assessment indicates derivatives no longer
provide an effective hedge, the derivatives are closed out or settled;
previously unrecognized hedge results and the net settlement upon close-out or
termination that offset changes in value of the hedged asset or liability are
deferred and amortized over the life of the asset or liability with excess
amounts recognized in noninterest income or noninterest expense.
Gains and losses on futures contracts, which result from the daily settlement of
their open positions, and on forward contracts are deferred and classified on
the balance sheet consistent with the hedge strategy. They are recognized in
income along with and when the effects of the related changes of the hedged
asset or liability are recognized. Amounts payable or receivable for swaps, caps
and floors are accrued with the passage of time, the effect of which is included
in income along with and when the effects of the related changes of the hedged
asset or liability are recognized. Gains and losses on options are recognized as
a component of the income reported on the hedged asset or liability. Fees
associated with these financial contracts are included on the balance sheet at
the time that the fee is paid and are classified consistent with the hedge
strategy. These fees are fully recognized by the end of their contractual life.
If a hedged asset or liability settles before maturity of the hedging interest
rate derivatives, the derivatives are closed out or settled, and previously
unrecognized hedge results and the net settlement upon close-out or termination
are accounted for as part of the gains and losses on the hedged asset or
liability. If interest rate derivatives used in an effective hedge are closed
out or terminated before the hedged item settles, previously unrecognized hedge
results and the net settlement upon close-out or termination are deferred and
amortized over the life of the hedged asset or liability. Cash flows resulting
from interest rate derivatives (including any related fees) that are accounted
for as hedges of assets and liabilities are classified in the cash flow
statement in the same category as the cash flows from the items being hedged and
are reflected in that
40
<PAGE>
statement when the cash receipts or payments due under the terms of the
instruments are collected, paid or settled.
Interest rate derivatives entered into as an accommodation to customers,
interest rate derivatives used to offset the interest rate risk of those
contracts and positions taken based on the Company's market expectations or to
benefit from price differentials between financial instruments and markets are
carried at fair value with unrealized gains and losses recorded in noninterest
income. Losses are recognized currently on put options written when the fair
value of the underlying security falls below the contractual price at which the
security may be put to the Company plus the premium received. Premiums received
on covered call options written are deferred until the option terminates. If the
fair value of the underlying asset is greater than the contractual price at
which the Company must sell the asset, the option should be exercised, at which
time the premium will be recorded as an adjustment of the gain or loss
recognized on the underlying asset. If the option expires, the premium is
recognized in other noninterest income. The fair value of interest rate
derivative financial instruments with an unrealized gain is included in trading
assets (i.e., within other assets) while the fair value of instruments with an
unrealized loss is included in other liabilities. Cash flows resulting from
instruments carried at fair value are classified in the cash flow statement as
operating cash flows and are reflected in that statement when the cash receipts
or payments due under the terms of the instruments are collected, paid or
settled.
Credit risk related to interest rate derivative financial instruments is
considered and, if material, provided for separately from the allowance for loan
losses.
FOREIGN EXCHANGE DERIVATIVES The Company enters into foreign exchange derivative
financial instruments (forward and spot contracts and options) primarily as an
accommodation to customers and offsets the related foreign exchange risk with
other foreign exchange derivatives. Those contracts are carried at fair value,
with unrealized gains and losses recorded in noninterest income. Cash flows
resulting from foreign exchange derivatives are classified in the cash flow
statement as operating cash flows and are reflected in that statement when the
cash receipts or payments due under the terms of the foreign exchange
derivatives are collected, paid or settled.
The Company also uses forward foreign exchange contracts to hedge uncertainties
in funding costs related to specific liabilities denominated in foreign
currencies. Gains and losses on those contracts are recognized in income and
classified on the balance sheet consistent with the hedged item. Cash flows
resulting from these foreign exchange derivatives (including any related fees)
are classified in the cash flow statement in the same category as the cash flows
from the item being hedged and are reflected in that statement when the cash
receipts or payments due under the terms of the instruments are collected, paid
or settled.
Credit risk related to all foreign exchange derivatives is considered and, if
material, provided for separately from the allowance for loan losses.
41
<PAGE>
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign consumer finance subsidiaries 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.
42
<PAGE>
2.
BUSINESS COMBINATIONS
The Company regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of the Company does
not make a public announcement about an acquisition opportunity until a
definitive agreement has been signed. Transactions completed in the years ended
December 31, 1997, 1996 and 1995 include:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Common
Cash shares Method of
(in millions, except share amounts) Date Assets paid issued accounting
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Franklin Federal Bancorp., F.S.B., Austin, Texas January 1 $ 621 $ 90 -- Purchase of assets
Central Bancorporation, Inc., Fort Worth, Texas January 28 1,105 -- 9,399,576 Pooling of interests*
Reliable Financial Services, Inc., San Juan, Puerto Rico February 21 39 -- 1,753,086 Pooling of interests*
Statewide Mortgage Company, Birmingham, Alabama February 26 28 -- 1,049,992 Purchase
The United Group, Inc., Charlotte, North Carolina March 21 41 -- 648,348 Purchase
Farmers National Bancorp, Inc., Geneseo, Illinois March 24 198 -- 1,207,198 Purchase
The First National Bankshares, Inc.,
Tucumcari, New Mexico June 17 90 -- 608,900 Purchase
Tennessee Credit Corporation, Nashville, Tennessee July 18 13 3 -- Purchase
Western National Trust Company, National
Association, Odessa, Texas July 31 -- 1 -- Purchase
Fidelity Acceptance Corporation, St. Louis, Missouri August 31 1,135 344 -- Purchase
The Bank of the Southwest, National Association
Pagosa Springs, Colorado September 2 85 -- 490,790 Purchase
International Bancorporation, Inc.,
Golden Valley, Minnesota October 21 483 -- 3,601,935 Pooling of interests*
Subsidiaries of Cityside Holding, L.L.C.,
Eden Prairie, Minnesota October 30 104 42 -- Purchase
J.L.J. Financial Services Corporation,
Montvale, New Jersey October 31 26 6 -- Purchase
Myers Bancshares Inc., Dallas, Texas November 14 135 -- 613,247 Purchase
Packers Management Company, Inc.,
Omaha, Nebraska November 25 162 -- 1,171,161 Purchase
First Valley Bank Group, Inc., Los Fresnos, Texas December 1 519 -- 3,291,302 Pooling of interests*
------- ------- -----------
$ 4,784 $ 486 23,835,535
------- ------- -----------
------- ------- -----------
1996
The Bank of Robstown, Robstown, Texas January 12 $ 71 $ 9 -- Purchase
AMFED Financial, Inc., Reno, Nevada January 18 1,519 -- 12,093,272 Pooling of interests*
Irene Bancorporation, Inc., Viborg, South Dakota January 31 40 7 -- Purchase
Canton Bancshares, Inc., Canton, Illinois February 15 50 -- 558,540 Purchase
Henrietta Bancshares, Inc., Henrietta, Texas March 12 164 24 -- Purchase
First Interstate Bancorp April 1 55,797 -- 520,019,700 Purchase
Victoria Bankshares, Inc., Victoria, Texas April 11 1,919 -- 17,021,602 Pooling of interests*
The Prudential Home Mortgage Company, Inc. May 7 3,336 3,336 -- Purchase of assets
Cardinal Credit Corporation, Lexington, Kentucky May 13 34 34 -- Purchase of assets
Benson Financial Corporation, San Antonio, Texas May 31 464 -- 4,088,070 Pooling of interests*
Regional Bank of Colorado, N.A., Rifle, Colorado June 1 56 -- 709,934 Purchase
AmeriGroup, Incorporated, Minneapolis, Minnesota June 4 155 -- 1,832,400 Purchase
Union Texas Bancorporation, Inc., Laredo, Texas June 27 245 -- 789,958 Purchase
B & G Investment Company, San Antonio, Texas July 3 71 -- 541,996 Purchase
PriMerit Bank, F.S.B., Las Vegas, Nevada July 19 1,578 191 -- Purchase of assets
Aman Collection Service, Inc., Aberdeen, South Dakota August 2 4 -- 1,200,000 Pooling of interests*
Rapid Finance, Inc., Jacksonville, Mississippi August 16 29 29 -- Purchase of assets
National Business Finance, Inc., Denver, Colorado September 30 8 7 -- Purchase
American Bank Moorhead, Moorhead, Minnesota October 1 155 24 -- Purchase
Texas Bancorporation, Inc., Odessa, Texas November 1 174 -- 1,524,990 Purchase
West Columbia National Bank, West Columbia, Texas December 27 34 5 -- Purchase
------- ------- -----------
$65,903 $3,666 560,380,462
------- ------- -----------
------- ------- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued on following page)
43
<PAGE>
(Continued from preceding page)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Common
Cash shares Method of
(in millions, except share amounts) Date Assets paid issued accounting
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Ken-Caryl Investment Company, Littleton, Colorado January 5 $ 29 $ -- 299,548 Purchase
American Republic Bancshares, Inc., Belen, New Mexico January 6 222 -- 2,413,092 Purchase
Independent Bancorp of Arizona, Inc., Phoenix, Arizona February 12 1,600 160 -- Purchase
Parker Bankshares, Incorporated, Parker, Colorado February 28 59 -- 789,990 Pooling of interests*
Directors Mortgage Loan Corporation, Riverside, California March 13 271 -- 21,091,556 Pooling of interests*
Babbscha Company, Fridley, Minnesota April 1 53 -- 551,842 Purchase
The First National Bank of Bay City, Bay City, Texas April 10 146 -- 1,865,284 Purchase
Goldenbanks of Colorado, Inc., Golden, Colorado May 1 361 -- 5,433,258 Pooling of interests*
ITT Financial Corporation - Island Finance business May 4 1,016 575 -- Purchase
New Braunfels Bancshares, Inc., New Braunfels, Texas May 10 43 7 -- Purchase
United Texas Financial Corporation, Wichita Falls, Texas June 1 296 -- 3,031,702 Purchase
First American National Bank, Chandler, Arizona June 1 39 -- 385,662 Pooling of interests*
First Tule Bancorp, Inc., Tulia, Texas June 1 62 8 -- Purchase
The Ryland Group, Inc. - Mortgage-related institutional
financial services business June 30 -- 47 -- Purchase
Comfort Bancshares, Inc., Comfort, Texas July 10 41 6 -- Purchase
Valley-Hi Investment Company, San Antonio, Texas August 1 122 -- 855,996 Purchase
Dickinson Bancorporation, Inc., Dickinson, North Dakota August 8 123 -- 1,083,182 Purchase
Alice Bancshares, Inc., Alice, Texas September 15 188 40 -- Purchase
State National Bank, El Paso, Texas October 2 1,052 157 -- Purchase
Liberty National Bank, Austin, Texas October 16 167 27 -- Purchase
The Foothill Group, Inc., Los Angeles, California October 19 905 -- 31,265,378 Pooling of interests*
The First National Bank in Big Spring, Big Spring, Texas November 1 217 38 -- Purchase
Beacon Business Credit Corp., Boston, Massachusetts December 1 31 13 -- Purchase
------ ------ ----------
$7,043 $1,078 69,066,490
------ ------ ----------
------ ------ ----------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Pooling of interests transaction was not material to the Company's
consolidated financial statements; accordingly, previously reported results
were not restated.
On April 1, 1996, the Company completed its acquisition of First Interstate
Bancorp (First Interstate). The acquisition was accounted for as a purchase
transaction. The major components of management's plan for the combined
company included the realignment of First Interstate's businesses to reflect
Wells Fargo's structure, consolidation of retail branches and administrative
facilities and reduction in staffing levels. As a result of this plan, the
adjustments to goodwill since April 1, 1996 included accruals totaling
approximately $324 million ($191 million after tax) related to the
disposition of premises, including an accrual of $127 million ($75 million
after tax) associated with the dispositions of traditional former First
Interstate branches in California and out of state. At December 31, 1997, the
remaining accrual associated with the disposition of traditional former First
Interstate branches was $8 million. The California dispositions included 175
branch closures during 1996, 47 branch closures during 1997 and 2 branches
scheduled to be closed by June 30, 1998. The Company also entered into
definitive agreements with several institutions to sell 20 former First
Interstate branches, including deposits, located in California. The sales of
17 of these branches were completed in 1997, with the remaining three
branches expected to be completed by June 30, 1998. The out-of-state
dispositions included 88 branch closures that were completed in 1997 and 68
closures scheduled to be completed by June 30, 1998. The Company also sold 87
former First Interstate out-of-state branches, including deposits, in 1997.
Additionally, the adjustments to goodwill included accruals of approximately
$481 million ($284 million after tax) related to severance of former First
Interstate employees throughout the Company who have been or will be
displaced. Severance payments totaling $372 million were paid since the
second quarter of 1996, including $143 million in 1997.
44
<PAGE>
On November 2, 1998 Wells Fargo & Company merged with WFC Holdings, a subsidiary
of Norwest Corporation. Previously reported financial information for Norwest
and the former Wells Fargo is shown in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------
(in millions) 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Norwest $9,660 $8,883 $7,566
Wells Fargo 9,608 8,723 5,409
Net Income
Norwest $1,351 $1,154 $ 956
Wells Fargo 1,155 1,071 1,032
- ------------------------------------------------------------------------------------
</TABLE>
The combined financial results of the Company include adjustments to conform the
accounting policies of the two companies. The December 31, 1994 balances of
certain balance sheet accounts were adjusted to reflect the conforming
accounting treatment. Other liabilities increased $79 million and retained
earnings decreased $79 million to reflect the conforming postretirement
transition obligation identified with the implementation of FAS 106, Employers'
Accounting for Post Retirement Benefits Other than Pension accounting treatment.
Premises and equipment decreased $49 million and retained earnings decreased $49
million to reflect the conforming of the capitalization policies. In noninterest
expense, salaries and benefits decreased $8 million in 1997, 1996 and 1995 and
depreciation expense increased $18 million, $3 million, and $7 million in 1997,
1996 and 1995, respectively. Net income (decreased) increased $(7) million, $3
million and none in 1997, 1996 and 1995, respectively.
3.
CASH, LOAN AND DIVIDEND RESTRICTIONS
Federal Reserve Board regulations require reserve balances on deposits to be
maintained by the Company's banking subsidiaries with the Federal Reserve Banks.
The average required reserve balance was $2.3 billion and $2.6 billion in 1997
and 1996, respectively.
Federal law prevents the Company and its nonbank subsidiaries from borrowing
from its subsidiary banks unless the loans are secured by specified collateral.
Such secured loans by any subsidiary bank are generally limited to 10 percent of
the subsidiary bank's capital and surplus (as defined, which for this purpose
represents Tier 1 and Tier 2 capital, as calculated under the risk-based capital
guidelines, plus the balance of the allowance for loan losses excluded from Tier
2 capital) and aggregate loans to the Company and its nonbank subsidiaries are
limited to 20 percent of the subsidiary bank's capital and surplus.
45
<PAGE>
The payment of dividends to the Parent by subsidiary banks is subject to
various federal and state regulatory limitations. Dividends payable by a
national bank to the Parent without the express approval of the Office of the
Comptroller of the Currency (OCC) are limited to that bank's retained net
profits for the preceding two calendar years plus retained net profits up to
the date of any dividend declaration in the current calendar year. Retained
net profits are defined by the OCC as net income, less dividends declared
during the period, both of which are based on regulatory accounting
principles. The Company also has several state-chartered subsidiary banks
that are subject to state regulations that limit dividends. Under these
provisions, except for Wells Fargo Bank, N.A. (WFB, N.A.), the Company's
national and state-chartered subsidiary banks could have declared dividends
of $495 million and $288 million in 1997 and 1996, respectively, without
obtaining prior regulatory approval. With the express approval of the OCC,
WFB, N.A. declared dividends in 1997 and 1996 of $1.5 billion in excess of
its net income of $2.0 billion for those years. (The total dividends declared
by WFB, N.A. in 1997, 1996 and 1995 were $2.0 billion, $1.5 billion and $1.6
billion (including a $.5 billion deemed dividend), respectively). Therefore,
before it could declare dividends in 1998 without the approval of the OCC,
WFB, N.A. must have had net income of $1.5 billion plus an amount equal to or
greater than the dividends declared in 1998. Since it did not have net income
of $1.5 billion plus an amount equal to or greater than the dividends
expected to be declared in 1998, WFB, N.A. again needed to obtain the
approval of the OCC before any dividends were declared in 1998.
46
<PAGE>
4.
INVESTMENT SECURITIES
The following table provides the cost and fair value for the major components of
securities available for sale carried at fair value (there were no securities
held to maturity at the end of the last three years):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
December 31,
---------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------- ------------------------------------------
ESTIMATED ESTIMATED Estimated Estimated
UNREALIZED UNREALIZED ESTIMATED unrealized unrealized Estimated
GROSS GROSS FAIR gross gross fair
(in millions) COST GAINS LOSSES VALUE Cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities of U.S. Treasury and
federal agencies $ 3,594 $ 38 $ 6 $ 3,626 $ 3,998 $ 29 $ 10 $ 4,017
Securities of U.S. states and
political subdivisions 1,652 76 2 1,726 928 38 4 962
Mortgage-backed securities:
Federal agencies 18,203 369 20 18,552 19,694 241 101 19,834
Private collateralized
mortgage obligations (1) 2,646 21 13 2,654 3,403 24 24 3,403
------- ---- --- ------- ------- ---- ---- -------
Total mortgage-
backed securities 20,849 390 33 21,206 23,097 265 125 23,237
Other 729 18 3 744 844 2 2 844
------- ---- --- ------- ------- ---- ---- -------
Total debt securities 26,824 522 44 27,302 28,867 334 141 29,060
Marketable equity securities 308 265 3 570 374 384 66 692
------- ---- --- ------- ------- ---- ---- -------
Total $27,132 $787 $47 $27,872 $29,241 $718 $207 $29,752
------- ---- --- ------- ------- ---- ---- -------
------- ---- --- ------- ------- ---- ---- -------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Substantially all private collateralized mortgage obligations are AAA-rated
bonds collateralized by 1-4 family residential first mortgages.
At December 31, 1997, there were no issuers investment securities (excluding
the U.S. Treasury and federal agencies) that exceeded 10% of stockholders
equity.
Proceeds from the sale of securities in the securities available for sale
portfolio totaled $9.8 billion, $5.9 billion and $6.4 billion in 1997, 1996 and
1995, respectively. The sales of securities in the securities available for
sale portfolio resulted in a $99 million gain, $12 million gain and $52
million loss in 1997, 1996 and 1995, respectively.
47
<PAGE>
The following table provides the remaining contractual principal maturities and
yields (taxable-equivalent basis) of debt securities available for sale within
the investment portfolio. The remaining contractual principal maturities for
mortgage-backed securities were allocated assuming no prepayments. Expected
remaining maturities will differ from contractual maturities because borrowers
may have the right to prepay obligations with or without penalties.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
--------------------------------------------------------------------------------------------
Remaining contractual principal maturity
-------------------------------------------------------------------------
After one year After five years
Weighted Within one year through five years through ten years After ten years
Total average ---------------- ------------------ ----------------- ---------------
(in millions) amount yield Amount Yield Amount Yield Amount Yield Amount Yield
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities of U.S. Treasury and
federal agencies $ 3,626 6.10% $1,330 5.83% $2,008 6.33% $ 240 5.26% $ 48 7.61%
Securities of U.S. states and
political subdivisions 1,726 6.68 95 6.28 390 6.72 315 7.28 926 6.50
Mortgage-backed securities:
Federal agencies 18,552 7.28 1,141 6.79 2,199 6.77 964 7.19 14,248 7.40
Privately collateralized
mortgage obligations 2,654 6.83 290 8.00 866 7.05 737 7.08 761 5.91
------ ------ ------ ------ -------
Total mortgage-backed securities 21,206 7.22 1,431 7.03 3,065 6.85 1,701 7.14 15,009 7.33
------ ------ ------ ------ -------
Other 744 6.17 151 6.26 370 5.97 99 6.92 124 6.04
------ ------ ------ ------ -------
ESTIMATED FAIR VALUE OF
DEBT SECURITIES(1) $27,302 6.91% $3,007 6.44% $5,833 6.28% $2,355 7.02% $16,107 7.25%
------- ---- ------ ---- ------ ---- ------ ---- ------- ----
------- ---- ------ ---- ------ ---- ------ ---- ------- ----
TOTAL COST OF DEBT SECURITIES $26,824 $2,982 $5,761 $2,333 $15,748
------- ------ ------ ------- -------
------- ------ ------ ------- -------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted average yield is computed using the amortized cost of debt
securities available for sale.
Investment securities pledged primarily to secure trust and public deposits and
for other purposes as required or permitted by law was $13.8 billion, $11.8
billion and $10.4 billion at December 31, 1997, 1996 and 1995, respectively.
48
<PAGE>
5.
LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of the major categories of loans outstanding is shown in the following
table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31,
----------------------------------------
1997 1996
----------- -----------
(in millions) OUTSTANDING Outstanding
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 32,061 $ 30,794
Real estate 1-4 family first mortgage 14,165 16,051
Other real estate mortgage 16,326 16,419
Real estate construction 3,326 3,247
Consumer:
Real estate 1-4 family junior lien mortgage 10,618 10,357
Credit card 6,671 7,028
Other revolving credit and monthly payment 17,021 16,916
-------- --------
Total consumer 34,310 34,301
Lease financing 4,968 3,816
Foreign 1,155 1,132
-------- --------
Total loans (1) $106,311 $105,760
-------- --------
-------- --------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Outstanding loan balances at December 31, 1997 and 1996 are net of unearned
income, including net deferred loan fees, of $2,938 million and $2,423
million, respectively.
Total commitments to extend credit were $71,074 million and $65,428 million at
December 31, 1997 and 1996 respectively. At December 31, 1997 and 1996, the
commercial loan category and related commitments did not have an industry
concentration that exceeded 10% of total loans and commitments.
In the course of evaluating the credit risk presented by a customer and the
pricing that will adequately compensate the Company for assuming that risk,
management determines a requisite amount of collateral support. The type of
collateral held varies, but may include accounts receivable, inventory, land,
buildings, equipment, income-producing commercial properties and residential
real estate. The Company has the same collateral policy for loans whether
they are funded immediately or on a delayed basis (commitment).
A commitment to extend credit is a legally binding agreement to lend funds to
a customer and is usually for a specified interest rate and purpose. These
commitments have fixed expiration dates and generally require a fee. The
extension of a commitment gives rise to credit risk. The actual liquidity
needs or the credit risk that the Company will experience will be lower than
the contractual amount of commitments to extend credit because a significant
portion of these commitments is expected to expire without being drawn upon.
Certain commitments are
49
<PAGE>
subject to a loan agreement containing covenants regarding the financial
performance of the customer that must be met before the Company is required
to fund the commitment. The Company uses the same credit policies in making
commitments to extend credit as it does in making loans.
In addition, the Company manages the potential credit risk in commitments to
extend credit by limiting the total amount of arrangements, both by
individual customer and in the aggregate; by monitoring the size and maturity
structure of these portfolios; and by applying the same credit standards
maintained for all of its credit activities. The credit risk associated with
these commitments is considered in management's determination of the
allowance for loan losses.
Standby letters of credit totaled $3,716 million and $4,098 million at
December 31, 1997 and 1996, respectively. Standby letters of credit are
issued on behalf of customers in connection with contracts between the
customers and third parties. Under standby letters of credit, the Company
assures that the third parties will receive specified funds if customers fail
to meet their contractual obligations. The liquidity risk to the Company
arises from its obligation to make payment in the event of a customer's
contractual default. The credit risk involved in issuing letters of credit
and the Company's management of that credit risk is considered in
management's determination of the allowance for loan losses. Standby letters
of credit are net of participations sold to other institutions of $573
million in 1997 and $447 million in 1996.
Included in standby letters of credit are those that back financial
instruments (financial guarantees). The Company had issued or purchased
participations in financial guarantees of approximately $2,140 million and
$2,866 million at December 31, 1997 and 1996, respectively. The Company also
had commitments for commercial and similar letters of credit of $751 million
and $690 million at December 31, 1997 and 1996, respectively. Substantially
all fees received from the issuance of financial guarantees are deferred and
amortized on a straight-line basis over the term of the guarantee. Losses on
standby letters of credit and other similar letters of credit have been
immaterial.
The Company has an established process to determine the adequacy of the
allowance for loan losses which assesses the risk and losses inherent in its
portfolio. This process provides an allowance consisting of two components,
allocated and unallocated. To arrive at the allocated component of the
allowance, the Company combines estimates of the allowances needed for loans
analyzed individually (including impaired loans subject to FAS 114) and loans
analyzed on a pool basis. While coverage of one year's losses is often
adequate (particularly for homogeneous pools of loans), the time period
covered by the allowance may vary by portfolio, based on the Company's best
estimate of the inherent losses in the entire portfolio as of the evaluation
date. To mitigate the imprecision inherent in most estimates of expected
credit losses, the allocated component of the allowance is supplemented by an
unallocated component. The unallocated component includes management's
judgmental determination of the amounts necessary for concentrations,
economic uncertainties and other subjective factors; correspondingly, the
relationship of the unallocated component to the total allowance for loan
losses may fluctuate from period to period. Although
50
<PAGE>
management has allocated a portion of the allowance to specific loan
categories, the adequacy of the allowance must be considered in its entirety.
The Company's determination of the level of the allowance and,
correspondingly, the provision for loan losses rests upon various judgments
and assumptions, including general economic conditions, loan portfolio
composition, prior loan loss experience and the Company's ongoing examination
process and that of its regulators. The Company has an internal risk analysis
and review staff that reports to the Board of Directors and continuously
reviews loan quality. Such reviews also assist management in establishing the
level of the allowance. Like all national banks, all national subsidiary
banks continue to be subject to examination by their primary regulator, the
Office of the Comptroller of the Currency (OCC), and some have OCC examiners
in residence. These examinations occur throughout the year and target various
activities of the subsidiary banks, including specific segments of the loan
portfolio (for example, commercial real estate and shared national credits).
In addition to the subsidiary banks being examined by the OCC, the Parent and
its nonbank subsidiaries are examined by the Federal Reserve.
The Company considers the allowance for loan losses of $3,062 million
adequate to cover losses inherent in loans, loan commitments and standby
letters of credit at December 31, 1997.
51
<PAGE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------------------
(in millions) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 3,059 $ 2,711 $2,872 $2,911 $2,840
Allowance related to assets acquired, (net) (1) 168 870 119 29 36
Provision for loan losses 1,140 500 312 365 708
Loan charge-offs:
Commercial (357) (200) (99) (90) (172)
Real estate 1-4 family first mortgage (26) (24) (20) (23) (40)
Other real estate mortgage (26) (50) (59) (96) (225)
Real estate construction (5) (14) (10) (22) (80)
Consumer:
Real estate 1-4 family junior lien mortgage (37) (38) (23) (33) (38)
Credit card (579) (487) (330) (211) (223)
Other revolving credit and monthly payment (618) (488) (255) (167) (157)
------- ------- ------ ------ ------
Total consumer (1,234) (1,013) (608) (411) (418)
Lease financing (46) (35) (18) (16) (20)
Foreign (37) (35) (29) (26) (19)
------- ------- ------ ------ ------
Total loan charge-offs (1,731) (1,371) (843) (684) (974)
------- ------- ------ ------ ------
Loan recoveries:
Commercial 105 89 68 74 115
Real estate 1-4 family first mortgage 9 12 8 11 9
Other real estate mortgage 62 57 65 43 75
Real estate construction 12 12 5 22 11
Consumer:
Real estate 1-4 family junior lien mortgage 10 10 4 5 5
Credit card 61 50 26 29 29
Other revolving credit and monthly payment 144 101 57 46 44
------- ------- ------ ------ ------
Total consumer 215 161 87 80 78
Lease financing 13 9 13 17 9
Foreign 10 9 5 4 4
------- ------- ------ ------ ------
Total loan recoveries 426 349 251 251 301
------- ------- ------ ------ ------
Total net loan charge-offs (1,305) (1,022) (592) (433) (673)
------- ------- ------ ------ ------
BALANCE, END OF YEAR $ 3,062 $ 3,059 $2,711 $2,872 $2,911
------- ------- ------ ------ ------
------- ------- ------ ------ ------
Total net loan charge-offs as a percentage of
average total loans 1.25% 1.04% .84% .70% 1.14%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Allowance as a percentage of total loans 2.88% 2.89% 3.83% 4.31% 4.87%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $11 million related to the sale of former First Interstate banks
in 1996.
52
<PAGE>
In accordance with FAS 114, the table below shows the recorded investment in
impaired loans by loan category and the related methodology used to measure
impairment at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
December 31,
(in millions) 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Impairment measurement based on:
Collateral value method $346 $510
Discounted cash flow method 61 101
Historical loss factors 27 26
---- ----
Total (1) (2) $434 $637
---- ----
---- ----
- -------------------------------------------------------------------------------------
</TABLE>
(1) Includes accruing loans of $23 million and $50 million at December 31,
1997 and 1996, respectively, that were purchased at a steep discount whose
contractual terms were modified after acquisition. The modified terms did
not affect the book balance nor the yields expected at the date of
purchase.
(2) Includes $115 million and $120 million of impaired loans with a related
FAS 114 allowance of $36 million and $33 million at December 31, 1997
and 1996, respectively.
The average recorded investment in impaired loans during 1997, 1996 and 1995
was $513 million, $655 million and $560 million, respectively. Total interest
income recognized on impaired loans during 1997, 1996 and 1995 was $15
million, $21 million and $17 million, respectively, most of which was
recorded using the cash method.
The Company uses either the cash or cost recovery method to record cash
receipts on impaired loans that are on nonaccrual. Under the cash method,
contractual interest is credited to interest income when received. This
method is used when the ultimate collectibility of the total principal is not
in doubt. Under the cost recovery method, all payments received are applied
to principal. This method is used when the ultimate collectibility of the
total principal is in doubt. Loans on the cost recovery method may be changed
to the cash method when the application of the cash payments has reduced the
principal balance to a level where collection of the remaining recorded
investment is no longer in doubt.
53
<PAGE>
6.
PREMISES, EQUIPMENT, LEASE COMMITMENTS AND OTHER ASSETS
The following table presents comparative data for premises and equipment:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
December 31,
-----------------------------
(in millions) 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 364 $ 385
Buildings 2,403 2,472
Furniture and equipment 2,474 2,454
Leasehold improvements 609 594
Premises leased under capital leases 125 132
------ ------
Total 5,975 6,037
Less accumulated depreciation and amortization 2,664 2,514
------ ------
Net book value $3,311 $3,523
------ ------
------ ------
- ------------------------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense was $480 million, $451 million and $317
million in 1997, 1996 and 1995, respectively. Losses on disposition of premises
and equipment, recorded in noninterest income, were $76 million, $45 million and
$38 million in 1997, 1996 and 1995, respectively. Also recorded in noninterest
income were gains (losses) from disposition of operations of $15 million, $(95)
million and $(89) million in 1997, 1996 and 1995, respectively. The losses were
primarily related to the disposition of premises associated with scheduled
branch closures.
The Company is obligated under a number of noncancelable operating leases for
premises (including vacant premises) and equipment with terms, including renewal
options, up to 100 years, many of which provide for periodic adjustment of
rentals based on changes in various economic indicators. The following table
shows future minimum payments under noncancelable operating leases, net of
sublease rentals, and capital leases with terms in excess of one year as of
December 31, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(in millions) Operating leases Capital leases
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Year ended December 31,
1998 $ 364 $ 14
1999 322 14
2000 270 13
2001 209 12
2002 161 12
Thereafter 956 85
------ ----
Total minimum lease payments $2,282 150
------
------
Amounts representing interest (75)
----
Present value of net minimum lease payments $ 75
----
----
- ---------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
Rental expense, net of rental income, for all operating leases was $441 million,
$427 million and $298 million in 1997, 1996 and 1995, respectively.
The components of interest receivable and other assets at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
December 31,
-------------------------------------
(in millions) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Nonmarketable equity investments $ 1,860 $ 1,797
Trading assets 1,302 591
Interest receivable 1,057 1,153
Other real estate (ORE) 264 308
Certain identifiable intangible assets 206 228
Due from customers on acceptances 129 237
Interest-earning deposits 68 1,309
Other 5,190 5,625
------- -------
Total interest receivable and other assets $10,076 $11,248
------- -------
------- -------
- -----------------------------------------------------------------------------------------
</TABLE>
Income from nonmarketable equity investments accounted for using the cost method
was $157 million, $137 million and $58 million in 1997, 1996 and 1995,
respectively.
Trading assets consist predominantly of securities, including corporate debt and
U.S. government agency obligations. Gains from trading assets were $151 million,
$79 million and $67 million in 1997, 1996 and 1995, respectively.
Amortization expense for certain identifiable intangible assets included in
other assets was $29 million, $26 million and $12 million in 1997, 1996 and
1995, respectively.
55
<PAGE>
7.
DEPOSITS
The aggregate amount of time certificates of deposit and other time deposits
issued by domestic offices was $32,257 million and $31,956 million at December
31, 1997 and 1996, respectively. At December 31, 1997, the contractual
maturities of these deposits were as follows: $24,503 million in 1998, $3,528
million in 1999, $2,917 million in 2000, $563 million in 2001, $500 million in
2002 and $246 million thereafter. Substantially all of these deposits were
interest bearing.
Of the total above, the amount of time deposits with a denomination of $100,000
or more was $7,571 million and $6,952 million at December 31, 1997 and 1996,
respectively. At December 31, 1997, the contractual maturities of these deposits
were as follows: $3,373 million in 3 months or less, $1,600 million over 3
through 6 months, $1,567 million over 6 through 12 months and $1,031 million
over 12 months.
Time certificates of deposit and other time deposits issued by foreign offices
with a denomination of $100,000 or more represent substantially all of the
foreign deposit liabilities of $1,402 million and $400 million at December 31,
1997 and 1996, respectively.
Demand deposit overdrafts that have been reclassified as loan balances were $703
million and $1,095 million at December 31, 1997 and 1996, respectively.
56
<PAGE>
8.
SHORT-TERM BORROWINGS
The table below shows selected information for short-term borrowings. These
borrowings generally mature in less than 30 days.
At December 31, 1997, the Company had available lines of credit totaling $2,362
million, including $2,062 million with a subsidiary, Norwest Financial Services.
A portion of these financing arrangements require the maintenance of
compensating balances or payment of fees, which are not material.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------- -------------- ---------------
(in millions, except rates) AMOUNT RATE Amount Rate Amount Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31,
Commercial paper and other short-term borrowings $ 6,456 5.73% $ 5,309 5.37% $ 5,159 5.79%
Federal funds purchased and securities sold under
agreements to repurchase 6,925 5.59 4,694 5.26 6,344 5.22
------- ------- -------
Total $13,381 5.65 $10,003 5.32 $11,503 5.47
------- ------- -------
------- ------- -------
FOR THE YEAR ENDED DECEMBER 31,
AVERAGE DAILY BALANCE (1)
Commercial paper and other short-term borrowings $ 5,473 5.59% $ 5,998 5.37% $ 5,426 5.9 %
Federal funds purchased and securities sold under
agreements to repurchase 5,889 5.17 4,694 5.10 7,256 5.81
------- ------- -------
Total $11,362 5.37 $10,692 5.26 $12,682 5.88
------- ------- -------
------- ------- -------
MAXIMUM MONTH-END BALANCE
Commercial paper and other short-term borrowings (2) $ 6,456 NA $ 7,785 NA $ 6,956 NA
Federal funds purchased and securities sold under
agreements to repurchase (3) 8,722 NA 6,320 NA 8,552 NA
NA-Not applicable.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average balances are computed using daily amounts.
(2) Highest month-end balance in each of the last three years appeared in
December 1997, July 1996 and August 1995, respectively.
(3) Highest month-end balance in each of the last three years appeared in June
1997, January 1996 and March 1995, respectively.
57
<PAGE>
9.
LONG-TERM DEBT
The following is a summary of long term debt (reflecting unamortized debt
discounts and premiums, where applicable) owed by the Parent and its
subsidiaries:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Maturity Interest
(in millions, except rates) date rate 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WELLS FARGO & COMPANY (PARENT ONLY)
SENIOR
Medium-Term Notes (1) 1998-2027 5.625% - 8.15% $3,325 $2,925
Medium-Term Notes 1998-2002 4.93% - 7.75% 133 558
Floating Rate Medium-Term Notes (1) 1998-1999 various 330 580
Medium-Term Notes (1)(2) 2000-2005 6.50% - 7.68% 1,000 1,000
Floating Rate Euro Medium-Term Notes (1) 2001 various 300 300
Notes (1) 1998 5.75% 100 100
Notes (1) 2000 6.00% 200 200
Notes (1) 1997 6.003% -- 200
ESOP Notes 1999 8.52% 9 13
------ ------
Total senior debt - Parent 5,397 5,876
------ ------
SUBORDINATED
Capital Notes (1) 1997 9.25% -- 100
Notes 2003 6.625% 200 200
Debentures (10) 2023 6.65% 200 200
Other notes (1) 5.75% to 6.625% 8 8
------ ------
Total subordinated debt - Parent 408 508
------ ------
Total long-term debt - Parent 5,805 6,384
------ ------
WFC HOLDINGS CORPORATION & SUBSIDIARIES
SENIOR
Floating-Rate Medium-Term Notes 1998-1999 Various 1,460 1,571
Notes (1) 1998 11.00% 55 55
Medium-Term Notes (1)(9) 1998-2002 7.78-10.90% 356 359
Notes payable by subsidiaries 53 68
Obligations of subsidiaries under capital leases (Note 6) 59 67
------ ------
Total senior debt - WFC Holdings 1,983 2,120
------ ------
SUBORDINATED
Floating-Rate Notes (3)(4) 1997 Various -- 100
Floating-Rate Notes (3)(5)(6) 1997 Various -- 100
Floating-Rate Notes (3)(5) 1997 Various -- 83
Floating-Rate Capital Notes (3)(5)(7) 1998 Various 200 200
Floating-Rate Notes (3)(5) 2000 Various 118 118
Capital Notes (7) 1999 8.625% 186 190
Notes 1997 12.75% -- 70
Notes (1)(8)(9) 2002 8.15% 101 97
Notes 2002 8.75% 200 201
Notes 2002 8.375% 149 149
Notes 2003 6.875% 150 150
Notes 2003 6.125% 249 249
Notes (1)(9) 2004 9.125% 137 137
Notes (1)(8)(9) 2004 9.0% 124 121
Notes (1) 2006 6.875% 499 499
Notes (1)(9) 2006 7.125% 299 299
Medium-term Notes (1) 1998-2002 9.38-11.25% 173 177
------ ------
Total subordinated debt - WFC Holdings 2,585 2,940
------ ------
Total long-term debt - WFC Holdings $4,568 $5,060
------ ------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued on the following page)
58
<PAGE>
(Continued from preceding page)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Maturity Interest
(in millions, except rates) date rate 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NORWEST FINANCIAL, INC. AND ITS SUBSIDIARIES (NORWEST FINANCIAL)
Senior debt + 1998 - 2009 4.79 - 8.65% $ 5,219 $ 4,081
Subordinated debt 1998 7.34% 2 52
------- -------
Total long-term debt - Norwest Financial 5,221 4,133
------- -------
OTHER CONSOLIDATED SUBSIDIARIES
SENIOR
FHLB Notes and Advances (10) 1998 - 2027 3.15 to 8.38% 377 477
Floating Rate FHLB Advances (10) 1998 - 2011 Various 1,326 2,050
Senior Notes 1998 - 2000 12.25% 2 3
Other notes and debentures 1998 - 2006 3.00 to 11.90% 20 19
Capital lease obligations 16 16
------- -------
Total long-term debt - other consolidated subsidiaries 1,741 2,565
------- -------
Total consolidated long-term debt $17,335 $18,142
------- -------
------- -------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company entered into interest rate swap agreements for substantially
all of these Notes, whereby the Company receives fixed-rate interest
payments approximately equal to interest on the Notes and makes interest
payments based on an average three- month or six-month LIBOR rate.
(2) The Company can call $100 million, beginning May 30, 1998 upon 30 days'
notice.
(3) Notes are currently redeemable in whole or in part, at par.
(4) Subject to a maximum interest rate of 13% due to the purchase of an
interest rate cap.
(5) May be redeemed in whole, at par, at any time in the event withholding
taxes are imposed by the United States.
(6) Subject to a maximum interest rate of 13%.
(7) Mandatory Equity Notes.
(8) These Notes are redeemable in whole or in part, at par, prior to maturity.
(9) The interest rate swap agreement for these Notes is callable by the
counterparty prior to the maturity of the Notes.
(10) 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. Advances maturing within the next year are expected to be
refinanced, extending the maturity of such borrowings beyond one year.
At December 31, 1997, the principal payments, including sinking fund payments,
on long-term debt are due as follows in the table below.
<TABLE>
<CAPTION>
- ----------------------------------------------------
(in millions) Parent Company
- ----------------------------------------------------
<S> <C> <C>
1998 $ 695 $3,720
1999 781 2,283
2000 801 1,874
2001 801 1,608
2002 626 1,717
Thereafter 2,101 6,133
------ ------
Total $5,805 $17,335
------ -------
------ -------
- ----------------------------------------------------
</TABLE>
59
<PAGE>
The interest rates on floating-rate notes are determined periodically by
formulas based on certain money market rates, subject, on certain notes, to
minimum or maximum interest rates.
The Company's mandatory convertible debt, which is identified by note (7) to the
table above, qualifies as Tier 2 capital but is subject to discounting and note
fund restrictions under the risk-based capital rules. The terms of the Mandatory
Equity Notes of $200 million, due in 1998, and $186 million, due in 1999,
require the Company to sell or exchange with the noteholder the Company's common
stock, perpetual preferred stock or other capital securities at maturity or
earlier redemption of the Notes. At December 31, 1997, $264 million of
stockholders' equity had been designated for the retirement or redemption of
these Notes. The Company has $0.1 million convertible debentures due in 2003,
that can be converted into common stock of the Company at $2.50 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 the Company's obligations for borrowed money. They are
redeemable at the principal amount.
Certain of the agreements under which debt has been issued contain provisions
that may limit the merger or sale of the bank subsidiaries and the issuance of
its capital stock or convertible securities. The Company was in compliance with
the provisions of the borrowing agreements at December 31, 1997.
10.
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES
In 1996, the former Wells Fargo established four separate special purpose
trusts, which collectively issued $1,150 million in trust preferred
securities. In 1997, the former Wells Fargo issued an additional $150 million
in trust preferred securities through a separate trust. The proceeds from
such issuances, together with the proceeds of the related issuances of common
securities of the trusts, were invested in junior subordinated deferrable
interest debentures (debentures) of the former Wells Fargo. Concurrent with
the issuance of the preferred securities by the trusts, the former Wells
Fargo issued guarantees for the benefit of the security holders. These trust
preferred securities provide the Company with a more cost-effective means of
obtaining Tier 1 capital for regulatory purposes than if the Company itself
were to issue additional preferred stock because the Company is allowed to
deduct, for income tax purposes, distributions to the holders of the trust
preferred securities. The sole assets of these special purpose trusts are the
debentures. WFC Holdings owns all of the common securities of the five
trusts. The preferred securities issued by the trusts rank senior to the
common securities. The obligations of WFC Holdings under the debentures, the
indentures, the relevant trust agreements and the guarantees, in the
aggregate, constitute a full and unconditional guarantee by WFC Holdings of
the obligations of the trusts under the trust preferred securities and rank
subordinate and junior in right of payment to all liabilities of WFC
Holdings. The Parent guarantees the obligations of WFC Holdings.
60
<PAGE>
Listed below are the series of trust preferred securities of Wells Fargo Capital
A, Wells Fargo Capital B, Wells Fargo Capital C, Wells Fargo Capital I and Wells
Fargo Capital II issued at $1,000 per security. The distributions are cumulative
and payable semi-annually on the first day of June and December for Wells Fargo
Capital A, Wells Fargo Capital B and Wells Fargo Capital C and on the fifteenth
day of June and December for Wells Fargo Capital I. The distributions are
cumulative and payable quarterly on the 30th of January, April, July and October
for Wells Fargo Capital II. The trust preferred securities are subject to
mandatory redemption at the stated maturity date of the debentures, upon
repayment of the debentures or earlier, pursuant to the terms of the Trust
Agreement.
WELLS FARGO CAPITAL A: This trust issued $300 million in trust preferred
securities in November 1996 and concurrently invested $309 million in debentures
of WFC Holdings with a stated maturity of December 1, 2026. This class of trust
preferred securities will accrue semi-annual distributions of $40.63 per
security (8.13% annualized rate).
WELLS FARGO CAPITAL B: This trust issued $200 million in trust preferred
securities in November 1996 and concurrently invested $206 million in debentures
of WFC Holdings with a stated maturity of December 1, 2026. This class of trust
preferred securities will accrue semi-annual distributions of $39.75 per
security (7.95% annualized rate).
WELLS FARGO CAPITAL C: This trust issued $250 million in trust preferred
securities in November 1996 and concurrently invested $258 million in debentures
of WFC Holdings with a stated maturity of December 1, 2026. This class of trust
preferred securities will accrue semi-annual distributions of $38.65 per
security (7.73% annualized rate).
WELLS FARGO CAPITAL I: This trust issued $400 million in trust preferred
securities in December 1996 and concurrently invested $412 million in debentures
of WFC Holdings with a stated maturity of December 15, 2026. This class of trust
preferred securities will accrue semi-annual distributions of $39.80 per
security (7.96% annualized rate).
WELLS FARGO CAPITAL II: This trust issued $150 million in trust preferred
securities in January 1997 and concurrently invested $155 million in debentures
of WFC Holdings with a stated maturity of January 30, 2027. This class of trust
preferred securities will accrue quarterly distributions at a variable annual
rate of LIBOR plus 0.5%.
On or after December 2006 for Wells Fargo Capital A, Wells Fargo Capital B,
Wells Fargo Capital C and Wells Fargo Capital I and on or after January 2007 for
Wells Fargo Capital II, each of the series of trust preferred securities may be
redeemed and the corresponding debentures may be prepaid at the option of WFC
Holdings, subject to Federal Reserve approval, at declining redemption prices.
Prior to December 2006 for Wells Fargo Capital A, Wells Fargo Capital B, Wells
Fargo Capital C and Wells Fargo Capital I and prior to January 2007 for Wells
Fargo Capital II, the securities may be redeemed at the option of the Company on
the occurrence of certain events that result in a negative tax impact, negative
regulatory impact on the trust preferred securities of WFC Holdings or negative
legal or regulatory impact on the appropriate special purpose trust which would
define it as an investment company. In addition, the Company
61
<PAGE>
has the right to defer payment of interest on the debentures and, therefore,
distributions on the trust preferred securities for up to five years. The
Company repurchased securities during 1998 in the open market.
62
<PAGE>
11.
PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of preferred stock and
4,000,000 shares of preference stock, without par value. Of the 20,000,000
preferred shares authorized, there were 6,531,405 shares and 7,613,779 shares of
preferred stock issued and outstanding at December 31, 1997 and 1996,
respectively. No shares of preference stock are currently outstanding. All
preferred and preference shares rank senior to common shares both as to
dividends and liquidation preference but have no general voting rights.
The following is a summary of preferred stock (adjustable and fixed):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Shares issued Carrying amount Dividends declared
and outstanding (in millions) (in millions)
---------------------- --------------- Adjustable ----------------------
December 31, December 31, dividends rate Year ended December 31,
---------------------- --------------- ---------------- ----------------------
1997 1996 1997 1996 Minimum Maximum 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable-Rate Cumulative, Series B 1,500,000 1,500,000 $ 75 $ 75 5.5% 10.5% $ 4 $ 4 $ 5
(Liquidation preference $50)
9% Cumulative, Series C -- -- -- -- -- -- -- 21 21
(Liquidation preference $500) (1)
8-7/8% Cumulative, Series D -- 350,000 -- 175 -- -- 3 16 16
(Liquidation preference $500) (2)
9-7/8% Cumulative, Series F -- -- -- -- -- -- -- 12 --
(Liquidation preference $200) (3) (4)
9% Cumulative, Series G -- 750,000 -- 150 -- -- 5 10 --
(Liquidation preference $200) (3) (5)
6.59%/Adjustable Rate Noncumulative 4,000,000 4,000,000 200 200 7.0 13.0 13 4 --
Preferred Stock, Series H
(Liquidation preference $50)
Cumulative tracking
(Liquidation preference $200) 955,000 955,000 191 191 9.30 9.30 18 18 18
1997 ESOP Cumulative Convertible
(Liquidation preference $1,000) 22,927 -- 23 -- 8.5 10.0 -- -- --
1996 ESOP Cumulative Convertible
(Liquidation preference $1,000) 22,831 24,469 23 24 8.5 10.0 -- -- --
1995 ESOP Cumulative Convertible
(Liquidation preference $1,000) 20,625 22,716 21 23 8.5 10.0 -- -- --
ESOP Cumulative Convertible
(Liquidation preference $1,000) 10,022 11,594 10 12 8.5 10.0 -- -- --
10.24% Cumulative
(Liquidation preference $100) -- -- -- -- 10.24 10.24 -- -- 11
Cumulative Convertible Series B
(Liquidation preference $200) -- -- -- -- 7.0 7.0 -- -- 12
Unearned ESOP shares (6) -- -- (80) (61) -- -- -- -- --
--------- --------- ---- ---- --- --- --
Total 6,531,405 7,613,779 $463 $789 $43 $85 $83
--------- --------- ---- ---- --- --- ---
--------- --------- ---- ---- --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In December 1996, the Company redeemed all $239 million (477,500 shares) of
its Series C preferred stock.
(2) In March 1997, the Company redeemed all $175 million (350,000 shares) of its
Series D preferred stock.
(3) In April 1996, the Series F and Series G preferred stock were converted
from First Interstate preferred stock into the right to receive one share
of the Company's preferred stock.
(4) In November 1996, the Company redeemed all $200 million (1,000,000 shares)
of its Series F preferred stock.
(5) In May 1997, the Company redeemed all $150 million (750,000 shares) of its
Series G preferred stock.
(6) In accordance with the American Institute of Certified Public Accountants
(AICPA) Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans," the Company recorded a corresponding charge to
unearned ESOP shares in connection with the issuance of the ESOP Preferred
Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred
Stock are committed to be released. For information on dividends declared,
see Note 12.
63
<PAGE>
ADJUSTABLE-RATE CUMULATIVE PREFERRED STOCK, SERIES B These shares were
redeemable at the option of the Company through May 14, 1996 at a price of
$51.50 per share and, thereafter, at $50 per share plus accrued and unpaid
dividends. Dividends are cumulative and payable quarterly on the 15th of
February, May, August and November. For each quarterly period, the dividend rate
is 76% of the highest of the three-month Treasury bill discount rate, 10-year
constant maturity Treasury security yield or 20-year constant maturity Treasury
bond yield, but limited to a minimum of 5.5% and a maximum of 10.5% per year.
The average dividend rate was 5.5%, 5.5% and 5.8% during 1997, 1996 and 1995,
respectively.
9% CUMULATIVE PREFERRED STOCK, SERIES C In December 1996, the Company redeemed
all $239 million of its Series C preferred stock at a price of $500 per share
plus accrued and unpaid dividends. This class of preferred stock had been issued
as depositary shares, each representing one-twentieth of a share of the Series C
preferred stock. Dividends of $11.25 per share (9% annualized rate) were
cumulative and payable on the last day of each calendar quarter.
8-7/8% CUMULATIVE PREFERRED STOCK, SERIES D In March 1997, the Company redeemed
all $175 million of its Series D preferred stock at a price of $500 per share
plus accrued and unpaid dividends. This class of preferred stock had been issued
as depositary shares, each representing one-twentieth of a share of the Series D
preferred stock. Dividends of $11.09 per share (8-7/8% annualized rate) were
cumulative and payable on the last day of each calendar quarter.
9-7/8% CUMULATIVE PREFERRED STOCK, SERIES F In November 1996, the Company
redeemed all $200 million of its Series F preferred stock at a price of $200 per
share plus accrued and unpaid dividends. This class of preferred stock had been
issued as depositary shares, each representing one-eighth of a share of the
Series F preferred stock. Dividends of $4.94 per share (9-7/8% annualized rate)
were cumulative and payable on the last day of each calendar quarter.
9% CUMULATIVE PREFERRED STOCK, SERIES G In May 1997, the Company redeemed all
$150 million of its Series G preferred stock at a price of $200 per share plus
accrued and unpaid dividends. This class of preferred stock had been issued as
depositary shares, each representing one-eighth of a share of Series G preferred
stock. Dividends of $4.50 per share (9% annualized rate) were cumulative and
payable on the last day of each calendar quarter.
6.59%/ADJUSTABLE RATE NONCUMULATIVE PREFERRED STOCK, SERIES H These shares are
redeemable at the option of the Company on or after October 1, 2001 at a price
of $50 per share plus accrued and unpaid dividends. Dividends are noncumulative
and payable on the first day of each calendar quarter at an annualized rate of
6.59% through October 1, 2001. The dividend rate after October 1, 2001 will be
equal to .44% plus the highest of the Treasury bill discount rate, the 10-year
constant maturity rate and the 30-year constant maturity rate, as determined in
advance of such dividend period, limited to a minimum of 7% and a maximum of
13%.
CUMULATIVE TRACKING PREFERRED STOCK On December 30, 1994, the Company issued
980,000 shares of Cumulative Tracking Preferred Stock, $200 liquidation value
per share, of which
64
<PAGE>
25,000 shares were held by a subsidiary at December 31, 1997, 1996 and 1995.
Dividends on shares of Cumulative Tracking Preferred Stock are cumulative from
the date of issue and are payable quarterly. The initial dividend rate is 9.30
percent per annum. The dividend rate is reset on January 1, 2000, and on January
1 of each fifth year thereafter. The reset rate is the greater of the 5-, 10-,
or 30-year Treasury rate or three-month LIBOR plus 250 basis points. At the time
of initial issuance of the shares of Cumulative Tracking Preferred Stock, the
holders thereof became assignees of the Company's beneficial interest in an
equivalent number of Class A preferred limited liability company interests of
Residential Home Mortgage, L.L.C., a subsidiary of the Company. Holders of
shares of Cumulative Tracking Preferred Stock are entitled to receive, in
addition to the dividends, certain additional cash distributions that are based
on the results of operations of the limited liability company. The shares of
Cumulative Tracking Preferred Stock may be redeemed after December 31, 1999, at
the option of the Company. The shares of Cumulative Tracking Preferred Stock
rank on a parity, both as to payment of dividends and the distribution of assets
on liquidation, with the Company's ESOP Preferred Stock. The Cumulative Tracking
Preferred Stock ranks prior, both as to payment of dividends and the
distribution of assets upon liquidation, to common stock and, if any, the
Company's junior participating preferred stock. At December 31, 1997, there were
two holders of record of Cumulative Tracking Preferred Stock.
ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of the Company's 1997
ESOP Cumulative Convertible Preferred Stock, 1996 ESOP Cumulative Convertible
Preferred Stock, 1995 ESOP Cumulative Convertible Preferred Stock and ESOP
Cumulative Convertible Preferred Stock (collectively, ESOP Preferred Stock) were
issued to a trustee acting on behalf of the Norwest Corporation Savings
Investment Plan and Master Savings Trust (the Plan). Dividends on the ESOP
Preferred Stock are cumulative from the date of initial issuance and are payable
quarterly at annual rates ranging from 8.50 percent to 10.00 percent, depending
upon the year of issuance. Each share of ESOP Preferred Stock released from the
unallocated reserve of the Plan is converted into shares of common stock of the
Company based on the stated value of the ESOP Preferred Stock and the then
current market price of the Company's common stock. The ESOP Preferred Stock is
also convertible at the option of the holder at any time, unless previously
redeemed. The ESOP Preferred Stock is redeemable at any time, in whole or in
part, at the option of the Company at a redemption price per share equal to the
higher of (a) $1,000 per share plus accrued and unpaid dividends and (b) the
fair market value, as defined in the Certificates of Designation of the ESOP
Preferred Stock.
CUMULATIVE CONVERTIBLE PREFERRED STOCK SERIES B (FORMER NORWEST) All shares of
the Company's Cumulative Convertible Preferred Stock, Series B, $200 liquidation
value per share, in the form of depositary shares, were called for redemption on
September 1, 1995 at a price of $52.10 per depositary share plus accrued
dividends.
10.24% CUMULATIVE PREFERRED STOCK All shares of the Company's Cumulative
Preferred Stock and related depository shares, $100 liquidation value, were
redeemed on January 2, 1996 at stated value.
65
<PAGE>
12.
COMMON STOCK, ADDITIONAL PAID-IN CAPITAL AND STOCK PLANS
COMMON STOCK
The table below summarizes common stock reserved, issued and authorized as of
December 31, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Number of shares
- -----------------------------------------------------------------------------
<S> <C>
Stock incentive plans 124,833,025
Convertible subordinated debentures and warrants (1) 35,963,348
Dividend reinvestment and common stock purchase plans 44,930,387
Director plans 2,241,196
Employee stock plans 7,789,532
Retirement/savings plans 32,877,664
-------------
Total shares reserved 248,635,152
Shares issued 1,630,640,939
Shares not reserved 2,120,723,909
-------------
Total shares authorized 4,000,000,000
-------------
-------------
- -----------------------------------------------------------------------------
</TABLE>
(1) Includes warrants issued by the Company to subsidiaries to purchase shares
of the Company's common stock as follows: 8,928,172 shares at $42.50 per
share in 1996, 11,000,176 shares at $37.50 per share in 1995 and
16,000,000 shares at $35.00 per share in 1994.
Under the terms of mandatory convertible debt, the Company must exchange with
the noteholder, or sell, various capital securities of the Company as described
in Note 9.
During 1997, the Company repurchased approximately 58 million shares of its
outstanding common stock and issued approximately 19 million shares under
various employee benefit and dividend reinvestment plans.
DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLANS
The Company's dividend reinvestment and common stock purchase plans permit
participants to purchase at fair market value shares of the Company's common
stock by reinvestment of dividends and/or optional cash payments, subject to the
terms of the respective plans.
66
<PAGE>
ADDITIONAL PAID-IN CAPITAL
Repurchases that were made in connection with the former Wells Fargo & Company's
stock repurchase program resulted in a reduction of the additional paid-in
capital (APIC) account equal to the amount paid in repurchasing the stock, less
the $5 per share representing par value that is charged to the common stock
account. In order to absorb future repurchases of common stock, the former Wells
Fargo & Company transferred $1 billion from Retained Earnings to APIC in 1995.
DIRECTOR PLANS
Under the Company's director plans, directors of the former Norwest receive
common stock in addition to a cash retainer and directors of the former Wells
Fargo may elect to receive stock options in lieu of an annual cash retainer,
subject to the terms of the respective plans. Compensation expense (which, for
stock options, is based on the quoted market price of the stock at the date of
grant less the exercise price) is accrued as retainers are earned. Another plan
for directors of the former Wells Fargo also provides for annual grants of
options to purchase common stock to each non-employee director elected or
re-elected at the annual meeting of shareholders. Non-employee directors who
join the Board between annual meetings receive options on a prorated basis.
These options have an exercise price equal to the quoted market price of the
stock at the time of the grant, so they do not result in compensation expense.
EMPLOYEE STOCK PLANS
LONG-TERM INCENTIVE PLANS The Company provides for awards of incentive and
nonqualified stock options, stock appreciation rights, restricted shares, share
rights, performance awards and stock awards without restrictions. Employee stock
options can be granted with exercise prices at or above the current quoted
market price of the common stock and, in some cases and except for incentive
stock options, can have terms longer than 10 years. Employee stock options
generally become fully exercisable over three years from the grant date. Upon
termination of employment for reasons other than retirement, permanent
disability or death, the option period is reduced or the options are canceled.
No compensation expense was recorded for the stock options under the plans, as
the exercise price was equal to the quoted market price of the stock at the time
of grant.
Loans may be made, at the discretion of the Company, to assist the participants
of certain plans in the acquisition of shares under options. A stock option
grant also 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 Company's stock purchased in the market or held by the participant
for at least six months, then upon exercise of the option the participant is
granted an AO to purchase, at the quoted market price at the time of the AO
grant, the number of shares of common stock equal to the sum of the number of
shares used in payment of the exercise price and a number of shares with respect
to taxes.
The holders of the restricted share rights are entitled at no cost to the shares
of common stock represented by the restricted share rights held by each person
five years after the restricted share rights were granted. Upon receipt of the
restricted share rights, holders are entitled to receive
67
<PAGE>
quarterly cash payments equal to the cash dividends that would be paid on the
number of common shares equal to the number of restricted share rights. Except
in limited circumstances, restricted share rights are canceled upon termination
of employment. In 1997, 1996 and 1995, there were 280,020, 952,330 and 697,780
restricted share rights granted, respectively, with a weighted-average
grant-date fair value of $30.89, $23.69, and $17.39, respectively. The
compensation expense for the restricted share rights equals the quoted market
price at the time of grant and is accrued on a straight-line basis over the
vesting period of five years. The total compensation expense recognized for the
restricted share rights was $11 million, $10 million and $8 million in 1997,
1996 and 1995, respectively. The Company also awards restricted stock, which is
not material.
ACQUIRED STOCK PLANS In connection with various acquisitions and mergers since
1992, the Company converted employee and director stock options of acquired or
merged companies into stock options to purchase the Company's common stock based
on the original stock option plan and the agreed-upon exchange ratio.
BROAD-BASED EMPLOYEE STOCK OPTION PLANS In 1996, the Company adopted the Best
Practices (PartnerShares) Plan, a broad-based employee stock option plan
covering full and part-time employees who were not participants in the long-term
incentive plans described above. Options granted under the plan have an exercise
date that generally is the earlier of five years after the date of grant or when
the market price of stock exceeds a predetermined price. The options generally
expire ten years after the date of grant. No compensation expense has been
recorded for the stock options, as the exercise price was equal to or higher
than the quoted market price of the stock at the time of grant.
The Company also offers participation in an employee stock purchase plan.
Options to purchase 7,500,000 shares of common stock may be granted under the
Employee Stock Purchase Plan (ESPP). Employees of the former Wells Fargo who
have completed their introductory period of employment, except hourly employees,
are eligible to participate. Certain highly compensated employees may be
excluded from participation at the discretion of a committee of the Board of
Directors. The ESPP provides for a purchase price of the lower of the quoted
market price of the stock at the time of grant or 85% to 100% (as determined by
the Board of Directors for each period) of the quoted market price at the end of
a one-year period. For the current period ending July 31, 1998, the Board
approved a closing purchase price of 85% of the quoted market price. The ESPP is
noncompensatory and results in no expense to the Company.
68
<PAGE>
The following table is a summary of the Company's stock option activity and
related information for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Long-Term Incentive
Director Plans and Acquired Plans Broad-Based Plans
---------------------- --------------------- --------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Number price Number price Number price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING AS OF
DECEMBER 31, 1994 283,070 $ 8.52 50,727,896 $ 9.84 1,434,040 $15.34
------- ---------- ----------
1995:
Granted 72,640 (3) 13.48 6,567,442 (1)(4) 17.45 1,430,720 (5) 18.23
Canceled -- -- (767,572) 12.44 (733,590) 15.85
Exercised (20,000) 7.25 (9,238,102) 7.41 (831,370) 15.34
------- ---------- ----------
OPTIONS OUTSTANDING AS OF
DECEMBER 31, 1995 335,710 9.67 47,289,664 11.33 1,299,800 18.23
------- ---------- ----------
1996:
Granted 113,910 (3) 22.57 6,568,650 (1)(4) 21.35 11,330,580 (5) 17.43
Acquired (2) -- -- 9,379,334 9.33 -- --
Canceled -- -- (719,358) 14.10 (1,087,990) 17.91
Exercised (5,000) 6.63 (13,416,038) 10.08 (768,330) 18.23
------- ---------- ----------
OPTIONS OUTSTANDING AS OF
DECEMBER 31, 1996 444,620 13.01 49,102,252 12.59 10,774,060 17.42
------- ---------- ----------
1997:
GRANTED 103,890 (3) 23.49 29,985,212 (1)(4) 30.31 23,678,530 (5) 30.11
CANCELED -- -- (1,356,735) 22.89 (3,935,110) 17.93
EXERCISED (29,230) 9.87 (14,801,394) 10.30 (5,275,570) 17.57
------- ---------- ----------
OPTIONS OUTSTANDING AS OF
DECEMBER 31, 1997 519,280 $15.28 62,929,335 $21.34 25,241,910 $29.21
------- ------ ---------- ------ ---------- ------
------- ------ ---------- ------ ---------- ------
Outstanding options
exercisable as of:
DECEMBER 31, 1997 417,920 $13.23 33,930,575 $14.12 3,315,200 $16.90
December 31, 1996 330,710 9.71 37,222,532 10.94 -- --
December 31, 1995 263,070 8.62 30,110,268 10.22 -- --
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 2,687,762, 2,680,800 and 1,178,276 AO grants at December 31, 1997,
1996, and 1995, respectively.
(2) Options assumed in connection with the acquisition of First Interstate and
Benson Financial Corporation.
(3) The weighted-average per share fair value of options granted was $10.26,
$9.05 and $7.10 for 1997, 1996 and 1995, respectively.
(4) The weighted-average per share fair value of options granted was $5.08,
$5.10 and $4.29 for 1997, 1996 and 1995, respectively.
(5) The weighted-average per share fair value of options granted was $4.92,
$3.18 and $3.93 for 1997, 1996 and 1995, respectively.
69
<PAGE>
The following table is a summary of selected information for the Company's stock
option plans described on the preceding page:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 31, 1997
--------------------------------------------------------
Weighted-
average Weighted-
remaining average
contractual exercise
life (in yrs.) Number price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RANGE OF EXERCISE PRICES
DIRECTOR PLANS
$.10
Options outstanding/exercisable 4.4 41,390 $ .10
$4.46-$6.63
Options outstanding/exercisable 4.2 43,540 6.48
$7.25-$10.80
Options outstanding/exercisable 3.9 86,230 8.13
$11.94-$16.00
Options outstanding 6.4 173,500 14.22
Options exercisable 152,140 14.33
$23.64-$26.48
Options outstanding 8.3 174,620 25.66
Options exercisable 94,620 24.97
LONG-TERM INCENTIVE PLANS AND ACQUIRED PLANS
$2.24-$4.99
Options outstanding/exercisable 3.2 446,509 3.77
$2.78-$8.31
Options outstanding/exercisable 3.2 1,372,730 6.40
$5.00-$9.99
Options outstanding/exercisable 3.3 6,457,763 7.57
$10.00-$14.99
Options outstanding/exercisable 5.5 11,519,707 12.64
$10.73-$15.96
Options outstanding 6.4 4,676,180 12.96
Options exercisable 4,639,480 12.94
$15.00-$19.99
Options outstanding 6.9 4,176,936 17.21
Options exercisable 3,832,866 17.25
$20.00-$29.99
Options outstanding 8.0 10,981,332 25.89
Options exercisable 4,094,042 24.06
$30.00-$38.53
Options outstanding 9.3 23,298,178 30.96
Options exercisable 1,567,478 31.66
BROAD-BASED PLANS
$16.56-$22.78
Options outstanding/exercisable 3.8 3,238,400 16.56
$27.02-$31.34
Options outstanding 4.8 22,003,510 31.07
Options exercisable 76,800 31.34
- --------------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
In October 1995, the FASB issued FAS No. 123, Accounting for Stock-Based
Compensation. As provided for under FAS 123, the Company elected to continue to
apply the provisions of Accounting Principles Board Opinion 25, Accounting for
Stock Issued to Employees, in accounting for the stock plans described above.
Had compensation cost for these stock plans been determined based on the
(optional) fair value method established by FAS 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------
(in millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
As reported $2,499 $2,228 $1,988
Pro forma (1) 2,448 2,210 1,983
Earnings per common share
As reported $ 1.50 $ 1.38 $ 1.66
Pro forma (1) 1.43 1.36 1.65
Earnings per common share - assuming dilution
As reported $ 1.48 $ 1.36 $ 1.62
Pro forma (1) 1.42 1.33 1.61
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The pro forma amounts noted above only reflect the effects of stock-based
compensation grants made after 1994. Because stock options are granted each
year and generally vest over three years, these pro forma amounts may not
reflect the full effect of applying the (optional) fair value method
established by FAS 123 that would be expected if all outstanding stock
option grants were accounted for under this method.
The fair value of each option grant is estimated based on the date of grant
using an option-pricing model. For the stock option plans, the following
weighted-average assumptions were used in 1997, 1996 and 1995: expected dividend
yield ranging from 1.4% to 15.5%; expected volatility ranging from 18.0% to
33.3%; risk-free interest rates ranging from 5.1% to 7.8% and expected life
ranging from 1 to 5.4 years.
EMPLOYEE STOCK OWNERSHIP PLAN The Savings Investment Plan (SIP) (see Note 13)
contains Employee Stock Ownership Plan (ESOP) provisions under which SIP may
borrow money to purchase the Company's common or preferred stock. Beginning in
1994, the Company loaned money to SIP which has been used to purchase shares of
the Company's ESOP Preferred Stock. As ESOP Preferred Stock is released and
converted into common shares, compensation expense is recorded equal to the
current market price of the common shares. Dividends on the common shares
allocated as a result of the release and conversion of the ESOP Preferred Stock
are recorded as a reduction of retained earnings and the shares are considered
outstanding for purposes of earnings per share computations. Dividends on the
unallocated ESOP Preferred Stock are not recorded as a reduction of retained
earnings, and the shares are not considered to be common stock equivalents for
purposes of earnings per share computations. Loan principal and interest
payments are made from the Company's contributions to SIP, along with dividends
paid on the ESOP Preferred Stock. With each principal and interest payment, a
portion of the ESOP Preferred Stock is released and, after conversion of the
ESOP Preferred Stock into common shares, allocated to SIP participants.
71
<PAGE>
In 1989, the Company loaned money to SIP which was used to purchase shares of
the Company's common stock (the 1989 ESOP shares). The Company accounts for the
1989 ESOP shares in accordance with AICPA Statement of Position 76-3.
Accordingly, the Company's ESOP loans to SIP related to the purchase of the 1989
ESOP shares are recorded as a reduction of stockholders' equity, and
compensation expense based on the cost of the shares is recorded as shares are
released and allocated to participant's accounts. The 1989 ESOP shares are
considered outstanding for purposes of earnings per share computations and
dividends on the shares are recorded as a reduction to retained earnings. The
1989 ESOP shares also include ESOP shares acquired in conjunction with business
combinations accounted for under the pooling of interests method of accounting.
The loans from the Company to SIP are repayable in monthly installments through
April 26, 1999, with interest at 8.45%. Interest income on these loans was $1
million in 1997, 1996 and 1995, and is included as a reduction in salaries and
benefits expense. Total interest expense on the Series A and B ESOP Notes was $1
million, $4 million and $4 million in 1997, 1996 and 1995, respectively. Total
dividends paid to SIP on ESOP shares were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ESOP Preferred Stock:
Common dividends $ 4 $ 3 $ 1
Preferred dividends 4 3 4
1989 ESOP shares:
Common dividends 11 9 8
--- --- ---
Total $19 $15 $13
--- --- ---
--- --- ---
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The ESOP shares as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(in millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ESOP Preferred Stock:
Allocated shares (common) 7,793,681 6,580,846
Unreleased shares (preferred) 76,405 58,779
1989 ESOP shares:
Allocated shares 15,555,673 15,382,122
Unreleased shares 1,053,925 1,993,978
Fair value of unearned ESOP shares $ 76.40 $ 58.80
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For information on employee stock ownership through the Tax Advantage and
Retirement Plan, see Note 13.
72
<PAGE>
13.
EMPLOYEE BENEFITS AND OTHER EXPENSES
RETIREMENT PLANS
The Company has two noncontributory defined benefit pension plans. One plan
covers substantially all full-time employees of the former Norwest. Pension
benefits provided are based on the employee's highest compensation in three
consecutive years during the last ten years of employment. The Company's funding
policy for these plans 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 second plan,
assumed from First Interstate, provides retirement benefits that are a function
of both years of service and the highest average compensation for any five
(consecutive) year period during the last 10 years before retirement. The
funding policy for the defined benefit retirement plan is to make contributions
sufficient to meet the minimum requirements set forth in the Employee Retirement
Income Security Act of 1974, with additional contributions being made
periodically when deemed appropriate. Pursuant to the First Interstate merger
agreement, accrued benefits, as of June 30, 1996, for all participants employed
as of March 28, 1996 became fully vested. Effective June 30, 1996, all accrued
benefits under the plan were frozen.
The following table sets forth the funded status of the plans and amounts
included in the Company's Consolidated Balance Sheet as of December 31, 1997 and
1996.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31,
--------------------
(in millions) 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $1,882 $1,668
------ ------
------ ------
Accumulated benefit obligation $1,948 $1,731
------ ------
------ ------
Projected benefit obligation $2,141 $1,903
Plan assets at fair value (1) 2,521 2,100
------ ------
Plan assets in excess of projected benefit obligation 380 197
Unrecognized net gain (350) (169)
Unrecognized net transition asset (9) (10)
Unrecognized prior service cost 7 (1)
------ ------
Prepaid pension asset $ 28 $ 17
------ ------
------ ------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Primarily invested in equity securities and bonds and obligations of the
U.S. government and its agencies.
73
<PAGE>
The net periodic pension cost for 1997, 1996 and 1995 included the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 49 $ 50 $ 45
Interest cost on projected benefit obligation 141 110 55
Actual return on plan assets (477) (215) (156)
Net amortization and deferral (1) 315 78 106
----- ----- -----
Net periodic pension cost $ 28 $ 23 $ 50
----- ----- -----
----- ----- -----
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists primarily of the net effect, of the difference between the
expected investment return and the actual investment return and the
amortization of the unrecognized gains and losses over five years.
The weighted-average discount rate used in determining the projected benefit
obligation was 7.0% in 1997 and ranged from 7.0% to 7.5% in 1996. The
weighted-average increase in future compensation levels was 5.0% in 1997 and
1996. No increase in future compensation levels was assumed on the former First
Interstate plan as all accrued benefits under the plan were frozen effective
June 30, 1996. The weighted-average expected long-term rate of return on assets
ranged from 8.5% to 9.0% in 1997 and from 8.0% to 8.5% in 1996.
The Company also has established grantor trusts to be used to satisfy in part
its nonqualified pension benefit liabilities. The market value of these trusts
was $84 million and $70 million as of December 31, 1997 and 1996, respectively,
and is not included in plan assets as presented above.
The Company has two primary defined contribution plans. Under one plan covering
full-time employees of the former Wells Fargo, known as the Tax Advantage and
Retirement Plan (TAP), the Company makes contributions of 6% of the total of
employee base salary plus payments from certain bonus plans (covered
compensation). The Company also makes special transition contributions related
to the termination of a prior defined benefit plan of the Company ranging from
.5% to 5% of covered compensation for certain employees. The plan covers
salaried employees with at least one year of service and contains a vesting
schedule graduated from three to seven years of service. Employees hired before
January 1, 1992 receive a supplemental 2% contribution and a 4% basic
contribution until fully vested. When employees become 100% vested, the basic
retirement contribution increases to 6% of employee-covered compensation and the
supplemental 2% contributions end.
Salaried employees who have at least one year of service are eligible to
contribute to TAP up to 10% of their pretax covered compensation through salary
deductions under Section 401(k) of the Internal Revenue Code, although a lower
contribution limit may be applied to certain employees in order to maintain the
qualified status of the plan. Employees direct the investment of their TAP funds
and may elect to invest in the Company's common stock. The Company makes
matching contributions of up to 4% of an employee's covered compensation for
those who have at least three years of service and elect to contribute under the
plan. The Company partially
74
<PAGE>
matches contributions by employees with at least one but less than three years
of service. For such employees who elect to contribute under the plan, the
Company matches 50% of each dollar on the first 4% of the employee's covered
compensation. The Company's matching contributions are immediately vested and
are tax deductible by the Company.
The Company also sponsors the Savings Investment Plan (SIP). The plan covers the
employees of the former Norwest. Each eligible SIP participant was permitted in
1997 to contribute on a before-tax basis up to 12% of the certified earnings.
However, SIP participants who are also eligible to participate in the Employees'
Deferred Compensation Plan were only allowed to contribute up to 6% of certified
earnings. Effective January 1, 1998, participants not eligible for the
Employees' Deferred Compensation Plan may contribute on a before-tax basis up to
18% of certified earnings. Contributions will be matched 100% by the Company up
to 6% of the participant's certified earnings. The Company's matching
contributions vest 25% per year of employment. All of the Company's matching
contributions are invested in the Company's common stock. The participant's
contributions may be invested in one or more of ten investment funds, including
a common stock fund, at the participant's direction. The Company 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, are credited to an account for the participant.
A subsidiary of the Company, Norwest Financial Services, Inc., has a thrift and
profit sharing plan for its employees in which eligible employees may make basic
contributions of up to 6% of their compensation and supplemental contributions
to an additional 4% of their compensation. Norwest Financial Services, Inc.
makes a matching contribution of 25% of the basic employee contributions.
Norwest Financial Services, Inc. may also make a profit sharing contribution
with the amount determined by the percentage return on equity of Norwest
Financial Services, Inc. and its subsidiaries.
Expenses for all defined contribution plans were $174 million, $143 million and
$107 million in 1997, 1996 and 1995, respectively.
HEALTH CARE AND LIFE INSURANCE
The Company provides certain defined health care and life insurance benefits
under plans for certain retired employees. Substantially all employees of the
former Norwest become eligible for these benefits if they retire under a Company
pension plan. The amount of subsidized health care coverage for former Wells
Fargo employees who retired prior to January 1, 1993 is based upon their
Medicare eligibility. The amount of subsidized health care coverage for
employees who retire after December 31, 1992 is based upon their eligibility to
retire as of January 1, 1993 and their years of service at the time of
retirement. Active employees with an adjusted service date after September 30,
1992 are not eligible for subsidized health care coverage upon retirement.
75
<PAGE>
The Company's funding policy is to realize 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 following
table sets forth the funded status of the plans and amounts included in the
Company's Consolidated Balance Sheet at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
December 31,
------------------
(in millions) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $267 $252
Eligible active employees 14 12
Other active employees 176 160
----- ----
457 424
Plan assets at fair value (1) 140 124
----- ----
Accumulated postretirement benefit obligation (APBO)
in excess of plan assets 317 300
Unrecognized net gain 52 76
----- ----
Accrued postretirement benefit cost $369 $376
----- ----
----- ----
- ---------------------------------------------------------------------------------
</TABLE>
(1) Primarily invested in life insurance policies, equity securities and bonds
and obligations of the U.S. government and U.S. agencies.
The net periodic cost for postretirement health care benefits for 1997, 1996 and
1995 included the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------
(in millions) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits attributed to service during the period) $14 $14 $12
Interest cost on accumulated postretirement benefit obligation 29 27 21
Actual return on plan assets (17) (14) (15)
Net amortization and deferral (1) (2) 1 10
--- --- ---
Total $24 $28 $28
--- --- ---
--- --- ---
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists primarily of the net effects of the difference between the
expected investment return and the actual investment return and
amortization of gains and losses over five years.
For measurement purposes, a health care cost trend rate was used to recognize
the effect of expected changes in future health care costs due to medical
inflation, utilization changes, technological changes, regulatory requirements
and Medicare cost shifting. Average annual increases in the per capita cost of
covered health care benefits were assumed to range from 5.5% to 10% for 1998.
The rate for other coverage was assumed to decrease gradually to a range from
5.5% to 8.0% after five years and to remain at that level thereafter. Increasing
the assumed health care trend by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1997 by $43 million and the aggregate of the interest cost and service cost
components of the net periodic cost for 1997 by $6 million. The weighted-average
discount rate used to measure the accumulated postretirement benefit obligation
ranged from 6.9% to 7.0% in 1997 and from 7.0% to 7.2% in 1996. The expected
long-term rate of return on plan assets after taxes was 5.4% and 4.8% in 1997
and 1996, respectively.
76
<PAGE>
The Company provides postretirement life insurance to certain existing retirees.
The APBO and expenses related to these benefits were not material. Employees
with an adjusted service date after January 1, 1994 are not eligible for Company
paid life insurance benefits.
The Company also provides health care and life insurance benefits for certain
active and retired employees. The Company reserves its right to terminate these
benefits at any time. The health care benefits for active eligible and retired
employees are self-funded by the Company with a managed care plan or provided
through health maintenance organizations (HMOs). Life insurance benefits for
active eligible and retired employees are provided through an insurance company.
OTHER EXPENSES
The following table shows expenses which exceeded 1% of total interest income
and noninterest income and which are not otherwise shown separately in the
financial statements or notes thereto.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year ended December 31,
------------------------------------
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract services $271 $329 $185
Telecommunications 241 234 133
Postage 210 206 144
Outside professional services 262 254 166
Outside data processing 217 216 140
Advertising and promotion 202 234 163
Stationery and supplies 182 192 124
Travel and entertainment 188 188 118
- --------------------------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
14.
INCOME TAXES
Total income taxes for the years ended December 31, 1997, 1996 and 1995 were
recorded as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------
(in millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes applicable to income before income tax expense $1,694 $1,539 $1,213
Stockholders' equity for compensation expense for tax purposes
in excess of amounts recognized for financial reporting purposes (93) (37) (33)
Stockholders' equity for tax effect of the change in net unrealized
gain (loss) on investment securities 93 (23) 487
------ ------ ------
Total income taxes $1,694 $1,479 $1,667
------ ------ ------
------ ------ ------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of the components of income tax expense (benefit)
applicable to income before income taxes:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Year ended December 31,
------------------------------------
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,242 $ 874 $ 975
State and local 246 161 225
Foreign 33 37 27
------ ------ ------
1,521 1,072 1,227
------ ------ ------
Deferred:
Federal 147 371 (18)
State and local 37 100 7
Foreign (11) (4) (3)
------ ------ ------
173 467 (14)
------ ------ ------
Total $1,694 $1,539 $1,213
------ ------ ------
------ ------ ------
- ---------------------------------------------------------------------
</TABLE>
Amounts for the current year are based upon estimates and assumptions as of the
date of this report and could vary significantly from amounts shown on the tax
returns as filed. Accordingly, the variances from the amounts previously
reported for 1996 are primarily a result of adjustments to conform to tax
returns as filed.
The Company's income tax expense (benefit) related to investment securities
gains (losses) was $21 million, $(13) million and $(22) million for 1997, 1996
and 1995, respectively.
78
<PAGE>
The Company had net deferred tax liabilities of $163 million and $29 million at
December 31, 1997 and 1996, respectively. The tax effect of temporary
differences that gave rise to significant portions of deferred tax assets and
liabilities at December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Year ended December 31,
----------------------
(in millions) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Allowance for loan losses $1,087 $1,076
Net tax-deferred expenses 1,137 945
State tax expense 55 27
Premises and equipment 35 49
Foreclosed assets 30 42
Other 245 263
------ ------
Total deferred tax assets 2,589 2,402
------ ------
DEFERRED TAX LIABILITIES
Core deposit intangible 624 751
Leasing 763 665
Certain identifiable intangibles 66 50
Mark to market 122 160
Mortgage servicing 747 483
FAS 115 adjustment 271 175
Other 159 147
------ ------
Total deferred tax liabilities 2,752 2,431
------ ------
NET DEFERRED TAX LIABILITY $ (163) $ (29)
------- ------
------- ------
- --------------------------------------------------------------------------
</TABLE>
The Company has determined that it is not required to establish a valuation
reserve for any of the deferred tax assets since it is more likely than not that
these assets 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
Company's conclusion that it is "more likely than not" that the deferred tax
assets will be realized is based on federal taxable income of over $4.7 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.
79
<PAGE>
The following is a reconciliation of the statutory federal income tax expense
and rate to the effective income tax expense and rate:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995
------------------- ------------------ ----------------
(in millions) AMOUNT % Amount % Amount %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax expense and rate $1,468 35.0% $1,320 35.0% $1,121 35.0%
Change in tax rate resulting from:
State and local taxes on income, net of
federal income tax benefit 162 3.8 155 4.1 152 4.7
Amortization of goodwill not
deductible for tax return purposes 151 3.6 118 3.1 35 1.1
Tax exempt income (37) (.9) (27) (.7) (27) (.8)
Other (50) (1.1) (27) (.7) (68) (2.11)
------ ---- ------ ---- ------- -----
Effective income tax expense and rate $1,694 40.4% $1,539 40.8% $1,213 37.9%
------ ---- ------ ---- ------ -----
------ ---- ------ ---- ------ -----
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has not recognized a federal deferred tax liability of $36 million
on $102 million of undistributed earnings of a foreign subsidiary because such
earnings are indefinitely reinvested in the subsidiary and are not taxable under
current law. A deferred tax liability would be recognized to the extent the
Company changed its intent to not indefinitely reinvest a portion or all of such
undistributed earnings. In addition, a current tax liability would be recognized
if the Company recovered those undistributed earnings in a taxable manner, such
as through the receipt of dividends or sale of the entity, or if the tax law
changed.
80
<PAGE>
15.
EARNINGS PER COMMON SHARE
On December 31, 1997, the Company adopted FAS 128, Earnings per Share. This
Statement replaces the presentation of primary earnings per common share (net
income applicable to common stock divided by weighted-average common shares
outstanding and, if dilution is 3% or more, common stock equivalents) with a
presentation of (basic) earnings per common share (net income applicable to
common stock divided by weighted-average common shares outstanding). The
Statement also requires dual presentation of earnings per common share and
diluted earnings per common share on the face of the income statement and a
reconciliation of the numerator and denominator of both earnings per common
share calculations, which is presented in the table below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year ended December 31,
------------------------------------
(in millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 2,499 $ 2,228 $ 1,988
Less: Preferred stock dividends 43 85 83
-------- -------- ---------
Net income applicable to common stock $ 2,456 $ 2,143 $ 1,905
-------- -------- ---------
-------- -------- ---------
EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 2,456 $ 2,143 $ 1,905
-------- -------- --------
-------- -------- --------
Average common shares outstanding (denominator) 1,634.6 1,553.3 1,147.7
-------- -------- --------
-------- -------- --------
Per share $ 1.50 $ 1.38 $ 1.66
-------- -------- --------
-------- -------- --------
DILUTED EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 2,456 $ 2,143 $ 1,905
-------- -------- --------
-------- -------- --------
Average common shares outstanding 1,634.6 1,553.3 1,147.7
Add: Stock options 20.6 14.3 8.3
Restricted share rights 2.6 2.9 3.0
Convertible preferred stock -- -- 16.8
-------- -------- --------
Diluted average common shares outstanding
(denominator) 1,657.8 1,570.5 1,175.8
-------- -------- --------
-------- -------- --------
Per share $ 1.48 $ 1.36 $ 1.62
-------- -------- --------
-------- -------- --------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
16.
BUSINESS SEGMENTS
The Company's operations include three primary business segments: banking,
mortgage banking and consumer finance. The Company, through its subsidiary
banks, offers diversified banking services including retail, commercial and
corporate banking, equipment leasing, and trust services; and through their
affiliates offers insurance, securities brokerage, investment banking and
venture capital investment. Substantially all of the former Wells Fargo's
activities are included in the banking segment. 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. Consumer Finance relates to Norwest Financial (including Norwest
Financial Services, Inc. and Island Finance) which provides consumer finance
services, including direct
81
<PAGE>
installment loans to individuals, purchase of sales finance contracts, private
label and lease accounts receivable financing, and other related products and
services. Selected financial information by business segment for the years ended
December 31, 1997, 1996 and 1995 is included in the following summary:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Organizational Total
(in millions) Revenues (1) earnings assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1997:
Banking $15,660 $2,085 $157,509
Mortgage Banking 1,600 171 17,603
Consumer Finance 1,941 243 10,573
------- ------ --------
Total $19,201 $2,499 $185,685
------- ------ --------
------- ------ --------
1996:
Banking $14,250 $1,824 $167,266
Mortgage Banking 1,528 140 12,414
Consumer Finance 1,787 264 8,953
------- ------ --------
Total $17,565 $2,228 $188,633
------- ------ --------
------- ------ --------
1995:
Banking $10,347 $1,634 $103,381
Mortgage Banking 1,038 105 10,253
Consumer Finance 1,558 249 8,566
------- ------ -------
Total $12,943 $1,988 $122,200
------- ------ --------
------- ------ --------
- ---------------------------------------------------------------------------------
</TABLE>
(1) Revenues (interest income plus noninterest income), 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.
The Company adopted on December 31, 1998, FAS 131, Disclosures about Segments of
an Enterprise and Related Information, which supersedes FAS 14, Financial
Reporting for Segments of a Business Enterprise. The Statement requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments.
82
<PAGE>
17.
MORTGAGE BANKING ACTIVITIES
The following table presents the components of mortgage banking noninterest
income:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year ended December 31,
--------------------------
(in millions) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Origination and other closing fees $314 $305 $198
Servicing fees, net of amortization 324 318 228
Net gains (losses) on sales of servicing rights (8) 57 81
Net gains (losses) on sales of mortgages 120 13 (24)
Other 177 151 69
---- ---- ----
Total mortgage banking noninterest
income $927 $844 $552
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------
</TABLE>
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The outstanding balances of serviced loans were
$230 billion, $202 billion and $126 billion at December 31, 1997, 1996 and 1995,
respectively.
Changes in capitalized mortgage loan servicing rights for the years ended
December 31, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Year ended December 31,
---------------------------------
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $2,957 $1,443 $ 745
Originations 361 361 233
Purchases 462 1,624 852
Sales (34) (72) (202)
Amortization (513) (364) (179)
Other (121) (35) (6)
------ ------ ------
3,112 2,957 1,443
Less valuation allowance (64) (65) (64)
------ ------ ------
Balance, end of year $3,048 $2,892 $1,379
------ ------ ------
------ ------ ------
- ---------------------------------------------------------------------
</TABLE>
The fair value of capitalized mortgage servicing rights included in the
consolidated balance sheet at December 31, 1997 was approximately $3.4 billion,
calculated using discount rates ranging from 500 to 700 basis points over the
ten-year U.S. Treasury rate.
83
<PAGE>
Changes in the valuation allowance for capitalized mortgage servicing rights for
the three years ended December 31, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $65 $64 $--
Provision for capitalized mortgage servicing rights
in excess of (below) fair value (1) 1 64
--- --- ---
Balance, end of year $64 $65 $64
--- --- ---
--- --- ---
- --------------------------------------------------------------------------------------------
</TABLE>
84
<PAGE>
18.
PARENT COMPANY
Condensed financial information of Wells Fargo & Company (Parent) is presented
below. For information regarding the Parent's long-term debt, see Note 9.
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------
(in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries:
Bank $1,282 $1,292 $1,248
Nonbank 343 713 268
Interest income from subsidiaries 388 431 333
Service fees from subsidiaries 118 113 89
Noninterest income 152 158 68
------ ------ ------
Total income 2,283 2,707 2,006
------ ------ ------
EXPENSE
Interest on:
Short-term borrowings 153 165 141
Long-term debt 364 377 279
Noninterest expense 177 96 151
------ ------ ------
Total expense 694 638 571
------ ------ ------
Income before income tax benefit and
undistributed income of subsidiaries 1,589 2,069 1,435
Income tax benefit (expense) 16 (32) 27
Equity in undistributed income of subsidiaries: 894 191 526
------ ------ ------
NET INCOME $2,499 $2,228 $1,988
------ ------ ------
------ ------ ------
- -----------------------------------------------------------------------------------------------------
</TABLE>
85
<PAGE>
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
December 31,
---------------------
(in millions) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from:
Subsidiary banks $ 548 $ 12
Non-affiliates 2 3
Securities available for sale 1,191 1,234
Advances to nonbank subsidiaries 5,590 5,450
Loans and advances to subsidiaries:
Bank 10 24
Nonbank 1,562 1,467
Investment in subsidiaries (1):
Bank 18,045 18,150
Nonbank 2,009 2,250
Other assets 1,235 496
------- -------
Total assets $30,192 $29,086
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 3,574 $ 2,151
Other liabilities 658 409
Long-term debt 5,805 6,384
Indebtedness to subsidiaries 367 81
Stockholders' equity 19,788 20,061
------- -------
Total liabilities and stockholders' equity $30,192 $29,086
------- -------
------- -------
- ------------------------------------------------------------------------------
</TABLE>
(1) The double leverage ratio, which represents the ratio of the Parent's
total equity investment in subsidiaries to its total stockholders' equity,
was 101% and 102% at December 31, 1997 and 1996, respectively.
86
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year ended December 31,
------------------------------------
(in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,499 $ 2,228 $ 1,988
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed loss of subsidiaries (894) (191) (526)
Depreciation and amortization 19 21 20
Release of preferred shares to ESOP 34 38 40
Other assets, net (798) (103) (147)
Accrued expenses and other liabilities 304 (65) 205
------ ------- -------
Net cash provided by operating activities 1,164 1,928 1,580
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale, net 131 (222) (551)
Advances to non-bank subsidiaries (140) (901) (2,096)
Principal collected on notes/loans of subsidiaries 46 841 297
Capital notes and term loans made to subsidiaries (113) (165) (1,319)
Net increase in investment in subsidiaries (384) (852) (866)
------- -------- ------
Net cash used by investing activities (460) (1,299) (4,535)
------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings and
indebtedness to subsidiaries 1,709 (6) 690
Proceeds from issuance of long-term debt 403 1,803 3,405
Repayment of long-term debt (981) (1,260) (309)
Proceeds from issuance of common stock 150 82 65
Issuance of stock warrants to subsidiaries -- 2 1
Redemption of preferred stock -- (113) --
Repurchase of common stock (483) (402) (187)
Net decrease in ESOP loans 1 4 --
Payment of cash dividends (968) (899) (604)
------- -------- -----
Net cash used by financing activities (169) (789) 3,061
------- -------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS 535 (160) 106
Cash and cash equivalents at beginning of year 15 175 69
------- -------- ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 550 $ 15 $ 175
------- -------- ------
------- -------- ------
Noncash investing activities:
Transfers from investment securities held to maturity to
securities available for sale $ -- $ -- $ 155
------- -------- ------
------- -------- ------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
87
<PAGE>
19.
LEGAL ACTIONS
In the normal course of business, the Company is at all times subject to
numerous pending and threatened legal actions, some for which the relief or
damages sought are substantial. After reviewing pending and threatened actions
with counsel, management considers that the outcome of such actions will not
have a material adverse effect on stockholders' equity of the Company; the
Company is not able to predict whether the outcome of such actions may or may
not have a material adverse effect on results of operations in a particular
future period as the timing and amount of any resolution of such actions and its
relationship to the future results of operations are not known.
20.
RISK-BASED CAPITAL
The Company and each of the subsidiary banks are subject to various regulatory
capital adequacy requirements administered by the Federal Reserve Board (FRB)
and the OCC, respectively. The Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA) required that the federal regulatory agencies adopt
regulations defining five capital tiers for banks: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company's
financial statements.
Quantitative measures, established by the regulators to ensure capital adequacy,
require that the Company and each of the subsidiary banks maintain minimum
ratios (set forth in the table below) of capital to risk-weighted assets. There
are two categories of capital under the guidelines. Tier 1 capital includes
common stockholders' equity, qualifying preferred stock and trust preferred
securities, less goodwill and certain other deductions (including the unrealized
net gains and losses, after applicable taxes, on securities available for sale
carried at fair value). Tier 2 capital includes preferred stock not qualifying
as Tier 1 capital, mandatory convertible debt, subordinated debt, certain
unsecured senior debt issued by the Parent and the allowance for loan losses,
subject to limitations by the guidelines. Tier 2 capital is limited to the
amount of Tier 1 capital (i.e., at least half of the total capital must be in
the form of Tier 1 capital).
Under the guidelines, capital is compared to the relative risk related to the
balance sheet. To derive the risk included in the balance sheet, one of four
risk weights (0%, 20%, 50% and 100%) is applied to the different balance sheet
and off-balance sheet assets, primarily based on the relative credit risk of the
counterparty. For example, claims guaranteed by the U.S. government or one of
its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan
commitments and derivative financial instruments, are also applied a risk weight
after calculating balance sheet equivalent amounts. One of four credit
conversion factors (0%, 20%, 50% and 100%) is assigned to loan commitments based
on the likelihood of the off-balance sheet item
88
<PAGE>
becoming an asset. For example, certain loan commitments are converted at 50%
and then risk-weighted at 100%. Derivative financial instruments are converted
to balance sheet equivalents based on notional values, replacement costs and
remaining contractual terms. (See Notes 5 and 21 for further discussion of
off-balance sheet items.) The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Management believes that, as of December 31, 1997, the Company and each of the
significant subsidiary banks met all capital adequacy requirements to which they
are subject.
Under the FDICIA prompt corrective action provisions applicable to banks, the
most recent notification from the OCC categorized each of the significant
subsidiary banks as well capitalized. To be categorized as well capitalized, the
institution must maintain a total risk-based capital ratio as set forth in the
following table and not be subject to a capital directive order. There are no
conditions or events since that notification that management believes have
changed the risk-based capital category of any of the significant subsidiary
banks.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For capital
Actual adequacy purposes
---------------- ----------------------------------------------------------------
(in billions) Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk-weighted assets)
Wells Fargo & Company $ 15.8 11.20% greater than or equal to $ 11.3 greater than or equal to 8.00%
Norwest Bank Minnesota, N.A. 1.7 12.41 greater than or equal to 1.1 greater than or equal to 8.00
Wells Fargo Bank, N.A. 7.8 11.18 greater than or equal to 5.6 greater than or equal to 8.00
Tier 1 capital (to risk-weighted assets)
Wells Fargo & Company $ 11.5 8.16% greater than or equal to $ 5.6 greater than or equal to 4.00%
Norwest Bank Minnesota, N.A. 1.6 11.16 greater than or equal to .6 greater than or equal to 4.00
Wells Fargo Bank, N.A. 5.8 8.34 greater than or equal to 2.8 greater than or equal to 4.00
Tier 1 capital (to average assets)
(Leverage ratio)
Wells Fargo & Company $ 11.5 6.72% greater than or equal to $ 6.9 greater than or equal to 4.00%(1)
Norwest Bank Minnesota, N.A. 1.6 8.32 greater than or equal to .7 greater than or equal to 4.00(1)
Wells Fargo Bank, N.A. 5.8 7.21 greater than or equal to 3.2 greater than or equal to 4.00(1)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
To be well
capitalized under
the FDICIA
prompt corrective
action provisions
-------------------------------------------------------------
Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
As of December 31, 1997:
Total capital (to risk-weighted assets)
Wells Fargo & Company
Norwest Bank Minnesota, N.A. greater than or equal to $1.4 greater than or equal to 10.00%
Wells Fargo Bank, N.A. greater than or equal to 7.0 greater than or equal to 10.00
Tier 1 capital (to risk-weighted assets)
Wells Fargo & Company
Norwest Bank Minnesota, N.A. greater than or equal to $ .8 greater than or equal to 6.00%
Wells Fargo Bank, N.A. greater than or equal to 4.2 greater than or equal to 6.00
Tier 1 capital (to average assets)
(Leverage ratio)
Wells Fargo & Company
Norwest Bank Minnesota, N.A. greater than or equal to $ .9 greater than or equal to 5.00%
Wells Fargo Bank, N.A. greater than or equal to 4.0 greater than or equal to 5.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The leverage ratio consists of Tier 1 capital divided by quarterly average
total assets, excluding goodwill and certain other items. The minimum
leverage ratio guideline is 3% for banking organizations that do not
anticipate significant growth and that have well-diversified risk,
excellent asset quality, high liquidity, good earnings, effective
management and monitoring of market risk and, in general, are considered
top-rated, strong banking organizations.
89
<PAGE>
21.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into a variety of financial contracts, which include interest
rate futures and forward contracts, interest rate floors and caps, options and
interest rate swap agreements. The contract or notional amount of a derivative
is used to determine, along with the other terms of the derivative, the amounts
to be exchanged between the counterparties. It does not in itself represent
amounts exchanged by the parties and therefore is not a measure of exposure
through the use of derivatives nor of exposure to liquidity risk. The Company is
primarily an end-user of these instruments. The Company also offers contracts to
its customers but offsets such contracts by purchasing other financial contracts
or uses the contracts for asset/liability management. To a lesser extent, the
Company takes positions based on market expectations or to benefit from price
differentials between financial instruments and markets.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The Company controls the credit risk of
its financial contracts, except for contracts for which credit risk is DE
MINIMUS, through credit approvals, limits and monitoring procedures. Credit risk
related to derivative financial instruments is considered and, if material,
provided for separately from the allowance for loan losses. As the Company
generally enters into transactions only with high quality counterparties, losses
associated with counterparty nonperformance on derivative financial instruments
have been immaterial. Further, the Company obtains collateral where appropriate
and uses master netting arrangements in accordance with FASB Interpretation No.
39, Offsetting of Amounts Related to Certain Contracts, as amended by FASB
Interpretation No. 41, Offsetting of Amounts Related to Certain Repurchase and
Reverse Repurchase Agreements.
90
<PAGE>
The following table summarizes the aggregate notional or contractual amounts,
credit risk amount and net fair value for the Company's derivative financial
instruments at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31,
----------------------------------------------------------------------------------
1997 1996
------------------------------------------ -----------------------------------
NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated
CONTRACTUAL RISK FAIR contractual risk fair
(in millions) AMOUNT AMOUNT(2) VALUE amount amount(2) value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT
HEDGES
Interest rate contracts:
Swaps (1) $24,052 $424 $364 $21,729 $266 $161
Futures 10,949 -- -- 8,805 -- --
Floors and caps (1) 35,344 350 350 37,052 242 242
Options (3) 11,168 12 41 6,384 4 1
Forwards 27,507 6 (29) 19,844 22 20
Foreign exchange contracts:
Forward contracts (1) 548 1 (5) 64 -- --
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Swaps 4,297 17 3 2,934 14 3
Futures 2,404 -- -- 893 -- --
Floors and caps purchased (1) 4,448 22 22 2,942 15 15
Floors and caps written 4,567 -- (24) 3,084 -- (16)
Options purchased (1) 77 -- -- -- -- --
Options written 27 -- -- -- -- --
Forwards (1) 59 2 2 -- -- --
Commodity contracts:
Swaps (1) 10 1 -- 6 -- --
Floors and caps purchased (1) 7 -- -- 2 -- --
Floors and caps written 10 -- -- 2 -- --
Foreign exchange contracts:
Forwards and spots (1) 2,966 50 4 1,849 24 1
Options purchased (1) 116 -- -- 69 1 1
Options written 114 -- -- 63 -- (1)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company anticipates performance by substantially all of the
counterparties for these or the underlying financial instruments.
(2) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.
(3) The option contracts are substantially options on futures contracts which
are exchange traded for which the exchange assumes the counterparty credit
risk.
Interest rate futures and forward contracts are contracts in which the buyer
agrees to purchase and the seller agrees to make delivery of a specific
financial instrument at a predetermined price or yield. These contracts may be
settled either in cash or by delivery of the underlying financial instrument.
Futures contracts are standardized and are traded on exchanges. Gains and losses
on
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futures contracts are settled daily with the exchange based on a notional
principal value. The exchange assumes the risk that a counterparty will not pay
and generally requires margin payments to minimize such risk. Market risks arise
from movements in interest rates and security values. The Company uses 90- to
120-day futures contracts on Eurodollar deposits and U.S. Treasury notes to
shorten the interest rate maturity of deposits ($5 billion at December 31, 1997)
and to reduce the price risk of interest-sensitive assets ($6 billion at
December 31, 1997), primarily mortgage servicing rights. Initial margin
requirements on futures contracts are provided by investment securities pledged
as collateral. Net deferred gains related to interest rate futures contracts
were $22 million at December 31, 1997, which will be fully amortized after seven
years.
Interest rate floors and caps are interest rate protection instruments that
involve the payment from the seller to the buyer of an interest differential.
This differential represents the difference between a short-term rate (e.g.,
three-month LIBOR) and an agreed-upon rate, the strike rate, applied to a
notional principal amount. By purchasing a floor, the Company will be paid the
differential by a counterparty, should the current short-term rate fall below
the strike level of the agreement. The Company generally receives cash quarterly
on purchased floors (when the current interest rate falls below the strike rate)
and purchased caps (when the current interest rate exceeds the strike rate). The
primary risk associated with purchased floors and caps is the ability of the
counterparties to meet the terms of the contract. Of the total purchased floors
and caps for asset/liability management of $35 billion at December 31, 1997, the
Company had $16 billion of floors to protect variable-rate loans from a drop in
interest rates. The Company also used purchased floors and caps of $14 billion
at December 31, 1997 to hedge mortgage servicing rights. Cash flows from the
floors offset lost future servicing revenue caused by increased levels of loan
prepayments associated with lower interest rates. The remaining purchased floors
and caps of $5 billion at December 31, 1997 were used to hedge interest rate
risk of various other specific assets and liabilities.
Interest rate swap contracts are entered into primarily as an asset/liability
management strategy to reduce interest rate risk. Interest rate swap contracts
are exchanges of interest payments, such as fixed-rate payments for
floating-rate payments, based on a notional principal amount. Payments related
to the Company's swap contracts are made either monthly, quarterly or
semi-annually by one of the parties depending on the specific terms of the
related contract. While the notional amount of substantially all of the
Company's swaps do not change over their lives, the Company also holds
amortizing swaps ($3 billion at December 31, 1997). The notional amount of those
swaps changes based on a remaining principal amount of a pool of mortgage-backed
securities. Generally, as rates fall, the notional amounts decline more rapidly
and as rates increase, notional amounts decline more slowly. The primary risk
associated with all swaps is the exposure to movements in interest rates and the
ability of the counterparties to meet the terms of the contract. At December 31,
1997, the Company had $24 billion of interest rate swaps outstanding for
interest rate risk management purposes on which the Company receives payments
based on fixed interest rates and makes payments based on variable rates (e.g.,
three-month LIBOR). Included in this amount, $11 billion was used to convert
floating-rate loans into fixed-rate assets. The remaining swap contracts used
for interest rate risk management of $13 billion at December 31, 1997 were used
to hedge interest rate risk of various other specific assets and liabilities.
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Options are contracts that grant the purchaser, for a premium payment, the
right, but not the obligation, to either purchase or sell the underlying
financial instrument at a set price during a period or at a specified date in
the future. The writer of the option is obligated to purchase or sell the
underlying financial instrument, if the purchaser chooses to exercise the
option. The writer of the option receives a premium when the option is entered
into and bears the risk of an unfavorable change in the price of the underlying
financial instrument. Of the total options for asset/liability management of $11
billion at December 31, 1997, the Company had $10 billion of options on futures
contracts hedging mortgage servicing rights. The futures exchange assumes the
risk that a counterparty will not pay. Market risks arise from movements in
interest rates and/or security values. The remaining options used for interest
rate risk management of $1 billion at December 31, 1997 were used to hedge
interest rate risk of various other specific assets.
The Company entered into mandatory and standby forward contracts and options on
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 specific future date, at a specified future price or yield. The
primary risk associated with these contracts is the exposure to movements in
interest rates and the ability of the counterparties to meet the terms of the
contract. At December 31, 1997 and 1996, the Company had forward contracts
totaling $28 billion and $20 billion, respectively. The contracts mature within
180 days. The net unrealized gain (loss) on these contracts at December 31, 1997
and 1996 was ($29) million and $20 million, respectively.
22.
FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS 107 requires that the Company disclose estimated fair values for its
financial instruments. Fair value estimates, methods and assumptions set forth
below for the Company's financial instruments are made solely to comply with the
requirements of FAS 107 and should be read in conjunction with the financial
statements and notes in this Supplemental Annual Report. The carrying amounts in
the table are recorded in the Consolidated Balance Sheet under the indicated
captions, except for the derivative financial instruments, which are recorded in
the specific asset or liability balance being hedged or in other assets if the
derivative financial instrument is a customer accommodation.
Fair values are based on estimates or calculations at the transaction level
using present value techniques in instances where quoted market prices are not
available. Because broadly traded markets do not exist for most of the Company's
financial instruments, the fair value calculations attempt to incorporate the
effect of current market conditions at a specific time. Fair valuations are
management's estimates of the values, and they are often calculated based on
current pricing policy, the economic and competitive environment, the
characteristics of the financial instruments and other such factors. These
calculations are subjective in nature, involve uncertainties and matters of
significant judgment and do not include tax ramifications; therefore, the
results cannot
93
<PAGE>
be determined with precision, substantiated by comparison to independent markets
and may not be realized in an actual sale or immediate settlement of the
instruments. There may be inherent weaknesses in any calculation technique, and
changes in the underlying assumptions used, including discount rates and
estimates of future cash flows, could significantly affect the results. The
Company has not included certain material items in its disclosure, such as the
value of the long-term relationships with the Company's deposit, credit card and
trust customers, since these intangibles are not financial instruments. For all
of these reasons, the aggregation of the fair value calculations presented
herein do not represent, and should not be construed to represent, the
underlying value of the Company.
94
<PAGE>
The following table presents a summary of the Company's financial instruments,
as defined by FAS 107:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
December 31,
---------------------------------------------------
1997 1996
---------------------- -------------------------
CARRYING ESTIMATED Carrying Estimated
(in millions) AMOUNT FAIR VALUE amount fair value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Mortgages held for sale $ 9,706 $ 9,821 $ 6,529 $ 6,529
Loans, net (1) 103,039 105,110 102,485 104,019
Nonmarketable equity investments 1,860 2,101 1,797 2,106
FINANCIAL LIABILITIES
Deposits $127,656 $127,695 $131,951 $132,016
Long-term debt (2) 17,260 17,293 18,059 17,929
Guaranteed preferred beneficial interests in Company's
subordinated debentures 1,299 1,339 1,150 1,151
DERIVATIVE FINANCIAL INSTRUMENTS (3)
Interest rate contracts:
Floors and caps purchased $ 240 $ 372 $ 242 $ 257
Floors and caps written (24) (24) (16) (16)
Options purchased 34 64 33 14
Options written (23) (23) (13) (13)
Swaps 1 367 1 164
Forwards (29) (27) 20 20
Foreign exchange contracts 5 (1) 1 1
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loans are net of deferred fees on loan commitments and standby letters of
credit of $210 million and $216 million at December 31, 1997 and 1996,
respectively.
(2) The carrying amount and fair value exclude obligations under capital leases
of $75 million and $83 million at December 31, 1997 and 1996, respectively.
(3) The carrying amounts include unamortized fees paid or received, deferred
gains or losses and gains or losses on derivative financial instruments
receiving mark-to-market treatment.
95
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FINANCIAL ASSETS
SHORT-TERM FINANCIAL ASSETS
This category includes cash and due from banks, federal funds sold and
securities purchased under resale agreements and due from customers on
acceptances. The carrying amount is a reasonable estimate of fair value because
of the relatively short period of time between the origination of the instrument
and its expected realization.
SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1997 and 1996 are set forth in
Note 4.
LOANS
The fair valuation calculation process differentiates loans based on their
financial characteristics, such as product classification, loan category,
pricing features and remaining maturity. Prepayment estimates are evaluated by
product and loan rate. Discount rates presented in the paragraphs below have a
wide range due to the Company's mix of fixed- and variable-rate products. The
Company used variable discount rates which incorporate relative credit quality
to reflect the credit risk, where appropriate, on the fair value calculation.
The fair value of commercial loans, other real estate mortgage loans and real
estate construction loans is calculated by discounting contractual cash flows
using discount rates that reflect the Company's current pricing for loans with
similar characteristics and remaining maturity. Most of the discount rates for
commercial loans, other real estate mortgage loans and real estate construction
loans are between 7.75% and 10.0%, 7.75% and 11.25%, and 7.25% and 9.75%,
respectively, at December 31, 1997. Most of the discount rates for the same
portfolios in 1996 were between 7.75% and 9.5%, 7.75% and 12.25%, and 7.75% and
11.0%, respectively.
For real estate 1-4 family first and junior lien mortgages, fair value is
calculated by discounting contractual cash flows, adjusted for prepayment
estimates, using discount rates based on current industry pricing for loans of
similar size, type, remaining maturity and repricing characteristics. Most of
the discount rates applied to this portfolio are between 5.5% and 7.75% at
December 31, 1997 and 5.5% and 8.5% at December 31, 1996.
For credit card loans, the portfolio's yield is equal to the Company's current
pricing and, therefore, the fair value is equal to book value.
For other consumer loans, the fair value is calculated by discounting the
contractual cash flows, adjusted for prepayment estimates, based on the current
rates offered by the Company for loans with similar characteristics. Most of the
discount rates applied to this portfolio are between 7.75% and 10.0% at December
31, 1997 and 8.0% and 10.5% at December 31, 1996.
96
<PAGE>
For auto lease financing, the fair value is calculated by discounting the
contractual cash flows at the Company's current pricing for items of similar
remaining term, without including any tax benefits. The discount rate applied to
this portfolio was 8.45% at December 31, 1997 and 8.22% at December 31, 1996.
Commitments, standby letters of credit and commercial and similar letters of
credit not included in the previous table have contractual values of $71,074
million, $3,716 million and $751 million, respectively, at December 31, 1997,
and $65,428 million, $4,098 million and $690 million, respectively, at December
31, 1996. These instruments generate ongoing fees at the Company's current
pricing levels. Of the commitments at December 31, 1997, 49% mature within one
year.
NONMARKETABLE EQUITY INVESTMENTS
There are restrictions on the sale and/or liquidation of the Company's
nonmarketable equity investments, which is generally in the form of limited
partnerships; and the Company has no direct control over the investment
decisions of the limited partnerships. To estimate fair value, a significant
portion of the underlying limited partnerships' investments are valued based
on market quotes.
FINANCIAL LIABILITIES
DEPOSIT LIABILITIES
FAS 107 states that the fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, interest-bearing checking and market rate
and other savings, is equal to the amount payable on demand at the measurement
date. Although the FASB's requirement for these categories is not consistent
with the market practice of using prevailing interest rates to value these
amounts, the amount included for these deposits in the previous table is their
carrying value at December 31, 1997 and 1996. The fair value of other time
deposits is calculated based on the discounted value of contractual cash flows.
The discount rate is estimated using the rates currently offered for like
deposits with similar remaining maturities.
SHORT-TERM FINANCIAL LIABILITIES
This category includes federal funds purchased and securities sold under
repurchase agreements, commercial paper and other short-term borrowings. The
carrying amount is a reasonable estimate of fair value because of the relatively
short period of time between the origination of the instrument and its expected
realization.
97
<PAGE>
LONG-TERM DEBT
The fair value of the Company's underwritten long-term debt is estimated based
on the quoted market prices of the instruments. The fair value of the
medium-term note programs, which are part of long-term debt, is calculated based
on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for new notes with similar remaining
maturities.
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
SUBORDINATED DEBENTURES
The fair value of the Company's trust preferred securities is estimated based on
the quoted market prices of the instruments.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of derivative financial instruments is based on the estimated
amounts that the Company would receive or pay to terminate the contracts at the
reporting date (i.e., mark-to-market value). Dealer quotes are available for
substantially all of the Company's derivative financial instruments.
LIMITATIONS
These fair value disclosures are made solely to comply with the requirements of
FAS 107. The calculations represent management's best estimates; however, due to
the lack of broad markets and the significant items excluded from this
disclosure, the calculations do not represent the underlying value of the
Company. The information presented is based on fair value calculations and
market quotes as of December 31, 1997 and 1996. These amounts have not been
updated since year end; therefore, the valuations may have changed significantly
since that point in time.
As discussed above, certain of the Company's asset and liability financial
instruments are short-term, and therefore, the carrying amounts in the
consolidated balance sheets approximate fair value. 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 taxes and other liabilities.
98
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Wells Fargo & Company:
We have audited the accompanying supplemental consolidated balance sheet of
Wells Fargo & Company and Subsidiaries as of December 31, 1997 and 1996, and
the related supplemental consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These supplemental consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of the former Wells Fargo & Company and Norwest Corporation on
November 2, 1998, which has been accounted for as a pooling-of-interests as
described in Note 1 to the supplemental consolidated financial statements.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation.
However, they will become the historical consolidated financial statements of
Wells Fargo & Company and Subsidiaries after financial statements covering the
date of consummation of the business combination are issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Wells
Fargo & Company and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
KPMG LLP
Certified Public Accountants
San Francisco, California
January 19, 1999
99
<PAGE>
QUARTERLY FINANCIAL DATA
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME--QUARTERLY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
QUARTER ENDED Quarter ended
---------------------------------------- -----------------------------------------
(in millions) DEC. 31 SEPT. 30 JUNE 30 MAR. 31 Dec. 31 Sept. 30 June 30 Mar. 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 3,445 $ 3,400 $ 3,377 $ 3,380 $ 3,420 $ 3,458 $ 3,433 $ 2,530
INTEREST EXPENSE 1,263 1,251 1,230 1,210 1,224 1,215 1,216 963
------- ------- ------- ------- ------- ------- ------- -------
NET INTEREST INCOME 2,182 2,149 2,147 2,170 2,196 2,243 2,217 1,567
Provision for loan losses 343 320 263 214 183 141 88 88
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 1,839 1,829 1,884 1,956 2,013 2,102 2,129 1,479
------- ------- ------- ------- ------- ------- ------- -------
NONINTEREST INCOME
Service charges on deposit accounts 315 311 308 310 324 339 338 197
Trust and investment fees and commissions 244 247 235 228 216 204 207 148
Credit card fee revenue 126 119 107 96 91 92 93 74
Other fees and commissions 213 214 206 193 196 186 187 120
Mortgage banking 258 254 188 226 234 206 227 176
Insurance 72 74 100 90 69 68 73 70
Net venture capital gains 26 53 93 19 88 36 66 66
Net gains (losses) on securities
available for sale 50 22 22 5 22 9 (31) 12
Other 156 122 162 134 46 119 116 39
------- ------- ------- ------- ------- ------- ------- -------
Total noninterest income 1,460 1,416 1,421 1,301 1,286 1,259 1,276 902
------- ------- ------- ------- ------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and benefits 979 958 933 940 1,013 966 962 682
Net occupancy 181 179 176 183 194 183 186 125
Equipment 195 181 187 176 223 183 192 126
Goodwill 112 103 113 105 103 102 101 33
Core deposit intangible 67 68 71 67 79 83 87 15
Operating losses 72 62 190 50 91 45 34 19
Other 633 634 686 612 868 760 720 503
------- ------- ------- ------- ------- ------- ------- -------
Total noninterest expense 2,239 2,185 2,356 2,133 2,571 2,322 2,282 1,503
------- ------- ------- ------- ------- ------- ------- -------
INCOME BEFORE INCOME TAX
EXPENSE 1,060 1,060 949 1,124 728 1,039 1,123 878
Income tax expense 410 430 392 462 297 428 473 342
------- ------- ------- ------- ------- ------- ------- -------
NET INCOME $ 650 $ 630 $ 557 $ 662 $ 431 $ 611 $ 650 $ 536
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
NET INCOME APPLICABLE TO
COMMON STOCK $ 640 $ 619 $ 546 $ 650 $ 407 $ 589 $ 626 $ 522
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
EARNINGS PER COMMON SHARE $ .40 $ .38 $ .33 $ .39 $ .24 $ .35 $ .37 $ .44
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
DILUTED EARNINGS
PER COMMON SHARE $ .39 $ .38 $ .33 $ .39 $ .24 $ .35 $ .37 $ .44
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
DIVIDENDS DECLARED PER
COMMON SHARE $ .165 $ .150 $ .150 $ .150 $ .135 $ .135 $ .135 $ .120
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Average common shares outstanding 1,621.1 1,623.6 1,639.1 1,654.8 1,660.8 1,678.6 1,689.0 1184.8
------- ------- ------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------- ------- ------
Diluted average common
shares outstanding 1,641.9 1,646.4 1,663.1 1,679.7 1,680.3 1,696.0 1,702.2 1198.4
------- ------- ------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------- ------- ------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
100
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) --
QUARTERLY (1)(2)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
QUARTER ENDED Quarter ended
DECEMBER 31, 1997 December 31, 1996
-------------------------- --------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
(in millions) BALANCE RATES EXPENSE balance rates expense
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold and securities purchased
under resale agreements $ 909 5.42% $ 12 $ 2,945 5.50% $ 41
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 3,906 6.13 60 3,954 6.05 60
Securities of U.S. states and political subdivisions 1,513 8.38 31 973 8.80 21
Mortgage-backed securities
Federal agencies 18,874 7.15 331 20,409 7.09 360
Private collateralized mortgage obligations 2,706 6.82 46 3,259 6.81 55
-------- ------ -------- ------
Total mortgage-backed securities 21,580 7.11 377 23,668 7.05 415
Other securities 1,331 4.80 17 1,644 5.01 20
-------- ------ -------- ------
Total securities available for sale 28,330 6.92 485 30,239 6.87 516
Loans held for sale (3) 4,078 8.08 82 3,435 8.26 71
Mortgages held for sale (3) 8,281 7.21 149 5,829 7.36 107
Loans:
Commercial 30,640 9.14 705 30,060 9.10 687
Real estate 1-4 family first mortgage 15,102 8.86 340 16,841 8.61 361
Other real estate mortgage 16,204 9.36 382 16,585 9.45 394
Real estate construction 3,366 9.64 82 3,228 10.30 84
Consumer:
Real estate 1-4 family junior lien mortgage 9,990 9.56 227 9,777 9.45 227
Credit card 6,542 14.66 240 6,882 14.84 256
Other revolving credit and monthly payment 17,414 12.76 557 17,627 12.12 534
-------- ------ -------- ------
Total consumer 33,946 12.54 1,024 34,286 12.18 1,107
Lease financing 4,782 8.43 101 3,719 8.14 76
Foreign 1,015 20.94 53 1,013 20.07 51
-------- ------ -------- ------
Total loans (4) 105,055 10.19 2,687 105,732 10.07 2,670
Other 2,666 6.18 41 1,943 5.62 27
-------- ------ -------- ------
Total earning assets $149,319 9.25 3,456 $150,123 9.13 3,432
======== ------ ======== ------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 2,172 2.02 11 $ 4,766 1.52 18
Market rate and other savings 50,991 2.61 336 51,168 2.68 344
Savings certificates 28,351 5.34 381 28,598 5.23 376
Other time deposits 3,955 5.66 56 3,552 5.77 52
Deposits in foreign offices 866 4.50 10 544 3.78 5
-------- ------ -------- ------
Total interest-bearing deposits 86,335 3.65 794 88,628 3.57 795
Short-term borrowings 11,757 5.47 162 10,046 5.25 133
Long-term debt 17,465 6.41 280 18,479 6.26 290
Guaranteed preferred beneficial interests in Company's
subordinated debentures 1,298 7.81 25 326 7.82 6
-------- ------ -------- ------
Total interest-bearing liabilities 116,855 4.29 1,261 117,479 4.15 1,224
Portion of noninterest-bearing funding sources 32,464 -- -- 32,644 -- --
-------- ------ -------- ------
Total funding sources $149,319 3.37 1,261 $150,123 3.25 1,224
======== ========
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (5) 5.88% $2,195 5.88% $2,208
===== ====== ===== ======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 10,852 $ 14,037
Goodwill 8,123 8,248
Other 12,949 14,006
-------- --------
Total noninterest-earning assets $ 31,924 $ 36,291
======== ========
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 38,127 $ 41,222
Other liabilities 6,440 7,077
Preferred stockholders' equity 463 1,122
Common stockholders' equity 19,358 19,516
Noninterest-bearing funding sources used to
fund earning assets (32,464) (32,644)
-------- --------
Net noninterest-bearing funding sources $ 31,924 $ 36,293
======== ========
TOTAL ASSETS $181,243 $186,414
======== ========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 8.50% and 8.25% for the quarters
ended December 31, 1997 and 1996, respectively. The average three-month
London Interbank Offered Rate (LIBOR) was 5.84% and 5.53% for the same
quarters, respectively.
(2) Interest rates and amounts include the effects of hedge risk management
associated with respective asset and liability categories.
(3) Yields are based on amortized cost balances.
(4) Nonaccrual loans and related income are included in their respective loan
categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on
certain loans and securities that is exempt from federal and applicable
state income taxes. The federal statutory tax rate was 35% for both
quarters presented.
101
<PAGE>
Exhibit 99(b)
SUPPLEMENTAL QUARTERLY REPORT
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statement of Income................................................................. 2
Consolidated Balance Sheet....................................................................... 3
Consolidated Statement of Changes in Stockholders' Equity........................................ 4
Consolidated Statement of Cash Flows............................................................. 5
Note to Financial Statements..................................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Summary Financial Data........................................................................... 7
Earnings Performance............................................................................. 8
Net Interest Income........................................................................... 8
Noninterest Income............................................................................ 10
Noninterest Expense........................................................................... 11
Balance Sheet Analysis........................................................................... 12
Investment Securities......................................................................... 12
Loan Portfolio................................................................................ 13
Nonaccrual and Restructured Loans and Other Assets............................................ 13
Loans 90 days past due and still accruing.................................................. 14
Allowance for Loan Losses..................................................................... 15
Other Assets.................................................................................. 16
Deposits...................................................................................... 16
Derivative Financial Instruments.............................................................. 17
Liquidity Management.......................................................................... 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 18
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
This Supplemental Quarterly Report includes forward-looking statements about
the Company's financial condition, results of operations, plans, objectives
and future performance and business. These statements generally include the
words "believe," "expect," "anticipate," "estimate," "may," "will" or similar
expressions that suggest the statements are forward looking in nature.
These forward-looking statements involve inherent risks and uncertainties.
The Company cautions readers that a number of factors--many of which are
beyond the control of the Company--could cause actual results to differ
materially from those in the forward-looking statements. Among these factors
are changes in political and economic conditions, interest rate fluctuations,
technological changes (including the "Year 2000" data systems compliance
issue), customer disintermediation, competitive product and pricing pressures
in the Company's geographic and product markets, equity and fixed income
market fluctuations, personal and commercial customers' bankruptcies,
inflation, changes in law, changes in fiscal, monetary, regulatory and tax
policies, monetary fluctuations, credit quality and credit risk management,
mergers and acquisitions, the integration of merged and acquired companies,
and success in gaining regulatory approvals when required. The interim
financial information should be read in conjunction with the Company's 1997
Supplemental Annual Report on this Form 8-K.
1
<PAGE>
PART I - FINANCIAL INFORMATION
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Nine months
ended September 30,
------------------
(in millions) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Securities available for sale $ 1,330 $ 1,590
Mortgages held for sale 609 341
Loans held for sale 274 229
Loans 8,046 7,857
Other 199 142
------- -------
Total interest income 10,458 10,159
------- -------
INTEREST EXPENSE
Deposits 2,340 2,355
Short-term borrowings 558 448
Long-term debt 804 813
Guaranteed preferred beneficial interests in Company's
subordinated debentures 67 75
------- -------
Total interest expense 3,769 3,691
------- -------
NET INTEREST INCOME 6,689 6,468
Provision for loan losses 921 799
------- -------
Net interest income after provision for loan losses 5,768 5,669
------- -------
NONINTEREST INCOME
Service charges on deposit accounts 993 930
Trust and investment services income 794 709
Credit card fee revenue 384 322
Other fees and commissions 701 622
Mortgage banking 854 668
Insurance 278 264
Net venture capital gains 116 165
Net gains on securities available for sale 161 49
Other 534 409
------- -------
Total noninterest income 4,815 4,138
------- -------
NONINTEREST EXPENSE
Salaries and benefits 3,126 3,012
Net occupancy 564 538
Equipment 572 544
Goodwill 317 322
Core deposit intangible 183 206
Operating losses 106 302
Other 2,174 1,751
------- -------
Total noninterest expense 7,042 6,675
------- -------
INCOME BEFORE INCOME TAX EXPENSE 3,541 3,132
Income tax expense 1,397 1,283
------- -------
NET INCOME $ 2,144 $ 1,849
------- -------
------- -------
NET INCOME APPLICABLE TO COMMON STOCK $ 2,118 $ 1,826
------- -------
------- -------
EARNINGS PER COMMON SHARE 1.31 1.11
------- -------
------- -------
DILUTED EARNINGS PER COMMON SHARE $ 1.29 $ 1.09
------- -------
------- -------
DIVIDENDS DECLARED PER COMMON SHARE $ .515 $ .450
------- -------
------- -------
Average common shares outstanding 1,614.4 1,639.1
------- -------
------- -------
Diluted average common shares outstanding 1,637.3 1,663.1
------- -------
------- -------
- ------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
(in millions) 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,985 $ 13,081
Federal funds sold and securities purchased
under resale agreements 1,950 1,049
Securities available for sale 32,210 27,872
Mortgages held for sale 15,469 9,706
Loans held for sale 5,058 4,494
Loans 107,692 106,311
Allowance for loan losses 3,170 3,062
-------- --------
Net loans 104,522 103,249
-------- --------
Mortgage servicing rights 2,725 3,048
Premises and equipment, net 3,279 3,311
Core deposit intangible 1,555 1,737
Goodwill 7,758 8,062
Interest receivable and other assets 10,352 10,076
-------- --------
Total assets $195,863 $185,685
-------- --------
-------- --------
LIABILITIES
Noninterest-bearing deposits $ 40,951 $ 40,206
Interest-bearing deposits 89,000 87,450
-------- --------
Total deposits 129,951 127,656
Short-term borrowings 17,570 13,381
Accrued expenses and other liabilities 8,616 6,236
Long-term debt 18,486 17,335
Guaranteed preferred beneficial interests in Company's
subordinated debentures 682 1,299
STOCKHOLDERS' EQUITY
Preferred stock 552 543
Unearned ESOP shares (90) (80)
-------- --------
Total preferred stock 462 463
Common stock - $1 2/3 par value, authorized
4,000,000,000 shares; issued
1,635,821,810 shares and 1,630,640,939 shares 2,726 2,718
Additional paid-in capital 7,921 8,126
Retained earnings 9,552 8,292
Cumulative other comprehensive income 462 464
Notes receivable from ESOP (4) (10)
Treasury stock - 15,309,106 shares and 10,493,685 shares (561) (275)
-------- --------
Total stockholders' equity 20,558 19,778
-------- --------
Total liabilities and stockholders' equity $195,863 $185,685
-------- --------
-------- --------
- --------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
-------------------------------------------------
1998 1997
------------------- ----------------------
Stock- Compre- Stock- Compre-
holders' hensive holders' hensive
(in millions) equity income equity income
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of period $ 543 $ 850
Conversion of preferred shares to common stock (26) (28)
Issuance of preferred shares to ESOP 35 52
Preferred stock redeemed -- (325)
------- -------
Balance, end of period 552 549
------- -------
UNEARNED ESOP SHARES
Balance, beginning of period (80) (61)
Issuance of preferred shares to ESOP (37) (54)
Release of preferred shares to ESOP 27 29
------- -------
Balance, end of period (90) (86)
------- -------
COMMON STOCK
Balance, beginning of period 2,718 2,149
Common stock issued 7 10
Common stock issued for acquisitions 25 9
Stock split -- 635
Common stock repurchased (24) (87)
------- -------
Balance, end of period 2,726 2,716
------- -------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 8,126 10,170
Stock split -- (635)
Conversion of preferred shares to common stock 2 4
Cash payments received on notes receivable from ESOP 2 --
Issuance of preferred shares to ESOP 3 2
Release of preferred shares to ESOP (1) (1)
Common stock issued 142 119
Common stock issued for acquisitions 53 (2)
Common stock repurchased (406) (1,365)
------- -------
Balance, end of period 7,921 8,292
------- -------
RETAINED EARNINGS
Balance, beginning of period 8,292 6,871
Net income 2,144 2,144 1,849 1,849
Common stock issued (145) (125)
Common stock issued for acquisitions 12 44
Preferred stock dividends (26) (34)
Common stock dividends (725) (687)
------- -------
Balance, end of period 9,552 7,918
------- -------
CUMULATIVE OTHER COMPREHENSIVE INCOME
Balance, beginning of period 464 317
Unrealized gains on investment securities arising during the period 162 162 292 292
Reclassification adjustment for investment securities gains included
in net income (162) (162) (124) (124)
Foreign currency translation adjustments (3) (3) 3 3
Common stock issued for acquisitions 1 1 1 1
------- ----- ------- -----
Balance, end of period 462 489
------- -------
NOTES RECEIVABLE FROM ESOP
Balance, beginning of period (10) (11)
Cash payments received on notes receivable from ESOP 6 1
------- -------
Balance, end of period (4) (10)
------- -------
TREASURY STOCK
Balance, beginning of period (275) (233)
Conversion of preferred shares to common stock 23 24
Common stock issued 59 85
Common stock issued for acquisitions 210 226
Repurchase of common shares (514) (352)
Reclassification of common shares held in rabbi trusts (64) --
------- -------
Balance, end of period (561) (250)
------- -------
COMPREHENSIVE INCOME $2,141 $2,021
------ ------
------ ------
Total stockholders' equity $20,558 $19,618
------- -------
------- -------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
----------------------------------------
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,144 $ 1,849
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 921 799
Depreciation and amortization 1,646 1,271
Securities available for sale gains (161) (49)
(Gains) on sales of loans (48) (19)
(Gains) losses from dispositions of operations (89) (7)
Release of preferred shares to ESOP 26 28
Net (increase) decrease in trading assets 59 (340)
Net (increase) decrease in accrued interest receivable (86) 64
Net increase in accrued interest payable 97 98
Originations of mortgages held for sale (75,374) (40,141)
Proceeds from sales of mortgages held for sale 69,674 39,016
Net decrease (increase) in loans held for sale (564) (374)
Other, net 838 1,835
--------- ---------
Net cash (used) provided by operating activities (917) 4,030
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 8,105 8,097
Proceeds from prepayments and maturities 7,266 5,198
Purchases (18,286) (12,094)
Net cash acquired from (paid for) acquisitions 36 (230)
Net (increase) decrease in banking subsidiaries' loans resulting from originations
and collections (874) 1,471
Proceeds from sales (including participations) of banking subsidiaries' loans 1,237 158
Purchases (including participations) of banking subsidiaries' loans (97) (210)
Principal collected on nonbank subsidiaries' loans 5,592 7,091
Nonbank subsidiaries' loans originated (6,441) (7,219)
Proceeds from dispositions of operations 473 8
Proceeds from sales of other real estate (ORE) 246 164
Net (increase) decrease in federal funds sold and securities purchased
under resale agreements (901) 857
Other, net (633) (176)
--------- ---------
Net cash (used) provided by investing activities (4,277) 3,115
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 35 (10,323)
Net increase in short-term borrowings 3,911 3,650
Proceeds from issuance of long-term debt 3,688 3,174
Repayment of long-term debt (2,638) (4,388)
Proceeds from issuance of guaranteed preferred beneficial interests
in Company's subordinated debentures -- 149
Repayment of guaranteed preferred beneficial interests in
Company's subordinated debentures (617) --
Proceeds from issuance of common stock 187 178
Redemption of preferred stock -- (325)
Repurchase of common stock (944) (1,804)
Net decrease in notes receivable from ESOP 8 1
Payment of cash dividends on preferred and common stock (751) (721)
Other, net 219 (1,160)
--------- ---------
Net cash provided (used) by financing activities 3,098 (11,569)
--------- ---------
NET CHANGE IN CASH AND DUE FROM BANKS (2,096) (4,424)
Cash and due from banks at beginning of period 13,081 16,593
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 10,985 $ 12,169
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,672 $ 3,593
Income taxes $ 946 $ 859
Noncash investing and financing activities:
Transfers from loans to ORE $ 178 $ 112
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
NOTE TO FINANCIAL STATEMENTS
BUSINESS COMBINATIONS
The Company regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of the Company does
not make a public announcement about an acquisition opportunity until a
definitive agreement has been signed. At September 30, 1998, the Company had
five pending transactions with total assets of approximately $93 billion and
anticipated that approximately 879 million common shares would be issued upon
consummation of these transactions.
The transactions pending at September 30, 1998 included the combination of the
former Norwest and the former Wells Fargo, which was completed November 2, 1998.
Other pending acquisitions, subject to approval by regulatory agencies, are
expected to be completed by the first quarter of 1999.
Transactions completed in the nine months ended September 30, 1998 include:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Common
Cash Shares Method of
(in millions, except share amounts) Date Assets Paid Issued Accounting
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Finvercon S.A. Compania, Financiera, Argentina January 8 $ 57 $ 20 - Purchase
Fidelity Bancshares, Inc., Fort Worth, Texas January 13 111 16 - Purchase
Heritage Trust Company, Grand Junction, Colorado February 20 2 - 136,950 Purchase
Founders Trust Company, Dallas, Texas March 2 2 7 - Purchase
The T. Eaton Acceptance Company Limited and National
Retail Credit Services Limited, Don Mills, Ontario, Canada April 21 370 248 - Purchase
WMC Mortgage Corporation, Woodland Hills, California April 30 4 22 - Purchase
First Bank, Katy, Texas May 22 310 - 1,999,980 Pooling of Interests*
First Bank of Grants, Grants, New Mexico May 28 45 - 212,487 Purchase
Spring Mountain Escrow Corporation, Irvine, California May 29 1 1 - Purchase
Emjay Corporation, Milwaukee, Wisconsin June 15 6 - 297,979 Purchase
Six affiliated bank holding companies and related entities,
located in Minnesota, Wisconsin, New Mexico,
Arizona and Colorado, including MidAmerica July 2,23 1,317 - 8,060,664 Pooling of Interests*
First Bancshares of Valley City, Inc., Valley City, North Dakota July 31 96 - 451,943 Purchase
Peoples Insurance Agency, Inc., Valley City, North Dakota July 31 -- - 6,804 Purchase
Star Bancshares, Inc., Austin, Texas August 31 582 - 4,275,077 Pooling of Interests*
Freedom Trailer Leasing, Inc., Chesterfield, Missouri August 31 5 4 - Purchase
Little Mountain Bancshares, Inc., Monticello, Minnesota September 8 82 - 561,016 Purchase
------ ---- ----------
$2,990 $318 16,002,900
------ ---- ----------
------ ---- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Pooling of interests transaction was not material to the Company's
consolidated financial statements; accordingly, previously reported results
have not been restated.
6
<PAGE>
FINANCIAL REVIEW
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine months ended
---------------------
SEPT. 30, Sept. 30, %
(in millions) 1998 1997 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE PERIOD
Net income $2,144 $1,849 16%
Net income applicable to common stock 2,118 1,826 16
Earnings per common share $1.31 $1.11 18
Diluted earnings per common share 1.29 1.09 18
Dividends declared per common share .515 .450 14
Average common shares outstanding 1,614.4 1,639.1 (2)
Diluted average common shares outstanding 1,637.3 1,663.1 (2)
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.58% 1.35% 15
Net income applicable to common stock to
average common stockholders' equity (ROE) 14.59 12.76 14
Efficiency ratio (1) 61.2% 62.9% (3)
COMMON STOCK PRICE
High $43.88 $32.16 36
Low 27.50 21.63 27
Period end 36.00 30.63 18
</TABLE>
- --------------------------------------------------------------------------------
(1) The efficiency ratio is defined as noninterest expense divided by the
total of net interest income and noninterest income.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SEPT. 30, Dec. 31, %
(in millions) 1998 1997 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AT PERIOD END
Tier 1 capital $12,437 $11,511 8
Total capital (Tiers 1 and 2) 16,800 15,801 6
Capital ratios
Common stockholders' equity to assets 10.26% 10.40% (1)
Stockholders' equity to assets 10.50 10.65 (1)
Risk-based capital
Tier 1 capital 8.20 8.16 1
Total capital 11.07 11.20 (1)
Leverage 7.00 6.72 4
Book value per common share $12.40 $11.92 4
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
EARNINGS PERFORMANCE
NET INTEREST INCOME
Individual components of net interest income and the net interest margin are
presented in the rate/yield table on page 9.
Interest income included hedging income of $25.6 million in the nine months
ended September 30, 1998, compared with $14.9 million in the nine months ended
September 30, 1997. Interest expense included hedging expense of $70.8 million
in the nine months ended September 30, 1998, compared with $65.4 million in the
same period of 1997.
8
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
---------------------------------------------------------------------
1998 1997
----------------------------------- -------------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
(in millions) BALANCE RATES EXPENSE balance rates expense
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold and securities purchased
under resale agreements $ 1,531 5.73% $ 66 $1,206 5.38% $ 49
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 5,254 5.97 233 5,473 6.17 253
Securities of U.S. states and political subdivisions 1,524 8.53 93 1,298 8.54 82
Mortgage-backed securities:
Federal agencies 16,153 7.14 846 20,171 7.12 1,072
Private collateralized mortgage obligations 2,641 6.78 134 3,131 6.80 160
------- ------- ------- ------
Total mortgage-backed securities 18,794 7.09 980 23,302 7.08 1,232
Other securities 1,460 4.55 60 1,385 4.70 50
------- ------- ------- ------
Total securities available for sale 27,032 6.84 1,366 31,458 6.87 1,617
Loans held for sale (3) 4,705 7.75 273 3,772 8.12 230
Mortgages held for sale (3) 11,624 6.98 609 6,222 7.30 341
Loans:
Commercial 32,813 9.04 2,219 29,718 9.18 2,041
Real estate 1-4 family first mortgage 13,892 8.89 889 16,120 8.71 1,355
Other real estate mortgage 16,241 9.53 1,158 16,205 9.65 1,170
Real estate construction 3,542 9.48 251 3,275 10.01 245
Consumer:
Real estate 1-4 family junior lien mortgage 9,935 9.32 716 9,846 9.34 368
Credit card 6,136 15.05 693 6,704 14.48 728
Other revolving credit and monthly payment 16,569 12.81 1,591 16,790 12.31 1,549
------- ------- ------- ------
Total consumer 32,640 12.62 3,000 33,340 12.19 2,645
Lease financing 5,417 8.30 337 4,118 8.36 258
Foreign 1,285 20.88 201 1,052 20.10 158
------- ------- ------- ------
Total loans (4) 105,830 10.16 8,055 103,828 10.12 7,872
Other 3,021 5.97 134 2,141 5.88 94
------- ------- ------- ------
Total earning assets $153,743 9.14 10,503 $148,627 9.17 10,203
------- ------- ------- ------
------- -------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 2,234 1.33 22 $ 3,300 1.58 39
Market rate and other savings 52,321 2.64 1,032 51,246 2.57 986
Savings certificates 27,774 5.25 1,091 28,658 5.25 1,125
Other time deposits 4,085 5.52 170 3,625 5.64 153
Deposits in foreign offices 690 4.89 25 1,429 4.92 53
------- ------- ------- ------
Total interest-bearing deposits 87,104 3.59 2,340 88,258 3.57 2,356
Short-term borrowings 13,570 5.49 557 11,229 5.33 448
Long-term debt 16,828 6.38 805 17,043 6.36 813
Guaranteed preferred beneficial interests in Company's
subordinated debentures 1,089 8.15 67 1,283 7.82 75
------ ------- ------- ------
Total interest-bearing liabilities 118,591 4.25 3,769 117,813 4.19 3,692
Portion of noninterest-bearing funding sources 35,152 -- -- 30,814 -- --
------- ------- ------- ------
Total funding sources $153,743 3.28 3,769 $148,627 3.32 3,692
------- ------- ------- ------
------- -------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (5) 5.86% $ 6,734 5.85% $ 6,511
------ ------ ----- ------
------ ------ ----- ------
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 10,529 $ 11,864
Goodwill 7,918 8,207
Other 12,997 13,890
------- -------
Total noninterest-earning assets $ 31,444 $ 33,961
------- -------
------- -------
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 40,120 $ 37,569
Other liabilities 6,605 7,514
Preferred stockholders' equity 461 584
Common stockholders' equity 19,410 19,108
Noninterest-bearing funding sources used to
fund earning assets (35,152) (30,814)
------- -------
Net noninterest-bearing funding sources $ 31,444 $ 33,961
------- -------
------- -------
TOTAL ASSETS $185,187 $182,588
------- -------
------- -------
</TABLE>
(1) The average prime rate of Wells Fargo Bank was 8.50% and 8.42% for the nine
months ended September 30, 1998 and 1997, respectively. The average
three-month London Interbank Offered Rate (LIBOR) was 5.65% and 5.71% for
the nine months ended September 30, 1998 and 1997, respectively.
(2) Interest rates and amounts include the effects of hedge and risk management
activities associated with the respective asset and liability categories.
(3) Yields are based on amortized cost balances.
(4) Nonaccrual loans and related income are included in their respective loan
categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on
certain loans and securities that is exempt from federal and applicable
state income taxes. The federal statutory tax rate was 35% for all periods
presented.
9
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Nine months
ended September 30,
--------------------- %
(in millions) 1998 1997 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges on deposit accounts $ 993 $ 930 7%
Trust and investment fees and commissions:
Asset management and custody fees 495 448 10
Mutual fund and annuity sales fees 227 203 12
All other 72 58 24
------ ------
Total trust and investment fees 794 709 12
and commissions
Credit card fee revenue 384 322 19
Other fees and commissions:
ATM network fees 155 131 18
Charges and fees on loans 215 186 16
All other 331 305 9
------ ------
Total other fees and commissions 701 622 13
Mortgage banking:
Origination and other closing fees 366 223 64
Servicing fees, net of amortization (6) 242 --
Net gains (losses) on sales of mortgage
servicing rights 16 (5) --
Net gains on sales of mortgages 306 84 264
Other 172 124 39
------ ------
Total mortgage banking 854 668 28
Insurance 278 264 5
Net venture capital gains 116 165 (30)
Net gains on securities available for sale 161 49 229
Income from equity investments accounted
for by the:
Cost method 116 109 6
Equity method 43 42 2
Net gains on sales of loans 48 19 153
Net gains from dispositions of operations 89 7 1,171
Net losses on dispositions of premises
and equipment (55) (56) (2)
All other 293 288 2
------ ------
Total $4,815 $4,138 16%
------ ------ -----
------ ------ -----
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in mortgage banking revenue is attributed to increases in
origination and other closing fees and gains on sales of mortgages and
servicing rights, partially offset by increased amortization of capitalized
mortgage servicing rights related to the low mortgage interest rate
environment.
10
<PAGE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Nine months
ended September 30,
--------------------
(in millions) 1998 1997 % Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and benefits $3,126 $3,012 4%
Net occupancy 564 538 5
Equipment 572 544 5
Goodwill 317 322 (2)
Core deposit intangible:
Nonqualifying (1) 162 182 (11)
Qualifying 21 24 (13)
Operating losses 106 302 (65)
Contract services 243 195 25
Telecommunications 187 181 3
Security 63 66 (5)
Postage 168 160 5
Outside professional services 213 171 25
Insurance 111 100 11
Outside data processing 174 164 6
Advertising and promotion 181 146 24
Stationery and supplies 123 135 (9)
Travel and entertainment 153 136 13
All other 558 297 88
------ ------ ----
Total $7,042 $6,675 5%
------ ------ ----
------ ------ ----
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amortization of core deposit intangible acquired after February 1992 that
is subtracted from stockholders' equity in computing regulatory capital
for bank holding companies.
11
<PAGE>
BALANCE SHEET ANALYSIS
INVESTMENT SECURITIES
The following table provides the cost and fair value for the major components of
securities available for sale (there were no securities held to maturity at the
end of the periods presented):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1998 1997
------------------ ------------------
ESTIMATED Estimated
FAIR fair
(in millions) COST VALUE Cost value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities of U.S. Treasury and
federal agencies $ 3,325 $ 3,385 $ 3,594 $ 3,626
Securities of U.S. states and
political subdivisions 1,689 1,797 1,652 1,726
Mortgage-backed securities:
Federal agencies 21,404 21,813 18,203 18,552
Private collateralized mortgage obligations (1) 3,355 3,394 2,646 2,654
------- ------- ------- -------
Total mortgage-backed securities 24,759 25,207 20,849 21,206
Other 1,280 1,297 729 744
------- ------- ------- -------
Total debt securities 31,053 31,686 26,824 27,302
Marketable equity securities 390 524 308 570
------- ------- ------- -------
Total $31,443 $32,210 $27,132 $27,872
------- ------- ------- -------
------- ------- ------- -------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Substantially all private collateralized mortgage obligations are AAA rated
bonds collateralized by 1-4 family residential first mortgages.
The securities available for sale portfolio includes both debt and marketable
equity securities. At September 30, 1998, the securities available for sale
portfolio had an unrealized net gain of $767 million, or less than 3% of the
cost of the portfolio, comprised of unrealized gross gains of $815 million
and unrealized gross losses of $48 million. At December 31, 1997, the
securities available for sale portfolio had an unrealized net gain of $740
million, comprised of unrealized gross gains of $787 million and unrealized
gross losses of $47 million. The unrealized net gain or loss on securities
available for sale is included on an after-tax basis as a separate component
of cumulative other comprehensive income in stockholders' equity.
12
<PAGE>
LOAN PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
% Change
Sept. 30, 1998 from
-------------------
SEPT. 30, Dec. 31, Dec. 31,
(in millions) 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 35,013 $ 32,061 9%
Real estate 1-4 family first mortgage 12,450 14,165 (12)
Other real estate mortgage 16,240 16,326 (1)
Real estate construction 3,747 3,326 13
Consumer:
Real estate 1-4 family junior lien mortgage 10,941 10,618 3
Credit card 5,686 6,671 (15)
Other revolving credit and monthly payment 16,085 17,021 (6)
-------- -------- ---
Total consumer 32,712 34,310 (5)
Lease financing 5,994 4,968 21
Foreign 1,536 1,155 33
-------- -------- ---
Total loans (net of unearned income) $107,692 $106,311 1%
-------- -------- ---
-------- -------- ---
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans (2) 721 706
Restructured loans (3) 1 9
---- ----
Nonaccrual and restructured loans 722 715
As a percentage of total loans .7% .7%
Other real estate (ORE) 215 264
Real estate investments (4) 3 4
---- ----
Total nonaccrual and restructured loans
and other assets $940 $983
---- ----
---- ----
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes loans that are contractually past due 90 days or more as to
interest or principal, but are both well-secured and in the process of
collection or are real estate 1-4 family first mortgage loans or consumer
loans that are exempt under regulatory rules from being classified as
nonaccrual.
(2) Of the total nonaccrual loans, $447 million and $411 million at September
30, 1998 and December 31, 1997, respectively, were considered impaired
under FAS 114 (Accounting by Creditors for Impairment of a Loan).
(3) In addition to originated loans that were subsequently restructured, there
were loans of $23 million for the periods presented that were purchased at
a steep discount whose contractual terms were modified after acquisition.
The modified terms did not affect the book balance nor the yields expected
at the date of purchase. Of the total restructured loans and loans
purchased at a steep discount, $23 million were considered impaired under
FAS 114 for the periods presented.
(4) Represents the amount of real estate investments (contingent interest loans
accounted for as investments) that would be classified as nonaccrual if
such assets were loans. Real estate investments totaled $134 million and
$172 million at September 30, 1998 and December 31, 1997, respectively.
13
<PAGE>
In accordance with FAS 114, the table below shows the recorded investment in
impaired loans and the related methodology used to measure impairment for the
periods presented:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Impairment measurement based on:
Collateral value method $356 $346
Discounted cash flow method 97 61
Historical loss factors 18 27
---- ----
Total (1)(2) $471 $434
---- ----
---- ----
- --------------------------------------------------------------------
</TABLE>
(1) Includes accruing loans of $23 million purchased at a steep discount for
the periods presented whose contractual terms were modified after
acquisition. The modified terms did not affect the book balance nor the
yields expected at the date of purchase.
(2) Includes $126 million and $115 million of impaired loans with a related
FAS 114 allowance of $35 million and $36 million at September 30, 1998
and December 31, 1997, respectively.
The average recorded investment in impaired loans was $469 million and $542
million during the first nine months of 1998 and 1997, respectively. Total
interest income recognized on impaired loans was $11 million and $14 million
during the first nine months of 1998 and 1997, respectively, most of which
was recorded using the cash method.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Loans contractually past due 90 days or more as to interest or principal, but
not included in the nonaccrual or restructured categories totaled $379 million
and $397 million at September 30, 1998 and December 31, 1997, respectively. All
loans in this category are both well-secured and in the process of collection or
are real estate 1-4 family first mortgage loans or consumer loans that are
exempt under regulatory rules from being classified as nonaccrual because they
are automatically charged off after being past due for a prescribed period
(generally, 180 days). Notwithstanding, real estate 1-4 family loans (first
liens and junior liens) are placed on nonaccrual within 150 days of becoming
past due (with the exception that junior liens of the former Norwest were on
nonaccrual at the time of transfer to ORE).
14
<PAGE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Nine months ended September 30,
------------------------------
(in millions) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF PERIOD $ 3,062 $ 3,059
Allowances related to assets acquired, net 118 129
Provision for loan losses 921 799
Loan charge-offs:
Commercial (189) (262)
Real estate 1-4 family first mortgage (18) (21)
Other real estate mortgage (42) (22)
Real estate construction (2) (4)
Consumer:
Real estate 1-4 family junior lien mortgage (18) (26)
Credit card (409) (441)
Other revolving credit and monthly payment (493) (443)
------- -------
Total consumer (920) (910)
Lease financing (35) (33)
Foreign (47) (27)
------- -------
Total loan charge-offs (1,253) (1,279)
------- -------
Loan recoveries:
Commercial 60 77
Real estate 1-4 family first mortgage 9 6
Other real estate mortgage 68 52
Real estate construction 3 4
Consumer:
Real estate 1-4 family junior lien mortgage 5 7
Credit card 44 44
Other revolving credit and monthly payment 112 104
------- -------
Total consumer 161 155
Lease financing 10 10
Foreign 11 7
------- -------
Total loan recoveries 322 311
------- -------
Total net loan charge-offs (931) (968)
------- -------
BALANCE, END OF PERIOD $ 3,170 $ 3,019
------- -------
------- -------
Total net loan charge-offs as a percentage
of average loans (annualized) 1.18% 1.25%
------- -------
------- -------
Allowance as a percentage of total loans 2.94% 2.86%
------- -------
------- -------
- -------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
INTEREST RECEIVABLE AND OTHER ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonmarketable equity investments $ 2,083 $ 1,860
Trading assets 1,243 1,302
Interest receivable 1,140 1,057
Other real estate (ORE) 215 264
Certain identifiable intangible assets 160 206
Due from customers on acceptances 163 129
Interest earning deposits 88 68
Other 5,260 5,190
------- -------
Total interest receivable and other assets $10,352 $10,076
------- -------
------- -------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing $ 40,951 $ 40,206
Interest-bearing checking 2,447 2,759
Market rate and other savings 52,514 51,038
Savings certificates 27,880 28,324
-------- --------
Core deposits 123,792 122,327
Other time deposits 3,880 3,927
Deposits in foreign offices 2,279 1,402
-------- --------
Total deposits $129,951 $127,656
-------- --------
-------- --------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the aggregate notional or contractual amounts,
credit risk amount and net fair value of the Company's derivative financial
instruments at September 30, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 December 31, 1997
--------------------------------------- ---------------------------------------
NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated
CONTRACTUAL RISK FAIR contractual risk fair
(in millions) AMOUNT AMOUNT(2) VALUE amount amount(2) value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT HEDGES
Interest rate contracts:
Swaps (1) $27,918 $945 $928 $24,052 $424 $364
Futures 21,863 -- 32 10,949 -- 10
Floors and caps (1) 31,757 570 570 35,344 356 350
Options (3) 23,271 364 292 11,168 12 41
Forwards 31,235 47 (420) 27,507 6 (29)
Foreign exchange contracts:
Forward contracts (1) 227 2 1 548 1 (5)
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Swaps (1) 7,523 115 28 4,297 17 3
Futures 6,747 -- -- 2,404 -- --
Floors and caps purchased (1) 4,674 40 40 4,448 22 22
Floors and caps written 4,769 -- (40) 4,567 -- (24)
Options purchased (1) -- -- -- 77 -- --
Options written (1) -- -- -- 27 -- --
Forwards (1) 1,072 44 7 59 2 2
Commodity contracts:
Swaps 22 -- -- 10 1 --
Floors and caps purchased (1) 12 1 1 7 -- --
Floors and caps written 11 -- (1) 10 -- --
Foreign exchange contracts:
Forwards and spots (1) 3,656 52 4 2,966 50 4
Options purchased (1) 137 2 2 116 -- --
Options written 125 -- (2) 114 -- --
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company anticipates performance by substantially all of the
counterparties for these or the underlying financial instruments.
(2) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.
(3) As of December 31, 1997 the option contracts were substantially options on
futures contracts which are exchange traded for which the exchange assumes
the counterparty credit risk.
LIQUIDITY MANAGEMENT
Liquidity for Wells Fargo & Company (the Parent Company) is provided by
dividend and interest income from its subsidiaries, lines of credit, and
through its ability to raise funds in a variety of domestic and international
money and capital markets. In 1996, the Company filed two shelf registration
statements with the Securities and Exchange Commission (SEC) that allows for
the issuance of $5 billion and $2 billion of debt securities, respectively,
in domestic and international money and capital markets. The proceeds from
the sale of any securities are expected to be used for general corporate
purposes. As of September 30, 1998, the Company had issued $1.2 billion of
securities under such shelf registrations.
17
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that affect the
quantitative or qualitative disclosures presented in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
18
<PAGE>
Wells Fargo & Company's financial results for the quarter ended
December 31, 1998
Wells Fargo & Co. reported net income (loss) of ($194) million for the
fourth quarter of 1998, compared with $650 million for the fourth quarter of
1997. Diluted earnings (loss) per common share for the quarter were ($.12),
compared with $.39 in the fourth quarter of 1997. Earnings for the full year
of 1998 were $1,950 million, or $1.17 per share, compared with $2,499
million, or $1.48 per share, for the full year 1997. Earnings for the quarter
were affected by merger-related and other charges of approximately $1.2
billion (equivalent to ($.45) per share) and a provision for loan losses
approximately $320 million (equivalent to ($.13) per share) above the level
of prior quarters primarily due to loan losses in Island Finance.
On November 2, 1998, Wells Fargo & Company (the former Wells Fargo) merged
with WFC Holdings Corporation (WFC Holdings), a wholly-owned subsidiary of
Norwest Corporation. In connection with the merger, Norwest Corporation changed
its name to "Wells Fargo & Company." The merger was accounted for as a pooling
of interests and, accordingly, the information included in this release presents
the combined results of Wells Fargo & Company and its subsidiaries (the Company)
as if the merger had been in effect for all periods presented.
"We are pleased with the progress so far in combining Wells Fargo and
Norwest," said Richard M. Kovacevich, Wells Fargo's President and Chief
Executive Officer. "We have created a company with products, technology and
markets that will provide outstanding opportunities for customers, team members
and stockholders. Based on progress to date, and assuming the economy
continues to stay healthy, we remain optimistic that we will meet our
earnings outlook for the future."
-1-
<PAGE>
The merger-related charges consist of about $375 million for
personnel-related expenses including severance, contractual commitments to
certain team members, outplacement services and team member relocation,
$250 million of property-related charges for the closing of stores, operational
and administrative facilities, and other charges, the largest of which was about
$210 million to satisfy the Company's commitment to various community programs.
Diluted cash earnings (loss) for the fourth quarter of 1998 were ($.04) per
share, compared with $.48 for the fourth quarter of 1997. Diluted cash earnings
for the full year of 1998 were $1.50, compared with $1.83 for the full year of
1997. Cash earnings are earnings before the amortization of goodwill and
nonqualifying core deposit intangible.
Net interest income on a taxable-equivalent basis was $2,315 million in
the fourth quarter of 1998, up from $2,195 million a year ago. The increase
was primarily due to an increase in earning assets. For the full year 1998,
net interest income on a taxable-equivalent basis was $9,049 million,
compared with $8,705 million for the full year 1997. The Company's net
interest margin for the fourth quarter of 1998 was 5.60 percent, compared
with 5.88 percent in the same quarter of 1997. The net interest margin for
the full year of 1998 was 5.79 percent, compared with 5.86 percent for 1997.
Noninterest income (NII) in the fourth quarter of 1998 was $1,557 million,
compared with $1,479 million in the same quarter of 1997. For the full year
1998, NII was $6,427 million, compared with $5,675 million in 1997, an increase
of 13 percent. The increase was primarily due to higher fees and commissions,
service charges on deposit accounts and increased mortgage banking revenues.
-2-
<PAGE>
Noninterest expense (NIE) in the fourth quarter of 1998 was $3,482 million,
an increase of 54 percent from $2,258 million in the fourth quarter of 1997.
The increase was primarily due to the merger-related charges mentioned
previously. NIE totaled $10,579 million in 1998, compared with $8,990 million in
1997.
The loan loss provision was $624 million for the fourth quarter of 1998 and
$1,545 million for the year, compared with $343 million and $1,140 million,
respectively, for the same periods in 1997. Net charge-offs totaled
$686 million, or 2.56 percent of average loans (annualized), in the fourth
quarter of 1998, and $1,617 million, or 1.52 percent of average loans, for the
full year. Net charge-offs totaled $339 million, or 1.29 percent of average
loans (annualized), for the fourth quarter of 1997, and $1,305 million, or 1.25
percent of average loans, for the full year. Losses for the quarter included
approximately $300 million of losses in Island Finance reflecting a fourth
quarter review of the loan portfolio. Results of the portfolio review reflected
the recent deterioration of economic conditions in Puerto Rico. These
problems have been compounded by recent hurricane damage in 1998.
At December 31, 1998, the allowance for loan losses of $3,134 million
equaled 2.90 percent of total loans, compared with 2.94 percent at September 30,
1998 and 2.88 percent at December 31, 1997. Total nonaccrual and restructured
loans were $710 million at December 31, 1998, compared with $722 million at
September 30, 1998 and $715 million at December 31, 1997. Other real estate was
$173 million at December 31, 1998, compared with $215 million at September 30,
1998 and $264 million at December 31, 1997.
At December 31, 1998, the Company's preliminary risk-based capital ratios
were 10.90 percent for total risk-based capital and 8.10 percent for Tier 1
risk-based capital, exceeding the minimum regulatory guidelines of 8 percent and
4 percent, respectively. At September 30, 1998, these risk-based capital ratios
were 11.07 percent and 8.20 percent, respectively. At December 31, 1997, the
Company's total risk-based capital ratio was 11.20 percent and the Tier 1
risk-based capital ratio was 8.16 percent. The preliminary leverage ratio at
December 31, 1998 was 6.60 percent, compared with 7.00 percent at September 30,
1998 and 6.72 percent at December 31, 1997. The ratio of common equity
to total assets at December 31, 1998 was 10.02 percent, compared with 10.26
percent at September 30, 1998 and 10.40 percent at December 31, 1997.
-3-
<PAGE>
Wells Fargo & Company is a $202 billion diversified financial services
company providing banking, insurance, investments, mortgage and consumer finance
through 5,895 stores and other distribution channels across North America.
- ----------------
The following appears in accordance with the Securities Litigation Reform Act:
This discussion of financial results (including information incorporated by
reference in this discussion) includes forward-looking statements about the
Company's financial condition, results of operations, plans, objectives and
future performance and business. These statements generally include the
words "believe," "expect," "anticipate," "estimate," "may," "will" or similar
expressions that suggest the statements are forward looking in nature.
These forward-looking statements involve inherent risks and uncertainties. The
Company cautions readers that a number of factors--many of which are beyond the
control of the Company--could cause actual results to differ materially from
those in the forward-looking statements. Among these factors are changes in
political and economic conditions, interest rate fluctuations, technological
changes (including the "Year 2000" data systems compliance issue), customer
disintermediation, competitive product and pricing pressures in the Company's
geographic and product markets, equity and fixed income market fluctuations,
personal and commercial customers' bankruptcies, inflation, changes in law,
changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations,
credit quality and credit risk management, mergers and acquisitions, the
integration of merged and acquired companies, and success in gaining regulatory
approvals when required.
Also, actual results may differ materially from those in the forward-looking
statements because of factors relating to the combination of former Wells Fargo
and Norwest Corporation, including the following: expected cost savings from
the merger are not fully realized within the expected time frame or additional
or unexpected costs are incurred; and costs or difficulties related to the
integration of former Wells Fargo and Norwest Corporation are greater than
expected.
-4-
<PAGE>
-5-
Wells Earnings
Wells Fargo & Company and Subsidiaries
SUMMARY FINANCIAL DATA--NEWS RELEASE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
% Change
Quarter ended Dec. 31, from Year ended
------------------------------- ------------------ --------------------
DEC. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31, DEC. 31, Dec. 31, %
(in millions) 1998 1998 1997 1998 1997 1998 1997 Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Net income (loss) $ (194) $ 742 $ 650 --% --% $ 1,950 $ 2,499 (22)
Net income (loss) applicable to common
stock (203) 733 640 -- -- 1,915 2,456 (22)
Earnings (loss) per common share $ (.12) $ .45 $ .40 -- -- $ 1.18 $ 1.50 (21)
Diluted earnings (loss) per common share (.12) .45 .39 -- -- 1.17 1.48 (21)
Dividends declared per common share .185 .185 .165 -- 12 .700 .615 14
Average common shares outstanding 1,642.4 1,617.3 1,621.1 2 1 1,621.5 1,634.6 (1)
Diluted average common shares outstanding 1,642.4 1,640.7 1,641.9 -- -- 1,641.8 1,657.8 (1)
Profitability ratios (annualized)
Net income to average total assets
(ROA) --% 1.58% 1.42% -- -- 1.04% 1.37% (24)
Net income applicable to common stock
to average common stockholders'
equity (ROE) -- 14.99 13.12 -- -- 9.86 12.81 (23)
Efficiency ratio (1) 90.2% 60.4% 61.7% 49 46 68.5% 62.8% 9
Average loans $107,324 $106,553 $105,055 1 2 $106,205 $104,137 2
Average assets 197,772 186,634 181,243 6 9 188,355 182,250 3
Average core deposits 127,810 123,720 119,641 3 7 123,801 120,489 3
Net interest margin 5.60% 5.85% 5.88% (4) (5) 5.79% 5.86% (1)
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE
DEPOSIT INTANGIBLE AMORTIZATION AND
BALANCES ("CASH" OR "TANGIBLE") (2)
Net income (loss) applicable to common
stock $ (66) $ 873 $ 786 -- -- $ 2,465 $ 3,031 (19)
Earnings (loss) per common share (.04) .54 .48 -- -- 1.52 1.85 (18)
Diluted earnings (loss) per common share (.04) .53 .48 -- -- 1.50 1.83 (18)
ROA --% 1.97% 1.83% -- -- 1.39% 1.78% (22)
ROE -- 32.38 30.41 -- -- 23.15 30.49 (24)
Efficiency ratio 86.1 56.3 57.1 53 51 64.31 57.84 11
AT PERIOD END
Securities available for sale $ 31,997 $ 32,210 $ 27,872 (1) 15 $ 31,997 $ 27,872 15
Loans 107,994 107,692 106,311 -- 2 107,994 106,311 2
Allowance for loan losses 3,134 3,170 3,062 (1) 2 3,134 3,062 2
Goodwill 7,664 7,758 8,062 (1) (5) 7,664 8,062 (5)
Assets 202,475 195,863 185,685 3 9 202,475 185,685 9
Core deposits 132,289 123,792 122,327 7 8 132,289 122,327 8
Common stockholders' equity 20,296 20,096 19,315 1 5 20,296 19,315 5
Stockholders' equity 20,759 20,558 19,778 1 5 20,759 19,778 5
Capital ratios
Common stockholders' equity to assets 10.02% 10.26% 10.40% (2) (4) 10.02% 10.40% (4)
Stockholders' equity to assets 10.25 10.50 10.65 (2) (4) 10.25 10.65 (4)
Risk-based capital (3)
Tier 1 capital 8.10 8.20 8.16 (1) (1) 8.10 8.16 (1)
Total capital 10.90 11.07 11.20 (2) (3) 10.90 11.20 (3)
Leverage (3) 6.60 7.00 6.72 (6) (2) 6.60 6.72 (2)
Book value per common share $ 12.35 $ 12.40 $ 11.92 -- 4 $ 12.35 $ 11.92 4
Staff (active, full-time equivalent) 92,178 90,356 88,671 2 4 92,178 88,671 4
COMMON STOCK PRICE
High $ 40.88 $ 39.75 $ 39.50 3 3 $ 43.88 $ 39.50 11
Low 31.19 27.50 29.75 10 1 27.50 21.38 29
Period end 39.94 36.00 38.75 11 3 39.94 38.75 3
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The efficiency ratio is defined as noninterest expense divided by the
total of net interest income and noninterest income.
(2) Nonqualifying core deposit intangible (CDI) amortization and average
balance excluded from these calculations are, with the exception of the
efficiency ratio, net of applicable taxes. The after-tax amounts for the
amortization and average balance of nonqualifying CDI were $32 million and
$855 million, respectively, for the quarter ended December 31, 1998 and
$129 million and $906 million, respectively, for the year ended December
31, 1998. Goodwill amortization and average balance (which are not tax
effected) were $104 million and $7,709 million, respectively, for the
quarter ended December 31, 1998 and $421 million and $7,865 million,
respectively, for the year ended December 31, 1998.
(3) The December 31, 1998 ratios are preliminary.
<PAGE>
-6-
Wells Fargo & Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Quarter Year
ended December 31, ended December 31,
------------------ % ----------------- %
(in millions) 1998 1997 Change 1998 1997 Change
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
(1) Securities available for sale $ 514 $ 474 8% $ 1,844 $ 2,063 (11)%
(2) Mortgages held for sale 290 149 95 898 490 83
(3) Loans held for sale 97 83 17 371 312 19
(4) Loans 2,639 2,681 (2) 10,685 10,539 1
(5) Other interest income 58 58 -- 257 198 30
------- ------- ------- -------
(6) Total interest income 3,598 3,445 4 14,055 13,602 3
------- ------- ------- -------
INTEREST EXPENSE
(7) Deposits 771 794 (3) 3,111 3,150 (1)
(8) Short-term borrowings 219 162 35 777 610 27
(9) Long-term debt 292 280 4 1,097 1,093 --
Guaranteed preferred beneficial interests in
(10) Company's subordinated debentures 15 27 (44) 80 101 (21)
------- ------- ------- -------
(11) Total interest expense 1,297 1,263 3 5,065 4,954 2
------- ------- ------- -------
(12) NET INTEREST INCOME 2,301 2,182 5 8,990 8,648 4
(13) Provision for loan losses 624 343 82 1,545 1,140 36
------- ------- ------- -------
Net interest income after
(14) provision for loan losses 1,677 1,839 (9) 7,445 7,508 (1)
------- ------- ------- -------
NONINTEREST INCOME
(15) Service charges on deposit accounts 364 315 16 1,357 1,244 9
(16) Trust and investment fees and commissions 274 244 12 1,068 954 12
(17) Credit card fee revenue 136 126 8 520 448 16
(18) Other fees and commissions 252 213 18 946 826 15
(19) Mortgage banking 252 258 (2) 1,106 927 19
(20) Insurance 70 72 (3) 348 336 4
(21) Net venture capital gains (losses) (4) 26 -- 113 191 (41)
(22) Net gains on securities available for sale 8 50 (84) 169 99 71
(23) Other 205 175 17 800 650 23
------- ------- ------- -------
(24) Total noninterest income 1,557 1,479 5 6,427 5,675 13
------- ------- ------- -------
NONINTEREST EXPENSE
(25) Salaries 1,011 740 37 3,345 2,833 18
(26) Incentive compensation 83 70 19 330 279 18
(27) Employee benefits 198 169 17 741 699 6
(28) Equipment 328 195 68 900 739 22
(29) Net occupancy 200 181 10 764 719 6
(30) Goodwill 104 112 (7) 421 433 (3)
(31) Core deposit intangible 60 67 (10) 243 273 (11)
(32) Net losses on dispositions of premises and
equipment 270 19 -- 325 76 328
(33) Operating losses 46 72 (36) 152 374 (59)
(34) Other 1,182 633 87 3,358 2,565 31
------- ------- ------- -------
(35) Total noninterest expense 3,482 2,258 54 10,579 8,990 18
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAX
(36) EXPENSE (BENEFIT) (248) 1,060 -- 3,293 4,193 (21)
(37) Income tax expense (benefit) (54) 410 -- 1,343 1,694 (21)
------- ------- ------- -------
(38) NET INCOME (LOSS) $ (194) $ 650 --% $ 1,950 $ 2,499 (22)%
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
NET INCOME (LOSS) APPLICABLE TO
(39) COMMON STOCK $ (203) $ 640 --% $ 1,915 $ 2,456 (22)%
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
(40) EARNINGS (LOSS) PER COMMON SHARE $ (.12) $ .40 --% $1.18 $ 1.50 (21)%
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
DILUTED EARNINGS (LOSS) PER
(41) COMMON SHARE $ (.12) $ .39 --% $ 1.17 $ 1.48 (21)%
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
DIVIDENDS DECLARED
(42) PER COMMON SHARE $ .185 $ .165 12% $ .700 $ .615 14%
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
(43) Average common shares outstanding 1,642.4 1,621.1 1% 1,621.5 1,634.6 (1)%
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
(44) Diluted average common shares outstanding 1,642.4 1,641.9 --% 1,641.8 1,657.8 (1)%
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-7-
Wells Fargo & Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31,
--------------------- %
(in millions) 1998 1997 Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
(1) Cash and due from banks $ 12,731 $ 13,081 (3)%
Federal funds sold and securities
(2) purchased under resale agreements 1,517 1,049 45
(3) Securities available for sale 31,997 27,872 15
(4) Mortgages held for sale 19,770 9,706 104
(5) Loans held for sale 5,322 4,494 18
(6) Loans 107,994 106,311 2
(7) Allowance for loan losses 3,134 3,062 2
-------- --------
(8) Net loans 104,860 103,249 2
-------- --------
(9) Mortgage servicing rights 3,080 3,048 1
(10) Premises and equipment, net 3,130 3,311 (5)
(11) Core deposit intangible 1,510 1,737 (13)
(12) Goodwill 7,664 8,062 (5)
(13) Interest receivable and other assets 10,894 10,076 8
-------- --------
(14) Total assets $202,475 $185,685 9%
-------- -------- ----
-------- -------- ----
LIABILITIES
(15) Noninterest-bearing deposits $ 46,732 $ 40,206 16%
(16) Interest-bearing deposits 90,056 87,450 3
-------- --------
(17) Total deposits 136,788 127,656 7
(18) Short-term borrowings 15,897 13,381 19
(19) Accrued expenses and other liabilities 8,537 6,236 37
(20) Long-term debt 19,709 17,335 14
Guaranteed preferred beneficial interests in
(21) Company's subordinated debentures 785 1,299 (40)
STOCKHOLDERS' EQUITY
(22) Preferred stock 547 543 1
(23) Unearned ESOP shares (84) (80) 5
-------- --------
(24) Total preferred stock 463 463 --
Common stock - $1 2/3 par value,
authorized 4,000,000,000 shares;
(25) issued 1,661,392,590 shares and 1,630,640,939 shares 2,769 2,718 2
(26) Additional paid-in capital 8,673 8,126 7
(27) Retained earnings 9,045 8,292 9
(28) Cumulative other comprehensive income 463 464 --
(29) Note receivable from ESOP (3) (10) (70)
(30) Treasury stock - 17,334,787 shares and 10,493,685 shares (651) (275) 137
-------- --------
(31) Total stockholders' equity 20,759 19,778 5
-------- --------
(32) Total liabilities and stockholders' equity $202,475 $185,685 9%
-------- -------- ----
-------- -------- ----
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-8-
Wells Fargo & Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Year ended December 31,
----------------------
(in millions) 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF PERIOD $ 19,778 $ 20,051
Net income 1,950 2,499
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments (5) 1
Change in investment securities valuation allowance 1 146
Common stock issued 1,089 296
Common stock issued for acquisitions 159 214
Preferred stock redeemed -- (325)
Common stock repurchased (1,169) (2,171)
Preferred stock released to ESOP 31 34
Preferred stock dividends (36) (43)
Common stock dividends (982) (925)
Cash payments received on notes receivable from ESOP 9 1
Reclassification of common shares held in rabbi trusts (66) --
-------- --------
BALANCE, END OF PERIOD $ 20,759 $ 19,778
-------- --------
-------- --------
- ------------------------------------------------------------------------------------------
</TABLE>
LOANS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
December 31,
---------------------
(in millions) 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 35,450 $ 32,061
Real estate 1-4 family first mortgage 11,629 14,165
Other real estate mortgage 16,668 16,326
Real estate construction 3,790 3,326
Consumer:
Real estate 1-4 family junior lien mortgage 10,996 10,618
Credit card 5,795 6,671
Other revolving credit and monthly payment 15,677 17,021
-------- --------
Total consumer 32,468 34,310
Lease financing 6,380 4,968
Foreign 1,609 1,155
-------- --------
Total loans (net of unearned discount) $107,994 $106,311
-------- --------
-------- --------
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-9-
Wells Fargo & Company and Subsidiaries
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Quarter ended Year ended
------------------------------------ -----------------------
DEC. 31, Sept. 30, Dec. 31, DEC. 31, Dec. 31,
(in millions) 1998 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $3,170 $3,097 $3,019 $ 3,062 $ 3,059
Allowance related to assets acquired, net 26 82 39 144 168
Provision for loan losses 624 307 343 1,545 1,140
Loan charge-offs:
Commercial (72) (67) (95) (261) (357)
Real estate 1-4 family first mortgage (8) (5) (5) (26) (26)
Other real estate mortgage (12) (23) (4) (54) (26)
Real estate construction (1) -- (1) (3) (5)
Consumer:
Real estate 1-4 family junior lien mortgage (13) (7) (11) (31) (37)
Credit card (126) (127) (138) (535) (579)
Other revolving credit and monthly payment (509) (157) (175) (1,002) (618)
------- ------- ------- ------- -------
Total consumer (648) (291) (324) (1,568) (1,234)
Lease financing (13) (11) (13) (48) (46)
Foreign (37) (25) (10) (84) (37)
------- ------- ------- ------- -------
Total loan charge-offs (791) (422) (452) (2,044) (1,731)
------- ------- ------- ------- -------
Loan recoveries:
Commercial 22 19 28 82 105
Real estate 1-4 family first mortgage 2 4 3 11 9
Other real estate mortgage 10 28 10 78 62
Real estate construction 1 -- 8 4 12
Consumer:
Real estate 1-4 family junior lien mortgage 2 1 3 7 10
Credit card 12 14 17 56 61
Other revolving credit and monthly payment 51 33 38 163 144
------- ------- ------- ------- -------
Total consumer 65 48 58 226 215
Lease financing 2 3 3 12 13
Foreign 3 4 3 14 10
------- ------- ------- ------- -------
Total loan recoveries 105 106 113 427 426
------- ------- ------- ------- -------
Total net loan charge-offs (686) (316) (339) (1,617) (1,305)
------- ------- ------- ------- -------
BALANCE, END OF PERIOD $3,134 $3,170 $3,062 $ 3,134 $ 3,062
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total net loan charge-offs as a percentage
of average loans (annualized) 2.56% 1.18% 1.29% 1.52% 1.25%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Allowance as a percentage of total loans 2.90% 2.94% 2.88% 2.90% 2.88%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-10-
Wells Fargo & Company and Subsidiaries
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
DEC. 31, Dec. 31,
(in millions) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $709 $706
Restructured loans 1 9
---- ----
Nonaccrual and restructured loans 710 715
As a percentage of total loans .7% .7%
Other real estate 173 264
Real estate investments (1) 1 4
---- ----
Total nonaccrual and restructured loans
and other assets $884 $983
---- ----
---- ----
- -----------------------------------------------------------------------------
</TABLE>
(1) Represents the amount of real estate investments (contingent interest
loans accounted for as investments) that would be classified as nonaccrual
if such assets were loans. Real estate investments totaled $128 million
and $172 million at December 31, 1998 and December 31, 1997, respectively.
<PAGE>
-11-
Wells Fargo & Company and Subsidiaries
NONINTEREST INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended December 31, Year ended December 31,
------------------------- % ---------------------- %
(in millions) 1998 1997 Change 1998 1997 Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 364 $ 315 16% $1,357 $1,244 9%
Trust and investment fees and commissions:
Asset management and custody fees 181 155 17 676 603 12
Mutual fund and annuity sales fees 73 70 4 300 273 10
All other 20 19 5 92 78 18
------ ------ ------ ------
Total trust and investment fees
and commissions 274 244 12 1,068 954 12
Credit card fee revenue 136 126 8 520 448 16
Other fees and commissions:
ATM network fees 62 47 32 229 176 30
Charges and fees on loans 75 68 10 290 254 14
All other 115 98 17 427 396 8
------ ------ ------ ------
Total other fees and commissions 252 213 18 946 826 15
Mortgage banking:
Origination and other closing fees 163 91 79 530 314 69
Servicing fees, net of amortization 25 81 (69) 19 324 (94)
Net gains (losses) on sales of mortgage
servicing rights -- (4) (100) 16 (8) --
Net gains (losses) on sales of mortgages (10) 37 -- 296 120 147
Other 74 53 40 245 177 38
------ ------ ------ ------
Total mortgage banking 252 258 (2) 1,106 927 19
Insurance 70 72 (3) 348 336 4
Net venture capital gains (losses) (4) 26 -- 113 191 (41)
Net gains on securities available for sale 8 50 (84) 169 99 71
Income from equity investments accounted
for by the:
Cost method 35 49 (29) 151 157 (4)
Equity method 4 15 (73) 47 57 (18)
Net gains on sales of loans 13 11 18 61 30 103
Net gains from dispositions of operations 11 8 38 100 15 567
All other 142 92 54 441 391 13
------ ------ ------ ------
Total $1,557 $1,479 5% $6,427 $5,675 13%
------ ------ ---- ------ ------ ----
------ ------ ---- ------ ------ ----
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended December 31, Year ended December 31,
------------------------- % ---------------------- %
(in millions) 1998 1997 Change 1998 1997 Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $1,011 $740 37% $3,345 $2,833 18%
Incentive compensation 83 70 19 330 279 18
Employee benefits 198 169 17 741 699 6
Equipment 328 195 68 900 739 22
Net occupancy 200 181 10 764 719 6
Goodwill 104 112 (7) 421 433 (3)
Core deposit intangible:
Nonqualifying (1) 54 58 (7) 217 240 (10)
Qualifying 6 9 (33) 26 33 (21)
Net losses on dispositions of premises
and equipment 270 19 -- 325 76 328
Operating losses 46 72 (36) 152 374 (59)
Outside professional services 178 91 96 391 262 49
Contract services 98 76 29 342 271 26
Telecommunications 65 60 8 252 241 5
Outside data processing 76 53 43 250 217 15
Advertising and promotion 56 55 2 237 202 17
Postage 61 50 22 228 210 9
Travel and entertainment 59 52 13 212 188 13
Stationery and supplies 55 47 17 178 182 (2)
Insurance 21 22 (5) 132 122 8
Security 21 22 (5) 84 87 (3)
All other 492 105 369 1,052 583 80
------ ------ ------- ------
Total $3,482 $2,258 54% $10,579 $8,990 18%
------ ------ ---- ------- ------ ----
------ ------ ---- ------- ------ ----
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amortization of core deposit intangible acquired after February 1992 that
is subtracted from stockholders' equity in computing regulatory capital for
bank holding companies.
<PAGE>
-12-
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended December 31,
-------------------------------------------------------------------
1998 1997
------------------------------- --------------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
(in millions) BALANCE RATES EXPENSE balance rates expense
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold and securities purchased
(1) under resale agreements $ 2,011 5.25% $ 27 $ 909 5.42% $ 12
Securities available for sale (3):
(2) Securities of U.S. Treasury and federal agencies 3,722 5.82 54 3,906 6.13 60
(3) Securities of U.S. states and political subdivisions 1,539 8.41 31 1,513 8.38 31
Mortgage-backed securities:
(4) Federal agencies 20,283 6.85 341 18,874 7.15 331
(5) Private collateralized mortgage obligations 3,433 6.66 57 2,706 6.82 46
-------- ------ -------- ------
(6) Total mortgage-backed securities 23,716 6.82 398 21,580 7.11 377
(7) Other securities 2,738 5.86 43 1,331 4.80 17
-------- ------ -------- ------
(8) Total securities available for sale 31,715 6.71 526 28,330 6.92 485
(9) Loans held for sale (3) 5,099 7.63 97 4,078 8.08 82
(10) Mortgages held for sale (3) 16,995 6.82 290 8,281 7.21 149
Loans:
(11) Commercial 34,631 8.62 751 30,640 9.14 705
(12) Real estate 1-4 family first mortgage 12,941 8.92 289 15,102 8.86 340
(13) Other real estate mortgage 16,305 8.89 365 16,204 9.36 382
(14) Real estate construction 3,779 9.12 87 3,366 9.64 82
Consumer:
(15) Real estate 1-4 family junior lien mortgage 10,125 8.73 224 9,990 9.56 227
(16) Credit card 5,644 14.67 207 6,542 14.66 240
(17) Other revolving credit and monthly payment 16,284 12.69 518 17,414 12.76 557
-------- ------ -------- ------
(18) Total consumer 32,053 12.33 949 33,946 12.54 1,024
(19) Lease financing 6,177 8.02 124 4,782 8.43 101
(20) Foreign 1,438 21.18 76 1,015 20.94 53
-------- ------ -------- ------
(21) Total loans (4) 107,324 9.80 2,641 105,055 10.19 2,687
(22) Other 2,353 5.27 31 2,666 6.18 41
-------- ------ -------- ------
(23) Total earning assets $165,497 8.72 3,612 $149,319 9.25 3,456
-------- ------ -------- ------
-------- --------
FUNDING SOURCES
Deposits:
(24) Interest-bearing checking $ 2,181 0.94 5 $ 2,172 2.02 11
(25) Market rate and other savings 54,653 2.49 343 50,991 2.61 336
(26) Savings certificates 27,673 5.11 357 28,351 5.34 381
(27) Other time deposits 3,911 5.39 53 3,955 5.66 56
(28) Deposits in foreign offices 1,130 4.69 13 866 4.50 10
-------- ------ -------- ------
Total interest-bearing deposits 89,548 3.42 771 86,335 3.65 794
(29) Short-term borrowings 17,075 5.09 219 11,757 5.47 162
(30) Long-term debt 19,143 6.09 292 17,465 6.41 280
Guaranteed preferred beneficial interests in Company's
(31) subordinated debentures 774 7.65 15 1,298 7.81 25
-------- ------ -------- ------
(32) Total interest-bearing liabilities 126,540 4.07 1,297 116,855 4.29 1,261
(33) Portion of noninterest-bearing funding sources 38,957 -- -- 32,464 -- --
-------- ------ -------- ------
(34) Total funding sources $165,497 3.12 1,297 $149,319 3.37 1,261
-------- ------ -------- ------
-------- --------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
(35) A TAXABLE-EQUIVALENT BASIS (5) 5.60% $2,315 5.88% $2,195
----- ------ ----- ------
----- ------ ----- ------
NONINTEREST-EARNING ASSETS
(36) Cash and due from banks $ 11,086 $ 10,852
(37) Goodwill 7,709 8,123
(38) Other 13,480 12,949
-------- --------
(39) Total noninterest-earning assets $ 32,275 $ 31,924
-------- --------
-------- --------
NONINTEREST-BEARING FUNDING SOURCES
(40) Deposits $43,303 $ 38,127
(41) Other liabilities 7,197 6,440
(42) Preferred stockholders' equity 463 463
(43) Common stockholders' equity 20,269 19,358
Noninterest-bearing funding sources used to
(44) fund earning assets (38,957) (32,464)
-------- --------
(45) Net noninterest-bearing funding sources $ 32,275 $ 31,924
-------- --------
-------- --------
(46) TOTAL ASSETS $197,772 $181,243
-------- --------
-------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 7.92% and 8.50% for the quarters
ended December 31, 1998 and 1997, respectively. The average three-month
London Interbank Offered Rate (LIBOR) was 5.28% and 5.84% for the same
quarters, respectively.
(2) Interest rates and amounts include the effects of hedge and risk management
activities associated with the respective asset and liability categories.
(3) Yields are based on amortized cost balances.
(4) Nonaccrual loans and related income are included in their respective loan
categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on
certain loans and securities that is exempt from federal and applicable
state income taxes. The federal statutory tax rate was 35% for all periods
presented.
<PAGE>
-13-
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------------------------------------
1998 1997
------------------------------- --------------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
(in millions) BALANCE RATES EXPENSE balance rates expense
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold and securities purchased
(1) under resale agreements $ 1,652 5.58% $ 92 $ 1,131 5.39% $ 61
Securities available for sale (3)
(2) Securities of U.S. Treasury and federal agencies 4,868 5.94 287 5,078 6.16 312
(3) Securities of U.S. states and political subdivisions 1,528 8.50 124 1,352 8.49 112
Mortgage-backed securities:
(4) Federal agencies 17,194 7.05 1,187 19,844 7.13 1,403
(5) Private collateralized mortgage obligations 2,841 6.74 190 3,024 6.81 206
-------- ------- -------- -------
(6) Total mortgage-backed securities 20,035 7.01 1,377 22,868 7.09 1,609
(7) Other securities 1,783 5.06 103 1,373 4.72 67
-------- ------- -------- -------
(8) Total securities available for sale 28,214 6.80 1,891 30,671 6.88 2,100
(9) Loans held for sale (3) 4,804 7.71 371 3,849 8.11 312
(10) Mortgages held for sale (3) 12,978 6.92 898 6,741 7.27 490
Loans:
(11) Commercial 33,271 8.93 2,971 29,951 9.18 2,748
(12) Real estate 1-4 family first mortgage 13,652 8.90 1,215 15,866 8.75 1,341
(13) Other real estate mortgage 16,257 9.37 1,523 16,205 9.58 1,552
(14) Real estate construction 3,601 9.39 338 3,298 9.92 327
Consumer:
(15) Real estate 1-4 family junior lien mortgage 9,983 9.17 903 9,880 9.39 949
(16) Credit card 6,012 14.96 900 6,663 14.53 968
(17) Other revolving credit and monthly payment 16,497 12.78 2,109 16,947 12.42 2,105
-------- ------- -------- -------
(18) Total consumer 32,492 12.55 3,912 33,490 12.28 4,022
(19) Lease financing 5,608 8.22 461 4,285 8.38 359
(20) Foreign 1,324 20.96 277 1,042 20.31 212
-------- ------- -------- -------
(21) Total loans (4) 106,205 10.07 10,697 104,137 10.14 10,561
(22) Other 2,853 5.82 166 2,273 5.93 134
-------- ------- -------- -------
(23) Total earning assets $156,706 9.03 14,115 $148,802 9.19 13,658
-------- ------- -------- -------
-------- --------
FUNDING SOURCES
Deposits:
(24) Interest-bearing checking $ 2,221 1.23 27 $ 3,016 1.66 50
(25) Market rate and other savings 52,909 2.60 1,375 51,182 2.58 1,322
(26) Savings certificates 27,749 5.22 1,448 28,581 5.27 1,506
(27) Other time deposits 4,040 5.49 222 3,708 5.64 209
(28) Deposits in foreign offices 801 4.82 39 1,287 4.85 62
-------- ------- -------- -------
Total interest-bearing deposits 87,720 3.55 3,111 87,774 3.59 3,149
(29) Short-term borrowings 14,454 5.37 777 11,362 5.37 610
(30) Long-term debt 17,411 6.30 1,097 17,149 6.38 1,093
Guaranteed preferred beneficial interests in Company's
(31) subordinated debentures 1,010 8.06 81 1,287 7.82 101
-------- ------- -------- -------
(32) Total interest-bearing liabilities 120,595 4.20 5,066 117,572 4.21 4,953
(33) Portion of noninterest-bearing funding sources 36,111 -- -- 31,230 -- --
-------- ------- ------- -------
(34) Total funding sources $156,706 3.24 5,066 $148,802 3.33 4,953
-------- ------- -------- -------
-------- --------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
(35) A TAXABLE-EQUIVALENT BASIS (5) 5.79% $ 9,049 5.86% $ 8,705
----- ------- ----- -------
----- ------- ----- -------
NONINTEREST-EARNING ASSETS
(36) Cash and due from banks $ 10,669 $ 11,609
(37) Goodwill 7,865 8,186
(38) Other 13,115 13,653
-------- --------
(39) Total noninterest-earning assets $ 31,649 $ 33,448
-------- --------
-------- --------
NONINTEREST-BEARING FUNDING SOURCES
(40) Deposits $ 40,922 $37,710
(41) Other liabilities 6,958 7,243
(42) Preferred stockholders' equity 463 554
(43) Common stockholders' equity 19,417 19,171
Noninterest-bearing funding sources used to
(44) fund earning assets (36,111) (31,230)
-------- --------
(45) Net noninterest-bearing funding sources $ 31,649 $ 33,448
-------- --------
-------- --------
(46) TOTAL ASSETS $188,355 $182,250
-------- --------
-------- --------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 8.35% and 8.44% for 1998 and 1997,
respectively. The average three-month London Interbank Offered Rate (LIBOR)
was 5.56% and 5.74% for the same years, respectively.
(2) Interest rates and amounts include the effects of hedge and risk management
activities associated with the respective asset and liability categories.
(3) Yields are based on amortized cost balances.
(4) Nonaccrual loans and related income are included in their respective loan
categories.
(5) Includes taxable-equivalent adjustments that primarily relate to income on
certain loans and securities that is exempt from federal and applicable
state income taxes. The federal statutory tax rate was 35% for all periods
presented.
<PAGE>
-14-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER STATEMENT OF INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions) 4Q98 3Q98 2Q98 1Q98 4Q97
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Securities available for sale $ 514 $ 424 $ 447 $ 459 $ 474
Mortgages held for sale 290 230 208 170 149
Loans held for sale 97 93 89 91 83
Loans 2,639 2,702 2,682 2,661 2,681
Other interest income 58 79 64 58 58
-------- -------- -------- -------- -------
Total interest income 3,598 3,528 3,490 3,439 3,445
-------- -------- -------- -------- -------
INTEREST EXPENSE
Deposits 771 788 775 777 794
Short-term borrowings 219 195 191 171 162
Long-term debt 292 266 267 272 280
Guaranteed preferred beneficial interests
in Company's subordinated debentures 15 16 25 25 27
-------- -------- -------- -------- --------
Total interest expense 1,297 1,265 1,258 1,245 1,263
-------- -------- -------- -------- --------
NET INTEREST INCOME 2,301 2,263 2,232 2,194 2,182
Provision for loan losses 624 307 309 305 343
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 1,677 1,956 1,923 1,889 1,839
-------- -------- -------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts 364 356 332 305 315
Trust and investment fees and commissions 274 267 269 259 244
Credit card fee revenue 136 136 128 121 126
Other fees and commissions 252 241 232 221 213
Mortgage banking 252 275 303 276 258
Insurance 70 73 111 95 72
Net venture capital gains (losses) (4) 4 53 59 26
Net gains on securities available for sale 8 76 66 19 50
Other 205 193 221 178 175
-------- -------- -------- -------- --------
Total noninterest income 1,557 1,621 1,715 1,533 1,479
-------- -------- -------- -------- --------
NONINTEREST EXPENSE
Salaries 1,011 812 789 733 740
Incentive compensation 83 82 79 86 70
Employee benefits 198 167 187 188 169
Net occupancy 200 188 187 189 181
Equipment 328 192 196 184 195
Goodwill 104 108 104 104 112
Core deposit intangible 60 58 61 63 67
Net losses on disposition of premises and equipment 270 7 41 7 19
Operating losses 46 35 33 39 72
Other 1,182 698 775 703 633
-------- -------- -------- -------- --------
Total noninterest expense 3,482 2,347 2,452 2,296 2,258
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) (248) 1,230 1,186 1,126 1,060
Income tax expense (benefit) (54) 488 467 442 410
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (194) $ 742 $ 719 $ 684 $ 650
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (203) $ 733 $ 705 $ 676 $ 640
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EARNINGS (LOSS) PER COMMON SHARE $ (.12) $ .45 $ .44 $ .42 $ .40
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (.12) $ .45 $ .43 $ .41 $ .39
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
DIVIDENDS DECLARED PER COMMON SHARE $ .185 $ .185 $ .165 $ .165 $ .165
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average common shares outstanding 1,642.4 1,617.3 1,610.3 1,615.7 1,621.1
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Diluted average common shares outstanding 1,642.4 1,640.7 1,632.2 1,639.1 1,641.9
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-15-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER BALANCE SHEET (QUARTER ENDED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(in millions) 4Q98 3Q98 2Q98 1Q98 4Q97
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 12,731 $ 10,985 $ 12,083 $ 12,977 $ 13,081
Federal funds sold and securities purchased
under resale agreements 1,517 1,950 1,456 483 1,049
Securities available for sale 31,997 32,210 26,676 31,148 27,872
Mortgages held for sale 19,770 15,469 12,510 12,408 9,706
Loans held for sale 5,322 5,058 4,561 4,585 4,494
Loans 107,994 107,692 106,301 105,141 106,311
Allowance for loan losses 3,134 3,170 3,098 3,066 3,062
-------- -------- -------- -------- --------
Net loans 104,860 104,522 103,203 102,075 103,249
-------- -------- -------- -------- --------
Mortgage servicing rights 3,080 2,725 2,904 3,094 3,048
Premises and equipment, net 3,130 3,279 3,290 3,320 3,311
Core deposit intangible 1,510 1,555 1,609 1,670 1,737
Goodwill 7,664 7,758 7,856 7,970 8,062
Interest receivable and other assets 10,894 10,352 9,936 11,123 10,076
-------- -------- -------- -------- --------
Total assets $202,475 $195,863 $186,084 $190,853 $185,685
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
LIABILITIES
Noninterest-bearing deposits $ 46,732 $ 40,951 $ 41,207 $ 43,027 $ 40,206
Interest-bearing deposits 90,056 89,000 86,038 87,121 87,450
-------- -------- -------- -------- --------
Total deposits 136,788 129,951 127,245 130,148 127,656
Short-term borrowings 15,897 17,570 13,738 15,626 13,381
Accrued expenses and other liabilities 8,537 8,616 7,119 7,261 6,236
Long-term debt 19,709 18,486 16,730 16,747 17,335
Guaranteed preferred beneficial interests
in Company's subordinated debentures 785 682 1,094 1,299 1,299
STOCKHOLDERS' EQUITY
Preferred stock 547 552 560 569 543
Unearned ESOP shares (84) (90) (98) (108) (80)
-------- -------- -------- -------- --------
Total preferred stock 463 462 462 461 463
Common stock 2,769 2,726 2,703 2,703 2,718
Additional paid-in capital 8,673 7,921 7,837 7,893 8,126
Retained earnings 9,045 9,552 9,064 8,668 8,292
Cumulative other
comprehensive income 463 462 440 404 464
Notes receivable from ESOP (3) (4) (5) (8) (10)
Treasury stock (651) (561) (343) (349) (275)
-------- -------- -------- -------- --------
Total stockholders' equity 20,759 20,558 20,158 19,772 19,778
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity $202,475 $195,863 $186,084 $190,853 $185,685
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