<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-2979
--------------
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
Delaware 41-0449260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 1-800-411-4932
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
July 30, 1999
------------------
Common stock, $1-2/3 par value 1,649,243,710
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
<S> <C> <C>
Consolidated Statement of Income................................... 2
Consolidated Balance Sheet......................................... 3
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Income.......................................... 4
Consolidated Statement of Cash Flows............................... 5
Notes to Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A)
Summary Financial Data............................................. 15
Overview........................................................... 16
Operating Segment Results.......................................... 21
Earnings Performance............................................... 23
Net Interest Income............................................... 23
Noninterest Income................................................ 26
Noninterest Expense............................................... 27
Income Taxes...................................................... 30
Earnings/Ratios Excluding Goodwill and Nonqualifying CDI.......... 31
Balance Sheet Analysis............................................. 32
Securities Available for Sale..................................... 32
Loan Portfolio.................................................... 34
Nonaccrual and Restructured Loans and Other Assets................ 34
Loans 90 Days Past Due and Still Accruing...................... 37
Allowance for Loan Losses......................................... 38
Interest Receivable and Other Assets.............................. 39
Deposits.......................................................... 40
Capital Adequacy/Ratios........................................... 41
Derivative Financial Instruments.................................. 42
Liquidity and Capital Management.................................. 43
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 44
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................ 46
Item 6. Exhibits and Reports on Form 8-K................................... 47
SIGNATURE.................................................................. 50
</TABLE>
1
<PAGE>
PART I--FINANCIAL INFORMATION
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
------------------ ------------------
(in millions, except per share amounts) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Securities available for sale $ 517 $ 447 $ 1,027 $ 906
Mortgages held for sale 215 208 473 378
Loans held for sale 101 89 200 180
Loans 2,609 2,682 5,188 5,343
Other interest income 54 64 96 122
-------- -------- -------- --------
Total interest income 3,496 3,490 6,984 6,929
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 679 775 1,396 1,551
Short-term borrowings 201 191 408 363
Long-term debt 290 267 573 539
Guaranteed preferred beneficial interests in Company's
subordinated debentures 15 25 30 50
-------- -------- -------- --------
Total interest expense 1,185 1,258 2,407 2,503
-------- -------- -------- --------
NET INTEREST INCOME 2,311 2,232 4,577 4,426
Provision for loan losses 260 309 530 614
-------- -------- -------- --------
Net interest income after provision for loan losses 2,051 1,923 4,047 3,812
-------- -------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts 367 332 711 637
Trust and investment fees and commissions 315 269 615 527
Credit card fee revenue 126 128 258 249
Other fees and commissions 267 232 505 453
Mortgage banking 324 303 651 579
Insurance 119 111 204 205
Net venture capital gains 13 53 126 112
Net gains on securities available for sale 23 66 21 85
Other 260 221 450 402
-------- -------- -------- --------
Total noninterest income 1,814 1,715 3,541 3,249
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries 750 717 1,475 1,402
Incentive compensation 135 150 269 285
Employee benefits 217 187 416 376
Equipment 182 196 373 381
Net occupancy 185 187 371 376
Goodwill 104 104 208 208
Core deposit intangible 50 61 102 124
Net (gains) losses on disposition of premises and equipment (13) 41 (11) 48
Other 754 809 1,503 1,549
-------- -------- -------- --------
Total noninterest expense 2,364 2,452 4,706 4,749
-------- -------- -------- --------
INCOME BEFORE INCOME TAX EXPENSE 1,501 1,186 2,882 2,312
Income tax expense 570 467 1,067 909
-------- -------- -------- --------
NET INCOME $ 931 $ 719 $ 1,815 $ 1,403
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 922 $ 710 $ 1,798 $ 1,385
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER COMMON SHARE $ .56 $ .44 $ 1.09 $ .86
-------- -------- -------- --------
-------- -------- -------- --------
DILUTED EARNINGS PER COMMON SHARE $ .55 $ .43 $ 1.08 $ .85
-------- -------- -------- --------
-------- -------- -------- --------
DIVIDENDS DECLARED PER COMMON SHARE $ .20 $ .165 $ .385 $ .33
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding 1,651.4 1,610.3 1,649.2 1,613.0
-------- -------- -------- --------
-------- -------- -------- --------
Diluted average common shares outstanding 1,672.3 1,632.2 1,668.2 1,635.7
-------- -------- -------- --------
-------- -------- -------- --------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in millions, except shares) 1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 12,633 $ 12,731 $ 12,083
Federal funds sold and securities purchased under resale agreements 1,692 1,517 1,456
Securities available for sale 35,710 31,997 26,676
Mortgages held for sale 11,781 19,770 12,510
Loans held for sale 4,192 5,322 4,561
Loans 111,646 107,994 106,301
Allowance for loan losses 3,165 3,134 3,098
-------- -------- --------
Net loans 108,481 104,860 103,203
-------- -------- --------
Mortgage servicing rights 4,080 3,080 2,904
Premises and equipment, net 3,141 3,130 3,290
Core deposit intangible 1,381 1,510 1,609
Goodwill 7,598 7,664 7,856
Interest receivable and other assets 14,732 10,894 9,936
-------- -------- --------
Total assets $205,421 $202,475 $186,084
-------- -------- --------
-------- -------- --------
LIABILITIES
Noninterest-bearing deposits $ 43,708 $ 46,732 $ 41,207
Interest-bearing deposits 88,834 90,056 86,038
-------- -------- --------
Total deposits 132,542 136,788 127,245
Short-term borrowings 20,155 15,897 13,738
Accrued expenses and other liabilities 9,296 8,537 7,119
Long-term debt 21,268 19,709 16,730
Guaranteed preferred beneficial interests in Company's subordinated
debentures 785 785 1,094
STOCKHOLDERS' EQUITY
Preferred stock 590 547 560
Unearned ESOP shares (130) (84) (98)
-------- -------- --------
Total preferred stock 460 463 462
Common stock - $1-2/3 par value, authorized 4,000,000,000 shares; issued
1,666,095,285 shares, 1,661,392,590 shares and 1,622,027,659 shares 2,777 2,769 2,703
Additional paid-in capital 8,764 8,673 7,837
Retained earnings 10,028 9,045 9,064
Cumulative other comprehensive income (10) 463 440
Notes receivable from ESOP (1) (3) (5)
Treasury stock - 15,465,932 shares, 17,334,787 shares and 10,850,171 shares (643) (651) (343)
-------- -------- --------
Total stockholders' equity 21,375 20,759 20,158
-------- -------- --------
Total liabilities and stockholders' equity $205,421 $202,475 $186,084
-------- -------- --------
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unearned Additional
Number of Preferred ESOP Common paid-in
(in millions, except shares) shares stock shares stock capital
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 $543 $ (80) $2,718 $8,126
---- ----- ------ ------
Comprehensive income
Net income
Other comprehensive income, net of tax:
Translation adjustments
Unrealized gains (losses) on securities available for sale
arising during the year
Reclassification adjustment for (gains) losses on securities
available for sale included in net income
Total comprehensive income
Common stock issued 7,273,982 3 84
Common stock issued for acquisitions 2,646,909 3 25
Common stock repurchased 20,730,045 (21) (402)
Preferred stock issued to ESOP 35,000 35 (38) 3
Preferred stock released to ESOP 20 (2)
Preferred stock (18,043) converted to common shares 452,668 (18) 3
Preferred stock dividends
Common stock dividends
Cash payments received on notes receivable from ESOP
---- ----- ------ ------
Net change 17 (18) (15) (289)
---- ----- ------ ------
BALANCE JUNE 30, 1998 $560 $ (98) $2,703 $7,837
---- ----- ------ ------
---- ----- ------ ------
BALANCE DECEMBER 31, 1998 $547 $ (84) $2,769 $8,673
---- ----- ------ ------
Comprehensive income
Net income
Other comprehensive income, net of tax:
Translation adjustments
Unrealized gains (losses) on securities available for sale
arising during the year
Reclassification adjustment for (gains) losses on securities
available for sale included in net income
Total comprehensive income
Common stock issued 12,824,674 79
Common stock issued for acquisitions 6,185,330 8 11
Common stock repurchased 13,275,022 (3)
Preferred stock issued to ESOP 75,000 75 (80) 5
Preferred stock released to ESOP 34 (2)
Preferred stock (31,868) converted to common shares 836,568 (32) 1
Preferred stock dividends
Common stock dividends
Cash payments received on notes receivable from ESOP
---- ----- ------ ------
Net change 43 (46) 8 91
---- ----- ------ ------
BALANCE JUNE 30, 1999 $590 $(130) $2,777 $8,764
---- ----- ------ ------
---- ----- ------ ------
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Notes Cumulative
receivable other Total
Retained from Treasury comprehensive stockholders'
(in millions, except shares) earnings ESOP stock income equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 $ 8,292 $(10) $(275) $ 464 $19,778
------- ---- ----- ----- -------
Comprehensive income
Net income 1,403 1,403
Other comprehensive income, net of tax:
Translation adjustments (2) (2)
Unrealized gains (losses) on securities available for sale
arising during the year 30 30
Reclassification adjustment for (gains) losses on securities
available for sale included in net income (52) (52)
-------
Total comprehensive income 1,379
Common stock issued (102) 165 150
Common stock issued for acquisitions (39) 22 11
Common stock repurchased (270) (693)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 18
Preferred stock (18,043) converted to common shares 15 --
Preferred stock dividends (18) (18)
Common stock dividends (472) (472)
Cash payments received on notes receivable from ESOP 5 5
------- ---- ----- ----- -------
Net change 772 5 (68) (24) 380
------- ---- ----- ----- -------
BALANCE JUNE 30, 1998 $ 9,064 $ (5) $(343) $ 440 $20,158
------- ---- ----- ----- -------
------- ---- ----- ----- -------
BALANCE DECEMBER 31, 1998 $ 9,045 $ (3) $(651) $ 463 $20,759
------- ---- ----- ----- -------
Comprehensive income
Net income 1,815 1,815
Other comprehensive income, net of tax:
Translation adjustments 3 3
Unrealized gains (losses) on securities available for sale
arising during the year (463) (463)
Reclassification adjustment for (gains) losses on securities
available for sale included in net income (13) (13)
-------
Total comprehensive income 1,342
Common stock issued (174) 467 372
Common stock issued for acquisitions (6) 54 67
Common stock repurchased (544) (547)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 32
Preferred stock (31,868) converted to common shares 31 --
Preferred stock dividends (17) (17)
Common stock dividends (635) (635)
Cash payments received on notes receivable from ESOP 2 2
------- ---- ----- ----- -------
Net change 983 2 8 (473) 616
------- ---- ----- ----- -------
BALANCE JUNE 30, 1999 $10,028 $ (1) $(643) $ (10) $21,375
------- ---- ----- ----- -------
------- ---- ----- ----- -------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Six months ended June 30,
------------------------
(in millions) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,815 $ 1,403
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 530 614
Depreciation and amortization 1,036 1,037
Securities available for sale gains (21) (85)
Gains on sales of mortgages held for sale (244) (165)
Gains on sales of loans (25) (23)
Gains on dispositions of operations (102) (71)
Release of preferred shares to ESOP 32 18
Net (increase) decrease in trading assets (549) 35
Net (increase) decrease in accrued interest receivable (88) 11
Net increase (decrease) in accrued interest payable (35) 9
Originations of mortgages held for sale (50,553) (47,796)
Proceeds from sales of mortgages held for sale 58,260 45,135
Net increase in loans held for sale (88) (67)
Other assets, net 356 978
Other accrued expenses and liabilities, net 898 (731)
-------- --------
Net cash provided by operating activities 11,222 302
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 6,378 5,945
Proceeds from prepayments and maturities 5,168 4,966
Purchases (16,529) (9,415)
Net cash paid for acquisitions (129) (194)
Net increase in banking subsidiaries' loans resulting from originations and collections (937) (355)
Proceeds from sales (including participations) of banking subsidiaries' loans 1,004 548
Purchases (including participations) of banking subsidiaries' loans (750) (81)
Principal collected on nonbank subsidiaries' loans 2,683 4,045
Nonbank subsidiaries' loans originated (4,278) (4,296)
(Cash paid for) proceeds from dispositions of operations (721) 473
Proceeds from sales of foreclosed assets 143 78
Net increase in federal funds sold and securities purchased under resale agreements (175) (408)
Other, net (3,456) (237)
-------- --------
Net cash provided (used) by investing activities (11,599) 1,069
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (4,553) (826)
Net increase in short-term borrowings 4,114 326
Proceeds from issuance of long-term debt 6,985 712
Repayment of long-term debt (5,406) (1,414)
Proceeds from issuance of common stock 372 130
Repurchase of common stock (547) (693)
Net decrease in notes receivable from ESOP 2 5
Payment of cash dividends on preferred and common stock (652) (490)
Other, net (36) (119)
-------- --------
Net cash provided (used) by financing activities 279 (2,369)
-------- --------
NET CHANGE IN CASH AND DUE FROM BANKS (98) (998)
Cash and due from banks at beginning of period 12,731 13,081
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 12,633 $ 12,083
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,420 $ 2,494
Income taxes $ 617 $ 358
Noncash investing and financing activities:
Transfers from loans to foreclosed assets $ 62 $ 104
Transfers from securities available for sale to trading assets $ 1,132 $ --
Transfers from loans held for sale to loans $ 1,218 $ --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS COMBINATIONS
On November 2, 1998, Norwest Corporation changed its name to "Wells Fargo &
Company" upon the merger (the Merger) of the former Wells Fargo & Company (the
former Wells Fargo) into a wholly-owned subsidiary of Norwest Corporation.
Norwest Corporation as it was before the Merger is referred to as the former
Norwest. Wells Fargo & Company together with its subsidiaries are referred to as
the Company.
Under the terms of the Merger agreement, stockholders of the former Wells Fargo
received 10 shares of common stock of the Company for each share of common stock
owned. Each share of former Wells Fargo preferred stock was converted into one
share of the Company's preferred stock. These shares rank on parity with the
Company's other shares of preferred stock as to dividends and upon liquidation.
Each outstanding and unexercised option granted by the former Wells Fargo was
converted into an option to purchase common stock of the Company based on the
agreed-upon exchange ratio.
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.
As a condition to the Merger, the Company was required by regulatory agencies to
divest stores in Arizona and Nevada having total deposits of approximately $1
billion and total loans of approximately $100 million. As a result of these
sales, which were completed in April 1999, $104 million of pre-tax gains were
included in noninterest income as gains from dispositions of operations.
In connection with the Merger, the Company recorded approximately $600 million
of restructuring charges in the fourth quarter of 1998. The restructuring plans
are regularly evaluated during the integration process. A severance-related
reserve of $280 million was included in the restructuring charges. This reserve
was based on the Company's existing severance plans for involuntary
terminations. Approximately 1,100 employees, totaling $60 million in
severance-related benefits, had entered the severance process as of June 30,
1999. The restructuring charges also included approximately $250 million related
to dispositions of owned and leased premises held for sale or remarketing and
$70 million of other charges. The remaining balances of these reserves were $209
million and $27 million, respectively, at June 30, 1999. The suspension of
depreciation on these assets held for disposition reduced net occupancy expense
and equipment expense by a total of $9 million in the first half of 1999.
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.
6
<PAGE>
The Company had four pending transactions as of June 30, 1999 with total
assets of $844 million, and anticipates that cash of approximately $137
million and approximately 1.6 million common shares will be issued upon
consummation of these transactions. The pending transactions, subject to
approval by regulatory agencies, are expected to be completed by the third
quarter of 1999, and are not significant to the financial statements of the
Company, either individually or in the aggregate.
Transactions completed in the six months ended June 30, 1999 include:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Common
Cash shares Method of
(in millions, except share amounts Date Assets paid issued accounting
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mid-Penn Consumer Discount Company
(Philadelphia, Pennsylvania) (F) January 21 $ 11 $ -- 200,720 Purchase
Century Business Credit Corporation
(New York, New York) (W) February 1 342 213 -- Purchase
Metropolitan Bancshares, Inc.
(Aurora, Colorado) (C) February 23 64 -- 700,881 Purchase
Mercantile Financial Enterprises, Inc.
(Brownsville, Texas) (C) February 26 779 -- 4,702,695 Pooling of interest*
Riverton State Bank Holding Company
(Riverton, Wyoming) (C) March 12 81 -- 510,534 Purchase
Greater Midwest Leasing Company
(Minneapolis, Minnesota) (W) June 3 24 -- 70,500 Purchase
Mustang Financial Corporation
(Rio Vista, Texas) (C) June 25 254 45 -- Purchase
------ ---- ---------
$1,555 $258 6,185,330
------ ---- ---------
------ ---- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Pooling of interests transaction was not material to the Company's
consolidated financial statements; accordingly, previously reported results
have not been restated.
C - Community Banking Group; F - Norwest Financial; W - Wholesale Banking Group
7
<PAGE>
2. PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of preferred stock and
4,000,000 shares of preference stock, both without par value. All preferred
shares outstanding rank senior to common shares both as to dividends and
liquidation preference but have no general voting rights. No preference shares
have been issued under this authorization.
The table below is a summary of the Company's preferred stock at June 30,
1999, December 31, 1998 and June 30, 1998. A detailed description of the
Company's preferred stock is provided in Note 11 to the audited consolidated
financial statements included in the Company's 1998 Annual Report on Form
10-K.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Shares issued and outstanding Carrying amount (in millions) Adjustable
------------------------------- ------------------------------- dividends rate
JUNE 30, Dec. 31, June 30, JUNE 30, Dec. 31, June 30, -----------------
1999 1998 1998 1999 1998 1998 Minimum Maximum
--------- ---------- --------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable-Rate Cumulative, Series B
(Liquidation preference $50) 1,500,000 1,500,000 1,500,000 $ 75 $ 75 $ 75 5.5% 10.5%
6.59%/Adjustable-Rate Noncumulative
Preferred Stock, Series H
(Liquidation preference $50) 4,000,000 4,000,000 4,000,000 200 200 200 7.0 13.0
Cumulative Tracking
(Liquidation preference $200) 980,000 980,000 980,000 196 196 196 9.30 9.30
1999 ESOP Cumulative Convertible
(Liquidation preference $1,000) 45,508 -- -- 45 -- -- 10.30 11.30
1998 ESOP Cumulative Convertible
(Liquidation preference $1,000) 8,560 8,740 20,636 9 9 21 10.75 11.75
1997 ESOP Cumulative Convertible
(Liquidation preference $1,000) 18,639 19,698 19,982 19 20 20 9.50 10.50
1996 ESOP Cumulative Convertible
(Liquidation preference $1,000) 21,288 22,068 22,458 21 22 23 8.50 9.50
1995 ESOP Cumulative Convertible
(Liquidation preference $1,000) 19,903 20,130 20,396 20 20 20 10.00 10.00
ESOP Cumulative Convertible
(Liquidation preference $1,000) 9,596 9,726 9,890 10 10 10 9.0 9.0
Unearned ESOP shares (1) -- -- -- (130) (84) (98) -- --
Less Cumulative Tracking
held by subsidiary
(Liquidation preference $200) 25,000 25,000 25,000 5 5 5 9.30 9.30
--------- --------- --------- ----- ---- ----
Total 6,578,494 6,535,362 6,548,362 $460 $463 $462
--------- --------- --------- ----- ---- ----
--------- --------- --------- ----- ---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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.
8
<PAGE>
3. EARNINGS PER COMMON SHARE
The table below presents earnings per common share and diluted earnings per
common share and a reconciliation of the numerator and denominator of both
earnings per common share calculations.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
----------------- -----------------
(in millions, except per share amounts) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 931 $ 719 $ 1,815 $ 1,403
Less: Preferred stock dividends 9 9 17 18
-------- -------- -------- --------
Net income applicable to common stock $ 922 $ 710 $ 1,798 $ 1,385
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 922 $ 710 $ 1,798 $ 1,385
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding (denominator) 1,651.4 1,610.3 1,649.2 1,613.0
-------- -------- -------- --------
-------- -------- -------- --------
Per share $ .56 $ .44 $ 1.09 $ .86
-------- -------- -------- --------
-------- -------- -------- --------
DILUTED EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 922 $ 710 $ 1,798 $ 1,385
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding 1,651.4 1,610.3 1,649.2 1,613.0
Add: Stock options 19.2 19.8 17.2 20.6
Restricted share rights 1.7 2.1 1.8 2.1
-------- -------- -------- --------
Diluted average common shares outstanding (denominator) 1,672.3 1,632.2 1,668.2 1,635.7
-------- -------- -------- --------
-------- -------- -------- --------
Per share $ .55 $ .43 $ 1.08 $ .85
-------- -------- -------- --------
-------- -------- -------- --------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
4. OPERATING SEGMENTS
The Company has identified four distinct lines of business for the purposes of
management reporting: Community Banking, Wholesale Banking, Norwest Mortgage and
Norwest Financial. The results are determined based on the Company's management
accounting process, which assigns balance sheet and income statement items to
each responsible operating segment. This process is dynamic and somewhat
subjective. Unlike financial accounting, there is no comprehensive,
authoritative body of guidance for management accounting equivalent to generally
accepted accounting principles. The management accounting process measures the
performance of the operating segments based on the management structure of the
Company and is not necessarily comparable with similar information for any other
financial institution. The Company's operating segments are defined by product
type and customer segments. Changes in management structure and/or the
allocation process may result in changes in allocations, transfers and
assignments. In that case, results for prior quarters would be (and have been)
restated to allow comparability.
THE COMMUNITY BANKING GROUP offers a complete line of diversified financial
products and services to individual consumers and small businesses with annual
sales up to $10 million in which the owner is also the principal financial
decision maker. The Group also offers investment management and other services
to institutions, retail customers and high net worth individuals, insurance and
securities brokerage through affiliates and venture capital financing. This
includes the Stagecoach and Advantage families of mutual funds as well as
personal trust, employee benefit trust and agency assets. Loan products include
lines of credit, equipment and transportation (auto, recreational vehicle,
marine) loans as well as equity lines and loans. Other credit products and
financial services available to small businesses and their owners include
receivables and inventory financing, equipment leases, real estate financing,
SBA financing, cash management, payroll services, retirement plans, medical
savings accounts and credit and debit card processing. Consumer and business
deposit products include checking, savings deposits, market rate accounts,
Individual Retirement Accounts (IRAs) and time deposits.
Community Banking provides access to customers through a wide range of channels.
The Group encompasses a network of traditional banking stores, banking centers,
in-store banking centers, business centers and ATMs. Additional services include
24-hour telephone centers, Telephone Banking Centers and the National Business
Banking Center. Online banking services include the Wells Fargo Internet
Services Group, the Company's personal computer banking service, and Business
Gateway, a personal computer banking service exclusively for the small business
customer.
THE WHOLESALE BANKING GROUP serves businesses with annual sales in excess of $5
million and maintains relationships with major corporations throughout the
United States. The Wholesale Banking Group provides a complete line of
commercial and corporate banking services. These include traditional commercial
loans and lines, letters of credit, equipment leasing, international trade
facilities, foreign exchange services, cash management and
10
<PAGE>
electronic products. The Group includes the majority ownership interest in
the Wells Fargo HSBC Trade Bank, which provides trade financing, letters of
credit and collection services and is sometimes supported by the
Export-Import Bank of the United States (a public agency of the United States
offering export finance support programs for American-made products). The
Group also supports the commercial real estate market with products and
services such as construction loans for commercial and residential
development, land acquisition and development loans, secured and unsecured
lines of credit, interim financing arrangements for completed structures,
rehabilitation loans, affordable housing loans and letters of credit.
Secondary market services are provided through the Real Estate Capital
Markets Group. Its business includes senior loan financing, mezzanine
financing, financing for leveraged transactions, purchasing distressed real
estate loans and high yield debt, origination of permanent loans for
securitization, loan syndications and commercial real estate loan servicing.
NORWEST MORTGAGE'S 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.
NORWEST FINANCIAL includes consumer finance and auto finance operations.
Consumer finance operations make direct loans to consumers and purchase sales
finance contracts from retail merchants from offices throughout the United
States and Canada and in the Caribbean and Latin America. Automobile finance
operations specialize in purchasing sales finance contracts directly from
automobile dealers and making loans secured by automobiles in the United States
and Puerto Rico. Credit cards are issued to its consumer finance customers
through two credit card banks. Norwest Financial also provides accounts
receivable, lease and other commercial financing and provides information
services to the consumer finance industry.
THE RECONCILATION COLUMN includes goodwill and the nonqualifying core deposit
intangible (CDI), the net impact of transfer pricing loan and deposit
balances, the cost of external debt and any residual effects of unallocated
systems and other support groups. It also includes the impact of
asset/liability strategies the Company has put in place to manage interest
rate sensitivity at the enterprise level.
11
<PAGE>
The following table provides the results for the Company's four major operating
segments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(income/expense in millions, Community Wholesale Norwest
average balances in billions) Banking Banking Mortgage
-------------------------------------------
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED JUNE 30,
Net interest income (1) $1,619 $1,527 $341 $342 $ 46 $ 55
Provision for loan losses 151 217 40 (5) 3 --
Noninterest income 1,189 1,111 192 205 326 291
Noninterest expense 1,548 1,655 197 183 258 261
------ ------ ---- ---- ---- ----
Income (loss) before income tax
expense (benefit) 1,109 766 296 369 111 85
Income tax expense (benefit) (2) 399 281 110 148 41 31
------ ------ ---- ---- ---- ----
Net income (loss) $ 710 $ 485 $186 $221 $ 70 $ 54
------ ------ ---- ---- ---- ----
------ ------ ---- ---- ---- ----
Average loans $ 65 $ 64 $ 34 $ 32 $ 1 $ 1
Average assets 118 107 40 37 23 22
Average core deposits 115 110 8 7 5 5
Return on equity (3) 19% 14% 21% 29% 23% 17
SIX MONTHS ENDED JUNE 30,
Net interest income (1) $3,173 $3,059 $681 $663 $112 $ 93
Provision for loan losses 318 432 65 (13) 6 2
Noninterest income 2,285 2,040 416 423 642 550
Noninterest expense 3,066 3,192 386 374 529 475
------ ------ ---- ---- ---- ----
Income (loss) before income tax
expense (benefit) 2,074 1,475 646 725 219 166
Income tax expense (benefit) (2) 717 539 241 291 81 60
------ ------ ---- ---- ---- ----
Net income (loss) $1,357 $ 936 $405 $434 $138 $106
------ ------ ---- ---- ---- ----
------ ------ ---- ---- ---- ----
Average loans $ 65 $ 64 $ 33 $ 32 $ 1 $ 1
Average assets 116 108 40 37 25 20
Average core deposits 115 110 8 7 5 5
Return on equity (3) 18% 13% 25% 28% 20% 18%
- --------------------------------------------------------------------------------
</TABLE>
(1) Net interest income is the primary source of income for most of the
operating segments. Net interest income is the difference between actual
interest earned on assets (and interest paid on liabilities) owned by a
group and a funding charge (and credit) based on the Company's cost of
funds. Community Banking and Wholesale Banking are charged a cost to fund
any assets (e.g., loans) and are paid a funding credit for any funds
provided (e.g., deposits). The interest spread is the difference between the
interest rate earned on an asset or paid on a liability and the Company's
cost of funds rate. (Norwest Mortgage's net interest income was composed of
interest revenue of $215 million and $240 million for the second quarter of
1999 and 1998, respectively, and $484 million and $431 million for the
first half of 1999 and 1998, respectively, and interest expense of $169
million and $185 million for the second quarter of 1999 and 1998,
respectively, and $372 million and $338 million for the first half of 1999
and 1998, respectively.)
(2) Taxes vary by geographic concentration of revenue generation. Taxes as
presented are also higher than the consolidated Company's effective tax rate
as a result of taxable-equivalent adjustments that primarily relate to
income on certain loans and securities that is exempt from federal and
applicable state income taxes. The offsets for these adjustments are found
in the reconciliation column.
(3) Equity is allocated to the operating segments based on an assessment of the
inherent risk associated with each business so that the returns on allocated
equity are on a risk-adjusted basis and comparable across operating
segments.
12
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------
Recon- Consoli-
Norwest ciliation dated
Financial column (4) Company
- ----------------------------------------------------
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
$330 $325 $ (25) $ (17) $2,311 $2,232
66 97 -- -- 260 309
74 76 33 32 1,814 1,715
233 219 128 134 2,364 2,452
---- ---- ----- ----- ------ ------
105 85 (120) (119) 1,501 1,186
39 31 (19) (24) 570 467
---- ---- ----- ----- ------ ------
$ 66 $ 54 $(101) $ (95) $ 931 $ 719
---- ---- ----- ----- ------ ------
---- ---- ----- ----- ------ ------
$ 9 $ 9 $ -- $ -- $ 109 $ 106
11 11 8 9 200 186
-- -- -- -- 128 122
16% 16% -- % -- % 18% 15%
$653 $646 $ (42) $ (35) $4,577 $4,426
141 193 -- -- 530 614
147 150 51 86 3,541 3,249
469 437 256 271 4,706 4,749
---- ---- ----- ----- ------ ------
190 166 (247) (220) 2,882 2,312
70 60 (42) (41) 1,067 909
---- ---- ----- ----- ------ ------
$120 $106 $(205) $(179) $1,815 $1,403
---- ---- ----- ----- ------ ------
---- ---- ----- ----- ------ ------
$ 9 $ 9 $ -- $ (1) $ 108 $ 105
11 11 8 8 200 184
-- -- -- -- 128 122
15% 16% -- % -- % 17% 14%
- ----------------------------------------------------
</TABLE>
(4) The material items in the reconciliation column related to revenue (i.e.,
net interest income plus noninterest income) and net income consist of
Treasury activities and unallocated items. Revenue includes Treasury
activities of $27 million and $29 million; and unallocated items of $(19)
million and $(14) million for the second quarter of 1999 and 1998,
respectively. Revenue includes Treasury activities of $41 million and $78
million; and unallocated items of $(32) million and $(27) million for the
first six months of 1999 and 1998, respectively. Net income includes
Treasury activities of $17 million and $16 million; and unallocated items
of $(118) million and $(111) million for the second quarter of 1999 and
1998, respectively. Net income includes Treasury activities of $25
million and $44 million; and unallocated items of $(230) million and
$(223) million for the first six months of 1999 and 1998, respectively.
The material items in the reconciliation column related to noninterest
expense include goodwill and nonqualifying CDI amortization of $125
million and $131 million for the second quarter of 1999 and 1998,
respectively, and $252 million and $264 million for the first six months
of 1999 and 1998, respectively. The material items in the reconcilation
column related to average assets include goodwill and nonqualifying CDI
of $8 billion for all periods presented.
13
<PAGE>
5. MORTGAGE BANKING ACTIVITIES
Mortgage banking activities include Norwest Mortgage and mortgage banking
activities in other operating segments.
The outstanding balance of mortgage loans serviced for others, which are not
included in the accompanying balance sheet, was $273 billion, $250 billion and
$226 billion at June 30, 1999, December 31, 1998 and June 30, 1998,
respectively.
The following table summarizes the changes in capitalized mortgage loan
servicing rights:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
-------------------- --------------------
(in millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $3,691 $3,177 $3,144 $3,112
Originations 208 181 473 311
Purchases 123 192 372 337
Sales -- (346) -- (346)
Amortization (166) (189) (460) (360)
Other, principally hedge activity 288 (47) 615 (86)
------ ------ ------ ------
4,144 2,968 4,144 2,968
Less valuation allowance 64 64 64 64
------ ------ ------ ------
Balance, end of period $4,080 $2,904 $4,080 $2,904
------ ------ ------ ------
------ ------ ------ ------
- --------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of capitalized mortgage servicing rights included in the
consolidated balance sheet at June 30, 1999 was approximately $4.3 billion,
calculated using discount rates ranging from 500 to 700 basis points over the
ten-year U.S. Treasury rate.
14
<PAGE>
FINANCIAL REVIEW
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
% Change
Quarter ended June 30, 1999 from Six months ended
------------------------------ ------------------ -------------------
JUNE 30, Mar. 31, June 30, Mar. 31, June 30, JUNE 30, June 30, %
(in millions) 1999 1999 1998 1999 1998 1999 1998 Change
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Net income $ 931 $ 884 $ 719 5% 29% $ 1,815 $ 1,403 29%
Net income applicable to common stock 922 875 710 5 30 1,798 1,385 30
Earnings per common share $ .56 $ .53 $ .44 6 27 $ 1.09 $ .86 27
Diluted earnings per comon share .55 .53 .43 4 28 1.08 .85 27
Dividends declared per comon share .20 .185 .165 8 21 .385 .33 17
Average common shares outstanding 1,651.4 1,647.1 1,610.3 -- 3 1,649.2 1,613.0 2
Diluted average common shares outstanding 1,672.3 1,664.2 1,632.2 -- 2 1,668.2 1,635.7 2
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.86% 1.80% 1.55% 3 20 1.83% 1.53% 20
Net income applicable to common stock to
average common stockholders' equity (ROE) 17.50 17.33 14.72 1 19 17.42 14.46 20
Total revenue $ 4,125 $ 3,993 $ 3,947 3 5 $ 8,118 $ 7,675 6
Efficiency ratio (1) 57.3% 58.7% 62.1% (2) (8) 58.0% 61.9% (6)
Average loans $108,996 $107,834 $105,523 1 3 $108,418 $105,462 3
Average assets 200,342 198,723 185,607 1 8 199,537 184,444 8
Average core deposits 127,563 128,133 122,354 -- 4 127,847 121,804 5
Net interest margin 5.68% 5.58% 5.88% 2 (3) 5.64% 5.89% (4)
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION AND BALANCES
("CASH" OR "TANGIBLE") (2)
Net income applicable to common stock $ 1,054 $ 1,008 $ 848 5 24 $ 2,062 $ 1,662 24
Earnings per common share .64 .61 .53 5 21 1.25 1.03 21
Diluted earnings per common share .63 .61 .52 3 21 1.24 1.02 22
ROA 2.23% 2.17% 1.95% 3 14 2.20% 1.94% 13
ROE 33.43 34.38 32.49 (3) 3 33.89 32.33 5
Efficiency ratio 53.7 54.9 58.1 (2) (8) 54.3 57.7 (6)
AT PERIOD END
Securities available for sale $ 35,710 $ 35,801 $ 26,676 -- 34 $ 35,710 $ 26,676 34
Loans 111,646 108,108 106,301 3 5 111,646 106,301 5
Allowance for loan losses 3,165 3,161 3,098 -- 2 3,165 3,098 2
Goodwill 7,598 7,747 7,856 (2) (3) 7,598 7,856 (3)
Assets 205,421 201,430 186,084 2 10 205,421 186,084 10
Core deposits 127,302 127,996 122,851 (1) 4 127,302 122,851 4
Common stockholders' equity 20,915 20,817 19,696 -- 6 20,915 19,696 6
Stockholders' equity 21,375 21,276 20,158 -- 6 21,375 20,158 6
Tier 1 capital (3) 13,454 12,765 12,133 5 11 13,454 12,133 11
Total capital (Tiers 1 and 2) (3) 17,612 17,009 16,393 4 7 17,612 16,393 7
Capital ratios
Common stockholders' equity to assets 10.18% 10.33% 10.59% (1) (4) 10.18% 10.59% (4)
Stockholders' equity to assets 10.41 10.56 10.83 (1) (4) 10.41 10.83 (4)
Risk-based capital (3)
Tier 1 capital 8.45 8.23 8.34 3 1 8.45 8.34 1
Total capital 11.07 10.97 11.26 1 (2) 11.07 11.26 (2)
Leverage (3) 7.05 6.74 6.89 5 2 7.05 6.89 2
Book value per common share $ 12.67 $ 12.60 $ 12.23 1 4 $ 12.67 $ 12.23 4
Staff (active, full-time equivalent) 91,182 91,352 89,988 -- 1 91,182 89,988 1
COMMON STOCK PRICE
High $ 44.88 $ 40.44 $ 43.75 11 3 $ 44.88 $ 43.88 2
Low 34.38 32.13 34.00 7 1 32.13 34.00 (6)
Period end 42.75 35.06 37.50 22 14 42.75 37.50 14
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The efficiency ratio is defined as noninterest expense divided by total
revenue (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
and ROA ratios, net of applicable taxes. The pre-tax amount for the average
balance of nonqualifying CDI was $1,343 million for the quarter ended June
30, 1999 and $1,367 million for the six months ended June 30, 1999. The
after-tax amounts for the amortization and average balance of nonqualifying
CDI were $28 million and $833 million, respectively, for the quarter ended
June 30, 1999 and $57 million and $848 million, respectively, for the six
months ended June 30, 1999. Goodwill amortization and average balance (which
are not tax effected) were $104 million and $7,657 million, respectively,
for the quarter ended June 30, 1999 and $208 million and $7,695 million,
respectively, for the six months ended June 30, 1999.
(3) See the Capital Adequacy/Ratios section for additional information.
15
<PAGE>
OVERVIEW
On November 2, 1998, Norwest Corporation changed its name to "Wells Fargo &
Company" upon the merger (the Merger) of the former Wells Fargo & Company (the
former Wells Fargo) into a wholly-owned subsidiary of Norwest Corporation.
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 for prior quarters in the financial review have been
reclassified to conform with the current financial statement presentation.
Wells Fargo & Company is a $205 billion diversified financial services company
providing banking, mortgage and consumer finance through about 6,000 stores, the
Internet and other distribution channels throughout North America, including all
50 states, and elsewhere internationally. It ranked seventh in assets at June
30, 1999 among U.S. bank holding companies. In this Form 10-Q, Wells Fargo &
Company together with its subsidiaries are referred to as the Company and Wells
Fargo & Company alone is referred to as the Parent.
Net income for the second quarter of 1999 was $931 million, compared with $719
million for the second quarter of 1998. Diluted earnings per common share for
the second quarter of 1999 were $.55, compared with $.43 for the second quarter
of 1998. Net income for the first six months of 1999 was $1,815 million, or
$1.08 per share, compared with $1,403 million, or $.85 per share, for the first
six months of 1998.
Return on average assets (ROA) was 1.86% and 1.83% in the second quarter and
first half of 1999, respectively, compared with 1.55% and 1.53% in the same
periods of 1998. Return on average common equity (ROE) was 17.50% and 17.42% in
the second quarter and first half of 1999, respectively, compared with 14.72%
and 14.46% in the same periods of 1998.
Diluted earnings before the amortization of goodwill and nonqualifying core
deposit intangible ("cash" or "tangible" earnings) in the second quarter and
first half of 1999 were $.63 and $1.24 per share, respectively, compared with
$.52 and $1.02 per share in the same periods of 1998. On the same basis, ROA was
2.23% and 2.20% in the second quarter and first half of 1999, respectively,
compared with 1.95% and 1.94% in the same periods of 1998; ROE was 33.43% and
33.89% in the second quarter and first half of 1999, respectively, compared with
32.49% and 32.33% in the same periods of 1998.
Net interest income on a taxable-equivalent basis was $2,328 million and $4,608
million for the second quarter and first half of 1999, respectively, compared
with $2,247 million and $4,456 million for the same periods of 1998. The
Company's net interest margin was 5.68% and 5.64% for the second quarter and
first half of 1999, respectively, compared with 5.88% and 5.89% for the same
periods of 1998.
Noninterest income was $1,814 million and $3,541 million for the second quarter
and first half of 1999, respectively, compared with $1,715 million and $3,249
million for the same periods of
16
<PAGE>
1998. The increase for the first half of 1999 was primarily due to higher
trust and investment fees and commissions and net gains on sales of mortgages.
Noninterest expense totaled $2,364 million and $4,706 million for the second
quarter and first half of 1999, respectively, compared with $2,452 million and
$4,749 million for the same periods of 1998. The efficiency ratio improved to
57.3% for the second quarter of 1999, compared with 62.1% for the same quarter
of 1998. The Company expects to meet its pre-Merger target of approximately $650
million in annual pre-tax cost savings not later than 36 months after Merger
consummation. About 25% of the cost savings are expected to be achieved within
the first year.
The provision for loan losses was $260 million and $530 million in the second
quarter and first half of 1999, respectively, compared with $309 million and
$614 million in the same periods of 1998. During the second quarter of 1999,
net charge-offs were $261 million, or .96% of average total loans
(annualized), compared with $303 million, or 1.16%, during the second quarter
of 1998. The allowance for loan losses was $3,165 million, or 2.83% of total
loans, at June 30, 1999, compared with $3,134 million, or 2.90%, at December
31, 1998 and $3,098 million, or 2.91%, at June 30, 1998.
At June 30, 1999, total nonaccrual and restructured loans were $688 million, or
.6% of total loans, compared with $710 million, or .7%, at December 31, 1998 and
$733 million, or .7%, at June 30, 1998. Foreclosed assets amounted to $203
million at June 30, 1999, $167 million at December 31, 1998 and $176 million at
June 30, 1998.
At June 30, 1999, the ratio of common stockholders' equity to total assets was
10.18%, compared with 10.59% at June 30, 1998. The Company's total risk-based
capital (RBC) ratio at June 30, 1999 was 11.07% and its Tier 1 RBC ratio was
8.45%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively,
for bank holding companies. The Company's ratios at June 30, 1998 were 11.26%
and 8.34%, respectively. The Company's leverage ratio was 7.05% at June 30,
1999 and 6.89% at June 30, 1998, exceeding the minimum regulatory guideline of
3% for bank holding companies.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This document and other documents filed by the Company with the Securities and
Exchange Commission (SEC) have forward-looking statements. In addition, the
Company's senior management may make forward-looking statements orally to
analysts, investors, the media and others. These forward-looking statements may
include one or more of the following:
- - Projections of revenues, income, earnings per share, capital expenditures,
dividends, capital structure or other financial items;
- - Descriptions of plans or objectives of management for future operations,
products or services;
17
<PAGE>
- - Forecasts of future economic performance;
- - "Year 2000 Readiness Disclosures" under the "Year 2000 Information and
Readiness Disclosure Act;" or
- - Descriptions of assumptions underlying or relating to any of the foregoing.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. They often include words such as
"believe," "expect," "anticipate," "intend," "plan," "estimate," or words of
similar meaning, or future or conditional verbs such as "will," "would,"
"should," "could" or "may."
Forward-looking statements give the Company's expectations or predictions of
future conditions, events or results. They are not guarantees of future
performance. By their nature, forward-looking statements are subject to risks
and uncertainties. There are a number of factors--many of which are beyond the
Company's control--that could cause actual conditions, events or results to
differ significantly from those described in the forward-looking statements.
Some of these factors are described below. Other factors, such as credit,
market, operational, liquidity, interest rate, Year 2000 and other risks, are
described or incorporated in the MD&A section of this report and other reports
filed by the Company with the SEC. Factors relating to the regulation and
supervision of the Company and its subsidiaries are described or incorporated in
the Company's Annual Report on Form 10-K filed with the SEC. There are other
factors besides those described or incorporated in this report or in the other
reports filed by the Company with the SEC that could cause actual conditions,
events or results to differ from those in the forward-looking statements.
Forward-looking statements speak only as of the date they are made. The
Company does not undertake to update forward-looking statements to reflect
circumstances or events that occur after the date the forward-looking
statements are made.
BUSINESS AND ECONOMIC CONDITIONS. The Company's business and earnings are
sensitive to general business and economic conditions in the United States
and abroad. These conditions include short-term and long-term interest rates,
inflation, monetary supply, fluctuations in both debt and equity capital
markets, and the strength of the U.S. economy generally and the local
economies in which the Company conducts business. Should any of these
conditions worsen in the United States or abroad, the Company's business and
earnings could be adversely affected. For example, an economic downturn or
higher interest rates could decrease the demand for loans and other products
and services offered by the Company and/or increase the number of customers
and counterparties who become delinquent or who default on their loans or
other obligations to the Company. An increase in the number of delinquencies
or defaults would result in a higher level of charge-offs and a higher level
of loan loss provision, either of which could adversely affect the Company's
earnings. Higher interest rates would also
18
<PAGE>
increase the Company's cost to borrow funds and increase the rate paid on
deposits, which could more than offset, in the net interest margin, the
increase in rates earned by the Company on new or floating rate loans or
short-term investments. See "Quantitative and Qualitative Disclosures About
Market Risk" for more information on interest rate risk.
COMPETITION. The Company operates in a highly competitive environment both in
terms of the products and services the Company offers and the geographic markets
in which the Company conducts business. The Company expects this environment to
become even more competitive in the future as a result of legislative,
regulatory and technological changes and the continued trend of consolidation in
the financial services industry. Technological advances, for example, have
lowered barriers to entry and made it possible for non-depository institutions
to offer products and services that traditionally have been provided by banks,
such as automatic transfer and automatic payment systems. Also, investment banks
and insurance companies are competing in an increasing number of traditional
banking businesses such as syndicated lending and consumer banking. Many of the
Company's competitors enjoy the benefits of advanced technology, fewer
regulatory constraints and lower cost structures.
The financial services industry is likely to become even more competitive as
further technological advances enable more companies to provide financial
services. The Company expects that the consolidation of the financial services
industry will result in larger, better capitalized companies offering a wide
array of financial services and products. The Company believes that proposed
legislative changes (see "Legislation" below), if adopted, will further increase
the competitive pressures in the financial services industry.
FISCAL AND MONETARY POLICIES. The Company's business and earnings are
affected significantly by the fiscal and monetary policies of the federal
government and its agencies. The Company is particularly affected by the
policies of the Federal Reserve Board, which regulates the supply of money
and credit in the United States. The Federal Reserve Board's policies
directly and indirectly influence the rate of interest that commercial banks
pay on their interest-bearing deposits and may also affect the value of
financial instruments held by the Company. These policies also determine to a
significant extent the cost to the Company of funds for lending and
investing. Changes in these policies are beyond the Company's control and
hard to predict. Federal Reserve Board policies can also affect the Company's
customers and counterparties, potentially increasing the risk that such
customers and counterparties may become delinquent or default on their
obligations to the Company.
DISINTERMEDIATION. "Disintermediation" is the process of eliminating the role
of the mediator (or middleman) in completing a transaction. For the financial
services industry, this means eliminating or significantly reducing the role of
banks and other depository institutions in completing transactions that have
traditionally involved banks at one end or both ends of the transaction. For
example, technological advances now allow parties to pay bills and transfer
funds directly without the involvement of banks. Important consequences of this
disintermediation include the loss of customer deposits (and the income
generated from these deposits) and decreases in transactions that generate fee
income.
19
<PAGE>
LEGISLATION. In 1999 the U.S. Senate and U.S. House of Representatives each
passed legislation that, if enacted into law, would break down many of the
barriers between the banking, securities and insurance industries by permitting
affiliation between firms in these industries. It would significantly change the
competitive environment in which the Company and its subsidiaries conduct
business. The Company cannot predict if and when Congress will enact this or
similar legislation or the extent to which the Company and its subsidiaries will
be affected by any such legislation.
MERGER OF FORMER NORWEST AND FORMER WELLS FARGO. One or more factors relating
to the Merger could adversely impact the Company's business and earnings
generally and in particular the expected benefits of the Merger to the Company.
These factors include the following:
- - expected cost savings and/or potential revenue enhancements from the Merger
may not be fully realized or realized within the expected time frame;
- - deposit attrition (run-off), customer loss and/or revenue loss following the
Merger may be greater than expected;
- - costs or difficulties related to the integration of the businesses of the two
companies may be greater than expected.
OTHER MERGERS AND ACQUISITIONS. The Company expands its business in part by
acquiring banks and other companies engaged in activities closely related to
banking. The Company continues to explore opportunities to acquire banking
institutions and other companies permitted by the Bank Holding Company Act of
1956. Discussions are continually being carried on related to such
acquisitions. Generally, management of the Company does not comment on such
discussions or possible acquisitions until a definitive agreement has been
signed. A number of factors related to past and future acquisitions could
adversely affect the Company's business and earnings, including those
described above for the Norwest/Wells Fargo merger. In addition, the
Company's acquisitions generally are subject to approval by federal and, in
some cases, state regulatory agencies. The failure to receive required
regulatory approvals within the time frame or on the conditions expected by
management could also adversely affect the Company's business and earnings.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133 (FAS 133), Accounting for Derivative
Instruments and Hedging Activities. In July 1999, the FASB issued FAS 137,
Deferring Statement 133's Effective Date, which defers the effective date for
implementation of FAS 133 by one year, making FAS 133 effective no later than
January 1, 2001 for the Company's financial statements. FAS 133 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
20
<PAGE>
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.
OPERATING SEGMENT RESULTS
COMMUNITY BANKING'S net income increased to $710 million in the second
quarter of 1999 from $485 million in the second quarter of 1998, an increase
of 46%. Net income increased to $1,357 million for the first six months of
1999 from $936 million for the first six months of 1998, an increase of 45%.
The increase in net income was due to increases in both net interest and
noninterest income and declines in noninterest expense and the provision for
loan losses. Net interest income increased to $1,619 million in the second
quarter of 1999 from $1,527 million in the second quarter of 1998. Net
interest income increased to $3,173 million for the first six months of 1999
from $3,059 million in the first six months of 1998. The increase in net
interest income was primarily due to an improvement in the funding mix based
on an increase in core deposits. The provision for loan losses decreased by
$66 million and $114 million for the second quarter and first six months of
1999, respectively, reflecting lower charge-offs. Noninterest income for the
second quarter of 1999 increased by $78 million over the same period in 1998.
The increase in noninterest income was primarily due to gains on the
divestiture of branches in Arizona and Nevada. Noninterest expense decreased
by $107 million in the second quarter of 1999 over the same period in 1998. A
significant portion of this decrease was due to charges taken in 1998
relating to the revaluation or disposal of premises and equipment. As a
result of reevaluating the loans held for sale portfolio, the Company decided
to reclassify certain student loans held for sale to the other revolving
credit and monthly payment portfolio. Accordingly, approximately $1.2 billion
of loans held for sale were reclassified at June 30, 1999.
WHOLESALE BANKING'S net income was $186 million in the second quarter of 1999,
compared with $221 million in the second quarter of 1998, a decrease of 16%. Net
income was $405 million for the first six months of 1999, compared with $434
million in the first six months of 1998, a decrease of 7%. Net interest income
was $341 million in the second quarter of 1999 and $342 million in the second
quarter of 1998. The decrease in net interest income was due to lower interest
recoveries on loans where interest had previously been applied to principal,
offset by higher average loan and investment securities balances within
asset-based lending, specialized financial services and capital markets. Net
interest income increased to $681 million for the first six months of 1999 from
$663 million in the first six months of 1998. Average outstanding loan balances
grew to $34 billion in the second quarter of 1999 from $32 billion in the second
quarter of 1998, primarily as a result of growth in the asset-based lending,
specialized financial services, capital markets and commercial loan businesses.
Noninterest income decreased to $192 million and $416 million in the second
quarter and first six months of 1999, respectively, from $205 million and $423
million in the same periods of 1998. The decrease for both periods was primarily
due to lower gains from investment securities and lower income from loan sales,
partially offset by increased income from service charges, fees and commissions,
and foreign exchange gains. Noninterest expense increased to
21
<PAGE>
$197 million in the second quarter of 1999 and $386 million for the first six
months of 1999 from $183 million and $374 million for the same periods in the
prior year. The increase for the first six months of 1999 was primarily due
to the addition of Century Business Credit Corporation, which was acquired in
the first quarter of 1999. The provision for loan losses increased by $45
million and $78 million for the second quarter and first six months of 1999,
respectively. The 1998 provision was unusually low resulting from continued
recoveries on real estate loans which had been charged off in the early
1990's.
NORWEST MORTGAGE'S net income in the second quarter of 1999 increased to $70
million from $54 million in the second quarter of 1998, an increase of 30%.
Net income increased to $138 million for the first six months of 1999 from
$106 million in the first six months of 1998, an increase of 30%. The
increase for both periods was principally due to growth in the servicing
portfolio. The increase in the second quarter was also due to decreased
amortization of mortgage servicing rights. The servicing portfolio increased
to $266 billion at June 30, 1999 from $220 billion at June 30, 1998. The
weighted average coupon on loans in the servicing portfolio was 7.30% at June
30, 1999 compared with 7.61% a year earlier. Total capitalized mortgage
servicing rights amounted to $4.1 billion, or 1.53%, of the servicing
portfolio at June 30, 1999 compared with $2.9 billion, or 1.32%, at June 30,
1998. Amortization of capitalized mortgage servicing rights was $166 million
and $460 million for the second quarter and first six months of 1999,
respectively, compared with $175 million and $328 million for the same
periods of 1998. The decrease in amortization for the second quarter of 1999
was largely due to rising interest rates and a decrease in assumed
prepayments. Combined gains on sales of mortgages and servicing rights were
$40 million for the second quarter of 1999 and $223 million for the first six
months of 1999, compared with $116 million and $151 million for the same
periods of the prior year. The decrease for the second quarter of 1999 was
largely due to less favorable market conditions and decreased loan sales.
Fundings for the second quarter and first six months of 1999 were $22.7
billion and $50.3 billion, respectively, compared with $26.0 billion and
$46.9 billion for the same periods of the prior year. The decrease in second
quarter funding volume was primarily due to a decrease in the third party
origination business. The percentage of fundings attributed to mortgage loan
refinancing was approximately 37% for the second quarter of 1999, compared
with 46% for the same period in 1998.
NORWEST FINANCIAL'S net income increased to $66 million in the second quarter
of 1999 from $54 million for the same period in 1998, an increase of 22%. Net
income increased to $120 million for the first six months of 1999 from $106
million for the same period in 1998. Net interest income increased to $330
million in the second quarter of 1999 from $325 million for the same period
in 1998. Net interest income increased to $653 million for the first six
months of 1999 from $646 million for the same period in 1998. The increase
in net interest income was due to an increase in earning assets which was
substantially offset by a decrease in the net interest margin. The net
interest margin decreased 37 and 51 basis points during the second quarter
and first six months of 1999, respectively, from the same periods in 1998,
reflecting a change in the portfolio mix combined with market pressures on
yields. The provision for loan losses decreased 32% in the second quarter of
1999 and 27% in the first six months of 1999 compared to the same periods in
the prior year, mostly due to reduced charge-offs at Island Finance. Norwest
Financial's noninterest expense increased by
22
<PAGE>
$14 million, or 6%, and $32 million, or 7%, for the quarter and six months
ended June 30, 1999, respectively, from the same periods in 1998. The
increase for both periods was due to higher salaries, incentive compensation
and employee benefits.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $2,328 million in the
second quarter of 1999, compared with $2,247 million in the second quarter of
1998. The Company's net interest margin was 5.68% in the second quarter of 1999,
compared with 5.88% in the second quarter of 1998. Net interest income was
$4,608 million in the first six months of 1999, compared with $4,456 million in
the first six months of 1998. The Company's net interest margin was 5.64% in the
first six months of 1999, compared with 5.89% in the first six months of 1998.
The decrease in the net interest margin for both the quarter and the first six
months was primarily due to lower yields on consumer and commercial loans as
well as higher balances of lower yielding investment securities, partially
offset by decreased rates on consumer deposits.
Interest income included hedging income of $61 million in the second quarter of
1999, compared with $22 million in the second quarter of 1998. Interest expense
included hedging expense of $28 million in the second quarter of 1999, compared
with $21 million in the same quarter of 1998.
Individual components of net interest income and the net interest margin are
presented in the rate/yield table on the following page.
Average core deposits were $127.6 billion and $122.4 billion and funded 64% and
66% of the Company's average total assets in the second quarter of 1999 and
1998, respectively. For the first six months of 1999 and 1998, average core
deposits were $127.8 billion and $121.8 billion, respectively, and funded 64%
and 66% of the Company's average total assets, respectively.
23
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended June 30,
------------------------------------------------------------------------
1999 1998
----------------------------------- -----------------------------------
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 $ 1,446 4.74% $ 17 $ 1,268 5.64% $ 18
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 6,180 5.25 82 6,454 5.90 94
Securities of U.S. states and political subdivisions 1,855 8.36 37 1,510 8.67 31
Mortgage-backed securities:
Federal agencies 19,261 6.59 315 15,721 7.11 273
Private collateralized mortgage obligations 3,160 6.81 54 2,437 6.80 41
-------- ------- -------- ------
Total mortgage-backed securities 22,421 6.62 369 18,158 7.06 314
Other securities 3,142 6.69 43 1,401 6.83 20
-------- ------- -------- ------
Total securities available for sale 33,598 6.46 531 27,523 6.86 459
Loans held for sale (3) 5,618 7.22 101 4,612 7.69 89
Mortgages held for sale (3) 12,254 6.96 215 11,904 6.98 208
Loans:
Commercial 35,638 8.57 762 32,885 9.00 738
Real estate 1-4 family first mortgage 12,075 8.40 254 13,106 8.26 271
Other real estate mortgage 16,977 8.71 368 16,137 9.80 394
Real estate construction 4,039 9.30 94 3,489 9.49 83
Consumer:
Real estate 1-4 family junior lien mortgage 11,210 9.09 254 10,601 9.86 261
Credit card 5,337 13.61 182 6,109 15.12 231
Other revolving credit and monthly payment 15,416 12.59 485 16,480 12.73 524
-------- ------- -------- ------
Total consumer 31,963 11.53 921 33,190 12.25 1,016
Lease financing 6,789 7.79 132 5,367 8.30 111
Foreign 1,515 21.05 80 1,349 21.09 71
-------- ------- -------- ------
Total loans (4) 108,996 9.60 2,611 105,523 10.19 2,684
Other 2,867 5.33 38 2,867 6.57 47
-------- ------- -------- ------
Total earning assets $164,779 8.57 3,513 $153,697 9.18 3,505
-------- ------- -------- ------
-------- --------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 2,844 .79 6 $ 2,723 1.55 11
Market rate and other savings 56,064 2.24 314 51,815 2.63 340
Savings certificates 25,926 4.72 305 27,514 5.25 360
Other time deposits 3,600 4.92 43 4,115 5.52 56
Deposits in foreign offices 1,032 4.28 11 626 4.88 8
-------- ------ -------- ------
Total interest-bearing deposits 89,466 3.05 679 86,793 3.58 775
Short-term borrowings 17,496 4.61 201 14,150 5.43 191
Long-term debt 20,663 5.61 290 16,826 6.35 267
Guaranteed preferred beneficial interests in Company's
subordinated debentures 785 7.52 15 1,231 8.21 25
-------- ------ -------- ------
Total interest-bearing liabilities 128,410 3.70 1,185 119,000 4.24 1,258
Portion of noninterest-bearing funding sources 36,369 -- -- 34,697 -- --
-------- ------ -------- ------
Total funding sources $164,779 2.89 1,185 $153,697 3.30 1,258
-------- ------ -------- ------
-------- --------
NET INTEREST MARGIN AND NET INTEREST INCOME ON A
TAXABLE-EQUIVALENT BASIS (5) 5.68% $2,328 5.88% $2,247
------ ------ ----- ------
------ ------ ----- ------
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 11,116 $ 10,460
Goodwill 7,657 7,923
Other 16,790 13,527
-------- --------
Total noninterest-earning assets $ 35,563 $ 31,910
-------- --------
-------- --------
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 42,729 $ 40,302
Other liabilities 7,603 6,494
Preferred stockholders' equity 459 460
Common stockholders' equity 21,141 19,351
Noninterest-bearing funding sources used to fund earning
assets (36,369) (34,697)
-------- --------
Net noninterest-bearing funding sources $ 35,563 $ 31,910
-------- --------
-------- --------
TOTAL ASSETS $200,342 $185,607
-------- --------
-------- --------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 7.75% and 8.50% for the quarters
ended June 30, 1999 and 1998, respectively, and 7.75% and 8.50% for the six
months ended June 30, 1999 and 1998, respectively. The average three-month
London Interbank Offered Rate (LIBOR) was 5.07% and 5.69% for the quarters
ended June 30, 1999 and 1998, respectively, and 5.03% and 5.68% for the six
months ended June 30, 1999 and 1998, 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.
24
<PAGE>
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------------------------------------------------
1999 1998
----------------------------------- -----------------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
BALANCE RATES EXPENSE balance rates expense
- -------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 1,304 4.86% $ 31 $ 1,232 5.62% $ 34
5,452 5.41 148 5,640 5.95 165
1,771 8.38 70 1,512 8.68 62
19,457 6.65 640 16,594 7.16 580
3,234 6.78 110 2,419 6.84 82
--------- ------ -------- ------
22,691 6.67 750 19,013 7.12 662
2,993 6.75 85 1,423 6.76 40
--------- ------ -------- ------
32,907 6.55 1,053 27,588 6.94 929
5,590 7.23 200 4,679 7.70 180
13,822 6.82 473 10,853 6.97 378
35,258 8.55 1,496 32,330 9.11 1,461
12,082 8.35 504 13,567 8.20 556
16,855 8.87 743 16,247 9.52 769
3,971 9.33 184 3,429 9.51 162
11,092 9.11 503 10,479 10.01 521
5,442 13.62 371 6,268 15.04 471
15,542 12.55 973 16,683 12.78 1,065
--------- ------ -------- ------
32,076 11.55 1,847 33,430 12.34 2,057
6,682 7.84 261 5,239 8.35 219
1,494 21.05 157 1,220 20.82 127
--------- ------ -------- ------
108,418 9.62 5,192 105,462 10.19 5,351
2,417 5.49 66 2,587 6.73 87
--------- ------ -------- ------
$ 164,458 8.60 7,015 $152,401 9.21 6,959
--------- ------ -------- ------
--------- --------
$ 2,784 .88 12 $ 2,682 1.59 21
55,822 2.31 639 51,594 2.63 672
26,491 4.81 632 27,787 5.28 727
3,657 5.02 91 4,150 5.53 114
1,039 4.24 22 704 4.95 17
--------- ------ -------- ------
89,793 3.14 1,396 86,917 3.60 1,551
17,526 4.70 408 13,444 5.44 363
19,780 5.80 573 16,885 6.39 539
785 7.52 30 1,265 8.00 50
--------- ------ -------- ------
127,884 3.79 2,407 118,511 4.25 2,503
36,574 -- -- 33,890 -- --
--------- ------ -------- ------
$164,458 2.96 2,407 $152,401 3.32 2,503
--------- ------ -------- ------
--------- --------
5.64% $4,608 5.89% $4,456
----- ------ ------ ------
----- ------ ------ ------
$ 11,177 $ 10,604
7,695 7,972
16,207 13,467
-------- --------
$ 35,079 $ 32,043
-------- --------
-------- --------
$ 42,750 $ 39,741
7,627 6,416
461 461
20,815 19,315
(36,574) (33,890)
-------- --------
$ 35,079 $ 32,043
-------- --------
-------- --------
$199,537 $184,444
-------- --------
-------- --------
- ------------------------------------------------------------------------
</TABLE>
25
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
-------------- % -------------- %
(in millions) 1999 1998 Change 1999 1998 Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 367 $ 332 11% $ 711 $ 637 12%
Trust and investment fees and commissions:
Asset management and custody fees 190 167 14 375 328 14
Mutual fund and annuity sales fees 98 77 27 188 151 25
All other 27 25 8 52 48 8
------ ------ ------ ------
Total trust and investment fees and commissions 315 269 17 615 527 17
Credit card fee revenue 126 128 (2) 258 249 4
Other fees and commissions:
Cash network fees 70 56 25 128 107 20
Charges and fees on loans 87 71 23 163 142 15
All other 110 105 5 214 204 5
------ ------ ------ ------
Total other fees and commissions 267 232 15 505 453 11
Mortgage banking: (1)
Origination and other closing fees 115 129 (11) 228 238 (4)
Servicing fees, net of amortization 99 (16) -- 54 41 32
Net gains on sales of mortgage servicing rights -- 17 (100) -- 16 (100)
Net gains on sales of mortgages 44 110 (60) 244 165 48
Other 66 63 5 125 119 5
------ ------ ------ ------
Total mortgage banking 324 303 7 651 579 12
Insurance 119 111 7 204 205 --
Net venture capital gains 13 53 (75) 126 112 13
Net gains on securities available for sale 23 66 (65) 21 85 (75)
Income from equity investments accounted for by the
Cost method 30 34 (12) 64 83 (23)
Equity method 20 16 25 41 31 32
Net gains on sales of loans 12 6 100 25 23 9
Net gains from dispositions of operations 103 74 39 102 71 44
All other 95 91 4 218 194 12
------ ------ ------ ------
Total $1,814 $1,715 6% $3,541 $3,249 9%
------ ------ ---- ------ ------ ----
------ ------ ---- ------ ------ ----
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See page 22 for discussion of Norwest Mortgage noninterest income.
The increase in trust and investment fees and commissions for the second quarter
of 1999 was primarily due to an overall increase in mutual fund management fees,
reflecting the overall growth in the fund families' net assets. The Company
managed 85 mutual funds consisting of $55.0 billion of assets at June 30, 1999
that included 42 Stagecoach Funds ($29.8 billion) and 43 Norwest Advantage Funds
($25.2 billion), compared with 79 mutual funds consisting of $46.6 billion of
assets at June 30, 1998 that included 38 Stagecoach Funds ($24.7 billion) and 41
Norwest Advantage Funds ($21.9 billion). The Company also managed or maintained
personal trust, employee benefit trust and agency assets of approximately $408
billion and $402 billion at June 30, 1999 and 1998, respectively.
Net venture capital gains were $13 million for the second quarter and $126
million for the first six months of 1999, compared with $53 million and $112
million for the same periods of 1998. Sales of venture capital securities
generally relate to the timing of holdings becoming publicly
26
<PAGE>
traded and subsequent market conditions, causing venture capital gains to be
unpredictable in nature.
The increase in net gains from dispositions of operations was due to the
divestitures of stores in Arizona and Nevada during the second quarter of 1999.
"All other" noninterest income in the second quarter of 1999 included a $36
million write-down of auto lease residuals.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
-------------- % -------------- %
(in millions) 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 750 $ 717 5 % $1,475 $1,402 5 %
Incentive compensation 135 150 (10) 269 285 (6)
Employee benefits 217 187 16 416 376 11
Equipment 182 196 (7) 373 381 (2)
Net occupancy 185 187 (1) 371 376 (1)
Goodwill 104 104 -- 208 208 --
Core deposit intangible:
Nonqualifying (1) 45 54 (17) 92 110 (16)
Qualifying 5 7 (29) 10 14 (29)
Net (gains) losses on dispositions of premises
and equipment (13) 41 -- (11) 48 --
Operating losses 37 33 12 66 71 (7)
Outside professional services 88 80 10 160 139 15
Contract services 110 82 34 200 155 29
Telecommunications 64 63 2 125 121 3
Outside data processing 62 59 5 138 108 28
Advertising and promotion 56 65 (14) 106 119 (11)
Postage 58 57 2 115 111 4
Travel and entertainment 60 52 15 115 100 15
Stationery and supplies 39 41 (5) 77 82 (6)
Insurance 50 44 14 86 82 5
Security 21 19 11 43 40 8
All other 109 214 (49) 272 421 (35)
------ ------ ------ ------
Total $2,364 $2,452 (4)% $4,706 $4,749 (1)%
------ ------ ---- ------ ------ ----
------ ------ ---- ------ ------ ----
- ------------------------------------------------------------------------------------------------------------------------------
</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.
The increase in contract services was primarily due to expenses associated
with various Merger-related projects.
During the second quarter of 1999, the Company continued with its
enterprise-wide project to prepare the Company's systems for Year 2000
compliance. The Year 2000 compliance 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.
In addition, the year 2000 is a leap year but some programs may not recognize
it as a leap year and may not properly provide for February 29, 2000. "Systems"
includes hardware, networks, system and application software, and commercial
"off the shelf" software, and embedded technology such as date impacted
processors in automated systems such as elevators, telephone systems,
security systems, vault systems,
27
<PAGE>
heating and cooling systems and others. Priority is given to "mission
critical" systems. A system is considered "mission critical" if it is
identified by management as 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;
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 intended to validate that
interfaces are Year 2000 compliant and contingency planning.
The former Wells Fargo also uses a four-phase plan for achieving Year 2000
readiness: the Assessment Phase (Phase I)--intended to determine which
computers, operating systems, applications and facilities require remediation
and prioritization of these remediation efforts; the Renovation Phase (Phase
II)--correction or replacement of any non-compliant hardware, software or
facilities; the Validation Phase (Phase III)--testing of in-house systems,
vendor software and service providers; and the Implementation Phase (Phase
IV)--testing of remediated and validated code is tested in interfaces with
customers, vendors, government institutions and others. All renovated
software, both in-house applications and vendor software, is placed back into
production before the Validation Phase.
The Company has substantially completed all of the phases discussed in the
preceding two paragraphs. During the remainder of 1999, the Company will be
performing the ongoing task of maintaining Year 2000 readiness for already
certified mission critical systems and of monitoring the Company's systems
changes which result from ongoing business development and the integration of
the former Wells Fargo and the former Norwest, particularly in the
overlapping markets of the two former companies.
The Company's Year 2000 Program Office oversees the Year 2000 efforts of the
Company and all of its subsidiaries, including both the former Norwest
businesses and the former Wells Fargo businesses. Representatives from other
areas of the Company, including the law department, audit, risk management and
corporate communications, provide support for the Year 2000 project. In
addition, as a financial services organization, the Company is under the
supervision of federal regulatory agencies which have provided guidelines and
are performing ongoing monitoring of the Year 2000 readiness of the Company.
The Company may be affected by the Year 2000 compliance efforts of
governmental agencies, businesses and other entities who provide data to, or
receive data from, the Company, and by entities, such as borrowers, vendors,
counterparties and customers, 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, counterparties and governmental entities and the testing
of major external interfaces with
28
<PAGE>
third parties that the Company has determined are critical. Using a
combination of surveys and direct communication, the Company has evaluated
its major credit customers, assessed their Year 2000 efforts, and
incorporated any identified Year 2000 customer risks into the Company's
credit risk analysis processes.
The Company has developed business continuity plans for its core business
systems which include plans to mitigate the effects of any internal
operational problems or any problems caused by counterparties whose failure
to properly address Year 2000 issues may adversely affect the Company's
ability to perform certain functions. The Company developed these plans by
augmenting existing business continuity plans with Year 2000 plans. The
Company's Corporate Business Continuity Planning group is currently
conducting a validation and review of these plans, using staff who were not
involved directly in developing the plans.
As part of its business continuity planning, the Company is also working on
Year 2000 event plans to address issues that may arise during the period
from December 27, 1999 through January 10, 2000 and February 27 through March
1, 2000. The Company has an on-going awareness program to communicate Year
2000 matters to employees and customers and has also developed liquidity
preparedness and cash availability plans to address any potential increased
funding needs that may arise as the millennium approaches.
The Company currently estimates that its total cost for the Year 2000 project
will approximate $325 million. Through June 30, 1999, the Company has
incurred charges of $269 million related to its Year 2000 project, including
$36 million in the second quarter of 1999. 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 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.
The previous 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, the unpredictability of consumer behavior, and
whether the Company's customers, vendors, competitors and other third parties
effectively address the Year 2000 issue.
29
<PAGE>
Year 2000 issues expose the Company to a number of risks, any one of which,
if realized, could have a material adverse effect on the Company's business,
results of operations or financial condition. These risks include the
possibility that, to the extent certain vendors fail to adequately address
Year 2000 issues, the Company may suffer disruptions in important services on
which the Company depends, such as telecommunications, electrical power and
data processing. Year 2000 issues could affect the Company's liquidity if
customer withdrawals in anticipation of the Year 2000 are greater than
expected or if the Company's lenders are unable to provide the Company with
funds when and as needed by the Company. Year 2000 issues also create
additional credit risk to the Company insofar as the failure of the Company's
customers and counterparties to adequately address Year 2000 issues could
increase the likelihood that these customers and counterparties become
delinquent or default on their obligations to the Company. Year 2000 issues
also create additional fiduciary risk to the Company to the extent that the
values of assets held in fiduciary accounts are negatively impacted by Year
2000 issues. In addition to increasing the Company's risk exposure to problem
loans, credit losses, losses in fiduciary business and liquidity problems,
Year 2000 issues expose the Company to increased risk of litigation losses
and expenses relating to the foregoing. There are other Year 2000 risks
besides those described above that may impact the Company's business, results
of operations or financial condition.
There can be no assurances that the Company, its significant third party vendors
or its significant customers and counterparties will adequately address their
respective Year 2000 issues. Although the Company continues to assess the Year
2000 readiness of its significant third party vendors and its significant
customers and counterparties, it is not possible at this time to determine the
effect on the Company's business, results of operations or financial condition
from the failure of any of these parties to be Year 2000 compliant.
The Year 2000 disclosures contained in this Form 10-Q are designated as Year
2000 Readiness Disclosures related to the Year 2000 Information and Readiness
Disclosure Act. 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. The forward-looking
statements in the foregoing Year 2000 discussion should be read with the
cautionary statements included in the "Factors That May Affect Future Results"
portion of the MD&A section of this report.
INCOME TAXES
The Company's effective income tax rate was 38% for the second quarter of
1999, compared with 39% for the second quarter of 1998 and 37% for the first
half of 1999, compared with 39% for the first half of 1998. The lower
effective rate for the first six months of 1999 compared to the same period
last year resulted from a reduction of state income tax and an increase in
charitable donations of appreciated securities.
30
<PAGE>
EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
The following table reconciles reported earnings to net income excluding
goodwill and nonqualifying core deposit intangible amortization ("cash" or
"tangible") for the quarter ended June 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Quarter ended
(in millions, except per share amounts) June 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
Amortization
---------------------------
Nonqualifying
Reported core deposit "Cash"
earnings Goodwill intangible earnings
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income tax expense $1,501 $104 $ 45 $1,650
Income tax expense 570 -- 17 587
------ ---- ---- ------
Net income 931 104 28 1,063
Preferred stock dividends 9 -- -- 9
------ ---- --- ------
Net income applicable to common stock $ 922 $104 $ 28 $1,054
------ ---- --- ------
------ ---- --- ------
Earnings per common share $ .56 $.06 $.02 $ .64
------ ---- --- ------
------ ---- --- ------
Diluted earnings per common share $ .55 $.06 $.02 $ .63
------ ---- --- ------
------ ---- --- ------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core
deposit intangible amortization and related balances for the quarter ended June
30, 1999 were calculated as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Quarter ended
(in millions) June 30, 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ROA: A / (C-E-F) = 2.23%
ROE: B / (D-E-G) = 33.43%
Efficiency: (H-I) / J = 53.7%
Net income $ 1,063(A)
Net income applicable to common stock 1,054(B)
Average total assets 200,342(C)
Average common stockholders' equity 21,141(D)
Average goodwill 7,657(E)
Average pre-tax nonqualifying core deposit intangible 1,343(F)
Average after-tax nonqualifying core deposit intangible 833(G)
Noninterest expense 2,364(H)
Amortization expense for goodwill and nonqualifying core deposit intangible 149(I)
Net interest income plus noninterest income 4,125(J)
- ------------------------------------------------------------------------------------------------
</TABLE>
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 for other information regarding
funds available for use by management.
31
<PAGE>
BALANCE SHEET ANALYSIS
SECURITIES AVAILABLE FOR SALE
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>
- ---------------------------------------------------------------------------------------------------------------------
JUNE 30, 1999 Dec. 31, 1998 June 30, 1998
--------------- --------------- ---------------
ESTIMATED Estimated Estimated
FAIR fair fair
(in millions) COST VALUE Cost value Cost value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities of U.S. Treasury and federal agencies $ 5,934 $ 5,619 $ 3,260 $ 3,287 $ 5,566 $ 5,608
Securities of U.S. states and political
subdivisions 2,041 2,105 1,683 1,794 1,670 1,760
Mortgage-backed securities:
Federal agencies 22,078 21,858 20,539 20,804 14,557 14,890
Private collateralized mortgage obligations (1) 3,142 3,085 3,420 3,440 3,055 3,066
------- ------- ------- ------- ------- -------
Total mortgage-backed securities 25,220 24,943 23,959 24,244 17,612 17,956
Other 2,014 1,953 1,879 1,899 792 810
------- ------- ------- ------- ------- -------
Total debt securities 35,209 34,620 30,781 31,224 25,640 26,134
Marketable equity securities 433 1,090 386 773 287 542
------- ------- ------- ------- ------- -------
Total $35,642 $35,710 $31,167 $31,997 $25,927 $26,676
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Substantially all private collateralized mortgage obligations are AAA rated
bonds collateralized by 1-4 family residential first mortgages.
The following table provides the components of the unrealized net gain on
securities available for sale. The unrealized net gain on securities available
for sale is reported on an after-tax basis as a part of cumulative other
comprehensive income in stockholders' equity.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(in millions) JUNE 30, 1999 Dec. 31, 1998 June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gross gains $1,037 $919 $778
Unrealized gross losses (969) (89) (29)
------ ---- ----
Unrealized net gain $ 68 $830 $749
------ ---- ----
------ ---- ----
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table provides the components of the realized net gain on the
sales of securities in the securities available for sale portfolio. 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).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
-------------- --------------
(in millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Realized gross gains $30 $70 $ 45 $94
Realized gross losses (7) (4) (24) (9)
---- ---- ---- ----
Realized net gain $23 $66 $ 21 $85
---- ---- ---- ----
---- ---- ---- ----
- ------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
The weighted average expected remaining maturity of the debt securities portion
of the securities available for sale portfolio was 6 years and 9 months at June
30, 1999. Expected remaining maturities will differ from contractual maturities
because borrowers may have the right to prepay obligations with or without
penalties.
At June 30, 1999, mortgage-backed securities, including collateralized
mortgage obligations (CMOs) of $3.1 billion, were $24.9 billion, or 70% of
the Company's securities available for sale portfolio. 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 effect 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 $24.9 billion to $23.1 billion and the
expected remaining maturity of these securities would increase from 5 years
and 7 months to 7 years.
33
<PAGE>
LOAN PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
% Change
June 30, 1999 from
--------------------
JUNE 30, Dec. 31, June 30, Dec. 31, June 30,
(in millions) 1999 1998 1998 1998 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial (1) $ 36,633 $ 35,450 $ 33,875 3 % 8 %
Real estate 1-4 family first mortgage 11,941 11,496 12,832 4 (7)
Other real estate mortgage (2) 17,157 16,668 16,103 3 7
Real estate construction 4,103 3,790 3,548 8 16
Consumer:
Real estate 1-4 family junior lien mortgage 11,494 11,128 10,641 3 8
Credit card 5,294 5,795 6,042 (9) (12)
Other revolving credit and monthly payment 16,652 15,809 16,323 5 2
-------- -------- --------
Total consumer 33,440 32,732 33,006 2 1
Lease financing 6,875 6,380 5,487 8 25
Foreign 1,497 1,478 1,450 1 3
-------- -------- --------
Total loans (net of unearned income, including
net deferred loan fees, of $2,974, $2,967
and $2,921) $111,646 $107,994 $106,301 3 % 5 %
-------- -------- -------- -- ---
-------- -------- -------- -- ---
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes agricultural loans (loans to finance agricultural production and
other loans to farmers) of $2,839 million, $2,979 million and $2,819 million
at June 30, 1999, December 31, 1998 and June 30, 1998, respectively.
(2) Includes agricultural loans that are secured by real estate of $984
million, $923 million and $812 million at June 30, 1999, December 31,
1998 and June 30, 1998, respectively.
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
JUNE 30, Dec. 31, June 30,
(in millions) 1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans (1)(2)(3) $687 $709 $732
Restructured loans (4) 1 1 1
---- ---- ----
Nonaccrual and restructured loans 688 710 733
As a percentage of total loans .6% .7% .7%
Foreclosed assets 203 167 176
Real estate investments (5) -- 1 3
---- ---- ----
Total nonaccrual and restructured loans and other assets $891 $878 $912
---- ---- ----
---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes loans that are contractually past due 90 days or more as to
interest or principal, but are both well-secured and in the process of
collection or are real estate 1-4 family first mortgage loans or consumer
loans that are exempt under regulatory rules from being classified as
nonaccrual.
(2) Includes commercial agricultural loans of $43 million, $32 million and
$29 million and agricultural loans secured by real estate of $16
million, $12 million and $16 million at June 30, 1999, December 31, 1998
and June 30, 1998, respectively.
(3) Of the total nonaccrual loans, $369 million, $388 million and $459 million
at June 30, 1999, December 31, 1998 and June 30, 1998, respectively, were
considered impaired under FAS 114 (Accounting by Creditors for Impairment of
a Loan).
(4) In addition to originated loans that were subsequently restructured, there
were loans of none, $23 million and $23 million at June 30, 1999, December
31, 1998 and June 30, 1998, respectively, that were purchased at a steep
discount whose contractual terms were modified after acquisition. The
modified terms did not affect the book balance or the yields expected at the
date of purchase. Of the total restructured loans and loans purchased at a
steep discount, none, $23 million and $23 million were considered impaired
under FAS 114 at June 30, 1999, December 31, 1998 and June 30, 1998,
respectively.
(5) Represents the amount of real estate investments (contingent interest loans
accounted for as investments) that would be classified as nonaccrual if such
assets were loans. Real estate investments totaled $133 million, $128
million and $162 million at June 30, 1999, December 31, 1998 and June 30,
1998, respectively.
34
<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 120 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 Company will measure the amount of impairment using discounted
cash flows, except when 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.
35
<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>
- --------------------------------------------------------------------------------------------------------------------
JUNE 30, Dec. 31, June 30,
(in millions) 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Impairment measurement based on:
Collateral value method $299 $329 $363
Discounted cash flow method 63 67 97
Historical loss factors 7 15 22
---- ---- ----
Total (1)(2) $369 $411 $482
---- ---- ----
---- ---- ----
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes accruing loans of none, $23 million and $23 million purchased at a
steep discount at June 30, 1999, December 31, 1998 and June 30, 1998,
respectively, 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 $169 million, $155 million, and $148 million of impaired loans with
a related FAS 114 allowance of $54 million, $37 million and $40 million at
June 30, 1999, December 31, 1998 and June 30, 1998, respectively.
The average recorded investment in impaired loans was $369 million and $482
million during the second quarter of 1999 and 1998 respectively, and $373
million and $461 million during the first six months of 1999 and 1998,
respectively. Total interest income recognized on impaired loans was $2 million
and $3 million during the second quarter of 1999 and 1998, respectively, and $4
million and $7 million during the first six months of 1999 and 1998,
respectively, which was primarily 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.
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 affected 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.
36
<PAGE>
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
The following table shows loans contractually past due 90 days or more as to
interest or principal, but not included in the nonaccrual or restructured
categories. All loans in this category are both well-secured and in the
process of collection or are real estate 1-4 family first mortgage loans or
consumer loans that are exempt under regulatory rules from being classified
as nonaccrual because they are automatically charged off after being past due
for a prescribed period (generally, 180 days for subsidiary banks).
Notwithstanding, real estate 1-4 family loans (first liens and junior liens)
are placed on nonaccrual within 120 days of becoming past due and such
nonaccrual loans are excluded from the following table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
JUNE 30, Dec. 31, June 30,
(in millions) 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 12 $ 9 $ 26
Real estate 1-4 family first mortgage 23 17 19
Other real estate mortgage 48 41 38
Real estate construction 4 6 5
Consumer:
Real estate 1-4 family junior lien mortgage 33 63 67
Credit card 103 140 141
Other revolving credit and monthly payment 181 180 238
---- ---- ----
Total consumer (1) 317 383 446
---- ---- ----
Total $404 $456 $534
---- ---- ----
---- ---- ----
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consumer loans at December 31, 1998 and June 30, 1998 have been revised
to include Norwest Financial loans of $114 million and $166 million,
respectively, that were contractually past due 90 days or more as to
interest or principal.
37
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
----------------- -----------------
(in millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $3,161 $3,066 $3,134 $3,062
Allowances related to business combinations, net 5 26 35 35
Provision for loan losses 260 309 530 614
Loan charge-offs:
Commercial (111) (64) (192) (122)
Real estate 1-4 family first mortgage (18) (7) (19) (12)
Other real estate mortgage (4) (16) (12) (19)
Real estate construction (1) (1) (1) (2)
Consumer:
Real estate 1-4 family junior lien mortgage (6) (7) (15) (13)
Credit card (96) (141) (206) (282)
Other revolving credit and monthly payment (109) (157) (236) (336)
------ ------ ------ ------
Total consumer (211) (305) (457) (631)
Lease financing (10) (12) (21) (24)
Foreign (24) (12) (39) (22)
------ ------ ------ ------
Total loan charge-offs (379) (417) (741) (832)
------ ------ ------ ------
Loan recoveries:
Commercial 23 17 36 42
Real estate 1-4 family first mortgage 2 1 3 5
Other real estate mortgage 12 30 29 41
Real estate construction 4 1 4 2
Consumer:
Real estate 1-4 family junior lien mortgage 4 2 7 4
Credit card 13 15 26 30
Other revolving credit and monthly payment 53 40 89 82
------ ------ ------ ------
Total consumer 70 57 122 116
Lease financing 3 3 6 6
Foreign 4 5 7 7
------ ------ ------ ------
Total loan recoveries 118 114 207 219
------ ------ ------ ------
Total net loan charge-offs (261) (303) (534) (613)
------ ------ ------ ------
BALANCE, END OF PERIOD $3,165 $3,098 $3,165 $3,098
------ ------ ------ ------
------ ------ ------ ------
Total net loan charge-offs as a percentage of average loans (annualized) .96% 1.16% .99% 1.17%
------ ------ ------ ------
------ ------ ------ ------
Allowance as a percentage of total loans 2.83% 2.91% 2.83% 2.91%
------ ------ ------ ------
------ ------ ------ ------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
The Company considers the allowance for loan losses of $3,165 million adequate
to cover losses inherent in loans, commitments to extend credit and standby
letters of credit at June 30, 1999. 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.
INTEREST RECEIVABLE AND OTHER ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in millions) 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonmarketable equity investments $ 1,989 $ 2,392 $1,650
Government National Mortgage Association (GNMA) pool buy outs 1,957 1,624 916
Trading assets 2,441 760 1,267
Interest receivable 1,150 1,062 1,046
Foreclosed assets 203 167 176
Certain identifiable intangible assets 241 212 271
Due from customers on acceptances 122 128 121
Interest earning deposits 80 113 80
Other 6,549 4,436 4,409
------- ------- ------
Total interest receivable and other assets $14,732 $10,894 $9,936
------- ------- ------
------- ------- ------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Income from nonmarketable equity investments accounted for using the cost method
was $30 million and $34 million in the second quarter of 1999 and 1998,
respectively, and $64 million and $83 million in the first half of 1999 and
1998, respectively.
The increase in GNMA pool buy outs was due to additional advances made to GNMA
mortgage pools that are guaranteed by the Federal Housing Administration or by
the Department of Veterans Affairs (collectively, "the guarantors"). These
advances are made to buy out government agency-guaranteed delinquent loans,
pursuant to the Company's servicing agreements. The Company, on behalf of the
guarantors, undertakes the collection and foreclosure process. After the
foreclosure process is complete, the Company is reimbursed for substantially all
costs incurred, including the advances, by the guarantors.
Trading assets consist predominantly of securities, including corporate debt and
U.S. government agency obligations. The increase at June 30, 1999 compared with
December 31, 1998 was predominantly due to an increase in U.S. Treasury bills
and U.S. Treasury notes. Income from trading assets was $27 million and $60
million in the second quarter of 1999 and 1998, respectively, and $65 million
and $104 million in the first half of 1999 and 1998, respectively.
39
<PAGE>
Amortization expense for certain identifiable intangible assets included in
other assets was $11 million and $23 million in the second quarter of 1999 and
1998, respectively, and $23 million and $45 million in the first half of 1999
and 1998, respectively.
DEPOSITS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in millions) 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $ 43,708 $ 46,732 $ 41,207
Interest-bearing checking 2,886 2,908 3,098
Market rate and other savings 55,144 55,152 51,133
Savings certificates 25,564 27,497 27,413
-------- -------- --------
Core deposits 127,302 132,289 122,851
Other time deposits 3,335 3,753 3,949
Deposits in foreign offices 1,905 746 445
-------- -------- -------
Total deposits $132,542 $136,788 $127,245
-------- -------- --------
-------- -------- --------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
CAPITAL ADEQUACY/RATIOS
The Company and each of the subsidiary banks are subject to various regulatory
capital adequacy requirements administered by the Federal Reserve Board and the
Office of the Comptroller of the Currency. Risk-based capital (RBC) guidelines
establish a risk-adjusted ratio relating capital to different categories of
assets and off-balance sheet exposures.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
To be well
capitalized under
the FDICIA
For capital prompt corrective
Actual adequacy purposes action provisions
--------------- ----------------- --------------------
(in billions) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
Total capital (to risk-weighted assets)
> >
Wells Fargo & Company $ 17.6 11.07% - $12.7 - 8.00%
> > > >
Norwest Bank Minnesota, N.A. 2.2 12.09 - 1.5 - 8.00 - $1.8 - 10.00%
> > > >
Wells Fargo Bank, N.A. 8.6 12.16 - 5.6 - 8.00 - 7.1 - 10.00
Tier 1 capital (to risk-weighted assets)
> >
Wells Fargo & Company $ 13.5 8.45% - $ 6.4 - 4.00%
> > > >
Norwest Bank Minnesota, N.A. 1.9 10.38 - .7 - 4.00 - $1.1 - 6.00%
> > > >
Wells Fargo Bank, N.A. 5.9 8.29 - 2.8 - 4.00 - 4.2 - 6.00
Tier 1 capital (to average assets)
(Leverage ratio)
> >
Wells Fargo & Company $ 13.5 7.05% - $7.6 - 4.00%(1)
> > > >
Norwest Bank Minnesota, N.A. 1.9 5.97 - 1.3 - 4.00(1) - $1.6 - 5.00%
> > > >
Wells Fargo Bank, N.A. 5.9 7.31 - 3.2 - 4.00(1) - 4.0 - 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 have
implemented the risk-based capital measure for market risk, and 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.
41
<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 June 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
JUNE 30, 1999 December 31, 1998
---------------------------------------- -----------------------------------
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) $30,528 $207 $ 69 $24,429 $735 $686
Futures 71,748 -- -- 62,348 -- --
Floors and caps (1) 41,960 208 208 33,598 504 504
Options (1) 15,932 52 33 25,822 112 101
Forwards (1) 32,707 129 17 41,283 11 (58)
Foreign exchange contracts:
Forward contracts (1) 42 1 1 168 -- (1)
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Swaps (1) 13,356 75 (9) 7,795 81 10
Futures 31,237 -- -- 8,440 -- --
Floors and caps purchased (1) 5,435 58 58 5,619 42 42
Floors and caps written 6,009 -- (62) 5,717 -- (42)
Options written 5,002 -- (1) -- -- --
Forwards (1) 201 4 -- 850 24 4
Commodity contracts:
Swaps (1) 108 6 2 78 4 --
Floors and caps purchased (1) 24 2 2 4 -- --
Floors and caps written 23 -- (2) 4 -- --
Foreign exchange contracts:
Forwards and spots (1) 3,918 48 23 3,524 37 2
Options purchased (1) 55 1 1 44 2 2
Options written 51 -- (1) 43 -- (2)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company anticipates performance by substantially all of the
counterparties for these or the underlying financial instruments.
(2) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.
The Company enters into a variety of financial contracts, which include interest
rate futures and forward contracts, interest rate floors and caps, 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.
42
<PAGE>
The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The Company controls the credit risk
of its financial contracts except 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.
LIQUIDITY AND CAPITAL MANAGEMENT
The Company manages its liquidity and capital 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, asset
liquidity is provided by the Company's securities available for sale portfolio.
Liquidity for the Parent is provided by dividend and interest income from its
subsidiaries, potential disposition of readily marketable assets and through
its ability to raise funds in a variety of domestic and international money
and capital markets. In the second quarter of 1999, the Company issued the
$.6 billion remaining on its registration statement filed with the SEC in
1996 in the form of Medium-Term Notes. The Company subsequently filed a new
shelf registration statement with the SEC that allows for the issuance of $10
billion in debt and equity securities, excluding common stock, other than
common stock issuable upon the exercise or conversion of debt and equity
securities. This registration statement became effective June 16, 1999, and
together with the $150 million issuance authority remaining on the Company's
registration statements filed in 1993 and 1995, permits the Company to issue
an aggregate of $10.15 billion in such debt and equity securities. In 1996,
the Parent also established a $2 billion Euro Medium-Term Note program (Euro
MTN). The proceeds from the sale of any securities are expected to be used
for general corporate purposes. As of June 30, 1999, the Company had issued
no securities under the new 1999 registration statement and $300 million
under the Euro MTN program. On July 29, 1999, the Company issued $1.5 billion
from the aggregate $10.15 billion available for issuance under the
registration statements described above.
Since 1986, the Company has repurchased common stock in the open market in a
systematic pattern to meet the common stock issuance requirements of the
Company's benefit plans and other common stock issuance requirements, including
acquisitions accounted for as purchases. In April of 1999, the Board of
Directors authorized the repurchase of up to 9 million additional shares of the
Company's outstanding common stock. As of June 30, 1999, the total remaining
common stock purchase authority was approximately 6.8 million shares.
In April 1999, the Board of Directors approved an increase in the Company's
quarterly common stock dividend to 20 cents per share from 18.5 cents,
representing an 8% increase in the quarterly dividend rate.
43
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which the Company is exposed is interest rate risk. 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,
securities available for sale, 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 and net income 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 simulation model is used to measure the impact on net income, relative to a
base case scenario, of rates increasing or decreasing 100 basis points over the
next 12 months. At June 30, 1999, the simulation showing the largest drop in net
income relative to the base case scenario over the next twelve months is a 100
basis point increase in rates which would result in a decrease in net income of
$49 million. In the simulation which was run at December 31, 1998, the largest
44
<PAGE>
drop in net income relative to the base case scenario over the next twelve
months was a 100 basis point increase in rates which would result in a decrease
in net income of $26 million.
The Company uses interest rate derivative financial instruments as
asset/liability management tools 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 declining 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. The Company also uses derivatives including floors, futures contracts
and options on futures contracts to hedge the Company's mortgage servicing
rights.
The Company considers the fair values and the potential near term losses to
future earnings related to its customer accommodation derivative financial
instruments to be immaterial.
45
<PAGE>
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on April 27, 1999.
There were 1,653,285,689 shares of common stock outstanding and
entitled to vote at said meeting; and a total of 1,320,194,848
(79.85%) shares were present at the meeting in person or by proxy.
Each of the persons named in the Proxy Statement as a nominee for
director was elected; the proposal to increase by 40,000,000 the
number of shares of common stock that may be awarded under the
Company's Long-Term Incentive Compensation Plan was approved; the
appointment of KPMG LLP to audit the books of the Company and its
subsidiaries for the year ending December 31, 1999 was ratified;
and the stockholder proposal requesting the Company's Board of
Directors to provide for cumulative voting for directors was not
approved. The following are the voting results on each of the
matters:
(1) ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
For Withheld
--------------- -------------
<S> <C> <C>
Leslie S. Biller 1,308,991,412 11,203,436
J. A. Blanchard III 1,308,671,342 11,523,506
Michael R. Bowlin 1,308,854,007 11,340,841
Edward M. Carson 1,311,144,979 9,049,869
David A. Christensen 1,309,142,785 11,052,063
William S. Davila 1,308,754,264 11,440,584
Susan E. Engel 1,289,343,097 30,851,751
Paul Hazen 1,310,754,049 9,440,799
William A. Hodder 1,308,881,255 11,313,593
Rodney L. Jacobs 1,309,094,799 11,100,049
Reatha Clark King 1,284,591,589 35,603,259
Richard M. Kovacevich 1,311,857,728 8,337,120
Richard D. McCormick 1,309,117,438 11,077,410
Cynthia H. Milligan 1,309,041,862 11,152,986
Benjamin F. Montoya 1,308,368,857 11,825,991
Philip J. Quigley 1,308,687,190 11,507,658
Donald B. Rice 1,309,107,798 11,087,050
Ian M. Rolland 1,182,610,763 137,584,085
Judith M. Runstad 1,309,051,737 11,143,111
Susan G. Swenson 1,309,096,704 11,098,144
Daniel M. Tellep 1,308,754,167 11,440,681
Chang-Lin Tien 1,300,837,956 19,356,892
Michael W. Wright 1,309,024,014 11,170,834
John A. Young 1,308,488,002 11,706,846
</TABLE>
46
<PAGE>
(2) Proposal to increase the number of shares that may be
awarded under the Company's Long-Term Incentive Compensation
Plan
<TABLE>
<CAPTION>
For Against Abstentions
--------------- ------------- -----------
<S> <C> <C>
1,169,963,490 141,455,821 8,775,537
</TABLE>
(3) Proposal to ratify appointment of KPMG LLP as independent auditors
for 1999
<TABLE>
<CAPTION>
For Against Abstentions
--------------- ------------- -----------
<S> <C> <C>
1,312,674,466 3,673,904 3,846,478
</TABLE>
(4) Stockholder proposal relating to cumulative voting in the election
of directors
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-votes
------------- ------------- ------------- -------------
<S> <C> <C> <C>
315,518,910 754,955,408 85,730,013 163,990,517
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a) Restated Certificate of Incorporation, incorporated by reference
to Exhibit 3(b) to the Company's Current Report on Form 8-K dated
June 28, 1993. Certificates of Amendment of Certificate of
Incorporation, incorporated by reference to Exhibit 3 to the
Company's Current Report on Form 8-K dated July 3, 1995
(authorizing preference stock), and Exhibits 3(b) and 3(c) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 (changing the Company's name and increasing
authorized common and preferred stock, respectively)
(b) Certificate of Change of Location of Registered Office and Change
of Registered Agent
(c) Certificate of Designations for the Company's ESOP Cumulative
Convertible Preferred Stock, incorporated by reference to Exhibit
4 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994
47
<PAGE>
3(d) Certificate of Designations for the Company's Cumulative Tracking
Preferred Stock, incorporated by reference to Exhibit 3 to the
Company's Current Report on Form 8-K dated January 9, 1995
(e) Certificate of Designations for the Company's 1995 ESOP
Cumulative Convertible Preferred Stock, incorporated by reference
to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995
(f) Certificate Eliminating the Certificate of Designations for the
Company's Cumulative Convertible Preferred Stock, Series B,
incorporated by reference to Exhibit 3(a) to the Company's
Current Report on Form 8-K dated November 1, 1995
(g) Certificate Eliminating the Certificate of Designations for the
Company's 10.24% Cumulative Preferred Stock, incorporated by
reference to Exhibit 3 to the Company's Current Report on Form
8-K dated February 20, 1996
(h) Certificate of Designations for the Company's 1996 ESOP
Cumulative Convertible Preferred Stock, incorporated by reference
to Exhibit 3 to the Company's Current Report on Form 8-K dated
February 26, 1996
(i) Certificate of Designations for the Company's 1997 ESOP
Cumulative Convertible Preferred Stock, incorporated by reference
to Exhibit 3 to the Company's Current Report on Form 8-K dated
April 14, 1997
(j) Certificate of Designations for the Company's 1998 ESOP
Cumulative Convertible Preferred Stock, incorporated by reference
to Exhibit 3 to the Company's Current Report on Form 8-K dated
April 20, 1998
(k) Certificate of Designations for the Company's Adjustable
Cumulative Preferred Stock, Series B, incorporated by reference
to Exhibit 3(j) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998
(l) Certificate of Designations for the Company's Fixed/Adjustable
Rate Noncumulative Preferred Stock, Series H, incorporated by
reference to Exhibit 3(k) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998
(m) Certificate of Designations for the Company's Series C Junior
Participating Preferred Stock, incorporated by reference to
Exhibit 3(l) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998
(n) Certificate Eliminating the Certificate of Designations for the
Company's Series A Junior Participating Preferred Stock,
incorporated by reference to Exhibit 3(a) to the Company's
Current Report on Form 8-K dated April 21, 1999
48
<PAGE>
3(o) Certificate of Designations for the Company's 1999 ESOP
Cumulative Convertible Preferred Stock, incorporated by reference
to Exhibit 3(b) to the Company's Current Report on Form 8-K dated
April 21, 1999
(p) By-Laws, incorporated by reference to Exhibit 3(m) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1998
4(a) See Exhibits 3(a) through 3(p)
(b) Rights Agreement, dated as of October 21, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-A dated October 21, 1998
(c) The Company agrees to furnish upon request to the Commission a
copy of each instrument defining the rights of holders of senior
and subordinated debt of the Company.
10(a) Long-Term Incentive Compensation Plan, as amended effective
April 27, 1999
10(b) 1999 Directors Formula Stock Award Plan
27 Financial Data Schedule
99(a) Computation of Ratios of Earnings to Fixed Charges--the ratios
of earnings to fixed charges, including interest on deposits,
were 2.23 and 1.92 for the quarters ended June 30, 1999 and 1998,
respectively, and 2.17 and 1.90 for the six months ended June 30,
1999 and 1998, respectively. The ratios of earnings to fixed
charges, excluding interest on deposits, were 3.80 and 3.28 for
the quarters ended June 30, 1999 and 1998, respectively, and 3.69
and 3.24 for the six months ended June 30, 1999 and 1998,
respectively.
(b) Computation of Ratios of Earnings to Fixed Charges and Preferred
Dividends--the ratios of earnings to fixed charges and preferred
dividends, including interest on deposits, were 2.21 and 1.89 for
the quarters ended June 30, 1999 and 1998, respectively, and 2.14
and 1.87 for the six months ended June 30, 1999 and 1998,
respectively. The ratios of earnings to fixed charges and
preferred dividends, excluding interest on deposits, were 3.69
and 3.18 for the quarters ended June 30, 1999 and 1998,
respectively, and 3.60 and 3.15 for the six months ended June 30,
1999 and 1998, respectively.
(b) The Company filed the following reports on Form 8-K during the
second quarter of 1999:
1 April 21, 1999 under Item 5, containing the Company's financial
results for the quarter ended March 31, 1999
49
<PAGE>
(b)2 April 28, 1999 under Item 5, containing the Press Releases
announcing the Company's additional share repurchase
authorization and an increase in the Company's common stock
dividend
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 August 16, 1999.
WELLS FARGO & COMPANY
By: LES L. QUOCK
--------------------------
Les L. Quock
Senior Vice President and Controller
(Principal Accounting Officer)
50
<PAGE>
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
WELLS FARGO & COMPANY
2. The registered office of the corporation within the State of
Delaware is hereby changed to 1013 Centre Road, City of Wilmington 19805,
County of New Castle.
3. The registered agent of the corporation within the State of
Delaware is hereby changed to Corporation Service Company, the business
office of which is identical with the registered office of the corporation as
hereby changed.
4. The corporation has authorized the changes hereinbefore set forth
by resolution of its Board of Directors.
Signed on April 23, 1999.
/s/ Pui-Mei Wong
----------------------------------
PUI-MEI WONG, Assistant Secretary
[Filed in the Office of the Delaware Secretary of State on May 13, 1999]
<PAGE>
LONG-TERM INCENTIVE COMPENSATION PLAN
(As amended effective April 27, 1999)
1. PURPOSE. The purpose of Wells Fargo & Company's Long-Term Incentive
Compensation Plan (the "Plan") is to motivate key employees to
produce a superior return to the stockholders of Wells Fargo &
Company by offering them an opportunity to participate in
stockholder gains, by facilitating stock ownership and by rewarding
them for achieving a high level of corporate financial performance.
The Plan is also intended to facilitate recruiting and retaining
talented executives for key positions by providing an attractive
capital accumulation opportunity.
2. DEFINITIONS.
2.1 The following terms, whenever used in this Plan, shall have the
meanings set forth below:
(a) "Affiliate" means any corporation or limited liability
company, a majority of the voting stock or membership
interests of which is directly or indirectly owned by the
Company, and any partnership or joint venture designated by
the Committee in which any such corporation or limited
liability company is a partner or joint venturer.
(b) "Award" means a grant made under this Plan in the form of
Performance Shares, Restricted Stock, Stock Options,
Performance Units, Stock Appreciation Rights, or Stock.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means a committee selected by the Board and
consisting of two or more members of the Board.
(e) "Company" means Wells Fargo & Company, a Delaware
corporation formerly known as Norwest Corporation.
(f) "Employee" means a regular salaried employee (including an
officer or director who is also an employee) of the Company or
an Affiliate.
(g) "Fair Market Value" as of any date means the immediately
preceding trading day's closing price of a share of Stock as
reported by the consolidated tape of the New York Stock
Exchange.
(h) "Incentive Stock Option" means any Option designated as such
and granted in accordance with the requirements of Section
422A of the Internal Revenue Code of 1986, as amended.
<PAGE>
(i) "Non-Qualified Stock Option" means an Option other than an
Incentive Stock Option.
(j) "Option" means a right to purchase Stock.
(k) "Participant" means a person designated by the Committee to
receive an Award under the Plan who is an Employee at the time
of such designation.
(l) "Performance Cycle" means the period of time of not fewer than
two years nor more than five years as specified by the
Committee over which Performance Shares or Performance Units
are to be earned.
(m) "Performance Shares" means an Award made pursuant to Section 6
which entitles a Participant to receive Shares, their cash
equivalent or a combination thereof based on the achievement
of performance targets during a Performance Cycle.
(n) "Performance Units" means an Award made pursuant to Section 6
which entitles a Participant to receive cash, Stock or a
combination thereof based on the achievement of performance
targets during a Performance Cycle.
(o) "Plan" means this Long-Term Incentive Compensation Plan, as
amended from time to time.
(p) "Restricted Stock" means Stock granted under Section 7 that is
subject to restrictions imposed pursuant to said Section.
(q) For all Awards outstanding on November 2, 1998, "Retirement"
means retirement which would entitle a Participant to a
benefit under Section 6.1 or Section 6.2 of the Norwest
Corporation Pension Plan or under Section 4.1 or Section 4.2
of the Norwest Financial Pension Plan if such plans had
remained in effect under their terms as of November 2, 1998.
For all Awards granted subsequent to November 2, 1998,
"Retirement" means termination of employment after reaching
the earlier of (i) age 55 with 10 completed years of service,
or (ii) 80 points (with one point credited for each completed
age year and one point credited for each completed year of
service), or (iii) age 65. For purposes of this definition, a
Participant is credited with one year of service after
completion of each full 12-month period of employment with the
Company or an Affiliate as determined by the Company or
Affiliate.
(r) "Share" means a share of Stock.
-2-
<PAGE>
(s) "Stock" means the common stock, $1-2/3 par value per share, of
the Company.
(t) "Stock Appreciation Right" means the right to receive a
payment in cash or in Stock or a combination thereof in an
amount equal to the excess of the Fair Market Value of the
Stock at the time of exercise over the Fair Market Value of
the Stock at the time of grant.
(u) "Successor" means the legal representative of the estate of a
deceased Participant or the person or persons who may acquire
the right to exercise an Option or to receive Shares issuable
in satisfaction of an Award, by bequest or inheritance.
(v) "Term" means the period during which an Option or Stock
Appreciation Right may be exercised or the period during which
the restrictions placed on Restricted Stock are in effect.
2.2 GENDER AND NUMBER. Except when otherwise indicated by context,
reference to the masculine gender shall include, when used, the
feminine gender and any term used in the singular shall also include
the plural.
3. ADMINISTRATION. The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee shall have
exclusive power to determine when and to whom Awards will be
granted, the form of each Award, the amount of each Award, and any
other terms or conditions of each Award. The Committee's
interpretation of the Plan and of any Awards made under the Plan
shall be final and binding on all persons with an interest therein.
The Committee shall have the authority, subject to the provisions of
the Plan, to establish, adopt and revise rules and regulations
relating to the Plan as it may deem necessary or advisable for the
administration of the Plan.
4. SHARES AVAILABLE UNDER THE PLAN; LIMITATION ON AWARDS. The maximum
number of Shares that may be issued under this Plan on and after
April 27, 1999 (in addition to Shares which prior to April 27, 1999
were subject to Awards) shall not exceed the sum of (i) the number
of Shares available for, but not yet subject to, an Award as of
April 27, 1999, plus (ii) 40,000,000 Shares. These Shares may
consist, in whole or in part, of authorized but unissued Stock or
treasury Stock not reserved for any other purpose. Any Shares
subject to the terms and conditions of an Award under this Plan
which are forfeited or not issued because the terms and conditions
of the Award are not met or for which payment is not made in Stock
and any Shares which are used for full or partial payment of the
purchase price of Shares with respect to which an Option is
exercised may again be used for an Award under the Plan. No
Employee may be awarded in any calendar year Options or Stock
Appreciation Rights covering an aggregate of
-3-
<PAGE>
more than 7,000,000 Shares. On and after the date referred to in clause
(i) above, no more than five percent of the sum of the numbers of Shares
described in clauses (i) and (ii) above shall be issued pursuant to
Awards of unrestricted Stock not granted in lieu of salary, cash bonus or
other cash compensation, Awards of Performance Shares or Performance
Units earned over a Performance Cycle of less than three years, and
Awards of Restricted Stock having Terms of less than three years at the
time of grant.
5. PARTICIPATION. Participation in the Plan shall be limited to key
Employees of the Company or an Affiliate selected by the Committee.
Participation is entirely at the discretion of the Committee, and is
not automatically continued after an initial period of
participation.
6. PERFORMANCE SHARES AND PERFORMANCE UNITS. An Award of Performance
Shares or Performance Units under the Plan shall entitle the
Participant to future payments or Shares or a combination thereof
based upon the achievement of pre-established performance targets.
6.1 AMOUNT OF AWARD. The Committee shall establish a maximum
amount of a Participant's Award, which amount shall be
denominated in Shares in the case of Performance Shares or in
dollars in the case of Performance Units.
6.2 COMMUNICATION OF AWARD. Written notice of the maximum amount of a
Participant's Award and the Performance Cycle determined by the
Committee shall be given to a Participant as soon as practicable
after approval of the Award by the Committee.
6.3 AMOUNT OF AWARD PAYABLE. The Committee shall establish maximum and
minimum performance targets to be achieved during the applicable
Performance Cycle. Performance targets established by the Committee
shall relate to corporate, group, unit or individual performance and
may be established in terms of earnings, growth in earnings, ratios
of earnings to equity or assets, or such other measures or standards
determined by the Committee. Multiple performance targets may be
used and the components of multiple performance targets may be given
the same or different weighting in determining the amount of an
Award earned, and may relate to absolute performance or relative
performance measured against other groups, units, individuals or
entities. Achievement of the maximum performance target shall
entitle the Participant to payment (subject to Section 6.5) at the
full or maximum amount specified with respect to the Award;
provided, however, that notwithstanding any other provisions of this
Plan, in the case of an Award of Performance Shares the Committee in
its discretion may establish an upper limit on the amount payable
(whether in cash or Stock) as a result of the achievement
-4-
<PAGE>
of the maximum performance target. The Committee may also
establish that a portion of a full or maximum amount of a
Participant's Award will be paid (subject to Section 6.5) for
performance which exceeds the minimum performance target but falls
below the maximum performance target applicable to such Award.
6.4 ADJUSTMENTS. At any time prior to payment of a Performance Share or
Performance Unit Award, the Committee may adjust previously
established performance targets or other terms and conditions to
reflect events such as changes in law, regulation, or accounting
practice, or mergers, acquisitions or divestitures.
6.5 PAYMENT OF AWARDS. Following the conclusion of each Performance
Cycle, the Committee shall determine the extent to which performance
targets have been attained, and the satisfaction of any other terms
and conditions with respect to an Award relating to such Performance
Cycle. The Committee shall determine what, if any, payment is due
with respect to an Award and whether such payment shall be made in
cash, Stock or some combination. Payment shall be made in a lump
sum or installments, as determined by the Committee, commencing as
promptly as practicable following the end of the applicable
Performance Cycle, subject to such terms and conditions and in such
form as may be prescribed by the Committee. Payment in Stock may be
in Restricted Stock.
6.6 TERMINATION OF EMPLOYMENT. If a Participant ceases to be an
Employee before the end of a Performance Cycle by reason of his
death, permanent disability or Retirement, the Performance Cycle for
such Participant for the purpose of determining the amount of Award
payable shall end at the end of the calendar quarter immediately
preceding the date on which such Participant ceased to be an
Employee. The amount of an Award payable to a Participant to whom
the preceding sentence is applicable shall be paid at the end of the
Performance Cycle and shall be that fraction of the Award computed
pursuant to the preceding sentence the numerator of which is the
number of calendar quarters during the Performance Cycle during all
of which said Participant was an Employee and the denominator of
which is the number of full calendar quarters in the Performance
Cycle. Upon any other termination of employment of a Participant
during a Performance Cycle, participation in the Plan shall cease
and all outstanding Awards of Performance Shares or Performance
Units to such Participant shall be cancelled.
7. RESTRICTED STOCK AWARDS. An Award of Restricted Stock under the
Plan shall consist of Shares subject to restrictions on transfer,
conditions of forfeiture, and such other terms and conditions as the
Committee shall determine.
-5-
<PAGE>
7.1 AGREEMENTS. An Award of Restricted Stock shall be evidenced by a
Restricted Stock agreement in such form and not inconsistent with
this Plan as the Committee shall approve from time to time, which
shall include the following terms and conditions:
(a) RESTRICTIONS. A statement of the terms, conditions, and
restrictions to which the Restricted Stock awarded is subject,
including, without limitation, terms requiring forfeiture and
imposing restriction on transfer for such Term or Terms as
shall be determined by the Committee subject to the provisions
of this Plan. The Committee shall have the authority to
permit in its discretion an acceleration of the expiration of
the applicable Term with respect to any part or all of the
Restricted Stock awarded to a Participant in connection with
severance arrangements or changes in law, regulation or
accounting practice.
(b) LAPSE OF RESTRICTIONS. A statement of the terms and any other
conditions upon which any restrictions upon Restricted Stock
awarded shall lapse, as determined by the Committee subject to
the provisions of this Plan. Upon the lapse of the
restrictions, Shares free of restrictive legend, if any, shall
be issued to the Participant or his Successor.
7.2 TERM. Subject to acceleration of the expiration of the Term as
provided in or permitted by this Plan, the minimum Term for
Restricted Stock shall be three years unless the lapse of
restrictions is conditioned on the achievement of one or more pre-
established performance targets, in which case the minimum Term
shall be not less than one year, or the Restricted Stock is granted
in lieu of salary, cash bonus or other cash compensation, in which
case there may be no minimum Term.
7.3 NONTRANSFERABILITY. Restricted Stock awarded, and the right to vote
such Restricted Stock and to receive dividends thereon, may not be
sold, assigned, transferred, exchanged, pledged, or otherwise
encumbered, during the Term applicable to the Award. A Participant
with a Restricted Stock Award shall have all the other rights of a
stockholder including, but not limited to, the right to receive
dividends and the right to vote the Shares.
7.4 TERMINATION OF EMPLOYMENT. If a Participant ceases to be an
Employee prior to the lapse of restrictions by reason of his death,
permanent disability or Retirement, all restrictions on Shares of
Restricted Stock held for his benefit shall immediately lapse. Upon
any other termination of employment prior to the lapse of
restrictions, participation in the Plan
-6-
<PAGE>
shall cease and all Shares of Restricted Stock held for the benefit
of a Participant shall be forfeited by the Participant.
7.5 CERTIFICATES. Each certificate issued in respect to an Award of
Restricted Stock shall be deposited with the Company or its designee
and may, at the election of the Committee, bear the following
legend:
"This certificate and the shares of stock represented hereby
are subject to the terms and conditions (including forfeiture
provisions and restrictions against transfer) contained in
the Long-Term Incentive Compensation Plan and an Agreement
entered into between the registered owner and Wells Fargo &
Company. Release from such terms and conditions shall obtain
only in accordance with the provisions of the Plan and
Agreement, a copy of each of which is on file in the office
of the Secretary of Wells Fargo & Company."
8. STOCK AWARDS. Awards of Stock without restrictions may be made
according to terms and conditions established by the Committee.
9. STOCK OPTIONS.
9.1 AGREEMENTS. An Award of an Option shall be evidenced by a document
or other communication containing such terms and conditions as the
Committee shall approve from time to time, which terms and
conditions shall include the following:
(a) TYPE OF OPTION; NUMBER OF SHARES. A statement identifying the
Option represented thereby as an Incentive Stock Option or
Non-Qualified Stock Option, as the case may be, and the number
of Shares to which the Option applies.
(b) OPTION PRICE. A statement of the purchase price of the Stock
subject to Option which shall not be less than the Fair Market
Value, and in any event not less than the par value, of the
Stock on the date the Option is granted.
(c) EXERCISE TERM. A statement of the Term of each Option granted
as established by the Committee, provided that no Option shall
be exercisable after ten years from the date of grant. The
Committee shall have the authority to permit an acceleration
of previously established Terms, at its discretion.
(d) PAYMENT FOR SHARES. A statement that the purchase price of
the Shares with respect to which an Option is exercised shall
be payable at the time of exercise in accordance with
procedures established by
-7-
<PAGE>
the Company. The purchase price may be payable in cash, in
Stock having a Fair Market Value on the date the Option is
exercised equal to the Option price of the Stock being
purchased pursuant to the Option, or a combination thereof,
as the Committee shall determine. The Committee may, either
at the time the Option is granted or any time before it is
exercised, subject to such limitations as the Committee may
determine, authorize payment of the purchase price of the
Option by delivery to the Company of irrevocable instructions
to a broker, or some other communication acceptable to the
Company, requiring prompt delivery to the Company of the
amount of sale proceeds to pay the Option purchase price and
all applicable withholding taxes resulting from such exercise.
(e) NONTRANSFERABILITY. Each Option agreement shall state that
the Option is not transferable other than by will, the laws of
descent and distribution or by the Participant designating a
beneficiary in accordance with this Section 9.1(e). During
the lifetime of the Participant, Options may be exercised only
by the Participant or by the Participant's legal
representative. The Participant may, by completing and
signing a written beneficiary designation form which is
delivered to and accepted by the Company, designate a
beneficiary to exercise and receive any outstanding Options
(and all outstanding Stock Appreciation Rights granted in
conjunction with Options) upon the Participant's death. If at
the time of the Participant's death there is not on file a
fully effective beneficiary designation form, or if the
designated beneficiary did not survive the Participant, the
legal representative of the Participant's estate shall have
the right to exercise the Option.
(f) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock
Option, each Option agreement shall be subject to any terms,
conditions and provisions as the Committee determines
necessary or desirable in order to qualify the Option as an
Incentive Stock Option (within the meaning of Section 422A of
the Internal Revenue Code of 1986, or any amendment or
regulation pertaining to it) or any other law or regulation
providing special tax treatment for stock options and related
stock. Provided, however, that the aggregate Fair Market
Value (as determined at the effective date of the grant) of
the Stock with respect to which Incentive Stock Options are
exercisable for the first time by the Participant during any
calendar year shall not exceed $100,000.
9.2 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
-8-
<PAGE>
(a) If a Participant ceases to be an Employee by reason of
his death, permanent disability or Retirement, each
outstanding Option shall become exercisable to the
extent and for such period or periods determined by the
Committee but not beyond the expiration date of said
Option. If a Participant dies before exercising all
outstanding Options, the outstanding Options shall be
exercisable by the Participant's beneficiary determined
in accordance with Section 9.1(e).
(b) If a Participant ceases to be an Employee by reason of
his death, permanent disability or Retirement, each
outstanding Stock Appreciation Right granted in
conjunction with an Option shall become exercisable to
the extent and for such period or periods determined by
the Committee but not beyond the expiration date of said
Stock Appreciation Right. If a Participant dies before
exercising all outstanding Stock Appreciation Rights
granted in conjunction with Options, said outstanding
Stock Appreciation Rights shall be exercisable by the
Participant's beneficiary determined in accordance with
Section 9.1(e).
9.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH, DISABILITY,
OR RETIREMENT. Except as otherwise determined by the Committee, in
the event a Participant ceases to be an Employee for any reason
other than his death, permanent disability or Retirement, all rights
of the Participant under this Plan shall immediately terminate
without notice of any kind.
10. STOCK APPRECIATION RIGHTS. An Award of a Stock Appreciation Right shall
entitle the Participant, subject to terms and conditions determined by the
Committee, to receive upon exercise of the right all or a portion of the
excess of (i) the Fair Market Value of a specified number of Shares at the
time of exercise over (ii) a specified price which shall not be less than
100% of the Fair Market Value of the Shares at the time of grant. Stock
Appreciation Rights may be granted in connection with a previously or
contemporaneously granted Option, or independent of any Option. If issued
in connection with an Option, the Committee may impose a condition that
exercise of a Stock Appreciation Right cancels the Option with which it is
connected. A Stock Appreciation Right may not be exercised at any time
when the Fair Market Value of the Shares of Stock to which it relates does
not exceed the exercise price of the Option associated with those Shares.
10.1 AGREEMENT. An Award of a Stock Appreciation Right shall be
evidenced by a Stock Appreciation Right agreement in such form and
not inconsistent with this Plan as the Committee shall approve from
time to time, which shall include a statement of the Term within
which the Stock Appreciation Right may be exercised subject to terms
and conditions
-9-
<PAGE>
prescribed by the Committee, provided that no Stock Appreciation
Right shall be exercisable after ten years from the date of grant.
The Committee shall have the authority to permit an acceleration
of previously established exercise Terms.
10.2 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
If a Participant ceases to be an Employee by reason of his death,
permanent disability or Retirement, each Stock Appreciation Right
then outstanding which was granted independent of any Option shall
become exercisable to the extent and for such period or periods
determined by the Committee but not beyond the expiration date of
said Stock Appreciation Right.
10.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH, DISABILITY,
OR RETIREMENT. Except as otherwise determined by the Committee, in
the event a Participant ceases to be an Employee for any reason
other than his death, permanent disability or Retirement, all rights
of the Participant under this Plan shall immediately terminate
without notice of any kind.
10.4 PAYMENT. Upon exercise of a Stock Appreciation Right, payment shall
be made in the form of cash or Stock or some combination thereof as
determined by the Committee. However, notwithstanding any other
provisions of this Plan, in no event may the payment (whether in
cash or Stock) upon exercise of a Stock Appreciation Right exceed an
amount equal to 100% of the Fair Market Value of the Shares at the
time of grant.
11. NONTRANSFERABILITY OF RIGHTS. Except as otherwise set forth in this
Plan, no rights under any Award will be transferable other than by
will or the laws of descent and distribution, and the rights and the
benefits of any Award may be exercised and received during the
lifetime of the Participant only by the Participant or by the
Participant's legal representative.
12. TERMINATION OF EMPLOYMENT.
12.1 Transfers of employment between the Company and an Affiliate, or
between Affiliates, will not constitute termination of employment
for purposes of any Award.
12.2 The Committee may specify in the agreement relating to an Award
whether any authorized leave of absence or absence for military or
government service or for any other reasons will constitute a
termination of employment for purposes of the Award and the Plan.
13. REORGANIZATION. If substantially all of the assets of the Company
are acquired by another corporation or in case of a reorganization
of the Company involving the
-10-
<PAGE>
acquisition of the Company by another entity, then as to each Participant
who is an Employee immediately prior to the consummation of the
transaction:
(a) All outstanding Options and Stock Appreciation Rights shall
become exercisable immediately prior to the consummation of
the transaction.
(b) All restrictions with respect to Restricted Stock shall lapse
immediately prior to the consummation of the transaction.
(c) All Performance Cycles for the purpose of determining the
amounts of Awards of Performance Shares and Performance Units
payable shall end at the end of the calendar quarter
immediately preceding the consummation of the transaction.
The amount of an Award payable shall be that fraction of the
Award computed pursuant to the preceding sentence the
numerator of which is the number of calendar quarters
completed in the Performance Cycle through the end of the
calendar quarter immediately preceding the consummation of the
transaction and the denominator of which is the number of full
calendar quarters in the Performance Cycle. The amount of an
Award payable shall be paid within sixty days after
consummation of the transaction.
The Committee shall take such action as in their discretion may be
necessary or advisable to carry out the provisions of this Section.
14. BOARD CHANGES. On the date that a majority of the Board shall be
persons other than persons (a) for whose election proxies shall have
been solicited by the Board or (b) who are then serving as directors
appointed by the Board to fill vacancies on the Board caused by
death or resignation (but not by removal) or to fill newly-created
directorships, then as to any Participant who is an Employee
immediately prior to said date and who ceases to be an Employee
within six months after said date for any reason other than as a
result of death, permanent disability or Retirement:
(i) All outstanding Options and Stock Appreciation Rights shall
become immediately exercisable and may be exercised at any
time within six months after the Participant ceases to be an
Employee.
(ii) All restrictions with respect to Restricted Stock shall lapse
and Shares free of restrictive legend shall be delivered to
the Participant.
(iii) All Performance Cycles for the purpose of determining the
amounts of Awards of Performance Shares and Performance Units
payable shall end at the end of the calendar quarter
immediately preceding the date on which said Participant
ceased to be an Employee. The amount of an Award payable to
said Participant shall be that fraction of the Award
-11-
<PAGE>
computed pursuant to the preceding sentence the numerator of which
is the number of calendar quarters during the Performance Cycle
during all of which said Participant was an Employee and the
denominator of which is the number of full calendar quarters in
the Performance Cycle. The amount of an Award payable shall be
paid within sixty days after said Participant ceases to be an
Employee.
The Committee shall take such action as in their discretion may be
necessary or advisable to carry out the provisions of this Section.
15. EFFECTIVE DATE OF THE PLAN.
15.1 EFFECTIVE DATE. The Plan shall become effective as of September 25,
1984 upon the approval and ratification of the Plan by the
affirmative vote of the holders of a majority of the outstanding
Shares of Stock present or represented and entitled to vote in
person or by proxy at a meeting of the stockholders of the Company.
15.2 DURATION OF THE PLAN. The Plan shall remain in effect until all
Stock subject to it shall be distributed, until the Term of all
Options or Stock Appreciation Rights granted under this Plan shall
expire, until all restrictions on Restricted Stock granted under
this Plan shall lapse, or until the Performance Cycle for any
Performance Shares or Performance Units awarded under this Plan
shall end.
16. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan shall confer
upon any Participant the right to continue in the employment of the
Company or any Affiliate or affect any right which the Company or
any Affiliate may have to terminate employment of the Participant.
17. WITHHOLDING TAXES. The Company and its Affiliates shall have the
right to deduct from all payments under this Plan, whether in cash
or in Stock, an amount necessary to satisfy any federal, state or
local withholding tax requirements.
18. DEFERRAL OF PAYMENTS. The Company may, from time to time, establish
rules and conditions under which a Participant may defer the payment
of Awards. Such terms and conditions shall be included in a
deferral agreement signed by a Participant electing such deferral.
19. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board or
Committee may at any time terminate, suspend or modify the Plan,
except that the Board or Committee will not, without authorization
of the stockholders of the Company, effect any change (other than
through adjustment for changes in capitalization as provided in
Section 20) which will:
-12-
<PAGE>
(a) Increase the total amount of Stock which may be awarded under
the Plan.
(b) Change the class of Employees eligible to participate in the
Plan.
(c) Withdraw the administration of the Plan from the Committee.
(d) Permit any person, while a member of the Committee, to be
eligible to participate in the Plan.
(e) Extend the duration of the Plan.
No termination, suspension, or modification of the Plan will
adversely affect any right acquired by any Participant or any
Successor under an Award granted before the date of termination,
suspension, or modification, unless otherwise agreed to by the
Participant; but it will be conclusively presumed that any
adjustment for changes in capitalization provided for in Section 20
does not adversely affect any right.
20. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Any change in the number
of outstanding Shares occurring through Stock splits, reverse Stock
splits, or Stock dividends after the grant of an Award will be
reflected proportionately in the aggregate number of Shares then
available for Awards and in the number of Shares subject to Awards
then outstanding; and a proportionate change will be made in the per
share Option price as to any outstanding Options. Any fractional
Shares resulting from adjustments will be rounded to the nearest
whole Share.
-13-
<PAGE>
WELLS FARGO & COMPANY
1999 DIRECTORS FORMULA STOCK AWARD PLAN
(Effective April 27, 1999)
l. PURPOSE. The purpose of the Wells Fargo & Company 1999 Directors
Formula Stock Award Plan (the "Plan") is to provide compensation in the form of
shares of the Company's common stock, $1 2/3 par value per share ("Common
Stock"), to non-employee members of the Board of Directors (the "Board") of
Wells Fargo & Company (the "Company") in consideration for personal services
rendered in their capacity as directors of the Company. The Plan replaces the
Wells Fargo & Company Directors Formula Stock Award Plan to provide compensation
for non-employee directors' services rendered on or after January 1, 1999. The
Plan is intended to aid in attracting and retaining individuals of outstanding
abilities and skills for service on the Board.
2. FORMULA AWARD. In consideration for past services rendered, commencing
with the annual meeting of stockholders in 1999, each non-employee director of
the Company shall, as of the date indicated but subject to the terms stated
below, automatically receive that number of shares of Common Stock having the
aggregate fair market value hereinafter stated, rounded up to the next whole
share.
a. CONDITION TO ALL AWARDS. To be eligible to receive each award provided
below, a non-employee director shall have attended at least one Board meeting as
a non-employee director on or prior to the date as of which such award is
payable. A non-employee director who does not meet this condition shall be
eligible to receive the award provided as of the next succeeding date such
awards are payable.
b. ELECTION AT ANNUAL MEETING. A non-employee director who has served as
a director of the Company for at least the entire month of April in each year
and is elected to the Board by the stockholders of the Company at the annual
meeting held in such month shall receive as of the date of the meeting Common
Stock with an aggregate fair market value of $32,000 as of such date.
c. AFTER ANNUAL MEETING THROUGH SEPTEMBER 30. A non-employee director who
first joins the Board after the annual meeting of stockholders in each year but
on or before September 30 in such year shall receive as of such September 30
Common Stock with an aggregate fair market value of $32,000 as of such date.
d. OCTOBER 1 THROUGH MARCH 31. A non-employee director who first joins
the Board on or after October 1 in each year but on or before March 31 in the
following year shall receive as of the date of the next succeeding annual
meeting of stockholders Common Stock with an aggregate fair market value of
$16,000 as of such date.
e. VALUATION. The fair market value shall be determined using the closing
price of a share of Common Stock as reported on the consolidated tape of the New
York Stock Exchange for the trading day immediately preceding the date as of
which the determination is made.
<PAGE>
3. DEFERRAL OF AWARDS. Any director may elect to defer under the terms of
the 1999 Deferral Plan for Directors, in the form of shares of Common Stock, all
or a portion of the Common Stock such director has a right to receive under the
Plan by making an election pursuant to the terms of the 1999 Deferral Plan for
Directors.
4. SHARES AVAILABLE FOR AWARDS. Subject to Section 5, no more than
200,000 shares of Common Stock may be awarded under the Plan. These shares may
consist, in whole or in part, of authorized but unissued Common Stock or
treasury Common Stock not reserved for any other purpose.
5. ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION. If the Company
shall at any time increase or decrease the number of its outstanding shares of
Common Stock or change in any way the rights and privileges of such shares by
means of the payment of a stock dividend or any other distribution upon such
shares payable in Common Stock, or through a stock split, subdivision,
consolidation, combination, reclassification, or recapitalization involving the
Common Stock, then the numbers, rights, and privileges of the shares issuable
under the Plan shall be increased, decreased, or changed in like manner as if
such shares had been issued and outstanding, fully paid, and nonassessable at
the time of such occurrence.
6. EFFECTIVE DATE. The Plan shall become effective on April 27, 1999.
7. NO GUARANTEE OF SERVICE. Participation in the Plan does not constitute
a guarantee or contract of service as a director.
8. NON-ASSIGNABILITY. No right to receive an award hereunder shall be
transferable or assignable by a Plan participant other than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined by the Internal Revenue Code of 1986, as amended, Title I of the
Employee Retirement Income Security Act ("ERISA"), or rules thereunder. The
designation of a beneficiary by a participant pursuant to the terms of the 1999
Deferral Plan for Directors does not constitute a transfer.
9. ADMINISTRATION. The Plan shall be administered under such rules and
procedures as shall be established from time to time by the Company's senior
human resources officer.
10. AMENDMENT AND TERMINATION. The Plan may be amended, suspended or
terminated by action of the Board or the Board Affairs Committee, or any
successor committee, of the Board and automatically shall be terminated when all
Common Stock subject to the Plan has been awarded; provided, however, that (a)
the provisions of the Plan may not be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code, ERISA, or the
rules thereunder; (b) if the Plan has been approved by the stockholders of the
Company, any amendment shall be similarly approved if the amendment would (i)
materially increase the benefits accruing to participants under the Plan; or
(ii) materially increase the number of securities which may be issued under the
Plan; or (iii) materially modify the
2
<PAGE>
requirements as to eligibility for participation in the Plan; and (c) if at
the time of any such proposed amendment, suspension or termination, any
member of such committee does not satisfy the requirements applicable to
committee approval contained in regulations of the Securities and Exchange
Commission promulgated under Section 16 of the Securities Exchange Act of
1934, and applicable interpretations thereof, any such amendment, suspension
or termination must be approved by the Board.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,633
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,692
<TRADING-ASSETS> 2,441
<INVESTMENTS-HELD-FOR-SALE> 35,710
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 111,646
<ALLOWANCE> 3,165
<TOTAL-ASSETS> 205,421
<DEPOSITS> 132,542
<SHORT-TERM> 20,155
<LIABILITIES-OTHER> 9,296
<LONG-TERM> 22,053
0
460
<COMMON> 2,777
<OTHER-SE> 18,138
<TOTAL-LIABILITIES-AND-EQUITY> 205,421
<INTEREST-LOAN> 5,188
<INTEREST-INVEST> 1,027
<INTEREST-OTHER> 769
<INTEREST-TOTAL> 6,984
<INTEREST-DEPOSIT> 1,396
<INTEREST-EXPENSE> 2,407
<INTEREST-INCOME-NET> 4,577
<LOAN-LOSSES> 530
<SECURITIES-GAINS> 21
<EXPENSE-OTHER> 4,706
<INCOME-PRETAX> 2,882
<INCOME-PRE-EXTRAORDINARY> 1,815
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,815
<EPS-BASIC> 1.09<F1>
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 5.64
<LOANS-NON> 687
<LOANS-PAST> 404
<LOANS-TROUBLED> 1
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,134
<CHARGE-OFFS> 741
<RECOVERIES> 207
<ALLOWANCE-CLOSE> 3,165
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>AMOUNT REPRESENTS BASIC EARNINGS PER COMMON SHARE PURSUANT TO FAS 128.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99(a)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
------------------- ----------------
(in millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $1,501 $1,186 $2,882 $2,312
Fixed charges 1,216 1,296 2,469 2,581
------ ------ ------ ------
$2,717 $2,482 $5,351 $4,893
------ ------ ------ ------
------ ------ ------ ------
Fixed charges (1)
Interest expense $1,185 $1,258 $2,407 $2,503
Estimated interest component of net rental expense 31 38 62 78
------ ------ ------ ------
$1,216 $1,296 $2,469 $2,581
------ ------ ------ ------
------ ------ ------ ------
Ratio of earnings to fixed charges (2) 2.23 1.92 2.17 1.90
------ ------ ------ ------
------ ------ ------ ------
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $1,501 $1,186 $2,882 $2,312
Fixed charges 537 521 1,073 1,030
------ ------ ------ ------
$2,038 $1,707 $3,955 $3,342
------ ------ ------ ------
------ ------ ------ ------
Fixed charges:
Interest expense $1,185 $1,258 $2,407 $2,503
Less interest on deposits 679 775 1,396 1,551
Estimated interest component of net rental expense 31 38 62 78
------ ------ ------ ------
$ 537 $ 521 $1,073 $1,030
------ ------ ------ ------
------ ------ ------ ------
Ratio of earnings to fixed charges (2) 3.80 3.28 3.69 3.24
------ ------ ------ ------
------ ------ ------ ------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As defined in Item 503(d) of Regulation S-K.
(2) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there was no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there was no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the
level of interest rates or, conversely, they would increase if interest
income and interest expense decrease by the same amount due to a decrease
in the level of interest rates.
<PAGE>
EXHIBIT 99(b)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Quarter Six months
ended June 30, ended June 30,
------------------- ------------------
(in millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $1,501 $1,186 $2,882 $2,312
Fixed charges 1,216 1,296 2,469 2,581
------ ------ ------ ------
$2,717 $2,482 $5,351 $4,893
------ ------ ------ ------
------ ------ ------ ------
Preferred dividend requirement $ 9 $ 9 $ 17 $ 18
Ratio of income before income tax expense to net income 1.61 1.65 1.59 1.65
------ ------ ------ ------
Preferred dividends (2) $ 15 $ 15 $ 27 $ 30
------ ------ ------ ------
Fixed charges (1):
Interest expense 1,185 1,258 2,407 2,503
Estimated interest component of net rental expense 31 38 62 78
------ ------ ------ ------
1,216 1,296 2,469 2,581
------ ------ ------ ------
Fixed charges and preferred dividends $1,231 $1,311 $2,496 $2,611
------ ------ ------ ------
------ ------ ------ ------
Ratio of earnings to fixed charges and preferred dividends (3) 2.21 1.89 2.14 1.87
------ ------ ------ ------
------ ------ ------ ------
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $1,501 $1,186 $2,882 $2,312
Fixed charges 537 521 1,073 1,030
------ ------ ------ ------
$2,038 $1,707 $3,955 $3,342
------ ------ ------ ------
------ ------ ------ ------
Preferred dividends (2) $ 15 $ 15 $ 27 $ 30
------ ------ ------ ------
Fixed charges:
Interest expense 1,185 1,258 2,407 2,503
Less interest on deposits 679 775 1,396 1,551
Estimated interest component of net rental expense 31 38 62 78
------ ------ ------ ------
537 521 1,073 1,030
------ ------ ------ ------
Fixed charges and preferred dividends $ 552 $ 536 $1,100 $1,060
------ ------ ------ ------
------ ------ ------ ------
Ratio of earnings to fixed charges and preferred dividends (3) 3.69 3.18 3.60 3.15
------ ------ ------ ------
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As defined in Item 503(d) of Regulation S-K.
(2) The preferred dividends were increased to amounts representing the pretax
earnings that would be required to cover such dividend requirements.
(3) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there was no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there was no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the
level of interest rates or, conversely, they would increase if interest
income and interest expense decrease by the same amount due to a decrease
in the level of interest rates.
