<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 September 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
October 29, 1999
------------------
Common stock, $1-2/3 par value 1,642,295,001
<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..................................................... 31
Earnings/Ratios Excluding Goodwill and Nonqualifying CDI......... 32
Balance Sheet Analysis............................................ 33
Securities Available for Sale.................................... 33
Loan Portfolio................................................... 34
Nonaccrual and Restructured Loans and Other Assets............... 35
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 6. Exhibits and Reports on Form 8-K.................................. 45
SIGNATURE................................................................. 48
</TABLE>
1
<PAGE>
PART I--FINANCIAL INFORMATION
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
--------------------- ---------------------
(in millions, except per share amounts) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Securities available for sale $ 586 $ 424 $ 1,612 $ 1,330
Mortgages held for sale 198 230 671 609
Loans held for sale 80 93 280 274
Loans 2,725 2,702 7,912 8,046
Other interest income 52 79 150 199
-------- -------- -------- --------
Total interest income 3,641 3,528 10,625 10,458
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 679 788 2,075 2,340
Short-term borrowings 226 195 635 558
Long-term debt 338 266 911 804
Guaranteed preferred beneficial interests in Company's
subordinated debentures 16 16 45 67
-------- -------- -------- --------
Total interest expense 1,259 1,265 3,666 3,769
-------- -------- -------- --------
NET INTEREST INCOME 2,382 2,263 6,959 6,689
Provision for loan losses 240 307 770 921
-------- -------- -------- --------
Net interest income after provision for loan losses 2,142 1,956 6,189 5,768
-------- -------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts 385 356 1,096 993
Trust and investment fees and commissions 317 267 932 794
Credit card fee revenue 138 136 395 384
Other fees and commissions 258 241 763 695
Mortgage banking 318 275 969 854
Insurance 95 73 299 278
Net venture capital gains 162 4 287 116
Net (losses) gains on securities available for sale (2) 76 19 161
Other 138 193 590 595
-------- -------- -------- --------
Total noninterest income 1,809 1,621 5,350 4,870
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries 776 730 2,251 2,132
Incentive compensation 124 164 393 449
Employee benefits 208 167 624 543
Equipment 193 192 566 572
Net occupancy 205 188 576 564
Goodwill 106 108 314 317
Core deposit intangible 49 58 151 183
Net losses (gains) on dispositions of premises and equipment 6 7 (5) 55
Other 751 733 2,254 2,282
-------- -------- -------- --------
Total noninterest expense 2,418 2,347 7,124 7,097
-------- -------- -------- --------
INCOME BEFORE INCOME TAX EXPENSE 1,533 1,230 4,415 3,541
Income tax expense 571 488 1,638 1,397
-------- -------- -------- --------
NET INCOME $ 962 $ 742 $ 2,777 $ 2,144
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 953 $ 733 $ 2,751 $ 2,118
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER COMMON SHARE $ .58 $ .45 $ 1.67 $ 1.31
-------- -------- -------- --------
-------- -------- -------- --------
DILUTED EARNINGS PER COMMON SHARE $ .57 $ .45 $ 1.65 $ 1.29
-------- -------- -------- --------
-------- -------- -------- --------
DIVIDENDS DECLARED PER COMMON SHARE $ .20 $ .185 $ .585 $ .515
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding 1,648.6 1,617.3 1,649.0 1,614.4
-------- -------- -------- --------
-------- -------- -------- --------
Diluted average common shares outstanding 1,667.1 1,640.7 1,667.9 1,637.3
-------- -------- -------- --------
-------- -------- -------- --------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions, except shares) 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 12,011 $ 12,731 $ 10,985
Federal funds sold and securities purchased
under resale agreements 1,556 1,517 1,950
Securities available for sale 36,906 31,997 32,210
Mortgages held for sale 9,850 19,770 15,469
Loans held for sale 4,661 5,322 5,058
Loans 114,709 107,994 107,692
Allowance for loan losses 3,167 3,134 3,170
-------- -------- --------
Net loans 111,542 104,860 104,522
-------- -------- --------
Mortgage servicing rights 4,341 3,080 2,725
Premises and equipment, net 3,124 3,130 3,279
Core deposit intangible 1,334 1,510 1,555
Goodwill 7,620 7,664 7,758
Interest receivable and other assets 14,115 10,894 10,352
-------- -------- --------
Total assets $207,060 $202,475 $195,863
-------- -------- --------
-------- -------- --------
LIABILITIES
Noninterest-bearing deposits $ 41,872 $ 46,732 $ 40,951
Interest-bearing deposits 89,685 90,056 89,000
-------- -------- --------
Total deposits 131,557 136,788 129,951
Short-term borrowings 19,248 15,897 17,570
Accrued expenses and other liabilities 8,377 8,537 8,616
Long-term debt 24,911 19,709 18,486
Guaranteed preferred beneficial interests in
Company's subordinated debentures 785 785 682
STOCKHOLDERS' EQUITY
Preferred stock 560 547 552
Unearned ESOP shares (100) (84) (90)
-------- -------- --------
Total preferred stock 460 463 462
Common stock - $1-2/3 par value, authorized
4,000,000,000 shares; issued 1,666,095,265 shares,
1,661,392,590 shares and 1,635,821,810 shares 2,777 2,769 2,726
Additional paid-in capital 8,769 8,673 7,921
Retained earnings 10,625 9,045 9,552
Cumulative other comprehensive income 242 463 462
Notes receivable from ESOP (1) (3) (4)
Treasury stock - 16,331,628 shares, 17,334,787 shares
and 15,309,106 shares (690) (651) (561)
-------- -------- --------
Total stockholders' equity 22,182 20,759 20,558
-------- -------- --------
Total liabilities and stockholders' equity $207,060 $202,475 $195,863
-------- -------- --------
-------- -------- --------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
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 10,585,434 7 142
Common stock issued for acquisitions 16,002,900 25 53
Common stock repurchased 27,730,007 (24) (406)
Preferred stock issued to ESOP 35,000 35 (37) 2
Preferred stock released to ESOP 27 (1)
Preferred stock (25,573) converted to common shares 661,993 (26) 3
Preferred stock dividends
Common stock dividends
Cash payments received on
notes receivable from ESOP 2
Increase in Rabbi trust assets (classified as treasury stock)
---- ---- ------ ------
Net change 9 (10) 8 (205)
---- ---- ------ ------
BALANCE SEPTEMBER 30, 1998 $552 $(90) $2,726 $7,921
---- ---- ------ ------
---- ---- ------ ------
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 17,258,229 82
Common stock issued for acquisitions 6,185,330 8 11
Common stock repurchased 19,288,479
Preferred stock issued to ESOP 75,000 75 (80) 5
Preferred stock released to ESOP 64 (4)
Preferred stock (60,165) converted to
common shares 1,550,754 (62) 2
Preferred stock dividends
Common stock dividends
Cash payments received on
notes receivable from ESOP
Increase in Rabbi trust assets (classified as treasury stock)
---- ---- ------ ------
Net change 13 (16) 8 96
---- ---- ------ ------
BALANCE SEPTEMBER 30, 1999 $560 $(100) $2,777 $8,769
---- ---- ------ ------
---- ---- ------ ------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
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 2,144 2,144
Other comprehensive income, net of tax:
Translation adjustments (2) (2)
Unrealized gains (losses) on securities
available for sale arising during the year 100 100
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income (100) (100)
Total comprehensive income 2,142
Common stock issued (145) 59 63
Common stock issued for acquisitions 12 210 300
Common stock repurchased (514) (944)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 26
Preferred stock (25,573) converted to common shares 23 --
Preferred stock dividends (26) (26)
Common stock dividends (725) (725)
Cash payments received on
notes receivable from ESOP 6 8
Increase in Rabbi trust assets (classified
as treasury stock) (64) (64)
------ ---- ----- ----- -------
Net change 1,260 6 (286) (2) 780
------ ---- ----- ----- -------
BALANCE SEPTEMBER 30, 1998 $9,552 $(4) $(561) $ 462 $20,558
------ ---- ----- ----- -------
------ ---- ----- ----- -------
BALANCE DECEMBER 31, 1998 $9,045 $(3) $(651) $ 463 $20,759
------ ---- ----- ----- -------
Comprehensive income
Net income 2,777 2,777
Other comprehensive income, net of tax:
Translation adjustments 3 3
Unrealized gains (losses) on securities
available for sale arising during the year (212) (212)
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income (12) (12)
------
Total comprehensive income 2,556
Common stock issued (201) 640 521
Common stock issued for acquisitions (6) 54 67
Common stock repurchased (777) (777)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 60
Preferred stock (61,867) converted to
common shares 60 --
Preferred stock dividends (26) (26)
Common stock dividends (964) (964)
Cash payments received on
notes receivable from ESOP 2 2
Increase in Rabbi trust asset (classified as treasury stock (16) (16)
------ ---- ----- ----- -------
Net change 1,580 2 (39) (221) 1,423
------ ---- ----- ----- -------
BALANCE SEPTEMBER 30, 1999 $10,625 $(1) $(690) $242 $22,182
------ ---- ----- ----- -------
------ ---- ----- ----- -------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Nine months ended Sept. 30,
----------------------------------
(in millions) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,777 $ 2,144
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 770 921
Depreciation and amortization 1,492 1,646
Securities available for sale gains (19) (161)
Gains on sales of mortgages held for sale (228) (306)
Gains on sales of loans (32) (48)
Gains on dispositions of operations (102) (89)
Release of preferred shares to ESOP 60 26
Net (increase) decrease in trading assets (518) 59
Net increase in accrued interest receivable (141) (86)
Net increase in accrued interest payable 5 97
Originations of mortgages held for sale (69,316) (75,374)
Proceeds from sales of mortgages held for sale 78,748 69,674
Net increase in loans held for sale (560) (564)
Other assets, net 151 (98)
Other accrued expenses and liabilities, net (66) 1,242
------- --------
Net cash provided (used) by operating activities 13,021 (917)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 6,979 8,105
Proceeds from prepayments and maturities 6,485 7,266
Purchases (19,208) (18,286)
Net (cash paid for) acquired from acquisitions (161) 36
Net increase in banking subsidiaries' loans resulting from originations
and collections (3,461) (874)
Proceeds from sales (including participations) of banking
subsidiaries' loans 1,691 1,237
Purchases (including participations) of banking subsidiaries' loans (1,211) (97)
Principal collected on nonbank subsidiaries' loans 4,221 5,592
Nonbank subsidiaries' loans originated (6,590) (6,441)
(Cash paid for) proceeds on dispositions of operations (721) 473
Proceeds from sales of foreclosed assets 145 246
Net increase in federal funds sold and securities purchased
under resale agreements (39) (901)
Other, net (3,140) (633)
------- --------
Net cash used by investing activities (15,010) (4,277)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (5,949) 35
Net increase in short-term borrowings 3,205 3,911
Proceeds from issuance of long-term debt 11,958 3,688
Repayment of long-term debt (6,727) (2,638)
Repayment of guaranteed preferred beneficial interests
in Company's subordinated debentures -- (617)
Proceeds from issuance of common stock 588 187
Repurchase of common stock (777) (944)
Net decrease in notes receivable from ESOP 2 8
Payment of cash dividends on preferred and common stock (990) (751)
Other, net (41) 219
------- --------
Net cash provided by financing activities 1,269 3,098
------- --------
NET CHANGE IN CASH AND DUE FROM BANKS (720) (2,096)
Cash and due from banks at beginning of period 12,731 13,081
------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $12,011 $ 10,985
------- --------
------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,637 $ 3,672
Income taxes $ 666 $ 946
Noncash investing and financing activities:
Transfers from loans to foreclosed assets $ 175 $ 178
Transfers from securities available for
sale to trading assets $ 1,132 $ --
Transfers from loans held for sale to loans $ 1,221 $ --
- -----------------------------------------------------------------------------------------------------------------
</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 pretax gains were
included in noninterest income as gains on 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 evaluated on a regular basis 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. As of September 30, 1999, approximately 1,575
employees, totaling approximately $80 million in severance-related benefits, had
entered the severance process. The restructuring charges also included
approximately $250 million related to dispositions of owned and leased premises
held for sale or remarketing, which is expected to be used by mid-2000. The
remaining balance of this reserve was approximately $160 million at September
30, 1999, which was comprised of approximately $50 million for owned premises
and approximately $110 million for leased premises. The remaining balance of
other restructuring charges, which totaled $70 million when originally recorded,
was $15 million at September 30, 1999. The suspension of depreciation on these
assets held for disposition reduced net occupancy expense and equipment expense
by a total of $13 million for the nine months ended September 30, 1999.
6
<PAGE>
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. The Company had eight pending transactions
as of September 30, 1999 with total assets of $3.3 billion, and anticipates that
approximately $146 million of cash and approximately 22.3 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 first quarter of 2000, and are not significant to the financial
statements of the Company, either individually or in the aggregate.
During the nine months ended September 30, 1999, the Company completed nine
transactions involving the acquisition of $2.0 billion in assets. In
connection with these acquisitions, the Company paid $395 million in cash and
issued 6.2 million shares of its common stock. These transactions were not
significant to the financial statements of the Company, either individually
or in the aggregate.
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 September 30,
1999, December 31, 1998 and September 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
SEPT. 30, Dec. 31, Sept. 30, SEPT. 30, Dec. 31, Sept. 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) 22,653 -- -- 23 -- -- 10.30 11.30
1998 ESOP Cumulative Convertible
(Liquidation preference $1,000) 8,472 8,740 13,604 8 9 14 10.75 11.75
1997 ESOP Cumulative Convertible
(Liquidation preference $1,000) 13,639 19,698 19,846 13 20 20 9.50 10.50
1996 ESOP Cumulative Convertible
(Liquidation preference $1,000) 21,111 22,068 22,274 21 22 22 8.50 9.50
1995 ESOP Cumulative Convertible
(Liquidation preference $1,000) 19,790 20,130 20,283 20 20 20 10.00 10.00
ESOP Cumulative Convertible
(Liquidation preference $1,000) 9,532 9,726 9,825 9 10 10 9.0 9.0
Unearned ESOP shares(1) -- -- -- (100) (84) (90) -- --
Less Cumulative Tracking
held by subsidiary
(Liquidation preference $200) 25,000 25,000 25,000 5 5 5 9.30 9.30
--------- --------- --------- ---- ---- ----
Total 6,550,197 6,535,362 6,540,832 $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 Nine months
ended Sept. 30, ended Sept. 30,
-------------- ---------------
(in millions, except per share amounts) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 962 $ 742 $ 2,777 $ 2,144
Less: Preferred stock dividends 9 9 26 26
--------- --------- -------- ---------
Net income applicable to common stock $ 953 $ 733 $ 2,751 $ 2,118
--------- --------- -------- ---------
--------- --------- -------- ---------
EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 953 $ 733 $ 2,751 $ 2,118
--------- --------- -------- ---------
--------- --------- -------- ---------
Average common shares outstanding (denominator) 1,648.6 1,617.3 1,649.0 1,614.4
--------- --------- -------- ---------
--------- --------- -------- ---------
Per share $ .58 $ .45 $ 1.67 $ 1.31
--------- --------- -------- ---------
--------- --------- -------- ---------
DILUTED EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 953 $ 733 $ 2,751 $ 2,118
--------- --------- -------- ---------
--------- --------- -------- ---------
Average common shares outstanding 1,648.6 1,617.3 1,649.0 1,614.4
Add: Stock options 17.2 21.4 17.3 20.8
Restricted share rights 1.3 2.0 1.6 2.1
--------- --------- -------- ---------
Diluted average common shares outstanding (denominator) 1,667.1 1,640.7 1,667.9 1,637.3
--------- --------- -------- ---------
--------- --------- -------- ---------
Per share $ .57 $ .45 $ 1.65 $ 1.29
--------- --------- -------- ---------
--------- --------- -------- ---------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
4. OPERATING SEGMENTS
The Company has identified four 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 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 $10
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 of credit, letters of credit, asset-based lending, equipment
leasing, international trade facilities, foreign exchange services, cash
management, investment management and electronic products. The Group includes
the majority ownership interest in the Wells Fargo HSBC Trade Bank, which
provides trade
10
<PAGE>
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 RECONCILIATION 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 SEPTEMBER 30,
Net interest income (1) $1,688 $1,549 $ 357 $ 340 $ 33 $ 63
Provision for loan losses 147 194 19 13 2 1
Noninterest income 1,070 999 305 215 315 302
Noninterest expense 1,510 1,453 286 254 236 276
------ ------ ------ ------ ---- ----
Income (loss) before income
tax expense (benefit) 1,101 901 357 288 110 88
Income tax expense (benefit) (2) 354 339 134 115 40 32
------ ------ ------ ------ ---- ----
Net income (loss) $ 747 $ 562 $ 223 $ 173 $ 70 $ 56
------ ------ ------ ------ ---- ----
------ ------ ------ ------ ---- ----
Average loans $ 67 $ 64 $ 34 $ 33 $ 1 $ 1
Average assets 120 105 42 39 22 24
Average core deposits 113 110 9 9 5 5
Return on equity (3) 20% 16% 25% 20% 22% 16%
NINE MONTHS ENDED SEPTEMBER 30,
Net interest income (1) $4,846 $4,598 $1,054 $1,010 $139 $156
Provision for loan losses 465 626 84 (1) 8 3
Noninterest income 3,203 2,893 869 774 957 852
Noninterest expense 4,396 4,489 818 756 760 750
------ ------ ------ ------ ---- ----
Income (loss) before income
tax expense (benefit) 3,188 2,376 1,021 1,029 328 255
Income tax expense (benefit) (2) 1,078 876 380 413 120 93
------ ------ ------ ------ ---- ----
Net income (loss) $2,110 $1,500 $ 641 $ 616 $208 $162
------ ------ ------ ------ ---- ----
------ ------ ------ ------ ---- ----
Average loans $ 66 $ 64 $ 34 $ 32 $ 1 $ 1
Average assets 117 106 41 38 24 21
Average core deposits 113 109 9 8 5 5
Return on equity (3) 19% 15% 24% 25% 21% 17%
- -------------------------------------------------------------------------------------------------------
</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 $202 million and $270 million for the third
quarter of 1999 and 1998, respectively, and $677 million and $705 million
for the first nine months of 1999 and 1998, respectively, and interest
expense of $169 million and $207 million for the third quarter of 1999 and
1998, respectively, and $538 million and $549 million for the first nine
months 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>
$ 324 $ 326 $ (20) $ (15) $2,382 $2,263
72 99 -- -- 240 307
92 75 27 30 1,809 1,621
240 216 146 148 2,418 2,347
----- ----- ------ ----- ------ ------
104 86 (139) (133) 1,533 1,230
38 31 5 (29) 571 488
----- ----- ------ ----- ------ ------
$ 66 $ 55 $ (144) $(104) $ 962 $ 742
----- ----- ------ ----- ------ ------
----- ----- ------ ----- ------ ------
$ 10 $ 9 $ -- $ -- $ 112 $ 107
11 11 8 8 203 187
-- -- -- -- 127 124
16% 15% --% --% 18% 15%
$ 977 $ 972 $ (57) $(47) $6,959 $6,689
213 293 -- -- 770 921
239 225 82 126 5,350 4,870
708 652 442 450 7,124 7,097
----- ----- ------ ---- ------ ------
295 252 (417) (371) 4,415 3,541
109 91 (49) (76) 1,638 1,397
----- ----- ------ ---- ------ ------
$ 186 $ 161 $ (368) $(295) $2,777 $2,144
----- ----- ------ ----- ------ ------
----- ----- ------ ----- ------ ------
$ 9 $ 9 $ -- $ -- $ 110 $ 106
11 11 8 9 201 185
-- -- -- -- 127 122
16% 16% --% --% 18% 15%
- -------------------------------------------------------------------
</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 $22 million and $24 million; and unallocated items of $(15)
million and $(9) million for the third quarter of 1999 and 1998,
respectively. Revenue includes Treasury activities of $63 million and $101
million; and unallocated items of $(38) million and $(22) million for the
first nine months of 1999 and 1998, respectively. Net income includes
Treasury activities of $13 million and $14 million; and unallocated items
of $(157) million and $(118) million for the third quarter of 1999 and
1998, respectively. Net income includes Treasury activities of $38 million
and $58 million; and unallocated items of $(406) million and $(353) million
for the first nine months of 1999 and 1998, respectively. The material
items in the reconciliation column related to noninterest expense include
goodwill and nonqualifying CDI amortization of $124 million and $129
million for the third quarter of 1999 and 1998, respectively, and $376
million and $394 million for the first nine 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 $283 billion, $250 billion and
$238 billion at September 30, 1999, December 31, 1998 and September 30, 1998,
respectively.
The following table summarizes the changes in capitalized mortgage loan
servicing rights:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
-------------------- --------------------
(in millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $4,144 $2,968 $3,144 $3,112
Originations 181 181 654 492
Purchases 150 183 522 521
Sales -- -- -- (346)
Amortization (139) (242) (599) (602)
Other (principally hedge activity) 5 (301) 620 (388)
------ ------ ------ ------
4,341 2,789 4,341 2,789
Less valuation allowance -- 64 -- 64
------ ------ ------ ------
Balance, end of period $4,341 $2,725 $4,341 $2,725
------ ------ ------ ------
------ ------ ------ ------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
During the quarter ended September 30, 1999, the Company reduced its valuation
allowance for capitalized mortgage servicing rights by $64 million.
The fair value of capitalized mortgage servicing rights included in the
consolidated balance sheet at September 30, 1999 was approximately $4.6 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 Sept. 30, 1999 from Nine months ended
----------------------------- ------------------- --------------------
SEPT. 30, June 30, Sept. 30, June 30, Sept. 30, SEPT. 30, Sept. 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 $ 962 $ 931 $ 742 3% 30% $ 2,777 $ 2,144 30%
Net income applicable to common stock 953 922 733 3 30 2,751 2,118 30
Earnings per common share $ .58 $ .56 $ .45 4 29 $ 1.67 $ 1.31 27
Diluted earnings per common share .57 .55 .45 4 27 1.65 1.29 28
Dividends declared per common share .20 .20 .185 -- 8 .585 .515 14
Average common shares outstanding 1,648.6 1,651.4 1,617.3 -- 2 1,649.0 1,614.4 2
Diluted average common shares outstanding 1,667.1 1,672.3 1,640.7 -- 2 1,667.9 1,637.3 2
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.88% 1.86% 1.58% 1 19 1.85% 1.55% 19
Net income applicable to common stock to
average common stockholders' equity (ROE) 17.97 17.50 14.72 3 22 17.60 14.55 21
Total revenue $ 4,191 $ 4,125 $ 3,884 2 8 $ 12,309 $ 11,559 6
Efficiency ratio (1) 57.7% 57.3% 60.4% 1 (4) 57.9% 61.4% (6)
Average loans $ 112,262 $108,996 $106,553 3 5 $109,714 $105,830 4
Average assets 202,972 200,342 186,634 1 9 200,694 185,187 8
Average core deposits 126,759 127,563 123,720 (1) 2 127,481 122,449 4
Net interest margin 5.73% 5.68% 5.88% 1 (3) 5.67% 5.86% (3)
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION AND BALANCES
("CASH" OR "TANGIBLE") (2)
Net income applicable to common stock $ 1,087 $ 1,054 $ 872 3 25 $ 3,149 $ 2,534 24
Earnings per common share .66 .64 .54 3 22 1.91 1.57 22
Diluted earnings per common share .65 .63 .53 3 23 1.89 1.55 22
ROA 2.24% 2.23% 1.97% -- 14 2.22% 1.95% 14
ROE 34.33 33.43 31.47 3 9 34.04 32.02 6
Efficiency ratio 54.1 53.7 56.3 1 (4) 54.2 57.2 (5)
AT PERIOD END
Securities available for sale $ 36,906 $ 35,710 $ 32,210 3 15 $ 36,906 $ 32,210 15
Loans 114,709 111,646 107,692 3 7 114,709 107,692 7
Allowance for loan losses 3,167 3,165 3,170 -- -- 3,167 3,170 --
Goodwill 7,620 7,598 7,758 -- (2) 7,620 7,758 (2)
Assets 207,060 205,421 195,863 1 6 207,060 195,863 6
Core deposits 125,160 127,302 123,792 (2) 1 125,160 123,792 1
Common stockholders' equity 21,722 20,915 20,096 4 8 21,722 20,096 8
Stockholders' equity 22,182 21,375 20,558 4 8 22,182 20,558 8
Tier 1 capital (3) 14,005 13,454 12,437 4 13 14,005 12,437 13
Total capital (Tiers 1 and 2) (3) 18,166 17,612 16,800 3 8 18,166 16,800 8
Capital ratios
Common stockholders' equity to assets 10.49% 10.18% 10.26% 3 2 10.49% 10.26% 2
Stockholders' equity to assets 10.71 10.41 10.50 3 2 10.71 10.50 2
Risk-based capital (3)
Tier 1 capital 8.71 8.45 8.20 3 6 8.71 8.20 6
Total capital 11.30 11.07 11.07 2 2 11.30 11.07 2
Leverage (3) 7.22 7.05 7.00 2 3 7.22 7.00 3
Book value per common share $ 13.17 $ 12.67 $ 12.40 4 6 $ 13.17 $ 12.40 6
Staff (active, full-time equivalent) 89,528 90,410 89,719 (1) -- 89,528 89,719 --
COMMON STOCK PRICE
High $ 45.31 $ 44.88 $ 39.75 1 14 $ 45.31 $ 43.88 3
Low 36.44 34.38 27.50 6 33 32.13 27.50 17
Period end 39.63 42.75 36.00 (7) 10 39.63 36.00 10
- -----------------------------------------------------------------------------------------------------------------------------------
</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 pretax amount for
the average balance of nonqualifying CDI was $1,301 million for the quarter
ended September 30, 1999 and $1,345 million for the nine months ended
September 30, 1999. The after-tax amounts for the amortization and average
balance of nonqualifying CDI were $27 million and $807 million,
respectively, for the quarter ended September 30, 1999 and $84 million and
$834 million, respectively, for the nine months ended September 30, 1999.
Goodwill amortization and average balance (which are not tax effected) were
$106 million and $7,674 million, respectively, for the quarter ended
September 30, 1999 and $314 million and $7,688 million, respectively, for
the nine months ended September 30, 1999.
(3) See the Capital Adequacy/Ratios section for additional information.
15
<PAGE>
OVERVIEW
Wells Fargo & Company is a $207 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 September 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.
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.
Net income for the third quarter of 1999 was $962 million, compared with $742
million for the third quarter of 1998. Diluted earnings per common share for the
third quarter of 1999 were $.57, compared with $.45 for the third quarter of
1998. Net income for the first nine months of 1999 was $2,777 million, or $1.65
per share, compared with $2,144 million, or $1.29 per share, for the first nine
months of 1998.
Return on average assets (ROA) was 1.88% and 1.85% in the third quarter and
first nine months of 1999, respectively, compared with 1.58% and 1.55% in the
same periods of 1998. Return on average common equity (ROE) was 17.97% and
17.60% in the third quarter and first nine months of 1999, respectively,
compared with 14.72% and 14.55% in the same periods of 1998.
Diluted earnings before the amortization of goodwill and nonqualifying core
deposit intangible ("cash" or "tangible" earnings) in the third quarter and
first nine months of 1999 were $.65 and $1.89 per share, respectively, compared
with $.53 and $1.55 per share in the same periods of 1998. On the same basis,
ROA was 2.24% and 2.22% in the third quarter and first nine months of 1999,
respectively, compared with 1.97% and 1.95% in the same periods of 1998; ROE was
34.33% and 34.04% in the third quarter and first nine months of 1999,
respectively, compared with 31.47% and 32.02% in the same periods of 1998.
Net interest income on a taxable-equivalent basis was $2,399 million and $7,007
million for the third quarter and first nine months of 1999, respectively,
compared with $2,278 million and $6,734 million for the same periods of 1998.
The Company's net interest margin was 5.73% and 5.67% for the third quarter and
first nine months of 1999, respectively, compared with 5.88% and 5.86% for the
same periods of 1998.
Noninterest income was $1,809 million and $5,350 million for the third quarter
and first nine months of 1999, respectively, compared with $1,621 million and
$4,870 million for the same
16
<PAGE>
periods of 1998. The increase for the third quarter of 1999 was mostly due to
higher net mortgage servicing fees and higher venture capital gains partially
offset by gains on sales of mortgages in the third quarter of 1998. The increase
for the first nine months of 1999 was primarily due to higher net mortgage
servicing fees, venture capital gains and trust and investment fees and
commissions.
Noninterest expense totaled $2,418 million and $7,124 million for the third
quarter and first nine months of 1999, respectively, compared with $2,347
million and $7,097 million for the same periods of 1998. The efficiency ratio
improved to 57.7% for the third quarter of 1999, and 57.9% for the first nine
months of 1999, compared with 60.4% and 61.4% for the same periods a year ago.
The Company expects to meet its pre-Merger target of approximately $650 million
in annual pretax 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 $240 million and $770 million in the third
quarter and first nine months of 1999, respectively, compared with $307 million
and $921 million in the same periods of 1998. During the third quarter of 1999,
net charge-offs were $241 million, or .85% of average total loans (annualized),
compared with $318 million, or 1.18%, during the third quarter of 1998. The
allowance for loan losses was $3,167 million, or 2.76% of total loans, at
September 30, 1999, compared with $3,134 million, or 2.90%, at December 31, 1998
and $3,170 million, or 2.94%, at September 30, 1998.
At September 30, 1999, total nonaccrual and restructured loans were $698
million, or .6% of total loans, compared with $710 million, or .7%, at December
31, 1998 and $722 million, or .7%, at September 30, 1998. Foreclosed assets
amounted to $213 million at September 30, 1999, $167 million at December 31,
1998 and $176 million at September 30, 1998.
At September 30, 1999, the ratio of common stockholders' equity to total
assets was 10.49%, compared with 10.26% at September 30, 1998. The Company's
total risk-based capital (RBC) ratio at September 30, 1999 was 11.30% and its
Tier 1 RBC ratio was 8.71%, exceeding the minimum regulatory guidelines of 8%
and 4%, respectively, for bank holding companies. The Company's ratios at
September 30, 1998 were 11.07% and 8.20%, respectively. The Company's
leverage ratio was 7.22% at September 30, 1999 and 7.00% at September 30,
1998, exceeding the minimum regulatory guideline of 3% for bank holding
companies.
RECENT DEVELOPMENTS - FINANCIAL MODERNIZATION
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the Act) which will, effective March 11, 2000, permit
bank holding companies to become financial holding companies and thereby
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. A bank holding company may become a
financial holding company (FHC) if each of its subsidiary banks is well
capitalized under the FDICIA prompt corrective action provisions, well
managed, and has at least a satisfactory rating under the Community
Reinvestment Act (CRA) by filing a declaration that the bank holding company
wishes to become a FHC. No regulatory approval will be required for a FHC to
acquire a
17
<PAGE>
company, other than a bank or savings association, engaged in activities that
are financial in nature or incidental to activities that are financial in
nature, as determined by the Board of Governors of the Federal Reserve System
(the Board). The Act defines "financial in nature" to include securities
underwriting, dealing and market making; sponsoring mutual funds and
investment companies; insurance underwriting and agency; merchant banking
activities; and activities that the Board has determined to be closely
related to banking. A national bank also may engage, subject to limitations
on investment, in activities that are financial in nature, other than
insurance underwriting, insurance company portfolio investment, real estate
development and real estate investment, through a financial subsidiary of the
bank, if the bank is well capitalized, well managed and has at least a
satisfactory CRA rating. Subsidiary banks of a FHC or national banks with
financial subsidiaries must continue to be well capitalized and well managed
in order to continue to engage in activities that are financial in nature
without regulatory actions or restrictions, which could include divestiture
of the financial in nature subsidiary or subsidiaries. In addition, a FHC or
a bank may not acquire a company that is engaged in activities that are
financial in nature unless each of the subsidiary banks of the FHC or the
bank has at least a satisfactory CRA rating.
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;
- -- Forecasts of future economic performance;
- -- "Year 2000 Readiness Disclosures" under the Year 2000 Information and
Readiness Disclosure Act; and
- -- 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,
18
<PAGE>
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 elsewhere in this report and in the MD&A section of the 1998 Annual
Report on Form 10-K filed by the Company with the SEC. Factors relating to
the regulation and supervision of the Company and its subsidiaries are also
described or incorporated in the Form 10-K. 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, which could adversely affect the Company's earnings.
Higher interest rates would also increase the Company's cost to borrow funds
and may 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.
19
<PAGE>
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 recent legislative changes (see "Legislation" below), 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.
LEGISLATION. The Gramm-Leach-Bliley Act permits affiliation among banks,
securities firms and insurance companies by creating a new type of financial
services company called a "financial holding company." Financial holding
companies may offer virtually any type of financial service, including
banking, securities underwriting, insurance (both agency and underwriting)
and merchant banking. Under the Act, securities firms and insurance
companies that elect to become a financial holding company may acquire banks
and other financial institutions. The Act significantly changes the
competitive environment in which the Company and its subsidiaries conduct
business.
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;
20
<PAGE>
- -- 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 reported
in earnings or other comprehensive income depending on the use of the
derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. The
Company has not yet determined when it will implement the Statement nor has
it completed the complex analysis required to determine the impact on the
financial statements.
OPERATING SEGMENT RESULTS
COMMUNITY BANKING'S net income increased to $747 million in the third quarter of
1999 from $562 million in the third quarter of 1998, an increase of 33%. Net
income increased to $2,110 million for the first nine months of 1999 from $1,500
million for the first nine months of 1998, an increase of 41%. Net interest
income increased to $1,688 million in the third quarter of 1999 from $1,549
million in the third quarter of 1998. Net interest income increased to $4,846
million for the first nine months of 1999 from $4,598 million in the first nine
months of 1998. The provision for loan losses decreased by $47 million and $161
million for the third quarter and first nine months of 1999, respectively,
reflecting lower charge-offs.
21
<PAGE>
Noninterest income for the third quarter of 1999 increased by $71 million
over the same period in 1998. The increase in noninterest income for the
third quarter of 1999 was mostly due to higher venture capital gains,
commissions and trust and investment fees.
WHOLESALE BANKING'S net income was $223 million in the third quarter of 1999,
compared with $173 million in the third quarter of 1998, an increase of 29%. Net
income was $641 million for the first nine months of 1999, compared with $616
million in the first nine months of 1998, an increase of 4%. Net interest income
was $357 million in the third quarter of 1999 and $340 million in the third
quarter of 1998. The increase in net interest income was due to higher average
loans within asset-based lending and Real Estate Capital Markets. Net interest
income increased to $1,054 million for the first nine months of 1999 from $1,010
million in the first nine months of 1998. Average outstanding loan balances grew
to $34 billion in the third quarter of 1999 from $33 billion in the third
quarter of 1998. Noninterest income increased to $305 million and $869 million
in the third quarter and first nine months of 1999, respectively, from $215
million and $774 million in the same periods of 1998. The increase for both
periods was primarily due to higher gains from investment securities and trading
activities as well as increased income from service charges, fees and
commissions, and foreign exchange gains. Noninterest expense increased to $286
million in the third quarter of 1999 and $818 million for the first nine months
of 1999 from $254 million and $756 million for the same periods in the prior
year. The increase for the first nine months of 1999 was primarily due to
increased expenses in the investment management area and the addition of Century
Business Credit Corporation, which was acquired in the first quarter of 1999.
The provision for loan losses increased by $6 million and $85 million for the
third quarter and first nine months of 1999, respectively, due to increased
charge-offs.
NORWEST MORTGAGE'S net income in the third quarter of 1999 increased to $70
million from $56 million in the third quarter of 1998, an increase of 25%.
Net income increased to $208 million for the first nine months of 1999 from
$162 million in the first nine months of 1998, an increase of 28%. The
increase for the third quarter of 1999 was principally due to growth in the
servicing portfolio and decreased amortization of mortgage servicing rights,
offset by a decrease in loan origination and closing fees. The servicing
portfolio increased to $274 billion at September 30, 1999 from $233 billion
at September 30, 1998. The weighted average coupon on loans in the servicing
portfolio was 7.30% at September 30, 1999 compared with 7.54% a year earlier.
Total capitalized mortgage servicing rights amounted to $4.3 billion, or
1.58%, of the servicing portfolio at September 30, 1999 compared with $2.7
billion, or 1.17%, at September 30, 1998. Amortization of capitalized
mortgage servicing rights was $139 million and $599 million for the third
quarter and first nine months of 1999, respectively, compared with $242
million and $570 million for the same periods of 1998. The decrease in
amortization for the third quarter of 1999 was largely due to rising interest
rates, which decreased the prepayment speeds in the servicing portfolio.
Combined (losses)/gains on sales of mortgages and servicing rights were $(29)
million for the third quarter of 1999 and $194 million for the first nine
months of 1999, compared with $152 million and $288 million for the same
periods of the prior year. The decrease for the third quarter of 1999 was
largely due to less favorable market conditions and decreased loan sales.
Fundings for the third quarter and first nine months of 1999 were $19 billion
and $69 billion, respectively, compared with $28 billion and $75 billion for
the same
22
<PAGE>
periods of the prior year. The decrease in third quarter funding volume was
primarily due to a decrease in refinance activity. The percentage of fundings
attributed to mortgage loan refinancing was approximately 20% for the third
quarter of 1999, compared with 43% for the same period in 1998.
NORWEST FINANCIAL'S net income increased to $66 million in the third quarter of
1999 from $55 million for the same period in 1998, an increase of 20%. Net
income increased to $186 million for the first nine months of 1999 from $161
million for the same period in 1998, an increase of 16%. The provision for loan
losses decreased 27% in the third quarter and first nine months of 1999 compared
to the same periods in the prior year due to a reduction in the provision for
loan losses at Island Finance. Norwest Financial's noninterest expense increased
by $24 million, or 11%, and $56 million, or 9%, for the quarter and nine months
ended September 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 $2,399 million in the
third quarter of 1999, compared with $2,278 million in the third quarter of
1998. The Company's net interest margin was 5.73% in the third quarter of
1999, compared with 5.88% in the third quarter of 1998. Net interest income
on a taxable-equivalent basis was $7,007 million in the first nine months of
1999, compared with $6,734 million in the first nine months of 1998. The
Company's net interest margin was 5.67% in the first nine months of 1999,
compared with 5.86% in the first nine months of 1998. The decrease in the net
interest margin for both the third quarter and the first nine months was
primarily due to higher balances of lower yielding investment securities and
lower yields on consumer loans and commercial real estate mortgages partially
offset by decreased rates on consumer deposits.
Interest income included hedging income of $51 million in the third quarter of
1999, compared with $21 million in the third quarter of 1998. Interest expense
included hedging income of $24 million in the third quarter of 1999, compared
with $19 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 billion and $124 billion and funded 62% and 66%
of the Company's average total assets in the third quarter of 1999 and 1998,
respectively. For the first nine months of 1999 and 1998, average core deposits
were $127 billion and $122 billion, respectively, and funded 64% and 66% of the
Company's average total assets, respectively.
23
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
- ----------------------------------------------------------------------------------------------------------------------------
Quarter ended Sept. 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 $ 1,327 5.13% $ 17 $ 2,120 5.86% $ 31
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 5,915 5.47 85 4,494 6.03 68
Securities of U.S. states and political subdivisions 1,848 8.31 38 1,547 8.57 31
Mortgage-backed securities:
Federal agencies 20,840 7.11 374 15,286 7.09 265
Private collateralized mortgage obligations 3,003 6.89 53 3,078 6.70 51
-------- ------ -------- ------
Total mortgage-backed securities 23,843 7.08 427 18,364 7.03 316
Other securities 3,612 6.93 50 1,533 6.29 21
-------- ------ -------- ------
Total securities available for sale 35,218 6.85 600 25,938 6.90 436
Loans held for sale (3) 4,381 7.24 80 4,757 7.84 93
Mortgages held for sale (3) 10,711 7.33 198 13,142 7.01 230
Loans:
Commercial 36,011 8.88 806 33,762 8.92 758
Real estate 1-4 family first mortgage 12,236 8.58 263 12,558 8.47 266
Other real estate mortgage 17,243 8.73 379 16,230 9.53 390
Real estate construction 4,189 9.38 99 3,764 9.43 90
Consumer:
Real estate 1-4 family junior lien mortgage 11,817 9.01 267 10,837 9.58 261
Credit card 5,323 13.95 187 5,877 15.07 221
Other revolving credit and monthly payment 16,848 12.06 509 16,345 12.87 527
-------- ------ -------- ------
Total consumer 33,988 11.29 963 33,059 12.18 1,009
Lease financing 7,070 7.76 137 5,766 8.20 118
Foreign 1,525 20.88 80 1,414 21.03 74
-------- ------ -------- ------
Total loans (4) 112,262 9.67 2,727 106,553 10.11 2,705
Other 3,067 4.68 36 2,794 6.71 48
-------- ------ -------- ------
Total earning assets $166,966 8.73 3,658 $155,304 9.13 3,543
-------- ------ -------- ------
-------- --------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 2,723 .92 6 $ 2,774 1.03 7
Market rate and other savings 56,339 2.23 317 52,331 2.68 354
Savings certificates 25,262 4.66 297 27,750 5.21 364
Other time deposits 3,276 4.86 40 3,955 5.50 55
Deposits in foreign offices 1,552 4.86 19 663 4.77 8
-------- ------ -------- ------
Total interest-bearing deposits 89,152 3.02 679 87,473 3.58 788
Short-term borrowings 17,649 5.09 226 13,819 5.59 195
Long-term debt 23,112 5.85 339 16,713 6.37 266
Guaranteed preferred beneficial interests in Company's
subordinated debentures 785 7.56 15 744 8.59 16
-------- ------ -------- ------
Total interest-bearing liabilities 130,698 3.83 1,259 118,749 4.23 1,265
Portion of noninterest-bearing funding sources 36,268 -- -- 36,555 -- --
-------- ------ -------- ------
Total funding sources $166,966 3.00 1,259 $155,304 3.25 1,265
-------- ------ -------- ------
-------- --------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (5) 5.73% $2,399 5.88% $2,278
---- ------ ----- ------
---- ------ ----- ------
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 11,196 $ 10,381
Goodwill 7,674 7,811
Other 17,136 13,138
-------- --------
Total noninterest-earning assets $ 36,006 $ 31,330
-------- --------
-------- --------
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 42,435 $ 40,865
Other liabilities 8,337 6,803
Preferred stockholders' equity 460 462
Common stockholders' equity 21,042 19,755
Noninterest-bearing funding sources used to
fund earning assets (36,268) (36,555)
-------- --------
Net noninterest-bearing funding sources $ 36,006 $ 31,330
-------- --------
-------- --------
TOTAL ASSETS $202,972 $186,634
-------- --------
-------- --------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 8.10% and 8.50% for the quarters
ended September 30, 1999 and 1998, respectively, and 7.87% and 8.50% for
the nine months ended September 30, 1999 and 1998, respectively. The
average three-month London Interbank Offered Rate (LIBOR) was 5.44% and
5.62% for the quarters ended September 30, 1999 and 1998, respectively, and
5.17% and 5.65% for the nine months ended September 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>
- --------------------------------------------------------------
Nine months ended Sept. 30,
- --------------------------------------------------------------
1999 1998
- ---------------------------- ----------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
BALANCE RATES EXPENSE balance rates expense
- --------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 1,311 4.95% $ 49 $ 1,531 5.73% $ 66
5,608 5.43 233 5,254 5.97 233
1,797 8.36 108 1,524 8.53 93
19,923 6.81 1,014 16,153 7.14 846
3,156 6.82 162 2,641 6.78 134
------- ------ -------- ------
23,079 6.81 1,176 18,794 7.09 980
3,202 6.81 136 1,460 4.55 60
------- ------ -------- ------
33,686 6.65 1,653 27,032 6.84 1,366
5,182 7.23 280 4,705 7.75 273
12,774 6.97 671 11,624 6.98 609
35,512 8.66 2,302 32,813 9.04 2,219
12,134 8.44 767 13,227 8.29 823
16,985 8.82 1,121 16,241 9.53 1,158
4,044 9.34 283 3,542 9.48 251
11,336 9.07 770 10,600 9.86 782
5,402 13.77 558 6,136 15.05 693
15,983 12.38 1,482 16,569 12.81 1,591
------- ------ -------- ------
32,721 11.46 2,810 33,305 12.29 3,066
6,813 7.81 399 5,417 8.30 337
1,505 20.99 237 1,285 20.88 201
------- ------ -------- ------
109,714 9.64 7,919 105,830 10.16 8,055
2,636 5.17 101 3,021 5.97 134
------- ------ -------- ------
$ 165,303 8.65 10,673 $153,743 9.14 10,503
- --------- ------ -------- ------
- --------- --------
$ 2,764 .89 18 $ 2,713 1.40 28
55,996 2.28 956 51,842 2.65 1,026
26,077 4.76 929 27,774 5.25 1,091
3,528 4.97 131 4,085 5.52 170
1,212 4.51 41 690 4.89 25
------- ------ -------- ------
89,577 3.10 2,075 87,104 3.59 2,340
17,567 4.83 635 13,570 5.49 557
20,903 5.81 912 16,828 6.38 805
785 7.54 44 1,089 8.15 67
------- ------ -------- ------
128,832 3.80 3,666 118,591 4.25 3,769
36,471 -- -- 35,152 -- --
------- ------ -------- ------
$ 165,303 2.97 3,666 $153,743 3.28 3,769
------- ------ -------- ------
------- --------
5.67% $7,007 5.86% $6,734
----- ------ ----- ------
----- ------ ----- ------
$ 11,184 $ 10,529
7,688 7,918
16,519 12,997
------- --------
$ 35,391 $ 31,444
------- --------
------- --------
$ 42,644 $ 40,120
7,866 6,552
460 461
20,892 19,463
(36,471) (35,152)
------- --------
$ 35,391 $ 31,444
------- --------
------- --------
$ 200,694 $185,187
------- --------
------- --------
- -------------------------------------------
</TABLE>
25
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
----------------- % ---------------- %
(in millions) 1999 1998 Change 1999 1998 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 385 $ 356 8% $1,096 $ 993 10%
Trust and investment fees and commissions:
Asset management and custody fees 195 167 17 569 495 15
Mutual fund and annuity sales fees 99 76 30 288 227 27
All other 23 24 (4) 75 72 4
------ ------ ------ ------
Total trust and investment fees and commissions 317 267 19 932 794 17
Credit card fee revenue 138 136 1 395 384 3
Other fees and commissions:
Cash network fees 73 60 22 201 167 20
Charges and fees on loans 78 73 7 241 215 12
All other 107 108 (1) 321 313 3
------ ------ ------ ------
Total other fees and commissions 258 241 7 763 695 10
Mortgage banking: (1)
Origination and other closing fees 101 128 (21) 330 366 (10)
Servicing fees, net of amortization 176 (47) -- 231 (6) --
Net gains on sales of mortgage
servicing rights -- -- -- -- 16 (100)
Net (losses) gains on sales of mortgages (16) 142 -- 228 306 (25)
All other 57 52 10 180 172 5
------ ------ ------ ------
Total mortgage banking 318 275 16 969 854 13
Insurance 95 73 30 299 278 8
Net venture capital gains 162 4 -- 287 116 147
Net (losses) gains on securities available for sale (2) 76 -- 19 161 (88)
Income from equity investments accounted
for by the
Cost method 35 32 9 99 116 (15)
Equity method 18 12 50 59 43 37
Net gains on sales of loans 6 25 (76) 32 48 (33)
Net gains on dispositions of operations -- 18 (100) 102 89 15
All other 79 106 (25) 298 299 --
------ ------ ------ ------
Total $1,809 $1,621 12% $5,350 $4,870 10%
------ ------ ---- ------ ------ ----
------ ------ ---- ------ ------ ----
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See page 22 for discussion of Norwest Mortgage noninterest income.
The increase in trust and investment fees and commissions for the third quarter
of 1999 was due to an overall increase in mutual fund management fees,
reflecting the overall growth in the fund families' net assets, an increase in
brokerage commissions and an increase in trust and agency assets under
management and administration. The Company managed 82 mutual funds consisting of
$55.0 billion of assets at September 30, 1999 that included 42 Stagecoach Funds
($30.3 billion) and 40 Norwest Advantage Funds ($24.7 billion), compared with 81
mutual funds consisting of $46.8 billion of assets at September 30, 1998 that
included 38 Stagecoach Funds ($25.6 billion) and 43 Norwest Advantage Funds
($21.2 billion). The Company also managed or maintained personal trust, employee
benefit trust and agency assets of approximately $402 billion and $383 billion
at September 30, 1999 and 1998, respectively.
Net venture capital gains were $162 million for the third quarter and $287
million for the first nine months of 1999, compared with $4 million and $116
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.
At September 30, 1999, the Company held a venture capital investment in
Cerent Corp., which was acquired by Cisco Systems, Inc. (Cisco) through a
tax-free exchange of common stock on November 1, 1999. Based on the closing
price of Cisco's common stock and the exchange ratio set forth in the
definitive agreement, the Company will recognize a non-cash venture capital
gain of about $550 million in the fourth quarter of 1999.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, % ended Sept. 30,
---------------- ---------------- %
(in millions) 1999 1998 Change 1999 1998 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 776 $ 730 6% $2,251 $2,132 6 %
Incentive compensation 124 164 (24) 393 449 (12)
Employee benefits 208 167 25 624 543 15
Equipment 193 192 1 566 572 (1)
Net occupancy 205 188 9 576 564 2
Goodwill 106 108 (2) 314 317 (1)
Core deposit intangible:
Nonqualifying (1) 44 52 (15) 135 162 (17)
Qualifying 5 6 (17) 16 21 (24)
Net losses (gains) on dispositions of premises
and equipment 6 7 (14) (5) 55 --
Operating losses 25 35 (29) 91 106 (14)
Outside professional services 83 74 12 243 213 14
Contract services 119 89 34 320 243 32
Telecommunications 66 66 -- 191 187 2
Outside data processing 69 66 5 207 174 19
Advertising and promotion 54 62 (13) 160 181 (12)
Postage 54 56 (4) 169 168 1
Travel and entertainment 58 53 9 173 153 13
Stationery and supplies 44 41 7 122 123 (1)
Insurance 41 29 41 127 111 14
Security 22 22 -- 64 63 2
All other 116 140 (17) 387 560 (31)
------ ------ ------ ------
Total $2,418 $2,347 3% $7,124 $7,097 -- %
------ ------ --- ------ ------ ----
------ ------ --- ------ ------ ----
- -------------------------------------------------------------------------------------------------------------------
</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 decrease in incentive compensation was due to decreased commissions on
mortgage originations.
The increase in contract services was largely due to expenses associated with
various Merger-related projects.
During the third quarter of 1999, the Company continued with its enterprise-wide
project to prepare and maintain 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
27
<PAGE>
as a leap year and may not properly provide for February 29, 2000. "Systems"
includes hardware, networks, in-house 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, 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 those 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 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 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 limited systems changes which are
permitted under the Company's Year 2000 policies.
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.
28
<PAGE>
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 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 internal operational
problems or 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 conducted 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 September 30, 1999, the Company has
incurred charges of $293 million related to its Year 2000 project, including $24
million in the third 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
29
<PAGE>
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.
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.
30
<PAGE>
INCOME TAXES
The Company's effective income tax rate was 37% for the third quarter and first
nine months of 1999, compared with 40% for the third quarter of 1998 and 39% for
the first nine months of 1998. The lower effective rate for both the third
quarter and the first nine months of 1999 compared to the same periods last year
resulted from a reduction of state income tax and an increase in charitable
donations of appreciated securities.
31
<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 September 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarter ended
(in millions, except per share amounts) Sept. 30, 1999
- -------------------------------------------------------------------------------------------------------------------
Amortization
--------------------------
Nonqualifying
Reported core deposit "Cash"
earnings Goodwill intangible earnings
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income tax expense $1,533 $106 $ 44 $1,683
Income tax expense 571 -- 16 587
------ ---- ---- ------
Net income 962 106 28 1,096
Preferred stock dividends 9 -- -- 9
------ ---- ---- ------
Net income applicable to common stock $ 953 $106 $ 28 $1,087
------ ---- ---- ------
------ ---- ---- ------
Earnings per common share $ .58 $.06 $.02 $ .66
------ ---- ---- ------
------ ---- ---- ------
Diluted earnings per common share $ .57 $.06 $.02 $ .65
------ ---- ---- ------
------ ---- ---- ------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core
deposit intangible amortization and related balances for the quarter ended
September 30, 1999 were calculated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Quarter ended
(in millions) Sept. 30, 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ROA: A / (C-E-F) = 2.24 %
ROE: B / (D-E-G) = 34.33 %
Efficiency: (H-I) / J = 54.1 %
Net income $ 1,096 (A)
Net income applicable to common stock 1,087 (B)
Average total assets 202,972 (C)
Average common stockholders' equity 21,042 (D)
Average goodwill 7,674 (E)
Average pretax nonqualifying core deposit intangible 1,301 (F)
Average after-tax nonqualifying core deposit intangible 807 (G)
Noninterest expense 2,418 (H)
Amortization expense for goodwill and nonqualifying core deposit intangible 150 (I)
Net interest income plus noninterest income 4,191 (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.
32
<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>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, 1999 Dec. 31, 1998 Sept. 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 $ 6,540 $ 6,276 $ 3,260 $ 3,287 $ 3,325 $ 3,385
Securities of U.S. states and
political subdivisions 2,054 2,048 1,683 1,794 1,689 1,797
Mortgage-backed securities:
Federal agencies 21,947 21,737 20,539 20,804 21,404 21,813
Private collateralized mortgage
obligations (1) 3,063 2,977 3,420 3,440 3,355 3,394
------- ------- ------- -------- ------- -------
Total mortgage-backed securities 25,010 24,714 23,959 24,244 24,759 25,207
Other 2,396 2,312 1,879 1,899 1,280 1,297
------- ------- ------- -------- ------- -------
Total debt securities 36,000 35,350 30,781 31,224 31,053 31,686
Marketable equity securities 500 1,556 386 773 390 524
------- ------- ------- -------- ------- -------
Total $36,500 $36,906 $31,167 $31,997 $31,443 $32,210
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
- -------------------------------------------------------------------------------------------------------------------
</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) SEPT. 30, 1999 Dec. 31, 1998 Sept. 30, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gross gains $1,341 $919 $815
Unrealized gross losses (935) (89) (48)
------ ---- ----
Unrealized net gain $ 406 $830 $767
------ ---- ----
------ ---- ----
- -------------------------------------------------------------------------------------------------------------------
</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 Nine months
ended Sept. 30, ended Sept. 30,
-------------------- --------------------
(in millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Realized gross gains $ 7 $ 77 $ 52 $ 171
Realized gross losses (9) (1) (33) (10)
--- ---- ---- -----
Realized net (loss) gain $(2) $ 76 $ 19 $ 161
--- ---- ---- -----
--- ---- ---- -----
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
The weighted average expected remaining maturity of the debt securities portion
of the securities available for sale portfolio was 7 years and 2 months at
September 30, 1999. Expected remaining maturities will differ from contractual
maturities because borrowers may have the right to prepay obligations with or
without penalties.
At September 30, 1999, mortgage-backed securities, including collateralized
mortgage obligations (CMOs) of $3.0 billion, were $24.7 billion, or 67%, 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
$24.7 billion to $22.6 billion and the expected remaining maturity of these
securities would increase from 6 years and 2 months to 7 years and 2 months.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
% Change
Sept. 30, 1999 from
----------------------
SEPT. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998 1998 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial (1) $37,222 $ 35,450 $ 35,012 5% 6%
Real estate 1-4 family first mortgage 12,375 11,496 12,333 8 --
Other real estate mortgage (2) 17,653 16,668 16,240 6 9
Real estate construction 4,381 3,790 3,748 16 17
Consumer:
Real estate 1-4 family junior lien mortgage 12,171 11,128 11,057 9 10
Credit card 5,347 5,795 5,686 (8) (6)
Other revolving credit and monthly payment 16,709 15,809 16,215 6 3
------- -------- --------
Total consumer 34,227 32,732 32,958 5 4
Lease financing 7,292 6,380 5,994 14 22
Foreign 1,559 1,478 1,407 5 11
------- -------- --------
Total loans (net of unearned income,
including net deferred loan fees, of
$3,003, $2,967 and $2,910) $14,709 $107,994 $107,692 6% 7%
------- -------- -------- -- --
------- -------- -------- -- --
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes agricultural loans (loans to finance agricultural production and
other loans to farmers) of $2,863 million, $2,979 million and $2,900
million at September 30, 1999, December 31, 1998 and September 30, 1998,
respectively.
(2) Includes agricultural loans that are secured by real estate of $1,008
million, $923 million and $930 million at September 30, 1999, December 31,
1998 and September 30, 1998, respectively.
34
<PAGE>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans (1)(2)(3) $697 $709 $721
Restructured loans (4) 1 1 1
---- ---- ----
Nonaccrual and restructured loans 698 710 722
As a percentage of total loans .6% .7% .7%
Foreclosed assets 213 167 176
Real estate investments (5) 34 1 2
---- ---- ----
Total nonaccrual and restructured loans
and other assets $945 $878 $900
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------------------------------------------
</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 $36 million, $32 million and $29
million and agricultural loans secured by real estate of $14 million, $12
million and $13 million at September 30, 1999, December 31, 1998 and
September 30, 1998, respectively.
(3) Of the total nonaccrual loans, $365 million, $388 million and $448 million
at September 30, 1999, December 31, 1998 and September 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 September 30, 1999,
December 31, 1998 and September 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 September 30, 1999, December 31,
1998 and September 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 $108 million, $128
million and $134 million at September 30, 1999, December 31, 1998 and
September 30, 1998, respectively.
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
35
<PAGE>
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 results in a value that 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.
In accordance with FAS 114, the table below shows the recorded investment in
impaired loans and the related methodology used to measure impairment for the
periods presented:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Impairment measurement based on:
Collateral value method $306 $329 $356
Discounted cash flow method 52 67 97
Historical loss factors 7 15 18
---- ---- ----
Total (1)(2) $365 $411 $471
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes accruing loans of none, $23 million and $23 million purchased at
a steep discount at September 30, 1999, December 31, 1998 and September
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 $216 million, $155 million, and $126 million of impaired loans
with a related FAS 114 allowance of $38 million, $37 million and $35
million at September 30, 1999, December 31, 1998 and September 30, 1998,
respectively.
The average recorded investment in impaired loans was $366 million and $480
million during the third quarter of 1999 and 1998, respectively, and $373
million and $469 million during the first nine months of 1999 and 1998,
respectively. Total interest income recognized on impaired loans was $2 million
and $4 million during the third quarter of 1999 and 1998, respectively, and $6
million and $11 million during the first nine 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.
36
<PAGE>
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.
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. 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>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 43 $ 9 $ 20
Real estate 1-4 family first mortgage 29 17 21
Other real estate mortgage 46 41 52
Real estate construction 6 6 9
Consumer:
Real estate 1-4 family junior lien mortgage 34 63 68
Credit card 102 140 136
Other revolving credit and monthly payment 206 180 247
---- ---- ----
Total consumer (1) 342 383 451
---- ---- ----
Total $466 $456 $553
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consumer loans at December 31, 1998 and September 30, 1998 have been
revised to include Norwest Financial loans of $114 million and $175
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 Nine months
ended Sept. 30, ended Sept. 30,
---------------------- ----------------------
(in millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $3,165 $3,098 $ 3,134 $ 3,062
Allowances related to business combinations, net 3 83 38 118
Provision for loan losses 240 307 770 921
Loan charge-offs:
Commercial (93) (67) (285) (189)
Real estate 1-4 family first mortgage (3) (6) (22) (18)
Other real estate mortgage (8) (23) (20) (42)
Real estate construction -- -- (1) (2)
Consumer:
Real estate 1-4 family junior lien mortgage (7) (5) (22) (18)
Credit card (93) (127) (299) (409)
Other revolving credit and monthly payment (122) (158) (358) (493)
------ ------ ------- -------
Total consumer (222) (290) (679) (920)
Lease financing (9) (11) (30) (35)
Foreign (18) (25) (57) (47)
------ ------ ------- -------
Total loan charge-offs (353) (422) (1,094) (1,253)
------ ------ ------- -------
Loan recoveries:
Commercial 25 18 61 60
Real estate 1-4 family first mortgage 3 4 6 9
Other real estate mortgage 4 27 33 68
Real estate construction -- 1 4 3
Consumer:
Real estate 1-4 family junior lien mortgage 3 1 10 5
Credit card 10 14 36 44
Other revolving credit and monthly payment 60 31 149 112
------ ------ ------- -------
Total consumer 73 46 195 161
Lease financing 3 4 9 10
Foreign 4 4 11 11
------ ------ ------- -------
Total loan recoveries 112 104 319 322
------ ------ ------- -------
Total net loan charge-offs (241) (318) (775) (931)
------ ------ ------- -------
BALANCE, END OF PERIOD $3,167 $3,170 $ 3,167 $ 3,170
------ ------ ------- -------
------ ------ ------- -------
Total net loan charge-offs as a percentage
of average loans (annualized) .85% 1.18% .94% 1.18%
------ ------ ------- -------
------ ------ ------- -------
Allowance as a percentage of total loans 2.76% 2.94% 2.76% 2.94%
------ ------ ------- -------
------ ------ ------- -------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
The Company considers the allowance for loan losses of $3,167 million adequate
to cover losses inherent in loans, commitments to extend credit and standby
letters of credit at September 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 ongoing
examination process by the Company and its regulators.
INTEREST RECEIVABLE AND OTHER ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonmarketable equity investments $ 2,687 $ 2,392 $ 2,199
Government National Mortgage Association
(GNMA) pool buy outs 1,983 1,624 911
Trading assets 2,326 760 1,243
Interest receivable 1,203 1,062 1,140
Foreclosed assets 213 167 176
Certain identifiable intangible assets 235 212 254
Due from customers on acceptances 99 128 163
Interest earning deposits 87 113 88
Other 5,282 4,436 4,178
------- ------- -------
Total interest receivable and other assets $14,115 $10,894 $10,352
------- ------- -------
------- ------- -------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Income from nonmarketable equity investments accounted for using the cost method
was $35 million and $32 million in the third quarter of 1999 and 1998,
respectively, and $99 million and $116 million in the first nine months 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 September 30, 1999 compared
with December 31, 1998 was primarily due to an increase in U.S. Treasury
securities. Noninterest income from trading assets was $6 million and $36
million in the third quarter of 1999 and 1998, respectively, and $71 million and
$140 million in the first nine months of 1999 and 1998, respectively.
39
<PAGE>
Amortization expense for certain identifiable intangible assets included in
other assets was $11 million and $15 million in the third quarter of 1999 and
1998, respectively, and $34 million and $60 million in the first nine months of
1999 and 1998, respectively.
DEPOSITS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $ 41,872 $ 46,732 $ 40,951
Interest-bearing checking 2,736 2,908 2,931
Market rate and other savings 55,641 55,152 52,030
Savings certificates 24,911 27,497 27,880
-------- -------- --------
Core deposits 125,160 132,289 123,792
Other time deposits 3,213 3,753 3,880
Deposits in foreign offices 3,184 746 2,279
-------- -------- --------
Total deposits $131,557 $136,788 $129,951
-------- -------- --------
-------- -------- --------
- -------------------------------------------------------------------------------------------------------------------
</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 September 30, 1999:
Total capital (to risk-weighted assets)
> >
Wells Fargo & Company $18.2 11.30 % - $12.9 - 8.00%
> > > >
Norwest Bank Minnesota, N.A. 2.4 12.34 - 1.5 - 8.00 - $1.9 - 10.00%
> > > >
Wells Fargo Bank, N.A. 8.5 12.02 - 5.6 - 8.00 - 7.0 - 10.00
Tier 1 capital (to risk-weighted assets)
> >
Wells Fargo & Company $14.0 8.71 % - $6.4 - 4.00%
> > > >
Norwest Bank Minnesota, N.A. 2.1 10.69 - .8 - 4.00 - $ 1.2 - 6.00%
> > > >
Wells Fargo Bank, N.A. 5.7 8.15 - 2.8 - 4.00 - 4.2 - 6.00
Tier 1 capital (to average assets)
(Leverage ratio)
> >
Wells Fargo & Company $14.0 7.22 % - $7.8 - 4.00% (1)
> > > >
Norwest Bank Minnesota, N.A. 2.1 6.14 - 1.3 - 4.00 (1) - $ 1.7 - 5.00%
> > > >
Wells Fargo Bank, N.A. 5.7 7.12 - 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 September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 December 31, 1998
--------------------------------------------- ------------------------------------------
NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated
CONTRACTUAL RISK FAIR contractual risk fair
(in millions) AMOUNT AMOUNT (3) VALUE amount amount (3) value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT
HEDGES
Interest rate contracts:
Swaps (1) $32,636 $ 170 $(43) $24,429 $735 $686
Futures 55,860 -- -- 62,348 -- --
Floors and caps (1) 41,877 210 210 33,598 504 504
Options (1)(2) 19,255 35 53 25,822 112 101
Forwards (1) 34,096 92 (29) 41,283 11 (58)
Foreign exchange contracts:
Forward contracts (1) 91 -- (1) 168 -- (1)
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Swaps (1) 15,605 99 (5) 7,795 81 10
Futures 25,502 -- -- 8,440 -- --
Floors and caps purchased (1) 6,254 57 57 5,619 42 42
Floors and caps written 5,736 -- (59) 5,717 -- (42)
Options purchased 650 -- -- -- -- --
Options written 950 -- -- -- -- --
Forwards (1) 171 4 1 850 24 4
Commodity contracts:
Swaps (1) 114 11 -- 78 4 --
Floors and caps purchased (1) 38 3 3 4 -- --
Floors and caps written 38 -- (3) 4 -- --
Foreign exchange contracts:
Forwards and spots (1) 4,287 67 13 3,524 37 2
Options purchased (1) 46 -- -- 44 2 2
Options written 40 -- -- 43 -- (2)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company anticipates performance by substantially all of the
counterparties for these contracts or the underlying financial instruments.
(2) At September 30, 1999, a significant portion of purchase option contracts
were options on futures contracts, which are exchange traded for which the
exchange assumes counterparty risk.
(3) 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. Because the contract or notional
amount does not represent amounts exchanged by the parties, it is not a measure
of loss exposure related to the use of derivatives nor of exposure to liquidity
risk. The Company is primarily an end-user of these instruments. The Company
also offers such contracts to its customers but offsets these contracts by
purchasing other financial contracts or uses the contracts for asset/liability
management. To a lesser extent, the Company
42
<PAGE>
takes positions based on market expectations or to benefit from price
differentials between financial instruments and markets.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The Company controls the credit risk of
its financial contracts except for contracts for which credit risk is DE MINIMUS
through credit approvals, limits and monitoring procedures. Credit risk related
to derivative financial instruments is considered and, if material, provided for
separately from the allowance for loan losses. As the Company generally enters
into transactions only with high quality counterparties, losses associated with
counterparty nonperformance on derivative financial instruments have been
immaterial. Further, the Company obtains collateral where appropriate and uses
master netting arrangements in accordance with FASB Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts, as amended by FASB
Interpretation No. 41, Offsetting of Amounts Related to Certain Repurchase and
Reverse Repurchase Agreements.
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. As of
September 30, 1999, the Company had issued $3.0 billion of securities and had
established a program to issue, from time to time, Medium-Term Notes, Series
A and Subordinated Medium-Term Notes, Series B in the aggregate principal
amount of up to $7.15 billion from the $10.15 billion available for issuance
under the registration statements described above. In 1996, the Parent also
established a $2 billion Euro Medium-Term Note program (Euro MTN) and as of
September 30, 1999 had issued $300 million under that program. The proceeds
from the sales of any securities are expected to be used for general
corporate purposes.
In September of 1999, the Board of Directors authorized the repurchase of up to
82 million additional shares of the Company's outstanding common stock. These
shares, to be purchased at market price, are part of the Company's ongoing
systematic pattern of common stock repurchases to meet the common stock issuance
requirements of the Company's benefit plans and conversion of convertible
securities, and for other Company purposes, including
43
<PAGE>
acquisitions accounted for as purchases and for managing the Company's capital
position. As of September 30, 1999, the total remaining common stock purchase
authority was approximately 83 million shares.
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.
44
<PAGE>
The simulation model is used to measure the impact on net income, relative to a
base case scenario, of interest rates increasing or decreasing 100 basis points
over the next 12 months. At September 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 that would result in a
decrease in net income of $65 million. In the simulation that was run at
December 31, 1998, the largest drop in net income relative to the base case
scenario over the next twelve months was a 100 basis point increase in rates
that 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.
PART II - OTHER INFORMATION
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, incorporated by
reference to Exhibit 3(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
45
<PAGE>
3(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
(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
46
<PAGE>
3(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
(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) Supplemental 401(k) Plan, as amended and restated
effective July 1, 1999
(b) Supplemental Cash Balance Plan, as amended and restated
effective July 1, 1999
(c) Deferred Compensation Plan for Non-Employee Directors
of the former Norwest, as amended and restated
effective September 28, 1999
(d) Directors' Stock Deferral Plan for directors of the
former Norwest, as amended and restated effective
September 28, 1999
(e) Directors' Formula Stock Award Plan for directors of
the former Norwest, as amended and restated effective
September 28, 1999
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 2.18 and 1.94 for the
quarters ended September 30, 1999 and 1998,
respectively, and 2.17 and 1.91 for the nine months
ended September 30, 1999 and 1998, respectively. The
ratios of earnings to fixed charges, excluding interest
on deposits, were 3.48 and 3.38 for the quarters ended
September 30, 1999 and 1998, respectively, and 3.61 and
3.29 for the nine months ended September 30, 1999 and
1998, respectively.
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<PAGE>
99(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 2.16 and 1.92 for the quarters ended
September 30, 1999 and 1998, respectively, and 2.15 and
1.89 for the nine months ended September 30, 1999 and
1998, respectively. The ratios of earnings to fixed
charges and preferred dividends, excluding interest on
deposits, were 3.40 and 3.29 for the quarters ended
September 30, 1999 and 1998, respectively, and 3.53 and
3.20 for the nine months ended September 30, 1999 and
1998, respectively.
(b) The Company filed the following reports on Form 8-K during the
third quarter of 1999:
1 July 20, 1999 under Item 5, containing the Company's
financial results for the quarter ended June 30, 1999
2 July 28, 1999 under Item 7, Underwriting Agreement and
Indenture dated as of July 21, 1999 relating to the
Company's offering of 6 5/8% Notes due 2004 in the
aggregate principal amount of $1.5 billion
3 September 8, 1999 under Item 7, Indenture dated as of
August 30, 1999 and Distribution Agreement dated as of
September 2, 1999 relating to the establishment of a
Medium-Term Note Program, Series A and a Subordinated
Medium-Term Note Program, Series B
4 September 29, 1999 under Item 5, containing the Press
Release announcing the Company's additional share
repurchase authorization
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 November 15, 1999.
WELLS FARGO & COMPANY
By: LES L. QUOCK
-------------------------------------
Les L. Quock
Senior Vice President and Controller
(Principal Accounting Officer)
48
<PAGE>
EXHIBIT 10(a)
WELLS FARGO & COMPANY
SUPPLEMENTAL 401(k) PLAN
(As Amended and Restated Effective July 1, 1999)
Sec. 1 NAME AND PURPOSE. The name of the Plan is the "Wells Fargo &
Company Supplemental 401(k) Plan" (the "Plan"). The Plan amends and restates
the Norwest Corporation Supplemental Savings Investment Plan. This Plan, as
amended and restated, shall be effective July 1, 1999. This Plan is maintained
by Wells Fargo & Company (the "Company") for the purposes of providing benefits
to participants in the Wells Fargo & Company 401(k) Plan (the "401(k) Plan")
whose contributions to the 401(k) Plan are limited by Internal Revenue Code (the
"Code") section 401(a)(17) and providing benefits to eligible employees who
have chosen to defer compensation into a nonqualified deferred compensation plan
maintained by the Company that would otherwise be available for contributions to
the 401(k) Plan.
Sec. 2 DEFINITIONS. All references herein to the "401(k) Plan" are
references to the Wells Fargo & Company 401(k) Plan (formerly known as the
Norwest Corporation Savings Investment Plan) as it may be amended from time to
time. In addition, except where specifically defined in this Plan, all
capitalized terms herein shall have the same meaning as given to those terms in
the 401(k) Plan.
Sec. 3 NONQUALIFIED CERTIFIED COMPENSATION. Nonqualified Certified
Compensation for purposes of the credits to Plan Accounts under Section 8 means
a participant's base pay and all approved commissions, bonuses and incentive
payments paid to the participant by the Company or a Participating Employer
during a particular pay period subject to the following:
(a) Nonqualified Certified Compensation shall include any Salary
Deferral Contributions on behalf of a participant under the
401(k) Plan, and any salary reduction contributions to any
cafeteria plan under Code section 125 maintained by a
Participating Employer. Nonqualified Certified Compensation
includes salary continuation pay paid in regular monthly or more
frequent installments to a participant placed on a leave that is
classified by his or her Participating Employer as a salary
continuation leave of absence, but does not include any lump sum
severance payment.
(b) Nonqualified Certified Compensation shall include payments under
the Executive Incentive Compensation Plan approved by the Human
Resources Committee of the Board of Directors of the Company and
payments under any other commission, bonus or incentive
compensation programs or plans which the Company designates as
included in
<PAGE>
Nonqualified Certified Compensation by written action of the
Chairman, President or the Executive Vice President of Human
Resources. Notwithstanding the previous sentence, payments
under any such commission, bonus or incentive compensation
plan shall not be included in Nonqualified Certified
Compensation to the extent those payments exceed any limit
the Company establishes in such written action.
(c) Nonqualified Certified Compensation shall include deferrals of
base pay, approved commissions, bonuses and incentive payments
for a participant who has entered into a written agreement with
the Company or any other Participating Employer under which
payment of such compensation will be deferred to a stated year
subsequent to the year in which it would otherwise have been paid
to the participant.
(d) Nonqualified Certified Compensation for a participant who has
entered into a written agreement with the Company or any other
Participating Employer to defer compensation that would have been
Certified Compensation under the 401(k) Plan if it had not been
deferred shall include all such deferred compensation.
(e) Notwithstanding the foregoing provisions of this section, solely
for purposes of allocating Employer Matching Contributions under
Section 8, any Nonqualified Certified Compensation paid to a
participant while the participant is employed in a position
subject to this subsection (e) shall be disregarded to the extent
such Nonqualified Certified Compensation exceed $20,000 for a
Plan Year.
(i) This subsection (e) applies to any participant who is
employed in the Mortgage Sales Representative job category
or in any other job category which the Company classifies as
equivalent to the Mortgage Sales Representative category.
(ii) If a participant is transferred into a position that is
subject to this subsection (e) during a Plan Year, the
$20,000 limit under this subsection for that Plan Year shall
be reduced (but not below $0) by the amount of Nonqualified
Certified Compensation credited to the participant for
service during that Plan Year prior to the date the transfer
occurred.
Sec. 4 COMPANY AND PARTICIPATING EMPLOYERS. The "Company" is Wells
Fargo & Company (formerly known as Norwest Corporation), a Delaware corporation,
and any successor to said corporation. Each Participating Employer in the
401(k) Plan shall also be a Participating Employer in this Plan if any of its
employees are eligible to become participants in this Plan.
2
<PAGE>
Sec. 5 PARTICIPATION. Employees of the Company or of any other
Participating Employer and who satisfy one or more of the following criteria are
eligible to participate in this Plan:
(a) Employees who have satisfied one year of Vesting Service under
the 401(k) Plan and who enter into a written agreement with their
respective Participating Employer under which payment of
compensation earned by the participant will be deferred to a
stated year subsequent to the year in which it would otherwise
have been recognized as Certified Compensation under the 401(k)
Plan. The compensation of a participant that is so deferred is
referred to in this Plan as "Deferred Compensation."
(b) Employees who have satisfied one year of Vesting Service under
the 401(k) Plan and whose Salary Deferral Contributions and/or
Employer Matching Contributions for any Plan Year commencing on
or after January 1, 1989, are limited by Code Section 401(a)(17).
Sec. 6 ESTABLISHMENT OF PLAN ACCOUNT. An account (a "Plan Account")
shall be established under this Plan for each participant.
Sec. 7 CREDITS BASED ON DEFERRED COMPENSATION. For each Plan Year in
which a participant described in Section 5(a) has Deferred Compensation, the
participant's Plan Account shall receive credits equal to the Employer Matching
Contributions that would have been made to the participant's 401(k) Plan Account
if the participant's Deferred Compensation for the Plan Year had been included
in Certified Compensation under the 401(k) Plan for such Plan Year, minus the
total Employer Matching Contributions made to the 401(k) Plan on behalf of the
participant for that Plan Year. For purposes of this section:
(a) It will be assumed that the participant made Salary Deferral
Contributions with respect to his or her Deferred Compensation at
the rate selected by the participant with regard to Certified
Compensation under the 401(k) Plan for the quarter in which the
Deferred Compensation would otherwise have been paid.
(b) Each such participant's Plan Account shall receive credits under
this section as of the end of the Plan Year in which an Employer
Matching Contribution would otherwise have been reflected in the
participant's 401(k) Plan. A participant shall receive credits
under this section for the portion of the Plan Year in which the
participant had Deferred Compensation even if the participant
terminates employment prior to the end of the Plan Year.
3
<PAGE>
Sec. 8 CREDITS BASED ON LIMIT ON CONTRIBUTIONS. The Plan Account of
each participant described in Section 5(b) shall receive credits equal to the
Employer Matching Contributions that would have been made to the 401(k) Plan for
the participant for the Plan Year if the limit specified in Section 5(b) did not
apply for that Plan Year and the definition of Nonqualified Certified
Compensation in Section 3 of this Plan applied to the 401(k) Plan for that Plan
Year. For purposes of this section:
(a) It will be assumed that the participant continued to make Salary
Deferral Contributions during the remainder of the Plan Year
equal to the rate of Salary Deferral Contributions selected by
the participant for the quarter in which the participant first
reached the limit specified in Section 5(b). It will be further
assumed that the Nonqualified Certified Compensation for the Plan
Year of a participant as defined in Section 3 included his or her
Deferred Compensation for the Plan Year.
(b) The maximum credit under this Section 8 to the participant's Plan
Account for any Plan Year shall be equal to the Employer Matching
Contributions for the entire Plan Year based on the rate of
Salary Deferral Contributions selected by the participant in the
401(k) Plan (not to exceed the maximum percentage of Certified
Compensation eligible for Employer Matching Contributions under
the 401(k) Plan) for the quarter in which the participant first
reached the limit specified in Section 5(b) and computed using
the definition of Nonqualified Certified Compensation in Section
3 of this Plan as if such limit did not apply, minus (i) the
total Employer Matching Contributions made to the 401(k) Plan on
behalf of that participant for that Plan Year, and (ii) any
credits the participant received for that Plan Year under Section
7.
(c) Credits under this section shall be reflected in the
participant's Plan Account as of the end of the Plan Year in
which an Employer Matching Contribution would have been reflected
in the participant's 401(k) Plan Account if the limit specified
in Section 5(b) did not apply for that Plan Year. A participant
shall receive credits under this section even if the participant
terminates employment prior to the end of the Plan Year.
Sec. 9 INVESTMENT OF CREDITS. Prior to September 30, 1991, credits
to a participant's Plan Account were allocated to one or more of the "Investment
Funds" defined in Section 10 of this Plan. On and after September 30, 1991, no
changes in Investment Funds existing as of that date are allowed and all credits
allocated to a participant's Plan Account on and after September 30, 1991 are
allocated solely to the Wells Fargo & Company Stock Investment Fund described in
Section 10(c).
Sec. 10 ADJUSTMENT AND FUNDING OF ACCOUNTS. Credits to a
participant's Plan Account shall be subject to the following:
4
<PAGE>
(a) Prior to September 30, 1991, the Investment Funds available to
participants under the Plan for each calendar quarter were the
same as the Investment Funds (other than the ESOP Fund) which
were available as investment options under the Norwest
Corporation Savings Investment Plan for that quarter.
(b) Except as provided in subsection (c), each Investment Fund will
reflect the investment performance of the corresponding 401(k)
Plan Investment Fund on a pro rata basis. If one or more 401(k)
Plan Investment Funds are merged, divided, discontinued or
otherwise adjusted, corresponding adjustments shall be made in
the credits held in Investment Accounts under this Plan.
(c) All credits made to the participant's Plan Account on and after
September 30, 1991 shall be allocated to the "Wells Fargo &
Company Stock Investment Fund." Such credits shall be stated in
the form of shares of Company common stock, the number of which
shall be determined by dividing the amount of the credits made
pursuant to Sections 7 or 8 of this Plan for a Plan Year by the
closing price per share of Company common stock reported on the
consolidated tape of the New York Stock Exchange as of December
31 of that Plan Year. If December 31 is not a trading date, the
closing price per share of Company common stock reported on the
trading date immediately preceding that December 31 shall be
used. Adjustments to the number of shares of Company common
stock credited to the participant's Wells Fargo & Company Stock
Investment Fund in his or her Plan Account shall be made to
reflect dividends paid on Company common stock pursuant to
subsection (e) below. If the Company chooses to fund the
credits to the Wells Fargo & Company Investment Fund, the Company
shall make contributions in cash or in Company common stock to
the trust described in Section 21. Any cash contributions shall
be used by the trustee to purchase shares of Company common stock
within 10 business days after such deposit. Purchase of such
shares may be made by the trustee in brokerage transactions or by
private purchase, including purchase from the Company. All
shares held by the trust shall be held in the name of the
trustee.
(d) All Plan Account credits shall consist solely of bookkeeping
entries.
(e) Each time a dividend is paid on the Company common stock, the
participant shall receive a credit to the Wells Fargo & Company
Stock Investment Fund in his or her Plan Account. The amount of
the dividend credit shall be the number of shares of Company
common stock determined by multiplying the dividend amount per
share by the number of
5
<PAGE>
shares credited to a participant's Wells Fargo & Company Stock
Investment Fund as of the record date for the dividend and
dividing the product by the closing price per share of Company
common stock reported on the consolidated tape of the New York
Stock Exchange as of the trading date immediately preceding
the dividend payment date.
Sec. 11 PLAN ACCOUNT STATEMENTS. The Company may from time to time
issue statements to participants advising them of the status of their Plan
Accounts, but shall not be required to do so. The issuance of such statements
shall not in any way affect the rights of participants hereunder.
Sec. 12 NUMBER OF SHARES UNDER THE PLAN/ADJUSTMENTS FOR CERTAIN
CHANGES IN CAPITALIZATION. Since April 23, 1992, no more than 1,000,000 shares
of Company common stock may be credited to Plan Accounts except that any share
credits to a Plan Account which are forfeited pursuant to Section 15 may again
be credited under the Plan. If the Company shall at any time increase or
decrease the number of its outstanding shares of Company 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 Company
common stock, or through a stock split, subdivision, consolidation, combination,
reclassification, or re-capitalization involving the Company common stock, then
the numbers, rights, and privileges of the shares that are and may be credited
to the Wells Fargo & Company Stock Investment Fund under the Plan shall be
increased, decreased, or changed in like manner as if such shares had been
issued and outstanding, fully paid, and non-assessable at the time of such
occurrence.
Sec. 13. VOTING COMPANY COMMON STOCK. If any credits issued pursuant
to this Plan are, in the discretion of the Company, funded in a trust as
described in Section 21, the Company common stock held in trust shall be voted
by the trustee in its discretion.
Sec. 14 LOANS AND WITHDRAWALS. A participant may not request or
receive any loans or withdrawals from his or her Plan Account. The credits in a
participant's Plan Account will be paid out only as described in Sections 16, 17
and 18.
Sec. 15 BENEFIT ON TERMINATION OF EMPLOYMENT. Upon Termination of
Employment, a participant shall be entitled to a benefit equal to the amount of
all credits to the participant's Investment Funds in his or her Plan Account,
other than the Wells Fargo & Company Stock Investment Fund, plus the number of
shares of Company common stock credited to the participant's Wells Fargo &
Company Stock Investment Fund, in both cases calculated as of the end of the
calendar year immediately prior to the date benefits are distributed pursuant to
Sections 16 or 17, multiplied by the vested percentage determined under Section
9.2 of the 401(k) Plan that would be applicable to the participant disregarding,
however, Section 9.2(a)(3) of the 401(k) Plan. Any portion of the participant's
Plan Account that is not vested shall be forfeited.
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Sec. 16 FORM AND TIME OF PAYMENT OF BENEFITS UPON TERMINATION OF
EMPLOYMENT. When an employee is first eligible to become a participant in the
Plan, the employee shall complete a written election to receive his or her
vested Plan Account upon his or her subsequent Termination of Employment in
either a single lump sum or in a series of annual installments not to exceed ten
annual installments. The participant may change the form of payment (lump sum
or installment) prior to the participant's Termination of Employment by filing a
written election with the Plan Administrator at least 12 months prior to the
date of the participant's Termination of Employment. If the employee does not
complete a written election as to the form of payment at the time the employee
first becomes eligible for the Plan or if any written election as to the form of
payment is not received by the Plan Administrator at least 12 months prior to
the date of the participant's Termination of Employment, the participant's
vested Plan Account shall be paid to the participant in a single lump sum
payment.
Payment of the participant's vested Plan Account in a lump sum or in
installments will commence as soon as administratively feasible after the end of
the calendar year in which the participant's Termination of Employment occurs.
Payment of all vested credits to a participant's Plan Account (determined as
provided in Section 15), except credits in shares of Company common stock, shall
be paid to the participant by his or her employer in cash, net of any required
withholding taxes. All vested shares of Company common stock credited to a
participant's Plan Account (determined as provided in Section 15) will be paid
to the participant in the form of whole shares of common stock, rounded up to
the nearest whole share, net of any required withholding taxes. If the
participant is to receive payment in installments, the amount of each
installment will be equal to the total amount of the participant's vested Plan
Account divided by the number of installments remaining to be made, including
the current installment, rounded up to the nearest whole share and the whole
number of shares so distributed shall be deducted from the total amount the
participant's vested Plan Account. The final installment will be rounded up to
the nearest whole share.
Sec. 17 DEATH BENEFITS. If a participant dies while employed, or
dies after Termination of Employment but before receiving his or her benefit
under this Plan, all vested credits to a participant's Plan Account (determined
as provided in Section 15), except credits in shares of Company common stock,
shall be paid in a lump sum cash payment, net of any required withholding taxes,
and any vested shares of Company common stock credited to such Plan Account
(determined as provided in Section 15) shall be paid in the form of whole shares
of Company common stock, rounded up to the nearest whole share, net of any
required withholding taxes, as soon as administratively feasible after the end
of the calendar year in which the participant dies. Such payments shall be made
to the participant's Beneficiary determined under the 401(k) Plan.
Sec. 18 BENEFITS UPON THE OCCURRENCE OF CERTAIN BUSINESS
TRANSACTIONS. If the Company shall merge or consolidate with another
corporation and the Company is not the surviving corporation (a "Transaction"),
and the consideration received by the holders of common stock of the Company in
the Transaction consists only of common stock of another publicly owned
corporation whose outstanding stock is listed on the New York Stock Exchange
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or quoted in the NASDAQ National Market System ("Publicly-Traded Stock"), each
share of Company common stock credited to a participant's Plan Account shall be
converted to a credit for the number of shares of Publicly-Traded Stock which
the holder of a share of Company common stock is entitled to receive in such
Transaction and, beginning on and after the effective date of the Transaction,
any future credits to Plan Accounts or payment of vested benefits payable in the
form of shares of common stock shall be made in the form of shares of such
Publicly-Traded Stock.
If the consideration received by the holders of common stock of the Company
in a Transaction consists of any consideration other than Publicly-Traded Stock,
each share of Company common stock credited to a participant's Plan Account
shall be restated as credits for cash in an amount equal to the number of shares
of Company common stock credited to a participant's Plan Account immediately
prior to the effective date of the Transaction multiplied by the average of the
high and low prices of a share of Company common stock on the New York Stock
Exchange for each of the five trading days preceding the effective date of the
Transaction. Such cash shall automatically be deemed to be invested in one or
more investment accounts that conform to the investment fund options then
provided by the 401(k) Plan, upon such terms and conditions as may be
established by the Human Resources Committee of the Board of Directors.
Sec. 19 NONASSIGNABILITY. A participant's Plan Account and the
shares of Company common stock credited to a participant's Plan Account are not
assignable or transferable by a participant or Beneficiary nor shall any
participant or Beneficiary have the power to anticipate, alienate, dispose of,
pledge or encumber his or her Plan Account while the Plan Account is in the
possession and control of the Company. The Company shall not recognize any
attachment, garnishment, execution of judgment or other legal process while the
participant's Plan Account is in the possession and control of the Company. The
designation of a Beneficiary by a participant does not constitute a transfer.
Sec. 20 UNSECURED OBLIGATION. The obligations of the Company to
make payments under this Plan constitutes only the unsecured (but legally
enforceable) promise of the Company to make such payments. The participant
shall have no lien, prior claim or other security interest in any property of
the Company. The Company is not required to establish or maintain any fund,
trust or account (other than a bookkeeping account or reserve) for the purpose
of funding or paying the benefits promised under this Plan. If such a fund is
established, the property therein shall remain the sole and exclusive property
of the Company. The Company will pay the cost of this Plan out of its general
assets. All references to Account, Accounts, gains, losses, income, expenses,
payments and the like are included merely for the purpose of measuring the
Company's obligation to participants in this Plan and shall not be construed to
impose on the Company the obligation to create any separate fund for purposes of
this Plan.
Sec. 21 TRUST FUND. If the Company chooses to fund credits to
participants' Plan Accounts, all cash contributed for such funding shall be held
and administered in trust in
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accordance with the terms and provisions of a trust agreement between the
Company and the appointed trustee or any duly appointed successor trustee.
All Company common stock or other funds in the trust shall be held on a
commingled basis and shall be subject to the claims of general creditors of
the Company. Plan Accounts shall be for bookkeeping purposes only, and the
establishment of Plan Accounts shall not require segregation of trust assets.
Sec. 22 NO GUARANTEE OF EMPLOYMENT. Participation in this Plan does
not constitute a guarantee or contract of employment with any Participating
Employer. Such participation shall in no way interfere with any rights of a
Participating Employer to determine the duration of a participant's employment
or the terms and conditions of such employment.
Sec. 23 WITHHOLDING OF TAXES. The benefits payable under this Plan
shall be subject to the deduction of the amount of any federal, state or local
income taxes, Social Security tax, Medicare tax or other taxes required to be
withheld from such payments by applicable laws and regulations.
Sec. 24 ADMINISTRATION. For purposes of Section 3(16)(A) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, the Plan
Administrator shall be the Company's Executive Vice President Human Resources.
The Plan Administrator or its delegatee shall have the exclusive authority and
responsibility for all matters in connection with the operation and
administration of the Plan. The Plan Administrator powers and duties shall
include, but shall not be limited to, the following: (a) responsibility for the
compilation and maintenance of all records necessary in connection with the
Plan; (b) authorizing the payment of all benefits and expenses of the Plan as
they become payable under the Plan; (c) authority to engage such legal,
accounting and other professional services as it may deem necessary; (d)
discretionary authority to interpret the terms of the Plan; (e) authority to
adopt procedures for implementing the Plan; and (f) discretionary authority to
determine participants' eligibility for benefits under the Plan; and to resolve
all issues of fact and law in connection with such determinations.
Sec. 25 CLAIMS PROCEDURE. The Company shall establish a claims
procedure consistent with the requirements of ERISA. Such claims procedure
shall provide adequate notice in writing to any participant or Beneficiary whose
claim for benefits under the Plan has been denied, setting forth the specific
reasons for such denial, written in a manner calculated to be understood by the
claimant and shall afford a reasonable opportunity to a claimant whose claim for
benefits has been denied for a full and fair review by the Company of the
decision denying the claim.
Sec. 26 CONSTRUCTION AND APPLICABLE LAW. This Plan is intended to be
construed and administered as an unfunded plan maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees as provided in sections 201(2), 301(a)(3) and
401(a)(1) of ERISA. The Plan shall be construed and administered according to
the laws of the State of Minnesota to the extent that such laws are not
preempted by ERISA.
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Sec. 26 AGENT FOR LEGAL PROCESS. The Company shall be the agent for
service of legal process with respect to any matter concerning the Plan, unless
and until the Company designates some other person as such agent.
Sec. 27 AMENDMENT AND TERMINATION. The Board of Directors of the
Company or the Human Resources Committee of the Company's Board of Directors may
at any time terminate, suspend or amend this Plan in any manner. No such action
shall deprive any participant of any benefits to which he or she would have been
entitled under the Plan if the participant's Termination of Employment had
occurred on the day prior to the date such action was taken, unless agreed to by
the participant.
Sec. 28 EFFECTIVE DATE OF THE PLAN. The effective date of this
restated Plan is July 1, 1999.
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EXHIBIT 10(b)
WELLS FARGO & COMPANY
SUPPLEMENTAL CASH BALANCE PLAN
(As Amended and Restated Effective July 1, 1999)
Sec. 1 NAME AND PURPOSE. The name of the Plan is the "Wells Fargo &
Company Supplemental Cash Balance Plan" (the "Plan"). The Plan amends and
restates the Norwest Corporation Supplemental Pension Plan. The Plan, as
amended and restated, shall be effective July 1, 1999. The Plan is
maintained by Wells Fargo & Company (the "Company") for the purpose of
providing unfunded pension benefits for certain select management employees,
including pension benefits in excess of certain limits imposed by the
Internal Revenue Code. Said benefits are intended to supplement the pension
benefits payable to such employees under the Wells Fargo & Company Cash
Balance Plan (hereinafter referred to as the "Pension Plan") formerly known
as the Norwest Corporation Pension Plan.
Sec. 2 DEFINITIONS. All references herein to the "Pension Plan" are
references to the Wells Fargo & Company Cash Balance Plan (formerly known as
the Norwest Corporation Pension Plan) as it may be amended from time to time.
In addition, except where specifically defined in this Plan, all capitalized
terms herein shall have the same meaning as given to those terms in the
Pension Plan.
Sec. 3 NONQUALIFIED CERTIFIED COMPENSATION. Nonqualified
Certified Compensation for purposes of the compensation credits to accounts
under Section 8 of this Plan and the special transitional benefit comparison
under Section 10 of this Plan means a participant's base pay and all approved
commissions, bonuses and incentive payments paid to the participant by the
Company or a Participating Employer during a particular pay period subject to
the following:
(a) Nonqualified Certified Compensation shall include any Salary
Deferral Contributions on behalf of a participant under the
401(k) Plan, and any salary reduction contributions to any
cafeteria plan under Code section 125 maintained by a
Participating Employer. Contingent upon approval of a similar
provision in the Pension Plan by the Internal Revenue Service,
Nonqualified Certified Compensation includes salary continuation
pay paid in regular monthly or more frequent installments to a
participant placed on a leave that is classified by his or her
Participating Employer as a salary continuation leave of absence,
but does not include any lump sum severance payment.
(b) Nonqualified Certified Compensation shall include payments under
the Executive Incentive Compensation Plan approved by the Human
<PAGE>
Resources Committee of the Board of Directors of the Company and
payments under any other commission, bonus or incentive
compensation programs or plans which the Company designates as
included in Nonqualified Certified Compensation by written action
of the Chairman, President or the Executive Vice President of
Human Resources. Notwithstanding the previous sentence, payments
under any such commission, bonus or incentive compensation plan
shall not be included in Nonqualified Certified Compensation to
the extent those payments exceed any limit the Company
establishes in such written action.
(c) Subject to subsection (b) above, Nonqualified Certified
Compensation shall include deferrals of base pay, approved
commissions, bonuses and incentive payments for a participant who
has entered into a written agreement with the Company or any
other Participating Employer under which payment of such
compensation will be deferred to a stated year subsequent to the
year in which it would otherwise have been paid to the
participant.
(d) Nonqualified Certified Compensation for a participant who has
entered into a written agreement with the Company or any other
Participating Employer to defer compensation that would have been
Certified Compensation under the Pension Plan if it had not been
deferred shall include all such deferred compensation.
(e) Notwithstanding the foregoing provisions of this section, solely
for purposes of allocating compensation credits under Section 8
and determining the special transitional benefit comparison under
Section 10, any Nonqualified Certified Compensation paid to a
participant while the participant is employed in a position
subject to this subsection (e) shall be disregarded to the extent
such Nonqualified Certified Compensation exceed $20,000 for a
Plan Year.
(i) This subsection (e) applies to any participant who is
employed in the Mortgage Sales Representative job category
or in any other job category which the Company classifies as
equivalent to the Mortgage Sales Representative category.
(ii) If a participant is transferred into a position that is
subject to this subsection (e) during a Plan Year, the
$20,000 limit under this subsection for that Plan Year shall
be reduced (but not below $0) by the amount of Nonqualified
Certified Compensation credited to the participant for
service during that Plan Year prior to the date the transfer
occurred.
Sec. 4 COMPANY AND PARTICIPATING EMPLOYERS. The "Company" is Wells
Fargo & Company (formerly known as Norwest Corporation), a Delaware
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corporation, and any successor to said corporation. Each Participating
Employer in the Pension Plan shall also be a "Participating Employer" in this
Plan if any of its employees become participants in this Plan pursuant to
Section 5 of this Plan.
Sec. 5 PARTICIPATION. Participation in this Plan is limited to the
following employees of the Company or any other Participating Employer:
(a) Employees who enter into a written agreement with the Company or any
other Participating Employer under which payment of compensation
earned by the employee will be deferred to a stated year subsequent to
the year in which it would otherwise have been paid, provided such
compensation would otherwise have been recognized as "Certified
Compensation" or "Monthly Earnings" as defined in the Pension Plan.
The compensation of a participant that is so deferred is referred to
in this Plan as the participant's "Deferred Compensation."
(b) Employees whose benefits under the Pension Plan are reduced as a
result of the limits imposed by Sections 401(a)(17) and 415 of the
Internal Revenue Code and Treasury Regulation Section
1.401(a)(4)-5(b). However, an employee will not be eligible under the
previous sentence unless the employee would have reached one or more
of those limits based on his or her Nonqualified Certified
Compensation.
Sec. 6 ESTABLISHMENT OF PLAN ACCOUNT. A bookkeeping account shall
be established under this Plan for each participant. The participant's
account in this Plan shall be adjusted as follows:
(a) If applicable, an initial account balance shall be credited to the
participant pursuant to Section 7 of this Plan.
(b) The participant's account will be increased by compensation credits
determined pursuant to Section 8 of this Plan.
(c) The participant's account will be adjusted for investment credits
determined pursuant to Section 9 of this Plan.
(d) The participant's account will be canceled upon commencement of
pension payments to the participant or upon the occurrence of a
forfeiture.
Sec. 7 INITIAL ACCOUNT BALANCE. The participant's initial account
balance will be determined as follows:
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(a) If the participant was an Active Participant in the Pension Plan on
June 30, 1999 and continues to be an Active Participant in the Pension
Plan on July 1, 1999, his or her account under this Plan will be
credited with an initial account balance as of July 1, 1999 equal to
the Actuarial Equivalent present value as of July 1, 1999 of the
pension benefit that the participant would have been entitled to under
this Plan commencing on the first day of the month following the
participant's Social Security Retirement Date (or on July 1, 1999, if
later) as a Life-Only Annuity, determined (i) by assuming that the
participant's Termination of Employment had occurred on June 30, 1999,
and that the participant satisfied any vesting requirements on that
date, (ii) by using the participant's Nonqualified Certified
Compensation and any Deferred Compensation not already included in
Nonqualified Certified Compensation to determine the participant's
Final Average Earnings as of December 31, 1998; provided, however,
that Final Average Earnings can not be less than the Final Average
Earnings calculated in the Pension Plan as if the participant had not
deferred compensation, (iii) by using the Integration Level (as
defined in Section 4.1(c)(1) of the Pension Plan in effect on June 30,
1999) in effect for 1998, and (iv) by disregarding Section 4.1(d) and
Section 4.6 of the Pension Plan in effect on June 30, 1999.
(b) If a participant in the Plan on July 1, 1999 was a participant with an
accrued but unpaid benefit in the frozen First Interstate Bancorp
Supplemental Retirement and Savings Program (Excess Benefit Retirement
Plan) on June 30, 1999, his or her account under this Plan will be
credited with an initial account balance as of July 1, 1999 equal to
the amount indicated on Schedule I to this Plan.
(c) If a participant for whom an initial account balance was not
established pursuant to subsection (a) of this Section 7 as of July 1,
1999, becomes a Qualified Employee in the Pension Plan after that date
and remains entitled to a benefit that accrued with respect to service
prior to July 1, 1999 under this Plan but has not yet received or
begun receiving payments of the benefit, his or her account will be
credited with an initial account balance as of the first day of the
second quarter following the quarter in which the participant again
became a Qualified Employee, provided the participant remains so
employed on the date. The initial account balance will be equal to
the Actuarial Equivalent present value, determined as of the date the
credit occurs, of the benefit to which the participant is entitled
with respect to service prior to July 1, 1999, expressed as a
Life-Only Annuity commencing on the first day of the month following
the participant's Social Security Retirement Date (or the date of the
credit if later).
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Sec. 8 NONQUALIFIED COMPENSATION CREDIT. The Plan account of each
eligible participant who is an Active Participant in the Pension Plan during
all or part of a Plan Year will be credited with a nonqualified compensation
credit for the Plan Year, determined as follows:
(a) The nonqualified compensation credit for an eligible participant for a
Plan Year will be equal to the participant's Nonqualified Certified
Compensation determined under Section 3 of this Plan multiplied by the
percent determined from the following table less the amount of any
Compensation Credits allocated to the participant's Account in the
Pension Plan for that Plan Year:
Points Compensation Credit %
------ ---------------------
39 or less 4%
40 to 54 5%
55 to 69 6%
70 to 79 7%
80 or more 8%
(b) For purposes of this Section 8, an eligible participant's points for a
particular Plan Year are equal to the sum of the participant's
completed years of age, plus the participant's complete years of
Credited Service determined as of the last day of the Plan Year. If
the participant incurs a Termination of Employment prior to the last
day of the Plan Year, the participant's points will be determined as
of the date of the participant's Termination of Employment. In
applying the formula, the participant's age will be determined as of
the participant's most recent birthday and the participant's Credited
Service will be rounded down to completed years by disregarding any
fraction of a year.
(c) The percentages in subsection (a) above will be adjusted pursuant to
the table contained in Section 5.3(d) of the Pension Plan for each
eligible participant who (i) was an active participant in this Plan
both on July 1, 1999 and at any time during the Plan Year for which
the compensation credit is allocated, (ii) was born before January 2,
1940, and (iii) on January 1, 1985 was a participant in the Wells
Fargo & Company Retirement Plan (a defined benefit pension plan that
terminated effective December 31, 1984).
(d) The nonqualified compensation credit for a Plan Year will be allocated
to the eligible participant's account as of the end of the Plan Year
except that, if the eligible participant terminates employment during
the Plan Year and commences payment under
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this Plan during the Plan Year, the nonqualified compensation credit
for the Plan Year will be allocated to the participant's account as
of the participant's Termination of Employment.
(e) No nonqualified compensation credit will be made for a participant for
a Plan Year unless the participant was an Active Participant in the
Pension Plan at some time during that Plan Year and satisfied the
eligibility requirements under Section 5 of this Plan for that Plan
Year. Any compensation that is paid following the calendar quarter in
which the participant's Termination of Employment occurred will be
disregarded for purposes of this Section 8.
Sec. 9 INVESTMENT CREDITS. Each account will be adjusted to reflect
investment credits determined as follows:
(a) For each calendar quarter beginning July 1, 1999 and ending prior to
the date the Company amends this Plan to provide for participant
investment direction, the investment credit will be determined by
multiplying the participant's account balance as of the first day of
the quarter by 25% of the average of the annual yields on 30 year
constant maturity Treasury securities for the three months preceding
the first day of the quarter, as specified for each such month by the
Commissioner of the Internal Revenue Service for purposes of Code
section 417(e) and published in the following month, expressed as a
decimal equivalent rounded to four decimal places. The investment
credit under this subsection for a calendar quarter will be credited
to the participant's account as of the last day of the Plan Year;
provided, however, that if distribution of the participant's benefit
in this Plan is to commence during the Plan Year, the participant's
account will be credited with a partial investment credit calculated
based on the number of quarters within the Plan Year completed prior
to the distribution date.
(b) Commencing July 1, 1999, a special transitional investment credit will
also be allocated to the accounts of eligible participants. This
special investment credit for a particular calendar quarter will be
determined by multiplying the account balance as of the beginning of
the quarter by .0075 (three-quarters of one percent). This special
transitional investment credit for a calendar quarter will be credited
to the participant's account as of the last day of the Plan Year;
provided, however, that if distribution of the participant's benefit
in this Plan is to commence during the Plan Year, the participant's
account will be credited with a partial special transitional
investment credit based on the number of quarters within the Plan Year
completed prior to the distribution date. The
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<PAGE>
last special transitional investment credit under this subsection will
be allocated for the quarter ending prior to the earlier of (i) the
implementation of investment direction by the participants,
or (ii) January 1, 2001.
(c) Compensation credits allocated to a participant's account for a
particular Plan Year shall be credited as of the last day of that Plan
Year with an investment credit equal to one-half of the average of the
quarterly yields on 30 year constant maturity Treasury securities for
that Plan Year determined under subsection (a) of this Section 9 and
one-half of the special transitional investment credit for that Plan
Year determined under subsection (b) of this Section 9.
Sec. 10 SPECIAL TRANSITIONAL BENEFIT COMPARISON FOR EMPLOYEES OF
FORMER NORWEST. If a participant in this Plan (i) was an Active Participant
in the Pension Plan and this Plan on June 30, 1999, (ii) had attained age 45
on or before June 30, 1999, (iii) was credited with at least five years of
Credited Service on June 30, 1999 under the Pension Plan, and (iv) was an
Active Participant in the Pension Plan and this Plan on July 1, 1999, the
participant shall be eligible for a special transitional benefit comparison
under this Plan as provided below.
(a) The special transitional benefit comparison will provide a benefit
under this Plan equal to the greater of:
(i) The Actuarial Equivalent of the participant's benefit determined
under Article VII of the Pension Plan except that Monthly
Earnings for purposes of determining Final Average Earnings under
Section 7.3 of the Pension Plan will be calculated using
Nonqualified Certified Compensation; provided, however that Final
Average Earnings can not be less than the Final Average Earnings
calculated in the Pension Plan as if the participant had not
deferred compensation; or
(ii) The participant's account value under this Plan plus the
participant's Account value under the Pension Plan.
(b) The participant's benefit determined under subsection (a) above will
be reduced by the amount of benefits payable to the participant under
the Pension Plan.
Sec. 11 SPECIAL TRANSITIONAL BENEFIT COMPARISON FOR CERTAIN FORMER
FIRST INTERSTATE EMPLOYEES. If a participant in this Plan on July 1, 1999
was (i) a participant with an accrued but unpaid benefit in the frozen First
Interstate Bancorp Supplemental Retirement and Savings Program (Excess
Benefit Retirement Plan) on June 30, 1999, and (ii) was an Active Participant
in the Pension Plan on July 1, 1999, the
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<PAGE>
participant shall be eligible for a special transitional benefit comparison
under this Plan as provided below.
(a) The participant's account balance at the time the distribution to the
participant will occur or commence shall be increased by an amount
(not less than $0) equal to the amount determined in subsection (i)
below minus the amount determined in subsection (ii) below:
(i) The Actuarial Equivalent present value of the Monthly Pension
upon early retirement to which the participant is entitled under
the provisions of the First Interstate Bancorp Supplemental
Retirement and Savings Program (Excess Benefit Retirement Plan)
and the Retirement Plan for Employees of First Interstate Bancorp
and Its Affiliates in effect on June 30, 1999, expressed as a
Life Only Annuity commencing on the date as of which distribution
of the participant's accrued benefit is to occur or commence.
(ii) The participant's initial account balance under this Plan plus
the participant's initial Account Balance under the Pension Plan
adjusted for investment credits attributable to those initial
account balances, and disregarding any compensation credits
subsequently allocated to the participant's account in this Plan
and the participant's Account in the Pension Plan and any
investment credits attributable to such compensation credits.
(b) The participant's benefit determined under subsection (a) above will
be reduced by the amount of benefits payable to the participant under
the Pension Plan.
Sec. 12 OPTIONAL SETTLEMENTS, ETC. The supplemental benefit payable
under this Plan with respect to a participant shall be subject to all terms
and conditions of the Pension Plan governing the calculation and payment of
the corresponding benefit under the Pension Plan to which the participant may
be entitled, including the payment of any optional settlement permitted under
the Pension Plan and the calculation of the participant's vested percentage.
Notwithstanding the foregoing, if the present value (determined as provided
under the Pension Plan) of the benefit to be provided under this Plan is
$5,000 or less upon the participant's Termination of Employment or death, the
entire benefit under this Plan shall be paid in a lump sum within a
reasonable time following the participant's Termination of Employment or
death.
Sec. 13 DEATH BENEFITS. In the event benefits are payable under the
Pension Plan to the participant's surviving spouse and/or beneficiary or
joint annuitant
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following the participant's death, a supplemental benefit shall be payable
under this Plan in the same form to the same recipient.
Sec. 14 UNSECURED OBLIGATIONS. The obligations of the Company to make
payments under this Plan constitutes only the unsecured (but legally
enforceable) promise of the Company to make such payments. The participant
shall have no lien, prior claim or other security interest in any property of
the Company. The Company is not required to establish or maintain any fund,
trust or account (other than a bookkeeping account or reserve) for the
purpose of funding or paying the benefits promised under this Plan. If such
a fund is established, the property therein shall remain the sole and
exclusive property of the Company. The Company will pay the cost of this
Plan out of its general assets. All references to account, gains, losses,
income, expenses, payments and the like are included merely for the purpose
of measuring the Company's obligation to participants in this Plan and shall
not be construed to impose on the Company the obligation to create any
separate fund for purposes of this Plan.
Sec. 15 NONASSIGNABILITY. No participant or Beneficiary shall have the
power to assign, alienate, dispose of, pledge or encumber benefits payable
under this Plan, whether voluntarily or involuntarily, or directly or
indirectly. Any attempt to do so by the participant, a spouse, Beneficiary
or joint annuitant, a court, or any other person or entity shall result in
forfeiture of the benefits otherwise payable under this Plan with respect to
said participant. The Company shall not recognize any attachment,
garnishment, execution of judgment or other legal process affecting the
participant's benefits under this Plan. The designation of a Beneficiary by a
participant does not constitute a transfer.
Sec. 16 NO GUARANTEE OF EMPLOYMENT. Participation in this Plan does
not constitute a guarantee or contract of employment with any Participating
Employer. Such participation shall in no way interfere with any rights of a
Participating Employer to determine the duration of an individual's
employment or the terms and conditions of such employment.
Sec. 17 WITHHOLDING OF TAXES. The benefit payable under the Plan to
any participant, spouse, Beneficiary or joint annuitant shall be subject to
the deduction of any federal, state or local income taxes, Social Security
(FICA) taxes or other taxes which are required to be withheld from such
payments by applicable laws or regulations.
Sec. 18 ADMINISTRATION. For purposes of Section 3(16)(A) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, the
Plan Administrator shall be the Company's Executive Vice President Human
Resources. The Plan Administrator or its delegatee shall have the exclusive
authority and responsibility for all matters in connection with the operation
and administration of the Plan. The Plan Administrator powers and duties
shall include, but shall not be limited to, the following: (a)
responsibility for the compilation and maintenance of all records necessary
in connection with the Plan; (b) authorizing the payment of all benefits and
expenses of the Plan as they become payable under the Plan; (c) authority to
engage such legal, accounting and other professional services as it may deem
necessary; (d) discretionary authority to interpret the terms of the Plan;
(e) authority to adopt procedures for implementing the Plan; and (f)
discretionary authority to determine
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participants' eligibility for benefits under the Plan; and to resolve all
issues of fact and law in connection with such determinations
Sec. 19 CLAIMS PROCEDURE. The Company shall establish a claims
procedure consistent with the requirements of ERISA. Such claims procedure
shall provide adequate notice in writing to any participant or Beneficiary
whose claim for benefits under the Plan has been denied, setting forth the
specific reasons for such denial, written in a manner calculated to be
understood by the claimant and shall afford a reasonable opportunity to a
claimant whose claim for benefits has been denied for a full an fair review
by the Company of the decision denying the claim.
Sec. 20 CONSTRUCTION AND APPLICABLE LAW. This Plan is intended
to be construed and administered as a unfunded plan maintained primarily for
the purpose of providing deferred compensation for a select group of
management or highly compensated employees as provided in sections 201(2),
301(a)(3) and 401(a)(1) of ERISA. The Plan shall be construed and
administered according to the laws of State of Minnesota to the extent that
such laws are not preempted by ERISA.
Sec. 21 AGENT FOR LEGAL PROCESS. The Company shall be the agent for
service of legal process with respect to any matter concerning the Plan,
unless and until the Company designates some other person as such agent.
Sec. 22 AMENDMENT AND TERMINATION. The Board of Directors of the
Company or the Human Resources Committee of the Company's Board of Directors
may at any time terminate, suspend or amend this Plan in any manner.
Sec. 23 EFFECTIVE DATE OF THE PLAN. The effective date of this
restated Plan is July 1, 1999.
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EXHIBIT 10(c)
NORWEST CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(As amended and restated effective September 28, 1999)
1. PURPOSE
The purpose of the Norwest Corporation Deferred Compensation Plan for
Non-Employee Directors (the "Plan") is to provide an opportunity for
non-employee members of the Board of Directors of the former Norwest
Corporation, now known as "Wells Fargo & Company" (the "Corporation"), to
defer cash compensation which they received for personal services rendered
in their capacity as directors of the Corporation and to receive a return
on such amounts, at their election, based on either the interest
equivalent on three-month U. S. Treasury Bills or an investment in the
common stock of the Corporation with all dividends reinvested . The Plan
is intended to maximize the effectiveness and flexibility of these
directors' compensation arrangements, and to aid in attracting and
retaining individuals of outstanding abilities and skills for service on
the Corporation's Board of Directors (the "Board").
2. EFFECTIVE DATE
The effective date of the Plan is September 1, 1987, and the effective date
after which a director may have deferred compensation credited to his or
her Phantom Stock Account or Deferred Cash Account, as defined below, is
November 24, 1987. No compensation earned after December 31, 1998, may be
deferred pursuant to the Plan.
3. ADMINISTRATION
As used herein, the term "Administrator" shall refer to the Corporation's
Senior Vice President - Compensation and Benefits prior to September 28,
1999, and the Corporation's Director of Human Resources on and after such
date. The Administrator shall have the authority to adopt rules for
carrying out the Plan and to interpret and implement the provisions of the
Plan. The determinations of the Administrator shall be conclusive and
binding on all participants.
4. ELIGIBILITY
Any person who was a member of the Board but was not an officer or employee
of the Corporation or of a subsidiary of the Corporation ("Non-Employee
Director") during the period compensation could have been deferred in
accordance with paragraph 2 hereof was eligible to participate in the
Plan. Any Non-Employee Director who elected to defer such compensation in
accordance with paragraph 5 hereof is a Plan participant, and his or her
status as a participant shall continue until the date of the last payment
to him or her pursuant to paragraph 7 hereof.
<PAGE>
5. ELECTION TO DEFER
(a) IN GENERAL - Each participant has made one or more elections, in
accordance with the terms of this paragraph 5, to defer receipt of all
or a part of the cash compensation (annual retainers and meeting
attendance fees) otherwise payable to him or her during the period
covered by paragraph 2 hereof with respect to all or a portion of a
calendar year during which he or she served on the Board and
committees thereof and to have such deferred amounts credited either
to such Non-Employee Director's Deferred Cash Account (the "Deferred
Cash Account") or Phantom Stock Account (the "Phantom Stock Account").
(b) EFFECTIVE DATE OF ELECTION - The initial election to defer related to
compensation earned commencing as of the beginning of the first
calendar month following the initial election and ending on the last
day of the calendar year of the initial election. Subsequent
elections to defer related to compensation earned during any
subsequent calendar year, and were not effective unless made and
received in writing by the Administrator prior to January 1 of such
calendar year. A participant's election to defer is irrevocable,
except as provided hereinafter in paragraph 5(d). The initial
election remained in effect unless and until a participant filed a
subsequent election form with the Administrator prior to January 1 of
the year such subsequent election was to be effective. A properly and
timely filed election form took effect January 1 of the year
following the year of its delivery to the Administrator.
(c) MANNER OF ELECTION - The Administrator provided all individuals
entitled to make the election to defer with an election form prior to
the time by which an election to defer was required to have been
made. This election form included the following items, which were
required to have been completed in full in order for the election to
be effective.
(1) The deferred amount, expressed as a percentage of the total
compensation to be earned during the calendar year to which
the election related;
(2) The percentage of the deferred amount to be credited to the
Deferred Cash Account or the Phantom Stock Account; and
(3) The year in which distribution was to commence and form of
distribution, which shall be either a lump sum or up to
10 annual installments.
Every participant who may have elected the payment of any deferred
compensation to be made to him or her or a beneficiary on February 28
in any year beginning with 2000 shall be deemed to have elected such
payment to be made on the March 1 immediately following such February
28.
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(d) ONE-TIME RETIREMENT ELECTION - In the case of each participant who has
elected to receive payments of deferred compensation from a Phantom
Stock Account in installments and which installments have not
commenced as of September 28, 1999, such participant may, at any one
time commencing January 1 of the final year of his or her service as a
Non-Employee Director and continuing until December 31 of the year
preceding the date of the payment of the first installment of deferred
compensation to him or her, irrevocably elect to instruct the
Administrator to deduct any amount or the entire amount then credited
to such participant's Phantom Stock Account and to credit the same
amount to such participant's Deferred Cash Account. If such election
is timely received, it shall take effect on the later of March 1
immediately following the date of receipt of the election or the
earliest date permitted without penalty to the participant pursuant to
Section 16 of the Securities Exchange Act of 1934. For this purpose,
a phantom stock unit shall be valued at the closing price per share of
the Corporation's common stock as reported on the consolidated tape of
the New York Stock Exchange for the trading day next preceding such
effective date.
(e) DESIGNATION OF BENEFICIARY - A participant may from time to time
designate a beneficiary or beneficiaries and/or revoke his or her
beneficiary designation and file a new beneficiary designation with
the Administrator. The most recent such designation shall apply to
all of the participant's account balances under the Plan.
6. DEFERRED COMPENSATION ACCOUNTS
(a) IN GENERAL - There has been established for each participant a
Deferred Cash Account and a Phantom Stock Account for the purpose of
recording amounts deferred for such participant under the Plan. A
participant who elected to defer compensation for credit to the
Deferred Cash Account received a credit to his or her Deferred Cash
Account as of the first day of each calendar quarter of the amount of
such compensation for the immediately preceding quarter that would
have been payable to the participant in the absence of an election to
defer. A participant who elected to defer compensation for credit to
the Phantom Stock Account received a credit to his or her Phantom
Stock Account in the number of whole and fractional phantom stock
units equal to the whole and fractional shares of the Corporation's
common stock (rounded to the nearest one-hundredth share) which the
amount of compensation deferred for the immediately preceding quarter
could have purchased at the average of the highest and lowest prices
as reported on the consolidated tape of the New York Stock Exchange as
of the first day of each calendar quarter (or, if the New York Stock
Exchange was closed on said date, the next preceding date on which it
was open).
(b) UNSECURED OBLIGATIONS - All amounts deferred pursuant to the Plan and
credited to a deferred compensation account shall be unsecured
obligations of the Corporation and each participant's right thereto
shall be as an unsecured general creditor of the Corporation.
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<PAGE>
(c) INTEREST AND DIVIDEND CREDIT - All deferred compensation in a
participant's Deferred Cash Account shall bear interest from the date
credited to the participant's Deferred Cash Account until paid in
accordance with paragraph 7 hereof during each month at a rate per
annum equal to the interest equivalent of the secondary market yield
for three-month United States Treasury Bills as reported for the
preceding month in FEDERAL RESERVE STATISTICAL RELEASE H.15(519) (the
"Release"), which shall be credited to each participant's Deferred
Cash Account as of the last day of each month. If the Release ceases
to be available, the Administrator shall determine the interest rate
payable with respect to Deferred Cash Accounts and shall promptly
inform the participants in writing of such determination. Each time a
dividend is paid with respect to the Corporation's common stock, each
whole and fractional phantom stock unit then credited as of the
dividend record date to a participant's Phantom Stock Account shall be
deemed to have received a phantom dividend at the same per share rate,
and such participant's Phantom Stock Account shall be credited with
whole and fractional phantom stock units (rounded to the nearest
one-hundredth unit). The additional stock units to be credited to a
participant's Phantom Stock Account are equal to the number of whole
and fractional shares of the Corporation's common stock that could
have been purchased with the phantom dividend, if paid prior to
December 1, 1999, at the average of the highest and lowest prices as
reported on the consolidated tape of the New York Stock Exchange on
the date a dividend on the Corporation's common stock is paid (or the
next preceding day on which the New York Stock Exchange was open, if
it was closed on a dividend payment date) and, if paid on or after
December 1, 1999, at the closing price as reported on the
consolidated tape of the New York Stock Exchange for the trading day
next preceding the dividend payment date.
7. PAYMENT OF DEFERRED COMPENSATION
(a) IN GENERAL - No withdrawal or payment shall be made from the
participant's deferred compensation accounts, except as provided in
this paragraph 7. Payments of deferred compensation made in 1999 and
prior years were made on February 28, and payments of deferred
compensation to be made in 2000 and subsequent years shall be made on
March 1 or as soon thereafter as administratively practicable.
(b) DATE OF FIRST PAYMENT AND PAYMENT FROM DEFERRED CASH ACCOUNT -The
value of a participant's Deferred Cash Account shall be payable in
cash in a lump sum or up to 10 annual installments commencing on the
date elected, or deemed elected, by a participant (or the next
succeeding business day if such date is not a business day) of the
first full calendar year following termination of such participant's
service as a Non-Employee Director, or in any other year which begins
at least 12 months following the year in which the deferred
compensation otherwise would have been paid. The amount of each
installment payment from the Deferred Cash Account shall be a fraction
of the value of the participant's Deferred Cash Account on the
business day preceding each installment payment date, the numerator of
which is one and the denominator of
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which is the total number of installments elected minus the number of
installments previously paid.
(c) DATE OF FIRST PAYMENT AND PAYMENT FROM PHANTOM STOCK ACCOUNT - In the
case of payments of deferred compensation made from Phantom Stock
Accounts on or prior to February 28, 1999, an amount in cash equal to
the value of the number of shares of common stock of the Corporation
credited to the participant's Phantom Stock Account determined at the
average of the highest and lowest prices reported on the consolidated
tape of the New York Stock Exchange for the day seven days before the
date elected by the participant for distribution (or the next
preceding day on which the New York Stock Exchange was open, if it was
closed on said day) was payable to the participant in a lump sum or up
to 10 annual installments beginning the first full calendar year
following termination of a participant's service as a Non-Employee
Director, or any other year elected by the participant which began at
least 12 months following the year in which the deferred compensation
otherwise would have been paid. If a Non-Employee Director elected
to commence payments of deferred compensation from a Phantom Stock
Account on or prior to February 28, 1999, the entire cash amount
credited to his or her Phantom Stock Account on the February 28 of the
full calendar year following his or her termination was deemed to have
been credited to his or her Deferred Cash Account on said date and
said amount, together with interest as described in paragraph 6(c)
will be paid as elected by the participant in accordance with
paragraph 5 hereof. Commencing March 1, 2000, and on each March 1
thereafter, the amount of each cash payment from a Phantom Stock
Account on each payment date elected, or deemed elected, by a
participant (or on the next succeeding business day if such March 1
shall not be a business day) shall be based on the value of the
Account using the closing price of the common stock of the Corporation
as reported on the consolidated tape of the New York Stock Exchange
for the trading day next preceding the payment date. The amount of an
installment payment made from a Phantom Stock Account shall be a
fraction of the value of the Account, valued each year as hereinabove
provided, the numerator of which is one and the denominator of which
is the total number of installments elected minus the number of
installments previously paid.
(d) IN EVENT OF DEATH - If a participant dies before he or she has
received all payments to which he or she is entitled under the Plan,
payment shall be made in accordance with the participant's designation
of a beneficiary on a form provided for that purpose and delivered to
and accepted by the Plan Administrator. In the absence of a valid
designation, or if the designated beneficiary does not survive the
participant, all remaining payments due hereunder shall be made as
promptly as administratively practicable to such participant's estate.
(e) CHANGE OF CONTROL - At the time of an election, a participant may
also have elected to have all amounts deferred pursuant to this
Plan become payable immediately in cash if (i) a third person,
including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934,
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becomes the beneficial owner, directly or indirectly, of 25% or
more of the combined voting power of the Corporation's outstanding
voting securities ordinarily having the right to vote for the
election of directors of the Corporation or (ii) individuals who
constitute the Board of Directors of the Corporation as of November
24, 1987 (the "Incumbent Board") cease for any reason to constitute
at least two-thirds thereof, provided that any person becoming a
director subsequent to said date whose election, or nomination for
election by the Corporation's stockholders, was approved by a vote
of at least three-quarters of the directors comprising the
Incumbent Board shall be, for purposes of this clause (ii),
considered as though such person were a member of the Incumbent
Board. Any such payment shall be made in cash on the business day
immediately preceding the effective date of the transaction
constituting the Change of Control. The value of a participant's
Phantom Stock Account for purposes of a distribution under this
paragraph 7(e) shall be the closing price of the common stock of
the Corporation as reported on the consolidated tape of the New
York Stock Exchange for the trading day immediately preceding the
date of payment pursuant to this paragraph 7(e).
8. ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION
If the Corporation shall at any time increase or decrease the number
of its outstanding shares of common stock or change in any way the
rights and privileges of such shares by means of the payment of a
stock dividend or any other distribution upon such shares payable in
common stock, or through a stock split, subdivision, consolidation,
combination, reclassification, or recapitalization involving the
common stock, then the number of phantom stock units credited to the
Phantom Stock Accounts of all participants 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.
9. AMENDMENT
This Plan may be amended, modified, suspended or terminated by action of
the Board or the Board Affairs Committee, or any successor committee, of
the Board; provided however, that if at the time of any such proposed
amendment, modification, 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, modification,
suspension or termination must be approved by the Board. No amendment,
modification, suspension or termination of the Plan will adversely affect
any benefits to which a participant would have been entitled under the Plan
if termination of the participant's service as a Non-Employee Director had
occurred on the day prior to the date such action was taken, unless agreed
to by the participant.
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10. NON-ASSIGNABILITY
No right to receive payments hereunder shall be assignable or
transferable by a participant, except as provided in paragraph 7(d).
No right to receive distributions under the Plan will be assignable or
transferable by a participant except 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, or rules thereunder.
The designation of a beneficiary by a participant as provided in
paragraph 5(e) does not constitute an assignment or transfer.
11. NO GUARANTEE OF SERVICE
Participation in the Plan does not constitute a guarantee or contract of
service as a Non-Employee Director.
12. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by and construed in accordance with the law of the State
of Delaware.
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EXHIBIT 10(d)
NORWEST CORPORATION
DIRECTORS' STOCK DEFERRAL PLAN
(As amended and restated effective September 28, 1999)
1. ELIGIBILITY. Each person who was a member of the Board of
Directors of Norwest Corporation, now known as "Wells Fargo & Company" (the
"Corporation"), but was not an employee or officer of the Corporation or of
any subsidiary of the Corporation during the period compensation could have
been deferred in accordance with Section 2 was eligible to participate in the
Directors' Stock Deferral Plan (the "Plan").
2. DEFERRAL OF COMPENSATION. Subject to the availability of shares of
Common Stock under the Plan, an eligible director may have elected to defer,
in the form of shares of the common stock of the Corporation (the "Common
Stock"), all or a portion of the annual retainer and meeting fees payable in
cash by the Corporation for his or her service as a director for each
calendar year during the period from 1993 through 1998 (each, a "Deferral
Year") following the year in which the deferral election was made. Such
election was made pursuant to Section 3.
3. ELECTION TO PARTICIPATE. An eligible director became a participant
in the Plan by filing not later than December 15 of the year preceding a
Deferral Year an irrevocable election with the Plan Administrator (as defined
in Section 18) on a form provided for that purpose. The election to
participate was effective with respect to fees payable for the Deferral Year
and after the date indicated on the election form. The election form
specified an amount to be deferred expressed as a percentage of the fees
otherwise payable in cash for the director's service, one of the payment
options described in Sections 8 and 9, and the year in which amounts deferred
shall be paid in a lump sum pursuant to Section 8 or in which installment
payments shall commence pursuant to Section 9. The deferral election was
effective only for the Deferral Year specified on the form. A new deferral
election form was filed for each Deferral Year. Every participant who may
have elected the payment of any deferred compensation to be made to him or
her or a beneficiary on February 28 in any year beginning with 2000 shall be
deemed to have elected such payment to be made on the March 1 immediately
following such February 28.
4. ONE-TIME RETIREMENT ELECTION. Each participant who has elected to
receive deferrals in installments which have not commenced as of September
28, 1999, or in a lump-sum payment in a year after 1999 may, at any one time
commencing January 1 of the final year of his or her service as a
non-employee director and continuing until December 31 of the year preceding
the date of the payment to him or her of the first installment or lump-sum
payment, as the case may be, irrevocably elect to instruct the Plan
Administrator to deduct any amount or the entire amount then credited to such
participant's Deferred Stock Account and to credit the same amount to a
Deferred Cash Account to be established for such participant and to receive
interest in accordance with Section 9.a. If such election is timely
received, it shall take effect on the later of March 1 immediately following
the date of receipt of the election or the
<PAGE>
earliest date permitted without penalty to the participant pursuant to
Section 16 of the Securities Exchange Act of 1934. For this purpose, a
deferred stock unit shall be valued at the closing price per share of the
Corporation's common stock as reported on the consolidated tape of the New
York Stock Exchange for the trading day next preceding such effective date.
5. DESIGNATION OF BENEFICIARY. A participant may from time to time
designate a beneficiary or beneficiaries and/or revoke his or her beneficiary
designation and file a new beneficiary designation with the Plan
Administrator. The most recent such designation shall apply to all of the
participant's account balances under the Plan.
6. DEFERRED STOCK ACCOUNT. On the first day of each calendar quarter
during each Deferral Year elected by a participant (the "Credit Date"), the
participant received a credit to his or her stock account under the Plan (the
"Deferred Stock Account"). The amount of the credit was the number of phantom
shares (rounded to the nearest one-hundredth of a share) determined by
dividing the amount of the participant's fees earned during the immediately
preceding quarter and specified for deferral by the average of the high and
low prices per share of Common Stock reported on the consolidated tape of the
New York Stock Exchange on the Credit Date or, if the New York Stock Exchange
was closed on the Credit Date, the next preceding date on which it was open.
Unless a participant elects pursuant to Section 4 to transfer amounts from
his or her Deferred Stock Account to his or her Deferred Cash Account,
amounts credited to a participant's Deferred Stock Account shall remain in
such Deferred Stock Account, receiving dividend credits pursuant to Section
7, until fully paid in accordance with the participant's election pursuant to
Section 3.
7. DIVIDEND CREDIT. Each time a dividend is paid on the Common Stock,
a participant shall receive a credit to his or her Deferred Stock Account. In
the case of dividends paid prior to December 1, 1999, the amount of the
dividend credit was the number of shares (rounded to the nearest
one-hundredth of a share) determined by multiplying the dividend amount per
share by the number of shares credited to the participant's Deferred Stock
Account as of the record date for the dividend and by dividing such product
by the average of the high and low prices per share of Common Stock reported
on the consolidated tape of the New York Stock Exchange on the dividend
payment date or, if the New York Stock Exchange was closed on the dividend
payment date, the next preceding date on which it was open. In the case of
dividends paid on and after December 1, 1999, the product computed in the
preceding sentence shall be divided by the closing price per share of Common
Stock reported on the consolidated tape of the New York Stock Exchange for
the trading day next preceding the dividend payment date.
8. PAYMENT OF DEFERRALS IN A LUMP SUM. Unless a participant elects
pursuant to Section 3 to receive payment of deferrals under the Plan in
installments as described in Section 9, credits to a participant's Deferred
Stock Account are payable in a lump sum in cash, in whole shares of Common
Stock (together with cash in lieu of a fractional share), or a combination
thereof, in the calendar year following termination of service as a director
or such other year as elected by the participant pursuant to Section 3. The
foregoing notwithstanding, however, if a participant who has elected to
receive deferrals in a lump sum
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elects to convert his or her Deferred Stock Account to a Deferred Cash
Account pursuant to Section 4, such lump-sum payment shall be made in cash.
All lump-sum payments made in 1999 and prior years were made on February 28
(or the next succeeding business day if February 28 was not a business day).
All lump-sum payments made in 2000 and subsequent years shall be made on
March 1 or as soon thereafter as administratively practicable, taking into
account any dividend payable on such day. Amounts paid in cash from Deferred
Stock Accounts in 1999 and prior years, including cash in lieu of fractional
shares, was determined based on the average of the high and low prices per
share of Common Stock reported on the consolidated tape of the New York Stock
Exchange on the January 31 immediately preceding the date of payment or, if
the New York Stock Exchange was closed on that date, the next preceding date
on which it was open. Amounts payable in cash from Deferred Stock Accounts
in 2000 and any subsequent year, including cash in lieu of fractional shares,
shall be determined based on the closing price per share of the Common Stock
reported on the consolidated tape of the New York Stock Exchange for the
trading day immediately preceding the payment date.
9. PAYMENT OF DEFERRALS IN INSTALLMENTS. A participant may elect
pursuant to Section 3 to receive payment of deferrals under the Plan in
annual installments commencing in the calendar year following termination of
service as a director or such other year as elected by the participant.
Installment payments made in 1999 and prior years were made on February 28,
and installment payments to be made in 2000 and subsequent years shall be
made on March 1 or as soon thereafter as administratively practicable.
Installments will be paid in cash unless a participant makes the election
described in Section 9.b.
a. CREDITS TO AND PAYMENTS FROM DEFERRED CASH ACCOUNTS; INTEREST. For
all installment payments made in 1999 and prior years, a participant's
Deferred Stock Account was converted to a Deferred Cash Account by
multiplying the number of phantom shares credited as of January 31immediately
prior to the first installment payment by the average of the high and low
prices per share of Common Stock reported on the consolidated tape of the New
York Stock Exchange on such January 31 (or, if the New York Stock Exchange
was closed on such January 31, the next preceding date on which it was open)
and crediting such product to the participant's Deferred Cash Account.
Amounts credited to Deferred Cash Accounts in 2000 and subsequent years shall
be determined in accordance with Section 4. The amount of each installment
payment made from a Deferred Cash Account shall be a fraction of the value of
the participant's Deferred Cash Account determined as of January 31 prior to
the date of the installment payment, for payments made prior to 2000, and as
of the last day of February prior to such payment date, for payments made in
2000 and subsequent years. The numerator of such fraction is one and the
denominator is the total number of installments elected (not to exceed ten)
minus the number of installments previously paid. Beginning on the day
following the establishment of a Deferred Cash Account under this Plan, the
cash balance remaining in such Deferred Cash Account from time to time shall
bear interest at an annual rate equal to the interest equivalent of the
secondary market yield for three-month United States Treasury Bills as
reported for the preceding month in Federal Reserve statistical release H.
15(519). The interest rate shall be adjusted
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monthly, and interest shall be credited to such Deferred Cash Account as of
the last day of each month.
b. DISTRIBUTION OF DEFERRED STOCK ACCOUNTS IN INSTALLMENTS. For all
participants who elect to receive distributions from Deferred Stock Accounts
in installments commencing in 2000 or any subsequent year and who have not
elected pursuant to Section 4 to convert their Deferred Stock Accounts to
Deferred Cash Accounts, the phantom share balances in such accounts shall
continue to receive dividend credits in accordance with Section 7 until fully
paid out in accordance with participants' elections, or deemed elections,
pursuant to Section 3. Participants who elect pursuant to Section 3 to
receive distributions from Deferred Stock Accounts in installments commencing
in 2000 or any subsequent year may irrevocably elect to receive such
distributions in shares of Common Stock if such an election is filed with the
Plan Administrator at any time commencing January 1 of the final year of his
or her service as a non-employee director and continuing until December 31 of
the year preceding the date of the distribution of the first installment to
such participant. For participants who elect to receive installment
distributions in Common Stock pursuant to this Section 9.b, the amount of
each installment shall be a fraction of the number of shares in the
participant's Deferred Stock Account on the distribution date, taking into
account any dividend payable on that date, the numerator of which is one and
the denominator of which is the total number of installments elected (not to
exceed ten) minus the number of installments previously paid (rounded down to
the nearest whole share). Cash in lieu of any fractional share (based on the
closing price per share of Common Stock reported on the consolidated tape of
the New York Stock Exchange for the trading day immediately preceding the
distribution date) shall be distributed with the final installment. For
participants who do not make an effective election to receive installment
distributions from their Deferred Stock Accounts in Common Stock pursuant to
this Section 9.b, the amount of each payment to such a participant on each
payment date elected, or deemed elected, by him or her, commencing March 1,
2000, and on each March 1 thereafter, shall be based on the value of his or
her Deferred Stock Account on the payment date, taking into account any
dividend payable on that day, using the closing price of the Common Stock as
reported on the consolidated tape of the New York Stock Exchange for the
trading day next preceding the payment date. The amount of an installment
payment made in cash from a Deferred Stock Account on or after March 1, 2000,
shall be a fraction of the value of the Account on the payment date, the
numerator of which is one and the denominator of which is the total number of
installments elected (not to exceed ten) minus the number of installments
previously paid.
10. DEATH OF A PARTICIPANT. If a participant dies before receiving
all payments to which he or she is entitled under the Plan, payment shall be
made in accordance with the participant's designation of a beneficiary on a
form provided for that purpose and delivered to and accepted by the Plan
Administrator. In the absence of a valid designation, or if the designated
beneficiary does not survive the participant, all remaining payments due
hereunder shall be made as promptly as administratively practicable to such
participant's estate.
11. NUMBER OF SHARES ISSUABLE UNDER THE PLAN. Subject to adjustment
as provided in the next sentence, the maximum number of shares of
-4-
<PAGE>
Common Stock that may be credited under the Plan is 600,000. If the
Corporation shall at any time increase or decrease the number of its
outstanding shares of Common Stock or change in any way the rights and
privileges of such shares by means of the payment of a stock dividend or any
other distribution upon such shares payable in Common Stock, or through a
stock split, subdivision, consolidation, combination, reclassification, or
recapitalization involving the Common Stock, then the numbers, rights, and
privileges of the shares issuable under the Plan shall be increased,
decreased, or changed in like manner as if such shares had been issued and
outstanding, fully paid, and nonassessable at the time of such occurrence.
12. NO GUARANTEE OF SERVICE. Participation in the Plan does not
constitute a guarantee or contract of service as a director.
13. NONASSIGNABILITY. No right to receive payments under the Plan nor
any shares of Common Stock credited to a participant's Deferred Stock Account
shall be assignable or transferable by a participant other than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"), Title I of the Employee Retirement Income Security
Act ("ERISA"), or rules thereunder. The designation of a beneficiary by a
participant pursuant to Section 5 does not constitute an assignment or
transfer.
14. FUNDING. If the Corporation chooses to fund the credits to the
Deferred Stock Accounts, the Corporation shall make contributions in cash or
in shares of Common Stock to the trust described in Section 15. Any cash
contributions shall be used by the trustee named in Section 15 to purchase
shares of Common Stock within 10 business days after such deposit. Purchase
of such shares may be made by the trustee in brokerage transactions or by
private purchase, including purchase from the Corporation. All shares held by
the trust shall be held in the name of the trustee.
15. TRUST FUND. Shares of Common Stock credited to Deferred Stock
Accounts under the Plan may, in the sole discretion of the Corporation, be
held and administered in trust (referred to as the "Trust Fund") in
accordance with the terms of the Plan. The Trust Fund shall be held under a
trust agreement between the Corporation and Marquette Bank Minneapolis, N.A.
as trustee, or any duly appointed successor trustee. All Common Stock in the
Trust Fund shall be held on a commingled basis and shall be subject to the
claims of general creditors of the Corporation.
16. VOTING COMMON STOCK. If any credits made pursuant to the Plan
are, in the discretion of the Corporation, funded in a trust as described in
Section 15, the Common Stock held in trust shall be voted by the trustee in
its discretion; provided, however, that the participant may instruct the
trustee with respect to the voting of a number of shares determined by
multiplying a fraction, the numerator of which is the number of shares
credited to the participant's Deferred Stock Account and the denominator of
which is the total number of shares credited to all participants' Deferred
Stock Accounts, by the total number of shares held by the trustee for the
Plan. For purposes of this section, all numbers of shares shall be determined
as of the applicable record date.
-5-
<PAGE>
17. UNSECURED OBLIGATION. Benefits payable under the Plan shall be an
unsecured obligation of the Corporation.
18. ADMINISTRATION. The Plan shall be administered by the
Corporation's senior human resources officer (the "Plan Administrator"), who
shall have the authority to interpret the Plan and to adopt procedures for
implementing the Plan.
19. AMENDMENT AND TERMINATION. The Board of Directors or the Board
Affairs Committee, or any successor committee, of the Corporation's Board of
Directors may at any time terminate, suspend, or amend this Plan; provided,
however, that if at the time of any such proposed termination, suspension or
amendment, any member of such committee does not satisfy the requirement
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
termination, suspension or amendment must be approved by the Board. No such
action shall deprive any participant of any benefits to which he or she would
have been entitled under the Plan if termination of the participant's service
as a director had occurred on the day prior to the date such action was
taken, unless agreed to by the participant.
20. CHANGE OF CONTROL. "Change of Control " shall mean either one of
the following events:
(a) A third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner, directly or indirectly, of 25% or more of the combined
voting power of the Corporation's outstanding voting securities ordinarily
having the right to vote for the election of directors of the Corporation;
or
(b) Individuals who constitute the Board of Directors of the
Corporation as of April 27, 1992 (the "Incumbent Board") cease for any
reason to constitute at least two-thirds thereof; provided that any person
becoming a director subsequent to said date whose election, or nomination
for election by the Corporation's stockholders, was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board,
shall be, for the purposes of this clause (b), considered as though such
person were a member of the Incumbent Board.
Anything to the contrary herein notwithstanding, in the event of a Change of
Control, credits to a participant's Deferred Stock Account and/or Deferred
Cash Account, as the case may be, as of the business day immediately
preceding the effective date of the transaction constituting the Change of
Control shall be paid in full to the participant or the participant's
beneficiary or estate, as the case may be, on such business day. For
purposes of this Section 20, a participant's Deferred Stock Account shall be
distributed in whole shares of Common Stock (together with cash in lieu of a
fractional share).
-6-
<PAGE>
21. GOVERNING LAW. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by and construed in accordance with
the law of the State of Delaware.
22. EFFECTIVE DATE. The effective date of the Plan shall be the date
of approval of the Plan by the holders of the Common Stock.
-7-
<PAGE>
EXHIBIT 10(e)
NORWEST CORPORATION
DIRECTORS' FORMULA STOCK AWARD PLAN
(As amended and restated effective September 28, 1999)
l. PURPOSE. The purpose of the Norwest Corporation Directors' Formula
Stock Award Plan (the "Plan") is to provide compensation in the form of shares
of the Corporation's common stock, $1 2/3 par value per share ("Common Stock"),
to non-employee members of the Board of Directors (the "Board") of the former
Norwest Corporation and Wells Fargo & Company, as it is now known(the
"Corporation"), in consideration for personal services rendered in their
capacity as directors of the Corporation during the period from 1991 through
1998. The Plan is intended to aid in attracting and retaining individuals of
outstanding abilities and skills for service on the Board.
2. ELIGIBILITY. Any person who (a) has served as a non-employee director
of the Corporation during the calendar year preceding an Award Date (as defined
below) and (b) is a non-employee director of the Corporation on the last day of
such calendar year ("Eligible Non-Employee Director") was awarded shares of
Common Stock determined as set forth in Section 3.
3. FORMULA AWARD. In consideration for past services rendered, on
February 1 of each year from 1992 through 1999 (each, an "Award Date"), each
Eligible Non-Employee Director who was a non-employee director of the
Corporation during all of the preceding calendar year was awarded a number of
shares of Common Stock (an "Award"). Each Eligible Non-Employee Director who
was a non-employee director of the Corporation for less than all of the
calendar year preceding an Award Date was awarded one-twelfth of an Award for
each calendar month or portion thereof during which such person served as a
non-employee director of the Corporation.
The fair market value was determined using the closing price of a share of
Common Stock as reported on the consolidated tape of the New York Stock Exchange
as of the Award Date. If the New York Stock Exchange was not open on the Award
Date, the fair market value was determined using the closing price of a share of
Common Stock as reported on the consolidated tape of the New York Stock Exchange
as of the next preceding day on which the New York Stock Exchange was open.
4. DEFERRAL OF AWARDS. An Eligible Non-Employee Director may have elected
to defer, in the form of shares of Common Stock, all or a portion of the Award
for his or her service as a director for each calendar year during the period
from 1993 through 1998 (the "Deferral Year") following the year in which the
deferral election was made. Such election was made pursuant to Section 5.
5. ELECTIONS REGARDING PARTICIPATION AND DEFERRALS.
a. PARTICIPATION. An Eligible Non-Employee Director became a
participant in the deferral provisions of the Plan by filing not later than
December 15 of the year preceding the Deferral Year an irrevocable election
with the Plan
<PAGE>
Administrator (as defined in Section 16) on a form provided for that purpose.
The election form specified an amount to be deferred expressed as a
percentage of the Award, one of the payment options described in Sections 8
and 9, and the year in which amounts deferred shall be distributed in a lump
sum pursuant to Section 8 or in which distribution in installments shall
commence pursuant to Section 9. The deferral election was effective only
with respect to the Award for the Deferral Year specified on the election
form. A new deferral election form must have been filed for each Deferral
Year. Every participant who may have elected the payment of any deferred
compensation to be made to him or her or a beneficiary on February 28 in any
year beginning with 2000 shall be deemed to have elected such payment to be
made on the March 1 immediately following such February 28.
b. INITIAL DEFERRAL ELECTION OR INITIAL ELIGIBILITY. The initial deferral
elections by Eligible Non-Employee Directors must have been made within 30 days
of the date on which the Board of Directors of the Corporation approved the
amendment of the Plan to include deferral provisions and applied to compensation
to be earned subsequent to the deferral election. A new Eligible Non-Employee
Director must have made a deferral election within 30 days of the date on which
he or she became eligible to participate in the Plan.
c. DESIGNATION OF BENEFICIARY. A participant may from time to time
designate a beneficiary or beneficiaries and/or revoke his or her beneficiary
designation and file a new beneficiary designation with the Plan Administrator.
The most recent such designation shall apply to all of the participant's account
balances under the Plan.
6. DEFERRED STOCK ACCOUNT. On the Award Date, a participant received a
credit to his or her stock account under the Plan (the "Deferred Stock
Account"). The amount of the credit was the number of shares determined by
multiplying the amount of the Award by the percentage specified on the election
form (rounded down to the nearest whole share).
7. DIVIDEND CREDIT. Each time a dividend is paid on the Common Stock, a
participant with a balance in his or her Deferred Stock Account shall receive a
dividend credit to such Account. The amount of the dividend credit shall be the
number of shares (rounded to the nearest one-hundredth of a share) determined by
multiplying the dividend amount per share by the number of shares credited to
the participant's Deferred Stock Account as of the record date for the dividend
and, for dividends paid prior to December 1, 1999, dividing the product by the
average of the high and low prices per share of Common Stock reported on the
consolidated tape of the New York Stock Exchange for the dividend payment date
or, if the New York Stock Exchange was closed on the dividend payment date, the
next preceding date on which it was open. For dividends paid on and after
December 1, 1999, the product computed in the preceding sentence shall be
divided by the closing price per share of the Common Stock reported on the
consolidated tape of the New York Stock Exchange for the trading day next
preceding the dividend payment date.
8. DISTRIBUTION OF DEFERRED STOCK ACCOUNTS IN A LUMP SUM. Unless a
participant elected pursuant to Section 5 to receive deferrals hereunder in
installments as described in Section 9, such deferrals shall be distributed in a
lump sum in whole shares of Common Stock (together with cash in lieu of a
fractional share) in the year
-2-
<PAGE>
following termination of service as a director or such other year as elected
by the participant pursuant to Section 5. All such distributions made in
1999 and prior years were made as of February 28 (or the next succeeding
business day if such February 28 was not a business day) of the year elected
by the participant pursuant to Section 5. Commencing in 2000, such
distributions shall be made as of March 1 (or the next succeeding business
day if such date is not a business day) of the calendar year following
termination of service as a director or such other year elected by the
participant pursuant to Section 5. Cash distributed in lieu of any fractional
share in 1999 and prior years was determined based on the average of the high
and low prices per share of Common Stock reported on the consolidated tape of
the New York Stock Exchange on the date of distribution or, if the New York
Stock Exchange was closed on that date, the next preceding date on which it
was open. Cash distributed in lieu of fractional shares in 2000 and
subsequent years shall be determined based on the closing price per share of
Common Stock reported on the consolidated tape of the New York Stock Exchange
on the trading day immediately preceding the date of distribution.
9. DISTRIBUTION OF DEFERRED STOCK ACCOUNTS IN INSTALLMENTS. A participant
may elect pursuant to Section 5 to receive deferrals hereunder distributed in
shares of Common Stock in annual installments commencing in the calendar year
following termination of service as a director or such other year as elected by
the participant pursuant to Section 5. Installment distributions made in 1999
and prior years were made as of February 28, and installment distributions to be
made in 2000 and subsequent years shall be made as of March 1 (or, in either
case, the next succeeding business day if such date is not a business
day).Installment distributions made in 1999 and prior years were made in shares
of Common Stock based on the number of shares in the participant's Deferred
Stock Account on January 31 prior to the distribution date. The amount of each
installment for distributions made in 2000 and subsequent years shall be a
fraction of the number of shares in the participant's Deferred Stock Account on
the distribution date, taking into account any dividend payable on that date,
the numerator of which is one and the denominator of which is the total number
of installments elected (not to exceed ten) minus the number of installments
previously paid (rounded down to the nearest whole share). Cash in lieu of any
fractional share (based on the closing price per share of Common Stock reported
on the consolidated tape of the New York Stock Exchange for the trading day
immediately preceding the distribution date) shall be distributed with the final
installment. Undistributed share balances remaining in the Deferred Stock
Account shall receive dividend credits in accordance with Section 7.
10. DEATH OF A PARTICIPANT. If a participant dies before receiving all
distributions to which he or she is entitled under the Plan, distribution of all
shares remaining in the participant's Deferred Stock Account (together with cash
in lieu of any fractional share) shall be made in accordance with the
participant's designation of a beneficiary on a form provided for that purpose
and delivered to and accepted by the Plan Administrator. In the absence of a
valid designation, or if the designated beneficiary does not survive the
participant, all remaining payments due hereunder shall be made as promptly as
administratively practicable to such participant's estate.
11. SHARES AVAILABLE FOR AWARDS. 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. If the Corporation shall at any time increase
or decrease the number of its outstanding shares of Common Stock or change in
any way the rights and privileges
-3-
<PAGE>
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.
12. EFFECTIVE DATE. The Plan became effective on January 1, 1992.
13. NO GUARANTEE OF SERVICE. Participation in the Plan does not
constitute a guarantee or contract of service as a director.
14. NON-ASSIGNABILITY. No right to receive an award hereunder shall be
assignable or transferable 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 Section 5.c does not
constitute an assignment or transfer.
15. UNSECURED OBLIGATION. All shares of Common Stock deferred pursuant to
this Plan and credited to a Deferred Stock Account will be unsecured obligations
of the Corporation. Each participant's right thereto will be as an unsecured
general creditor of the Corporation.
16. ADMINISTRATION. The Plan shall be administered under such rules and
procedures as shall be established from time to time by the Corporation's senior
human resources officer (the "Plan Administrator").
17. AMENDMENT AND TERMINATION. The Plan may be amended, suspended or
terminated by action of the Board of Directors or the Board Affairs Committee,
or any successor committee, of the Corporation's Board of Directors; provided,
however, if at the time of any such proposed amendment, suspension or
termination, any member of such committee does not satisfy the requirement
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. No such action shall deprive any
participant of any benefits to which he or she would have been entitled under
the Plan if termination of the participant's service as a director had occurred
on the day prior to the date such action was taken, unless agreed to by the
participant. The foregoing notwithstanding, however, the Plan automatically
shall be terminated when all Common Stock subject to the Plan has been awarded,
and if the Plan has been approved by the stockholders of the Corporation, any
amendment shall be similarly approved if the amendment would:
(i) materially increase the benefits accruing to participants under the
Plan;
(ii) materially increase the number of securities which may be issued
under the Plan; or
(iii) materially modify the requirements as to eligibility for
participation in the Plan.
-4-
<PAGE>
18. GOVERNING LAW. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by and construed in accordance with the law of
the State of Delaware.
4/28/92
6/4/93
7/27/93
4/26/94
2/28/95
4/23/96
10/2/97
1/26/99
9/28/99
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,011
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,556
<TRADING-ASSETS> 2,326
<INVESTMENTS-HELD-FOR-SALE> 36,906
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 114,709
<ALLOWANCE> 3,167
<TOTAL-ASSETS> 207,060
<DEPOSITS> 131,557
<SHORT-TERM> 19,248
<LIABILITIES-OTHER> 8,377
<LONG-TERM> 25,696
0
460
<COMMON> 2,777
<OTHER-SE> 18,945
<TOTAL-LIABILITIES-AND-EQUITY> 207,060
<INTEREST-LOAN> 7,912
<INTEREST-INVEST> 1,612
<INTEREST-OTHER> 1,101
<INTEREST-TOTAL> 10,625
<INTEREST-DEPOSIT> 2,075
<INTEREST-EXPENSE> 3,666
<INTEREST-INCOME-NET> 6,959
<LOAN-LOSSES> 770
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 7,124
<INCOME-PRETAX> 4,415
<INCOME-PRE-EXTRAORDINARY> 2,777
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,777
<EPS-BASIC> 1.67<F1>
<EPS-DILUTED> 1.65
<YIELD-ACTUAL> 5.67
<LOANS-NON> 697
<LOANS-PAST> 466
<LOANS-TROUBLED> 1
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,134
<CHARGE-OFFS> 1,117
<RECOVERIES> 342
<ALLOWANCE-CLOSE> 3,167
<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 Nine months
ended Sept. 30, ended Sept. 30,
----------------- -----------------
(in millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $1,533 $1,230 $4,415 $3,541
Fixed charges 1,298 1,304 3,765 3,885
------ ------ ------ ------
$2,831 $2,534 $8,180 $7,426
====== ====== ====== ======
Fixed charges (1)
Interest expense $1,259 $1,265 $3,666 $3,769
Estimated interest component of net rental expense 39 39 99 116
------ ------ ------ ------
$1,298 $1,304 $3,765 $3,885
====== ====== ====== ======
Ratio of earnings to fixed charges (2) 2.18 1.94 2.17 1.91
====== ====== ====== ======
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $1,533 $1,230 $4,415 $3,541
Fixed charges 619 516 1,690 1,545
------ ------ ------ ------
$2,152 $1,746 $6,105 $5,086
====== ====== ====== ======
Fixed charges:
Interest expense $1,259 $1,265 $3,666 $3,769
Less interest on deposits 679 788 2,075 2,340
Estimated interest component of net rental expense 39 39 99 116
------ ------ ------ ------
$ 619 $ 516 $1,690 $1,545
====== ====== ====== ======
Ratio of earnings to fixed charges (2) 3.48 3.38 3.61 3.29
====== ====== ====== ======
- --------------------------------------------------------------------------------------------------
</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.
49
<PAGE>
EXHIBIT 99(b)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
----------------- -----------------
(in millions) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $1,533 $1,230 $4,415 $3,541
Fixed charges 1,298 1,304 3,765 3,885
------ ------ ------ ------
$2,831 $2,534 $8,180 $7,426
====== ====== ====== ======
Preferred dividend requirement $ 9 $ 9 $ 26 $ 26
Ratio of income before income tax expense to net income 1.59 1.66 1.59 1.65
------ ------ ------ ------
Preferred dividends (2) $ 14 $ 15 $ 41 $ 43
------ ------ ------ ------
Fixed charges (1):
Interest expense 1,259 1,265 3,666 3,769
Estimated interest component of net rental expense 39 39 99 116
------ ------ ------ ------
1,298 1,304 3,765 3,885
------ ------ ------ ------
Fixed charges and preferred dividends $1,312 $1,319 $3,806 $3,928
====== ====== ====== ======
Ratio of earnings to fixed charges and preferred dividends (3) 2.16 1.92 2.15 1.89
====== ====== ====== ======
EARNINGS, EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $1,533 $1,230 $4,415 $3,541
Fixed charges 619 516 1,690 1,545
------ ------ ------ ------
$2,152 $1,746 $6,105 $5,086
====== ====== ====== ======
Preferred dividends (2) $ 14 $ 15 $ 41 $ 43
------ ------ ------ ------
Fixed charges:
Interest expense 1,259 1,265 3,666 3,769
Less interest on deposits 679 788 2,075 2,340
Estimated interest component of net rental expense 39 39 99 116
------ ------ ------ ------
619 516 1,690 1,545
------ ------ ------ ------
Fixed charges and preferred dividends $ 633 $ 531 $1,731 $1,588
====== ====== ====== ======
Ratio of earnings to fixed charges and preferred dividends (3) 3.40 3.29 3.53 3.20
====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------
</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.
50
