<PAGE>
EXHIBIT 99(b)
SUPPLEMENTAL QUARTERLY REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Supplemental Financial Statements PAGE
----
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
Summary Financial Data........................................................................... 15
Overview......................................................................................... 16
Factors That May Affect Future Results........................................................... 18
Earnings Performance............................................................................. 21
Net Interest Income............................................................................ 21
Noninterest Income............................................................................. 24
Noninterest Expense............................................................................ 26
Balance Sheet Analysis........................................................................... 27
Securities Available for Sale.................................................................. 27
Loan Portfolio................................................................................. 28
Nonaccrual and Restructured Loans and Other Assets............................................. 29
Loans 90 days Past Due and Still Accruing................................................... 30
Allowance for Loan Losses...................................................................... 31
Interest Receivable and Other Assets........................................................... 32
Deposits....................................................................................... 32
Derivative Financial Instruments............................................................... 33
Liquidity and Capital Management............................................................... 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 35
</TABLE>
------------------------------------------------------------------------------
The information furnished in these interim statements reflects all adjustments
that are, in the opinion of management, necessary for a fair statement of the
results for such periods. Such adjustments are of a normal recurring nature,
unless otherwise disclosed in this Form 8-K. The results of operations in the
interim statements are not necessarily indicative of the results that may be
expected for the full year. The interim financial information should be read in
conjunction with Wells Fargo & Company's 1999 Supplemental Annual Report on this
Form 8-K.
1
<PAGE>
PART I - FINANCIAL INFORMATION
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Nine months
ended September 30,
----------------------
(in millions, except per share amounts) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Securities available for sale $ 2,046 $ 1,877
Mortgages held for sale 618 750
Loans held for sale 322 284
Loans 10,544 8,672
Other interest income 261 176
-------- ---------
Total interest income 13,791 11,759
-------- ---------
INTEREST EXPENSE
Deposits 2,955 2,375
Short-term borrowings 1,311 783
Long-term debt 1,399 1,037
Guaranteed preferred beneficial interests in Company's
subordinated debentures 55 55
-------- ---------
Total interest expense 5,720 4,250
-------- ---------
NET INTEREST INCOME 8,071 7,509
Provision for loan losses 976 810
-------- ---------
Net interest income after provision for loan losses 7,095 6,699
-------- ---------
NONINTEREST INCOME
Service charges on deposit accounts 1,267 1,162
Trust and investment fees 1,203 1,008
Credit card fees 418 418
Other fees 935 812
Mortgage banking 1,010 1,101
Insurance 293 308
Net venture capital gains 1,740 287
Net (losses) gains on securities available for sale (981) 34
Other 347 642
---------- --------
Total noninterest income 6,232 5,772
---------- --------
NONINTEREST EXPENSE
Salaries 2,732 2,440
Incentive compensation 624 479
Employee benefits 741 686
Equipment 640 634
Net occupancy 707 612
Goodwill 389 323
Core deposit intangible 142 156
Net gains on dispositions of premises and equipment (60) (5)
Other 2,698 2,431
-------- ---------
Total noninterest expense 8,613 7,756
-------- ---------
INCOME BEFORE INCOME TAX EXPENSE 4,714 4,715
Income tax expense 1,816 1,739
-------- ---------
NET INCOME $ 2,898 $ 2,976
======== =========
NET INCOME APPLICABLE TO COMMON STOCK $ 2,885 $ 2,950
======== =========
EARNINGS PER COMMON SHARE $ 1.70 $ 1.72
======== =========
DILUTED EARNINGS PER COMMON SHARE $ 1.68 $ 1.70
======== =========
DIVIDENDS DECLARED PER COMMON SHARE $ .66 $ .585
======== =========
Average common shares outstanding 1,695.8 1,717.1
======== =========
Diluted average common shares outstanding 1,713.9 1,737.8
======== =========
-------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(in millions, except shares) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,986 $ 14,118
Federal funds sold and securities purchased
under resale agreements 3,113 1,722
Securities available for sale 37,307 43,911
Mortgages held for sale 11,507 12,678
Loans held for sale 4,349 5,043
Loans 154,305 133,004
Allowance for loan losses 3,665 3,344
---------- ----------
Net loans 150,640 129,660
---------- ----------
Mortgage servicing rights 5,742 4,652
Premises and equipment, net 3,365 3,372
Core deposit intangible 1,209 1,299
Goodwill 9,221 8,046
Interest receivable and other assets 19,883 16,552
---------- ----------
Total assets $ 261,322 $ 241,053
========== ==========
LIABILITIES
Noninterest-bearing deposits $ 51,404 $ 45,520
Interest-bearing deposits 112,869 100,398
---------- ----------
Total deposits 164,273 145,918
Short-term borrowings 24,669 31,727
Accrued expenses and other liabilities 13,161 11,736
Long-term debt 31,470 26,866
Guaranteed preferred beneficial interests in Company's
subordinated debentures 935 935
STOCKHOLDERS' EQUITY
Preferred stock 408 344
Unearned ESOP shares (143) (73)
---------- ----------
Total preferred stock 265 271
Common stock - $1-2/3 par value, authorized
4,000,000,000 shares; issued
1,736,891,279 shares and 1,736,259,632 shares 2,895 2,894
Additional paid-in capital 9,344 9,213
Retained earnings 13,895 12,565
Cumulative other comprehensive income 1,701 760
Notes receivable from ESOP (1) (1)
Treasury stock - 27,302,953 shares and 39,840,269 shares (1,285) (1,831)
---------- ----------
Total stockholders' equity 26,814 23,871
---------- ----------
Total liabilities and stockholders' equity $ 261,322 $ 241,053
========== ==========
-------------------------------------------------------------------------------------------------------------------
</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 Retained
(in millions, except shares) shares stock shares stock capital earnings
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 $ 547 $ (84) $2,882 $8,981 $10,256
----- ----- ------ ------ -------
Comprehensive income
Net income 2,976
Other comprehensive income, net of tax:
Translation adjustments
Unrealized gains (losses) on securities
available for sale arising during the period
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income
Total comprehensive income
Common stock issued 17,695,889 1 90 (201)
Common stock issued for acquisitions 9,187,341 11 112 (6)
Common stock repurchased 19,528,947
Preferred stock (75,000) issued to ESOP 75 (80) 5
Preferred stock released to ESOP 64 (4)
Preferred stock (60,349) converted to common shares 1,558,279 (62) 2
Preferred stock dividends (26)
Common stock dividends (1,044)
Cash payments received on
notes receivable from ESOP
Change in Rabbi trust assets (classified as treasury stock)
----- ----- ------ ------ -------
Net change 13 (16) 12 205 1,699
----- ----- ------ ------ -------
BALANCE SEPTEMBER 30, 1999 $ 560 $(100) $2,894 $9,186 $11,955
===== ===== ====== ====== =======
BALANCE DECEMBER 31, 1999 $ 344 $ (73) $2,894 $9,213 $12,565
----- ----- ------ ------ -------
Comprehensive income
Net income 2,898
Other comprehensive income, net of tax:
Translation adjustments
Unrealized gains (losses) on securities
available for sale arising during the period
Reclassification adjustment for
(gains) losses on securities
available for sale included in net income
Total comprehensive income
Common stock issued 11,960,155 1 277 (391)
Common stock issued for acquisitions 69,347,582 (199) (7)
Common stock repurchased 70,672,243
Stock options repriced 48
Preferred stock (170,000) issued to ESOP 170 (181) 11
Preferred stock released to ESOP 111 (7)
Preferred stock (104,991) converted to common shares 2,533,470 (105) 1
Preferred stock repurchased 31,600 (1)
Preferred stock dividends (13)
Common stock dividends (1,157)
Change in Rabbi trust assets (classified as treasury stock)
----- ----- ------ ------ -------
Net change 64 (70) 1 131 1,330
----- ----- ------ ------ -------
BALANCE SEPTEMBER 30, 2000 $ 408 $(143) $2,895 $9,344 $13,895
===== ===== ====== ====== =======
</TABLE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Notes Cumulative
receivable other Total
from Treasury comprehensive stockholders'
(in millions, except shares) ESOP stock income equity
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 $(3) $ (740) $ 493 $22,332
--- ------- ----- -------
Comprehensive income
Net income 2,976
Other comprehensive income, net of tax:
Translation adjustments 3 3
Unrealized gains (losses) on securities
available for sale arising during the period (327) (327)
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income (22) (22)
------
Total comprehensive income 2,630
Common stock issued 640 530
Common stock issued for acquisitions 121 238
Common stock repurchased (795) (795)
Preferred stock (75,000) issued to ESOP --
Preferred stock released to ESOP 60
Preferred stock (60,349) converted to common shares 60 --
Preferred stock dividends (26)
Common stock dividends (1,044)
Cash payments received on
notes receivable from ESOP 2 2
Change in Rabbi trust assets (classified as treasury stock) (16) (16)
--- ------- ------
Net change 2 10 (346) 1,579
--- ------- ------
BALANCE SEPTEMBER 30, 1999 $(1) $ (730) $ 147 $23,911
=== ======= ====== =======
BALANCE DECEMBER 31, 1999 $(1) $(1,831) $ 760 $23,871
--- ------- ------ -------
Comprehensive income
Net income 2,898
Other comprehensive income, net of tax:
Translation adjustments (2) (2)
Unrealized gains (losses) on securities
available for sale arising during the period 783 783
Reclassification adjustment for
(gains) losses on securities
available for sale included in net income 160 160
-------
Total comprehensive income 3,839
Common stock issued 476 363
Common stock issued for acquisitions 2,864 2,658
Common stock repurchased (2,891) (2,891)
Stock options repriced 48
Preferred stock (170,000) issued to ESOP --
Preferred stock released to ESOP 104
Preferred stock (104,991) converted to common shares 104 --
Preferred stock repurchased (1)
Preferred stock dividends (13)
Common stock dividends (1,157)
Change in Rabbi trust assets (classified as treasury stock) (7) (7)
--- ------- ------ -------
Net change -- 546 941 2,943
--- ------- ------ -------
BALANCE SEPTEMBER 30, 2000 $(1) $(1,285) $1,701 $26,814
=== ======= ====== =======
-----------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Nine months ended Sept. 30,
---------------------------------
(in millions) 2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,898 $ 2,976
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 976 810
Depreciation and amortization 1,206 1,539
Securities available for sale losses (gains) 981 (34)
Net venture capital gains (1,740) (287)
Losses (gains) on sales of mortgages held for sale 16 (142)
Losses (gains) on sales of loans 149 (62)
Gains on dispositions of operations (8) (102)
Net gains on dispositions of premises and equipment (60) (5)
Release of preferred shares to ESOP 104 60
Net decrease (increase) in trading assets 299 (279)
Net increase in accrued interest receivable (205) (154)
Net increase in accrued interest payable 198 17
Originations of mortgages held for sale (55,066) (79,359)
Proceeds from sales of mortgages held for sale 52,344 90,353
Net increase in loans held for sale (707) (560)
Other assets, net (2,898) 258
Other accrued expenses and liabilities, net 2,874 42
-------- --------
Net cash provided by operating activities 1,361 15,071
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 22,013 7,549
Proceeds from prepayments and maturities 3,486 7,617
Purchases (12,376) (22,426)
Net cash acquired from (paid for) acquisitions 994 (144)
Net increase in banking subsidiaries' loans resulting from originations
and collections (15,078) (6,896)
Proceeds from sales (including participations) of
banking subsidiaries' loans 3,862 3,768
Purchases (including participations) of banking subsidiaries' loans (251) (1,211)
Principal collected on nonbank subsidiaries' loans 4,081 4,221
Nonbank subsidiaries' loans originated (7,180) (6,590)
Cash proceeds from (paid for) dispositions of operations 11 (721)
Proceeds from sales of foreclosed assets 202 145
Net increase in federal funds sold and securities purchased
under resale agreements (1,391) (341)
Net (increase) decrease in mortgage servicing rights (1,384) 8
Other, net (5,006) (3,206)
-------- --------
Net cash used by investing activities (8,017) (18,227)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 15,457 (5,690)
Net (decrease) increase in short-term borrowings (7,831) 3,974
Proceeds from issuance of long-term debt 14,143 12,662
Repayment of long-term debt (9,656) (7,248)
Proceeds from issuance of common stock 286 597
Repurchase of common stock (2,891) (795)
Payment of cash dividends on preferred and common stock (1,170) (1,070)
Other, net (814) (41)
-------- -------
Net cash provided by financing activities 7,524 2,389
-------- -------
NET CHANGE IN CASH AND DUE FROM BANKS 868 (767)
Cash and due from banks at beginning of period 14,118 13,652
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 14,986 $ 12,885
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,522 $ 4,208
Income taxes 597 671
Noncash investing and financing activities:
Transfers from mortgages held for sale to loans $ 3,687 $ --
Transfers from loans held for sale to loans 1,388 1,221
Transfers from loans to foreclosed assets 147 180
-------------------------------------------------------------------------------------------------------------------
5
</TABLE>
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS COMBINATIONS
---------------------
On November 2, 1998, the merger involving Norwest Corporation and Wells Fargo &
Company (the WFC Merger) was completed. Norwest Corporation changed its name to
"Wells Fargo & Company" and Wells Fargo & Company (the former Wells Fargo)
became a wholly-owned subsidiary of Norwest Corporation. Norwest Corporation as
it was before the WFC Merger is referred to as the former Norwest. Wells Fargo &
Company and Subsidiaries is referred to as the Company.
In connection with the WFC Merger, the Company recorded approximately $600
million in restructuring charges in the fourth quarter of 1998. The
restructuring plans are evaluated on a regular basis during the integration
process. The charges included a severance reserve of $250 million associated
with the elimination of about 5% of the Company's positions, most of which has
already occurred or is planned to occur by year-end 2000. This reserve was
determined based on the Company's existing severance plans for involuntary
terminations. Approximately 3,100 employees, totaling approximately $145 million
in severance benefits, had entered the severance process through September 30,
2000. The charges also included approximately $250 million related to
dispositions of leased and owned premises held for remarketing or sale, and $100
million of other costs associated with exiting activities due to the WFC Merger.
Most of the reserves for both premises and other costs were utilized as of
September 30, 2000.
The Company regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of the Company does
not make a public announcement about an acquisition opportunity until a
definitive agreement has been signed.
Transactions completed in the nine months ended September 30, 2000 include:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Method of
(in millions) Date Assets Accounting
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Place Financial Corporation, Farmington, New Mexico January 18 $ 733 Purchase
North County Bancorp, Escondido, California January 27 413 Purchase
Prime Bancshares, Inc., Houston, Texas January 28 1,366 Purchase
Ragen MacKenzie Group Incorporated, Seattle, Washington March 16 901 Purchase
Napa National Bancorp, Napa, California March 17 188 Purchase
Servus Financial Corporation, Herndon, Virginia March 17 168 Purchase
Michigan Financial Corporation, Marquette, Michigan March 30 975 Purchase
Bryan, Pendleton, Swats & McAllister, LLC, Nashville, Tennessee March 31 12 Purchase
Black & Company, Inc., Portland, Oregon May 1 4 Purchase
1st Choice Financial Corp., Greeley, Colorado June 13 483 Purchase
First Commerce Bancshares, Inc., Lincoln, Nebraska June 16 2,868 Purchase
National Bancorp of Alaska, Inc., Anchorage, Alaska July 14 3,518 Purchase
Charter Financial, Inc., New York, New York September 1 532 Purchase
Buffalo National Bancshares, Inc., Buffalo, Minnesota September 28 123 Purchase
-------
$12,284
=======
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
In connection with these transactions, the Company paid cash in the aggregate
amount of $74 million and issued aggregate common shares of 69 million.
At September 30, 2000, excluding the merger with First Security Corporation,
the Company had one pending acquisition, Brenton Banks, Inc., Des Moines,
Iowa, with assets of approximately $2 billion. The Company expects to
complete its acquisition of Brenton Banks before the end of 2000 and expects
to issue about 6 million shares of its common stock in the Brenton Banks
transaction.
On October 25, 2000, the merger involving the Company and First Security
Corporation (the FSCO Merger) was completed, with First Security Corporation
(First Security or FSCO) surviving as a wholly-owned subsidiary of the
Company. The FSCO Merger was accounted for under the pooling of interests
method of accounting and, accordingly, the information included in the
financial statements presents the financial results as if the FSCO Merger had
been in effect for all periods presented. Under the terms of the FSCO Merger
agreement, stockholders of First Security received 0.355 shares of common
stock of the Company for each share of common stock owned. Each outstanding
and unexercised option granted by First Security was converted into an option
to purchase common stock of the Company based on the agreed-upon exchange
ratio. The Company acquired about $20 billion in assets and issued about 70
million shares of its common stock upon consummation of the FSCO Merger.
As a condition to the regulatory approval of the FSCO Merger, the Company was
required to divest 39 stores in Idaho, New Mexico, Nevada and Utah having
aggregate deposits of approximately $1.5 billion. The Company has entered
into agreements to sell these stores. These sales are expected to be
completed in the first quarter of 2001.
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,
2000 and December 31, 1999. 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 1999 Supplemental Annual Report on this Form 8-K.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Shares issued and outstanding Carrying amount (in millions) Adjustable
----------------------------- ---------------------------- dividends rate
SEPT. 30, Dec. 31, SEPT. 30, Dec. 31, ------------------
2000 1999 2000 1999 Minimum Maximum
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Adjustable-Rate Cumulative, Series B
(Liquidation preference $50) 1,468,400 1,500,000 $ 74 $ 75 5.5% 10.5%
6.59%/Adjustable-Rate Noncumulative
Preferred Stock, Series H
(Liquidation preference $50) (1) 4,000,000 4,000,000 200 200 7.0 13.0
2000 ESOP Cumulative Convertible
(Liquidation preference $1,000) 67,101 -- 67 -- 11.5 12.5
1999 ESOP Cumulative Convertible
(Liquidation preference $1,000) 21,506 22,263 21 22 10.30 11.30
1998 ESOP Cumulative Convertible
(Liquidation preference $1,000) 8,131 8,386 8 8 10.75 11.75
1997 ESOP Cumulative Convertible
(Liquidation preference $1,000) 10,542 10,839 10 11 9.50 10.50
1996 ESOP Cumulative Convertible
(Liquidation preference $1,000) 11,711 12,011 12 12 8.50 9.50
1995 ESOP Cumulative Convertible
(Liquidation preference $1,000) 11,785 11,990 12 12 10.00 10.00
ESOP Cumulative Convertible
(Liquidation preference $1,000) 3,656 3,732 4 4 9.0 9.0
Unearned ESOP shares (2) -- -- (143) (73) -- --
$3.15 Cumulative Convertible
Preferred Stock, Series A 8,028 9,000 -- -- -- --
--------- --------- ----- -----
Total 5,610,860 5,578,221 $ 265 $ 271
========= ========= ===== =====
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized dividend rate is 6.59% through October 1, 2001, after which the
rate will become adjustable, subject to the minimum and maximum rates
disclosed.
(2) 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>
-------------------------------------------------------------------------------------------------------------------
Nine months
ended Sept. 30,
----------------------
(in millions, except per share amounts) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 2,898 $ 2,976
Less: Preferred stock dividends 13 26
------- -------
Net income applicable to common stock $ 2,885 $ 2,950
======= =======
EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 2,885 $ 2,950
======= =======
Average common shares outstanding (denominator) 1,695.8 1,717.1
======= =======
Per share $ 1.70 $ 1.72
======= =======
DILUTED EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 2,885 $ 2,950
======= =======
Average common shares outstanding 1,695.8 1,717.1
Add: Stock options 16.9 19.0
Restricted share rights 1.1 1.6
Convertible preferred .1 .1
------- -------
Diluted average common shares outstanding (denominator) 1,713.9 1,737.8
======= =======
Per share $ 1.68 $ 1.70
======= =======
-------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
4. Operating segments
------------------
The Company has identified four lines of business for the purposes of management
reporting: Community Banking, Wholesale Banking, Wells Fargo Home Mortgage
(formerly Norwest Mortgage) and Wells Fargo Financial (formerly Norwest
Financial). The results are 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 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 periods 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. Community Banking 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 WELLS FARGO FUNDS-SM-, a family 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, Small Business
Administration financing, cash management, payroll services, retirement plans,
medical savings accounts and credit and debit card processing. Consumer and
business deposit products include checking accounts, savings deposits, market
rate accounts, Individual Retirement Accounts (IRAs) and time deposits.
Community Banking provides access to customers through a wide range of channels,
which encompass a network of traditional banking stores, banking centers,
in-store banking centers, business centers and ATMs. Additionally, 24-hour
telephone service is provided by PHONEBANK-SM- centers and the National Business
Banking Center. Online banking includes the Wells Fargo Internet Services Group
and services such as BUSINESS GATEWAY-Registered Trademark-, 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. Wholesale Banking 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, treasury management
and investment management. Wholesale Banking includes the majority ownership
interest in the Wells Fargo HSBC Trade Bank, which provides trade financing,
letters of credit
10
<PAGE>
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 for American-made products). Wholesale Banking 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
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, real estate brokerage services and commercial
real estate loan servicing.
WELLS FARGO HOME 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.
WELLS FARGO 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 consumer finance customers through
two credit card banks. Wells Fargo Financial also provides lease and other
commercial financing and provides information services to the consumer finance
industry.
THE RECONCILIATION COLUMN includes goodwill and nonqualifying 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 consolidated level.
11
<PAGE>
The following table provides the results for the Company's four major operating
segments.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
(income/expense in millions,
average balances in billions) Community Wholesale Wells Fargo
Banking Banking Home Mortgage
-----------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
Net interest income (1) $5,766 $5,423 $1,243 $1,030 $ 82 $152
Provision for loan losses 658 503 88 84 3 10
Noninterest income 4,080 3,619 918 884 923 955
Noninterest expense 5,915 5,180 968 834 680 780
------ ------ ------ ------ ---- ----
Income (loss) before income
tax expense (benefit) 3,273 3,359 1,105 996 322 317
Income tax expense (benefit) (2) 1,188 1,157 413 370 121 117
------ ------ ------ ------ ---- ----
Net income (loss) $2,085 $2,202 $ 692 $ 626 $201 $200
====== ====== ====== ====== ==== ====
Average loans $ 87 $ 77 $ 40 $ 34 $ 5 $ 1
Average assets 156 140 49 41 24 24
Average core deposits 129 125 10 9 4 5
----------------------------------------------------------------------------------------------------------------------
</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. (Wells Fargo Home Mortgage's net interest
income was composed of interest revenue of $692 million and $674 million
for the first nine months of 2000 and 1999, respectively, and interest
expense of $610 million and $522 million for the first nine months of 2000
and 1999, 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.
12
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Recon- Consoli-
Wells Fargo ciliation dated
Financial Column (3) Company
----------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C>
$1,054 $977 $ (74) $ (73) $8,071 $7,509
227 213 -- -- 976 810
223 239 88 75 6,232 5,772
743 712 307 250 8,613 7,756
------ ---- ----- ----- ------ ------
307 291 (293) (248) 4,714 4,715
115 107 (21) (12) 1,816 1,739
------ ---- ----- ----- ------ ------
$ 192 $184 $(272) $(236) $2,898 $2,976
====== ==== ===== ===== ====== ======
$ 10 $ 10 $ -- $ -- $ 142 $ 122
12 11 6 7 247 223
-- -- -- -- 143 139
-----------------------------------------------------------------------
</TABLE>
(3) 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 $38 million and $63 million; and unallocated items of $(24)
million and $(61) million for the first nine months of 2000 and 1999,
respectively. Net income includes Treasury activities of $23 million and
$38 million; and unallocated items of $(295) million and $(274) million
for the first nine months of 2000 and 1999, respectively. The material
items in the reconciliation column related to noninterest expense include
goodwill and nonqualifying CDI amortization of $270 million and $251
million for the first nine months of 2000 and 1999, respectively. The
material items in the reconcilation column related to average assets
include goodwill and nonqualifying CDI of $6 billion and $7 billion for
the first nine months of 2000 and 1999, respectively.
13
<PAGE>
5. Mortgage Banking Activities
---------------------------
Mortgage banking activities include Wells Fargo Home Mortgage and mortgage
banking activities in other operating segments.
The managed servicing portfolio totaled $463 billion at September 30, 2000, $308
billion at December 31, 1999 and $301 billion at September 30, 1999, which
included loans subserviced for others of $93 billion, $9 billion and $10
billion, respectively. Mortgage loans serviced for others, which are included in
the managed servicing portfolio, are not included in the accompanying
consolidated balance sheet.
The following table summarizes the changes in capitalized mortgage loan
servicing rights:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Nine months
ended Sept. 30,
-------------------------
(in millions) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $4,652 $3,294
Originations 497 837
Purchases 1,116 522
Sales (36) (149)
Amortization (390) (626)
Other (principally hedge activity) (97) 620
------ ------
Balance, end of period $5,742 $4,498
====== ======
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of capitalized mortgage servicing rights included in the
consolidated balance sheet at September 30, 2000 was approximately $5.9 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>
-------------------------------------------------------------------------------------------------------------------
Nine months ended
------------------------
SEPT. 30, Sept. 30, %
(in millions) 2000 1999 Change
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE PERIOD
Net income $ 2,898 $ 2,976 (3)%
Net income applicable to common stock 2,885 2,950 (2)
Earnings per common share $1.70 $1.72 (1)
Diluted earnings per common share 1.68 1.70 (1)
Dividends declared per common share .66 .585 13
Average common shares outstanding 1,695.8 1,717.1 (1)
Diluted average common shares outstanding 1,713.9 1,737.8 (1)
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.57% 1.79% (12)
Net income applicable to common stock to
average common stockholders' equity (ROE) 16.00 17.52 (9)
Total revenue $ 14,303 $ 13,281 8
Efficiency ratio (1) 60.2% 58.4% 3
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION AND BALANCES
("CASH")
Net income applicable to common stock $ 3,355 $ 3,360 --
Earnings per common share 1.98 1.96 1
Diluted earnings per common share 1.96 1.93 2
ROA 1.90% 2.12% (10)
ROE 30.53 32.83 (7)
Efficiency ratio 56.6 54.9 3
COMMON STOCK PRICE
High $ 47.75 $ 45.31 5
Low 31.00 32.13 (4)
Period end 45.94 39.63 16
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The efficiency ratio is defined as noninterest expense divided by the
total revenue (net interest income and noninterest income).
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, %
(in millions) 2000 1999 change
-------------------------------------------------------------------------------------------------------------------
AT PERIOD END
<S> <C> <C> <C>
Tier 1 capital $ 15,628 $ 15,010 4%
Total capital 23,896 20,512 16
Capital ratios
Common stockholders' equity to assets 10.16% 9.79% 4
Stockholders' equity to assets 10.26 9.90 4
Risk-based capital
Tier 1 capital 7.29 8.00 (9)
Total capital 11.15 10.93 2
Leverage 6.40 6.76 (5)
Book value per common share $ 15.53 $ 13.91 12
-------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
OVERVIEW
--------
Wells Fargo & Company is a $261 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 ranks sixth in assets at September
30, 2000 among U.S. bank holding companies. In this Supplemental Quarterly
Report, Wells Fargo & Company and Subsidiaries is referred to as the Company and
Wells Fargo & Company alone is referred to as the Parent.
On October 25, 2000, the merger involving the Company and First Security
Corporation (the FSCO Merger) was completed, with First Security Corporation
(First Security or FSCO) surviving as a wholly-owned subsidiary of the
Company. The FSCO Merger was accounted for under the pooling of interests
method of accounting and, accordingly, the information included in the
financial review presents the financial results as if the FSCO Merger had
been in effect for all periods presented.
The Company expects to incur merger and integration charges related to the FSCO
Merger of approximately $375 million in the fourth quarter of 2000 and into
2001. The Company expects that, excluding the impact of the pooling of interests
method of accounting and the results of First Security for the nine months ended
September 30, 2000, it will meet its diluted cash earnings per share target of
$2.91 for the full year 2000.
As a condition to the regulatory approval of the FSCO Merger, the Company was
required to divest 39 stores in Idaho, New Mexico, Nevada and Utah having
aggregate deposits of approximately $1.5 billion. The Company has entered into
agreements to sell these stores. These sales are expected to be completed in the
first quarter of 2001.
On November 2, 1998, the merger involving Norwest Corporation and Wells Fargo &
Company (the WFC Merger) was completed. Norwest Corporation changed its name to
"Wells Fargo & Company" and Wells Fargo & Company (the former Wells Fargo)
became a wholly-owned subsidiary of Norwest Corporation. Norwest Corporation as
it was before the WFC Merger is referred to as the former Norwest. The WFC
Merger was accounted for under the pooling of interests method of accounting.
Certain amounts in the financial review for prior quarters have been
reclassified to conform with the current financial statement presentation.
Net income for the first nine months of 2000 was $2,898 million, compared with
$2,976 million for the first nine months of 1999. Diluted earnings per common
share for the first nine months of 2000 were $1.68, compared with $1.70 for the
first nine months of 1999.
Return on average assets (ROA) was 1.57% in the first nine months of 2000,
compared with 1.79% in the same period of 1999. Return on average common equity
(ROE) was 16.00% in the first nine months of 2000, compared with 17.52% in the
same period of 1999.
Diluted earnings before the amortization of goodwill and nonqualifying core
deposit intangible ("cash" earnings) in the first nine months of 2000 were $1.96
per common share, compared
16
<PAGE>
with $1.93 per common share in the same period of 1999. On the same basis, ROA
was 1.90% in the first nine months of 2000, compared with 2.12% in the same
period of 1999; ROE was 30.53% in the first nine months of 2000, compared with
32.83% in the same period of 1999.
Net interest income on a taxable-equivalent basis was $8,126 million for the
first nine months of 2000, compared with $7,562 million for the same period of
1999. The Company's net interest margin was 5.36% for the first nine months of
2000, compared with 5.47% for the same period of 1999.
Noninterest income was $6,232 million for the first nine months of 2000,
compared with $5,772 million for the same period of 1999.
Noninterest expense totaled $8,613 million for the first nine months of 2000,
compared with $7,756 million for the same period of 1999. For the first nine
months of 2000, the efficiency ratio was 60.2%, compared with 58.4% for the same
period of 1999.
The provision for loan losses was $976 million in the first nine months of
2000, compared with $810 million in the same period of 1999. Of the $166
million increase, $44 million covered higher charge-offs during the first
nine months of 2000. The remaining $122 million incremental provision
increased the overall allowance for loan losses. These additions to the
allowance are consistent with the growth in the Company's loan portfolio, and
its higher levels of non-performing assets. During the first nine months of
2000, net charge-offs were $867 million, or .81% of average total loans
(annualized), compared with $823 million, or .90%, during the first nine
months of 1999. The allowance for loan losses was $3,665 million, or 2.38% of
total loans, at September 30, 2000, compared with $3,344 million, or 2.51%,
at December 31, 1999 and $3,341 million, or 2.60%, at September 30, 1999.
At September 30, 2000, total nonaccrual and restructured loans were $965 million
or .6% of total loans, compared with $728 million, or .5%, at December 31, 1999.
Foreclosed assets amounted to $134 million at September 30, 2000 and $161
million at December 31, 1999.
At September 30, 2000, the ratio of common stockholders' equity to total assets
was 10.16%, compared with 9.79% at December 31, 1999. The Company's total
risk-based capital (RBC) ratio at September 30, 2000 was 11.15% and its Tier 1
RBC ratio was 7.29%, exceeding the minimum regulatory guidelines of 8% and 4%,
respectively, for bank holding companies. The Company's ratios at December 31,
1999 were 10.93% and 8.00%, respectively. The Company's leverage ratio was 6.40%
at September 30, 2000 and 6.76% at December 31, 1999, exceeding the minimum
regulatory guideline of 3% for bank holding companies.
17
<PAGE>
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133 (FAS 133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
In July 1999, the FASB issued Statement No. 137, DEFERRAL OF THE EFFECTIVE DATE
OF FASB STATEMENT NO. 133, which deferred the effective date of FAS 133 to no
later than January 1, 2001 for the Company's financial statements. FAS 133
requires companies to record derivatives on the balance sheet 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 of assets or liabilities or cash flows from forecasted
transactions. In June 2000, the FASB issued Statement No. 138, ACCOUNTING FOR
CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, an amendment of
FASB Statement No. 133. The Company does not expect to implement FAS 133 before
January 1, 2001 and is in the process of completing the complex analysis
required to determine the impact on its financial statements.
In September 2000, the FASB issued Statement No. 140 (FAS 140), ACCOUNTING FOR
THE TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES, which replaces FAS 125 (of the same title). FAS 140 revises certain
standards in the accounting for securitizations and other transfers of financial
assets and collateral, and requires some disclosures relating to securitization
transactions and collateral, but it carries over most of FAS 125's provisions.
The collateral and disclosure provisions of FAS 140 are effective for year-end
2000 financial statements. The other provisions of this Statement are effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001; the Company has not yet completed
the analysis to determine the impact of the revised provisions on the financial
statements that will be issued.
FACTORS THAT MAY AFFECT FUTURE RESULTS
--------------------------------------
This document and other documents filed by the Company with the 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. Forward-looking statements might 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, including pending acquisition transactions;
- Forecasts of future economic performance; and
- Descriptions of assumptions underlying or relating to any of the
foregoing.
18
<PAGE>
The forward-looking statements in this document include the statement under
"Overview" above related to the Company's expectations about meeting its diluted
cash earnings per share target of $2.91 for the full year 2000 excluding the
impact of the pooling of interests method of accounting for the FSCO Merger and
the results of First Security on the Company's results for the nine months ended
September 30, 2000.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. They often include words such as
"believe," "expect," "anticipate," "intend," "plan," "estimate," or words of
similar meaning, or future or conditional verbs such as "will," "would,"
"should," "could" or "may."
Forward-looking statements give the Company's expectations or predictions of
future conditions, events or results. They are not guarantees of future
performance. By their nature, forward-looking statements are subject to risks
and uncertainties. There are a number of factors--many of which are beyond the
Company's control--that could cause actual conditions, events or results to
differ significantly from those described in the forward-looking statements.
Some of these factors are described below. Other factors, such as credit,
market, operational, liquidity, interest rate, and other risks, are described
elsewhere in this report. Factors relating to the regulation and supervision
of the Company are also described or incorporated in the Company's 1999
Supplemental Annual Report on this Form 8-K. There are other factors besides
those described or incorporated in this report or in the Form 8-K 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, in general, 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.
19
<PAGE>
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 fewer regulatory constraints and
lower cost structures.
The financial services industry is likely to become even more competitive as
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. Furthermore, recent legislative changes (see
"Legislation" below) will increase competition 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 can also affect the value of financial instruments
held by the Company. Those policies also determine to a significant extent the
cost to the Company of funds for lending and investing. Changes in those
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 those deposits) and decreases in transactions that generate fee
income.
LEGISLATION. The Gramm-Leach-Bliley Act (the 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
20
<PAGE>
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 conducts business.
MERGER INVOLVING THE FORMER NORWEST AND THE FORMER WELLS FARGO. One or more
factors relating to the WFC Merger could adversely impact the Company's business
and earnings and in particular reduce the expected benefits of the WFC Merger to
the Company. These factors include the following:
- expected cost savings and/or potential revenue enhancements from the WFC
Merger might not be fully realized or realized within the expected time
frame;
- deposit attrition (run-off), customer loss and/or revenue loss following
the WFC Merger might be greater than expected; and
- costs or difficulties related to the integration of the businesses of the
two companies might be greater than expected.
OTHER MERGERS AND ACQUISITIONS. The Company expands its business in part by
acquiring banks and other companies engaged in financial services. The Company
continues to explore opportunities to acquire banking institutions and other
companies. 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 WFC 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.
EARNINGS PERFORMANCE
--------------------
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $8,126 million in the
first nine months of 2000, compared with $7,562 million in the first nine months
of 1999. The Company's net interest margin was 5.36% in the first nine months of
2000, compared with 5.47% in the first nine months of 1999. The decrease in the
margin from the first nine months of 1999 was mostly due to the impact of
funding strong loan growth with higher costing short and long-term borrowings,
partially offset by improved yields within the securities available for sale
portfolio from the restructuring that occurred during the fourth quarter of 1999
and the first nine months of 2000.
21
<PAGE>
Individual components of net interest income and the net interest margin are
presented in the rate/yield table on page 23.
Interest income included hedging expense of $18 million in the nine months ended
September 30, 2000, compared with hedging income of $160 million in the nine
months ended September 30, 1999. Interest expense included hedging expense of
$29 million in the nine months ended September 30, 2000, compared with hedging
income of $78 million in the same period of 1999.
22
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
-------------------------------------------------------------
2000 1999
--------------------------- ----------------------------
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 $ 2,452 6.17% $ 113 $ 1,509 5.14% $ 58
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies 3,475 6.08 164 6,141 5.50 258
Securities of U.S. states and political subdivisions 2,113 7.85 126 2,124 8.13 125
Mortgage-backed securities:
Federal agencies 26,433 7.17 1,448 23,488 6.75 1,187
Private collateralized mortgage obligations 2,730 7.22 153 4,063 6.74 207
-------- ------ -------- ------
Total mortgage-backed securities 29,163 7.18 1,601 27,551 6.75 1,394
Other debt securities (4) 5,433 7.67 197 3,158 7.44 146
-------- ------ -------- ------
Total debt securities available for sale (4) 40,184 7.16 2,088 38,974 6.67 1,923
Loans held for sale (3) 10,333 7.90 618 14,376 6.92 750
Mortgages held for sale (3) 5,085 8.48 322 5,258 7.22 284
Loans:
Commercial 44,270 9.37 3,106 38,431 8.56 2,461
Real estate 1-4 family first mortgage 15,705 7.94 935 13,264 7.74 770
Other real estate mortgage 22,143 9.04 1,498 18,460 8.80 1,215
Real estate construction 6,718 10.02 504 5,030 9.57 360
Consumer:
Real estate 1-4 family junior lien mortgage 14,547 10.34 1,127 11,346 9.90 841
Credit card 5,769 14.40 623 5,713 13.81 591
Other revolving credit and monthly payment 21,573 11.99 1,938 19,303 11.76 1,701
-------- ------ -------- ------
Total consumer 41,889 11.75 3,688 36,362 11.50 3,133
Lease financing 9,767 7.73 566 8,627 7.76 502
Foreign 1,633 21.14 259 1,548 20.58 239
-------- ------ -------- ------
Total loans (5) 142,125 9.91 10,556 121,722 9.52 8,680
Other 3,257 6.07 149 2,972 5.28 117
-------- ------ -------- ------
Total earning assets $203,436 9.14 13,846 $ 184,811 8.55 11,812
======== ------ ======== ------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 3,344 1.74 44 $ 3,140 .95 22
Market rate and other savings 62,964 2.73 1,289 60,733 2.31 1,048
Savings certificates 29,826 5.26 1,175 30,449 4.87 1,108
Other time deposits 4,271 5.58 178 3,998 4.94 147
Deposits in foreign offices 5,823 6.17 269 1,461 4.56 50
-------- ------ ------- ------
Total interest-bearing deposits 106,228 3.72 2,955 99,781 3.18 2,375
Short-term borrowings 28,547 6.13 1,311 21,760 4.81 783
Long-term debt 28,216 6.61 1,399 23,775 5.82 1,038
Guaranteed preferred beneficial interests in Company's
subordinated debentures 935 7.90 55 935 7.70 54
-------- ------ ------- ------
Total interest-bearing liabilities 163,926 4.66 5,720 146,251 3.88 4,250
Portion of noninterest-bearing funding sources 39,510 -- -- 38,560 -- --
-------- ------ ------- ------
Total funding sources $203,436 3.78 5,720 $ 184,811 3.08 4,250
======== ------ ======== ------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (6) 5.36% $8,126 5.47% $ 7,562
====== ====== ======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 12,883 $ 11,975
Goodwill 8,675 7,993
Other 21,910 18,099
-------- -------
Total noninterest-earning assets $ 43,468 $ 38,067
======== ========
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 47,628 $ 45,131
Other liabilities 10,990 8,523
Preferred stockholders' equity 267 460
Common stockholders' equity 24,093 22,513
Noninterest-bearing funding sources used to
fund earning assets (39,510) (38,560)
-------- --------
Net noninterest-bearing funding sources $ 43,468 $ 38,067
======== ========
TOTAL ASSETS $246,904 $ 222,878
======== ========
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 9.15% and 7.87% for the nine
months ended September 30, 2000 and 1999, respectively. The average
three-month London Interbank Offered Rate (LIBOR) was 6.46% and 5.17% for
the nine months ended September 30, 2000 and 1999, 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) Includes certain preferred securities.
(5) Nonaccrual loans and related income are included in their respective loan
categories.
(6) 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.
23
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Nine months
ended Sept. 30,
----------------- %
(in millions) 2000 1999 Change
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges on deposit accounts $1,267 $ 1,162 9%
Trust and investment fees:
Asset management and custody fees 539 485 11
Mutual fund and annuity sales fees 563 434 30
All other 101 89 13
------ ------
Total trust and investment fees 1,203 1,008 19
Credit card fees 418 418 --
Other fees:
Cash network fees 234 209 12
Charges and fees on loans 252 241 5
All other 449 362 24
------ ------
Total other fees 935 812 15
Mortgage banking:
Origination and other closing fees 258 350 (26)
Servicing fees, net of amortization 500 223 124
Net (losses) gains on sales of mortgages (16) 142 --
All other 268 386 (31)
------ ------
Total mortgage banking 1,010 1,101 (8)
Insurance 293 308 (5)
Net venture capital gains 1,740 287 506
Net (losses) gains on securities available for sale (981) 34 --
Income from equity investments accounted
for by the:
Cost method 145 99 46
Equity method 88 55 60
Net (losses) gains on sales of loans (149) 62 --
Net gains on dispositions of operations 8 102 (92)
All other 255 324 (21)
------ ------
Total $6,232 $5,772 8%
====== ====== =====
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in mutual fund fees for the first nine months of 2000 was due to
the overall growth in mutual fund assets. The Company managed mutual funds
with $67 billion of assets at September 30, 2000, compared with $56 billion
at September 30, 1999. The Company also managed or maintained personal trust,
employee benefit trust and agency assets of approximately $461 billion and
$414 billion at September 30, 2000 and 1999, respectively.
The increase in net venture capital gains during the first nine months of 2000
was due to net gains (including other-than-temporary impairment of marketable
and nonmarketable securities) on various venture capital securities, including a
$560 million gain that was recognized during the first quarter on the Company's
investment in Siara Systems. Gains from venture capital securities are generally
dependent on the timing of holdings becoming publicly traded and subsequent
market conditions, causing venture capital gains to be unpredictable in nature.
24
<PAGE>
The net losses on securities available for sale during the first nine months of
2000 were predominantly due to the restructuring of the portfolio.
A significant portion of the net losses on sales of loans was due to losses on
sales of loans and on securitizations.
"All other" noninterest income in the first nine months of 2000 included
writedowns of auto lease residuals of about $160 million due to continued
deterioration in the used car market, compared with $36 million in the first
nine months of 1999. In the third quarter of 2000, the Company entered into a
residual loss insurance policy that covers substantially all additional declines
in residual values for the leases in the portfolio as of June 30, 2000.
25
<PAGE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Nine months
ended Sept. 30,
------------------ %
(in millions) 2000 1999 CHANGE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $2,732 $2,440 12%
Incentive compensation 624 479 30
Employee benefits 741 686 8
Equipment 640 634 1
Net occupancy 707 612 16
Goodwill 389 323 20
Core deposit intangible:
Nonqualifying (1) 131 139 (6)
Qualifying 11 17 (35)
Net gains on dispositions of
premises and equipment (60) (5) --
Contract services 364 326 12
Outside professional services 297 249 19
Outside data processing 245 229 7
Telecommunications 223 210 6
Travel and entertainment 199 183 9
Advertising and promotion 223 172 30
Postage 185 181 2
Stationery and supplies 159 138 15
Insurance 126 127 (1)
Operating losses 122 97 26
Security 72 70 3
All other 483 449 8
------ ------ ----
Total $8,613 $7,756 11%
====== ====== ====
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents amortization of core deposit intangible acquired after February
1992 that is subtracted from stockholders' equity in computing regulatory
capital for bank holding companies.
Incentive compensation included a $48 million non-cash compensation charge
resulting from the accelerated vesting and activation of limited stock
appreciation rights under the First Security Comprehensive Management Incentive
Plan, which was triggered by stockholder approval of the FSCO Merger.
26
<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 carried at fair value. There were no securities
classified as held to maturity at the end of the periods presented.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
2000 1999
-------------------- -------------------
ESTIMATED Estimated
FAIR fair
(in millions) COST VALUE Cost Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities of U.S. Treasury and
federal agencies $ 3,109 $ 3,141 $ 6,426 $ 6,091
Securities of U.S. states and
political subdivisions 2,174 2,192 2,352 2,367
Mortgage-backed securities:
Federal agencies 22,703 22,834 26,239 25,872
Private collateralized mortgage obligations (1) 1,326 1,302 3,747 3,653
------- ------- ------- -------
Total mortgage-backed securities 24,029 24,136 29,986 29,525
Other 2,706 2,632 2,544 2,438
------- ------- ------- -------
Total debt securities 32,018 32,101 41,308 40,421
Marketable equity securities 2,690 5,206 1,526 3,490
------- ------- ------- -------
Total $34,708 $37,307 $42,834 $43,911
======= ======= ======= =======
-------------------------------------------------------------------------------------------------------------------
</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 estimated unrealized net gain
on securities available for sale. The estimated unrealized net gain on
securities available for sale is reported on an after-tax basis as a component
of cumulative other comprehensive income.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
------------ -----------
(in millions) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Estimated unrealized gross gains $2,903 $2,185
Estimated unrealized gross losses (304) (1,108)
------ ------
Estimated unrealized net gain $2,599 $1,077
====== ======
-------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
The following table provides the components of the realized net loss on the
sales of securities from the securities available for sale portfolio. (Realized
gains on marketable equity securities from venture capital investments are
reported as net venture capital gains.)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Nine months
ended Sept. 30,
--------------
(in millions) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Realized gross gains $ 54 $67
Realized gross losses (1,035) (33)
------- ------
Realized net (losses) gains $ (981) $34
======= ======
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LOAN PORTFOLIO
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 2000 1999 % Change
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial (1) $ 47,300 $ 41,671 14%
Real estate 1-4 family first mortgage 19,627 13,506 45
Other real estate mortgage (2) 23,249 20,899 11
Real estate construction 7,457 6,067 23
Consumer:
Real estate 1-4 family junior lien mortgage 16,322 12,949 26
Credit card 6,226 5,805 7
Other revolving credit and monthly payment 22,343 20,617 8
-------- --------
Total consumer 44,891 39,371 14
Lease financing 10,170 9,890 3
Foreign 1,611 1,600 1
-------- --------
Total loans (net of unearned income,
including net deferred loan fees,
of $3,502 and $3,378) $154,305 $133,004 16%
======== ======== ====
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes agricultural loans (loans to finance agricultural production and
other loans to farmers) of $3,661 million and $3,404 million at September
30, 2000 and December 31, 1999, respectively.
(2) Includes agricultural loans that are secured by real estate of $1,098
million and $1,106 million at September 30, 2000 and December 31, 1999,
respectively.
28
<PAGE>
<TABLE>
<CAPTION>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 2000 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans (2)(3) 963 724
Restructured loans 2 4
------ ----
Nonaccrual and restructured loans 965 728
As a percentage of total loans .6% .5%
Foreclosed assets 134 161
Real estate investments (4) 28 33
------ ----
Total nonaccrual and restructured loans
and other assets $1,127 $922
====== ====
------------------------------------------------------------------------------------------------------------------------
</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 $40 million and $49 million at
September 30, 2000 and December 31, 1999, respectively, and agricultural
loans secured by real estate of $11 million and $17 million at September
30, 2000 and December 31, 1999, respectively.
(3) Of the total nonaccrual loans, $531 million and $372 million at September
30, 2000 and December 31, 1999, respectively, were considered impaired
under FAS 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN.
(4) Represents the amount of real estate investments (contingent interest
loans accounted for as investments) that would be classified as nonaccrual
if such assets were recorded as loans. Real estate investments totaled $72
million, $89 million and $108 million at September 30, 2000 and December
31, 1999, respectively.
In accordance with FAS 114, the table below shows the recorded investment in
impaired loans and the related methodology used to measure impairment for the
periods presented:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impairment measurement based on:
Collateral value method $190 $188
Discounted cash flow method 162 74
Historical loss factors 181 114
---- ----
Total (1) $533 $376
==== ====
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $277 million and $210 million of impaired loans with a related
FAS 114 allowance of $62 million and $48 million at September 30, 2000 and
December 31, 1999, respectively.
The average recorded investment in impaired loans was $428 million and $375
million during the first nine months of 2000 and 1999, respectively. Total
interest income recognized on impaired loans was $4 million and $6 million
during the first nine months of 2000 and 1999, respectively, most of which was
recorded using the cash method.
29
<PAGE>
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Loans contractually past due 90 days or more as to interest or principal, but
not included in the nonaccrual or restructured categories totaled $547 million
and $433 million at September 30, 2000 and December 31, 1999, respectively. All
loans in this category are both well-secured and in the process of collection or
are real estate 1-4 family first mortgage loans or consumer loans that are
exempt under regulatory rules from being classified as nonaccrual.
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 totals disclosed above.
30
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
------------------------------
(in millions) 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF PERIOD $ 3,344 $ 3,307
Allowances related to business combinations, net 212 47
Provision for loan losses 976 810
Loan charge-offs:
Commercial (314) (296)
Real estate 1-4 family first mortgage (12) (23)
Other real estate mortgage (26) (20)
Real estate construction (7) (1)
Consumer:
Real estate 1-4 family junior lien mortgage (23) (22)
Credit card (264) (311)
Other revolving credit and monthly payment (456) (411)
------- -------
Total consumer (743) (744)
Lease financing (31) (30)
Foreign (65) (57)
------- -------
Total loan charge-offs (1,198) (1,171)
------- -------
Loan recoveries:
Commercial 71 64
Real estate 1-4 family first mortgage 3 6
Other real estate mortgage 10 33
Real estate construction 3 4
Consumer:
Real estate 1-4 family junior lien mortgage 10 10
Credit card 29 38
Other revolving credit and monthly payment 170 173
------- -------
Total consumer 209 221
Lease financing 9 9
Foreign 26 11
------- -------
Total loan recoveries 331 348
------- -------
Total net loan charge-offs (867) (823)
------- -------
BALANCE, END OF PERIOD $ 3,665 $ 3,341
======= =======
Total net loan charge-offs as a percentage
of average loans (annualized) .81% .90%
======= =======
Allowance as a percentage of total loans 2.38% 2.60%
======= =======
------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
INTEREST RECEIVABLE AND OTHER ASSETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonmarketable equity investments $ 4,038 $ 3,525
Trading assets 2,390 2,690
Government National Mortgage Association
(GNMA) pool buy outs 1,400 1,516
Interest receivable 1,491 1,286
Certain identifiable intangible assets 229 264
Interest-earning deposits 103 199
Foreclosed assets 134 161
Due from customers on acceptances 110 103
Other 9,988 6,808
---------- ----------
Total interest receivable and other assets $19,883 $16,552
========== ==========
-------------------------------------------------------------------------------------------------------------------
</TABLE>
GNMA pool buy outs are 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.
A major portion of the increase in "Other" was due to an increase in security
trades pending settlement.
DEPOSITS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31,
(in millions) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing $ 51,404 $ 45,520
Interest-bearing checking 2,718 3,556
Market rate and other savings 65,137 60,339
Savings certificates 30,818 28,832
-------- --------
Core deposits 150,077 138,247
Other time deposits 4,739 3,757
Deposits in foreign offices 9,457 3,914
-------- --------
Total deposits $164,273 $145,918
======== ========
-------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<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, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2000 December 31, 1999
----------------------------------------- --------------------------------------
NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated
CONTRACTUAL RISK NET FAIR contractual risk net fair
(in millions) AMOUNT AMOUNT (2) VALUE amount amount (2) value
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT HEDGES
Interest rate contracts:
Swaps (1) $31,474 $163 $(36) $32,846 $109 $(244)
Futures 51,269 -- -- 50,885 -- (2)
Floors and caps (1) 29,623 70 65 41,142 110 110
Options (1)(3) 13,187 34 30 11,940 22 43
Forwards 26,318 38 (51) 22,528 108 41
Foreign exchange contracts:
Forwards (1) -- -- -- 138 1 --
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Swaps (1) 39,976 253 (57) 21,716 158 (10)
Futures 20,579 -- -- 22,839 -- --
Floors and caps purchased (1) 10,881 83 83 6,149 52 52
Floors and caps written 11,579 -- (69) 5,823 -- (53)
Options purchased (1) 1,015 -- -- 741 30 30
Options written -- -- -- 1,101 -- (51)
Forwards (1) -- -- -- 164 6 1
Commoditiy contracts:
Swaps (1) 113 42 1 116 10 --
Floors and caps purchased (1) 71 12 12 30 2 2
Floors and caps written 71 -- (12) 30 -- (2)
Foreign exchange contracts:
Forwards (1) 4,651 91 19 4,416 62 30
Options purchased (1) 68 2 2 41 -- --
Options written 65 -- (2) 42 -- (1)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company anticipates performance by substantially all of the
counterparties for these or the underlying financial instruments.
(2) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.
(3) As of September 30, 2000, the majority of option contracts were options on
futures contracts which are exchange traded for which the exchange assumes
the counterparty credit risk.
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.
33
<PAGE>
Liquidity for the Company is provided by interest income, deposit-raising
activities, potential disposition of readily marketable assets and through its
ability to raise funds in a variety of domestic and international money and
capital markets. The Company accesses the capital markets for long-term funding
through the issuance of registered debt and private placements.
In June 1999, the Parent filed a shelf registration statement with the SEC under
which the Company may issue up to $10 billion in debt and equity securities,
excluding common stock, except for common stock issuable upon the exercise or
conversion of debt and equity securities. That registration statement, 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. Under those registration
statements, the Company had issued a total of $8.85 billion in debt securities
as of September 30, 2000. In November 2000, the Company issued an additional
$600 million in debt securities under those registration statements. Proceeds
from the issuance of the debt securities listed above were, and with respect to
any such securities issued in the future are, expected to be used for general
corporate purposes.
The Parent had a new shelf registration statement declared effective by the SEC
on October 16, 2000, under which the Company may issue $10 billion in debt and
equity securities, excluding common stock, except for common stock issuable upon
the exercise or conversion of debt and equity securities. The proceeds from the
issuances will be used for general corporate purposes.
In April 1999, Wells Fargo Financial, Inc. (WFFI) filed a shelf registration
statement with the SEC, under which WFFI may issue up to $2 billion in senior or
subordinated debt securities. As of September 30, 2000, WFFI had issued a total
of $1.85 billion in debt securities under that registration statement. Also in
1999, a subsidiary of WFFI filed a shelf registration statement with the
Canadian provincial securities authorities for the issuance of up to $1 billion
(Canadian) in debt securities, and had issued $515 million (Canadian) in debt
securities from that registration statement as of September 30, 2000.
Effective April 18, 2000, WFFI filed another shelf registration statement with
the SEC, under which WFFI may issue up to $3 billion in senior debt securities.
As of September 30, 2000, $600 million in debt securities had been issued.
The Company repurchases common shares in the open market under a systematic plan
to meet the common stock issuance requirements of the Company's benefit plans
and for common stock issuance requirements, including acquisitions accounted for
as purchases. In February of 2000, the Board of Directors authorized the
repurchase of up to 81 million additional shares of the Company's outstanding
common stock. In September of 2000, the Board of Directors authorized an
amendment reducing the February 2000 authorization to a total of 30 million
shares. As of September 30, 2000, the total remaining common stock repurchase
authority was approximately 13 million shares.
34
<PAGE>
In October 2000, the Board of Directors approved an increase in the Company's
quarterly common stock dividend to 24 cents per share from 22 cents,
representing a 9% increase in the quarterly dividend rate.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
There have been no material changes in market risk exposures that affect the
quantitative or qualitative disclosures presented in the Company's Supplemental
Annual Report on this Form 8-K for the year ended December 31, 1999.
35
