<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, 2000
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.
<TABLE>
<CAPTION>
Shares Outstanding
October 31, 2000
------------------
<S> <C>
Common stock, $1-2/3 par value 1,709,197,341
</TABLE>
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
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
Factors that May Affect Future Results............................. 19
Operating Segment Results.......................................... 22
Earnings Performance............................................... 24
Net Interest Income.............................................. 24
Noninterest Income............................................... 28
Noninterest Expense.............................................. 29
Income Taxes..................................................... 29
Earnings/Ratios Excluding Goodwill and Nonqualifying CDI......... 30
Balance Sheet Analysis............................................. 31
Securities Available for Sale.................................... 31
Loan Portfolio................................................... 33
Nonaccrual and Restructured Loans and Other Assets............... 33
Loans 90 Days Past Due and Still Accruing..................... 36
Allowance for Loan Losses........................................ 37
Interest Receivable and Other Assets............................. 38
Deposits......................................................... 39
Capital Adequacy/Ratios.......................................... 39
Derivative Financial Instruments................................. 40
Liquidity and Capital Management................................. 41
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 43
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 45
SIGNATURE.................................................................... 47
</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 10-Q. 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 Annual Report on Form 10-K.
EXPLANATORY NOTE
Subsequent to quarter end, Wells Fargo & Company and First Security Corporation
completed their previously announced merger (the FSCO Merger). This merger was
accounted for as a pooling of interests.
The FSCO Merger was consummated after September 30, 2000 and this report on
Form 10-Q does not give effect to that merger. This report presents for the
periods covered the results of Wells Fargo & Company as it was before the
FSCO Merger.
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) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Securities available for sale $ 580 $ 586 $ 1,798 $ 1,612
Mortgages held for sale 224 198 566 671
Loans held for sale 92 80 318 280
Loans 3,462 2,725 9,593 7,912
Other interest income 91 52 245 150
-------- -------- -------- --------
Total interest income 4,449 3,641 12,520 10,625
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 970 679 2,600 2,075
Short-term borrowings 404 226 1,128 635
Long-term debt 479 338 1,255 911
Guaranteed preferred beneficial interests in Company's
subordinated debentures 15 16 46 45
-------- -------- -------- --------
Total interest expense 1,868 1,259 5,029 3,666
-------- -------- -------- --------
NET INTEREST INCOME 2,581 2,382 7,491 6,959
Provision for loan losses 288 240 803 770
-------- -------- -------- --------
Net interest income after provision for loan losses 2,293 2,142 6,688 6,189
-------- -------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts 413 385 1,201 1,096
Trust and investment fees 375 317 1,095 932
Credit card fees 146 138 395 395
Other fees 321 258 884 763
Mortgage banking 314 318 924 969
Insurance 76 95 282 299
Net venture capital gains 535 162 1,740 287
Net (losses) gains on securities available for sale (179) (2) (820) 19
Other 188 138 491 590
-------- -------- -------- --------
Total noninterest income 2,189 1,809 6,192 5,350
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries 869 776 2,525 2,251
Incentive compensation 177 124 467 393
Employee benefits 216 208 673 624
Equipment 193 193 575 566
Net occupancy 222 205 666 576
Goodwill 132 106 369 314
Core deposit intangible 44 49 136 151
Net (gains) losses on dispositions of premises and equipment (30) 6 (78) (5)
Other 871 751 2,465 2,254
-------- -------- -------- --------
Total noninterest expense 2,694 2,418 7,798 7,124
-------- -------- -------- --------
INCOME BEFORE INCOME TAX EXPENSE 1,788 1,533 5,082 4,415
Income tax expense 718 571 1,963 1,638
-------- -------- -------- --------
NET INCOME $ 1,070 $ 962 $ 3,119 $ 2,777
======== ======== ======== ========
NET INCOME APPLICABLE TO COMMON STOCK $ 1,066 $ 953 $ 3,106 $ 2,751
======== ======== ======== ========
EARNINGS PER COMMON SHARE $ .65 $ .58 $ 1.91 $ 1.67
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE $ .64 $ .57 $ 1.89 $ 1.65
======== ======== ======== ========
DIVIDENDS DECLARED PER COMMON SHARE $ .22 $ .20 $ .66 $ .585
======== ======== ======== ========
Average common shares outstanding 1,637.7 1,648.6 1,626.0 1,649.0
======== ======== ======== ========
Diluted average common shares outstanding 1,657.0 1,667.1 1,642.9 1,667.9
======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30,
(in millions, except shares) 2000 1999 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 14,051 $ 13,250 $ 12,011
Federal funds sold and securities purchased
under resale agreements 2,153 1,554 1,556
Securities available for sale 35,703 38,518 36,906
Mortgages held for sale 10,606 11,707 9,850
Loans held for sale 4,294 4,975 4,661
Loans 141,377 119,464 114,709
Allowance for loan losses 3,417 3,170 3,167
-------- -------- --------
Net loans 137,960 116,294 111,542
-------- -------- --------
Mortgage servicing rights 5,522 4,483 4,341
Premises and equipment, net 3,024 2,985 3,124
Core deposit intangible 1,197 1,286 1,334
Goodwill 8,899 7,702 7,620
Interest receivable and other assets 17,710 15,348 14,115
-------- -------- --------
Total assets $241,119 $218,102 $207,060
======== ======== ========
LIABILITIES
Noninterest-bearing deposits $ 48,741 $ 42,916 $ 41,872
Interest-bearing deposits 102,228 89,792 89,685
-------- -------- --------
Total deposits 150,969 132,708 131,557
Short-term borrowings 22,476 27,995 19,248
Accrued expenses and other liabilities 12,445 11,108 8,377
Long-term debt 29,252 23,375 24,911
Guaranteed preferred beneficial interests in
Company's subordinated debentures 785 785 785
STOCKHOLDERS' EQUITY
Preferred stock 408 344 560
Unearned ESOP shares (143) (73) (100)
-------- -------- --------
Total preferred stock 265 271 460
Common stock - $1-2/3 par value, authorized
4,000,000,000 shares; issued 1,666,095,265 shares 2,777 2,777 2,777
Additional paid-in capital 8,856 8,786 8,769
Retained earnings 12,828 11,196 10,625
Cumulative other comprehensive income 1,709 892 242
Notes receivable from ESOP (1) (1) (1)
Treasury stock - 26,684,920 shares, 39,245,724 shares
and 16,331,628 shares (1,242) (1,790) (690)
-------- -------- --------
Total stockholders' equity 25,192 22,131 22,182
-------- -------- --------
Total liabilities and stockholders' equity $241,119 $218,102 $207,060
======== ======== ========
-------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Notes
Unearned Additional receivable
Number of Preferred ESOP Common paid-in Retained from Treasury
(in millions, except shares) shares stock shares stock capital earnings ESOP stock
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 $547 $ (84) $2,769 $8,673 $9,045 $(3) $(651)
---- ----- ------ ------ ------- --- -------
Comprehensive income
Net income 2,777
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 17,258,229 82 (201) 640
Common stock issued for acquisitions 6,185,330 8 11 (6) 54
Common stock repurchased 19,288,479 (777)
Preferred stock (75,000) issued to ESOP 75 (80) 5
Preferred stock released to ESOP 64 (4)
Preferred stock (60,165) converted
to common shares 1,550,754 (62) 2 60
Preferred stock dividends (26)
Common stock dividends (964)
Cash payments received on
notes receivable from ESOP 2
Change in Rabbi trust assets
(classified as treasury stock) (16)
---- ----- ------ ------ ------- --- -------
Net change 13 (16) 8 96 1,580 2 (39)
---- ----- ------ ------ ------- --- -------
BALANCE SEPTEMBER 30, 1999 $560 $(100) $2,777 $8,769 $10,625 $(1) $(690)
==== ===== ====== ====== ======= === =======
BALANCE DECEMBER 31, 1999 $344 $ (73) $2,777 $8,786 $11,196 $(1) $(1,790)
---- ----- ------ ------ ------- --- -------
Comprehensive income
Net income 3,119
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 11,563,447 272 (391) 476
Common stock issued for acquisitions 69,120,910 (207) (7) 2,864
Common stock repurchased 70,648,755 (2,889)
Preferred stock (170,000) issued to ESOP 170 (181) 11
Preferred stock released to ESOP 111 (7)
Preferred stock (104,789) converted
to common shares 2,525,202 (105) 1 104
Preferred stock repurchased 31,600 (1)
Preferred stock dividends (13)
Common stock dividends (1,076)
Change in Rabbi trust assets
(classified as treasury stock) (7)
---- ----- ------ ------ ------- --- -------
Net change 64 (70) -- 70 1,632 -- 548
---- ----- ------ ------ ------- --- -------
BALANCE SEPTEMBER 30, 2000 $408 $(143) $2,777 $8,856 $12,828 $(1) $(1,242)
==== ===== ====== ====== ======= === =======
----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Cumulative
other Total
comprehensive stockholders'
(in millions, except shares) income equity
----------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE DECEMBER 31, 1998 $ 463 $20,759
----- -------
Comprehensive income
Net income 2,777
Other comprehensive income, net of tax:
Translation adjustments 3 3
Unrealized gains (losses) on securities
available for sale arising during the period (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 521
Common stock issued for acquisitions 67
Common stock repurchased (777)
Preferred stock (75,000) issued to ESOP --
Preferred stock released to ESOP 60
Preferred stock (60,165) converted to common shares --
Preferred stock dividends (26)
Common stock dividends (964)
Cash payments received
notes receivable from ESOP 2
Change in Rabbi trust assets (classified as treasury stock) (16)
----- -------
Net change (221) 1,423
----- -------
BALANCE SEPTEMBER 30, 1999 $ 242 $22,182
===== =======
BALANCE DECEMBER 31, 1999 $ 892 $22,131
----- -------
Comprehensive income
Net income 3,119
Other comprehensive income, net of tax:
Translation adjustments (2) (2)
Unrealized gains (losses) on securities
available for sale arising during the period 757 757
Reclassification adjustment for (gains) losses
on securities available for sale included
in net income 62 62
-------
Total comprehensive income 3,936
Common stock issued 357
Common stock issued for acquisitions 2,650
Common stock repurchased (2,889)
Preferred stock (170,000) issued to ESOP --
Preferred stock released to ESOP 104
Preferred stock (104,789) converted to common shares --
Preferred stock repurchased (1)
Preferred stock dividends (13)
Common stock dividends (1,076)
Change in Rabbi trust assets (classified as treasury stock) (7)
------ -------
Net change 817 3,061
------ -------
BALANCE SEPTEMBER 30, 2000 $1,709 $25,192
====== =======
----------------------------------------------------------------------------------------
</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 $ 3,119 $ 2,777
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 803 770
Depreciation and amortization 1,132 1,492
Securities available for sale losses (gains) 820 (19)
Net venture capital gains (1,740) (287)
Gains on sales of mortgages held for sale (41) (228)
Gains on sales of loans (6) (32)
Gains on dispositions of operations (8) (102)
Net gains on dispositions of premises and equipment (78) (5)
Release of preferred shares to ESOP 104 60
Net decrease (increase) in trading assets 299 (518)
Net increase in accrued interest receivable (209) (141)
Net increase in accrued interest payable 190 5
Originations of mortgages held for sale (48,917) (69,316)
Proceeds from sales of mortgages held for sale 46,464 78,748
Net increase in loans held for sale (707) (560)
Other assets, net (1,859) 438
Other accrued expenses and liabilities, net 3,030 (61)
------- -------
Net cash provided by operating activities 2,396 13,021
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 18,984 6,979
Proceeds from prepayments and maturities 3,015 6,485
Purchases (12,701) (19,208)
Net cash paid for acquisitions 938 (161)
Net increase in banking subsidiaries' loans resulting from originations
and collections (12,543) (3,461)
Proceeds from sales (including participations) of banking subsidiaries'
loans 702 1,691
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 (599) (39)
Net (increase) decrease in mortgage servicing rights (1,384) 8
Other, net (4,951) (3,148)
------- -------
Net cash used by investing activities (11,676) (15,010)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 15,365 (5,949)
Net (decrease) increase in short-term borrowings (6,292) 3,205
Proceeds from issuance of long-term debt 13,759 11,958
Repayment of long-term debt (8,241) (6,727)
Proceeds from issuance of common stock 281 588
Repurchase of common stock (2,889) (777)
Payment of cash dividends on preferred and common stock (1,089) (990)
Other, net (813) (39)
------- -------
Net cash provided by financing activities 10,081 1,269
------- -------
NET CHANGE IN CASH AND DUE FROM BANKS 801 (720)
Cash and due from banks at beginning of period 13,250 12,731
------- -------
CASH AND DUE FROM BANKS AT END OF PERIOD $14,051 $12,011
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,839 $ 3,637
Income taxes 585 666
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 138 175
-----------------------------------------------------------------------------------------------------------------
</TABLE>
5
<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
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
-------
$12,280
=======
-------------------------------------------------------------------------------------------------------------------
</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, the Company had two pending acquisitions with assets of
approximately $25 billion: First Security Corporation, Salt Lake City, Utah, and
Brenton Banks, Inc., Des Moines, Iowa. The Company completed its acquisition of
First Security on October 25, 2000 and expects to complete its acquisition of
Brenton Banks before the end of 2000. The Company issued about 70 million shares
of its common stock in the First Security transaction and expects to issue about
6 million shares of its common stock in the Brenton Banks transaction.
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, December 31, 1999 and September 30, 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 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, -----------------
2000 1999 1999 2000 1999 1999 Minimum Maximum
--------- --------- -------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable-Rate Cumulative, Series B
(Liquidation preference $50) 1,468,400 1,500,000 1,500,000 $ 74 $ 75 $ 75 5.5% 10.5%
6.59%/Adjustable-Rate Noncumulative
Preferred Stock, Series H
(Liquidation preference $50) (1) 4,000,000 4,000,000 4,000,000 200 200 200 7.0 13.0
Cumulative Tracking
(Liquidation preference $200) (2) -- -- 980,000 -- -- 196 -- --
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 22,653 21 22 23 10.30 11.30
1998 ESOP Cumulative Convertible
(Liquidation preference $1,000) 8,131 8,386 8,472 8 8 8 10.75 11.75
1997 ESOP Cumulative Convertible
(Liquidation preference $1,000) 10,542 10,839 13,639 10 11 13 9.50 10.50
1996 ESOP Cumulative Convertible
(Liquidation preference $1,000) 11,711 12,011 21,111 12 12 21 8.50 9.50
1995 ESOP Cumulative Convertible
(Liquidation preference $1,000) 11,785 11,990 19,790 12 12 20 10.00 10.00
ESOP Cumulative Convertible
(Liquidation preference $1,000) 3,656 3,732 9,532 4 4 9 9.0 9.0
Unearned ESOP shares (3) -- -- -- (143) (73) (100) -- --
Less Cumulative Tracking
held by subsidiary
(Liquidation preference $200) (2) -- -- 25,000 -- -- 5 -- --
--------- --------- -------- ---- ---- ----
Total 5,602,832 5,569,221 6,550,197 $265 $271 $460
========= ========= ========= ==== ==== ====
----------------------------------------------------------------------------------------------------------------------------------
</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 December 1999, the Company redeemed all $196 million (980,000 shares) of
its Cumulative Tracking preferred stock.
(3) 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) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,070 $ 962 $ 3,119 $ 2,777
Less: Preferred stock dividends 4 9 13 26
-------- -------- ------- --------
Net income applicable to common stock $ 1,066 $ 953 $ 3,106 $ 2,751
======== ======== ======= ========
EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 1,066 $ 953 $ 3,106 $ 2,751
======== ======== ======= ========
Average common shares outstanding (denominator) 1,637.7 1,648.6 1,626.0 1,649.0
======== ======== ======= ========
Per share $ .65 $ .58 $ 1.91 $ 1.67
======== ======== ======= ========
DILUTED EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 1,066 $ 953 $ 3,106 $ 2,751
======== ======== ======= ========
Average common shares outstanding 1,637.7 1,648.6 1,626.0 1,649.0
Add: Stock options 18.2 17.2 15.8 17.3
Restricted share rights 1.1 1.3 1.1 1.6
-------- -------- ------- --------
Diluted average common shares outstanding (denominator) 1,657.0 1,667.1 1,642.9 1,667.9
======== ======== ======= ========
Per share $ .64 $ .57 $ 1.89 $ 1.65
======== ======== ======= ========
-------------------------------------------------------------------------------------------------------------------
</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
10
<PAGE>
interest in the Wells Fargo HSBC Trade Bank, which provides trade financing,
letters of credit and collection services and is sometimes supported by the
Export-Import Bank of the United States (a public agency of the United States
offering export finance support 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
-----------------------------------------------------------------
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED SEPTEMBER 30,
Net interest income(1) $1,789 $1,693 $ 413 $ 351 $ 40 $ 39
Provision for loan losses 166 145 29 19 1 3
Noninterest income 1,463 1,070 330 308 318 313
Noninterest expense 1,790 1,566 335 292 240 242
------ ------ ------ ------ ---- ----
Income (loss) before income
tax expense (benefit) 1,296 1,052 379 348 117 107
Income tax expense (benefit)(2) 509 368 140 131 45 39
------ ------ ------ ------ ---- ----
Net income (loss) $ 787 $ 684 $ 239 $ 217 $ 72 $ 68
====== ====== ====== ====== ==== ====
Average loans $ 78 $ 66 $ 41 $ 34 $ 7 $ 2
Average assets 137 121 51 42 28 22
Average core deposits 120 113 11 9 5 5
NINE MONTHS ENDED SEPTEMBER 30,
Net interest income(1) $5,186 $4,873 $1,243 $1,030 $ 82 $152
Provision for loan losses 485 463 88 84 3 10
Noninterest income 4,040 3,197 918 884 923 955
Noninterest expense 5,126 4,561 968 834 680 780
------ ------ ------ ------ ---- ----
Income (loss) before income
tax expense (benefit) 3,615 3,046 1,105 996 322 317
Income tax expense (benefit)(2) 1,335 1,056 413 370 121 117
------ ------ ------ ------ ---- ----
Net income (loss) $2,280 $1,990 $ 692 $ 626 $201 $200
====== ====== ====== ====== ==== ====
Average loans $ 73 $ 65 $ 40 $ 34 $ 5 $ 1
Average assets 133 118 49 41 24 24
Average core deposits 117 113 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 $301 million and $201 million
for the third quarter of 2000 and 1999, respectively, and $692 million and
$674 million for the first nine months of 2000 and 1999, respectively, and
interest expense of $261 million and $162 million for the third quarter of
2000 and 1999, respectively, and $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>
-----------------------------------------------------------------------------------------------------
(income/expense in millions, Recon- Consoli-
average balances in billions) Wells Fargo ciliation dated
Financial column(3) Company
-----------------------------------------------------------------
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED SEPTEMBER 30,
Net interest income(1) $ 362 $324 $ (23) $ (25) $2,581 $2,382
Provision for loan losses 92 72 -- 1 288 240
Noninterest income 82 92 (4) 26 2,189 1,809
Noninterest expense 246 240 83 78 2,694 2,418
------ ---- ----- ----- ------ ------
Income (loss) before income
tax expense (benefit) 106 104 (110) (78) 1,788 1,533
Income tax expense (benefit)(2) 39 39 (15) (6) 718 571
------ ---- ----- ----- ------ ------
Net income (loss) $ 67 $ 65 $ (95) $ (72) $1,070 $ 962
====== ==== ===== ===== ====== ======
Average loans $ 11 $ 10 $ -- $ -- $ 137 $ 112
Average assets 12 11 7 7 235 203
Average core deposits -- -- -- -- 136 127
NINE MONTHS ENDED SEPTEMBER 30,
Net interest income(1) $1,054 $977 $ (74) $ (73) $7,491 $6,959
Provision for loan losses 227 213 -- -- 803 770
Noninterest income 223 239 88 75 6,192 5,350
Noninterest expense 743 712 281 237 7,798 7,124
------ ---- ----- ----- ------ ------
Income (loss) before income
tax expense (benefit) 307 291 (267) (235) 5,082 4,415
Income tax expense (benefit)(2) 115 107 (21) (12) 1,963 1,638
------ ---- ----- ----- ------ ------
Net income (loss) $ 192 $184 $(246) $(223) $3,119 $2,777
====== ==== ===== ===== ====== ======
Average loans $ 10 $ 10 $ -- $ -- $ 128 $ 110
Average assets 12 11 6 7 224 201
Average core deposits -- -- -- -- 131 127
-----------------------------------------------------------------------------------------------------
</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 $(10) million and $22 million; and unallocated items of
$(17) million and $(21) million for the third quarter of 2000 and 1999,
respectively. 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 $(6) million and $14 million; and unallocated items
of $(89) million and $(86) million for the third quarter of 2000 and 1999,
respectively. Net income includes Treasury activities of $23 million and
$38 million; and unallocated items of $(269) million and $(261) 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 $82 million and $79 million
for the third quarter of 2000 and 1999, respectively, and $244 million and
$238 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 $7 billion for the third quarter
of 2000 and 1999, and $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 $447 billion at September 30, 2000, $293
billion at December 31, 1999 and $286 billion at September 30, 1999, which
included loans subserviced for others of $87 billion, $3 billion and $3 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>
-------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
------------------------ -------------------------
(in millions) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $4,848 $4,144 $4,483 $3,144
Originations 136 181 395 654
Purchases 783 150 1,116 522
Amortization (136) (139) (375) (599)
Other (principally hedge activity) (109) 5 (97) 620
------ ------ ------ ------
Balance, end of period $5,522 $4,341 $5,522 $4,341
====== ====== ====== ======
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of capitalized mortgage servicing rights included in the
consolidated balance sheet at September 30, 2000 was approximately $5.7 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, 2000 from Nine months ended
---------------------------- ------------------- --------------------
SEPT. 30, June 30, Sept. 30, June 30, Sept. 30, SEPT. 30, Sept. 30, %
(in millions, except per share amounts) 2000 2000 1999 2000 1999 2000 1999 Change
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Net income $ 1,070 $ 1,039 $ 962 3% 11% $ 3,119 $ 2,777 12%
Net income applicable to common stock 1,066 1,035 953 3 12 3,106 2,751 13
Earnings per common share $ .65 $ .64 $ .58 2 12 $ 1.91 $ 1.67 14
Diluted earnings per common share .64 .63 .57 2 12 1.89 1.65 15
Dividends declared per common share .22 .22 .20 -- 10 .66 .585 13
Average common shares outstanding 1,637.7 1,613.0 1,648.6 2 (1) 1,626.0 1,649.0 (1)
Diluted average common shares outstanding 1,657.0 1,631.8 1,667.1 2 (1) 1,642.9 1,667.9 (1)
Profitability ratios (annualized)
Net income to average total assets (ROA) 1.81% 1.89% 1.88% (4) (4) 1.86% 1.85% 1
Net income applicable to common stock to
average common stockholders' equity (ROE) 18.37 19.04 17.97 (4) 2 18.54 17.60 5
Total revenue $ 4,770 $ 4,562 $ 4,191 5 14 $ 13,683 $ 12,309 11
Efficiency ratio (1) 56.5% 57.6% 57.7% (2) (2) 57.0% 57.9% (2)
Average loans $136,826 $127,000 $112,262 8 22 $128,364 $109,714 17
Average assets 235,042 220,766 202,972 6 16 224,129 200,694 12
Average core deposits 135,713 131,122 126,759 4 7 131,430 127,481 3
Net interest margin 5.46% 5.55% 5.74% (2) (5) 5.52% 5.68% (3)
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION AND BALANCES
("CASH") (2)
Net income applicable to common stock $ 1,223 $ 1,185 $ 1,087 3 13 $ 3,552 $ 3,149 13
Earnings per common share .75 .73 .66 3 14 2.18 1.91 14
Diluted earnings per common share .74 .73 .65 1 14 2.16 1.89 14
ROA 2.17% 2.26% 2.24% (4) (3) 2.22% 2.22% --
ROE 35.77 37.16 34.33 (4) 4 35.67 34.04 5
Efficiency ratio 52.9 53.9 54.1 (2) (2) 53.4 54.2 (1)
AT PERIOD END
Securities available for sale $ 35,703 $ 34,604 $ 36,906 3 (3) $ 35,703 $ 36,906 (3)
Loans 141,377 135,046 114,709 5 23 141,377 114,709 23
Allowance for loan losses 3,417 3,349 3,167 2 8 3,417 3,167 8
Goodwill 8,899 8,526 7,620 4 17 8,899 7,620 17
Assets 241,119 234,159 207,060 3 16 241,119 207,060 16
Core deposits 137,692 134,269 125,160 3 10 137,692 125,160 10
Common stockholders' equity 24,927 22,862 21,722 9 15 24,927 21,722 15
Stockholders' equity 25,192 23,127 22,182 9 14 25,192 22,182 14
Tier 1 capital (3) 14,192 13,406 14,005 6 1 14,192 14,005 1
Total capital (3) 21,821 20,741 18,166 5 20 21,821 18,166 20
Capital ratios
Common stockholders' equity to assets 10.34% 9.76% 10.49% 6 (1) 10.34% 10.49% (1)
Stockholders' equity to assets 10.45 9.88 10.71 6 (2) 10.45 10.71 (2)
Risk-based capital (3)
Tier 1 capital 7.28 7.04 8.71 3 (16) 7.28 8.71 (16)
Total capital 11.20 10.90 11.30 3 (1) 11.20 11.30 (1)
Leverage (3) 6.37 6.37 7.22 -- (12) 6.37 7.22 (12)
Book value per common share $ 15.20 $ 14.12 $ 13.17 8 15 $ 15.20 $ 13.17 15
Staff (active, full-time equivalent) 97,456 94,388 89,528 3 9 97,456 89,528 9
COMMON STOCK PRICE
High $ 47.13 $ 47.75 $ 45.31 (1) 4 $ 47.75 $ 45.31 5
Low 38.73 37.31 36.44 4 6 31.00 32.13 (4)
Period end 45.94 38.75 39.63 19 16 45.94 39.63 16
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The efficiency ratio is defined as noninterest expense divided by total
revenue (net interest income and noninterest income).
(2) Nonqualifying core deposit intangible (CDI) amortization and average
balance excluded from these calculations are, with the exception of the
efficiency and ROA ratios, net of applicable taxes. The pre-tax amount for
the average balance of nonqualifying CDI was $1,143 million for the quarter
ended September 30, 2000 and $1,178 million for the nine months ended
September 30, 2000. The after-tax amounts for the amortization and average
balance of nonqualifying CDI were $25 million and $708 million,
respectively, for the quarter ended September 30, 2000 and $78 million and
$730 million, respectively, for the nine months ended September 30, 2000.
Goodwill amortization and average balance (which are not tax effected) were
$132 million and $8,768 million, respectively, for the quarter ended
September 30, 2000 and $369 million and $8,340 million, respectively, for
the nine months ended September 30, 2000.
(3) See the Capital Adequacy/Ratios section for additional information.
15
<PAGE>
OVERVIEW
--------
Wells Fargo & Company is a $241 billion diversified financial services
company providing banking, mortgage and consumer finance through about 5,400
stores, the Internet and other distribution channels throughout North
America, including all 50 states, and elsewhere internationally. It ranks
seventh in assets at September 30, 2000 among U.S. bank holding companies. In
this report on Form 10-Q, Wells Fargo & Company and Subsidiaries is referred
to as the Company and Wells Fargo & Company alone is referred to as the
Parent.
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 third quarter of 2000 was $1,070 million, compared with $962
million for the third quarter of 1999. Diluted earnings per common share for the
third quarter of 2000 were $.64, compared with $.57 for the third quarter of
1999. Net income for the first nine months of 2000 was $3,119 million, or $1.89
per share, compared with $2,777 million, or $1.65 per share, for the first nine
months of 1999.
Return on average assets (ROA) was 1.81% and 1.86% in the third quarter and
first nine months of 2000, respectively, compared with 1.88% and 1.85% in the
same periods of 1999. Return on average common equity (ROE) was 18.37% and
18.54% in the third quarter and first nine months of 2000, respectively,
compared with 17.97% and 17.60% in the same periods of 1999.
Diluted earnings before the amortization of goodwill and nonqualifying core
deposit intangible ("cash" earnings) in the third quarter and first nine months
of 2000 were $.74 and $2.16 per common share, respectively, compared with $.65
and $1.89 per common share in the same periods of 1999. On the same basis, ROA
was 2.17% and 2.22% in the third quarter and first nine months of 2000,
respectively, compared with 2.24% and 2.22% in the same periods of 1999; ROE was
35.77% and 35.67% in the third quarter and first nine months of 2000,
respectively, compared with 34.33% and 34.04% in the same periods of 1999.
Net interest income on a taxable-equivalent basis was $2,596 million and $7,536
million for the third quarter and first nine months of 2000, respectively,
compared with $2,399 million and $7,007 million for the same periods of 1999.
The Company's net interest margin was 5.46% and 5.52% for the third quarter and
first nine months of 2000, respectively, compared with 5.74% and 5.68% for the
same periods of 1999.
16
<PAGE>
Noninterest income was $2,189 million and $6,192 million for the third quarter
and first nine months of 2000, respectively, compared with $1,809 million and
$5,350 million for the same periods of 1999.
Noninterest expense totaled $2,694 million and $7,798 million for the third
quarter and first nine months of 2000, respectively, compared with $2,418
million and $7,124 million for the same periods of 1999. The efficiency ratio
was 56.5% for the third quarter of 2000, compared with 57.7% for the same
quarter of 1999. For the first nine months of 2000 the efficiency ratio was
57.0%, compared with 57.9% for the same period of 1999.
The provision for loan losses was $288 million and $803 million in the third
quarter and first nine months of 2000, respectively, compared with $240 million
and $770 million in the same periods of 1999. During the third quarter of 2000,
net charge-offs were $267 million, or .78% of average total loans (annualized),
compared with $241 million, or .85%, during the third quarter of 1999. The
allowance for loan losses was $3,417 million, or 2.42% of total loans, at
September 30, 2000, compared with $3,170 million, or 2.65%, at December 31, 1999
and $3,167 million, or 2.76%, at September 30, 1999.
At September 30, 2000, total nonaccrual and restructured loans were $902 million
or .6% of total loans, compared with $669 million, or .6%, at December 31, 1999
and $698 million, or .6%, at September 30, 1999. Foreclosed assets amounted to
$126 million at September 30, 2000, $153 million at December 31, 1999 and $161
million at September 30, 1999.
At September 30, 2000, the ratio of common stockholders' equity to total assets
was 10.34%, compared with 10.49% at September 30, 1999. The Company's total
risk-based capital (RBC) ratio at September 30, 2000 was 11.20% and its Tier 1
RBC ratio was 7.28%, exceeding the minimum regulatory guidelines of 8% and 4%,
respectively, for bank holding companies. The Company's ratios at September 30,
1999 were 11.30% and 8.71%, respectively. The Company's leverage ratio was 6.37%
at September 30, 2000 and 7.22% at September 30, 1999, exceeding the minimum
regulatory guideline of 3% for bank holding companies.
MERGER OF WELLS FARGO AND FIRST SECURITY
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. The FSCO Merger was consummated after September 30,
2000 and this report on Form 10-Q does not give effect to that merger. The
results presented in this report represent the results of Wells Fargo &
Company as it was before the FSCO Merger for all periods presented.
The Company will file restated financial statements to reflect the FSCO
Merger with the Securities and Exchange Commission (SEC). Under the pooling
of interests method of accounting, the Company's reported results for prior
periods will be restated to include First Security's results. First Security
incurred an after-tax loss of about $250 million for the third
17
<PAGE>
quarter of 2000, primarily related to losses on sales of securities
in its available for sale portfolio, losses on sales of loan portfolios and a
provision for loan losses in excess of charge-offs. First Security recorded a
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. For the nine months ended September 30, 2000,
First Security incurred an after-tax loss of about $220 million.
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.
18
<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; and the
Company has not yet completed the analysis to determine the impact of the
revised provisions on the financial statement that will be issued after March
31, 2001.
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.
19
<PAGE>
The forward-looking statements in this document include the statement under
"Merger of Wells Fargo and First Security" 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 Annual Report on
Form 10-K filed with the SEC. There are other factors besides those described or
incorporated in this report or in the Form 10-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
20
<PAGE>
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 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.
21
<PAGE>
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 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.
OPERATING SEGMENT RESULTS
-------------------------
COMMUNITY BANKING'S net income was $787 million in the third quarter of 2000,
compared with $684 million in the third quarter of 1999, an increase of 15%. Net
income for the first nine months of 2000 was $2,280 million, compared with
$1,990 million for the same period of 1999, also an increase of 15%. Net
interest income increased to $1,789 million in the third quarter of 2000 from
$1,693 million in the third quarter of 1999. Net interest income was $5,186
million for the first nine months of 2000, compared with $4,873 million in the
first
22
<PAGE>
nine months of 1999. The increase in net interest income was primarily due to an
increase in earning assets. The provision for loan losses increased by $21
million and $22 million for the third quarter and first nine months of 2000,
respectively. Noninterest income for the third quarter of 2000 increased by $393
million over the same period in 1999. The increase in noninterest income was
primarily due to higher venture capital gains, service charges and fees
associated with deposit accounts, and trust and investment fees partially offset
with losses realized on the sales of securities. Noninterest expense increased
by $224 million in the third quarter of 2000, compared with the same period in
1999. A significant portion of this increase was from operating expenses of
acquisitions acquired over the past twelve months.
WHOLESALE BANKING'S net income was $239 million in the third quarter of 2000,
compared with $217 million in the third quarter of 1999, an increase of 10%. Net
income was $692 million for the first nine months of 2000, compared with $626
million in the first nine months of 1999, an increase of 11%. Net interest
income was $413 million in the third quarter of 2000 and $351 million in the
third quarter of 1999. Net interest income increased to $1,243 million for the
first nine months of 2000 from $1,030 million in the first nine months of 1999.
The increase in net interest income was due to higher average loan and
investment securities balances within all major business lines. Average
outstanding loan balances grew to $41 billion in the third quarter of 2000 from
$34 billion in the third quarter of 1999. Noninterest income increased to $330
million and $918 million in the third quarter and first nine months of 2000,
respectively, from $308 million and $884 million in the same periods of 1999.
The increase for both periods was primarily due to income from fees and
commissions, foreign exchange, trading securities gains and service charges,
partially offset by lower income from loan sales. Noninterest expense increased
to $335 million in the third quarter of 2000 and $968 million for the first nine
months of 2000 from $292 million and $834 million for the same periods in the
prior year. The increase for the first nine months of 2000 was primarily due to
higher personnel costs from increased sales and service staff.
WELLS FARGO HOME MORTGAGE'S (formerly Norwest Mortgage) net income in the third
quarter of 2000 increased to $72 million from $68 million in the third quarter
of 1999, an increase of 6%. Net income was $201 million for the first nine
months of 2000, compared with $200 million in the first nine months of 1999. The
managed servicing portfolio increased to $431 billion at September 30, 2000 from
$277 billion at September 30, 1999. The portfolio includes loans subserviced for
others of $87 billion and $3 billion at September 30, 2000 and 1999,
respectively. During the third quarter of 2000, Wells Fargo Home Mortgage
entered into an agreement to subservice GE Capital Mortgage Services' $84
billion mortgage portfolio. Also in the third quarter, Wells Fargo Home Mortgage
acquired the servicing rights to a $35 billion portion of First Union Mortgage
Corporation's servicing portfolio. The weighted average coupon on loans in the
servicing portfolio was 7.48% at September 30, 2000, compared with 7.30% a year
earlier. Total capitalized mortgage servicing rights amounted to $5.5 billion,
or 1.59% of the owned servicing portfolio at September 30, 2000, compared with
$4.3 billion, or 1.58%, at September 30, 1999. Amortization of capitalized
mortgage servicing rights was $136 million and $375 million for the third
quarter and first nine months of 2000, respectively, compared with $139 million
and $599 million for the same
23
<PAGE>
periods of 1999. The decrease in amortization for the first nine months of
2000 was predominantly due to a higher interest rate environment and a
decrease in assumed prepayments. Sales of mortgages resulted in net gains of
$1 million for the third quarter of 2000 and net gains of $30 million for the
first nine months of 2000. This compares with net losses of $29 million for
the third quarter of 1999 and net gains of $194 million for the nine months
ended September 30, 1999. The increase for the third quarter was largely due
to improved market conditions partially offset by decreased loan sales. The
decrease for the first nine months of 2000 was largely due to less favorable
market conditions earlier in the year and decreased loan sales. Fundings for
the third quarter and first nine months of 2000 were $18 billion and $48
billion, respectively, compared with $19 billion and $69 billion for the same
periods of the prior year. The percentage of fundings attributed to mortgage
loan refinancing was approximately 12% for the third quarter of 2000,
compared with 20% for the same period in 1999.
WELLS FARGO FINANCIAL'S (formerly Norwest Financial) net income increased to $67
million in the third quarter of 2000 from $65 million for the same period in
1999, an increase of 3%. Net income increased to $192 million for the first nine
months of 2000 from $184 million for the same period in 1999, an increase of 4%.
Net interest income increased 12% in the third quarter and 8% the first nine
months of 2000, compared with the same periods in 1999, substantially due to an
increase in average loans. The provision for loan losses increased 28% in the
third quarter of 2000 and 7% in the first nine months of 2000 compared with the
same periods in 1999, substantially due to the provision for a credit card
portfolio purchased on June 30, 2000.
EARNINGS PERFORMANCE
--------------------
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $2,596 million in the
third quarter of 2000, compared with $2,399 million in the third quarter of
1999. The Company's net interest margin was 5.46% in the third quarter of 2000,
compared with 5.74% in the third quarter of 1999. Net interest income was $7,536
million in the first nine months of 2000, compared with $7,007 million in the
first nine months of 1999. The Company's net interest margin was 5.52% in the
first nine months of 2000, compared with 5.68% in the first nine months of 1999.
The decrease in the margin from the third quarter and 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
investment securities portfolio from the restructuring that occurred during the
fourth quarter of 1999 and the first nine months of 2000.
Interest income was reduced by hedging expense of $7 million in the third
quarter of 2000, compared with hedging income of $51 million in the same quarter
of 1999. Interest expense included hedging expense of $14 million in the third
quarter of 2000, compared with hedging income of $24 million in the same quarter
of 1999.
24
<PAGE>
Individual components of net interest income and the net interest margin are
presented in the rate/yield table on page 26.
Loans averaged $136.8 billion in the third quarter of 2000, compared with $112.3
billion in the third quarter of 1999. For the first nine months of 2000, loans
averaged $128.4 billion, compared with $109.7 billion for the same period of
1999.
Debt securities averaged $33.9 billion during the third quarter of 2000,
compared with $34.9 billion in the third quarter of 1999.
Average core deposits were $135.7 billion and $126.8 billion and funded 58% and
62% of the Company's average total assets in the third quarter of 2000 and 1999,
respectively. For the first nine months of 2000 and 1999, average core deposits
were $131.4 billion and $127.5 billion, respectively, and funded 59% and 64%,
respectively, of the Company's average total assets.
25
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Quarter ended Sept. 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 $ 2,710 6.19% $ 42 $ 1,327 5.13% $ 17
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies 2,347 6.50 38 5,915 5.47 85
Securities of U.S. states and political subdivisions 1,792 8.02 37 1,848 8.31 38
Mortgage-backed securities:
Federal agencies 22,634 7.39 420 20,840 7.11 374
Private collateralized mortgage obligations 1,815 7.59 35 3,003 6.89 53
-------- ------ ------- -----
Total mortgage-backed securities 24,449 7.40 455 23,843 7.08 427
Other debt securities (4) 5,349 8.06 63 3,296 7.76 50
-------- ------ ------- -----
Total debt securities available for sale (4) 33,937 7.44 593 34,902 6.91 600
Loans held for sale (3) 4,115 8.84 92 4,381 7.24 80
Mortgages held for sale (3) 11,116 7.99 224 10,711 7.33 198
Loans:
Commercial 43,104 9.57 1,037 36,011 8.88 806
Real estate 1-4 family first mortgage 16,662 7.86 328 12,236 7.69 236
Other real estate mortgage 21,194 9.02 480 17,243 8.73 379
Real estate construction 5,676 9.89 141 4,189 9.38 99
Consumer:
Real estate 1-4 family junior lien mortgage 15,757 10.43 412 11,817 9.94 294
Credit card 5,836 14.72 215 5,323 13.95 187
Other revolving credit and monthly payment 19,397 12.67 615 16,848 12.06 509
-------- ------ ------- -----
Total consumer 40,990 12.10 1,242 33,988 11.62 990
Lease financing 7,577 7.96 151 7,070 7.76 137
Foreign 1,623 21.06 85 1,525 20.88 80
-------- ------ ------- -----
Total loans (5) 136,826 10.10 3,464 112,262 9.67 2,727
Other 3,009 6.47 49 3,067 4.68 36
-------- ------ ------- -----
Total earning assets $191,713 9.38 4,464 $166,650 8.75 3,658
======== ------ ======== -----
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 2,907 2.10 16 $ 2,723 .92 6
Market rate and other savings 59,497 2.89 431 56,339 2.23 317
Savings certificates 26,073 5.47 359 25,262 4.66 297
Other time deposits 4,242 5.91 63 3,276 4.86 40
Deposits in foreign offices 6,134 6.53 101 1,552 4.86 19
-------- ------ ------- -----
Total interest-bearing deposits 98,853 3.90 970 89,152 3.02 679
Short-term borrowings 24,983 6.44 404 17,649 5.09 226
Long-term debt 27,739 6.90 479 23,112 5.85 339
Guaranteed preferred beneficial interests in Company's
subordinated debentures 785 7.84 15 785 7.56 15
-------- ------ ------- -----
Total interest-bearing liabilities 152,360 4.88 1,868 130,698 3.83 1,259
Portion of noninterest-bearing funding sources 39,353 -- -- 35,952 -- --
-------- ------ ------- -----
Total funding sources $191,713 3.92 1,868 $166,650 3.01 1,259
======== ------ ======== -----
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (6) 5.46% $2,596 5.74% $2,399
==== ====== ===== ======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 12,392 $ 11,196
Goodwill 8,768 7,674
Other 22,169 17,452
-------- --------
Total noninterest-earning assets $ 43,329 $ 36,322
======== ========
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 47,236 $ 42,435
Other liabilities 12,108 8,337
Preferred stockholders' equity 264 460
Common stockholders' equity 23,074 21,042
Noninterest-bearing funding sources used to
fund earning assets (39,353) (35,952)
-------- --------
Net noninterest-bearing funding sources $ 43,329 $ 36,322
======== ========
TOTAL ASSETS $235,042 $202,972
======== ========
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 9.50% and 8.10% for the quarters
ended September 30, 2000 and 1999, respectively, and 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 6.62% and
5.44% for the quarters ended September 30, 2000 and 1999, respectively, and
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.
26
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Nine ended Sept. 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 $ 2,301 6.06% $ 104 $ 1,311 4.95% $ 49
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies 2,980 6.03 140 5,608 5.43 233
Securities of U.S. states and political subdivisions 1,826 8.01 111 1,797 8.36 108
Mortgage-backed securities:
Federal agencies 23,363 7.29 1,295 19,923 6.81 1,014
Private collateralized mortgage obligations 1,965 7.55 115 3,156 6.82 162
-------- ------ -------- ------
Total mortgage-backed securities 25,328 7.31 1,410 23,079 6.81 1,176
Other debt securities (4) 5,087 7.71 176 2,906 7.65 136
-------- ------ -------- ------
Total debt securities available for sale (4) 35,221 7.27 1,837 33,390 6.71 1,653
Loans held for sale (3) 5,014 8.48 318 5,182 7.23 280
Mortgages held for sale (3) 9,447 7.91 566 12,774 6.97 671
Loans:
Commercial 41,298 9.40 2,905 35,512 8.66 2,302
Real estate 1-4 family first mortgage 14,502 7.78 846 12,134 8.44 767
Other real estate mortgage 20,429 9.06 1,385 16,985 8.82 1,121
Real estate construction 5,203 9.66 376 4,044 9.34 283
Consumer:
Real estate 1-4 family junior lien mortgage 14,535 10.34 1,126 11,336 9.07 770
Credit card 5,450 14.32 585 5,402 13.77 558
Other revolving credit and monthly payment 17,713 12.59 1,671 15,983 12.38 1,482
-------- ------ -------- ------
Total consumer 37,698 11.97 3,382 32,721 11.46 2,810
Lease financing 7,624 7.82 447 6,813 7.81 399
Foreign 1,610 21.33 258 1,505 20.99 237
-------- ------ -------- ------
Total loans (5) 128,364 9.98 9,599 109,714 9.64 7,919
Other 3,096 6.05 141 2,636 5.17 101
-------- ------ -------- ------
Total earning assets $183,443 9.21 12,565 $165,007 8.66 10,673
======== ------ ======== ------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 3,034 1.75 39 $ 2,764 .89 18
Market rate and other savings 58,189 2.70 1,178 55,996 2.28 956
Savings certificates 25,207 5.18 978 26,077 4.76 929
Other time deposits 3,753 5.63 158 3,528 4.97 131
Deposits in foreign offices 5,341 6.17 247 1,212 4.51 41
-------- ------ -------- ------
Total interest-bearing deposits 95,524 3.64 2,600 89,577 3.10 2,075
Short-term borrowings 24,623 6.12 1,128 17,567 4.83 635
Long-term debt 25,192 6.64 1,255 20,903 5.81 912
Guaranteed preferred beneficial interests in Company's
subordinated debentures 785 7.78 46 785 7.54 44
-------- ------ -------- ------
Total interest-bearing liabilities 146,124 4.59 5,029 128,832 3.80 3,666
Portion of noninterest-bearing funding sources 37,319 -- -- 36,175 -- --
-------- ------ -------- ------
Total funding sources $183,443 3.69 5,029 $165,007 2.98 3,666
======== ------ ======== ------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (6) 5.52% $7,536 5.68% $7,007
===== ====== ===== ======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 11,978 $ 11,184
Goodwill 8,340 7,688
Other 20,368 16,815
-------- --------
Total noninterest-earning assets $ 40,686 $ 35,687
======== ========
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 45,000 $ 42,644
Other liabilities 10,366 7,866
Preferred stockholders' equity 266 460
Common stockholders' equity 22,373 20,892
Noninterest-bearing funding sources used to
fund earning assets (37,319) (36,175)
-------- --------
Net noninterest-bearing funding sources $ 40,686 $ 35,687
======== ========
TOTAL ASSETS $224,129 $200,694
======== ========
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
-------------- % -------------- %
(in millions) 2000 1999 Change 2000 1999 Change
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 413 $ 385 7% $1,201 $1,096 10
Trust and investment fees:
Asset management and custody fees 177 157 13 513 461 11
Mutual fund and annuity sales fees 173 137 26 501 395 27
All other 25 23 9 81 76 7
------- ------ ------- -------
Total trust and investment fees 375 317 18 1,095 932 17
Credit card fees 146 138 6 395 395 --
Other fees:
Cash network fees 78 73 7 226 201 12
Charges and fees on loans 92 78 18 252 241 5
All other 151 107 41 406 321 26
------- ------ ------- -------
Total other fees 321 258 24 884 763 16
Mortgage banking:
Origination and other closing fees 94 101 (7) 242 330 (27)
Servicing fees, net of amortization 171 176 (3) 492 231 113
Net gains (losses) on sales of mortgages 2 (16) -- 41 228 (82)
All other 47 57 (18) 149 180 (17)
------- ------ ------ ------
Total mortgage banking 314 318 (1) 924 969 (5)
Insurance 76 95 (20) 282 299 (6)
Net venture capital gains 535 162 230 1,740 287 506
Net (losses) gains on securities available for sale (179) (2) -- (820) 19 --
Income from equity investments accounted
for by the:
Cost method 18 35 (49) 145 99 46
Equity method 13 18 (28) 91 59 54
Net gains on sales of loans 1 6 (83) 6 32 (81)
Net gains on dispositions of operations 2 -- -- 8 102 (92)
All other 154 79 (95) 241 298 (19)
------- ------ ------ ------
Total $2,189 $1,809 21% $6,192 $5,350 16%
======= ====== ==== ======= ====== =====
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in mutual fund fees for the third quarter of 2000 was due to the
overall growth in mutual fund assets. The Company managed mutual funds with $66
billion of assets at September 30, 2000, compared with $55 billion at September
30, 1999. The Company also managed or maintained personal trust, employee
benefit trust and agency assets of approximately $448 billion and $402 billion
at September 30, 2000 and 1999, respectively.
The increase in net venture capital gains during the third quarter and 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.
28
<PAGE>
The net losses on securities available for sale during the third quarter and
first nine months of 2000 were predominantly due to the restructuring of the
portfolio.
"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.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
-------------- % -------------- %
(in millions) 2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 869 $ 776 12% $2,525 $2,251 12%
Incentive compensation 177 124 43 467 393 19
Employee benefits 216 208 4 673 624 8
Equipment 193 193 -- 575 566 2
Net occupancy 222 205 8 666 576 16
Goodwill 132 106 25 369 314 18
Core deposit intangible:
Nonqualifying (1) 41 44 (7) 125 135 (7)
Qualifying 3 5 (40) 11 16 (31)
Net (gains) losses on dispositions of
premises and equipment (30) 6 -- (78) (5) --
Contract services 132 119 11 360 320 13
Outside professional services 114 83 37 288 243 19
Outside data processing 78 69 13 219 207 6
Telecommunications 71 66 8 206 191 8
Travel and entertainment 66 58 14 189 173 9
Advertising and promotion 80 54 48 210 160 31
Postage 59 54 9 176 169 4
Stationery and supplies 50 44 14 149 122 22
Insurance 30 41 (27) 126 127 (1)
Operating losses 46 25 84 111 91 22
Security 22 22 -- 66 64 3
All other 123 116 6 365 387 (6)
------- ------- ------- -------
Total $2,694 $2,418 11% $7,798 $7,124 9%
======= ======= === ======= ======= ====
------------------------------------------------------------------------------------------------------------------
</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.
INCOME TAXES
The Company's effective income tax rate was 40% for the third quarter of 2000
and 39% for the first nine months of 2000, compared with 37% for the same
periods of 1999. The increase in the effective tax rate for the third quarter of
2000 was primarily due to the accrual of deferred taxes of $36 million on
undistributed earnings of a foreign subsidiary that the Company intends to
repatriate.
29
<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"
earnings) for the quarter ended September 30, 2000.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Quarter ended
(in millions, except per share amounts) Sept. 30, 2000
-------------------------------------------------------------------------------------------------------------------
Amortization
-------------------------
Nonqualifying
Reported core deposit "Cash"
earnings Goodwill intangible earnings
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income tax expense $1,788 $132 $41 $1,961
Income tax expense 718 -- 16 734
------ ---- --- ------
Net income 1,070 132 25 1,227
Preferred stock dividends 4 -- -- 4
------ ---- --- ------
Net income applicable to common stock $1,066 $132 $25 $1,223
====== ==== === ======
Earnings per common share $ .65 $ .75
====== ======
Diluted earnings per common share $ .64 $ .74
====== ======
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core
deposit intangible amortization and related balances for the quarter ended
September 30, 2000 were calculated as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Quarter ended
(in millions) Sept. 30, 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C>
ROA: A/(C-E-F) = 2.17%
ROE: B/(D-E-G) = 35.77%
Efficiency: (H-I)/J = 52.9%
Net income $ 1,227(A)
Net income applicable to common stock 1,223(B)
Average total assets 235,042(C)
Average common stockholders' equity 23,074(D)
Average goodwill 8,768(E)
Average pretax nonqualifying core deposit intangible 1,143(F)
Average after-tax nonqualifying core deposit intangible 708(G)
Noninterest expense 2,694(H)
Amortization expense for goodwill and nonqualifying core deposit intangible 173(I)
Net interest income plus noninterest income 4,770(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" 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.
30
<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, September 30,
2000 1999 1999
---------------- ---------------- ---------------
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 $ 2,497 $ 2,529 $ 5,956 $ 5,631 $ 6,540 $ 6,276
Securities of U.S. states and
political subdivisions 1,916 1,936 2,041 2,061 2,054 2,048
Mortgage-backed securities:
Federal agencies 22,432 22,568 22,774 22,547 21,947 21,737
Private collateralized mortgage obligations (1) 1,326 1,302 2,855 2,804 3,063 2,977
------- ------- ------- ------- ------- -------
Total mortgage-backed securities 23,758 23,870 25,629 25,351 25,010 24,714
Other 2,425 2,353 2,289 2,204 2,396 2,312
------- ------- ------- ------- ------- -------
Total debt securities 30,596 30,688 35,915 35,247 36,000 35,350
Marketable equity securities 2,498 5,015 1,314 3,271 500 1,556
------- ------- ------- ------- ------- -------
Total $33,094 $35,703 $37,229 $38,518 $36,500 $36,906
======= ======= ======= ======= ======= =======
--------------------------------------------------------------------------------------------------------
</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>
----------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 2000 1999 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Estimated unrealized gross gains $2,815 $2,174 $1,341
Estimated unrealized gross losses (206) (885) (935)
------ ------ ------
Estimated unrealized net gain $2,609 $1,289 $ 406
====== ====== ======
----------------------------------------------------------------------------------------------
</TABLE>
31
<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>
----------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
---------------- -----------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Realized gross gains $ 17 $ 7 $ 53 $52
Realized gross losses (196) (9) (873) (33)
----- --- ----- ---
Realized net (losses) gains $(179) $(2) $(820) $19
===== === ===== ===
----------------------------------------------------------------------------------------------
</TABLE>
The weighted average expected remaining maturity of the debt securities portion
of the securities available for sale portfolio was 7 years and 7 months at
September 30, 2000. Expected remaining maturities will differ from contractual
maturities because borrowers may have the right to prepay obligations with or
without penalties.
At September 30, 2000, mortgage-backed securities, including collateralized
mortgage obligations, were $23.9 billion, or 66.9% of the Company's securities
available for sale portfolio. 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 that rate scenario, mortgage-backed securities
would decrease in fair value from $23.9 billion to $21.1 billion and the
expected remaining maturity of these securities would increase from 8 years and
3 months to 8 years and 9 months.
32
<PAGE>
LOAN PORTFOLIO
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
% Change
Sept. 30, 2000 from
-----------------------
SEPT. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 30,
(in millions) 2000 1999 1999 1999 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial (1) $ 44,204 $ 38,688 $ 37,222 14% 19%
Real estate 1-4 family first mortgage 18,392 12,398 12,375 48 49
Other real estate mortgage (2) 21,484 19,178 17,653 12 22
Real estate construction 5,867 4,711 4,381 25 34
Consumer:
Real estate 1-4 family junior lien mortgage 16,305 12,938 12,171 26 34
Credit card 5,903 5,472 5,347 8 10
Other revolving credit and monthly payment 19,680 16,656 16,709 18 18
------- ------- -------
Total consumer 41,888 35,066 34,227 19 22
Lease financing 7,951 7,850 7,292 1 9
Foreign 1,591 1,573 1,559 1 2
------- ------- -------
Total loans (net of unearned income,
including net deferred loan fees, of
$3,292, $3,200 and $3,003 $141,377 $119,464 $114,709 18% 23%
======== ======== ======== === ===
------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes agricultural loans (loans to finance agricultural production and
other loans to farmers) of $3,282 million, $3,103 million and $2,863 million
at September 30, 2000, December 31, 1999 and September 30, 1999,
respectively.
(2) Includes agricultural loans that are secured by real estate of $1,069
million, $1,061 million and $1,008 million at September 30, 2000, December
31, 1999 and September 30, 1999, respectively.
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 2000 1999 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial (2) $ 554 $344 $360
Real estate 1-4 family first mortgage 113 127 148
Other real estate mortgage (3) 114 112 108
Real estate construction 14 7 10
Consumer:
Real estate 1-4 family junior lien mortgage 12 17 14
Other revolving credit and monthly payment 35 27 26
------ ---- ----
Total consumer 47 44 40
Lease financing 50 22 23
Foreign 8 9 8
------ ---- ----
Total nonaccrual loans (4) 900 665 697
Restructured loans 2 4 1
------ ---- ----
Nonaccrual and restructured loans 902 669 698
As a percentage of total loans .6% .6% .6%
Foreclosed assets 126 153 161
Real estate investments (5) 28 33 34
------ ---- ----
Total nonaccrual and restructured loans
and other assets $1,056 $855 $893
====== ==== ====
----------------------------------------------------------------------------------------------
</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 $31 million, $40 million and $36
million at September 30, 2000, December 31, 1999 and September 30, 1999,
respectively.
(3) Includes agricultural loans secured by real estate of $11 million, $16
million and $14 million at September 30, 2000, December 31, 1999 and
September 30, 1999, respectively.
(4) Of the total nonaccrual loans, $526 million, $358 million and $364 million
at September 30, 2000, December 31, 1999 and September 30, 1999,
respectively, were considered impaired under FAS 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN.
(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 recorded as loans. Real estate investments totaled $72 million,
$89 million and $108 million at September 30, 2000, December 31, 1999 and
September 30, 1999, respectively.
33
<PAGE>
The Company generally identifies loans to be evaluated for impairment under FASB
Statement No. 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, rather than the
contractual terms specified by the restructuring agreement. Consequently, not
all impaired loans are necessarily placed on nonaccrual status. That is, 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 when the loan has been
restructured. When a loan with unique risk characteristics has been identified
as being impaired, the Company will estimate the amount of impairment using
discounted cash flows, except when the sole (remaining) source of repayment for
the loan is the operation or liquidation of the underlying collateral. In such
cases, the current fair value of the collateral, reduced by costs to sell, will
be used in place of discounted cash flows. Additionally, some impaired loans
with commitments of less than $1 million are aggregated for the purpose of
estimating 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.
34
<PAGE>
In accordance with FAS 114, the table below shows the recorded investment in
impaired loans and the related methodology used to measure impairment for the
periods presented:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 2000 1999 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Impairment measurement based on:
Collateral value method $185 $174 $186
Discounted cash flow method 162 74 56
Historical loss factors 181 114 123
---- ---- ----
Total (1) $528 $362 $365
==== ==== ====
----------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $272 million, $196 million and $216 million of impaired loans with
a related FAS 114 allowance of $59 million, $43 million and $38 million at
September 30, 2000, December 31, 1999 and September 30, 1999, respectively.
The average recorded investment in impaired loans was $479 million and $366
million during the third quarter of 2000 and 1999, respectively, and $417
million and $373 million during the first nine months of 2000 and 1999,
respectively. Total interest income recognized on impaired loans was $1 million
and $2 million during the third quarter of 2000 and 1999, respectively, and $4
million and $6 million during the first nine months of 2000 and 1999,
respectively, a majority of which was recorded using the cash method.
The Company uses either the cash or cost recovery method to record cash receipts
on impaired loans that are on nonaccrual. Under the cash method, contractual
interest is credited to interest income when received. This method is used when
the ultimate collectibility of the total principal is not in doubt. Under the
cost recovery method, all payments received are applied to principal. This
method is used when the ultimate collectibility of the total principal is in
doubt. Loans on the cost recovery method may be changed to the cash method when
the application of the cash payments has reduced the principal balance to a
level where collection of the remaining recorded investment is no longer in
doubt.
The Company anticipates changes in the amount of nonaccrual loans that result
from increases in lending activity and reductions due to 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 may acquire loans from other financial
institutions that may be classified as nonaccrual based on the Company's
policies.
35
<PAGE>
Loans 90 Days or More Past Due and Still Accruing
-------------------------------------------------
The following table shows loans contractually past due 90 days or more as to
interest or principal, but not included in the nonaccrual or restructured
categories. All loans in this category are both well-secured and in the process
of collection or are real estate 1-4 family first mortgage loans or consumer
loans that are exempt under regulatory rules from being classified as
nonaccrual. 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) 2000 1999 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 56 $ 24 $ 86
Real estate 1-4 family first mortgage 33 39 48
Other real estate mortgage 18 15 26
Real estate construction 12 4 12
Consumer:
Real estate 1-4 family junior lien mortgage 40 35 29
Credit card 132 99 102
Other revolving credit and monthly payment 232 185 163
---- ---- ----
Total consumer 404 319 294
---- ---- ----
Total $523 $401 $466
==== ==== ====
----------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Quarter Nine months
ended Sept. 30, ended Sept. 30,
--------------- ----------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $3,349 $3,165 $3,170 $3,134
Allowances related to business combinations, net 47 3 211 38
Provision for loan losses 288 240 803 770
Loan charge-offs:
Commercial (93) (93) (283) (285)
Real estate 1-4 family first mortgage (4) (3) (10) (22)
Other real estate mortgage (9) (8) (25) (20)
Real estate construction (1) -- (5) (1)
Consumer:
Real estate 1-4 family junior lien mortgage (6) (7) (23) (22)
Credit card (86) (93) (252) (299)
Other revolving credit and monthly payment (130) (122) (381) (358)
------ ------ ------ ------
Total consumer (222) (222) (656) (679)
Lease financing (9) (9) (31) (30)
Foreign (20) (18) (65) (57)
------ ------ ------ ------
Total loan charge-offs (358) (353) (1,075) (1,094)
------ ------ ------ ------
Loan recoveries:
Commercial 17 25 68 61
Real estate 1-4 family first mortgage 1 3 3 6
Other real estate mortgage 3 4 10 33
Real estate construction 1 -- 3 4
Consumer:
Real estate 1-4 family junior lien mortgage 2 3 10 10
Credit card 9 10 27 36
Other revolving credit and monthly payment 49 60 152 149
------ ------ ------ ------
Total consumer 60 73 189 195
Lease financing 3 3 9 9
Foreign 6 4 26 11
------ ------ ------ ------
Total loan recoveries 91 112 308 319
------ ------ ------ ------
Total net loan charge-offs (267) (241) (767) (775)
------ ------ ------ ------
BALANCE, END OF PERIOD $3,417 $3,167 $3,417 $3,167
====== ====== ====== ======
Total net loan charge-offs as a percentage
of average total loans (annualized) .78% .85% .80% .94%
====== ====== ====== ======
Allowance as a percentage of total loans 2.42% 2.76% 2.42% 2.76%
====== ====== ====== ======
----------------------------------------------------------------------------------------------
</TABLE>
The Company considers the allowance for loan losses of $3,417 million adequate
to cover losses inherent in loans, loan commitments and standby and other
letters of credit at September 30, 2000. The Company's determination of the
level of the allowance for loan losses rests
37
<PAGE>
upon various judgments and assumptions, including general economic conditions,
loan portfolio composition, prior loan loss experience, evaluation of credit
risk related to certain individual borrowers and the Company's ongoing
examination process and that of its regulators.
INTEREST RECEIVABLE AND OTHER ASSETS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 2000 1999 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonmarketable equity investments $ 4,047 $ 3,347 $ 2,687
Trading assets 2,368 2,667 2,326
Government National Mortgage Association
(GNMA) pool buy outs 1,400 1,516 1,983
Interest receivable 1,378 1,169 1,203
Certain identifiable intangible assets 220 230 235
Foreclosed assets 126 153 213
Due from customers on acceptances 110 103 99
Interest-earning deposits 101 196 87
Other 7,960 5,967 5,282
------- ------- -------
Total interest receivable and other assets $17,710 $15,348 $14,115
======= ======= =======
----------------------------------------------------------------------------------------------
</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.
Trading assets largely consist of securities, including U.S. government agency
obligations, commercial papers, and U.S. Treasury securities. Interest income
from trading assets was $26 million and $19 million in the third quarter of 2000
and 1999, respectively, and $71 million and $49 million in the first nine months
of 2000 and 1999, respectively. Noninterest income from trading assets was $41
million and $6 million in the third quarter of 2000 and 1999, respectively, and
$154 million and $71 million in the first nine months of 2000 and 1999,
respectively.
Amortization expense for certain identifiable intangible assets included in
other assets was $11 million in the third quarter of 2000 and 1999.
A major portion of the increase in "Other" was due to an increase in security
trades pending settlement.
38
<PAGE>
DEPOSITS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(in millions) 2000 1999 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $ 48,741 $ 42,916 $ 41,872
Interest-bearing checking 2,243 3,083 2,736
Market rate and other savings 60,500 55,791 55,641
Savings certificates 26,208 24,408 24,911
-------- -------- --------
Core deposits 137,692 126,198 125,160
Other time deposits 4,266 3,255 3,213
Deposits in foreign offices 9,011 3,255 3,184
-------- -------- --------
Total deposits $150,969 $132,708 $131,557
======== ======== ========
----------------------------------------------------------------------------------------------
</TABLE>
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, 2000:
Total capital (to risk-weighted assets)
Wells Fargo & Company $ 21.8 11.20% > $ 15.6 > 8.00%
- -
Wells Fargo Bank Minnesota, N.A. 3.1 11.37 > 2.2 > 8.00 > 2.7 >10.00%
(formerly Norwest Bank - - - -
Minnesota, N.A.)
Wells Fargo Bank, N.A. 11.4 12.76 > 7.1 > 8.00 > 8.9 >10.00
- - - -
Tier 1 capital (to risk-weighted assets)
Wells Fargo & Company $ 14.2 7.28% > $ 7.8 > 4.00%
- -
Wells Fargo Bank Minnesota, N.A. 2.9 10.44 > 1.1 > 4.00 > 1.6 > 6.00%
- - - -
Wells Fargo Bank, N.A. 6.8 7.67 > 3.6 > 4.00 > 5.4 > 6.00
- - - -
Tier 1 capital (to average assets)
(Leverage ratio)
Wells Fargo & Company $ 14.2 6.37% > $ 8.9 > 4.00%(1)
- -
Wells Fargo Bank Minnesota, N.A. 2.9 5.70 > 2.0 > 4.00(1) > 2.5 > 5.00%
- - - -
Wells Fargo Bank, N.A. 6.8 7.01 > 3.9 > 4.00(1) > 4.9 > 5.00
- - - -
----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The leverage ratio consists of Tier 1 capital divided by quarterly average
total assets, excluding goodwill and certain other items. The minimum
leverage ratio guideline is 3% for banking organizations that do not
anticipate significant growth and that have well-diversified risk,
excellent asset quality, high liquidity, good earnings, effective
management and monitoring of market risk and, in general, are considered
top-rated, strong banking organizations.
39
<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 (3) VALUE amount amount (3) value
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET/LIABILITY MANAGEMENT
HEDGES
Interest rate contracts:
Swaps (1) $29,979 $ 154 $ (33) $31,570 $ 93 $ (243)
Futures 51,166 -- -- 50,725 -- --
Floors and caps (1) 29,623 70 65 41,142 110 110
Options (1)(2) 13,054 34 30 11,940 22 43
Forwards (1) 25,761 38 (51) 22,528 108 43
Foreign exchange contracts:
Forwards (1) -- -- -- 138 1 --
CUSTOMER ACCOMMODATIONS
Interest rate contracts:
Swaps (1) 39,963 253 (57) 21,702 158 (10)
Futures 20,579 -- -- 22,839 -- --
Floors and caps purchased (1) 10,880 83 83 6,130 51 51
Floors and caps written 11,578 -- (69) 5,804 -- (53)
Options purchased (1) 1,015 -- -- 741 30 30
Options written -- -- -- 1,101 -- (51)
Forwards (1) -- -- -- 164 6 1
Commodity 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) 4,519 91 15 4,234 62 28
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) A majority of purchased option contracts were options on futures contracts,
which are exchange traded and 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.
40
<PAGE>
The Company is primarily an end-user of these instruments. The Company also
offers such contracts to its customers but offsets such contracts by purchasing
other financial contracts or uses the contracts for asset/liability management.
To a lesser extent, the Company takes positions based on market expectations or
to benefit from price differentials between financial instruments and markets.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The Company controls the credit risk of
its financial contracts except for contracts for which credit risk is DE MINIMUS
through credit approvals, limits and monitoring procedures. Credit risk related
to derivative financial instruments is considered and, if material, provided for
separately from the allowance for loan losses. As the Company generally enters
into transactions only with high quality counterparties, losses associated with
counterparty nonperformance on derivative financial instruments have been
immaterial.
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 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.
41
<PAGE>
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 a shelf registration statement with the
SEC, under which WFFI may issue up to $3 billion in 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 for acquisitions accounted for as
purchases. In February 2000, the Board of Directors authorized the repurchase of
up to 81 million additional shares of the Company's outstanding common stock. In
September 2000, the Board of Directors authorized an amendment reducing the
February 2000 repurchase 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.
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.
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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 market 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 (1) the spread between prime-based loans and market
rate account (MRA) savings deposits and (2) the rate paid on savings and
interest-bearing checking accounts as compared to LIBOR-based loans.
Interest rate risk is managed within an overall asset/liability framework for
the Company. The principal objectives of asset/liability management are to
manage the sensitivity of net interest spreads and net income to potential
changes in interest rates and to enhance profitability in ways that promise
sufficient reward for understood and controlled risk. Funding positions are kept
within predetermined limits designed to ensure that risk-taking is not excessive
and that liquidity is properly managed. The Company employs a sensitivity
analysis in the form of a net interest income simulation to help characterize
the market risk arising from changes in interest rates in the other-than-trading
portfolio.
The Company's net interest income simulation includes all other-than-trading
financial assets, financial liabilities, derivative financial instruments and
leases where the Company is the lessor. It captures the dynamic nature of the
balance sheet by anticipating probable balance sheet and off-balance sheet
strategies and volumes under different interest rate scenarios over the course
of a one-year period. This simulation measures both the term structure risk and
the basis risk in the Company's positions. The simulation also captures the
option characteristics of products, such as caps and floors on floating rate
loans, the right to prepay mortgage loans without penalty and the ability of
customers to withdraw deposits on demand. These options are modeled directly in
the simulation either through the use of option pricing models, in the case of
caps and floors on loans, or through statistical analysis of historical customer
behavior, in the case of mortgage loan prepayments or non-maturity deposits.
The simulation model is used to measure the impact on net income, relative to a
base case scenario, of interest rates increasing or decreasing 100 basis points
over the next 12 months. At September 30, 2000, 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 is projected to result
in a decrease in net income of $60 million. In the simulation that was
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run at December 31, 1999, 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 was projected to result in a decrease in net income of $38 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 and 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 as well as forwards, futures and options on futures and forwards to hedge
the Company's 1-4 family real estate first mortgage loan commitments and
mortgage loans held for sale.
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.
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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
(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 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
(e) 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
(f) 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
(g) 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
(h) 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
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3(i) 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
(j) 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
(k) 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
(l) 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
(m) 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
(n) 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
(o) Certificate of Designations for the Company's 2000 ESOP
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3(o) to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000
(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.
27 Financial Data Schedule
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99(a) Computation of Ratios of Earnings to Fixed Charges -- the
ratios of earnings to fixed charges, including interest on
deposits, were 1.94 and 2.18 for the quarters ended
September 30, 2000 and 1999, respectively, and 1.99 and
2.17 for the nine months ended September 30, 2000 and 1999,
respectively. The ratios of earnings to fixed charges,
excluding interest on deposits, were 2.92 and 3.48 for the
quarters ended September 30, 2000 and 1999, respectively,
and 3.02 and 3.61 for the nine months ended September 30,
2000 and 1999, respectively.
(b) Computation of Ratios of Earnings to Fixed Charges and
Preferred Dividends -- the ratios of earnings to fixed
charges and preferred dividends, including interest on
deposits, were 1.93 and 2.16 for the quarters ended
September 30, 2000 and 1999, respectively, and 1.98 and
2.15 for the nine months ended September 30, 2000 and 1999,
respectively. The ratios of earnings to fixed charges and
preferred dividends, excluding interest on deposits, were
2.90 and 3.40 for the quarters ended September 30, 2000 and
1999, respectively, and 2.99 and 3.53 for the nine months
ended September 30, 2000 and 1999, respectively.
(b) The Company filed the following reports on Form 8-K during the
third quarter of 2000:
(1) July 18, 2000 under Item 5, containing the Company's
financial results for the quarter ended June 30, 2000
(2) September 28, 2000 under Item 5, containing the Press
Release announcing the Company's amended stock repurchase
authority
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 14, 2000.
WELLS FARGO & COMPANY
By: LES L. QUOCK
------------------------------------
Les L. Quock
Senior Vice President and Controller
(Principal Accounting Officer)
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