-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ExLI6HYFG4SHtJm9TD9MlrMzRMVBKAMfzVPP8Ld8EiPM2GgM5ihBAROyyiwDOQ/Q O0ijXeA5eAx+Ft//hmf97Q== 0000912057-96-004759.txt : 19960320 0000912057-96-004759.hdr.sgml : 19960320 ACCESSION NUMBER: 0000912057-96-004759 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960319 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLS FARGO & CO CENTRAL INDEX KEY: 0000105598 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 132553920 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06214 FILM NUMBER: 96536264 BUSINESS ADDRESS: STREET 1: 420 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94163 BUSINESS PHONE: 4154771000 MAIL ADDRESS: STREET 1: 343 SANSOME ST 3RD FL STREET 2: WELLS FARGO BANK CITY: SAN FRANCISCO STATE: CA ZIP: 94163 10-K405 1 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the year ended December 31, 1995 Commission file number 1-6214 ------------------- WELLS FARGO & COMPANY (Exact name of registrant as specified in its charter) Delaware No. 13-2553920 (State of incorporation) (I.R.S. Employer Identification No.) 420 Montgomery Street, San Francisco, California 94163 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 477-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of Each Exchange Title of Each Class on Which Registered ------------------- ---------------------- Common Stock, par value $5 New York Stock Exchange Pacific Stock Exchange Adjustable Rate Cumulative Preferred Stock, Series B New York Stock Exchange 9% Preferred Stock, Series C New York Stock Exchange 8 7/8% Preferred Stock, Series D New York Stock Exchange 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is contained herein, or will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No ----- ----- As of February 16, 1996 (the latest practicable date), 46,994,234 shares of common stock were outstanding. On the same date, the aggregate market value of common stock held by nonaffiliates was approximately $11,704 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Report to Shareholders - Incorporated into Parts I, II and IV. Portions of the Proxy Statement for the 1996 Annual Meeting of Shareholders - Incorporated into Part III. FORM 10-K CROSS-REFERENCE INDEX
Page -------------------------------------------- FORM Annual Proxy 10-K Report (1) Statement (2) ---- ------ --------- PART I Item 1. Business Description of Business 2-5 4-67 -- Statistical Disclosure: Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential 6 10-13 -- Investment Portfolio 7 15-16, 39-40, 43-44 -- Loan Portfolio 7-10 17-23, 40-41, 44-46 -- Summary of Loan Loss Experience 11-13 23-24, 41, 45-46 -- Deposits 13 12-13, 24-25 -- Return on Equity and Assets -- 4-5 -- Short-Term Borrowings 14 -- -- Item 2. Properties 14 -- -- Item 3. Legal Proceedings -- 59 -- Item 4. Submission of Matters to a Vote of Security- Holders (in fourth quarter 1995) (3) -- -- -- Executive Officers of the Registrant 15 -- -- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters -- 34, 42 -- Item 6. Selected Financial Data -- 6 -- Item 7. Management's Discussion and Analysis of Finan- cial Condition and Results of Operations -- 4-34 -- Item 8. Financial Statements and Supplementary Data -- 35-67 -- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure (3) -- -- -- PART III Item 10. Directors and Executive Officers of the Registrant 15 -- 7-11 Item 11. Executive Compensation -- -- 3-4, 12-17 Item 12. Security Ownership of Certain Beneficial Owners and Management -- -- 5-6 Item 13. Certain Relationships and Related Transactions -- -- 20-22 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16-18 35-67 -- SIGNATURES 19 -- -- - ---------------------------------------------------------------------------------------------------------
(1) The 1995 Annual Report to Shareholders, portions of which are incorporated by reference into this Form 10-K. (2) The Proxy Statement dated March 13, 1996 for the 1996 Annual Meeting of Shareholders, portions of which are incorporated by reference into this Form 10-K. (3) None. 1 DESCRIPTION OF BUSINESS GENERAL Wells Fargo & Company (Parent) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Based on assets as of December 31, 1995, it was the 17th largest bank holding company in the United States. Its principal subsidiary is Wells Fargo Bank, N.A. (Bank), the ninth largest bank in the U.S. Wells Fargo & Company and its subsidiaries are hereinafter referred to as the Company. THE BANK HISTORY AND GROWTH The Bank is the successor to the banking portion of the business founded by Henry Wells and William G. Fargo in 1852. That business later operated the westernmost leg of the Pony Express and ran stagecoach lines in the western part of the United States. The California banking business was separated from the express business in 1905 and was merged in 1960 with American Trust Company, another of the oldest banks in the Western United States. The Bank became Wells Fargo Bank, N.A., a national banking association, in 1968. Its head office is located in San Francisco, California. In 1986, the Company acquired from Midland Bank plc all the common stock of Crocker National Corporation, a bank holding company whose principal subsidiary was Crocker National Bank, the 17th largest bank in the U.S. at the time. In 1988, the Company acquired Barclays Bank of California with assets of $1.3 billion. In 1990 and 1991, the Company completed the two-phase purchase of the 130-branch California network of Great American Bank (GA), a Federal Savings Bank. The Company acquired assets with a GA book value of $5.8 billion. Also during 1990, the Company completed the acquisition of four California banking companies with combined assets of $1.9 billion: Valley National Bank of Glendale, Central Pacific Corporation of Bakersfield, the Torrey Pines Group of Solana Beach and Citizens Holdings and its two banking subsidiaries in Orange County. In January 1996, the Company announced it had entered into a definitive agreement with First Interstate Bancorp (First Interstate) to merge the two companies. At December 31, 1995, First Interstate had assets of $58.1 billion and was the 15th largest bank holding company in the nation. The merger is expected to close on April 1, 1996, subject to shareholder approval. The newly formed company will be operated under the Wells Fargo & Company name. The merger is discussed in the 1995 Annual Report to Shareholders. For further information, see the Line of Business Results section of the 1995 Annual Report to Shareholders. 2 The following table shows selected information for the Bank:
- ----------------------------------------------------------------------------------------------- December 31, ---------------------------------------------- (in billions) 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------- Investment securities $ 8.5 $11.2 $12.7 $ 9.0 $ 3.6 Loans $34.6 $35.7 $32.4 $36.0 $43.0 Assets $48.6 $51.9 $50.7 $50.7 $51.6 Deposits $39.0 $42.4 $42.4 $43.1 $44.5 Staff (full-time equivalent) 18,426 19,522 19,644 21,276 20,954 Retail outlets (domestic, all California) 974 634 624 626 612 - -----------------------------------------------------------------------------------------------
OTHER BANK SUBSIDIARIES In June 1995, the Company formed Wells Fargo Bank (Arizona), N.A., a new national bank subsidiary, to operate the Company's credit card business. The Company also has a majority ownership interest in the Wells Fargo HSBC Trade Bank, N.A. established in October 1995 that provides trade financing, letters of credit and collection services. NONBANK SUBSIDIARIES The Company has wholly-owned subsidiaries that provide various banking-related services. In the aggregate, these subsidiaries are not material to the Company's assets or net income. COMPETITION The Company competes for deposits, loans and other banking services in its principal geographic market in California, as well as in selected national markets as opportunities arise. The banking business is highly competitive and has become increasingly so in recent years; the industry continues to consolidate and strong, unregulated competitors have entered core banking markets with focused products targeted at highly profitable customer segments. These unregulated competitors, such as investment companies, specialized lenders and multinational financial services companies, compete across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products. These competitive trends are likely to continue. Within the banking industry, ongoing consolidation has increased pressure on the Company from its most significant competitor in California, Bank of America, the second largest bank holding company in the United States based on assets as of December 31, 1995. Moreover, federal and state legislation adopted in recent years has increased competition by allowing banking organizations from other parts of the country to enter the Company's core geographic market (see "Supervision and Regulation" for further discussion of such legislation and the competitive environment in which the Company operates). 3 Among commercial banks, the Bank is presently the second largest holder of customer deposits in California. There is no meaningful measure of overall market share within the broadly defined financial services industry. MONETARY POLICY The earnings of the Company are affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities in the U.S. and abroad. In particular, the Federal Reserve System exerts a substantial influence on interest rates and credit conditions, primarily through open market operations in U.S. Government securities, varying the discount rate on member bank borrowings and setting reserve requirements against deposits. Federal Reserve monetary policies have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future. SUPERVISION AND REGULATION Under the Bank Holding Company Act, the Company is required to file reports of its operations with the Board of Governors of the Federal Reserve System and is subject to examination by it. Further, the Act restricts the activities in which the Company may engage and the nature of any company in which the Parent may own more than 5% of the voting shares. Generally, permissible activities are limited to banking, the business of managing and controlling banks, and activities so closely related to banking as determined by the Board of Governors to be proper incidents thereto. Under the Act, the acquisition of substantially all of the assets of any domestic bank or savings association or the ownership or control of more than 5% of its voting shares by a bank holding company is subject to prior approval by the Board of Governors. In no case, however, may the Board approve the acquisition by the Parent of the voting shares of, or substantially all assets of, any bank located outside of California unless such acquisition is specifically authorized by the laws of the state in which the bank to be acquired is located or the Federal Deposit Insurance Corporation (FDIC) arranges the acquisition under its authority to aid financially troubled banks. Federal legislation enacted in 1994 will remove many of the remaining barriers to interstate expansion and acquisition. Bank holding companies which are adequately capitalized and adequately managed are now permitted to make interstate acquisitions of banks without regard to state law restrictions. Effective June 1, 1997, or earlier if authorized by state legislation, the merger of commonly owned banks in different states will also be permitted, except in states which have passed legislation to prohibit such mergers. The new statute will also permit banks to establish branches outside their home state in states which pass legislation to permit such interstate branching. The Bank is subject to certain restrictions under the Federal Reserve Act, including restrictions on the terms of transactions between the Bank and its affiliates and on any extension of credit to its affiliates. Dividends payable by the Bank to the Parent without the express approval of the Office of the Comptroller of the Currency are limited by a formula. For more information regarding restrictions on loans and dividends by the Bank to its affiliates, see Note 2 to the Financial Statements in the 1995 Annual Report to Shareholders. 4 There are various requirements and restrictions in the laws of the U.S. and California affecting the Bank and its operations, including restrictions on the amount of its loans and the nature and amount of its investments, its activities as an underwriter of securities, its opening of branches and its acquisition of other banks or savings associations. The Bank, as a national bank, is subject to regulation and examination by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the FDIC. Major regulatory changes affecting the Bank, banking and the financial services industry in general have occurred in the last several years and can be expected to occur increasingly in the future. Federal banking legislation since 1980 has deregulated interest rate ceilings on deposits at banks and thrift institutions and has increased the types of accounts that can be offered. Generally, federal banking legislation has narrowed the functional distinctions among financial institutions. The consumer and commercial banking powers of thrift institutions have expanded, and state-chartered banks are authorized to engage in all activities which are permissible for national banks and in certain cases may, with approval of the FDIC, engage in activities, such as insurance underwriting, which are not authorized for national banks. Non-depository institutions can be expected to increase the extent to which they act as financial intermediaries, particularly in the area of consumer credit services. Large institutional users and sources of credit may also increase the extent to which they interact directly, meeting business credit needs outside the banking system. Furthermore, the geographic constraints on portions of the financial services industry can be expected to continue to erode. These changes create significant opportunities for the Company, as well as the financial services industry, to compete in financial markets on a less-regulated basis. They also suggest that the Company and, particularly, the Bank will face new and major competitors in geographic and product markets in which their operations historically have been protected by banking laws and regulations. 5 ANALYSIS OF CHANGES IN NET INTEREST INCOME The following table allocates the changes in net interest income on a taxable-equivalent basis to changes in either average balances or average rates for both interest-earning assets and interest-bearing liabilities. Because of the numerous simultaneous volume and rate changes during any period, it is not possible to precisely allocate such changes between volume and rate. For this table, changes that are not solely due to either volume or rate are allocated to these categories in proportion to the percentage changes in average volume and average rate.
- ------------------------------------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------------------------------------ 1995 OVER 1994 1994 over 1993 ------------------------------ ------------------------------ (in millions) VOLUME RATE TOTAL Volume Rate Total - ------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in interest income: Federal funds sold and securities purchased under resale agreements $ (6) $ 3 $ (3) $ (18) $ 2 $ (16) Investment securities: At fair value: U.S. Treasury Securities 19 (1) 18 13 -- 13 Securities of U.S. government agencies and corporations (8) (4) (12) 93 -- 93 Private collateralized mortgage obligations (10) 1 (9) 80 -- 80 Other securities 1 4 5 6 -- 6 At cost: U.S. Treasury securities (54) 2 (52) 4 (6) (2) Securities of U.S. government agencies and corporations (89) 1 (88) (127) (27) (154) Private collateralized mortgage obligations (7) 2 (5) 19 16 35 Other securities 1 1 2 (3) -- (3) Mortgage loans held for sale 76 -- 76 -- -- -- Loans: Commercial 149 52 201 (6) (12) (18) Real estate 1-4 family first mortgage (190) 41 (149) 122 (79) 43 Other real estate mortgage (2) 67 65 (119) 43 (76) Real estate construction 16 9 25 (30) 10 (20) Consumer: Real estate 1-4 family junior lien mortgage (3) 29 26 (39) 28 (11) Credit card 131 5 136 18 (6) 12 Other revolving credit and monthly payment 39 24 63 12 3 15 Lease financing 21 1 22 7 (8) (1) Foreign -- -- -- 2 -- 2 Other -- -- -- 3 -- 3 ----- ---- ----- ----- ---- ----- Total increase (decrease) in interest income 84 237 321 37 (36) 1 ----- ---- ----- ----- ---- ----- Increase (decrease) in interest expense: Deposits: Interest-bearing checking (7) 1 (6) -- (10) (10) Market rate and other savings (84) 47 (37) (9) 13 4 Savings certificates 49 74 123 (39) (7) (46) Other time deposits 6 (4) 2 (2) -- (2) Deposits in foreign offices 48 13 61 44 -- 44 Federal funds purchased and securities sold under repurchase agreements 63 37 100 45 25 70 Commercial paper and other short-term borrowings 17 5 22 1 3 4 Senior debt (18) 23 5 (12) 11 (1) Subordinated debt (3) 9 6 (26) 13 (13) ----- ---- ----- ----- ---- ----- Total increase (decrease) in interest expense 71 205 276 2 48 50 ----- ---- ----- ----- ---- ----- Increase (decrease) in net interest income on a taxable-equivalent basis $ 13 $ 32 $ 45 $ 35 $(84) $ (49) ----- ---- ----- ----- ---- ----- ----- ---- ----- ----- ---- ----- - -------------------------------------------------------------------------------------------------------------------------
6 INVESTMENT SECURITIES At December 31, 1995, there were no investment securities issued by a single issuer (excluding the U.S. government and its agencies and corporations) that exceeded 10% of stockholders' equity, except for private collateralized mortgage obligations issued by The Prudential Home Mortgage Securities Company, Inc. The securities issued by The Prudential Home Mortgage Securities Company, Inc. had a cost basis and fair value of $801 million and were distributed among 36 series of mortgage pass-through certificates; each series was collateralized by separate trusts. The largest series had a cost basis and fair value of $51 million. LOAN PORTFOLIO The following table presents the remaining contractual principal maturities of selected loan categories at December 31, 1995 and a summary of the major categories of loans outstanding at the end of the last five years. At December 31, 1995, the Company did not have loan concentrations that exceeded 10% of total loans, except as shown below.
- ---------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1995 ------------------------------------------------------------- OVER ONE YEAR THROUGH FIVE YEARS OVER FIVE YEARS ------------------ ------------------- FLOATING FLOATING OR OR ONE YEAR FIXED ADJUSTABLE FIXED ADJUSTABLE December 31, OR LESS RATE RATE RATE RATE ---------------------------------- (in millions) TOTAL 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- Selected loan maturities: Commercial $5,365 $ 330 $3,270 $ 79 $ 706 $ 9,750 $ 8,162 $ 6,912 $ 8,214 $11,270 Real estate 1-4 family first mortgage (1) 27 60 34 2,887 1,440 4,448 9,050 7,458 6,836 8,612 Other real estate mortgage 1,846 888 3,286 1,145 1,098 8,263 8,079 8,286 10,128 10,751 Real estate construction 749 75 483 5 54 1,366 1,013 1,110 1,600 2,055 Foreign 31 -- -- -- -- 31 27 18 5 2 ------ ------ ------ ------ ------ ------- ------ ------- ------- ------- Total selected loan maturities $8,018 $1,353 $7,073 $4,116 $3,298 23,858 26,331 23,784 26,783 32,690 ------ ------ ------ ------ ------ ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ ------- ------ ------- ------- ------- Other loan categories: Real estate 1-4 family junior lien mortgage 3,358 3,332 3,583 4,157 5,053 Credit card 4,001 3,125 2,600 2,807 2,900 Other revolving credit and monthly payment 2,576 2,229 1,920 1,979 2,286 ------- ------ ------- ------- ------- Total consumer 9,935 8,686 8,103 8,943 10,239 Lease financing 1,789 1,330 1,212 1,177 1,170 ------- ------ ------- ------- ------- Total loans $35,582 $36,347 $33,099 $36,903 $44,099 ------- ------ ------- ------- ------- ------- ------ ------- ------- ------- - ----------------------------------------------------------------------------------------------------------------------------------
(1) Includes approximately $2 billion of fixed-initial-rate mortgage (FIRM) loans in the over 5 year fixed rate category. FIRM loans carry fixed rates during the first 3, 5, 7 or 10 years (based on the period selected by the borrower) of the loan term and carry adjustable rates thereafter. 7 UNDERWRITING POLICIES AND PRACTICES It is the policy of the Company to grant credit in accordance with the principles of sound risk management and the Company's business strategy. The Company obtains and analyzes sufficient information to ensure that the purpose of a credit extension is lawful and productive and that the borrower is able to repay as scheduled. Credit is structured in a manner consistent with such supporting analysis and is monitored to detect changes in quality. The Company's credit policies establish the fundamental credit principles which guide the Company in granting loans, leases, lines of credit, standby and commercial letters of credit, acceptances and commitments ("direct credit") to customers on an unsecured, partially secured or fully secured basis. The credit product line for both businesses and individuals includes standardized products as well as customized, individual accommodations. In addition, the Company provides products and services which could become direct credit exposure unless such products are offered on a "cash only" basis. These include: automated clearing house services, controlled disbursement, wire services, foreign exchange services, interest rate protection products, Federal fund lines to banks, cash letters and deposit accounts which create exposure by allowing use of funds advanced/uncollected funds ("operating credit"). Standardized documentation and underwriting and a study of the requirements of the secondary market are an explicit consideration in credit product development. The Company requires some degree of background check into character and credit history of all its credit customers. Extensions of credit must be supported by current financial information on the borrower (and guarantor) which is appropriate to the size and type of credit being offered; such information can denote any material which serves to inform the Company about the financial health of its credit customers. An accompanying credit analysis includes, at a minimum, an evaluation of the customer's financial strength and probability of repayment, with due consideration given to the negative factors which may affect the borrower's ability to meet repayment schedules. Collateral is valued in accordance with Company appraisal standards and, where applicable, appraisal regulations issued under FIRREA and other applicable law. For commercial real estate transactions, the recommending officer reviews and evaluates the key assumptions supporting the appraised value. In addition to a broad range of laws and regulations and the Company's credit policies, the Company has established minimum underwriting standards which delineate criteria for sources of repayment, financial strength and enhancements such as guarantees. The primary source of repayment will be recurring cash flow of the borrower or cash flow from the real estate project being financed. Underwriting standards include: minimum financial condition and cash flow hurdles for unsecured credit; maximum loan to collateral value ratios for secured products; minimum cash flow coverage of debt service, or debt to income ratios, for term products; minimum liquidity and maximum financial leverage requirements when lending to highly leveraged borrowers; and, for certain products, a description of any credit scoring criteria and methodology employed. Prudent credit practice will permit credit extensions which are an exception to the minimum underwriting standards; procedures for approval of exceptions are included in Company policy; and certain exceptions are reported to the Board of Directors. 8 Generally, the Company's minimum underwriting standards for commercial real estate include various maximum loan-to-value ("LTV") ratios ranging from 50% to 80% depending on the type of collateral and the size and purpose of the loan; minimum debt service (stabilized net income divided by debt service cost) ranging from 1.10 to 1.30 depending on the type of property financed; and maximum terms ranging from 2 to 15 years for certain commercial property loans depending on the same loan/collateral characteristics. For example, a typical owner-occupied commercial real estate loan would most often have a maximum LTV of 80%, debt service coverage of 1.25 and a term of 4 to 15 years. For community reinvestment projects, the Company applies special underwriting criteria to its financing of construction of affordable multi-family housing in California built by non-profit as well as for-profit developers. Recently, the Company has devoted a limited portion of its commercial real estate portfolio to higher-risk loans, for which a commensurate return is expected. Such transactions include purchases of performing or distressed real estate loans at a discount, acquisition of rated and unrated tranches of commercial mortgage obligations, loan acquisition financing, mezzanine financing and origination of single assets for securitization. Many of the higher-yielding of these transactions may contain non-recourse provisions. In general, this business is more "opportunistic" in nature, as opposed to representing a highly defined lending program. As such, higher LTVs (up to 90% or 95%) will be underwritten on occasion, particularly in the case of junior and senior participating debt. Generally, commercial loan categories include unsecured loans and lines of credit with minimum debt service coverage (earnings before interest, taxes, depreciation and amortization divided by debt service cost) of 1.50 or higher depending on the specific credit analysis. Common forms of collateral pledged to secure commercial credit accommodations include accounts receivable, inventories, equipment, agricultural crops or livestock, marketable securities and cash or cash equivalent. Most transactions have minimum debt service requirements of 1.50, maximum terms of 1 to 7 years and/or LTVs in the range of 65% to 85%, based on an analysis of the collateral pledged. The newly created Wells Fargo HSBC Trade Bank, which provides trade financing, letters of credit, foreign exchange services and collection services, generally uses the same underwriting guidelines as the Company has established for its commercial lending functions. The Company also allocates a small percentage of its commercial loan portfolio to the origination of asset-based loans secured by "hard assets" (accounts receivable, inventory, equipment and/or real estate). In contrast to traditional commercial lending, asset-based borrowers generally do not have the ability to repay their debts through cash flow; therefore, such loans are fully secured and tailored to the growth and turnover of the borrower's self-liquidating asset base. Maximum LTVs are generally in the range of 65% to 85%, with specialized collateral monitoring and control procedures in place to mitigate risk exposure. The Company has devoted a focused product group to providing a full range of credit products to small businesses, generally those with three years of business operations, with annual sales of up to $10 million and in which the owner of the business is also the 9 principal financial decision maker. Credit products include lines of credit, loans, leases and credit cards, granted on an unsecured, partially secured or fully secured basis depending on the product type or the applicant's financial strength. The group utilizes automated credit decision methods, in conjunction with more traditional credit analysis in some cases, to approve or decline requests for credit. An evaluation of the soundness and desirability of collateral, if any, is also required before an extension of credit will be made. Loan-to-value, debt service coverage and maximum loan term underwriting guidelines employed are, in general, similar to those described earlier for commercial and commercial real estate loan products. The Company is an active participant in the national auto finance market, underwriting primarily indirect leases and direct (branch-originated) loans, by employing a business strategy which emanated from a seasoned California practice. Most applicants for these credit products are assigned a credit score which is indicative of their relative probability of repayment. The credit scoring models are validated as to their predictive power on a periodic basis. The lending group bases its credit decisions on judgmental criteria including, but not limited to, this credit score. However, all credit decisions made contrary to an established cut-off score must be supported and documented by a credit officer with the appropriate approval authority. In a similar fashion, the Company offers credit cards and consumer loans and lines of credit on a national basis, although the majority of the portfolio is domiciled in California. The credit review process includes initial screens to ensure that applicants meet minimum age and income level requirements for the product requested. Fraud screens are also completed. Credit bureau reports are used to calculate the debt-to-income ratios and credit scores on which an evaluation of creditworthiness is based. If accepted by the credit score, applicants with major derogatory bureau information, minimal credit references or high debt ratios are reviewed by an analyst for possible overrides, with income verification and/or collateral verification required for certain products and loan amounts. Town Square Mortgage, a joint venture between the Company and Norwest Mortgage, Inc., began operations in October 1995 to fund residential mortgages for the Company's customers, with the Company servicing a portion of these loans. The loans are underwritten by Norwest Mortgage, Inc. The Company continues to provide second mortgage loans and lines of credit secured by first and second deeds of trust directly to its customers. The Company relies on cash flow as the primary source of repayment for these equity products. The nature of the credit review which is conducted depends on the product, but typically consists of an evaluation of the applicant's debt ratios and credit history, either judgmentally or using a credit score, along with a review of the collateral. Maximum combined LTVs will range from 50% to 100% depending on the amount and term of the loan. The above underwriting practices are general standards that are subject to change; the actual terms and conditions of a specific credit transaction are dependent on an analysis of the specific transaction. 10 CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------------------------------- Year ended December 31, ---------------------------------------------- (in millions) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------- Balance, beginning of year $2,082 $2,122 $2,067 $1,646 $ 885 Allowance related to acquisitions (dispositions) -- -- -- -- (2) Provision for loan losses -- 200 550 1,215 1,335 Loan charge-offs: Commercial (55) (54) (110) (238) (402) Real estate 1-4 family first mortgage (13) (18) (25) (17) (11) Other real estate mortgage (52) (66) (197) (290) (88) Real estate construction (10) (19) (68) (93) (29) Consumer: Real estate 1-4 family junior lien mortgage (16) (24) (28) (28) (7) Credit card (208) (138) (177) (189) (161) Other revolving credit and monthly payment (53) (36) (41) (41) (42) ------ ------ ------ ------ ------ Total consumer (277) (198) (246) (258) (210) Lease financing (15) (14) (18) (19) (19) ------ ------ ------ ------ ------ Total loan charge-offs (422) (369) (664) (915) (759) ------ ------ ------ ------ ------ Loan recoveries: Commercial 38 37 71 59 98 Real estate 1-4 family first mortgage 3 6 2 2 -- Other real estate mortgage 53 22 47 9 2 Real estate construction 1 15 4 3 3 Consumer: Real estate 1-4 family junior lien mortgage 3 4 3 1 -- Credit card 13 18 21 21 19 Other revolving credit and monthly payment 12 11 12 12 11 ------ ------ ------ ------ ------ Total consumer 28 33 36 34 30 Lease financing 11 16 9 9 5 Foreign -- -- -- 1 49 ------ ------ ------ ------ ------ Total loan recoveries 134 129 169 117 187 ------ ------ ------ ------ ------ Total net loan charge-offs (288) (240) (495) (798) (572) Recoveries on the sale or swap of developing country loans -- -- -- 4 -- ------ ------ ------ ------ ------ Balance, end of year $1,794 $2,082 $2,122 $2,067 $1,646 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total net loan charge-offs as a percentage of average total loans .83% .70% 1.44% 1.97% 1.22% ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Allowance as a percentage of total loans 5.04% 5.73% 6.41% 5.60% 3.73% ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ - --------------------------------------------------------------------------------------------------------
11 The Securities and Exchange Commission requires the Company to present the ratio of the allowance for loan losses to total nonaccrual loans. This ratio was 333% and 367% at December 31, 1995 and 1994, respectively. This ratio may fluctuate significantly from period to period due to such factors as the prospects of borrowers and the value and marketability of collateral as well as, for the nonaccrual portfolio taken as a whole, wide variances from period to period in terms of delinquency and relationship of book to contractual principal balance. Classification of a loan as nonaccrual does not necessarily indicate that the principal of a loan is uncollectible in whole or in part. Consequently, the ratio of the allowance for loan losses to nonaccrual loans, taken alone and without taking into account numerous additional factors, is not a reliable indicator of the adequacy of the allowance for loan losses. Indicators of the credit quality of the Company's loan portfolio and the method of determining the allowance for loan losses are discussed in the 1995 Annual Report to Shareholders. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES The table on the following page provides a breakdown of the allowance for loan losses by loan category. The allocated component of the allowance reflects inherent losses resulting from the analysis of individual loans and is developed through specific credit allocations for individual loans and historical loss experience for each loan category and degree of criticism within each category. The total of these allocations is then supplemented by the unallocated component of the allowance for loan losses, which includes adjustments to the historical loss experience for the various loan categories to reflect any current conditions that could affect loss recognition. The unallocated component includes management's judgmental determination of the amounts necessary for concentrations, economic uncertainties and other subjective factors; correspondingly, the relationship of the unallocated component to the total allowance for loan losses may fluctuate significantly from period to period. Although management has allocated the allowance to specific loan categories, the adequacy of the allowance must be considered in its entirety. 12 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------------------------------------------------------- December 31, - --------------------------------------------------------------------------------------------------------------------------------- (in millions) 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- Commercial $ 148 $ 109 $ 152 $ 373 $ 417 Real estate 1-4 family first mortgage 46 41 39 37 33 Other real estate mortgage 165 212 357 589 350 Real estate construction 49 45 92 181 121 Consumer: Credit card (1) 332 87 96 107 239 Other consumer 87 70 87 58 51 ------ ------ ------ ------ ------ Total consumer 419 157 183 165 290 Lease financing 28 21 19 17 15 ------ ------ ------ ------ ------ Total allocated 855 585 842 1,362 1,226 Unallocated component of the allowance (2) 939 1,497 1,280 705 420 ------ ------ ------ ------ ------ Total $1,794 $2,082 $2,122 $2,067 $1,646 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ December 31, ------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------------- ----------------- ----------------- ----------------- ----------------- ALLOC. LOAN Alloc. Loan Alloc. Loan Alloc. Loan Alloc. Loan ALLOW. CATGRY allow. catgry allow. catgry allow. catgry allow. catgry AS % AS % as % as % as % as % as % as % as % as % OF LOAN OF TOTAL of loan of total of loan of total of loan of total of loan of total CATGRY LOANS catgry loans catgry loans catgry loans catgry loans ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- Commercial 1.52% 27% 1.34% 22% 2.20% 21% 4.54% 22% 3.70% 25% Real estate 1-4 family first mortgage 1.03 13 .45 25 .52 23 .54 19 .38 20 Other real estate mortgage 2.00 23 2.62 22 4.31 25 5.82 27 3.26 24 Real estate construction 3.59 4 4.44 3 8.29 3 11.31 4 5.89 5 Consumer: Credit card (1) 8.30 11 2.78 9 3.69 8 3.81 8 8.24 7 Other consumer 1.47 17 1.26 15 1.58 16 .95 17 .69 16 --- --- --- --- --- Total consumer 4.22 28 1.81 24 2.26 24 1.85 25 2.83 23 Lease financing 1.57 5 1.58 4 1.57 4 1.44 3 1.28 3 --- --- --- --- --- Total 5.04% 100% 5.73% 100% 6.41% 100% 5.60% 100% 3.73% 100% ---- --- ---- --- ---- --- ---- --- ---- --- ---- --- ---- --- ---- --- ---- --- ---- --- - ---------------------------------------------------------------------------------------------------------------------------------
(1) In 1995, the calculation method for the allocation of the allowance for loan losses for credit card loans was changed, whereby the allocation now approximates 12 months of projected losses, compared with 7 months in 1992 to 1994 and 18 months in 1991. (2) This amount and any unabsorbed portion of the allocated allowance are also available for any of the above listed loan categories. DEPOSITS At December 31, 1995, the contractual principal maturities of domestic time certificates of deposit and other time deposits issued in amounts of $100,000 or more were as follows (based on time remaining until maturity): $771 million maturing in 3 months or less; $541 million over 3 through 6 months; $517 million over 6 through 12 months and $270 million over 12 months. Time certificates of deposit and other time deposits issued by foreign offices in amounts of $100,000 or more represent substantially all of the foreign deposit liabilities of $876 million at December 31, 1995. 13 SHORT-TERM BORROWINGS The following table shows selected information for those short-term borrowings that exceed 30% of stockholders' equity:
- -------------------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------ (in millions) 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS (1) Average amount outstanding $3,401 $2,223 $1,051 Daily average rate 5.84% 4.45% 2.79% Highest month-end balance $5,468 $3,887 $1,378 Year-end balance $2,781 $3,022 $1,079 Weighted average rate on outstandings at year end 5.43% 5.24% 2.67% - --------------------------------------------------------------------------------------------------------
(1) These borrowings generally mature in less than 30 days. PROPERTIES The Company owns and leases various properties, primarily in the financial district of San Francisco and other locations throughout California. The Company owns its 12-story headquarters building in San Francisco and a four-story administrative building and a five-story data processing center, both in El Monte, California. The Company is also a joint venture partner in a 54-story office building in downtown Los Angeles, of which approximately 200,000 square feet is occupied by administrative staff and 60,000 square feet is sublet. In addition, the Company leases approximately 2,100,000 square feet of office space for data processing support and various administrative departments in four major buildings in San Francisco, two other major locations in the San Francisco Bay Area and four major locations in Southern California. At December 31, 1995, the Bank operated 974 retail outlets (including 345 banking centers and 94 supermarket branches), of which 451 were in Northern California and 523 in Southern California. The Company owns the land and buildings occupied by 237 of the outlets and leases 737 outlets (including 337 banking centers). The leases are generally for terms not exceeding 30 years. 14 EXECUTIVE OFFICERS OF THE REGISTRANT Date from Name Office held which held Age - -------------------- ----------------------- ------------ --- Paul Hazen Chairman of the Board and January 1995 54 Chief Executive Officer William F. Zuendt President and Chief January 1995 49 Operating Officer Michael J. Gillfillan Vice Chairman and Chief Credit Officer January 1992 47 Rodney L. Jacobs Vice Chairman and Chief January 1990 55 Financial Officer Charles M. Johnson Vice Chairman January 1992 54 Clyde W. Ostler Vice Chairman January 1990 49 Leslie L. Altick Executive Vice President and July 1995 45 Director of Investor Relations Patricia R. Callahan Executive Vice President March 1993 42 and Personnel Director Ross J. Kari Executive Vice President January 1995 37 and General Auditor Frank A. Moeslein Executive Vice President May 1990 52 and Controller Guy Rounsaville, Jr. Executive Vice President, March 1985 52 Chief Counsel and Secretary Eric D. Shand Executive Vice President and July 1995 43 Chief Loan Examiner The principal occupation of each of the executive officers during the past five years has been in the position reported above or in other positions as an officer with the Company, except for Eric D. Shand, who has been with the Company since 1993; prior to that, he was San Francisco Regional Director of the Office of Thrift Supervision. There is no family relationship among the above officers. All executive officers serve at the pleasure of the Board of Directors. 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Schedules and Exhibits: (1) The consolidated financial statements and related notes, the independent auditors' report thereon and supplementary data that appear on pages 35 through 67 of the 1995 Annual Report to Shareholders are incorporated herein by reference. (2) Financial Statement Schedules: All schedules are omitted, because the conditions requiring their filing do not exist. (3) Exhibits: Exhibit number Description ------ ----------- 2 Agreement and Plan of Merger, dated as of January 23, 1996, by and between Wells Fargo & Company and First Interstate Bancorp, as amended as of February 23, 1996, excluding all annexes and schedules, incorporated by reference to Appendix A to the Joint Proxy Statement of Wells Fargo & Company and First Interstate Bancorp and the Prospectus of Wells Fargo & Company dated February 27, 1996. The omitted annexes and schedules will be furnished supplementally to the Securities and Exchange Commission upon request. 3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) of Form 10-K filed March 21, 1994 (b) Certificate of the Voting Powers, Designation, Preferences and Relative, Participating, Optional or Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof, Which Have Not Been Set Forth in the Certificate of Incorporation or in any Amendment Thereto, of the Adjustable Rate Cumulative Preferred Stock, Series B, incorporated by reference to Exhibit 3(c) of Form 10-K filed March 21, 1994 (c) Certificate of the Voting Powers, Designation, Preferences and Relative, Participating, Optional or Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof, Which Have Not Been Set Forth in the Certificate of Incorporation or in any Amendment Thereto, of the 9% Preferred Stock, Series C, incorporated by reference to Exhibit 3 of Form 8-K filed October 24, 1991 (d) Certificate of the Voting Powers, Designation, Preferences and Relative, Participating, Optional or Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof, Which Have Not Been Set Forth in the Certificate of Incorporation or in any Amendment Thereto, of the 8 7/8% Preferred Stock, Series D, incorporated by reference to Exhibit 3 of Form 8-K filed March 5, 1992 (e) By-Laws 16 Exhibit number Description ------ ----------- 4(a) The Company hereby 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. (b) Deposit Agreement dated as of October 24, 1991 among Wells Fargo & Company, Marine Midland Bank, N.A. as Depositary and the holders from time to time of the Depositary Shares representing one-twentieth of a share of 9% Preferred Stock, Series C, incorporated by reference to Exhibit 4(a) of Form 8-K filed October 24, 1991 (c) Specimen of certificate for the 9% Preferred Stock, Series C, incorporated by reference to Exhibit 4(b) of Form 8-K filed October 24, 1991 (d) Specimen of Depositary Receipt for the Depositary Shares, each representing a one-twentieth interest in a share of the 9% Preferred Stock, Series C, incorporated by reference to Exhibit 4(c) of Form 8-K filed October 24, 1991 (e) Deposit Agreement dated as of March 5, 1992 among Wells Fargo & Company, Marine Midland Bank, N.A. as Depositary and the holders from time to time of the Depositary Shares representing one-twentieth of a share of 8 7/8% Preferred Stock, Series D, incorporated by reference to Exhibit 4(a) of Form 8-K filed March 5, 1992 (f) Specimen of certificate for the 8 7/8% Preferred Stock, Series D, incorporated by reference to Exhibit 4(b) of Form 8-K filed March 5, 1992 (g) Specimen of Depositary Receipt for the Depositary Shares, each representing a one-twentieth interest in a share of the 8 7/8% Preferred Stock, Series D, incorporated by reference to Exhibit 4(c) of Form 8-K filed March 5, 1992 10(a) Benefits Restoration Program (b) Deferral Plan for Directors, as amended through November 19, 1991, incorporated by reference to Exhibit 10(b) of Form 10-K for the year ended December 31, 1991 (c) 1990 Director Option Plan, as amended through November 19, 1991, incorporated by reference to Exhibit 10(c) of Form 10-K for the year ended December 31, 1991 (d) 1987 Director Option Plan, as amended through November 19, 1991, incorporated by reference to Exhibit 10(d) of Form 10-K for the year ended December 31, 1991 (e) Director Retirement Plan, incorporated by reference to Exhibit 10(e) of Form 10-K for the year ended December 31, 1993 (f) 1990 Equity Incentive Plan (g) 1982 Equity Incentive Plan, as amended through November 15, 1988, incorporated by reference to Exhibit 10(g) of Form 10-K for the year ended December 31, 1993 (h) Executive Incentive Pay Plan (i) Executive Loan Plan, incorporated by reference to Exhibit 10(i) of Form 10-K for the year ended December 31, 1994 (j) Passivity Agreement dated July 31, 1991 between the Company and Berkshire Hathaway Inc., including the form of proxy granted in connection therewith, incorporated by reference to Exhibit 19 of Form 10-Q for the quarter ended June 30, 1991 (k) Long-Term Incentive Plan, incorporated by reference to Exhibit A of the Proxy Statement filed March 14, 1994 17 Exhibit number Description ------ ----------- (l) Senior Executive Performance Plan, incorporated by reference to Exhibit B of the Proxy Statement filed March 14, 1994 11 Computation of Earnings Per Common Share 12(a) Computation of Ratios of Earnings to Fixed Charges -- the ratios of earnings to fixed charges, including interest on deposits, were 2.19, 2.20, 1.90, 1.33 and 1.02 for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The ratios of earnings to fixed charges, excluding interest on deposits, were 4.56, 5.04, 4.53, 2.56 and 1.10 for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. 12(b) Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends -- the ratios of earnings to fixed charges and preferred dividends, including interest on deposits, were 2.09, 2.07, 1.77, 1.26 and 1.00 for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The ratios of earnings to fixed charges and preferred dividends, excluding interest on deposits, were 3.99, 4.18, 3.51, 2.02 and 1.01 for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. 13 1995 Annual Report to Shareholders -- only those sections of the Annual Report to Shareholders referenced in the index on page 1 are incorporated in the Form 10-K. 21 Subsidiaries of the Registrant -- Wells Fargo & Company's only significant subsidiary, as defined, is Wells Fargo Bank, N.A. 23 Consent of Independent Accountants 27 Financial Data Schedule (b) The Company filed the following reports on Form 8-K during the fourth quarter of 1995 and through the date hereof in 1996: (1) October 17, 1995 under Item 5, containing the Press Release that announced the Company's financial results for the quarter and nine months ended September 30, 1995 (2) October 19, 1995 under Item 5, containing the Press Release that announced the Company's proposed merger with First Interstate Bancorp (3) October 24, 1995 under Item 5, containing the October 23 Press Release that announced the Company's intention to file a Hart-Scott-Rodino Act notification with the appropriate regulatory authorities in order to be in a position to purchase shares of First Interstate Bancorp (4) January 16, 1996 under Item 5, containing the Press Releases that announced the Company's financial results for the quarter and year ended December 31, 1995 and the increase in the Company's common stock dividend 18 (5) January 24, 1996 under Item 5, containing the January 24 Press Release that announced that the Company and First Interstate Bancorp have reached a definitive agreement to merge the two companies (6) January 31, 1996 under Item 5, containing the Agreement and Plan of Merger with First Interstate Bancorp, pursuant to which First Interstate will merge with and into the Company (7) February 29, 1996, under Item 5, containing the February 28 Press Release that announced that the joint proxy statement of the Company and First Interstate Bancorp had been declared effective by the Securities and Exchange Commission and that the Company has reached agreement with the Department of Justice and the Office of the Attorney General for California regarding divestitures STATUS OF PRIOR DOCUMENTS The Wells Fargo & Company Annual Report on Form 10-K for the year ended December 31, 1995, at the time of filing with the Securities and Exchange Commission, shall modify and supersede all prior documents filed pursuant to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by reference such Annual Report on Form 10-K. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 March 19, 1996. WELLS FARGO & COMPANY By: FRANK A. MOESLEIN ----------------------------------------- Frank A. Moeslein (Executive Vice President and Controller) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 19, 1996: PAUL HAZEN Chairman of the Board ROBERT K. JAEDICKE Director - ----------------------- and Chief Executive ----------------------- (Paul Hazen) Officer (Principal (Robert K. Jaedicke) Executive Officer) ELLEN M. NEWMAN Director ----------------------- (Ellen M. Newman) RODNEY L. JACOBS Vice Chairman and Chief PHILIP J. QUIGLEY Director - ----------------------- Financial Officer ----------------------- (Rodney L. Jacobs) (Principal Financial (Philip J. Quigley) Officer) CARL E. REICHARDT ----------------------- Director (Carl E. Reichardt) FRANK A. MOESLEIN Executive Vice President Director - ----------------------- and Controller ----------------------- (Frank A. Moeslein) (Principal Accounting (Donald B. Rice) Officer) SUSAN G. SWENSON ----------------------- Director (Susan G. Swenson) H. JESSE ARNELLE Director CHANG-LIN TIEN Director - ----------------------- ----------------------- (H. Jesse Arnelle) (Chang-Lin Tien) WILLIAM R. BREUNER Director JOHN A. YOUNG Director - ----------------------- ----------------------- (William R. Breuner) (John A. Young) WILLIAM S. DAVILA Director WILLIAM F. ZUENDT Director - ----------------------- ----------------------- (William S. Davila) (William F. Zuendt) RAYBURN S. DEZEMBER Director - ----------------------- (Rayburn S. Dezember)
20 EX-3.(E) 2 EXHIBIT 3(E) By-Laws of WELLS FARGO & COMPANY (a Delaware corporation), As amended April 18, 1995 ______________ ARTICLE I MEETINGS OF STOCKHOLDERS SECTION 1. Annual Meetings. The annual meeting of stockholders of Wells Fargo & Company (the "corporation") shall be held on the third Tuesday of April in each year at such time of day as may be fixed by the Board of Directors, at the principal office of the corporation, if not a bank holiday, and if a bank holiday then on the next succeeding business day at the same hour and place, or at such other time, date or place, within or without the State of Delaware, as may be determined by the Board of Directors. At such meeting, Directors shall be elected, reports of the affairs of the corporation may be considered, and any other proper business may be transacted. SECTION 2. Special Meetings. Special meetings of the stockholders, unless otherwise regulated by statute, for any purpose or purposes whatsoever, may be called at any time by the Board of Directors, the Chairman of the Board, the President, the Chief Executive Officer (if other than the Chairman of the Board or the President), or one or more stockholders holding not less than 10 percent of the voting power of the corporation. Such meetings may be held at any place within or without the State of Delaware designated by the Board of Directors of the corporation. SECTION 3. Notice of Meetings. Notice of all meetings of the stockholders, both annual and special, shall be given by the Secretary in writing to stockholders entitled to vote. A notice may be given either personally or by mail or other means of written communication, charges prepaid, addressed to any stockholder at his address appearing on the books of the corporation or at the address given by such stockholder to the corporation for the purpose of notice. Notice of any meeting of stockholders shall be sent to each stockholder entitled thereto not less than 10 nor more than 60 days prior to such meeting. Such notice shall state the place, date and hour of the meeting and shall also state (i) in the case of a special meeting, the general nature of the business to be transacted and that no other business may be transacted, (ii) in the case of an annual meeting, those matters which the Board of Directors intends at the time of the mailing of the notice to present for stockholder action and that any other proper matter may be presented for stockholder action to the meeting, and (iii) in the case of any meeting at which Directors are to be elected, the names of the nominees which the management intends at the time of the mailing of the notice to present for election. SECTION 4. Quorum. Except as otherwise provided by law, the presence of the holders of a majority of the stock issued and outstanding present in person or represented by proxy and entitled to vote is requisite and shall constitute a quorum for the transaction of business at all meetings of the stockholders, and the vote of a majority of such stock present and voting at a duly held meeting at which there is a quorum present shall decide any question brought before such meeting. SECTION 5. Voting. Unless otherwise provided in the Certificate of Incorporation, every stockholder shall be entitled to one vote for every share of stock standing in his name on the books of the corporation, and may vote either in person or by proxy. ARTICLE II DIRECTORS SECTION 1. Number, Term. The property, business and affairs of the corporation shall be managed and all corporate power shall be exercised by or under the direction of the Board of Directors as from time to time constituted. The number of Directors of this corporation shall be not less than 10 nor more than 20, the exact number within the limits so specified to be fixed from time to time by a By-Law adopted by the stockholders or by the Board of Directors. Until some other number is so fixed, the number of Directors shall be 14. The term of office of each Director shall be from the time of his election until the annual meeting next succeeding his election and until his successor shall have been duly elected, or until his death, resignation or lawful removal pursuant to the provisions of the General Corporation Law of Delaware. SECTION 2. Powers. In addition to the powers expressly conferred by these By-Laws, the Board of Directors may exercise all corporate powers and do such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or approved by the stockholders. SECTION 3. Compensation. Directors and Advisory Directors (as provided in Section 12 of this Article) as such may receive such compensation, if any, as the Board of Directors by resolution may direct, including salary or a fixed sum plus expenses, if any, for attendance at meetings of the Board of Directors or of its committees. SECTION 4. Organizational Meeting. An organizational meeting of the Board of Directors shall be held each year on the day of the annual meeting of stockholders of the corporation for the purpose of electing officers, the members of the Formal Committees provided in Section 11 of this Article and the Advisory Directors provided in Section 12 of this Article, and for the transaction of any other business. Said organizational meeting shall be held without any notice other than this By-Law. SECTION 5. Place of Meetings. The Board of Directors shall hold its meetings at the main office of the corporation or at such other place as may from time to time be designated by the Board of Directors or by the chief executive officer. SECTION 6. Regular Meetings. Regular meetings of the Board of Directors will be held on the third Tuesday of each month (except for the months of August and December) at the later of the following times: (i) 10:30 a.m. or (ii) immediately following the adjournment of any regular meeting of the Board of Directors of Wells Fargo Bank, National Association, held on the same day. If the day of any regular meeting shall fall upon a bank holiday, the meeting shall be held at the same hour on the first day following which is not a bank holiday. No call or notice of a regular meeting need be given unless the meeting is to be held at a place other than the main office of the corporation. SECTION 7. Special Meetings. Special meetings shall be held when called by the chief executive officer or at the written request of four Directors. SECTION 8. Quorum; Adjourned Meetings. A majority of the authorized number of Directors shall constitute a quorum for the transaction of business. A majority of the Directors present, whether or not a quorum, may adjourn any meeting to another time and place, provided that, if the meeting is adjourned for more than 30 days, notice of the adjournment shall be given in accordance with these By-Laws. SECTION 9. Notice, Waivers of Notice. Notice of special meetings and notice of regular meetings held at a place other than the head office of the corporation shall be given to each Director, and notice of the adjournment of a meeting adjourned for more than 30 days shall be given prior to the adjourned meeting to all Directors not present at the time of the adjournment. No such notice need specify the purpose of the meeting. Such notice shall be given four days prior to the meeting if given by mail or on the day preceding the day of the meeting if delivered personally or by telephone, facsimile, telex or telegram. Such notice shall be addressed or delivered to each Director at such Director's address as shown upon the records of the corporation or as may have been given to the corporation by the Director for the purposes of notice. Notice need not be given to any Director who signs a waiver of notice (whether before or after the meeting) or who attends the meeting without protesting the lack of notice prior to its commencement. All such waivers shall be filed with and made a part of the minutes of the meeting. SECTION 10. Telephonic Meetings. A meeting of the Board of Directors or of any Committee thereof may be held through the use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in such a meeting shall constitute presence at such meeting. SECTION 11. Written Consents. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as the unanimous vote of the Directors. SECTION 12. Resignations. Any Director may resign his position as such at any time by giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors. Such resignation shall take effect as of the time such notice is given or as of any later time specified therein and the acceptance thereof shall not be necessary to make it effective. SECTION 13. Vacancies. Vacancies in the membership of the Board of Directors shall be deemed to exist (i) in case of the death, resignation or removal of any Director, (ii) if the authorized number of Directors is increased, or (iii) if the stockholders fail, at a meeting of stockholders at which Directors are elected, to elect the full authorized number of Directors to be elected at that meeting. Vacancies in the membership of the Board of Directors may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until his successor is elected at an annual or a special meeting of the stockholders. The stockholders may elect a Director at any time to fill any vacancy not filled by the Directors. SECTION 14. Committees of the Board of Directors. By resolution adopted by a majority of the authorized number of Directors, the Board of Directors may designate one or more Committees to act as or on behalf of the Board of Directors. Each such Committee shall consist of one or more Directors designated by the Board of Directors to serve on such Committee at the pleasure of the Board of Directors. The Board of Directors may designate one or more Directors as alternate members of any Committee, which alternate members may replace any absent member at any meeting of such Committee. In the absence or disqualification of a member of a Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any Committee, to the extent provided in the resolution of the Board of Directors, these By-Laws or the Certificate of Incorporation, may have all the authority of the Board of Directors, except with respect to: (i) amending the Certificate of Incorporation (except that a Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopting an agreement of merger or consolidation under Section 251 or 252 of the General Corporation Law of Delaware, (iii) recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amending these By-Laws. Included among the Committees shall be the following: (a) Executive Committee. There shall be an Executive Committee consisting of its ex officio member and such additional Directors, in no event less than seven, as the Board of Directors may from time to time deem appropriate, elected by the Board of Directors at its organizational meeting or otherwise. Subject to such limitations as may from time to time be imposed by the Board of Directors or as are imposed by these By-Laws, the Executive Committee shall have the fullest authority to act for and on behalf of the corporation, and it shall have all of the powers of the Board of Directors which, under the law, it is possible for a Board of Directors to delegate to such a committee, including the supervision of the general management, direction and superintendence of the business and affairs of the corporation and the power to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. (b) Committee on Examinations and Audits. There shall be a Committee on Examinations and Audits consisting of not less than three Directors who are not officers of the corporation and who shall be elected by the Board of Directors at its organizational meeting or otherwise. It shall be the duty of this Committee (i) to make, or cause to be made, in accordance with the procedures from time to time approved by the Board of Directors, internal examinations and audits of the affairs of the corporation and the affairs of any subsidiary which by resolution of its board of directors has authorized the Committee on Examinations and Audits to act hereunder, (ii) to make recommendations to the Board of Directors of the corporation and of each such subsidiary with respect to the selection of and scope of work for the independent auditors for the corporation and for each subsidiary, (iii) to review, or cause to be reviewed in accordance with procedures from time to time approved by the Board of Directors, all reports of internal examinations and audits, all audit-related reports made by the independent auditors for the corporation and each such subsidiary and all reports of examination of the corporation and of any subsidiary made by regulatory authorities, (iv) from time to time, to review and discuss with the management, and independently with the General Auditor, the Risk Control Officer and the independent auditors, the accounting and reporting principles, policies and practices employed by the corporation and its subsidiaries and the adequacy of their accounting, financial, operating and administrative controls, including the review and approval of any policy statements relating thereto, and (v) to perform such other duties as the Board of Directors may from time to time assign to it. The Committee on Examinations and Audits shall submit reports of its findings, conclusions and recommendations, if any, to the Board of Directors. (c) Management Development and Compensation Committee. There shall be a Management Development and Compensation Committee consisting of not less than six directors, who shall be elected by the Board of Directors at its organizational meeting or otherwise and none of whom shall be eligible to participate in either the Wells Fargo & Company Stock Appreciation Rights Plan, the Wells Fargo & Company Stock Option Plan the Wells Fargo & Company Employee Stock Purchase Plan or any similar employee stock plan (or shall have been so eligible within the year next preceding the date of becoming a member of the Management Development and Compensation Committee). It shall be the duty of the Management Development and Compensation Committee, and it shall have authority, (i) to advise the Chief Executive Officer concerning the corporation's salary policies, (ii) to administer such compensation programs as from time to time are delegated to it by the Board of Directors, (iii) to accept or reject the recommendations of the Chief Executive Officer with respect to all salaries in excess of such dollar amount or of officers of such grade or grades as the Board of Directors may from time to time by resolution determine to be appropriate and (iv) upon the request of any subsidiary which by resolution of its board of directors has authorized the Management Development and Compensation Committee to act hereunder, to advise its chief executive officer concerning such subsidiary's salary policies and compensation programs. (d) Nominating Committee. There shall be a Nominating Committee consisting of not less than three Directors, who shall be elected by the Board of Directors at its organizational meeting or otherwise. It shall be the duty of the Nominating Committee, annually and in the event of vacancies on the Board of Directors, to nominate candidates for election to the Board of Directors. The Chairman of the Board, or in the absence of the Chairman of the Board, the acting chief executive officer, if a Director, shall be an ex officio member of all the Committees except the Committee on Examinations and Audits, the Management and Development and Compensation Committee, the Nominating Committee and such other Committees which by resolution the Board of Directors expressly limit membership to non-officer Directors. Each Committee member shall serve until the organizational meeting of the Board of Directors held on the day of the annual meeting of stockholders in the year next following his or her election and until his or her successor shall have been elected, but any such member may be removed at any time by the Board of Directors. Vacancies in any of said committees, however created, shall be filled by the Board of Directors. A majority of the members of any such committee shall be necessary to constitute a quorum and sufficient for the transaction of business, and any act of a majority present at a meeting of any such committee at which there is a quorum present shall be the act of such committee. Subject to these By-Laws and the authority of the Board of Directors, each committee shall have the power to determine the form of its organization. The provisions of these By-Laws governing the calling, notice and place of special meetings of the Board of Directors shall apply to all meetings of any Committee unless such committee fixes a time and place for regular meetings, in which case notice for such meeting shall be unnecessary. The provisions of these By-Laws regarding actions taken by the Board of Directors, however called or noticed, shall apply to all meetings of any Committee. Each committee shall cause to be kept a full and complete record of its proceedings, which shall be available for inspection by any Director. There shall be presented at each meeting of the Board of Directors a summary of the minutes of all proceedings of each committee since the preceding meeting of the Board of Directors. SECTION 15. Advisory Directors. There may be not more than 10 Advisory Directors, who may be elected by the Board of Directors at its organizational meeting. An Advisory Director shall serve until the next following organizational meeting of the Board of Directors. Any Advisory Director may be removed at any time by the Board of Directors. Vacancies may, but need not be, filled by the Board of Directors. Advisory Directors may attend meetings of the Board of Directors and, if appointed thereto as an advisor by the Board of Directors, meetings of Formal Committees with the privilege of participating in all discussions but without the right to vote. SECTION 16. Directors Emeriti. There shall be not more than ten (10) Directors Emeriti who shall be elected by the Board of Directors at its organizational meeting. A Director Emeritus shall serve until the next following organizational meeting of the Board of Directors. No person may be elected a Director Emeritus unless at some time prior thereto such person has been a Director of the corporation. Any Director Emeritus may be removed at any time by the Board of Directors. Vacancies, however created, may, but need not, be filled by the Board of Directors. Directors Emeriti may attend meetings of the Board of Directors and, if appointed thereto as an advisor by the Board of Directors, meetings of Committees with the privilege of participating in all discussions but without the right to vote. ARTICLE III OFFICERS SECTION 1. Election of Executive Officers. The corporation shall have (i) a Chairman of the Board, (ii) a President, (iii) a Secretary and (iv) a Chief Financial Officer. The Corporation also may have a Vice Chairman of the Board, one or more Vice Chairmen, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Controller, a Treasurer, one or more Assistant Vice Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries, a General Auditor, a Risk Control Officer, and such other officers as the Board of Directors, or the Chief Executive Officer or any officer or committee whom he may authorize to perform this duty, may from time to time deem necessary or expedient for the proper conduct of business by the corporation. The Chairman of the Board, the Vice Chairman of the Board, if any, and the President shall be elected from among the members of the Board of Directors. The following offices shall be filled only pursuant to election by the Board of Directors: Chairman of the Board, Vice Chairman of the Board, President, Vice Chairman, Executive Vice President, Senior Vice President, Secretary, Controller, Treasurer, General Auditor and Risk Control Officer. Other officers may be appointed by the Chief Executive Officer or by any officer or committee whom he may authorize to perform this duty. All officers shall hold office at will, at the pleasure of the Board of Directors, the Chief Executive Officer, the officer or committee having the authority to appoint such officers, and the officer or committee authorized by the Chief Executive Officer to remove such officers, and may be removed at any time, with or without notice and with or without cause. No authorization by the Chief Executive Officer to perform such duty of appointment or removal shall be effective unless done in writing and signed by the Chief Executive Officer. Two or more offices may be held by the same person. SECTION 2. Chairman of the Board. The Chairman of the Board shall, when present, preside at all meetings of the stockholders and of the Board of Directors and shall be the Chief Executive Officer of the corporation. As Chief Executive Officer, he shall (i) exercise, and be responsible to the Board of Directors for, the general supervision of the property, affairs and business of the corporation, (ii) report at each meeting of the Board of Directors upon all matters within his knowledge which the interests of the corporation may require to be brought to its notice, (iii) prescribe, or to the extent he may deem appropriate designate an officer or committee to prescribe, the duties, authority and signing power of all other officers and employees of the corporation and (iv) exercise, subject to these By-Laws, such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors. SECTION 3. Vice Chairman of the Board. The Vice Chairman of the Board shall, subject to these By-Laws, exercise such powers and perform such duties as may from time to time be prescribed by the Board of Directors. In the absence of the Chairman of the Board and the President, the Vice Chairman of the Board shall preside over the meetings of the stockholders and the Board of Directors. SECTION 4. President. The President shall, subject to these By-Laws, be the chief operating officer of the corporation and shall exercise such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors. In the absence of the Chairman of the Board, the President shall preside over the meetings of the stockholders and the Board of Directors. SECTION 5. Absence or Disability of Chief Executive Officer. In the absence or disability of the Chairman of the Board, the President shall act as Chief Executive Officer. In the absence or the disability of both the Chairman of the Board and the President, the Vice Chairman of the Board shall act as Chief Executive Officer. In the absence of the Chairman of the Board, the President and the Vice Chairman of the Board, the officer designated by the Board of Directors, or if there be no such designation the officer designated by the Chairman of the Board, shall act as Chief Executive Officer. The Chairman of the Board shall at all times have on file with the Secretary his written designation of the officer from time to time so designated by him to act as Chief Executive Officer in his absence or disability and in the absence or disability of the President and the Vice Chairman of the Board. SECTION 6. Executive Vice Presidents; Senior Vice Presidents; Vice Presidents. The Executive Vice Presidents, the Senior Vice Presidents and the Vice Presidents shall have all such powers and duties as may be prescribed by the Board of Directors or by the Chief Executive Officer. SECTION 7. Secretary. The Secretary shall keep a full and accurate record of all meetings of the stockholders and of the Board of Directors, and shall have the custody of all books and papers belonging to the corporation which are located in its principal office. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and all other notices required by law or by these By-Laws. He shall be the custodian of the corporate seal or seals. In general, he shall perform all duties ordinarily incident to the office of a secretary of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer. SECTION 8. Chief Financial Officer. The Chief Financial Officer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the corporation, and shall deposit, or cause to be deposited, in the name of the corporation all moneys or other valuable effects in such banks, trust companies, or other depositories as shall from time to time be selected by the Board of Directors. He shall render to the Chief Executive Officer and the Board of Directors, whenever requested, an account of the financial condition of the corporation. In general, he shall perform all duties ordinarily incident to the office of a chief financial officer of a corporation, and such other duties as may be assigned to him by the Board of Directors or the Chief Executive Officer. SECTION 9. General Auditor. The General Auditor shall be responsible to the Board of Directors for evaluating the ongoing operation, and the adequacy, effectiveness and efficiency, of the system of control within the corporation and of each subsidiary which has authorized the Committee on Examinations and Audits to act under Section 14(b) of Article II of these By-Laws. He shall make, or cause to be made, such internal audits and reports of the corporation and each such subsidiary as may be required by the Board of Directors or by the Committee on Examinations and Audits. He shall coordinate the auditing work performed for the corporation and its subsidiaries by public accounting firms and, in connection therewith, he shall determine whether the internal auditing functions being performed within the subsidiaries are adequate. He shall also perform such other duties as the Chief Executive Officer may prescribe, and shall report to the Chief Executive Officer on all matters concerning the safety of the operations of the corporation and of any subsidiary which he deems advisable or which the Chief Executive Officer may request. Additionally, the General Auditor shall have the duty of reporting independently of all officers of the corporation to the Committee on Examinations and Audits at least quarterly on all matters concerning the safety of the operations of the corporation and its subsidiaries which should be brought in such manner through such committee to the attention of the Board of Directors. Should the General Auditor deem any matter to be of especial immediate importance, he shall report thereon forthwith through the Committee on Examinations and Audits to the Board of Directors. SECTION 10. Risk Control Officer. The Risk Control Officer shall report to the Board of Directors through its Committee on Examinations and Audits. The Risk Control Officer shall be responsible for directing a number of control related activities principally affecting the Company's credit function and shall have such other duties and responsibilities as shall be prescribed from time to time by the chief executive officer and the Committee on Examinations and Audits. Should the Risk Control Officer deem any matter to be of special importance, the Risk Control Officer shall report thereon forthwith through the Committee to the Board of Directors. ARTICLE IV INDEMNIFICATION SECTION 1. Action, etc. Other Than by or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding or investigation, whether civil, criminal or administrative, and whether external or internal to the corporation (other than a judicial action or suit brought by or in the right of the corporation), by reason of the fact that he or she is or was an Agent (as hereinafter defined) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Agent in connection with such action, suit or proceeding, or any appeal therein, if the Agent acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any action, suit or proceeding -- whether by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent -- shall not, of itself, create a presumption that the Agent did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, that the Agent had reasonable cause to believe that his or her conduct was unlawful. For purposes of this Article, an "Agent" shall be any director, officer or employee of the corporation, or any person who, being or having been such a director, officer or employee, is or was serving at the request of the corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. SECTION 2. Action, etc. by or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed judicial action or suit brought by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an Agent (as defined above) against expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by such person in connection with the defense, settlement or appeal of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. Determination of Right of Indemnification or Contribution. Unless otherwise ordered by a court, any indemnification under Section 1 or 2, and any contribution under Section 6, of this Article shall be made by the corporation to an Agent unless a determination is reasonably and promptly made, either (i) by the Board of Directors acting by a majority vote of a quorum consisting of Directors who were not party to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or if obtainable and such quorum so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders, that such Agent acted in bad faith and in a manner that such Agent did not believe to be in or not opposed to the best interests of the corporation or, with respect to any criminal proceeding, that such Agent believed or had reasonable cause to believe that his or her conduct was unlawful. SECTION 4. Advances of Expenses. Except as limited by Section 5 of this Article, costs, charges and expenses (including attorneys' fees) incurred by an Agent in defense of any action, suit, proceeding or investigation of the nature referred to in Section 1 or 2 of this Article or any appeal therefrom shall be paid by the corporation in advance of the final disposition of such matter; provided, however, that if the General Corporation Law of Delaware then so requires, such payment shall be made only if the Agent shall undertake to reimburse the corporation for such payment in the event that it is ultimately determined, as provided herein, that such person is not entitled to indemnification. SECTION 5. Right of Agent to Indemnification or Advance Upon Application; Procedure Upon Application. Any indemnification under Section 1 or 2, or advance under Section 4, of this Article shall be made promptly and in any event within 90 days, upon the written request of the Agent, unless with respect to an application under said Sections 1 or 2 an adverse determination is reasonably and promptly made pursuant to Section 3 of this Article or unless with respect to an application under said Section 4 an adverse determination is made pursuant to said Section 4. The right to indemnification or advances as granted by this Article shall be enforceable by the Agent in any court of competent jurisdiction if the Board of Directors or independent legal counsel improperly denies the claim, in whole or in part, or if no disposition of such claim is made within 90 days. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any action, suit or proceeding in advance of its final disposition where any required undertaking has been tendered to the corporation) that the Agent has not met the standards of conduct which would require the corporation to indemnify or advance the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including the Board of Directors, independent legal counsel and the stockholders) to have made a determination prior to the commencement of such action that indemnification of the Agent is proper in the circumstances because he or she has met the applicable standard of conduct, nor an actual determination by the corporation (including the Board of Directors, independent legal counsel and the stockholders) that the Agent had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Agent had not met the applicable standard of conduct. The Agent's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the corporation. SECTION 6. Contribution. In the event that the indemnification provided for in this Article is held by a court of competent jurisdiction to be unavailable to an Agent in whole or in part, then in respect of any threatened, pending or completed action, suit or proceeding in which the corporation is jointly liable with the Agent (or would be if joined in such action, suit or proceeding), to the extent permitted by the General Corporation Law of Delaware the corporation shall contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Agent in such proportion as is appropriate to reflect (i) the relative benefits received by the corporation on the one hand and the Agent on the other from the transaction from which such action, suit or proceeding arose and (ii) the relative fault of the corporation on the one hand and of the Agent on the other in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the corporation on the one hand and of the Agent on the other shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. SECTION 7. Other Rights and Remedies. Indemnification under this Article shall be provided regardless of when the events alleged to underlie any action, suit or proceeding may have occurred, shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors and administrators of such a person. All rights to indemnification and advancement of expenses under this Article shall be deemed to be provided by a contract between the corporation and the Agent who serves as such at any time while these By-Laws and other relevant provisions of the General Corporation Law of Delaware and other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. SECTION 8. Insurance. Upon resolution passed by the Board of Directors, the corporation may purchase and maintain insurance on behalf of any person who is or was an Agent against any liability asserted against such person and incurred by him or her in any such capacity, or arising out of his or her status as such, regardless of whether the corporation would have the power to indemnify such person against such liability under the provisions of this Article. The corporation may create a trust fund, grant a security interest or use other means, including without limitation a letter of credit, to ensure the payment of such sums as may become necessary to effect indemnification as provided herein. SECTION 9. Constituent Corporations. For the purposes of this Article, references to "the corporation" include all constituent corporations (including any constituent of a constituent) absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer or employee of such a constituent corporation or who, being or having been such a director, officer or employee, is or was serving at the request of such constituent corporation as a director, officer, employee or trustee of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as such person would if he or she had served the resulting or surviving corporation in the same capacity. SECTION 10. Other Enterprises, Fines, and Serving at Corporation's Request. For purposes of this Article, references to "other enterprise" in Sections 1 and 9 shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service by an Agent as director, officer, employee, trustee or agent of the corporation which imposes duties on, or involves services by, such Agent with respect to any employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the corporation" for purposes of this Article. SECTION 11. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees, judgments, fines and amounts paid in settlement with respect to any action, suit, appeal, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the corporation, to the full extent permitted by the applicable portion of this Article that shall not have been invalidated, or by any other applicable law. SECTION 12. Actions Initiated by Agent. Anything to the contrary in this Article notwithstanding, the corporation shall indemnify any Agent in connection with an action, suit or proceeding initiated by such Agent (other than actions, suits, or proceedings commenced pursuant to Section 5 of this Article) only if such action, suit or proceeding was authorized by the Board of Directors. SECTION 13. Statutory and Other Indemnification. Notwithstanding any other provision of this Article, the corporation shall indemnify any Agent and advance expenses incurred by such Agent in any action, suit or proceeding of the nature referred to in Section 1 or 2 of this Article to the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, except that no amount shall be paid pursuant to this Article in the event of an adverse determination pursuant to Section 3 of this Article or in respect of remuneration to the extent that it shall be determined to have been paid in violation of law or in respect of amounts owing under Section 16(b) of the Securities Exchange Act of 1934. The rights to indemnification and advancement of expenses provided by any provision of this Article, including without limitation those rights conferred by the preceding sentence, shall not be deemed exclusive of, and shall not affect, any other rights to which an Agent seeking indemnification or advancement of expenses may be entitled under any provision of any law, certificate of incorporation, by-law, agreement or by any vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while serving as an Agent. The corporation may also provide indemnification and advancement of expenses to other persons or entities to the extent deemed appropriate. ARTICLE V MISCELLANEOUS SECTION 1. Fiscal Year. The fiscal year of the corporation shall be the calendar year. SECTION 2. Stock Certificates. Each stockholder shall be entitled to a certificate representing the number of shares of the stock of the corporation owned by such stockholder and the class or series of such shares. Each certificate shall be signed in the name of the corporation by (i) the Chairman of the Board, the Vice Chairman of the Board, the President, an Executive Vice President, a Senior Vice President, or a Vice President, and (ii) the Treasurer, an Assistant Treasurer, the Secretary, or an Assistant Secretary. Any of the signatures on the certificate may be facsimile. Prior to due presentment for registration of transfer in the stock transfer book of the corporation, the registered owner for any share of stock of the corporation shall be treated as the person exclusively entitled to vote, to receive notice, and to exercise all other rights and receive all other entitlements of a stockholder with respect to such share, except as may be provided otherwise by law. SECTION 3. Execution of Written Instruments. All written instruments shall be binding upon the corporation if signed on its behalf by (i) any two of the following officers: the Chairman of the Board, the President, the Vice Chairman of the Board, the Vice Chairmen or the Executive Vice Presidents; or (ii) any one of the foregoing officers signing jointly with any Senior Vice President. Whenever any other officer or person shall be authorized to execute any agreement, document or instrument by resolution of the Board of Directors, or by the Chief Executive Officer, or by any two of the officers identified in the immediately preceding sentence, such execution by such other officer or person shall be equally binding upon the corporation. SECTION 4. Subsidiary. As used in these By-Laws the term "subsidiary" or "subsidiaries" means any corporation 25 percent or more of whose voting shares is directly or indirectly owned or controlled by the corporation, or any other affiliate of the corporation designated in writing as a subsidiary of the corporation by the Chief Executive Officer of the corporation. All such written designations shall be filed with the Secretary of the corporation. SECTION 5. Amendments. These By-Laws may be altered, amended or repealed by a vote of the stockholders entitled to exercise a majority of the voting power of the corporation, by written consent of such stockholders or by the Board of Directors. SECTION 6. Annual Report. The Board of Directors shall cause an annual report to be sent to the stockholders not later than 120 days after the close of the fiscal year and at least 15 days prior to the annual meeting of stockholders to be held during the ensuing fiscal year. SECTION 7. Construction. Unless the context clearly requires it, nothing in these By-Laws shall be construed as a limitation on any powers or rights of the corporation, its Directors or its officers provided by the General Corporation Law of Delaware. Unless the context otherwise requires, the General Corporation Law of Delaware shall govern the construction of these By-Laws. SECTION 8. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the Board of Directors or any committee thereof, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the Board of Directors or such committee shall approve, including, without limitation, a pledge of shares of stock of the corporation. This Section shall not be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. SECTION 9. Notices; Waivers. Whenever, under any provision of the General Corporation Law of Delaware, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, such provision shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such Director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by facsimile, telex or telegram. A waiver in writing of any such required notice, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. EX-10.(A) 3 EXHIBIT 10(A) WELLS FARGO & COMPANY BENEFIT RESTORATION PROGRAM Effective January 1, 1991 WELLS FARGO & COMPANY BENEFIT RESTORATION PROGRAM TABLE OF CONTENTS ARTICLE I Definitions. . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II Excess Defined Benefit Plan . . . . . . . . . . . . . 3 ARTICLE III Excess Defined Contribution Plan . . . . . . . . . . . 3 ARTICLE IV Executive Supplemental Benefits Plan . . . . . . . . . 4 ARTICLE V Accounts . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE VI Distribution of Benefits . . . . . . . . . . . . . . . 6 ARTICLE VII Unfunded Nature of the Plan . . . . . . . . . . . . . 7 ARTICLE VIII Administration of the Program. . . . . . . . . . . . . 7 ARTICLE IX Amendments and Termination . . . . . . . . . . . . . . 8 ARTICLE X Miscellaneous. . . . . . . . . . . . . . . . . . . . . 8 SCHEDULE A . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 i THE WELLS FARGO & COMPANY BENEFIT RESTORATION PROGRAM The Wells Fargo & Company Benefit Restoration Program supersedes the Wells Fargo & Company Supplemental Benefits Plan, Executive Supplemental Benefits Plan and Supplemental Savings Plan effective January 1, 1991. All accrued benefits and account balances under such prior plans shall be transferred to and governed by the provisions of this Program effective January 1, 1991 and no person shall have any rights under any such prior plan on and after that date. The Program shall consist of three plans: the Excess Defined Benefit Plan, the Excess Defined Contribution Plan and the Executive Supplemental Benefits Plan, each of which shall constitute a separate plan for purposes of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE I DEFINITIONS Wherever used herein the following terms have the meanings indicated: 1.1 "ACCOUNTS" means one or more accounts established under Article V. 1.2 "BENEFICIARY" means the person or persons effectively designated by a Participant to receive benefits under the Company's Predecessor Retirement Plan or Qualified Defined Contribution Plans. 1.3 "BOARD OF DIRECTORS" means the Board of Directors of Wells Fargo & Company. 1.4 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. 1.5 "COMMITTEE" means the committee established pursuant to Article VIII, as constituted from time to time. 1.6 "COMPANY" means Wells Fargo & Company and any successor to all or a major portion of the assets or business of Wells Fargo & Company. 1.7 "EMPLOYEE" means an employee of a Participating Company. 1 1.8 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.9 "EXCESS DEFINED BENEFIT SUPPLEMENT" has the meaning set forth in Article II. 1.10 "EXCESS DEFINED CONTRIBUTION SUPPLEMENT" has the meaning set forth in Section 3.2. 1.11 "EXECUTIVE SUPPLEMENT" has the meaning set forth in Section 4.2. 1.12 "MATCHING CONTRIBUTION" means a Participating Company matching contribution (within the meaning of Section 401(m) of the Code) to a Qualified Defined Contribution Plan. 1.13 "PARTICIPANT" means each individual who participates in a Plan in accordance with the terms of such Plan. 1.14 "PARTICIPATING COMPANY" means the Company or any subsidiary or affiliated company which is listed on Schedule A to this Plan, as revised from time to time by the Committee or its delegate. 1.15 "PLAN" means the Wells Fargo & Company Excess Defined Benefit Plan, Excess Defined Contribution Plan and Executive Supplemental Benefits Plan as set forth in this document and in any subsequent amendments. 1.16 "PREDECESSOR RETIREMENT PLAN" means the Wells Fargo & Company Retirement Plan as in effect for calendar years commencing prior to January 1, 1985. 1.17 "PRE-TAX CONTRIBUTION" means an elective deferral contribution by a Participating Company under a 401(k) feature of a Qualified Defined Contribution Plan. 1.18 "PROGRAM" means the Wells Fargo & Company Benefit Restoration Program as set forth in this document and subsequent amendments. 1.19 "QUALIFIED DEFINED CONTRIBUTION PLANS" means those defined contribution plans maintained by the Company that are intended to qualify under Section 401 of the Code. 2 ARTICLE II EXCESS DEFINED BENEFIT PLAN Each Employee or Beneficiary whose benefits under the Predecessor Retirement Plan were reduced under the provisions included in such plan to comply with the dollar limitations (but not the percentage of compensation limitations) of Section 415(b) and (e) of the Code shall be a Participant under the Excess Defined Benefit Plan. Each Participant shall be credited with an "Excess Defined Benefit Supplement" equal to such reduction, payable at the same time and in the same manner as the benefit payable to such Participant under the annuities issued upon termination of the Predecessor Retirement Plan. ARTICLE III EXCESS DEFINED CONTRIBUTION PLAN 3.1 PARTICIPATION. An Employee shall automatically become a Participant in the Excess Defined Contribution Plan for any calendar year that the Employee is eligible to receive "transition" retirement contributions under the Company's Qualified Defined Contribution Plans and his or her Participating Company contributions under the Qualified Defined Contribution Plans for that year are reduced solely by reason of the provisions included in such plans to comply with the 25 per cent of compensation limitation of Section 415 of the Code. Every other Employee shall be a Participant in the Excess Defined Contribution Plan for a calendar year only if the Participant receives prior notice from the Committee that he or she is eligible for that year. An Employee shall be eligible for a calendar year if the Committee determines, at such time prior to the beginning of such year as it specifies and based on the information then available to it, that the Employee's Participating Company contributions under the Qualified Defined Contribution Plans for such year could be reduced by reason of the provisions included in such plans to comply with the limitations of Section 415 of the Code. 3.2 EXCESS DEFINED CONTRIBUTION SUPPLEMENT. Each Participant whose Participating Company contributions to the Company's Qualified Defined Contribution Plans are reduced under the Section 415 provisions of such plans shall, subject to the provisions of Section 3.3, be credited with an "Excess Defined Contribution Supplement" equal to the amount of such reduction. Such supplement shall be credited to the Participant's Accounts in accordance with Article V at the time that the related Participating Company contributions are made to the Qualified Defined Contribution Plans. 3.3 LIMITATIONS ON EXCESS DEFINED CONTRIBUTION SUPPLEMENT (a) PRE-TAX ELECTION. At such time before the first day of each calendar year and based on the information then available to it, the Committee shall determine and notify those Participants whose maximum Pre-Tax Contributions to the Qualified Retirement Plans for that year could be reduced by reason of the provisions included in such plans to comply with the 3 limitations of Section 415 of the Code. Each such Participant shall be given an irrevocable election (i) to select one single percentage of compensation to be used in calculating all of the Pre-Tax Contributions made on his or her behalf for the upcoming calendar year and (ii) to reduce his or her salary or wages for such calendar year in an amount equal to the portion of the Pre-Tax Contribution which could not be contributed to the Qualified Defined Contribution Plans under the Section 415 provisions of such plans. If a Participant is not so notified or does not so elect, his or her Excess Defined Contribution Supplement for such year shall not include any amount attributable to either Pre-Tax Contributions that are reduced under the Section 415 provisions of the Qualified Defined Contribution Plans or any Matching Contributions that would have been made with respect to such Pre-Tax Contributions had they been made. (b) 25 PERCENT LIMITATION. A Participant shall not receive an "Excess Defined Contribution Supplement" for a calendar year if the Participant's Participating Company contributions to the Qualified Defined Contribution Plans for that year exceed the Section 415 limitations of such plans solely due to the 25 percent of compensation limitation provisions thereof, unless the Employee is eligible to receive "transition" retirement contributions under the Company's Qualified Defined Contribution Plans for that year. (c) OTHER STATUTORY LIMITATIONS. In no event shall a Participant's Excess Defined Contribution Supplement include an amount attributable to (i) any Pre-tax Contribution to the extent that such contribution would exceed the limitations of Section 401(a) (17) or (30), (k) or (m) of the Code (or any successor provision) if made to TAP or (ii) any Matching Contribution that would either be attributable to any such excess Pre-Tax Contribution or would exceed the limitation of Section 401(k) or (m) of the Code if made. ARTICLE IV EXECUTIVE SUPPLEMENTAL BENEFITS PLAN 4.1 PARTICIPATION. An Employee shall become a Participant in the Executive Supplemental Benefits Plan on the first day of the first calendar year for which the Participant receives prior notice from the Committee that he or she is eligible. An Employee shall be eligible for a calendar year if the Committee determines, at such time prior to the beginning of such year as it specifies and based on the information then available to it, that the Employee's Participating Company contributions under the Qualified Defined Contributions Plans for such year either (i) could be reduced by reason of the provisions included in such plans to comply with the limitations of Section 401(a) (17) of the Code (relating to an indexed $200,000 compensation limit) or Section 401(a) (30) of the Code (relating to an indexed $7,000 limit on 401(k) elective deferrals) or (ii) would be so reduced were the limitations of Section 415 of the Code not imposed under such plans. An Employee shall not become a Participant for a calendar year unless he or she was notified of eligibility by the Committee prior to the beginning of such year, even if his or her Participating Company Contributions for such year are reduced. 4 4.2 EXECUTIVE SUPPLEMENT. Each Participant whose Participating Company contributions to the Company's Qualified Defined Contribution Plans is reduced under the Section 401(a)(17) or Section 401(a) (30) provisions of such plans shall, subject to the provisions of Section 4.3 and the provisions included in the Qualified Defined Contribution Plans comply with Code Section 401(k) or (m) (which are incorporated by reference in the Excess Defined Contribution Plan), be credited with an "Executive Supplement" equal to the amount of such reduction. Such supplement shall be credited to the Participant's Accounts in accordance with Article V at the time that the related Participating Company contributions are made to the Qualified Defined Contribution Plans. 4.3 PRE-TAX ELECTION REQUIREMENT. At such time before the first day of each calendar year as the Committee shall specify, each Participant shall be given an irrevocable election (i) to select one single percentage of compensation to be used in calculating all of the Pre-Tax Contributions made on his or her behalf for the upcoming calendar year and (ii) to reduce his or her salary or wages for such calendar year in an amount equal to the portion of the Pre-Tax Contribution which could not be contributed to the Qualified Defined Contribution Plans under the Section 401(a) (17) or Section 401(a) (30) provisions of such plans. If a Participant does not so elect, his or her Executive Supplement for such year shall not include any amount attributable to either Pre-Tax Contributions that are reduced under the Section 40l(a) (17) and 401(a) (30) provisions of the Qualified Defined Contribution Plans or any matching contributions that would have been made with respect to such Pre-Tax Contributions had they been made. ARTICLE V ACCOUNTS 5.1 (a) PARTICIPANT ACCOUNTS. The Committee shall establish an Account for each Participant to which shall be credited the following: (i) the Excess Defined Contribution Supplements and the Executive Supplements of such Participant, and 5 (ii) interest on the balance of the phantom account calculated quarterly at an annual rate equal to the sum of (i) the average annual rate for 3-year Treasury Notes for the immediately preceding calendar year and (ii) 2 per cent, with contributions made during a quarter being credited with interest for the portion of the quarter that the contribution is credited to a Participant's phantom account, according to the following table: Semi-Monthly Pay Period During Quarter for Which the Portion of Quarter for Contribution is Credited Which Interest Is Credited ---------------------------- -------------------------- lst 5/6 2nd 4/6 3rd 3/6 4th 2/6 5th 1/6 6th none An Account shall be debited for any distributions made therefrom. Accounts under the Program shall be merely bookkeeping entries to assist the Committee in determining the amount of benefits payable to a Participant under the Program. 5.2 SUBACCOUNTING. The Committee shall maintain separate subaccounts for each Plan under the Program or shall maintain records sufficient to create such subaccounts. The Committee may, but need not, maintain separate subaccounts under the program for some or all of the different types of employer contributions to the Company's Qualified Defined Contribution Plans that are supplemented under the Program. ARTICLE VI DISTRIBUTION OF BENEFITS 6.1 TERMINATION OF EMPLOYMENT. The balance of a Participant's Accounts shall generally be distributed to the Participant in a single lump sum as soon as practicable after the Participant terminates employment for any reason other than death. However, a Participant may elect at such time prior to becoming a Participant in the Program to have his or her Accounts paid in ten (10) annual installment payments beginning in January following termination of Employment, unless the balance of such Accounts is less than or equal to three thousand five hundred dollars ($3,500). The amount of each installment will be equal to the entire remaining balance payable to the Participant as of the beginning of the calendar year of payment divided by the number of remaining installments to be paid. 6.2 DEATH. In the event that a participant dies before distribution of the entire balance of his or her Accounts, the remaining balance of the Participant's Accounts will be 6 distributed as soon as practicable after death to the Participant's Beneficiaries in such percentages as the Beneficiaries are or were entitled to the Participant's benefits under the Company's Qualified Defined Contribution Plans. 6.3 TRANSFER TO NON-PARTICIPATING COMPANY. If a Participant ceases to be an employee of a Participating Company, but becomes an employee of a company that participates in the Company's Qualified Defined Contribution Plans (but is not a Participating Company in this Plan), the Participant shall accrue no further benefits under this Plan and his or her Accounts shall be immediately distributed, unless assumed by his or her successor employer. ARTICLE VII UNFUNDED NATURE OF THE PROGRAM The Program shall be unfunded. The funds used for payment of benefits under the Program and of the expenses incurred in the administration thereof shall, until such actual payment, continue to be a part of the general funds of each Participating Company and no person other than the Participating Company shall, by virtue of the Program, have any interest in any such funds. Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship. To the extent that any person acquires a right to receive payments from a Participating Company under a Plan, such right shall be no greater than the right of any unsecured general creditor of the Participating Company. Benefits under this Program shall not be alienated, hypothecated or otherwise encumbered, and such benefits shall not in any way be subject to claim by creditors or liable to attachment, execution or other process of law. ARTICLE VIII ADMINISTRATION OF THE PROGRAM 8.1 COMMITTEE. The Program shall be administered by a Benefits Restoration Program Committee ("Committee"), the membership of which will be selected from time to time by the Chief Executive Officer of the Company. The Committee shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan. The Committee's powers and duties shall include, but shall not be limited to, the following: (a) responsibility for the compilation and maintenance of all records necessary in connection with the Program; (b) authorizing the payment of all benefits and expense of the Program as they become payable under the Program; (c) authority to engage such legal, accounting and other professional services as it may deem proper; (d) discretionary authority to interpret the Program; and (e) discretionary authority to determine eligibility for benefits under the Program and to resolve all issues of fact and law in connection with such determination. Decisions by the Committee shall be final and binding upon all parties. 8.2 ALLOCATION OF RESPONSIBILITIES. The Committee, from time to time, may allocate to one or more of its members or to any other person or persons or organizations any of 7 its rights, powers, and duties with respect to the operation and administration of the Program. Any such allocation shall be reviewed from time to time by the Committee; shall, unless the Committee specifies otherwise, carry such discretionary authority as the Committee possesses regarding the matter; and shall be terminable upon such notice as the Committee, in its sole discretion, deems reasonable and prudent under the circumstances. 8.3 COMPENSATION AND EXPENSES. The members of the Committee shall serve without compensation, but all benefits payable under the Program and all expenses properly incurred in the administration of the Program, including all expenses properly incurred by the Committee in exercising its duties under the Program, shall be borne by the Company. ARTICLE IX AMENDMENTS AND TERMINATION The Board of Directors reserves the power at any time, with or without notice, to terminate this Program or any Plan that forms a part of this Program and delegates to the Committee the power to otherwise amend any portion of this Program other than this Article IX; provided, however, that no such action shall reduce the amount accrued by any Participant or Beneficiary under the Program prior to the date of amendment or termination. ARTICLE X MISCELLANEOUS 10.1 HEADINGS. The headings and subheadings of this instrument are inserted for convenience of reference only and are not to be considered in the construction of this Program. 10.2 NATURE OF PLANS. The Excess Defined Benefit Plan and the Excess Defined Contribution Plan are intended to qualify for exemption from ERISA as unfunded excess benefit plans under Sections 3(36) and 4(b) (5) of ERISA. The Executive Supplemental Benefits Plan is intended to qualify as an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of ERISA. Each Plan shall be interpreted accordingly. 10.3 CONSTRUCTION. The instrument creating the Program shall be construed, administered, and governed in all respects in accordance with the laws of the State of California to the extent not preempted by ERISA. If any provision of this Program shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue to be fully effective. 10.4 NO EMPLOYMENT RIGHTS. Participation in this Program does not provide any employment rights or otherwise affect or modify the employment relationship with the 8 Company or a Participating Company. Employment with a Participating Company has no specified term or length and each Participating Company reserves the right to discharge an employee with or without cause, notwithstanding any effect that such discharge would have upon the employee's interest in this Program. 10.5 PAYMENT AND RELEASE. Any payment to a Participant or Beneficiary or the legal representative of either, in accordance with the terms of this Program shall to the extent thereof be in full satisfaction of all claims such person may have against a Participating Company hereunder, which may require such payee, as a condition to such payment, to execute a receipt and release therefor in such form as shall be determined by the Company. IN WITNESS WHEREOF, Wells Fargo & Company has caused its authorized officers to execute this instrument in its name and on its behalf. WELLS FARGO & COMPANY By - ------------------------- ---------------------- date By - ------------------------- ---------------------- date 9 SCHEDULE A The following companies are "Participating Companies" in the Wells Fargo & Company Benefit Restoration Program: Wells Fargo & Company Wells Fargo Ag Credit Wells Fargo Bank, N.A. Wells Fargo Corporate Services, Inc. Wells Fargo Credit Corporation Wells Fargo Insurance Services Wells Fargo Realty Advisors Wells Fargo Realty Finance Corporation Wells Fargo Securities, Inc. Wells Fargo Securities Clearance Corporation 10 EX-10.(F) 4 EXHIBIT 10(F) Exhibit 10(f) WELLS FARGO & COMPANY 1990 EQUITY INCENTIVE PLAN I. PURPOSES OF THE PLAN This 1990 Equity Incentive Plan (the "Plan") is intended to promote the interests of Wells Fargo & Company (the "Corporation") and its subsidiaries by providing a method whereby employees of the Corporation and its subsidiaries who are largely responsible for the management, growth and success of the business may be offered incentives and rewards which will encourage them to continue in the employ of the Corporation or its subsidiaries. II. ADMINISTRATION OF THE PLAN The Plan shall be administered by a committee or committees appointed by, and consisting of one or more members of, the Board of Directors of the Corporation (the "Board"). The Board may delegate the responsibility for administration of the Plan with respect to designated classes of optionees to different committees, subject to such limitations as the Board deems appropriate. The composition of any committee responsible for administration of the Plan with respect to optionees who are subject to trading restrictions of Section 16(b) of the Securities Exchange Act of 1934 (the "1934 Act") with respect to securities of the Corporation shall comply with the applicable requirements of Rule 16b-3 of the Securities and Exchange Commission. Members of a committee shall serve for such term as the Board may determine and shall be subject to removal by the Board at any time. Any committee appointed by the Board shall have full authority to administer the Plan within the scope of its delegated responsibilities, including authority to interpret and construe any relevant provision of the Plan and to adopt such rules and regulations as it may deem necessary. Decisions of a committee made within the discretion delegated to it by the Board shall be final and binding on all persons who have an interest in the Plan. With respect to any matter, the term "Committee" shall hereinafter refer to such committee as shall have been delegated authority with respect to such matter. III. ELIGIBILITY FOR AWARDS Awards may be granted under the Plan to such key employees of the Corporation and its subsidiaries (including officers, whether or not they are directors) as the Committee shall from time to time select. 1 IV. STOCK SUBJECT TO THE PLAN (a) CLASS. The stock which is the subject of awards granted under the Plan shall be the Corporation's authorized but unissued common stock ("Common Stock"). In connection with the issuance of shares of Common Stock under the Plan, the Corporation may repurchase shares in the open market or otherwise. (b) AGGREGATE AMOUNT (1) The total number of shares issuable under the Plan shall not exceed 2,500,000 shares (subject to adjustment under Section IV(d)). No limitation shall exist on the aggregate amount of cash payments the Corporation may make in connection with share rights pursuant to Section VII(b) or the surrender of options pursuant to Section VI(c). (2) If any outstanding option under the Plan expires or is terminated for any reason or is surrendered for cash pursuant to Section VI(c), then the Common Stock allocable to the unexercised or surrendered portion of such option shall not be charged against the limitation of Section IV(b)(1) and may again become the subject of subsequent awards granted under the Plan. (3) If (i) any outstanding share right under the Plan terminates for any reason prior to the issuance of the total number of shares subject to such share right, or (ii) any outstanding share right is paid in the form of cash in lieu of the issuance of Common Stock under the Plan, then the number of unissued shares of Common Stock under such share right shall not be charged against the limitation of Section IV(b)(1) and may again be made the subject of subsequent awards granted under the Plan. (c) ANNUAL LIMITATIONS ON GRANTS. The maximum number of shares for which options or share rights may be granted in any one calendar year shall not exceed 800,000 (subject to adjustment under Section IV(d)). For purposes of this Section IV(c) an option or a share right shall be deemed to be granted for the maximum number of shares which could be issued thereunder; provided that, upon and following the occurrence, if any, of circumstances which, under the terms of the option or share right, reduce the number of shares which can be issued thereunder, (i) if such reduction occurs in the year of grant, the option or share right shall be deemed to be granted for such reduced number of shares and (ii) if such reduction occurs after the year of grant, the maximum number of shares for which options or share rights may be granted in such subsequent year shall be increased by the amount of such reduction. (d) ADJUSTMENTS. In the event any change is made to the Common Stock subject to the Plan or subject to any outstanding award granted under the Plan (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination of shares, exchange of shares, or other change in corporate or capital structure of the Corporation), then, unless such change results in the termination of all outstanding options, the Committee shall make appropriate adjustments to the maximum number of shares subject to the 2 Plan, the maximum number of shares for which options or share rights may be granted in any one calendar year, the number of shares and price per share of stock subject to outstanding options, and the number of shares subject to share rights. V. FORM AND GRANT OF AWARDS The Committee shall have the authority to grant to eligible employees one or more awards under the Plan. An award shall be in the form of a stock option meeting the specifications of Section VI or a share right meeting the specifications of Section VII or a combination thereof, as the Committee shall determine. VI. STOCK OPTIONS Stock options granted under the Plan may be either incentive stock options ("Incentive Options") qualifying under Section 422A of the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"), or nonstatutory options, and shall be appropriately designated. The options shall be evidenced by instruments in such form as the Committee may from time to time approve. Such instruments shall conform to the following terms and conditions: (a) OPTION PRICE. The option price per share shall be the fair market value of a share of Common Stock on the day the option is granted. (b) NUMBER OF SHARES, TERM AND EXERCISE (1) Each option granted under the Plan shall be exercisable on such date or dates, during such period and for such number of shares as shall be determined by the Committee and set forth in the instrument evidencing such option. No option granted under the Plan, however, shall become exercisable during the first six months of the option term, except in the event of the optionee's death or disability; nor shall any option have an expiration date which is more than 10 years after the date of the option grant. Each option shall contain such other terms, conditions and restrictions, which may vary from grant to grant and may be modified by the Committee after the date of grant, as the Committee shall determine. (2) After any option granted under the Plan becomes exercisable, it may be exercised by notice to the Corporation at any time prior to the termination of such option. Except as authorized by the Committee in accordance with Section VIII, the option price for the number of shares of Common Stock for which the option is exercised shall become immediately due and payable upon exercise. 3 (3) The option price shall be payable in full in cash; provided, however, that the Committee may, either at the time the option is granted or at the time it is exercised and subject to such limitations as it may determine, authorize payment of all or a portion of the option price in cash and/or one or a combination of the following alternative forms: (i) a promissory note authorized pursuant to Section VIII; or (ii) full payment in shares of Common Stock valued as of the exercise date; or (iii) by delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Corporation the amount of sale or loan proceeds to pay the option price. (c) APPRECIATION DISTRIBUTION (1) An option may provide that the optionee is entitled to surrender the option, in whole or in part to the extent it is then exercisable, for an appreciation distribution by the Corporation in an amount equal to the difference between the fair market value, on the date of the surrender, of the Common Stock subject to the surrendered option (or the surrendered portion thereof) and the aggregate option price for such Common Stock. An option may contain such further restrictions on the right of surrender as the Committee shall determine, including such limitations as shall be necessary to comply with Rule 16b-3 of the Securities and Exchange Commission. (2) If the option is surrendered in whole or in part, the appreciation distribution to which the optionee is entitled shall be made in the form of Common Stock and cash in accordance with the percentages of each designated by the optionee on his or her surrender-notification form; provided, however, that the Committee may specify a minimum percentage of the distribution that must be made in whole shares of Common Stock. (d) TERMINATION OF EMPLOYMENT The Committee shall determine and shall set forth in each option whether the option shall continue to be exercisable, and the terms and conditions of such exercise, if an optionee ceases to be employed by the Corporation or any of its subsidiaries. (e) INCENTIVE OPTIONS. Options granted under the Plan which are intended to be Incentive Options shall be subject to the following additional terms and conditions: (1) DOLLAR LIMITATION. To the extent that the aggregate fair market value (determined as of the respective date or dates of grant) of shares with respect to which options that would otherwise be Incentive Options are exercisable for the first time by any individual 4 during any calendar year under the Plan (or any other plan of the Corporation, a parent or subsidiary corporation or predecessor thereof) exceeds the sum of $100,000 (or such greater amount as may be permitted under the Internal Revenue Code), whether by reason of acceleration or otherwise, such options shall be treated as "nonstatutory" options. Such options shall be taken into account in the order in which they were granted. (2) 10% SHAREHOLDER. If any employee to whom an Incentive Option is to be granted pursuant to the provisions of the Plan is on the date of grant the owner of stock (determined with application of the ownership attribution rules of Section 425(d) of the Internal Revenue Code) possessing more than 10% of the total combined voting power of all classes of stock of his or her employer corporation or of its parent or subsidiary corporation, then the following special provisions shall be applicable to the option granted to such individual: (i) The option price per share of the Common Stock subject to such Incentive Option shall not be less than 110% of the fair market value of one share of Common Stock on the date of grant; and (ii) The Option shall not have a term in excess of five (5) years from the date of grant. (3) PARENT; SUBSIDIARY. For purposes of this Section VI(e) "parent and subsidiary corporation" and "parent or subsidiary corporation" shall have the meaning attributed to those terms under Section 422A(b) of the Internal Revenue Code. (f) WITHHOLDING (1) The Corporation's obligation to (i) deliver stock certificates upon the exercise of any option or (ii) pay cash or deliver stock certificates upon the surrender of any option shall be subject to the optionee's satisfaction of all applicable federal, state and local income and employment tax withholding requirements. (2) In the event that an optionee is required to pay to the Corporation an amount with respect to income and employment tax withholding obligations in connection with exercise of an option, the Committee may, in its discretion and subject to such rules as it may adopt, permit the optionee to satisfy the obligation, in whole or in part, by delivering shares of Common Stock already held by the optionee or by making an irrevocable election that a portion of the total value of the shares of Common Stock subject to the option be paid in the form of cash in lieu of the issuance of Common Stock and that such cash payment be applied to the satisfaction of the withholding obligations. The amount to be withheld shall not exceed the statutory minimum federal and state income and employment tax liability arising from the option exercise transaction. 5 (3) If the optionee is subject to the trading restrictions of Section 16(b) of the 1934 Act at the time of exercise of an option, any election under this Section VI(f) by such individual shall be made only in accordance with the applicable requirements of Rule 16b-3(e) of the Securities and Exchange Commission. (g) MODIFICATION OF OPTIONS. The Committee shall have full power and authority to modify or waive any or all of the terms, conditions or restrictions applicable to any outstanding option, to the extent not inconsistent with the Plan; provided, however, that no such modification or waiver shall, without the consent of the option holder, adversely affect the holder's rights thereunder. VII. RESTRICTED SHARE RIGHTS (a) NATURE OF RIGHTS. Share rights granted under the Plan shall provide an employee with the restricted right to receive shares of Common Stock under the Plan. The right to receive shares (together with cash dividend equivalents if so determined by the Committee) pursuant to any share rights shall be subject to such terms, conditions and restrictions (whether based on performance standards or periods of service or otherwise) as the Committee shall determine. However, in no event shall any share right entitle the holder to receive shares under the Plan free of all restrictions on transfer at any time prior to the expiration of two (2) years of service after the grant date of such share right except, if the Committee shall so determine, in the case of death, disability or retirement. The Committee shall have the absolute discretion to determine whether any consideration (other than the services of the employee) is to be received by the Corporation or its subsidiaries as a condition precedent to the issuance of shares pursuant to share rights. The terms, conditions and restrictions to which share rights are subject may vary from grant to grant. (b) FORM; CASH PAYMENTS. All share rights granted under the Plan shall be evidenced by instruments in such form as the Committee may from time to time approve. The Committee shall have the absolute discretion to incorporate into one or more of such instruments provisions for the payment of share rights partly in shares of Common Stock and partly in cash in accordance with the following terms and conditions: (1) The Committee may require that a designated percentage of the total value of the shares of Common Stock subject to the share rights held by one or more employees be paid in the form of cash in lieu of the issuance of Common Stock and that such cash payment be applied to the satisfaction of the federal and state income and employment tax withholding obligations that arise at the time the share rights become free of all restrictions under the Plan. The designated percentage shall be equal to the income and employment tax withholding rate in effect at the time under federal and applicable state law. (2) The Committee may provide one or more employees whose share rights are subject to the mandatory cash payment under clause (1) with an election to receive an 6 additional percentage of the total value of the Common Stock subject to their share rights in the form of a cash payment in lieu of the issuance of Common Stock. The additional percentage shall not exceed the difference between 50% and the designated percentage under clause (1). If any employee to whom an election under this clause (2) is granted is, at the time such election is to be exercised, considered an officer or director of the Corporation for purposes of Section 16(b) of the 1934 Act, or was such an officer or director at any time during the six-month period immediately preceding the date of the election and made any purchase or sale of Common Stock during such six-month period, then the exercise of his or her election under this clause (2) shall be made only in accordance with the applicable requirements of Rule 16b-3(e) of the Securities and Exchange Commission. (c) MODIFICATION OF RIGHTS. The Committee shall have full power and authority to modify or waive any or all of the terms, conditions or restrictions applicable to any outstanding share rights; provided, however, that (i) no such modification or waiver shall, without the consent of the holder of the share rights, adversely affect the holder's rights thereunder and (ii) no such modification or waiver shall reduce the service requirement specified in Section VII(a) to less than two (2) years, except in the event of the holder's death, disability or retirement. VIII. LOANS, LOAN GUARANTEES AND INSTALLMENT PAYMENTS In order to assist an employee (including an employee who is an officer or director of the Corporation) in the acquisition of shares of Common Stock pursuant to an award granted under the Plan, the Committee may authorize, at either the time of the grant of an award or the time of the acquisition of Common Stock pursuant to the award, (i) the extension of a loan to the employee by the Corporation, (ii) the payment by the employee of the purchase price, if any, of the Common Stock in installments, or (iii) the guarantee by the Corporation of a loan obtained by the employee from a third party. The terms of any loans, guarantees or installment payments, including the interest rate and terms of repayment, will be subject to the discretion of the Committee. Loans, installment payments and guarantees may be granted without security, the maximum credit available being the purchase price, if any, of the Common Stock acquired plus the maximum federal and state income and employment tax liability which may be incurred in connection with the acquisition. IX. ASSIGNABILITY No option or share right granted under the Plan shall be assignable or transferable by the optionee other than by will or by the laws of descent and distribution, and during the lifetime of the optionee options granted under the Plan shall be exercisable only by the optionee. 7 X. VALUATION OF COMMON STOCK For all valuation purposes under the Plan, the fair market value of a share of Common Stock shall be its closing price, as quoted on the New York Stock Exchange Composite Tape, on the day immediately prior to the date in question. If there is no quotation available for such day, then the closing price on the next preceding day for which there does exist such a quotation shall be determinative of fair market value. If, however, the Committee determines that, as a result of circumstances existing on any date, the use of such price is not a reasonable method of determining fair market value on that date, the Committee may use such other method as, in its judgment, is reasonable. XI. EFFECTIVE DATE AND TERM OF PLAN (a) EFFECTIVE DATE. The Plan shall become effective on the date it is adopted by the Board, but no shares of Common Stock shall be issued under the Plan and no options granted under the Plan shall be exercisable before the Plan is approved by the holders of at least a majority of the Corporation's voting stock represented and voting at a duly-held meeting at which a quorum is present. If such shareholder approval is not obtained, then any options or share rights previously granted under the Plan shall terminate and no further options or share rights shall be granted. Subject to such limitation, the Committee may grant options and share rights under the Plan at any time after the adoption of the Plan by the Board and before the date fixed herein for termination of the Plan. (b) TERM. The Plan shall terminate on the tenth anniversary of the date of the Plan's adoption by the Board. Any option or share right outstanding under the Plan at the time of its termination shall continue to have full force and effect in accordance with the provisions set forth in the instruments evidencing such option or share right. XII. AMENDMENT OR DISCONTINUANCE BY BOARD ACTION The Board may amend, suspend or discontinue the Plan in whole or in part at any time; provided, however, that, except to the extent necessary to qualify as Incentive Options any or all options granted under the Plan which are intended to so qualify, such action shall not adversely affect rights and obligations with respect to options or share rights at the time outstanding under the Plan; and provided, further, that the Board shall not, without the approval of the Corporation's shareholders (i) change the number of shares of Common Stock which may be issued under the Plan (unless necessary to effect the adjustments required under Section IV(d)), (ii) modify the eligibility requirements for awards under the Plan or (iii) make any other change with respect to which the Board determines that shareholder approval is required by applicable law or regulatory standards. 8 XIII. NO EMPLOYMENT OBLIGATION Nothing contained in the Plan (or in any option or share right granted pursuant to the Plan) shall confer upon any employee any right to continue in the employ of the Corporation or any affiliate or constitute any contract or agreement of employment or interfere in any way with the right of the Corporation or an affiliate to reduce such employee's compensation from the rate in existence at the time of the granting of an option or share right or to terminate such employee's employment at any time, with or without cause, but nothing contained herein or in any option or share right shall affect any contractual rights of an employee pursuant to a written employment agreement. XIV. USE OF PROCEEDS The cash proceeds received by the Corporation from the issuance of shares pursuant to options or share rights under the Plan shall be used for general corporate purposes. XV. REGULATORY APPROVALS The implementation of the Plan, the granting of any option or share right under the Plan, and the issuance of Common Stock upon the exercise of any such option or lapse of restrictions on any such share right shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options or share rights granted under it or the Common Stock issued pursuant to it. XVI. GOVERNING LAW To the extent not otherwise governed by federal law, the Plan and its implementation shall be governed by and construed in accordance with the laws of the State of California. 9 EX-10.(H) 5 EXHIBIT 10(H) Exhibit 10(h) WELLS FARGO & COMPANY EXECUTIVE INCENTIVE PAY PLAN Wells Fargo & Company (Company) adopted the Executive Incentive Pay Plan (EIPP) effective January 1, 1981. Effective January 1, 1982, the EIPP was split into two plans - the EIPP covering Executive Vice Presidents and above and the Management Incentive Pay Plan (MIPP) covering other key employees. Effective January 1, 1992, the MIPP was terminated and Senior Vice Presidents became covered under the EIPP. Effective January 1, 1992, the EIPP reads as follows: 1. PURPOSE The purposes of the EIPP are to: (A) Promote the interests of the Company. (B) Provide incentives and rewards to key executives, as a group and individually, who are largely responsible for the management, growth and profitability of the Company. 2. ELIGIBILITY AND PARTICIPATION (A) The executives eligible for the EIPP are all Senior Vice Presidents and above. Amended 1/1/92 (B) No executive shall remain eligible for participation in any calendar year if he/she terminates employment prior to the end of such calendar year for any reason other than normal retirement, death, disability or, with the Personnel Director's approval, involuntary termination without cause. Amended 1/1/92 (C) Eligible executives shall be approved for participation by the Chief Executive Officer or the President of the Company. Participants are approved for each annual plan year and will not be eligible for an award for any year unless explicitly approved for such year. With approval by the Chief Executive Officer or President, participants may participate for part of a plan year on a pro-rata basis. (D) No participant shall receive an award from the EIPP if he/she participates in any other Company sponsored incentive, sales or bonus plan unless such participation is approved by the Chief Executive Officer or President of the Company. 3. DETERMINATION OF THE EIPP POOL The total amount of bonuses available for payout (EIPP Pool) shall be determined by the Management Development and Compensation Committee (Committee) of the Board of Directors. 4. DETERMINATION OF PARTICIPANTS' SHARE OF THE EIPP POOL (A) The Committee shall have the sole discretion to determine the share of the EIPP Pool available to the Chief Executive Officer and the President. Amended 1/1/92 (B) Upon the recommendation of the Chief Executive Officer, the Committee shall determine the share of the EIPP Pool for each other participant. (C) Share awards shall not be determined until after the end of each plan year. No commitment to share awards shall be made prior to such determination unless approved by the Committee. Amended 1/1/92 (D) Final payouts are subject to the approval of the Committee and shall occur as soon as practical after the close of the Company's financial books for the year. 5. DEFERRAL ELECTION (A) Each participant in the EIPP may defer part or all of the bonus awarded to him/her with respect to any calendar year by executing the EIPP Deferral Election Forms and delivering them to the Executive Compensation Department no later than the date specified in the notification to the participant of his/her participation for such year, which date shall be (i) a date prior to December 31 of the calendar year preceding the year in which the participant may earn a bonus or (ii) a date within 30 days following the date of such notification. (B) A participant may elect to defer either a specific dollar amount or a percentage of his/her bonus. If the dollar amount to be deferred exceeds the bonus actually awarded, 100% of the bonus will be deferred. Any election to defer a percentage less than 100% of the bonus must be made in multiples of 25% of the bonus. Amended 1/1/92 The election, once made, shall be irrevocable with respect to the year for which it is made. (C) The deferred bonus will be credited to a special book account maintained for each participant and will accrue interest each year, commencing as of March 1 of the year following the Amended 1/1/92 calendar year in which the bonus is earned. The rate each year will be equal to the average annual rate for 3-year Treasury Notes for the immediately preceding calendar year. Distribution of the deferred bonus plus accrued interest will be made at such time or times and in such manner as the participant shall specify at the time he/she files the EIPP Deferral Election Forms, subject, however, to such restrictions and limitations as the Committee may from time to time impose. 6. DEFERRED AMOUNTS The obligation to pay the deferred bonus plus interest shall at all times be an unfunded and unsecured obligation of the Company. The participant and his/her beneficiary(ies) shall look exclusively to the general assets of the Company for payment. The participant shall have no right to assign, pledge or encumber his/her interest in the amount credited to the deferred bonus account. The participant may, however, designate one or more beneficiaries to receive the account balance in the event of his/her death. 7. AMENDMENT/TERMINATION Amended 1/1/92 The Company hereby reserves the right to amend the EIPP at any time and in any respect or to discontinue and terminate the EIPP in whole or in part at any time. Amendment or termination may be effective with respect to any amount which has not yet been paid out, except amounts which would have been paid out prior to amendment or termination if no deferral election had been made. Amended 1/1/92 No provision of the EIPP shall be deemed to constitute a commitment of the Company to pay, or to confer any contractual or other rights upon a participant to receive a bonus award for any one or more calendar years or to confer upon any participant any right to continue in the employ of the Company or to constitute any contract or agreement of employment or to interfere in any way with the right of the Company to terminate a participant's employment at any time, with or without cause, but nothing contained herein shall affect any contractual right of a participant pursuant to a written employment agreement. Amended 1/1/92 - ------------------------------------ --------------- Carl E. Reichardt Date Chairman and Chief Executive Officer Amended 1/1/92 EX-11 6 EXHIBIT 11 EXHIBIT 11 WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
- ----------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------ (in millions) 1995 1994 1993 - ----------------------------------------------------------------------------------------------- PRIMARY EARNINGS PER COMMON SHARE Net income $1,032 $ 841 $ 612 Less preferred dividends 42 43 50 ------ ------ ------ Net income for calculating primary earnings per common share $ 990 $ 798 $ 562 ------ ------ ------ ------ ------ ------ Average common shares outstanding 48.6 53.9 55.6 ------ ------ ------ ------ ------ ------ PRIMARY EARNINGS PER COMMON SHARE $20.37 $14.78 $10.10 ------ ------ ------ ------ ------ ------ FULLY DILUTED EARNINGS PER COMMON SHARE (1) Net income $1,032 $ 841 $ 612 Less preferred dividends 42 43 50 ------ ------ ------ Net income for calculating fully diluted earnings per common share $ 990 $ 798 $ 562 ------ ------ ------ ------ ------ ------ Average common shares outstanding 48.6 53.9 55.6 Add exercise of options, warrants and share rights, reduced by the number of shares that could have been purchased with the proceeds from such exercise 1.2 1.4 1.2 ------ ------ ------ Average common shares outstanding, as adjusted 49.8 55.3 56.8 ------ ------ ------ ------ ------ ------ FULLY DILUTED EARNINGS PER COMMON SHARE $19.90 $14.42 $ 9.88 ------ ------ ------ ------ ------ ------ - -----------------------------------------------------------------------------------------------
(1) This presentation is submitted in accordance with Item 601(b)(11) of Regulation S-K. This presentation is not required by APB Opinion No. 15, because it results in dilution of less than 3%. EX-12.(A) 7 EXHIBIT 12(A) EXHIBIT 12(A) WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
- --------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------------------------------------ (in millions) 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- EARNINGS, INCLUDING INTEREST ON DEPOSITS (1): Income before income tax expense $1,777 $1,454 $1,038 $ 500 $ 54 Fixed charges 1,496 1,214 1,157 1,505 2,504 ------ ------ ------ ------- ------- $3,273 $2,668 $2,195 $ 2,005 $ 2,558 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- Fixed charges (1): Interest expense $1,431 $1,155 $1,104 $ 1,454 $ 2,452 Estimated interest component of net rental expense 65 59 53 51 52 ------ ------ ------ ------- ------- $1,496 $1,214 $1,157 $ 1,505 $ 2,504 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- Ratio of earnings to fixed charges (2) 2.19 2.20 1.90 1.33 1.02 EARNINGS, EXCLUDING INTEREST ON DEPOSITS: Income before income tax expense $1,777 $1,454 $1,038 $ 500 $ 54 Fixed charges 499 360 294 320 539 ------ ------ ------ ------- ------- $2,276 $1,814 $1,332 $ 820 $ 593 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- Fixed charges: Interest expense $1,431 $1,155 $1,104 $ 1,454 $ 2,452 Less interest on deposits (997) (854) (863) (1,185) (1,965) Estimated interest component of net rental expense 65 59 53 51 52 ------ ------ ------ ------- ------- $ 499 $ 360 $ 294 $ 320 $ 539 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- Ratio of earnings to fixed charges (2) 4.56 5.04 4.53 2.56 1.10 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) As defined in Item 503(d) of Regulation S-K. (2) These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there were no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there were no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates. EX-12.(B) 8 EXHIBIT 12(B) EXHIBIT 12(B) WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
- ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, --------------------------------------------------------- (in millions) 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- EARNINGS, INCLUDING INTEREST ON DEPOSITS (1): Income before income tax expense $1,777 $1,454 $1,038 $ 500 $ 54 Fixed charges 1,496 1,214 1,157 1,505 2,504 ------ ------ ------ ------- ------- $3,273 $2,668 $2,195 $ 2,005 $ 2,558 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- Preferred dividend requirement $ 42 $ 43 $50 $ 48 $ 19 Ratio of income before income tax expense to net income 1.72 1.73 1.70 1.77 2.57 ------ ------ ------ ------- ------- Preferred dividends (2) $ 72 $ 74 $85 $ 85 $ 49 ------ ------ ------ ------- ------- Fixed charges (1): Interest expense 1,431 1,155 1,104 1,454 2,452 Estimated interest component of net rental expense 65 59 53 51 52 ------ ------ ------ ------- ------- 1,496 1,214 1,157 1,505 2,504 ------ ------ ------ ------- ------- Fixed charges and preferred dividends $1,568 $1,288 $1,242 $ 1,590 $ 2,553 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- Ratio of earnings to fixed charges and preferred dividends (3) 2.09 2.07 1.77 1.26 1.00 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- EARNINGS, EXCLUDING INTEREST ON DEPOSITS: Income before income tax expense $1,777 $1,454 $1,038 $ 500 $ 54 Fixed charges 499 360 294 320 539 ------ ------ ------ ------- ------- $2,276 $1,814 $1,332 $ 820 $ 593 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- Preferred dividends (2) $ 72 $ 74 $ 85 $ 85 $ 49 ------ ------ ------ ------- ------- Fixed charges: Interest expense 1,431 1,155 1,104 1,454 2,452 Less interest on deposits (997) (854) (863) (1,185) (1,965) Estimated interest component of net rental expense 65 59 53 51 52 ------ ------ ------ ------- ------- 499 360 294 320 539 ------ ------ ------ ------- ------- Fixed charges and preferred dividends $ 571 $ 434 $ 379 $ 405 $ 588 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- Ratio of earnings to fixed charges and preferred dividends (3) 3.99 4.18 3.51 2.02 1.01 ------ ------ ------ ------- ------- ------ ------ ------ ------- ------- - ----------------------------------------------------------------------------------------------------------------------------------
(1) As defined in Item 503(d) of Regulation S-K. (2) The preferred dividends were increased to amounts representing the pretax earnings that would be required to cover such dividend requirements. (3) These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there was no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there was no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates. EX-13 9 EXHIBIT 13 WELLS FARGO & COMPANY AND SUBSIDIARIES FINANCIAL REVIEW OVERVIEW - -------------------------------------------------------------------------------- Wells Fargo & Company (Parent) is a bank holding company whose principal subsidiary is Wells Fargo Bank, N.A. (Bank). In this Annual Report, Wells Fargo & Company and its subsidiaries are referred to as the Company. Net income in 1995 was $1,032 million, compared with $841 million in 1994, an increase of 23%. Net income per share was $20.37, compared with $14.78 in 1994, an increase of 38%. The percentage increase in per share earnings was greater than the percentage increase in net income due to the Company's stock repurchase program. [RETURN ON AVERAGE TOTAL ASSETS (ROA)(GRAPH) (%)] SEE APPENDIX [RETURN ON COMMON STOCKHOLDERS' EQUITY (ROE)(GRAPH) (%)] SEE APPENDIX The increase in earnings from a year ago reflected a $163 million ($94 million after tax) gain resulting from the sale of the Company's joint venture interest in Wells Fargo Nikko Investment Advisors (WFNIA) and a zero loan loss provision, compared with $200 million in 1994. Return on average assets (ROA) was 2.03% and return on average common equity (ROE) was 29.70% in 1995, compared with 1.62% and 22.41%, respectively, in 1994. Net interest income on a taxable-equivalent basis was $2,655 million in 1995, compared with $2,610 million a year ago. The Company's net interest margin was 5.80% for 1995, compared with 5.55% in 1994. The increase in the margin was attributable to an increase in the spread between loans and deposits and a change in the mix of average earning assets, as higher-yielding loans, such as credit card and small business, replaced lower-yielding securities and single family loans. Noninterest income increased from $1,200 million in 1994 to $1,324 million in 1995, an increase of 10%. The growth reflected an overall increase in revenue from the Company's core products and services and the gain resulting from the sale of WFNIA, partially offset by accruals related to the disposition of operations associated with scheduled branch closures. Noninterest expense increased from $2,156 million in 1994 to $2,201 million in 1995. A major portion of the increase in noninterest expense was due to higher salary levels as well as higher contract services related to new product development and marketing initiatives. This increase was primarily offset by a reduction in federal deposit insurance expense. There was no provision for loan losses in 1995, compared with $200 million in 1994. During 1995, net charge-offs were $288 million, or .83% of average total loans, compared with $240 million, or .70%, during 1994. The allowance for loan losses was $1,794 million, or 5.04% of total loans, at December 31, 1995, compared with $2,082 million, or 5.73%, at December 31, 1994. At December 31, 1995, total nonaccrual and restructured loans were $552 million, or 1.6% of total loans, compared with $582 million, or 1.6%, at December 31, 1994. At December 31, 1995, an estimated $265 million, or 49%, of nonaccrual loans were either current or less than 90 days past due, compared with an estimated $246 million, or 43%, at December 31, 1994. Foreclosed assets were $186 million at December 31, 1995, compared with $272 million at December 31, 1994. 4 At December 31, 1995, the ratio of common stockholders' equity to total assets was 7.09%, compared with 6.41% at December 31, 1994. The Company's total risk-based capital (RBC) ratio at December 31, 1995 was 12.46% and its Tier 1 RBC ratio was 8.81%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies and the "well capitalized" guidelines for banks of 10% and 6%, respectively. The Company's ratios at December 31, 1994 were 13.16% and 9.09%, respectively. The Company's leverage ratios were 7.46% and 6.89% at December 31, 1995 and 1994, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies and the "well capitalized" guideline for banks of 5%. A discussion of RBC and leverage ratio guidelines is in the Capital Adequacy/Ratios section. In the first quarter of 1995, the Board of Directors approved an increase in the common stock quarterly dividend from $1.00 to $1.15 per share. The quarterly dividend was increased again in January 1996 to $1.30 per share. The Company repurchased a total of 5.0 million shares of common stock during 1995. The Company has bought in the past, and will continue to buy, shares to offset stock issued or expected to be issued under the Company's employee benefit and dividend reinvestment plans. In addition to these shares, the Board of Directors authorized in April 1995 the repurchase of up to 4.96 million shares of the Company's outstanding common stock. This action reflected the Company's strong capital position and has allowed the Company to effectively manage its overall capital position in the best interest of its shareholders. Share repurchases ceased after the October 1995 announcement of the proposed merger with First Interstate Bancorp. Repurchases are expected to resume in late first quarter or early second quarter of 1996. California continues to make progress in its recovery from its recent severe recession. Many industries grew at a satisfactory rate although construction and defense continued to struggle. Last year's recovery was helped by lower interest rates. Confidence improved in many households and small businesses, but competition for jobs and sales remained stiff and higher profits were more difficult to come by. The year 1995 marked the state's third year of growth in this business cycle. TABLE 1 RATIOS AND PER COMMON SHARE DATA
- ---------------------------------------------------------------------------- Year ended December 31, ------------------------------ 1995 1994 1993 PROFITABILITY RATIOS Net income to average total assets (ROA) 2.03% 1.62% 1.20% Net income applicable to common stock to average common stockholders' equity (ROE) 29.70 22.41 16.74 Net income to average stockholders' equity 26.99 20.61 15.32 EFFICIENCY RATIO (1) 55.3% 56.6% 57.7% CAPITAL RATIOS At year end: Common stockholders' equity to assets 7.09% 6.41% 7.00% Stockholders' equity to assets 8.06 7.33 8.22 Risk-based capital (2) Tier 1 capital 8.81 9.09 10.48 Total capital 12.46 13.16 15.12 Leverage (2) 7.46 6.89 7.39 Average balances: Common stockholders' equity to assets 6.57 6.86 6.57 Stockholders' equity to assets 7.53 7.87 7.82 PER COMMON SHARE DATA Dividend payout (3) 23% 27% 22% Book value $75.93 $66.77 $65.87 Market prices (4): High $229 $160 3/8 $133 Low 143 3/8 127 5/8 75 1/2 Year end 216 145 129 3/8 - ------------------------------------------------------------------------------
(1) The efficiency ratio is defined as noninterest expense divided by the total of net interest income and noninterest income. (2) See the Capital Adequacy/Ratios section for additional information. (3) Dividends declared per common share as a percentage of net income per common share. (4) Based on daily closing prices reported on the New York Stock Exchange Composite Transaction Reporting System. In the fourth quarter of 1995, the Company adopted Financial Accounting Standard Nos. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (FAS 121), and 122, Accounting for Mortgage Servicing Rights (FAS 122). These adoptions did not have a material impact on the financial statements. For a further discussion of FAS 121 and 122, refer to Note 5 of the Financial Statements. 5 TABLE 2 SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------------------------------------------------- (in millions) 1995 1994 1993 1992 1991 1990 % CHANGE FIVE-YEAR 1995/ COMPOUND 1994 GROWTH RATE INCOME STATEMENT Net interest income $ 2,654 $ 2,610 $ 2,657 $ 2,691 $ 2,520 $ 2,314 2 % 3 % Provision for loan losses - 200 550 1,215 1,335 310 (100) (100) Noninterest income 1,324 1,200 1,093 1,059 889 909 10 8 Noninterest expense 2,201 2,156 2,162 2,035 2,020 1,717 2 5 Net income 1,032 841 612 283 21 712 23 8 PER COMMON SHARE Net income $ 20.37 $ 14.78 $ 10.10 $ 4.44 $ .04 $ 13.39 38 9 Dividends declared 4.60 4.00 2.25 1.50 3.50 3.90 15 3 BALANCE SHEET (at year end) Investment securities $ 8,920 $11,608 $13,058 $ 9,338 $ 3,833 $ 1,387 (23)% 45 % Loans 35,582 36,347 33,099 36,903 44,099 48,977 (2) (6) Allowance for loan losses 1,794 2,082 2,122 2,067 1,646 885 (14) 15 Assets 50,316 53,374 52,513 52,537 53,547 56,199 (6) (2) Core deposits 37,858 38,508 41,291 41,879 42,941 41,840 (2) (2) Senior/Subordinated debt 3,049 2,853 4,221 4,040 4,220 2,417 7 5 Stockholders' equity 4,055 3,911 4,315 3,809 3,271 3,360 4 4 - ---------------------------------------------------------------------------------------------------------------------------------
MERGER WITH FIRST INTERSTATE BANCORP - -------------------------------------------------------------------------------- On January 24, 1996, the Company announced it had entered into a definitive agreement with First Interstate Bancorp (First Interstate) to merge the two companies. At December 31, 1995, First Interstate had assets of $58.1 billion and was the 15th largest bank holding company in the nation. First Interstate had 405 offices in California and a total of approximately 1,150 offices in 13 western states. The Company had 974 banking locations throughout California at December 31, 1995. The newly formed company will be operated under the Wells Fargo & Company name. Under the terms of the merger agreement, the Company will operate from headquarters in San Francisco and Los Angeles, with a senior executive presence in both. The combined Board of Directors will consist of the existing members of the Company's Board and seven directors from First Interstate's Board. Under terms of the merger agreement, First Interstate shareholders will receive a tax-free exchange of two-thirds of a share of the Company's common stock for each share of First Interstate common stock. Based on the Company's closing price on Friday, January 19 (the last trading day before First Interstate's Board of Directors agreed to the two-thirds exchange ratio), the base purchase price is approximately $11 billion. The merger will be accounted for as a purchase transaction. Accordingly, the results of operations of First Interstate will be included with that of the Company for periods subsequent to the consummation of the merger. The merger is currently expected to close on or about April 1, 1996, subject to regulatory and shareholder approvals. As part of the regulatory approval process, the combined company will be required to divest 61 branches in various markets in California having aggregate deposits of about $2.5 billion and loans of about $1.3 billion. Shareholders of both companies will vote upon the proposed merger at special meetings to be held on March 28. The Company expects to achieve annual cost savings of approximately $800 million within 18 months of the consummation of the merger. These savings are expected to result from the significant overlap that exists between the Company's operations and those of First Interstate in California, the proximity of the Company's operations in California and those of First Interstate's in neighboring states, the greater level of efficiency with which the Com- 6 pany runs its franchise when compared to First Interstate and, finally, economies of scale. However, the Company estimates a potential annual revenue loss of $100 million as a result of combining the two companies. This loss is expected to occur principally in commercial lending, retail and trust. Revenue decreases in these areas are expected to result from anticipated loan runoffs, deposit attrition and account attrition. Potential revenue losses were estimated based on expected results one year after consummation of the merger. It is anticipated that the Company will incur merger-related costs of about $700 million related to premises, severance and other costs. Of this amount, approximately $400 million of costs relate to First Interstate's premises, employees and operations and will affect the final amount of goodwill as of the consummation of the merger. The remaining amount of approximately $300 million of costs relate to the Company's premises, employees and operations as well as all costs relating to systems conversions and other indirect, integration costs and will be expensed, either upon consummation of the merger or as incurred. With respect to timing, it is assumed that the integration would be completed and that such costs would be incurred not later than 18 months after the closing of the merger. For pro forma information, see Note 15 to the Financial Statements. The following discussions included in the Line of Business Results, Earnings Performance and Balance Sheet Analysis sections of this report do not reflect the expected impact of the Company's merger with First Interstate. LINE OF BUSINESS RESULTS - -------------------------------------------------------------------------------- The Company has identified seven distinct lines of business for the purposes of management reporting, as shown in Table 3. The line of business results show the financial performance of the major business units. Line of business results are determined based on the Company's management accounting process, which assigns balance sheet and income statement items to each responsible business unit. This process is dynamic and somewhat subjective. Unlike financial accounting, there is no comprehensive, authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. The management accounting process measures the performance of the business lines based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. 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 restated to allow comparability from one year to the next. Internal expense allocations are independently negotiated between business units and, where possible, service and price is measured against comparable services available in the external marketplace. The following describes the major business units. THE RETAIL DISTRIBUTION GROUP sells and services a complete line of retail financial products for consumers and small businesses. It encompasses a network of traditional branches, supermarket branches and banking centers, the 24-hour Telephone Banking Centers, the ATM network and Wells Fargo's On-Line Financial Services, the Company's personal computer banking services. In addition, Retail Distribution includes the consumer checking business, which primarily uses the branches as a source of new customers. As part of the ongoing effort to provide higher-convenience, lower-cost service to customers, the Company continued to open supermarket branches and banking centers in California in 1995. The supermarket banking centers (modularly designed kiosks equipped with an ATM, a customer service telephone and staffed by a banking manager) are capable of providing substantially all consumer services. The number of ATM locations continued to increase in 1995, reaching a total of 2,385 at December 31, 1995. The Retail Distribution Group's net income for 1995 decreased $43 million, or 73%. Net interest income increased by $39 million substantially due to wider spreads on core deposits. A significant portion of this increase was offset by lower balances. Noninterest income reflected losses of $91 million and $14 million in 1995 and 1994, respectively, related to the disposition of operations associated with scheduled branch closures. (See Noninterest Income section for further information.) A significant portion of these losses was offset by higher charges to product groups from increased sales through branches and alternative distribution channels, higher ATM shared network fees and increased point-of- sale interchange income. Noninterest expense increased substantially due to higher expenditures on alternative distribution channels, including supermarket branches and banking centers, partly offset by the allocation of a refund received from the FDIC. 7 TABLE 3 LINE OF BUSINESS RESULTS (ESTIMATED)
- ------------------------------------------------------------------------------------------------------------------------- Retail (income/expense in millions, Distribution Business Investment Real Estate average balances in billions) Group Banking Group Group Group -------------- -------------- -------------- -------------- 1995 1994 1995 1994 1995 1994 1995 1994 Net interest income (1) $452 $ 413 $368 $292 $ 457 $ 383 $242 $214 Provision for loan losses (2) 1 1 35 27 1 1 28 28 Noninterest income (3) 565 612 144 129 464 302 28 24 Noninterest expense (3) 979 912 284 272 440 436 78 66 ---- ----- ---- ---- ----- ----- ---- ---- Income before income tax expense (benefit) 37 112 193 122 480 248 164 144 Income tax expense (benefit) (4) 21 53 85 55 209 110 69 61 ---- ----- ---- ---- ----- ----- ---- ---- Net income (loss) $ 16 $ 59 $108 $ 67 $ 271 $ 138 $ 95 $ 83 ---- ----- ---- ---- ----- ----- ---- ---- ---- ----- ---- ---- ----- ----- ---- ---- Average loans $ - $ - $2.4 $1.8 $ 0.5 $ 0.5 $6.3 $6.2 Average assets 1.2 1.2 3.6 3.0 1.0 1.0 6.7 6.6 Average core deposits 9.5 10.2 6.4 7.1 17.9 19.5 0.1 0.1 Return on equity (5)(6) 5% 20% 32% 22% 61% 30% 15% 13% Risk-adjusted efficiency ratio (6)(7) 103% 95% 73% 83% 57% 76% 83% 88% - -------------------------------------------------------------------------------------------------------------------------
(1) 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. Groups 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. (2) The provision allocated to the line groups is based on management's current assessment of the normalized net charge-off ratio for each line of business. In any particular year, the actual net charge-offs can be higher or lower than the normalized provision allocated to the lines of business. The difference between the normalized provision and the Company provision is included in Other. (3) Retail Distribution Group's charges to the product groups are shown as noninterest income to the branches and noninterest expense to the product groups. They amounted to $206 million and $178 million for 1995 and 1994, respectively. These charges are eliminated in the Other category in arriving at the Consolidated Company totals for noninterest income and expense. THE BUSINESS BANKING GROUP provides a full range of financial services to small businesses, including credit, deposits, investments, payroll services, retirement programs, and credit and debit card services. Business Banking customers include small businesses with annual sales up to $10 million in which the owner of the business is also the principal financial decision maker. The Business Banking Group's net income for 1995 increased $41 million, or 61%. Net interest income increased substantially due to wider spreads on core deposits and higher loan balances. Noninterest income increased largely due to higher sweep account balances and activity, and increased fees from mass market products. Noninterest expense increased primarily due to higher expenses associated with increased mass market lending volumes. THE INVESTMENT GROUP is responsible for the sales and management of savings and investment products, investment management, fiduciary and brokerage services. This includes the Stagecoach and Overland Express families of funds as well as personal trust, employee benefit trust and agency assets. It also includes product management for market rate accounts, savings deposits, Individual Retirement Accounts (IRAs) and time deposits. The Investment Group's net income for 1995 increased $133 million, or 96%. The Group benefited from the sale of its joint venture interest in WFNIA and the Investment Group's MasterWorks division to Barclays PLC of the U.K. The sale was completed in December 1995. The Company recognized an after-tax gain of $94 million. The combined net income contribution from the operations of WFNIA and MasterWorks was less than $12 million for 1995 and 1994. Net interest income increased due to wider spreads on core deposits, of which a major portion was offset by a decline in deposit balances. THE REAL ESTATE GROUP provides a complete line of services supporting the commercial real estate market. Products and services include construction loans for commercial and residential development, land acquisition and development loans, secured and unsecured lines of credit, interim financing arrangements for completed structures, rehabilitation loans, affordable housing loans and letters of credit. Secondary market services are provided through the Real Estate Capital Markets Group. Its business includes purchasing distressed loans at a discount, mezzanine financing, acquisition financing, origination of permanent loans for securitization, syndications, commercial real estate loan servicing and real estate pension fund advisory services. The Real Estate Group's net income for 1995 increased $12 million, or 14% over 1994. Net interest income increased due to the recoveries on loans where interest had been previously applied to principal and due to the payoff of loans purchased at a discount. Noninterest income 8
- ----------------------------------------------------------------------------------------------------------------------------------- (income/expense in millions, Wholesale Consumer Mortgage Consolidated (average balances in billions) Products Group Lending Business (8) Other Company -------------- -------------- -------------- -------------- -------------- 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994 Net interest income (1) $ 424 $365 $ 640 $547 $ 64 $ 95 $ 7 $ 301 $2,654 $2,610 Provision for loan losses (2) 42 37 227 177 6 10 (340) (81) - 200 Noninterest income (3) 157 136 192 144 (48) 6 (178) (153) 1,324 1,200 Noninterest expense (3) 198 184 282 256 43 80 (103) (50) 2,201 2,156 ----- ---- ----- ---- ---- ---- ----- ----- ------ ------ Income before income tax expense (benefit) 341 280 323 258 (33) 11 272 279 1,777 1,454 Income tax expense (benefit) (4) 145 120 137 110 (14) 5 93 99 745 613 ----- ---- ----- ---- ---- ---- ----- ----- ------ ------ Net income (loss) $ 196 $160 $ 186 $148 $(19) $ 06 $ 179 $ 180 $1,032 $ 841 ----- ---- ----- ---- ---- ---- ----- ----- ------ ------ ----- ---- ----- ---- ---- ---- ----- ----- ------ ------ Average loans $ 9.2 $8.2 $10.8 $9.3 $5.0 $7.6 $ 0.3 $ 0.4 $ 34.5 $ 34.0 Average assets 10.2 9.0 11.0 9.4 6.2 7.7 10.9 13.9 50.8 51.8 Average core deposits 2.4 2.4 0.1 - 0.2 0.1 - 0.2 36.6 39.6 Return on equity (5)(6) 25% 23% 27% 25% -% -% -% -% 30% 22% Risk-adjusted efficiency ratio (6)(7) 64% 68% 68% 71% -% -% -% -% -% -% - -----------------------------------------------------------------------------------------------------------------------------------
(4) Businesses are taxed at the Company's marginal (statutory) tax rate, adjusted for any nondeductible expenses. Any differences between the marginal and effective tax rate are in Other. (5) Equity is allocated to the lines of business based on an assessment of the inherent risk associated with each business so that the returns on allocated equity are on a risk-adjusted basis and comparable across business lines. (6) Ratios for the Mortgage Business are not meaningful. (7) The risk-adjusted efficiency ratio is defined as noninterest expense plus the cost of capital divided by revenues (net interest income and noninterest income) less normalized loan losses. (8) The Company exited the 1-4 family first mortgage loan origination business in October 1995. increased substantially due to gains on the sale of loans. Noninterest expense increased substantially due to lower foreclosed asset gains on sales and the expansion of the Real Estate Capital Markets Group in 1995. THE WHOLESALE PRODUCTS GROUP serves businesses headquartered in California with annual sales of $5 million to $250 million and maintains relationships with major corporations throughout the United States. The group is responsible for soliciting and maintaining credit and noncredit relationships with businesses by offering a variety of products and services, including traditional commercial loans and lines, letters of credit, international trade facilities, foreign exchange services and cash management. This group includes the majority ownership interest in the Wells Fargo HSBC Trade Bank established in October 1995 that provides trade financing, letters of credit and collection services. The Wholesale Products Group's net income for 1995 increased $36 million, or 23%, from 1994. Net interest income increased substantially due to the increase in average loan balances and wider spreads on core deposits. Noninterest income reflected growth in cash management products and fees and commissions. The increase in noninterest expense was related to the growth in cash management, ongoing product development and infrastructure enhancement. CONSUMER LENDING offers a full array of consumer loan products, including an average of $3.5 billion in credit card loans, $2.0 billion in auto financing and leases, and $5.3 billion in home equity lines and loans, lines of credit and installment loans. Consumer Lending's net income for 1995 increased $38 million, or 26%. The increase in net interest income was largely due to higher credit card balances. Noninterest income increased primarily due to higher credit card fee income. Noninterest expense increased primarily due to the cost of servicing a higher number of open accounts. MORTGAGE BUSINESS (formerly, Mortgage Lending) decided at year-end 1994 to cease the origination of 1-4 family first mortgage loans due to concerns regarding the long-run economics of the first mortgage origination business. In April 1995, the Company agreed in principle to form an alliance with Norwest Mortgage, Inc. Under the terms of the resulting agreement, the new joint venture, Towne Square Mortgage, will fund residential mortgages for the Company's customers and the Company will service a portion of these loans. Norwest Mortgage, Inc. provides underwriting for these loans. The joint venture began operations in October 1995 and is being accounted for as an equity method investment. Accordingly, pretax income from the alliance is reported as income from equity investments accounted for by the equity method as part of noninterest income. 9 In the first quarter of 1995, as a result of reevaluating its asset/liability management strategies in light of Mortgage Business' decision to cease the origination of first mortgages, the Company decided to sell certain types of products within the real estate 1-4 family first mortgage portfolio. Accordingly, approximately $4 billion of first mortgages were reclassified on March 31, 1995 to a held-for-sale category and an $83 million write-down to the lower of cost or estimated market was recorded as a loss on sale of loans in noninterest income. These loans were subsequently sold in 1995 at prices greater than originally estimated, resulting in a $19 million gain upon sale. THE OTHER category includes the Company's investment securities portfolio, the difference between the normalized provision for the line groups and the Company provision for loan losses, the net impact of transfer pricing loan and deposit balances, the cost of external debt, the elimination of intergroup noninterest income and expense, 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 the sensitivity of net interest spreads. Net income for the Other category was basically flat in 1995. The decrease in net interest income was due to higher funding costs, lower investment securities and lower hedging income. The decrease was substantially offset by a higher loan loss provision credit. The Other category also reflected a reduction in tax expense related to the settlement with the Internal Revenue Service in 1995 of certain audit issues pertaining to auto leases. EARNINGS PERFORMANCE - -------------------------------------------------------------------------------- The Bank generated net income of $1,105 million and $863 million in 1995 and 1994, respectively. The Parent (excluding its equity in earnings of subsidiaries) and its other bank and nonbank subsidiaries had net losses of $73 million and $22 million in 1995 and 1994, respectively. [NET INTEREST MARGIN (GRAPH)(%)] SEE APPENDIX NET INTEREST INCOME ................................................................................ Net interest income is the difference between interest income (which includes yield-related loan fees) and interest expense. Net interest income on a taxable- equivalent basis was $2,655 million in 1995, compared with $2,610 million in 1994. Net interest income on a taxable-equivalent basis expressed as a percentage of average total earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. For 1995, the net interest margin was 5.80%, compared with 5.55% in 1994. Table 5 presents the individual components of net interest income and net interest margin. The increase in the margin in 1995 compared with 1994 was primarily attributable to an increase in the spread between loans and deposits, as loan yields climbed and deposit rates were slow to react. Additionally, the increase in the margin reflected a change in the mix of average earning assets, as higher-yielding loans, such as credit card and small business, replaced lower- yielding securities and single-family loans. These increases were primarily offset by a reduction in hedging income. The reduction in hedging income resulted primarily from the maturing interest rate floor and swap hedges. Interest income included hedging income of $4 million in 1995, compared with $124 million in 1994. Interest expense included hedging income of $15 million in 1995, compared 10 with $5 million in 1994. The decrease of $110 million in 1995 in hedging income from derivative contracts reduced the margin by 23 basis points. Net interest income and the net interest margin are expected to increase in 1996, assuming both loan growth and investment securities runoff continues and there is no significant change in deposit rates. NONINTEREST INCOME ................................................................................ Table 4 shows the major components of noninterest income. TABLE 4 NONINTEREST INCOME
- ----------------------------------------------------------------------------- (in millions) Year ended December 31, % Change ------------------------ ------------- 1995 1994 1993 1995/ 1994/ 1994 1993 Service charges on deposit accounts $ 478 $ 473 $ 423 1 % 12 % Fees and commissions: Credit card membership and other credit card fees 95 64 68 48 (6) Debit and credit card merchant fees 65 55 80 18 (31) Charges and fees on loans 52 42 48 24 (13) Shared ATM network fees 51 43 38 19 13 Mutual fund and annuity sales fees 33 64 43 (48) 49 All other 137 119 99 15 20 ------ ------ ------ Total fees and commissions 433 387 376 12 3 Trust and investment services income: Asset management and custody fees 129 124 125 4 (1) Mutual fund management fees 71 46 37 54 24 All other 41 33 28 24 18 ------ ------ ------ Total trust and investment services income 241 203 190 19 7 Investment securities gains (losses) (17) 8 - - - Sale of joint venture interest 163 - - - - Income from equity investments accounted for by the: Cost method 58 31 42 87 (26) Equity method 39 31 24 26 29 Check printing charges 39 40 38 (3) 5 Losses from dispositions of operations (89) (5) (28) - (82) Gains (losses) on sales of loans (40) 4 12 - (67) Losses on dispositions of premises and equipment (31) (12) (19) 158 (37) All other 50 40 35 25 14 ------ ------ ------ Total $1,324 $1,200 $1,093 10 % 10 % ------ ------ ------ --- --- ------ ------ ------ --- --- - -----------------------------------------------------------------------------
The overall increase in noninterest income reflected a broad-based increase in revenue from the Company's core products and services, which is expected to continue in 1996. The increase in credit card membership and other credit card fees in 1995 compared with 1994 was predominantly due to late fees and other transaction fees incurred by customers. In 1995, the decrease in mutual fund and annuity sales fees substantially reflected a lower sales volume of commission-based fixed-rate annuities. "All other" fees and commissions include mortgage loan servicing fees and the related amortization expense for purchased mortgage servicing rights. Mortgage loan servicing fees totaled $55 million and $17 million in 1995 and 1994, respectively. The related amortization expense was $39 million and $8 million in 1995 and 1994, respectively. The balance of purchased mortgage servicing rights was $152 million and $96 million at December 31, 1995 and 1994, respectively. The purchased mortgage loan servicing portfolio totaled $19 billion at December 31, 1995, compared with $7 billion at December 31, 1994. The increase in trust and investment services income in 1995 compared with 1994 was primarily due to greater mutual fund investment management fees, reflecting the overall growth in the fund families' net assets. The Company managed 15 of the Stagecoach family of funds consisting of $7.0 billion of assets at December 31, 1995, compared with 24 funds consisting of $6.4 billion at December 31, 1994. Prior to December 31, 1995, the Stagecoach family consisted of both retail and institutional funds. The retail funds are primarily distributed through the branch network. The institutional funds were offered primarily to selected groups of investors and certain corporations, partnerships and other business entities. As a result of the sale of the Company's joint venture in WFNIA and the sale of the MasterWorks division, $.5 billion of the retail funds and all the institutional funds were no longer under the Company's management at December 31, 1995. These funds totaled $1.8 billion and $1.0 billion at December 31, 1995 and 1994, respectively. The Overland Express family of 12 funds, which is sold nationwide through brokers, had $3.7 billion of assets under management at December 31, 1995, compared with $3.4 billion at December 31, 1994. In addition to managing Overland Express Funds and the funds in the Stagecoach family, the Company also managed or maintained personal trust, employee benefit trust and agency assets of approximately $51 billion at December 31, 1995, compared with $47 billion at December 31, 1994. The investment securities losses in 1995 largely resulted from the sale of debt securities from the available-for-sale portfolio. The investment securities gains in 1994 reflected the sale of both corporate debt and marketable equity securities from the available-for-sale portfolio. 11 TABLE 5 AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
- ---------------------------------------------------------------------------------------------------------------------------- (in millions) 1995 1994 --------------------------- --------------------------- AVERAGE YIELDS/ INTEREST Average Yields/ Interest BALANCE RATES INCOME/ balance rates income/ EXPENSE expense EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 69 5.94% $ 4 $ 189 3.51% $ 7 Investment securities: At fair value (3): U.S. Treasury securities 499 6.34 31 190 6.66 13 Securities of U.S. government agencies and corporations 1,426 5.55 81 1,547 5.82 93 Private collateralized mortgage obligations 1,095 6.24 71 1,240 6.14 80 Other securities 81 19.69 11 76 14.13 6 ------- ------ ------- ------ Total investment securities at fair value 3,101 6.17 194 3,053 6.12 192 At cost: U.S. Treasury securities 1,246 4.88 61 2,376 4.77 113 Securities of U.S. government agencies and corporations 4,428 6.07 269 5,902 6.05 357 Private collateralized mortgage obligations 1,124 5.87 66 1,242 5.74 71 Other securities 145 6.90 10 133 5.75 8 ------- ------ ------- ------ Total investment securities at cost 6,943 5.84 406 9,653 5.69 549 At lower of cost or market - - - - - - ------- ------ ------- ------ Total investment securities 10,044 5.94 600 12,706 5.79 741 Mortgage loans held for sale (3) 1,002 7.48 76 - - - Loans: Commercial 8,635 9.88 853 7,092 9.19 652 Real estate 1-4 family first mortgage 5,867 7.36 432 8,484 6.85 581 Other real estate mortgage 8,046 9.50 765 8,071 8.68 700 Real estate construction 1,146 10.16 116 977 9.29 91 Consumer: Real estate 1-4 family junior lien mortgage 3,349 8.61 288 3,387 7.75 262 Credit card 3,547 15.59 552 2,703 15.39 416 Other revolving credit and monthly payment 2,397 10.68 257 2,023 9.60 194 ------- ------ ------- ------ Total consumer 9,293 11.81 1,097 8,113 10.75 872 Lease financing 1,498 9.22 138 1,271 9.16 116 Foreign 23 7.54 2 31 5.06 2 ------- ------ ------- ------ Total loans (4)(5) 34,508 9.86 3,403 34,039 8.85 3,014 Other 62 5.47 3 54 5.89 3 ------- ------ ------- ------ Total earning assets $45,685 8.93 4,086 $46,988 8.00 3,765 ------- ------ ------- ------ ------- ------- FUNDING SOURCES Interest-bearing liabilities: Deposits: Interest-bearing checking $ 3,907 1.00 39 $ 4,622 .98 45 Market rate and other savings 15,552 2.61 405 18,921 2.34 442 Savings certificates 8,080 5.25 424 7,030 4.28 301 Other time deposits 385 6.14 24 304 7.35 22 Deposits in foreign offices 1,771 5.91 105 925 4.75 44 ------- ------ ------- ------ Total interest-bearing deposits 29,695 3.36 997 31,802 2.69 854 Federal funds purchased and securities sold under repurchase agreements 3,401 5.84 199 2,223 4.45 99 Commercial paper and other short-term borrowings 544 5.82 32 224 4.25 10 Senior debt 1,618 6.67 107 1,930 5.29 102 Subordinated debt 1,459 6.55 96 1,510 5.94 90 ------- ------ ------- ------ Total interest-bearing liabilities 36,717 3.90 1,431 37,689 3.06 1,155 Portion of noninterest-bearing funding sources 8,968 - - 9,299 - - ------- ------ ------- ------ Total funding sources $45,685 3.13 1,431 $46,988 2.45 1,155 ------- ------ ------- ------ ------- ------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (6) 5.80% $2,655 5.55% $2,610 ----- ------ ----- ------ ----- ------ ----- ------ NONINTEREST-EARNING ASSETS Cash and due from banks $ 2,681 $ 2,618 Other 2,401 2,243 ------- ------- Total noninterest-earning assets $ 5,082 $ 4,861 ------- ------- ------- ------- NONINTEREST-BEARING FUNDING SOURCES Deposits $ 9,085 $ 9,019 Other liabilities 1,142 1,062 Preferred stockholders' equity 489 521 Common stockholders' equity 3,334 3,558 Noninterest-bearing funding sources used to fund earning assets (8,968) (9,299) ------- ------- Net noninterest-bearing funding sources $ 5,082 $ 4,861 ------- ------- ------- ------- TOTAL ASSETS $50,767 $51,849 ------- ------- ------- ------- - ----------------------------------------------------------------------------------------------------------------------------
(1) The average prime rate of the Bank was 8.83%, 7.14%, 6.00%, 6.25% and 8.47% for 1995, 1994, 1993, 1992 and 1991, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 6.04%, 4.75%, 3.29%, 3.83% and 5.99% for the same years, respectively. (2) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liabilities categories. (3) Yields are based on amortized cost balances. The average amortized cost balances for investment securities at fair value totaled $3,144 million and $3,131 million in 1995 and 1994, respectively. The average amortized cost balance for mortgage loans held for sale totaled $1,012 million in 1995. 12
- ----------------------------------------------------------------------------------------------------------------------------------- (in millions) 1993 1992 1991 -------------------------- -------------------------- -------------------------- Average Yields/ Interest Average Yields/ Interest Average Yields/ Interest balance rates income/ balance rates income/ balance rates income/ expense expense expense EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 734 3.17% $ 23 $ 919 3.62% $ 33 $ 303 5.42% $ 16 Investment securities: At fair value (3): U.S. Treasury securities - - - - - - - - - Securities of U.S. government agencies and corporations - - - - - - - - - Private collateralized mortgage obligations - - - - - - - - - Other securities - - - - - - - - - ------- ------ ------- ------ ------- ------ Total investment securities at fair value - - - - - - - - - At cost: U.S. Treasury securities 2,283 5.03 115 1,562 5.80 91 631 6.59 41 Securities of U.S. government agencies and corporations 7,974 6.41 511 4,197 7.38 309 1,231 7.85 96 Private collateralized mortgage obligations 864 4.16 36 - - - - - - Other securities 189 5.67 11 110 6.16 7 193 8.41 17 ------- ------ ------- ------ ------- ------ Total investment securities at cost 11,310 5.95 673 5,869 6.93 407 2,055 7.51 154 At lower of cost or market - - - 108 8.73 9 - - - ------- ------ ------- ------ ------- ------ Total investment securities 11,310 5.95 673 5,977 6.97 416 2,055 7.51 154 Mortgage loans held for sale (3) - - - - - - - - - Loans: Commercial 7,154 9.36 670 9,702 8.50 825 12,974 9.64 1,252 Real estate 1-4 family first mortgage 6,787 7.92 538 7,628 9.27 707 9,367 10.16 952 Other real estate mortgage 9,467 8.20 776 10,634 8.21 873 10,773 9.58 1,033 Real estate construction 1,303 8.50 111 1,837 8.47 156 2,232 10.10 225 Consumer: Real estate 1-4 family junior lien mortgage 3,916 6.97 273 4,585 8.14 373 5,135 10.10 519 Credit card 2,587 15.62 404 2,771 15.93 441 2,758 16.25 448 Other revolving credit and monthly payment 1,893 9.45 179 2,083 9.85 205 2,323 11.11 258 ------- ------ ------- ------ ------- ------ Total consumer 8,396 10.19 856 9,439 10.81 1,019 10,216 11.99 1,225 Lease financing 1,190 9.83 117 1,165 10.36 121 1,167 11.34 132 Foreign 7 - - 1 - - 7 23.86 2 ------- ------ ------- ------ ------- ------ Total loans (4)(5) 34,304 8.94 3,068 40,406 9.16 3,701 46,736 10.31 4,821 Other - - - 1 - - 17 8.43 1 ------- ------ ------- ------ ------- ------ Total earning assets $46,348 8.12 3,764 $47,303 8.77 4,150 $49,111 10.17 4,992 ------- ------ ------- ------ ------- ------ ------- ------- ------- FUNDING SOURCES Interest-bearing liabilities: Deposits: Interest-bearing checking $ 4,626 1.18 55 $ 4,597 1.77 81 $ 4,379 3.72 163 Market rate and other savings 19,333 2.26 438 18,534 2.88 533 16,097 5.01 806 Savings certificates 7,948 4.37 347 10,763 4.94 532 13,758 6.57 905 Other time deposits 331 7.19 24 444 7.52 34 719 8.07 58 Deposits in foreign offices 7 - - 43 7.89 3 400 7.76 31 ------- ------ ------- ------ ------- ------ Total interest-bearing deposits 32,245 2.68 864 34,381 3.44 1,183 35,353 5.55 1,963 Federal funds purchased and securities sold under repurchase agreements 1,051 2.79 29 1,299 3.16 41 3,092 5.50 170 Commercial paper and other short-term borrowings 207 2.90 6 252 3.54 9 1,243 6.29 78 Senior debt 2,174 4.75 103 2,175 5.77 126 1,681 7.53 126 Subordinated debt 1,958 5.23 103 1,872 4.99 93 1,832 6.15 113 ------- ------ ------- ------ ------- ------ Total interest-bearing liabilities 37,635 2.93 1,105 39,979 3.63 1,452 43,201 5.67 2,450 Portion of noninterest-bearing funding sources 8,713 - - 7,324 - - 5,910 - - ------- ------ ------- ------ ------- ------ Total funding sources $46,348 2.38 1,105 $47,303 3.07 1,452 $49,111 4.99 2,450 ------- ------ ------- ------ ------- ------ ------- ------- ------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (6) 5.74% $2,659 5.70% $2,698 5.18% $2,542 ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ NONINTEREST-EARNING ASSETS Cash and due from banks $ 2,456 $ 2,536 $ 2,604 Other 2,306 2,658 3,307 ------- ------- ------- Total noninterest-earning assets $ 4,762 $ 5,194 $ 5,911 ------- ------- ------- ------- ------- ------- NONINTEREST-BEARING FUNDING SOURCES Deposits $ 8,482 $ 7,885 $ 7,289 Other liabilities 997 1,060 1,180 Preferred stockholders' equity 639 608 279 Common stockholders' equity 3,357 2,965 3,073 Noninterest-bearing funding sources used to fund earning assets (8,713) (7,324) (5,910) ------- ------- ------- Net noninterest-bearing funding sources $ 4,762 $ 5,194 $ 5,911 ------- ------- ------- ------- ------- ------- TOTAL ASSETS $51,110 $52,497 $55,022 ------- ------- ------- ------- ------- ------- - -----------------------------------------------------------------------------------------------------------------------------------
(4) Interest income includes loan fees, net of deferred costs, of approximately $41 million, $40 million, $41 million, $57 million and $63 million in 1995, 1994, 1993, 1992 and 1991, respectively. (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 1995, 1994 and 1993 and 34% for 1992 and 1991. 13 The Company sold its joint venture interest in WFNIA as well as its MasterWorks division to Barclays PLC of the U.K., resulting in a $163 million pre-tax gain. The sale was completed in December 1995. The Company's joint venture interest in WFNIA was accounted for as an equity investment under the equity method. The income from the equity investment in WFNIA, included in noninterest income, totaled $27 million and $21 million in 1995 and 1994, respectively. Noninterest income from the MasterWorks division, included in "all other" trust and investment services income, totaled $26 million and $20 million in 1995 and 1994, respectively. (See Line of Business Results - Investment Group section for further information.) Income from cost method equity investments in both 1995 and 1994 reflected net gains on the sales of and distribution from nonmarketable equity investments. In 1995, losses from dispositions of operations included a $70 million fourth quarter accrual related to the disposition of premises ($64 million) and, to a lesser extent, severance ($5 million) and miscellaneous expenses ($1 million) associated with the scheduled closures of 120 traditional retail branch locations as the Company expands its alternative distribution channels by continuing to open both supermarket branches and banking centers. These closures were expected to be completed by year-end 1996; however, due to the proposed merger with First Interstate, the completion of the closures may be delayed until early 1997. In addition to the $70 million accrual, there was also a $13 million liability at December 31, 1995, representing a third quarter 1995 accrual for the closure of 21 branches scheduled for March 1996. Additional accruals may be made in 1996 for branch closures or relocations as the Company continues to open more supermarket branches and banking centers. The opening of the supermarket locations is part of the Company's ongoing effort to provide higher-convenience, lower-cost service to its customers. The Company expects by year-end 1996 to have about 200 supermarket branches and 500 banking centers in California (excluding the impact of the merger with First Interstate). In 1994, losses from dispositions of operations included fourth quarter accruals for the disposition of premises and, to a lesser extent, severance of $14 million associated with scheduled branch closures and $10 million associated with ceasing the direct origination of 1-4 family first mortgage loans by the Company's mortgage lending unit. Partially offsetting these accruals was an $8 million payment received in the first quarter of 1994 that was contingent upon performance in relation to the alliance formed with Card Establishment Services (CES). Additional payments from the CES agreement are also contingent upon future performance. Gains and losses on sales of loans for 1995 included a first quarter $83 million write-down to the lower of cost or estimated market resulting from the reclassification of certain types of products within the real estate 1-4 family first mortgage loan portfolio to mortgage loans held for sale. (See Line of Business Results - Mortgage Business section for further information.) During the second half of 1995, as all mortgage loans held for sale were sold and because such sales were at prices greater than originally estimated, the Company recorded a $19 million gain on sale. NONINTEREST EXPENSE ................................................................................ Table 6 shows the major components of noninterest expense. Table 6 NONINTEREST EXPENSE
(in millions) Year ended December 31, % Change ------------------------ ----------- 1995 1994 1993 1995/ 1994/ 1994 1993 Salaries $ 713 $ 671 $ 684 6 % (2)% Incentive compensation 126 155 109 (19) 42 Employee benefits 187 201 213 (7) (6) Net occupancy 211 215 224 (2) (4) Equipment 193 174 148 11 18 Contract services 149 101 61 48 66 Advertising and promotion 73 65 59 12 10 Telecommunications 58 49 44 18 11 Certain identifiable intangibles 54 62 77 (13) (19) Federal deposit insurance 52 101 114 (49) (11) Postage 52 44 43 18 2 Operating losses 45 62 52 (27) 19 Outside professional services 45 33 42 36 (21) Stationery and supplies 37 30 31 23 (3) Travel and entertainment 36 30 28 20 7 Goodwill 35 36 37 (3) (3) Check printing 25 29 34 (14) (15) Security 21 20 19 5 5 Escrow and collection agency fees 15 19 24 (21) (21) Outside data processing 11 10 16 10 (38) All other 63 49 103 29 (52) ------ ------ ------ Total $2,201 $2,156 $2,162 2 % - % ------ ------ ------ ---- ---- ------ ------ ------ ---- ----
The increase in salaries expense in 1995 compared with 1994 was primarily attributable to increased temporary help expense and higher salary levels. The Company's full-time equivalent staff, including hourly employees, averaged 19,520 in 1995, compared with 19,558 in 1994. The decrease in incentive compensation from 1994 to 1995 was predominately due to a differing mix of product sales, reflecting a shift away from commissioned retail products, such as fixed-rate annuities. Additionally, the decrease reflected a decline in incentive compensation related to Mortgage Business' decision at year-end 1994 to cease the origination of first mortgages. 14 Increases in equipment expense in 1995 compared with 1994 were related to a higher level of spending on software and technology for product development and increased depreciation expense on equipment related to business initiatives and system upgrades. The increase in contract services in 1995 compared with 1994 was largely due to new product development and marketing initiatives. In August 1995, the FDIC significantly reduced the deposit insurance premiums paid by most banks. Under the revised rate structure, the best-rated institutions insured by the Bank Insurance Fund (BIF) paid four cents per $100 of domestic deposits, down from the previous rate of 23 cents per $100. The revised assessment rates were retroactive to June 1, 1995, the first day of the month after the BIF was recapitalized. In the third quarter of 1995, the Company received a $23 million refund for the overpayment of assessments made for the period June 1 through September 30, 1995. In November 1995, the FDIC further reduced the rate by four cents per $100 of domestic deposits, effective January 1, 1996. Under the most recent rate structure, the best-rated institutions insured by the BIF pay the statutory annual minimum assessment of $2,000. The Company expects total noninterest expense to be up slightly in 1996 compared with 1995. In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock-Based Compensation. This Statement establishes a new fair value based accounting method for stock-based compensation plans and encourages (but does not require) employers to adopt the new method in place of the provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. Companies may continue to apply the accounting provisions of APB 25 in determining net income; however, they must apply the disclosure requirements of FAS 123. The recognition provisions and disclosure requirements of FAS 123 are effective January 1, 1996, but may be applied in 1995. The Company has decided it will not adopt the recognition provisions of FAS 123 but will adopt the disclosure requirements in 1996. BALANCE SHEET ANALYSIS - -------------------------------------------------------------------------------- A comparison between the year-end 1995 and 1994 balance sheets is presented below. The Bank's assets of $48.6 billion and $51.9 billion at December 31, 1995 and 1994, respectively, represented substantially all of the Company's consolidated assets at those dates. INVESTMENT SECURITIES ................................................................................ Total investment securities averaged $10.0 billion in 1995, a 21% decrease from $12.7 billion in 1994. Investment securities totaled $8.9 billion at December 31, 1995, down 23% from $11.6 billion at December 31, 1994. The decrease was largely due to the maturity of investment securities. Investment securities are expected to continue to decrease in the future as the cash received from their maturities is used to fund loan growth. In November 1995, the FASB permitted a one-time opportunity for companies to reassess by December 31, 1995 their classification of securities under FAS 115, Accounting for Certain Investments in Debt and Equity Securities. As a result, on November 30, the Company reclassified all of its held-to-maturity securities at cost portfolio of $6.5 billion to the available-for-sale securities at fair value portfolio in order to provide increased liquidity flexibility to meet anticipated loan growth. A related unrealized net after-tax loss of $6 million was recorded in stockholders' equity. Table 7 provides expected remaining maturities and yields (taxable-equivalent basis) of debt securities within the investment portfolio. The weighted average expected remaining maturity of the debt securities portfolio was 2 years and 1 month at December 31, 1995, compared with 2 years and 10 months at December 31, 1994. In addition to not replacing maturing securities that are used to fund loan growth, the decrease in the expected remaining maturity reflects a lower interest rate environment, in which a higher level of prepayments is likely to occur. Expected remaining maturities will differ from remaining contractual maturities because borrowers may have the right to prepay certain obligations with or without penalties. It is more appropriate to monitor investment security maturities and yields using prepayment assumptions since this better reflects what the Company expects to occur. (Note 3 to the Financial Statements shows the remaining contractual principal maturities and yields of debt securities.) 15 TABLE 7 INVESTMENT SECURITIES EXPECTED REMAINING MATURITIES AND YIELDS - --------------------------------------------------------------------------------
(in millions) December 31, 1995 ------------------------------------------------------------------------------------------------------------ Total Weighted Weighted Within one year After one year After five years After ten years amount average average through five years through ten years yield expected ---------------- ------------------ ----------------- ---------------- remaining Amount Yield Amount Yield Amount Yield Amount Yield maturity (in yrs.-mos.) AVAILABLE-FOR-SALE SECURITIES (1): U.S. Treasury securities $1,347 5.51% 1-4 $ 549 5.18% $ 798 5.74% $ - -% $ - -% Securities of U.S. government agencies and corporations 5,218 6.03 2-2 1,551 5.76 3,172 5.99 425 7.11 70 7.44 Private collateralized mortgage obligations 2,121 6.26 2-3 456 5.96 1,474 6.18 181 6.53 10 24.47 Other 169 8.58 2-5 51 5.99 116 9.75 - - 2 6.37 ------- ------- ------- ---- -- TOTAL COST OF DEBT SECURITIES $8,855 6.06% 2-1 $2,607 5.68% $5,560 6.08% $606 6.94% $82 9.49% ------- ---- --- ------- ------- ---- ---- ---- --- ----- ------- ---- --- ------- ------- ---- ---- ---- --- ----- ESTIMATED FAIR VALUE $8,883 $2,604 $5,580 $613 $86 ------- ------- ------- ---- --- ------- ------- ------- ---- ---
- -------------------------------------------------------------------------------- (1) The weighted average yield is computed using the amortized cost of available-for-sale investment securities carried at fair value. See Note 3 to the Financial Statements for fair value of available-for-sale securities by type of security. The available-for-sale portfolio includes both debt and marketable equity securities. At December 31, 1995, the available-for-sale securities portfolio had an unrealized net gain of $47 million, comprised of unrealized gross gains of $88 million and unrealized gross losses of $41 million. At December 31, 1994, the available-for-sale securities portfolio had an unrealized net loss of $189 million, comprised of unrealized gross losses of $221 million and unrealized gross gains of $32 million. The unrealized net gain or loss on available-for- sale securities is reported on an after-tax basis as a valuation allowance that is a separate component of stockholders' equity. At December 31, 1995, the valuation allowance amounted to an unrealized net gain of $26 million, compared with an unrealized net loss of $110 million at December 31, 1994. At December 31, 1994, the held-to-maturity securities portfolio had an estimated unrealized loss of $434 million (estimated unrealized gross gains were zero), or 5.0% of the cost of the portfolio. The unrealized net gain in the available-for-sale portfolio at December 31, 1995 was primarily due to investments in mortgage-backed securities. This unrealized net gain reflected interest rates that were lower than those at the time the investments were purchased. The Company may decide to sell certain of the available-for-sale securities to manage the level of earning assets (for example, to offset loan growth that may exceed expected maturities and prepayments of securities). (See Note 3 to the Financial Statements for investment securities at fair value and at cost by security type.) At December 31, 1995, mortgage-backed securities included in Securities of U.S. government agencies and corporations primarily consisted of pass-through securities and collateralized mortgage obligations (CMOs) and substantially all were issued or backed by federal agencies. These securities, along with the Private CMOs, represented $7,345 million, or 82% of the Company's investment securities portfolio at December 31, 1995. The CMO securities held by the Company (including the private issues) are primarily shorter-maturity class bonds that were structured to have more predictable cash flows by being less sensitive to prepayments during periods of changing interest rates. As an indication of interest rate risk, the Company has estimated the impact of a 200 basis point increase in interest rates on the value of the mortgage-backed securities and the corresponding expected remaining maturities. Based on this rate scenario, mortgage-backed securities would decrease in fair value from $7,345 million to $7,014 million and the expected remaining maturity of these securities would increase from 2 years and 3 months to 2 years and 9 months. 16 LOAN PORTFOLIO ................................................................................ A comparative schedule of average loan balances is presented in Table 5; year- end balances are presented in Note 4 to the Financial Statements. Loans averaged $34.5 billion in 1995, compared with $34.0 billion in 1994. Total loans at December 31, 1995 were $35.6 billion, compared with $36.3 billion at year-end 1994. The decrease resulted from the sale of $4.4 billion of real estate 1-4 family first mortgages in 1995, mostly offset by increases in other loan portfolios. The most significant increases for both average and year-end loans were in the commercial and credit card portfolios. The Company's total unfunded loan commitments grew 16% to $24.2 billion at December 31, 1995, from $20.9 billion at December 31, 1994. Commercial loans grew 20% to $9.8 billion at year-end 1995, from $8.2 billion at December 31, 1994. This increase reflected growth in middle market and small business loans, resulting from ongoing marketing efforts, and is expected to continue in 1996. Total unfunded commercial loan commitments grew from $6.6 billion at December 31, 1994 to $8.4 billion at December 31, 1995. Included in the commercial loan portfolio are agricultural loans of $1,029 million and $822 million at December 31, 1995 and 1994, respectively. Agricultural loans consist of loans to finance agricultural production and other loans to farmers. The increase in the credit card loan portfolio during 1995 was due to new accounts resulting from nationwide direct mail campaigns, originations in retail outlets and increased loan balances from the Company's existing cardholders. Table 8 presents comparative period-end commercial real estate loans. TABLE 8 COMMERCIAL REAL ESTATE LOANS - --------------------------------------------------------------------------------
(in millions) December 31, % Change --------------------------- ------------- 1995 1994 1993 1995/ 1994/ 1994 1993 Commercial loans to real estate developers (1) $ 700 $ 525 $ 505 33 % 4 % Other real estate mortgage (2) 8,263 8,079 8,286 2 (2) Real estate construction 1,366 1,013 1,110 35 (9) ------- ------ ------ Total $10,329 $9,617 $9,901 7 % (3)% ------- ------ ------ --- --- ------- ------ ------ --- --- Nonaccrual loans $ 371 $ 416 $ 904 (11)% (54)% ------- ------ ------ --- --- ------- ------ ------ --- --- Nonaccrual loans as a % of total 3.6% 4.3% 9.1% ------- ------ ------ ------- ------ ------
- -------------------------------------------------------------------------------- (1) Included in commercial loans. (2) Agricultural loans that are primarily secured by real estate are included in other real estate mortgage loans; such loans were $250 million, $256 million and $225 million at December 31, 1995, 1994 and 1993, respectively. [LOAN MIX AT YEAR END (GRAPH)(%)] SEE APPENDIX Table 9 summarizes other real estate mortgage loans by property type and by region (South, North and Central) in California. The Company's Southern California real estate loans are primarily located in Los Angeles and Orange counties; its Northern California loans are predominantly located in the San Francisco Bay Area; and a significant portion of its Central California real estate loans is in Sacramento. Table 10 summarizes real estate construction loans by project type and by region (South, North and Central) in California. 17 TABLE 9 REAL ESTATE MORTGAGE LOANS BY TYPE AND REGION (EXCLUDING 1-4 FAMILY FIRST MORTGAGE LOANS)
- ------------------------------------------------------------------------------------------------------------------------------------ (in millions) December 31, 1995 -------------------------------------------------------------------------------------------------------------- Southern Northern Central Total Non- California California California California Other states(2) All states accruals- -------------- -------------- -------------- -------------- --------------- -------------- as a % Total Non- Total Non- Total Non- Total Non- Total Non- Total Non- of total loans accrual loans accrual loans accrual loans accrual loans accrual loans accrual by type Office buildings $ 918 $110 $ 862 $10 $ 283 $16 $2,063 $136 $ 395 $13 $2,458 $149 6% Industrial 624 14 452 7 238 1 1,314 22 116 - 1,430 22 2 Apartments 390 20 247 - 63 3 700 23 328 1 1,028 24 2 Shopping centers 211 14 199 6 116 6 526 26 445 5 971 31 3 Hotels/motels 95 20 134 - 49 - 278 20 295 - 573 20 3 Retail buildings (other than shopping centers) 177 14 156 1 88 4 421 19 145 1 566 20 4 Institutional 186 20 131 1 48 - 365 21 5 - 370 21 6 Land 114 10 36 1 43 2 193 13 78 - 271 13 5 Agricultural 40 - 31 1 174 - 245 1 4 - 249 1 - 1-4 family (1): Land 1 - - - - - 1 - - - 1 - - Structures 4 - - - - - 4 - - - 4 - - Other 46 - 41 - 11 - 98 - 244(3) 6 342 6 2 ------ ---- ------ --- ------ --- ------ ---- ------ --- ------ ---- Total $2,806 $222 $2,289 $27 $1,113 $32 $6,208 $281 $2,055 $26 $8,263 $307 4% ------ ---- ------ --- ------ --- ------ ---- ------ --- ------ ---- - ------ ---- ------ --- ------ --- ------ ---- ------ --- ------ ---- - % of total California loans 45% 37% 18% 100% ------ ------ ------ ------ ------ ------ ------ ------ Nonaccruals as a % of total by region 8% 1% 3% --- --- --- --- --- --- - -----------------------------------------------------------------------------------------------------------------------------------
(1) Represents loans to real estate developers secured by 1-4 family residential developments. (2) Consists of 36 states; no state had loans in excess of $225 million at December 31, 1995. (3) Includes loans secured by collateral pools of approximately $95 million (where the pool is a mixture of various real estate property types located in various states, non-real estate-related assets and other guarantees). TABLE 10 REAL ESTATE CONSTRUCTION LOANS BY TYPE AND REGION
- ----------------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, 1995 ------------------------------------------------------------------------------------------------------------- Southern Northern Central Total Non- California California California California Other states(2) All states accruals- -------------- ---------- -------------- -------------- --------------- -------------- as a % Total Non- Total Total Non- Total Non- Total Non- Total Non- of total loans accrual loans(1) loans accrual loans accrual loans accrual loans accrual by type 1-4 family: Land $103 $ 3 $140 $134 $2 $377 $ 5 $ 94 $ - $ 471 $ 5 1% Structures 83 14 54 15 2 152 16 40 - 192 16 8 Shopping centers 19 - 3 5 - 27 - 183 - 210 - - Land (excluding 1-4 family) 21 - 36 10 - 67 - 100 25 167 25 15 Apartments 18 - 31 - - 49 - 43 - 92 - - Industrial 10 - 21 21 - 52 - 6 - 58 - - Office buildings 4 - 21 2 - 27 - 17 - 44 - - Hotels/motels - - 24 2 - 26 - 15 - 41 - - Retail buildings (other than shopping centers) 14 - 14 7 - 35 - 1 - 36 - - Institutional 5 - 12 2 - 19 - 3 - 22 - - Agricultural - - 2 1 - 3 - - - 3 - - Other 3 - - 1 - 4 - 26 - 30 - - ---- --- ---- ---- -- ---- --- ---- --- ------ --- Total $280 $17 $358 $200 $4 $838 $21 $528 $25 $1,366 $46 3% ---- --- ---- ---- -- ---- --- ---- --- ------ --- -- ---- --- ---- ---- -- ---- --- ---- --- ------ --- -- % of total California loans 33% 43% 24% 100% ---- ---- ---- ---- ---- ---- ---- ---- Nonaccruals as a % of total by region 6% 2% --- -- --- -- - -----------------------------------------------------------------------------------------------------------------------------------
(1) There were no loans on nonaccrual at December 31, 1995. (2) Consists of 26 states; no state had loans in excess of $80 million at December 31, 1995. 18 NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS ................................................................................ Table 11 presents comparative data for nonaccrual and restructured loans and other assets. Management's classification of a loan as nonaccrual or restructured does not necessarily indicate that the principal of the loan is uncollectible in whole or in part. Table 11 excludes loans that are contractually past due 90 days or more as to interest or principal, but are both well-secured and in the process of collection or are real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual. This information is presented in Table 17. Notwithstanding, real estate 1-4 family loans (first and junior liens) are placed on nonaccrual within 150 days of becoming past due and are shown in the table below. (Notes 1 and 5 to the Financial Statements describe the Company's accounting policies relating to nonaccrual and restructured loans and foreclosed assets, respectively.) [NONACCRUAL LOANS ($ BILLIONS)(GRAPH)] SEE APPENDIX [NEW LOANS PLACED ON NONACCRUAL ($ BILLIONS)(GRAPH)] SEE APPENDIX Table 11 NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, - ----------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 Nonaccrual loans: Commercial (1)(2) $112 $ 88 $ 252 $ 560 $ 871 Real estate 1-4 family first mortgage 64 81 99 96 73 Other real estate mortgage (3) 307 328 578 1,207 778 Real estate construction 46 58 235 235 226 Consumer: Real estate 1-4 family junior lien mortgage 8 11 27 29 23 Other revolving credit and monthly payment 1 1 3 7 6 ---- ---- ------ ------ ------ Total nonaccrual loans (4) 538 567 1,194 2,134 1,977 Restructured loans (5) 14 15 6 8 4 ---- ---- ------ ------ ------ Nonaccrual and restructured loans (6) 552 582 1,200 2,142 1,981 As a percentage of total loans 1.6% 1.6% 3.6% 5.8% 4.5% Foreclosed assets (7)(8) 186 272 348 510 404 Real estate investments (9) 12 17 15 40 20 ---- ---- ------ ------ ------ Total nonaccrual and restructured loans and other assets $750 $871 $1,563 $2,692 $2,405 ---- ---- ------ ------ ------ ---- ---- ------ ------ ------ - -----------------------------------------------------------------------------------------------------------------------------------
(1) Includes loans to real estate developers of $18 million, $30 million, $91 million, $86 million and $199 million at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. (2) Includes agricultural loans of $6 million, $1 million, $9 million, $18 million and $13 million at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. (3) Includes agricultural loans secured by real estate of $1 million, $3 million, $24 million, $28 million and $13 million at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. (4) Of the total nonaccrual loans at December 31, 1995, $408 million were considered impaired under FAS 114 (Accounting by Creditors for Impairment of a Loan). (5) In addition to originated loans that were subsequently restructured, there were loans of $50 million at December 31, 1995 that were purchased at a steep discount whose contractual terms were modified after acquisition. The modified terms did not affect the book balance nor the yields expected at the date of purchase. Of the total $14 million of restructured loans and $50 million of purchased loans at December 31, 1995, $50 million were considered impaired under FAS 114. (6) Related commitments to lend additional funds were approximately $45 million at December 31, 1995. (7) Includes agricultural properties of $22 million, $23 million, $26 million, $55 million and $66 million at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. (8) Excludes in-substance foreclosures (ISFs) of $99 million reclassified to nonaccrual loans at June 30, 1993 due to clarification of criteria used in determining when a loan is in-substance foreclosed. Complete information is not available for prior periods; however, any ISFs that would be reclassified in prior periods would not be materially higher than $99 million. (9) Represents the amount of real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if such assets were loans. Real estate investments totaled $95 million, $54 million, $34 million, $93 million and $124 million at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. 19 Table 12 summarizes the approximate changes during 1995 and 1994 in nonaccrual loans by loan category. Table 13 summarizes the quarterly trend, for the last eight quarters, of the approximate changes in nonaccrual loans. The overall credit quality of the loan portfolio has improved since 1992. The Company anticipates normal influxes of nonaccrual loans as it further increases its lending activity as well as resolutions of loans in the nonaccrual portfolio. The Table 12 CHANGES IN NONACCRUAL LOANS BY LOAN CATEGORY
- ----------------------------------------------------------------------------------------------------------------------------------- (in millions) Commercial Real estate Other Real estate Consumer Total 1-4 family real estate construction first mortgage mortgage YEAR ENDED DECEMBER 31, 1995 BALANCE, BEGINNING OF YEAR $ 88 $ 81 $ 328 $ 58 $ 12 $ 567 New loans placed on nonaccrual (1)(2) 149 104 224 25 12 514 Loans purchased - - 14 - - 14 Loans sold - - (13) - - (13) Charge-offs (39) (1) (49) (10) (1) (100) Payments: Principal (71) (23) (77) (22) (9) (202) Interest applied to principal (11) - (28) (4) - (43) Transfers to foreclosed assets - (56) (46) - (4) (106) Loans returned to accrual (3) (4) (41) (46) - (4) (95) Other additions (deductions) - - - (1) 3 2 ---- ---- ----- ----- ---- ------ BALANCE, END OF YEAR $112 $ 64 $ 307 $ 46 $ 9 $ 538 ---- ---- ----- ----- ---- ------ ---- ---- ----- ----- ---- ------ YEAR ENDED DECEMBER 31, 1994 Balance, beginning of year $252 $ 99 $ 578 $ 235 $ 30 $1,194 New loans placed on nonaccrual 71 46 160 57 6 340 Loans purchased - 2 25 7 - 34 Loans sold - (3) - - - (3) Charge-offs (42) (3) (63) (15) (2) (125) Payments: Principal (82) (35) (92) (67) (15) (291) Interest applied to principal (20) - (26) (6) (1) (53) Transfers to foreclosed assets (6) (15) (53) (18) (4) (96) Loans returned to accrual (3) (84) (11) (209) (131) (1) (436) Other additions (deductions) (1) 1 8 (4) (1) 3 ---- ---- ----- ----- ---- ------ Balance, end of year $ 88 $ 81 $ 328 $ 58 $ 12 $ 567 ---- ---- ----- ----- ---- ------ ---- ---- ----- ----- ---- ------ - -----------------------------------------------------------------------------------------------------------------------------------
(1) No commercial loan placed on nonaccrual status during 1995 exceeded $26 million. A significant portion of these loans are located in Central and Southern California. (2) No other real estate mortgage loan placed on nonaccrual status in 1995 exceeded $30 million. The majority of these loans are located in Southern California. (3) Other real estate mortgage loans returned to accrual were the result of loans restructured at market interest rates and the improvement in the credit quality of loans. TABLE 13 QUARTERLY TREND OF CHANGES IN NONACCRUAL LOANS
- ----------------------------------------------------------------------------------------------------------------------------------- (in millions) Quarter ended --------------------------------------------------------------------------------------------------------- DECEMBER 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 1995 1995 1995 1995 1994 1994 1994 1994 BALANCE, BEGINNING OF QUARTER $586 $631 $566 $567 $637 $712 $ 895 $1,194 New loans placed on nonaccrual 106 108 173 127 71 93 124 52 Loans purchased - - 1 13 25 - 9 - Loans sold - (13) - - - - - (3) Charge-offs (27) (27) (18) (28) (25) (38) (27) (35) Payments (71) (70) (49) (55) (61) (71) (91) (121) Transfers to foreclosed assets (22) (29) (19) (36) (18) (14) (27) (37) Loans returned to accrual (34) (14) (23) (24) (62) (45) (172) (157) Other additions - - - 2 - - 1 2 ---- ---- ---- ---- ---- ---- ----- ------ BALANCE, END OF QUARTER $538 $586 $631 $566 $567 $637 $ 712 $ 895 ---- ---- ---- ---- ---- ---- ----- ------ ---- ---- ---- ---- ---- ---- ----- ------ - -----------------------------------------------------------------------------------------------------------------------------------
20 performance of any individual loan can be impacted by external factors, such as the interest rate environment or factors particular to a borrower such as actions taken by a borrower's management. In addition, from time to time, the Company purchases loans from other financial institutions that may be classified as nonaccrual based on its policies. Table 14 presents the amount of nonaccrual loans that were contractually past due and those that were contractually current at December 31, 1995 and 1994. Both book and contractual balances are presented in the table, the difference reflecting charge-offs and interest applied to principal. The ratio of book to contractual principal balance was 63% at December 31, 1995, compared with 65% at December 31, 1994. At December 31, 1995, an estimated $265 million, or 49%, of nonaccrual loans were either current or less than 90 days past due as to payment of principal and interest. This compares with an estimated $246 million, or 43%, at December 31, 1994. For all loans on nonaccrual during 1995 and 1994 (including loans no longer on nonaccrual at December 31, 1995 and 1994), cash interest payments of $58 million and $74 million were received while the loans were on nonaccrual status in 1995 and 1994, respectively. Of the $58 million received in 1995, $21 million was recognized as interest income and $37 million was applied to principal. Of the $74 million received in 1994, $24 million was recognized as interest income and $50 million was applied to principal. The average nonaccrual book principal loan balances (net of charge-offs and interest applied to principal) were $581 million and $799 million during 1995 and 1994, respectively. Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 (FAS 114), Accounting by Creditors for Impairment of a Loan, as amended by FAS 118 (collectively referred to as FAS 114). The adoption of FAS 114 has not affected the Company's policy for placing loans on nonaccrual status. The Company generally identifies loans to be evaluated for impairment 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 Table 14 NONACCRUAL LOANS BY PERFORMANCE CATEGORY (ESTIMATED)(1)
- -------------------------------------------------------------------------------------------------------------- (in millions) December 31, --------------------------------------------------------------------- 1995 --------------------------------------------------------------------- BOOK CUMULATIVE CUMULATIVE CONTRACTUAL PRINCIPAL CHARGE-OFFS(6) CASH INTEREST PRINCIPAL BALANCE APPLIED TO BALANCE PRINCIPAL(6) Contractually past due (2): Payments not made (3): 90 days or more past due $ 86 $ 1 $ - $ 87 Less than 90 days past due 2 - - 2 ---- ---- ---- ---- 88 1 - 89 Payments made (4): 90 days or more past due 187 130 48 365 Less than 90 days past due 94 25 27 146 ---- ---- ---- ---- 281 155 75 511 ---- ---- ---- ---- Total past due 369 156 75 600 Contractually current (5) 169 54 35 258 ---- ---- ---- ---- Total nonaccrual loans $538 $210 $110 $858 ---- ---- ---- ---- ---- ---- ---- ---- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- (in millions) December 31, --------------------------------------------------------------------- 1994 --------------------------------------------------------------------- Book Cumulative Cumulative Contractual principal charge-offs(6) cash interest principal balance applied to balance principal(6) Contractually past due (2): Payments not made (3): 90 days or more past due $111 $ 3 $ - $114 Less than 90 days past due 2 - - 2 ---- ---- ---- ---- 113 3 - 116 ---- ---- ---- ---- Payments made (4): 90 days or more past due 210 75 28 313 Less than 90 days past due 60 4 12 76 ---- ---- ---- ---- 270 79 40 389 ---- ---- ---- ---- Total past due 383 82 40 505 Contractually current (5) 184 115 62 361 ---- ---- ---- ---- Total nonaccrual loans $567 $197 $102 $866 ---- ---- ---- ---- ---- ---- ---- ---- - --------------------------------------------------------------------------------------------------------------
(1) There can be no assurance that individual borrowers will continue to perform at the level indicated or that the performance characteristics will not change significantly. (2) Past due is defined as a borrower whose loan principal or interest payment is 30 days or more past due. (3) Borrower has made no payment since being placed on nonaccrual. (4) Borrower has made some payments since being placed on nonaccrual. Approximately $175 million and $168 million of these loans had some payments made on them during the fourth quarter of 1995 and 1994, respectively. (5) Current is defined as a loan for which principal and interest are being paid in accordance with the terms of the loan. All of the contractually current loans were placed on nonaccrual due to uncertainty of receiving full timely collection of interest or principal. (6) Cumulative amounts recorded since inception of the loan. 21 charged off. Real estate 1-4 family loans (both first liens and junior liens) are placed on nonaccrual status within 150 days of becoming past due as to interest or principal, regardless of security. In contrast, under FAS 114, loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Certain nonaccrual loans may not be impaired because they are included in large groups of smaller-balance homogeneous loans that by definition are excluded from FAS 114 (unless they have been restructured). Similarly, not all impaired loans are necessarily placed on nonaccrual status. That is, restructured loans performing under restructured terms beyond a specified performance period are classified as accruing but may still be deemed impaired under FAS 114. For a further discussion of FAS 114, refer to Note 4 to the Financial Statements. If interest due on the book balances of all nonaccrual and restructured loans (including loans no longer on nonaccrual or restructured at year end) had been accrued under their original terms, $57 million of interest would have been recorded in 1995, compared with $23 million actually recorded. In addition, the interest that would have been recorded under the original terms for the $50 million of loans purchased at a steep discount (see Table 11, footnote 5) for the period after the contractual terms were modified in late 1995 through year end was $650 thousand, compared with $326 thousand actually recorded. Table 15 summarizes the quarterly trend in foreclosed assets for the past eight quarters. Table 16 summarizes foreclosed assets by type and by region (South, North and Central) in California at December 31, 1995. Foreclosed assets at December 31, 1995 decreased to $186 million from $272 million at December 31, 1994. Approximately 76% of foreclosed assets at December 31, 1995 have been in the portfolio three years or less, with land and agricultural properties representing substantially all of the amount greater than three years old. TABLE 15 QUARTERLY TREND OF CHANGES IN FORECLOSED ASSETS
- --------------------------------------------------------------------------------------------------------- (in millions) Quarter ended ----------------------------------------------------------------------- DECEMBER 31, September 30, June 30, March 31, 1995 1995 1995 1995 BALANCE, BEGINNING OF QUARTER $214 $224 $273 $272 Additions 24 30 19 42 Sales (49) (32) (62) (29) Charge-offs (2) (3) (2) (2) Write-downs (1) (5) (1) (3) Other deductions - - (3) (7) ---- ---- ---- ---- BALANCE, END OF QUARTER $186 $214 $224 $273 ---- ---- ---- ---- ---- ---- ---- ---- - --------------------------------------------------------------------------------------------------------- (in millions) ----------------------------------------------------------------------- December 31, September 30, June 30, March 31, 1994 1994 1994 1994 BALANCE, BEGINNING OF QUARTER $306 $344 $354 $348 Additions 19 30 63 62 Sales (37) (64) (63) (42) Charge-offs (11) (1) (3) (8) Write-downs (2) (2) (3) (6) Other deductions (3) (1) (4) - ---- ---- ---- ---- BALANCE, END OF QUARTER $272 $306 $344 $354 ---- ---- ---- ---- ---- ---- ---- ---- - ---------------------------------------------------------------------------------------------------------
TABLE 16 FORECLOSED ASSETS BY TYPE AND REGION
- ---------------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, 1995 ------------------------------------------------------------------------------------- Southern Northern Central Total Other All California California California California states (1) states Land (excluding 1-4 family) $ 48 $ 6 $ 4 $ 58 $10 $ 68 1-4 family 34 4 2 40 1 41 Shopping centers 17 - - 17 8 25 Agricultural - 5 17 22 - 22 Industrial buildings 9 2 - 11 - 11 Office buildings 5 1 - 6 - 6 Apartments 3 - - 3 - 3 Hotels/motels - - - - 3 3 Other 3 3 - 6 1 7 ---- --- --- ---- --- ---- Total $119 $21 $23 $163 $23 $186 ---- --- --- ---- --- ---- ---- --- --- ---- --- ---- % of total California foreclosed assets 73% 13% 14% 100% ---- --- --- ---- ---- --- --- ---- - ----------------------------------------------------------------------------------------------------------------------------------
(1) Consists of eight states; no state had foreclosed assets in excess of $7 million at December 31, 1995. 22 LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Table 17 shows loans contractually past due 90 days or more as to interest or principal, but not included in the nonaccrual or restructured categories. All loans in this category are both well-secured and in the process of collection or are real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual because they are automatically charged off after being past due for a prescribed period (generally, 180 days). Notwithstanding, real estate 1-4 family loans (first liens and junior liens) are placed on nonaccrual within 150 days of becoming past due and are excluded from Table 17. TABLE 17 LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
- ------------------------------------------------------------------------------- (in millions) December 31, ------------------------------------------------------ 1995 1994 1993 1992 1991 Commercial $ 12 $ 6 $ 4 $ 4 $ 26 Real estate 1-4 family first mortgage 8 18 19 29 38 Other real estate mortgage 24 47 14 22 28 Real estate construction - - 8 11 3 Consumer: Real estate 1-4 family junior lien mortgage 4 4 6 9 13 Credit card 95 42 43 55 50 Other revolving credit and monthly payment 1 1 1 2 3 ---- ---- --- ---- ---- Total consumer 100 47 50 66 66 Lease financing - - - 1 1 ---- ---- --- ---- ---- Total $144 $118 $95 $133 $162 ---- ---- --- ---- ---- ---- ---- --- ---- ---- - -------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES ................................................................................ An analysis of the changes in the allowance for loan losses, including charge- offs and recoveries by loan category, is presented in Note 4 to the Financial Statements. At December 31, 1995, the allowance for loan losses was $1,794 million, or 5.04% of total loans, compared with $2,082 million, or 5.73%, at December 31, 1994. The provision for loan losses was zero in 1995, down from $200 million in 1994. During 1991 and 1992, the Company had a significantly higher provision for loan losses than in the past resulting from a nationwide (particularly California) recession as well as the Company's examination process and that of its regulators. In light of the economic environment and in response to the regulatory environment in which it operates, the Company took steps to strengthen credit processes, including limiting the degree of the portfolio concentration in any product type or location, or to any individual borrower. Additionally, it revised or adopted policies and procedures to address a number of issues, including deterioration of asset quality and the effectiveness of the management structure in the Company's credit-related areas. As both the economic environment and the credit quality of the Company's loan portfolio improved, the Company began reducing its provision in 1993 and 1994. In 1995, as California continued to make progress in its economic recovery and as the Company considered the allowance for loan losses adequate in relation to its existing loan portfolio, no provision was made. However, as loan growth continues, the Company anticipates that it will commence making a provision in the latter half of 1996. Net charge-offs in 1995 were $288 million, or .83% of average total loans, compared with $240 million, or .70%, in 1994. Loan loss recoveries were $134 million in 1995, compared with $129 million in 1994. Table 18 summarizes net charge-offs by loan category. The largest category of net charge-offs in 1995 was credit card loans, comprising more than 50% of the total net charge-offs. During 1994 and the first half of 1995, the Company grew its credit card loan portfolio through nationwide direct mail campaigns as well as through retail outlets. The objective of the direct mail campaigns was higher-yielding loans to higher-risk cardholders. Hence, a high level of charge-offs was expected. As these loans continue to mature, charge-offs are expected to continue at a level higher than experienced in the past. The Company continuously evaluates and monitors its selection criteria for direct mail campaigns and other account acquisition methods to accomplish the desired risk/customer mix within the credit card portfolio. Any loan that is past due as to principal or interest and that is not both well-secured and in the process of collection is generally charged off (to the extent that it exceeds the fair value of any related collateral) after a 23 Table 18 NET CHARGE-OFFS BY LOAN CATEGORY
- ---------------------------------------------------------------------------------------------------------------------------------- (in millions) Year ended December 31, --------------------------------------------------------------------------------- 1995 1994 1993 --------------------- --------------------- --------------------- AMOUNT % OF AMOUNT % OF Amount % of AVERAGE AVERAGE average LOANS LOANS loans Commercial $ 17 .19 % $ 17 .23 % $ 39 .54% Real estate 1-4 family first mortgage 10 .17 12 .14 23 .34 Other real estate mortgage (1) (.02) 44 .55 150 1.58 Real estate construction 9 .80 4 .34 64 4.85 Consumer: Real estate 1-4 family junior lien mortgage 13 .40 20 .59 25 .62 Credit card 195 5.46 120 4.45 156 6.06 Other revolving credit and monthly payment 41 1.73 25 1.26 29 1.60 ---- ---- ---- Total consumer 249 2.67 165 2.04 210 2.52 Lease financing 4 .31 (2) (.15) 9 .82 ---- ---- ---- Total net loan charge-offs $288 .83 % $240 .70 % $495 1.44% ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- - ----------------------------------------------------------------------------------------------------------------------------------
predetermined period of time that is based on loan category. For example, credit card loans generally are charged off within 180 days of becoming past due. Additionally, loans are charged off when classified as a loss by either internal loan examiners or regulatory examiners. The Company has an established process to determine the adequacy of the allowance for loan losses that assesses the risk and losses inherent in its portfolio. This process provides an allowance consisting of two components, allocated and unallocated. The allocated component reflects inherent losses resulting from the analysis of individual loans. It is developed through specific credit allocations for individual loans (including impaired loans subject to FAS 114), historical loss experience for each loan category and degree of criticism within each category. The total of these allocations is then supplemented by the unallocated component of the allowance. This includes adjustments to the historical loss experience for the various loan categories to reflect any current conditions that could affect losses inherent in the portfolio. The unallocated component includes management's judgmental determination of the amounts necessary for concentrations, economic uncertainties and other subjective factors; correspondingly, the relationship of the unallocated component to the total allowance for loan losses may fluctuate significantly from period to period. Although management has allocated the allowance to specific loan categories, the adequacy of the allowance must be considered in its entirety. The Company's determination of the level of the allowance and, correspondingly, the provision for loan losses rests upon various judgments and assumptions, including general (particularly California's) economic conditions, loan portfolio composition, prior loan loss experience and the Company's ongoing examination process and that of its regulators. The Company has an internal risk analysis and review staff that reports to the Board of Directors and continuously reviews loan quality. Such reviews also assist management in establishing the level of the allowance. Similar to a number of other large national banks, the Bank has been for several years and continues to be examined by its primary regulator, the Office of the Comptroller of the Currency (OCC), and has OCC examiners in residence. These examinations occur throughout the year and target various activities of the Bank, including specific segments of the loan portfolio (for example, commercial real estate and shared national credits). In addition to the Bank being examined by the OCC, the Parent and its nonbank subsidiaries are examined by the Federal Reserve. The Company considers the allowance for loan losses of $1,794 million adequate to cover losses inherent in loans, commitments to extend credit and standby letters of credit at December 31, 1995. DEPOSITS ................................................................................ Comparative detail of average deposit balances is presented in Table 5. Average core deposits decreased 7% in 1995 compared with 1994. Average core deposits funded 72% and 76% of the Company's average total assets in 1995 and 1994, respectively. Year-end deposit balances are presented in Table 19. 24 TABLE 19 DEPOSITS
- ------------------------------------------------------------------------------ (in millions) December 31, % ---------------------- Change 1995 1994 Noninterest-bearing $10,391 $10,145 2 % Interest-bearing checking (1) 887 4,518 (80) Market rate and other savings (1) 17,944 16,713 7 Savings certificates 8,636 7,132 21 ------- ------- Core deposits 37,858 38,508 (2) Other time deposits 248 284 (13) Deposits in foreign offices (2) 876 3,540 (75) ------- ------- Total deposits $38,982 $42,332 (8)% ------- ------- --- ------- ------- --- - ------------------------------------------------------------------------------
(1) Due to the limited transaction activity of existing NOW (negotiable order of withdrawal) account customers, $3.4 billion of interest-bearing checking deposits at December 31, 1995 were reclassified to market rate and other savings deposits. (2) Short-term (under 90 days) interest-bearing deposits used to fund short-term borrowing needs. CERTAIN FAIR VALUE INFORMATION ................................................................................ FAS 107 requires that the Company disclose estimated fair values for certain financial instruments. Quoted market prices, when available, are used to reflect fair values. If market quotes are not available, which is the case for most of the Company's financial instruments, management has provided its best estimate of the calculation of the fair values using discounted cash flows. Fair value amounts differ from book balances because fair values attempt to capture the effect of current market conditions (for example, interest rates) on the Company's financial instruments. There was an increase in the excess (premium) of the fair value over the carrying value of the Company's financial instruments at December 31, 1995 compared with December 31, 1994. The Company's FAS 107 disclosures are presented in Note 14 to the Financial Statements. CAPITAL ADEQUACY/RATIOS ................................................................................ The Company uses a variety of measures to evaluate capital adequacy. Management reviews the various capital measures monthly and takes appropriate action to ensure that they are within established internal and external guidelines. The Company's current capital position exceeds current guidelines established by industry regulators. [CORE DEPOSITS AT YEAR END ($ BILLIONS)(GRAPH)] SEE APPENDIX RISK-BASED CAPITAL RATIOS The Federal Reserve Board (FRB) and the OCC issue risk-based capital (RBC) guidelines for bank holding companies and national banks, respectively. The FRB is the primary regulator for the Parent and the OCC is the primary regulator for the Bank. RBC guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures. There are two categories of capital under the guidelines. Tier 1 capital includes common stockholders' equity and qualifying preferred stock, less goodwill and certain other deductions (including the unrealized net gains and losses, after applicable taxes, on available-for-sale investment securities carried at fair value); Tier 2 capital includes preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, subordinated debt, certain unsecured senior debt issued by the Parent and the allowance for loan losses, subject to limitations by the guidelines. Tier 2 capital is limited to the amount of Tier 1 capital (i.e., at least half of the total capital must be in the form of Tier 1 capital). The Company's Tier 1 and Tier 2 capital components are shown in Table 20. Under the guidelines, one of four risk weights (0%, 20%, 50% and 100%) is applied to the different balance sheet assets, primarily based on the relative credit risk of the counterparty. For example, claims guaranteed by the U.S. government or its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan commitments and derivative financial instruments, are also applied a risk weight after calculating balance sheet equivalent amounts. One of four credit conversion factors (0%, 20%, 50% and 100%) are assigned to loan commitments based on the likelihood of the off-balance sheet item becoming an asset. For example, 25 certain loan commitments are converted at 50% and then risk-weighted at 100%. Derivative financial instruments are converted to balance sheet equivalents based on notional values, replacement costs and remaining contractual terms. (Refer to Notes 4 and 13 to the Financial Statements for further discussion of off-balance sheet items.) The Company's total RBC ratio at December 31, 1995 was 12.46% and its Tier 1 RBC ratio was 8.81%, exceeding the minimum guidelines of 8% and 4%, respectively. The ratios at December 31, 1994 were 13.16% and 9.09%, respectively. The decrease in the Company's total and Tier 1 RBC ratios at December 31, 1995 compared with 1994 resulted primarily from the replacement of lower risk-weighted investment securities and 1-4 family loans with higher risk- weighted loans, such as credit card and small business, as the cash received from the runoff of investment securities and the sale of 1-4 family loans was used to fund loan growth. The Company's risk-weighted assets are calculated as shown in Table 20. Risk- weighted balance sheet assets were $11.1 billion and $15.1 billion less than total assets on the consolidated balance sheet of $50.3 billion and $53.4 billion at December 31, 1995 and 1994, respectively, as a result of weighting certain types of assets at less than 100%; such assets, for both December 31, 1995 and 1994, substantially consisted of claims on or guarantees by the U.S. government or its agencies (risk-weighted at 0% to 20%), 1-4 family first mortgage loans (50%), cash and due from banks (0% to 20%) and private collateralized mortgage obligations backed by 1-4 family first mortgage loans (50%). The $.9 billion increase in risk-weighted balance sheet assets in 1995 compared with 1994 was substantially due to an increase in loans in the 100% risk weight category (mostly commercial and consumer) and a corresponding decrease in 1-4 family first mortgage loans, which are lower risk-weighted assets. LEVERAGE RATIO To supplement the RBC guidelines, the FRB established a leverage ratio guideline. 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 and, in general, are considered top-rated, strong banking organizations. Other banking organizations are expected to have ratios of at least 4% to 5%, depending upon their particular condition and growth plans. Higher leverage ratios could be required by the particular circumstances or risk profile of a given banking organization. The Company's leverage ratios were 7.46% and 6.89% at December 31, 1995 and 1994, respectively. The increase in the leverage ratio at December 31, 1995 compared with December 31, 1994 was primarily due to a decrease in quarterly average total assets. TABLE 20 RISK-BASED CAPITAL AND LEVERAGE RATIOS
- ------------------------------------------------------------------------------- (in billions) December 31, -------------------- 1995 1994 Tier 1: Common stockholders' equity $ 3.6 $ 3.4 Preferred stock .5 .5 Less goodwill and other deductions (1) (.5) (.3) ----- ----- Total Tier 1 capital 3.6 3.6 ----- ----- Tier 2: Mandatory convertible debt - .1 Subordinated debt and unsecured senior debt 1.0 1.0 Allowance for loan losses allowable in Tier 2 .5 .5 ----- ----- Total Tier 2 capital 1.5 1.6 ----- ----- Total risk-based capital $ 5.1 $ 5.2 ----- ----- ----- ----- Risk-weighted balance sheet assets $39.2 $38.3 Risk-weighted off-balance sheet items: Commitments to make or purchase loans 2.7 1.9 Standby letters of credit .7 .6 Other .4 .3 ----- ----- Total risk-weighted off-balance sheet items 3.8 2.8 ----- ----- Goodwill and other deductions (1) (.5) (.3) Allowance for loan losses not included in Tier 2 (1.3) (1.6) ----- ----- Total risk-weighted assets $41.2 $39.2 ----- ----- ----- ----- Risk-based capital ratios: Tier 1 capital (4% minimum requirement) 8.81% 9.09% Total capital (8% minimum requirement) 12.46 13.16 Leverage ratio (3% minimum requirement) (2) 7.46% 6.89% - -------------------------------------------------------------------------------
(1) Other deductions include the unrealized net gain (loss) on available-for- sale investment securities carried at fair value. (2) Tier 1 capital divided by quarterly average total assets (excluding goodwill and other items which were deducted to arrive at Tier 1 capital). FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA) In addition to adopting a risk-based assessment system, FDICIA required that the federal regulatory agencies adopt regulations defining five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the regulations, a "well capitalized" institution must have a Tier 1 RBC ratio of at least 6%, a total capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive order. The Bank had a Tier 1 RBC ratio of 10.12%, a total capital ratio of 13.23% and a leverage ratio of 7.89% at December 31, 1995, compared with 9.56%, 12.64% and 7.21% at December 31, 1994, respectively. 26 ASSET/LIABILITY MANAGEMENT ................................................................................ The principal objectives of asset/liability management are to manage the sensitivity of net interest spreads to potential changes in interest rates and to enhance profitability in ways that promise sufficient reward for understood and controlled risk. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is properly managed. Interest rate risk occurs when assets and liabilities reprice at different times as interest rates change. For example, if fixed-rate assets are funded with floating-rate debt, the spread between asset and liability rates will decline or turn negative if rates increase. The Company refers to this type of risk as "term structure risk." There is, however, another source of interest rate risk, which results from changing spreads between loan and deposit rates. These changing spreads are not highly correlated to changes in the level of interest rates and are driven by other market conditions. The Company calls this type of risk "basis risk"; it is the Company's main source of interest rate risk and is significantly more difficult to quantify and manage than term structure risk. One way to measure the impact that future changes in interest rates will have on net interest income is through a cumulative gap measure. The gap represents the net position of assets and liabilities subject to repricing in specified time periods. Table 21 shows in summary form the Company's interest rate sensitivity based on expected interest rate repricings in specific time frames for the balance sheet and swaps as of December 31, 1995. A more detailed swap maturity schedule is included in Table 24. Table 22 presents an expanded, detailed report of the Company's interest rate sensitivity by major asset and liability categories, together with an adjusted cumulative gap measure. In categorizing assets and liabilities according to expected repricing time frames, management makes certain judgments and approximations. For example, a new three-year loan with a rate that is adjusted every 30 days would be included in the "0-3 months" category rather than the "over 1-5 years" category. There are also balance sheet categories that have a fixed rate and an unspecified maturity, or a rate that is administered but changes slowly or not at all as market rates change. An example of this type of account is interest-bearing checking, which has balances available on demand and pays a rate that changes infrequently. The balances are relatively stable from quarter to quarter, but could decline because of disintermediation if rates increased substantially. Another example is the revolving credit feature of fixed-rate credit card loans, which differentiates these loans from loans with specified contractual maturities. Given the unusual rate maturity characteristics of these balance sheet items, they are placed in a "nonmarket category." This category is generally viewed as being relatively stable in terms of interest rate variability and the net nonmarket liabilities are viewed as funding fixed-rate assets with maturities greater than one year. Nonmarket assets include noninterest-earning assets, fixed-rate credit card loans, nonaccrual loans and equity securities. Nonmarket liabilities and stockholders' equity include savings deposits, interest-bearing checking, noninterest-bearing deposits, other noninterest-bearing liabilities, common stockholders' equity and fixed-rate perpetual preferred stock. Some asset/liability managers allocate these nonmarket assets and liabilities to the various maturity categories. The Company believes that these allocations are mostly arbitrary and tend to provide a false sense that the gap structure is accurately defined. For this reason, they remain in the nonmarket category, in order to maintain the Company's focus on their unusual rate maturity characteristics. Mortgage-backed investment securities and fixed-rate loans in the real estate 1-4 family first mortgage, other real estate mortgage and consumer loan categories are based on expected maturities rather than on contractual maturities. Expected maturities are estimated based on dealer prepayment projections to the extent that such projections are available. For certain types of adjustable-rate mortgages and TABLE 21 SUMMARY OF INTEREST RATE SENSITIVITY
- ---------------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, 1995 -------------------------------------------------------------------------------------- Prime- MRA 0-3 >3-6 >6-12 >1-5 >5 Non- Total based savings months months months years years market loans Assets $9,558 $ - $13,358 $ 2,833 $2,991 $10,947 $ 2,500 $ 8,129 $50,316 Liabilities and stockholders' equity - 9,601 9,527 2,463 2,191 1,737 925 23,872 50,316 ------ ------- ------- ------- ------ ------- ------- -------- ------- Gap before interest rate swaps $9,558 $(9,601) $ 3,831 $ 370 $ 800 $ 9,210 $ 1,575 $(15,743) $ - Interest rate swaps (72) - (5,917) 157 480 5,290 62 - - ------ ------- ------- ------- ------ ------- ------- -------- ------- Gap adjusted for interest rate swaps $9,486 $(9,601) $(2,086) $ 527 $1,280 $14,500 $ 1,637 $(15,743) $ - ------ ------- ------- ------- ------ ------- ------- -------- ------- ------ ------- ------- ------- ------ ------- ------- -------- ------- Cumulative gap $ - $ (115) $(2,201) $(1,674) $ (394) $14,106 $15,743 $ - ------ ------- ------- ------- ------ ------- ------- -------- ------ ------- ------- ------- ------ ------- ------- -------- - ----------------------------------------------------------------------------------------------------------------------------------
27 consumer loans where dealer prepayment projections are not available, the Company uses its historical experience. The gap structure also does not allocate Prime-based loans and market rate account (MRA) savings deposits, included in market rate and other savings, to specific maturity categories. Statistical evidence indicates that both Prime-based loans and MRA savings deposits have relatively short maturities, with that of MRA savings deposits being somewhat longer. Keeping them in distinct categories (as with nonmarket) helps maintain focus on these rates, since most of the Company's short-term net interest income variability depends on their relative movements. The Company uses interest rate derivative financial instruments as an asset/liability management tool to hedge mismatches in interest rate maturities. They are used to reduce the Company's exposure to interest rate fluctuations and provide more stable spreads between loan yields and the rates on their funding sources. For example, the Company uses interest rate futures to shorten the rate maturity of MRA savings deposits to better match the maturity of Prime-based loans. The under-one-year net liability position at December 31, 1995 was $394 million (0.8% of total assets), compared with the under-one-year net liability position of $520 million at December 31, 1994 (1.0% of total assets). This measure of term structure risk would indicate a nearly balanced interest rate risk position. A significant under-one-year net liability position (greater than 4% of total assets) would indicate that the Company's net interest income is exposed to rising short-term interest rates, while a similar size net asset position would mean an exposure to declining short-term interest rates. The average under-one-year net liability positions during 1995 and 1994 were $555 million and $538 million, respectively. The two adjustments to the cumulative gap amount shown on Table 22 provide comparability with those bank holding companies that present interest rate sensitivity information in this manner. However, management does not believe that these adjustments depict its interest rate risk. The first adjustment line excludes noninterest-earning assets, noninterest-bearing liabilities and stockholders' equity from the cumulative gap calculation so that only earning assets, interest-bearing liabilities and all interest rate swap contracts used to hedge such assets and liabilities are reported. The second adjustment line moves interest-bearing checking and market rate and other savings deposits in the nonmarket liability category to the shortest rate maturity category. This second adjustment reflects the availability of these deposits for immediate withdrawal. The resulting adjusted under-one-year cumulative gap (net liability position) was $8.7 billion and $10.1 billion at December 31, 1995 and 1994, respectively. In addition, the Company performs earnings at risk analysis and net interest income simulations based on multiple interest rate scenarios and projected on- and off-balance sheet changes to estimate the potential effects of changing interest rates. The Company uses four standard scenarios - rates unchanged, expected rates, high rates and low rates in analyzing interest rate sensitivity for policy measurement. The expected rates scenario is based on the Company's projected future interest rates, while the high rates and low rates scenarios cover 90% probable upward and downward rate movements based on the Company's own interest rate models. Earnings at risk may be estimated by multiplying the short-term gap positions by possible changes in interest rates. The potential adverse impact on earnings over the next 12 months is compared to an interest rate risk limit with a sublimit for the term structure risk. The current interest rate risk limit allows up to 30 basis points of sensitivity in the average net interest margin over the next year. The term structure risk sublimit is currently $50 million of annual net interest income based on the earnings at risk analysis. Subject to these limits, the Company may maintain a particular gap position to achieve a more desirable risk/return tradeoff. Earnings at risk analysis and net interest income simulations allow the Company to fully explore the complex relationships within the gap over time and for various rate environments. The results during the year showed that the Company's interest rate sensitivity was well within the policy limit. The net interest income simulation at December 31, 1995 showed a sensitivity of 8 basis points between the net interest margins for the high and the expected rate scenarios over the next year. To get a complete picture of its current interest rate risk position, the Company must look at both term structure risk and basis risk. The two most significant components of basis risk are the Prime/MRA spread and the rate paid on savings and interest-bearing checking accounts. During the 1987-1993 interest rate cycle, the Prime/MRA spread varied from a low of approximately 275 basis points in 1987 to a high of approximately 525 basis points when rates peaked in 1989. The increase in the Prime/MRA spread as well as lagged movements in other deposit rates caused spreads to increase to historic high levels. At the peak of the rate cycle in 1989 and during the first quarter of 1991, interest rate floors and swaps were purchased to hedge against margin compression. Most of these contracts matured by the end of 1995. 28 TABLE 22 INTEREST RATE SENSITIVITY
- ---------------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, 1995 -------------------------------------------------------------------------------------- Prime- MRA 0-3 >3-6 >6-12 >1-5 >5 Non- Total based savings months months months years years market loans ASSETS Federal funds sold and securities purchased under resale agreements $ - $ - $ 177 $ - $ - $ - $ - $ - $ 177 Investment securities (1) - - 517 819 1,268 5,523 756 37 8,920 Loans: Commercial 4,931 - 3,536 498 118 268 29 370 9,750 Real estate 1-4 family first mortgage 49 - 1,030 393 520 1,853 539 64 4,448 Other real estate mortgage 1,968 - 3,248 650 500 1,123 468 306 8,263 Real estate construction 761 - 474 58 - 20 7 46 1,366 Consumer 1,849 - 4,174 205 251 583 136 2,737 9,935 Lease financing - - 149 142 255 1,165 78 - 1,789 Foreign - - 2 28 - - - 1 31 ------ ------- -------- ------- ------- ------- ------- -------- ------- Total loans (2) 9,558 - 12,613 1,974 1,644 5,012 1,257 3,524 35,582 ------ ------- -------- ------- ------- ------- ------- -------- ------- Other earning assets (3) - - 10 - - - - 61 71 ------ ------- -------- ------- ------- ------- ------- -------- ------- Total earning assets 9,558 - 13,317 2,793 2,912 10,535 2,013 3,622 44,750 Noninterest-earning assets - - 41 40 79 412 487 4,507 5,566 ------ ------- -------- ------- ------- ------- ------- -------- ------- Total assets $9,558 $ - $ 13,358 $ 2,833 $ 2,991 $10,947 $ 2,500 $ 8,129 $50,316 ------ ------- -------- ------- ------- ------- ------- -------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Interest-bearing checking $ - $ - $ - $ - $ - $ - $ - $ 887 $ 887 Market rate and other savings - 9,601 971 - - - - 7,372 17,944 Savings certificates - - 2,595 2,446 1,750 1,695 100 50 8,636 Other time deposits - - 36 15 188 9 - - 248 Deposits in foreign offices - - 876 - - - - - 876 ------ ------- -------- ------- ------- ------- ------- -------- ------- Total interest-bearing deposits - 9,601 4,478 2,461 1,938 1,704 100 8,309 28,591 Short-term borrowings - - 2,976 - - - - - 2,976 Senior debt - - 1,479 1 251 14 38 - 1,783 Subordinated debt - - 518 - - - 748 - 1,266 ------ ------- -------- ------- ------- ------- ------- -------- ------- Total interest-bearing liabilities - 9,601 9,451 2,462 2,189 1,718 886 8,309 34,616 Noninterest-bearing liabilities - - 1 1 2 19 39 11,583 11,645 Stockholders' equity - - 75 - - - - 3,980 4,055 ------ ------- -------- ------- ------- ------- ------- -------- ------- Total liabilities and stockholders' equity $ - $ 9,601 $ 9,527 $ 2,463 $ 2,191 $ 1,737 $ 925 $ 23,872 $50,316 ------ ------- -------- ------- ------- ------- ------- -------- ------- Gap before interest rate swaps $9,558 $(9,601) $ 3,831 $ 370 $ 800 $ 9,210 $ 1,575 $(15,743) $ - Interest rate swaps: Receive fixed (72) - (5,917) 157 480 5,290 62 - - ------ ------- -------- ------- ------- ------- ------- -------- ------- Gap adjusted for interest rate swaps $9,486 $(9,601) $ (2,086) $ 527 $ 1,280 $14,500 $ 1,637 $(15,743) $ - ------ ------- ------- ------- ------ ------- ------- -------- ------- ------ ------- ------- ------- ------ ------- ------- -------- ------- Cumulative gap $ - $ (115) $ (2,201) $(1,674) $ (394) $14,106 $15,743 $ - ------ ------- ------- ------- ------ ------- ------- -------- ------ ------- ------- ------- ------ ------- ------- -------- Adjustments: Exclude noninterest-earning assets, noninterest-bearing liabilities and stockholders' equity - - 36 (39) (76) (394) (447) 11,054 Move interest-bearing checking and market rate and other savings from nonmarket to shortest maturity - - (8,259) - - - - 8,259 ------ ------- -------- ------- ------- ------- ------- -------- Adjusted cumulative gap $9,486 $ (115) $(10,424) $(9,936) $(8,732) $ 5,374 $ 6,564 $ 10,134 ------ ------- ------- ------- ------ ------- ------- -------- ------ ------- ------- ------- ------ ------- ------- -------- - -----------------------------------------------------------------------------------------------------------------------------------
(1) The nonmarket column consists of marketable equity securities. (2) The nonmarket column consists of nonaccrual loans of $538 million, fixed-rate credit card loans of $2,788 million (including $63 million in commercial credit card loans) and overdrafts of $210 million. (3) The nonmarket column consists of Federal Reserve Bank stock. 29 As interest rates began to rise in early 1994 and continued through mid-1995, the spread between loans and deposits began to rise again as the Prime rate climbed 300 basis points and deposit rates were slow to react. During 1994 and 1995, the increasing loan/deposit spread roughly offset the decline in hedging income due to the maturity of the interest rate floor and swap hedges put in place in 1989 and 1991. As the Company looks toward managing interest rate risk in 1996, it is confronted with several risk scenarios. If interest rates rise, net interest income may actually increase if deposit rates lag increases in market rates. The Company could, however, experience significant pressure on net interest income if there is a substantial movement in deposit rates relative to market rates. This basis risk potentially could be hedged with interest rate caps, but the Company believes they are not cost-effective in relation to the risk they would mitigate. A declining interest rate environment might result in a decrease in loan rates, while deposit rates remain relatively stable, since they have not increased much in 1994 and 1995. This rate scenario could also create significant risk to net interest income. The Company has partially hedged against this risk by again purchasing interest rate floor contracts in 1995 and 1994. Based on its current and projected balance sheet, the Company does not expect that a change in interest rates would affect its liquidity position. DERIVATIVE FINANCIAL INSTRUMENTS ................................................................................ The Company uses interest rate derivative financial instruments as an asset/liability management tool to hedge the Company's exposure to interest rate fluctuations. The Company also offers contracts to its customers, but hedges such contracts by purchasing other financial contracts or uses the contracts for asset/liability management. Table 23 reconciles the beginning and ending notional or contractual amounts for derivative financial instruments for 1995 and shows the expected remaining maturity at year-end 1995. Table 24 summarizes the notional amount, expected maturities and weighted average interest rates associated with amounts to be received or paid on interest rate swap agreements, together with an indication of the asset/liability hedged. For a further discussion of derivative financial instruments, refer to Note 13 of the Financial Statements. TABLE 23 DERIVATIVE ACTIVITIES
- ---------------------------------------------------------------------------------------------------------------------------------- (notional or contractual amounts in millions) Year ended December 31, 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Beginning Additions Expirations Terminations(2) Ending Weighted balance balance average expected remaining maturity (in yrs.-mos.) Interest rate contracts: Futures contracts $ 5,009 $21,862 $20,337(1) $1,139 $ 5,395 0-3 Forward contracts 8 439 30(1) 417 - - Futures options purchased - 456 393 63 - - Floors written - 105 - - 105 1-8 Caps written 1,039 657 467 59 1,170 1-11 Floors purchased 14,355 2,807 1,520 15 15,627 2-11 Caps purchased 1,260 819 497 52 1,530 1-11 Swap contracts 3,279 5,508 915 40 7,832(3) 2-10 Foreign exchange contracts: Forwards and spot contracts 615 21,283 20,964 - 934 0-2 Option contracts purchased 319 223 513 - 29 0-6 Option contracts written 318 192 487 - 23 0-6 Cross currency swaps 118 - 118 - - - - ----------------------------------------------------------------------------------------------------------------------------------
(1) To facilitate the settlement process, the Company enters into offsetting contracts 2 to 45 days prior to their maturity date. Concurrent with the closing of these positions, the Company generally enters into new interest rate futures and forward contracts with a later expiration date since the Company's use of these contracts predominantly relates to ongoing hedging programs. (2) Terminations occur if a customer that purchased a contract decides to cancel it before the maturity date. If the customer contract was hedged, the Company terminates the interest rate derivative instrument used to hedge the customer's contract upon cancellation. The impact of terminations on income before income taxes for 1995 was a loss of less than $.5 million. (3) See Table 24 for further details of maturities and average rates received or paid. 30 TABLE 24 INTEREST RATE SWAP MATURITIES AND AVERAGE RATES (1)
- ---------------------------------------------------------------------------------------------------------------------------------- (notional amounts in millions) 1996 1997 1998 1999 Thereafter Total Receive-fixed rate (hedges loans) Notional amount $ 548 $423 $1,905 $1,920 $1,070 $5,866 Weighted average rate received 4.6% 5.0% 5.9% 7.0% 7.3% 6.3% Weighted average rate paid 6.0 6.1 5.9 6.0 6.0 6.0 Receive-fixed rate (hedges senior debt) Notional amount $ 224 $ - $ - $ - $ - $ 224 Weighted average rate received 7.4% -% -% -% -% 7.4% Weighted average rate paid 6.0 - - - - 6.0 Receive-fixed rate (hedges purchased mortgage servicing rights) Notional amount $ - $ - $ 200 $ - $ - $ 200 Weighted average rate received -% -% 5.9% -% -% 5.9% Weighted average rate paid - - 6.0 - - 6.0 Receive-fixed rate, forward starting swaps (hedges loans) (2) Notional amount $ - $ 2 $ 3 $ 3 $ 16 $ 24 Other swaps (3) Notional amount $ 284 $541 $ 152 $ 66 $ 475 $1,518 Weighted average rate received 5.9% 5.4% 5.9% 5.9% 5.9% 5.7% Weighted average rate paid 5.9 5.4 5.9 5.8 5.8 5.7 Total notional amount $1,056 $966 $2,260 $1,989 $1,561 $7,832 ------ ---- ------ ------ ------ ------ ------ ---- ------ ------ ------ ------ - ----------------------------------------------------------------------------------------------------------------------------------
(1) Variable interest rates are presented on the basis of rates in effect at December 31, 1995. These rates may change substantially in the future due to open market factors. (2) These forward swaps, which will hedge loans, start in January 1996 for $21 million, in October 1996 for $2 million and in October 2000 for $1 million. (3) Represents customer accommodation swaps not used for asset/liability management purposes. The notional amount reflects customer accommodations as well as the swaps used to hedge the customer accommodations. LIQUIDITY MANANGEMENT ................................................................................ Liquidity refers to the Company's ability to maintain a cash flow adequate to fund operations and meet obligations and other commitments on a timely and cost- effective basis. In recent years, core deposits have provided the Company with a sizable source of relatively stable and low-cost funds. The Company's average core deposits and stockholders' equity funded 80% and 84% of its average total assets in 1995 and 1994, respectively. The remaining funding of average total assets was substantially provided by senior and subordinated debt, deposits in foreign offices and short-term borrowings (comprised of federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings). Senior and subordinated debt averaged $3.1 billion and $3.4 billion in 1995 and 1994, respectively. Short-term borrowings averaged $3.9 billion and $2.4 billion in 1995 and 1994, respectively. The weighted average expected remaining maturity of the debt securities within the investment securities portfolio was 2 years and 1 month at December 31, 1995. Of the $8.9 billion debt securities that were available for sale at December 31, 1995, $2.6 billion, or 29%, is expected to mature or be prepaid in 1996 and an additional $2.5 billion, or 28%, is expected to mature or be prepaid in 1997. The Company purchased shorter-term debt securities to maintain asset liquidity and to fund loan growth. Other sources of liquidity include maturity extensions of short-term borrowings and sale or runoff of assets. Commercial and real estate loans totaled $23.8 billion at December 31, 1995. Of these loans, $8.0 billion matures in one year or less, $8.4 billion matures in over one year through five years and $7.4 billion matures in over five years. Of the $15.8 billion that matures in over one year, $10.4 billion has floating or adjustable rates and $5.4 billion has fixed rates. Of the $5.4 billion of fixed-rate loans, approximately $2.4 billion represents fixed initial-rate mortgage (FIRM) loans. FIRM loans carry fixed rates for a minimum of 3 years to a maximum of 10 years of the loan term and carry adjustable rates thereafter. Additionally, in 1995, sources of liquidity included the proceeds from the 31 sale of $4.4 billion in real estate 1-4 family first mortgage loans. (Refer to the Consolidated Statement of Cash Flows for further information on the Company's cash flows from its operating, investing and financing activities.) Liquidity for the Parent Company and its subsidiaries is generated through its ability to raise funds in a variety of domestic and international money and capital markets, and through dividends from subsidiaries and lines of credit. In 1995, the Bank filed a shelf registration with the Office of the Comptroller of the Currency that allows for the issuance of up to $3.0 billion of bank notes. At December 31, 1995, the total amount remained unissued. Additionally during 1995, the Company filed a shelf registration with the Securities and Exchange Commission that allows the issuance of up to $2.3 billion of senior or subordinated debt or preferred stock. The proceeds from the sale of any securities will be used for general corporate purposes. At December 31, 1995, $2.1 billion of securities remained unissued under this shelf registration. (Refer to Note 6 to the Financial Statements for a schedule of outstanding senior and subordinated debt.) In 1995, substantially all of the Parent's source of funding was due to dividends paid by the Bank totaling $1,131 million. The dividends received helped to fund the Company's stock repurchase program. The Company expects the Parent to continue to receive dividends from the Bank in 1996. (See Notes 2 and 11 to the Financial Statements for the Bank's dividend restriction and the Parent Company's financial statements, respectively.) To accommodate future growth and current business needs, the Company has a capital expenditure program. Capital expenditures for 1996 are estimated at about $200 million for equipment for supermarket branches, relocation and remodeling of Company facilities and routine replacement of furniture and equipment. The Company will fund these expenditures from various sources, including retained earnings of the Company and borrowings of various maturities. COMPARISON OF 1994 VERSUS 1993 - -------------------------------------------------------------------------------- Net income in 1994 was $841 million, compared with $612 million in 1993. Net income per share was $14.78 in 1994, compared with $10.10 in 1993. Return on average assets (ROA) was 1.62% and return on average common equity (ROE) was 22.41% in 1994, compared with 1.20% and 16.74% respectively, in 1993. The increase in earnings from 1993 to 1994 was largely due to a lower loan loss provision. The percentage increase in per share earnings was greater than the percentage increase in net income due to the Company's stock repurchase program. Net interest income on a taxable-equivalent basis was $2,610 million in 1994, compared with $2,659 million in 1993. The Company's net interest margin was 5.55% for 1994, down from 5.74% in 1993. This decrease was substantially due to lower hedging income, largely offset by an increase in the rate spread between loans and deposits. Noninterest income was $1,200 million in 1994, compared with $1,093 in 1993. Service charges on deposits increased from $423 million in 1993 to $473 million in 1994, an increase of 12%. The growth in service charges on deposit accounts was predominantly due to increased service fees for overdrafts as well as increased cash management-related fee income earned on wholesale accounts. Fees and commissions increased 3% to $387 million predominantly resulting from sales fees on mutual funds and annuities as well as an increase in "all other" fees. The increase in mutual fund and annuity sales fees was due to a $40 million growth in annuity sales fees from $17 million in 1993 to $57 million in 1994, primarily offset by a $19 million decrease in mutual fund sales fees from $26 million in 1993 to $7 million in 1994. The increase in "all other" fees and commissions was primarily due to a decrease in amortization expense for purchased mortgage servicing rights and increased 32 loan servicing fees. A significant portion of the increase in fees and commissions was offset by a decrease in debit and credit card merchant fees substantially due to an alliance with Card Establishment Services (CES) that the Company entered into in November 1993 for merchant credit card and debit card processing services. The Company retains an interest in the net revenues from processing the transactions that are now reported as income from equity investments accounted for by the equity method, rather than reported as income from debit and credit card merchant fees. Trust and investment services income increased 7% to $203 million primarily due to greater mutual fund investment management fees, reflecting the overall growth in the fund families' net assets. These fees amounted to $46 million in 1994, compared with $37 million in 1993. The investment securities gains in 1994 reflected the sale of both corporate debt and marketable equity securities from the available-for-sale portfolio. In 1994, losses from the disposition of operations included fourth quarter accruals for the disposition of premises and, to a lesser extent, severance of $14 million associated with scheduled branch closures and $10 million associated with ceasing the direct origination of 1-4 family first mortgage loans by the Company's mortgage lending unit. In 1993, losses from disposition of operations included a $36 million accrual related to the disposition of owned and leased premises resulting from reduced space requirements. "All other" noninterest income in 1993 included $18 million of interest income received as a result of the settlement of California Franchise Tax Board audits related to the appropriate years for claiming deductions applicable to the 1976 through 1986 tax returns. Noninterest expense totaled $2,156 million in 1994, compared with $2,162 million in 1993. Salaries expense decreased 2% to $671 million due to a decline in the Company's full-time equivalent staff. Incentive compensation increased 42% to $155 million substantially due to various sales programs, of which a significant portion related to annuities and mutual funds. Increases in equipment expense and contract services from $209 million in 1993 to $275 million in 1994 were primarily related to system upgrades throughout the Company and the development of new products and services. The 100% decrease in foreclosed assets expense, included in "all other", in 1994 compared with 1993 was largely due to a decline in write-downs from $60 million in 1993 to $13 million in 1994 and increased gains on sales. Total loans were $36.3 billion at December 31, 1994, a 10% increase from December 31, 1993. A significant portion of this increase was due to increases in the real estate 1-4 family first mortgage portfolio. The provision for loan losses in 1994 was $200 million, compared with $550 million in 1993. Net charge-offs in 1994 were $240 million, or .70% of average total loans, compared with $495 million, or 1.44%, in 1993. Loan loss recoveries were $129 million in 1994, compared with $169 million in 1993. The allowance for loan losses was 5.73% of total loans at December 31, 1994, compared with 6.41% at December 31, 1993. The decline in the provision for loan losses reflected the continued improvement in the Company's loan portfolio. Total nonaccrual and restructured loans were $582 million, or 1.6% of total loans, at December 31, 1994, compared with $1,200 million, or 3.6% of total loans, at December 31, 1993. At December 31, 1994, an estimated $246 million, or 43%, of nonaccrual loans were less than 90 days past due, compared with an estimated $704 million, or 59%, at December 31, 1993. Foreclosed assets were $272 million at December 31, 1994, compared with $348 million at December 31, 1993. The average volume of core deposits in 1994 was $39.6 billion, 2% lower than in 1993. Average core deposits funded 76% of the Company's average total assets in 1994, compared with 79% in 1993. The Company adopted FAS 109, Accounting for Income Taxes, on January 1, 1993. Under this method, the computation of the net deferred tax asset or liability gives current recognition to changes in tax rates and laws. As a result, when the Omnibus Budget Reconciliation Act was signed into law in August of 1993, raising the corporate tax rate from 34% to 35%, effective January 1, 1993, an adjustment was made that increased the Company's deferred tax asset and, correspondingly, decreased income tax expense by approximately $18 million. Because the deferred tax asset was originally recorded at a lower tax rate, the higher tax rate in effect at that time increased the value of the asset. The decreased income tax expense was partially offset by a $9 million increase to reflect the application of the higher tax rate to 1993 earnings. 33 ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- Common stock of the Company is traded on the New York Stock Exchange, the Pacific Stock Exchange, the London Stock Exchange and the Frankfurt Stock Exchange. The high, low and end-of-period annual and quarterly closing prices of the Company's stock as reported on the New York Stock Exchange Composite Transaction Reporting System are presented in the graphs. The number of holders of record of the Company's common stock was 27,742 as of January 31, 1996. [PRICE RANGE OF COMMON STOCK - ANNUAL (GRAPH)($)] SEE APPENDIX [PRICE RANGE OF COMMON STOCK - QUARTERLY (GRAPH)($)] SEE APPENDIX Common dividends declared per share totaled $4.60 in 1995, $4.00 in 1994 and $2.25 in 1993. The dividend was increased in the first quarter of 1994 from $0.75 per share to $1.00 per share, increased to $1.15 per share in January 1995 and increased again to $1.30 in January 1996. Quarterly dividends are considered at the Board of Directors meeting the month following quarter end. Dividends declared are payable the second month after quarter end. The Company, with the approval of the Board of Directors, intends to continue its present policy of paying quarterly cash dividends to stockholders. The level of future dividends will be determined by the Board of Directors in light of the earnings and financial condition of the Company. In 1991, the FRB approved an application by Berkshire Hathaway, Inc. (Berkshire) to purchase additional shares of the Company's common stock in the open market, up to a total of 22%. Berkshire entered into a passivity agreement with the Company, in which it agrees not to exercise any control over the Company's management or policies. Accordingly, Berkshire granted its proxy to the Company to vote Berkshire's shares in accordance with the recommendations of the Board of Directors of the Company. Berkshire owned 14.5% and 13.3% of the Company's common stock at December 31, 1995 and 1994, respectively. 34 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
(in millions) Year ended December 31, ------------------------------------ 1995 1994 1993 INTEREST INCOME Federal funds sold and securities purchased under resale agreements $ 4 $ 7 $ 23 Investment securities 599 740 672 Mortgage loans held for sale 76 - - Loans 3,403 3,015 3,066 Other 3 3 - ------ ------ ------ Total interest income 4,085 3,765 3,761 ------ ------ ------ INTEREST EXPENSE Deposits 997 854 863 Federal funds purchased and securities sold under repurchase agreements 199 99 29 Commercial paper and other short-term borrowings 32 10 6 Senior and subordinated debt 203 192 206 ------ ------ ------ Total interest expense 1,431 1,155 1,104 ------ ------ ------ NET INTEREST INCOME 2,654 2,610 2,657 Provision for loan losses - 200 550 ------ ------ ------ Net interest income after provision for loan losses 2,654 2,410 2,107 ------ ------ ------ NONINTEREST INCOME Service charges on deposit accounts 478 473 423 Fees and commissions 433 387 376 Trust and investment services income 241 203 190 Investment securities gains (losses) (17) 8 - Sale of joint venture interest 163 - - Other 26 129 104 ------ ------ ------ Total noninterest income 1,324 1,200 1,093 ------ ------ ------ NONINTEREST EXPENSE Salaries 713 671 684 Incentive compensation 126 155 109 Employee benefits 187 201 213 Net occupancy 211 215 224 Equipment 193 174 148 Federal deposit insurance 52 101 114 Other 719 639 670 ------ ------ ------ Total noninterest expense 2,201 2,156 2,162 ------ ------ ------ INCOME BEFORE INCOME TAX EXPENSE 1,777 1,454 1,038 Income tax expense 745 613 426 ------ ------ ------ NET INCOME $1,032 $ 841 $ 612 ------ ------ ------ ------ ------ ------ NET INCOME APPLICABLE TO COMMON STOCK $ 990 $ 798 $ 562 ------ ------ ------ ------ ------ ------ PER COMMON SHARE Net income $20.37 $14.78 $10.10 ------ ------ ------ ------ ------ ------ Dividends declared $ 4.60 $ 4.00 $ 2.25 ------ ------ ------ ------ ------ ------ Average common shares outstanding 48.6 53.9 55.6 ------ ------ ------ ------ ------ ------
The accompanying notes are an integral part of these statements. 35 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
(in millions) December 31, ---------------------- 1995 1994 ASSETS Cash and due from banks $ 3,375 $ 2,974 Federal funds sold and securities purchased under resale agreements 177 260 Investment securities: At fair value 8,920 2,989 At cost (estimated fair value $8,185) - 8,619 ------- ------- Total investment securities 8,920 11,608 Loans 35,582 36,347 Allowance for loan losses 1,794 2,082 ------- ------- Net loans 33,788 34,265 ------- ------- Due from customers on acceptances 98 77 Accrued interest receivable 308 328 Premises and equipment, net 862 886 Goodwill 382 416 Other assets 2,406 2,560 ------- ------- Total assets $50,316 $53,374 ------- ------- ------- ------- LIABILITIES Noninterest-bearing deposits $10,391 $10,145 Interest-bearing deposits 28,591 32,187 ------- ------- Total deposits 38,982 42,332 Federal funds purchased and securities sold under repurchase agreements 2,781 3,022 Commercial paper and other short-term borrowings 195 189 Acceptances outstanding 98 77 Accrued interest payable 85 60 Other liabilities 1,071 930 Senior debt 1,783 1,393 Subordinated debt 1,266 1,460 ------- ------- Total liabilities 46,261 49,463 ------- ------- STOCKHOLDERS' EQUITY Preferred stock 489 489 Common stock-$5 par value, authorized 150,000,000 shares; issued and outstanding 46,973,319 shares and 51,251,648 shares 235 256 Additional paid-in capital 1,135 871 Retained earnings 2,174 2,409 Cumulative foreign currency translation adjustments (4) (4) Investment securities valuation allowance 26 (110) ------- ------- Total stockholders' equity 4,055 3,911 ------- ------- Total liabilities and stockholders' equity $50,316 $53,374 ------- ------- ------- -------
The accompanying notes are an integral part of these statements. 36 WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions) Preferred Common Additional Retained Foreign Investment Total stock stock paid-in earnings currency securities stock- capital translation valuation holders' adjustments allowance equity BALANCE DECEMBER 31, 1992 $ 639 $276 $ 506 $ 2,392 $(4) $ - $3,809 ------ ----- ------- -------- --- ------ ------- Net income-1993 612 612 Common stock issued under employee benefit and dividend reinvestment plans 3 50 53 Common stock repurchased (5) (5) Preferred stock dividends (50) (50) Common stock dividends (125) (125) Cumulative unrealized net gains, after applicable taxes 21 21 ------ ----- ------- -------- --- ------ ------- Net change - 3 45 437 - 21 506 ------ ----- ------- -------- --- ------ ------- BALANCE DECEMBER 31, 1993 639 279 551 2,829 (4) 21 4,315 ------ ----- ------- -------- --- ------ ------- Net income-1994 841 841 Common stock issued under employee benefit and dividend reinvestment plans 3 54 57 Preferred stock redeemed (150) (150) Common stock repurchased (26) (734) (760) Preferred stock dividends (43) (43) Common stock dividends (218) (218) Change in unrealized net gains, after applicable taxes (131) (131) Transfer 1,000 (1,000) - ------ ----- ------- -------- --- ------ ------- Net change (150) (23) 320 (420) - (131) (404) ------ ----- ------- -------- --- ------ ------- BALANCE DECEMBER 31, 1994 489 256 871 2,409 (4) (110) 3,911 ------ ----- ------- -------- --- ------ ------- Net income-1995 1,032 1,032 Common stock issued under employee benefit and dividend reinvestment plans 4 86 90 Common stock repurchased (25) (822) (847) Preferred stock dividends (42) (42) Common stock dividends (225) (225) Change in unrealized net losses, after applicable taxes 136 136 Transfer 1,000 (1,000) - ------ ----- ------- -------- --- ------ ------- Net change - (21) 264 (235) - 136 144 ------ ----- ------- -------- --- ------ ------- BALANCE DECEMBER 31, 1995 $ 489 $235 $1,135 $ 2,174 $(4) $ 26 $4,055 ------ ----- ------- -------- --- ------ ------- ------ ----- ------- -------- --- ------ -------
The accompanying notes are an integral part of these statements. 37 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions) Year ended December 31, ------------------------------------- 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,032 $ 841 $ 612 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses - 200 550 Depreciation and amortization 272 246 266 Losses on disposition of operations 89 5 28 Gain on sale of joint venture interest (163) - - Deferred income tax expense (benefit) 17 (32) (145) Increase (decrease) in net deferred loan fees (6) (8) 2 Net (increase) decrease in accrued interest receivable 20 (31) 4 Writedown on mortgage loans held for sale 64 - - Net increase (decrease) in accrued interest payable 25 (3) (25) Net (increase) decrease in loans originated for sale (535) - 21 Other, net (139) (74) 220 ------- ------- ------- Net cash provided by operating activities 676 1,144 1,533 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment securities: At fair value: Proceeds from sales 673 18 - Proceeds from prepayments and maturities 229 670 - Purchases (77) (724) - At cost: Proceeds from prepayments and maturities 2,191 3,866 2,492 Purchases (104) (2,598) (6,168) Proceeds from sales of mortgage loans held for sale 4,273 - - Net (increase) decrease in loans resulting from originations and collections (3,700) (3,338) 2,699 Proceeds from sales (including participations) of loans 770 134 264 Purchases (including participations) of loans (233) (375) (36) Proceeds from sales of foreclosed assets 202 240 353 Net (increase) decrease in federal funds sold and securities purchased under resale agreements 83 1,408 (485) Other, net (172) (264) (4) ------- ------- ------- Net cash provided (used) by investing activities 4,135 (963) (885) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits (3,350) 688 (600) Net increase (decrease) in short-term borrowings (235) 1,944 (246) Proceeds from issuance of senior debt 1,230 248 980 Repayment of senior debt (811) (1,101) (884) Proceeds from issuance of subordinated debt - - 399 Repayment of subordinated debt (210) (526) (300) Proceeds from issuance of common stock 90 57 53 Redemption of preferred stock - (150) - Repurchase of common stock (847) (760) (5) Payment of cash dividends on preferred stock (42) (34) (50) Payment of cash dividends on common stock (225) (218) (125) Other, net (10) 1 84 ------- ------- ------- Net cash provided (used) by financing activities (4,410) 149 (694) ------- ------- ------- NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS) 401 330 (46) Cash and cash equivalents at beginning of year 2,974 2,644 2,690 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,375 $ 2,974 $ 2,644 ------- ------- ------- ------- ------- ------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 1,406 $ 1,158 $ 1,129 ------- ------- ------- ------- ------- ------- Income taxes $ 618 $ 680 $ 481 ------- ------- ------- ------- ------- ------- Noncash investing activities: Transfers from investment securities at cost to investment securities at fair value $ 6,532 $ - $ 3,077 ------- ------- ------- ------- ------- ------- Transfers from foreclosed assets to nonaccrual loans $ - $ - $ 99 ------- ------- ------- ------- ------- ------- Transfers from loans to foreclosed assets $ 115 $ 174 $ 404 ------- ------- ------- ------- ------- ------- Transfers from loans to mortgage loans held for sale $ 4,440 $ - $ - ------- ------- ------- ------- ------- -------
The accompanying notes are an integral part of these statements. 38 WELLS FARGO & COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Wells Fargo & Company (Parent) is a bank holding company whose principal subsidiary is Wells Fargo Bank, N.A. (Bank). The Bank provides a broad range of financial products and services through electronic and traditional channels. Besides servicing millions of California retail customers, the Bank provides a full range of banking and financial services to commercial, corporate, real estate and small business customers across the nation. The Company also has other bank and nonbank subsidiaries that provide various banking related services. The accounting and reporting policies of Wells Fargo & Company and Subsidiaries (Company) conform with generally accepted accounting principles (GAAP) and prevailing practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts in the financial statements for prior years have been reclassified to conform with the current financial statement presentation. The following is a description of the significant accounting policies of the Company. CONSOLIDATION ................................................................................ The consolidated financial statements of the Company include the accounts of the Parent, the Bank and other bank and nonbank subsidiaries of the Parent. Significant majority-owned subsidiaries are consolidated on a line-by-line basis. Significant intercompany accounts and transactions are eliminated in consolidation. Other subsidiaries and affiliates in which there is at least 20% ownership are generally accounted for by the equity method; those in which there is less than 20% ownership are generally carried at cost. Subsidiaries and affiliates that are accounted for by either the equity or cost method are included in other assets. SECURITIES ................................................................................ Securities are accounted for according to their purpose and holding period. INVESTMENT SECURITIES Securities generally acquired to meet long-term investment objectives, including yield and liquidity management purposes, are classified as investment securities. Realized gains and losses are recorded in noninterest income using the identified certificate method. SECURITIES AT FAIR VALUE Debt securities that may not be held until maturity and marketable equity securities are considered available for sale and, as such, are classified as securities carried at fair value, with unrealized gains and losses, after applicable taxes, reported in a separate component of stockholders' equity. The estimated fair value of investments is determined based on current quotations, where available. Where current quotations are not available, the estimated fair value is determined based primarily on the present value of future cash flows, adjusted for the quality rating of the securities, prepayment assumptions and other factors. Declines in the value of debt securities and marketable equity securities that are considered other than temporary are recorded in noninterest income as a loss on investment securities. SECURITIES AT COST Debt securities acquired with the positive intent and ability to hold to maturity are classified as securities carried at historical cost, adjusted for amortization of premium and accretion of discount, where appropriate. For certain debt securities (for example, Government National Mortgage Association securities), the Company anticipates prepayments of principal in the calculation of the effective yield. If it is probable that the carrying value of any debt security will not be realized due to other-than- temporary impairment, the estimated loss is recorded in noninterest income as a loss on investment securities. If a decision is made to dispose of securities at cost or should the Company become unable to hold securities until maturity, they would be reclassified to securities at fair value. 39 TRADING SECURITIES Securities, if any, acquired for short-term appreciation or other trading purposes are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in noninterest income. There were no trading securities in the past three years. NONMARKETABLE EQUITY SECURITIES Nonmarketable equity securities are acquired for various purposes, such as troubled debt restructurings and as a regulatory requirement (for example, Federal Reserve Bank stock). These securities are accounted for at cost and are included in other assets as they do not fall within the definition of an investment security since there are restrictions on their sale or liquidation. The asset value is reduced when declines in value are considered to be other than temporary and the estimated loss is recorded in noninterest income as a loss from equity investments. LOANS ................................................................................ Loans are reported at the principal amount outstanding, net of unearned income. Unearned income, which includes deferred fees net of deferred direct incremental loan origination costs, is amortized to interest income generally over the contractual life of the loan using an interest method or the straight-line method if it is not materially different. Loans identified as held for sale are carried at the lower of cost or market value. Nonrefundable fees, related direct loan origination costs and related hedging gains or losses, if any, are deferred and recognized as a component of the gain or loss on sale recorded in noninterest income. NONACCRUAL LOANS Loans are placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless both well-secured and in the process of collection), when the full timely collection of interest or principal becomes uncertain or when a portion of the principal balance has been charged off. Real estate 1-4 family loans (both first liens and junior liens) are placed on nonaccrual status within 150 days of becoming past due as to interest or principal, regardless of security. Generally, consumer loans not secured by real estate are only placed on nonaccrual status when a portion of the principal has been charged off. Generally, such loans are entirely charged off within 180 days of becoming past due. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is reversed and the loan is accounted for on the cash or cost recovery method thereafter, until qualifying for return to accrual status. Generally, a loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement or when the loan is both well-secured and in the process of collection. IMPAIRED LOANS Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 (FAS 114), Accounting by Creditors for Impairment of a Loan, as amended by FAS 118 (collectively referred to as FAS 114). These Statements address the accounting treatment of certain impaired loans and amend FASB Statement Nos. 5 and 15. However, these Statements do not address the overall adequacy of the allowance for loan losses and do not apply to large groups of smaller-balance homogeneous loans, such as most consumer, real estate 1-4 family first mortgage and small business loans, unless they have been involved in a restructuring. These Statements can only be applied prospectively. A loan within the scope of FAS 114 is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement. For loans covered by this Statement, the Company makes an assessment for impairment when and while such loans are on nonaccrual, or the loan has been restructured. When a loan with unique risk characteristics has been identified as being impaired, the amount of impairment will be measured by the Company using discounted cash flows, except when it is determined that the sole (remaining) source of repayment for the loan is the operation or liquidation of the underlying collateral. In such cases, the current fair value of the collateral, reduced by costs to sell, will be used in place of discounted cash flows. Additionally, some impaired loans with commitments of less than $1 million are aggregated for the purpose of measuring impairment using historical loss factors as a means of measurement. If the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs and unamortized premium or discount), an impairment is recognized by creating or adjusting an existing allocation of the allowance for loan losses. FAS 114 does not change the timing of charge-offs of loans to reflect the amount ultimately expected to be collected. 40 RESTRUCTURED LOANS In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a restructured (accruing) loan. Subsequent to the adoption of FAS 114, loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the contract is modified may be excluded from the impairment assessment and may cease to be considered impaired loans in the calendar years subsequent to the restructuring if they are not impaired based on the modified terms. Generally, a nonaccrual loan that is restructured remains on nonaccrual for a period of six months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of restructuring or after a shorter performance period. If the borrower's ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. ALLOWANCE FOR LOAN LOSSES The Company's determination of the level of the allowance for loan losses rests upon various judgments and assumptions, including general economic conditions, loan portfolio composition, prior loan loss experience, evaluation of credit risk related to certain individual borrowers and the Company's ongoing examination process and that of its regulators. The Company considers the allowance for loan losses adequate to cover losses inherent in loans, loan commitments and standby letters of credit. PREMISES AND EQUIPMENT ................................................................................ Premises and equipment are stated at cost less accumulated depreciation and amortization. Capital leases are included in premises and equipment, at the capitalized amount less accumulated amortization. Depreciation and amortization are computed primarily using the straight-line method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years for furniture and equipment, and up to the lease term for leasehold improvements. Capitalized leased assets are amortized on a straight-line basis over the lives of the respective leases, which generally range from 20 to 35 years. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS ................................................................................ Goodwill, representing the excess of purchase price over the fair value of net assets acquired, results from acquisitions made by the Company. Most of the Company's goodwill is being amortized using the straight-line method over 20 years. The remaining period of amortization, on a weighted average basis, approximated 11 years at December 31, 1995. Identifiable intangible assets that are included in other assets are generally amortized using an accelerated method over an original life of 5 to 15 years. Approximately 55% of the December 31, 1995 remaining balance will be amortized in 3 years. INCOME TAXES ................................................................................ The Company files a consolidated federal income tax return. Consolidated or combined state tax returns are filed in certain states, including California. Income taxes are generally allocated to individual subsidiaries as if each had filed a separate return. Payments are made to the Parent by those subsidiaries with net tax liabilities on a separate return basis. Subsidiaries with net tax losses and excess tax credits receive payment for these benefits from the Parent. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. DERIVATIVE FINANCIAL INSTRUMENTS ................................................................................ INTEREST RATE DERIVATIVES The Company uses interest rate derivative financial instruments (futures, caps, floors and swaps) primarily to hedge mismatches in the rate maturity of loans and their funding sources. Gains and losses on interest rate futures are deferred and amortized as a component of the interest income or expense reported on the asset or liability hedged. Amounts payable or receivable for swaps, caps and floors are accrued with the passage of time, the effect of which is included in the interest income or expense reported on the asset or liability hedged; fees on these financial contracts are amortized over their contractual life as a component of the interest reported on the asset or liability hedged. If a hedged asset or liability settles before maturity of the interest rate derivative financial instruments used as a hedge, the derivatives are closed out or settled, and previously unrecognized hedge results and the net 41 settlement upon close-out or termination are accounted for as part of the gains and losses on the asset or liability hedged. If interest rate derivative financial instruments used in an effective hedge are closed out or terminated before the hedged item, previously unrecognized hedge results and the net settlement upon close-out or termination are deferred and amortized over the life of the asset or liability hedged. Cash flows resulting from interest rate derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the same category as the cash flows from the items being hedged. Interest rate derivative financial instruments entered into as an accommodation to customers and interest rate derivative financial instruments used to offset the interest rate risk of those contracts are carried at fair value with unrealized gains and losses recorded in noninterest income. Cash flows resulting from interest rate derivative financial instruments carried at fair value are classified as operating cash flows. Credit risk related to interest rate derivative financial instruments is considered and, if material, provided for separately from the allowance for loan losses. FOREIGN EXCHANGE DERIVATIVES The Company enters into foreign exchange derivative financial instruments (forward and spot contracts and options) primarily as an accommodation to customers and offsets the related foreign exchange risk with other foreign exchange derivative financial instruments. All contracts are carried at fair value with unrealized gains and losses recorded in noninterest income. Cash flows resulting from foreign exchange derivative financial instruments are classified as operating cash flows. Credit risk related to foreign exchange derivative financial instruments is considered and, if material, provided for separately from the allowance for loan losses. NET INCOME PER COMMON SHARE ................................................................................ Net income per common share is computed by dividing net income (after deducting dividends on preferred stock) by the average number of common shares outstanding during the year. The impact of common stock equivalents, such as stock options, and other potentially dilutive securities is not material; therefore, they are not included in the computation. 2 CASH, LOAN AND DIVIDEND RESTRICTIONS - -------------------------------------------------------------------------------- Federal Reserve Board regulations require reserve balances on deposits to be maintained by the Bank with the Federal Reserve Bank of San Francisco. The average required reserve balance was $1.2 billion in 1995 and 1994. The Bank is subject to certain restrictions under the Federal Reserve Act, including restrictions on extensions of credit to its affiliates. In particular, the Bank is prohibited from lending to the Parent and its nonbank subsidiaries unless the loans are secured by specified collateral. Such secured loans and other regulated transactions made by the Bank (including its subsidiaries) are limited in amount as to each of its affiliates, including the Parent, to 10% of the Bank's capital stock and surplus (as defined, which for this purpose includes the allowance for loan losses on an after-tax basis) and, in the aggregate to all of its affiliates, to 20% of the Bank's capital stock and surplus. The capital stock and surplus at December 31, 1995 was $5 billion. Dividends payable by the Bank to the Parent without the express approval of the Office of the Comptroller of the Currency (OCC) are limited to the Bank's retained net profits for the preceding two calendar years plus retained net profits up to the date of any dividend declaration in the current calendar year. Retained net profits are defined by the OCC as net income, less dividends declared during the period, both of which are based on regulatory accounting principles. Based on this definition, the Bank declared dividends in 1995 and 1994 of $184 million in excess of its net income of $2,437 million for those years. Therefore, before it can declare dividends in 1996 without the approval of the OCC, the Bank must have net income of $184 million plus an amount equal to or greater than the dividends declared in 1996. With the approval of the OCC, the Bank declared a first quarter 1996 dividend of $310 million. Dividends declared by the Bank in 1995, 1994 and 1993 were $1,620 million (including a $489 million deemed dividend), $1,001 million and none, respectively. The Company's other banking subsidiaries are subject to the same restrictions as the Bank. However, any such restrictions have not had a material impact on the banking subsidiaries or the Company. 42 3 INVESTMENT SECURITIES - -------------------------------------------------------------------------------- The following table provides the major components of investment securities at fair value and at cost:
- ------------------------------------------------------------------------------------------------------------------------------------ (in millions) December 31, --------------------------------------------------------------------------------------------------------- 1995 1994 1993 ----------------------------------------- ---------------------------------------- ----------------- COST ESTIMATED ESTIMATED ESTIMATED Cost Estimated Estimated Estimated Cost Estimated UNREALIZED UNREALIZED FAIR unrealized unrealized fair fair GROSS GROSS VALUE gross gross value value GAINS LOSSES gains losses AVAILABLE-FOR-SALE SECURITIES AT FAIR VALUE: U.S. Treasury securities $1,347 $13 $ 3 $1,357 $ 372 $ - $ 10 $ 362 $ - $ - Securities of U.S. government agencies and corporations (1) 5,218 35 30 5,223 1,476 - 96 1,380 1,747 1,749 Private collateralized mortgage obligations (2) 2,121 9 8 2,122 1,290 1 113 1,178 1,340 1,334 Other 169 12 - 181 24 14 - 38 31 48 ------ --- --- ------ ------ --- ---- ------ ------ ------ Total debt securities 8,855 69 41 8,883 3,162 15 219 2,958 3,118 3,131 Marketable equity securities 18 19 - 37 16 17 2 31 17 40 ------ --- --- ------ ------ --- ---- ------ ------ ------ Total $8,873 $88 $41 $8,920 $3,178 $32 $221 $2,989 $3,135 $3,171 ------ --- --- ------ ------ --- ---- ------ ------ ------ ------ --- --- ------ ------ --- ---- ------ ------ ------ HELD-TO-MATURITY SECURITIES AT COST: U.S. Treasury securities $ - $ - $ - $ - $1,772 $ - $ 52 $1,720 $2,365 $2,383 Securities of U.S. government agencies and corporations (1) - - - - 5,394 - 293 5,101 6,570 6,644 Private collateralized mortgage obligations (2) - - - - 1,306 - 85 1,221 815 813 Other - - - - 147 - 4 143 137 138 ------ --- --- ------ ------ --- ---- ------ ------ ------ Total $ - $ - $ - $ - $8,619 $ - $434 $8,185 $9,887 $9,978 ------ --- --- ------ ------ --- ---- ------ ------ ------ ------ --- --- ------ ------ --- ---- ------ ------ ------ - ------------------------------------------------------------------------------------------------------------------------------------
(1) All securities of U.S. government agencies and corporations are mortgage- backed securities. (2) Substantially all private collateralized mortgage obligations are AAA-rated bonds collateralized by 1-4 family residential first mortgages. In November 1995, the Financial Accounting Standards Board (FASB) permitted a one-time opportunity for companies to reassess by December 31, 1995 their classification of securities under Statement of Financial Accounting Standards No. 115 (FAS 115), Accounting for Certain Investments in Debt and Equity Securities. On November 30, 1995, the Company reclassified all of its held-to- maturity securities at cost portfolio of $6.5 billion to the available-for-sale securities at fair value portfolio. A related unrealized net after-tax loss of $6 million was recorded in stockholders' equity. Proceeds from the sales of debt securities in the available-for-sale portfolio totaled $674 million in 1995, resulting in a $13 million loss. These securities were sold for asset/ liability management purposes. Additionally, a loss of $4 million was realized resulting from a write-down of certain equity securities due to other-than-temporary impairment. Proceeds from the sales of debt securities in the available-for-sale portfolio totaled $13 million in 1994, resulting in a $5 million gain. A loss of $1 million was realized in 1994 resulting from a write-down due to other-than- temporary impairment in the fair value of certain debt securities. Proceeds from the sales of marketable equity securities in the available-for-sale portfolio totaled $5 million in 1994, resulting in a $4 million gain. Proceeds from the sales of debt securities in the available-for-sale portfolio totaled $284 thousand in 1993, resulting in a $10 thousand gain. 43 The following table provides the remaining contractual principal maturities and yields (taxable-equivalent basis) of debt securities within the investment portfolio. The remaining contractual principal maturities for mortgage-backed securities were allocated assuming no prepayments. Expected remaining maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without penalties. (See the Investment Securities section of the Financial Review for expected remaining maturities and yields.)
- -------------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, 1995 ------------------------------------------------------------------------------------------------------ Total Weighted Weighted Remaining contractual principal maturity amount average average ----------------------------------------------------------------------- yield remaining Within one year After one year After five years After ten years maturing (in through five years through ten years yrs.-mos.) --------------- ------------------ ----------------- --------------- Amount Yield Amount Yield Amount Yield Amount Yield AVAILABLE-FOR-SALE SECURITIES (1): U.S. Treasury securities $1,347 5.51% 1-4 $ 549 5.18% $ 798 5.74% $ - -% $ - -% Securities of U.S. government agencies and corporations 5,218 6.03 5-1 356 5.86 2,617 5.93 1,824 6.07 421 6.66 Private collateralized mortgage obligations 2,121 6.26 7-4 115 5.93 718 6.10 703 6.25 585 6.53 Other 169 8.58 2-5 50 5.99 115 9.81 2 5.48 2 6.37 ------ ------ ------ ------ ------ TOTAL COST OF DEBT SECURITIES $8,855 6.06% 5-0 $1,070 5.52% $4,248 6.03% $2,529 6.12% $1,008 6.58% ------ ---- --- ------ ---- ------ ---- ------ ---- ------ ---- ------ ---- --- ------ ---- ------ ---- ------ ---- ------ ---- ESTIMATED FAIR VALUE $8,883 $1,070 $4,272 $2,529 $1,012 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ - --------------------------------------------------------------------------------------------------------------------------------
(1) The weighted average yield is computed using the amortized cost of available-for-sale investment securities carried at fair value. Dividend income of none, none and $3 million in 1995, 1994 and 1993, respectively, is included in interest income on investment securities in the Consolidated Statement of Income. Substantially all income on investment securities is taxable. The cost of investment securities pledged to secure trust and public deposits and for other purposes as required or permitted by law was $4.8 billion, $3.1 billion and $2.2 billion at December 31, 1995, 1994 and 1993, respectively. 4 LOANS AND ALLOWANCE FOR LOAN LOSSES - -------------------------------------------------------------------------------- A summary of the major categories of loans outstanding and related unfunded commitments to extend credit is shown in the table on the right. At December 31, 1995 and 1994, the commercial loan category and related commitments did not have an industry concentration that exceeded 10% of total loans and commitments. Tables 9 and 10 in the Loan Portfolio section of the Financial Review summarize real estate mortgage (excluding 1-4 family first mortgage loans) and real estate construction loans by California region and other states by project type. Substantially all of the Company's real estate 1-4 family first mortgages and most of the consumer loans are with customers located in California. In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management determines a requisite amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company has the same collateral policy for loans whether they are funded immediately or on a delayed basis (commitment). A commitment to extend credit is a legally binding agreement to lend funds to a customer and is usually for a specified interest rate and purpose. These commitments have fixed 44
- -------------------------------------------------------------------------------------------------------- (in millions) December 31, ------------------------------------------------------ 1995 1994 ------------------------ ------------------------ OUTSTANDING COMMITMENTS Outstanding Commitments TO EXTEND to extend CREDIT credit Commercial (1) $ 9,750 $ 8,368 $ 8,162 $ 6,551 Real estate 1-4 family first mortgage (2) 4,448 723 9,050 651 Other real estate mortgage 8,263 563 8,079 522 Real estate construction 1,366 859 1,013 731 Consumer: Real estate 1-4 family junior lien mortgage 3,358 3,053 3,332 2,952 Credit card 4,001 8,644 3,125 7,780 Other revolving credit and monthly payment 2,576 2,035 2,229 1,752 ------- ------- ------- ------- Total consumer 9,935 13,732 8,686 12,484 Lease financing 1,789 - 1,330 - Foreign 31 - 27 - ------- ------- ------- ------- Total loans (3) $35,582 $24,245 $36,347 $20,939 ------- ------- ------- ------- ------- ------- ------- ------- - --------------------------------------------------------------------------------------------------------
(1) Outstanding balances include loans to real estate developers of $700 million and $525 million at December 31, 1995 and 1994, respectively. (2) Substantially all the commitments to extend credit relate to those equity lines that are effectively first mortgages. (3) Outstanding loan balances at December 31, 1995 and 1994 are net of unearned income, including net deferred loan fees, of $463 million and $361 million, respectively. expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity needs or the credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit shown in the table above because a significant portion of these commitments is expected to expire without being drawn upon. Certain commitments are subject to a loan agreement containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans. In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate; by monitoring the size and maturity structure of these portfolios; and by applying the same credit standards maintained for all of its credit activities. The credit risk associated with these commitments is considered in management's determination of the allowance for loan losses. Standby letters of credit totaled $921 million and $836 million at December 31, 1995 and 1994, respectively. Standby letters of credit are issued on behalf of customers in connection with contracts between the customers and third parties. Under a standby letter of credit, the Company assures that the third party will receive specified funds if a customer fails to meet his contractual obligation. The liquidity risk to the Company arises from its obligation to make payment in the event of a customer's contractual default. The credit risk involved in issuing letters of credit and the Company's management of that credit risk is the same as for loans and is considered in management's determination of the allowance for loan losses. At December 31, 1995 and 1994, standby letters of credit included approximately $159 million and $123 million, respectively, of participations purchased, net of approximately $90 million and $81 million, respectively, of participations sold. Approximately 57% of the Company's year-end 1995 standby letters of credit had maturities of one year or less and substantially all had maturities of seven years or less. Included in standby letters of credit are those that back financial instruments (financial guarantees). The Company had issued or purchased participations in financial guarantees of approximately $450 million and $427 million at December 31, 1995 and 1994, respectively. The Company also had commitments for commercial and similar letters of credit of $209 million and $125 million at December 31, 1995 and 1994, respectively. Substantially all fees received from the issuance of financial guarantees are deferred and amortized on a straight-line basis over the term of the guarantee. Losses on standby letters of credit and other similar letters of credit have been immaterial. The Company considers the allowance for loan losses of $1,794 million adequate to cover losses inherent in loans, loan commitments and standby letters of credit at December 31, 1995. However, no assurance can be given that the Company will not, in any particular period, sustain loan losses that are sizable in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of the factors then prevailing, including economic conditions 45 and the Company's ongoing examination process and that of its regulators, will not require significant increases in the allowance for loan losses. Loans held for sale are included in their respective loan categories and recorded at the lower of cost or market. At December 31, 1995 and 1994, loans held for sale were $640 million and $324 million, respectively. Changes in the allowance for loan losses were as follows:
- ----------------------------------------------------------------- (in millions) Year ended December 31, -------------------------- 1995 1994 1993 BALANCE, BEGINNING OF YEAR $2,082 $2,122 $2,067 Provision for loan losses - 200 550 Loan charge-offs: Commercial (1) (55) (54) (110) Real estate 1-4 family first mortgage (13) (18) (25) Other real estate mortgage (52) (66) (197) Real estate construction (10) (19) (68) Consumer: Real estate 1-4 family junior lien mortgage (16) (24) (28) Credit card (208) (138) (177) Other revolving credit and monthly payment (53) (36) (41) ------ ------ ------ Total consumer (277) (198) (246) Lease financing (15) (14) (18) ------ ------ ------ Total loan charge-offs (422) (369) (664) ------ ------ ------ Loan recoveries: Commercial (2) 38 37 71 Real estate 1-4 family first mortgage 3 6 2 Other real estate mortgage 53 22 47 Real estate construction 1 15 4 Consumer: Real estate 1-4 family junior lien mortgage 3 4 3 Credit card 13 18 21 Other revolving credit and monthly payment 12 11 12 ------ ------ ------ Total consumer 28 33 36 Lease financing 11 16 9 ------ ------ ------ Total loan recoveries 134 129 169 ------ ------ ------ Total net loan charge-offs (288) (240) (495) ------ ------ ------ BALANCE, END OF YEAR $1,794 $2,082 $2,122 ------ ------ ------ ------ ------ ------ Total net loan charge-offs as a percentage of average total loans .83% .70% 1.44% ------ ------ ------ ------ ------ ------ Allowance as a percentage of total loans 5.04% 5.73% 6.41% ------ ------ ------ ------ ------ ------ - -----------------------------------------------------------------
(1) Includes charge-offs of loans to real estate developers of none, $14 million and $21 million in 1995, 1994 and 1993, respectively. (2) Includes recoveries from real estate developers of $3 million, $2 million and $3 million in 1995, 1994 and 1993, respectively. Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 (FAS 114), Accounting by Creditors for Impairment of a Loan, as amended by FAS 118 (collectively referred to as FAS 114). FAS 114 addresses the accounting treatment of certain impaired loans and amends FASB Statement Nos. 5 and 15. However, these statements do not address the overall adequacy of the allowance for loan losses and do not apply to large groups of smaller-balance homogeneous loans unless they have been involved in a restructuring. These statements can only be applied prospectively. The table below shows the recorded investment in impaired loans by loan category at December 31, 1995:
- --------------------------------------------------------- (in millions) December 31, 1995 Commercial $ 77 Real estate 1-4 family first mortgage 2 Other real estate mortgage (1) 330 Real estate construction 46 Other 3 ---- Total (2) $458 ---- ---- - ---------------------------------------------------------
(1) Includes $50 million of accruing loans purchased at a steep discount whose contractual terms were modified after acquisition. The modified terms did not affect the book balance nor the yields expected at the date of purchase. (2) Includes $22 million of impaired loans with a related FAS 114 allowance of $3 million at December 31, 1995. Of the recorded investment in impaired loans of $458 million at December 31, 1995, the Company measured the impairment on $374 million using the collateral value method. Generally under this method, a direct charge-off is taken to reduce the recorded investment to the value of the underlying collateral. For $66 million of impaired loans, impairment was measured using the discounted cash flow method. The remaining $18 million of impaired loans were aggregated for the purpose of measuring impairment using historical loss factors as the means of measurement. The average recorded investment in impaired loans during 1995 was $472 million. Total interest income recognized on impaired loans during 1995 was $15 million, substantially all 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. 46 5 PREMISES, EQUIPMENT, LEASE COMMITMENTS AND OTHER ASSETS - -------------------------------------------------------------------------------- The following table presents comparative data for premises and equipment:
- ------------------------------------------------------------------ (in millions) December 31, ------------------- 1995 1994 Land $ 96 $ 144 Buildings 520 531 Furniture and equipment 730 608 Leasehold improvements 270 258 Premises leased under capital leases 66 68 ------ ------ Total 1,682 1,609 Less accumulated depreciation and amortization 820 723 ------ ------ Net book value $ 862 $ 886 ------ ------ ------ ------ - ------------------------------------------------------------------
Depreciation and amortization expense was $154 million, $142 million and $140 million in 1995, 1994 and 1993, respectively. Losses on disposition of premises and equipment, recorded in noninterest income, were $31 million, $12 million and $19 million in 1995, 1994 and 1993, respectively. In addition, also recorded in noninterest income were losses from disposition of operations primarily related to the disposition of premises associated with scheduled branch closures of $89 million, $5 million and $28 million in 1995, 1994 and 1993, respectively. The Company is obligated under a number of noncancelable operating leases for premises (including vacant premises) and equipment with terms up to 25 years, many of which provide for periodic adjustment of rentals based on changes in various economic indicators. The following table shows future minimum payments under noncancelable operating leases and capital leases with terms in excess of one year as of December 31, 1995:
- ---------------------------------------------------------------------- (in millions) Operating leases Capital leases Year ended December 31, 1996 $145 $ 10 1997 134 9 1998 117 9 1999 104 9 2000 82 8 Thereafter 381 72 ---- ---- Total minimum lease payments $963 117 ---- ---- Executory costs (4) Amounts representing interest (61) ---- Present value of net minimum lease payments $ 52 ---- ---- - ----------------------------------------------------------------------
Total future minimum payments to be received under noncancelable operating subleases at December 31, 1995 were approximately $205 million; these payments are not reflected in the preceding table. Rental expense, net of rental income, for all operating leases was $111 million, $97 million and $99 million in 1995, 1994 and 1993, respectively. The components of other assets at December 31, 1995 and 1994 were as follows:
- ------------------------------------------------------------------ (in millions) December 31, ------------------- 1995 1994 Net deferred tax asset (1) $ 854 $ 971 Nonmarketable equity investments (2) 428 407 Certain identifiable intangible assets 386 388 Foreclosed assets 186 272 Other 552 522 ------ ------ Total other assets $2,406 $2,560 ------ ------ ------ ------ - ------------------------------------------------------------------
(1) See Note 10 to the Financial Statements. (2) Commitments related to nonmarketable equity investments totaled $159 million and $174 million at December 31, 1995 and 1994, respectively. Income from nonmarketable equity investments accounted for using the cost method was $58 million, $31 million and $42 million in 1995, 1994 and 1993, respectively. The largest identifiable intangible asset was core deposit intangibles of $166 million and $208 million at December 31, 1995 and 1994, respectively. Amortization expense for core deposit intangibles was $42 million, $49 million and $61 million in 1995, 1994 and 1993, respectively. Total amortization expense for certain identifiable intangible assets recorded in noninterest expense was $54 million, $62 million and $77 million in 1995, 1994 and 1993, respectively. Foreclosed assets consist of assets (substantially real estate) acquired in satisfaction of troubled debt and are carried at the lower of fair value (less estimated costs to sell) or cost. Foreclosed assets expense, including disposition gains and losses, was $1 million, none and $60 million in 1995, 1994 and 1993, respectively. 47 On October 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 122 (FAS 122), Accounting for Mortgage Servicing Rights. This Statement amends FAS 65, Accounting for Certain Mortgage Banking Activities, to require that, for mortgage loans originated for sale with servicing rights retained, the right to service those loans be recognized as a separate asset, similar to purchased mortgage servicing rights. This Statement also requires that capitalized mortgage servicing rights be assessed for impairment based on the fair value of those rights. Mortgage servicing rights purchased during 1995, 1994 and 1993 were $95 million, $89 million and none, respectively. No originated mortgage servicing rights were capitalized in 1995. Purchased mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income. Amortization expense, recorded in noninterest income, totaled $39 million, $8 million and $16 million for 1995, 1994 and 1993, respectively. Purchased mortgage servicing rights included in certain identifiable intangible assets amounted to $152 million, $96 million and $15 million at December 31, 1995, 1994 and 1993, respectively. For purposes of evaluating and measuring impairment for purchased mortgage servicing rights, the Company stratified these rights based on the type and interest rate of the underlying loans. Impairment is measured as the amount by which the purchased mortgage servicing rights for a stratum exceed their fair value. Fair value of the purchased mortgage servicing rights is determined based on valuation techniques utilizing discounted cash flows incorporating assumptions that market participants would use and totaled $153 million at December 31, 1995. The valuations include the results of hedges used to reduce the Company's exposure to movements in the fair market value of the purchased mortgage servicing rights. Impairment, net of hedge results, is recognized through a valuation allowance for each individual stratum. At December 31, 1995, the balance of the valuation allowances totaled $352 thousand. Certain mortgage servicing rights owned by the Company have not been capitalized as they were acquired by origination prior to the adoption of FAS 122. These rights were not included in the valuation. The Company adopted on December 31, 1995 Statement of Financial Accounting Standards No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This Statement requires that long- lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Additionally, FAS 121 requires that long-lived assets to be disposed of be reported at the lower of their carrying amount or fair value, less costs to sell. The impact of adopting FAS 121 was immaterial. Independent of FAS 121, the Company periodically reviews its space requirements. During the course of 1995, such reviews resulted in two properties being designated as held for sale. Regardless of FAS 121, assets designated as held for sale are carried at the lower of cost or fair value, less costs to sell. Accordingly, the Company recorded a $21 million write-down in 1995 in noninterest income related to these properties. These properties had a carrying value of $15 million at December 31, 1995. 48 6 SENIOR AND SUBORDINATED DEBT - -------------------------------------------------------------------------------- The following is a summary of senior and subordinated debt (reflecting unamortized debt discounts and premiums, where applicable) owed by the Parent and its subsidiaries:
- -------------------------------------------------------------------------------------------------------------- (in millions) Maturity Interest December 31, date rate ---------------- 1995 1994 SENIOR Parent: Floating-Rate Medium-Term Notes 1995-99 Various $1,478 $ 958 Notes (1) 1996 8.2% 200 200 Medium-Term Notes (1) 1995-96 4.7-9.1% 25 126 Notes payable by subsidiaries 28 54 Obligations of subsidiaries under capital leases (Note 5) 52 55 ------ ------ Total senior debt 1,783 1,393 ------ ------ SUBORDINATED Parent: German Mark Floating-Rate Notes (DM 300 face amount) (2) 1995 Various - 194 Floating-Rate Notes (3)(4) 1997 Various 101 101 Floating-Rate Notes (3)(5)(6) 1997 Various 100 100 Floating-Rate Capital Notes (3)(5)(7) 1998 Various 200 200 Floating-Rate Notes (3)(5) 2000 Various 118 118 Notes 2002 8.75% 199 199 Notes 2002 8.375% 149 149 Notes 2003 6.875% 150 150 Notes 2003 6.125% 249 249 ------ ------ Total subordinated debt 1,266 1,460 ------ ------ Total senior and subordinated debt $3,049 $2,853 ------ ------ ------ ------ - --------------------------------------------------------------------------------------------------------------
(1) The Company entered into interest rate swap agreements for substantially all of these Notes, whereby the Company receives fixed-rate interest payments approximately equal to interest on the Notes and makes interest payments based on an average three-month LIBOR rate. (2) These Notes were subject to a maximum interest rate of 8%. The Company sold this interest rate cap under an agreement whereby it received fixed payments in German marks and made payments based on the amount by which a floating rate exceeded 8%. The Company also entered into a swap agreement whereby the Company received German marks approximately equal to principal and interest on the Notes and made payments in U.S. dollars. The transaction amount at the date of issue and swap was $118 million. The difference of $76 million at December 31, 1994 was due to the foreign currency transaction adjustment. (3) Redeemable in whole or in part, at par. (4) Subject to a maximum interest rate of 13% due to the purchase of an interest rate cap. (5) May be redeemed in whole, at par, at any time in the event withholding taxes are imposed by the United States. (6) Subject to a maximum interest rate of 13%. (7) Mandatory Equity Notes. At December 31, 1995, the principal payments, including sinking fund payments, on senior and subordinated debt are due as follows:
- -------------------------------------------------------- (in millions) Parent Company 1996 $1,153 $1,158 1997 701 705 1998 200 205 1999 50 55 2000 118 122 Thereafter 747 804 ------ ------ Total $2,969 $3,049 ------ ------ ------ ------ - --------------------------------------------------------
49 The interest rates on floating-rate notes are determined periodically by formulas based on certain money market rates, subject, on certain notes, to minimum or maximum interest rates. The Company's mandatory convertible debt, which is identified by note (7) to the table on the preceding page, qualifies as Tier 2 capital but is subject to discounting and note fund restrictions under the risk-based capital rules. The terms of the $200 million of the Mandatory Equity Notes, due in 1998, require the Company to sell or exchange with the noteholder the Company's common stock, perpetual preferred stock or other capital securities at maturity or earlier redemption of the notes. At December 31, 1995, $180 million of stockholders' equity had been designated for the retirement or redemption of those notes. Certain of the agreements under which debt has been issued contain provisions that may limit the merger or sale of the Bank and the issuance of its capital stock or convertible securities. The Company was in compliance with the provisions of the borrowing agreements at December 31, 1995. 7 PREFERRED STOCK - -------------------------------------------------------------------------------- Of the 25,000,000 shares authorized, there were 2,327,500 shares of preferred stock issued and outstanding at December 31, 1995 and 1994. All preferred shares rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. The following is a summary of Preferred Stock (Adjustable and Fixed):
- --------------------------------------------------------------------------------------------------------------------------------- Shares issued Carrying amount Adjustable Dividends declared and outstanding (in millions) dividend rate (in millions) -------------------- ------------------ ---------------- ------------------------ December 31, December 31, Minimum Maximum Year ended December 31, -------------------- ------------------ ------------------------ 1995 1994 1995 1994 1995 1994 1993 Adjustable-Rate Cumulative, Series A - - $ - $ - 6.0% 12.0% $ - $ 2 $ 9 (Liquidation preference $50) (1) Adjustable-Rate Cumulative, Series B 1,500,000 1,500,000 75 75 5.5 10.5 5 4 4 (Liquidation preference $50) 9% Cumulative, Series C 477,500 477,500 238 238 - - 21 21 21 (Liquidation preference $500) 8 7/8% Cumulative, Series D 350,000 350,000 176 176 - - 16 16 16 (Liquidation preference $500) --------- --------- ---- ---- --- --- --- Total 2,327,500 2,327,500 $489 $489 $42 $43 $50 --------- --------- ---- ---- --- --- --- --------- --------- ---- ---- --- --- --- - ---------------------------------------------------------------------------------------------------------------------------------
(1) In March 1994, the Company redeemed all $150 million of its Series A preferred stock. ADJUSTABLE-RATE CUMULATIVE PREFERRED STOCK, SERIES A In March 1994, the Company redeemed all $150 million of its Series A preferred stock at a price of $50 per share plus accrued and unpaid dividends. Dividends were cumulative and payable on the last day of each calendar quarter. For each quarterly period, the dividend rate was 2.75% less than the highest of the three-month Treasury bill discount rate, 10-year constant maturity Treasury security yield or 20-year constant maturity Treasury bond yield, but limited to a minimum of 6% and a maximum of 12% per year. The average dividend rate was 6.1% (annualized) and 6.0% in 1994 and 1993, respectively. 50 ADJUSTABLE-RATE CUMULATIVE PREFERRED STOCK, SERIES B These shares are redeemable at the option of the Company through May 14, 1996 at a price of $51.50 per share and, thereafter, at $50 per share plus accrued and unpaid dividends. Dividends are cumulative and payable quarterly on the 15th of February, May, August and November. For each quarterly period, the dividend rate is 76% of the highest of the three-month Treasury bill discount rate, 10-year constant maturity Treasury security yield or 20-year constant maturity Treasury bond yield, but limited to a minimum of 5.5% and a maximum of 10.5% per year. The average dividend rate was 5.8%, 5.7% and 5.6% during 1995, 1994 and 1993, respectively. 9% CUMULATIVE PREFERRED STOCK, SERIES C This class of preferred stock has been issued as depositary shares, each representing one-twentieth of a share of the Series C preferred stock. These shares are redeemable at the option of the Company on and after October 24, 1996 at a price of $500 per share plus accrued and unpaid dividends. Dividends of $11.25 per share (9% annualized rate) are cumulative and payable on the last day of each calendar quarter. 8 7/8% CUMULATIVE PREFERRED STOCK, SERIES D This class of preferred stock has been issued as depositary shares, each representing one-twentieth of a share of the Series D preferred stock. These shares are redeemable at the option of the Company on and after March 5, 1997 at a price of $500 per share plus accrued and unpaid dividends. Dividends of $11.09 per share (8 7/8% annualized rate) are cumulative and payable on the last day of each calendar quarter. 8 COMMON STOCK, ADDITIONAL PAID-IN CAPITAL AND STOCK PLANS - -------------------------------------------------------------------------------- COMMON STOCK ................................................................................ The following table summarizes common stock reserved, issued, outstanding and authorized as of December 31, 1995: - ---------------------------------------------------------------------- Number of shares Tax Advantage and Retirement Plan 2,718,226 Long-Term and Equity Incentive Plans 4,021,043 Dividend Reinvestment and Common Stock Purchase Plan 4,094,173 Employee Stock Purchase Plan 542,358 Director Option Plans 165,099 Stock Bonus Plan 14,756 ----------- Total shares reserved 11,555,655 Shares issued and outstanding 46,973,319 Shares not reserved 91,471,026 ----------- Total shares authorized 150,000,000 ----------- ----------- - --------------------------------------------------------------------- Under the terms of mandatory convertible debt, the Company must exchange with the noteholder, or sell, various capital securities of the Company as described in Note 6 to the Financial Statements. ADDITIONAL PAID-IN CAPITAL ................................................................................ Repurchases made in connection with the Company's stock repurchase program result in a reduction of the Additional Paid-In Capital (APIC) account equal to the amount paid in repurchasing the stock, less the $5 per share representing par value that is charged to the Common Stock account. In order to absorb future repurchases of common stock, the Company transferred $1 billion from Retained Earnings to APIC in each of the years 1995 and 1994. DIRECTOR OPTION PLANS ................................................................................ The 1990 Director Option Plan (1990 DOP) provides for annual grants of options to purchase 500 shares of common stock to each non-employee director elected or re-elected at the annual meeting of shareholders. Non-employee directors who join the Board between annual meetings receive options on a prorated basis. The options may be exercised until the tenth anniversary of the date of grant; they become exercisable after one year at an exercise price equal to the fair market value of the stock at the time of grant. The maximum total number of shares of common stock issuable under the 1990 DOP is 100,000 in the aggregate and 20,000 in any one 51 calendar year. At December 31, 1995, 28,652 options were outstanding under this plan, of which 22,526 options were exercisable. During 1995, 2,000 options were exercised. No compensation expense was recorded for the stock options under the 1990 DOP, as the exercise price was equal to the quoted market price of the stock at the time of the grant. The 1987 Director Option Plan (1987 DOP) allows participating directors to file an irrevocable election to receive stock options in lieu of their retainer to be earned in any one calendar year. The options become exercisable after one year and may be exercised until the tenth anniversary of the date of grant. Options granted prior to 1995 have an exercise price of $1 per share. Commencing in 1995, options granted have an exercise price equal to 50 percent of the quoted market price of the stock at the time of grant. At December 31, 1995, 4,919 options were outstanding under this plan, of which 3,781 options were exercisable. During 1995, no options were exercised. Compensation expense for the 1987 DOP is measured as the difference between the quoted market price of the stock at the date of grant less the option exercise price. This expense is accrued as retainers are earned. EMPLOYEE STOCK PLANS ................................................................................ LONG-TERM AND EQUITY INCENTIVE PLANS The Wells Fargo & Company Long-Term Incentive Plan (LTIP) became effective upon the approval of shareholders in April 1994. The LTIP supersedes the 1990 Equity Incentive Plan (1990 EIP), which is itself the successor to the original 1982 Equity Incentive Plan (1982 EIP). No additional awards or grants will be issued under the 1990 or 1982 EIPs. While similar to the existing 1990 EIP, in that the LTIP includes provisions for the same kinds of awards that could have been made under the 1990 EIP, the LTIP varies from the 1990 EIP in certain respects. The following are certain of the more important differences. The LTIP provides for awards of restricted shares in addition to the stock options, stock appreciation rights and share rights that could have been awarded under the 1990 EIP. Stock appreciation rights awarded under the LTIP need not be in tandem with stock options, as was the case under the 1990 EIP, but may stand alone. Employee stock options granted under the LTIP can be granted with exercise prices at or, unlike the 1990 EIP, above the current value of the common stock and, except for incentive stock options, can have terms longer than 10 years, the maximum provided in the 1990 EIP. Employee stock options generally become fully exercisable over 3 years from the grant date. Upon termination of employment, the option period is reduced or the options are canceled. The LTIP also provides for grants to recipients not limited to present key employees of the Company. The total number of shares of common stock issuable under the LTIP is 2,500,000 in the aggregate (excluding outstanding awards under the 1990 and 1982 EIPs) and 800,000 in any one calendar year. No compensation expense was recorded for the stock options under the LTIP (or 1990 and 1982 EIPs), as the exercise price was equal to the quoted market price of the stock at the time of grant. Transactions involving options of the LTIP and EIPs are summarized as follows:
- ------------------------------------------------------------------------------------------------------------------------------- Number of shares ------------------------------------------------------------------------------------------- LTIP 1990 EIP 1982 EIP ------------------------------- ------------------------- --------------------------- 1995 1994 1995 1994 1995 1994 Options outstanding, beginning of year 655,180 - 710,935 1,223,360 563,453 784,040 Granted 284,700 284,000 - - - - Transferred (1) - 400,400 - (400,400) - - Canceled (8,500) (28,500) (2,330) (28,665) - - Exercised (66,870) (720) (193,510) (83,360) (278,115) (220,587) ---------- ---------- -------- -------- -------- -------- Options outstanding, end of year 864,510 655,180 515,095 710,935 285,338 563,453 ---------- ---------- -------- -------- -------- -------- ---------- ---------- -------- -------- -------- -------- Options exercisable, end of year 287,875 371,180 515,095 710,935 285,338 563,453 Shares available for grant, end of year 1,911,725 2,219,872 - - - - Price range of options: Outstanding $107.25-211.38 $107.25-146.75 $68.75-78.63 $68.75-79.38 $33.50-71.00 $33.50-71.00 Exercised $ 110.75 $ 110.75 $68.75-79.38 $68.75-78.63 $33.50-71.00 $29.56-71.00 - -------------------------------------------------------------------------------------------------------------------------------
(1) In accordance with the terms of the LTIP, the 400,400 options that were previously granted in 1993 under the 1990 EIP were assumed under the LTIP. 52 Loans may be made, at the discretion of the Company, to assist the participants of the LTIP and the EIPs in the acquisition of shares under options. The total of such interest-bearing loans were $5.8 million and $6.0 million at December 31, 1995 and 1994, respectively. The holders of restricted share rights that were granted prior to 1991 are entitled at no cost to 30% of the shares of common stock represented by the restricted share rights held three years after the restricted share rights were granted, an additional 30% after four years and the final 40% after five years. The holders of the restricted share rights granted in 1991 or later are entitled at no cost to the shares of common stock represented by the restricted share rights held by each person five years after the restricted share rights were granted. Upon receipt of the restricted share rights, holders are entitled to receive quarterly cash payments equal to the cash dividends that would be paid on the number of common shares equal to the number of restricted share rights. Except in limited circumstances, restricted share rights are canceled upon termination of employment. As of December 31, 1995, the LTIP, the 1990 EIP and the 1982 EIP had 117,918, 306,278 and 20,179 restricted share rights outstanding, respectively, to 867,740 and 65 employees or their beneficiaries, respectively. The compensation expense for the restricted share rights equals the market price at the time of grant and is accrued on a straight-line basis over the vesting period of three to five years. The amount of expense accrued for the restricted share rights under the LTIP, 1990 and 1982 EIPs was $8 million, $8 million and $7 million in 1995, 1994 and 1993, respectively. EMPLOYEE STOCK PURCHASE PLAN Options to purchase up to 1,100,000 shares of common stock may be granted under the Employee Stock Purchase Plan (ESPP). Employees of the Company with at least one year of service, except hourly employees, are eligible to participate. Certain highly compensated employees may be excluded from participation at the discretion of the Management Development and Compensation Committee of the Board of Directors. The plan provides for an option price of the lower of market value at grant date or 85% to 100% (as determined by the Board of Directors for each option period) of the market value at the end of the one-year option period. For the current option period ending July 31, 1996, the Board approved a closing option price of 85% of the market value. The plan is noncompensatory and results in no expense to the Company. Transactions involving the ESPP are summarized as follows: - ------------------------------------------------------------------------ Number of options ------------------ 1995 1994 Options outstanding, beginning of year 143,404 160,476 Granted 143,072 159,515 Canceled (1) (73,359) (83,734) Exercised (at $153.38 in 1995 and $114.73 in 1994) (83,137) (92,853) ------- ------- Options outstanding, end of year 129,980 143,404 ------- ------- ------- ------- Options available for grant, end of year 412,378 482,091 ------- ------- ------- ------- - ------------------------------------------------------------------------ (1) At the beginning of the option period, participants are granted an additional 50% of options that are exercised only to the extent that the closing option price is sufficiently below the market value at grant date and based on the participant's level of participation. Since the closing option price was higher in 1995 and 1994, the additional option grants were canceled. These options represent a majority of the canceled options shown above. For information on employee stock ownership through the Tax Advantage and Retirement Plan, see Note 9. DIVIDEND REINVESTMENT PLAN The Dividend Reinvestment and Common Stock Purchase and Share Custody Plan allows holders of the Company's common stock to purchase additional shares either by reinvesting all or part of their dividends, or by making optional cash payments. Currently, up to $6,000 of dividends per quarter may be used to purchase shares at a 3% discount. Dividends in excess of $6,000 per quarter and between $150 and $2,000 per month in optional cash payments may be used to purchase shares at fair market value. Shares may also be held in custody under the Plan even without the reinvestment of dividends. During 1995 and 1994, 87,868 and 97,256 shares, respectively, were issued under the plan. In October 1995, the FASB issued FAS 123, Accounting for Stock-Based Compensation. This Statement establishes a new fair value based method for stock-based compensation plans which is effective January 1, 1996. A further discussion of FAS 123 is in the Noninterest Expense section of the Financial Review. 53 9 EMPLOYEE BENEFITS AND OTHER EXPENSES - -------------------------------------------------------------------------------- RETIREMENT PLAN ................................................................................ The Company's retirement plan is known as the Tax Advantage and Retirement Plan (TAP), a defined contribution plan. As part of TAP, the Company makes basic retirement contributions to employee retirement accounts. Effective July 1994, the Company increased its basic retirement contributions from 4% to 6% of the total of employee base salary plus payments from certain bonus plans (covered compensation). The Company also makes special transition contributions related to the termination of a prior defined benefit plan of the Company ranging from .5% to 5% of covered compensation for certain employees. The plan covers salaried employees with at least one year of service and contains a vesting schedule graduated from three to seven years of service. Prior to July 1994, the Company made supplemental retirement contributions of 2% of employee-covered compensation. All salaried employees with at least one year of service were eligible to receive these Company contributions, which vested immediately. Effective July 1994, the supplemental retirement contributions were discontinued, except for those contributions that are made to employees hired before January 1, 1992. Those employees will continue to receive the supplemental 2% contribution and the 4% basic retirement contributions until fully vested. Upon becoming 100% vested, the basic retirement contribution will increase to 6% of employee-covered compensation and the supplemental 2% contributions will end. Salaried employees who have at least one year of service are eligible to contribute to TAP up to 10% of their pretax covered compensation through salary deductions under Section 401(k) of the Internal Revenue Code, although a lower contribution limit may be applied to certain employees in order to maintain the qualified status of the plan. The Company makes matching contributions of up to 4% of an employee's covered compensation for those who have at least three years of service and elect to contribute under the plan. Effective July 1994, the Company began to partially match contributions by employees with at least one but less than three years of service. For such employees who elect to contribute under the plan, the Company matches 50% of each dollar on the first 4% of the employee's covered compensation. The Company's matching contributions are immediately vested and, similar to retirement contributions, are tax deductible by the Company. Employees direct the investment of their TAP funds and may elect to invest in the Company's common stock. Expenses related to TAP for the years ended December 31, 1995, 1994 and 1993 were $57 million, $56 million and $53 million, respectively. HEALTH CARE AND LIFE INSURANCE ................................................................................ The Company provides health care and life insurance benefits for certain active and retired employees. The Company reserves its right to terminate these benefits at any time. The health care benefits for active and retired employees are self-funded by the Company with the Point-of-Service Managed Care Plan or provided through health maintenance organizations (HMOs). The amount of subsidized health care coverage for employees who retired prior to January 1, 1993 is based upon their Medicare eligibility. The amount of subsidized health care coverage for employees who retire after December 31, 1992 is based upon their eligibility to retire as of January 1, 1993 and their years of service at the time of retirement. Active employees with an adjusted service date after September 30, 1992 are not eligible for subsidized health care coverage upon retirement. Employees with an adjusted service date after January 1, 1994 are not eligible for Company paid life insurance benefits. The Company recognized the cost of health care benefits for active eligible employees by expensing contributions totaling $37 million, $45 million and $49 million in 1995, 1994 and 1993, respectively. Life insurance benefits for active eligible employees are provided through an insurance company. The Company recognizes the cost of these benefits by expensing the annual insurance premiums, which were $2 million in 1995, 1994 and 1993. At December 31, 1995, the Company had approximately 15,800 active eligible employees and 5,600 retirees participating in these plans. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 (FAS 106), Employers' Accounting for Postretirement Benefits Other Than Pensions. This Statement changed the method of accounting for postretirement benefits other than pensions from a cash to an accrual basis. 54 Under FAS 106, the determination of the accrued liability requires a calculation of the accumulated postretirement benefit obligation (APBO). The APBO represents the actuarial present value of postretirement benefits other than pensions to be paid out in the future (e.g., health benefits to be paid for retirees) that have been earned as of the end of the year. The unrecognized APBO at the time of adoption of FAS 106 (transition obligation) of $142 million for postretirement health care benefits is being amortized over 20 years. The following table sets forth the net periodic cost for postretirement health care benefits for 1995 and 1994:
- ---------------------------------------------------------------------- (in millions) Year ended December 31, ---------------------- 1995 1994 Interest cost on APBO $ 8.5 $ 8.7 Amortization of transition obligation 7.1 7.1 Amortization of net gain (3.5) - Service cost (benefits attributed to service during the period) 1.1 1.0 ----- ----- Total $13.2 $16.8 ----- ----- ----- ----- - ----------------------------------------------------------------------
The following table sets forth the funded status for postretirement health care benefits and provides an analysis of the accrued postretirement benefit cost included in the Company's Consolidated Balance Sheet at December 31, 1995 and 1994.
- ---------------------------------------------------------------------- (in millions) December 31, ------------------ 1995 1994 APBO (1): Retirees $ 64.2 $ 69.7 Eligible active employees 11.9 14.6 Other active employees 18.7 18.5 ------ ------ 94.8 102.8 Plan assets at fair value - - ------ ------ APBO in excess of plan assets 94.8 102.8 Unrecognized net gain from past experience different from that assumed and from changes in assumptions 51.3 44.8 Unrecognized transition obligation (120.8) (127.8) ------ ------ Accrued postretirement benefit cost (included in other liabilities) $ 25.3 $ 19.8 ------- ------- ------- ------- - ----------------------------------------------------------------------
(1) Based on a discount rate of 6.98% and 8.55% in 1995 and 1994, respectively. For measurement purposes, a health care cost trend rate was used to recognize the effect of expected changes in future health care costs due to medical inflation, utilization changes, technological changes, regulatory requirements and Medicare cost shifting. Average annual increases of 5.5% for HMOs and 8.0% for all other types of coverage in the per capita cost of covered health care benefits were assumed for 1996. The rate for other coverage was assumed to decrease gradually to 5.5% in 2001 and remain at that level thereafter. Increasing the assumed health care trend by one percentage point in each year would increase the APBO as of December 31, 1995 by $3.2 million and the aggregate of the interest cost and service cost components of the net periodic cost for 1995 by $.1 million. The $6.5 million increase in the unrecognized net gain in 1995 was due to a decrease in the number of participants combined with a lower average per capita cost of health care coverage, which was partially offset by a decrease in the discount rate and amortization of the net gain. The Company also provides postretirement life insurance to certain existing retirees. The APBO and expenses related to these benefits were not material. OTHER EXPENSES ................................................................................ The following table shows expenses which exceeded 1% of total interest income and noninterest income and which are not otherwise shown separately in the financial statements or notes thereto.
- ---------------------------------------------------------------------- (in millions) Year ended December 31, ----------------------- 1995 1994 1993 Contract services $149 $101 $61 Advertising and promotion 73 65 59 Telecommunications 58 49 44 Operating losses (1) 45 62 52 - ----------------------------------------------------------------------
(1) Includes losses from litigation, fraud and other matters. 55 10 INCOME TAXES - -------------------------------------------------------------------------------- Total income taxes for the years ended December 31, 1995 and 1994 were recorded as follows:
- ---------------------------------------------------------------------- (in millions) Year ended December 31, ---------------------- 1995 1994 Income taxes applicable to income before income tax expense $745 $613 Goodwill for tax benefits related to acquired assets - (25) ---- ---- Subtotal 745 588 Stockholders' equity for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (24) (13) Stockholders' equity for tax effect of the change in net unrealized gain (loss) on investment securities 100 (95) ---- ---- Total income taxes $821 $480 ---- ---- ---- ---- - ----------------------------------------------------------------------
The following is a summary of the components of income tax expense (benefit) applicable to income before income taxes:
- ---------------------------------------------------------------------- (in millions) Year ended December 31, ----------------------- 1995 1994 1993 Current: Federal $521 $472 $ 445 State and local 207 146 113 ---- ---- ----- 728 618 558 ---- ---- ----- Deferred: Federal 23 (26) (125) State and local (6) 21 (7) ---- ---- ----- 17 (5) (132) ---- ---- ----- Total $745 $613 $ 426 ---- ---- ----- ---- ---- ----- - ----------------------------------------------------------------------
Amounts for the current year are based upon estimates and assumptions as of the date of this report and could vary significantly from amounts shown on the tax returns as filed. Accordingly, the variances from the amounts previously reported for 1994 are primarily as a result of adjustments to conform to tax returns as filed. The Company's income tax expense (benefit) related to investment securities transactions was $(7) million, $3 million and under $1 million for 1995, 1994 and 1993, respectively. The Company had net deferred tax assets of $854 million, $971 million and $862 million at December 31, 1995, 1994 and 1993, respectively. The tax effect of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 1995 and 1994 are presented below:
- ---------------------------------------------------------------------- (in millions) Year ended December 31, ---------------------- 1995 1994 DEFERRED TAX ASSETS Allowance for loan losses $ 711 $ 839 Net tax-deferred expenses 208 181 State tax expense 72 54 Certain identifiable intangibles 66 10 Foreclosed assets 39 51 Depreciation 25 5 Investments - 94 ------ ------ 1,121 1,234 Valuation allowance - (2) ------ ------ Total deferred tax assets, less valuation allowance 1,121 1,232 ------ ------ DEFERRED TAX LIABILITIES Leasing 257 248 Investments 6 - Other 4 13 ------ ------ Total deferred tax liabilities 267 261 ------ ------ NET DEFERRED TAX ASSET $ 854 $ 971 ------ ------ ------ ------ - ----------------------------------------------------------------------
56 The Company's $854 million and $971 million net deferred tax asset at December 31, 1995 and 1994, respectively, included a valuation allowance of none and $2 million, respectively. Substantially all of the Company's net deferred tax asset of $854 million at December 31, 1995 related to net expenses (the largest of which was the provision for loan losses) that have been reflected in the financial statements, but which will reduce future taxable income. At December 31, 1995, the Company did not have any net operating loss carryforwards. The Company estimates that approximately $741 million of the $854 million net deferred tax asset at December 31, 1995 could be realized by the recovery of previously paid federal taxes; however, the Company expects to actually realize the federal net deferred tax asset by claiming deductions against future taxable income. The balance of approximately $113 million relates to approximately $1.7 billion of net deductions that are expected to reduce future California taxable income (California tax law does not permit recovery of previously paid taxes). The Company's California taxable income has averaged approximately $1.3 billion for each of the last three years. The Company believes that it is more likely than not that it will have sufficient future California taxable income to fully utilize these deductions. The amount of the total deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced. The following is a reconciliation of the statutory federal income tax expense and rate to the effective income tax expense and rate:
- ------------------------------------------------------------------------------------------------------------------- (in millions) Year ended December 31, -------------------------------------------------------- 1995 1994 1993 --------------- --------------- ---------------- Amount % Amount % Amount % Statutory federal income tax expense and rate $622 35.0 % $509 35.0 % $363 35.0 % Change in tax rate resulting from: State and local taxes on income, net of federal income tax benefit 132 7.4 110 7.5 75 7.2 Amortization of certain intangibles not deductible for tax return purposes 14 .8 17 1.2 18 1.7 Adjustment to deferred tax assets and liabilities for enacted changes in tax rates and laws - - - - (22) (2.1) Other (23) (1.2) (23) (1.5) (8) (.8) ---- ---- ---- ---- ---- ---- Effective income tax expense and rate $745 42.0 % $613 42.2 % $426 41.0 % ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- - -------------------------------------------------------------------------------------------------------------------
The Company has not recognized a federal deferred tax liability of $36 million on $102 million of undistributed earnings of a foreign subsidiary because such earnings are indefinitely reinvested in the subsidiary and are not taxable under current law. A deferred tax liability would be recognized to the extent the Company changed its intent to not indefinitely reinvest a portion or all of such undistributed earnings. In addition, a current tax liability would be recognized if the Company recovered those undistributed earnings in a taxable manner, such as through the receipt of dividends or sale of the entity, or if the tax law changed. 57 11 PARENT COMPANY - -------------------------------------------------------------------------------- Condensed financial information of Wells Fargo & Company (Parent) is presented below. For information regarding the Parent's long-term debt and derivative financial instruments, see Notes 6 and 13, respectively.
CONDENSED STATEMENT OF INCOME - --------------------------------------------------------------------------- (in millions) Year ended December 31, ------------------------------------ 1995 1994 1993 INCOME Dividends from subsidiaries: Wells Fargo Bank $1,131 $1,001 $ - Nonbank subsidiaries - - 3 Interest income from: Wells Fargo Bank 86 81 97 Other bank subsidiaries 3 - - Nonbank subsidiaries 12 15 22 Other 53 51 56 Noninterest income 52 38 45 ------ ------ ---- Total income 1,337 1,186 223 ------ ------ ---- EXPENSE Interest on: Commercial paper and other short-term borrowings 14 8 5 Senior and subordinated debt 194 181 195 Provision for loan losses - - 9 Noninterest expense 35 56 39 ------ ------ ---- Total expense 243 245 248 ------ ------ ---- Income (loss) before income tax (expense) benefit and undistributed income of subsidiaries 1,094 941 (25) Income tax (expense) benefit 17 27 (5) Equity in undistributed income of subsidiaries: Wells Fargo Bank (1) (26) (138) 632 Other bank subsidiaries (65) - - Nonbank subsidiaries 12 11 10 ------ ------ ---- NET INCOME $1,032 $ 841 $612 ------ ------ ---- ------ ------ ---- - ---------------------------------------------------------------------------
(1) The 1995 and 1994 amounts represent dividends distributed by Wells Fargo Bank in excess of its 1995 and 1994 net income of $1,105 million and $863 million, respectively.
CONDENSED BALANCE SHEET - --------------------------------------------------------------------------- (in millions) December 31, ---------------------- 1995 1994 ASSETS Cash and due from Wells Fargo Bank (includes interest-earning deposits of $1 million and none) $ 31 $ 25 Investment securities: At fair value 424 211 At cost (estimated fair value $198 million) - 203 ------ ------ Total investment securities 424 414 Loans 263 333 Allowance for loan losses 58 58 ------ ------ Net loans 205 275 ------ ------ Loans and advances to subsidiaries: Wells Fargo Bank 1,417 1,258 Other subsidiaries 231 198 Investment in subsidiaries (1): Wells Fargo Bank 4,322 4,219 Other subsidiaries 316 101 Other assets 508 568 ------ ------ Total assets $7,454 $7,058 ------ ------ ------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY Commercial paper and other short-term borrowings $ 160 $ 133 Other liabilities 270 270 Senior debt 1,703 1,284 Subordinated debt 1,266 1,460 ------ ------ Total liabilities 3,399 3,147 Stockholders' equity 4,055 3,911 ------ ------ Total liabilities and stockholders' equity $7,454 $7,058 ------ ------ ------ ------ - ---------------------------------------------------------------------------
(1) The double leverage ratio, which represents the ratio of the Parent's total equity investment in subsidiaries to its total stockholders' equity, was 114% and 110% at December 31, 1995 and 1994, respectively. 58
CONDENSED STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------------- (in millions) Year ended December 31, ------------------------------------ 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,032 $ 841 $ 612 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses - - 9 Deferred income tax expense (benefit) (15) (4) 30 Equity in undistributed (income) loss of subsidiaries 79 127 (642) Other, net (52) (24) (32) ------ ------ ----- Net cash provided (used) by operating activities 1,044 940 (23) ------ ------ ----- CASH FLOWS FROM INVESTING ACTIVITIES: Investment securities: At fair value: Proceeds from sales 4 5 - Proceeds from prepayments and maturities 2 - - Purchases (59) (175) - At cost: Proceeds from prepayments and maturities 56 256 13 Purchases - (122) (25) Net decrease in loans 70 24 87 Net (increase) decrease in loans and advances to subsidiaries (192) 529 103 Net (increase) decrease in investment in subsidiaries (266) 5 (111) Net (increase) decrease in securities purchased under resale agreements - 250 (250) Other, net 119 12 92 ------ ------ ----- Net cash provided (used) by investing activities (266) 784 (91) ------ ------ ----- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in short-term borrowings 27 (5) (30) Proceeds from issuance of senior debt 1,230 248 980 Proceeds from issuance of subordinated debt - - 399 Repayment of senior debt (811) (1,101) (884) Repayment of subordinated debt (210) (526) (300) Proceeds from issuance of common stock 90 57 53 Redemption of preferred stock - (150) - Repurchase of common stock (847) (760) (5) Payment of cash dividends on preferred stock (42) (34) (50) Payment of cash dividends on common stock (225) (218) (125) Other, net 16 57 (9) ------ ------ ----- Net cash provided (used) by financing activities (772) (2,432) 29 ------ ------ ----- NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM WELLS FARGO BANK) 6 (708) (85) Cash and cash equivalents at beginning of year 25 733 818 ------ ------ ----- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 31 $ 25 $ 733 ------ ------ ----- ------ ------ ----- Noncash investing activities: Transfers from investment securities at cost to investment securities at fair value $ 147 $ - $ 25 ------ ------ ----- ------ ------ -----
12 LEGAL ACTIONS - -------------------------------------------------------------------------------- In the normal course of business, the Company is at all times subject to numerous pending and threatened legal actions, some for which the relief or damages sought are substantial. After reviewing pending and threatened actions with counsel, management considers that the outcome of such actions will not have a material adverse effect on stockholders' equity of the Company; the Company is not able to predict whether the outcome of such actions may or may not have a material adverse effect on results of operations in a particular future period as the timing and amount of any resolution of such actions and its relationship to the future results of operations are not known. 59 13 DERIVATIVE FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- The Company enters into a variety of financial contracts, which include interest rate futures and forward contracts, interest rate floors and caps and interest rate swap agreements. The contract or notional amounts of derivatives do not represent amounts exchanged by the parties and therefore are not a measure of exposure through the use of derivatives. The amounts exchanged are determined by reference to the notional amounts and the other terms of the derivatives. The contract or notional amounts do not represent exposure to liquidity risk. The Company is not a dealer but an end-user of these instruments and does not use them speculatively. The Company also offers contracts to its customers, but offsets such contracts by purchasing other financial contracts or uses the contracts for asset/liability management. The interest rate derivative financial instruments that are used primarily to hedge mismatches in interest rate maturities serve to reduce rather than increase the Company's exposure to movements in interest rates. These instruments are accounted for by the deferral or accrual method only if they are designated as a hedge and are expected to be and are effective in substantially reducing interest rate risk arising from assets and liabilities exposing the Company to interest rate risk at the consolidated or enterprise level. Furthermore, futures contracts must meet specific correlation tests. If periodic assessment indicates derivatives no longer provide an effective hedge, the derivatives are closed out or settled; previously unrecognized hedge results and the net settlement upon close-out or termination that offset changes in value of the asset or liability hedged are deferred and amortized over the life of the asset or liability with excess amounts recognized in noninterest income. The Company also enters into foreign exchange derivative financial instruments (forward and spot contracts and options) primarily as an accommodation to customers and offsets the related foreign exchange risk with other foreign exchange derivative financial instruments. 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 futures contracts and interest rate cap contracts written, 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. The table on the right summarizes the aggregate notional or contractual amounts, credit risk amount and net fair value for the Company's derivative financial instruments at December 31, 1995 and 1994. Interest rate futures contracts are contracts in which the buyer agrees to purchase and the seller agrees to make delivery of a specific financial instrument at a predetermined price or yield. Gains and losses on futures contracts are settled daily based on a notional (underlying) principal value and do not involve an actual transfer of the specific instrument. Futures contracts are standardized and are traded on exchanges. The exchange assumes the risk that a counterparty will not pay and generally requires margin payments to minimize such risk. Market risks arise from movements in interest rates and security values. The Company uses 90- to 120-day futures contracts on Eurodollar deposits and U.S. Treasury Notes mostly to shorten the rate maturity of market rate savings to better match the rate maturity of Prime-based loans. Initial margin requirements on futures contracts are provided by investment securities pledged as collateral. The net deferred gains related to interest rate futures contracts were $2 million at December 31, 1995, which will be fully amortized in 1996. The net deferred losses related to interest rate futures contracts were $4 million at December 31, 1994, which were fully amortized in 1995. Interest rate floors and caps are interest rate protection instruments that involve the payment from the seller to the buyer of an interest differential. This differential represents the difference between current interest rates and an agreed-upon rate, the strike rate, applied to a notional principal amount. At December 31, 1995, the Company had $14.8 billion of floors to protect variable- rate loans from a drop in interest rates. The Company also had $.7 billion of floors to protect purchased mortgage servicing rights from a drop in interest rates. By purchasing a floor, the Company will be paid by a counterparty the difference between a short-term rate (e.g., three-month LIBOR) and the strike rate, should the short-term rate fall below the strike level of the agreement. These contracts have a weighted average maturity of 2 years and 11 months. At December 31, 1995, there were $.4 billion of caps purchased to hedge caps embedded within loans. The Company generally receives cash quarterly on purchased floors (when the current interest rate falls below the strike rate) and purchased caps (when the current interest rate exceeds the strike rate). The premiums paid for interest rate purchased floor and cap agreements are included with the assets hedged. 60
- ------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, -------------------------------------------------------------------------------------- 1995 1994 ---------------------------------------- ------------------------------------------ NOTIONAL OR CREDIT RISK ESTIMATED Notional or Credit risk Estimated CONTRACTUAL AMOUNT (5) FAIR VALUE contractual amount (5) fair value AMOUNT amount ASSET/LIABILITY MANAGEMENT HEDGES Interest rate contracts: Futures contracts $ 5,372 $ - $ - $ 5,009 $ - $ - Forward contracts - - - 8 - - Floors purchased (1) 15,522 206 206 14,355 25 25 Caps purchased (1) 391 1 1 244 6 6 Swap contracts (1)(2) 6,314 185 175 3,103 3 (65) Foreign exchange contracts: Cross currency swaps (1)(3) - - - 118 76 76 Forward contracts (1) 25 - - 25 - - CUSTOMER ACCOMMODATIONS Interest rate contracts: Futures contracts 23 - - - - - Floors written 105 - (1) - - - Caps written 1,170 - (4) 1,039 - (15) Floors purchased (1) 105 1 1 - - - Caps purchased (1) 1,139 4 4 1,016 15 15 Swap contracts (1) 1,518 5 1 176 1 - Foreign exchange contracts (4): Forward and spot contracts (1) 909 10 1 590 7 - Option contracts purchased 29 - - 319 - - Option contracts written 23 - - 318 - - - -------------------------------------------------------------------------------------------------------------------------
(1) The Company anticipates performance by substantially all of the counterparties for these financial instruments. (2) The Parent's share of the notional principal amount outstanding was $224 million and $88 million at December 31, 1995 and 1994, respectively. (3) These are off-balance sheet commitments of the Parent. At December 31, 1994, the Parent had a $118 million cross currency swap to convert debt costs of variable-rate long-term debt issued in German marks into fixed-rate U.S. dollar obligations. Interest payments were settled quarterly, whereas the principal payment was settled at the expiration of the contract in 1995. (4) The Company has immaterial trading positions in certain of these contracts. (5) Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance by counterparties. Interest rate swap contracts are entered into primarily as an asset/liability management strategy to reduce interest rate risk. Interest rate swap contracts are exchanges of interest payments, such as fixed-rate payments for floating- rate payments, based on a notional principal amount. Payments related to the Company's swap contracts are made either monthly, quarterly or semi-annually by one of the parties depending on the specific terms of the related contract. The primary risk associated with swaps is the exposure to movements in interest rates and the ability of the counterparties to meet the terms of the contract. At December 31, 1995, the Company had $6.3 billion of interest rate swaps outstanding for interest rate risk management purposes. Of this amount, $6.1 billion relates to swaps for which the Company receives payments based on fixed interest rates and makes payments based on variable rates (i.e., one- or three- month LIBOR rate) and $.2 billion relates to swaps used to hedge purchased mortgage servicing rights. Of the $6.1 billion of receive-fixed rate swap agreements, $5.9 billion was used to convert floating-rate loans into fixed-rate assets. These contracts have a weighted average maturity of 3 years, a weighted average receive rate of 6.3% and a weighted average pay rate of 6.0%. The remaining $.2 billion was used to convert fixed-rate debt into floating-rate obligations. These contracts have a weighted average maturity of 11 months, a weighted average receive rate of 7.4% and a weighted average pay rate of 6.0%. The Company also had $24 million of forward starting swaps in which the Company will receive payments based on fixed rates and will make payments based on variable rates. These contracts have a weighted average maturity of 7 years and 9 months. 61 14 FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- Statement of Financial Accounting Standards No. 107 (FAS 107), Disclosures about Fair Value of Financial Instruments, requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions set forth below for the Company's financial instruments are made solely to comply with the requirements of FAS 107 and should be read in conjunction with the financial statements and notes in this Annual Report. The carrying amounts in the table are recorded in the Consolidated Balance Sheet under the indicated captions, except for the derivative financial instruments, which are recorded in the specific asset or liability balance being hedged or in other assets if the derivative financial instrument is a customer accommodation. Fair values are based on estimates or calculations at the transaction level using present value techniques in instances where quoted market prices are not available. Because broadly traded markets do not exist for most of the Company's financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. Fair valuations are management's estimates of the values, and they are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the financial instruments and other such factors. These calculations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. The Company has not included certain material items in its disclosure, such as the value of the long-term relationships with the Company's deposit, credit card and trust customers, since these intangibles are not financial instruments. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company. FINANCIAL ASSETS ................................................................................ SHORT-TERM FINANCIAL ASSETS This category includes cash and due from banks, federal funds sold and securities purchased under resale agreements and due from customers on acceptances. The carrying amount is a reasonable estimate of fair value because of the relatively short period of time between the origination of the instrument and its expected realization. INVESTMENT SECURITIES Investment securities at fair value and cost at December 31, 1995 and 1994 are set forth in Note 3. LOANS The fair valuation calculation process differentiates loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment estimates are evaluated by product and loan rate. Discount rates presented in the paragraphs below have a wide range due to the Company's mix of fixed- and variable-rate products. The Company used variable discount rates which incorporate relative credit quality to reflect the credit risk, where appropriate, on the fair value calculation. The fair value of commercial loans, other real estate mortgage loans and real estate construction loans is calculated by discounting contractual cash flows using discount rates that reflect the Company's current pricing for loans with similar characteristics and remaining maturity. Most of the discount rates for commercial loans, other real estate mortgage loans and real estate construction loans are between 6.3% and 9.5%, 7.0% and 11.3%, and 7.3% and 10.0%, respectively, at December 31, 1995. Most of the discount rates for the same portfolios in 1994 were between 7.3% and 10.3%, 7.8% and 12.5%, and 8.0% and 12.5%, respectively. For real estate 1-4 family first and junior lien mortgages, fair value is calculated by discounting contractual cash flows, adjusted for prepayment estimates, using discount rates based on current industry pricing for loans of similar size, type, remaining maturity and repricing characteristics. Most of the discount rates applied to this portfolio are between 6.0% and 9.0% at December 31, 1995 and 7.0% and 10.0% at December 31, 1994. For credit card loans, the portfolio's yield is equal to the Company's current pricing and, therefore, the fair value is equal to book value. 62 The following table presents a summary of the Company's financial instruments, as defined by FAS 107:
- ------------------------------------------------------------------------------------------------------------------- (in millions) December 31, ----------------------------------------------------- 1995 1994 ----------------------- ----------------------- CARRYING ESTIMATED Carrying Estimated AMOUNT FAIR VALUE amount fair value FINANCIAL ASSETS Cash and due from banks $ 3,375 $ 3,375 $ 2,974 $ 2,974 Federal funds sold and securities purchased under resale agreements 177 177 260 260 Investment securities: At fair value 8,920 8,920 2,989 2,989 At cost - - 8,619 8,185 ------- ------- ------- ------- Total investment securities 8,920 8,920 11,608 11,174 Loans: Commercial 9,750 9,785 8,162 8,209 Real estate 1-4 family first mortgage 4,448 4,370 9,050 8,604 Other real estate mortgage 8,263 8,249 8,079 7,933 Real estate construction 1,366 1,367 1,013 1,005 Consumer 9,935 9,460 8,686 8,439 Lease financing (1) 1,789 1,789 1,206 1,185 Foreign 31 31 27 27 ------- ------- ------- ------- 35,582 35,051 36,223 35,402 Less: Allowance for loan losses 1,794 - 2,082 - Net deferred fees on loan commitments and standby letters of credit 27 - 28 - ------- ------- ------- ------- Net loans 33,761 35,051 34,113 35,402 Due from customers on acceptances 98 98 77 77 Nonmarketable equity investments 428 694 407 618 Other financial assets 151 151 97 97 FINANCIAL LIABILITIES Deposits $38,982 $39,162 $42,332 $42,354 Federal funds purchased and securities sold under repurchase agreements 2,781 2,781 3,022 3,022 Commercial paper and other short-term borrowings 195 195 189 189 Acceptances outstanding 98 98 77 77 Senior debt (2) 1,731 1,753 1,338 1,337 Subordinated debt (3) 1,266 1,319 1,460 1,399 DERIVATIVE FINANCIAL INSTRUMENTS (4) Interest rate floor contracts purchased in a receivable position $ 27 $ 207 $ 27 $ 25 Interest rate floor contracts written in a payable position (1) (1) - - Interest rate cap contracts purchased in a receivable position 13 5 12 21 Interest rate cap contracts written in a payable position (11) (4) (9) (15) Interest rate swap contracts in a receivable position - 190 - 4 Interest rate swap contracts in a payable position - (14) - (69) Cross currency swap contracts in a receivable position (3) - - 76 76 Foreign exchange contracts in a gain position 11 10 14 7 Foreign exchange contracts in a loss position (9) (9) (14) (7) - --------------------------------------------------------------------------------------------------------------------
(1) The carrying amount and fair value exclude equipment leases of $124 million at December 31, 1994. (2) The carrying amount and fair value exclude obligations under capital leases of $52 million and $55 million at December 31, 1995 and 1994, respectively. (3) For 1994, the Company had cross currency swap agreements to hedge floating- rate subordinated debt issued in German marks. (4) The carrying amounts include unamortized fees paid or received, deferred gains or losses and gains or losses on derivative financial instruments receiving mark-to-market treatment. 63 For other consumer loans, the fair value is calculated by discounting the contractual cash flows, adjusted for prepayment estimates, based on the current rates offered by the Company for loans with similar characteristics. Most of the discount rates applied to this portfolio are between 7.3% and 16.5% at December 31, 1995 and 9.5% and 16.0% at December 31, 1994. For auto lease financing, the fair value is calculated by discounting the contractual cash flows at the Company's current pricing for items of similar remaining term, without including any tax benefits. The discount rate applied to this portfolio was 8.35% at December 31, 1995 and most were between 9.0% and 10.0% at December 31, 1994. Commitments, standby letters of credit and commercial and similar letters of credit not included in the previous table have contractual values of $24,245 million, $921 million and $209 million, respectively, at December 31, 1995, and $20,939 million, $836 million and $125 million, respectively, at December 31, 1994. These instruments generate ongoing fees at the Company's current pricing levels. Of the commitments at December 31, 1995, 80% mature within one year and 82% are commitments to extend credit at a floating rate. NONMARKETABLE EQUITY INVESTMENTS The Company's nonmarketable equity investments, including securities, are carried at cost and have a book value of $428 million and $407 million and an estimated fair value of $694 million and $618 million at December 31, 1995 and 1994, respectively. There are restrictions on the sale and/or liquidation of the Company's interest, which is generally in the form of limited partnerships; and the Company has no direct control over the investment decisions of the limited partnerships. To estimate fair value, a significant portion of the underlying limited partnerships' investments are valued based on market quotes. FINANCIAL LIABILITIES ................................................................................ DEPOSIT LIABILITIES FAS 107 states that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and market rate and other savings, is equal to the amount payable on demand at the measurement date. Although the Financial Accounting Standards Board's requirement for these categories is not consistent with the market practice of using prevailing interest rates to value these amounts, the amount included for these deposits in the previous table is their carrying value at December 31, 1995 and 1994. The fair value of other time deposits is calculated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for like deposits with similar remaining maturities. SHORT-TERM FINANCIAL LIABILITIES This category includes federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings. The carrying amount is a reasonable estimate of fair value because of the relatively short period of time between the origination of the instrument and its expected realization. SENIOR AND SUBORDINATED DEBT The fair value of the Company's underwritten senior and subordinated debt is estimated based on the quoted market prices of the instruments. The fair value of the medium-term note programs, which are part of senior debt, is calculated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for new notes with similar remaining maturities. DERIVATIVE FINANCIAL INSTRUMENTS ................................................................................ Derivative financial instruments are fair valued based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date (i.e., mark-to-market value). Dealer quotes are available for substantially all of the Company's derivative financial instruments. LIMITATIONS ................................................................................ These fair value disclosures are made solely to comply with the requirements of FAS 107. The calculations represent management's best estimates; however, due to the lack of broad markets and the significant items excluded from this disclosure, the calculations do not represent the underlying value of the Company. The information presented is based on fair value calculations and market quotes as of December 31, 1995 and 1994. These amounts have not been updated since year end; therefore, the valuations may have changed significantly since that point in time. 64 15 MERGER WITH FIRST INTERSTATE BANCORP - -------------------------------------------------------------------------------- On January 24, 1996, the Company announced it had entered into a definitive merger agreement (Merger Agreement) with First Interstate Bancorp (First Interstate). Under terms of the Merger Agreement, First Interstate shareholders will receive a tax-free exchange of two-thirds of a share of the Company's common stock for each share of First Interstate common stock. Based on the Company's closing price on January 19, 1996 (the last trading day before the First Interstate Board of Directors agreed to the exchange ratio of two-thirds), the base purchase price is approximately $11 billion. Each outstanding share of First Interstate preferred stock will be converted into the right to receive one share of the Company's preferred stock. The merger will be accounted for as a purchase transaction. Accordingly, the results of operations of First Interstate will be included with that of the Company for periods subsequent to the date of the merger. On the basis of assets of $58.1 billion at December 31, 1995, First Interstate was the 15th largest bank holding company in the United States. The name of the newly combined company will be Wells Fargo & Company. Consummation of the merger is subject to various conditions, including receipt of the required approvals of the Company's and First Interstate's stockholders, receipt of all requisite regulatory approvals, receipt of an opinion of counsel as to the tax-free nature of certain aspects of the merger and listing on the New York Stock Exchange of the Company's common stock and depositary shares to be issued in the merger. Subject to these conditions, the merger is currently expected to close on or about April 1, 1996. There is no assurance as to when or whether the aforementioned approvals will be obtained and, if obtained, as to what conditions or restrictions might be imposed. The Merger Agreement may be terminated by either party if the transaction has not closed by December 31, 1996 and in certain other circumstances. The following unaudited pro forma combined financial data shows the pro forma effects of the proposed merger. The pro forma combined summary of income gives effect to the combination as if the merger was consummated on January 1, 1995 and the selected pro forma combined balance sheet data gives effect to the merger as if it was consummated on December 31, 1995. The unaudited pro forma data are based upon the audited income statements and balance sheets of the Company and First Interstate for the year ended December 31, 1995, information available to the Company as of February 27, 1996 and the Securities and Exchange Commission's rules and regulations. Purchase accounting adjustments were made based upon preliminary estimates and assumptions to reflect estimated fair values with respect to First Interstate's assets and liabilities. Such preliminary estimates and assumptions are subject to change as additional information is obtained. Purchase adjustments will be made on the basis of estimates, appraisals and evaluations as of the date of closing and, therefore, will differ from those reflected in the table. The pro forma amounts in the table below are presented for informational purposes and are not necessarily indicative of the financial position or the results of operations of the combined company that would have actually occurred had the merger been consummated as of the date or for the period presented. The pro forma amounts are also not necessarily indicative of the future financial position or future results of operations of the combined company. In particular, the Company expects to achieve significant operating cost savings as a result of the merger. No adjustment has been included in the pro forma amounts for anticipated operating cost savings.
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA - ------------------------------------------------------------------------------- (in millions, except per share data) Year ended December 31, 1995 SUMMARY OF INCOME Net interest income $ 5,186 Provision for loan losses - Noninterest income 2,443 Noninterest expense 4,898 Net income 1,549 PER COMMON SHARE Net income $ 14.87 Dividends declared 4.60 AVERAGE COMMON SHARES OUTSTANDING 99.1 SELECTED BALANCE SHEET DATA (AT YEAR END) Investment securities $ 17,910 Loans 72,360 Assets 116,061 Deposits 89,202 Senior and subordinated debt 4,395 Stockholders' equity 15,402 - -------------------------------------------------------------------------------
65 The pro forma net income of $1,549 million consists of 1995 net income of the Company and First Interstate of $1,032 million and $885 million, respectively, less pro forma expense adjustments of $368 million. The pro forma expense adjustments include amortization of $257 million relating to a preliminary estimate of $6,400 million excess purchase price over fair value of First Interstate's net assets acquired (goodwill). It is anticipated that the Company will incur merger-related costs of about $700 million related to premises, severance and other costs. Of this amount, approximately $400 million of costs relate to First Interstate's premises, employees and operations and will affect the final amount of goodwill as of the consummation of the merger. The remaining amount of approximately $300 million of costs relate to the Company's premises, employees and operations as well as all costs relating to systems conversions and other indirect, integration costs and will be expensed, either upon consummation of the merger or as incurred. With respect to timing, it is assumed that the integration would be completed and that such costs would be incurred not later than 18 months after the closing of the merger. The foregoing estimate is based on the assumption that the equivalent of approximately 85% (or 350) of First Interstate's California branches will be consolidated (by closing or divesting both First Interstate and Wells Fargo branches) following consummation of the merger. As part of the regulatory approval process, the combined company will be required to divest 61 branches in California having aggregate deposits of about $2.5 billion and loans of about $1.3 billion. The divestitures have not been reflected in the pro forma financial data since they are not expected to have a material impact on net income. INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Wells Fargo & Company: We have audited the accompanying consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wells Fargo & Company and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Certified Public Accountants San Francisco, California January 16, 1996, except as to Note 15, which is as of February 27, 1996 66 WELLS FARGO & COMPANY AND SUBSIDIARIES QUARTERLY FINANCIAL DATA
CONDENSED CONSOLIDATED STATEMENT OF INCOME - QUARTERLY - ----------------------------------------------------------------------------------------------------------------------------- (in millions) 1995 1994 QUARTER ENDED Quarter ended ------------------------------------- ------------------------------------- DEC. 31 SEPT. 30 JUNE 30 MAR. 31 Dec. 31 Sept. 30 June 30 Mar. 31 INTEREST INCOME $1,010 $1,019 $1,031 $1,025 $ 984 $ 954 $ 932 $ 895 INTEREST EXPENSE 343 356 372 360 328 297 277 253 ------ ------ ------ ------ ----- ----- ----- ----- NET INTEREST INCOME 667 663 659 665 656 657 655 642 Provision for loan losses - - - - 30 50 60 60 ------ ------ ------ ------ ----- ----- ----- ----- Net interest income after provision for loan losses 667 663 659 665 626 607 595 582 ------ ------ ------ ------ ----- ----- ----- ----- NONINTEREST INCOME Service charges on deposit accounts 121 121 119 118 118 119 119 117 Fees and commissions 116 112 103 101 106 104 92 85 Trust and investment services income 65 63 57 55 51 52 50 50 Investment securities gains (losses) (3) - - (15) - 1 3 4 Sale of joint venture interest 163 - - - - - - - Other (28) 43 31 (17) 19 31 35 44 ------ ------ ------ ------ ----- ----- ----- ----- Total noninterest income 434 339 310 242 294 307 299 300 ------ ------ ------ ------ ----- ----- ----- ----- NONINTEREST EXPENSE Salaries 187 176 177 172 171 172 164 164 Incentive compensation 33 33 33 27 49 44 34 28 Employee benefits 40 46 48 53 48 50 49 54 Net occupancy 52 54 53 53 54 53 53 55 Equipment 54 47 45 47 54 40 41 39 Federal deposit insurance 5 - 24 24 25 25 25 26 Other 192 186 180 161 176 147 160 157 ------ ------ ------ ------ ----- ----- ----- ----- Total noninterest expense 563 542 560 537 577 531 526 523 ------ ------ ------ ------ ----- ----- ----- ----- INCOME BEFORE INCOME TAX EXPENSE 538 460 409 370 343 383 368 359 Income tax expense 232 199 177 137 128 166 162 157 ------ ------ ------ ------ ----- ----- ----- ----- NET INCOME $ 306 $ 261 $ 232 $ 233 $ 215 $ 217 $ 206 $ 202 ------ ------ ------ ------ ----- ----- ----- ----- ------ ------ ------ ------ ----- ----- ----- ----- NET INCOME APPLICABLE TO COMMON STOCK $ 295 $ 251 $ 222 $ 223 $ 205 $ 207 $ 195 $ 190 ------ ------ ------ ------ ----- ----- ----- ----- ------ ------ ------ ------ ----- ----- ----- ----- PER COMMON SHARE Net income $ 6.29 $ 5.23 $ 4.51 $ 4.41 $3.96 $3.86 $3.57 $3.41 ------ ------ ------ ------ ----- ----- ----- ----- ------ ------ ------ ------ ----- ----- ----- ----- Dividends declared (1) $ 1.15 $ 1.15 $ 1.15 $ 1.15 $1.00 $1.00 $1.00 $1.00 ------ ------ ------ ------ ----- ----- ----- ----- ------ ------ ------ ------ ----- ----- ----- ----- Average common shares outstanding 47.0 47.9 49.1 50.5 51.8 53.6 54.8 55.7 ------ ------ ------ ------ ----- ----- ----- ----- ------ ------ ------ ------ ----- ----- ----- ----- - -----------------------------------------------------------------------------------------------------------------------------
(1) In January 1996, the Board of Directors declared a first quarter dividend of $1.30 per common share. 67 WELLS FARGO & COMPANY APPENDIX TO EXHIBIT 13 Description Page number 1. Line graph of Return on Average Total Assets (ROA) for 1995, 1994, 1993, 1992 and 1991 (shown in %). 1995 2.03 1994 1.62 1993 1.20 1992 0.54 1991 0.04 4 2. Line graph of Return on Common Stockholders' Equity (ROE) for 1995, 1994, 1993, 1992 and 1991 (shown in %). 1995 29.70 1994 22.41 1993 16.74 1992 7.93 1991 0.07 4 3. Line graph of Net Interest Margin for 1995, 1994 and 1993 (shown in %). Also presented is the yield on total earning assets and the rate on total funding sources for the same periods. This information is also presented in Table 5-AVERAGE BALANCES, YIELDS AND RATES PAID on pages 12 and 13. 10 4. Bar graph of the Loan Mix at Year End shown as a percentage of total loans at December 31, 1995, 1994 and 1993.
1995 1994 1993 Commercial 27 % 22 % 21 % Real Estate 1-4 family first mortgage 13 25 23 Other real estate mortgage 23 22 25 Real estate construction 4 3 3 Consumer 28 24 24 Lease Financing 5 4 4 ---- ---- ---- Total 100 % 100 % 100 % 17
5. Line graph of Nonaccrual Loans at December 31, 1995, 1994, 1993, 1992 and 1991 (shown in billions). This information is also presented in Table 11-NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS on page 19. 19 6. Line graph of New Loans Placed on Nonaccrual at December 31, 1995, 1994, 1993, 1992 and 1991 (shown in billions). 1995 0.5 1994 0.3 1993 0.8 1992 2.2 1991 2.2 19 7. Bar graph of Core Deposits at Year End at December 31, 1995, 1994 and 1993 (shown in billions).
1995 1994 1993 Noninterest-bearing 10.4 10.1 9.7 Interest-bearing checking .9 4.5 4.8 Market rate and other savings 17.9 16.7 19.6 Savings certificates 8.6 7.1 7.2 ------ ------ ------ Total Core Deposits $37.9 $38.5 $41.3 25
8. Bar graph on the Price Range of Common Stock (high, low, closing price) on an annual basis for 1995, 1994 and 1993 (shown in dollars). This information is also presented in Table 1- RATIOS AND PER COMMON SHARE DATA on page 5. 34 9. Bar graph on the Price Range of Common Stock (high, low, closing price) on a quarterly basis for 1995 and 1994 (shown in dollars).
HIGH LOW QTR END 1995 1Q $160 5/8 $143 3/8 $156 3/8 2Q 185 7/8 157 180 1/4 3Q 189 177 3/4 185 5/8 4Q 229 190 216 1994 1Q $147 1/2 $127 5/8 $139 3/8 2Q 159 1/2 136 5/8 150 3/8 3Q 160 3/8 145 1/8 145 1/8 4Q 149 5/8 141 145 34
EX-23 10 EXHIBIT 23 EXHIBIT 23 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Wells Fargo & Company: We consent to the incorporation by reference in the Registration Statements noted below on Forms S-3, S-4 and S-8 of Wells Fargo & Company of our report dated January 16, 1996, except Note 15, which is as of February 27, 1996, relating to the consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, which report is incorporated by reference in the December 31, 1995 Annual Report on Form 10-K of Wells Fargo & Company. Registration Statement Number Form Description - ---------------- ---- ----------- 33-34969 S-8 Employee Stock Purchase Plan 33-7274, 33-40781 S-8 Equity Incentive Plans 33-26052, 33-41731 S-8 Director Option Plans 2-93338 S-8 Tax Advantage Plan and Tax Advantage Plan Sales by Wells Fargo Bank 33-54441 S-8 Long-Term Incentive Plan 2-88534, 33-47434 S-3 Dividend Reinvestment and Common Stock Purchase and Share Custody Plan 33-51227 S-3 Shelf registration of senior or subordinated debt securities, preferred stock, depositary shares or common stock 33-60573 S-3 Shelf registration of senior or subordinated debt securities, preferred stock, depositary shares or common stock 33-64575 S-4 Common stock issuable in connection with First Interstate Bancorp acquisition KPMG PEAT MARWICK LLP San Francisco, California March 19, 1996 EX-27 11 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K DATED MARCH 19, 1996 FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION. 1,000,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 3,375 0 177 0 8,920 0 0 35,582 1,794 50,316 38,982 2,976 1,156 3,049 0 489 235 3,331 50,316 3,403 599 7 4,085 997 1,431 2,654 0 (17) 2,201 1,777 1,032 0 0 1,032 20.37 19.90 6.08 538 144 14 0 2,082 422 134 1,794 0 0 939
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